Health Care Reform Memo: February 22, 2010

A Deloitte Center for Health Solutions publication

The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the new administration and implications for the C-suite and various stakeholder groups.

Bi-partisan health summit preview

Thursday, 37 members of Congress and five senior White House and Department of Health and Human Services (HHS) officials will convene at Blair House to attempt a bi-partisan health plan that meets White House expectations for reduced health care costs and expanded access and Republicans’ desire to limit costs and protect the current system.

The stakes are high. Consider:

  • The economy is slowly recovering, prompting the Office of Management and Budget (OMB), Congressional Budget Office (CBO) and Senate Budget Committee to conclude cuts to the future rates of growth for Medicare and Medicaid are necessary to recovery.
  • The public’s mood is dicey: most see the need for health reform, the “fix” is not clear but they do not trust Congress or either party to “fix it”. (see Pulse Survey below)
  • It is an election year. All members of the House and one third of the Senate are up for re-election other than retirees. And in 35 states, gubernatorial races are underway with primaries starting next month; in each, health costs, particularly Medicaid, are a major issue in the state’s fiscal health. (See National Governors Association below)

The White House released its plan today at 10 a.m. ET, featuring:

  • Increased regulation of health insurance company premium increases: the President is proposing a new seven-member Health Insurance Rate Authority under the oversight of the Department of Health and Human Services to oversee rate increases and consumer protections working with state departments of insurance;
  • Reductions in targeted concessions made to unions and special groups exempted from the “Cadillac tax” on high-cost insurance plans;
  • Elimination of the state Medicaid concessions (e.g. Louisiana, Nebraska) along with increased funding to states for increased Medicaid enrollment ($87 billion available to states in the stimulus, FY11 budget included additional $25 billion);
  • Incentives for small businesses to purchase/maintain health insurance programs.

Many features in the Senate bill (approved 12/24/09) are in the White House proposal. Noticeably, a public option and employer mandate are not.

Thursday’s Summit will be televised live on C-SPAN and feature opening statements by President Obama and party leaders, followed by discussion of reforms in four areas: insurance reforms, cost containment, expanding coverage, and economic impact.

Invitees received this message from White House Chief of Staff Rahm Emanuel and HHS Secretary Kathleen Sebelius:

“I’m looking forward to a constructive debate with plans that need to be measured against this test: Does it bring down costs for all Americans as well as for the federal government, which spends a huge amount on health care? Does it provide adequate protection against abuses by the insurance industry? Does it make coverage affordable and available to the tens of millions of working Americans who don't have it right now? And does it help us get on a path of fiscal sustainability?”

Behind the scenes, press reports indicate party leaders and White House officials are working to assure the summit is substantive; and the President devoted weekly radio and TV addresses to the Summit.

Insurance reforms:

  • Expanded coverage for “young invincibles”
  • Protections against rescissions (loss of coverage)
  • Provisions to allow consumers to purchase insurance across state lines
  • Implementation of health exchanges

Cost containment:

  • Expansion of programs in primary care, preventive health, community health centers and chronic disease management
  • Agreement that entitlement cuts are necessary to long term economic recovery
  • Use of information technologies to reduce fraud and paperwork (administrative simplification)

Expanded coverage:

  • Standardization of Medicaid eligibility and “basic benefits”
  • Expansion of eligibility for COBRA, SCHIP and Medicaid
  • Incentives for small business owners to provide insurance coverage

Economic impact:

  • Presidential Commission on Deficit Reduction* (already appointed)
  • Agreement that entitlement cuts—Medicare, Medicaid—are likely

Major points of contention will remain in all likelihood:

Coverage: The House and Senate bills added 31 million to the ranks of the insured (expansion of Medicaid, subsidies for individuals and small businesses); however, concerns about the economy are viewed by some as more important than coverage at this point.

