Editor’s Note: This is the first of two posts by Tim Jost analyzing the Senate health reform bill, as revised by the manager’s amendment offered on December 19. Jost’s second post focuses on efforts to control cost and many other aspects of the revised bill.

The 384-page Senate Manager’s Amendment to the upper chamber’s health reform bill arrived on Saturday morning, December 19, apparently backed up by the 60 votes necessary to get the amended legislation out of the Senate.  Democratic senators braved a record blizzard to pass the defense spending bill, the last impediment to clearing the floor for the final hours of debate on the health reform bill, and the clock has been set for adoption Christmas Eve.  It is likely that the drama is not yet over, particularly as progressives continue to grumble about the bill, but Senator Reid’s Christmas wish now seems possible.

Amendments to title I, the health insurance reform provisions of the bill, take up about a quarter of the Manager’s Amendment.  This post will discuss these provisions. 

The remainder of the Amendment contains:

  • amendments to Medicaid and the Children’s Health Insurance Program (CHIP), including additional funding for CHIP for 2014 and 2015;
  • a new  program for pregnant and parenting teens and women;
  • a number of new Medicare initiatives, with a focus on innovative approaches to provider payment, quality reporting, minority health, and more resources for rural health;
  • a change in the name of the Independent Medicare Advisory Board to the Independent Payment Advisory Board and a change in its mandate so that it would now issue reports on slowing the growth of non-federal spending as well as Medicare spending.  The IPAB would also have authority to make binding recommendations for cutting Medicare spending in years where Medicare spending exceeded the growth of health care spending generally;
  • an expansion of Medicare to cover individuals suffering from exposure to certain environmental health hazards and funding for environmental health hazard screening;
  • public health initiatives including new programs for depression, congenital heart disease, and breast cancer;
  • funding for state malpractice reform initiatives; and
  • adjustments in the funding provisions of the bill (including elimination of the excise tax on cosmetic surgery and the addition of a 10% tax on indoor tanning).

These provisions will be discussed in a second post tomorrow.

The public plan, abortion, and guns

The public plan. A number of provisions in the amendments to the insurance provisions of the bill are aimed at satisfying the demands of the more conservative Democratic senators whose votes were needed to pass the bill.  The public plan, called the Community Health Insurance Option in the original bill, is gone (as are the “nationwide” plans). In the place of the public plan is a new program of “multi-state plans” to be supervised by the Office of Personnel Management, which administers the Federal Employees Health Benefit Program.  At least two of multi-state plans are to be available in every state and at least one of these must be nonprofit.  The OPM is supposed to negotiate with these plans concerning medical loss ratios, profits, premiums, and other relevant terms and conditions. 

The plans are supposed to be nationwide — initially covering at least 60 percent of the states and within four years all of them.  The plans must be licensed in every state in which they do business and comply with state law, including state age premium-rating requirements more restrictive than the 3 to1 ratio found in the Senate bill. They must also offer the essential benefits package and comply with all other requirements of the federal statue.  States may require the plans to provide additional benefits, but then must pay for any additional premium subsidies.  The program is supposed to be kept completely separated from the FEHBP and to not adversely effect the operation of that program. 

The Amendment provides that premiums paid to the plan “shall not be considered to be Federal funds for any purpose,” including, presumably Congressional Budget Office scoring. The CBO Report projects that this program will not have a significant effect on premiums or coverage, because the plans that will participate in it would probably have been in the exchange anyway. The CBO suggests, however, that it might increase federal premium subsidy costs since the public plan would have been “expected to exert some downward pressure on the premiums of the lower-cost plans to which those subsidies would be tied.”  The CBO also expresses skepticism as to whether a national nonprofit plan could be formed, as none now exist since a number of the Blue plans are now for-profit.

Abortion. Restrictions on abortion funding in the legislation have been tightened up considerably.  First, states may totally prohibit abortion coverage in health plans provided through the exchange.  The prior bill required exchanges to include a plan that covered abortion, a requirement that has been dropped.  Second, plans must determine the actuarial value of the cost of providing non-federally funded abortions and must collect a separate premium from enrollees or employers to cover this cost, which cannot under any circumstances be funded by public funds. 

Third, plans seem to be prohibited from advertising the cost of abortion coverage.  Fourth, plans may not discriminate against providers who are unwilling to provide abortions, but are not prohibited, as in the original Senate bill, from discriminating against those who are willing.  Fifth, the Manager’s Amendment makes clear as did the original bill, that federal and state abortion or conscience laws are not otherwise preempted.  Sixth, the OPM program must offer at least one plan that does not cover abortions.  Arguably, the bill does not go as far as the House bill in requiring abortion coverage to be purchased as supplemental coverage, but it goes much farther than the original Senate bill.

Guns. The Manager’s Amendment also (it is hoped) puts to rest the anxieties of those who believe that the real agenda of health reform is to disarm the populace.  The legislation prohibits the consideration of lawful gun ownership or use in setting insurance premiums or in wellness or prevention programs, as well as the collection of data concerning gun ownership, storage, or use.

