Monthly Archives: September 2008

Legislative Bulletin — H.R. 7174, James Zadroga 9/11 Health and Compensation Act

Order of Business:  Reports indicate the bill is expected to be considered on Sunday, September 28, under floor procedures that have yet to be determined.

Summary:  H.R. 7174 would amend the Public Health Service Act to establish new federal entitlement programs for 9/11 workers related to health monitoring and treatments, and expand eligibility for the 9/11 victim compensation fund.  Specific details of the legislation include the following:

World Trade Center Health Program:  The bill would establish within the National Institute for Occupational Safety and Health (NIOSH) a new program to provide medical monitoring, screening, and treatment to workers (including federal employees) who responded to the 9/11 attacks on the World Trade Center (WTC), and residents of New York City “who were directly impacted and adversely affected by such attacks.”  The program is intended to provide:

  • Medical monitoring for those exposed to airborne toxins or other hazards;
  • Screening for community members;
  • Treatment for “all medically necessary health and mental health care expenses (including necessary prescription drugs;)”
  • Outreach to potentially eligible individuals to inform them of benefits available;
  • Uniform data collection and monitoring; and
  • Research on health conditions arising from the World Trade Center attacks.

Specific details of the program include:

Payments:  H.R. 7174 provides that all health benefits provided under the program will be provided “without any deductibles, co-payments, or other cost-sharing.”  In cases where a worker is eligible for workman’s compensation, or holds other public or private health insurance coverage, the bill provides that the federal government’s WTC program shall serve as a secondary payer for such claims, similar to the Medicare Secondary Payer program for Medicare beneficiaries with end-stage renal disease.  The bill provides for the creation of quality control and anti-fraud elements within the new program, and incorporates existing anti-fraud penalties to the WTC program.

Advisory and Steering Committees:  The bill creates a scientific and technical advisory committee to provide expertise on eligibility criteria and WTC-related health conditions, and two steering committees—one for WTC responders, the other for community members—to co-ordinate the screening and treatment of eligible members.

Outreach:  The bill includes language requiring the Program Administrator—either the NIOSH Director or his designee—to establish a website, create partnerships with local agencies, and take other measures necessary to inform potentially eligible beneficiaries of the existence of the WTC program.

Centers of Excellence:  The bill directs the Administrator to enter into contracts with “Clinical Centers of Excellence” with respect to monitoring, treating, and counseling individuals related to WTC-related health conditions, and separate contracts with “Co-Ordinating Centers of Excellence” with respect to analyzing and reporting on relevant data and medical protocols.  The bill names the Clinical Centers of Excellence:

  • New York City Fire Department;
  • Mount Sinai co-ordinated consortium;
  • Queens College;
  • State University of New York at Stony Brook;
  • University of Medicine and Dentistry of New Jersey;
  • Bellevue Hospital; and
  • Other hospitals identified by the Administrator.

The bill designates the New York Fire Department, the Mount Sinai co-ordinated consortium, and Bellevue Hospital as Co-ordinating Centers of Excellence.

H.R. 7174 would reimburse Clinical Centers of Excellence $600 annually per eligible participant in the treatment program, and an additional $300 annually per eligible participant in the monitoring program—amounts subject to an inflation index reflecting increases in medical costs in future years.  The bill provides that the payments will be made “regardless of the volume or cost of services required.”  The bill permits the Administrator to authorize payment levels for Co-ordinating Centers of Excellence, and requires a review and GAO study on payment levels within five years.

Eligibility for Responders Entitlement:  H.R. 7174 includes several categories of 9/11-related responders eligible for the new federal health care entitlement.  The bill would expand eligibility for the new entitlement to persons who “performed rescue, recovery, demolition, debris cleanup, or other related services in the New York City disaster area” and meet certain criteria with respect to airborne toxins.  H.R. 7174 also specifies categories of currently eligible individuals in line to receive the new health care entitlement, including:

  • New York City Fire Department employees who “participated at least one day in the rescue and recovery effort at any of the former World Trade sites (including Ground Zero, Staten Island landfill, and the New York City Chief Medical Examiner’s office” at any point between September 11, 2001 and July 31, 2002;
  • Surviving immediate family members of New York City firefighters killed on September 11 at the World Trade Center who received mental health treatment related to their loss—but such individuals are only subject to the new entitlement with respect to mental health treatments;
  • Participants in the WTC cleanup efforts in Lower Manhattan, the Staten Island landfill, or the barge loading piers who worked:
    • At least 4 hours between September 11 and September 14, 2001;
    • At least 24 hours between September 11 and September 30, 2001; or
    • At least 80 hours between September 11, 2001, and July 31, 2002;
  • Workers in the New York City Medical Examiner’s office;
  • Workers in the Port Authority Trans-Hudson Corporation tunnel who worked at least 24 hours between February 1, 2002, and July 1, 2002; and
  • Vehicle maintenance workers exposed to debris “while maintaining vehicles contaminated by airborne toxins” related to the WTC attacks during the time periods outlined above.

The bill includes provisions for an application process lasting no more than 60 days, and an appeal to an administrative law judge in cases where applications are initially denied.

The bill limits the number of beneficiaries to a maximum of 15,000 who at any time qualify for the program, but exempts from the numerical cap those beneficiaries receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.

H.R. 7174 also includes language providing that, in the event that the program’s expenditures are less than 90% of Congressional Budget Office projections as of December 1, 2011, and January 1, 2015, the Administrator may increase the number of eligible participants to meet the CBO expenditure estimates.

Conditions Eligible for Treatment:  The bill defines a WTC-related health condition as “an illness or health condition for which exposure to airborne toxins, any other hazard, or any other adverse condition resulting from the September 11, 2001 attacks on the World Trade Center…is substantially likely to be a significant factor in aggravating, contributing to, or causing the illness or health condition,” or a mental health condition “substantially likely to be a significant factor in aggravating, contributing to, or causing the condition.”  The bill includes a list of aerodigestive (i.e. asthma and other pulmonary conditions), musculoskeletal, and mental health diseases (including post-traumatic stress disorder) that qualify for treatment.

H.R. 7174 also includes an application process to add additional illnesses subject to review by the Administrator and the Advisory Committees, and permits physicians at Clinical Centers of Excellence to receive federal payments for treatments for WTC-related diseases not yet identified as such under the provisions above, subject to a subsequent determination by the Administrator as to whether or not the condition will be added to the eligible list of diseases.

Standards for Treatment:  The bill limits treatments paid for by the federal government to medically necessary standards, including those that are “not primarily for the convenience of the patient or physician…and not more costly than an alternative service or sequence of services at least as likely to produce equivalent therapeutic or diagnostic results.”

The bill provides for review by “a federal employee designated by the WTC Program Administrator” with respect to determinations of WTC-related health conditions, and includes provisions requiring an appeals process before an administrative law judge with respect to the Administrator’s certification of individuals’ claims for treatment, and a separate appeals process before a physician panel with respect to medical necessity determinations.

Payment Levels:  H.R. 7174 provides that payments to physicians and other medical providers shall generally be based upon reimbursement levels under the Federal Employees Compensation Act (FECA), which governs federal workman’s compensation claims.  The bill also includes language establishing a competitive bidding process among vendors to govern pharmaceutical purchases by eligible beneficiaries, and permits the Administrator to designate reimbursement rates for other services not referenced in the bill language.  The bill requires New York City and its public hospitals to contribute a 10% match in order to be eligible to receive payment for treatment services rendered.

Eligibility for Community Entitlement:  H.R. 7174 creates a separate entitlement for various segments of the community affected by the World Trade Center attacks.  Eligible groups of individuals include:

  • “A person who was present in the New York City disaster area in the dust or dust cloud on September 11, 2001;”
  • Individuals who “worked, resided, or attended school, child care, or adult day care in the New York City disaster area” for at least four days between September 11, 2001 and January 10, 2002—or at least 30 days between September 11, 2001 and July 31, 2002;
  • “Any person who worked as a clean-up worker or performed maintenance work in the New York City disaster area” between September 11, 2001 and January 10, 2002 “and had extensive exposure to WTC dust as a result of such work;”
  • Individuals residing or having a place of employment in the New York City disaster area between September 11, 2001 and May 31, 2003, and deemed eligible to receive grants from the Lower Manhattan Development Corporation; and
  • Any individuals receiving treatment at the World Trade Center Environmental Health Center as of the date of the bill’s enactment.

The bill includes an application and certification process for community beneficiaries similar to that for responder beneficiaries discussed above.  The bill limits the number of beneficiaries to a maximum of 15,000 who at any time qualify for the program, but exempts from the numerical cap those beneficiaries receiving treatment for an identified WTC-related condition at the time of the bill’s enactment.  As a result, CBO estimates that, between the community entitlement and the responder entitlement discussed above, about 80,000 people would receive these new WTC-related entitlements to obtain benefits for respiratory and mental health treatments, increasing mandatory spending by $4.6 billion over ten years.

Beneficiaries under the community-based entitlement would generally receive the same benefits and treatments as the WTC responders, except that the community-based entitlement does not include musculoskeletal disorders in the list of identified health conditions (although some or all of these could be added under the process described above).

Treatment for Other Individuals:  H.R. 7174 establishes an additional capped entitlement fund to finance care for “WTC community members”—i.e. those living in the New York disaster area at the time of the September 11 attacks, but not meeting the criteria listed above—diagnosed with an identified WTC-related health condition.  The bill caps such entitlement spending at $20 million in Fiscal Year 2009, rising annually according to medical inflation rates.

Care Outside New York:  The bill would require the Administrator to “establish a nationwide network of health care providers” to treat eligible recipients outside the New York City metropolitan area, subject to certain reporting and quality requirements.

Research:  The bill would require the WTC Administrator to establish an epidemiological research program on health conditions arising from the World Trade Center attacks.  The program would cover diagnosis and treatment of WTC-related health conditions among responders and in sample populations from Lower Manhattan and Brooklyn, “to identify potential for long-term adverse health effects in less exposed populations.”  H.R. 7174 authorizes $15 million annually for such research.  In addition, the bill authorizes $7 million annually for New York City to maintain a WTC Health Registry, as well as $8.5 million for grants to the New York Department of Mental Health and Mental Hygiene for WTC-related mental health treatment.

Changes to September 11 Compensation Fund:  In addition to establishing the new NIOSH program, H.R. 7174 would also make several changes to the September 11 victim compensation fund established in 2001 (Title IV of P.L. 107-42), as listed below.

Extension for Applications:  H.R. 7174 would reopen applications to the September 11 compensation fund in cases where the Special Master for the compensation fund determines that the individual became aware of physical injuries suffered as a result of the September 11 attacks after applications to the compensation fund were closed.  The bill would generally reopen applications for the reasons stated above (and for individuals subject to the expanded eligibility provisions noted below) for two years after the individual became aware of such injuries, provided the individual seeks treatment in a prompt manner and the claim can be verified.  Additional claims applications under this extension would be accepted through December 22, 2031.

