Legal Update: Health Care Reform How the Presidential Election Affects Upcoming Legislation - What’s New on the Horizon? Adam V. Russo, Esq. The Phia Group, LLC The Law Offices of Russo & Minchoff February 7, 2008 The Uninsured Some 47 million Americans don’t have health insurance - 15% of population Includes 10 million illegal immigrants who wouldn’t be covered under proposed national care. Fails to take account of Medicaid as it includes millions who are eligible but haven’t applied. The number includes many who could buy insurance but haven't. 18 million of the uninsured have an annual income of more than $50,000, which puts them in the top half of income distribution. 25% of uninsured have been offered employer-provided insurance but declined. 17 million people under 65 are covered by individually purchased insurance, about 10% as many as the 164 million covered under employer plans. Increasing Health Care Costs Over the last 6 years, premiums have skyrocketed 5 times as fast as general inflation. Premiums are 4 times workers’ earnings and twice the growth of business income. Combined premium and out-of-pocket costs for an American family of four now average $14,500. Consider this number in light of the fact that one quarter of US workers make less than $20,000/year, and one- third of households earn less than $37,000. Workforce Connections There are numerous people whose livelihoods depend on the current health care system. According to researchers at Pricewaterhouse Coopers, one in eight US residents has a job connected to the health care system. It currently comprises 16% of the gross national product. What would be the impact of massive health care reforms on the economy? Self-funded Plans Self-funding, stimulated by the Employee Retirement Income Security Act (ERISA) of 1974, is a product of health care inflation. Although the intent of ERISA was to protect pension benefits, it also provided pre-emption of state laws for self-insured plans. ERISA pre-emption makes it cheaper for employers to offer health coverage since self-insured plans are not required to cover all of the benefits state mandates require insured plans to provide, such as chiropractic care or alternative medicine. 53% of employers self-insure their health benefit programs, according to a KFF/HRET survey. State Mandated Changes For serious health care reform, keep an eye on the states. No state’s proposed plan for universal coverage is the same, although there are similar strategies for covering the uninsured. Under state mandates, innovation and consensus can be easier to achieve because there are fewer people involved. However, a state-based system can be more complex to understand because there are so many differences among states. Illinois has developed a program designed to insure all children and 27 other states such as CA, PA, and NY are exploring to achieve state-wide coverage. Massachusetts has been receiving much attention because of its efforts to achieve universal health coverage. Maryland – A New Approach Bill to extend coverage to 140,000 people puts Maryland among a number of states attempting to lower the number of uninsured at state level. By expanding Medicaid to 100,000 adults and subsidies to the smallest companies (2 to 9 workers), the state focuses on those who turn up in emergency rooms that provide free care for routine & catastrophic illnesses. Firms and their employees would get annual subsidies to cover the cost of health insurance. The new law has a provision not included in similar programs offered by other states: workers must be offered plans with wellness programs. By signing up for free gym memberships, weight management, smoking cessation, and agreeing to control chronic conditions such as diabetes, workers are eligible for cash rewards or lower deductibles. Lawmakers said this bill is aimed at the very poor and lays the foundation for more ambitious moves in the future. Golden Gate Restaurant Association v. San Francisco 9th Circuit Court of Appeals reversed District Court for N. District of CA, permitting San Francisco’s new health care ordinance to go into effect. 9th Circuit’s reasoning does not persuasively implement the ERISA preemption case law of US Supreme Court. Opinion puts 9th Circuit in direct conflict with 4th Circuit, which held Maryland’s “Wal- Mart” Act, a similar employer mandate, preempted by ERISA. 4th has the better argument as its opinion reflects US Supreme Court holdings. The law was successfully challenged in District Court by Golden Gate Restaurant Association, representing over area establishments, which argued that the law would violate ERISA - conflicting local, state and federal benefit plans. Court’s attitude makes it likely that a proposed state health care law, which CA Assembly and Gov. Schwarzenegger support, will survive any legal challenge. Like SF, state measure depends in part on funding from employers. The Senate has yet to take up the bill. Golden Gate Restaurant Association v. San Francisco The decision allows the city to require businesses with over 20 employees to pay a fee to help cover employees’ health care costs and will help about 20,000 people without insurance. In SF, program to provide care for 73,000 uninsured adults. Estimated $200 million annual cost to be covered by state and local taxes and by payments from patients based on their income. The rest, less than 20%, would come from fees paid by employers who don't offer insurance. About 7,350 residents were enrolled in the program in 2007, when eligibility was limited to those making less than the federal poverty level of $10,310. That left 26,000 uninsured out of the program. Some are among an estimated 20,000 employees in San Francisco whose companies provide no insurance. Ordinance provides coverage for those employees - some of them nonresidents - either in the city program or in a new health plan offered by their employers. Presidential Election Guide Every front-runner has proposed reforming healthcare. The primary differences among candidates are the level of financial responsibility of paying for care and whether coverage is mandatory. None of the candidates want to reduce the role that states play in financing, regulating, monitoring, and administering the nation’s health care system. Republican candidates favor a system that relies more on the individual and private insurers rather than employers or government to purchase/manage care. Democratic candidates propose building on the employer-based system and expanding public programs. Presidential Candidates and Their Health Care NPR's Julie Rovner decided to uncover the type of care the candidates had. Rovner stated that it was “like pulling teeth” to get info from candidates even though health care is one of the top issues in the race. Candidates in the US House and Senate are eligible for taxpayer- subsidized coverage through the Federal Employee Health Benefits Plan (FEHBP). Marilyn Moon, health director for the American Institutes for Research, said the FEHBP is OK, but not "gold-plated.