Catching Up on Health Care Reform

Hello. It’s been awhile. Hope you’re all well. To all who have inquired, my thanks for your concern, but all’s good. Hectic, but good. Lot’s going on (more on that later) and an awful lot of travel. I’ve had a chance to meet and talk with brokers in various parts of the country, including a few places I’ve never been before or haven’t been to for years: Boise, Omaha, Denver, Nashville. It’s been a great time to learn, recharge and stay a bit too busy to write any meaningful posts. While staying busy appears to be the new constant, I’ll try to find something worthy to share on a more regular basis. For now, however, let’s play some catch-up:

We’ll start with some (relatively) good news. One of the more popular elements of the Patient Protection and Affordable Care Act is the ability for children up to age 26 to remain on their parents’ medical insurance. The Department of Health and Human Services estimated 1.2 million young adults would take advantage of this opportunity. A story at Kaiser Health News indicates the actual number may be much higher: at least 600,000 young adults have already obtained coverage under their parents’ health plans. While most of the growth has apparently been in self-insured groups, fully insured plans are experiencing the same upsurge in membership. WellPoint, for example, reports adding 280,000 young adult dependents nationwide and the federal government added a similar number (although the article didn’t state what percentage of these were in fully-insured plans).

Of course, when it comes to health care reform every silver cloud has a gray lining. The Kaiser Health News article quotes Helen Darling, CEO of the National Business Group on Health, as noting “I don’t think anyone is eager to spend more money. This is not something employers would have done on their own.” She further cites the unfairness of asking employers to cover adult children who may be employed elsewhere. And businesses (and their employees) will pay a bit more due to this expansion of coverage to young adults – about one percent more according to estimates. And while its unclear how many of these individuals would not be able to obtain coverage elsewhere, but the general thinking is that a large majority of these young adults would be uninsured or underinsured, but for this provision of the PPACA.

Next let’s pause to note how rate regulation can be big business for consumer groups. In some states, regulators must approve health plan rate increases before they take effect. In others carriers may need to file their rate changes with regulators, but so long as the rate increases are actuarially sound they move forward. California, where rate increases tend to generate national news, is in the latter camp. The state’s Insurance Commissioner, Dave Jones would like to change that. (Actually he’d like to put health insurance companies out-of-business by implementing a single-payer system, but that’s another matter). However, he and others are pushing to change that. Assembly Bill 52, authored by Assemblymen Mike Feuer and Jared Huffman. This legislation would give the Department of Insurance (which regulates insurers in the state) and the Department of Managed Care (which regulates HMOs) to reject rate or benefit changes the agencies determine to be “excessive, inadequate, or unfairly discriminatory.”

In the findings section of the bill (which are the “whereas” clauses justifying the bill), the legislation cites rising premiums and the need for the state to “have the authority to minimize families’ loss of health insurance coverage as a result of steeply rising premiums costs” are among the problems the bill is intended to address. The solution: give politicians and bureaucrats the power to reject rate increases. No need, apparently, to address the underlying cost of medical care. The assumption seems to be that the way to reduce health care spending is to clamp down on premiums. This, of course, is like saying that the way to attack rising gas prices is to limit what gas stations can charge at the pump. One might conclude that, to be charitable, the legislation is addressing only a part of the problem.

Not only does AB 52 give medical care providers a free pass, it is likely to result in a windfall for the consumers groups supporting its passage. Politico Pulse notes that AB 52 requires insurance companies to pay for costs incurred by groups representing consumers at rate hearings. For groups like Consumer Watchdog this can represent a substantial amount of income. The Politico Pulse post reports that “Under a similar California provision for property and auto insurance, Consumer Watchdog has recouped approximately $7 million in legal fees since 2003”

Then there’s the 4th Circuit Court of Appeals hearing on two Virginia law suits seeking to have the Patient Protection and Affordable Care Act declared unconstitutional. A ruling from the three judge panel is expected in July. Much has been made of the fact that two of these three Appeals Court Judges were appointed by President Barack Obama – and the third by President Bill Clinton. While those so inclined are likely to consider this a conspiracy of cable news worthy dissection ad nauseum, it’s important not to make too big a deal about this.

