Legislative Bulletin: Updated Summary of Obamacare “Stability” Legislation

On Monday, Sen. Lamar Alexander (R-TN) and others introduced their latest version of an Obamacare “stability” bill. In general, the bill would appropriate more than $60 billion in funds to insurance companies, propping up and entrenching Obamacare rather than repealing it.

Also on Monday, the Congressional Budget Office released its analysis of the updated legislation. In CBO’s estimate, the bill would increase the deficit by $19.1 billion, while marginally increasing the number of insured Americans (by fewer than 500,000 per year).


Stability Fund
: Provides $500 million in funding for fiscal year 2018, and $10 billion in funding for each of fiscal years 2019, 2020, and 2021, for invisible high-risk pools and reinsurance payments. The $500 million this year would provide administrative assistance to states to establish such programs, with the $10 billion in each of the following three years maintaining them.

Grants the secretary of Health and Human Services (HHS), in consultation with the National Association of Insurance Commissioners, the authority to allocate the funds to states—which some conservatives may be concerned gives federal bureaucrats authority to spend $30.5 billion wherever they choose.

Includes a provision requiring a federal fallback for 2019 (and only 2019) in states that choose not to establish their own reinsurance or invisible high-risk program. Moreover, these federal fallback dollars must be used “for market stabilization payments to issuers.” Some conservatives may be concerned that this provision—which, like the rest of the $30 billion in “stability funds,” did not appear in the original Alexander-Murray legislation—undermines state flexibility, by effectively forcing states to bail out insurers, whether they want to or not.

Cost-Sharing Reduction Payments: The bill appropriates roughly $30-35 billion in cost-sharing reduction (CSR) payments to insurers, which subsidizes their provision of discounts on deductibles and co-payments to certain low-income individuals enrolled on insurance exchanges.

Last October, President Trump announced he would halt the payments to insurers, concluding the administration did not have authority to do so under the Constitution. As a result, the bill includes an explicit appropriation, totaling roughly $3-4 billion for the final quarter of 2017, and $9-10 billion for each of years 2019, 2020, and 2021, based on CBO spending estimates. This language represents a change from the original Alexander-Murray bill, which appropriated payments for 2018 and 2019 only.

For 2018, the bill appropriates CSRs only for 1) states choosing the Basic Health plan option (which gives states a percentage of Obamacare subsidies as a block grant to cover low-income individuals) and 2) insurers for which HHS determines, in conjunction with state insurance commissioners, that the insurer assumed the payment of CSRs when setting rates for the 2018 plan year. This language represents a change from the original Alexander-Murray bill, which set up a complicated system of rebates that would have allowed insurers potentially to pocket billions of dollars by retaining “extra” CSR payments for 2018.

Some conservatives may be concerned that, because insurers understood for well over a year that a new administration could terminate these payments in 2017, the agreement would effectively subsidize their flawed assumptions. Some conservatives may be concerned that action to continue the flow of payments would solidify the principle that Obamacare, and therefore insurers, are “too big to fail,” which could only encourage further risky behavior by insurers in the future.

Hyde Amendment: With respect to the issue of taxpayer dollars subsidizing federal insurance plans covering abortion, the bill does not apply the Hyde Amendment protections retrospectively to the 2017 CSR payments, or to the (current) 2018 plan year. With respect to 2019 through 2021, the bill prohibits federal funding of abortions, except in the case of rape, incest, or to save the life of the mother. However, the bill does allow states to use state-only dollars to fund other abortions, as many state Medicaid managed care plans do currently.

According to the pro-abortion Guttmacher Institute, with respect to coverage of abortions in state Medicaid plans:

  • 32 states and the District of Columbia follow the federal Hyde Amendment standard, funding abortion only in the cases of rape, incest, or to save the life of the mother;
  • One state provides abortion only in the case of life endangerment; and
  • 17 states provide coverage for most abortions—five voluntarily, and 12 by court order.

State Waiver Processes: The bill would streamline the process for approving state innovation waivers, authorized by Section 1332 of Obamacare. Those waivers allow states to receive their state’s exchange funding as a block grant, and exempt themselves from the individual mandate, employer mandate, and some (but not all) of Obamacare’s insurance regulations.

