Special Report Health Reform Update
My newsletter article in March focused on the Foraker Benefit Plan. The article was written just before the recent passage of the national health care reform legislation. Since that time, we have read all we can to learn the detail and implications of the new law. Those implications vary depending on which side you listen to – much like the debate that led up to the vote. While we still hear about the stark differences from our political leaders, a calmer analysis by the business community finds consensus on both sides on what the new law really means.
Last month, I predicted that even if this legislation passed, it would not include the sweeping changes desired by some and feared by others. Those against the legislation feared it gave too much power to the federal government. They now agree the law isn’t as bad as they expected, although they still have concerns that it could lead to more government control and higher taxes. Those supporting the legislation, in fact, hope it is just that – a first step toward a more comprehensive health reform effort. However, for today, the new law is not sweeping reform – it’s just a step toward providing many Americans access to some form of health insurance.
I have read 12 reports on the legislation, during which I found an analysis by GreenburgTraurig, LLP that was short, yet comprehensive, and mirrors the others I reviewed. I will copy parts of their summary below (in italics), and then will comment (in bold) on the impact the law could have on our efforts to provide health insurance for nonprofits.
Their summary included a year-by-year implementation guide:
Insurance Reforms: Within 6 months from the date of enactment, all existing health insurance plans will be subject to new regulations that prohibit lifetime limits, rescissions and excessive waiting periods. In addition, a requirement to provide coverage for non-dependent children up to age 26 will be imposed. Prior to 2014, the requirement on group health plans for coverage of non-dependent children is limited to those adult children without an offer of employer sponsored coverage.
Restriction on Annual Limits: Restricts annual limits for group health plans six months after date of enactment.
False Claims Act: Narrows the application of the False Claims Act’s public disclosure bar.
Small Employer Tax Credit: The legislation provides a sliding scale tax credit to small employers with fewer than 25 employees on average.
During the first year, we will make sure our plan complies with the insurance reforms and restrictions on annual limits, as well as the need to understand the Small Employer Tax Credit since most nonprofits have fewer than 25 employees.
Fee on Manufacturers and Importers of Branded Drugs: Fees will raise $2.5 billion for 2011; $3.0 billion per year for 2012-2016; $3.5 billion for 2017; $4.2 billion for 2018; and $2.8 billion thereafter.
Physician Ownership Referral: Physicians are prohibited from self-referring to hospitals in which they have an ownership interest. There is a limited exception to the growth restrictions for grandfathered physician owned hospitals that treat the highest percentage of Medicaid patients in their county (and are not the sole hospital in a county).
Enhanced Oversight for Initial Claims of DME Suppliers: Requires a 90-day period to withhold payment and conduct enhanced oversight in cases where the HHS Secretary identifies a significant risk of fraud among DME suppliers.
Funding to Fight Waste, Fraud and Abuse: Increases funding for the Health Care Fraud and Abuse Control Fund by $250 million over 10 years. Indexes funds to fight Medicaid fraud based on the increase in the CPI.
Market Basket and Productivity Adjustments: With varying effective dates, reduces annual market basket for inpatient hospital, home health, skilled nursing facility, hospice and other Medicare providers. Also includes productivity adjustments.
During this period, the new law should have little to no impact on the Foraker plans during 2011.
Medicare Advantage (MA): MA payments are frozen for 2011. Beginning in 2012, a new system of blended benchmarks will be phased-in. Payments will be linked to county benchmarks, which will vary based on the county’s fee-for-service costs. Bonuses will be available to high-performing plans.
Reform legislation should have little to no impact on the Foraker plans during 2012.
FSA Limits: Places an annual limit of $2,500 on contributions that can be made to health FSA arrangements; indexed to CPI-U after 2013.
Medical Device Tax: 2.3 percent excise tax on manufacturers and importers of certain medical devices.
Elimination of Deduction for Part D Subsidy: The existing employer tax deduction for the Part D subsidy is eliminated.
Broadening of Medicare Hospital Insurance Tax Base: Imposes additional surtax of 0.9 percent on earned income in excess of $200,000/$250,0000 (un-indexed) and a 3.8 percent surtax on investment income for taxpayers with AGI in excess of $200,000/$250,000 (un-indexed).
Medicaid Reimbursements to Primary Care Physicians: Requires that Medicaid payment rates to primary care physicians furnishing primary care services be no less than 100 percent of Medicare payment rates in 2013 and 2014. Provides 100 percent federal funding for the incremental costs to states of meeting this requirement.
During 2013, the FSA limits could begin to have implications for our plans. Two taxes bear watching – one on high-cost “Cadillac Plans” and the other on high-income earners (over $200,000 a year). In the first case, it appears a higher threshold at which high-cost plans will be taxed will be available in the 15 highest-cost markets in the U.S. Because Alaska is always close to the top of health care costs, our coverage should not be considered a “Cadillac Plan” for tax purposes. In the second case, because we work in the nonprofit sector where very few people earn over $200,000, a Medicare surcharge is not a worry for most of us.