First, courtrooms are not like the floor of Congress: partisan leanings have far less influence there. Second, as the Associated Press article points out, there are 14 judges on the court. Which of them hear a particular appeal is randomly determined by a computer program. There’s nothing sinister about the three judges selected for these appeals being appointed by Democrats, it’s just the way things turned out. No black helicopters are involved. Third, whatever this panel decides will be appealed by whichever side loses. The appeal could go to a hearing before all 14 Appeals Judges in the 4th Circuit or it could go straight to the Supreme Court. Finally, even if the appeals remain at the circuit level for another round, the final decision will be made by the Supreme Court. Everything going on in the lower courts (and there’s a lot of other suits out there needing to go through their appropriate Circuit Courts), is simply prelude. Yes, what the appeals court decide influences the Supreme Court Justices, but in a matter of this magnitude, far less than one might imagine. What happens at the District and Circuit levels is not unimportant, but it’s far from definitive.

While we’re playing catch-up: my previous post noted that Congress was likely to repeal the 1099 provision in the health care reform law. They did and the President Obama signed the law removing the tax reporting requirement from the PPACA. The PPACA no longer impacts 1099 reporting. I know you already knew that, but I wanted to close the loop on this issue. It’s now closed – and repealed.

Finally, a note about broker commissions and the medical loss ratio calculations required by the health care reform law. Where we last left our heroes, the National Association of Insurance Commissioners was debating whether to endorse bi-partisan legislation (HR 1206) that would remove broker compensation from the MLR formula used to determine a health plan’s spending on claims and health quality initiatives. The NAIC task force dealing with this issue wants time to review data being pulled together by the National Association of Health Underwriters, carrier filings and elsewhere.  Pulling together all this information, much of which has never been gathered before and is not maintained in a centralized data base, took a bit longer than initially anticipated. According to Politico Pulse, however,  the task force no”now believes it has all the data it will be able to get.” Which means the task force’s final report on broker commissions and the MLR calculation is now expected by May 27th.

Stay tuned.

And thanks again for staying tuned to this blog.  I look forward to continuing the dialogue with all of you.

Repealing PPACA’s 1099 Provisions Could Happen Soon — Maybe

Getting anything done in today’s Washington is never easy. Even when there’s widespread agreement. .

Congress has been trying to eliminate the 1099 requirements since last year. Everyone agrees that the provision is an unaffordable burden on American business. President Barack Obama supports removing it from the health care reform law. So do a majority of Democrats and Republicans in Congress. It’s not hard to see why. Today businesses file a 1099 with the Internal Revenue Service only when they pay contract workers $600 or more. The Patient Protection and Affordable Care Act expands this to all vendors and contractors providing $600 or more in goods or services. Meaning a business (non-profit or government agency) buying $600 in paper and staples per year from, say Staples, would be required to file a 1099 form. Same with paying the guy who waters the plants. Or UPS for delivering products. Or the printer, the security service, the landlord, the … well, you get the idea.

Even with what passes in the Capitol these days for near universal support, Congress has tried and failed to repeal the provision. The problem is that more thorough reporting of payments for goods and services is expected to bring roughly $20 billion into federal coffers over the next 10 years. Repeal the enhanced reporting and the money goes away.

Democrats and Republicans have differed on how to make up for these lost funds. The House approach is to increase the amount consumers will need to repay if they receive premium subsidy overpayments. (The PPACA will assist consumers purchasing coverage through exchanges set up by the health care reform law. The premium subsidies vary based on consumers’ income as reported in previous years. If their income turns out to be higher than anticipated consumers will need to repay a portion of the subsidy).

Here’s an example used by Representative Joseph Crowley as reported in the New York Times: “A family of four with an annual income of $88,000 buys a typical family insurance policy costing $13,000. The family would have to pay $8,360 in premiums and could qualify for a federal tax credit of $4,640, which the Treasury would pay directly to the insurance company. If the breadwinner receives a $250 bonus at work, the family would become ineligible for the tax credit and would have to repay the full amount, $4,640, with its income taxes.”