Specifically, the bill would:

  • Extend the waivers’ duration, from five years to six, with unlimited renewals possible;
  • Prohibit HHS from terminating waivers during their duration (including any renewal periods), unless “the state materially failed to comply with the terms and conditions of the waiver”;
  • Require HHS to release guidance to states within 60 days of enactment regarding waivers, including model language for waivers—a change from the 30 days included in the original Alexander-Murray bill;
  • Shorten the time for HHS to consider waivers from 180 days to 120—a change from 90 days in the original Alexander-Murray bill;
  • Allow a 45-day review for 1) waivers currently pending; 2) waivers for areas “the Secretary determines are at risk for excessive premium increases or having no health plans offered in the applicable health insurance market for the current or following plan year”; 3) waivers that are “the same or substantially similar” to waivers previously approved for another state; and 4) waivers related to invisible high-risk pools or reinsurance, as discussed above. These waivers would initially apply for no more than three years, with an extension possible for a full six-year term;
  • Allow governors to apply for waivers based on their certification of authority, rather than requiring states to pass a law authorizing state actions under the waiver—a move that some conservatives may be concerned could allow state chief executives to act unilaterally, including by exiting a successful waiver on a governor’s order.

State Waiver Substance: On the substance of innovation waivers, the bill would rescind regulatory guidance the Obama administration issued in December 2015. Among other actions, that guidance prevented states from using savings from an Obamacare/exchange waiver to offset higher costs to Medicaid, and vice versa.

While supporting the concept of greater flexibility for states, some conservatives may note that, as this guidance was not enacted pursuant to notice-and-comment, the Trump administration can revoke it at any time—indeed, should have revoked it last year. Additionally, the bill amends, but does not repeal, the “guardrails” for state innovation waivers. Under current law, Section 1332 waivers must:

  • “Provide coverage that is at least as comprehensive as” Obamacare coverage;
  • “Provide coverage and cost-sharing protections against excessive out-of-pocket spending that are at least as affordable” as Obamacare coverage;
  • “Provide coverage to at least a comparable number of [a state’s] residents” as under Obamacare; and
  • “Not increase the federal deficit.”

Some conservatives have previously criticized these provisions as insufficiently flexible to allow for conservative health reforms like Health Savings Accounts and other consumer-driven options.

The bill allows states to provide coverage “of comparable affordability, including for low-income individuals, individuals with serious health needs, and other vulnerable populations” rather than the current language in the second bullet above. It also clarifies that deficit and budget neutrality will operate over the lifetime of the waiver, and that state innovation waivers under Obamacare “shall not be construed to affect any waiver processes or standards” under the Medicare or Medicaid statutes for purposes of determining the Obamacare waiver’s deficit neutrality.

The bill also makes adjustments to the “pass-through” language allowing states to receive their exchange funding via a block grant. For instance, the bill adds language allowing states to receive any funding for the Basic Health Program—a program states can establish for households with incomes of between 138-200 percent of the federal poverty level—via the block grant.

Some conservatives may view the “comparable affordability” change as a distinction without a difference, as it still explicitly links affordability to Obamacare’s rich benefit package. Some conservatives may therefore view the purported “concessions” on the December 2015 guidance, and on “comparable affordability” as inconsequential in nature, and insignificant given the significant concessions to liberals included elsewhere in the proposed legislative package.

Catastrophic Plans: The bill would allow all individuals to purchase “catastrophic” health plans, beginning in 2019. The legislation would also require insurers to keep those plans in a single risk pool with other Obamacare plans—a change from current law.

Catastrophic plans—currently only available to individuals under 30, individuals without an “affordable” health plan in their area, or individuals subject to a hardship exemption from the individual mandate—provide no coverage below Obamacare’s limit on out-of-pocket spending, but for “coverage of at least three primary care visits.” Catastrophic plans are also currently subject to Obamacare’s essential health benefits requirements.

Outreach Funding: The bill requires HHS to obligate $105.8 million in exchange user fees to states for “enrollment and outreach activities” for the 2019 and 2020 plan years—a change from the original legislation, which focused on the 2018 and 2019 plan years. Currently, the federal exchange (healthcare.gov) assesses a user fee of 3.5 percent of premiums on insurers, who ultimately pass these fees on to consumers.

In a rule released in December 2016, the outgoing Obama administration admitted that the exchange is “gaining economies of scale from functions with fixed costs,” in part because maintaining the exchange costs less per year than creating one did in 2013-14. However, the Obama administration rejected any attempt to lower those fees, instead deciding to spend them on outreach efforts. The agreement would re-direct portions of the fees to states for enrollment outreach.

Some conservatives may be concerned that this provision would create a new entitlement for states to outreach dollars. Moreover, some conservatives may object to this re-direction of funds that ultimately come from consumers towards more government spending. Some conservatives may support taking steps to reduce the user fees—thus lowering premiums, the purported intention of this “stabilization” measure—rather than re-directing them toward more government spending, as the agreement proposes.

