Healthcare Tax Credit for Small Businesses not as successful as predicted

President Obama’s Fiscal Year 2013 budget, released last week, contains a significant proposed expansion of the federal small business health insurance tax credit contained in PPACA with the hopes of making the program more appealing to American small businesses. 

The current program only applies to businesses with 25 or fewer employees and begins to phase out with more than 10 workers. It contains significant limitations, features a very complicated application process and generally does not yield businesses much tax relief. As a result, it hasn’t been too successful. Only 360,000 employers have claimed it so far, which is less than 10 percent of the 4.4 million potential recipients originally projected by the Obama administration.

The new proposal would expand program eligibility to small businesses of up to 50 employees and double the number of full-time workers that firms can have to receive the maximum credit to 20. The proposal also outlines a more generous phase-out and streamlines the process for receiving a credit. The administration projects these changes would result in an additional $14 billion in tax credits for more than 500,000 employers.

One key issue that the proposal does not address, though, is how a business will have to purchase coverage post-2014 to receive the credit. If you like what you have, you can’t keep it. Instead, to get the credit, small businesses will have to purchase their small group coverage through the SHOP exchange operating in their state.

Essential Health Benefits: HHS Informational Bulletin

On December 16, 2011, the Department of Health and Human Services issued a bulletin outlining proposed policies that will give states more flexibility and freedom to implement the Affordable Care Act.  This bulletin describes a comprehensive, affordable and flexible proposal and informs the public about the approach that HHS intends to pursue in rulemaking to define essential health benefits.

HHS is releasing this intended approach to give consumers, states, employers and issuers timely information as they work towards establishing Affordable Insurance Exchanges and making decisions for 2014.  This approach was developed with significant input from the American people, as well as reports from the Department of Labor, the Institute of Medicine, and research conducted by HHS.

Essential Health Benefits

The Affordable Care Act ensures Americans have access to quality, affordable health insurance. To achieve this goal, the law ensures health plans offered in the individual and small group markets, both inside and outside of the Affordable Insurance Exchanges (Exchanges), offer a comprehensive package of items and services, known as “essential health benefits.”  Essential health benefits must include items and services within at least the following 10 categories:

1. Ambulatory patient services
2. Emergency services
3. Hospitalization
4. Maternity and newborn care
5. Mental health and substance use disorder services, including behavioral health treatment
6. Prescription drugs
7. Rehabilitative and habilitative services and devices
8. Laboratory services
9. Preventive and wellness services and chronic disease management, and
10. Pediatric services, including oral and vision care

Intended Approach: Comprehensive and Flexible

HHS intends to propose that essential health benefits are defined using a benchmark approach. Under the department’s intended approach announced today, states would have the flexibility to select a benchmark plan that reflects the scope of services offered by a “typical employer plan.” This approach would give states the flexibility to select a plan that would best meet the needs of their citizens.

States would choose one of the following benchmark health insurance plans:

• One of the three largest small group plans in the state by enrollment;
• One of the three largest state employee health plans by enrollment;
• One of the three largest federal employee health plan options by enrollment;
• The largest HMO plan offered in the state’s commercial market by enrollment.

If states choose not to select a benchmark, HHS intends to propose that the default benchmark will be the small group plan with the largest enrollment in the state.

The benefits and services included in the benchmark health insurance plan selected by the state would be the essential health benefits package. Plans could modify coverage within a benefit category so long as they do not reduce the value of coverage.

To prevent federal dollars going to state benefit mandates, the health reform law requires states to defray the cost of benefits required by state law in excess of essential health benefits for individuals enrolled in any plan offered through an Exchange. However, as a transition in 2014 and 2015, some of the benchmark options will include health plans in the state’s small group market and state employee health benefit plans.

These benchmarks are generally regulated by the state and would be subject to state mandates applicable to the small group market.  Thus, those mandates would be included in the state essential health benefits package if the state elected one of the three largest small group plans in that state as its benchmark.

This approach would provide maximum flexibility to states, employers and issuers while providing quality, comprehensive, coverage for consumers.

Coverage

Essential health benefits must include coverage of services and items in all 10 statutory categories. Based on our research, we believe that these benchmarks will cover most of the essential health benefits outlined by the Affordable Care Act. These categories include preventive care, emergency services, maternity care, hospital and physician services, and prescription drugs. If a state selects a benchmark plan that does not cover all 10 categories of care, the state will have the option to examine other insurance plans, including the Federal Employee Health Benefits Plan, to determine the type of benefits that must be included in the essential health benefits package.

