Senate Majority Leader Sen. Harry Reid, D-Nev., second right, with Sens. Chris Dodd, D-Conn., left, Debbie Stabenow, D-Mich., second left, and Dick Durbin, D-Ill., right, speaks to the media about the Democratic health care bill on Capitol Hill, Wednesday, Nov. 18, 2009, in Washington.

Hewitt prepared a report at the request of the Business Round Table to evaluate health care reform through the lens of the private sector and to project the likely effect of proposed legislative changes on employer health care costs.

This report addresses four key questions:

• Of the reform initiatives currently being considered that intend to curb the rate of health care cost growth, which ones are likely to have a significant impact on the health care economy at large?

• What missing ingredients should be added to current proposals to enhance their potential to reduce future cost trends?

• What are the risks that could undermine the realization of these cost savings?

• What can be done longer-term to restructure the current health care delivery system in order to reduce annual health care cost trend to a sustainable rate, such as the overall rate of GDP growth (approximately 4% per year)?

Current Legislation Provides Opportunities for Savings, Risks Could Jeopardize Cost Reductions

Risks identified in the report include:

Delayed or watered-down implementations;

Future legislative reversals of potential cost-saving provisions;

Continuation of the practice and related costs of defensive medicine and the cost to providers of malpractice insurance;

Failure to implement a strong individual mandate to minimize cost increases in the health insurance exchange plans due to adverse selection;

Unintended consequences as health plans take steps to keep the cost of health coverage below the threshold for the proposed excise tax on high-cost plans or as employers are unable to live within the cap as it gets relatively tighter over time;

Increases in the cost of health care to individuals from changes to flexible spending arrangements or actions that discourage consumer-engaged decision making; and

Cost shifting to the private sector from reductions in federal reimbursements to providers and from a public plan option if included.

Federal

The battle over health care reform entered a new phase after a critical Senate vote Saturday night. Senators cleared the way for floor debate by a vote of 60 to 39. They needed at least 60 votes to prevent a filibuster.  “We can only see the finish line; we have not yet crossed it,” said Senate Majority Leader Harry Reid. “The road ahead will be the toughest stretch.”

The republicans are promising the road will be a long one.

“The Senate’s not like the House,” said Minority Leader Mitch McConnell. “They had three votes on one day and it was over.”

Senate debates can take weeks. Reid will need 60 votes again to actually pass the final version of the bill. It could look very different after senators add amendments.

And he’s got to win over some of his own party to do it.

“If there are a whole host of other items that are the same as they are right now, I wouldn’t vote to get it off the floor,” said Sen. Ben Nelson, D-Neb., a centrist Democrat who has pushed back against the reform effort.

States

NEW YORK: The legislature passed a bill that prohibits all subrogation (collateral source or third party) recoveries by an insurer for medical expenses. The former collateral source rule eliminated the windfall of double recoveries by plaintiffs who receive medical benefits and win recoveries from defendant payments. The old rule of law allowed insurance companies to offset potential premium increases to consumers by authorizing them to recover medical costs from payments made to an injured plaintiff from a jury award or settlement. With that option no longer available, insurance premiums in New York will be further stressed.

In addition, Governor Paterson and the hospital sector are proposing that the current Patient Services Assessment (PSA) of 9.63 percent be increased by 0.25 percent to generate an additional $54 million as part of the Governor’s second Deficit Reduction plan (DRP) for 2009. The hospitals are advocating for this insurance tax increase to offset some of the governor’s proposed Medicaid cuts on hospitals. The $800 in insurance taxes adopted this year already includes an increase in the PSA, and the new proposal would make the latest increase retroactive to November 1, clearly not included in premium increases for 2010. The legislature is set to return to the Capitol for two more special session days to address the DRP.

NEW JERSEY: The governor has directed state departments and agencies to collectively cut $400 million from the state budget due to state revenue collection falling well short of budget projections. Furthermore, the Governor requested that the legislature not pass any spending bills during the upcoming “lame duck” session. This nearly half-a-billion dollar shortfall, coupled with a projected $8 billion budget deficit for next fiscal year, puts the state in dire fiscal straits. With options limited for making up the lost revenue, businesses operating in the state will be closely monitoring this developing situation.