The bill also requires a series of biweekly reports from HHS on metrics like call center volume, website visits, etc., during the 2019 and 2020 open enrollment periods, followed by after-action reports regarding outreach and advertising. Some conservatives may view these myriad requirements first as micro-management of the executive, and second as buying into the liberal narrative that the Trump administration is “sabotaging” Obamacare, by requiring minute oversight of the executive’s implementation of the law.

Cross-State Purchasing: Requires HHS to issue regulations (in consultation with the National Association of Insurance Commissioners) within one year regarding health care choice compacts under Obamacare. Such compacts would allow individuals to purchase coverage across state lines.

However, because states can already establish health care compacts amongst themselves, and because Obamacare’s regulatory mandates would still apply to any such coverage purchased through said compacts, some conservatives may view such language as insufficient and not adding to consumers’ affordable coverage options.

Consumer Notification: Requires states that allow the sale of short-term, limited duration health coverage to disclose to consumers that such plans differ from “Obamacare-approved” qualified health plans. Note that this provision does not codify the administration’s proposed regulations regarding short-term health coverage; a future Democratic administration could (and likely will) easily re-write such regulations again to eliminate the sale of short-term plans, as the Obama administration did in 2016.

CBO Analysis of the Legislation

As noted above, CBO believes the legislation would increase the deficit by $19.1 billion, while increasing the number of insured Americans marginally. In general, while CBO believed that changes to Obamacare’s state waivers program would increase the number of states applying for waivers, they would not have a net budgetary impact.

However, the bill does include one particular change to Obamacare Section 1332 waivers allowing existing waiver recipients to request recalculation of their funding formula. According to CBO, only Minnesota qualifies under the statutory definition, and could receive $359 million in additional funding between 2018 and 2022. Some conservatives may be concerned that this provision represents a legislative earmark that by definition can only affect one state.

With respect to the invisible high-risk pools and reinsurance, CBO believes the provisions would raise spending by a net of $26.5 billion, offset by higher revenues of $7 billion. The budget office estimated that the entire country would be covered by the federal fallback option in 2019, because “it would be difficult for other states [that do not have waivers currently] to establish a state-based program in time to affect premiums.”

For 2020 and 2021, CBO believes that 60 and 80 percent of the country, respectively, would be covered by state waivers; “the remainder of the population in those years would be without a federally-funded reinsurance program or invisible high-risk pool.” The $7 billion in offsetting savings referenced in CBO’s score comes from lower premiums, and thus lower spending on federal premium subsidies. In 2019, CBO believes “about 60 percent of the federal cost for the default federal reinsurance program would be offset by other sources of savings.”

CBO believes that, under the bill, premiums would be 10 percent lower in 2019, and 20 percent lower in 2020 and 2021, compared to current law. Some conservatives may note that lower premiums relative to current law does not equate to lower premiums relative to 2018 levels. Particularly because CBO expects elimination of the individual mandate tax will raise premiums by 10 percent in 2019, many conservatives may doubt that premiums will go down in absolute terms, notwithstanding the sizable spending on insurer subsidies under the bill.

CBO noted that premium changes would largely affect unsubsidized individuals—i.e., families with incomes more than four times the federal poverty level ($100,400 for a family of four in 2018)—a small portion of whom would sign up for coverage as a result of the reductions. However, “in states that did not apply for a waiver, premiums would be the same under current law as under the legislation starting in 2020.”

Moreover, even in states with a reinsurance waiver, CBO believes that insurers will “tend to set premiums conservatively to hedge against uncertainty” regarding the reinsurance programs—meaning that CBO “expect[s] that total premiums would not be reduced by the entire amount of available federal funding.”

As noted in prior posts, CBO is required by law to assume full funding of entitlement spending, including cost-sharing reductions. Therefore, the official score of the bill included no net budget impact for the CSR appropriation. However, Alexander received a supplemental letter from CBO indicating that, compared to a scenario where the federal government did not make CSR payments, appropriating funds for CSRs would result in a notional deficit reduction of $29 billion.

The notional deficit reduction arises because, in the absence of CSR payments, insurers would “load” the cost of reducing cost-sharing on to health insurance premiums—thus raising premium subsidies for those who qualify for them. CBO believes these higher subsidies would entice more families with incomes between two and four times the federal poverty definition ($50,200-$100,400 for a family of four in 2018) to sign up for coverage. Compared to a “no-CSR” baseline, appropriating funds for CSRs, as the bill would do, would reduce spending on premium subsidies, but it would also increase the number of uninsured by 500,000-1,000,000, as some families receiving lower subsidies would drop coverage.

Lastly, the expanded sale of catastrophic plans, coupled with provisions including those plans in a single risk pool, would slightly improve the health of the overall population purchasing Obamacare coverage. While individuals cannot receive federal premium subsidies for catastrophic coverage, enticing more healthy individuals to sign up for coverage will improve the exchanges’ overall risk pool slightly, lowering federal spending on those who do qualify for exchange subsidies by $849 million.

