By Jane Norman, CQ HealthBeat Associate Editor

May 3, 2010 -- High-risk pools will be operated by the federal government in at least 17 states that have officially declined to participate in a new program authorized in the health care law.

The Department of Health and Human Services (HHS) said it had officially heard from all but two states as of Monday, and 17 opted out of the program for people who can't obtain insurance because of their pre-existing conditions. Another 29 states and the District of Columbia will accept federal subsidies to set up their own programs to assist sick people. April 30 was the deadline for states to make their decisions known to HHS.

Rhode Island and Utah have requested applications and will make decisions later, while there's no official word yet from Florida or Arizona, HHS officials said. However, the Miami Herald reported that Florida Gov. Charlie Crist sent a letter to HHS Secretary Kathleen Sebelius late April 30 saying his state will not set up its own program.

"As governor of Florida, I cannot commit any state resources to participate in the federal temporary high-risk health insurance program," said Crist, who recently announced he would leave the Republican Party and run as an independent for the Senate.

In Utah, the Salt Lake Tribune said that Republican Gov. Gary R. Herbert has asked for additional information about the program and is worried about whether the federal government will absorb the costs. Richard S. Foster, the chief actuary of the Centers for Medicare and Medicaid Services, has predicted that funding for the program will run out in 2012, requiring substantial premium hikes in 2013.

The state-by-state program with $5 billion in funding is designed as a temporary measure until 2014, when insurance companies will be prohibited from discriminating against people with pre-existing conditions.

Most, but not all, of the governors who declined to set up a state program were Republican. GOP Gov. Rick Perry of Texas said in a letter to Sebelius on April 30 that the $5 billion won't stretch far enough. "Most experts believe this amount to be insufficient. In the coming years, state officials could be forced to reduce health coverage, raise premiums or ask state taxpayers to pay for these high-risk pools once federal funds run dry," Perry wrote, according to the Houston Chronicle.

Jenny Backus, acting assistant secretary of HHS for public affairs, wrote in a blog post late April 30 that the department was gratified by the response from the states aiming to extend coverage for sick people who have been without insurance for six months or longer.

"Whether states create these pools or the federal government creates them for states, the pools will be paid for by 100 percent federal dollars and most importantly — uninsured people around the country will soon have access to another affordable coverage option," she wrote.

States could choose to operate a new high-risk pool alongside an existing state pool, set up a state pool if one did not exist already, build on other existing coverage programs, contract with a carrier to provide coverage for the affected people or do nothing, in which case HHS would carry out the program in that state. There are 35 states that now run high-risk pools, though not all the pools are taking new applicants. Premiums can still be very high and are supposed to be more affordable in the federal high-risk pools.

States that will run their own programs are: Alaska, Arkansas, California, Colorado, Connecticut, Illinois, Iowa, Kansas, Kentucky, Maine, Maryland, Massachusetts, Michigan, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, South Dakota, Vermont, Washington, West Virginia and Wisconsin. The District of Columbia will also run its own pool.

States that have opted out are: Alabama, Delaware, Georgia, Hawaii, Idaho, Indiana, Louisiana, Minnesota, Mississippi, Nebraska, Nevada, North Dakota, South Carolina, Tennessee, Texas, Virginia and Wyoming. HHS run programs in those states.

By Jane Norman, CQ HealthBeat Associate Editor

May 7, 2010 -- The IRS shipped postcards to more than 4 million small-business owners in April with the kind of good news rarely expected from the agency — a new tax credit is available if the businesses help pay workers' health insurance premiums. The credit is one piece of the new health care law that kicks in immediately.

But there's skepticism among some business groups as to how many small-business owners really will be able to take advantage of the tax break, due to its complexities and the requirements that businesses will have to meet. If you're literally a mom-and-pop operation, for example, you probably will have to forget it: Family members can't be included in the calculations.

The credit has also emerged as the next battleground in the political fight over health care as groups that opposed the law, such as the U.S. Chamber of Commerce, work to highlight the tax credit's flaws. Small businesses face problems finding and keeping insurance for their workers, many of them low-wage, and the credit could be a key early test of the law (PL 111-148, PL 111-152).

The White House is confident that the tax credit will work, and that the more small business owners find out about it, the more they'll like it. "Because of the reforms that were passed, millions of small-business owners are eligible for a health care tax cut this year," President Obama told the Business Council on May 4. In a Webcast the next day, Commerce Secretary Gary Locke predicted that the tax credit will be "huge" for small businesses seeking to offset their premium costs.

