Health Care Reform Memo: September 14, 2009

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.

President Obama makes primetime appeal for health reform bill September 9: Provides framework for approach

"I will not waste time with those who have made the calculation that it's better politics to kill this plan than improve it... If you misrepresent what's in the plan, we will call you out. And I will not accept the status quo as a solution, not this time, not now." 

Thus, the White House launched a renewed effort to get a reform bill on the heels of the August recess where many members faced hostile audiences fiercely resistant to proposed changes.

The 47-minute speech provided a framework for the President’s proposals with specifics of a bill to follow. The key messages were:

• The White House is committed to a health reform bill in 2009 that will control health costs, provide affordable insurance plans to the uninsured and be deficit neutral.
• The plan will likely include elements of several bills already introduced in Congress and incorporate ideas of others.
• Insurance industry reforms will be a significant part of the White House plan: “keeping insurance companies honest” and “creating competition in the health insurance market” are key focus areas for the White House.
• The cost of the plan will be approximately $900 billion over 10 years to be paid for by a combination of improved efficiency and fraud reduction, plus new taxes on higher income individuals and fees on industry stakeholder groups (insurance companies, clinical labs, medical devices, pharmaceutical companies).
• Health reform in 2009 is a moral imperative: harkening to the memory of the late Ted Kennedy, it is “his life’s work”.

The President’s comments were punctuated by references to data connecting major themes. Among the key statements and underlying evidence were:

• “Every day, 14,000 Americans lose their coverage.”
• “We spend more than one and half times more per person on health care than any other country but we are not any healthier for it.”
• “Those of us with health insurance are also paying a hidden and growing tax for those without it—about $1000 per year that pays for someone else’s emergency room and charitable care.”
• “Unfortunately, in 34 states, 75 percent of the insurance market is controlled by 5 or fewer companies. In Alabama, almost 90 percent is controlled by just one company.”
• “Insurance executives don’t do this because they’re bad people. They do it because it’s profitable….in service of meeting Wall Street expectations.”
• “If we are able to slow the growth of health costs by just one-tenth of one percent per year, we will actually reduce the deficit by $4 trillion over the long term.”

Tort reform on the table; state-led pilots likely focus

The potential for liability reform got attention in the President’s speech Wednesday night when he conceded frivolous lawsuits and defensive medicine drive up health costs. He suggested efforts to rein in malpractice costs via state-led pilot programs should be expanded. For instance, in KY, MN, and MI, doctors disclose errors voluntarily and a mediation effort is initiated. In FL, GA and IL, plaintiff lawyers have their cases reviewed by physicians in the same specialty who issue declarations that injured parties have a legitimate case. Notably, in the Senate Health Education, Labor and Pensions Committee (HELP) bill introduced by its former chairman, Senator Ted Kennedy, 11 amendments to address aspects of liability reform were defeated in committee along party lines.

Total costs of malpractice premiums in 2008: $12.8 billion; total payouts to settlements and awards to plaintiffs: $7.9 billion – 60 percent goes to attorney fees and expenses.

According to the Government Accountability Office (GAO) , medical malpractice adds 2 percent to the cost of U.S. health care. 

NOTE: The GAO analysis does not include additional testing/interventions deemed appropriate by providers to guard against the potential for liability. Some estimates put those costs at up to 15 percent; more likely, the costs are an additional 3-5 percent ($45 to 60 billion annually).

President’s willingness to consider alternatives to public option seems to drive health plan stock spurt

The President’s conciliatory tone about the public option fueled shareholder confidence in health plan stocks late last week: gains on Thursday-Friday trading included Cigna (+6.5 percent), WellCare (+4.4 percent), Aetna (+3.8 percent), Humana (+3.7 percent), UnitedHealth (+2.4 percent), and WellPoint (+2.3 percent).

