FR: Sara Rosenbaum and Lara Cartwright-Smith

AF4Q Health Reform 4

November 7, 2009

TO: AF4Q Community

RE: Summary of National Health Reform Proposals in the House and Senate

DATE: November 7, 2009

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With the historic House and Senate floor debates pending, we thought that it would be useful to provide a memo to the Aligning Forces for Quality (AF4Q) community outlining critical elements of national health reform. Fuller analyses of the House and Senate measures[1] can be found at

http://www.gwumc.edu/sphhs/departments/healthpolicy/healthReform/Tables.cfm.

This memorandum highlights issues of particular importance to the AF4Q program, summarizing both the coverage reforms and the key reforms aimed at reformulating health care quality, efficiency and performance transparency and measurement.

In General

In general, the measures take the same fundamental approach and are far more structurally and conceptually alike than their length, enormous detail, and differences in terminology might suggest. For example, both the House and Senate measures would:

§ Introduce an individual insurance mandate with subsidies aimed at making the mandate affordable;

§ Significantly expand and restructure the Medicaid program to reach all low income individuals under age 65

§ Tie health insurance reforms for the individual and small group markets to the establishment of a health insurance exchange system, whose purpose is to create a group insurance market offering reasonably comprehensive, non-discriminatory, and affordable health insurance products for people who are eligible to buy in the new market.[2]

§ Direct the Centers for Medicare and Medicaid Services (CMS) to more directly and actively engage in health system reform through coverage, payment, quality improvement, and value purchasing innovation in Medicare and Medicaid, while simultaneously reducing the investment in the purchase of Medicare Advantage products.

§ Take steps to strengthen the nation’s commitment to comparative research into treatment effectiveness and patient health outcomes.

§ Invest in community prevention, health workforce reform, and the expansion of primary health care, particularly in medically underserved communities

At the same time there are important differences.

· The House bill offers a federally administered vision of reform. The bill provides for a federal exchange system with regional exchanges operating under common standards, and the use of large, regional health insurance markets. By contrast, the Senate bill retains states as the primary actors in organizing and overseeing the health insurance market for individuals and small groups.

· The House is more committed to a national public health insurance plan as a product offered in the exchange, while the Senate is still formulating its position over a public plan as it seeks the right political balance among potential supporters.

· The House has a more rigorous individual mandate, applicable to the entire population. The Senate has a softer requirement and excludes certain persons altogether from the ability to secure coverage through a health insurance change (i.e., undocumented persons).

· The House and Senate both finance coverage subsidies and public program expansion through a combination of individual and employer contributions, new taxes, and federal spending reductions, but the mix and emphasis differ. The Senate secures revenues through taxes on the health care industry (including new taxes on certain high value plans), coupled with modest penalties on employers that do not offer plans and on individuals who do not secure coverage. By contrast, the House emphasizes higher taxes on affluent individuals and a more significant employer contribution requirement.

While this “top-level” synopsis reveals important differences, it also underscores that once House and Senate floor action have been completed, a conference agreement should be within reach. The remainder of this memo reviews the broad issues of coverage and the health insurance marketplace reforms that are central to the reform measures. It then discusses areas of specific interest to Aligning Forces for Quality, including quality improvement, performance measurement, and payment and delivery system reforms.

Coverage

1. Individual responsibility and penalties

The House and Senate impose a general obligation on individuals to buy health insurance coverage. The House extends its mandate to all individuals while the Senate limits the mandate to citizens and legal residents, imposing a citizenship test on individuals who seek exchange subsidies.

The Senate would impose a relatively modest penalty (rising from $0 to $750 by year five), while the House bill would impose a penalty equal to 2.5% of adjusted gross income. Both the House and Senate allow individuals to satisfy coverage obligations with a range of alternatives including the exchange market, public insurance (i.e.., Medicare or Medicaid eligibility), employer-sponsored coverage, or veterans’ health care (in the Senate Finance Committee proposal). Both the House and Senate also include an exemption based on religious belief.