This post was originally published at The Federalist.

Exclusive: Congress Should Investigate, Not Bail Out, Health Regulators Who Risked Billions

What if a group of regulators were collectively blindsided by a decision that cost their industry billions of dollars? One might think Congress would investigate the causes of this regulatory debacle, and take steps to ensure it wouldn’t repeat itself.

Think again. President Trump’s October decision to terminate cost-sharing reduction (CSR) subsidy payments to health insurers will inflict serious losses on the industry. For October, November, and December, insurers will reduce deductibles and co-payments for certain low-income exchange enrollees, but will not receive reimbursement from the federal government for doing so. America’s Health Insurance Plans, the industry’s trade association, claimed in a recent court filing that insurance carriers will suffer $1.75 billion in losses over the remainder of 2017 due to the decision.

As Dave Anderson of Duke University recently noted, the “hand grenade” of stopping the cost-sharing reduction payments, “if it was thrown in January or February of this year, would have forced a lot of carriers to do midyear exits and it would have destroyed the exchanges in some states.” Yet Congress has asked not even a single question of regulators why they did not anticipate and plan for this scenario—a recipe for more costly mistakes in the future.

A Brewing Legal and Political Storm

The controversy surrounds federal payments that reimburse insurers for lower deductibles, co-payments, and out-of-pocket expenses for qualifying low-income households purchasing exchange coverage. While the text of Obamacare requires the U.S. Department of Health and Human Services to establish a program to reimburse insurers for providing the discounts, it nowhere includes an explicit appropriation for such spending.

As the exchanges launched in 2014, the Obama administration began making CSR payments to insurers. However, later that year, the House of Representatives, viewing a constitutional infringement on its “power of the purse,” sued to stop the executive from making the payments without an explicit appropriation. In May 2016, Judge Rosemary Collyer ruled the payments unconstitutional absent an express appropriation from Congress.

The next President could easily wade into this issue. Say a Republican is elected and he opts to stop the Treasury making payments related to the subsidies absent an express appropriation from Congress. Such an action could take effect almost immediately….It’s a consideration as carriers submit their bids for next year that come January 2017, the policy landscape for insurers could look far different.

One week after my article, Collyer issued her ruling calling the subsidy payments unconstitutional. At that point, CSR payments faced threats from both the legal and political realms. On the legal front, the ongoing court case could have resulted in an order terminating the payments. On the political side, the new administration would have the power to terminate the payments unilaterally—and it does not appear that either Hillary Clinton or Trump ever publicly committed to maintaining the payments upon taking office.

Yet Commissioners Stood Idly By

In the midst of this gathering storm, what actions did insurance commissioners take last year, as insurers filed their rates for the 2017 plan year—the plan year currently ongoing—to analyze whether cost-sharing payments would continue, and the effects on insurers if they did not? About a week before the Trump administration officially decided to halt the payments, I submitted public records requests to every state insurance commissioner’s office to find out.

Two states (Indiana and Oregon) are still processing my requests, but the results from most other states do not inspire confidence. Although a few states (Illinois, Utah, and California’s Department of Managed Health Care) withheld documents for confidentiality or logistical reasons, I have yet to find a single document during the filing process for the 2017 plan year contemplating the set of circumstances that transpired this fall—namely, a new administration cutting off the CSR payments.

In many cases, states indicated they did not, and do not, question insurers’ assumptions at all. North Dakota said it does not dictate terms to carriers (although the state did not allow carriers to re-submit rates for the 2018 plan year after the administration halted the CSR payments in October). Wyoming said it did not issue guidance to carriers on CSRs “because that’s not how we roll.” Missouri did not require its insurers to file 2017 rates with regulators, so it would have no way of knowing those insurers’ assumptions.

Other states admitted that they did not consider the possibility that the incoming administration would, or even could, terminate the CSR payments. North Carolina said it did not think the court case was relevant, or that cost-sharing reduction payments would be an issue. Massachusetts’ insurance Connector (its state-run exchange) responded that “there was no indication that rates for 2017 were affected by the pendency of House v. Burwell,” the case Collyer ruled on in May 2016.

Despite the ongoing court case and the deep partisan disputes over Obamacare, many commissioners’ responses indicate a failure to anticipate difficulties with cost-sharing reduction payments. Mississippi stated that, during the filing process for 2017, “CSRs weren’t a problem then, as they were being funded.” Minnesota added that “it was not until the spring of 2017 that carriers started discussing the threat [of CSR payments being terminated] was a real possibility.” Nebraska stated that “I don’t think that there’s anyone who allowed for the possibility of non-payment of CSRs for plan year 2017. We were all waiting for Congress to act.”

