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Health Care Reform Report Card: “B” Grade Overall

An interactive graphic in yesterday’s New York Times looks at the three “Rs” of health care reform: Roll-out, Reaction (by the public and the two political parties), and Results (cost-lowering and increased coverage) and gives a solid “B” grade to the overall effort. This factors in an “F” grade for support by the Republican Party, and a “D” grade based on rulings in recent federal court challenges to the individual mandate component of PPACA. Federal activity to implement reform was given the sole “A” grade. The piece notes that portions of the law’s budget are already “embedded in mandatory tax and spending provisions” and hence would not be affected by Republican measures to “de-fund” PPACA implementation – more details on that point (e.g., what reform measures remain unfunded) would be helpful. It also observes that 27 of the 28 states whose attorneys general or governors have challeneged the constitutionality of PPACA in federal courts have also accepted federal funding towards establishment of insurance exchanges. In all the piece does a good job of differentiating the political rhetoric from the nuts and bolts of reform implementation.

Progress Towards Rollback of Expanded 1099 Reporting

Updated April 15, 2011: President Obama signed H.R. 4 into law today, repealing expanded 1099 reporting obligations prior to their proposed effective date of January 1, 2012.

One of the most unpopular features of PPACA removes 1099 reporting exceptions applicable to services or goods received from corporations.

Currently businesses only need to issue Form 1099-MISC in relation to payments for services totaling $600 or more in a given year. Further, payments made to corporations largely are excluded from this reporting requirement (exceptions exist for medical and health care payments and payments to an attorney). Section 9006(a) of the PPACA eliminates the exception for payments to a corporation, first effective for payments made January 1, 2012 and subsequent (reported in early 2013); it also expands reportable transactions to include sales of tangible goods and not just services. By capturing taxable transactions that otherwise were not properly being reported, this measure was intended to raise up to $19 billion over 10 years towards the cost of health care reform.

It is a truth universally acknowledged (hat tip to Jane Austen) that this measure, if implemented, will impose serious compliance burdens, particularly on small businesses. To start with, they will need to capture Tax Identification Numbers from all corporations with whom they do $600 or more in business, just in order to issue the 1099s. There is added complication from the fact that credit card purchases have a separate reporting process at the level of the card transaction vendors.

In response to general public outcry there were several unsuccessful attempt late last year to repeal this measure, one taking the form of repeal bill H.R. 144. Now H.R. 4 re-introduces the text of H.R. 144, which had been sponsored by Rep. Dan Lungren (R-Calif.) H.R. 4 has even more backers than did H.R. 144, showing that opposition to the measure is growing. Of the 245 co-sponsors of H.R. 4, twelve are Democrats, including Rep. Barney Frank (D-Mass), who heads the House Financial Services Committee.

H.R. 4 may be introduced in the House as early as Tuesday, January 25. In its support, three Democratic senators have written a letter to House Speaker John Boehner (R-Ohio) urging that the measure be repealed. The letter, which is copied below, focuses on the detriment the measure could have on job growth and other advancements needed from the small business sector, in this still fragile economy.

The response from the Speaker’s office has been lukewarm. This is consistent with Republican strategy at the moment, which is wholly to repeal PPACA, not to tinker with and tweak it. No question, expanded 1099 reporting duties won’t feature in Republican proposals to replace PPACA, but tactically they may want to “hold out” for full repeal of PPACA rather than engage in a process that improves PPACA in any way.

Luckily we have almost a year for this awkward legislative dance to progress, before the expanded reporting deadlines are a reality. A business that wants to hedge its bets in the meantime should attempt to collect Form W-9s from all corporate vendors. With any luck, they will be fodder for the shredder within a year’s time.