Expansion of Eligibility Definitions:  The bill would modify the definition of eligibility for compensation to define the “immediate aftermath” of the September 11 attacks as including time through August 30, 2002.  The bill would also expand eligibility to include workers handling debris from the World Trade Center, including “any area contiguous to a site of [the 9/11] crashes that the Special Master determines was sufficiently close to the site that there was a demonstrable risk of physical harm” and “any area related to, or along, routes of debris removal,” including (but not limited to) the Fresh Kills landfill in Staten Island.  The Congressional Budget Office notes that the provisions in the bill “would significantly increase the number of individuals who could seek compensation from the fund,” resulting in an estimated 18,000 additional individuals receiving federal compensation benefits averaging $350,000 each—increasing mandatory spending by nearly $6.4 billion over ten years.  According to Justice Department statistics, this figure would represent a nearly seven-fold increase from the 2,852 personal injury claims originally filed during the 2001-03 period. (See “Additional Background” below.)

Applicability to Pending Lawsuits:  H.R. 7174 would require debris workers or other individuals with pending legal claims relating to 9/11-related injuries, and wishing to seek compensation from the victim compensation fund, to withdraw those legal actions within 90 days after updated regulations regarding the fund application extension are promulgated.  The bill would permit individuals whose applications are denied by the Special Master subsequently to reinstitute their legal claims without prejudice within 90 days of the ineligibility determination—a right not granted to fund applications during the original 2001-03 application period.

Limited Liability:  H.R. 7174 limits the liability for construction and related contractors regarding workers’ claims to the sum of the funds available in the WTC Captive Insurance Company, an amount not exceeding $350 million from New York City, and the amount of all available insurance held by the Port Authority of New York and New Jersey and the relevant contractors and sub-contractors.  According to the Republican staff of the Judiciary Committee, this amount would total approximately $2 billion in funds available to pay legal claims.

Tax Increases:  H.R. 7174 includes several tax provisions designed to pay for the entitlement created in the bill, including

Economic Substance Doctrine:  The bill codifies the “economic substance doctrine” used in certain court decisions, which prohibits businesses from making certain free-market business decisions (and from taking the related tax benefits) based solely on tax-lowering motives.  The bill would also impose a 20% penalty on understatements attributable to a transaction lacking economic substance (40% in cases where certain facts are not disclosed).  In other words, under this provision, companies could be assessed tax penalties for engaging in business transactions aimed primarily at lowering their tax bills beginning on the date of this bill’s enactment.

Increased Taxes on Domestic Subsidiaries of Multinational Corporations:  H.R. 7174 denies certain U.S. subsidiaries of multinational companies the benefits of tax treaties in certain circumstances.  When a U.S. subsidiary of a foreign-owned company makes certain tax-deductible payments (like interest, rents, and royalties) to a related party located in another country, the U.S. imposes a tax on those payments.  The default rate is 30%, but this rate can be reduced, sometimes down to 0%, by tax treaties.  The U.S. has 58 tax treaties with 66 different countries.  This bill would deny the U.S. subsidiary the benefits of the negotiated treaty rate when those tax-deductible payments are made by the subsidiary to a related foreign company, if the ultimate parent of the multinational company is based in a country that does not have a tax treaty with the U.S.

Corporate Estimated Tax Timing Gimmick.  This provision would increase the estimated tax payments that certain corporations must remit to the federal government.  Under current law, corporations with assets of at least $1 billion must make equally divided estimated tax payments for each quarter.  This legislation would increase the payment due for the third quarter of calendar-year 2013 by 5 percentage points.  (If each regular quarterly payment is 100% of what is owed, this additional payment would be 105% of what would otherwise be owed.)  The payment due for the fourth quarter of calendar-year 2013 (i.e. the 1st quarter of fiscal-year 2014) would be reduced accordingly so that the corporations pay no net increase in estimated payments in calendar-year 2013.  This provision is merely a revenue timing shift, a gimmick used to comply with the House’s PAYGO rules, yet would have real-world implications, as it forces certain companies to pay more of their tax payments earlier.  Given the time value of money, there’s little doubt that requiring bigger, earlier payments would harm the bottom lines of qualified corporations.

Additional Background on 9/11 Compensation Fund:  As noted above, Title IV of Public Law 107-42 authorized payments by the federal government to individuals injured or killed as a result of the September 11 attacks; eligible individuals (victims injured and families of individuals killed in the attacks) received $7 billion in payments before the fund closed in 2004.  Justice Department statistics note that during its operation, the fund issued award letters to 5,562 families whose relatives were killed in the September 11 attacks, and to 2,682 claimants suffering personal injuries as a result of the attacks.

While the process created under the law, and administered by Special Master Kenneth Feinberg, was praised by many victims’ families, Members of Congress, and outside experts as fair and judicious, proponents of H.R. 7174 assert that first responders who worked at the World Trade Center site have incurred respiratory and other injuries as a result of the toxins inhaled at Ground Zero—but that these conditions only became manifest after the application period provided for in P.L. 107-42 expired.  Title II of H.R. 7174 would therefore seek to reopen the compensation fund to allow these workers, and other individuals, to make claims for compensation.

However, asked by Judiciary Committee Republican staff to comment on a proposed draft of Title II, former Special Master Feinberg responded with an e-mail noting several concerns with the approach taken by the bill sponsors and the majority.  These concerns included:

  • An extension of the eligibility definition of “immediate aftermath” from the first four days following September 11 (as prescribed in regulations creating the compensation fund) to August 30, 2002— which could result in “a huge influx of additional claims” and could cause some individuals to re-apply for compensation;
  • Language that “vastly extends [the fund’s] geographic scope,” potentially leading to “thousands and thousands of additional claimants” and causing additional individuals to re-apply for compensation;
  • An extension of the filing period until 2031—“no latent claims need such an extended date;”
  • Provisions requiring the Special Master to determine when an individual first knew or should have known about their injuries—“how can the Special Master possibly make that determination?” and
  • Language permitting individuals denied eligibility for compensation to return to the tort system and re-file their claims—a right which was specifically denied as a pre-condition for initial applicants of the 9/11 fund, but which some who were denied compensation by the Special Master may now attempt to exercise.

Republican Committee staff notes that, to the extent the 9/11 compensation fund is re-opened at all, Mr. Feinberg recommends that it be done solely to allow first responders with diseases not manifest at the time of the initial application period to receive compensation—language that would be much narrower in scope than the provisions discussed above.  Particularly given that payments made pursuant to the 9/11 compensation fund constitute mandatory spending, conservatives may agree with the former Special Master that any potential changes considered by Congress should be narrow in scope and designed to ensure that first responders receive reasonable compensation in a manner that uses federal taxpayer dollars prudently.

Committee Action:  H.R. 7174 was introduced on July 24, 2008 and referred to the Committees on Energy and Commerce, Judiciary, and the Budget, none of which took official action.

Possible Conservative Concerns:  Several aspects of H.R. 7174 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Tax Increase.  In order to pay for the more than $10 billion cost of this new federal entitlement, H.R. 7174 would codify the economic substance doctrine, under which companies could be assessed tax penalties for engaging in legitimate business transactions aimed primarily at lowering their tax bills.  Some conservatives may therefore be concerned that this provision, and other tax hikes in H.R. 7174, would increase taxes on Americans in order to pay for new federal entitlement spending.
  • Creates Multiple New Federal Entitlements.  H.R. 7174 would establish several new federal entitlement programs to provide health benefits to 80,000 people according to the Congressional Budget Office, and re-open the 9/11 compensation fund to an additional 18,000 personal injury claims.  Some conservatives may be concerned that, with Congress contemplating a $700 billion bailout of the financial sector, now is not an appropriate time to be creating new mandatory spending programs.
  • Mandatory Spending Earmarks to New York Hospitals.  The bill establishes “Centers of Excellence” related to treatment of WTC-related conditions, and provides for payment of up to $900 annually per eligible beneficiary to certain named New York City hospitals and institutions as Clinical Centers of Excellence, “regardless of the volume or cost of services required.”  Some conservatives may be concerned first that this language constitutes a legislative earmark for mandatory spending, and second that the hospitals named could receive federal payments under this earmark without performing a single service for WTC victims.
  • No Restrictions on Trial Lawyers.  While H.R. 7174 does cap liability for legal claims arising from the September 11 cleanup at the sum of all available insurance funds, the bill does not include language placing restraints on attorney contingency fees or other legal expenses.  The bill also permits individuals who file personal injury claims with the 9/11 fund under the new criteria, yet have their applications denied, to reinstate their lawsuits without prejudice.  Some conservatives may be concerned that these provisions may lead to additional lawsuits and funds flowing to trial lawyers as opposed to 9/11 victims awarded compensation.
  • Overly Broad Eligibility Standards.  H.R. 7174 includes expansive definitions of eligibility for the entitlements under the bill, including individuals who worked or volunteered in the New York City Medical Examiner’s Office for as little as one day, or who were present along “routes of debris removal.”  Some conservatives may echo the concerns of former Special Master Kenneth Feinberg, who expressed unease at the implications of re-opening the 9/11 compensation fund to create what CBO estimates would be a nearly seven-fold increase in the number of personal injury awards when compared to the original 2001-03 application period.
  • Overly Generous Health Benefits.  H.R. 7174 explicitly states that all health care provided shall not include any form of cost-sharing for beneficiaries, and reimburses providers at rates established by the Federal Employee Compensation Act—which according to Administration sources pays providers at much higher rates than Medicare.  These provisions, coupled with the additional earmarked per capita payments to hospitals discussed above, may cause some conservatives concern that the bill lacks any meaningful cost-containment mechanisms for this new federal entitlement, which could encourage providers and patients alike to spend taxpayer money extravagantly.
  • Process.  This 120-page bill creating a new federal entitlement includes matter under the jurisdiction of at least four congressional committees—none of which has marked up the legislation.  Some conservatives may be concerned that these new federal entitlement programs deserve proper consideration under regular order—not a rushed proceeding as the House prepares to conclude its work for the year.

Administration Position:  A Statement of Administration Policy (SAP) on H.R. 7174 was not available at press time; however, reports indicate the White House has numerous concerns with the bill.

Cost to Taxpayers:  According to the Congressional Budget Office (CBO), H.R. 7174 would increase mandatory spending by just under $11 billion over ten years.  Title I provides a new entitlement to health benefits, and CBO estimates that about 80,000 people would receive this new WTC-related entitlement to obtain benefits for respiratory and mental health treatments.  CBO estimates that this entitlement would increase mandatory spending by $1.8 billion over five years, and $4.6 billion over ten years, net of a 10% payment by the City of New York and other recoupment from beneficiaries’ health insurance, workers compensation benefits, or other forms of third party payment.

Title II of H.R. 7174 would re-open and expand eligibility for the September 11 compensation fund, which paid out $7 billion in claims to victims before closing in 2004.  CBO notes that the provisions in the bill “would significantly increase the number of individuals who could seek compensation from the fund,” resulting in an estimated 18,000 additional individuals receiving federal compensation benefits averaging $350,000 each—13,000 emergency workers and 5,000 area residents.  CBO estimates this provision would cost $5.5 billion over five years, and nearly $6.4 billion over ten.

