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AIS's Health Business Daily
Featured Story October 8, 2008 The Specter of Sweeping Health Reform Has Health Plans, Lobbyists Holding Their Breath Until Nov. 4 Reprinted from HEALTH PLAN WEEK, the industry's leading source of business, financial and regulatory news of health plans, PPOs and POS plans. By Steve Davis, Managing Editor, (sdavis@aispub.com) Now that Sen. John McCain (R-Ariz.) and Sen. Barack Obama (D-Ill,) have accepted their parties' presidential nominations, health plans and their lobbyists are trying to determine how each candidate's health reform proposals, if enacted, would affect their business. Both candidates have proposed dramatic changes to the existing health coverage system, and industry observers tell HPW that there are potential problems with each candidate's ideas. If McCain wins the presidency - and the Democrats maintain at least the same majority in Congress as they have now - he will have a difficult time pushing through any reform proposal, predicts Kevin Wrege, president of PULSE Issues & Advocacy, LLC and a consultant at the Council for Affordable Health Insurance (CAHI) in Washington, D.C. However, if Obama wins the election and the Democratic majority in the Senate increases to a filibuster-proof 60 seats, the prospects of national health reform are elevated substantially. "The Senate is a place where one senator can stop a bill. But if there is a filibuster-proof majority, or close to it, you've got a much different picture," Wrege says. "The health insurance industry is holding its breath. We know there is going to be change, but until the new president and the new Congress are elected, we won't know what that change is going to look like," says Jack Rovner, a partner in the health law practice group at Neal, Gerber & Eisenberg LLP in Chicago. If Obama is elected, health plans are likely to put forth "a lot of effort" to work with the new administration, especially if there also is a Democratic Congress, Rovner says. But if McCain is elected, the industry is likely to work more closely with congressional leaders to come up with a reform package that maximizes the opportunity for health plans to expand health coverage. Health plan executives, more than anything, are concerned about the effect sweeping federal reforms will have on their business, Wrege says. One of the advantages of state reform efforts is that national carriers have the ability to pick and choose the states where they want to do business and where they want to focus their marketing, he adds. But with a federal reform effort, health plans won't be able to "sit on the sidelines," he asserts. "Without question, 2009 will be a major legislative year, and health care will be front and center on the legislative agenda whether we are talking about health reform and coverage expansions or spending controls and deficit reduction, or a combination of both," says Jennifer Young, a partner at Tarplin, Downs & Young, a Washington, D.C.-based lobbying firm. The top issues for health plans now, she says, include risk pooling, Massachusetts' Health Connector universal-coverage model and electronic health records. EHRs, she predicts, might emerge first from the policy debates next year as "a practical first step" to reforming the health care system. Young adds that because Congress is unlikely to take up any major health care issues this fall, health plans and lobbyists have time to "do their policy homework" so they can offer an informed voice during next year's debates. One topic certain to be debated in 2009 is the Medicare Advantage (MA) program, says Bruce Merlin Fried, a partner at law firm Sonnenschein Nath & Rosenthal LLP in Washington, D.C. In July, Congress successfully overrode a presidential veto to delay until December 2009 a scheduled 10.6% payment cut to Medicare physicians and add a 1.1% payment increase over the next 18 months. The bill is funded in large part by slicing $12.5 billion in reimbursements over five years to insurers that contract with Medicare. A Democratic-majority Congress is likely to target further MA reductions to fund other initiatives such as State Children's Health Insurance Programs. Plans will continue to lobby in opposition to MA reimbursement cuts, Fried says. While Obama has said his proposal will allow people to remain enrolled in their existing coverage, health plans could face new restrictions in the type of coverage they can offer. The cornerstone of Obama's proposal is the creation of a government-run insurance plan modeled after the Federal Employees Health Benefits Program (FEHBP). While employers would continue to receive a tax break for offering health coverage, they would likely be required to offer coverage that is at least as rich as the government-run option. "It would be a pretty comprehensive plan and many plans now offered by employers wouldn't qualify," says Michael Cannon, director of health policy studies at the libertarian-oriented Cato Institute in Washington, D.C. Moreover, he adds, insurers that sell high-deductible policies in the individual market might need to modify the plans to make them more comprehensive, which also would