Weekly Newsletter: April 14, 2008

Floor Vote Impending for Restrictions on Health Savings Accounts

The House Ways and Means Committee last week reported legislation that would enact new restrictions on Health Savings Accounts (HSAs) as part of tax legislation (HR 5719) anticipated on the floor this week. The legislative proposal would require all HSA account holders to independently verifiy the qualified nature of medical expenses for all withdrawals, subjecting those transactions not substantiated to income taxes. This language is a significant departure from an earlier draft proposal, which imposed an annual reporting requirement on beneficiaries to list their total substantiated and unsubstantiated HSA withdrawal amounts—but left enforcement in the hands of the Internal Revenue Service.

At the Ways and Means markup, Republicans and Democrats alike noted the scarcity of available data documenting whether and to what extent HSA holders are making non-qualified withdrawals without paying appropriate income taxes and penalties. In addition to the hurried process that saw the provision added to legislation without thorough vetting and/or committee hearings, some conservatives may be concerned by the Joint Committee on Taxation’s inability to determine what portion of the $308 million in purported “savings” from this provision stems from newly captured taxes and penalties and what portion of reduced tax expenditures comes from lower HSA take-up rates and contribution levels. In other words, it is unclear whether this provision will be effective in increasing oversight of questionable HSA expenditures—Democrats’ stated intent in passing this provision—or instead generate budgetary savings by making HSAs less attractive to consumers.

Some conservatives may be concerned that this proposal represents the first of perhaps many attempts by the Democrat majority to enact burdensome and bureaucratic regulations undermining HSAs, which in a few short years have proven successful at slowing the growth of health costs and insurance premiums for millions of individuals and small businesses. Some conservatives may also be concerned that the many banks and financial organizations who have expressed concerns about their ability to implement the substantiation requirements could end up increasing administrative costs for end users—or exiting the HSA marketplace entirely.

During floor debate, the RSC will weigh in to protect the important consumer-driven health programs which Republicans have succeeded in establishing in recent years.

An RSC Policy Brief discussing this issue is available here.

House Committee Marks Up Bill Overriding Medicaid Fiscal Integrity Regulations

On Wednesday, the House Energy and Commerce Committee held a subcommittee markup on legislation (H.R. 5613) that would impose moratoria on several proposed regulations issued by the Centers for Medicare and Medicaid Services (CMS) to restore fiscal integrity to the Medicaid program. The bill was passed by voice vote, after Members adopted substitute language that would narrow the scope of the moratoria to permit CMS to continue to negotiate agreements with states on issues related to the proposed rules.

Despite the narrowing of the proposed moratoria, some conservatives may remain concerned by congressional actions to block regulations that respond to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program and increase the amount of federal matching funds received. Some conservatives also may be concerned that the moratoria on further regulatory action until April 2009 would transfer this issue to a new Administration, which could withdraw these proposed regulations to curb wasteful and abusive spending—and which will lower federal Medicaid spending by only 1% over the next five years.

Congressional Democrats have indicated their desire to include the moratoria provisions as part of the wartime supplemental appropriations measure. In addition, news reports have surfaced suggesting that a temporary increase in the federal Medicaid matching rate could be included in a second “stimulus” package, which could also be attached to the defense supplemental. Some conservatives may consider this proposed increase in federal matching funds a “bailout” to states who failed to incorporate into their long-term budgets the possibility of an economic downturn and its impact on state revenues.

Rather than attempting to enact measures that attempt to replace state funding with additional federal spending, some conservatives may believe that Congress should instead embrace the opportunity presented by this discussion to advance concepts for more comprehensive reform of Medicaid program financing, to control health care costs and set clear fiscal priorities for the use of scarce federal dollars.

RSC Policy Briefs on the federal-state Medicaid relationship can be found here and here.

Article of Note: “Is There a Doctor in the House?”

Last Sunday, a column in The Washington Post highlighted one of the key problems with government-funded health insurance—lack of access to care. The column cited a survey by the Medicare Payment Advisory Commission (MedPAC), noting that 29% of Medicare beneficiaries reported difficulty in searching for a new primary-care physician. Due to government-imposed price controls on physician reimbursement levels, many doctors have chosen not to accept additional Medicare-paying patients.

As Congress considers legislative actions connected with a 10.1% cut in physician reimbursements scheduled to take effect on July 1, some conservatives may believe that the access difficulties encountered by millions of American seniors—and the Medicare trustees’ recent funding warning noting that the Hospital Insurance Trust Fund will be exhausted in just over a decade—warrant a more comprehensive and lasting reform to entitlements. Converting Medicare into a system similar to the Federal Employees Health Benefit Plan (FEHBP), where beneficiaries receive a defined contribution from Medicare to purchase a health plan of their choosing, would ensure that all beneficiaries would have access to broad choices of insurance plans and physicians—rather than a government-controlled plan where rationed payments limit access to care. Just as important, by harnessing the benefits of competition, such a reform can slow the growth of health care spending, preserving Medicare for future generations.

Read the article here: “On Medicare and Scorned by the Docs” – The Washington Post

Weekly Newsletter: April 7, 2008

Democrats Plot Restrictions on Health Savings Accounts

Reports surfaced this week that the Democratic majority may be attempting to enact new restrictions on Health Savings Accounts (HSAs) as part of upcoming health legislation. The proposal being discussed would require that all HSA account holders submit information showing what portion of their HSA expenditures in a given year have been independently verified as constituting qualified medical expenses.

Available data suggest that the percentage of HSA funds being used for non-medical expenses is comparatively low—particularly upon close examination. For instance, purchases in a grocery store may at first blush appear irrelevant to HSA use—but in reality many of these transactions could involve permissible medical items (over-the-counter pharmaceuticals, prescriptions, medical supplies, etc.). And in those instances when individuals do use their HSA funds to make major non-health expenditures, the Internal Revenue Service has audit procedures in place to ensure that account-holders pay income taxes on non-qualified distributions—plus a 10% penalty to discourage such behavior.

When drafting the regulations implementing Health Savings Accounts in 2004, the Treasury Department attempted to create a framework that would ensure that HSA funds would be used for bona fide medical expenses, while avoiding burdensome regulations that would inhibit the growth of this innovative consumer-driven health product. The proposal under discussion places an additional burden on account holders to document their purchases—even the $3 bottle of cough syrup an individual might choose to buy at a grocery store like Safeway rather than at a CVS or other pharmacy—and may have a similarly chilling effect on insurance carriers and banks currently offering account-based products to individuals and employers.

Some conservatives may be concerned that this proposal represents the first of many impending attempts by the Democrat majority to enact burdensome and bureaucratic regulations undermining HSAs, which in a few short years have proven successful at slowing the growth of health costs and insurance premiums for millions of individuals and small businesses. Some conservatives may also be concerned that this particular provision, brought to the attention of the Democratic Ways and Means Committee staff by a former Republican staffer-turned-lobbyist, may constitute a legislative “earmark” drafted specifically to benefit one company (Evolution Benefits) seeking to market its substantiation technology to HSA administrators.

The attached policy brief explains the issue in further detail. The RSC will continue to monitor this or any similar attempts to enact burdensome restrictions on HSAs, and will weigh in to protect the important consumer-driven health programs which Republicans have succeeded in establishing in recent years.

House Committee Attempts to Override Medicaid Regulations Restoring Fiscal Integrity…

This past Thursday, the House Energy and Commerce Committee held a Subcommittee hearing on legislation (H.R. 5613) that would impose moratoria on several proposed regulations issued by the Centers for Medicare and Medicaid Services (CMS) to restore fiscal integrity to the Medicaid program. The regulations come as a response to more than a dozen Government Accountability Office (GAO) reports released since 1994 highlighting the various ways states have attempted to “game” the Medicaid program, reducing their share of program spending through various mechanisms designed primarily to increase the amount of federal matching funds received. The Energy and Commerce Committee may mark up legislation overriding the regulations as soon as this week.

While several state officials testified about the impact that the proposed regulations would have on their Medicaid programs in the current economic downturn, many conservatives may be concerned about the ways in which various questionable financing schemes—some of which have been used by states for more than a decade—have left Medicaid paying for non-health-related activities, such as trips to grocery stores and bingo games. With the proposed regulations reducing the federal share of Medicaid spending by only 1% over the next five years, some conservatives may have concerns should Congress attempt to override CMS’ modest attempts to restore fiscal integrity to Medicaid. However, some conservatives may embrace the opportunity presented by this discussion to advance concepts for more comprehensive reform of Medicaid program financing, to control health care costs and set clear fiscal priorities for the use of scarce federal dollars.

RSC Policy Briefs on the federal-state Medicaid relationship can be found here and here.

