Health Care Reform Memo: November 23, 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 votes 60-39 to proceed to floor debate on reform bill

Saturday night, the Senate voted along party lines to proceed to a floor debate on its reform bill. Only Republican George Voinovich (R-OH) was absent for the vote. A few last minute deals with key Democratic moderates sealed the vote that ended a filibuster by Republicans on the motion to proceed to consideration of the bill. A second filibuster preventing a vote on final passage is likely and reform advocates will again have to muster 60 votes.

Blanche Lincoln, a holdout opposed to the public option agreed after Majority Leader Reid (D-NV) agreed to post the 2,074 page bill on the Senate website for 72 hours to allow Republicans review time, thus the 8pm vote Saturday night.

For her vote, Louisiana Democrat Mary Landrieu recovered $300 million for her state’s Medicaid program--funds that had been delayed due to an administrative dispute between the state and federal government dating back to the Katrina relief effort.

What’s in the bill?

The bill includes:

• An individual mandate with phased-in penalties starting in 2014 with subsidies for individuals/families between 133- 400 percent of the federal poverty level (FPL)
• Expansion of Medicaid eligibility to individuals/families to 133 percent of FPL (with federal funding for 100 percent of the incremental enrollment growth for all 50 states for the first three years)
• Penalties on employers with more than 50 employees who do not provide affordable health insurance resulting in employees buying insurance on their own through the insurance exchange using federal tax credits
• Insurance industry reforms: pre-existing condition and gender eliminated as basis for denial of coverage, use of the insurance exchange, increased transparency
• A public option that permits states to opt out if they qualify by providing adequate, affordable coverage to 95 percent of the eligible population
• Delivery system changes to facilitate improved coordination of care, increased emphasis on preventive health and change incentives from volume to performance: episode-based payments to accountable care organizations for acute conditions, expansion of the medical home model to bolster primary care, required preventive health measures in insurance programs with co-payment waivers, and increased transparency for quality and prices
• Phase-out of the Medicare Prescription Drug (MMA 2003) donut hole for qualified seniors
• One year 0.5 percent “fix” for physician payments (SGR) with creation of independent Medicare commission to advise on and regulate Medicare payments to physicians starting 2011

Increased access to health insurance market a major focus
The bill’s sponsors estimate 31 million newly insured would be covered under the plan—a combination of Medicaid expansion (17M) and newly insured through the exchange.

Funding, costs and timing
The Congressional Budget Office (CBO) scored the bill at $848 billion for 2010 to 2019, projecting a $127 billion deficit reduction because the major costs (tax credits for uninsured, Medicaid expansion) start in 2014 while revenues from additional taxes/fees and Medicare cuts start as early as January 2010 in the Senate bill. Timing of spending is critical to understanding the CBO analysis:

Two timeframes are helpful in looking at the Senate bill; the first decade covered under the bill is 2010-2019. In this period, the government will receive $978 billion in new revenues and spend $848 billion. These revenues will come from Medicare cuts ($491B), increased Medicare taxes ($54B), 5 percent tax on elective cosmetic surgery ($6B), 40 percent tax on Cadillac plans ($149B), and industry fees from insurance companies, labs, drug companies, medical devices ($102B) and $173B in other taxes or fees.

A second timeframe is 2014-2023—the first decade for full implementation of the programs included in the reform bill. In this period, spending on programs will be $1.8 trillion, while tax collections combined with cuts will be $1.514 trillion per the CBO, resulting in a potential deficit increase of $286 billion. The differences in the two timeframes are likely to be the focus of the debate in the Senate.

Supporters of the bill will note that the CBO analysis did not include savings from the investments in chronic and preventive health, performance-based payment to providers, and lower insurance premiums resulting from the health exchange, while opponents will charge the bill adds to the deficit at a time when economic recovery and job creation should be the primary focus.

Notably, two additional costs are not in the Senate bill: a fix to the sustainable growth rate payment model for physicians ($247B) provisions of the CLASS (long term care act) ($72B). Both would apply in part to the 2010-2019 surplus in the bill’s final form.

Quotable…from the Senate debate to block a filibuster and proceed to a debate on the floor…

“Last year 750,000 Americans filed bankruptcy. Over half of those bankruptcies were because of medical expenses. Over half of the people who filed bankruptcy because of medical expenses had health insurance. Don’t we need to do something on health insurance reform? Of course we do….The health insurance industry has an insatiable appetite for more profit.” 

– Harry Reid, D-NV

“We know that Americans oppose this bill. They are not buying the claim that this legislation would do anything whatsoever to lower our nation’s staggering costs. The experts agree with the public opinion polls that this 2,074-page bill is a budget buster. Senators who support this bill have a lot of explaining to do. Americans know that a vote to proceed on this bill, to get on this bill, is a vote for higher premiums, higher taxes and massive cuts to Medicare.” 

– Mitch McConnell, R-KY

“Although I don’t agree with everything in this bill, I believe it is more important that we begin debate on how to improve the health care system for all Americans. The vote tonight will mark the beginning of consideration of this bill by the full U.S. Senate, not the end.” 

– Blanche Lincoln, D-AR

"My vote should in no way be construed by the supporters of this current framework as an indication of how I might vote on the final bill."