make them more expensive. Obama's proposal also calls for the creation of a "National Health Insurance Exchange" to help individuals find and purchase private insurance. The exchange, which would be similar to the Massachusetts "Health Connector" , would, among other things, serve as a watchdog and "create rules and standards for participating insurance plans," according to Obama's Web site. While health plans would continue to play a significant role under Obama's reform proposal, they would face a new and powerful competitor in the federal government. Health plans, Cannon says, might have a difficult time competing against the public plan. "Imagine an employer that offers a [commercial PPO] alongside a federal government plan that can shift and hide costs to keep its rates down," he says. On the other hand, high-risk employees could be compelled to enroll in a less costly federal plan, which could help reduce the risk taken on by commercial insurers. Obama's proposal to incorporate nationwide community rating would mean health plans would need to charge the same premium to all customers. Cannon says that would likely encourage health plans to "aggressively target" young and healthy people and avoid potentially more expensive, older enrollees. If Obama wins the election, Cannon says health plans are likely to invest significant lobbying dollars to ensure they have a say in the development of the rules for marketing to and enrolling members. Devon Herrick, Ph.D., a senior fellow with the Republican-leaning National Center for Policy Analysis, says Obama's proposal, if adopted, "would likely destroy the market" for risk-based individual coverage. "If the marginal cost of a health plan is being paid for by a government subsidy, consumers would have an incentive to over-insure," he asserts. While Obama's proposal requires coverage for children, it doesn't call for an individual mandate for adults to obtain insurance. Herrick contends that such a mandate could become necessary. "A guaranteed-issue, community-rated insurance market will prove to be unstable as healthy people leave in search of coverage that costs less outside the exchange," he tells HPW. "As the cost of coverage spirals out of control, there will be pressure on him to impose a mandate on adults because healthy people will be needed to cross-subsidize the costs of less healthy people in the risk pool." If the Democrats win the White House and at least maintain their majority in Congress, there could be an "emotional component" in the Senate as Sen. Edward Kennedy (D) battles cancer. Congressional leaders might point to the Massachusetts reform model, which Kennedy championed, as something that could be adopted at the federal level, Wrege says. "The coverage story in Massachusetts right now is good. But while they've covered more people, they are struggling with how to pay for it," he adds. "At least on paper, that model would allow for competition among health plans if they meet the standards set by the federal government." McCain Proposal Could Drain Risk Pool The cornerstone of the McCain proposal is a restructuring of the tax treatment of employer-sponsored health coverage. Under the proposal, single employees would receive an annual tax credit of $2,500 (families would receive $5,000). However, the cost of health coverage offered by an employer would become taxable income. Employers could continue to deduct the cost of coverage as a business expense as they do now, according to a CAHI analysis. Herrick says McCain's proposed tax credit would provide the same subsidy regardless of a worker's tax bracket. That, he contends, would provide a financial incentive for employees to compare health plans and not over-insure. Herrick adds that insurers that sell policies in the individual market are likely to favor the McCain plan because their future under Obama's proposal would be uncertain. Rovner disagrees and says the refundable tax credit proposed by McCain "demonstrates some naïveté" about health insurance. "I'd like to see someone find family health coverage for $5,000 a year," he quips. Such a policy, if enacted, would likely prompt healthy employees to seek inexpensive individual coverage while less healthy employees would remain with their employer's coverage if the employer continues to offer it, Rovner says. He adds that the "draining of the risk pool" would cause rates to increase for employers that continue to offer coverage. Under McCain's proposal, health plans would likely respond by shifting focus from the group market to the development of new low-cost products aimed at the individual market. "I don't see McCain's policy going anywhere in Congress," Rovner says. "Employer lobbies are going to kill anything that limits employers' ability to offer and control health benefits." Regardless of the shape health reform takes, however, Wrege says the underlying costs of health care must be addressed before or in conjunction with strategies to improve access to coverage. "Until you find a way to get a handle on underlying cost, any program to improve access will face fiscal challenges at state and federal levels." |
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