ILLINOIS: A leader in the Senate has pre-filed a bill to amend Illinois’ HIPAA law with a proposal that group and individual health insurance carriers be prohibited from imposing any pre-existing condition exclusions. Current limitations imposed by state law would be deleted. While the issue is being discussed on the federal level, this issue has had a lot of traction with both House and Senate Insurance Committee members for the past six months. As amended, the current proposal may not meet current federal HIPAA requirements. The bill will not be considered until January 2010.

MICHIGAN: The Office of Financial and Insurance Regulation (OFIR) has scheduled a hearing on November 23 to review Blue Care Network’s proposal to buy Physicians Health Plan. In late September, Blue Care Network, a Michigan nonprofit HMO, filed a statement with OFIR regarding its intention to acquire control or merge with Physicians Health Plan of Mid-Michigan-Family Care and PHPMM Insurance Company. OFIR has 90 days to review the statement. Various parties have requested that OFIR conduct public hearings before making a decision on the sale, due to concerns raised regarding the size of the Blue Cross Blue Shield of Michigan.

OKLAHOMA: Two Republican State Senators are sounding the alarm bell regarding both U.S. House and Senate versions of health care reform, charging that either would devastate at least one new health care facility in Oklahoma City and cost Oklahoma County and the surrounding area more than 500 jobs. State Sen. Jim Reynolds and Sen. Harry Coates say both bills would devastate many top-quality health care facilities, including   Oklahoma Heart Hospital’s $98 million South Campus, which is set to open soon.

The bills would financially undermine the facility by denying the facility federal reimbursement for services such as Medicare and Medicaid. A joint venture of Mercy Hospital, Midwest City Regional and a group of local physicians, the facility will serve much of southeast Oklahoma County along with hundreds of active-duty military and veterans. Both Sen. Coates and Sen. Reynolds say they will ask Gov. Brad Henry to intercede quickly to remove the onerous provisions.

UTAH: The Department of Insurance is circulating a draft bill to amend the state’s uniform electronic standards law to require insurers to provide coverage eligibility and detailed coordination of benefits information to physicians. Large payors will be submitting comments, including the fact that an insurer is not the repository of each member’s applicable insurance coverage information and that a July 1, 2010, effective date does not allow sufficient time for implementation.

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Most insurers claim they continue to focus on important health care reform issues, but also claim that some members of Congress and The White House appear unwilling to stop or even slow the political attacks against insurers.

Even as yet another analysis released last week showed real concerns persist that current proposals will worsen, rather than alleviate, rising health care costs, the House Judiciary Committee used its powers last week to try to punish the industry for speaking out (see below). Actually, the industry remains committed to seeing meaningful health care reform passed this year, a view made clear in a Washington Post op-ed authored by the President of America’s Health Insurance Plans (AHIP).

The reactions on the Hill continue to largely side-step the specific cost concerns raised in the past two weeks. But Insurers remains hopeful that the dialogue may yet return to substantive issues before bills are brought to the floor of the House and Senate in the next several weeks.

Federal

To ease the burden of a scheduled 21-percent pay cut for Medicare doctors in 2010, Senate Democrats tried to pass a stand-alone bill that would have wiped out both next year’s cut and all future cuts. Eliminating the cut for one year would cost $10.9 billion — such a provision is in the Finance Committee version of health care reform and would be fully funded. To totally wipe out the fee cuts for all years would cost $245 billion. Without a “pay for” such a bill would add close to a quarter-trillion dollars to the deficit. This is precisely the bill Majority Leader Harry Reid brought forth. Senator Reid needed 60 votes; he got 47 as all Republicans and 13 Democrats voted against cutting off debate. Senate Democrats had hoped to gain physician support for health care reform by providing relief from the cuts. But the results should serve as a “wake-up” call to the Democratic leadership that health reform will not be a walk in the park.  The strong vote could also embolden moderate Democrats to band together and make “hard votes” on health care reform as well.

