American Health Insurance Plans

AHIP Overview of Senate Health Reform Bill
AHIP HI-WIRE
AHIP Staff
November 23, 2009


The "Patient Protection and Affordable Care Act" - the health reform bill announced by Senate leaders this week - contains nine titles addressing: (1) market reforms and coverage expansions; (2) the role of public programs; (3) the quality and efficiency of health care; (4) chronic disease prevention and public health improvements; (5) the health care workforce; (6) transparency and program integrity; (7) access to innovative medical therapies; (8) the CLASS Act; and (9) revenue provisions.

Below is an overview of the Senate bill, discussing a sample of the hundreds of provisions contained within the 2,074 pages of this very large bill.

Immediate Reforms: The following reforms would take effect within the first year after the bill's enactment:

a ban on lifetime limits and unreasonable annual limits;

a prohibition on rescissions except in cases of fraud;

an option for unmarried individuals through age 25 to remain on their parent's coverage as dependents;

a benefit mandate for preventive services;

reporting requirements on medical loss ratios and administrative costs;

rebates to be paid by plans with non-claims costs exceeding 20 percent in the group market and 25 percent in the individual market (or a lower percentage established by the state);

a premium justification process established by the HHS Secretary in conjunction with the states, including discretionary authority to exclude plans from the health insurance exchanges for unjustified premium increases in the 2010-2014 period;

a $5 billion temporary high-risk health insurance pool program to provide coverage to uninsured individuals with preexisting conditions;

a $5 billion temporary reinsurance program for employer-based plans providing coverage for early retirees; and

an internet portal to provide consumer information on coverage options.

Insurance Market Reforms: Beginning in 2014, plans would be required to offer coverage on a guaranteed issue basis and would be prohibited from excluding coverage for preexisting conditions. Plans would be allowed to vary premiums based only on age (3:1), tobacco use (1.5:1), family composition, and geographic differences.

Individual Coverage Requirement: Beginning in 2014, an individual coverage requirement would take effect, with exemptions allowed in cases of hardship and if the premium exceeds 8 percent of a person's income. Penalties for failing to obtain coverage would be set at $95 in 2014, $350 in 2015, and $750 in 2016 (with this amount updated for inflation in subsequent years).

Government-Run Plan: Beginning in 2014, a Community Health Insurance Option would be established with an option for states to prohibit the offering of this government-run plan in their state. The HHS Secretary would be directed to negotiate provider reimbursement rates that are not higher than the rates paid by private plans participating in the exchanges. Premiums must be sufficient to cover expected costs. A Start-Up Fund would be established to cover the costs associated with initial operations of the government-run plan and to cover claims during the first 90 days, subject to a requirement that these funds must be repaid within nine years. Providers would not be required to participate in the government-run plan and could not be penalized for non-participation.

Health Care Cooperatives: Federal funding would be authorized for a CO-OP Program to foster the creation of nonprofit, member-run health insurance companies that would offer coverage in the individual and small group markets in one or more states. Federal loans would be provided to assist with start-up costs and federal grants would be provided to meet state solvency standards.

Exchanges: Federal funding would be provided to assist the states in establishing American Health Benefit Exchanges no later than January 2014. The exchanges would facilitate the purchase of qualified health plans, provide for the establishment of a Small Business Health Options Program, implement procedures for the certification of qualified health plans, maintain an Internet website to provide standardized comparative information on qualified health plans, and carry out other responsibilities specified in the legislation.

Excise Tax on High-Value Health Plans: Beginning in 2013, an excise tax would be imposed on employer-sponsored coverage for any health insurance plan with a premium exceeding $8,500 for single coverage and $23,000 for family coverage. Higher thresholds would be established for retirees and for plans covering workers in high-risk professions. The thresholds would be adjusted annually based on the CPI plus one percentage point. The tax would be set at 40% and would apply to the amount of the premium exceeding these thresholds. This provision is estimated to generate $149.1 billion in new revenue over ten years.

Health Insurance Premium Tax: A $6.7 billion annual premium tax would be imposed on the health insurance sector, allocated by market share, beginning in 2010. Self-insured coverage and governmental entities would be exempt from the tax, but fees paid to third party administrators would be assessed under this provision. Other taxes would be imposed on the pharmaceutical sector ($22.2 billion) and medical device manufacturers ($19.3 billion).

Interstate Sale of Insurance: Beginning in 2016, states would be permitted to form "compacts" to allow for the purchase of non-group health insurance across state lines. The HHS Secretary, working in consultation with the NAIC, would issue regulations for the creation of such compacts.

