Filed under: Health Care Plans, Health Law, Health Reform, Insurance Companies, Taxation
It was the intent of Congress in enacting the Patient Protection and Affordable Care Act to regulate health insurance comprehensively. Most of the regulatory provisions of Title I (the insurance reforms) apply to “A group health plan and a health insurance issuer offering group or individual health insurance coverage.” The definitions of these terms are drawn from the definitional section of the Public Health Services Act (added by the Health Insurance Portability and Accountability Act), which defines a “group health plan” as an ERISA plan, and a “health insurance issuer” as “an insurance company, insurance service, or insurance organization (including a health maintenance organization, as defined in paragraph (3)) which is licensed to engage in the business of insurance in a State and which is subject to State law which regulates insurance.” 42 U.S.C. § 300gg-91(a)(1), (b)(2). Thus the ACA covers both self-insured ERISA plans and insured individual and group plans.
In fact, however, the ACA does not apply to all health insurance coverage, and does not apply to all health insurance coverage to which it does apply to the same extent. HIPAA excepted benefit plans, including specific disease and fixed-dollar indemnity plans, and short term individual coverage are not subject to ACA requirements, and many of the provisions of the ACA that apply to individual and small group plans, including the essential benefit package, the risk adjustment program, and the risk pooling, community rating, minimum medical loss ratio, and unreasonable premium increase justification requirements do not apply to self-insured plans. It is, therefore, important to read the ACA section by section to determine which requirements or prohibitions apply to which types of health insurance.
One particularly important provision that has not received enough attention is section 9010, “Imposition of Annual Fee on Health Insurance Providers” (at 811-815 in the link). This provision is found in Title IX of the ACA, but was amended both by the December 2009 Managers’ Amendment, which became Title X, and by the Health Care and Education Reconciliation Act, enacted in March 2010. Section 9010 imposes a fee, beginning in 2014, on a “covered entity’s net premiums written with respect to health insurance for any United States health risk.” The fee is determined by multiplying the fraction determined by dividing the covered entity’s net premiums by the net premiums of all covered entities that are taken into account under the statute times a set annual amount, which begins at $8 billion, but rises to $14.3 billion by 2018. This fee will be an important revenue source for funding the ACA’s coverage expansions.
The fee imposed by section 9010 does not apply to all insurers equally. Insurers with annual net premiums of $50 million are fully taxed on their revenues, while insurers with annual net premiums of $25 to $50 million are taxed on only half of their net premium revenues, and insurers with net premiums below $25 million are not taxed at all. Certain tax-exempt insurers are also taxed on only half of their net premium revenues (after applying the small insurer discount just mentioned).
The fee also only applies to “covered entities.” Section 9010(c) defines “covered entity” as an entity that “provides health insurance for any United States health risk,” subject to a number of exclusions. These exclusions include “any employer to the extent that such employer self-insures its employees’ health risks;” government entities; certain non-profit insurers that derive 80% of their revenue from government programs; and VEBAs that are tax exempt under I.R.C. § 501(c)(9).What is the universe of “covered entities,” however, that remain subject to § 9010 after these exclusions are applied?
To answer this question it is necessary to parse the meaning of “health insurance” and “United States health risk.” Both terms are defined in the section, but only in part. “United States health risk” is defined to include the health risk of an individual who is a United States citizen, resident, or located in the United States. § 9010(d). “Health insurance” is defined to exclude certain but not all forms or HIPAA excepted benefits (as defined in I.R.C. § 9832(c)), long-term care insurance, and Medicare supplemental insurance. Nowhere in § 9010, or indeed anywhere in the Internal Revenue Code, however, are the terms “health insurance” or “health risk” defined. Section 9010 tells us what “health insurance” is not, but not what it is.
The most interesting question is whether health insurance for a United States health risk includes stop-loss coverage. The sale of stop-loss coverage to small employer groups is increasing very rapidly. As noted above, self-insured small groups are not subject to many of the consumer and market protections that the ACA applies to insured small groups. Self-insured group plans are also not subject to state regulation because of ERISA preemption. There is thus a great deal of interest in the part of small group plans in self-insuring. Small groups can only self-insure, however, if they can find generous stop-loss coverage that will assume most of the health risk of employees. A small employer that fully assumed coverage for its employees without stop-loss coverage would face unacceptable risk. Some insurers, therefore, are actively marketing stop-loss coverage, often with very low attachment points, to small groups.
