Skip to content

Reform Rollout May Waver if More Seek Exemptions

Thirty companies and groups last month received HHS waivers that grant them a one-year exemption from phasing out annual limits on health coverage, a key provision of health reform.

The decision was preceded by high-profile debate over the reform’s unintended consequences, most prominently in the wake of a Wall Street Journal story reporting that McDonald’s might be forced to drop employee health coverage.

Despite the public posturing, the exemptions were intended. Lawmakers crafting reform had set up a procedure to allow so-called mini-med plans — limited-benefit plans that cap coverage at several thousand dollars per year and that would not have met new annual limits on coverage — to apply for exemptions.

Although the waivers were expected, HHS’ decision points up two related challenges of health reform implementation. First, many U.S. residents who stand to benefit most from the law may not see changes until 2014. Second, industry stakeholders have a chance to derail reform by pushing to weaken its provisions.

The exemptions also showcase the uncomfortable intersection of politics and policy. While few industry experts favor the mini-med model, their potential demise pits the president’s pledge to let U.S. residents keep their coverage against his administration’s goal to phase out ineffective plans.

Waivers Come as Law Has Yet To Be Finalized

The exempted organizations — which include the United Agricultural Benefit Trust, a California-based cooperative that provides coverage to farm workers, and San Diego-based Jack in the Box — had to prove that without the waiver their employees’ premiums would increase significantly or they could lose their coverage. Under the new “Patients’ Bill of Rights,” the companies would have had to provide at least $750,000 in health coverage in 2011 and will need to reapply in successive years to avoid coverage that extends up to $1.25 million in 2012, $2 million in 2013 and unlimited coverage in 2014. Altogether, the waivers preserve coverage for about one million U.S. residents.

The waivers also come as HHS and the National Association of Insurance Commissioners continue to define which benefits are actually essential and finalize plans’ required medical-loss ratios.  Ahead of 2014, “plans may also totally exclude particular benefits; they simply cannot limit the dollar amount of offered benefits except as permitted in the rule,” law professor Timothy Jost writes in Health Affairs. As a result, more plans may seek exemptions as the rules coalesce.

Challenge of Limits

The U.S. residents who stand to be most affected in the short run: the 2.5 million workers, in industries like hospitality and retail, who are covered by mini-med plans that incorporate annual dollar limits. HHS has warned that these annual limits can be “devastating” for patients and “even more aggressive than lifetime limits.” According to the agency, 8% of large employer plans, 14% of small employer plans and 19% of individual market plans use annual dollar limits.

Sustaining these plans has sparked criticism from reform advocates, who say that preserving “under-insurance” for several years defeats the purpose of the law. “Just what was reform supposed to have accomplished?” writes Don McCanne, a senior health policy fellow at Physicians for a National Health Program.

However, health policy consultant Robert Laszewski cautions that many companies can’t afford to spend more on health coverage for their low-wage or part-time workers, Bloomberg reports. For example, roughly three-quarters of restaurant workers turn over every year and nearly half are under age 25; the administrative costs to insure these individuals are prohibitive, some experts warn. For low-margin businesses, “mini-med plans are a temporary stopgap,” according to a Wall Street Journal editorial.

More Waivers Down the Road?

Most policy experts say that doing away with mini-med plans is an optimal outcome of reform — but some argue that keeping them for now is a necessary solution. According to Neil Trautwein, VP and employee benefits policy counsel with the National Retail Federation, “nobody is going to pretend that [a mini-med plan] is the best coverage around, but having that coverage beats not having any coverage.”

The rationalization reflects the balancing act facing the Obama administration in the coming months. Nancy-Ann DeParle, director of the White House Office of Health Reform, says that the president wants a “smooth glide path to 2014” and acknowledges that there may be compromises ahead. Several states — including Maine, Iowa and South Carolina — already have sought waivers on new medical-loss ratio requirements, and more state insurance commissioners may ask for their own exemptions after the MLR rules are finalized. However, administration officials “don’t like the word ‘phase-in,'” according to Florida Insurance Commissioner Kevin McCarthy, and are pushing state officials to demonstrate concrete evidence of potential disruptions in the marketplace, CQ Today reports.