Democrats oppose this outcome because the overpayment of the subsidy was no fault of the consumer. As reported in the The New York Times article, they see this as a “tax increase on the middle class” claiming “honest taxpayers might find themselves owing large sums to the I.R.S.” This they consider a tax trap. Republicans in the House deny repaying money to which one is not entitled can be described as a tax increase. They also claim it’s the same offset Democrats proposed to pay for adjusting Medicare payments to doctors, according to The Hill’s On the Money blog.

The Senate has taken a different approach to paying for repeal of the 1099 provision. They want the Office of Management and Budget to recapture unused federal dollars from various governmental agencies. But it appears there may now be sufficient votes in the Senate to go along with the GOP approach. So things will happen quickly now, right? Perhaps, but maybe not.

Senator Robert Menendez wants the Senate to consider an amendment requiring Health and Human Services to determine the impact the subsidy claw-back provision in the House bill will have on the overall cost of coverage purchased in the exchange. If this amendment were to pass, the Senate version of the legislation would differ from that passed by the House. This, in turn, would require the bill to go back to the lower House delaying passage of the repeal.

Republicans, however, are expected to stand united in opposition to this amendment, effectively blocking its passage. Assuming this is the way things play out next Tuesday, the bill could wind up on President Obama’s desk sooner rather than later. The Administration, in the past, has expressed “serious concerns” about the way the House bill retrieves subsidy overpayments. A statement from the Office of Management and Budget notes “H.R. 4 could result in tax increases on certain middle-class families that incur unexpected tax liabilities, in many cases totaling thousands of dollars, notwithstanding that they followed the rules.” The statement goes on to support the Senate approach to paying for repeal of the 1099 reporting provisions in the health care reform law.

Whether President Obama signs the legislation in an act of bi-partisan compromise or vetoes it in the cause of avoiding a middle class tax cut won’t be known for sure until the bill is before him. It remains highly likely the tax reporting element of the PPACA will eventually be repealed. Whether this will happen soon remains an open question.

Two Unrelated Health Care Reform Items

Two items of interest concerning health care reform: one concerning repeal of an unpopular provision of the Patient Protection and Affordable Care Act; the other a bi-partisan effort to allow states to opt-out of some of the health care reform law’s provisions.

1099s:

First, a quick update on the inevitable repeal of the Patient Protection and Affordable Care Act’s requirement that businesses issue a 1099 when they pay any vendor or contractor more than $600 for goods or services. The update: it’s still inevitable.

Virtually everyone agrees this part of the new health care reform bill needs to be repealed or, at the very least, greatly revised. President Barack Obama wants to lift this burdensome paperwork. 61 Senators have voted to repeal it. A majority of the House wants to repeal it. The Senate tried twice to repeal the PPACA’s 1099 provision in late-November. But the provision has yet to be repealed.

Just this week Democrats tried to repeal this tax reporting requirement by attaching it to the legislation the Senate is considering to extend the tax cuts about to to expire. Politico reports Republicans squashed the move because the deal ““wasn’t part of the original [compromise] framework, and nobody involved in the negotiations allowed any add-ons.” Apparently exceptions to the “no add-ons” rule are not allowed even by nearly unanimous consent.

There’s plenty of time to repeal the 1099 requirement as it doesn’t take effect until 2012. It’s inevitable repeal remains inevitable. That it’s taking this long says more about Congress than the policy underlying the 1099 provision. But even a broken clock is right twice a day. Eventually Congress will get the job done, even against its natural tendency not to.

Waivers:

Senator Ron Wyden is clever. He inserted a little noticed or discussed provision into the Patient Protection and Affordable Care Act that has the potential to, as The Hill’s Healthwatch blog put it “take the partisan venom out of the healthcare reform debate.

As reported by Healthwatch, Senator Wyden’s amendment allows states to seek waivers from various parts of the law, including, for example, the requirement that everyone obtain health care coverage.

