Health Care Reform Memo: June 8, 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.

Health reform top issue on White House agenda: Support for individual mandate, public plan, elimination of employer tax exclusion apparent

In the 2008 Presidential campaign, then Senator Obama (D-IL) advocated mandatory coverage for children; his primary opponent, Senator Clinton (D-NY), suggested an individual mandate. His rationale was the possible burden it might put on low income households. Fast forward to June 2009: President Obama is solidly supportive of an individual mandate accompanied by subsidies for lower income individuals and households and appears open to elimination of the employer tax exclusion and the addition of a public plan option.

Tuesday, the President met with 20 Democratic Senators indicating his support for a public plan option and willingness to consider elimination of the employer tax deduction for health benefits as means to fund reform. He asked the group to deliver a bill by year end.

Wednesday, the President sent a letter to the chairs of the two most influential Senate committees that will drive health reform—Sen. Baucus (D-MT), Senate Committee on Finance, and Sen. Kennedy (D-MA), Senate Committee on Health Education, Labor and Pensions: "I share the goal of ending lapses and gaps in coverage that make us less healthy and drive up everyone's costs, and I am open to your ideas on shared responsibility." The President expressed an open mind to a hardship waiver for those unable to purchase coverage (similar to Massachusetts) and waivers for small business. He reiterated support for a public plan option.

Friday in an interview with the Wall Street Journal Friday, HHS Secretary Kathleen Sebelius reiterated the Administration’s support for a public plan, citing the need for competition in certain markets as the rationale. And Saturday, while traveling in the Europe, the President devoted his weekly radio and Internet address to the need for health reform this year.

Kennedy releases American Health Choices Act; Features insurance reform, public plan, individual mandate

Friday, Senator Kennedy released his 171 page draft, the “American Health Choices Act” that would include a public plan option paying providers up to 10 percent above Medicare rates and be subsidized for lower income individuals and households lacking. The bill bears strong resemblance to the Massachusetts health reform plan that increased coverage to 97.6 percent using a combination of individual mandates and employer pay-or-play legislation. Massachusetts Governor Deval Patrick is now grappling with the cost of the 3-year old program that has amassed deficits of up to $1.4 billion. Some notable features of the Kennedy plan:

Individual mandate: Everyone is required to purchase insurance except those unable to afford coverage.
Eligibility: Families with income up to 500 percent of the poverty level – $110,000 – could receive subsidies on a sliding scale to purchase insurance with government subsidies. Insurance companies would be barred from denial of coverage based on pre-existing conditions.
Provider choice: Everyone would have their choice of physician or hospital; provider participation would be voluntary.
Provider payments: Up to 10 percent above Medicare.
Rate setting: The proposed rating structure would consider “family structure, community rating area, the actuarial value of the benefit and age… but not ‘health-status related factors, gender, class of business, claims experience, or any other factor not described in the previous.’”
Insurance: Consumers would access insurance through “'Affordable Health Benefit Gateways'—an online insurance exchange similar to the Massachusetts’ Commonwealth Connector accompanied by a new federal commission to make sure rates, benefits and comparable features are easily understood by consumers and comparable across qualified plans is fair. Plans in the Gateways would be required to cover doctor visits, hospitalizations, prescription drugs, mental health and substance abuse treatments, preventive services and management of chronic diseases.

The Kennedy bill is the first of five major bills to be released in the next three weeks. The draft did not include the cost of the program or funding sources and is scheduled to be marked up in Committee June 16.

Public plan emerging as focal point of reform debate

The size and scope of the public plan option is emerging as a sentinel focus for health reformers on all sides. This weekend, the DNC’s Organizing for America unit will host house parties with the public plan a major focus.

In a release last week, 51 Blue Dog Democrats led by Mike Ross (D-AR) released a statement saying they support a public plan if it negotiates fee schedules with providers, is funded through its premiums (not subsidized by government), and provider participation is voluntary. Also last week, the 78 member Congressional Progressive Caucus led by Reps. Raúl Grijalva (D-AZ) and Lynn Woolsey (D-CA) issued a statement saying they prefer reformers create Medicare Two (a single payer option) and limit private coverage to wealthier consumers who purchase through a private market.

