Week of October 17 2011

							Week of October 17, 2011

Reminder: Next GAC Conference Call- Monday, October 24, 2011 12:30 pm ET.




Health Care Policy Weekly Update

IOM Issues Recommendations on Essential Health Benefits/ HHS Holds Info Session with Provider
Groups: On October 6, the nonpartisan Institute of Medicine of the National Academies (IOM) issued its
297-page report providing the U.S. Department of Health and Human Services (HHS) with a set of
criteria and approaches for developing a package of “essential health benefits,” as applicable to
individual and small group coverage under the Patient Protection and Affordable Care Act (ACA). HHS is
expected to issue the final standard by mid- 2012.

The report recommends that HHS develop by May 1, 2012, an initial essential health benefits package
based on the general categories specified in ACA- preventive, diagnostic and therapeutic services
include such items as ambulatory patient services, maternity and newborn care, laboratory services,
emergency services and more-that must be covered by certain health plans, including those
participating in state-based health insurance exchanges. The IOM panel was not permitted to
recommend specific services or products.

      Priority Given to Affordability for Individuals & Small Businesses: Fortunately, the IOM panel
       took into consideration the context of our current economic environment, because the report
       directs HHS to consider cost and effectiveness when determining the package itself, including
       the expected average cost of health insurance for small employers when the law is fully
       implemented in 2014. The report also strongly suggests transparency in the process of
       determining the specific elements of the package, informed by input from the public.

       HHS now faces the daunting task of fashioning an essential benefits package that will be
       comprehensive yet budget-conscious. In fact, IOM wants HHS to come up with a national
       strategy to control health care spending across all sectors, not just the Medicare or Medicaid
       programs the government directly controls. The committee warned that unless such a strategy
       is adopted and succeeds, the essential health benefits package ultimately will fail to be
       affordable

      Balance & Paying for Existing State Coverage Mandates: The recommendations underscore the
       challenges that states face as they work to create their health insurance exchanges. The
       essential benefits will be in the plans offered by insurers through the state exchanges to 68
       million people in the individual and small group market. Most states are planning their own
       exchanges. The final version of the benefits package to be specified by HHS likely won’t be
    issued until spring or summer 2012 which is past the time when most state legislatures will have
    adjourned, leaving them in the dark as to how to adjust their state priorities to the federal
    mandate.

    Another issue related to timing is that the health care law (ACA) says that states can keep their
    own mandated benefits that go beyond the federal package. But if they do, they’ll have to
    subsidize the additional premium costs that result, with payments made to plans or
    beneficiaries. That applies to Medicaid and to private plans. The problem is that many states
    have a large number of mandated benefits, so if states do not know what the federal minimum
    essential benefit package will contain when they write their budgets next spring, then they will
    not know how to much to allocate for their additional benefits. On top of it all, 2012 is a
    presidential and congressional election year, so the political environment will be very
    competitive very political since every mandate seems to have a supporting constituency.

   Implications for Large Self-Insured Employers: As provided for in the ACA statute, EHB
    standards apply to the coverage provided by qualified health plans participating in the state
    health exchanges which will service individuals and small businesses starting in 2014. However,
    there are a couple of scenarios in which EHBs will impact large-self insured employers as well.

    First, it is important to make the distinction between essential health benefits, which as stated
    before applies to the exchanges, and the “essential minimum coverage” requirement, which is
    related to the employer and individual mandate in the “pay or play” aspect of the reform bill.
    Under pay or play, to avoid a tax penalty, individuals are responsible to show they have a plan
    meets the EHB requirements, or that they are in an employer plan that meets the “essential
    minimum coverage” requirement . The “essential minimum coverage” requirement is
    composed of two criteria: 1) 9.5% affordability - Affordable = employee contribution less than
    9.5% of income; 2) 60% actuarial value test. Effective 2014, an employer with 50+ employees
    must provide “minimum essential benefits” (Play) and must provide coverage to all FTEs defined
    as 30+ hours per week. The employer penalty for non-compliance will be equal to $2,000 per
    FTE who enrolls in an exchange (Pay). The problem is that like the essential health benefit
    standard, HHS hasn’t issued rules on the “essential minimum coverage” requirement. In
    particular, there needs to be more direction from HHS on the 60% actuarial value test relative to
    what is the denominator (i.e. the standard for comparison). The current thought among
    employer groups is that the essential health benefit will be used by HHS as the standard or
    denominator for the 60% actuarial value test, and perhaps for the “essential minimum
    coverage” standards in general.