…While Marking Up New Regulations on Tobacco

Thursday’s hearing in the Health Subcommittee followed Wednesday’s full Energy and Commerce Committee markup of legislation (H.R. 1108) that would impose authority on the Food and Drug Administration (FDA) to regulate tobacco. While the bill as modified in Committee altered proposed “user fee” language, some conservatives may remain concerned that the bill would impose additional free speech and marketing restrictions on tobacco companies, and could increase black market activity of tobacco products. Some conservatives may also echo the statements of FDA Commissioner Andrew von Eschenbach, who has stated that tobacco regulation is not in line with FDA’s core mission—and question why Congressional Democrats who have criticized the FDA’s handling of various matters related to food and drug safety now consider the agency competent to regulate tobacco products.

The RSC will be monitoring this legislation as it makes its way to the House floor, and will be weighing in during the process to express conservatives’ concerns.

Interview of Note: “Crisis? What Crisis?”

This past week, Chairman of the House Ways and Means Health Subcommittee Pete Stark (D-CA) appeared on C-SPAN’s Washington Journal to discuss the Medicare trustees’ report released during the congressional recess. When asked about the impact of the trustees’ projection that the Medicare Hospital Insurance Trust Fund would become insolvent in 2019—just over one decade from now—Stark answered: “I don’t think it makes any difference what they say.” This followed on the heels of his statement at Tuesday’s Health Subcommittee hearing that “Medicare is not in crisis.”

Many conservatives may be concerned by Chairman Stark’s insouciance at a time when the federal government faces spiraling costs for Medicaid, Medicare, and Social Security that both the Medicare trustees and most independent observers agree are unsustainable. Many conservatives believe that the time has long since arrived for the federal government to place its own fiscal house in order, because, as countless homeowners have observed in recent months, further delay will do nothing to prevent the problem—and will only make the ultimate solution harder on all parties.

Weekly Newsletter: March 31, 2008

Medicare Trustees’ Report Highlights Program’s Fiscal Woes…

While Congress was in recess last week, the trustees of the Medicare Trust Funds released their annual report, which quantified the size of the fiscal obstacles facing the entitlement program. According to the trustees, the Hospital Insurance Trust Fund is scheduled to be exhausted in early 2019—just over one decade from now. In addition, the trustees for the third straight year projected that Medicare is scheduled to consume a growing share of general federal revenues, “triggering” another funding warning that requires the next President to submit legislation to Congress with his (or her) budget remedying Medicare’s funding.

Of particular note in the report was the fact that while projections of future spending on hospitals (Medicare Part A) remained constant, and future estimates of physician payment levels (Medicare Part B) increased, estimated future costs for the Medicare Part D prescription drug benefit provided by private insurance companies decreased. As health costs continue to rise both inside and outside the Medicare program, some conservatives may believe that the benefits of competition and consumer empowerment seen in Part D could yield measurable savings if extended to the other parts of Medicare.

Here are RSC Policy Briefs on the Medicare trustees’ report and on health care cost growth. More information on the Medicare trigger—and the President’s proposals for reform—can be found here.

…While Democrats Minimize Need for Entitlement Reform

The trustees’ report also notes that in the past twelve months, the anticipated size of Medicare’s unfunded obligations has grown from $74 trillion to nearly $86 trillion. As Joe Antos of the American Enterprise Institute noted at an AEI briefing last week, the one-year increase in Medicare’s unfunded obligations is itself nearly ten times the size of the total losses anticipated from the losses in sub-prime lending markets.

Estimates of $1.2 trillion in worldwide losses due to the current credit crunch, less than half of which will hit American institutions, have sparked numerous “relief” proposals from the Democrat majority. Yet when it comes to the $86 trillion in losses on the horizon for Medicare, Democrats like Rep. Pete Stark (D-CA)—Chair of the House Ways and Means Health Subcommittee, with prime jurisdiction over entitlement reform—refrained from demands for swift action, calling Medicare “solvent and sustainable” and claiming that “the trigger has been pulled by Republican ideologues,” when in reality the report was written by the non-partisan actuaries at the Centers for Medicare and Medicaid Services.

By contrast, many conservatives believe that the ominous statistics in the trustees’ report provide further impetus for Congress to utilize the Medicare “trigger” to enact comprehensive entitlement reform this year. Every year that Congress does not address the unfunded obligations associated with Social Security and Medicare, their size grows by trillions of dollars. Some conservatives would argue that with the Hospital Insurance Trust Fund scheduled to be exhausted in just over a decade, Congress must act now to preserve the promise of Medicare for the neediest of American seniors.

Clinton Proposes Cap on Insurance Premiums, Additional Taxes

In an interview with the New York Times last week, Sen. Hillary Clinton offered additional details about the formulation of her health care plan. Clinton expressed a desire to cap insurance premiums for individuals at between 5-10% of individuals’ income. She also indicated her support for restrictions requiring health insurance companies to pay out a defined percentage of premium costs on health benefits (as opposed to administrative costs or profits). And she advocated an increase in the tobacco tax to finance health care reform, despite the dwindling base of smokers left to pay such taxes: “At some point, there’s going to be diminishing returns. But, sure, why not? I don’t have any objection to that.”

However, some conservatives may have objections to the Clinton approach, starting with a tobacco tax that may encourage counterfeiting and result in a long-term fiscal imbalance leading to more taxes once tobacco revenues dwindle. Both capping premiums on individuals and mandating that insurers pay a high percentage of premiums in health benefits would constitute significant government price controls on an industry that spends more than one in six dollars consumed in the United States. And some conservatives may share the concerns of MIT professor Jonathan Gruber, who generally supports Clinton’s approach but conceded that a cap on insurance premiums at 5% of income would not be “realistic” because of the heavy government subsidies necessary to finance the difference.

Instead of a heavy-handed approach that relies on additional government regulation and taxation, many conservatives support principles that rely on consumer empowerment. Unleashing the forces of competition, and providing financial incentives for individuals to curb marginal spending on health care, represents the best way to bring down costs and ensure access to care.

Article of Note: A Cry on the Left for Freedom

Just before the recess, former Senator and Presidential candidate George McGovern (D-SD) published an op-ed article in the Wall Street Journal advocating a greater role for consumers in several segments of the economy, including health care. Noting the growing array of state benefit mandates on health insurance plans while premium costs continue to rise, McGovern criticizes the “health-care paternalism” whereby “states dictate that you [have] to buy a Mercedes or no car at all.” McGovern also notes support for the idea of buying health insurance across state lines, where plan premiums may be more reasonable—a principle supported by many conservatives and introduced by RSC Member John Shadegg (R-AZ) in H.R. 4460, the Health Care Choice Act.

The fact that an icon of the Left such as Sen. McGovern can decry the growth of government regulation as a development consistent with paternalism demonstrates the incapacity of the public sector to respond to challenges such as the rapid growth in health care costs. Many conservatives believe that only through a freer market—and common-sense solutions like buying health insurance across state lines— will America finally come to take control of its skyrocketing expenditures on health care.

Read the article here: The Wall Street Journal: “Freedom Means Responsibility” (subscription required)

Weekly Newsletter: March 10, 2008

Democrat Budget Fails to Address Medicare’s Woes…

The concurrent budget resolution (H. Con. Res. 312), which Democrats will bring to the House floor this week, does not include provisions providing comprehensive Medicare reform. The budget includes reconciliation provisions instructing the Ways and Means Committee to reduce spending on mandatory programs within their jurisdiction—but by only $750 million over the next five years. An amendment offered during last week’s Budget Committee markup by RSC Chairman Hensarling, which offered reconciliation instructions to ensure that Congress addresses the funding warning issued by the Medicare trustees last year, was defeated on a party-line vote.

Many conservatives will be concerned that, with the Medicare trust funds projected to be exhausted in little more than a decade, the Democrats’ budget will make no substantive effort to address Medicare’s $74 trillion in unfunded liabilities. In addition, some conservatives may be concerned by press reports indicating that the Democrat leadership will use the reconciliation process to justify new spending proposals for health care, rather than using all savings achieved to reduce the deficit and improve Medicare’s long-term viability.

More information on the Medicare trigger—and the President’s proposals for entitlement reform—can be found here.

…And Increases Spending on SCHIP

The Democrat budget also includes a proposed $50 billion reserve fund to finance an expansion of the State Children’s Health Insurance Program (SCHIP). This reserve fund would be consistent with a bill (H.R. 3162) considered by the House last July, under which nearly two and a half million children would drop private health insurance coverage in order to join a government-financed program—including children in families with incomes of more than $80,000.

Most conservatives support the enrollment and funding of the SCHIP program for the populations for whom it was created. However, continued efforts to extend this government-financed program to wealthier children and families may give some conservatives concern. If Democrats wish to look out for America’s children, some conservatives might argue that the better way to help is to reform Medicare and Medicaid so that future generations will not be saddled with trillions of dollars of debt, not to work to expand public programs for wealthier families.