The bill’s new mandatory spending is paid for by tax increases—including the codification of the economic substance doctrine—as well as a timing shift budgetary gimmick with respect to estimated corporate tax payments, as explained above.

The bill also includes authorizations for discretionary spending, totaling $30.5 million annually “for each fiscal year.”

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would create two new health entitlement programs for 9/11 workers and community members, and expand eligibility for—and re-open applications to—the September 11 compensation fund, further increasing mandatory spending.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  No.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A committee report citing compliance with clause 9 of rule XXI was unavailable.

Constitutional Authority:  A committee report citing Constitutional authority was unavailable.

Legislative Bulletin — H.R. 6983, Paul Wellstone and Pete Domenici Mental Health and Addiction Equity Act

Order of Business:  The bill is scheduled to be considered on Tuesday, September 23, under a motion to suspend the rules and pass.

Summary:  H.R. 6983 would amend the Internal Revenue Code, the Public Health Service Act, and the Employee Retirement Income Security Act (ERISA) to require equity in the provision of mental health disorder benefits for group health insurance plans that offer both mental health benefits and medical and surgical benefits.  Previously, the Mental Health Parity Act—first enacted in 1996, and extended in subsequent legislation—required only that plans choosing to offer both mental health and medical and surgical benefits must have equal annual and lifetime limits on coverage for both types of treatments.  Specific details of the federal mandates in the bill include the following:

Treatment Limits and Beneficiary Financial Requirements:  The bill would require group health plans to offer a financial benefit structure for mental and substance abuse disorders that is no more restrictive than the predominant requirements applied to substantially all medical and surgical benefits.  The federal mandate would apply to overall coverage limits on treatment (e.g. number of days or visits) as well as deductibles, out-of-pocket limits, and similar beneficiary financial requirements.

Expansion of Definition:  The bill would expand the definition of “mental health benefits” subject to the federal mandate to include substance abuse and disorder treatments.

Medical Necessity:  The bill would permit plans to make coverage decisions for mental health and substance abuse disorders based on medical necessity criteria, but would require employers and insurers to disclose such criteria pursuant to regulations.

Out-of-Network Benefits:  The bill would mandate plans that offer out-of-network insurance coverage for medical and surgical benefits provide out-of-network coverage for mental health benefits in a manner consistent with the financial requirements listed above.

Increased Cost Exemption:  The bill would raise the level at which employers whose health insurance costs rise as a result of implementing mental health parity in benefits may claim an exemption from the federal mandate.  The bill would exempt employers whose costs due to mental health claims rise by more than 2% in the first year of implementation, and by more than 1% in subsequent years.  The more limited version of the Mental Health Parity Act first enacted in 1996 exempted employers whose claim costs rose 1%.  Employers with fewer than 50 workers would be exempt from federal mandates under the legislation, consistent with current law.

GAO Study:  The bill would require a study by the Government Accountability Office evaluating the law’s impact on the cost of health insurance coverage, access to mental health care, and related issues.

Worldwide Interest Allocation:  H.R. 6983 would delay by two years (from 2011 to 2013) the implementation of the worldwide allocation of interest, and reduces the first-year implementation of this rule.  In 2004, Congress gave taxpayers the option of using a liberalized rule for allocating interest expense between United States sources and foreign sources for the purposes of determining a taxpayer’s foreign tax credit limitation.  This is a multi-billion-dollar tax increase on Americans, taking particular aim at people who have financial dealings abroad.

Additional Background—Differences from Earlier Legislation:  On March 5, 2008, the House by a 268-148 vote passed mental health parity legislation in the form of H.R. 1424.  Subsequent negotiations with the Senate made modifications to the House-passed language that incorporated several key provisions in bipartisan Senate legislation (S. 558), and removed some provisions objectionable to conservatives.  Specifically, the compromise language in H.R. 6983:

  • Retains ERISA pre-emption for the large employers (those with more than 50 employees) subject to the law—states would not have the option of enacting more stringent and conflicting laws and regulations, as was proposed in H.R. 1424;
  • Remains silent on codifying classes of mental disorders—the compromise language removes provisions included in H.R. 1424 requiring group health plans to offer coverage for all disorders under the Diagnostic and Statistical Manual of Mental Disorders, including psycho-sexual disorders many conservatives find objectionable;
  • Does not mandate an out-of-network coverage benefit—plans must offer out-of-network coverage for mental disorders only to the extent they do so for medical and surgical benefits; and
  • Includes language stating that mental health parity provisions do not affect the “terms and conditions” of insurance contracts to the extent they do not conflict with the bill language—permitting employers and carriers to continue making medical necessity and related determinations—while requiring plans to make information on these medical management practices transparent.

While some conservatives may still have concerns with the mandates imposed by mental health parity legislation and the way in which these mandates would increase health insurance premiums, some segments of the business community have embraced the compromise as a reasonable attempt to achieve the goal of both bills without eroding ERISA pre-emption or imposing undue restrictions on benefit plan design.

Additional Background on Benefit Mandates:  Since the 1960s, state legislatures have considered—and adopted—legislation requiring health insurance products sold within the state to cover various products and services.  These benefit mandates are frequently adopted at the behest of disease groups advocating for coverage of particular treatments (e.g. mammograms) or physician groups concerned that patients have access to specialists’ services (e.g. optometrists).

A recent survey by the Council for Affordable Health Insurance found that as of 2007, states had enacted a total of 1,961 mandates for benefits and services—an increase of 60 (more than one per state) when compared to the 2006 total.[1]  The number of state mandates varies from a low of 15 in Idaho to a high of 64 in Minnesota.  However, because employer-sponsored health insurance is pre-empted from state-based laws and regulations under the Employee Retirement Income Security Act of 1974 (ERISA), benefit mandates do not apply to employers who self-fund their health insurance plans—one reason why H.R. 6983 seeks to impose those mandates on group plans (as well as state-regulated individual plans) on the federal level.

The cost and impact of benefit mandates on health insurance premiums have been the subject of several studies in recent years.  For instance, the Heritage Foundation prepared an analysis suggesting that each individual benefit mandate could raise the cost of health insurance premiums by $0.75 monthly.[2]  Although the cost of a single mandate appears small, the aggregate impact—particularly given the recent growth of benefit mandates nationwide—can be significant: For instance, Massachusetts’ 43 benefit mandates would raise the cost of health insurance by more than $30 monthly under the Heritage analysis.

Although well-intentioned, some conservatives may view the groups who advocate for benefit mandates as operating from fundamentally flawed logic: that individuals should go without health insurance entirely rather than purchase coverage lacking the “consumer protection” of dozens of mandates.  In addition, some conservatives note that the prospect of increasing the number of uninsured due to rising premium costs resulting from benefit mandates may precipitate a “crisis” surrounding the uninsured, increasing calls for a government-run health system.  In short, many conservatives may believe individuals should have the “consumer protection” to purchase the insurance plan they desire—rather than the “protection” from being a consumer by a government which seeks to define their options, and raise the cost of health insurance in the process.

Committee Action:  None; the bill was introduced on September 22, 2008.

Possible Conservative Concerns:  Several aspects of H.R. 6983 may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Process.  Multiple sources and press reports indicate that numerous stakeholders involved in negotiating the bipartisan Senate compromise have concerns with the House’s consideration of stand-alone mental health parity legislation—as opposed to its inclusion in the tax extenders package.  As recently as Monday, September 22, House Democrat leadership indicated they would not attempt to pass the mental health parity provisions separately; however, the majority later switched course.  Some conservatives may be concerned by reports indicating that this separate House vote is intended to provide “political cover” for Blue Dogs who may oppose the tax extenders bill (with mental health parity included) because it does not include enough tax increases to offset extensions of existing tax relief.
  • Tax Increase.  In order to pay for the nearly $4 billion cost of mental health parity, H.R. 6983 would delay by a further two years a provision allowing taxpayers flexibility in allocating worldwide interest for the purposes of determining a taxpayer’s foreign tax credit limitation.  Some conservatives may be concerned that this provision increases taxes on Americans in order to pay for H.R. 6983’s benefit mandates.
  • Increase Health Insurance Costs and Number of Uninsured.  As noted above, benefit mandates generally have the effect of increasing the cost of health insurance.  Moreover, some estimates suggest that every 1% increase in premium costs has a corresponding increase in the number of uninsured by approximately 200,000-300,000 individuals nationwide.[3]  Therefore, some conservatives may be concerned that H.R. 6983 will actually increase the number of uninsured Americans.
  • Private-Sector Mandates on Businesses; UMRA Violation.  As detailed above, the bill contains multiple new federal mandates on the private sector, affecting the design and structure of health insurance plans.  CBO has previously estimated that mental health parity would impose mandates on the private sector totaling $1.3 billion in 2008, rising to $3 billion in 2012, thus exceeding the annual threshold established in the Unfunded Mandates Reform Act or UMRA ($131 million in FY2007, adjusted annually for inflation).  These costs will ultimately be borne by employers offering health insurance and employees seeking to obtain coverage.

Administration Position:  Although the Statement of Administration Policy (SAP) was not available, the Administration has previously supported the goal of mental health parity—and previously opposed the worldwide interest allocation provision used to pay for H.R. 6983.

Cost to Taxpayers:  A Congressional Budget Office (CBO) score of H.R. 6983 was not available at press time.  However, CBO estimates of previously considered (H.R. 1424) mental health parity legislation noted that the bill would cost the federal government nearly $4 billion over ten years.  Direct federal outlays would increase by $820 million through increased Medicaid costs.  In addition, federal revenues would decline by more than $3.1 billion due to increases in the cost of health insurance, as employees with group coverage would exclude more of their income from payroll and income taxes.

The bill proposes to offset the costs outlined above by delaying by two years (from 2011 to 2013) the implementation of the worldwide allocation of interest, and reducing the first-year implementation of this rule. In 2004, Congress gave taxpayers, beginning in tax years after 2008, the option of using a liberalized rule for allocating interest expense between United States sources and foreign sources for the purposes of determining a taxpayer’s foreign tax credit limitation.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would impose new federal mandates with respect to health insurance coverage requirements.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:  Yes, the bill would impose significant new mandates on private insurance carriers (and large employers who self-insure their workers) with respect to the structure and design of their benefit packages.  CBO has previously estimated that the direct costs of the private-sector mandates would total $1.3 billion in 2008, rising to $3 billion in 2012, significantly in excess of the annual threshold ($131 million in 2007, adjusted for inflation) established by the Unfunded Mandates Reform Act (UMRA).

In addition, the bill would also impose an intergovernmental mandate as defined by UMRA by pre-empting some state laws in conflict with the bill, but CBO estimates that this mandate would impose no significant costs on state, local, or tribal governments.