However, as an e-mail sent by the National Association of Insurance Commissioners (NAIC) to state regulators demonstrates, federal authorities at the Centers for Medicare and Medicaid Services (CMS) stated their “serious concerns” with the Texas and New Mexico proposals. Federal law requires insurers to reduce cost-sharing for qualifying beneficiaries, regardless of the status of the reimbursement program, and CMS believed the contingency language—which never went into effect in either Texas or New Mexico—violated that requirement.

In at least one case, an insurer raised premiums to reflect the risk that CSR payments could disappear in 2017. Blue Cross Blue Shield of Montana submitted such request to that state’s insurance authorities. However, regulators rejected “contingent CSR language”—apparently an attempt to cancel the reduced cost-sharing if reimbursement from Washington was not forthcoming, a la the Texas and New Mexico proposals. The insurance commissioner’s office also objected to the carrier’s attempt to raise premiums over the issue: “We will not allow rates to be increased based on speculation about outcomes of litigation.”

Of course, had insurers requested, or had regulators either approved or demanded, premium increases last year due to uncertainty over cost-sharing reduction payments, they would not now face the prospect of over $1 billion in losses due to non-payment of CSRs for the last three months of 2017. But had regulators approved even higher premium increases last year, those increases likely would have caused political controversy during the November elections.

As it was, news of the average 25 percent premium increase for 2017 gave Trump a political cudgel to attack Clinton in the waning days of the campaign. One can certainly question why Democratic insurance commissioners who did not utter a word about premium increases and CSR “uncertainty” during Clinton’s campaign suddenly discovered the term the minute Trump was elected president.

However, at least some ardent Obamacare supporters just did not anticipate a new administration withdrawing cost-sharing reduction payments. Washington state’s commissioner, Mike Kreidler, published an op-ed last October regarding the House v. Burwell court case. He did so at the behest of NAIC consumer representative Tim Jost, who wanted to cite Kreidler’s piece in an amicus curiae brief during the case’s appeal. But despite their focus on the court case regarding CSRs, it appears neither Jost nor Kreidler ever contemplated a new administration withdrawing the payments in 2017.

Congressional Oversight Needed

The evidence suggests that not a single insurance commissioner considered the impact of a new administration withdrawing cost-sharing reduction payments in 2017, a series of decisions that put the entire health of the individual insurance market at risk. What policy implications follow from this conclusion?

First, it undercuts the effectiveness of Obamacare’s “rate review” process. That mechanism requires states to evaluate “excessive” premium increases. However, the program’s evaluation criteria do not explicitly include policy judgments such as those surrounding CSRs. Moreover, the political focus on lowering “excessively” high premium increases might result in cases where regulators approve premium rates set inappropriately low—as happened in 2017, where no carriers priced in a contingency margin for the termination of CSR payments, yet those payments ceased in October.

As noted above, Montana’s regulators called out that state’s Blue Cross Blue Shield affiliate for proposing a rate increase relating to CSR uncertainty. The state’s insurance commissioner, Monica Lindeen, issued a formal “letter of deficiency” in which she stated that “raising rates on the basis of this assumption [i.e., loss of cost-sharing reduction payments] is unreasonable.” But events proved Lindeen wrong—those payments did disappear in 2017. Yet the insurer in question has no recourse after their assumptions proved more accurate than Lindeen’s—nor, for that matter, will Lindeen face any consequences for the “unreasonable” assumptions she made.

Second, it suggests an inherent tension between state authorities and Washington. Several regulators specifically said they looked to CMS’ advice on the cost-sharing reduction issue. Iowa requested guidance from Washington, and Wisconsin said the status of the payments was “out of our hands.” But given the impending change of administrations, any guidance CMS provided in the spring or summer of 2016 was guaranteed to remain valid only through January 20, 2017—a problem for regulators setting rates for the 2017 plan year.

Obamacare created a new layer of federal oversight—and federal policy—surrounding regulation of insurance, which heretofore had laid primarily within the province of the states. The CSR debacle resulted from the conflict between those two layers. Unless and until our laws reconcile those tensions—in conservatives’ case, by repealing the Obamacare regime and returning regulation to the states, or in liberals’ preferred outcome, by centralizing more regulatory authority in Washington—these conflicts could well recur.

Third, and perhaps most importantly, it should spark Congress to examine state oversight of health insurance in greater detail. The fact that insurance commissioners escaped the equivalent of a Category 5 hurricane—the withdrawal of CSR payments in January—and struggled through a mere tropical storm with payments withdrawn in October instead, had no relevance on their regulatory skill—to the contrary, in fact.

