Thursday, June 30, 2011

From Medicare Watch, by

Lieberman-Coburn Medicare Proposal Would Raise Costs for People with Medicare

The budget battle over Medicare continued this week with the introduction of a new proposal from Senator Joseph Lieberman and Senator Tom Coburn. While some elements of the proposal are benign, such as strengthening protections in Medicare and Medicaid against fraud, waste, and abuse, the proposal saves the government money largely by increasing what people with Medicare pay out of pocket for medical care. For example, the proposal increases Medicare consumers’ Part B premium levels from 25 percent of Part B financing in 2010 to a minimum of 35 percent in 2019. People with Medicare already spend on average two-thirds of their health care budget on premiums, so these premium increases would have a significant financial impact on the population.

The proposal also includes a major restructuring of the Medicare benefit that would limit costs to the government but increase costs for the majority of Medicare consumers. Specifically, the proposal creates a combined Part A and Part B deductible of $550, a universal 20 percent copay for all services under Medicare, and an out-of-pocket limit of $7,500. In addition, it would institute a Medigap deductible and limit future coverage protection offered by Medigap plans. Thus, many would have to pay $550 out of pocket before receiving Medicare coverage and would be responsible for copays for services like home health, for which none have existed in the past. Even with increased out-of-pocket costs, most people with Medicare would never reach an out-of-pocket limit set so high. Lastly, the purpose of eliminating or limiting Medigap coverage is to drive down utilization by Medicare consumers, who are in a poor position to determine which services are medically necessary. The Medicare Rights Center supports the creation of an out-of-pocket limit, but only if such a limit would result in more affordable coverage for most Medicare consumers—something this proposal does not do.

There are, however, proposals that would reduce government spending without shifting costs to the Medicare population. This month, Senator Jay Rockefeller and Representative Henry Waxman introduced the Medicare Drug Savings Act of 2011 (S. 1206/H.R. 2190). Similar to the rebates that existed before the implementation of Part D by the Medicare Modernization Act (MMA), the proposed legislation would require drug manufacturers to pay a rebate to the government for drugs provided to dual-eligible beneficiaries and would further extend such rebates to people with Medicare enrolled in the low-income subsidy (LIS) program. The Congressional Budget Office (CBO) estimates that this proposal would save an estimated $112 billion over 10 years. Most importantly, this legislation does not achieve savings to Medicare by increasing costs to people with Medicare, who already spend about 15 percent of their total household incomes on health care.

Read Medicare Rights Center President Joe Baker’s statement on the Lieberman-Coburn proposal.

Medicare expands treatment options for patients with advanced prostate cancer

Centers for Medicare & Medicaid Services
Room 352-G
200 Independence Avenue, SW
Washington, DC 20201
Office of Media Affairs


FOR IMMEDIATE RELEASE                      Contact: CMS Media Relations Group
June 30, 2011                                                               (202) 690-6145
Medicare expands treatment options for patients with advanced prostate cancer
Medicare now covers first FDA-approved immunotherapy for prostate cancer treatment   
Medicare patients with metastatic prostate cancer can get a first-of-its kind treatment just approved by the Food and Drug Administration, under a final coverage decision issued today by the Centers for Medicare & Medicaid Services (CMS).
Autologous cellular immunotherapy, known clinically as sipuleucel-T, is marketed in the United States as Provenge, for treating some forms of prostate cancer in seriously ill patients. Today’s decision is effective immediately.

Provenge activates a patient’s own immune system to defend him against prostate cancer. The treatment consists of a multi-day regimen in which the patient’s white blood cells are collected and exposed to proteins that direct the white blood cells to fight prostate cancer cells. After the patient’s cells are treated, the patient receives his own cells back into his body in order to stimulate his immune system to fight the prostate cancer. This regimen is repeated over several weeks for a total of three treatments.

“We are optimistic that innovative strategies may improve the experience of care for our beneficiaries who have cancer,” said CMS Administrator Donald M. Berwick, M.D.  “CMS is dedicated to assuring that these patients can seek the treatments they need in accordance with their wishes.”

Prostate cancer is the most common non-skin cancer in men in the United States.  The cancer forms in the prostate, a gland in the male reproductive system, which can spread to other parts of the body and threaten life.  In 2009, an estimated 192,280 new cases of prostate cancer were diagnosed and an estimated 27,360 men died.  According to the National Cancer Institute, prostate cancer is most commmonly a cancer of older men, with most men diagnosed after 65 and the median age at diagnosis of 72.