Currently, this state waiver provision doesn’t take effect until 2017. However, Senator Wyden, a Democrat, has joined with Republican Senator Scott Brown to seek these waivers in 2014 which is, not coincidentally, when some of the most controversial elements of the PPACA take effect (think exchanges, guarantee issue, and the individual mandate to name a few items).

State’s can’t just choose not play in the PPACA sandbox because, well, they simply don’t want to play (sorry Governor Perry).  States seeking a waiver need to demonstrate that their own health care reforms will accomplish the same results as are expected to come from the federal reforms in terms of the number of people covered, affordability and comprehensiveness. Some might call this a “put up or shut up” requirement; others consider it a deal killer. Regardless of the interpretation, as The Hill quotes Len Nichols, a George Mason University professor of health policy as observing, “It really is a clever way to force an adult conversation. It brings the conversation to the level where the state has to consider its options.” In any event, it at least creates the potential for states to go their own way in making health care coverage more affordable and available.

The legislation by Senators Wyden and Brown is the first bipartisan effort to revise the PPACA since the midterm elections. Given split control of Congress (Republicans in command of the House; Democrats with a majority in the Senate) bi-partisanship will be required to make any changes to health care reform.

This might seem to completely undermine the potential

Senate Finds Health Care Reform Compromise Hard to Find

Congress is in its lame-duck session. One might think that with the mid-term election completed lawmakers might have a simpler time cleaning up some of the less controversial provisions of the Patient Protection and Affordable Care Act. (“Less controversial” is a relative term, of course. There’s so little agreement on the politics and public policy concerning health care reform I’m surprised there hasn’t been a law suit filed to determine whether the issue’s should be spelled as “health care” or healthcare.”)

President Barack Obama and a majority of Senators agree that the PPACA’s requirement that 1099s must be filed by businesses (including non-profits) and by local and state governments when expenditures with a single vendor or contractor  exceeds $600 is overly burdensome and needs to be greatly modified – or better yet, repealed. Yes, there would be a cost. This provision is expected to generate $19 billion in revenues over the next decade, according to Bloomberg.com. But Senators should be able to find a way to solve the problem without busting the bank, right?

Eventually, but not right now. 67 votes are required to pass an amendment stripping the 1099 requirement from the PPACA. The Senate could muster only 61 votes to save small businesses and others from the financial and administrative nightmare of preparing tax notices to Staples, Google, the local printer, the guy who waters the plants, and, well, you get the idea. 35 Senators voted against the repeal. This vote was on an amendment, offered by Senator Mike Johanns to a food-safety bill. This amendment would have also required the White House Office of Management and Budget to cut federal spending by $39 billion. Another amendment to the food-safety bill by Senator Max Baucus that did not include budget cuts failed on a 44-to-53 vote.

The New York Times reports that one reason cited by some Democrats for opposing Senator Johanns’ proposal was that it granted too much leeway to the administration to determine spending cuts. Such decisions should be made by Congress, they argued. Of course, anyone who has watched Congress over the past, say, 10 years, might question that bodies ability to cut spending on anything, but when the argument of being overly deferential to the Executive Branch is handy, some Senators will grab it. Republicans voted against Senator Baucus’ amendment because it did not offset the $19 billion in lost revenue. Given the unfunded proposals voted on by Congress with great regularity over the past, say, 10 years, that this is a sincere argument is also somewhat suspect.

The good news is that the odds are very good a compromise will be reached and the 1099 provision repealed before this Congress adjourns. At some point politics must yield to common sense and near unanimous agreement on an issue. Doesn’t it?

Coming Soon: The Inevitable Revision of the Patient Protection and Affordable Care Act

Health care reform legislation may have been signed into law on March 23, 2010, but the issue is not going away. Anyone watching the election campaigns playing out across the country can attest to that. Republicans have made the  “repeal and replace” of health care reform a key promise in their "A Pledge to America" campaign document. While some Democratic candidates are touting their support of the Patient Protection and Affordable Care Act, others are bragging about their opposition to it. And others, like West Virginia Governor and Senate candidate Joe Manchin have talked about “repealing the things that are bad in the bill.”

