Governors and HHS in Violent Agreement Concerning Exchange Flexibility?

While the Patient Protection and Affordable Care Act is federal law, much of its implementation is  in the hands of the states. Near the top of the list on the state’s to-do list is the creation, design and operation of the health insurance exchanges.

Not all Governors are happy with this burden. They are busy with other priorities, such as keeping their states from going bankrupt. However, the PPACA makes it hard for Governors, even those who oppose the new health care reform law, from avoiding their exchange-related responsibilities. If states fail to create an acceptable exchange in time (acceptability being determined by the Secretary of Health and Human Services) the federal government will step in and establish (and run) an exchange of its own in the non-cooperating state.

Which is one reason 21 Governors sent a letter to HHS Secretary Kathleen Sebelius asking for more control over the structure and operation of the exchanges. (Thanks to blog reader The Insurance Barn for commenting on this letter when it first became public). That all those signing the letter were Republicans suggests another reason might be political – shocking, I know. But focusing on the substance of the Governor’s concerns, they asked for six concessions (in their own words):

  • Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products
  • Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.
  • Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs)
  • Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.
  • Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.
  • Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments. The study must be conducted by a neutral third-party research organization agreed to by the states represented in this letter.

Most of these items are non-controversial. In fact, soon after the letter was sent, Politico Pulse was reporting on a statement from HHS claiming that the PPACA already offered states the flexibility concerning the exchanges the Governors were seeking. Specifically, HHS claims (in its own words):

  • States will determine which insurers are permitted to offer products in the Exchanges.
  • States can choose benefit rules that meet the needs of their citizens.
  • Consumer-driven health plans and Health Savings Accounts (HSAs) will be available.
  • States have discretion over Medicaid coverage.
  • New funding to establish Exchanges and modernize eligibility systems is available.
  • Reliable, independent cost estimates are available.

So, the Republican Governors and the Democratic HHS Secretary are in violent agreement on this matter, right? Well, that depends on through what color lenses one is looking.

Substantively, probably. Some of the Governors’ concerns do seem to be addressed already in the PPACA or related regulations. Others are non-controversial and non=political. However, the independent cost estimates referred to by the HHS fails to meet the Governors’ criteria – to to address their concern regarding the financial impact on their states. There are some unanswered subtleties remaining, too, as well as new concerns that will no doubt surface over time.

Politically, so long as either party feels there are points to be made in the run-up to the 2012 elections by engaging in these disputes, they’ll continue to engage in these disputes. And since both sides do believe there are points to be made, expect a lot of letters passing between Governors and HHS.

What’s unfortunate in all this is that some harder questions concerning the exchanges are not being addressed. Leave aside the most important one, “are exchanges really necessary?” Most Democrats and Republicans believe they are. There are other questions needing answers, however.

For example, if exchanges will accomplish so much , why do they need special advantages? Why are tax credits offered to small businesses and premium subsidies made available to consumers only if they obtain coverage through the exchange? This assistance could be made available simply enough to those getting insurance outside an exchange. If lawmakers and regulators truly believe in maximizing consumer choice and are convinced the aggregated buying power of the exchanges will deliver increased value to small businesses and consumers, why limit the availability of the incentives? If they’re right, the exchanges will come to dominate a state’s insurance marketplace because consumers recognize their value. If not, then they have failed. Such real world feedback should be welcomed by policymakers.

Exchanges should be required to compete on a level playing field with the health plans available in the broader market. Governors of both parties should be asking for the flexibility to make this possible. And HHS should have the confidence in the exchanges necessary to make that goal a reality.

Moving Beyond Health Care Reform Repeal to Revision

During the 2010 election Republicans promised to “Repeal and Replace” the Patient Protection and Affordable Care Act. Having gained a majority in the House of Representatives they quickly passed a bill to do just that (joined by three Democrats). Having failed to gain a majority in the Senate the repeal process is all but over.