Allowing Plans Flexibility to Innovate and Consumers Greater Choice

To meet the EHB coverage standard, HHS intends to require that a health plan offer benefits that are “substantially equal” to the benchmark plan selected by the state and modified as necessary to reflect the 10 coverage categories. Health plans also would have flexibility to adjust benefits, including both the specific services covered and any quantitative limits, provided they continue to offer coverage for all 10 statutory EHB categories and the coverage has the same value.  Permitting flexibility will provide greater choice to consumers, promoting plan innovation through coverage and design options, while ensuring that plans providing EHBs offer a certain level of benefits.

Updating the Approach

The department intends to propose that benchmarks will be updated in the future, and that state mandates outside the definition of essential health benefits may not be included in future years. The Bulletin also notes that updating the benchmark will allow benefits to reflect the most up-to-date medical and market practices.

How We Got Here: The Process

While the law calls on the department to provide details regarding essential health benefits, this has been a team effort.

As required by the Affordable Care Act, in April, the Department of Labor provided a report to HHS on employer-sponsored health insurance coverage.  This report (PDF – 362 KB) detailed the benefits typically covered by employers.detailed the benefits typically covered by employers.  At the request of HHS, the Institute of Medicine provided its recommendations on a process for defining and updating the benefits that should be included in the essential health benefits package.

HHS also conducted a series of listening sessions to collect public comment and hear directly from the American people, doctors, nurses, Members of Congress and all interested stakeholders.

It is important to note that the Affordable Care Act distinguishes between a health plan’s covered services, and the plan’s cost-sharing features, such as deductibles, copayments, and coinsurance.  The cost-sharing features will be addressed in separate rules and will determine the actuarial value of the plan, expressed as a “metal level” as specified in statute: bronze at 60% actuarial value, silver at 70% actuarial value, gold at 80% actuarial value, and platinum at 90% actuarial value.

Although this paper represents only the intended regulatory approach, public input on this paper is encouraged—comments can be sent on essential health benefits, are due by January 31, 2012, and can be sent to:  EssentialHealthBenefits@cms.hhs.gov.

Government health spending seen hitting $1.8 trillion

Reuters, By David Morgan -

January 31, 2012: Government spending for Medicare, Medicaid and other healthcare programs will more than double over the next decade to $1.8 trillion, or 7.3 percent of the country’s total economic output, congressional researchers said on Tuesday.

In its annual budget and economic outlook, the non-partisan Congressional Budget Office said that even under its most conservative projections, healthcare spending would rise by 8 percent a year from 2012 to 2022, mainly as a result of an aging U.S. population and rising treatment costs. It will continue to be a key driver of the U.S. budget deficit.

Medicare, the federal healthcare program for the elderly, accounts for about half the projected growth, with Medicaid at roughly one-third and the remainder attributed to new federal subsidies to help lower income Americans purchase insurance under President Barack Obama’s 2010 healthcare overhaul.

Spending is expected to dip this year to $847 billion, from $856 billion in 2011, because extra federal money to help cash-strapped states pay for Medicaid ended last July. The healthcare program for the poor, Medicaid is jointly funded by federal and state governments.

But researchers warned that the longer term prospects for rising healthcare spending could have dire consequences for the U.S. deficit when combined with the cost of Social Security, if current revenue levels remain unchanged.
“The resulting deficits will increase federal debt to unsupportable levels,” the CBO report said.

“To prevent that outcome, policymakers will have to substantially restrain the growth of spending for those programs, raise revenues above their historical share of GDP, or pursue some combination of those two approaches.”

The data present the latest sobering news for Obama and lawmakers in Congress, who have spent months wrangling over how best to reduce a federal deficit that is expected to hover above $1 trillion in 2012 for the fourth year in a row.

The report is likely to feature prominently in the 2012 presidential campaign, where Republicans Mitt Romney and Newt Gingrich are vying for the support of fiscal conservatives to win the party nomination and face Obama in the November general election.

CBO also cited the cost of granting physicians a long-term reprieve from a Medicare reimbursement mechanism that is scheduled to impose a 27 percent pay cut on doctors in March.

The report said keeping physician payments at current levels through 2022 would cost the federal government $316 billion, up from last year’s CBO estimate of $290 billion.

Lawmakers in Congress are trying to reach a deal on a one- or two-year “doc fix” under Medicare.

Foregoing reduced payment rates would cost the government $9 billion in 2012 and $19 billion 2013. The charge would rise sharply in later years to $47 billion in 2022 and $15 billion in additional debt service costs.

Study: Health Law’s Tax On Insurers Will Take Bite Out Of Medicaid

Kaiser Health News, By Phil Galewitz

February 1, 2012Under the health care overhaul, the federal government will begin taxing itself and the states beginning in 2014.

