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Policy, Not Punditry: Update on Three Key Provisions

In a classic case of politics trumping policy — at least in terms of news coverage — last week’s midterm elections have threatened to eclipse other developments related to the federal health reform law.

While pundits ponder the elections’ effect on health reform moving forward, regulators continue their efforts to implement the reform law in its current form.

Gov. Arnold Schwarzenegger (R) on Election Day announced that HHS had approved California’s $10 billion Medi-Cal waiver, a complex and multipronged plan to revise the state’s Medicaid program and prepare California to implement national health care reform. Officials and advocates say the waiver’s effects will be far-reaching. CMS also on Tuesday issued a raft of final fiscal year 2011 rules, including payment schedules for outpatient and physician services that will play a role in Congress’ upcoming debate over Medicare financing and physician pay cuts.

Work on three other elements of reform — high-risk pools, medical-loss ratios and accountable care organizations — illustrates the ongoing challenges regulators and officials face: tweaking a program on the fly, coordinating with different stakeholders and building a brand-new payment model.

High-Risk Pools: Early Test of Reform

The Pre-Existing Condition Insurance Plan was among the first major health reform provisions to take effect, aiming to act as a bridge for individuals with pre-existing conditions prior to 2014, when private insurers are required to accept all applicants. HHS officials say the PCIPs’ rollout, which ran behind schedule, has been instructive for other implementation efforts, and the agency already has tweaked the law heading into next year.

The pools have enrolled fewer residents than expected since the PCIPs began operating this summer. Enrollment in most states as of Nov. 1 was below 10% of capacity, and 21 states have enrolled fewer than 50 residents. New York and Florida each have enrolled fewer than 300 people. California officially opened its PCIP last month, but has received just 600 applications, even though the state has the funds to cover about 20,000 residents.

Administration officials say PCIPs’ slow start isn’t a concern. Richard Popper, director of insurance programs at HHS’s Office of Consumer Information and Insurance Oversight, said the enrollment figures “compar[e] favorably” to the launch of CHIP in the late 1990s.

Meanwhile, HHS is moving to spur enrollment in the PCIPs — including “doing something private insurers almost never do: slashing rates,” Kaiser Health News notes. HHS on Friday announced that it will lower plan premiums by about 20% in 2011 and introduce several new options.

The program currently offers a single standard plan with a combined medical and pharmacy deductible of $2,500. Next year, plan options will include a standard plan with two separate deductibles of $500 for drugs and $2,000 for medical care, as well as a new “extended plan” with a medical deductible of $1,000 for medical care and $250 for drugs and a health savings account option.

Medical-Loss Ratios: Coordination Challenges

Meanwhile, HHS continues to finalize its medical-loss ratios for health plans, which will determine what insurers can spend on medical care and administrative overhead. The heavily anticipated, yet slow-moving rules underscore a recent development: HHS’s implementation timelines have become moving targets. Regulators are leaning on industry stakeholders to help develop and comment on reform policies, but such coordination means that rollout may be slow.

While HHS originally hoped to issue final MLR regulations in October, to give insurers time to prepare ahead of the ratios’ Jan. 1 implementation, the department has had to wait for the National Association of Insurance Commissioners to craft its MLR recommendations. The NAIC since has unanimously approved and submitted its proposal for final HHS review, but the process has been “illustrative,” according to Illinois Insurance Director Michael McRaith. “It took us six-plus months to develop just that one small slice of the entire insurance reform package,” McRaith notes, which bodes poorly for efficiently crafting some of the law’s sweeping policies, like the exchanges.

NAIC’s recommendations did not address the types of taxes and fees that insurers could count as medical expenses in their MLR calculation. That issue has been a key sticking point between insurers and lawmakers; NAIC previously dismissed the insurance industry’s requests to include federal income taxes on investment income and capital gains as medical costs. As the calendar draws closer to 2011, insurers also have pushed “for a phase-in period [and] aggregation of geographies,” according to Credit Suisse analyst Charles Boorady.

