Back to Previous Page

August 7, 2009

With the House in recess until after Labor Day, only a week remains in the first Senate session of 2009. During that time we expect that Justice Sotomayor will easily win confirmation by the Senate. The Senate will also likely vote on the Cash for Clunkers program as well as possible appropriation bills that are ready for floor action. While specific activities are more fully detailed below, the August recess will see intense activities around health care reform. House Democrats and Republicans will spend time in their districts getting feedback from their constituents while driving home their own messages on health care reform. We expect significant media activity both in paid advertising as well as coverage of events by the President and Congressional leaders. Much of this activity will focus on the public plan. Insurance companies are expected to be potential targets of negative messaging.

Senate Finance Committee
Toward the end of last week, Senate Finance Committee Chairman Max Baucus (D-MT) announced that the Committee would be unable to reach agreement on a bill to proceed to mark up before the Senate recesses on August 7th. While bipartisan members of the committee continue to strive to reach consensus over the week on issues including: a public plan, employer shared responsibility, cost offsets, and quality and cost containment initiatives, an expected mark up will not occur until September 15th, at the earliest.

While no member is committing to any compromise and no language exists detailing any compromise, rumors are circulating about possible areas of agreement, including:

• Public Plan—No longer a robust public plan, but possibly a more scaled-down state-based co-op proposal.
• Employer Play or Pay—More limited than originally proposed
• Cost Offsets—Cadillac Plan tax is gaining popularity as federal government would tax health plans selling and employers offering "high-priced" plans. There are currently no conclusive details, although reports defining such plans have ranged from $8,100/$25,000 for individual policies.
• Quality/Cost Containment Initiatives—Creation of a MedPac-like board that would have authority to issue payment reform recommendations relating to Medicare, Medicaid, Medicare Advantage, and other federal-related programs. Congress would have 30 days to overrule such recommendations or they would otherwise be deemed approved by the President. Senate Finance is seeking $35 billion in underlying cost savings on these recommendations.

House Energy & Commerce Committee
Late Friday night, the House Energy & Commerce Committee voted on the House health care reform bill that has been in the public eye over the past several weeks, making it the third and final House Committee to approve the bill. Changes between the committees will be reconciled and voted on by the full House when Congress returns in September. The vote was 31 to 28 with no Republicans supporting the bill and five Blue Dog Democrats also voting no.

As set forth below, the bill includes an individual mandate, premium subsidies, a public plan, market reforms, national insurance exchange, employer play or pay, as well as many other provisions. The key changes to the legislation, as a result of compromises to the Blue Dogs, include: for the public plan, the federal government must negotiate with providers (vs. payment being tied to Medicare reimbursements); federal government has power to negotiate with pharmaceutical companies nationwide (vs. state by state); greater exemptions for small business from play or pay. Notably, an amendment was also approved, requiring insurers that participate in the Exchange to get government approval before increasing premiums by more than one and one half times medical inflation.

Public Plan

• The public plan would set geographically-adjusted premiums at levels sufficient to finance the cost of benefits and administrative costs, as well as an "appropriate" contingency margin.
• $2 billion would be provided in start-up funds for the public plan, plus amounts necessary to cover 90 days worth of claims reserves—to be repaid over a 10-year period to the U.S. Treasury.
• A key amendment would require the public plan to "negotiate" provider payment rates (although the language specifies "negotiated" rates could be no lower than Medicare rates and no higher than the average private plan rates in the Exchange).

New Federal Agency
The Health Choices Administration headed by the Health Choices Commissioner would establish qualified health benefit standards and enforce such standards in coordination with state regulators and the Secretaries of Labor and Treasury. The Commissioner also would have responsibility for the Health Insurance Exchange, the individual affordability credits, and other functions.

National Health Insurance Exchange
National Health Insurance Exchange would be created with the option for states to develop regional or state-based exchanges, and employers who offer coverage through the Exchange would be required to contribute at least the required contribution toward such coverage and give their employees the ability to choose any plan within the Exchange.

• Employees would be able to enter the Exchange unless they are enrolled in another qualified plan or other "acceptable coverage" but affordability credits would generally be limited to full-time employees not offered employer-sponsored coverage
• In year one, would allow only employers with 10 or fewer employees to enroll in the Exchange; in year two, would expand to employers with 20 or fewer employees; in year three, would expand to any size employer as determined by the Commissioner. Would require employers offering coverage through the Exchange to contribute at least the required contribution for the employer mandate.
• State-based exchanges would be permitted. Enforcement authority would be reserved to the Commissioner with respect to state exchanges and permit the Commissioner to specify Exchange functions that state-based exchanges may not perform. Would provide federal assistance for the operation of state-based exchanges in the form of a matching grant with a state share of expenditures required.

Market Reforms
Guaranteed issue, guaranteed renewability, a ban on medical underwriting and adjusted community rating are included in the bill where rates may not vary based on heath status.

• Adjustments would be permitted for age (2:1), geography (as set by state or by the Health Choices Commissioner for Exchange products), and "family enrollment (such as variations within categories and compositions of families) so long as the ratio of the premium for family enrollment (or enrollments) to the premium for individual enrollment is uniform, as specified under state law and consistent with rules of the [Health Choices] Commissioner."
• Since the House bill still applies these rules to all insured groups (including large employers), there will be a push to have the House adopt the same amendment as the Senate HELP Committee to remove large group from the pool.

Medicare Advantage
Medicare Advantage cuts totaling $156 billion over ten years would phase payments down to 100% of FFS Medicare costs over a three-year period. Certain plans covering up to 20 percent of Medicare Advantage enrollees would be eligible for quality-based incentive payments. Additional provisions would significantly limit the ability to establish benefit packages that meet the needs of members.

Individual Mandate
An individual mandate penalty for individuals who do not obtain coverage would be increased from 2% to 2.5% of adjusted gross income in the revised bill.

Subsidies

• Individual subsidies (up to 400% FPL) would be limited to exchange coverage
• Small Employers
  Starting in year 2013, small employers with 25 or fewer employees could receive a tax credit up to 50 percent of qualified employee health coverage expenses. Credit would not be allowed for employees earning more than $125,000. Phase out would be based on average compensation. Sliding scale phase out would start at average annual employee wages of $20,000 with a full phase out at $40,000. Phase out would be based on employer size. Sliding scale phase out would start for employers with more than 10 employees with a full phase out for employers with more than 25 employees.

Employer Mandate
An employer pay or play provision would exempt small businesses with less than $500k in payroll but requires businesses above to pay a sliding scale up to eight percent of payroll.

Back to Top