Insurance industry reform and the public option: While there’s consensus about certain reforms (cross state purchasing by consumers, protections against loss of coverage), differences remain: state vs. federal oversight of health insurance exchanges, guaranteed issue and lifetime limits, and the public option which got new life last week as 17 Democratic Senators notified Majority Leader Reid of their continued desire to see it addressed.

Liability reform: The President indicated (September 9, 2009) he was willing to consider changes. The CBO scored its savings at $54 billion over ten years, but two weeks ago, the Illinois Supreme Court struck down the state’s law capping pain and suffering awards. The prospect of liability reform will certainly be a focus of varied viewpoints.

Costs for health reform and the deficit: The GOP plan price tag was $70 billion over ten years; the Senate and House bills $900 billion. Neither included the “physician fix”. Republicans have encouraged health reform to wait until the economy recovers; Democrats have countered that the deficit can’t be avoided but economic recovery will require health reforms including cuts to entitlements.

Funding: The Senate bill included the excise tax on high value “Cadillac” plans as a revenue raiser – later modified to exclude union plans until 2018. Republicans and some moderate Democrats (co-sponsors of Wyden-Bennett) prefer to remove the employer tax exemption from businesses altogether and provide tax credits to individuals—a $215 billion/year pickup for the Treasury. And the Senate bill also included industry fees (excise taxes), a 0.9 percent increase in the Medicare wage tax for higher income employees, and a variety of taxes. By contrast, the House bill imposed higher income taxes on wealthier individuals/households as its principal funding focus. The GOP characterizes funding mechanisms like these that hit small businesses and higher income individuals/households as counter-productive to long-term job growth and economic recovery.

Our take: The Thursday meeting is important to demonstrate to the base in each party the direction health care will go in the current political season. If bi-partisan efforts are perceived to be substantive and genuine middle ground is achieved on key issues, the rhetoric in campaign 2010 will likely be less about health care reform for most incumbents and more about jobs, the economy and national defense.

If the meeting marginalizes substantive efforts and results in little progress, health reform will be a major issue in campaign 2010. the likelihood is high that a 51-vote Senate majority might use reconciliation to enact budget-related reforms and/or a series of a la carte bills addressing insurance reforms and others enacted by individual members. Health reform will remain a key focus of the 2010 campaign season.

Health reform version 2.0 is underway. Thursday’s event is opening day.

The public mood: Confused, fatigued, disillusioned

Deloitte Center for Health Solutions’ survey suggests the public’s mood since the fall has been unchanged. It does not believe Congress can “fix” the system though its problems are recognized. Most fear mandates but think everyone should have insurance, and few are willing to pay more.

Public opinion about reform was mixed: the problems need to be fixed but not at the expense of higher taxes and not by Congress

Deloitte Center for Health Solutions Pulse Survey, December 2009

Opinion Percent that strongly agree or agree Percent that strongly disagree or disagree
The U.S. health care system is better than any other system in the world 44 percent 53 percent
Health care reform is too complicated for Congress to tackle 50 percent 48 percent
The majority of people without health insurance could afford it if they wanted it 24 percent 76 percent
You are tired of hearing and reading about health care reform 56 percent 43 percent
You will pay higher taxes as a result of health reform 74 percent 26 percent
The health care reform bill will increase the federal budget deficit 74 percent 22 percent
Medicare is going to be bankrupt before you can participate in the program 63 percent 37 percent

National Governors Association winter meeting: Health reform issue one

This weekend, the governors met in Washington, DC to discuss issues and health reform was the top item. In opening remarks, NGA Chairman Jim Douglas (R-VT) sounded the theme: 

“I had expected that we would be here today talking about implementation of a new national health plan enacted by Congress. But we cannot wait for the federal government. We are going to move forward. We will provide leadership with or without a federal health care bill.”