    In terms of further linkage of EHB and self-insured employers, ACA’s prohibition on lifetime and
    annual dollar limits applies to group health plan coverage for any “essential health benefits,” as
    determined in HHS guidance. As we have previously reported, interim final regulations (IFR)
    issued in June 2010 implementing these limits stated that the regulatory agencies will take into
    account good faith efforts to comply with a reasonable interpretation of the term “essential
    health benefits” for plan years that begin before final regulations are issued defining the term.
    Basically, employers will need to know what are benefits are covered as EHBs so that they can
    determine what benefits can be capped or limited (i.e. chiropractic procedures and infertility
    treatment).
       Partisan Concerns: There are concerns though, particularly by Republicans in Congress, that
        mandated benefits should be reconsidered entirely. Sen. Orrin G. Hatch of Utah, ranking
        Republican on the Senate Finance Committee, said the IOM “couldn’t be more clear that the
        benefit mandates in the health law can only lead to higher costs for families and small
        businesses.” The law is unworkable at a time of economic uncertainty and high unemployment,
        Hatch said in a statement.

        Sen. Michael B. Enzi of Wyoming, top Republican on the Health, Education, Labor and Pensions
        Committee, predicted the mandated benefits will push premiums higher. Small employers will
        drop coverage and more Americans will be eligible for government subsidies, pushing federal
        costs higher, said Enzi. “The number of small businesses offering coverage decreased 11 percent
        this year, and rigid benefit packages will make it even worse,” he said in a statement.

Future Action by HHS: Secretary Sebelius is not bound by the IOM recommendations, and the report
was not designed to offer direction on what specific health care services or products should be covered
or excluded. Nonetheless, its proposals are bound to be dissected by many groups with competing
interests and likely will wield influence on final decisions by HHS, which the IOM suggested should be by
May 2012. In fact, on Tuesday, October 18, HHS held a closed-door meeting involving dozens of
provider groups airing their views on what should be included in an essential health benefits package. As
an example, HHS officials did not provide a list of those asked to testify. But among them was the
American Academy of Pediatrics, which evidently stressed a section of the health care law that says
benefits should “take into account the health care needs of diverse segments of the population,
including women, children, persons with disabilities and other groups.” The Academy is concerned that
kids will be lost in the shuffle and would not benefit from a benefit plan tied to the average small
employer plan, as recommended by the IOM.

To link to the IOM report, including the criteria and methods that should be used in deciding what
benefits are most important for coverage, please go to: http://www.iom.edu/Reports/2011/Essential-
Health-Benefits-Balancing-Coverage-and-Cost.aspx

(Sources: Congressional Quarterly, HealthBeat, October 7 & 18, 2011; American Benefits Council,
BenefitsByte, October 7, 2011)


There Will Be a Federal Exchange, According HHS Officials: The HHS official in charge of overseeing the
creation of insurance exchanges under the health care law emphasized Tuesday that a federal exchange
will be ready to step in to the extent states don’t have their own new marketplaces ready to offer
insurance choices to the uninsured by Jan. 1, 2014.“There’s been a lot of backing and forthing in the
press saying the feds won’t do it, it’s not going to happen, we don’t have the ability. Well, I’m here to
tell you all of that isn’t true,” Tim Hill told a health care conference sponsored by the American Bar
Association (ABA). Hill is deputy director of the Center for Consumer Information and Insurance
Oversight at the Centers for Medicare and Medicaid Services.