In the House, legislative activity for the week came down to passage in the Judiciary Committee of a bill that Democratic sponsors describe as repeal of the health insurer antitrust immunity known as the McCarran-Ferguson Act. The bill more accurately can be described as codifying various court interpretations of the Act, all of which the industry lives with day in and day out. The bill specifically says health insurers (and MedMal insurers) can’t hide behind McCarran-Ferguson to price-fix, bid-rig or engage in market allocations with competitors.  Insurers can’t do that now. Thus, the bill is much more of a vehicle for some in Congress to further demonize a well thought-out piece of legislation with positive policy underpinnings. Whether this item gets added to a health care reform bill or progresses on its own remains to be seen.

The timing for floor debate on health care reform will likely ebb and flow for several weeks, but the current thinking is that this process may take all of 2009 and possibly into 2010 to complete. The House merging process is all but done along with the CBO review of the House bill. The House bill could be released this week, go to the Rules Committee on Thursday/Friday and on to the House floor the first week of November. This schedule requires that everything fall into place and that the Speaker be willing to begin floor debate before the Senate, which seems to be the case. On the Senate side, merging the HELP and Finance Committee bills seems to be picking up speed, particularly with reports of an emerging public plan compromise. But the process will not be finished until later this week, which would bring the bill to the floor the week of November 2 at the earliest. There is a real chance that too many variables will get in the way and neither Chamber will get to the floor until December, which, if true, would translate into a January Conference.

States

COLORADO: The Colorado Health Care Task Force has voted several bills out of committee, including: a prohibition on the use of gender in developing rates for individual policies; a maternity coverage requirement in individual policies; and a requirement that the Department of Insurance develop standardized formats for such things as policy forms and explanations of benefits. Insurers will provide comments.

GEORGIA: Commissioner Oxendine signed the regulation allowing health insurers to utilize health status at renewal when underwriting small groups (2-50). Insurers has worked with the Georgia Association of Health Plans for some time to help enact this regulation.  The Commissioner has also scheduled a meeting with health plan representatives to discuss his 2010 legislative agenda, which will include a bill similar to one defeated this year that would have regulated rates for individual policies.

ILLINOIS: The legislature last week completed the first week of a two-week veto session and took on two insurance-related issues. One bill would create external review requirements for all commercial insurance products, rather than just HMOs, effective July 1, 2010. The bill also would establish committees to create a uniform small-employer, group-health status questionnaire and an individual health statement for use beginning January 1, 2011.  Lastly, the bill would require insurers to semi-annually prepare and provide the Department of Insurance a statement on aggregate administrative expenses and other information. Surprisingly, Chairman of the Executive Committee Mary Flowers stated that she was not going to allow the bill to be called for a vote until she had an opportunity to question the sponsor. Thus, no vote was taken, even though there was no opposition. It appears the bill will be moved for a vote this week in a different committee. Also, negotiations have begun on an insurance mandate bill for prosthetics and orthotics. The General Assembly has indicated that when they adjourn late this week, they will not return again until January.

PENNSYLVANIA: Governor Ed Rendell signed spending, revenue and fiscal code bills earlier this month, ending the 101-day budget standoff. But negotiations continue over the unresolved issue of expanding legalized gambling to include table games. Of primary interest, one bill signed into law embraces an extension of the 5.9 percent gross receipts tax on Medicaid MCOs as an alternative to the Administration’s proposed 2 percent health insurance tax as the basis for federal matching Medicaid funds. The final bill also dropped the proposed “trigger provision,” which would have authorized the Department of Public Welfare to abrogate its Medicaid MCO contracts if the Centers for Medicare & Medicaid Services were to disapprove the GRT approach for fund matching.

UTAH: The Health Reform Task Force has drafted two proposals to recommend to the 2010 legislature. The first, under the guise of administrative simplification, would establish procedures to be followed for coordination of benefits for dependents subsequent to a divorce, superseding the provisions in the applicable insurance contract. The second proposal would require the DOI to develop standards for the use and electronic exchange of uniform claim forms, billing and claim codes, eligibility and coverage information and coordination of benefits.

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