And that’s giving state Medicaid directors heartburn.

The law calls for a new tax on health insurers’ premium revenue — intended to help pay for expansion of coverage to 32 million uninsured Americans. But the tax will be paid by all insurers, including those that contract with states to provide coverage to recipients of Medicaid, the state-federal health insurance program for the poor. Under federal law, that fee must be paid by the Medicaid program, meaning that state and federal governments must pick up the tab.

A report released today by the actuarial firm Milliman Inc. said the tax will cost the Medicaid program between $36.5 billion and $41.9 billion over 10 years. At least $13 billion will be borne by states, and at least $23.5 billion by the federal government, based on the state-federal Medicaid matching formula, according to the report paid for by the Medicaid Health Plans of America, which represents private health plans that cover people on Medicaid. According to the America’s Health Insurance plans, the tax overall would generate at least $73 billion from 2014-2019.

“This is not an issue on most people’s radar screens, but this is going to be a big problem,” said Matt Salo, executive director of the National Association of Medicaid Directors. “This policy never really made sense … I get the point of an insurance tax, but when you are just passing on those costs to Medicaid, that makes no sense.”

He said states that are looking to scale back funding for Medicaid will struggle to find ways to pay the fee. About half the 60 million people on Medicaid are enrolled in Medicaid managed care plans.

Thomas Johnson, president and CEO of the Medicaid Health Plans of America, said the report shows how states could be big losers from the tax. “It is clear from this report that the states will be the ones who will feel the pain of this unintended and misguided policy,” he said. “This report makes a strong case that Medicaid and CHIP should not have been included in this fee.”

Tennessee Medicaid Director Darin Gordon said he’s raised the issue with the federal Centers for Medicare and Medicaid Services (CMS) and is hopeful the administration can exclude Medicaid managed care plans from the tax. It is unclear if the administration can exempt the plans or whether that would need congressional action.

“This is absolutely a big deal for states — particularly those with substantial [Medicaid] managed care plans,” he said.

CMS officials did not return calls for comment.

America’s Health Insurance Plans, the industry trade group, said the insurer ‘s tax will cost the industry $8 billion in 2014, and a total of $73 billion though 2019. The trade group said the fee would be passed on to consumers through higher premiums. It said the tax will increase the average costs of Medicaid coverage by about $1,530 per enrollee between 2014 and 2023.

“We believe that all consumers – public program beneficiaries, employers, and those purchasing coverage in the individual market – should be exempt from having to pay this tax that will increase their cost of health care coverage,” said AHIP spokesman Robert Zirkelbach.

Senator Feinstein Backs Health Insurance Rate Controls

LA Times, By Marc Lifsher -

February 1, 2012: A high-stakes ballot measure to give state regulators the power to approve health insurance rates in California has landed a heavyweight supporter: U.S. Sen. Dianne Feinstein.

One of California’s most respected politicians, Feinstein has come forward as the chief spokeswoman and No. 1 booster of a proposed initiative to regulate hikes in health premiums.

“I am proud to tell you that I was the first person to sign a new ballot initiative petition that will reform the health insurance industry in California,” Feinstein, a San Francisco Democrat, wrote in an email sent to about 2 million registered voters.

The Senator urged recipients to print out the petitions and sign their names to help get the 505,000 signatures needed to qualify the measure for the November ballot. Efforts to pass similar laws in the state Legislature were opposed by the insurance and healthcare industries and failed repeatedly over the last five years.

The initiative, if it gets before voters, is likely to generate one of the most fierce and expensive battles of the 2012 electoral season.

The proposed ballot question is backed by the political arm of Consumer Watchdog, the Santa Monica activist group that passed California’s landmark Proposition 103 automobile insurance rate control initiative in 1988.

The health insurance initiative, Feinstein said, “would require health insurance companies to publicly justify their rates before rate hikes take effect.”

The measure is needed, she added, to protect people who buy individual health insurance coverage from soaring premiums. Large group policies usually provided by employers are not affected by the proposed measure, dubbed the Insurance Rate Public justification and Accountability Act.

California is one of only 17 states in the country that do not give officials some authority to approve the setting of individual health insurance rates.
Controls are needed to keep healthcare coverage affordable for buyers of individual policies, Feinstein said.

“Their profits are unprecedented. They are huge,” she said referring to health insurers in a telephone interview from the Capitol in Washington. “In the first quarter of 2011, the five largest made net profits of $5.95 billion, a 16% increase.”

The Consumer Watchdog ballot measure is similar to legislation that Feinstein attempted to get through Congress that was related to President Obama’s Patient Protection and Affordable Healthcare Act of 2010.