Then there’s the impact on polling. Now, some readers of this blog get vehemently angry that Congress and President Barack Obama would dare pass legislation opposed by the public. I disagree. Political leaders have a job to lead, to make tough choices, to examine the facts, their constituents’ interests and then to cast their votes in accordance with their beliefs and conscience. I do not think politicians who flip-flop in whatever direction the polls show is popular at the moment are worth a lot. If politicians are simply to reflect the majority of opinion we could replace Congress with online survey software and be done with it. Also, consider this: if politicians only voted as the polls dictate there would have been no Civil Rights Act in 1964. American troops would have been out of Iraq during the Bush Administration. Whether liberal or conservative, there are numerous examples of legislation passing in spite of polls showing a majority of Americans opposing the new law that you are likely to applaud – and decry.

Nonetheless, polls do and should be a factor in the deliberations of politicians. They indicate when problems have reached a critical point where a solution is demanded. And they can serve to help shape and influence the likely outcome. Some polls of late have shown that a plurality of Americans – and perhaps more important given that election day is near at hand, likely voters – have an unfavorable opinion of the PPACA. But if polling is to influence decision making, then it’s important to dive a bit deeper into the numbers.

A recent Associated Press-GfK poll shows why. This survey shows that only 15 percent of likely voters support leaving the new health care reform law as is while 85 percent want the PPACA changed in some manner. However, that 85 percent is far from monolithic. 37 percent of likely voters surveyed said they wanted to repeal the Patient Protection and Affordable Care Act completely. Another 10 percent wanted changes to the law that would narrow its scope, but did not call for repeal. And 36 percent, a nearly identical number to those supporting repeal, want the law expanded. I couldn’t find a copy of the poll itself, but I assume this latter group includes those who support a single payer system or at least a public option, who want greater regulation on insurance carriers and/or who want greater cost controls included in the legislation. However, one could easily assume a single payer advocate, for example, might simply state they want the new law repealed.

My point here is that advocates on the right and the left will be seeking changes to the PPACA. The basic law may have passed in 2010, but it will evolve over the next few years. Some of the likely battles:

  • Repealing the requirement that businesses issue 1099s to any corporation or individual to which they pay $600 in a year. Democrats and Republicans alike support changing this provision. Whether it’s repealed or greatly revised is the only open question. Similarly, requirements for including health insurance premiums paid on behalf of employees on W-2s (which is optional in 2011) create a burden on businesses, especially small ones, that will necessitate changes.
  • There will be an effort to revive the idea of creating public run health plans (the so-called “public option”). Given the firestorm of opposition to the federal government expanding its role in America’s health care system, however, I don’t see the votes being there for this approach – especially in a Congress with small majorities in each House.
  • I expect, although it may be more of a hope, that there will be a push to allow premium subsidies to Americans earning less than 400 percent of the Federal Poverty Level to use those subsidies outside the exchanges being set up under the PPACA. This would allow those receiving the premium support greater choice and force the exchanges to compete with the outside market on a more level playing field. The exchanges are unlikely to go away: both Democrats and Republicans support them. But taking away arbitrary advantages will result in greater and more fair competition in the marketplace. Let the best offerings win.
  • There will be proposals to do away with the mandate that all Americans obtain health care coverage. While there are law suits seeking this result, I personally don’t think they’ll prevail. But Republicans (and some Democrats) will see a benefit to championing the repeal of an individual mandate. Neither party, however, is likely to seek a repeal of the requirement that carriers accept all applicants, regardless of their health conditions. As I’ve written before, a mandate on carriers to sell health insurance absent a mandate on individuals to buy imposes a horrific surcharge on health insurance premiums. I would hope this effort fails, but fortunately, if it succeeds, there are other ways to reduce the inevitable adverse selection that would follow (impose limited open enrollment periods, increase premiums or impose pre-existing conditions when consumers buy coverage after going uninsured for a specified period of time, etc.)
  • And maybe Congress and the Administration will focus attention on the biggest driver of increasing medical insurance premiums – the skyrocketing cost of medical care. The PPACA has some meaningful cost containment ideas hidden away in its 300,000+ words, more than the new health care reform is given credit for  (the topic of a future post). But even so, there’s a lot more to do. Lawmakers know they need to confront this issue eventually. Eventually they will.