CMS internally initiated the national coverage determination process for Provenge for multiple reasons, including: variations in local coverage; questions about the appropriate benefit category for Provenge; and inquiries from Congress.  There was no prior NCD on this technology, and local contractors were generally making case by case determinations. 

CMS convened the Medicare Evidence Development & Coverage Advisory Committee (MEDCAC), a group of nationally recognized independent medical and scientific experts, on November 17, 2010 to make recommendations about the evidence.  The MEDCAC votes supported coverage of Provenge for the FDA labeled indication and did not support coverage for unlabeled uses.

Today’s coverage decision includes coverage of Provenge for the uses approved by the FDA: for treatment of asymptomatic or minimally symptomatic metastatic castrate resistant (hormone refractory) prostate cancer.
More information for patients and health professionals about FDA’s approved uses of Prpvemge is online at

“CMS is covering Provenge nationally only for those indications supported by evidence and consistent with the FDA label,” said Patrick Conway, MD, MSc, CMS Chief Medical Officer and Director of the Agency’s Office of Clinical Standards & Quality. “Similar to other treatment decisions, individual patients should discuss the risks and benefits with their physician to make an individual decision.”

Boomers Favor Guarantees over Higher Returns

Published 6/28/2011 

By nearly a 4 to 1 margin, baby boomers remain more attracted to guarantees for their retirement savings than to potential high returns with market risk, according to a new study.

Allianz Life Insurance Company of North America, Minneapolis, published this finding in a summary of results from a survey of 3,257 U.S. adults, ages 44 to 75, to determine how attitudes about retirement planning have changed. The online poll was conducted for Allianz Life by Larson Research and Strategy Consulting, Inc., New York, and DSS Research, Fort Worth, Tex.
When asked which is more attractive, a financial product providing a 4% return that is guaranteed not to lose value or one with 8% return that is subject to market risk and loss of principal, 76 percent of respondents chose the guaranteed product, nearly identical to the 80 percent of respondents in 2010.
“Despite a significant rebound in the equity markets since the financial crisis, this new study confirms that a ‘new normal’ mindset has dug deep roots in the minds of boomers,” says Allianz Life President and CEO Gary C. Bhojwani. “With the vast majority still in favor of more security for their savings, boomers tell us they are not interested in going back to return-chasing behaviors.”
The “new normal” mindset, the report states, includes expectations of a sluggish economy, low investment returns, a more conservative investing strategy, expectations of delaying retirement and an increasing interest in seeking help from financial professionals.  
More than a third (35%) of respondents in both 2010 and 2011 said they feel financially unprepared for retirement. And nearly an equal number in each year (37% in 2010, 38 percent in 2011) said they did not know if their income will last throughout their lifetime. In both years, fully half of respondents noted that they are extremely concerned about possibly outliving their income.
—Warren S. Hersch

Adults Face Drops in Private Coverage

Published 6/29/2011 

The percentage of U.S. adults ages 18 to 64 who were uninsured rose rapidly between 2009 and 2010 because of a drop in the private plan participation rate.

Researchers at the U.S. Centers for Disease Control and Prevention (CDC) have published those figures in a release of data gathered through the National Health Interview Survey.
The CDC based the survey report on interviews with 89,665 U.S. residents.
Almost all legal U.S. residents ages 65 and older have health coverage through Medicare.
The researchers found that the United States has had better success with providing health coverage for children than for adults ages 18 to 64.
Only 7.8% of the survey participants’ children were uninsured at the time of the interview, compared with 22% of the adults ages 18 to 64.
The uninsured rate for children fell to 7.8% in 2010, from 8.2% in 2009.
The overall uninsured rate for adults ages 18 to 64 increased to 22.3%, from 21.1%.
For all adults ages 18 to 64, participation in public plans increased to 15%, from 14.4%, as participation in private plans fell to 64.1%, from 65.8%/
But for “poor adults,” participation in public health programs fell to 38.8%, from 40.3%. For “near poor adults,” public program participation fell to 23.7%, from 24.5%.
Public program participation rates for adults ages 18 to 64 who are not poor increased to 8.1%, from 7.6%.
- Allison Bell
CORRECTION: An earlier version of this article described the year-over-year change in the public plan participation rate for all U.S. adults ages 18 to 64 incorrectly. The public plan participation rate increased.