An RSC Policy Brief discussing Administration proposals on SCHIP can be found here.

Mental Health Parity Bill Passes House

A Top Ten list of conservative concerns about H.R. 1424 can be found here.

Votes on the motion to recommit and final passage can be found here: Motion to Recommit Final Passage

Article of Note: Silence on Medicare Reform

Last week, the New York Times highlighted the absence of plans by Sen. Hillary Clinton or Sen. Barack Obama to confront the fiscal entitlement crisis our country faces in the coming decade. Although a report issued last month by the Centers for Medicare and Medicaid Services estimated that federal spending on health care will increase by 7.3% annually for the next decade, neither Democrat candidate has provided details on how to address the trillions of dollars of debt this additional spending will create.

The Times article notes that much of Medicare’s fiscal problem stems from the overall growth in health care costs. Several reports released in recent weeks have highlighted the need for measures to examine, and ultimately slow, excess cost growth within the health sphere. The RSC is preparing a policy brief summarizing these reports and offering some principles for controlling health costs using conservative, free-market solutions. By contrast, proposals by Sens. Clinton and Obama to control health costs contain a heavy emphasis on government-imposed price controls on insurance and pharmaceutical companies.

With the first Baby Boomer scheduled to become eligible for Medicare in fewer than three years, and the winner in November’s election likely to seek re-election, any potential President will have to address this crucial entitlement reform at some point during his (or her) intended term of office. Moreover, the $2 trillion added to America’s collective entitlement obligations every year that Congress and the President fail to take action provides a strong justification for immediate reform. Hopefully the Democratic contenders will embrace the opportunity to propose real, market-oriented solutions that control health care costs, or otherwise, as Robert Reischauer of the Urban Institute notes, “it will be difficult for Senator Clinton and Senator Obama to retain popular support for their plans once the details are supplied.”

Read the article here: New York Times: “About Those Health Care Plans by the Democrats…

Legislative Bulletin: Motion to Recommit H.R. 1424, Paul Wellstone Mental Health and Addiction Equity Act

Summary of Motion:  The motion would recommit H.R. 1424, the Paul Wellstone Mental Health and Addiction Equity Act, back to the Energy and Commerce Committee with instructions that the committee report the bill back to the House floor forthwith (i.e. instantaneously) with the following amendment:

  • The amendment would replace the text of H.R. 1424 with the text of S. 558, the Mental Health Parity Act, sponsored by Sen. Pete Domenici (R-NM), which passed the Senate on September 18, 2007.  (See Additional Background below for a summary of the differences between the Senate and House legislation.)
  • The amendment would include language explicitly stating that group health plans will not be required to cover abortion services as a result of implementing mental health parity.  (See Additional Background below for concerns that mental health provisions may be used to justify further abortion-related coverage.)
  • The amended bill would be paid for by extending a web-based demonstration project requiring electronic verification of Medicaid eligibility.  This demonstration project began with respect to Supplemental Security Income (SSI) verification, and was extended to three states’ Medicaid programs by Congress in September 2007 (P.L. 110-90).  The amendment would extend the demonstration project to all 50 states, saving $4.3 billion over ten years, according to the Administration.
  • The amended bill would also be financed through a $600 million transfer from the Physician Assistance and Quality Initiative (PAQI) Fund in 2013, coupled with a $1 billion transfer to the PAQI fund in 2014.

Process:  This MTR moves to recommit the bill (with instructions) “forthwith.”  If passed, the forthwith directive would technically send the bill back to committee along with the MTR instructions, requiring the committee to immediately return the bill to the House along with the amendment.  In effect, the chairman of the committee would take the floor and immediately report the bill back to the House with the amendment instructions in the MTR.  The House would then vote on the amendment (in essence, a second vote on the MTR with instructions). If this passes, a vote on final passage – with the amendment included – would be before the House.

Additional Background on Mental Health and Abortion Coverage:  Some conservatives have raised concerns regarding the Paul Wellstone Mental Health and Addiction Equity Act (H.R. 1424).  The Supreme Court decision Doe v. Bolton lists mental health as a reason that abortion is allowed for health exceptions.  The House bill, as currently written, could be construed to mandate health care coverage for an abortion as a part of treatment for mental health issues such as depression.  As defined by the Court: “Health of the mother includes, ‘all factors—physical, emotional, psychological, familial, and the woman’s age—relevant to the wellbeing of the patient. All these factors may relate to health.’”  Furthermore, abortionist Dr. James McMahon, in testimony before the House Judiciary Committee in June 1995, cited 39 partial-birth abortions that were performed because of the mother’s “depression.”  Because this issue is unclear and H.R. 1424 lacks a conscience clause applied to this legislation, there appears to be no protection for an employer to reject healthcare coverage for such a procedure if they choose to extend mental health coverage to its employees.

Additional Background on Senate Legislation:  On September 18, 2007, the Senate passed its version of the Mental Health Parity Act.  This legislation, S. 558, sponsored by Sen. Pete Domenici (R-NM), contains significant variations when compared to H.R. 1424.  Specifically, the Senate-passed language:

  • 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;
  • Remains silent on codifying classes of mental disorders—the language does not require group health plans to offer coverage for all disorders under DSM-IV;
  • Does not mandate an out-of-network coverage benefit—plans must offer out-of-network coverage only to the extent they do so for medical and surgical benefits, while the House bill mandates out-of-network coverage for all plans offering mental health benefits; and
  • Permits group health insurance plans to utilize medical management practices, including utilization review, authorization, medical necessity and appropriateness criteria, and use of network providers—the House bill includes no such “safe harbor” for plans.

While some conservatives may still have concerns with the mandates imposed by the Senate legislation and the way in which these mandates would increase health insurance premiums, many segments of the business community have embraced the Senate 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.  Many of those same trade organizations are opposing H.R. 1424 as a legislative over-reach that will impede their ability to offer quality coverage through group health insurance plans.

Legislative Bulletin: H.R. 493, Genetic Information Nondiscrimination Act

H.R. 1424, the Paul Wellstone Mental Health and Addiction Equity Act (sponsored by Rep. Patrick Kennedy, D-RI), is scheduled to be considered on the House floor on Wednesday, March 5, 2008, under a closed rule.

The rule provides for two hours of general debate, waives all points of order against consideration of the bill, except those regarding PAYGO and earmarks, waives all points of order against the bill itself—except the PAYGO rule—and allows the Chair to postpone consideration of the legislation at any time during its consideration.  The rule allows one motion to recommit with or without instructions.

At the time of engrossment, the rule would also direct the Clerk to insert the text of H.R. 493, the Genetic Information Non-Discrimination Act, at the end of H.R. 1424 as new matter.

LEGISLATION TO BE ADDED TO THE BILL UNDER THE RULE

H.R. 493—Genetic Information Nondiscrimination Act of 2007

Summary:   H.R. 493 would prohibit the use of genetic information by employers in employment decisions and by health insurers and health plans in making enrollment determinations and setting insurance premiums.  The specific provisions of the bill are summarized below.

  • Amends the Employee Retirement Income Security Act (ERISA), the Public Health Service Act, and the Internal Revenue Code to prohibit a group health plan, and a health insurance issuer offering group health insurance coverage in connection with a group health plan, from the following:
    • Adjusting premium or contribution amounts for the group covered under the plan on the basis of genetic information;
    • Requiring an individual or a family member of that individual to undergo a genetic test;
    • Requesting, requiring, or purchasing genetic information for underwriting purposes; and
    • Requesting, requiring, or purchasing genetic information with respect to any individual prior to that individual’s enrollment under the plan or coverage in connection with their enrollment.

The bill allows for certain research exceptions to the above prohibitions.