Here is the text of the letter to the Speaker of the House supporting H.R. 4:

January 20, 2011

Dear Speaker Boehner,

Now that you have moved past repeal of the Affordable Care Act, we encourage you to work on efforts to improve the law moving forward. In this spirit, we urge you to take up and pass H.R. 4, a bill which simply strikes the tax-reporting requirement in the health reform law. We have heard from small business men and women in our states who have voiced concern that this provision is burdensome and unnecessary, and could potentially undermine our nation’s economic recovery. Repealing this provision would be an important and practical way to improve the Affordable Care Act. We are confident that the Senate can quickly act on H.R. 4 once the House has passed it.

Section 9006 of the Affordable Care Act (P.L. 111-148) requires all business entities to file a 1099 form with the Internal Revenue Service for each vendor for whom they have cumulative transactions of $600 or more. Small businesses in our states have raised concerns that in order to comply with this new requirement, which takes effect next year, businesses will have to institute new record-keeping methods. The change is particularly onerous for small businesses, our nation’s engines of growth, who cannot afford to employ extra lawyers and accountants to comply with the new rules. The provision may also have the unintended consequence of distorting behavior in the marketplace, as large businesses will have an incentive to minimize their reporting requirements by consolidating purchases with large vendors, harming small, regional vendors.

This past November, voters sent both parties a clear message: focus on job creation. As President Obama has recently noted, our economy will recover more quickly and create more jobs if we can reduce regulations on business. Repealing this provision would be a great first step as we work together to grow the economy.


Senator Amy Klobuchar

Senator Ben Nelson

Senator Maria Cantwell

Throwing the Individual Mandate Under the Bus

Florida U.S. District Judge Roger Vinson has allowed six additional states to join the multi-state challenge to the individual mandate provision of PPACA. The mandate would require all individuals, starting in 2014, to secure insurance coverage for themselves and their dependents, either through an employer plan, or on the state-run exchanges (subsidies are available). The addition of Ohio, Kansas, Wyoming, Wisconsin and Maine bring the total number of states challenging the law to 26, more than half of all states.

The basis for the challenge is that the federal government, through PPACA, would violate the commerce clause of the U.S. Constitution. The commerce clause allows the federal government to regulate commerce with other nations, and commerce “among” the individual states, but it protects intrastate business dealings from federal government interference. The essence of the objection to the individual mandate is that it allows the federal government to, in effect, reach into the pockets of state residents and require that they pull out money to purchase insurance within state borders.

The individual mandate is seen as one of the cornerstones of health care reform because it will require young, healthy people to purchase coverage, and the influx of their premiums to insurers will allow overall premium costs to stabilize. It is widely recognized that premium costs are in something of an upward death spiral, because they higher the go, the sicker a person has to be before they are impelled to purchase coverage, and the more carriers have to charge to cover all the claims they are paying. Take away pre-existing condition exclusions, as the PPACA has done, and you can see that, for insurers, a “perfect storm” of sorts is brewing on the near horizon.

Last year a Virginia district court found that the mandate did violate the commerce clause, but this argument failed in a Detroit district court. The Detroit district court judge found that cost-shifting to – providers and governments – that results from lack of insurance coverage does cross state boundaries and thus was a federal-level issue; he also noted that cost-shifting also makes the health care market different from other markets, because care is still provided to those who “opt out” of the market by not buying insurance. Eventually this issue will move up through the circuit courts to the Supreme Court, where it faces an uncertain fate.

Even if the individual mandate survives constitutional challenge it may not have the desired impact, because the tax penalties that apply to those who forego coverage simply aren’t high enough.