Unfortunately, Congress has demonstrated little interest in examining why the regulatory apparatus fell so short. The same Democratic Party that investigated regulators and bankers following the financial crisis has shown little interest in questioning why insurers and insurance regulators failed to anticipate the end of cost-sharing reduction payments. With their focus on getting Congress to appropriate funds restoring the CSR payments President Trump terminated, insurance commissioners’ lack of planning and preparation represents an inconvenient truth that Democrats would rather ignore.

Likewise, Republicans who wish to appropriate funds for the cost-sharing reduction payments have no interest in examining the roots of the CSR debacle. In September, Sen. Lamar Alexander (R-TN) convened a hearing of the Health, Education, Labor, and Pensions (HELP) Committee to take testimony from insurance commissioners on “stabilizing” insurance markets.

At the hearing, Alexander did not ask the commissioners why they did not predict the “uncertainty” surrounding cost-sharing reductions last year. HELP Committee Ranking Member Patty Murray (D-WA) asked Kreidler, her state’s insurance commissioner, about regulators’ “guessing games” regarding the status of CSRs with regard to the 2018 plan year. But neither she nor any of the members asked why those regulators made such blind and ultimately incorrect assumptions last year, by not even considering a scenario where CSR payments disappeared during the 2017 plan year.

Alexander and Murray claim the legislation they developed following the hearing, which would appropriate CSR funds for two years, does not represent a “bailout” for the insurance industry. But the fact remains that last fall, when preparing for the 2017 plan year, insurance regulators dropped the ball in a big way.

Ignoring their inaction, and appropriating funds for cost-sharing reductions without scrutinizing their conduct, would effectively bail out insurance commissioners’ own collective negligence. Congress should think twice before doing so, because next time, a regulatory debacle could have an even bigger impact on the health insurance industry—and on federal taxpayers.

This post was originally published at The Federalist.

Four Questions about the Alexander-Murray Bill

Upon its unveiling last week, the health insurance “stabilization” measure drafted by Senate Health, Education, Labor, and Pensions Committee Chairman Lamar Alexander (R-TN) and Ranking Member Patty Murray (D-WA) received praise from some lawmakers. For instance, Sen. John McCain (R-AZ) stated that “health care reform ought to be the product of regular order in the Senate, and the bill [the sponsors] introduced today is an important step towards that end.”

Unfortunately, the process to date has not resembled the “regular order” its sponsors have claimed. Drafted behind closed doors, by staff for a committee with only partial jurisdiction over health care, the bill’s provisions remained in flux as of last week. Moreover, the bill apparently will not undergo a mark-up or other committee action before the bill is either considered on the Senate floor—or, as some have speculated, “air-dropped” into a massive catch-all spending bill, where it will receive little to no legislative scrutiny.

Why didn’t Alexander know his bill provided taxpayer funding of abortion coverage?

Following my article last week highlighting how the cost-sharing reduction payments appropriated in the legislation would represent taxpayer funding of plans that cover abortion, a reporter for the Catholic-run Eternal Word Television Network interviewed senators Alexander and Murray (along with myself) about the issue.

Alexander told reporter Jason Calvi that he “hadn’t discussed” the life issue with staff, indicating he had little inkling of the effects of the legislation he sponsored:

Alexander then claimed that “I’m sure the president will address” the abortion funding issue. But executive action—which a future president can always rescind—is no substitute for legislative language. The pro-life community derided President Obama’s executive order designed to segregate abortion payments and federal funding as an accounting sham.

As I wrote in June, Republican leaders—including Senate leader Mitch McConnell (R-KY), and Mike Pence, the current vice president—clearly noted during debates on Obamacare that the law would provide for taxpayer funding of abortion coverage. The Alexander-Murray bill would do likewise unless and until the legislation includes an explicit ban on abortion funding.

Who inserted the earmark for Minnesota into the legislation?

Call it the “Klobuchar Kickback,” call it the “Golden Gopher Giveaway,” but Section 2(b) of the bill contains provisions relevant only to Minnesota. Specifically, that provision would allow a state’s basic health program—which states can establish for individuals with incomes between 133 and 200 percent of the federally defined poverty level—to receive “pass-through” block grant funding under a waiver.

Currently, only New York and Minnesota have implemented basic health programs, and of those two states, only Minnesota has also sought a state innovation waiver under Obamacare. Last month, the federal Centers for Medicare and Medicaid Services (CMS), in approving Minnesota’s application for an innovation waiver, said it could not allow the state to receive “pass through” funds equal to spending on the basic health program, because the statute did not permit such an arrangement. The Alexander-Murray bill would explicitly permit basic health program spending to qualify for the “pass through” arrangement, allowing Minnesota—the only state with such an arrangement—to benefit.