Benefit Options: Four benefit categories would be created with the following actuarial values: Bronze (60%), Silver (70%), Gold (80%), and Platinum (90%). A separate catastrophic plan (i.e., the "young invincibles" policy) would be available for young adults under age 30 and for those who are exempt from the personal coverage requirement due to hardship or coverage not being affordable.

Medicaid Eligibility Expansion: Beginning in 2014, Medicaid eligibility levels would be expanded to 133 percent of the federal poverty level. The costs associated with this expansion would be covered by a 100 percent federal match rate in the first three years.

CLASS Program: A national voluntary long-term care insurance program, funded by premiums, would be established to provide cash benefits to meet the needs of individuals who have functional limitations. Under this program, premium collection would begin in 2011 and benefits would begin in 2016 under a five-year vesting requirement.

Medicare Advantage: Payment reforms would reduce Medicare Advantage funding by an estimated $120 billion over ten years, beginning in 2011. Special Needs Plans would be extended through 2013 and Cost Plans would be extended through 2012.

House Approves Medicare Physician Payment Bill
On November 19, by a vote of 243 to 183, the House approved H.R. 3961, the "Medicare Physician Payment Reform Act." This bill proposes to permanently overhaul the Medicare payment formula that, in the absence of congressional action, will result in negative updates to Medicare physician reimbursement rates next year and for the foreseeable future.

H.R. 3961 would prevent a 21 percent reduction in Medicare physician payment rates from taking effect next year and instead provide an update in 2010 based on the Medicare Economic Index. Additionally, to achieve a long-term "fix," the bill recalibrates the Sustainable Growth Rate (SGR) formula, which is used to calculate Medicare physician payment rates, by establishing 2009 physician expenditures as the new baseline for computing whether total physician payments exceed the expenditure targets in the SGR formula. The CBO score (PDF) for this bill estimates that it would cost approximately $210 billion over ten years.

The Obama Administration released a statement (PDF) this week expressing strong support for H.R. 3961 and describing the bill as "an important step forward in comprehensively reforming the way Medicare pays physicians to provide the very best care to the Nation's Medicare beneficiaries."

CMS Chief Actuary Issues Analysis of House-Passed Health Reform Bill
Richard Foster, the Chief Actuary of the Centers for Medicare & Medicaid Services (CMS), recently released an analysis (PDF) of H.R. 3962, the "Affordable Health Care for America Act," as approved by the House on November 7.

The analysis by the CMS Chief Actuary focuses largely on the bill's impact on federal expenditures and does not examine all of the revenue provisions. Key findings include the following:

Proposals aimed at reducing the growth rate of health care spending would achieve only $2 billion in non-Medicare budget savings over ten years. These savings are attributed to comparative effectiveness research. The analysis states that other proposals aimed at containing costs would have "a negligible financial impact over the next 10 years."

The coverage provisions would cost $935 billion over ten years. This includes $512 billion attributable to the proposed Medicaid expansion, $592 billion for premium assistance, and $11 billion for small business tax credits - partially offset by $180 billion that would be collected from penalties on individuals that do not obtain coverage and employers that do not offer coverage.

The Medicare provisions would achieve net savings of $571 billion over ten years. The bulk of these savings would come from Medicare Advantage payment reforms ($201 billion) and from reductions to the Medicare Part A and B provider payment updates ($282 billion).

While discussing the bill's impact on coverage, the analysis indicates that by 2019, the number of uninsured would be reduced from 57 million, as projected under current law, to an estimated 23 million. The expected increase in coverage is attributed to 21 million new enrollees in Medicaid, 10 million persons purchasing individual coverage through the newly created exchange, and an additional 2.5 million persons receiving employer-sponsored coverage.

Chairmen Waxman and Rangel Request GAO Report on Prescription Drug Pricing
On November 17, House Energy and Commerce Committee Chairman Henry Waxman (D-CA) and House Ways and Means Committee Chairman Charlie Rangel (D-NY) addressed a letter (PDF) to the Government Accountability Office (GAO), requesting an analysis of recent trends in prescription drug pricing.

The Waxman-Rangel letter expressed concerns that the pharmaceutical industry "may be artificially raising prices for certain pharmaceutical products in expectation of new reforms that could otherwise reduce prescription drug prices or price growth by encouraging patients and the government to be more efficient purchasers." To address these concerns, the chairmen asked the GAO to prepare on an expedited basis a report that analyzes recent trends in prescription drug pricing and, additionally, take steps to monitor the pricing practices of pharmaceutical manufacturers on an ongoing basis and periodically report to Congress on these issues.