6th Circuit: In Health Care, All Individuals are Active

6th Circuit: In Health Care, All Individuals are Active 
Published 6/29/2011 


Congress has the authority to make people take action to buy health coverage because the health care market is different from most other markets, according to a 3-member panel at the 6th U.S. Circuit Court of Appeals.  
The 3-member panel has decided in Thomas More Law Center vs. Barack Obama (Case Number 10-2388) to uphold a determination by the U.S. District Court in District that the minimum coverage provision of the Patient Protection and Affordable Care Act of 2010 (PPACA) is constitutionally sound. One judge on the panel, James Graham, has agreed with the majority on procedural matters but has concluded that the PPACA coverage ownership mandate is unconstitutional.
Members of Congress and others are trying to repeal PPACA or block implementation of all or part of the federal legislative package.
If the act takes effect as written and works as supporters expect, PPACA Section 1501 – the “minimum essential coverage provision” – will require many people who have incomes over a minimum level to have a minimum level of health coverage or else pay a penalty. PPACA also would require many employers to offer health coverage or else pay a penalty.
PPACA supporters say the Commerce Clause of the U.S. Constitution gives Congress the authority to regulate the health insurance market.
The plaintiffs in the Thomas More case -- the Thomas More Law Center, Ann Arbor, Mich., and four Michigan residents – have argued that Congress has no authority to make them buy health coverage.
The 6th Circuit has held that Congress does have the authority to require the purchase of health coverage.
“Congress may regulate economic activity, even if wholly intrastate, that substantially affects interstate commerce,” U.S. Circuit Judge Boyce Martin writes in an opinion for the 6th Circuit majority. “Congress may also regulate even non-economic intrastate activity if doing so is essential to a larger scheme that regulates economic activity…. Congress had a rational basis for concluding that, in the aggregate, the practice of self-insuring for the cost of health care substantially affects interstate commerce. Furthermore, Congress had a rational basis for concluding that the minimum coverage provision is essential to the Affordable Care Act’s larger reforms to the national markets in health care delivery and health insurance. Finally, the provision regulates active participation in the health care market, and in any case, the Constitution imposes no categorical bar on regulating inactivity.”

Federal law already requires health care providers to provide emergency treatment regardless of patients’ ability to pay, Martin says.

“The unavoidable need for health care coupled with the obligation to provide treatment make it virtually certain that all individuals will require and receive health care at some point,” Martin says. “Thus, although there is no firm, constitutional bar that prohibits Congress from placing regulations on what could be described as inactivity, even if there were it would not impact this case due to the unique aspects of health care that make all individuals active in this market.”

Graham, the judge who wrote the opinion concurring in part and dissenting in part, says in his opinion that he agrees with the majority that the plaintiffs had standing to bring the case and that, under the Anti-Injunction Act, the 6th Circuit had the jurisdiction to consider the appeal.

Graham says he disagrees with his colleagues’ analysis of the relationship between the Commerce Clause and the PPACA coverage ownership mandate.

“The mandate is a novel exercise of Commerce Clause power,” Graham writes. “To approve the exercise of power would arm Congress with the authority to force individuals to do whatever it sees fit (within boundaries like the First Amendment and Due Process Clause), as long as the regulation concerns an activity or decision that, when aggregated, can be said to have some loose, but-for type of economic connection, which nearly all human activity does.”

Panels at the 4th Circuit and 11th Circuit have heard oral arguments on cases relating to the constitutionality of the PPACA coverage ownership requirements. Many U.S. district court judges have ruled that the requirements are constitutional, but U.S. District Judge Henry Hudson of Richmond, Va., has ruled that it is unconstitutional. U.S. District Judge Roger Vinson of Pensacola, Fla., has ruled that the provision is unconstitutional and akin to a law requiring the people of the United States to eat broccoli.