However, some small-business owners may not even realize that the credit is available because they've heard so much from critics of the health care law, said Sen. Al Franken, D-Minn. "I think small-business owners who tend to maybe get some of their information from your more conservative sources, when I have been traveling around Minnesota, they didn't know about this," he said.

Will It Be Enough?
But a major drawback of the tax credit is that many small businesses are made up entirely of family members, and they can't benefit, said Kristie Arslan, executive director of the National Association for the Self-Employed. "I think business owners will be investigating if they qualify, and they're going to find out they don't," Arslan said. The group opposed the overall bill even though it favored its insurance market reforms. "I think you will find there's going to be a backlash," Arslan said.

Small businesses pay on average 18 percent more for their health insurance plans than large companies, according to the Council of Economic Advisers. Just half of all companies with three to nine employees offered insurance to their workers in 2008, the Kaiser Family Foundation reports.

The long-term solution to that is expected to come through small-business health exchanges, or insurance marketplaces, in which small businesses will pool together to buy insurance. But that doesn't start until 2014, and the tax credit was intended as temporary though hardly universal — the Congressional Budget Office told lawmakers that 12 percent of small-business workers would qualify.

Beginning this year, the full tax credit applies to employers with 10 or fewer full-time workers with average annual wages of less than $25,000. Employers would have to cover at least 50 percent of workers' premium costs. Beyond those levels, a partial tax credit is available for businesses with up to 25 full-time employees and average wages of less than $50,000. The tax credit will be equal to 35 percent of the employer's premium cost. If the employer buys policies through state exchanges in 2014, the credit ramps up to 50 percent. By 2016, the credit ends.

The chamber points out the credit is not available for people who are self-employed and pay their own premiums, though they represent 78 percent of all small businesses. It also remains unclear so far who is considered an employee for the purposes of calculating the average wages. If the owner's is included, it could skew the average wages much higher.

"It really is pretty limited, and that is some of the disappointment with it," said Amanda Austin, director of federal public policy for the National Federation of Independent Business (NFIB), which also opposed the law. Another problem NFIB sees is that small business' premium costs will spike when the credit phases out.

Mark Pauly, a professor of health care management at the Wharton School at the University of Pennsylvania, said many small businesses don't see the value of offering health insurance to low-wage workers and need a major inducement to do so. A tax credit may not be enough. "If I had to bet, I don't think the takeup will be particularly high," he said.

White House allies say it can work, and they're striving to get the word out. Terry Gardiner, executive director of the Small Business Majority, which generally sided with Democrats on the law, said he's promoting it to his members, and his group's website features a calculator so people can figure out whether the credit will benefit them. Interest is high. "We're meeting with business owners," he said. "They're punching numbers in."

By John Reichard, CQ HealthBeat Editor

May 4, 2010 -- The Obama administration announced Tuesday the launch of a temporary program to make it easier for employers to offer health coverage to early retirees.

The program was created under the health care overhaul law with $5 billion in funding. The White House said that employers who are accepted into the program will receive reinsurance reimbursement for medical claims for retirees age 55 and older who are not eligible for Medicare. The program also applies to claims filed by their spouses, surviving spouses and dependents.

The program allows employers to claim reimbursement for up to 80 percent of claims costs between $15,000 and $90,000. Employers can begin applying at the end of June for reimbursement, according to HHS.

The White House said that "both self-funded and insured plans can apply, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, and other employers."

The Business Roundtable, which includes the CEOs of many large companies, praised the program.

"While health care costs are the number one cost pressure facing our members, we are committed to providing coverage to our more than 35 million employees, retirees and their families," said John J. Castellane, the president of the group. The program " reduces costs and allows many of our member companies to continue providing this critical coverage," he said.

By John Reichard, CQ HealthBeat Editor

May 7, 2010 -- The more that current outlays by health insurers fall into the "medical" category, the easier it will be for them to meet new minimums in the health care overhaul dictating how much of every premium dollar must go for medical care and limiting how much can go for profit and administrative expenses.

Insurers are racing to make the case that things like spending on health information technology and reducing certain types of medical care that isn't necessary falls into the category of "improving the quality of care" and so would qualify as "medical."
Consumer activists say, however, that activities described by insurers as "medical management" can lead to the unwarranted denial of care. Classifying it as medical keeps insurers from having to increase their payouts for actual health care services, they assert.