Senate Finance Committee bill expected this week

The long-awaited Senate Finance Bill from Sen. Baucus will get its initial hearing before the full committee this week. Key features include:

• Increased Medicaid eligibility for individuals and families up to 133 percent of the federal poverty level -- $29,327 for a family of four.
• State-run health insurance exchanges for low income individuals and small businesses that will include non-profit, member-governed cooperatives (with initial funding starting January 2012 through federal grants and loans under oversight of a 15-person congressionally appointed board). Participating health plans would offer a minimum of four benefits categories plus a “young invincibles” policy.
• Insurance reforms beginning January 2013: pre-existing conditions not allowed for eligibility or denial of care; prohibitions on rescission of care; no annual and lifetime limits on benefits; premiums set on basis of age, family size, tobacco use only with premium variation not to exceed 7.5 to 1 (each state would have an ombudsman to oversee compliance and act as a consumer advocate).
• Beginning in 2015, provisions for cross state line insurance by individuals and families via “health care choice compacts”.
• Medicare Advantage Plan payments will be re-set beginning in 2014 based on weighted average of local plans with bonuses available to plans based on quality and coordination of care.
• The Secretary of Health and Human Services would implement (accelerate) standardization of eligibility verification, claims status, payments/EFT and remittance advice to expedite administrative simplification: plans would be required to comply by 2014.
• Individual mandate with annual penalties of $750-$950 for individuals and $1,500-$3,800 for families that do not purchase a minimum coverage. Beginning in 2013, subsides will be available in the form of tax credits for individuals and families between 134 percent and 300 percent of the federal poverty level (starting in 2014, tax credits would be available to individuals and families between 100 percent and 134 percent of the federal poverty level).
• Employer mandate with tax credits for businesses with fewer than 25 employees.
• Increased transparency: plans required to report expenditures on non-medical care items and hospitals required to report standard charges for all DRGs.
• Increased federal funding for state-run high risk pools.
• Mandatory inclusion of prescription drugs in Medicaid programs plus increased rebates from pharmaceutical companies from 15.1 percent to 23.1 percent for branded drugs and 11 percent to 13 percent for generics.
• The state’s Disproportionate Share Hospital (DSH) allocation would be reduced by 50 percent when the state’s uninsured enrollment is reduced 50 percent.
• Beginning in 2011, Medicare will cover an annual preventive health assessment every other year without co-pays with a personalized health improvement plan included.
• States would apply for grants to design programs to enhance healthy lifestyle programs for Medicaid enrollees and medical home programs for Medicaid enrollees would be expanded.
• By 2011, value-based purchasing programs for hospitals and the Physician Quality Reporting Initiative physicians would be integrated into payments. In addition, a national pilot program to test bundled payments and penalties for hospitals that have the highest hospital acquired infection rates would be implemented.
• Groups of providers could create accountable care organizations to manage outcomes and costs for Medicare enrollees and be eligible to keep up to 50 percent of savings over a 3 year period.
• Primary care workforce deficits would be offset by bonuses of up to 10 percent of the Medicare fee schedule for five years for those who practice in shortage areas (costs offset by .5 percent cuts in all other professional services).
• The sustainable growth rate (SGR) model used to set physician fees from Medicare will be set aside: the scheduled 21 percent reduction will be replaced by a .5 percent increase.
• Permanent moratorium on physician owned hospitals that did not have Medicare provider agreement on or before September 1, 2009. In addition, provider transparency requirements increased for physician ownership and investment interests that might constitute a conflict of interest.
• Mandatory transparent reporting of drug sample distribution to providers.
• Mandatory transparent reporting of nursing home quality and staffing.
• Specifies new requirements for not-for-profit hospitals to qualify for tax exemption and conduct regular community needs assessments.

The Finance Committee price tag of $880 billion is proposed to be paid for by:

• 35 percent excise tax on health plans (insurance companies, self-insured plans) for “Cadillac” plans above $8,000 (individual) and $21,000 (family). The surtax is indexed for inflation and adjusted for the 17 highest cost states.
• Limits on employee contributions to Flexible Savings Accounts at $2,000 and taxes on subsidies for Part D prescription drug benefits.
• Increases fees on early withdrawals from non-qualified items in Health Savings Accounts (insurance companies, self-insured employers).
• Fees on pharmaceutical companies: $2.3B/year starting in 2010 (allocated by market share).
• Fees on medical device manufacturers: $4B/year starting in 2010 (allocated by market share).
• Fees on health insurance companies: $6B/year starting in 2010 (allocated by market share).
• Fees on clinical labs: $750M/year starting in 2010.

Elements of the Senate Finance bill were included in the White House proposal introduced Wednesday night, namely the fees on pharmaceutical companies, insurance companies, medical device manufacturers and clinical labs. The Senate Finance bill will be marked up next week for full committee vote shortly thereafter.

