From America's Health Insurance Plans

January 15, 2010

Key Policy Issues and Solutions

1.    $70 Billion Federal Premium Tax


A new $70 billion tax on health insurance proposed in the Senate bill will directly raise the cost of coverage. This tax is scheduled to take effect in 2011, long before coverage expansions go into effect, and hits individuals and small business hard.

The new tax is assessed based on health insurance plans’ premium revenue, and most small businesses fully insure their workforces—meaning they and their employees pay premiums for coverage. By contrast, most large employers self-insure their workforces and therefore would not be subject to the higher insurance costs associated with the new tax. Consequently, the tax is likely to encourage additional employers to self-insure simply to avoid the tax which would have the effect of shrinking the tax base and increasing the impact on those for whom the tax continues to apply.

Solution

•    As the tax will increase coverage costs for small businesses and individuals within a year, it should be eliminated or reduced. At minimum, the tax should be revised so that it is better aligned with the timing of the anticipated coverage expansion (under the Senate bill, the tax totals $13 billion before market reforms and subsidies would be available).

•    The tax should be spread over a broader base, and not be limited to fully insured coverage so that no one group of people is paying higher premiums than they otherwise would.

2.    Medicare Advantage Cuts

Proposed funding reductions to Medicare Advantage significantly jeopardize beneficiary access to the coordinated care and additional value that these health plans provides. Recent studies demonstrate that the MA program’s focus on prevention and disease management can reduce unnecessary hospitalizations and readmissions, and the additional value offered by MA organizations is especially important to the many low-income beneficiaries enrolled in these plans.

The proposals in the House and Senate health care reform bills have very different geographic implications, but both will destabilize the program for millions of beneficiaries. The goals of MA payment policy should be to provide Medicare beneficiaries with better access to more coordinated care, to put the program on a more sound financial footing, and to preserve opportunities for Medicare beneficiaries to enroll in MA plans all across the country.

Solution

•    Funding cuts to the Medicare Advantage program should be no more than those proposed in the Senate bill.

•    Achieve these funding reductions through a mechanism that allows beneficiaries across the country to keep their MA plans and benefits and rewards quality, efficiency, and innovation.

 
3.    Ensuring a Smooth Transition

The proposed MLR standards do not reflect the reality of today’s voluntary individual insurance market and will likely be impossible to meet. A key concern with these proposals is that they are geared toward the post-2014 environment in which market reforms such as guarantee issue with a coverage requirement have been implemented. Instead, this new proposal would begin during the transitional period and current voluntary market in which many people purchase coverage when they anticipate needing it and advisors play an essential role in assisting people in securing coverage that best meets their needs and budgets. As a result, the individual market experiences higher structural administrative costs.

Failure to distinguish appropriately between these pre and post major reform periods will disrupt coverage for those who have it today and diminish competition and choices in the individual market. As indicated in their January 6, 2010 letter, the approach is also out of step with guidelines from state insurance commissioners and the National Association of Insurance Commissioners (NAIC).
Unless appropriately structured, these caps will reduce choice and competition in the market, and create disruption and access issues by eliminating existing coverage arrangements.

Solution

•    MLR ratios should be calculated over a broader period consistent with NAIC guidelines.

•    Allow for a 75% MLR and appropriate adjustment to reflect the cost of delivering coverage on an individual basis through the transition period to mitigate disruption in the market.

•    Ensure that implementation of the MLR rebate requirement does not apply to any year beginning before the NAIC is able to establish the appropriate regulatory framework for implementation.

•    Existing contractual obligations to brokers and agents reflecting the enrollment and servicing of existing enrollees should be excluded from the MLR calculation during the term of these obligations.


Backup:


The Health Insurance Premium Tax Means Higher Prices for
Families and Small Businesses
America’s Health Insurance Plans



One of the goals of health care reform is to make coverage more affordable, but the proposed $70 billion health insurance premium tax will have the opposite effect by increasing costs for tens of millions of Americans. The new health insurance premium tax will:

Raise the Cost of Coverage for Individuals and Families: These taxes would increase costs for individuals and families who do not have access to employer-sponsored insurance and at a time when they are already struggling with rising health care costs.

Hit Small Business Hard: The National Federation of Independent Business (NFIB) refers to it as the “Small Business Health Insurance Tax”. The new tax is assessed based on health insurance plans’ premium revenue, and most small business fully insure their workforces –meaning they and their employees pay premiums for coverage. By contrast, most large employers self-insure their workforces and therefore would not be subject to the higher insurance costs associated with the new tax.  Consequently, the tax is likely to encourage additional employers to self-insure when they otherwise would not simply to avoid the tax, which would have the effect of shrinking the tax base and increasing the impact on those for whom the tax continues to apply.