However, costs to state, local, and tribal governments would increase under the bill, for two reasons.  First, a prior CBO cost estimate indicated that state spending for Medicaid would increase by $235 million between 2008-2012.  Second, while state, local, and tribal governments that self-insure their workers would be able to opt-out of H.R. 6983’s federal mandates, some governments that fully insure their workers (i.e. purchase coverage through an insurance carrier, as opposed to paying benefits directly) would see their costs rise under the legislation.  CBO has estimated that the bill would increase state, local, and tribal expenditures by $10 million in 2008, rising to $155 million by 2012.  However, because these increased costs result from mandate costs initially borne by the private sector and passed on to the governments while purchasing insurance, CBO did not consider them intergovernmental mandates as such.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A Committee report citing compliance with clause 9 of rule XXI was unavailable.

Constitutional Authority:  A Committee report citing Constitutional authority was unavailable.



[1] Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2008” and “Health Insurance Mandates in the States 2007,” available online at http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2008.pdf and http://www.cahi.org/cahi_contents/resources/pdf/MandatesInTheStates2007.pdf, respectively (accessed July 19, 2008).

[2] Michael New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” (Washington, Heritage Center for Data Analysis Paper CDA06-04, July 25, 2006), available online at http://www.heritage.org/Research/HealthCare/upload/CDA_06-04.pdf (accessed July 19, 2008), p. 5.

[3] See, for instance, Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured through 2013,” Health Affairs Web Exclusive April 5, 2008, available online at http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.143/DC1 (accessed July 19, 2008), and Government Accountability Office, Impact of Premium Increases on Number of Covered Individuals is Uncertain (Washington, Report GAO/HEHS-98-203R, June 11, 1999), available online at http://archive.gao.gov/paprpdf2/160930.pdf (accessed July 19, 2008), pp. 3-4.

Legislative Bulletin — H.R. 758, Breast Cancer Patient Protection Act

Order of Business:  The bill is scheduled to be considered on Tuesday, September 23, 2008, under a motion to suspend the rules and pass the bill.

Summary:   H.R. 758 would amend the Employee Retirement Income Security Act (ERISA), the Public Health Service Act, and the Internal Revenue Code to require group and individual health plans to meet certain minimum coverage requirements with respect to breast cancer surgeries.  Specifically, the bill would:

  • Require plans to have coverage for inpatient and radiation therapy with respect to breast cancer treatment;
  • Require plans to cover 48-hour hospital stays in the case of mastectomy or lumpectomy procedures, and 24-hour hospital stays in the case of lymph node dissections to treat breast cancer;
  • Prohibit plans from requiring pre-authorization for hospital stays within the time limits prescribed above;
  • Require plans to cover secondary consultations with specialists regarding the diagnosis and treatment of cancer, including cases with a negative initial diagnosis.  If no specialist is available within the plan’s network, the plan would be required to pay for out-of-network coverage, with any co-payments or co-insurance charged to the beneficiary limited to in-network levels. (NOTE: This mandate would apply to all cancer diagnoses, not just those related to breast cancer, as the bill’s title implies); and
  • Prohibit plans from offering financial inducements to providers or patients in an attempt to subvert the federal mandates imposed above.

In addition, H.R. 758 contains language regarding the rescission of insurance plans purchased in the individual market.  The bill would amend the Public Health Service Act to prohibit plans from rescinding policies except in the case of “intentional concealment of material facts regarding a health condition related to the condition for which coverage is being claimed.”  The bill also provides for a process of independent external review prior to the rescission or discontinuation of the insurance plan.

Additional Background:  Since the 1960s, state legislatures have considered—and adopted—legislation requiring health insurance products sold within the state to cover various products and services.  These benefit mandates are frequently adopted at the behest of disease groups advocating for coverage of particular treatments (e.g. mammograms) or physician groups concerned that patients have access to specialists’ services (e.g. optometrists).

A recent survey by the Council for Affordable Health Insurance found that as of 2007, states had enacted a total of 1,961 mandates for benefits and services—an increase of 60 (more than one per state) when compared to the 2006 total.[1]  The number of state mandates varies from a low of 15 in Idaho to a high of 64 in Minnesota.  However, because employer-sponsored health insurance is pre-empted from state-based laws and regulations under the Employee Retirement Income Security Act of 1974 (ERISA), benefit mandates do not apply to employers who self-fund their health insurance plans—one reason why H.R. 758 seeks to impose those mandates on group plans (as well as state-regulated individual plans) on the federal level.

The cost and impact of benefit mandates on health insurance premiums have been the subject of several studies in recent years.  For instance, the Heritage Foundation prepared an analysis suggesting that each individual benefit mandate could raise the cost of health insurance premiums by $0.75 monthly.[2]  Although the cost of a single mandate appears small, the aggregate impact—particularly given the recent growth of benefit mandates nationwide—can be significant: For instance, Massachusetts’ 43 benefit mandates would raise the cost of health insurance by more than $30 monthly under the Heritage analysis.

Although well-intentioned, some conservatives may view the groups who advocate for benefit mandates as operating from fundamentally flawed logic: that individuals should go without health insurance entirely rather than purchase coverage lacking the “consumer protection” of dozens of mandates.  In addition, some conservatives note that the prospect of increasing the number of uninsured due to rising premium costs resulting from benefit mandates may precipitate a “crisis” surrounding the uninsured, increasing calls for a government-run health system.  In short, many conservatives may believe individuals should have the “consumer protection” to purchase the insurance plan they desire—rather than the “protection” from being a consumer by a government which seeks to define their options, and raise the cost of health insurance in the process.

Committee Action:  H.R. 758 was introduced on January 31, 2007, and referred to the Committees on Energy and Commerce, Ways and Means, and Education and Labor.  On September 17, 2008, the Committee on Energy and Commerce ordered the bill, as amended, reported by voice vote.

Cost to Taxpayers:  A CBO score for H.R. 758 was unavailable at press time.  However, the Congressional Budget Office has previously scored a mental health parity benefit mandate as costing nearly $4 billion over ten years.

Conservative Concerns:  Some conservatives may have concerns with H.R. 758, including but not limited to:

  • Increase Health Insurance Costs and Number of Uninsured.  As noted above, benefit mandates generally have the effect of increasing the cost of health insurance.  Moreover, some estimates suggest that every 1% increase in premium costs has a corresponding increase in the number of uninsured by approximately 200,000-300,000 individuals nationwide.[3]  Therefore, some conservatives may be concerned that H.R. 758 will actually increase the number of uninsured Americans.
  • Unfunded Private-Sector Mandates on Small and Large Businesses.  As detailed above, the bill contains multiple new federal mandates on the private sector, affecting the design and structure of health insurance plans.  Among other mandates, the bill would require plans to cover out-of-network specialist consultations for all types of cancer, even if the initial consultation resulted in a negative diagnosis.
  • Undermines Federalism; Democrat Hypocrisy.  In addition to imposing mandates on group health insurance plans generally regulated at the federal level under ERISA, H.R. 758 would also impose these same mandates on individual health insurance plans, which under the McCarran-Ferguson Act are regulated at the state level.  Some conservatives may be concerned by this attempt to undermine state authority and micro-manage health insurance plans.  In addition, some conservatives may note that Democrats who previously cited “state consumer protections” as one reason to oppose efforts to purchase health insurance across state lines now apparently find even these “protections” insufficient, and wish to impose additional layers of federal regulation on individual insurance plans.

Does the Bill Expand the Size and Scope of the Federal Government?  Yes, the bill would create new federal insurance mandates related to cancer coverage and treatment.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?  Yes, the bill would require employers to comply with several new federal mandates related to cancer coverage and treatment.

Does the Bill Comply with House Rules Regarding Earmarks/Limited Tax Benefits/Limited Tariff Benefits?:  A Committee report citing compliance with Clause 9 of Rule XXI regarding earmarks was unavailable.

Constitutional Authority:  A Committee report citing constitutional authority was unavailable.



[1] Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2008” and “Health Insurance Mandates in the States 2007,” available online at http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2008.pdf and http://www.cahi.org/cahi_contents/resources/pdf/MandatesInTheStates2007.pdf, respectively (accessed July 19, 2008).

[2] Michael New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” (Washington, Heritage Center for Data Analysis Paper CDA06-04, July 25, 2006), available online at http://www.heritage.org/Research/HealthCare/upload/CDA_06-04.pdf (accessed July 19, 2008), p. 5.

[3] See, for instance, Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured through 2013,” Health Affairs Web Exclusive April 5, 2008, available online at http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.143/DC1 (accessed July 19, 2008), and Government Accountability Office, Impact of Premium Increases on Number of Covered Individuals is Uncertain (Washington, Report GAO/HEHS-98-203R, June 11, 1999), available online at http://archive.gao.gov/paprpdf2/160930.pdf (accessed July 19, 2008), pp. 3-4.

Weekly Newsletter — September 22, 2008

Specialty Hospital Ban a Special-Interest Boondoggle

Reports circulated late last week that restrictions on physician-owned specialty hospitals may be included in mental health parity legislation that could come to the House floor this week.  While later press reports indicated that the specialty hospital provisions would be excluded from the mental health parity bill, legislative activity cannot be ruled out.

Advocates of a specialty hospital ban state that restricting physician ownership will slow the growth of health care costs and improve the solvency of the Medicare program.  However, a look at the record of the Democrat-controlled 110th Congress shows little attempt to control the growth of health spending or solve Medicare’s long-term funding shortfalls:

  • Democrats rejected an attempt to make wealthy seniors pay $2 per day more for prescription drug coverage—which would save Medicare $12.1 billion over ten years;
  • Democrats rejected reasonable reforms to the current medical liability reform system that would eliminate the need for defensive medicine practices that raise health care costs—saving the federal government more than $6 billion over ten years;
  • Democrats could not pass structural reforms to the current system of Medicare physician payments—choosing instead to pass a budgetary gimmick that will give physicians a 21% reimbursement cut in January 2010.

Given these actions—and an impending floor vote on a bill (HR 758) that will likely increase health care costs by billions of dollars—conservatives may question why Democrats have passed up attempts to save Medicare more than $12 billion by charging billionaires like Warren Buffett more for their prescription drugs and instead remain fixated on saving one-tenth that amount by eradicating a free market for physician-owned facilities.

Part of the answer may lie in the lobbying activities of entities like the American Hospital Association—which spent nearly $20 million last year alone, and nearly $153 million over the last decade, on federal lobbying activities.  Despite the fact that, by one measure, specialty hospitals represent less than 1% of total Medicare hospital spending, traditional hospitals continue their attempts to eradicate this potential source of competition—going so far as to draw a rebuke from Health and Human Services’ Inspector General for “misrepresent[ing]” the IG’s conclusions in a document sent to Congressional staff.  Despite—or perhaps because of—these deceptive lobbying practices, some conservatives may support efforts to maintain free markets in health care, and oppose any further efforts by Congressional Democrats to pass a specialty hospital ban.