 – Mary Landrieu, D-LA

The “Baucus” bill versus the “Reid” bill

The Senate Finance Committee voted 14-9 October 11 on a bill that was merged with the Senate Health Education Labor and Pensions (HELP) bill by Majority Leader Reid. There are notable differences in the two resulting from Reid’s negotiation the past month:

The Senate debate ahead: watch for four major themes

1—The costs of the bill—In December, Congress faces a vote to expand the federal debt ceiling by $925 billion to an all time high of $13 trillion at a time while unemployment in 21 states continues to increase and retailers expect a lackluster holiday season of flat to +2 percent sales growth over 2008. Can fiscal conservative and moderate Senators comfortably vote for a bill that delays benefits to the uninsured and adds debt to states for newly insured Medicaid enrollees? Will governors reeling from budget deficits be satisfied with a three year guarantee from the Feds for increased Medicaid costs and get more? Will institutional investors see increased risk in the “new normal” U.S. economy and invest elsewhere in the world or in other industries?

2—The impact of the bill on higher income individuals and families (wealth redistribution fairness)—The bill includes increased taxes for higher income brackets from, (1) higher insurance premiums resulting from insurance reforms and (2) increased Medicare tax. Physicians who earn more than $250K may face the dual impact of lower overall reimbursement from Medicare and increased taxes on the wealthy. And sole proprietorships are hit as well. Compounding the issue, the top marginal tax rate is set to increase from 35 percent to 39.6 percent in 2011, and capital gain and dividend taxes for higher income individuals will increase from 15 percent to 20 percent in 2011. The debate will center on the question of “wealth re-distribution” — the appropriateness and consequences of reforms funded in large measure by approximately 3 percent of the population who earn more than $250,000 per year ($200,000 single).

3—The role of the government in health decisions—The AMA rallied its members based on the theme “nothing between my doctor and me”. Polls suggest physicians enjoy the trust of consumers well ahead of insurance companies, Congress, the White House and hospitals. The bills in the House and Senate include precise language encouraging the use of electronic medical records by doctors, a comparative clinical effectiveness program to align payments with evidence-based best practices, and increased access to the public about the safety and effectiveness of care provided by individual doctors and hospitals. The stimulus bill explicitly encourages meaningful use of electronic medical records by doctors and hospitals, with $34 billion in incentives available as the carrot but Medicare fee schedule penalties as the stick after 2014. Per the August “recess roasting” and last week’s illustrative uproar about the U.S. Preventive Services’ Task Force recommendation re: mammograms, the public seems ill-inclined to facilitate government intrusion in health decisions. “Death panels” might resurface as a theme in the debate.

4—The public option—A vigorous debate will focus on the public option — a concern to many moderate Democrats who fear it might compete unfairly with private industry or a new bureaucracy created as a result. Rhetoric about the public option will be about “government run health care” versus “affordable insurance and insurance industry reform. It is prone to sound bites and will likely rekindle the fervor of the August town hall meetings.

Other issues may surface in the December debate — federal funding for abortion, access to subsidized insurance for illegal immigrants, liability reform and possibly more. Observers anticipate a Senate vote by December 20 leading to a lively January Conference Committee process.

Some believe a bill might be signed by the President before his State of the Union address January 20. No one knows. It was February 24 when the President said he wanted a bill in 2009 that would cut costs and cover everyone. He encouraged Congress to create the bill before its August recess and committee chairs agreed. Nine months later, the timing is uncertain but the discussion no less intense.

SGR fix update: House passes temporary fix

Thursday, the House passed HR 3961 “the physician fix” 243-183. In its bill, the House took $35 billion out of the sustainable growth rate (SGR) fix costs by separating drugs administered by doctors (intravenous), thus reducing the cost to $210 billion over ten years (2010-2019). Both houses appear to be aligned toward a temporary fix similar to six prior years, avoiding a 2010 election year issue. Key Senators are pushing for an independent commission to set physician rates — the focus now shifts to the Senate.

Mammography study sparks reaction; linked to “government run health care” by conservatives

The 16 member U.S. Preventive Services Task Force (USPSTF), appointed by the Agency for Health Research and Quality (AHRQ), routinely issues reports recommending clinical guideline changes related to population-based primary health care. In recent years, none received the attention of last week’s guidance around the usefulness of mammography for women with low risk of breast cancer 40-49 years of age. Published in last Monday’s Annals of Internal Medicine, the study showed the relative value of screening mammography across age cohorts and encouraged increased use of screening mammograms for women above 50 — a point missed in comments by those using the report to raise the issue of government intrusion. To quell the uproar that resulted, HHS Secretary Kathleen Sebelius hit the news circuit late week to assure women that USPSTF served an advisory role and the government would not change its guidelines without further study.

Notably, a New England Journal of Medicine study released last week showing the relative adequacy of niacin over ezetimbe (Vitorin/Zetia brands) got less notice though arterial plaque shrinkage is on a par with breast cancer’s prevalence as a national health issue.

German health system reforms: case study

The new center-right government of recently re-elected Chancellor Angela Merkel faces a serious challenge to the fiscal solvency of its health system that dates back to 1883. Its Bismark system features an individual mandate (8 percent of wages) and employer contribution (7 percent). It is in deep red ink at a time when its population of 80 million faces lingering effects of the global economic slowdown.

Last week, the newly appointed Minister of Health, 36 year-old Philipp Rösler, announced reforms to encourage private insurance into the country to compete with the 200 public plans (“patient trusts”). The government would regulate basic coverage through the public plans, employer contributions would be frozen, and individuals would be encouraged/allowed to purchase additional services from private plans.

Data file

• 43 percent of the U.S. population will be obese in 2018 (up from 31 percent today) with annual costs increasing to $344 billion (compared to $147 billion today). Annual medical costs for obese adults are $8,315 today versus $5,855 for non-obese adults. (American Public Health Association).
• Health insurance industry annual earnings growth will slow from 10 percent to 5 percent as a result of health reform (Goldman Sachs’ analysts Matthew Borsch, Mikael Landau).

PLEASE NOTE: The Monday Memo will not be published on November 30, but will resume December 7

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