Put Benefits at Risk for Families and Employers: The new health insurance premium tax is assessed based on market share and is not tax deductible. The new tax will disproportionately impact health plans with the lowest net income, and for some health plans, if not addressed, could result in an effective tax rate of more than 100 percent.

Delay Implementation, Spread the Risk: In order to minimize risk of disruption, at a minimum, this tax should be delayed until 2012, with the amount of the tax due each year better synchronized with the 2014 market reforms and coverage expansion. To minimize the impact on small businesses, individuals, and families, the tax should be spread over a broader base.

At a minimum, the tax should be delayed until 2012 and phased in more gradually so that it is more in sync with full implementation of the reforms and coverage expansions proposed to begin in 2014.
 
Medicare Advantage Cuts

Both bills being considered by Congress propose cutting billions from the Medicare Advantage program, which provides Medicare benefits – including prescription drugs, dental coverage, vision coverage and gym memberships – to more than 10 million seniors.  Steep cuts to Medicare Advantage would break Congress’s promise to seniors that they would be able to keep their health care coverage if they were satisfied with it.  Many seniors would lose their coverage; others would end up paying more for fewer benefits.  Congress should fix this issue before a final bill is voted on.

•    Proposals under consideration in the House and Senate would result in seniors experiencing benefit cuts and premium increases, while some seniors would lose the choice of a Medicare Advantage plan altogether.

o    The Centers for Medicare & Medicaid Services (CMS), Office of the Actuary, said that the house bill would cause enrollment in MA plans to decrease by approximately 64%.

o    Congressional Budget Office director Doug Elmendorf said that cuts to Medicare Advantage “could lead many plans to limit the benefits they offer, raise their premiums, or withdraw from the program.”

o    The legislation in the House is similar to the 2007 House proposal which CBO projected would reduce Medicare Advantage enrollment by 2.7 million beneficiaries in five years. 

o    According to a Congressional budget office analysis of an early Senate committee proposal, by 2019 MA enrollee additional benefits would decline in value by more than half of what they experience today.
   
•    Previous cuts to Medicare Advantage resulted in millions of seniors losing their coverage or experiencing benefit reductions.

o    According to CMS, enrollment in Medicare Advantage (then known as Medicare+Choice) experienced multi-year declines following enactment of the Balanced Budget Act of 1997.

•    Medicare Advantage should be preserved because it provides additional benefits and improved quality care.

o    Medicare Advantage plans provide additional benefits that are not available in fee-for-service Medicare.

    Medicare Advantage plans coordinate care, help seniors manage chronic conditions and emphasize prevention and wellness.

o    Government data show that seniors in Medicare Advantage spend fewer days in a hospital, are subject to fewer hospital re-admissions, and are less likely to have “potentially avoidable” admissions, for common conditions ranging from uncontrolled diabetes to dehydration.

 
Disruptions Posed by the Transition to Reform

A number of provisions in the pending health care reform legislation threaten to create disruption for individuals, families and small businesses during the transition to the major reforms to the health insurance market proposed for 2014.  Congress should fix these issues before a final bill is voted on.

New Arbitrary Cap on “Administrative Costs” Will Undermine Value and Quality for Individuals, Families and Small Businesses

•    A new arbitrary cap that will limit how much health plans can spend on administrative costs will make health care quality worse.

o    Arbitrarily capping the medical loss ratio will undermine essential services that improve care, including disease management and care coordination programs, investments in health IT, programs to root out fraud and abuse in the health care system, and new administrative simplification initiatives.  This is because these essential programs are considered administrative costs – not medical care – by the government.

•    The quality of service and care that members of health plans receive will also be put in jeopardy because Congress is asking health plans to implement the new, arbitrary medical loss ratio long before the major reforms to the health insurance market go into effect in 2014.

Rules that Increase Costs and Encourage People to Wait Until They Are Sick to Get Coverage

•    Because the proposals in Congress contain a weak requirement for everyone to purchase coverage, younger people will wait until they become sick before they buy it.  This will raise the cost of health care for younger individuals and make it harder to get everyone covered.

o    Experience in 8 states has demonstrated the importance of pairing a strong mandate for everyone to purchase coverage with a rule requiring insurers to cover everyone, regardless of age, health status and other factors.  Without a strong mandate to purchase coverage, costs will skyrocket.

•    While reform may lower premiums for those in a handful of states that already require insurance companies to issue policies, regardless of preexisting conditions, for people in more than 40 states, premiums will increase.

•    The level of subsidies for individuals that Congress has proposed, which will help people pay for coverage but does not lower costs, will in some cases be less than the increase in premiums caused by these reforms.