Many employers also are waiting for the final MLR rules to make health benefit decisions. HHS last week reiterated that it will craft separate MLR rules for so-called mini-med plans, the controversial limited benefit plans that cap coverage at several thousand dollars per year.

According to Robert Laszewski, a former health plan executive, election fallout and regulators’ decisions may intersect over the ratios. Notably, state insurance commissioners repeatedly have called for additional leeway in implementing MLR. “Based upon what happened [last week], will Sebelius grant that flexibility? One would think so,” Laszewski says.

Accountable Care Organizations: Failure To Launch?  

Less clear is what accountable care organizations will look like, as CMS struggles to craft an entirely new payment model.

New regulations governing ACOs won’t formally take effect until January 2012, when the federal law will allow qualifying providers to become ACOs and share in Medicare cost savings, but stakeholders increasingly are seeking federal guidance now. More organizations continue to form new structures — and craft ACOs that may not even be legal — and CMS has said it will issue proposed rules by the end of the year.

However, there are signs that regulation is running behind. A CMS spokesperson in October warned that the agency was “nowhere near” hitting the December release date for the rules, although another spokesperson later said that the agency was “still aiming” for that target.

Agency officials are reportedly divided over a crucial issue: how to pay ACOs. John Gorman, CEO of the Gorman Health Group, notes that CMS has historically been a “fee-for-service agency” and officials have limited experience with the partial capitation model that many stakeholders expect from the program.

Patient advocates also are pushing for specificity about treatment of people who qualify for both Medicare and Medicaid coverage, who ultimately might become part of ACOs that lack Medicaid providers. Under the Qualified Medicare Beneficiary program, dual eligibles are allowed to have Medicaid pay for their Medicare cost-sharing. However, when dual eligibles go to a Medicare provider who does not accept Medicaid, the patients must cover any cost sharing out of pocket.

Here’s a look at other health reform developments making news.

Eye on the Elections

  • More than half of the 34 House Democrats who voted against passage of health reform legislation earlier this year and the sole House Republican who initially voted for the House overhaul bill lost their re-election bids on Tuesday (Haberkorn, Politico, 11/3). However, early exit polls showed that health care was less a motivating factor for voters than jobs and the economy (Pickert, “Swampland,” Time, 11/2).
  • Election victories by Republicans in a number of gubernatorial and attorneys general races likely will boost GOP efforts to resist implementation of the federal health reform law. Although governors cannot avoid the implementation of most provisions of the reform law, they can limit their states’ involvement in some key initiatives, such as the creation of the new state-based insurance exchanges and the expansion of Medicaid (Adamy, Wall Street Journal, 11/5).
  • During an interview Sunday on CBS’ “60 Minutes,” President Obama said that reforming health care turned out to be more politically damaging than he expected. Obama said that he had hoped to find common ground by using overhaul proposals introduced by Republican administrations and some that potential 2012 presidential candidate Mitt Romney (R) introduced when he was governor of Massachusetts. Obama noted, “I couldn’t get the kind of cooperation from Republicans that I had hoped for,” adding, “And that was costly, partly because it created a kind of partisanship and bickering that really turned people off” (AP/Atlanta Journal Constitution, 11/7).