The process also underscores that, for all the focus on Republicans potentially repealing or halting reform’s implementation, the law can be weakened by simple resistance to its measures. Forbes columnist David Whelan contends that the administration’s exemptions were influenced by “the corrupting effect of election-year politics” and create an invitation for other employers to issue similar requests. The industry pressure will “just increase[e] until we get to 2014,” according to Peter Harbage, a former California state health official who is now a policy consultant in Sacramento.

Here’s a look at what else is making health reform news.

Seniors in the Spotlight

  • Elderly U.S. residents enrolled in Medicare Advantage programs can expect their out-of-pocket costs to increase by hundreds of dollars annually beginning in 2011, according to an analysis from CMS Chief Actuary Richard Foster. Foster’s analysis, which was released last week by Republican members of the Senate Finance Committee, found that annual out-of-pocket costs for Medicare Advantage beneficiaries will increase from $346 in 2011 to $873 by 2019, despite cost offsets contained in the federal health reform law (Ethridge, CQ Today, 10/14).
  • Three House Republicans have released a Government Accountability Office report addressing CMS‘ September 2009 request that Humana stop sending letters warning its 930,000 Medicare Advantage beneficiaries that the overhaul would lead to MA membership cuts. GAO concluded that CMS acted within its general policies but that the request was “unusual.” According to Rep. Joe Barton (R-Texas), the report provides “more evidence” that Democrats sought to “pass health care legislation by any means necessary” (Ethridge, CQ Today, 10/14).
  • More than seven of 10 Medicare Part D beneficiaries are unaware that the federal health reform law eventually will close the prescription drug coverage gap, known as the “doughnut hole,” according to a survey conducted by KRC Research for the advocacy group Medicare Today. The survey found that just 20% of the 1,243 beneficiaries polled were aware that the reform law will reduce the cost of brand-name drugs purchased while in the doughnut hole, and fewer than half knew that those who were in the doughnut hole will receive a $250 check this year (Lillis, “Healthwatch,” The Hill, 10/12).

Challenging the Overhaul

  • On Monday, U.S. District Court Judge Henry Hudson said he plans to issue a decision by year-end in a Virginia lawsuit that claims the federal health reform law’s individual mandate is unconstitutional (Helderman, Washington Post, 10/19). During oral arguments at Monday’s hearing, representatives for the plaintiffs noted that requiring people to obtain health insurance amounts to regulating “inactivity,” a power they argued that Congress does not have. Deputy Assistant U.S. Attorney General Ian Gershengorn countered that “the appearance of inactivity is just an illusion,” adding that requiring people to have insurance helps control the costs of care (Adamy, Wall Street Journal, 10/19).
  • Activists who oppose the federal health reform law are building campaigns to support ballot measures in Arizona, Colorado and Oklahoma that would counter the overhaul’s individual insurance mandate. According to the CQ HealthBeat, the activists are spending more than labor unions and other groups that are mobilizing against the ballot measures. Polls of Arizona residents show that the state’s measure is likely to pass, while two separate surveys of Colorado residents have found that 53% want the reform law repealed. Meanwhile, antireform groups in Oklahoma are confident that residents will support the ballot measure (Adams, CQ HealthBeat, 10/14).
  • An increasing number of Democrats have begun saying they will “fix” the federal health reform law in their campaigns for the midterm elections. During recent television interviews, three Senate Democratic candidates from Illinois, Kentucky and West Virginia said that if elected, they would work to revise the health reform law to make it better. Meanwhile, two Democratic incumbents — Reps. Brad Ellsworth (Ind.) and Earl Pomeroy (N.D.) — acknowledged in a recent debate and newspaper interview, respectively, that the overhaul is not perfect and modifications would be required in the coming years (Kliff, Politico, 10/16).
  • Political candidates and anti-reform groups have spent about $21 million to advertise positions critical of the federal health reform law, according to a new analysis from Kantar Media. So far in October, the Obama administration has spent about $3 million on television advertisements that tout the benefits of the overhaul, the analysis found. Evan Tracey of Kantar said, “Certainly, it’s still the sound of one hand clapping (in support of reform) when compared to the chorus” of anti-reform ads (Haberkorn, Politico, 10/15).