Blues begin national ad campaign

In an effort to call attention to the Blues’ predominant status as not-for-profit health plans, the Blue Cross Blue Shield Association began running full page ads Thursday in major media (Wall Street Journal, New York Times, Business Week, etc.). The themes: “when you cover one in three Americans, you don’t just know health care, you know quality care” and “leading the future of health care”. With the exception of WellPoint, the 38 plans under the “Blues” umbrella are not-for-profits—a likely focus of discussion in coming weeks.

States will get federal funds to support electronic health records implementation

The Centers for Medicare and Medicaid Services (CMS) will reimburse states for 90 percent of the administrative costs of overseeing electronic health record incentive payments to doctors and hospitals under the economic stimulus law.

Harkin to Chair Senate HELP

Senate Majority Leader Harry Reid (D-NV) appointed five-term Senate veteran Tom Harkin (D-IA) to replace the late Senator Ted Kennedy as Chair of the Senate Health, Education, Labor and Pensions Committee. Harkin is a long-time advocate for universal coverage and the public option.

Medical home pilots

25 medical home projects are currently active across the nation in 17 states including a Medicaid pilot in North Carolina and health insurance plan sponsored pilots in many. The likelihood of increased funding for primary care and optimistic results of early medical home pilots is increasing momentum for the model.

FDA launches electronic food registry

Tuesday, the FDA launched its food-borne illnesses registry requiring all food and animal feed companies to report possible harm within 24 hours of detecting a problem. Infant formula and dietary supplement makers already had a system in place with similar mandatory obligations.

U.S. adults grade U.S. system below ratings by citizens in France, UK, Switzerland, Canada; understanding of “systems” of care low everywhere (Deloitte Global Survey of Health Consumers; release date—Fall 2009)

Surveys of 14,000 adults in six systems of the world suggest U.S. citizens are more critical of our system than citizenry elsewhere, though across the board fewer than one in three understand their respective systems.

Fact File

2008 Census Bureau Report released Thursday September 10 comparing 2008 to 2007:

• Median household income dropped 3.6 percent to $50,303 from $52,220—the steepest drop in 40 years. Only seniors had an increase: 1.2 percent.
• Poverty rate increased from 12.5 percent to 13.2 percent of population (39.8 million live below poverty line -- $22,025 for family of 4—an increase of 2.6 million for the year).
• Those without insurance for an entire 12 months of 2008 increased by 682,000 to 46.3 million (15.4 percent of population). Adults 18-64 uninsured increased from 19.6 percent 20.3 percent; children decreased from 11 percent to 9.9 percent. Top 5 states: TX (25.3 percent, NM (23.1 percent), FL (20.1 percent), LA (19.3 percent) and AL (19.0 percent). NOTE: 9.7 million of the uninsured at non U.S. citizens: 4.4M legal, 5.3M illegal.
• Continuing an 8-year trend, those covered by government insurance increased to 29 percent from 27.8 percent in ’07 (additional 4.4 million bringing the total to 87.4 million) and those covered by private insurance decreased by 1.1 million to 66.7 percent (176.3 million).
  Bureau of Labor Statistics’ August Report: 216,000 jobs lost; health care gained 28,000 jobs (unemployment now at 9.7 percent--highest in 26 years).

CMS: Medicare enrollment in 2009 will be 45 million at a cost to the government of $480 billion (13 percent of total federal budget, 3.5 percent of GDP). Half of its enrollees live below 200 percent of the federal poverty line ($20,800 for individuals, $28,000 for couples). Enrollment will increase 30 percent in the next decade to 58.8 million as baby boomers become eligible and costs per enrollee per year will increase 50 percent from $11K to $17K in the same period.

Total state deficit: $168 billion (33 states operating at a loss in 2009).

C-Suite action items

• As health reform bills emerge including the Senate Finance Committee bill this week, all stakeholders should monitor key elements in each major plan and evaluate implications for the organizations. At this point, it appears “everything” is on the table but in all likelihood, a bill later this fall will be an amalgam of many bills produced thus far.
• We advise each organization to maintain active communication with board members and management at every layer of the organization: the likelihood of a bill remains high. The specifics of the bill are as yet are unknown.

Related Content

Library: View all Health Care Reform Memos
Debate: The Public Plan Option on Health Care: Holy Grail or Pandora’s Box 
Report: Reducing Costs While Improving Care in the U.S. Health System: The Health Care Reform Pyramid
Report: Health Care and Public Policy: What Do Americans Want?
Resource: Administration of Change - The Obama Impact on Health Care Policy
Overview: Deloitte Center for Health Solutions
Overview: Health Sciences 

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