Saturday, June 25, 2011

Social Security Number Randomization

The Social Security Administration (SSA) is changing the way Social Security Numbers (SSNs) are issued. This change is referred to as "randomization." The SSA is developing this new method to help protect the integrity of the SSN. SSN Randomization will also extend the longevity of the nine-digit SSN nationwide.
The SSA began assigning the nine-digit SSN in 1936 for the purpose of tracking workers' earnings over the course of their lifetimes to pay benefits. Since its inception, the SSN has always been comprised of the three-digit area number, followed by the two-digit group number, and ending with the four-digit serial number. Since 1972, the SSA has issued Social Security cards centrally and the area number reflects the state, as determined by the ZIP code in the mailing address of the application.
There are approximately 420 million numbers available for assignment. However, the current SSN assignment process limits the number of SSNs that are available for issuance to individuals by each state. Changing the assignment methodology will extend the longevity of the nine digit SSN in all states. On July 3, 2007, the SSA published its intent to randomize the nine-digit SSN in the Federal Register Notice, Protecting the Integrity of Social Security Numbers [Docket No. SSA 2007-0046].
SSN randomization will affect the SSN assignment process in the following ways:
  • It will eliminate the geographical significance of the first three digits of the SSN, currently referred to as the area number, by no longer allocating the area numbers for assignment to individuals in specific states.
  • It will eliminate the significance of the highest group number and, as a result, the High Group List will be frozen in time and can be used for validation of SSNs issued prior to the randomization implementation date.
  • Previously unassigned area numbers will be introduced for assignment excluding area numbers 000, 666 and 900-999.
These changes to the SSN may require systems and/or business process updates to accommodate SSN randomization.
If you have any questions regarding SSN randomization or its possible effects to your organization, please see the related Frequently Asked Questions or email your question(s) to

Friday, June 24, 2011

ACOs Emerge as Hot Topic Among Insurers

Doc Groups Get Figures on Feds' Spending Cut Plans

Medicare Rights Center Testifies Before Congress on Problems with Medicare Secondary Payer

The Medicare Rights Center’s federal policy director, Ilene Stein, testified this week before the Energy and Commerce Committee’s Subcommittee on Oversight and Investigations about problems people with Medicare face under the current Medicare Secondary Payer program. The policy allows Medicare to recoup payments for a patient’s health care when another entity is responsible for paying for such treatments, such as when a patient is in a car accident and the auto insurance should pay for health services to treat injuries related to the accident. Ms. Stein’s testimony supports the premise that Medicare should not pay when another party is responsible for payment, but also highlights the various flaws in the system, including delays in seeking repayment, the lack of a statute of limitations in which Medicare may seek repayment, and the failure of Medicare to differentiate between care stemming from the original incident and unrelated treatments.

Medicare Rights Center often receives calls on its helpline from consumers who receive letters from Medicare demanding repayment for coverage provided for services that are unrelated to past accidents, and that should thus be covered by Medicare. In some cases, Medicare will prospectively refuse payment for all services if a secondary payer case is improperly closed, even when these services do not relate to treatment for an injury for which another party is responsible for payment. To address these shortcomings, Medicare Rights proposes a statute of limitations on Medicare’s right to seek recovery, as well as increased scrutiny of Medicare claims to ensure that the recovery attempt applies only to care related to claims against a separate payer.

Also testifying before the committee were Deborah Taylor, the director of financial management at the Centers for Medicare & Medicaid Services (CMS), who spoke about the current operation and oversight of the Medicare Secondary Payer system, and James Cosgrove, director of health care at the Government Accountability Office (GAO), who spoke about ongoing studies of the failures and successes of Medicare Secondary Payer policies. The panel on which Ms. Stein testified included representatives from the business, insurance and legal sectors, all of whom cited multiple, overlapping defects in the program.

Read Ms. Stein’s testimony on the impact of the Medicare Secondary Payer policy on people with Medicare.

More people with Medicare receiving free preventive care

Centers for Medicare & Medicaid Services
Room 352-G
200 Independence Avenue, SW
Washington, DC 20201
Office of Media Affairs


FOR IMMEDIATE RELEASE                       Contact: CMS Media Relations Group
June 20, 2011                                                                          (202) 690-6145

More people with Medicare receiving free preventive care

New CMS campaign to educate seniors about new free preventive care provided by Affordable Care Act

The Centers for Medicare and Medicaid Services (CMS) today released a new report showing that more than 5 million Americans with traditional Medicare – or nearly one in six people with Medicare – took advantage of one or more of the recommended preventive benefits now available for free thanks to the Affordable Care Act.  Also today, Medicare launched a nationwide public outreach campaign, including a letter to doctors and a new Public Service Announcement that will raise awareness about all of the important preventive benefits now covered at no charge to patients, including the new Annual Wellness Visit benefit created by the Affordable Care Act.  

“The Obama Administration is committed to helping increase the number of Americans who are healthy at every stage of life, said CMS Administrator Donald Berwick, M.D.  “Even in your 70s, 80s, or beyond you can reduce your risk of disability and chronic illness if you take care of yourself.  With the new free Annual Wellness Visits and free preventive care, people with Medicare have the tools to take common-sense steps to take control of their health.”

