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Health Care Reform Memo: December 22, 2009

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.

Senate bill update

Monday morning at 1:00am, the Senate voted 60-40 to close its three week debate on the 2,094 page Senate health reform bill and 383 page manager’s amendment — a package of changes proposed by Majority Leader Reid (D-NV). This is the first of three procedural votes that eventually will bring the debate to a close. This vote is to invoke cloture on the Manager’s amendment. Tuesday they will need to invoke cloture on the Reid substitute. Wednesday they invoke cloture on the bill itself.

Key features of the Senate bill are:

Focus Senate Bill Features

Increased access to insurance for the uninsured

  • 14 million new enrollees in Medicaid
  • 17 million new enrollees in subsidized private insurance programs
  • Forecast uninsured in 2019 reduced from 57 million to 23 million

Individual mandate requiring all Americans to purchase health insurance with a penalty (up to 2 percent of household adjusted gross income or $95 a year per person in 2014; $350 in 2015; $750, whichever is greater, in 2016 and beyond. No penalty if the cost of cheapest available plan exceeds 8 percent of household AGI.

Expansion of Medicaid eligibility extended to individuals/families up to 133 percent of the federal poverty level (FPL) – federal government to pay 100 percent of costs for additional enrollees 2014-2016 except for state of Nebraska, which receives federal funding in perpetuity. Federal medical assistance percentages (FMAP) formula adjusted through 2019 to account for regional cost differentials.

Federal subsidies for individuals/families between 133-400 percent of the FPL and small businesses under 50 employees to purchase insurance through the insurance exchanges. Also, any employees who spend 8.0-9.8 percent of their income for coverage can access insurance through the exchange using employer vouchers (see below).

Tax credits for up to 50 percent of premium costs for employers with 25 or fewer workers and average wages of $50,000, for up to six years.

Retiree coverage: Government would cover 80 percent of retiree’ medical claims of more than $15,000 through 2013, with a cap at $90,000; 100 percent paid by the employer’s coverage thereafter. 100 percent for employers with ten or fewer employees and average wages of less than $25,000.

Extends Children’s Health Insurance Program to 2015 (covers 11 million).

Expands eligibility for “young invincibles”: Young Americans eligible for a catastrophic plan up to age 30 and dependent coverage for children up to age 25.

Employer penalty: Employers with more than 50 full-time employees would pay penalty of $750/employee—penalty funds vouchers for employees to purchase insurance.

Insurance regulations: Individuals and small businesses under 50 employees will have access to at least two plans offered through state-run health exchanges, at least one a not-for-profit option. Insurance industry regulatory reforms to reduce premiums and increase access to insurance in areas where insurance markets are deemed non-competitive by (1) limiting variation in premium “banding” to 3:1 based only on age, family size and geography; (2) requiring medical loss ratio (MLR) to be no less than 85 percent until 2014 and voluntary reporting thereafter, (3) plans must have actuarial value of at least 60 percent, (4) creation of state-run health exchanges, (5) creation of two new plans to be overseen by the U.S. Office of Personnel Management (OPM): one for long-term care, and a second to be offered by not-for-profit insurance companies through exchanges following required coverage and actuarial value requirements (6) elimination of insurance anti-trust exemption, (7) elimination of pre-existing condition as basis for coverage, (8) elimination of lifetime $1 million expenditure. NOTE: Blue Cross plans would be permitted to offer a single national plan and not be subject to the industry fee if their MLR is above 85 percent, and states will have the power to oversee abortion coverage via the exchanges, with consumers assured public funding for abortions would not be directly accessible through federal subsidies and plans not forbidden/required to provide coverage. Also, states can create interstate insurance exchanges and permit employers up to 100 employees to participate).

Improved quality and safety in the delivery system

  • Coordination of care
  • Improved safety
  • Increased efficacy and effectiveness of care
  • Adherence to evidence-based practices by providers

Stipulates that the Secretary of Health and Human Services (HHS) will define “essential health benefits” that are covered by Medicare and plans included in heath exchanges (by 2014).

Establishes the National Prevention, Health Promotion and Public Health Council to coordinate federal prevention, wellness, and public health activities: strategy due one year from bill passage (includes waiver of co-payment for preventive health services by plans in health exchanges. Also includes requirement that every senior access to a personal risk assessment and health plan within 18 months).