Will a committee mark up the Alexander-Murray bill?

Alexander notably demurred on this topic when asked last week. One reason: As Politico has noted, it remains unclear whether or the extent to which Alexander’s committee has jurisdiction over the legislation he wrote. Revisions to the Obamacare state innovation waiver process comprise roughly half of the 26-page bill, yet the Senate HELP Committee shares jurisdiction over those matters with the Senate Finance Committee, whose chairman has derided legislation giving cost-sharing payments to insurers as a “bailout.”

Even as he praised the Alexander-Murray bill as a return to “regular order,” McCain—himself a committee chairman—doubtless would take issue with another committee “poaching” the Senate Armed Services panel’s jurisdiction, or failing to hold a mark-up entirely. Yet the process regarding the Alexander-Murray bill could include two noteworthy legislative “shortcuts”—which some may view as a deviation from “regular order.”

Are HELP Committee staff still re-writing the legislation?

A close review of the documents indicates that HELP Committee staff made changes to the bill even after Alexander and Murray announced their agreement last Tuesday. The version of the bill obtained by Axios and released last Tuesday evening—version TAM17J75, per the notation made in the top left corner of the bill text by the Office of Legislative Counsel—differs from the version (TAM17K02) publicly released by the HELP Committee on Thursday.

The revisions to the legislation, coupled with Alexander’s apparent lack of understanding regarding its implications, raise questions about what other “surprises” may lurk within its contents. For all the justifiable complaints regarding the lack of transparency over Republicans’ “repeal-and-replace” legislation earlier this year, the process surrounding Alexander-Murray seems little changed—and far from “regular order.”

This post was originally published at The Federalist.

Morning Bell: The Obamacare Scams Are Already Starting

Heritage warned that the new Obamacare insurance exchanges could threaten your privacy—and it’s already happening, before the exchanges are even open.

In a new report, the House Oversight and Government Reform Committee presented these shocking findings:

there are already numerous reports of scam artists posing as Navigators and Assisters to take advantage of people’s confusion about ObamaCare. According to recent news reports, scam artists are calling individuals and asking for information to sign them up for their “ObamaCare card,” are asking seniors for their personal information to verify their Medicare and Social Security status and are going door-to-door threatening people with prison time if they do not sign up on the spot. The Administration is keenly aware of these reports and concerns, but has thus far failed to take appropriate measures.

Even when it’s not malicious, the new Obamacare system—employing “navigators” who aren’t run through background checks or adequately trained—opens up a host of opportunities for identity theft. Last week, an employee of Minnesota’s insurance exchange (MNsure) emailed out the names and Social Security numbers of 2,400 insurance agents. The insurance broker who received the email said, “If this is happening now, how can clients of MNsure be confident their data is safe?”

Indeed.

The Oversight Committee reports that the exchange system thus far is a combination of shoddy planning and bad incentives. Navigators, who are supposed to help people sign up for the exchanges, are allowed to be paid based on the number of people they enroll in Obamacare.

California’s insurance commissioner—a Democrat and strong supporter of Obamacare—raised concerns that navigators would put consumers at risk for scams: “We can have a real disaster on our hands.”

The exchanges don’t open for business until October 1, but Obamacare has already led to the release of highly sensitive personal information for thousands—and the lack of planning makes it ripe for scams. Nothing about this law is working the way it was advertised, which is why the House is voting today to defund Obamacare (while still funding normal government functions). Next week, Senators will have a chance to do the same—protect their constituents from the ravages of Obamacare.

This post was originally published at The Daily Signal.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

 

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

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

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

Health Savings Account Plan Enrollment

This week, the Government Accountability Office (GAO) released a study requested by Reps. Henry Waxman and Pete Stark with additional data on take-up and enrollment in Health Savings Accounts (HSAs).  In addition, America’s Health Insurance Plans (AHIP) released a new report reflecting enrollment in HSAs as of January 2008.  In response to these two reports, the RSC has prepared the following document rebutting criticisms propounded by the Democrats who requested the GAO study, and summarizing the news released by AHIP about HSAs’ growing popularity.

Democrat Criticisms Based on GAO Report

Criticism:  Because contributions to HSAs are significantly exceeding withdrawals from the accounts, Health Savings Accounts can therefore be considered a “tax shelter.”