The fiscal health of states is dire: 43 states cut $31 billion from their 2009 budgets; 36 states cut $55 billion in 2010 YTD; and 30 states cut elementary, secondary and higher education budgets this year. Note: Medicaid is 22 percent of the average state’s budget. Stimulus and FY11 federal funds provide $112 billion to states to offset Medicaid enrollment increases and costs, but these funds expire in September 2011, leaving states obligated for ongoing funding thereafter. Governors in both parties are asking for flexibility to structure and manage their Medicaid programs effectively and economically.

Brock elected NAACP board chair; health care a prominent issue

Roslyn M. Brock, 44, will step down as Vice President for Government Relations of Bon Secours Health Care to become the Chairwoman of the National Association for the Advancement of Colored People (NAACP), succeeding Julian Bond. The vote by the group’s 64-person board reflects growing attention to health care disparities and access. Brock has served on the NAACP board for ten years.

Avandia: Case study in FDA, Congressional oversight, comparative clinical effectiveness, global R&D market and complexity

Last week, internal FDA documents obtained by The New York Times suggested the diabetes drug Avandia’s safety might still be problematic, thus requiring additional studies that will not be conclusive before 2020. Meanwhile, the drug’s patent will expire in 2012. The closely watched case is exemplary of the complexity of comparative effectiveness research, and the attention Congress pays to high profile drugs via its oversight of the FDA. In the Avandia case, leaders of the Senate Finance Committee began investigation in 2003, and directed the FDA to do additional studies to assure the drug’s safety. (Source: Harris, Gardiner in The New York Times, Feb 19, 2010)

New appointments rounding out oversight teams

Last week, three appointments to key posts were made:

Marilyn Tavenner, Principal Deputy Administrator, Centers for Medicare and Medicaid Services

Former Virginia health commissioner and HCA senior official Marilyn Tavenner has been named CMS Principal Deputy Administrator, a new position in the soon-to-be-restructured Centers for Medicare and Medicaid Services. The overhaul in CMS also produced several new operating units: the Center for Medicaid and State Operations, the Center for Program Integrity, the Center for Strategic Planning and the Office of External Affairs & Beneficiary Services. Note: A Director of CMS has not been appointed.

Joy Pritts, Chief Privacy Officer, Office of the National Coordinator for Healthcare Information Technology

Joy Pritts, a lawyer and privacy researcher at Georgetown University’s Health Policy Institute, was named as the first Chief Privacy Officer to the ONC, a position created under ARRA. As Chief Privacy Officer, Pritts will advise Dr. David Blumenthal, the National Coordinator for Health IT, about policies on privacy, security and data stewardship of electronic health information.

Robert Petzel, Undersecretary for Health, Veterans Administration

Last week, Petzel was sworn in as Undersecretary for Health in the Department of Veterans Affairs. The VA serves eight million veterans in its 153 hospitals, 800 clinics and 232 readjustment counseling centers. Petzel had been serving as acting principal deputy undersecretary for health previously.

Premium increases in individual insurance get attention

Two weeks ago, a California insurer’s request to increase premiums 39 percent for its individual policyholders drew attention from the White House. The request was rescinded February 13. Thursday, HHS Secretary Kathleen Sebelius released a report challenging similar premium increase requests in Michigan (56 percent), Connecticut (24 percent), Maine (23 percent) and Oregon (20 percent) suggesting they underscore the need for insurance industry reforms.

Insurance industry spokespersons from Blue Cross Blue Shield Association and America’s Health Insurance Plans criticized the report citing four reasons that it misrepresents facts:

  1. The underlying costs of medical care for the individual market increased 14 percent
  2. Enrollment in individual insurance plans decreased leaving sicker enrollees in these plans
  3. Prior year’s efforts to raise premiums had been denied so losses were accruing
  4. The regulatory apparatus used to oversee the individual market adds to its costs.

The report cited CBO forecasts showing insurance premiums increasing 200 percent through 2019 compared to 120 percent increases for physician services and prescription drugs. Note: the individual insurance market enrolls 27 million.