As it happens, health care reform probably could still work without the individual mandate. At least, that is the balance of opinion among seven health policy experts polled by Kaiser Health News. Limiting enrollment availability to a window of time each year, or each couple of years, could encourage healthy people to enroll rather than risk getting sick well before the next open enrollment period. A further incentive would exist if coverage of pre-existing conditions is excluded for a period of time for those who defer on initial enrollment. (Currently the PPACA disallows any application of pre-existing condition exclusions.) Mark Pauly, one of those polled by Kaiser and a former adviser to the first President Bush, thinks that coverage significantly could be expanded just through the subsidies provided to individuals and families towards coverage under an exchange. These subsidies will be available to those earning up to four times the federal poverty level (approximately $44,000 for a single person and $88,000 for a family of four). Other options mentioned by those polled include high risk pools for certain populations (the very sick, children, those bridging the gap between employment and Medicare), reduced exchange subsidies for those who delay enrollment, and “rewards,” presumably in the form of premium discounts, for those who enroll early and retain coverage. A higher premium penalty for late enrollment is already working to encourage early enrollment in Medicare Part B.

Finally, for a historical perspective, Washington Post blogger Ezra Klein observes that the 5th Congress, in July 1789, passed a law that included a mandate, funded by a payroll tax on private merchant ships, requiring that privately employed sailors purchase health care insurance. (The law also created a government-operated marine hospital service.) Ezra notes that the 5th Congress, unlike the 112th Congress, “did not really need to struggle over the intentions of the drafters of the Constitutions in creating this act as many of its members were the drafters of the Constitution.” (Emphasis added.) You can read Ezra’s post here, which links to a more detailed discussion of the earlier mandate.

Bottom line, it would be encouraging if the debate over the individual mandate recedes to the background of the discussion over health care reform, so that other points of compromise can come to the fore.

HCR Repeal Vote Revisited, Post-Tuscon

Today the House of Representatives begins debate over H.R. 2, the bill to repeal health reform, with a vote on the bill scheduled for Wednesday, January 19, 2011. Debate was postponed from earlier this month due to the assassination attempt on Representative Gabrielle Giffords (D. Arizona), and lawmakers reconvene in a mood chastened by the violence in Tuscon. House Speaker John Boehner has even referred to the bill as “the job-destroying” rather than “job-killing” health care law, perhaps in deference to the deaths of Rep. Giffords’ aides and attendees at her public forum.

That said, the Obama Administration and Democratic legislators are making a strong push to “sell” the public on the merits of health care reform. Their efforts include a pro-reform event featuring Nancy Pelosi, a pro-reform letter to members of Congress from the Secretaries of HHS, Labor, and the Treasury, and a news conference hosted by HHS Secretary Kathleen Sebelius. In an effort tailored more closely to legislators’ personal concerns, Reps. Henry Waxman (D. California) and Frank Pallone Jr. (D. New Jersey) released a data-heavy analysis that illustrates the potential effects of repealing reform in each Congressional District and in 30 urban centers across the country. The analysis, which is found here, clearly is meant to “bring home” to lawmakers the idea that a vote to repeal reform could cost votes in the next election cycle.

It could be argued that the pro-reform push is too little, too late. The pro-reform message, to be effective, should have been consistently conveyed all last year. Continued economic woes and other factors simply did not allow for this, or possibly the Obama Administration concluded that it had already spent enough political capital on the topic for one year.

Another problem with this late push to “save” health care reform is the flawed rhetoric used in its defense. The Democrats are taking “repeal” at its face value and telling people that they will lose popular benefits such as limits on pre-existing conditions and coverage for over-age dependents, up to age 26. In fact, the GOP would likely re-implement these measures in new reform proposals that would follow a successful vote on repeal of PPACA. Alternative reform legislation would also likely include the abilty to purchase insurance across state lines, which would possibly temper the other negative impact of repeal that Democrats are predicting – untrammeled profit-seeking by insurance companies.

In the meanwhile, voters’ support for health care reform is as mixed as it was before the PPACA was passed; results of a recent national poll by the Kaiser Family Foundation shows 20% of those polled support expanding reform, 21% support leaving reform legislation as-is, 25% supporting partial repeal, and 26% supporting full repeal. I doubt that the public or Congressional debate in Washington D.C. this week will change those numbers very much. A vote to repeal the PPACA could be more than symbolic, however, if it directs attention to newly sponsored legislation – PPACA Lite? – that could gain a more decisive share of public support.