Grassley, McConnell lead Republicans opposition to “Big” public plan

The signals from ranking Senate Finance member Charles Grassley (R-IA) and Senate Minority Mitch McConnell (R-KY) suggest the public plan will be the focus of opposition to health reform. In statements last week, both indicated reluctance to support a public plan that could crowd out private insurers and the GOP issued talking points to its members calling the public plan a step toward a single payer system.

Major trade groups propose savings up to $1.7 trillion; respond to White House challenge to reduce health costs

Meeting seven times over a three-week period, leaders of the American Medical Association, American Hospital Association, America’s Health Insurance Plans, Pharmaceutical Manufacturers Association, AdvaMed and the Service Employees International Union delivered a letter to the White House Monday indicating support for the Administration’s goal of reducing health costs by $2 trillion over 10 years. The major areas where the group pledged savings were:

Administrative simplification (standardization of processes involving claims processing) — savings of up to $700 billion.
Coordination of care (community-based population health management teams to reduce costs associated with chronic care, gaps in post-acute) — savings up to $850 billion.
Utilization of care (avoidable readmissions, improved post-acute care, medication reconciliation) — up to $180 billion.

Over the signatures of the six major leaders, the group pledged “As restructuring takes hold and the population’s health improves over the coming decade, we will do our part to achieve your Administration’s goal of decreasing by 1.5 percentage points the annual health care spending growth rate – saving $2 trillion or more.”

NOTE: In the current 10 year forecast of federal spending, cuts of $300 billion in Medicare and the federal portion of Medicaid are included in addition to $309 billion in recovery from intensified fraud and abuse surveillance. At 6.2 percent per year for the 2008-2018 forecast in overall health spending, the administration does not foresee economic recovery as achievable. Its goal is to reduce the annual rate of growth to 4.7 percent, a reduction of $2 trillion over the period.

Here and there on the health reform front

Sen. Jay Rockefeller (D-WV) introduced a bill to expand the powers of the Medicare Payment Advisory Commission as a new federal agency modeled after the Federal Reserve and staffed by independent experts who have the power to set reimbursement rates for Medicare.

National Health Service Corps releases $200 million to double primary care supply in under-served populations: Friday, HHS announced it is making $200 million in stimulus funds available to support student loan repayments for primary-care medical, dental and mental health clinicians who commit to a two-year stent in its 3,300 health centers and clinics. With medical school debt approaching $155,000 for each grad, the Health Resources and Services Administration that administers the program believes it will successfully accommodate growing demand though policy-makers worry that the two-year turnover model does not lend to continuity of care for consumers.

Tuesday, the Senate began debate about the oversight of cigarettes and tobacco products by the FDA as a drug—a bill supported by the administration and Altria Group Inc.'s Philip Morris unit, but opposed by other companies.

Unemployment reaches 9.4 percent – highest in 26 years

Since the recession began in December 2007, more than six million jobs have been lost. In that period, employment in health care increased 190,000 — the only major sector reporting significant job growth.

Breaking news: Roll Call focus on comparative effectiveness in June 8 issue

The influential Capitol Hill daily Roll Call features comparative effectiveness as a major health reform theme today. The complexity and implications associated with the program are the focus of the article published by Dr. Keckley based on the Deloitte Center for Health Solutions’ recent study Comparative Effectiveness: Strategic Implications, released on May 19. Click here to read “Keckley: Knowing What Works Is Critical.”

Data File

Out-of-pocket costs for the average household increased 34 percent from 2004 to 2007 (Jon R. Gabel, Roland McDevitt, Ryan Lore, Jeremy Pickering, Heidi Whitmore, and Tina Ding, “Trends In Underinsurance And The Affordability Of Employer Coverage, 2004-2007,” Health Affairs Web Exclusive, June 2, 2009)

C-suite action items

Providers, health plans and life science organizations should brace for reduced payments and challenges to capital access. Cost reductions are a focus of administrative efforts to reform health care. Balance sheet strength and long-term technology, facility and strategic programs should be thoughtfully reviewed in context of significant pressure on margins and increased solvency and liquidity thresholds.
Understanding of comparative effectiveness and evidence-based medicine is low among most stakeholders. Briefings about its potential impact on provider credentialing and payments, impact on R&D and innovation, and correlation to emerging payment models should be on the agenda for senior management teams.
Insurance plans should evaluate current program offerings and strategic relationships in their supply chain to assess sensitivity to the potential for a public plan that might reduce access to enrollees in certain industry groups.