Senate Majority Leader Harry Reid has said he would not bring the “Repealing the Job-Killing Health Care Law Act”to the Senate floor for a vote. In response Republican Senators have promised to offer amendments repealing what they see as unpopular provisions of the law. In both the House and Senate GOP lawmakers are targeting the PPACA’s requirement that all Americans obtain health insurance coverage, malpractice reform, taxes imposed on health insurance carriers and others, denying federal subsidies (including tax deductions) for health plans that cover abortions, and permit the sale of health insurance across state lines. While Republicans know these amendments will fail, forcing Democrats up for election in 2012 to cast several votes defending President Barack Obama’s health care legislation has significant potential political benefits.

But two can play this game. So if Republicans force a vote on their measures, Democrats will require GOP Senators to vote on legislation concerning more popular elements of the PPACA. These include closing the Medicare prescription benefit donut hole, eliminating pre-existing condition exclusions for children, and allowing children to remain on their parent’s health plan up to age 26.

Then there’s the coming Republican effort to defund the PPACA. (Which creates an enjoyably ironic situation. Many in both parties, but especially Republicans, argued Democrats were arrogant to pass health care reform in the face of polls showing the public opposed their legislation. How will they respond to a Kaiser Family Foundation and Harvard School of Public Health showing 62 percent of respondents opposed cutting off funds needed to implement the PPACA?)

What all this means is that we’re in for two years of political showmanship concerning health care reform. But that doesn’t mean meaningful changes to PPACA won’t be forthcoming. President Obama declared his willingness to sign a medical malpractice reform bill. Of course there’s tort reform and then there’s tort reform. Health and Human Services Secretary Kathleen Sebelius has committed to providing “what the parameters of medical malpractice reform might be” during a hearing of the Senate Health, Education, Labor and Pensions Committee Hearing. Whether there is enough common grounds with GOP proposals to deal with medical malpractice remains uncertain until then. Meanwhile, 60 Senators have signed onto a bill to repeal the the 1099 reporting provisions contained in the health care reform law. Down the road there will be efforts to gain bi-partisan support for changes to more difficult provisions of the new reform law, including medical loss ratio requirements and the exchanges.

Yes we’ll all be subjected to the sound and fury signifying only political posturing and one-upmanship. But there will also be acts of quiet negotiation aimed at what President Obama in his State of the Union speech called “improving” the Patient Protection and Affordable Care Act. And as Politico Post describes the reaction of this language by Julie Barnes, director of health policy at the Bipartisan Policy Center, this could well be “a signal that bipartisan cooperation on health reform tweaks is on the horizon.”

One can only hope.

Health Care Reform: Of Zombies and Absurdities

Republicans across the country are clamoring to “repeal and replace” one of President Barack Obama’s signature legislative accomplishments: the Patient Protection and Affordable Care Act. Besides the nifty alliteration, is there any substance to this promise? Can Republicans, even if they were to take control of both chambers of Congress fulfill this pledge? No.

Any bill seeking to repeal health care reform would be vetoed by President Obama. Overriding his veto would take a two-thirds majority in both the House and the Senate. Given that it’s hard to get a majority of either chamber to agree that the sun rises in the east (let alone that it sets in the west), this isn’t very likely. And as more provisions of the legislation are implemented, repealing the law becomes increasingly awkward. How many elected officials would vote to repeal the requirement that children up to age 26 may remain on their parent’s health insurance policy now that so many families have taken advantage of this part of reform? Repealing the PPACA would result in kids being subjected to pre-existing conditions again, tax credits vaporizing, coverage for those rejected by private carriers ending, and on and on. That’s a high political price for politicians to contemplate.

But there are other tactics available to a Congress (or even one chamber of Congress) opposed to President Obama’s health care reform plan. Henry Aaron, a Senior Fellow at the Brookings Institute, in an article published in the New England Journal of Medicine describes how Republicans could use Congress’ power over the federal government’s purse strings to eviscerate the health care reform legislation. The result would be what Mr. Aaron calls “zombie legislation, a program that lives on but works badly … lead(ing) to needless resentment and confusion, and mandates that are capriciously enforced.”