  • Defines an individual or a family member for purposes of this Act as:
    • The fetus inside of a pregnant mother; and
    • Any embryo legally held by the individual or family member (with respect to assisted reproductive technology).
  • Defines genetic test as: “an analysis of human DNA, RNA, chromosomes, proteins, or metabolites, that detects genotypes, mutations, or chromosomal changes.”  The definition does not include the following:
    • “An analysis of proteins or metabolites that does not detect genotypes, mutations, or chromosomal changes; or
    • “An analysis of proteins or metabolites that is directly related to a manifested disease, disorder, or pathological condition that could reasonably be detected by a health care professional with appropriate training and expertise in the field of medicine involved.”
  • Imposes a penalty against any plan sponsor or group health plan for failure to meet requirements with respect to genetic information in connection with their health plan.  The penalty would be $100 each day in noncompliance with respect to each participant to whom such failure relates.  Under certain circumstances, the penalty could not be less than $2,500.  In addition, the Secretary could waive the penalty under certain circumstances.
  • Prohibits a health insurance issuer in the individual market from doing the following:
    • Establishing rules for the eligibility of any individual to enroll in individual health insurance coverage based on genetic information;
    • Adjusting premium or contribution amounts for an individual on the basis of genetic information concerning the individual or a family member of the individual;
    • Imposing any preexisting condition exclusion based on the basis of genetic information, with respect to their coverage;
    • Requesting or requiring an individual or family member to undergo a genetic test;
    • Requesting, requiring or purchasing genetic information for underwriting purposes; and
    • Collecting genetic information with respect to any individual prior to the individual’s enrollment under the plan.
  • Prohibits an issuer of a Medicare supplemental policy from the following:
    • Denying or conditioning the issuance of a policy and from discriminating in the pricing of the policy of an individual on the basis of genetic information;
    • Requesting or requiring an individual or family member to undergo a genetic test; and
    • Requesting, requiring or purchasing genetic information for underwriting purposes.
  • Directs the National Association of Insurance Commissioners (NAIC) to modify its NAIC model regulations to mirror the above prohibitions required by this Act.
  • Directs the Secretary of Health and Human Services to revise the Health Insurance Portability and Accountability Act (HIPAA) private regulations to be consistent with provisions in this Act, affecting the use of genetic information.
  • Prohibits employers, employment agencies, and labor organizations from the following:
    • Refusing to hire an employee or discriminating against an employee because of genetic information related to that individual;
    • Limiting, segregating or classifying employees in any way that would deprive or adversely affect the status of the employee in light of their genetic information; and
    • Requiring or purchasing genetic information, except in certain circumstances.

Additional Information:  In Committee Report 110-28, Part 1, several Republican Members outlined extensive concerns in the Minority Views section of the report.  The following is a small excerpt from the Minority Views portion of the report.

Advocates of federal genetic nondiscrimination legislation argue that such legislation is necessary to ensure that individuals avail themselves of genetic testing without fear of reprisal in their employment or health insurance coverage. Others argue that the case has not yet been made that federal legislation is prudent or necessary—there has been no evidence of large-scale employer genetic testing or discrimination—and in any case, if federal legislation is to be adopted, it should be carefully drawn to address real concerns and not lead to frivolous litigation, inconsistent or contradictory standards, or undue burden on employers. Finally, many question whether existing federal laws and regulations provide adequate protection from the potential of genetic nondiscrimination. In addition, more than half of the states have enacted laws that restrict the use of genetic information in health insurance and employment decisions.

Committee Action:  H.R. 493 was introduced on January 16, 2007, and referred to the House Committees on Education and Labor, Energy and Commerce, and Ways and Means.  The Education and Labor Committee held a mark-up and reported the bill, as amended, by voice vote on February 14, 2007.  The Energy and Commerce Committee held a mark-up and reported the bill, as amended, on March 23, 2007.  The Ways and Means Committee held a mark-up and reported the bill, as amended, by voice vote on March 21, 2007.  The bill was passed on April 25, 2007 by a vote of 420 to three.

Possible Conservative Concerns:  In addition to the broader question of the bill’s necessity (as discussed above), some conservatives may be concerned that the bill’s imprecise language may provide regulatory confusion for business—and an avenue for potential lawsuits for sponsors of group health insurance—in several key respects:

  • Title I imposes requirements on health plans regarding insurance coverage, while Title II imposes requirements on employers regarding employment and related hiring decisions.  However, there is no explicit language clarifying that group health insurance plan sponsors may not be subjected to the more expansive remedies provided by Title II, which provides for rulemaking by the Equal Employment Opportunity Commission (EEOC), and remedies before the same body and, ultimately, federal courts.  In fact, during floor debate on H.R. 493, Congressman Rob Andrews (D-NJ) suggested that “employers, including to the extent employers control or direct benefit plans, are subject to the requirements of Title II of this bill”—including the much broader definition of genetic test and tougher penalties associated with that title.  This lack of clarity could lead to additional lawsuits, through use of the broader remedies available in Title II that are intended to be reserved for employers who violate their employees’ civil rights, not for employees seeking to litigate group health plan disputes.
  • The bill does not include a “business necessity” exemption for employers, consistent with the Americans with Disabilities Act, to ensure that businesses are not punished for non-discriminatory use of their workers’ genetic information.  For example, a new exemption for law enforcement usage of genetic information during employee DNA testing, was added to the bill just prior to House consideration—even though the bill has been introduced for over a decade.  Because there may be additional scenarios yet unforeseen that may require similar exemptions, lack of a general business necessity exemption could subject businesses to unnecessary and costly litigation.
  • Lastly, the bill as written does not clearly distinguish whether “manifested” diseases are covered by GINA provisions.  In general, health plans can receive information about whether an individual has a manifested disease, and these facts can be used during the underwriting process for individual and small group coverage in some states.  Lack of clarity in the language would disrupt long-established underwriting processes for diseases already manifested in patients—which is not consistent with the bill’s focus on genetic information.

Cost to Taxpayers:  According to CBO, enacting H.R. 493 “would increase the number of individuals who obtain health insurance by about 600 people per year, nearly all of whom would obtain insurance in the individual market.  The bill would affect federal revenues because the premiums paid by some of those newly insured individuals would be tax-deductible.” As such, CBO estimates that the bill would reduce revenues by less than $500,000 in each year from 2008 through 2017, by $1 million over the 2008-2012 period, and by $2 million over the 2008 through 2017 period.

In addition, CBO states, that “the bill’s requirements would apply to Medicare supplemental insurance, which would affect direct spending for Medicare.”  However, CBO estimates that the bill would have no significant effect on direct spending.  Finally, CBO estimates that H.R. 493 would result in discretionary costs of less than $500,000 in FY 2008, and $2 million over the FY 2008 through FY 2017 period.

Does the Bill Expand the Size and Scope of the Federal Government?:  No.

Does the Bill Contain Any New State-Government, Local-Government, or Private-Sector Mandates?:   Yes.  According to CBO, the bill would “preempt some state laws that establish confidentiality standards for generic information, and would restrict how state and local governments use such information in employment practices and in the provision of health care to employees.”  In addition, CBO explains that the bill “contains private-sector mandates on health insurers, health plans, employers, labor unions, and other organizations.”

Legislative Bulletin: H.R. 1424, Paul Wellstone Mental Health and Addiction Equity Act

Order of Business:  The bill is reportedly scheduled to be considered on Wednesday, March 5th, subject to a likely structured rule.

Summary:  H.R. 1424 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 until it lapsed in December 2007—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:  H.R. 1424 would require group health plans to offer the same financial benefit structure for both mental and physical disorders.  The federal mandate would apply to overall coverage limits on treatment 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. (See Additional Background section below.)

Minimum Scope of Benefits:  H.R. 1424 would require all group health insurance plans offering mental health benefits to offer coverage for any mental health and substance-related disorder included in the most recent edition of the Diagnostic and Statistical Manual of Mental Disorders.  (See Additional Background section below.)

Out-of-Network Benefits:  The bill would mandate plans that offer out-of-network insurance coverage for medical and surgical benefits to provide out-of-network coverage for mental health benefits, and at the same benefit levels.  This provision exceeds the standards required by the Office of Personnel Management for insurance carriers participating in the Federal Employee Health Benefits Program (FEHBP); plans offered through the federal program need only provide mental health parity with respect to in-network benefit packages.

Increased Cost Exemption:  H.R. 1424 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.

Federal Pre-emption:  H.R. 1424 would not preclude states from imposing on employers who offer group health insurance coverage more stringent requirements with respect to “consumer protections, benefits, methods of access to benefits, rights, or remedies.”  This provision constitutes a significant variation from past federal policy with respect to employer-provided health insurance dating to ERISA’s enactment in 1974.  (See Additional Background section below.)

Random Federal Audits:  The bill would require the Department of Labor to conduct annual audits of a random sample of group health insurance plans to ensure compliance with the federal mandates included in H.R. 1424.

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.

Medicaid Drug Rebate:  The bill would increase the rebate required of pharmaceutical companies offering single source (i.e. protected under federal patent laws) and innovator multiple source (i.e. formerly protected under federal patent law, but now subject to generic competition) pharmaceuticals in the Medicaid program from at least 15.1% of the Average Manufacturer Price (AMP) to at least 20.1% of the AMP.  The increase would apply for the years 2009 through 2015.  (See Additional Background section below.)

Specialty Hospitals:  H.R. 1424 would impose additional restrictions on so-called specialty hospitals by limiting the “whole hospital” exemption against physician self-referral.  Specifically, the bill would only extend the exemption to facilities with a Medicare reimbursement arrangement in place at the time of the bill’s enactment, and generally prohibit facilities from expanding their total number of operating rooms or beds.  Facilities may be able to expand their number of beds by up to 50%, provided that a) the population within the area has grown at more than double the national average over a five-year period; b) the facility has an above-average rate of Medicaid admissions when compared to the statewide average; c) the facility is located in a state with average bed capacity below the national average; and d) average bed occupancy within the area is at least 80%.  The bill also imposes additional reporting and related requirements regarding the nature of physician ownership arrangements.  (See Additional Background section below.)