The overhaul law requires that 85 percent of premiums in the large group market be spent on medical care. The minimum medical loss ratio, or "MLR," is 80 percent in the individual, non-group market—it's harder to reach and so generally involves higher marketing and other administrative spending.

The issue is reaching a critical point with the National Association of Insurance Commissioners due to make recommendations to federal officials by June 1 on how various types of insurer outlays and programs should be classified in determining these "medical loss ratios." In addition, HHS has set a May 14 deadline for comments by insurers and others on how various types of spending should be classified.

An internal memo by an official with the America's Health Insurance Plans (AHIP) says that various types of insurance company activities could be in jeopardy if regulators aren't convinced that they should be designated as medical on the grounds that they improve quality of care.

"As we approach the May 14 deadline for submitting comments, it is critically important for you to explain what you are doing to improve quality of care, reduce readmissions, eliminate unnecessary procedures, improve safety and reduce fraud and abuse," says the memo to AHIP member companies from AHIP Senior Vice President Scott Styles.

"We urge you to explain how these activities meet the statutory definition of "activities that improve health care quality" for purposes of calculating MLRs, "because they improve patient health outcomes and reduce unnecessary and potentially harmful care."

The memo further advises that "you . . . describe your innovative case management, disease management, and care coordination initiatives including: health risk assessments, including maternity and neonatal risk assessment," and programs to promote "wellness" and "nurse advice lines to help patients get the care they need while reducing the likelihood of adverse health problems."

However, consumer activists say that some of these programs involve denial of care that harms patients and that it's perverse to count them as medical care.

In a recent post on the website of Consumer Watchdog.org, the group's research director, Judy Dugan, took exception to a recent earnings report by United HealthCare that credited good results in part to "expense management."

"'Strong expense management' refers to the pencil-pushers in the back room whose job is to delay and deny the care your doctor prescribes," Dugan blogged. "Delay is almost as profitable as denial. Every day a dollar is not spent is a day it earns interest for the company. Yet this is one of the functions that insurance companies are now transferring into the 'medical care' column."

"By moving administrative jobs into the medical care category, United HealthCare will be able to meet health reform requirements for medical loss ratios of up to 85% without sweating, and still make just as much profit," Dugan added. "A lot of what insurance companies can get away with will depend on how new regulations to govern the health care reforms are written — and who gets to write them."

But AHIP spokesman Robert Zirkelbach said that insurers seek through their management programs to determine appropriate levels of care, which he said means correcting underuse of care in some instances and overuse in others that could be dangerous. He said for example that overuse of medical imaging is hazardous because of exposure to radiation that can be unsafe.

May 7, 2010 -- A small scale Medicare program testing a home care payment system based on measures of quality and efficiency generated savings in three out of four regions in the country, the Centers for Medicare and Medicaid Services announced this week.

Home health agencies subject to the payment system generated a total of $15 million in Medicare savings, the agency said in the May 6 news release. Officials determined whether or not savings occurred by comparing spending associated with home health agencies subject to the measures to that associated with a control group of agencies that were not rated on quality and efficiency.

A total of seven quality and efficiency measures were used in the study.

The savings were shared by 166 home health agencies that either rated in the top 20 percent of their state on the quality and efficiency measures or made significant improvements in quality of care. A total of 59 percent of agencies subject to the measures qualified for higher payments funded by the savings.

The results were from the first year of the program, which began in January 2008 and ended in December 2009. Medicare-certified home health agencies in seven states were invited to take part in the program, which was voluntary.

CMS will calculate savings and bonus payments for the second year of the demonstration, calendar year 2009, later this year.

May 6, 2010 -- Democrats and Republicans may agree that consumers need more information to compare the prices of health care services, but the spirit of bipartisanship was not in full bloom at a House subcommittee hearing Thursday that considered several bills on the subject.

House Energy and Commerce Health Subcommittee Chairman Frank Pallone, Jr., D-N.J., showed signs of wanting to move on the issue but wasn't committing to a markup date.

"It was a legislative hearing, so the intention would be to consider a markup, but we haven't made a decision," he said during a break in the hearing.