Creates mechanism (agency/program) to evaluate and improve worksite safety and quality (working with U.S. Dept of Labor).
Includes new long-term care insurance plan, the CLASS Act – voluntary insurance program that covers medical and non-medical services for those with cognitive impairment or inability to carry on “normal self care” like dressing, bathing, and using the bathroom (seniors pay premium up to $123/month starting FY2011. If they pay premiums for five years, they are eligible for the lifetime benefit ($75/day). NOTE: this results in a surplus of $72B from 2010-2019 as result of timing of revenues versus expenses).

Creates Patient Centered Outcomes Research Institute governed by an outside Board of Governors (effective 2010) to evaluate strength of evidence and implement advisory program to Medicare for coverage, performance-based payments (therapeutics, surgery, diagnostic imaging).

Increases transparency of pricing, safety, and quality measures of hospital, physician and allied professional performance.

Creates Centers for Innovation to expedite development of breakthrough solutions to improved care.

Expansion of pilots in the medical home, episode-based payments and medical liability reform.

Medicare funded/accelerated adoption of episode-based payments to accountable care organizations.

Increases regulatory oversight of physician-owned single specialty hospitals.

Reduced costs

  • From 6.2 percent CAGR forecast to 4.7 percent
  • CBO forecast: $871 billion cost; $132 billion surplus 2010-2019

$72B of surplus from the CLASS act covering long-term care (premiums collected starting FY11).

An independent commission will set payment rates for physicians (not hospitals).

The Patient Centered Patient Outcome Institute will facilitate coverage of evidence-based diagnostic tests and treatments for conditions while reducing inappropriate (non-evidence-based) overuse of surgical/diagnostic/therapeutic interventions that do not improve quality and enhance outcomes.

Increased transparency of pricing and requirements that pricing information be available to consumers in advance of services being rendered (using administrative simplification).

Increased emphasis on primary care, preventive health, patient-centered medical homes, coordination of care, administrative simplification, adoption of electronic health records and integration of long-term care into accountable care organization models provide platform for improved care and reduced costs.

Method of funding health reform (cost: $871B/2010-2019 per CBO)

Medicare cuts: $483B (hospital payments, Part C Plans-$118B, prescription drugs).

Increased hospital insurance: $87B – 1.45 to 2.35 percent on employee share for individuals above $200,000 and families above $250,000 matched by employer contributions.

Tax on Cadillac plans: $149B 2013-2019 (longshoremen, miners, police, firefighters, communications workers exempted).

Industry fees: $101B 2011-2019 (plans $2B to $10B/year 2011 to 2017 with not-for-profits exempt if MLR 85 percent or more: labs, devices $2B/year 2011-2016 $3B/year 2017-2019; drugs $2.3B/year).

Savings from long term care (CLASS Act): $72B (Senate), $102B (House).

Tax on tanning salons: $2.7B (10 percent of revenues).
Other tax increase: $58.4B

Significant discussion items

Based on the highly debated issues to date, the questions which will likely see significant discussion, either in the Conference committee or in the larger debate between proponents of the current legislation and their opponents, include:


  • The strength of the individual mandate
  • Effect of the Medicaid expansion on states
  • Addressing the clinical workforce implications
  • Impact on employer participation
  • Participation by immigrants
  • Hospital financial impact
  • Expansion of state role in health care


  • Effect on continuing innovation and risk
  • Comparative clinical effectiveness
  • Expansion and integration of long-term care (LTC) expansion and integration
  • Preventive health and demand management


  • Funding formula for the bill
  • The physician fix and Medicare payments
  • Higher costs to younger, healthier consumers
  • Medical liability
  • The long-term structural cost implications of the bill
  • Relative merits of a not-for-profit (NFP) versus for-profit (FP) model

Given the heightened pace of activity over the past few weeks, after the first of the year the Monday Memo will explore several of these issues in depth to understand where things stand, where they might go as conferees progress in their discussions, and the implications for business.