Additional Background on ERISA Pre-Emption:  The Employment Retirement Income Security Act (ERISA) has served as the primary federal standard for the regulation of employee benefit plans since its enactment in September 1974 as Public Law 93-406.  One of its key provisions, Section 514 (29 U.S.C. 1144), states that ERISA “shall supersede any and all state laws insofar as they may now or hereafter relate to any employee benefit plan,” except in limited instances.  As Rep. John Dent (D-PA), then-Chairman of the House Labor Subcommittee and sponsor of the bill which became the ERISA statute, noted during debate on the conference report:

I wish to make note of what is to many the crowning achievement of this legislation, the reservation to federal authority the sole power to regulate the field of employee benefit plans.  With the pre-emption of the field, we round out the protection afforded participants by eliminating the threat of conflicting and inconsistent state and local regulation. [Emphasis added.]

The strong pre-emption provisions have been upheld by numerous federal courts since the enactment of ERISA more than 30 years ago.  In 2004, the Supreme Court in the case of Aetna Health Inc. v. Davila (542 U.S. 200) ruled that a Texas state law permitting lawsuits against managed care companies could not be enforced against plans provided by private employers due to ERISA’s pre-emption provisions and remedies already available under federal law.  More recently, the Fourth Circuit Court of Appeals cited ERISA pre-emption as the basis for striking down Maryland’s so-called Wal-Mart bill, which attempted to enact a “pay-or-play” mandate on large employers by requiring them to contribute a percentage of payroll expenses to their employees’ health care.

Over more than three decades, ERISA pre-emption has permitted thousands of employers to offer group health insurance coverage to millions of workers nationwide without the fear of becoming bogged down in complex and conflicting health insurance regulations in the several states.  This system currently provides more than 177 million Americans—more than half the national population—with health insurance coverage, according to Census Bureau data.  If passed, H.R. 1424 would permit states to pass laws with more stringent consumer protections, and could subject group health insurance plans to those state laws, creating the first significant erosion of ERISA pre-emption since its enactment.

Additional Background on Scope of Mental Health Benefits:  H.R. 1424 would incorporate into federal statute the Diagnostic and Statistical Manual of Mental Disorders as the basis for which group health plans offer coverage for mental health conditions.  Specifically, the bill would require plans to cover any mental disorder listed in the most recent edition of the manual, currently in its fourth edition (DSM-IV).

A 1999 executive order signed by President Clinton incorporated DSM-IV into the Federal Employee Health Benefit Program (FEHBP), beginning in January 2001.  However, the Office of Personnel Management requires FEHBP carriers to cover “all categories of…conditions” within DSM-IV, while H.R. 1424 requires overage of “any mental health condition”—a more expansive requirement for plans.  Moreover, plans offering coverage within FEHBP are permitted discretion to require an “authorized treatment plan” based on medical necessity—but are given no discretion to determine necessity under H.R. 1424.  The Office of Personnel Management has estimated that implementation of the executive order increased premium costs by 1.64% for fee-for-service plans participating in FEHBP.

The DSM-IV standards, first published in 1994 and revised slightly in 2000, include a wide variety of classifications for mental disorders, several of which are considered by some in the psychiatric community to have dubious value.  In addition, the number and breadth of declared psycho-sexual disorders included in the DSM have sparked controversy between homosexual activists and traditional values supporters.  Among the more troubling diagnoses incorporated into DSM-IV are:

  • Nightmare disorder;
  • Circadian rhythm sleep disorder (jet lag type);
  • Caffeine-induced sleep disorder;
  • Caffeine intoxication;
  • Substance-induced sexual dysfunction;
  • Gender identity disorder;
  • Transvestic fetishism; and
  • Pedophilia.

Under H.R. 1424, employers offering group coverage would be required to provide benefits related to these and similar diagnoses included in DSM-IV.

The expansive definitions of mental disorders included in DSM-IV have led to charges that psychiatric diagnoses have become politicized.  In response, the American Psychiatric Association, which publishes the DSM guidebook, included the following explanation on its website:

Q:        Aren’t some of the diagnoses included in the DSM there for political reasons?

A:        Decisions to include a diagnosis in the DSM are based on a careful consideration of the research underlying the disorder.  This is not to say that decisions are made without regard to other considerations.  Scientific data cannot be interpreted in a vacuum.  Sociological and other considerations must also be taken into account.   For example, each proposed new diagnosis carries with it the risk of making a false positive diagnosis (i.e., making a diagnosis when no disorder is present).  Since false positives can never be completely eliminated, we must consider instead how to balance the advantages of including the diagnosis in the DSM (e.g., increased detection of a treatable disorder with consequent reduction in morbidity and cost to the patient, his or her family, and to society at large) against the risks of making a false positive diagnosis (e.g., risk of stigmatization, cost and potential morbidity of unnecessary treatment, etc.).  However, the overall driving force in the decision to include or exclude a potential diagnosis from the DSM is the availability of scientific data. [Emphasis added.][1]

The American Psychiatric Association is tentatively scheduled to publish the fifth version of its Diagnostic and Statistical Manual of Mental Disorders (DSM-V) in 2011 or 2012, and any new disorders included in the revised version will be included in the federal mandate under the provisions of H.R. 1424.

Additional Background on Specialty Hospitals:  The past few years have seen the significant growth of so-called specialty hospitals.  These facilities, which generally concentrate on one medical practice area (often cardiac or orthopedic care), are often able to provide higher-quality care than general hospitals due to their focused mission.  Critics of specialty hospitals claim that, by “cherry-picking” the best—and therefore most lucrative—candidates for surgical procedures, they siphon off revenues from general and community hospitals, threatening their future viability.

The ownership arrangements of many specialty hospitals have also been questioned.  While federal law against physician self-referral prohibits doctors from holding an ownership stake in a particular department of a hospital facility, the “whole hospital” exemption permits physicians to hold an ownership stake in an entire facility.  Because many specialty hospitals are physician-owned in whole or in part, some critics believe that physicians owning a stake in a specialty hospital may be inclined to perform additional tests and procedures on patients due to a stronger profit motive.

In July 2007, Section 651 of H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act, proposed several modifications to the “whole hospital” exemption for physician self-referral.  Most notably, the bill applied the exemption only to those facilities with Medicare provider agreements in place prior to July 2007—excluding new specialty hospitals or other facilities, including those currently under construction, from protection under the self-referral statute—and prohibited existing facilities from expanding their number of operating rooms or beds.  While the bill passed the House by a 225-204 vote, the Senate has yet to take up the measure.

Amidst spiraling costs and uneven quality, some conservatives may believe that the health sector warrants more competition, not less: new entrants to introduce innovative techniques and practices improving the quality of care; greater transparency of both price and quality information, so patients can make rational choices about the nature of their treatment options; and a funding system that reduces where possible the distortionary effects of third-party payment and empowers consumers to take control of their health.  Viewed from this perspective, opposition to undue and onerous restrictions on the specialty hospitals that have driven innovation within health care may strike many conservatives as a return to first principles.

Additional Background on Medicaid Drug Rebates:  As part of a drug payment policy designed to ensure that Medicaid paid the “best price” available, the Omnibus Budget Reconciliation Act of 1990 included provisions requiring manufacturers of pharmaceuticals desiring to offer their products to Medicaid enrollees to enter into rebate agreements with the Secretary of Health and Human Services (HHS).  As of 2003, over 550 manufacturers have entered into rebate agreements, which apply to all pharmaceuticals separately billed to Medicaid.  In 2005, states reported receiving $11.1 billion in federally required drug rebates, constituting 26% of all outpatient pharmaceutical spending.  In addition, many states have their own additional rebate policies in effect; in 2005, 22 states reported collecting an additional $1.3 billion in supplemental rebates.  However, a 2005 survey by the non-partisan Kaiser Family Foundation reported that nearly half of states surveyed (17 of 37) do not return their rebates to Medicaid, choosing instead to apply rebates to the general fund to finance other state spending.[2]

In determining rebate levels, federal law establishes two classes of pharmaceuticals.  For single source drugs (those still under federal patent protection) and “innovator” multiple source drugs (those formerly marketed under a patent, but where generic competition now exists), rebate amounts are determined by comparing the Average Manufacturer Price (AMP) to the “best price”—the lowest price offered by the manufacturer to any retailer, wholesaler, or other entity.  The basic rebate is equal to either 15.1% of the AMP or difference between the AMP and the “best price,” whichever greater.  Additional rebates for these drugs are required if their price rises faster than inflation, as measured by the consumer price index for urban areas.  For “non-innovator” multiple source (i.e. generic) drugs, rebates are equal to 11% of AMP; “best prices” are not considered, and there are no additional rebates linked to price inflation.