“Further, it’s important to get the tests which can spot a serious illness early when it can be best treated,” said Dr. Berwick.  “These preventive screenings are critical, and we want physicians to take this opportunity to help their older patients understand how necessary they are.”
“The Administration on Aging network of service providers are the ‘boots on the ground’ in reaching people on Medicare," said Assistant Secretary for Aging Kathy Greenlee. "These providers see Medicare beneficiaries every single day at a variety of settings across the country, and serve a diverse group population. I am committed to ensuring that the Medicare beneficiaries we serve are aware of and take advantage of their Medicare preventive benefits.”

According to the report, over 5.5 million beneficiaries in traditional Medicare used one or more of the preventive benefits now covered without cost-sharing including, most prominently, mammograms, bone density screenings, and screenings for prostate cancer.  In 2011, Medicare began covering an Annual Wellness Visit at no cost to Medicare beneficiaries.  As part of that visit, beneficiaries and their physicians can review the patient’s health and develop a personalized wellness plan.  Over 780,000 beneficiaries received an Annual Wellness Visit between January 1 and June 10. Additionally, more seniors have used the Welcome to Medicare Exam this year.  66,302 beneficiaries had taken advantage of the benefit by the end of May 2011, compared to 52,654 beneficiaries at the same point in 2010 – a 26 percent increase.

A renewed push toward prevention is the latest step toward CMS’s fulfillment of its “Three-Part Aim”: Better care and better health at lower cost through improvement in health care.  Roughly 70 percent of Medicare beneficiaries had at least one chronic condition in 2008, while as many as 38 percent had between two and four chronic conditions, and 7 percent had five or more.  They see an average of 14 different doctors and fill an average of 50 prescriptions or prescription refills a year. Preventing chronic disease among the Medicare population would not only improve their health and quality of life, it could help save an estimated two-thirds of the $2 trillion the U.S. spends treating preventable long-term illness today. 

The new annual wellness visit can help spark the beginning of an ongoing conversation between patients and their doctors on how to prevent disease and disability.  At this visit, beneficiaries can review their histories and make sure their primary care doctor knows about their other providers and prescriptions. They can also talk about the pros and cons of getting an influenza, pneumococcal or hepatitis B vaccination, or find out whether a diabetes test, a bone mass measurement, or any of several cancer screenings would be right for them.  Thanks to the Affordable Care Act, Medicare now covers many of these services without cost to patients.
Medicare’s Share the News, Share the Health campaign will run throughout the summer, with online ads and community events all over the country starting in July.  HHS is releasing a nationwide public service announcement that is available on
As part of these outreach efforts, CMS has issued a “Dear Doctor” letter to providers today, calling on them to discuss preventive care with their patients. 

The agency also launched the full Spanish version of the
website,  In addition, Medicare’s dedicated caregivers’ website “Ask Medicare” ( now has a prevention section especially for caregivers.  You can find additional information on prevention benefits on line at,  and at  (click on "Learn about Prevention" at the top). 

This announcement comes during Prevention & Wellness Month, as the Obama Administration is highlighting announcements, activities, and tips that will help Americans get healthy and stay healthy.  Last week, the National Prevention Council released the National Prevention Strategy, America’s plan to help increase the number of Americans who are healthy at every stage of life.  The Community Transformation Grants are one piece of a broader effort to address the health and well-being of our communities through initiatives such as the President’s Childhood Obesity Task Force, the First Lady’s Let’s Move! campaign, the National Quality Strategy, and HHS’ Communities Putting Prevention to Work program.  The Prevention and Public Health Fund, as part of the Affordable Care Act, is supporting this and other initiatives designed to expand and sustain the necessary capacity to prevent disease, detect it early, manage conditions before they become severe, and provide States and communities the resources they need to promote healthy living.  

Up to $500 million in Affordable Care Act funding will help health providers improve care

Centers for Medicare & Medicaid Services
Room 352-G
200 Independence Avenue, SW
Washington, DC 20201
Office of Media Affairs

FOR IMMEDIATE RELEASE                                                             Contact:  HHS Press Office
Wednesday, June 22, 2011                                                                                         (202) 690-6343

Up to $500 million in Affordable Care Act funding will help health providers improve care
Partnership for Patients announces Federal contracting opportunities

The U.S. Department of Health and Human Services (HHS) announced that up to $500 million in Partnership for Patients funding will be available to help hospitals, health care provider organizations and others improve care and stop millions of preventable injuries and complications related to health care acquired conditions and unnecessary readmissions.  This funding, made available by the Affordable Care Act, will be awarded by the Centers for Medicare & Medicaid Services (CMS) Innovation Center through a solicitation and other procurements for federal contracts announced today. 