We all have a tendency to draw straight lines from current data. That’s how bubbles happen. Stocks are going up and they’ll continue to do so. Gold is at a record high it’ll continue going higher. Tulip prices are skyrocketing and they’ll do so forever.

The same phenomenon occurs in connection to laws and regulations. A law passes and humans have a tendency to accept that that’s that. Now that the law is in cement nothing will change. But laws evolve. They are molded by regulators. They are shaped by the people who live under them. And sooner or later they are revised by the legislative body that passed the new law in the first place.

When thinking about the Patient Protection and Affordable Care Act, intense revision was, and is, inevitable. No law seeking to reshape America’s health care system would get it right on the first try. Politicians may proclaim “Mission Accomplished” when speaking of legislation (and wars), but the reality is the goal is never achieved perfectly and refinement is always needed Usually there’s a passage of some time before the first attempt to address a problem and subsequent efforts. Changes to the Patient Protection and Affordable Care Act are likely to start much sooner. I’m thinking early January 2011.

Changing Health Care Reform a Challenging Task

Health care reform is one of those issues that are so contentious even when both parties agree a tweak to the Patient Protection and Affordable Care Act is needed, finding a way to actually make the changes is a Herculean task. Exhibit A: the provision in the PPACA requiring businesses, beginning in 2012, to file 1099s for every vendor to which they pay $600 or more for products or services. Today 1099s are required to be filed only for contract workers reaching this dollar threshold. The PPACA’s expansion of the 1099 requirements will result in millions of additional filings. Buy a couple of printers from Best Buy? Purchase paper from Staples? Send them a 1099. Hire a firm to clean your retail store? Or to maintain your servers? A 1099 is required. Arguably a sales person who drops off donuts at clients’ offices each week must send a 1099 to Winchell’s.

Why is this expansion of IRS filings contained in health care reform legislation? Because the additional information flowing into the IRS will help cover the cost of reforms. Expanding the 1099s filed with the IRS is expected to increase tax compliance to the tune of roughly $17-$19 billion — and perhaps more. The IRS estimates that the federal government loses $300 billion annually on unreported taxable income. Learning about some of these transactions through 1099s could help close that gap.

Tax compliance is a good thing, but the burden on businesses, especially small businesses, will be substantial. Just think about the effort required to collect tax identification numbers from every hotel, restaurant, online store or establishment at which you spend $600 per year. Every freelancer will now need to track every expense to every vendor.  The coming administrative headache is leading some lawmakers and business groups to seek repeal of this provision of the new health care reform package. Even some of the reform legislation’s strongest supporters (think the White House) favor exempting firms of less than 25 employees and raising the reporting threshold from $600 to $5,000.

Yet the Senate voted down attempts to repeal or tweak the PPACA’s 1099 requirements. The problem is that repealing a revenue source for health care reform requires either finding a new source for these dollars or reducing the cost of the reforms. So while there’s bipartisan support for fixing this problem in the PPACA, agreement on how to pay for the fix is lacking. Democrats voted down an outright appeal of the provision because the revenue was offset by exempting more Americans from the PPACA’s requirement to obtain health insurance coverage. Republicans voted against the more limited change to the 1099 requirement supported by President Barack Obama and others because the lost revenue was to be made up by repealing tax breaks for large oil-and-gas producers.

Ultimately I believe Congress will find an acceptable way to pay for the fix. Given the state of the economy and the need to help small businesses, the political and ideological interests of both parties converge to find a solution. Of course, finding a fix in the run-up to November elections may be too much to expect. Fortunately, the 1099 changes don’t take effect until 2012 so there’s time to find a solution.

But if it’s this challenging to fix something relatively tangential to health care reform, one shudders considering what it will take to fix something closer to the core of the Patient Protection and Affordable Care Act.