The Deficit Reduction Act of 2005 (DRA) made several changes related to the Medicaid rebate system, particularly with respect to reporting of prices used to compute the pharmaceutical rebates owed.  Specifically, DRA required states to report data regarding certain physician-administered outpatient pharmaceuticals, in an attempt to ensure that rebates for chemotherapy and other drugs administered in physician settings were properly paid.  In addition, the DRA required that, for manufacturers who both produce a brand-name drug and license another manufacturer to produce a generic version, that the manufacturer-reported price include the price of these “authorized generics.”  In its cost estimate for DRA, CBO scored these changes as generating $220 million in additional federal revenues over five years, and $720 million over ten years.

Additional Background on Senate Legislation:  On September 18, 2007, the Senate passed its version of the Mental Health Parity Act.  This legislation, S. 558, sponsored by Sen. Pete Domenici (R-NM), contains significant variations when compared to H.R. 1424.  Specifically, the Senate-passed language:

  • 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;
  • Remains silent on codifying classes of mental disorders—the language does not require group health plans to offer coverage for all disorders under DSM-IV;
  • Does not mandate an out-of-network coverage benefit—plans must offer out-of-network coverage only to the extent they do so for medical and surgical benefits, while the House bill mandates out-of-network coverage for all plans offering mental health benefits; and
  • Permits group health insurance plans to utilize medical management practices, including utilization review, authorization, medical necessity and appropriateness criteria, and use of network providers—the House bill includes no such “safe harbor” for plans.

While some conservatives may still have concerns with the mandates imposed by the Senate legislation and the way in which these mandates would increase health insurance premiums, many segments of the business community have embraced the Senate 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.  Many of those same trade organizations are opposing H.R. 1424, as listed below, as a legislative over-reach that will impede their ability to offer quality coverage through group health insurance plans.

Committee Action:  On March 9, 2007, the bill was introduced and referred to the Energy and Commerce Committee, the Education and Labor Committee, and the Ways and Means Committee.  On July 18, 2007, the Education and Labor Committee reported the bill to the full House by a vote of 33-9.  On September 26, 2007, the Ways and Means Committee reported the bill to the full House by a vote of 27-13.  On October 16, 2007, the Energy and Commerce Committee reported the bill to the full House by a vote of 32-13.

Possible Conservative Concerns:  Numerous aspects of this legislation may raise concerns for conservatives, including, but not necessarily limited to, the following:

  • Increase Health Insurance Costs.  As noted below, CBO estimates that H.R. 1424 would impose mandates on private insurance companies totaling $3 billion annually by 2012.  These costs will ultimately be borne by employers offering health insurance and employees seeking to obtain coverage.  Moreover, by increasing the cost of health insurance, H.R. 1424 will lead directly to an increase in the number of uninsured Americans.
  • Private-Sector Mandates on Small and Large Businesses.  As detailed below, 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 plan sponsors to provide out-of-network benefits for mental health services if the sponsors provide out-of-network benefits for medical and surgical services, exceeding the standard mandated of insurance carriers participating in the FEHBP.
  • Decrease in Mental Health Coverage.  While the bill imposes several new federal mandates on those employers who choose to offer mental health coverage, there is nothing in H.R. 1424 that would impose a mental health mandate on all group health plans.  Thus H.R. 1424 could have the perverse effect of actually decreasing mental health coverage, by encouraging employers frustrated with the bill’s onerous burdens to drop mental health insurance altogether.
  • Intergovernmental Mandate.  The bill would pre-empt state laws governing mental health coverage that conflict with the bill—but would not pre-empt laws providing more stringent consumer protections for employees.  Additionally, the Congressional Budget Office (CBO) notes that some state and local governments would face increased costs for health insurance provided to their employees.  However, as these higher costs would be in the form of increased insurance premiums borne by government entities, CBO does not consider these higher costs a direct intergovernmental mandate.
  • Violation of UMRA.  CBO estimates that the costs of the mandates to the private sector in the bill would be at least $1.3 billion in 2008, rising to $3 billion in 2012 and thus exceed the annual threshold established in the Unfunded Mandates Reform Act or UMRA ($131 million in FY2007, adjusted annually for inflation).
  • Codification of Treatment Mandate for Health Plans.  H.R. 1424 would incorporate into federal law the DSM-IV classification definitions as the parameter of mental health treatment for health plans.  The broad parameters included in the DSM-IV categories will obligate employers to cover “disorders” such as “jet lag” and “caffeine intoxication.”  The DSM-IV standards incorporated into federal law would also require employers to cover a broad array of sexual “disorders” that many conservatives may find objectionable, as noted above.
  • Lack of Conscience Clause.  H.R. 1424 would subject all employers with over 50 employees—including faith-based organizations—to federal mandates to cover all diagnoses under DSM-IV.  The bill does not include an exemption for faith-based groups to exclude coverage of mental disorders, particularly psycho-sexual disorders, for which they have religious or moral objections.
  • Erode Federal Pre-emption for Employers under ERISA.  While H.R. 1424 does pre-empt state laws that conflict with the bill, it also explicitly permits additional state laws that provide more stringent consumer protections.  This provision could undo a history of strict federal pre-emption dating to ERISA’s enactment in 1974, creating a patchwork of laws across all 50 states with which major employers would have to comply.  Some employers could decide to drop group health insurance coverage altogether rather than face a potentially conflicting array of state mandates and regulations to which they could be subjected under H.R. 1424.
  • Lack of Medical Management Tools.  H.R. 1424 does not include language explicitly permitting group health plans to negotiate separate reimbursement rates or provider payment rates and delivery service systems for different benefits.  These tools would empower plans to utilize medical management practices in order to reduce claim costs.

  • Decreased Access to Pharmaceuticals for Medicaid Patients.  H.R. 1424 increases from 15.1% to 20.1% the minimum rebate amount which certain pharmaceutical manufacturers must pay to offer their drugs to patients within the Medicaid program.  These tightened government price controls may cause some manufacturers to leave the program altogether, resulting in the loss of available prescription drugs for low-income beneficiaries.
  • Restrictions on Specialty Hospitals.  The bill would limit the “whole hospital” exemption under physician self-referral laws, such that any new specialty hospital—including those currently under development or construction—would not be eligible for the self-referral exemption, and any existing specialty hospital would be unable to expand its facilities, except under very limited circumstances.  Given the advances which several specialty hospitals have made in increasing quality of care and decreasing patient infection rates, these additional restrictions may impede the development of new innovations within the health care industry.
  • Budgetary Gimmick.  In order to comply with PAYGO rules, H.R. 1424 would rely upon an increase in the Medicaid rebate for pharmaceuticals lasting from 2009 through 2015.  The fact that the rebate levels are scheduled to increase and then return to current levels suggests that the legislative change proposed has as its primary motive the financing of the costs associated with an expansion of mental health parity.  Some conservatives may believe this temporary increase violates the spirit, if not the letter, of the PAYGO requirement under House rules.

Administration Position:  Although the Statement of Administration Policy (SAP) was not available at press time, reports indicate that the SAP will strongly oppose the legislation; a veto threat is possible but not certain.  In September 2007, Labor Secretary Chao and HHS Secretary Leavitt wrote to the Senate HELP Committee expressing support for the Senate mental health legislation (S. 558), and stating “concern” with the bill introduced in the House (H.R. 1424).

Cost to Taxpayers:  A final score of the substitute bill presented to the Rules Committee was not available at press time.  However, according to a Congressional Budget Office (CBO) score of the bill as marked up before the Ways and Means Committee, H.R. 1424 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 increasing the rebate rate required of drug manufacturers participating in the Medicaid program with respect to certain classes of pharmaceuticals.  In addition, the bill places additional restrictions on physician-owned specialty hospitals.  In July 2007, CBO scored similar provisions included in H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act as saving $3.5 billion over ten years by directing more patients from specialty hospitals and to general hospitals, due to CBO’s belief that such a transition would result in overall savings to Medicare based on lower utilization rates for outpatient services and related reimbursement changes.  However, as noted previously, such savings may not be realized.

Does the Bill Expand the Size and Scope of the Federal Government?:  Yes, the bill would authorize the Department of Labor to conduct random audits of plan to ensure they are in compliance with the bill’s requirements, which according to CBO would require estimated appropriations of $330 million over ten years.

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 estimates 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, the CBO cost estimate indicates 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. 1424’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 estimates 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?:  The Education and Labor Committee, in House Report 110-374, Part I, asserts that, “H.R. 1424 does not contain any congressional earmarks, limited tax benefits, or limited tariff benefits as defined in clause 9 of rule XXI.”