 “Since the Partnership for Patients was announced, we have had an overwhelming response from hospitals, doctors, employers, and other partners who want to be a part of this historic effort to improve patient safety,” said CMS Administrator Donald M. Berwick, M.D.  “We are now looking to contract with local and statewide entities that can foster and support hospitals’ efforts to improve health care and reduce harm to patients.”

The Partnership for Patients is a new public-private partnership that will help improve the quality, safety, and affordability of health care for all Americans.   The Partnership’s two goals are reducing harm in hospital settings by 40-percent and reducing hospital readmissions by 20- percent over a 3-year period.  To achieve these goals, the Partnership is seeking to contract with large health care systems, associations, state organizations, or other interested parties to support hospitals in the hard work of redesigning care processes to reduce harm.  “Hospital Engagement Contractors” will be asked to conduct the following:

o   Design intensive programs to teach and support hospitals in making care safer;
o   Conduct trainings for hospitals and care providers;
o   Provide technical assistance for hospitals and care providers; and
o   Establish and implement a system to track and monitor hospital progress in meeting quality
     improvement goals.
In addition to the Hospital Engagement Contractors, CMS will also be working with other contractors to develop and share ideas and practices that improve patient safety. These efforts include work with patients and families to understand their thoughts on how to best improve patient safety and transitions between different health care settings – such as when a patient is discharged from a hospital to a nursing home.

These contracts make available the first round of funding – which will ultimately total up to $500 million – that the Innovation Center has committed to this effort.  Solicitations for proposals are available on the Federal Business Opportunities website at:

When the Partnership for Patients was announced, the Obama administration committed up to $1 billion in Affordable Care Act funding to help achieve the two goals.   At the time of the announcement, up to $500 million was made available through the Community-based Care Transitions Program to ensure patients safely transition between settings of care (access the Transitions Program solicitation here). Today’s announcement makes available the start of $500 million additional Innovation Center funds to help reduce health care acquired conditions and reduce unnecessary readmissions.

# # #

Note: All HHS press releases, fact sheets and other press materials are available at

Will Employers Drop Coverage After 2014?