Is this stop-loss coverage subject to section 9010? It certainly is “insurance” and it certainly covers a “health risk.” It also does not fit within any of the explicit exclusions from the term “health insurance.” But is “stop-loss insurance” “health insurance”? The term “health insurance” is nowhere defined in the Internal Revenue Code (which would be the relevant code since the fee is administered by the Secretary of the Treasury and the fee is considered to be an excise tax, see § 9010(f),(h)(1)). “Health insurance coverage” and “Health insurance issuer” are defined in § 9832, but those are not the terms used in section 9010, presumably intentionally. By analogy, the term “group health plan” is used throughout the ACA to mean an ERISA plan, but in § 1301(b) the term “health plan” is explicitly defined to not include self-insured ERISA group plans. Wherever the term “health plan” is used in the ACA without the adjective “group,” therefore, it does not include self-insured ERISA plans, but where it appears with the adjective “group” self-insured plans are included. Similarly, it must be presumed that Congress used the term “health insurance” to mean something different from the defined terms “health insurance coverage” or “health insurance issuer,” which terms are used throughout the ACA in different contexts.
Is stop-loss insurance that covers health care risks health insurance? This is certainly a reasonable interpretation of the term. Moreover, the fact that Congress explicitly excluded from the definition of “covered entity” risk borne by employers in self-insured plans, but not risk that they pass on to stop-loss insurers, indicates that Congress did not intend to exempt stop-loss plans from the fee.
Applying the fee to stop-loss coverage would help to level the playing field between conventional health insurers and health insurers that insure health risk through stop-loss plans, and might help stem the flood of small groups to self-insured status, which in turn threatens to undo the consumer protections extended to employees insured through small groups and the market protections built into the ACA to stabilize the small group market (such as the risk adjustment and risk pooling requirements).
Section 9010(c) tasks the Secretary of the Treasury with providing implementing regulations and guidance. It is to be hoped that the Secretary will clarify through the regulatory process that the § 9010 fee applies not only to conventional insurance, but also to stop-loss insurance. Stop-loss insurance increasingly serves as an alternative mechanism for covering the same health risks that are covered by conventional insurance, while at the same time providing a means of evading ACA consumer and market protections. Section 9010 should be applied to stop-loss insurance just as it is to conventional insurance.
On Oct. 5, the Department of Health and Human Services granted waivers exempting employers from complying with certain provisions of the health care law, according to Bloomberg. News of the waivers came just days after the Wall Street Journal reported that McDonald’s had warned federal regulators that it would drop health insurance for nearly 30,000 hourly restaurant workers unless regulators waived the requirement that companies provide a minimum of $750,000 of coverage next year, increasing incrementally to unlimited coverage in 2014.
The health care bill also requires that 80 to 85 percent of health care premiums must be spent on benefits, as opposed to administrative costs. According to the WSJ article:
“McDonald’s and trade groups say the percentage, called a medical loss ratio, is unrealistic for mini-med plans because of high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims.”
Mini-med plans, such as the plans McDonald’s offers to its hourly restaurant workers, typically have low premiums and low caps on benefits. The basic plan at McDonald’s costs about $700 per year and caps out at $2,000. The better plan costs roughly $1250 and caps out at $5000, and the best plan caps $1700 per year and caps out at $10,000. Yes, that’s a yearly max benefit to premium ratio of less than 3 to 1 for the basic plan, 4 to 1 for the better, and roughly 6 to 1 for the best. You don’t have to be an actuary to conclude that those ratios bode well for health insurance as a profitable concern– for the insurer. And it is not hard to imagine why an 80 to 85% medical loss ratio requirement would seem onerous to a company which provides an insurance policy which by definition maxes out at 33%.
The Wall Street Journal quoted Jerry Newman, a professor at State University of New York at Buffalo who penned “My Secret Life on the McJob” after working undercover at a McDonald’s, who said the mini-plan could be a life saver. “The packages maybe could be better, but for a start, they’re quite good,” he told WSJ.
Are they? Kate Pickert, who writes for Time Magazine, criticized the so-called mini-med plans:
“The Wall Street Journal described the McDonald’s coverage episode as an “unintended consequence,” but killing off plans like those offered by the fast food chain couldn’t have been more intentional. Policy experts have long known that “mini-med plans,” also known as “limited medical benefit plans,” rarely end up being a good deal for those who buy them. If you have a real medical need — like a broken bone or surgery — this insurance doesn’t come close to covering it. If you only use the coverage for a few doctor appointments, you would have been better off paying cash. Consumer advocates — including some attorneys general and state insurance commissioners — have sought to curb these plans for years.”