Mr. Aaron notes that the PPACA contains “64 specific authorizations to spend up to $105.6 billion and 51 general authorizations to spend ‘such sums as are necessary’ over the period between 2010 and 2019.” However, Congress must specifically appropriate these funds before they can be spent. A Republicans majority in either the House or the Senate (or even a Republican minority working in concert with like-minded Democrats) could withhold much of this funding. But they can do more. “They could bar the use of staff time for designing rules for implementation or for paying subsidies to support the purchase of insurance. They could even bar the DHHS from writing or issuing regulations or engaging in any other federal activity related to the creation of health insurance exchanges ….” Mr. Aaron writes.

Imagine the impact of such prohibitions on what is already a difficult law to implement (and to be fair, even the far less extensive proposals put forward by Republicans in the past couple of years would be harrowingly difficult to implement – we’re dealing with one-sixth of the nation’s economy here). The impact of zombie legislation would be in addition to the absurdity that already surrounds implementation of the PPACA, such as that involving enforcement of the health care reform law’s medical loss ratio provisions, scheduled to take effect January 1, 2011.

So we have Secretary Sebelius, one of health care reform’s staunchest advocates, coming to the aid of limited benefit plans that she would be expected to condemn as “phantom coverage” while forcing carriers offering more substantive plans to grope through fog of uncertainty – resulting in great inconvenience and possible expense to employers, insureds, brokers and the industry at large. There’s a certain Alice in Wonderland feel about the whole thing. Throw in the havoc Republicans are likely to cause as they strive to use health care reform as a stepping stone to the White House and Tim Burton will be feeling right at home.

Mr. Aaron, in his New England Journal of Medicine article sums up the situation. Concerning the zombie legislation that health care reform could become, he writes “Such an outcome would trouble ACA opponents: their goal is repeal. It would trouble ACA supporters: they want the law to work. But it should terrify everyone. The strategy of consciously undermining a law that has been enacted by Congress and signed by the president might conceivably be politically fruitful in the short term, but as a style of government it is a recipe for a dysfunctional and failed republic.”

What’s terrifying about this zombie tale is that serious problems still need to be addressed concerning America’s health care system. Although “Affordable Care” is part of the new health care reform’s official title, as I’ve noted frequently in the past, the health care reform legislation fails to address the underlying driver of skyrocketing health insurance premiums – the skyrocketing cost of medical care.

And some of the health care reforms Republicans are likely to push in the new Congress would only drive up insurance premiums without addressing medical spending (most dramatically, the GOP’s desire to require carriers to accept all applicants without imposing pre-existing condition exclusions, but eliminating the mandate that all Americans obtain health insurance coverage).

Given this situation, pessimism is a natural response. This results from the tendency to see current trends as continuing in a straight line. Fortunately, nature abhors straight lines nearly as much as it hates a vacuum. America has a history of overcoming the foolishness we, through our duly elected leaders, seem to bring down upon our ourselves. We’ll see a lot more absurdity in the months ahead concerning health care reform. We’ll see political battles that will be stunning in their demagoguery and mauling of the truth. We’ll see generally bad ideas emerge with awesome and frightening frequency. But we’ll also see the equal-and-opposite reaction these dynamics generate. And, I predict, we’ll see some meaningful and sensible changes made to the PPACA. As I’ve written before, in the end things will likely be worse than we hoped, but not as bad as we feared they would be.

MLR Rules Still in Play

The Patient Protection and Affordable Care Act requires carriers to spend a specified proportion of the premium dollars they take in on medical care and health quality efforts. That’s the law. As I’ve noted previously, legislation creates a framework. It’s the regulations and day-to-day interpretations of the law that determines its impact. There are lots of opportunity for regulators to soften the edges of the law or sharpen them up.