“We’ve made investments in 2011, we’re making further investments in 2012 — in terms of IT, business
process, resources that are needed to be able to bring up the exchange,” Hill said. All the things that
need to happen to develop a federal exchange are moving forward, he declared.While the feds are
trying to dispel all doubt about whether they will be ready to step in, they are eager to portray
themselves as loath to push states around in deciding how exchanges are run. Hill’s mantra during his
remarks was that HHS wants a “consumer-centric, state-based exchange.” One size does not fit all, he
said, adding that exchanges should be customized to fit the particular insurance market of the state
involved.

The fact is, though, that many states appear to be dragging their feet in creating exchanges. Only 17
have applied for and received “establishment grants” to begin creating them. On Sept. 30, several more
applied for those grants. Only 14 states have exchange laws in place. In two other states — Indiana and
Rhode Island — governors bypassed their legislatures and issued executive orders to create exchanges,
according to an industry tally. But even the state exchange laws that have been enacted do not address
all the details involved in setting up the marketplaces.

In the case of Indiana, there is no commitment to actually create an exchange but only to plan for one.A
handful of states are moving eagerly ahead. Oregon, New York and Maryland applied for and received
establishment grants and “early innovator” money to do pioneering information technology work that
other states can copy. See the related article in the Washington Post, October 17, 2011, relating to
Oregon’s efforts to expand coverage beyond what is required in ACA:
http://www.washingtonpost.com/national/health-science/some-states-seeking-flexibility-to-push-
health-reforms-further/2011/10/14/gIQALX7VpL_story.html?hpid=z2

But because of the complexity, lack of certainty about what health plans will be required to offer, and
legal challenges to the health care law (PL 111-148, PL 111-152), most states haven’t shifted into high
gear. But states have tighter deadlines as they must get HHS certification by January 1, 2013 that they
will have a viable exchange ready a year later.

On a related issue, Kaiser Family Foundation released a study last week about how some Exchanges face
concentrated markets and very little completion. Beginning in 2014, state-based health insurance
exchanges will be created to facilitate coverage and choice, with the hope that enhanced competition
among insurers will help to moderate premiums for individuals and small groups. This analysis by the
Foundation assesses the competitiveness of state insurance markets for individuals and small businesses
to establish a baseline as implementation of the health reform law proceeds and to provide context for
the policy decisions states will be considering.

The analysis finds that while substantial variation exists in insurance market competition, a single insurer
dominated at least half of the individual market in 30 states and the District of Columbia. In the small
group market, a single insurer accounted for at least half of the market share in 26 states and D.C.

The analysis identified that the market share of the largest plan in the small group market ranged from
less than 24% in Oregon and Pennsylvania to 96% in Alabama; in the individual market, the market share
held by one plan ranged from 21% in Wisconsin to 86% in Alabama. The analysis also found that states
in the West generally had more competitive markets, while more rural states in the upper Midwest and
parts of the South and Mid-Atlantic were generally less competitive. The level of competition in a state
was similar in the small group and individual markets, with a few exceptions. To link to the complete
study, go to: http://www.kff.org/healthreform/8242.cfm

(Source: Kaiser Family Foundation, October 13, 2011)
Update on Medicare QIOs Cuts, Reorganization As Result of Trade Bill Passage: Medicare’s Quality
Improvement Organizations (QIOs) face more than $300 million in cuts to the program as well as some
major restructuring through the reauthorization of the Trade Adjustment Assistance.

One of the biggest changes to the program would be to regionalize the QIO contracts. Currently, the
Center for Medicare and Medicaid Services (CMS) works with 53 independent contractors in each of the
states, the District of Columbia, Puerto Rico and the Virgin Islands. These organizations work closely with
patients, nurses and doctors in various health care settings to change treatment practices to improve
quality and safety.

In a statement released minutes after the measure passed the House, the American Health Quality
Association (AHQA) said that “massive structural changes in the bill would, if implemented, threaten the
health and safety of Medicare beneficiaries and of all U.S. health care consumers.” The group hopes it
can get what it sees as the most damaging changes to the AHQA program revised. In addition to
eliminating the statewide scope of QIO contracts, the changes would allow CMS to award separate
contracts for administrative case review and quality improvement functions within a contract area,
which could be regional or even national in scope, the AHQA said.

