Massive Healthcare Bill Passes House Hurdle

Insurers Prepare for Major Market Reforms

After last-minute negotiations lasting until late on a Saturday night, the US House of Representatives narrowly passed HR 3962, the Affordable Health Care for America Act, by a vote of 220 to 215 on November 8. Industry groups that have consistently supported the concept of healthcare reform as well as their specific policy preferences responded with mixed reviews of the 1990-page House bill, and the process of getting the Senate to agree on reform legislation still faced serious challenges. While debate over the creation of a government-run health plan continues, health insurers are preparing for market reforms contained in both House and Senate proposals while pushing for a strong individual mandate.

Although there are potentially substantial differences between the healthcare reforms that passed the House and what will be supported in the Senate, there are some proposals that seem to have universal support. In an interview with Managed Care – First Report (MC-FR), Greg Scandlen, senior fellow and director, Consumers for Health Care Choices, said that underwriting and rating restrictions, such as guaranteed issue and community rating, as well as requirements for participation in insurance exchanges are things insurance providers need to plan for. “They are going to have to spend a lot of time figuring out how to cope with that,” Mr. Scandlen said.

If enacted as passed by the House, HR 3962 would establish a mandate for most legal residents of the United States to obtain health insurance and set up insurance exchanges through which certain individuals and families could receive federal subsidies to purchase that coverage. The House bill includes creation of a public, government-run health plan that would be administered by the Secretary of the Department of Health and Human Services (HHS). Eligibility for Medicaid would be expanded, and growth of Medicare payment rates for most services would be reduced. The bill would impose an income tax surcharge on individuals with high income, and both the House and Senate have voted on drafts that would reduce funding for Medicare by more than $400 billion.

Following the House passage of HR 3962, Karen Ignagni, president and CEO of America’s Health Insurance Plans (AHIP), criticized the lack of provisions that promote coverage choice and savings. “The current House legislation fails to bend the healthcare cost curve and breaks the promise that those who like their current coverage can keep it. A new government-run plan will cause millions to lose their existing coverage and draconian Medicare Advantage cuts will force millions of seniors out of the program entirely,” Ms. Ignagni said.

“Many of these reforms begin in 2010 after employees have already chosen their plans and contracts have been negotiated,” she continued. “The result will be increased costs and massive disruptions in the quality coverage individuals and families rely on today.”

HR 3962 was endorsed by the American Medical Association (AMA), but some physician groups objected to the bill as well as the AMA’s endorsement. On the night the bill was signed, J. James Rohack, MD, AMA president, called the bill “a big step forward as we work for comprehensive health reform this year.” Dr. Rohack said the AMA will continue its work with Congress to strengthen and improve health reform legislation as the process continues.

Before the vote, Joseph Reichman, MD, president of the Medical Society of New Jersey (MSNJ), lamented AMA’s support of the House bill. “Despite the recent endorsement of HR 3962 by our American Medical Association, physicians in New Jersey cannot support this legislation,” Dr. Reichman said. An MSNJ delegation, along with a small group of medical societies from the AMA House of Delegates, cosponsored a resolution to remove the AMA endorsement of HR 3962 on the day before the House vote.

At the same time House Democrats were preparing for the vote on HR 3962, House Republicans prepared a 230-page draft reform bill of their own. The bill would have allowed insurers to sell across state lines and included malpractice reform that would cap awards and incentivize the use of health savings accounts. At press time the Republican proposal had received little attention or debate, and it was rejected in the House by a vote of 176 to 258.

The Democrats’ proposed healthcare reforms are expected to cost about $1 trillion, and according to a report issued on November 6 by the Congressional Budget Office (CBO), the most costly mandates contained in HR 3962 are requirements regarding private sector health insurance. Individuals would be required to obtain acceptable health insurance coverage, defined in the bill as qualified plans. Employers would need to either offer qualified health insurance plans to their employees or pay an excise tax to the federal government. The bill includes additional mandates, including requirements on issuers of health insurance, new standards governing health information, nutrition labeling requirements, and limits on certain agreements between drug manufacturers for settling patent infringement claims.

According to the CBO, the lowest cost family nongroup plan under the House bill would cost $15,000 in 2016. The individual mandate in HR 3962 provides that an individual who does not, at any time during the taxable year, maintain qualified health insurance coverage is subject to an additional tax equal to the lesser amount of either 2.5% of income or the national average premium cost of coverage. The tax would not apply to individuals if their income falls below the threshold for filing a federal income tax return.

Although AHIP objects to the creation of a government-run health plan, which may not have enough support to clear the Senate, the insurer trade group has been advocating consumer-friendly market reforms coupled with an individual mandate for some time. “The big thing that we know that is in both bills are the market reforms, and things that we support—guaranteed coverage, elimination of preexisting condition exclusions, no longer basing premiums on a person’s health status or gender,” said Robert Zirkelbach, AHIP spokesman. “But what experience in the states has shown is that there needs to be an effective personal coverage requirement for those reforms to work. Otherwise, costs are going to skyrocket for families and employers.”

Mr. Zirkelbach expressed AHIP’s frustration with the individual mandate provisions in current reform proposals. “What we saw, particularly in the Senate bill, is that the coverage requirement has been dramatically weakened, making it much more likely that people will wait until they are sick to purchase health insurance. And that is something that is not sustainable,” he told MC-FR.

In October AHIP released a report prepared by PricewaterhouseCoopers that examined the impact of 4 insurance market reforms and consumer protections: market reforms, an excise tax on employer-sponsored high-value health plans, cuts in payment rates in public programs that could increase cost shifting to the private sector, and new taxes on health sector entities that are likely to be passed through to consumers. The authors concluded that the average cost of private health insurance coverage will increase 26% between 2009 and 2013 under the current system and by 40% during the same period if these 4 provisions are implemented. They projected a 73% increase by 2016 and a 111% increase by 2019 if the 4 provisions are implemented.

In addition to creating individual and employer insurance mandates, Mr. Scandlen told MC-FR that HR 3962 contains a requirement for minimum medical loss ratios that will pose major challenges for insurers by setting a percentage of health insurance premiums that must be used to provide healthcare to customers. HR 3962 gives the HHS Secretary authority to specify medical loss ratios at no less than 85%, and insurers would need to provide rebates to enrollees if their medical loss ratio is less than specified.

The medical loss requirement has the potential to make the individual and small-group health insurance markets very unattractive, Mr. Scandlen said. “That is going to be a big problem for carriers because they will not be able to provide the kind of administrative scrutiny that they have been on fraud prevention and that kind of thing,” he said. “And one of the things I find kind of curious is that the agents and brokers have not been more agitated about this, particularly NAHU [National Association of Health Underwriters], because it is going to essentially be the end of their profession.”

Mr. Scandlen explained that commissions to brokers and agents are one of the easiest administrative costs for insurers to cut. “And at an 85% loss ratio requirement, there will be no commissions,” he said, adding that medical loss ratios are higher for individual and small group coverage because of the marketing expense paid out in the form of commissions.

As the reform process continues, one of the biggest remaining unknowns facing the insurance industry is the timing of reforms. “In the House bill they have several changes that are going into effect next year,” Mr. Zirkelbach said. “Contracts have already been negotiated, open-enrollment season is already under way, and people have enrolled in policies. So that’s going to cause significant disruptions for policy holders right now.”—Charles Boersig