  • How should the law be applied to small or new carriers who may be subject to extreme fluctuations in their spending ratios that are beyond their control?
  • How should nurses hotlines be treated?
  • Should health quality efforts be considered non-administrative expenses only if they actually improve quality? And if so, what will that do to innovation?
  • How should commissions and other fees received by carriers but passed-through entirely to independent third-parties be treated?
  • At what level should carriers be required to meet the medical loss ratio requirements (i.e., state level? nationally?)

And the list goes on.

The National Association of Insurance Commissioners, working with the Department of Health and Human Services is tasked with resolving these issues. The NAIC provided some meaningful clarity last week when it published draft rules for how carriers were to calculate their medical loss ratios. But there are still many issues that are  far from being settled. The Hill reported that Brian Webb of the NAIC outlined a host of MLR-related regulations the Commissioners are still considering during a presentation he made to the Congressional health Care Caucus.

What’s significant about what Mr. Webb had to say is not just the long list of rules being modified at this late date (the MLR requirements take effect January 1, 2011, so settling on how this provision is to be interpreted is of urgent concern), but his description of how the process of resolving these issues will play out. He indicated that an NAIC panel is expected to adopt the draft regulations on Monday, October 4th. That will no doubt be widely reported. But what will be important for those concerned about the nitty-gritty of the MLR rules to remember is his prediction that the regulations are likely to change before the full NAIC adopts the them in mid-October.

And this vote by the NAIC is unlikely to be the last word. HHS Secretary Kathleen Sebelius has to “certify” the regulations, which gives the Obama Administration an opportunity to tweak elements. Then each state has to adopt its own regulations. And while the NAIC proposal will carry great weight, states will have flexibility to adjust elements of the MLR calculation to suit their own health insurance market — and political — environments.

The Hill also reports that the NAIC will urge Secretary Sebelius to allow, on a state-by-state basis, a transition period phasing in the medical loss ratio targets as it applies to plans sold to individuals and families (non-group plans). Such an exemption would not be automatic and states would need to demonstrate that applying the  80 percent MLR on individual plans in their jurisdiction, as is required by the PPACA, would “destabilize the state’s individual market.” According to Mr. Webb, a similar transition mechanism could be established for the small group market as well.

This ongoing uncertainty will have serious consequences. Carriers will make decisions based on the best guess each makes on where the regulations will wind up (and that best guess will no doubt assume the worst possible outcome). As the regulations get clarified the carriers may seek to adjust some of those decisions creating a ripple effect of change.  All of which means consumers, employer and the brokers who serve them are going to be kept busy adjusting to an evolving marketplace well beyond the effective date of the new health care reform’s medical loss ratio provisions.

Medical Loss Ratios Will Be First Indication of Health Care Reform’s Real Impact

 The Patient Protection and Affordable Care Act requires carriers to spend specified percentages of the premium dollars they take in on paying claims and other activities that improve health care quality. This Medical Loss Ratio (“MLR”) requirement will have far-reaching effects on health care coverage, carrier costs and broker compensation. So the details concerning how it will be implemented is of critical importance.

For example, when dealing with any percentage there’s a numerator (the amount a health plan spends on claims and health quality improvements) and the denominator (the amount of premiums it takes in). Seems simple enough – until you get into the specifics.

The law says money spent on taxes (federal and state), licensing and regulatory fees are excluded from the calculation altogether. And it takes into account dollars spent on risk adjustments and reinsurance. The federal MLR targets are 85 percent for larger groups (100 employees or more) and 80 percent for individual and small group coverage. States can impose higher Medical Loss Ratio targets, but the Secretary of Health and Human Services can lower the targets if doing so is necessary to stabilize the individual market in a state.

If health plans spend less than the required percentage on claims and health care quality expenses, the underpayment must be returned in the form of rebates to its enrollees.

That’s pretty much what the law provides for. As I’ve mentioned before, however, the law is just a framework; the actions of judges, regulators and those living under the law are what brings it to life. It’s what happens after the law is passed that fills in the details.

Three federal Departments, working with the National Association of Insurance Commissioners, are tasked with filling in a lot of the details concerning. To help draft the devil’s new home — the details — the three Departments have requested input from the public concerning Medical Loss Ratios. (For those interested, you can submit comments online within 30 days from when the request was published in the Federal Register on April 14th).