“ Presidential Candidates and Their Health Care Most Democratic candidates offer their campaign workers health coverage. Republicans were more reluctant to talk about their coverage - Huckabee, and Romney wouldn't say. McCain offers health insurance to his campaign staff. Huckabee and Romney wouldn't say if they cover their staffs. McCain gets coverage in three ways - veterans' care (served in the military), the Senate health-insurance program, and his wife's supplementary insurance. Overall Democratic Plan Democratic candidates call for mandates on individuals and/or businesses to obtain coverage and fund their proposals, in part by rolling back Bush’s tax cuts for Americans earning over $250,000. Democrats are competing amongst themselves over who has the better plan to control costs and approach universal coverage. The candidates would require insurers to guarantee coverage, by limiting or subsidizing premiums. The candidates would allow insurers to sell individual policies nationally instead of state by state. All democratic candidates support a form of universal healthcare. Hillary Rodham Clinton - Democrat Wants universal health-care coverage by the end of her second term. Establish the "American Health Choices Plan" to ensure all Americans have portable, affordable, quality care allowing employees to keep current plans. Give income-related tax credits to working families to make coverage affordable. Offer a tax credit to small businesses to begin or continue coverage. The choice to buy insurance as part of the FEHBP or a choice of private insurers offering the same benefits. Allow states to band together, if desired, to offer similar plans. Ensure that insurance companies doing business with the federal government cover high-priority preventive services. The plan doesn’t include details on whether illegal immigrants will be covered. Barack Obama - Democrat Requires children to get insurance now & aims for universal coverage by 2012. Plan includes affordable, comprehensive and portable health coverage for all, modernizing the system to contain costs, and improve the quality of care. Those who have insurance through their employers or who qualify for Medicaid or SCHIP would be able to keep that coverage. A new public insurance program would be created for those without coverage. You could not be turned away because of illness or pre-existing conditions. The federal public health insurance program would be similar to the health care program for federal employees. Participating insurers to offer benefits similar to those in the new public plan. Overall Republican Plan Republicans focus on tax incentives to encourage Americans to obtain coverage and avoid new or expanding government programs. Republicans want to avoid federal regulation that would tell insurers whom they have to cover and how much they may charge. Their Achilles' heel is the dependence on the private market, which often rejects applicants with health problems – they do not support univeral health care coverage. The self-employed and others seeking individual coverage would be subject to a marketplace in which insurers generally pick the healthiest applicants. Federal tax breaks don’t solve the problem people in less than perfect health have finding coverage. Mitt Romney - Republican Wants expansion of Health Savings Accounts, allowing tax-free savings for medical expenses, if you buy a high-deductible plan to be used for catastrophic medical situations. Encourages states to develop market based health care programs. Opposed to a national version of the plan he supported for Massachusetts while Governor, which requires all to have insurance. Would extend coverage to all Americans through the power of the market, not through taxes or government reforms. Calls for tax deductions allowing individuals to deduct out-of-pocket expenses and costs for insurance not provided by an employer. Wants states to individually reform health care by expanding and deregulating their own marketplaces. Mike Huckabee - Republican Believes the health care system in the US is irrevocably broken. Advocates market-based health care, making private insurance affordable through tax deductions and cost control measures. A strong advocate of preventive care (he lost over 100 pounds), proposes overhaul of system with input from private sector, providers, & Congress. Supports move to a consumer-based, not employer-based, system, as well as make health insurance more portable from one job to the next. Proposes insurance tax deductions - credits for low-income families. Use the states as labs for new market-based strategies and a complete reform of medical liability. Broaden HSA to include more than just accounts with high deductible limits. John McCain - Republican Has pledged affordable care for every American without a Federal mandate. Insurance policies would be portable, following the individual, not the job. Believes that controlling costs is the key to making care affordable, saving Medicare and Medicaid, and protecting health benefits for retirees. 