Health Insurance Exchanges: States must establish an American Health Benefit Exchange that facilitates the purchase of qualified health plans and includes a SHOP Exchange for small businesses. Qualified individuals (individuals who are not incarcerated and who are lawfully residing in a state) can enroll in a qualified health plan through a State Exchange. Small employers can offer a choice of plans to their employees through the Exchange.
Individual Obligation: Other than individuals who meet a hardship exemption, individuals will be required to carry eligible health coverage. The fully phased-in penalty for not having health insurance is the greater of $695or 2.5 percent of income.
Employer Obligation: Employers with 50 or more full time equivalent (FTE) employees face a number of coverage obligations. Those that do not provide health coverage would be assessed $2,000 for each full-time employee in their workforce. These employers would not be assessed a penalty for the first 30 full-time employees. Employers that provide coverage that is deemed unaffordable would be assessed the lesser of $3,000 for each full-time employee who obtains a premium credit in a health insurance exchange or $2,000 for all FTE employees. Mitigating these obligations, employers would be permitted to have waiting periods of up to 90 days without being subject to penalties. Furthermore, part-time employees would be considered when calculating employer size for the purpose of determining employer coverage responsibility requirements (i.e. 2 employees working 15 hours each per week equal 1 FTE employee). Penalties, however, would be assessed only on behalf of full-time employees who work 30 or more hours per week.
Annual Fee on Health Insurance Providers: Fees will raise $8 billion in 2014; $11.3 billion in 2015 and 2016; $13.9 billion in 2017; $14.3 billion in 2018; and indexed to medical cost growth thereafter.
Pre-existing condition exclusions: Prohibits pre-existing condition exclusions for group health plans.
Prohibition on Annual Limits: Prohibits annual limits for group health plans.
Medicare DSH Cuts: Reductions in Medicare DSH payments begin. DSH payments are initially reduced by 75percent and then subsequently increased based on the size of the uninsured population and the amount of uncompensated care.
Medicaid DSH Cuts: Reductions in DSH allotments by $0.5 billion in 2014, $.6 billion in 2015, $0.6 billion in 2016, $1.8 billion in 2017, $5 billion in 2018, $5.6 billion in 2019, and $4 billion in 2020.
During 2014, changes resulting from the new law could have the largest impacts on our plans. That year each state will need to establish health care exchanges. We are still not clear about how these exchanges will do much to help Alaska consumers. Since our medical costs are among the highest in the country, our insurance costs are the same – high. We may have a few new options, but insurance costs what it costs to a large degree because medical care costs what it costs. One of the consensus points on both sides of the legislation is that it did not go very far in helping reduce the cost of health care. Unless Alaskans have access to plans that cover people in lower cost markets so our high costs are averaged down, our insurance will still be too expensive for many people. In 2016, there is some provision for such cross-state plans, but so far we have not seen enough detail to understand how those plans would work.
IPAB: Establishes an Independent Payment Advisory Board (IPAB), charged with recommending reductions in Medicare spending. Congress must either adopt the IPAB’s proposed cuts or pass an alternative with equivalent savings. The IPAB will first propose cuts in 2014 for implementation in 2015.
Interstate Health Choice Compacts: Under these compacts, qualified health plans could be offered in all participating States, but insurers would still be subject to the consumer protection laws of the purchaser’s state.
Large Employer Participation in Exchanges: States may allow large employers to offer coverage to their employees through the exchanges.
High premium excise tax: Imposes a 40 percent excise tax on health coverage in excess of $10,200/$27,500 and increased thresholds of $1,650/$3,450 for over age 55 retirees or certain high-risk professions, both indexed for inflation by CPI-U plus one percent; adjustment based on age and gender profile of employees; vision and dental excluded from excise tax.
Indexing of Premium Subsidies: To slow the growth of these premium subsidies, beginning in 2019, the indexing of these subsidies is adjusted if premiums are growing faster than CPI.
Indexing of High Premium Tax Thresholds: Beginning in 2020, the thresholds for the high premium tax will be re-indexed to the general rate of inflation.
I believe it’s safe to say that those against this legislation will try changing or repealing it, and those wanting more reform will try adding to it. Therefore, we dare not speculate about what, if anything, we will need to address after 2014. However, I am comfortable stating that as employers it will continue to be our desire to provide insurance coverage for our employees – if possible.
Penalties will be imposed on employers with 50 or more employees that chose not to offer health insurance. Individuals working for an employer that is not willing or able to provide coverage will need to insure themselves – or also pay a penalty. Regardless of the choice employers or individuals make, penalties are far less than the cost of insurance in Alaska. Therefore, I would guess that we will have many employers and individuals who choose not to be insured.
Progress continues with the Foraker health initiative. As partners now with the Alaska State Chamber of Commerce, we will succeed at providing a viable alternative for progressive employers who want to offer affordable health coverage. That’s because we are practicing true health reform by offering a plan that encourages and supports healthier lifestyles and helps our employees become better health care consumers. When all is said and done, these are the only two proven strategies to maintain affordable health care.
Visit the Foraker blog and give us your thoughts. Let us know, for example, how your organization views health insurance for your employees. It’s the subject of Dennis’s special report this month.