What’s interesting is the questions they ask. (In the hard copy of the Departments’ Request for Comments relating to Medical Loss Ratios they start on page 13). Some of it is purely informational: what data is currently collected concerning MLR calculations at the state level? Some, however, go directly to the issue of whether this provision will result in a vibrant private market for health insurance or not. For instance, on page 17 of the hard copy the request seeks information on the impact of aggregating data “at the policy form level, by plan type, by line of business, by company, by State.”

Think about that for a moment and compare two scenarios In the first, each specific small group product a carrier offers has to individually meet the MLR requirement and do so each year. In the second scenario, all of a carriers’ small group products offered in a state have to meet or exceed the Medical Loss Ratio targets in the aggregate.

The first scenario leaves little room for error, meaning pricing and plan design will be extremely conservative. No innovation welcome. Actuaries and the health plan executives who love them will stick to the tried and true. The second scenario, however, will allow for some flexibility. New products can be offered with the knowledge that its impact will be minor in the MLR calculations relative to the carriers’ existing block of business. The result will be the continued introduction of new product designs and increased consumer choice.

The Departments are also looking at whether carriers should be allowed to aggregate their Medical Loss Ratio at the state or national level, how the data will be reported (the law requires each carriers’ MLR to be posted on the Internet), whether new carriers and regional health plans should be treated differently than national carriers. In addition to their stated questions, commentators can provide information and perspective on any issue related to the MLR issue.

The task of defining the rules, regulations, and definitions concerning Medical Loss Ratios will not be an easy one, especially given the need for speed. For most carriers, the MLR requirements will be based on the premiums they take in and spending they incur starting January 1, 2011 — less than eight months away. By law the regulations have to be in place by December 31, 2010. As a practical matter, however, to be implemented in 2011, health plans need to have their new business models in place by early Fall at the latest. Secretary of Health and Human Services Kathleen Sebelius is aware of these realities. She asked for input from the National Association of Insurance Commissioners by June 1st so the regulations can be published as soon as possible.

As I’ve written previously, the impact of health care reform will be revealed over time. The MLR regulations will be the first indication of where reform is headed. They will tell us a great deal about the viability of private coverage, the role brokers will play under a reformed health care system, and whether consumers will find much choice in the health insurance marketplace. These are not just details, but important details.

Big Impact from Small Health Care Reform Initiatives?

Whether Congress will pass comprehensive health care reform is, shall we say, an “iffy” proposition at this stage. Members of Congress continue to meet, seeking to find a way to pass meaningful reforms through a House increasingly reluctant to support anything expensive and a Senate incapable of shutting off a filibuster. Not surprisingly, observers are looking for clues as to what Plan B … or C, D, E and F … might look like.

According to the Associated Press “President Barack Obama’s modest health care budget may be harbinger of what’s ahead if his overhaul plan dies in Congress.” “Modest” is the correct word. Among the items:

  1. Emergency funds for state Medicaid programs ($25.5 billion) to help handle the influx of program participants as a result of the recession.
  2. $290 million to community health centers, providers to much of the uninsured.
  3. Funds for Medicare to experiment with ways of treating chronic health problems.
  4. Increased funding for comparative effectiveness research to help identify the treatments most effective at addressing costly conditions
  5. A boost to existing efforts to speed adoption of computerized medical records.
  6. increasing anti-fraud personnel and programs within Medicare and Medicaid.

Any and all of these may be useful and necessary. None individually or all of them collectively can be called “comprehensive.” As Secretary of Health and Human Services, Kathleen Sebelius describes them, the budget is “a platform.” And that is how it should be looked at. If comprehensive health care reform legislation dies in Congress, the game will shift to “small ball” in Washington, D.C. The goal will be to accumulate minor gains through the budget, to advance health care reform through executive orders, and to use existing programs to experiment with ways of improving medical care and reducing health care costs.