In the States

  • During last week’s elections, Oklahoma residents voted 65% to 35% in favor of Question 756, which aims to block the implementation of the federal health reform law’s individual mandate (, 11/3). The question’s author, state Rep. Mike Thompson (R), said the amendment protects residents from government programs that could make health care more expensive (AP/Oklahoman, 11/2).
  • In addition, Arizona voters approved Proposition 106, which amends the state constitution to bar any law that would require residents to participate in any health care program, including insurance. The amendment also stipulates that state residents can purchase any legal health services and that no government entity can prohibit them from doing so (Arizona Daily Star, 11/3). The proposal was approved 55% to 45%, with 99% of the votes counted (, 11/3).
  • Meanwhile, roughly 53% of Colorado voters rejected Amendment 63, which would have made it illegal to force state residents to purchase health coverage, eliminated the tax penalties for residents who failed to obtain such coverage and allowed physicians to take payments directly from patients (Lofholm, Denver Post, 11/3).
  • Last week, Wisconsin Gov.-elect Scott Walker (R) met with state lawmakers to discuss his state’s role in the Medicaid expansion, and the possibility of hiring private entities to manage the insurance exchange. Meanwhile, Wyoming Gov.-elect Matt Mead (R) said he was reviewing the outgoing Democratic governor’s plans to implement the state-based insurance exchange, noting that it is “just a question of what is right is Wyoming” (Adamy, Wall Street Journal, 11/5).

Inside the Industry

  • The health care industry is expecting that the federal health reform law will not be repealed, despite reports that Republicans in the newly GOP-led House will attempt to do so. However, industry lobbyists have said that the newly elected congressional Republicans represent numerous opportunities to influence the way the reform law is implemented (Johnson/Loftus, Wall Street Journal, 11/4).
  • Meanwhile, officials from the drug industry and hospital and physician groups are looking to eliminate the Independent Payment Advisory Board, which is designed to control Medicare spending. The board would set rules for limiting the program’s spending growth with a formula linked to the growth of the economy. Peter Orszag, former budget director for the Obama administration, said the panel would be the most important part of the reform legislation in curbing health spending (Wilson, “Prescriptions,” New York Times, 11/4).

Rolling Out the Reform Law

  • A partnership between Duke University and Lincoln Community Health Center in Durham, N.C., to improve community health and reduce non-acute emergency department visits has become a model for the Obama administration’s vision of health care reform. In 2003, Duke and the Lincoln Community Health Center opened Lyon Park Clinic in Durham to provide care to the uninsured outside hospital EDs. They subsequently opened the Walltown Neighborhood Clinic and the Holton Wellness Center. The centers serve about 7,500 unique visitors annually, 80% of whom are uninsured (Fears, Washington Post, 11/7).
  • Restaurant and grocery chains and vending machine operators can expect to collectively spend as much as $27 million to meet a menu labeling requirement outlined in the federal health reform law, according to data recently released by FDA. In an attempt to address rising U.S. obesity rates, the reform law requires certain chain retail businesses and vending machine operators to post calorie counts for nearly everything on their menus. According to the FDA data, a business could expect to spend $269 and about four hours to make a full analysis of each item on a menu to meet the requirements (Norman, CQ HealthBeat, 11/4).

Changes to Health Costs, Coverage

  • The federal health reform law could help beneficiaries in traditional Medicare plans save an average of $3,500 over the next 10 years, according to a report released last week by HHS. According to the report, such savings could be as high as $12,300 over 10 years for elderly U.S. residents and people with disabilities who require high-cost prescription medications (Pecquet, “Healthwatch,” The Hill, 11/4).
  • Despite its initial support of the federal health reform law, AARP in a recent e-mail to its employees cited the overhaul as the reason for raising workers’ health premiums by between 8% and 13% next year. The organization added in the e-mail that it will change copayments and deductibles to avoid a law that will take effect in 2018, which places a 40% tax on high-cost health plans. Officials from AARP blamed the rising employee costs on medical inflation, adding that the reform law plays a “small part” (Alonso-Zaldivar, AP/Yahoo! News, 11/4).
  • Health insurance experts say that rising health care costs and the slow economy are more likely to affect how much workers spend on health coverage in 2011 than provisions in the federal health reform law. Although a comprehensive analysis of 2011 health insurance offerings will not be available for months, industry experts say that trends seen in 2009 are expected to continue. As a result, individuals who receive coverage through their jobs likely will experience higher premiums and be responsible for a larger share of the costs, in the form of higher deductibles and copayments (Aizenman, Washington Post, 11/8).



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