3 primary goals: paying only for quality care, offering diverse insurance choices, and restoring a sense of personal responsibility. He believes individuals should have a variety of plans to choose from and would offer tax credits and HSAs to help pay for them. Tax credit of $2,500 ($5,000 for families) to anyone who buys insurance. Favors allowing safe prescription drugs to be imported and more generic drugs to be on the market to control drug costs. Issues for Health Care Improvement Lack of Accountability For Public Funds Problems of uninsured population are ill-served when public dollars are spent on unneeded or non-existent medical equipment under Medicare fraud. Largest area for fraud is the southern district of Florida. Feds visited companies that charged Medicare for prosthetics, costly AIDS drugs, air mattresses, etc. Only a few products were purchased/delivered to patients. Cash went into pockets of company operators - one purchased a Rolls Royce valued at $200,000. Many offices are little storage closets. Examples include a $2 million ankle brace for a patient whose foot had been amputated and payment of bills for a new hospital style bed, at the rate of one per month, for a single patient. Officials say that it’s easy to win a provider billing number from Medicare. Companies continued to bill $400,000 even after Health and Human Services’ inspector general determined that the businesses did not exist. Outpatient Treatment Centers and Physician Self-Referrals According to McKinsey Global Institute, a significant cost driver in health care system is found in the emergence of out-patient treatment centers. The treatments include ambulatory surgery centers, diagnostic imaging centers, drug rehab clinics, mental health clinics and non-physician offices. US spends 37% more than other countries - The practice of referring patients to facilities in which physicians have a financial interest has provided a significant loophole. Additional procedures are driven by financial incentives both to support the lease, purchase and operation of equipment and by the profitability of the procedures, the use of which depends on subjective clinical judgment. Using 2004 data from a CA insurer billed for advanced imaging, 33% of providers who submitted MRI bills and 22% who submitted CT scan bills were classified as “self-referral.” Among them, 61% who billed for MRI and 64% who billed for CT were involved in lease or payment-per-scan referral arrangements. Cost-Shifting To Health Plans When a WC carrier denies payment of claims, the injured party’s health insurance is responsible for payment. One of the worst ways that health care costs are elevated for plans takes place when WC carriers refuse to pay legitimate claims and direct the claimants to their health plans. If suit is filed, and the WC carrier settles, the carriers never inform the health plan and leave those funds unrecoverable. When a potentially liable third party, say WalMart, refuses to pay a claim by a customer claiming injury on the premises, who picks up the bill? Again, its the customer’s health insurance. As long as health insurance is viewed as the default payer of claims for every accident, the cost of health care will always be inflated. What Can Be Done? Plenty! Review & Revise plan language – specifically COB, exclusions and subrogation/reimbursement. Be aggressive with recoveries from WC, auto carriers and responsible parties. Better identify recovery/exclusion opportunities through focused claim review. What claims are you reviewing? Diag codes, dollar amounts? Understand State and Federal laws relating to Plan rights. Update your procedures and investigations – ask the right questions and obtain the correct info. Just because a liable third party denies responsibility, doesn’t mean you have to close your file and pay – you have rights. New DOL Proposed Rules on Disclosing TPA Compensation Broker Fees Must Be Disclosed Separately From TPA Fees Upfront. TPAs who attended the SPBA 2007 Spring Meeting conveying concerns about hidden broker fees in the TPA's compensation to the DOL gave rise to a proposed rule from the DOL requiring broker commissions to be disclosed separately from TPA fees. If a broker requests the TPA to include their fee in the TPA fee and not list their portion independently, you can say that DOL regulations require the broker commission to be disclosed as a unique item. This provision is a part of a much broader rule on plan service provider fee disclosure to plan sponsors and was not designed to specifically target brokers of TPAs. The broker issue is buried in an exception to reporting aggregate plan service provider fees. The exception can be found at § 2550.408b-2(c)(1)(iii)(A)(3). New DOL Proposed Rules on Disclosing TPA Compensation The DOL's Employee Benefits Security Administration (EBSA) proposed rule requires plan service providers (TPAs) to disclose compensation they will receive and any conflicts of interest in connection with services to the Plan. The new rule sets forth the items that must be in writing and disclosed to the Plan Fiduciary (i.e., plan sponsor) before the contract begins. Some TPAs already disclose compensation arrangements in contracts but others are not as explicit in disclosure as will be required under proposal. Any contracts that are based solely on a handshake or meeting of the minds will no longer be allowed. While this rule is proposed, the rule is clarifying an already existing regulation and courts may apply this proposal to existing contracts. New DOL Proposed Rules on Disclosing TPA Compensation Motivation for the Proposal - DOL recognizes that the increasing complexity in the way service providers are compensated makes it challenging for plan sponsors to understand what the plan actually pays for specific services and whether compensation arrangements pose any potential conflicts of interest. The goal of the proposal is to provide comprehensive and useful information to plan sponsors when entering service contracts. This is not a new concept or change of policy. This was the intent of ERISA from the start. This issue will be discussed further at the SPBA Spring Meeting in April 2008. Contact Info – Adam V. Russo, Esq. The Phia Group firstname.lastname@example.org Phone: 781-535-5678 The Law Offices of Russo & Minchoff email@example.com Phone: 781-535-5660 Visit my blog at www.passionforsubro.com for articles, news, and current issues affecting the self-insured industry.