Probably…Not, Industry Observers Tell AIS
Reprinted from HEALTH PLAN WEEK, the most reliable source of objective business, financial and regulatory news of the health insurance industry.
By Steve Davis, Managing Editor
June 13, 2011Volume 21Issue 20
Nearly one-third of employers will “definitely” or “probably” drop insurance coverage and send employees to state insurance exchanges in the years after 2014 — the year the exchanges are slated to be operational — according to a new report that has attracted a lot of attention in the mainstream media. But industry observers contacted by HPW are dubious that employer-based coverage — particularly among large employers — will change much once exchanges are up and running.
The report, published in the June issue of the McKinsey Quarterly, is based on a survey of 1,300 employers conducted early this year across various industries, geographies and employer sizes. The study also concludes that at least 30% of employers “would gain economically from dropping coverage” even if they countered the loss of health coverage with higher salaries or other benefits. But coverage offered through state exchanges probably won’t be as rich and most likely will be more expensive than employer-based coverage, sources tell HPW. And employers that drop coverage could find it difficult to attract and retain employees.
The study’s conclusion “is not credible,” says David Godofsky, the leader of the Employee Benefits & Executive Compensation Group at the law firm Alston & Bird. Reduced FICA taxes for employers, reduced income and FICA taxes for employees, and group rates — which are less expensive than individual rates — for insurance are among “the powerful incentives” that compel employers to offer coverage now, he tells HPW. And those incentives won’t change after 2014. “Employees want insurance not only for the risk reduction but also for the negotiated discounts that insurers get — which are substantial — and the tax benefits.”
Reform May Push Benefit Changes
Bill Sharon, a benefits consultant at Towers Watson, says he’s surprised by McKinsey’s findings. A mere 3% of employers surveyed by his company last year indicated that they would likely drop health coverage once insurance exchanges become an option. Those survey respondents were predominantly large employers (i.e., more than 1,000 employees). “Although the McKinsey study is more recent,…I don’t think we’ve had more clarity in the past year. In fact, some would argue we have less clarity now than we did a year ago,” he tells HPW.
But Paul Fronstin, Ph.D., a senior research associate with the Employee Benefit Research Institute, says the exchanges will be a “game changer” by creating a viable alternative to employer-based coverage. Once some employers opt to make the move, others will follow. “It doesn’t matter if the percentage in a survey is 30% or 3% — the first one to [drop coverage] is going to trigger others to do it,” he contends.
Small Employers Have More Incentive to Drop
The threat of fines could give employers another reason to maintain existing benefits, says Carol Taylor, director of compliance at Orlando, Fla.-based Beacon Benefit Consulting. Beginning in 2014, employers that have at least 51 employees and don’t offer coverage are subject to an annual per-employee penalty of $2,000 for each full-time employee (FTE) after the first 30. And employers that do offer coverage could be penalized $3,000 for each employee who qualifies for a subsidy (i.e., 133% to 400% of the Federal Poverty Level (FPL)) and opts for coverage through an exchange. Rules about exactly how these penalties will work still need to be clarified through guidance, Taylor notes.
But employers with fewer than 51 workers won’t be penalized for not providing health coverage. As a result, low-wage firms that provide coverage will be at a competitive disadvantage if similar-sized firms drop coverage and boost wages, says Devon Herrick, Ph.D., senior fellow at the right-leaning National Center for Policy Analysis. “For moderate-income workers, the exchange subsidy is about five times greater than the tax subsidy for employer plans,” he explains. “In many instances, workers will qualify for subsidies worth $15,000 or more depending on their income and where they live. This is especially true in high-cost areas,” he says. “Any time the exchange subsidy far exceeds the penalty for much of a firm’s work force, it makes sense from an employer standpoint to drop coverage, pay the fine, raise cash wages and send workers to the exchange.”
Penalties based on the number of FTEs also could provide employers with a financial reason to use more part-time workers, adds Taylor. But HHS could minimize that issue, for example, by implementing a “look-back” rule that bases penalties on the number of FTEs a company had a year earlier, Taylor suggests.
Health care consultant Robert Laszewski, president of Health Policy and Strategy Associates, LLC, agrees that the lack of penalties, combined with guarantee-issue coverage in the exchange, could create a compelling financial case for small employers to drop coverage.
“Uncle Sam is the new payer subsidizing premiums, and the leading health plans will all be on the exchange with benefit plans that will look a lot like the plans employees will be leaving behind,” he tells HPW. “It gets a lot harder for the employer to make such a decision when the fine is taken into consideration. Also, when the work force has higher incomes, the decision is more problematic since the federal subsidies are most generous for families making less than about $55,000 per year.” Employees who are below 140% of the FPL aren’t subject to rating bands, which could make the coverage even more affordable, Fronstin adds.
Adverse Selection = Bigger Premiums
Individual options offered through an exchange are usually going to be high-deductible, expensive plans that will be financially unattractive to the typical employee, according to several industry observers. And that will put more pressure on employers to keep coverage intact, particularly for large employers.
The exchanges are likely to attract people who qualify for a subsidy and those who were previously uninsured due to a pre-existing condition. That sort of risk pool will make adverse selection within the exchanges a significant threat.
Godofsky predicts that adverse selection will ensure that premiums for exchange-based coverage will be more expensive than those for employer-sponsored plans. “In order to keep employees, an employer who drops coverage will have to increase salaries by more than the cost savings. All of this comes before you apply the penalty of $2,000 per employee if you drop coverage. Paying a penalty for not offering coverage provides an incentive to offer coverage. Having to provide insurance for currently uninsured groups is not an incentive to drop coverage; it is an incentive to raise the employee premium.”
Insurers Must Create ‘Seamless Transition’
If the exchanges do prompt a mass exodus from employer-based coverage, McKinsey suggests that health insurers might be able to counter losses on the group side by boosting enrollment on the individual side if they can offer “a seamless transition for workers” who transition from employer-sponsored coverage to an exchange-based option. More than 70% of employees would stay with their insurer, according to McKinsey’s research.
Assuming nothing changes legislatively, Carl Doty, vice president and practice leader of consumer product strategy at Forrester Research, agrees that consumers are likely to stick with their existing carrier if the transition is easy and the coverage is similar. McKinsey’s statement “indicates consumers’ desire to not be disrupted,…but I think that disruption is inevitable,” he tells HPW. “Most consumers can’t afford to pay what their [employer-based] policies actually cost, so they will have to downgrade their coverage significantly. This will trigger a ‘shopping effect,’ and insurers will suffer large hits to retention rates.” To fend off member attrition, insurers will need to disrupt their own business models and create plans that emphasize “simplification, personalization and digitization,” he says.
The transition from coverage offered by a self-insured company to full-risk, exchange-based coverage “will be a net positive for managed care,” Credit-Suisse analyst Charles Boorady wrote in a June 6 note to investors. “However we will likely see winners and losers within managed care,” he added.
The McKinsey study looks to “the years after 2014,” which is still a long time away, and details about coverage, premiums and how the exchanges will operate are still unknown. While Fronstin says employers are likely to move employees onto exchanges at some point, the transition will probably occur over many years rather than overnight. The move to exchanges “is likely to play out no differently than other changes in employee benefits,” he says. The move toward managed care, for example, occurred over decades. “The difference today might be desperation.…Employers are desperate to do something.”
Ken Sperling, global leader of the Health & Benefits Practice with Aon Hewitt, agrees that big changes will take time. “We may, in fact, see a shift from traditional group models to individual products, just as we are currently seeing in the post-65 retiree marketplace,” he says. “But it will happen slowly, and only when the alternative offers a superior value proposition to the employer and employee. That’s what health insurers will need to offer in order to grow as the market shift occurs.”
And many employers want to wait to see how the reform law — and the development of exchanges — plays out before making any bold moves. “Both proposed and final regulations for key provisions [of the law] have yet to be promulgated. Additionally just over half the states are currently pushing for reform’s repeal through the court system, an indication of the significant resistance to the law and just the first big challenge of many that are probable,” notes Bill TenHoor, president of TenHoor and Associates, a strategic planning and market analysis firm based in Duxbury, Mass. Even if the reform law stays intact, it will take several years for attitudes among employers to change. But if the reform law does help to stabilize coverage costs, employers will have even less incentive to drop coverage, he adds.
For employers, determining whether to drop coverage will be a matter of crunching the numbers. While some small employers will determine it makes more financial sense to eliminate health benefits, tax incentives and a need to attract and retain employees will give larger employers a reason to maintain benefits, says Shawn Nowicki, director of health policy at Northeast Business Group on Health. Many employers, he says, are tweaking existing plans to avoid the 40% excise tax on high-cost plans, “a clear sign that they intend to stay in the game for a number of years.”
“I think all employers will be doing the math to see what their situation will be in 2014,” says Helen Darling, president and CEO of the National Business Group on Health. “If you do the math, the penalty [for not offering coverage] is relatively low compared to cost of coverage. But that might not continue to be the case.”
Presumably, in the end, most companies will make the financial decision that is best for them. And that will rarely, if ever, be to drop coverage entirely. More likely, employee premiums will rise, Godofsky says.