A spokesman for the health insurance industry said he wasn’t surprised that Feinstein entered the fray. “She’s historically supported rate regulation,” said Patrick Johnston, president of the California Assn. of Health Plans.

Passage of the proposed initiative would create “misguided, onerous rate regulation,” Johnston said, and make it more difficult and expensive for individuals and small businesses to purchase coverage. Added bureaucracy would do nothing to address the “cost drivers” in healthcare, he said.

The Consumer Watchdog measure, if passed, would be the most stringent health insurance rate regulation in the country, said its author, Jamie Court, the president of Consumer Watchdog.

“The public wants accountability and transparency for the skyrocketing rates being charged,” he said. “Rates have been rising five times faster than the rate of inflation.”

NAHU Leads MLR Fix Bill in Congress

National Association of Health Underwriters -

February 3, 2012: The National Association of Health Underwriters (NAHU) applauds Senators Mary Landrieu (D-LA), Johnny Isakson (R-GA), Ben Nelson (D-NE) and Lisa Murkowski (R-AK) for introducing a bipartisan proposal today that protects health care consumers and the economy by preserving the role of health insurance agents and brokers. Janet Trautwein, CEO of NAHU, made the following statement today in support of the Access to Independent Health Insurance Advisors Act of 2012 (S. 2068):

“The medical loss ratio (MLR) requirements contained in the Patient Protection and Affordable Care Act (PPACA) are having a devastating financial impact on the country’s approximately half-million licensed professional health insurance agents and brokers, as well as on all of their employees and their millions of employer and individual clients. While we agree with the goal of providing consumers with more value for health care dollars spent, the PPACA MLR requirements significantly and negatively impact access to health insurance agents and brokers, at the very time our economy is the weakest and health care consumers need the most help.”

The Access to Professional Health Insurance Advisors Act of 2011 (H.R. 1206), was introduced in the House by Representatives Mike Rogers (R-MI) and John Barrow (D-GA) in March of 2011 to achieve this objective. It currently has 170 bipartisan co-sponsors.

S. 2068 makes some slight modifications to H.R. 1206 based on the MLR experience over the past year. Representatives Rogers and Barrow support these changes, which include:

Limiting the MLR exclusion to the individual and small-group health insurance markets, where the problem is most severe.

Clarifying that any bonuses agents may receive remain a carrier administrative expense. Unlike commissions, bonuses are paid by the carrier and can be reasonably deemed administrative expenses.

Striking language expanding the state MLR adjustments, as the majority of states that applied have already received their determination from the Department of Health and Human Services (HHS). Under S. 2068, the waiver process will remain as is.

“Millions of individuals and small businesses depend on licensed agents and brokers to help them navigate the health care marketplace and find health plans that suit their needs and budgets,” added Trautwein. “In fact, as the Congressional Budget Office reported, agents and brokers often serve as de facto human resources departments for many small firms — negotiating premiums, processing claims and enrolling employees. Without agents’ expert advice, many individuals and businesses will end up spending more for health insurance and receive less care.

“We look forward to working with members of Congress and the Administration on this critical issue as well as other needed improvements to the health care reform law.”

The National Association of Health Underwriters represents 100,000 professional health insurance agents and brokers who provide insurance for millions of Americans. NAHU is headquartered in Washington, DC. For more information, please contact Kelly Loussedes at 202-595-3074 or e-mail kloussedes@nahu.org.

Obama administration rejects California’s Medi-Cal copays

The Sacramento Bee, By Kevin Yamamura -

February 6, 2012: Federal health officials rejected California’s bid to charge Medi-Cal copayments for everything from drugs to hospital visits, dealing a new blow to the state budget but relief to low-income patients and their providers.

Gov. Jerry Brown and lawmakers relied on mandatory Medi-Cal copayments to save $511 million in last year’s state budget and presumed that the state would continue saving in future years.

The governor’s latest budget, which estimates a $9.2 billion deficit, acknowledges the lost savings in 2011-12. But it is relying on $296 million to help balance next year’s budget, according to Department of Finance spokesman H.D. Palmer.

The plan to charge low-income Medi-Cal patients and allow doctors to refuse care for nonpayment was unprecedented for a state on such a wide scale. The charges ranged from $3 for “preferred” drug prescriptions to $5 for doctor visits and a maximum $200 on hospital visits. Medi-Cal serves about 8 million Californians, though patients also eligible for Medicare were exempt from the copays.