Additional consumer protections

The Manager’s Amendment does not simply address the concerns of conservatives, however.  It also improves on the consumer protections offered by the underlying bill.  A number of provisions of the Amendment expand or at least clarify the protections of the original bill.  These provisions:

  • Prohibit group health plans and all insurers from imposing lifetime or annual dollar limits after 2014 and permit only “restricted annual limits” prior to that date.  The underlying bill allowed “reasonable” annual limits on a permanent basis.  The Amendment continues to allow group health plans and insurers to place annual or lifetime limits on specific covered benefits.
  • Align the prohibition on discrimination in favor of highly compensated-individuals in insured group plans with those already in place with respect to self-insured plans.
  • Extend minimum insurer medical loss ratios to grandfathered plans and increase them from 75 percent to 80 percent for individual insurers and from 80 percent to 85 percent in the large group market.  As in the underlying bill, insurers who exceed these ratios must provide rebates to their consumers.  States may require higher ratios, but HHS may also lower the ratios in the individual market if the market would otherwise be destabilized. HHS is to enforce the requirement.
  • Provide that HHS is supposed to develop external review standards for coverage determinations and  claims for self-insured ERISA plans and for insurers in states that do not have external review laws.
  • Apply the uniform explanation of coverage provisions to grandfathered plans
  • Prohibit pre-existing conditions clauses for children under the age of 19 effective six moths after enactment.
  • Require all health plans and insurers (and not just qualified health plans in the exchange, as in the underlying bill)  to cover emergency services without prior authorization or additional out-of-network cost sharing,  to permit pediatricians to be designated as primary care providers for children, and to permit women in plans that cover obstetrical and gynecological care to have direct access to obstetricians and gynecologists.
  • Fund “Medical Reimbursement Data Centers” to collect and analyze information from health insurers, provide consumers with information to help them understand provider charges in their area, and develop fee schedules and other database tools.
  • Require plans to allow their members to participate in approved clinical trials in relation to the prevention, detection, or treatment of cancer or other life threatening diseases and to cover the routine patient costs of trial participation.
  • Permit “qualified direct primary care medical home plans” to participate in the exchange.
  • Require exchanges to take “into consideration” excessive or unjustified premium increases in determining whether to certify a health plan for exchange participation.
  • Require exchange plans to implement activities to reduce health and health care disparities.

The Manager’s Amendment imposes significant new disclosure requirements on plans seeking exchange certification, including disclosure of claims payment policies and practices, periodic financial disclosures, disclosure of data on enrollment and disenrollment, of data on claims denials and rating practices, and of information on cost-sharing for out-of-network coverage and on enrollee and participants rights, and disclosure of “other information as determined appropriate” by HHS.  Exchange plans are also required to provide additional information on cost sharing with respect to specific services from specific providers if an enrollee requests it.  Another provision of the Amendment requires the GAO to study and report on the incidence of denials of coverage and enrollment in group plans.

Not all of the regulatory provisions of the bill are consumer friendly, however. The provision in the underlying bill allowing states to regulate rates paid to agents and brokers for enrolling individuals and groups in exchange plans has been dropped.

Mandates, penalties, and coverage alternatives

One of the options created by the underlying bill was a “basic health plan,” modeled on a Washington program, which states could create to cover their residents with incomes  between Medicaid eligibility levels and 200% of poverty.  To fund this program, the Manager’s Amendment permits payments to the states of up to 95% of what the federal government would otherwise have spent on premium and cost-sharing subsidies to insure this population, making it much more feasible.  The Amendment also opens these basic plans up to legal aliens who earn less than 133% of poverty but are not eligible for Medicaid because of their alien status.

The Manager’s Amendment makes several changes in the bill’s subsidies and mandates.  Several of the penalties are increased.  The penalty for failing to purchase individual insurance is increased to the greater of  either 1) the dollar penalties found in the original bill (with the penalty for 2015 increased to $495) or 2) .5 percent of household income for 2014, 1 percent for 2015, and 2 percent for 2015, capped by the cost of  the national average premium for a bronze level qualified plan for the relevant family size. This should create much more of an incentive for higher-income uninsureds to purchase coverage. 

The penalty imposed under the original bill on large employers who do not offer health insurance but whose employees end up getting premium subsidies through the exchange is extended to cover smaller construction companies with more than 5 workers and $250,000 in average payroll expenses.  But the bill also includes benefits for employers.  The small business tax credit is introduced in 2010 rather than 2011 and is made available to businesses with average wages that do not exceed $50,000 rather than $40,000, as in the underlying bill. Also, the Manager’s Amendment allows large employers to impose waiting periods on new enrollees of up to 60 days without incurring a penalty, as opposed to 30 days in the underlying bill. 

Finally, the Amendment includes Senator Wyden’s “free choice voucher” amendment. This provision requires employers of employees who fall into the mandate/subsidy “donut hole” (employees who would have to spend more than 8% of their income on premiums for employer coverage, and thus are free from the individual mandate, but who would not have to spend more than 9.8%, and are thus not eligible for premium subsides) to provide such an employee with a “free choice voucher” equal to the contribution the employer would otherwise have made for the employee’s insurance.  The employee can then use this voucher to purchase health insurance in the exchange.  This voucher is taxable neither to the employer nor the employee.  An employee who receives a voucher is not eligible for a premium credit and the employee’s employer is not subject to a penalty.  The CBO estimates that 100,000 workers would be helped by this amendment.

What comes next?

Once it is adopted, the Senate bill will have to be reconciled with the House bill.  While the insurance provisions of the Senate bill have real strengths — their transparency provisions for example — the bill also has, from my perspective, great weaknesses.  The two most significant, I believe, are its four-year delay in implementation date and its dependence on the states to enact and enforce the federal reforms. 

There are other problems with the bill as well, such as its allowing an individual insurance market to continue to exist outside of the exchange, which will surely make the exchange a target for adverse selection.  The affordability subsidies in the Senate bill are also less generous for low-income households, those most in need of help,  than the House bill.  But many of its provisions should bring real improvements in insurance markets.

My next post will examine the remaining sections of the bill.