Early 2011 Dates for HCR Rollout/Repeal

This very good summary of early 2011 developments in implementing health care reform looks at the issues from the perspective of the Obama administration, Congress and state legislatures, and the courts. Some of the key 2011 dates it mentions are as follows:

January 12: House of Representatives vote on a bill to repeal health care reform, which I discussed in a bit more detail an earlier post. Though the overall vote may fail, piecemeal revisions could succeed, with expanded 1099 reporting being the most-often listed popular target for repeal. The linked article, from national health insurance association AHIP (America’s Health Insurance Plans), evaluates some other potential “low hanging fruit” that may be slated for more targeted repeal efforts.

January 12-14: The Institute of Medicine will hold a 2-day meeting devoted to discussion of the “essential health benefits” standard under the PPACA, which will determine which benefit packages may be offered on state exchanges. The IOM’s findings will no doubt have significant impact on the Department of Health and Human Services, which intends to issue regulations on this point by the end of the year. The Department of Labor will also work towards defining a “typical employer plan” against which to measure the “essential health benefits” concept.

February 15: By this date, HHS will announce the five states that will receive grants towards development of information technology systems for the state-based insurance exchanges. The AHIP article contains more details on the insurance industry’s steps to prepare for the exchanges.

And continuing through 2011, federal courts will continue to hear constitutional challenges to health care reform, specifically the individual mandate. The decision of Florida district court Roger Vinson is still pending in a challenge to the mandate brought by 20 state attorneys’ general, which currently is the highest-profile case of this type. As the AHIP article mentions, in December oral argument Vinson questioned whether the government could also control health care by requiring Americans to eat their vegetables. Proponents of health care reform might want to start hoping that, unlike a former American president, Judge Vinson loves broccoli.

Additional Easing of PPACA Compliance

In December 2010 the troika of governmental agencies in charge of implementing the PPACA (the DOL, HHS, and IRS – here, the “Departments”) issued more “soft guidance” in the form of Frequently Asked Questions, the fifth such set the Departments have published. The FAQs offer more clarity and deadline relief, as summarized below:

Percentage of Comp Cost Sharing Formulas Under Grandfathered Plans: The FAQ provides that a health plan may continue to determine employee cost sharing based on a percentage of compensation formula, without losing grandfathered status, so long as the formula (the percentage level) does not increase, even if the employee’s increasing rate of compensation will result in cost increases that exceed the thresholds set forth in the grandfathering regulations. The example in the FAQ was an out-of-pocket spending limit, such as an out-of-pocket limit or deductible, but not a copayment.
60-Day Prior Written Notice Rule Postponed: The PPACA includes a requirement that, by March 23, 2011, the Departments develop standards for use by plan sponsors and insurers in creating a “summary of benefits and coverage explanation” to be provided to plan participants no later than March 23, 2012. The PPACA also provides that if a plan sponsor or insurer makes any material modification in that summary of benefits/coverage explanation, it must provide written notice of the change at least 60 days prior to its effective date. Prior to this rule, ERISA required written notice of a material reduction in health benefits be provided 60 days after corporate action (e.g., adoption of board resolutions) to make the reduction. The prior notice rule under PPACA created some confusion, with some believing that it applied to any change to a health plan or policy, not just to changes to some new form of disclosure document that had not been fully defined yet. The FAQ makes it clear that the prior notice rule only applies to the summary of benefits/coverage explanation and that prior notice of a benefit change will not be required until the Departments issue guidance on this new type of disclosure. The 60-day “after” notice under ERISA still applies.
Auto-Enrollment for Large Plans: PPACA requires employers with more than 200 full-time employees to automatically enroll new full-time employees in the employer’s group health plan. There is no set deadline for this requirement and the definition of “full-time” for purposes of the rule is unclear. The FAQ states that compliance with auto-enrollment will not be required until regulations are issued by the DOL, and that EBSA (the DOL’s benefits division) will work with the Treasury Department to develop rules defining full-time status for this purpose. Regulations are expected to issue by 2014.
Dependent Coverage to Age 26: The FAQs state that, although health care reform prohibits distinctions in dependent coverage based on age (except for children aged 26 or older), it does not prohibit distinctions based on age that apply to all coverage under the plan. Therefore it is permissible for a plan to charge a copayment for an office visit for non-preventative services to all covered participants aged 19 and over, whether employee, spouse, or dependent, but not to participants under age 19.
Value-Based Insurance Design: Although the PPACA requires non-grandfathered health plans to provide “first-dollar” coverage for recommended preventive services, the FAQ states that this rule is tempered by the need for “reasonable medical management techniques” to steer patients towards more efficient treatment settings. Thus, the FAQ sanctions an arrangement in which a group health plan waives a copayment for a preventative screening when it is performed in an ambulatory surgery center, but charges $250 when the same screening is performed in a hospital outpatient setting, except in instances where the patient’s medical condition rules out the lower-cost treatment setting. The Departments are requesting public comments on “value-based insurance design” of this type as a prelude to issuing regulations or other written guidance.