The state was required to obtain approval from the Centers for Medicare & Medicaid Services (CMS) to implement its plan. But CMS said in a letter today that it was “unable to identify the legal and policy support” for the change. Under the Social Security Act, a state must meet several tests in order to charge copays, which include “providing benefits to recipients of medical assistance which can reasonably be expected to be equivalent to the risks to the recipients.”

Providers, such as physicians and dentists, and advocates for low-income Californians warned that a copay plan would hurt low-income patients by cutting access to health care. Providers felt it was a back-door cut in reimbursement rates, on top of a 10 percent reduction that a federal judge recently blocked, because the state put the burden on them to collect the copays or make the decision to refuse patients for nonpayment.

Vanessa Cajina, legislative advocate for the Western Center on Law and Poverty, said Medi-Cal patients would have stopped using health care if faced with a payment requirement. She said research shows that underuse of preventative health care, rather than overuse of the system, drives up costs.

“When people with even a nominal copay are asked to pay $3 to $5, they’re going to write off the health care system writ large,” Cajina said. “These are children going in for check-ups, elderly people going in for care management. When you really start thinking about a person on Social Security or a mom on CalWORKs bringing in $800 a month, asking them to pay $5 is a much bigger chunk out of their budget than it would be for other folks.”

Healthcare Reform Update

Hidden Costs: Publishing their findings in a series of working papers and policy briefs, a pair of senior researchers examined the cost-benefit analyses used to implement provisions of the Affordable Care Act.  In their study, “Beware the Road to Presumption”, Jerry Ellig (Senior Research Fellow at George Mason University’s Mercatus Center) and Christopher Conover (Research Scholar at Duke University’s Center for Health Policy & Inequalities Research), determined that the major regulations issued to implement the health reform law were “rushed, seriously incomplete, and rarely used to inform decisions.”

Essential Health Benefits: A coalition of patient groups has asked HHS to extend the comment period beyond the end of this month on current efforts seeking to establish a defined set of essential health benefits.  The administration’s decision last month to leave these determinations largely to the states has resulted in calls for a delay in implementing a key regulation of the Affordable Care Act.

Supreme Court Update on PPACA Constitutionality

The Supreme Court ruled today that the National Federation of Independent Business (NFIB) may add two plaintiffs to its lawsuit challenging the constitutionality of PPACA. The original business owner that was the primary subject of NFIB v. Sebelius filed for bankruptcy last year, so there was some concern that without the addition of new plaintiffs, the NFIB’s grounds for filing suit could be questioned. The federal government did not oppose the addition of new plaintiffs in the case.

Meanwhile, the American Center for Law and Justice and Susan Seven-Sky, plaintiffs in other suits challenging the constitutionality of the individual mandate on religious grounds, submitted a brief to the Court last Wednesday, asking to join the 26 states and the NFIB in their case against PPACA. The Court has not yet responded to their request.

In other news concerning the case, last Friday was the first deadline for the submission of amicus, or friends of the court, briefs. Twenty-two groups that either agree with the federal government on the constitutionality of the individual mandate or with the NFIB and the states on the point that since the law does not contain a severability clause then the entire law must be stricken if certain portions are declared unconstitutional, submitted supporting briefs to the Court. Additional deadlines are forthcoming for the submission of amicus briefs on other key points and positions, so many more briefs will be filed between now and the start of oral arguments in March. 

This Week in Washington

President Obama yesterday formally submitted a letter to Congress stating that the federal debt is within $100 billion of the current limit, thereby triggering a $1.2 trillion increase to the debt limit under the process laid out in the Budget Control Act of 2011 (BCA). The House will hold a vote on a resolution of disapproval (which would block the increase of the debt limit) on Wednesday, January 18, one day after convening for 2012. A spokesperson for Senate Majority Leader Harry Reid (D-NV) said the Senate would vote on the measure soon after the Senate convenes on Monday, January 23. As with a previous debt limit increase under the BCA, the motion of disapproval likely will pass in the House but fail in the Senate. The increase is expected to permit enough borrowing for the federal government to meet its commitments for the rest of 2012. The House Ways and Means Committee, on Wednesday, January 18, will mark up H.R. 1173, which would repeal the CLASS Act under PPACA. HHS last fall announced that it would not proceed with implementation of the CLASS Act. The House Republican retreat will be held Thursday, January 19 and Friday, January 20. House Democrats will hold their retreat a week later on Thursday, January 26 and Friday, January 27. Conferees appointed to the committee to negotiate an extension of the payroll tax holiday UI, SGR will meet for the first time on Tuesday, January 24. The State of the Union is scheduled for Tuesday, January 24. The CBO Budget Outlook is scheduled to be released on Tuesday, January 31, and media reports indicate that the President’s budget proposal is expected to be released on Monday, February 6.