Medicaid Fraud Will Not Be Addressed by Bailout

Last Tuesday’s New York Times highlighted the case of Staten Island University Hospital, an institution with a history of questionable billing practices—and now one of the largest fraud settlements against a single hospital.  This week the hospital agreed to return nearly $90 million to respond to claims of overbilling government programs as a result of two whistle-blower lawsuits and actions by federal prosecutors.  The lawsuits and charges alleged among other things that the hospital deliberately inflated bed and patient counts in order to obtain reimbursements from Medicare and Medicaid, and come after the hospital had reached two previous settlements—one in 1999 resulting in $45 million in Medicaid repayments, and another in 2005 resulting in $76.5 returned to Medicaid—with state authorities regarding fraudulent billing activity.

Many conservatives may not be surprised by these repeated instances of fraud and graft within the program, given that a former New York state Medicaid investigator estimated that 40% of all Medicaid payments were fraudulent or questionable in nature.  However, this episode may only strengthen conservative concerns that a proposed “temporary” increase in federal Medicaid matching funds (HR 5268) would do nothing to combat this fraud and abuse before spending additional federal dollars.  Indeed, given that a single hospital has settled more than $200 million in fraud claims, some conservatives may wonder whether, if the Medicaid program had appropriate anti-fraud efforts in place, an additional $10-15 billion “bailout” for states would even be needed at all.

Read the article here:

http://www.nytimes.com/2008/09/16/nyregion/16hospital.html?_r=1&sq=lederman&st=cse&adxnnl=1&oref=slogin&scp=1&adxnnlx=1221943309-aQBK2H4T+6Uu8x9fYPrYcg

Policy Brief: Insurance Benefit Mandates

Background:  Since the 1960s, state legislatures have considered—and adopted—legislation requiring health insurance products sold within the state to cover various products and services.  These benefit mandates are frequently adopted at the behest of disease groups advocating for coverage of particular treatments (e.g. mammograms) or physician groups concerned that patients have access to specialists’ services (e.g. optometrists).

A recent survey by the Council for Affordable Health Insurance found that as of 2007, states had enacted a total of 1,961 mandates for benefits and services—an increase of 60 (more than one per state) when compared to the 2006 total.[1]  The number of state mandates varies from a low of 15 in Idaho to a high of 64 in Minnesota.  However, because employer-sponsored health insurance is pre-empted from state-based laws and regulations under the Employee Retirement Income Security Act of 1974 (ERISA), benefit mandates do not apply to employers who self-fund their health insurance plans; thus state mandates primarily affect policies purchased in the individual and small group markets.

Costs and Impact on Take-up Rates:  The cost and impact of benefit mandates on health insurance premiums have been the subject of several studies in recent years.  For instance, the Heritage Foundation prepared an analysis suggesting that each individual benefit mandate could raise the cost of health insurance premiums by $0.75 monthly.[2]  Although the cost of a single mandate appears small, the aggregate impact—particularly given the recent growth of benefit mandates nationwide—can be significant: For instance, Massachusetts’ 43 benefit mandates would raise the cost of health insurance by more than $30 monthly under the Heritage analysis.

In July, the Commonwealth of Massachusetts released its own study on the impact of state benefit mandates, which was compiled as a result of the health reform law enacted under Gov. Mitt Romney.  The report found that in 2004-05, spending within the Commonwealth on mandated benefits totaled $1.32 billion—or 12% of health insurance premiums—prior to the introduction of a prescription drug benefit mandate likely to increase premium costs further.[3]  Because some of these benefits (e.g. diabetes coverage) likely would have been provided even in the absence of the state mandate, the report calculated that the marginal costs of the mandates could range as high as $687 million—or more than 6% of health insurance premium costs.[4]  The report also noted that some benefit mandates, such as those requiring bone marrow transplants for breast cancer, are ineffective, in part because the mandated benefits no longer match the recommended standard of care, and went on to recommend an ongoing review of the necessity of mandated benefits.[5]

A further level of analysis on the impact of higher premium costs, specifically those associated with benefit mandates, on the number of uninsured Americans, finds some correlation between the costs related to benefit mandates and rising numbers of uninsured.  Some estimates suggest that every 1% increase in premium costs has a corresponding increase in the number of uninsured by approximately 200,000-300,000 individuals nationwide.[6]  Because rising costs are associated with the introduction of a specific new benefit, the price elasticity associated with the mandate will tend to vary based on the benefit’s perceived usefulness—for instance, a single 20-year-old would be more likely to drop coverage if an infertility benefit mandate increased premium costs than would a married couple trying to conceive.  However, based on the studies above, it is reasonable to say that likely several hundred thousand, and possibly a million or more, Americans could obtain coverage if unnecessary benefit mandates were eliminated—and millions more Americans currently with insurance could receive more cost-effective coverage.

Legislative Proposals:  Various legislative provisions introduced in current and prior Congresses attempt to reform state benefit mandates through a variety of mechanisms.  The Health Care Choice Act (H.R. 4460) by Rep. John Shadegg (R-AZ) would permit individuals to purchase health insurance plans across state lines, which would give individuals living in states where benefit mandates have driven up the cost of insurance the opportunity to purchase more affordable policies.  The legislation could have the secondary benefit of encouraging states to avoid imposing new mandates and to re-think their current mandates, so as to make their policies more affordable and attractive to the citizens of their state—who otherwise may take the new opportunity to purchase coverage elsewhere.

Other options to reform state benefit mandates include Association Health Plans (AHPs) and Individual Membership Associations (IMAs), which would allow small businesses and individuals respectively the opportunity to band together to purchase health insurance.  In so doing, the associations would be exempted from state-based laws regarding mandated coverage of particular services or diseases.  Some conservatives may believe that these types of association plans may deliver value as a result of the pre-emption of the often costly benefit mandates.

A third option, first proposed by Sen. Judd Gregg (R-NH) in a 2004 Senate report and recently drafted into legislative language by Rep. Jeff Fortenberry (R-NE) as H.R. 6280, would require states to permit insurance carriers to offer mandate-free policies alongside their existing menu of coverage options.  As a result, consumers could choose whether to purchase a plan that offers richer coverage or a plan that might offer better value by targeting the type of benefits provided.  Some states, most recently Florida, have already taken steps in this line, passing legislation permitting lower-cost policies that may not offer the full menu of mandated benefits; Massachusetts offers such policies, but only to young adults aged 19-26.

Conclusion:  Although the types of benefit mandates imposed by states can vary from the duplicative (e.g. cancer coverage already provided by virtually all plans) to the costly (e.g. in vitro fertilization) to the frivolous (e.g. hair prosthesis), some conservatives may view them collectively as a failure of government.  In some respects, behavior surrounding state benefit mandates represents a case of moral hazard, whereby benefits (to particular disease or provider groups) are privatized, while costs—in the form of higher insurance premiums—are socialized among all payers.  Although some states have acted recently to study the cost effects of imposing so many benefit mandates, or to offer mandate-free or “mandate-lite” health insurance options to their citizens, the allure of appealing to a particular constituency group—as opposed to the interests of all individuals whose premiums will increase upon imposition of a mandate—often proves too difficult for policy makers to resist.

Although well-intentioned, some conservatives may view the groups who advocate for benefit mandates as operating from fundamentally flawed logic: that individuals should go without health insurance entirely rather than purchase coverage lacking the “consumer protection” of dozens of mandates.  In addition, some conservatives note that the prospect of increasing the number of uninsured through such methods may precipitate a “crisis” surrounding the uninsured, increasing calls for a government-run health system.  In short, many conservatives may believe individuals should have the “consumer protection” to purchase the insurance plan they desire—rather than the “protection” from being a consumer by a government which seeks to define their options, and raise the cost of health insurance in the process.

For further information on this issue see:



[1] Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2008” and “Health Insurance Mandates in the States 2007,” available online at http://www.cahi.org/cahi_contents/resources/pdf/HealthInsuranceMandates2008.pdf and http://www.cahi.org/cahi_contents/resources/pdf/MandatesInTheStates2007.pdf, respectively (accessed July 19, 2008).

[2] Michael New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” (Washington, Heritage Center for Data Analysis Paper CDA06-04, July 25, 2006), available online at http://www.heritage.org/Research/HealthCare/upload/CDA_06-04.pdf (accessed July 19, 2008), p. 5.

[3] Massachusetts Division of Health Care Finance and Policy, “Comprehensive Review of Mandated Benefits in Massachusetts: Report to the Legislature,” (Boston, July 7, 2008), available online at http://www.mass.gov/Eeohhs2/docs/dhcfp/r/pubs/mandates/comp_rev_mand_benefits.pdf (accessed July 19, 2008), p. 4.

[4] Ibid., pp. 5-6.

[5] Ibid., p. 6.

[6] See, for instance, Todd Gilmer and Richard Kronick, “It’s the Premiums, Stupid: Projections of the Uninsured through 2013,” Health Affairs Web Exclusive April 5, 2008, available online at http://content.healthaffairs.org/cgi/content/full/hlthaff.w5.143/DC1 (accessed July 19, 2008), and Government Accountability Office, Impact of Premium Increases on Number of Covered Individuals is Uncertain (Washington, Report GAO/HEHS-98-203R, June 11, 1999), available online at http://archive.gao.gov/paprpdf2/160930.pdf (accessed July 19, 2008), pp. 3-4.

Weekly Newsletter — September 15, 2008

Medicaid: More Spending Does Not Equal Reform

Today, Health and Human Services Secretary Mike Leavitt will be addressing a conference on Medicaid reform in Washington.  The symposium comes at a time when some want Congress to pass legislation (H.R. 5268) providing more than $10 billion in Medicaid spending to states as a way to “fix” the program’s problems.  However, many conservatives may believe that policy-makers should not use additional spending as a way to shirk from their duties to reform what is often an outmoded model of care.

In the past few years, several states have embarked upon novel and innovative reforms to improve the quality of care provided in the Medicaid program.  Most recently, Rhode Island submitted a waiver application to the Centers for Medicare and Medicaid Services (CMS), asking for flexibility to revamp its program.  Notable elements of this reform proposal include:

  • Incentives to promote wellness and prevention, including consumer-directed accounts and Health Savings Accounts (HSAs);
  • A shift to home and community-based care instead of a traditional nursing home setting for elderly populations;
  • Incentives to purchase long-term care insurance, so as to eliminate the need for Medicaid long-term care financing;
  • Competitive bidding for durable medical equipment; and
  • A novel financing model that ensures that total Medicaid expenses will rise by up to 5% per year.

Many conservatives may support these and other similar reform initiatives proposed by states, as one way to slow the growth of health care costs and thereby reduce America’s unsustainable entitlement spending.  Moreover, some conservatives may believe that time on the legislative calendar debating a Medicaid bailout should instead be used to discuss these types of comprehensive structural reforms to the program—so that the poorest beneficiaries are not subjected to more of the same from a government health system that does not work for many.

A Policy Brief highlighting the need for comprehensive Medicaid reform based on examples from several states can be found here.