Repeal of the “Job-Killing Health Care Law”: Political Theater or Legitimate Threat?

Today the Republican-controlled House of Representatives begins debate on H.R. 2 – a bill titled “Repealing the Job-Killing Health Care Law Act.” The provocative title of the bill signals that this is political theater, although proponents of the bill sincerely, for dollar-and-cents reasons, want to roll back reform, specifically the Patient Protection and Affordable Care Act of 2010 (PPACA) and its companion reconciliation act.

The full, two-paragraph text of the bill is available here.

The chances repeal will happen are slim. The Democrats still control the Senate. The President has put in writing his intention to veto H.R. 2. Even the Democrats who voted against enactment of PPACA (and who remain in office) don’t intend to support repeal. For a more trenchant analysis of the repeal movement’s chances at success, read Alvin D. Lurie’s piece here.

Even without full repeal, health care reform in the U.S. will almost certainly not unfold precisely according to the PPACA. The House of Representatives can thwart appropriations measures need to fund reform implementation. The rapidly increasing national debt will continue to dominate political discussions and make costly reform look like extravagance. The debate over health care reform may continue to be divisive, but I would like to think that it will more closely resemble the compromise (however uneasy) that the two parties recently reached on extending Bush-era tax cuts. Time will tell and I will continue to keep you apprised.

Top 12 Key Players in 2011 Health Care Reform Debate

Employee Benefit Adviser, a website/blog targeted at benefit brokers and other advisors, just published a slideshow of the top 12 players in Washington D.C. on the health care reform debate that has already begun in this new year. (One time registration for the EBA site may be required to view.) I briefly summarize the list, below; more analysis is available in the slideshow itself:

• Sen. Fred Upton (R-Mich.) – Chair to House Energy and Commerce Committee.
• Rep. John Kline (R-Minn.) – Chair of the House Education and Labor Committee.
• Rep. Dave Camp (R-Mich.) – Chair of the House Ways and Means Committee
• Rep. Paul Ryan (R-Wis.) – Chair of the House Budget Committee (this committee will oversee funding of health care reform; if House Republicans stymie appropriations needed to implement reform, as is widely expected, Rep. Ryan will be instrumental in this process).
• Sen. Chuck Grassley (R-Iowa) – Ranking minority member of the Senate Finance Committee.
• Rep. John Boehner (R-Ohio) – Speaker of the House.

• Donald Berwick – Head of the Centers for Medicare and Medicaid Services
• Sen. Harry Reid (D-Nev.) – Senate Majority Leader.
• Jacob Lew – Director of the Office of Management and Budget, replacing Peter Orszag
• Sen. Max Baucus (D-Mont.) – Chair of the Senate Finance Committee
• Kathleen Sebelius, Secretary of Health and Human Services
• President Obama (natch).