2. Non-discrimination based on health status or other factors

Both the House and Senate bills would by and large prohibit discrimination on the basis of health status at the point of enrollment, regardless of whether enrollment is in an employer plan or an exchange plan. (The bills would permit relatively brief exclusionary provisions for people who have received advice, diagnostic, or treatment services for a condition within 30 days prior to enrollment).

In addition, both the House and Senate Finance Committee proposal would subsidize immediate access to state high risk pools (within a year of enactment) for individuals excluded from the individual market and without other sources of coverage.

The House and Senate would also limit the factors that can be considered in setting premiums. Age, rating region, and family enrollment variations are permissible. The Senate also allows premium discounts for participation in “reasonably” designed wellness programs as well as rating tied to tobacco use.

3. Affordability: premium and cost sharing assistance for the purchase of private insurance and special affordability rules for “young invincibles”

Both the House and Senate offer subsidies/affordability credits on a sliding scale up to 400% of the federal poverty level for individuals and families who purchase in the exchange. Both the House and Senate would require exchanges to offer a range of products of varying actuarial values, and thus, varying prices.

Individuals and families who are not offered employee coverage or whose coverage is considered unaffordable as a result of employer contribution limits would be allowed to purchase subsidized coverage through the exchange under the Senate Finance measure (which does not set minimum employer contribution requirements).

Both the House and Senate offer cost sharing affordability credits pegged to the federal poverty level (200% with House affordability credits). In addition, the Senate Finance Committee would permit the sale of “young invincible” products for individuals ages 25 and younger and limited to catastrophic coverage.

4. Medicare, Medicaid, CHIP, and new state-administered public insurance options

Medicare. The House and Senate proposals would improve the Part D “doughnut hole” coverage. Both measures would make brand name drugs available at a discount, while the House measure would slowly shrink the size of the hole over a multi-year time period in order to eliminate beneficiaries’ financial exposure.

Medicaid. Financial eligibility for Medicaid in the case of non-elderly, non-disabled populations would rise to a standard 133% of the federal poverty level (with a new simplified methodology used to calculate family income, and no asset test) under the Senate Finance Committee’s proposal. In the most recent version of the House bill (released October 29, 2009), Medicaid eligibility would be expanded to 150% of the federal poverty level. In addition, categorical restrictions on coverage would be eliminated so that all adults under the income limit would be covered regardless of their status as caretaker relatives of dependent minors. Medicaid would continue to be limited to citizens and long-term legal residents.

The Senate Finance Committee would permit Medicaid-eligible individuals and families with incomes between 100% and 133% of the federal poverty level to elect exchange coverage. States would remain obligated to assure continuing coverage for all early and periodic screening, diagnostic and treatment (EPSDT) benefits for Medicaid eligible children whose families select exchange enrollment.

CHIP. Under the House bill, CHIP enrollees would be transitioned into the exchange program and the CHIP program would end by 2014. In contrast, the Senate Finance Committee would retain CHIP as a separate program rather than folding it into the exchange system. The legal authority for CHIP would end in 2013, although the plan calls for its extension. CHIP’s interaction with both state public plans (discussed below) and the exchanges is not addressed.

Separate state administered public plans. The Senate Finance Committee measure also would permit states to establish separate public insurance plans (known as basic health plans) for individuals and families with family incomes between 133% and 200% of the federal poverty level, retaining such families in separate plans. The proposal does not address the interaction of these plans either with Medicaid and CHIP or with health insurance exchanges.

5. Paying for coverage: employer responsibilities and government spending offsets through public spending reductions and new taxes

The House measure assumes a pay or play system, with employers responsible for paying up to 72.5% of the premium for individual coverage (65% for family coverage) or an 8% payroll tax into the exchange. The House would wholly or partially exempt small employers (payrolls $500,000-$750,000).

By contrast, the Senate Finance Committee measure does not impose an employer “play or pay” requirement, instead requiring employers with more than 50 employees that do not offer plans to pay into exchanges for those employees who receive tax credits to purchase coverage through an exchange.