Cautionary Tales from Across the Pond

This past week, a British think-tank published a paper that spoke the heretofore unthinkable: the policy group Reform advocated replacing the single-payer National Health Service with a voucher-based private health system.  Under the proposal, individuals would receive a £2,000 voucher to purchase private insurance—injecting competition into a health system previously dominated by government, and bringing with it the potential to slow the growth of costs while achieving better value through improved care.

The Reform proposal comes on the heels of several disturbing developments regarding the National Health Service last month.  One survey found that a quarter of cancer specialists are purposely keeping their patients “in the dark” about treatment options—in order to avoid upsetting those patients when they find out the NHS will not pay for their treatments.  Several weeks earlier, the National Institute of Health and Clinical Excellence (NICE)—Britain’s comparative effectiveness institute—adopted a policy of refusing to pay for four kidney cancer drugs, even though the pharmaceuticals made “significant gains” in survival times, because NICE did not believe the drugs were cost-effective.

Conservatives may not be surprised by any of these developments—as the rationing of care frequently leads to demands to reform or abolish the governmental bureaucracies that deny life-saving treatments to patients.  Some conservatives may also believe that the type of changes advocated by Reform with respect to the National Health Service, if applied to Medicare, could allow seniors a wide range of options to receive their health care, while achieving cost-savings through competition that could slow the growth of skyrocketing health and entitlement costs.

Read the BBC News article: “Doctors ‘Keep Cancer Drugs Quiet’”

http://news.bbc.co.uk/1/hi/health/7581705.stm

Article of Note: The Hospital-Industrial Complex

An article in The Wall Street Journal last month revealed the continuance of a troubling trend: hospitals using their monopoly power to raise prices for consumers—helping to contribute to the growth in health care costs.  Consolidations in recent decades—coupled with state certificate-of-need laws that provide government-sanctioned exclusivity in most states—have allowed regional hospitals to tighten their grip on many markets, and the Journal article tells the tale of Carilion Health System in southwest Virginia:

  • Colonoscopy prices four to 10 times higher than a local clinic;
  • Neck CT scans more than double the price of an imaging center;
  • A significant spike in regional health insurance premiums to the highest level in the state; and
  • Over $105 million in net income achieved by a non-profit hospital over the past five years.

One local businessman called the area a “one-market town…in terms of health care,” noting that the hospital “has the leverage”—and the article demonstrates that its impact on both physician practices and the insurance premiums paid by thousands of Virginians has been significant

The piece comes at a time when the hospital industry is attempting to eradicate one of its few remaining sources of competition, by asking Congress to place a ban on the development of physician-owned specialty hospitals.  Some conservatives may oppose this measure as a high-handed approach by Washington policy-makers to interfere with free markets, further solidifying existing hospitals’ monopolies, and stifling the type of innovation in health care that new entrants like specialty hospitals can create to slow the growth of health care costs.

Additionally, conservatives may note a letter from the Department of Health and Human Services’ Inspector General from this April, which publicly rebuked several hospital trade associations for making “several statements that misrepresent our findings and draw[ing] several conclusions that we did not make” in a white paper to Congressional policy-makers on the need for a specialty hospital ban.  Some conservatives may therefore be highly skeptical of claims from self-interested parties exhibiting monopolistic tendencies, who have made deceptive and misleading statements to Congress to advance their claims—and apparently lack the integrity to apologize for doing so.

Read the article here:

The Wall Street Journal: “Non-profit Hospitals Flex Pricing Power”

http://online.wsj.com/article/SB121986172394776997.html

Policy Brief: The Case for Medicaid Reform

Beneficiaries Do Not View a Medicaid Card as “Real Insurance”

Although Medicaid in theory provides health coverage to more than 50 million Americans, beneficiaries often find their coverage lacking when they need it most.  Poor reimbursement levels can result in months-long waits for specialist visits, while arcane bureaucracies discourage providers from participating in Medicaid—and patients from obtaining necessary care:

  • A recent Centers for Disease Control study found that Medicaid patients visit the emergency room at nearly twice the rate of uninsured patients—suggesting that a Medicaid card does not mean that beneficiaries are receiving adequate primary care.[1]
  • In Maryland, reports regarding 12-year-old Deamonte Driver—who died last February when a tooth infection spread to his brain—found that it took his mother, a lawyer, three call center workers, and a call center supervisor to schedule one dentist’s appointment for Deamonte’s brother—who then had to wait five months to have his teeth pulled.[2]
  • One Michigan mother quoted in The Wall Street Journal last July expressed exasperation with the Medicaid program: “You feel so helpless thinking, something’s wrong with this child and I can’t even get her into a doctor….When we had real insurance, we would call and come in at the drop of a hat.”[3]

Beneficiaries Who Do Get Care Do Not Receive Quality Treatment

The lack of transparency and care coordination within many state Medicaid programs, coupled with frequent waits to obtain care, yield poor health outcomes, as a review of one state’s Medicaid claims data demonstrates:

  • Only 17% of women over age 50 received annual mammograms—well below the 100% recommended.
  • Less than half of children received check-ups—a lack of preventive care which could result in undetected problems and costly episodes of acute care in the future.
  • One beneficiary visited the emergency room 405 times within a three-year span—an indicator of poor or un-coordinated primary care, resulting in increased costs to the state.[4]

Taxpayer Funds Are Not Being Spent Prudently

Despite the poor outcomes demonstrated by many Medicaid participants, numerous reports suggest that programs do not spend their taxpayer funds wisely.  In addition to inefficiencies resulting from poor or non-existent co-ordination of care, outright fraud and abuse remains systemic in many state programs:

  • Reports by The New York Times in 2005 found that the state Medicaid program had reimbursed a Brooklyn dentist who billed Medicaid for 991 procedures in one day—even as the same newspaper found a poor teenager turned away three times without being asked to fill out a Medicaid application.[5]
  • A former New York state investigator estimated that up to 40% of all state Medicaid claims paid—representing nearly $18 billion for New York alone—are questionable.[6]
  • The Government Accountability Office (GAO) has frequently criticized the lack of accountability within the Medicaid program, including a May 2008 study where GAO could not provide a total amount of supplemental payments by state Medicaid programs—because state reporting on the billions of dollars spent was incomplete.[7]

Given the structural deficiencies associated with many state Medicaid programs, conservatives may view any attempt to give states a “blank check” to spend more on Medicaid without new accountability or reforms as a disservice to both the federal taxpayer and the needy beneficiaries which the program is designed to serve.



[1] National Hospital Ambulatory Medical Care Survey: 2006 Emergency Department Summary (Hyattsville, MD, National Center for Health Statistics, August 2008), available online at http://www.cdc.gov/nchs/data/nhsr/nhsr007.pdf (accessed September 13, 2008), Figure 3, p. 3.

[2] Testimony of Laurie Norris, Public Justice Center, before House Oversight and Government Reform Subcommittee on Domestic Policy, “The Story of Deamonte Driver,” May 2, 2007, available online at http://oversight.house.gov/documents/20070516164514.pdf (accessed September 13, 2008), pp. 5-6.

[3] Vanessa Fuhrmans, “Note to Medicaid Patients: The Doctor Won’t See You,” Wall Street Journal July 19, 2007.

[4] All data cited in testimony of Jim Frogue, Center for Health Transformation, before House Energy and Commerce Health Subcommittee, “State Fiscal Relief,” available online at http://energycommerce.house.gov/cmte_mtgs/110-he-hrg.072208.Frogue-Testimony.pdf (accessed September 13, 2008).

[5] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” New York Times July 18, 2005, available online at http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html?_r=1&oref=slogin (accessed September 13, 2008); Richard Perez-Pena, “Trying to Get, and Keep, Care Under Medicaid,” New York Times October 18, 2005, available online at http://www.nytimes.com/2005/10/18/nyregion/nyregionspecial4/18jennifer.html (accessed September 13, 2008).

[6] Levy and Luo, “Fraud May Reach into Billions.”

[7] “Medicaid: CMS Needs More Information on the Billions of Dollars Spent on Supplemental Payments,” (Washington, Government Accountability Office, Report GAO-08-614), available online at http://www.gao.gov/new.items/d08614.pdf (accessed September 13, 2008), p. 14.

Policy Brief: Health IT

Background:  Over the past several years, Congress and the Administration have focused on ways to improve the adoption of information technology as one way to foster reform within the health care system.  Advocates of health IT and electronic health records believe that their widespread adoption and use by practitioners could improve the quality of care and reduce the incidence of preventable medical errors, which kill up to 100,000 individuals annually.[1]  Some individuals also assert that health IT could generate significant savings within the health care system, though estimates vary and may be based in part on the systems changes that accompany IT adoption.

Legislative Proposals:  Although health IT legislation has been debated in previous Congresses, no proposal was enacted into law.  As a result, several pieces of legislation have been introduced or re-introduced in the 110th Congress.  In the House, the Energy and Commerce Committee approved on July 23, 2008 H.R. 6357, sponsored by Committee Chairman John Dingell (D-MI) and Ranking Member Joe Barton (R-TX).  The bill would codify the Office of the National Coordinator of Health Information Technology (ONCHIT)—previously established by Executive Order in April 2004—within the Department of Health and Human Services, set guidelines for the federal government and relevant stakeholders to develop health IT standards, and authorize grants for adoption of health technology, including electronic health records.  The bill also creates requirements for entities handling medical records to limit the circumstances under which records may be disclosed, and to notify patients in the event of an electronic data breach.

The Ways and Means Committee—which shares jurisdiction over Medicare with Energy and Commerce—is also expected to weigh in with legislative activity.  Ways and Means Health Subcommittee Ranking Member Dave Camp (R-MI) has introduced health IT legislation, H.R. 6179.  The bill would codify ONCHIT into statute, provide for a streamlined process for the promulgation of IT standards (including privacy standards), make permanent a regulatory exception promulgated by the Administration allowing hospitals to purchase IT software for physicians, and create new tax incentives for physicians to expense the cost necessary to implement a system of electronic health records.

In the Senate, the Health, Education, Labor, and Pensions Committee marked up S. 1693, sponsored by Chairman Ted Kennedy (D-MA), on June 27, 2007.  The bill is broadly similar to H.R. 6357, and includes provisions codifying ONCHIT’s role, authorizing grants for health IT promotion, and incorporating stricter privacy standards.  Press reports indicate that staff attempted to “hotline” the legislation before the August recess, but that objections from several offices precluded passage by unanimous consent.

Implications of Legislation:  While most policy-makers agree on the desirability of additional IT adoption by health practitioners, clarifying the federal role in such activity has proved more problematic.  As Congress considers potential legislative action to promote health IT, four key areas remain subject to controversy surrounding the federal government’s proper role.  These include:

Funding:  Several health IT bills—including both H.R. 6357 and S. 1693—authorize grants to promote interoperability among electronic health record systems and the adoption of health information technology.  H.R. 6357 authorizes $575 million over five years for grants to physicians, states, or local health-related entities to promote the effective use of IT, and an additional $20 million over two years for clinical education grants.   Similarly, S. 1693 authorizes $278 million over two years for grants to providers, states seeking to establish health IT loan programs, and the development of local or regional health IT plans, while including additional authorizations for clinical education grants and grants to promote telehealth services.  Some conservatives may question the need to authorize this additional new spending, and agree with the Administration’s position that market forces, not direct subsidies, are the most effective way to stimulate the growth of electronic health records and related technology.