Medicare Part C premium increase 14.2 percent: Avalere study

Premiums for Medicare Advantage plans (Part C) that combine coverage for hospitals, doctors and prescription drugs for seniors increased 14.2 percent in 2010 over 2009 to $39.61/month compared to a 5.2 percent increase the prior year. The Part C plans currently enroll 8.5 million. Friday, CMS announced it would cut payments to Part C plans 4 percent in the FY11 budget, suggesting plans will increase premiums for seniors in 2011 to offset cuts.

Health costs increased 5.7 percent in 2009; forecast spending growth highest in 40 years

Health care spending hit 17.3 percent of the GDP of the US at the end of 2009—up from 16.2 percent in 2008. While the overall economy shrank 1.1 percent in 2009, costs increased 5.7 percent overall, 8.7 percent in government programs (Medicare, Medicaid) and 2.8 percent for private businesses. The federal budget assumes health costs will increase at 6.1 percent annually with GDP growth forecast at 4.4 percent annual growth through the end of the decade. 

Source: “U.S. Health Spending Projections Through 2019: The Recession’s Impact Continues” Health Affairs, February 4, 2010

FDA to review device approval methods

Thursday, the FDA will consider changes to its approval process with special attention to the use of the fast-track process called 510(k) for approvals of products that are similar to devices already on the market (known as predicate devices). The 510(k) process is used for approvals to 3,000 devices annually, most turned around in 30 days. Critics and senior FDA officials believe it does not provide adequate safety to the public; industry leaders say elimination of the 510(k) process will increase manufacturing costs and might threaten the solvency of smaller device makers (80 percent of the 6,000 medical device makers in the U.S. employ fewer than 200 employees). NOTE: In 2008, 301 510(k) reviews were completed by outside private parties to help offload growing demand on the FDA’s device staff.


“We know the American people want us to reform our health insurance system. We know where the broad areas of agreement are. And we know where the sources of disagreement lie.” 

–President Obama, Saturday radio address February 20, 2010, referring to upcoming February 25 summit

“The weak economy and the unrelenting rise in the cost of medical care make it increasingly difficult for companies to avoid substantial rate increases – even if those increases provide fresh fodder for Democrats seeking to pass the now-stalled health care legislation in Congress.”

 –Reed Abelson, New York Times February 18, 2010

“The U.S. health system remains predicated on providing acute, episodic care that is inadequate to address the altered patterns of disease now facing the American public. Our results highlight the need for prevention and care outside doctors’ offices and hospitals designed to address the changing needs of patients at risk for or living with chronic disease and, often, multiple comorbidities.” 

Source: “Chronic Conditions Account For Rise In Medicare Spending From 1987 To 2006,” Health Affairs, February 18, 2010

Fact file

  • 35 percent of CT, PET and MRI scans are unnecessary, leading to radiation exposure and more tests (Source: Elliott Fisher, Dartmouth Center for Health Policy and Clinical Practice)
  • 77.9 years of age—average life expectancy for persons born in 2010 (Source: U.S. Bureau of the Census)
  • 22 percent prescriptions are never filled (Source: Journal of General Internal Medicine study of 75,000 Massachusetts’ adults),
  • 47 percent of U.S. adults take at least one prescription drug (Source: PhRMA)
  • Newly enrollees in Medicaid: 3.3 million in 2009 bringing total to 44.8 million—a 7.5 percent increase from June 2008 to July 2009 (Source: Kaiser Family Foundation)
  • Current composition of Congress: House-- 255 Democrats, 180 Republicans; Senate--57 Democrats, 41 Republicans, 2 Independents
  • Consumer Price Index for January increased 0.2 percent --lowest monthly increase since 1982 (Source: U.S. Department of Commerce)
  • Return to peak employment at 5 percent: in 11 previous downturns not including the Depression (1929), full employment returned in average of 21 months. The 1990 recession—31 months, the 2001 recession—46 months. The 2007 recession—likely 60 months. (Source: U.S. Department of Labor)

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