Consumers believe health care reform will lead to increased federal budget deficit and taxes: New Deloitte Center for Health Solutions pulse survey

A majority of adults in the United States believe that health care reform will increase the federal budget deficit (73 percent) and will lead to higher taxes (74 percent), according to results of a Deloitte Center for Health Solutions survey of 1,000 adults. Moreover, an overwhelming majority (87 percent) of consumers agree that health care costs would be reduced dramatically if people lived better lives, according to the survey. The survey also addressed the increasing uncertainty around the timing of health care reform. While 51 percent disagreed with the statement that health care reform should wait until the economy recovers, 47 percent indicated that it should wait. More than half of the respondents, 56 percent, indicated they are tired of hearing and reading about health care reform. And 51 percent of respondents agree that health care reform is too complicated for Congress to tackle.

Who are the uninsured today?

A major focus of the reform debate is expanded access to insurance. Currently, 46.3 million in the United States do not have health insurance in 2009, according to the Congressional Budget Office and other government sources. The data represent the number uninsured at any point in time as many people are insured for less than a year, and others permanently uninsured. Characteristics:

  • 9 million — illegal immigrants 4 million, 5 million with visa privileges
  • 25 million — individuals/families with income below 200 percent of the federal poverty level ($44,100 for family of four)
  • 12 million — adults and children eligible for Medicaid or SCHIP but not enrolled
  • 16 million — adults aged 18-29 including students, part-time workers, highest age cohort of uninsured — 30 percent of total

COBRA subsidy eligibility to be extended through February 28, 2010

A provision in the Department of Defense Appropriations bill approved Wednesday by both houses extends eligibility for the 65 percent COBRA premium subsidy to individuals experiencing involuntary terminations through February 28, 2010 from nine months to 15 months. If signed into law by President Obama (as expected), these changes will take effect as if they had been included in the American Recovery and Reinvestment Act (ARRA) – the bill that created the subsidy earlier this year. Another bill pending in Congress – the “Jobs for Main Street Act” – would further extend eligibility for the subsidy through June 30, 2010. The House has passed that bill, but the Senate is not expected to act on it until sometime next year. 

NOTE: Included in the $635B Defense Appropriation bill, the Senate also set aside the physician fix until March 1, setting the stage for debate soon after the first of the year.

HHS announces new $60M program to address IT adoption challenges

Friday, HHS Secretary Sebelius announced funding through the Office for the National Coordinator for Health IT (ONC) to find solutions to health IT adoption challenges including security, clinical decision support, network architecture and secondary use of data support. The development of the Strategic Health IT Advanced Research Projects (SHARP) Program. Funding will be distributed through them and support for research grants totaling $60M will be awarded. Two weeks ago, HHS announced a parallel grant program—the $235M Beacon Community Cooperative Agreement Program to be awarded 15 communities where advanced efforts toward adoption of EHRs.

Part D update: Kaiser analysis

December 31 is the enrollment deadline for the Medicare Prescription Drug program. The Kaiser Family Foundation analysis indicates:

  • Seniors will pay 11 percent higher premium in 2010 versus 2009 with wide variance from region to region.
  • Seniors will pay higher co-payments for drugs: 50 percent increase for branded and 40 percent for generics.

In the health reform bills pending in both houses, the “donut hole” between $2,600-$6,100/year is eliminated, expanding Part D coverage benefits. (Source: Kaiser Family Foundation, 2009 )

Update: The physician fix

The Medicare Physician Fee Schedule goes into effect on January 1, 2010, resulting in a 21.2 percent reduction in the physician fee schedule. Physician administered drugs have been removed from the sustainable growth rate (SGR) calculation reducing the accrued liability to $210 billion. While not covered in the House bill, the Senate has a 0.5 percent increase for 2010.

Data file

  • About 15 percent of soldiers said they had abused prescription drugs (especially painkillers) in the past 30 days versus 4 percent in a 2005. Narcotic pain-relief prescriptions for injured or wounded U.S. troops jumped from 30,000 a month to 50,000 since the Iraq war began, according to USA Today research.
  • Physician liability premiums: Per AMA Medical Liability Option, for 94 percent of physicians, medical malpractice premium costs as a percentage of net practice revenue have not increased since 1994 (Source: Medical Liability Monitor, American Medical Association)
  • 74 percent of insurance company premiums is spent on medical care (Source: Senate Commerce Committee, 2009).

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