Constitutional Authority:  The Education and Labor Committee, in House Report 110-374, Part I, cites constitutional authority in Article I, Section 8, Clauses 1 (the congressional power to provide for the general welfare of the United States) and 3 (the congressional power to regulate interstate commerce). (emphasis added)

Outside Organizations:  The following organizations are opposing H.R. 1424:

  • Aetna;
  • American Association of Physicians and Surgeons;
  • American Benefits Council;
  • America’s Health Insurance Plans;
  • Assurant;
  • Blue Cross Blue Shield Association;
  • CIGNA;
  • Concerned Women of America (*potential key vote);
  • Family Research Council (*potential key vote);
  • National Association of Health Underwriters;
  • National Association of Manufacturers (*key vote);
  • National Association of Wholesaler-Distributors (*key vote);
  • National Business Group on Health;
  • National Restaurant Association;
  • National Retail Federation (*key vote);
  • Retail Industry Leaders Association;
  • Society for Human Resource Management;
  • U.S. Chamber of Commerce (*key vote).

 

 

[1] Available at http://www.dsmivtr.org/2-1faqs.cfm (accessed February 21, 2008).

[2] Kaiser Family Foundation, State Medicaid Outpatient Prescription Drug Policies: Findings from a National Survey, 2005 Update, available online at http://kff.org/medicaid/7381.cfm (accessed March 3, 2008).

Physician-Owned Hospitals

Background:  The past few years have seen the significant growth of so-called specialty hospitals.  These facilities, which generally concentrate on one medical practice area (often cardiac or orthopedic care), are often able to provide higher-quality care than general hospitals due to their focused mission.  Critics of specialty hospitals claim that, by “cherry-picking” the best—and therefore most lucrative—candidates for surgical procedures, they siphon off revenues from general and community hospitals, threatening their future viability.

The ownership arrangements of many specialty hospitals have also been questioned.  While federal law against physician self-referral prohibits doctors from holding an ownership stake in a particular department of a hospital facility, the “whole hospital” exemption permits physicians to hold an ownership stake in an entire facility.  Because many specialty hospitals are physician-owned in whole or in part, some critics believe that physicians owning a stake in a specialty hospital may be inclined to perform additional tests and procedures on patients due to a stronger profit motive.

Legislative History:  Congressional action on specialty hospitals over the past several years has focused on the “whole hospital” exemption and the issue of physician self-referral.  In December 2003, Section 507 of the Medicare Modernization Act (P.L. 108-173) placed an 18-month moratorium on physician self-referrals to any new specialty hospital and ordered reports to Congress regarding the issue.  Upon expiration of the moratorium in June 2005, the Centers for Medicare and Medicaid Services (CMS) issued a further suspension in the processing of Medicare enrollment applications for specialty hospitals, pending a CMS review.

In February 2006, Section 5006 of the Deficit Reduction Act (P.L. 109-171) extended the CMS suspension of applications for new specialty hospitals until CMS submitted a report to Congress.  The report, issued in August 2006, summarized the earlier reports on specialty hospitals and outlined a strategic plan for examining the issues raised.  Although the report included no legislative recommendations, CMS did subsequently issue regulations in August 2007 requiring all hospitals, not just specialty hospitals, to notify patients of their physician ownership arrangements beginning in Fiscal Year 2008.

In July 2007, Section 651 of H.R. 3162, the Children’s Health and Medicare Protection (CHAMP) Act, proposed several modifications to the “whole hospital” exemption for physician self-referral.  Most notably, the bill applied the exemption only to those facilities with Medicare provider agreements in place prior to July 2007—excluding new specialty hospitals or other facilities, including those currently under construction, from protection under the self-referral statute—and prohibited existing facilities from expanding their number of operating rooms or beds.  While the bill passed the House by a 225-204 vote, the Senate has yet to take up the measure.

Quality of Care:  Many public and private studies that have examined the specialty hospital issue have compared the quality of care and patient outcomes for both specialty and general hospitals.  Most studies have found that specialty hospitals perform no worse than general hospitals with respect to patient outcomes, and many studies have found measurable performance improvements.  The independent quality review firm HealthGrades found that specialty hospitals constitute a disproportionate share of the highest-quality facilities among the top tier of facilities it surveyed.[1]

The focus on improved quality control comes at a time when the impact of medical errors and hospital-acquired infections has risen to greater prominence.  The landmark 1999 Institute of Medicine study To Err Is Human estimated that between 44,000 and 98,000 Americans die annually in hospitals due to preventable medical errors, creating a total economic cost of as much as $29 billion.[2]  A November 2006 report utilizing data from a new infection-reporting regime in Pennsylvania found 19,154 cases of hospital-acquired infections in 2005 alone, representing an infection incident rate of more than 1 in 100 hospitalizations, and average costs for patients who developed infections nearly six times higher than those who did not ($185,260 vs. $31,389).[3]

For this reason, many specialty hospitals include their physician-owners in all aspects of the planning, design, and implementation of the facility and its treatment delivery systems, so as to minimize the possibility of preventable errors and the spread of infection.  Additionally, regular performance of surgical procedures in specialized settings permits physicians and medical staff to develop expertise and innovative techniques that improve the quality of care delivered.  For instance, physicians in one cardiac specialty hospital developed new procedures to recognize and treat irregular heartbeats following surgery; the new protocol reduced incidence of this dangerous symptom by two-thirds.[4]

Although some critics of specialty hospitals cite concerns about “cherry-picking”—whereby physician-owned facilities attract comparatively healthy patients, leaving general hospitals to treat the sickest cases—reports such as the HealthGrades study have quantified the better care provided by many specialty hospitals on a risk-adjusted basis that controls for patients’ varied health status.  Some specialty hospitals have been found to have patients sicker than average when compared to Medicare claims data are used to compare patients in specialty hospitals and general hospitals.[5]  Moreover, to the extent that specialty hospitals may wish to pick the “easiest” cases, such changes can be resolved by reforms currently being implemented by CMS to reform Medicare’s diagnosis-related group (DRG) classification system and adjust reimbursements to more closely reflect health status upon admission.

Financial Arrangements:  Much of the criticism surrounding specialty hospitals has focused on the potential conflict-of-interest associated with physician ownership, and specifically whether an ownership stake motivates physicians to increase the number and scope of tests and procedures performed, increasing patient costs.  In scoring the additional restrictions proposed by Section 651 of the CHAMP Act, the Congressional Budget Office (CBO) asserted that Medicare spends more for outpatient services for patients treated in specialty hospitals than for treatments provided in other facilities.  Based on this assumption and related changes in reimbursements, CBO estimated that the CHAMP Act’s proposed restrictions on specialty hospitals would generate $3.5 billion in savings to the federal government over a ten-year period by diverting patient care to general and community hospitals.

However, the CBO score did not take into account any potential savings due to differential rates of medical errors and acquired infections when comparing costs in specialty and general hospitals.  One study noted that the nearly 9,000 infections acquired by Medicare and Medicaid recipients hospitals during 2004 cost taxpayers nearly $1.4 billion in added costs in Pennsylvania alone—and the study also noted that hospital-acquired infections, and thus the costs associated with them, were likely to be underreported during the report’s time frame.[6]  Given the existing studies documenting better patient outcomes and lower infection rates in physician-owned facilities, reduced costs to the federal government from an expansion of specialty hospitals could well exceed the $3.5 billion in purported savings CBO attributes to lower utilization rates by general hospitals.

In addition, some critics of the ownership arrangements of specialty hospitals have failed to acknowledge the implications of the vast growth of hospital-owned physician networks in the past two decades.  While a 2005 CMS report to Congress noted that “we did not see clear, consistent patterns of preference for referring to specialty hospitals among physician owners relative to their peers,” it also added that “physicians in general are constrained in where they refer patients by several factors.”[7]  Physicians working for networks affiliated with a particular community hospital may be contractually obligated to refer their patients to that hospital.  When viewed from this prism, the significant growth—from 24% in 1983 to 39% in 2001—of physicians directly employed by hospitals or other medical centers is likely to have had a greater impact on physician referral patterns than the growth of approximately 200 specialty hospitals when compared to 60,000 hospitals nationwide.[8]

Conclusion:  The benefits of increased specialization have been examined and analyzed by economists for more than two centuries.  In his seminal work The Wealth of Nations, Adam Smith highlighted the benefits of a division of labor to focus on discrete tasks as providing the greatest possible improvement in productivity, and thus economic growth, for all individuals.  In health care, specialization can increase productivity gains, which are the key to controlling the rise of health care costs without relying on heavy-handed rationing of care.  The growth of specialty hospitals—which focus on performing discrete groups of surgical procedures well, improving quality and thus reducing costs—is consonant with the theories which Smith and his adherents used to expound open markets and free trade worldwide.

Amidst spiraling costs and uneven quality, the health sector warrants more competition, not less: new entrants to introduce innovative techniques and practices improving the quality of care; greater transparency of both price and quality information, so patients can make rational choices about the nature of their treatment options; and a funding system that reduces where possible the distortionary effects of third-party payment and empowers consumers to take control of their health.  Viewed from this perspective, opposition to undue and onerous restrictions on the specialty hospitals that have driven innovation within health care may strike many conservatives as a return to first principles.