Republicans, meanwhile, their anger unabated about passage of the health care overhaul law, spent a fair chunk of their time slamming that measure. While "transparency" is a big part of their vision for improving health care by unleashing marketplace forces, they made sure to use the public forum to launch attacks on the overhaul law – as has been their wont all spring.

The overhaul law is "an unmitigated disaster," said Rep. John Shimkus, a Republican from Illinois.

Greater consumer awareness of the price of health care services could help Americans get better deals and make the health care system more efficient, Pallone said, but he added that price disclosure must be handled in the right way.

Pallone noted aspects of health that make it different from other markets, such as the delivery of high-cost services in emergencies when patients aren't able to be good shoppers. Patients' choices are often limited by their health plans, and they "may not want to go against their doctor's decisions in order to find the lowest price," he added.

Testimony by Wisconsin House Democrat Steve Kagen led off the hearing, emphasizing that the overhaul law does not go far enough to help consumers get the information they need to shop for better value in health care.

"While the passage of our nation's new health security law earlier this year will help guarantee that no citizen will lose their home or go broke just because they get sick or have an accident, it did not create a transparent medical marketplace to foster competition between caregivers, pharmaceutical manufacturers and health insurers," he said.

"Competition is a good thing, indeed, it is an essential element of capitalism, and when there is a level playing field, competition drives quality up and prices down."

Kagen urged passage of his bill, HR 4700, to better drive competition. He said the measure "will guarantee that any individual or business entity offering medical products or services for sale to the public will at all times openly disclose all of their prices, including on the Internet."

But more pricing information won't necessarily bring clarity to the market, cautioned Steven J. Summer, president of the Colorado Hospital Association. Testifying on behalf of the American Hospital Association, Summer said, for example, that "a gall bladder operation for one patient may be relatively simple but for another patient, it could be fraught with unforeseen complications, making meaningful 'up front' pricing difficult and, perhaps, confusing for patients. Moreover, hospital prices do not reflect important information from other key players, such as the price of physician care while in the hospital or how much of the cost a patient's insurance company may cover."

Summer also noted that the health care law requires hospitals to report annually a list of hospital charges for items and services. In addition, the Centers for Medicare and Medicaid Services posts what Medicare pays for 35 procedures, showing, for example, the range of payments by county.

But more should be done, he added, calling for an expansion of state-based efforts. Summers said AHA supports a bipartisan bill (HR 2249) introduced by Reps. Gene Green, D-Texas, and Michael Burgess, R-Texas, that would expand reporting requirements to all 50 states and also require insurers to disclose estimated out-of-pocket costs for various procedures.

Ambulatory surgery centers are also calling for a state-based approach, HR 4803. In addition to addressing disclosure of hospital prices the measure would provide information on pricing in ambulatory surgery centers. Chris Holden, president of the ambulatory surgery chain AmSurg, suggested that measure could produce savings by revealing how much less expensive procedures are in the ambulatory center than in hospital outpatient departments.

Other testimony noted the complexity of the pricing issue. Michael G. Cowie, an antitrust lawyer with the Washington, D.C., firm Howrey LLP, said "overbroad" disclosure requirements in some cases could lead to higher prices. "Collusion among companies to raise prices is more likely in industries where pricing terms are known among competitors," he said.

Cowie noted that the Federal Trade Commission has opposed public posting of pricing by liquor wholesalers and has raised similar concerns in pharmaceutical pricing. For example, public posting of discounts negotiated by pharmacy benefit manages could lead to more collusion by manufacturers on pricing, he said. HR 4700 "in particular would conflict with established antitrust principles designed to prevent collusion," he said.

But Harvard Business School professor Regina E. Herzlinger said that pricing transparency was "the No. 1 change Americans wanted from the government" in overhaul legislation. "Transparency could help insurers to better control costs by constructing narrow networks of the best value doctors and hospitals," she said.

She also called for mandatory national reporting rather than a state-only approach. "While state level reporting could supplement national reporting, state transparency agencies that limit information to local providers may prevent insurers from creating multi-state networks of best-value providers," she said. "Absent governmental oversight, we have little hope that health care will significantly improve transparency," she said.

Republicans used the hearing in part to press Democrats for a separate hearing on a report by CMS Actuary Richard Foster concluding that the overhaul law would create access problems through deep cuts to Medicare. But Pallone said that is "just one of many" reports and there are often "contradictions" between CMS and the Congressional Budget Office. Pallone said he's more concerned at this point with considering and "moving legislation that has been held up."