Another approach discussed to promote the adoption of health IT focuses on adjustments to Medicare reimbursement rates—payment increases for adopters and/or payment reductions for non-adopters.  Such an approach was included in e-prescribing provisions attached to the latest Medicare physician payment legislation (P.L. 110-275).  Some conservatives may have both a specific and a general concern with this approach: first that any reimbursement adjustments be implemented in a budget-neutral manner, and second that any linkage between physician payment levels and health IT adoption could be perceived as a further attempt by the federal government to micro-manage the practice of medicine for physicians nationwide.

A third approach would utilize tax incentives—in the form of accelerated depreciation or increased deductions for the purchase of equipment related to electronic health records—as a means to spur greater health IT adoption.  While some conservatives may believe that tax expenditures constitute a more effective means of encouraging adoption of electronic health records than the direct government spending in the two examples above, others may question the necessity of federal involvement to promote health technology when other industries have adopted technological innovations much more quickly.

Some conservatives may believe that this central question—Why did it take only a few years to develop nationwide ATM networks, but decades to spur health IT adoption?—speaks to one of the fundamental drawbacks of the current health system: the distortionary effects of third-party payment.  While patients may be willing to pay for the benefits associated with an electronic health record, or the convenience of an e-mail consultation with a physician, many private insurance companies’ reimbursement and coverage decisions continue to follow the example of a Medicare program frequently slow to respond to changes in medical care.  Therefore, some conservatives may support initiatives like Health Savings Accounts as one way to minimize the effects of third-party payment and better align patient and physician incentives, improving the quality of care and thereby reducing the growth in costs.

Privacy:  Under current law, electronic health records, along with other paper-based health information, are regulated by standards promulgated pursuant to the Health Insurance Portability and Accountability Act (HIPAA, P.L. 104-191).  The law subjects “covered entities”—health plans, health clearinghouses, and providers who transmit any health information in electronic form—to a series of standards issued by the Department of Health and Human Services, commonly called the HIPAA Privacy Rule.[2]  In general, the Privacy Rule requires covered entities to obtain consent for the disclosure of protected health information—defined as health information that identifies the individual, or can reasonably be expected to identify the individual—except when related to “treatment, payment, or health care operations.”[3]  The regulations include several exceptions to the pre-disclosure consent requirement, including public health surveillance, activities related to law enforcement, scientific research, and serious threats to health and safety.[4]

In addition, current HIPAA regulations include a separate Security Rule, requiring covered entities and their business associates to safeguard protected health information held electronically.  The rule includes administrative, physical, and technical safeguards that covered entities must follow, and permits entities to contract with business associates to implement the regulatory requirements.[5]  Covered entities are not in compliance with the HIPAA Security Rule only if they become aware of “a pattern of an activity or practice” by the business associate in breach of its contract and the HIPAA security standards, yet fail to take remedial action.[6]

While supporting the desirability of personal medical information remaining private, some conservatives may also believe that privacy standards should not be implemented in a way that impedes the functioning of the health care system.  For instance, restrictions on “marketing” could be construed in such a way as to preclude pharmacists from e-mailing patient reminders to refill prescriptions, or consider cheaper generic drugs—both of which could be seen as unfortunate outcomes.  Similarly, requiring patient consent to utilize electronic health information for auditing purposes could be an invitation for patients to commit fraud, thereby encouraging criminal activity that raises costs for all individuals.

To the extent that Congress decides to incorporate a breach notification regime into health IT legislation, some conservatives may support setting clear standards for when notification is required, and safe harbor provisions for entities that act promptly to remedy any breaches that may occur.  Some conservatives may also support federal pre-emption with respect to breach notification provisions, so that covered entities will not be subjected to a patchwork of conflicting state laws.  In that same vein, some conservatives may be concerned by the implications of any attempt to introduce or expand a private right of action for individuals affected by security breaches that could serve as a breeding ground for costly litigation.

Physician Self-Referral:  One of the perceived impediments to wider health IT implementation lay in existing laws regarding physician self-referral.  In general, the so-called Stark law prohibits physicians who receive Medicare payments from referring their patients to entities with whom the physician has a financial relationship.[7]  While the statute contains a number of exceptions to the general prohibition, no portion of existing law would provide a safe harbor for a hospital or health system to donate health IT equipment to physician offices.

In response, the Centers for Medicare and Medicaid Services (CMS) in August 2006 published final regulations under which the Administration used its authority to create a “safe harbor” with respect to the Stark self-referral laws and health IT promotion; the same day, the Inspector General at the Department of Health and Human Services created a similar safe harbor with respect to the federal anti-kickback statute.[8]  Although the exception was intended to encourage the adoption of health IT by physicians and other providers without facing possible adverse legal actions, the regulations contain several potential drawbacks: the exception covers health IT software, but not hardware; requires a 15% payment by physician recipients; and, perhaps most importantly, expires in December 2013.

Some conservatives may support actions that expand the health IT exception created by the Administration to address its limitations and protect physicians from unnecessary regulations and/or legal action by CMS.  The self-referral exception created for electronic prescribing as mandated by Congress in the Medicare Modernization Act (P.L. 108-173) covered electronic hardware, providing little reason to qualify the exception with respect to electronic health records.  The required 15% payment by physician recipients appears contradictory to the exception’s purpose; a gift is either inappropriate or it isn’t—the size of any payment by a physician to the donor bears little semblance to the inherent nature of the relationship.  Finally, some conservatives may believe that eliminating the sunset date would provide important regulatory certainty for both physicians and the health IT community, rather than relying upon a future Administration and future Congresses to determine whether and how the self-referral exception should be extended.

Liability:  Unstated in most discussions about health information technology legislation is the impact which widespread health IT adoption may have on the current medical liability system.  Nevertheless, it may be reasonable to believe that the clarity afforded by electronic health records may have a measurable impact on tort claims—improved coordination of care may eliminate some medical errors before they occur, while the distinctions between frivolous and meritorious claims may become more clear.

Given this dynamic, some conservatives may support provisions in health IT legislation which create safe harbors for providers following accepted standards of care, as one potential way to minimize any increased costs associated with defensive medicine practices.  Additionally, some conservatives may view a health IT bill as a logical vehicle to attach liability reform provisions that reduce the number of frivolous lawsuits, allow for fair and reasonable compensation for individuals with legitimate claims, and encourage providers to utilize adverse events to improve the quality of future care.

Conclusion:  While health IT holds significant progress in terms of its ability to improve the quality of care and its potential to slow the growth in costs, its promise may rise or fall on the regime under which new technology is adopted.  If improperly implemented, costly new health IT mandates could spark senior physicians to take early retirement, depriving patients of well-trained and trusted providers.  Similarly, proposals that impose regulatory burdens that balkanize care in the name of privacy, while encouraging lawsuits against physicians and/or software providers, may well only inhibit the adoption of effective health IT and increase, rather than reduce, the growth of health costs.

Recognizing that the devil does indeed lie in the details, some conservatives may be cautious about assessing the implications of the final legislative product before supporting a health IT bill.  Specifically, while many conservatives may support legislation that reduces unnecessary regulations and avoids imposing new onerous burdens, bills that include significant increases in federal regulations and/or government spending may warrant stricter scrutiny.  Consistent with a belief that smaller government will allow private enterprise to thrive, conservatives may believe that a minimalist approach to health IT provides the best opportunity to allow the health system to create the innovative approaches to care that can slow the growth of costs.

For further information on this issue see:



[1] Institute of Medicine, To Err Is Human: Building a Safer Health System, summary available online at http://www.iom.edu/Object.File/Master/4/117/ToErr-8pager.pdf (accessed March 1, 2008).

[2] The definition of covered entity can be found at 42 U.S.C. 1320d-1(a); the HIPAA Privacy Rule can be found at 45 C.F.R. 160 and 164.

[3] Definitions of protected health information and individually identifiable health information can be found at 45 C.F.R. 160.103; permitted use for “treatment, payment, or health care operations” can be found at 45 C.F.R. 164.506.

[4] The full list can be found at 45 C.F.R. 164.512.

[5] The safeguards are found at 45 C.F.R. 164.308, 164.310, and 164.312, respectively.

[6] Language can be found at 45 C.F.R. 164.314(a)(1)(ii).

[7] The Stark law can be found at 42 U.S.C. 1395nn.

Policy Brief: SCHIP Premium Assistance

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009, while providing additional SCHIP funds for states.

When originally created, the SCHIP statute included premium assistance provisions designed to encourage the enrollment of children in employer-sponsored coverage, with state and federal dollars being used to pay the employee premium share for the eligible dependent(s).  Implementation of premium assistance programs would reduce crowd-out (i.e. individuals dropping private coverage to join a government health program), maintain children and parents on the same (privately-held) insurance policy, and could result in cost savings to both states and the federal government.

The statute included several tests used to determine whether premium assistance would be appropriate for SCHIP programs to implement.  Chief among these tests are the following:

  • Premium assistance must be cost-effective to the state (and thus the federal government);
  • Plans using premium assistance dollars must meet certain benchmark guidelines, including limits on cost-sharing;
  • Before becoming eligible for premium assistance, state waiting periods must apply;
  • Employers must make minimum contributions to the plan for which premium assistance is being granted.

Analysis:  While the premium assistance provisions were originally designed to facilitate enrollment of eligible children in employer-sponsored coverage where available, in practice the use of premium assistance remains quite limited.  Conflicts between the premium assistance provisions for Medicaid and SCHIP have resulted in only nine states adopting a premium assistance model—leaving more children in public, rather than private, coverage, and potentially resulting in higher costs to the federal government.

An analysis of the provisions at issue reveals several areas where changes to the premium assistance program could encourage the enrollment of additional low-income children in private rather than public coverage.  Areas for potential legislative action include the following:

Cost-Effectiveness:  Under current law, the cost-effectiveness test contains a “family waiver” provision that often impedes enrollment in private coverage, and conflicts with the cost-effectiveness test established under Medicaid.[1]  While the Medicaid test merely requires that the cost of covering an individual under a premium assistance program be less than the cost of public coverage for that individual, the SCHIP test requires that the cost of covering an entire family under premium assistance be less than the cost of public coverage for the child (or children) alone.  This lack of an “apples-to-apples” comparison for the purposes of determining cost-effectiveness can prevent employer coverage from qualifying for premium assistance—and as a result, some conservatives may believe the skewed metrics of determining cost-effectiveness actually increase costs to the federal government and should be changed.

Cost Sharing:  Current law places strict limits on cost-sharing within the SCHIP program, limiting premium assistance eligibility for many employer-sponsored plans.  Specifically, SCHIP plans may not impose any cost-sharing—premiums, deductibles, co-payments, or co-insurance—above a “nominal amount” (as determined by Medicaid guidelines) on children from families with incomes below 150% FPL; children from families with incomes above 150% FPL may only incur total cost-sharing of more than 5% of a family’s income.[2]  Some conservatives may find these cost-sharing limitations particularly onerous with regard to employer-sponsored plans, most of which have co-payments and deductibles that exceed the “nominal” amounts described in the statute.