Comprehensive health care reform coming out of Washington is still possible, albeit far more unlikely now than just two weeks ago. As a result states are far more likely to move forward with more robust reform legislation than were considered in the past year or so. And Washington will continue to try to improve on the status quo through small efforts aimed at having a substantial cumulative effect. Significantly, because these more restrained proposals are less controversial, there’s a high likelihood at least some of these ideas will become law.

Could Co-ops Provide Competition Where It’s Needed?

Based on what was being said on the Sunday talk shows today, the justification for creating a government-run health plan to compete with private carriers seems to be expanding. One of the fresh arguments does not seem to carry much weight, but the other might.

Some are claiming that consumers need to know they can buy the same health plan anywhere in the country. By having a public plan offering coverage nationally they would be able to change jobs, move to a different state and still keep their current coverage. Accepting that this would be a nice situation, it certainly isn’t a strong reason for a public plan given the risk that step entails. As I’ve posted before, the temptation to tip the playing field in favor of government programs is too tempting for lawmakers. Already on the table is allowing tax credits to make premiums more affordable eligible only for coverage purchased through an Exchange, for example.

The simple fact is, without a level playing field a government-run plan will eventually — not the first year, maybe not the fifth, but eventually — drive private carriers out of the market. If that’s what Congress and the Obama Administration want to do, they should just say so and try to make it happen. But if they are sincere about preserving private options for Americans, then they need to tread carefully. Creating a public plan just so consumers can keep the exact same plan when they move to a new state is simply not worth the danger.

The second justification is an amplification of the original rational for a public plan: that it would encourage competition in the market. On CNN’s State of the Union, this morning, Secretary of Health and Human Services Kathleen Sebelius brought up the lack of competition in her home state, Kansas (until her confirmation as Secretary, she was Governor of Kansas). And it is true that in some states a single carrier will have 60 percent or higher market share for medical policies sold to individuals and small businesses. In those states, additional competition should be beneficial.

Yet in other states competition is far more robust. In California, for example, there are several carriers competiting for individual and small group coverage. None, I believe, have more than 45 percent and at least three have more than 20 percent. A government venture is, arguably, unnecessary here.

If competition is sufficient in some states, but lacking in others, perhaps a national solution isn’t required. Instead, allowing the solution should be fashioned at a more local level. Senator Kent Conrad’s compromise proposal could be adapted to do just that. Senator Conrad is calling for the creation of non-profit health insurance co-operatives, much like what exists in some areas for electricity. They would be owned by local residents and businesses. They would compete under the exact same rules as private carriers. The government’s only role would be to provide seed money to get them launched. These co-ops could bring competition to places where it currently doesn’t exist. In an area where one carrier controls more than 50 percent of the market, for example, the government could assist in creating a health insurance co-operative — or several of them.

The health care reform debate is getting closer to the nitty-gritty stage every week. President Barack Obama is urging Congress to put a bill on his desk this year and Congressional Leaders are working hard to make that happen. To pass anything, let alone pass it quickly, controverseys like government-run will need to be resolved. Liberal Democrats are insisting it must be included in the final health care reform package. Republicans, including those who broke with their party to pass the Administration’s stimulus package, are adamantly opposed to it.  As the Associated Press reports Senate Minority Leader Mitch McConnell as saying, “I think that, for virtually every Republican, a government plan is a nonstarter.” Some  moderate Democrats are opposed to the idea, too.

Senator Conrad’s co-op idea may provide the needed common ground. Moderate Republican Senator Susan Collins noted, according to the Associated Press article, that the co-ops are “far preferable to the government-run plan that has been discussed by the administration. We need to better understand how it would work. But it’s certainly better than a Washington-run plan.”

The idea of a government-run plan is not the only controversey that will need to be addressed to pass comprhensive reform. But it is an obstacle. And it can serve as a template for resolving other issues. Replace targeted solutions for national ones where the problems are not national in scope. Helping health insurance co-operatives get launched in areas where there is no competition could solve local problems without creating a national one.