AQHA and QIOs across the country were aware of the potential for funding cuts, as QIO reforms have
been mentioned in deficit reduction proposals, but the groups were very surprised that such significant
changes to the QIO program were tucked into a trade bill with no real opportunity for review or
discussion of alternatives, according to AQHA. The trade bill passed the House last week and currently is
pending debate in the Senate. The President is expected to sign the bill into law if it is passed by the
Senate. (Source: The Hill, October 18, 2011; Congressional Quarterly, HealthBeat, October 17, 2011)


House Panel Holds Hearing on PPACA Grandfather Plan Rules: On October 13, the U.S. House of
Representatives Education and Labor Committee’s Health, Employment, Labor and Pensions
Subcommittee held a hearing on Regulations, Costs, and Uncertainty in Employer Provided Health Care,
examining the Patient Protection and Affordable Care Act’s (PPACA) changes and regulations impacting
employer-provided insurance, particularly rules addressing grandfathered health plans.

Subcommittee Chairman Phil Roe (R-TX) opened the hearing by describing the challenges small and
large employers are encountering as they attempt to secure “grandfather” status. “The ability to adjust
and manage the benefit plans of their workers has offered employers an opportunity to minimize
disruption and modify care to best meet the needs of the workplace. That flexibility is severely
undermined by the new law and its flawed grandfather regulation,” Roe said.

 Ranking Democratic Subcommittee Member Rob Andrews (D-NJ), in his opening statement, suggested
that the hearing was simply an attempt to “re-litigate” the health care reform bill and suggested that the
subcommittee should be focusing instead on job creation.

The subcommittee heard testimony from the following witnesses:

  Grace-Marie Turner, president of the Galen Institute, criticized the grandfather plan regulations,
arguing that they prevent employers from making changes to their health plans to keep costs down
while increasing regulatory burdens. She noted that these cost increases are ultimately passed along to
employees in the form of cost-sharing.

  Dennis M. Donahue, managing director of Wells Fargo Insurance Services USA, Inc. (on behalf of the
Council of Insurance Agents and Brokers), detailed the costs and burdens of compliance with the
grandfather rule, as well as the medical loss ratio (MLR) requirements, which mandate health insurers
spend a minimum of 80 percent of premium revenue on clinical services and activities to improve health
care quality for plans in the individual and small group markets, and 85 percent for plans in the large
group market. He expressed support for the Access to Professional Health Insurance Advisors Act (H.R.
1206), which would prevent the MLR regulation from reducing the commissions of agents and brokers.

  Ron Pollack, executive director of Families USA, spoke in favor of PPACA and touted its success in
expanding health care coverage to lower-income individuals, reducing the acceleration of health care
cost increases and increasing employment opportunities in the health care sector.

   Robyn Piper, president of Piper Jordan, described the costs, obstacles and limitations imposed on
employers seeking to maintain their health plans under the grandfather rules. “As many employers have
been challenged with maintaining status, plan enhancements and cost-containing measures have been
delayed. For those workers employed by organizations that have chosen to lose grandfathered status,
many have witnessed increased premiums and cost-shifting,” she said in her testimony. Piper also
criticized the Obama Administration for failing to provide employers with thorough guidance, increasing
uncertainty and legal expense.

 The question-and-answer period covered a wider variety of subjects, including PPACA’s overall impact
on job creation, the MLR requirements (particularly as they affect insurance agents and brokers) and
wellness programs. The Energy and Commerce Committee’s Subcommittee on Health recently held a
similar hearing, Cutting the Red Tape: Saving Jobs from PPACA’s Harmful Regulations. This
subcommittee also released a discussion draft bill that would block the implementation of the June
2010 interim final regulations on grandfathered health plans and prevent federal agencies from
imposing any other standards or requirements on grandfathered health plans. (Source: American
Benefits Council, October 14, 2011)