Both the House and Senate would offer tax credits to small employers and would establish temporary reinsurance to employers covering retirees ages 55-64.

The Senate Finance Committee imposes an excise tax on health insurance defined as high cost under a special formula. The Senate Finance Committee also would limit Flexible Spending Accounts (FSAs) and cafeteria plans (but not Health Reimbursement Arrangements [HRAs]) to $2500 and, in the case of the under-65 population, would raise the level of individual expenditures that would be required before health care spending would be considered deductible. The Senate also would impose new annual fees on the health care sector, including pharmaceutical manufacturers ($2.3 billion), medical device manufacturers ($4 billion), and insurers ($6.7 billion)

The House measure would impose new taxes on certain high income individuals and families.

Both the House and Senate measures contain Medicare and Medicaid funding reductions to offset the cost of government subsidies. Both measures contemplate a down-sizing of Medicare and Medicaid disproportionate share payments (at differing rates), as well as a reduction in Medicare payment rates (for example, the Senate corrects the physician Medicare payment problem only for one year, leaving years beyond 2010 in doubt). In some cases, provisions framed as payment reductions in the House bill (e.g., payment reductions for excess readmissions) become demonstration incentives in the Senate measure (e.g., the Senate Finance Committee’s demonstration to reduce readmissions). The Senate Finance and House measures contain numerous changes in payment methodologies, standards, and levels covering home health, supplies, durable medical equipment, hospice, and hospital services. Both measures would alter the Medicare Advantage (MA) payment methodology, in the case of the House by equalizing MA to fee-for-service, and in the Senate by pegging MA payments to MA bids.

The New Health Insurance Market

1. Exchanges

The House and Senate both provide for exchanges (the Senate HELP Committee terms these “gateways”). However, the House bill calls for a federal exchange system with but allows states or groups of states to create state exchanges to operate in lieu of the federal exchange in those states. The Senate calls for state exchanges with a state opt-out provision.

2. Conditions of participation for health plans: benefit design, marketing and enrollment, and administration

Plans that sell in health insurance exchanges would be required to cover certain specified benefit classes, with a minimum actuarial value of 65% in the Senate Finance Committee measure and 70% in the House. Both the House and Senate place limits on cost-sharing and out-of-pocket payments for covered services. Both the House and Senate would bar annual or lifetime limits on coverage and both would require a federal process for updating the minimum benefit design. The House measure includes provisions aimed at barring discrimination in coverage on the basis of measures other than medical necessity; the Senate includes a similar provision. Both the House and Senate would extend current group plan protections related to genetic non-discrimination, mental health parity, postpartum care for mothers and newborns, and breast cancer surgery reconstruction to exchange plans.

3. Public health insurance option

The Senate HELP committee would create a public plan while the Senate Finance committee would provide for health insurance cooperatives through which individuals without access to group insurance could purchase an affordable plan. The House would create both a public plan within the exchange and establish a program to assist in the establishment of non-profit health insurance cooperatives to provide additional options. The House would also authorize the Secretary to negotiate rates with providers that participate in the public plan.

4. Changes to the employer sponsored market

The House and Senate both assume new content requirements for employer-sponsored plans that mirror changes adopted in the exchange market. The Senate also would encourage multi-state markets and would allow insurers to establish national plans that can be sold in any state in which the insurer is licensed, while the House would allow states to form compacts to facilitate the purchase of insurance across state lines. The House measure would preempt state insurance benefit standards but would permit states to require additional benefits with state subsidies for the additional value of coverage. The House and Senate would both establish medical loss ratio requirements for plans.

5. Medicare and Medicaid coverage reforms

Both the House and Senate would improve coverage of clinical preventive services in Medicare and Medicaid, with respect to both clinical screening and immunization. The House also would extend Medicaid to all newborns who lack acceptable coverage and would create new options for covering HIV-infected individuals and family planning services.

Health Care Payment and Delivery Reform; the Information and Quality Enterprises