Judging by how quickly McDonald’s request for a waiver was granted, it seems like politicking is at play. From the Bloomberg story:
“The big political issue here is the president promised no one would lose the coverage they’ve got,” Robert Laszewski, chief executive officer of consulting company Health Policy and Strategy Associates, said by telephone. “Here we are a month before the election, and these companies represent 1 million people who would lose the coverage they’ve got.”
However, there’s one more piece of the puzzle. What about those who cannot afford a decent plan? Where do they turn? I have a feeling we have not heard the last of the public option debate. The McDonald’s episode could be the start of many unintended consequences of the health plan.
If the administration is so quick to buckle to private insurers demands, then what hope does the health care law have of actually making a difference in how American’s get their health care? Perhaps the real problem is in the gap between now and 2014 when the law fully takes effect. Still, questions remain as to whether the health care law was strong enough to begin with. Remember, a poll by the Associated Press reminds us that American’s who believe the health care bill did not go far enough outnumber those who believe the health care law went too far two-to-one. President Obama ran his campaign on a public option and has since stated that the public option was never integral to his plan for health care reform. The gaps that will lie between what the health care law requires and what employers are currently willing to offer under the new law will seemingly need to be somehow filled.
Mintz Levin: “Health Care Reform Advisory: Assessing the Impact of Federal Health Care Reform on Employers and Employer-Sponsored Group Health Plans”
I’ve written before on this blog about the value of Mintz Levin’s reports, and am about to do so again (you can find their work, as a permanent link, under “Resources” on this blog). There is, linked below, a very nicely done recap of the health reform law– which gets quickly to the point regarding the implications of a number of provisions within the law for employers and employer-sponsored group health plans. For those of you unfamiliar, Mintz Levin is a law firm with its primary office in D.C., and a health sciences group with a well deserved reputation for excellence. If you are an employer, or even an employee that has some appropriate notion of “trickle-down,” I highly recommend you take a look.
Filed under: Health Care Plans, Proposed Legislation
Should an imperfect health reform bill be passed? Health reform should be about four things: 1) expanding coverage to all; 2) providing health security for those already insured; 3) ending the fragmentation of health care delivery in favor of sound coordination of care; and, 4) constraining cost to ensure that we can afford appropriate care in the future.
The House leadership bill (HR 3962) does a good job on the first, reaching a large proportion of the uninsured — although it will not achieve universal coverage. It also gets good marks for reforming insurance regulations — although its weak version of the public plan will make true insurance reform more difficult to achieve. It makes some tentative progress on care coordination, mostly through pilots and demonstrations in public insurance programs. It provides some cost saving measures in Medicare and through encouraging alignment of financing systems — but cost containment is clearly the weakest aspect of the bill. So, should the reform be passed, warts and all?
After months of criticism of the majority’s plans and promises of the production of a better plan, House Republicans proposed a substitute to the House leadership bill. How does it stack up? The CBO finds that the Republican substitute would reduce the deficit over the next ten years by about $68 billion, which is about $40 billion less than the reduction the CBO projects from the Democratic version. The CBO also estimates that the Republican bill would reduce the number of uninsured over the next ten years by “about 3 million relative to current law, leaving about 52 million nonelderly residents uninsured,” compared with its assessment that HR 3962 would reduce the number of nonelderly uninsured by 36 million during that time period. So, the GOP substitute would do less to reduce the deficit, and cover 33 million fewer uninsured. It includes some insurance reform provisions, many based on consumer-directed models that tend to further fragment, rather than coordinate care. HR 3962 is far from perfect, and the CBO’s estimates have been subject to criticism, but the reports provide food for thought for those who hoped that the Republican plan would offer a meaningful alternative.