Benchmark Guidelines:  To be eligible for SCHIP premium assistance, employer-sponsored plans must be actuarially equivalent to one of three SCHIP benchmarks: 1) the Blue Cross Blue Shield Standard Option within the Federal Employee Health Benefits Program (FEHBP); 2) the health insurance plan offered to state employees in a given state; or 3) the Health Maintenance Organization (HMO) with the highest enrollment in the state.[3]  However, the $431 monthly premium charged for the Blue Cross FEHBP option during 2007 exceeded by more than 15% the average cost of group health insurance in the same year, according to the non-partisan Kaiser Family Foundation—and many state employee plans have similarly high benefit packages.[4]  Therefore, some conservatives may support efforts to create more realistic coverage benchmarks for the SCHIP program, particularly for states where low market penetration by HMOs would have the effect of limiting premium assistance participation to those few employers who could afford to match the rich health insurance coverage provided to state and federal bureaucrats.

Employer Contribution:  Although the existing statute remains silent on this provision, SCHIP regulations require states to set minimum percentage contribution levels for employer-sponsored insurance.  Some conservatives may find this provision unnecessary and redundant, as group health insurance coverage must already be considered cost-effective to the state in order for the plan to qualify for premium assistance.

Waiting Periods:  SCHIP regulations require children eligible for premium assistance to have lacked group health insurance coverage for at least six months prior to enrolling in the program, unless the child had previously been enrolled in Medicaid or the state had received approval from the Centers for Medicare and Medicaid Services (CMS) to shorten its waiting period.[5]  While these provisions were designed to guard against crowd-out, some conservatives may question whether the waiting periods to join a subsidized private plan may instead encourage individuals to join a government-run plan, and whether states should seek to amend their SCHIP plans to reflect that possible scenario.

Enrollment and Outreach:  Particularly because premium assistance relies on private, rather than public, insurance coverage, many conservatives may support efforts to make participation easy for employers, and encourage eligible families to enroll.  Such steps would maintain private health insurance coverage while saving taxpayer dollars, and minimize the perverse cost-shifting that results from unrealistically low reimbursement levels in some SCHIP programs.

Legislative History:  Title III of SCHIP legislation (H.R. 3963), whose Presidential veto was sustained by the House by a 260-152 vote in January, included several provisions designed to streamline premium assistance programs.  Specifically, the bill modifies the cost-effectiveness language to provide equivalent comparisons between the cost of employer-sponsored and government-run SCHIP coverage, while giving premium assistance programs some flexibility by allowing states to “wrap-around” employer coverage with respect to cost-sharing and employer benefit packages not meeting one of the SCHIP benchmark levels (although it does not address the issue of whether these mandated benefit levels are too high).  However, some conservatives may find the prohibition on using premium assistance subsidies for any high-deductible or Health Savings Account (HSA) option contained in Section 301(a)(1) of the bill an attempt by Congressional Democrats to inhibit the growth of consumer-directed health options that have slowed the growth of health care costs since their introduction.

More fundamentally, Title III did not address the question of whether states should be required to make premium assistance programs available as a condition of receiving federal SCHIP funds—and it explicitly stated that eligible children must retain the option of enrolling in a public program and may not be compelled to participate in a premium assistance plan if available.  Moreover, some conservatives may also support additional provisions designed further to extend SCHIP premium assistance to individual (as opposed to group) health insurance purchased by eligible families, so long as this private insurance is cost-effective from the state and federal perspective.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411-3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

However, many conservatives retain concerns about actions by states or the federal government that would reduce private health insurance coverage while increasing reliance on a government-funded program.  To that end, conservatives may be inclined to support a more robust premium assistance mechanism for low-income children that keeps children (and their parents) enrolled in private coverage rather than joining a public program.  While the provisions of H.R. 3963 did make some modest changes to encourage this goal, some conservatives may support additional modifications to the premium assistance provisions to ensure that children with access to employer-sponsored insurance are not permitted to decline group coverage in order to join the SCHIP rolls.

For further information on this issue see:

 


[1] The Medicaid cost-effectiveness test can be found at 42 U.S.C. 1396e(e)(2), while the SCHIP cost-effectiveness test can be found at 42 U.S.C. 1397ee(c)(3).

[2] The SCHIP cost-sharing provisions are at 42 U.S.C. 1397cc(e)(3); the Medicaid guidelines can be found at 42 U.S.C. 1396o.

[3] SCHIP coverage benchmarks can be found at 42 U.S.C. 1397cc(b).

[4] Kaiser Family Foundation, “Employer Health Benefits: 2007 Annual Survey,” available online at http://kff.org/insurance/7672/upload/76723.pdf (accessed March 15, 2008), p. 2.

[5] The language can be found at 42 C.F.R. 457.810.

Policy Brief: SCHIP Enrollment

Background:  The State Children’s Health Insurance Program, established under the Balanced Budget Act (BBA) of 1997, is a state-federal partnership originally designed to provide low-income children with health insurance—specifically, those children under age 19 from families with incomes under 200 percent of the federal poverty level (FPL), or approximately $40,000 for a family of four.  States may implement SCHIP by expanding Medicaid and/or creating a new state SCHIP program.  In addition, states may expand eligibility requirements by submitting state plan amendments and/or Section 1115 waiver requests to the Centers for Medicare and Medicaid Services (CMS).[1]  SCHIP received nearly $40 billion in funding over ten years as part of BBA, and legislation recently passed by Congress in December (P.L. 110-173) extended the program through March 2009, while providing additional SCHIP funds for states.

One concern of many conservatives regarding the SCHIP program relates to crowd-out—a phenomenon whereby individuals who had previously held private health insurance drop that coverage in order to enroll in a public program.  The Congressional Budget Office (CBO) analysis of H.R. 3963, a five-year SCHIP reauthorization which the President vetoed (and the House failed to override), found that of the 5.8 million children who would obtain Medicaid or SCHIP coverage under the legislation, more than one-third, or 2 million, would do so by dropping private health insurance coverage.

In order to prevent policies that encourage crowd-out, and ensure that SCHIP funds are more effectively allocated to the low-income beneficiaries for whom the program was created, CMS on August 17, 2007 issued guidance to state health officials about the way it would evaluate waiver proposals by states to expand their SCHIP programs.  Among other provisions, the letter stated that CMS would require states seeking to expand coverage to children with family incomes above 250% of FPL must first enroll 95% of eligible children below 200% of FPL, consistent with the original design and intent of the SCHIP program.  Congressional Democrats have introduced both a bill (H.R. 5998) and a joint resolution of disapproval under the Congressional Review Act (S. J. Res. 44) designed to repeal the Administration’s guidance.

Enrollment of Wealthier Children:  An analysis performed by the Congressional Research Service (CRS), using data provided by the Centers for Medicare and Medicaid Services (CMS), provides some indication of the extent to which states are focusing their efforts on enrolling poor children first before expanding their SCHIP programs up the income ladder.  Comparison of Fiscal Year 2006 and 2007 data reveal that in FY06, an estimated 586,117 children from families with incomes above 200% of the federal poverty level—approximately $41,000 for a family of four—were covered under SCHIP by a total of 15 states.

By contrast, in FY07, a total of 17 states and the District of Columbia covered an estimated 612,439 children in their SCHIP programs—an increase of nearly 30,000 children from wealthier families.  Much of this increase stems in part from decisions by three states—Maryland, Missouri, and Pennsylvania—along with the District of Columbia to extend SCHIP coverage to children with family incomes up to 300% of FPL during calendar year 2007, just prior to the release of the Administration’s SCHIP guidance.  In short, the data show no discernable trend by states to target their energies on enrolling lower-income children first before expanding SCHIP up the income scale—a key concern of many conservatives during the debate on children’s health legislation last year.

Enrollment of Adults in Children’s Program:  The CRS report also analyzes the coverage of adults—pregnant women, parents, and childless adults—in the SCHIP program.  The CRS data do indicate that the total number of adults decreased from FY06 to FY07, and the number of childless adults on the SCHIP rolls halved.  However, the number of states covering adults increased, and several states saw expansion of the number of adults, and childless adults, covered under the program:

  • Eight states—Arkansas, Colorado, Idaho, Illinois, Nevada, New Jersey, New Mexico, Oregon, and Virginia—saw overall adult populations in SCHIP increase;
  • Three states—Idaho, New Mexico, and Oregon—saw increased enrollment in the number of childless adults;
  • Seven states— Arizona, Arkansas, Idaho, Illinois, Nevada, New Jersey, New Mexico, and Oregon—saw increased enrollment in the number of parents covered;
  • Three states—Colorado, Nevada, and Rhode Island—increased SCHIP enrollment for pregnant women.

While many conservatives may support the overall reduction in adults enrolled in a children’s health insurance program, some may still be concerned by the persistence of adult coverage—particularly given decisions by both Arkansas and Nevada to expand coverage to adults during FY07.  In addition, the fact that nearly 75% of the reduction in adult SCHIP enrollment from FY06 to FY07 came from one state’s (Arizona) decision to remove childless adults from the program rolls may lead some conservatives to question whether this welcome development was a one-year anomaly or part of a larger trend.

Conclusion:  Most conservatives support enrollment and funding of the SCHIP program for the populations for whom the SCHIP program was created.  That is why in December the House passed, by a 411-3 vote, legislation reauthorizing and extending the SCHIP program through March 2009.  That legislation included an additional $800 million in funding for states to ensure that all currently eligible children will continue to have access to state-based SCHIP coverage.

However, many conservatives retain concerns about actions by states or the federal government that would reduce private health insurance coverage while increasing reliance on a government-funded program.  To that end, data proving that many states have expanded coverage to wealthier populations without first ensuring that low-income children are enrolled in SCHIP, and that states have in recent months expanded coverage under a children’s health insurance program to adult populations, suggest that some states continue to expand government-funded health insurance, at significant cost to state and federal taxpayers, in a manner that may encourage individuals to drop private coverage.

Particularly given these developments, conservatives may believe that the Administration’s guidance to states remains consistent with the goal of ensuring that SCHIP remains targeted toward the low-income populations for which it was designed.  Therefore, many conservatives will support the reasonable attempts by CMS to bolster the integrity of the SCHIP program while retaining state plans’ flexibility, and question efforts by Congressional Democrats to encourage further expansion of government-funded health insurance financed by federal taxpayers.

For further information on this issue see:



[1] In general, state plan amendments can expand eligibility to higher income brackets, or otherwise modify state plans, while Section 1115 waivers by definition require the Secretary of Health and Human Services to waive statutory requirements under demonstration authority.  For more information, see CRS Report RL 30473, available online at http://www.congress.gov/erp/rl/pdf/RL30473.pdf (accessed September 8, 2008).