Quote of the Day

“I was concerned about service-area contractions [in Medicare Advantage bids for 2012], but I don’t think we’ll see many of them.”
Bonnie Washington, senior vice president at Avalere Health LLC, told AIS’s Health Plan Week.

Quote of the Day

Nothing Says Loving Like High-Priced Acquisitions

By James Gutman - June 17, 2011

A funny thing happened on the way to what industry critics saw as the coming death spiral of Medicare Advantage plans under health reform. One well-regarded MA plan stands to get a whopping price — reportedly $14,815 per covered life — in a new acquisition deal. That is not only good news for the prospective acquiree, CareMore Health Group. It also shows, as securities analyst Carl McDonald of Citigroup Global Markets put it in a June 8 research note, that "Medicare sentiment has now come full circle," with MA viewed in 2011 "as a strategic imperative by many plans" in light of a shrinking commercial risk business and rapidly growing numbers of baby boomers about to enter Medicare.
Certainly the proposed deal announced June 8 for WellPoint, Inc. to acquire CareMore has some unique features, including the profitable clinics CareMore owns and operates for integrated care of seniors. Clinics notwithstanding, though, the reported $800 million price tag (WellPoint won't confirm or deny that) for the deal "has to warm the heart of every Medicare plan and Medicare shareholder in the country," McDonald said. And he predicted there will be more MA deals by the end of this year, noting that companies such as Aetna Inc. have said they want to get bigger in Medicare.
How did the change in the outlook for MA come so quickly after the initial reform-law doomsday predictions? Was it largely a result of the big quality-bonus demonstration program CMS unveiled last year for MA plans with ratings of three or more stars? Or are people just concluding that MA plans are very resilient, knowing how to take a punch and still win a fight?