Coverage Changes

  • Last week, nearly 90,000 nonunion workers at Boeing received letters stating that new regulations under the federal health reform law were among the reasons that they would have to pay more out-of-pocket for health coverage in 2011. However, a spokesperson for the company on Monday clarified that the changes to the workers’ benefits already had been planned before the overhaul was enacted. Under the changes, annual deductibles for single Boeing workers would increase by $100 next year, to $300, while the deductibles for families would rise by $300 to $900 annually (Alonso-Zaldivar, AP/San Francisco Chronicle, 10/18).
  • Medica, the last insurer in Minnesota to offer child-only policies, has dropped the plans, citing a provision in the federal health reform law. Dannette Coleman, a vice president with Medica, said in a statement, “Medica simply cannot take the financial risk of being the only health plan in this market to offer year-round guaranteed issue of minor-only policies.” In September, three other Minnesota insurers said they were dropping their child-only policies because of the overhaul (Snowbeck, St. Paul Pioneer Press, 10/15).
  • Officials in several states plan to ask the federal government to scale back the medical-loss ratio requirements under the federal health reform law, which many feel are too restrictive and will take effect too suddenly. In a letter to HHS Secretary Kathleen Sebelius, state insurance commissioners outlined the process by which they will ask for waivers from the MLR requirements. Several state insurance commissioners — including those in Maine, Iowa and South Carolina — already have asked for such waivers (Haberkorn, Politico, 10/19).

In Public Opinion

  • The phrasing and structure of questions in surveys regarding the federal health reform law play an integral role in how respondents answer, according a Kaiser Family Foundation analysis. The analysis found that public support to repeal the law varied from a high of 51% in an NBC News/Wall Street Journal poll, to as low as 26% in a KFF survey conducted in September. KFF analysts noted that the four surveys that found the lowest proportion in favor of repeal first offered respondents a chance to describe their overall views on health reform before asking those who had expressed negative views whether they would support repeal (Reichard, CQ HealthBeat, 10/15).
  • In related news, KFF‘s October Tracking Poll found that public support for the overhaul over the past month dropped by seven percentage points, to 42%, but the percentage of Democrats who said they were encouraged to vote in next month’s midterm elections because of the law increased from 30% to 37%, reports. Meanwhile, 34% of Republicans and 25% of independents said they would vote because of health reform next month, down from 40% and 29%, respectively, in KFF’s September poll (Haberkorn, Politico, 10/18).
  • A new Washington Post-ABC News poll found that 46% of voters are supportive of the overhaul, which is unchanged from a similar poll that was conducted in March after the law was enacted. Fifty percent of voters expressed opposition to the law, and more than 75% of such opponents said they would support an effort to repeal the law, according to the poll. Among voters age 50 and older, 55% of respondents expressed opposition to the law, while about 40% said they had concerns about the proposed reforms (Dropp, Washington Post, 10/15).

Looking Down the Road

  • Mental health care providers across the country are expressing concern that the expansion of Medicaid under the health reform law will lead to higher patient loads that could strain their resources. In addition, hospitals, physicians, nurses and health care advocates are worried that existing medical facilities will not be able to support an expansion of mental health services. Federal officials are seeking to correct the problem by incorporating mental health services into primary care (Fears, Washington Post, 10/12).
  • U.S. medical schools in 2010 experienced an increase in minority student enrollment, indicating a growing interest in medicine as implementation of the federal health reform law begins, according to a study released last week by the Association of American Medical Colleges. The number of overall students enrolled in medical school in 2010 increased by 2.5% over 2009. According to the study, the largest enrollment increase was among Hispanic men, with about 17% more enrolling in 2010 compared with 2009. AAMC estimates that the nation’s physician shortage will grow to 90,000 doctors by 2019 (Fears, Washington Post, 10/13).

Related Topics

Insurance Road to Reform The Health Law