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AIS's Health
Business Daily
Featured
Story Nov. 24, 2009
Senate Health Reform Bill Contains Little for Health Plans to Be Thankful for
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)
Just in time for Thanksgiving, Senate Majority Leader Harry Reid (D-Nev.) on Nov. 18 released a 2,074-page health reform bill stuffed full of key provisions, many of which are could cause a bit of indigestion among health plan executives. The Congressional Budget Office (CBO) said The Patient Protection and Affordable Care Act would cost $849 billion over 10 years and estimated that it would expand health coverage to 30 million people by 2019.
Most of the provisions wouldn’t go into effect until 2014 — a year later than most of the provisions in the House bill. A procedural vote, which would allow debate on the bill to begin, is slated for Nov. 21. In a note to investors, Oppenheimer & Co. equities analyst Carl McDonald called the bill “bad policy” because it does little to address underlying health care costs, and says it contains “a litany of troubling news.” Here’s a look at several key provisions:
- Individual mandate: People who opt to remain uninsured would be fined a token amount of $95 in 2014. That penalty will more than triple by 2015 to $350 and to $750 in 2016. After 2016, the penalty is tied to the cost-of-living adjustment, which customarily increases far less than medical inflation. Individuals are exempt from paying the penalty if the cost of coverage exceeds 8% of their annual income. Karen Ignagni, president and CEO of the trade group America’s Health Insurance Plans, voiced a similar concern. “This proposal encourages people to wait until they are sick to purchase coverage, which will significantly drive up costs for those who are currently insured,” she said in a prepared statement. Age-ratio pricing bands for community rating are worse for health plans under the combined bill. Under the new bill, the proposed 3-to-1 ratio would make coverage costlier for young people than under the 4-to-1 ratio called for by the Senate Finance Committee’s (SFC) version.
- Public option: The renamed “community health insurance option” would give states the ability to opt out of the program, which will have to compete with private carriers and negotiate rates with providers. In his note, McDonald asks “how long will it take before participation in mandatory” if few providers agree to participate? Some industry observers have suggested the “opt-out” provision could be replaced with a “trigger” or an opt-in option. In his note to investors, Goldman Sachs analyst Matthew Borsch predicted that the public option would offer little cost savings if it pays taxes and is required to negotiate in good faith with providers, who would not be required to participate.
- Taxes and fees: Beginning in 2010, the bill requires health plans to pay a $6.7 billion tax, which will include administrative-services-only (ASO) business, for the next 10 years. Moreover, the bill calls for health plans to pay “stabilization” fees of $25 billion in 2014, 2015 and 2016. AHIP’s statement cites data from FORTUNE magazine that showed a profit margin of 2.2% among “insurance and managed care companies.” That places the industry 35th on FORTUNE’s rankings. The bill also calls for a 20% cap on profits and administrative costs in the group market and 25% in the individual market. Plans with annual revenues of less than $25 million are exempt, while those with $25 million to $50 million are subject to only half of the tax, according to McDonald.
- Cadillac plans: The definition of a high-cost health plan under the combined Senate bill is one that costs more than $8,500 a year ($23,000 for family coverage), slightly higher than in the SFC’s version. Health plans, combined with vision, dental and health account contributions, above those levels will be subject to an excise tax. The bill also will tax those most likely to have at least one Cadillac in the driveway. People with incomes of more than $200,000 a year ($250,000 for married couples) will contribute 1.95% more via payroll tax to the Medicare program. The bill also calls for a new 5% tax on elective cosmetic surgery.
- Medicare Advantage: Unlike in the House bill, competitive bidding will be phased in beginning in 2012, when it will account for one-third of the payment, McDonald explained in his research note. It will account for all of the Medicare payment rates in 2015 and beyond. For those covered by traditional fee-for-service Medicare, the Senate bill would eliminate copayments for preventive care.
To see a copy of the complete bill, visit http://tinyurl.com/yz7tjhh. |
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