 

[1] Cited in David Whelan, “Bad Medicine,” Fortune 10 March 2008, available online at http://www.forbes.com/forbes/2008/0310/086_print.html (accessed March 1, 2008).

[2] 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).

[3] Pennsylvania Health Care Cost Containment Council, Hospital Acquired Infections in Pennsylvania, available online at http://www.phc4.org/reports/hai/05/docs/hai2005report.pdf (accessed March 1, 2008).

[4] Regina Herzlinger and Peter Stavros, “MedCath Corporation (A),” Harvard Business School Case No. 303-041, rev. August 2006, p. 10.

[5] Regina Herzlinger and Peter Stavros, “MedCath Corporation (C),” Harvard Business School Case No. 305-097, rev. May 2006, p. 1.

[6] Pennsylvania Health Care Cost Containment Council, Reducing Hospital-Acquired Infections: The Business Case (Issue Brief No. 8, November 2005), available online at http://www.phc4.org/reports/researchbriefs/111705/docs/researchbrief2005report_hospacqinfections_bizcase.pdf (accessed March 1, 2008).

[7] Department of Health and Human Services, “Study of Physician Owned Specialty Hospitals Required in Section 507(c)(2) of the Medicare Modernization Act of 2003,” available online at http://www.cms.hhs.gov/MLNProducts/Downloads/RTC-StudyofPhysOwnedSpecHosp.pdf (accessed March 1, 2008).

[8] Kaiser Family Foundation, Trends and Indicators in the Health Care Marketplace, Section Five, available online at http://www.kff.org/insurance/7031/print-sec5.cfm (accessed March 3, 2008) ; Whelan, “Bad Medicine.”

Top Ten Conservative Concerns with H.R. 1424, Mental Health Parity Act

  1. Increases Health Insurance Costs. CBO estimates that H.R. 1424 would impose mandates on private insurance companies totaling $3 billion annually by 2012.  These costs will ultimately be borne by employers offering health insurance and employees seeking to obtain coverage.
  2. Increases Costs for Business Due to Private-Sector Mandates. The bill contains multiple new federal mandates on the private sector, affecting the design and structure of health insurance plans.   The bill also increases the threshold level at which employers suffering increased claim costs as a result of implementing the new federal mandates can claim an exemption from the provisions of H.R. 1424.
  3. Decreases Mental Health Coverage. While the bill imposes several new federal mandates on those employers who choose to offer mental health coverage, there is nothing in H.R. 1424 that would require plans to cover these conditions.  Thus H.R. 1424 could have the perverse effect of actually decreasing mental health coverage, by encouraging employers frustrated with the bill’s onerous burdens to drop mental health insurance altogether.
  4. Increases the Number of Uninsured. By increasing the cost of health insurance, H.R. 1424 will lead directly to an increase in the number of uninsured Americans.  In addition, some employers could decide to drop group health insurance coverage altogether rather than face a potentially conflicting array of state mandates and regulations to which they could be subjected under H.R. 1424.
  5. Erodes Federal Pre-emption for Employers. While H.R. 1424 does pre-empt state laws that conflict with the bill, it also explicitly permits additional state laws that provide more stringent consumer protections.  This provision could undo three decades of strict federal pre-emption for group health plans, creating a patchwork of laws across all 50 states with which large employers would have to comply.
  6. Codification of Treatment Mandate for Health Plans. H.R. 1424 would incorporate into federal law the Diagnostic and Statistical Manual of Mental Disorders (DSM-IV) classification definitions as the parameter of mental health treatment for health plans.  The broad parameters included in the DSM-IV categories will obligate employers to cover “disorders” such as “jet lag” and “caffeine intoxication.”
  7. Intergovernmental Mandate. The bill would pre-empt state laws governing mental health coverage that conflict with the bill—but would not pre-empt laws providing more stringent consumer protections for employees.  Additionally, CBO notes that some state and local governments would face increased costs for health insurance provided to their employees.
  8. Violation of UMRA. CBO estimates that the costs of the mandates to the private sector in the bill would be at least $1.3 billion in 2008, rising to $3 billion in 2012 and thus exceed the annual threshold established in the Unfunded Mandates Reform Act or UMRA ($131 million in FY2007, adjusted annually for inflation).
  9. Lack of Conscience Clause. H.R. 1424 would mandate that employers offering mental health benefits cover all diagnoses under DSM-IV.  The bill does not include an exemption for groups to exclude coverage of mental disorders, particularly psycho-sexual disorders, for which they have religious or moral objections.
  10. Lack of Medical Management Tools. H.R. 1424 does not include language permitting group health plans to negotiate separate reimbursement rates or provider payment rates and delivery service systems for different benefits.  These tools would empower plans to utilize medical management practices in order to reduce claim costs.

Weekly Newsletter: March 3, 2008

Mental Health Parity Scheduled for Wednesday Vote

The House Democrat leadership announced last week that the House would be voting Wednesday on a mental health bill (H.R. 1424) sponsored by Rep. Patrick Kennedy (D-RI). Some conservatives may have strong concerns about both the principle behind the legislation—a costly federal mandate that will raise the health insurance premiums and increase the number of uninsured Americans—as well as the way in which the expansive House language would mandate coverage for “mental disorders” such as caffeine addiction and jet leg.

In addition, the ways in which Democrats intend to finance its $4 billion price tag may also cause conservatives concern. News reports indicate that the bill will be funded by placing further restrictions on physician-owned specialty hospitals—hindering the development of a new source of consumer choice, and medical innovation, in health care—and increasing the amount of rebates pharmaceutical manufacturers offering products to Medicaid beneficiaries must pay the federal government—which may lead some drug companies to end their participation in Medicaid altogether.

The RSC will be monitoring this legislation as it makes its way to the House floor, and will be weighing in during the process to express conservatives’ concerns.

A Top Ten list of conservative concerns about H.R. 1424 can be found here.

SCHIP Policy Brief Released

Last week the RSC released a policy brief analyzing the proposals in President Bush’s Fiscal Year 2009 budget that would effect the State Children’s Health Insurance Program (SCHIP). The brief was released prior to a House Energy and Commerce subcommittee hearing where several state Governors testified in opposition to guidance issued by the Administration that would ensure federal funds are targeted towards the low-income children for whom the SCHIP program was created.

While most conservatives support the Administration’s focus on low-income children, the significant increase in its SCHIP funding request when compared to last year—enough to fund an expansion of program participants—may give some conservatives concern.

The RSC Policy Brief can be found here.

GAO Issues Report on Medicare Advantage

Last week the Government Accountability Office released a report regarding the benefits provided by Medicare Advantage plans. The report highlighted how Medicare Advantage provides enhanced benefits and lower premiums to beneficiaries than traditional fee-for-service Medicare. Specifically, the study noted that nearly 70% of rebate payments provided to plans go directly toward reduced cost sharing for beneficiaries, with the remainder providing additional benefits and lower overall premiums.

While the GAO study generated headlines because it found that some plans in some situations may generate higher cost-sharing for beneficiaries, the true story remains the way in which private plans provide quality benefits and reduce costs for seniors, particularly low-income beneficiaries. If Congressional Democrats wish to object to so-called overpayments to Medicare Advantage plans, they should enact reforms allowing traditional Medicare to compete on a “level playing field” with private plans—which would generate downward pressure on health care costs and help Medicare remain financially viable.

Read the report here.

Article of Note: “One Cheer for the New York Times

Last week, the editorial board of the New York Times weighed in with its verdict on the President’s plan to address the funding warning issued by the Medicare trustees. The paper’s writers agree that Medicare’s funding mechanism needs reform, and think that the additional means-testing in the President’s proposal contains merit. However, the editorial also criticizes proposals for reform of medical liability laws, noting that Congress should instead “reduce the lavish and unjustified subsidies” provided to insurance plans offering Medicare Advantage coverage—or take the “sensible step” of letting the President’s tax relief expire.

While the Times’ writers at least acknowledged what some Congressional Democrats have not—namely, that Medicare needs serious reform if it is to remain financially viable—giving millions of Americans a tax increase will not resolve a problem caused by skyrocketing spending on health care. Nor will causing more than eight million Americans to lose the additional health benefits offered by Medicare Advantage plans improve the health of America’s seniors.

A better solution would transform Medicare into a health insurance system similar to that provided to Members of Congress, where beneficiaries receive a defined contribution from Medicare to select a plan of their choosing. That and other similar ideas for comprehensive reform—and not the tax increases and benefit cuts advocated by the Times—could finally begin to bring down health care costs and ensure Medicare’s long-term solvency.

Read the article here: New York Times: “Constraining the Medicare Debate