Sometimes proceeding in steps is necessary, particularly with complex systemic reform. Massachusetts has in many ways been a model for drafters of federal reform plans, and stands as an example of incremental steps toward full reform. It enacted sweeping health insurance reforms in 2006, creating a marketplace for regulated private insurance, the addition of public plans, and responsibility shared among businesses, individuals, and providers. It has been remarkably successful at expanding access, driving the uninsurance rate down to 2.6% as of the spring of this year, and enjoying continuing strong support within Massachusetts. Costs are a growing concern. But the coalition of business, consumer, and provider groups behind the reform anticipated the need to circle back and tackle finance. Cost concerns have only grown with the economic downturn, as tax receipts lag and countercyclical demand for Medicaid coverage strains budgets. Resolve to push forward appears strong. Representatives of several stakeholders reported last year that,
Since passage, all stakeholder groups have remained deeply engaged in implementation. Despite news reports of higher-than-expected costs, the governor, legislative leaders, and stakeholders have repeatedly reiterated support for full implementation. This consensus, crucial to enactment, has proved equally vital to implementation.
Massachusetts reformers made the decision to proceed in two steps: coverage first, cost control second. While no one is proposing a two-step process for federal reform, expanding coverage and reforming insurance practices have been the overriding emphases in Washington. And HR 3962 does advance the cause of care coordination for the chronically ill. It was interesting to see the Dutch Health Minister in a recent interview emphasize coordinated care as a central feature of reform. In describing his country’s reforms (from which some draw lessons for our country), he explained:
We are trying to make sure that no one receives health care that is not coordinated. And [we intend] that the general practitioners cannot negotiate any longer with insurance companies unless they are part of a coherent group that is offering coherent care.
What does the GOP bill do for people with chronic illness? The CBO found that provisions in the proposed substitute would “tend to increase the premiums paid by less healthy enrollees.” The substitute, then, entails fiscal benefits for the well at the expense of those who most need care and coverage.
HR 3962 reforms the insurance market to safeguard coverage for those who have it now; expands coverage for the uninsured; and begins the arduous task of shifting care delivery from fragmentation to coordination. The GOP alternative covers one-twelfth as many uninsured, makes coverage for the chronically ill harder to maintain, and does less to reduce the deficit. Common sense tells us that taking positive steps toward reform is vital, and that the GOP substitute is no reform at all.
Filed under: Health Care Plans, Public Plan, Women's Health Issues
Last Thursday, October 29th, House Democrats announced their bill for health care reform, the Affordable Health Care for America Act. The House bill includes provisions such as a public option and employer mandates. For women, the House bill has been a controversial issue; though the bill contains provisions that will expand women’s access to certain areas of health care, other areas have been neglected.
On the plus side is the bill’s prohibition of domestic violence being categorized as a pre-existing condition for health insurance purposes. Ms. Pelosi was able to follow through on her promise to women that such a discriminative practice would be ended through the House bill. Meanwhile, U.S. News attributes the inclusion of women’s health needs in the bill to the widespread women-led activism for health care reform. Still, as significant aspects of women’s access to health are yet left unaddressed, some advocates wonder if we should have asked for more.
One issue of contention is that an amendment to the the bill allows for 12 years of exlcusivity for biologic drugs– some of which have been found particularly efficacious in the treatment of breast cancer. In addition to the 12 year exculsivity period, manufacturers will also be able still to engage in the process known as “evergreening,” the practice of changing a drug slightly–such as altering the time release mechanism– and thereby garnering additional periods of exclusivity. These periods of exclusivity prohibit cheaper generic versions of the drug– known as “follow-on biologics” or “biosimilars” from entering the marketplace. (To read more about the biologic exclusivity debate read here and here.) The end result would seem to point– if money matters (and when does it not?), to a decrease in the availability of breast cancer biosimilars and thus a decrease in available efficacious treatment. One of the bill’s sponsors, Anna Eschew of California, defends the proposal on the grounds that it does not interfere with women’s access to breast cancer treatment, and that it only curbs the ability of bio-pharmaceutical generic competitors to freely utilize the costly, extensive research and development of the original bio-pharmaceutical innovators. Eschew believes that lesser periods of exclusivity will have a chilling effect on biologic research and development– as lesser exclusivity would make it more difficult for the original developers of the drugs to recoup the large expenses associated with such development.
Reproductive health care issues have also come to the forefront of the debate, but with a clear consensus yet to have emerged on what the bill does or does not cover within the various exchanges, options and subsidies within the bill.
While political groups are preparing to battle out these issues, one thing remains constant, women are a force that both democrats and republicans want on their side. The House Democrats were paying attention when drafting their health plan, but the holes still left in women’s health care access might mean that women need to make themselves heard again–and this time, maybe a little louder.