Response:

  • The GAO report found that in 2005, tax filers contributed $754 million to HSAs, while withdrawing $366 million, or about half the total contribution figure, to pay various expenses.
  • The point of HSAs is to allow individuals to save money tax-free for health care expenses. Therefore, many conservatives would view the net $388 million in savings as positive news—because that money is being saved to pay for long-term and catastrophic health care expenses, rather than being used on high-cost, first-dollar insurance coverage with benefits that individuals may never use.
  • GAO also cited various employer surveys noting that employers are placing $600-800 annually in their workers’ HSAs to pay for health expenses.
  • Some conservatives may believe that, had total withdrawals nearly equaled total contributions, Democrats would instead be objecting that individuals are not saving enough funds in their HSAs to cover unexpected health expenses under a high-deductible health insurance plan.

Criticism:  Because HSA account holders reported higher incomes than other tax filers, HSAs are being used primarily by wealthy individuals and families.

Response:

  • The data in the GAO study leading to this conclusion reflect information from tax year 2005—when there were just over one million covered lives in HSAs.
  • Since the point in time captured by GAO, Health Savings Accounts have grown nearly six-fold, and now encompass more than six million covered lives.
  • The small sample size available in 2005 may have incorporated a disproportionate number of holders of Medical Savings Accounts (MSAs), who converted their accounts into HSAs upon their creation in early 2004. Because MSAs were only available to self-employed individuals and small business owners—who would have higher incomes than the general population—it is perhaps unsurprising that the incomes of these “early adopters” would be higher than all tax filers.
  • However, eHealthInsurance, an online broker of health insurance policies nationwide, has released a report based on its sales of HSA policies in 2005, which found that 45% of HSA-eligible plan purchasers earned less than $50,000 annually—and 41% of HSA purchasers had not previously had health insurance coverage in the prior six months.
  • Because the data on “all tax filers” included both Medicare and Medicaid recipients—many of whom have significantly lower incomes than the average tax filer, and none of whom are eligible to make HSA contributions—the GAO report did not provide an “apples-to-apples” comparison of the incomes of those individuals who purchase HSAs and those who choose other forms of private insurance.
  • The GAO report did not provide context on the relative incomes for individuals who use other tax-favored accounts, such as those for college savings. Without that contextual data, it is difficult to determine whether and how HSAs are being improperly used when compared to similar tax-favored savings vehicles.

Criticism:  Many individuals who take out HSA-eligible plans are never opening Health Savings Accounts—leaving them vulnerable to high expenses in the event of a health care emergency.

Response:

  • The GAO study quoted various studies stating that 42-49% of HSA-eligible plan enrollees had not opened an HSA.
  • However, the study confuses the difference between covered lives in an HSA-eligible plan and the number of accounts opened. For many reasons, the two numbers will never be equal, or even nearly equal—dependent children covered on their parents’ HSA-eligible plan cannot open their own account, and some spouses may choose to operate a shared account rather than two distinct ones.

Growth of Health Savings Accounts

Both the GAO study and the report released by AHIP this week confirm that Health Savings Accounts have appreciably grown in popularity since their introduction in 2004.  Relevant points include the following:

  • The number of HSA covered lives has grown from 438,000 in September 2004 to more than 4.5 million in January 2007—and 6.1 million in January 2008.
  • The growth in enrollment from January 2007 to January 2008 represents a 35% increase in the number of HSA covered lives in a single year.
  • Of the nearly 1.6 million newly covered lives, almost half were in the small group market—a particularly compelling statistic, given the difficulties many small businesses have in offering health insurance to their employees.
  • States such as Louisiana and Minnesota, along with the District of Columbia, are seeing HSA-eligible policies approaching 10% of all enrollment in private health insurance.
  • HSAs provide quality health insurance above the high deductible—the average lifetime maximum benefit exceeds $3 million for many policies, and anywhere from one-fifth to one-third of policies have unlimited lifetime maximum benefits.
  • The average HSA account balance is $1,382—significant savings that can be used to pay for health expenses.

Conclusion:  Despite the comments released by the Democrats who requested the GAO study, many conservatives will be pleased by much of the data in the report.  The study demonstrates that individuals and families are compiling real savings in their Health Savings Accounts—money that may otherwise have been sent to an insurance company to pay higher premiums for benefits that they may never have used.  Instead, consumers are creating savings to pay for catastrophic health care expenses, and becoming wiser shoppers when purchasing incidental medical goods and services, which will help to slow the growth of health care spending.

The dramatic and continued increase in HSA adoption over the past four years demonstrates the resonance which this new concept has had on individuals and families alike.  The significant growth in HSA adoption among small businesses—where many of the “working uninsured” are employed—and the contributions made to HSAs by a strong percentage of employers indicate their widespread popularity as a means for businesses to control the growth of health care spending while empowering their workers to make better health decisions.  For these reasons, many conservatives will continue to support actions that allow HSAs to grow and thrive, while opposing actions by Democrats—either through legislative fiat or unnecessary regulatory burdens—to undo this critical health care innovation.