Consumer Power Report: How Obamacare Targets Consumer-Directed Health Plans

Consumer Power Report: How Obamacare Targets Consumer-Directed Health Plans
December 12, 2011

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Many folks have been asking questions regarding the impact the medical loss ratio (MLR) rule released last week will have on health savings accounts and high-deductible health plans. Follow up by David Hogberg at Investor’s Business Daily raises more questions. He writes:

A new Obama administration rule could drive out of the market the low-cost, high-deductible plans that are supposed to be available under ObamaCare. That would likely mean a sharp jump in taxpayer subsidies.

The problem stems in large part from contradictions in the hastily written health care overhaul.

Starting in 2012, ObamaCare requires insurers in the individual or small group (small business) market to spend at least 80% of premiums on medical costs, leaving 20% for salaries, advertising, fraud prevention, profit, etc. For large groups, this medical loss ratio (MLR) must be 85%. But another section of the law establishes the actuarial value of plans that can be sold on exchanges, which will cater to individuals and small groups. A bronze plan is allowed to have an actuarial value of 60%, meaning the insurer pays 60% of health care costs and the policyholder 40%. A silver plan can have a 70% value. Lower-actuarial plans tend to have lower MLR requirements.

Insurers offering bronze and silver plans must meet the 80% MLR under the final rule issued by the Department of Health and Human Services this week.

The MLR issue hinges on the requirement within Obamacare that forces insurers to spend no more than 20 percent of each insurance premium on non-health care costs in the small group and individual market, and 15 percent in the large-employer market. Shorthand: It’s basically a hard cap for insurers’ profits, which is odd, not just because such a thing is fundamentally un-American, but because insurers are not very profitable to begin with – averaging about 4 percent in profit.

One of the key questions in advance of the administration’s rule was whether HHS would allow for consumer-directed health plans – high-deductible health plans + HSAs, a combo package that is steadily increasing in popularity (passing 10 million people last year despite being gutted in some respects by other rules within Obamacare) – to even exist within the government-managed marketplace of the exchanges.

Dan Perrin of the HSA Coalition has an answer, and it’s not good:

For example, the health savings account qualified health plan, and other health plans with healthy deductibles, cannot meet the MLR limits set by the rule. Not because HSA qualified plans are inherently incapable of meeting the MLR limits, but because the rules of how MLR is computed discriminates against HSAs and other health plans with higher deductibles. How does the MLR rule discriminate against bronze plans and HSAs? Here’s how: any payment for a health care service below the deductible by an individual or family does not count in the weird and bizarre world of the government bureaucrats’ MLR. Payments for health care services by insurers do count, but not payments by individuals.

To repeat, just so everyone is clear: If an insurer pays for a health care service for their insured, the MLR rule counts that in their MLR rule. But if an individual pays for a health care service to meet their deductible, the MLR rule does not count that expenditure. Only five percent of those with an HSA qualified health plan in a year have any claims paid by their insurance. Therefore, it is a mathematical impossibility for HSAs to meet the MLR limits when the new HHS rule allows only five percent of HSA payments for health care services to count towards their MLR limit.

HSAs were essentially the only thing conservatives got out of the passage of Medicare Part D, and their ability to survive continued nibbling from the feds in the past three years is a testament to their popularity. The left continues to argue that one of the reasons Obamacare is unpopular (roughly 34 percent support in the most recent poll) is that all its wonderful benefits haven’t kicked in yet; I continue to argue the reverse is true. Once the rules start to really impact the marketplace, where you arbitrarily take popular plans away from people who were promised they could keep them, I expect this law to become even less popular.

-- Benjamin Domenech


IN THIS ISSUE:


MISSOURI: PUT HEALTH EXCHANGES UP FOR A VOTE IN NOVEMBER 2012

Now here’s a novel idea from Missouri state Sen. Rob Schaaf:

Senator Rob Schaaf, R-St. Joseph is hoping to prohibit health care exchange.

He recently pre-filed SB 464, which would prohibit the establishment, creation, or operation of a state-based health insurance exchange, unless the legislature or an act of the people, such as an initiative petition or referendum, created it, according to a press release.

Health insurance exchanges are required under the federal Patient Protection and Affordable Care Act, which will be considered during the upcoming 2012 legislative session.

The law permits each state to create its own health insurance exchange, or join an exchange with neighboring states; however, states that choose not to create their own must participate in one created by the federal Department of Health and Human Services.

Senate Bill 464, if approved by the General Assembly, would be submitted to the voters for approval in November 2012.

SOURCE: St. Joe Channel


NEW HAMPSHIRE: STATE HOSPITALS CAN’T SUE OVER MEDICAID

So providers can appeal only to the godhead of Kathleen Sebelius, apparently:

Senior Assistant Attorney General Nancy Smith argued yesterday the law does not allow the state’s reimbursement rates to be challenged in the courts.

“The hospitals have no recourse? There’s no court they can be heard in? ... That just seems to be an odd perception,” said U.S. District Court Judge Steven McAuliffe, who later referenced Marbury v. Madison, the landmark 1803 case establishing judicial review.

Smith said Congress set up the Medicaid system as a partnership between the federal government and the state. The law instead directs hospitals to appeal the rates to the Secretary of the U.S. Department of Health and Human Services, she said.

“That is the sole remedy that Congress sets out,” she said.

McAuliffe pressed Smith on whether part of the state’s argument includes a belief that it can set Medicaid reimbursements solely for its own “financial convenience.”

“You’re not arguing that, are you? Seriously?” McAuliffe asked.

Smith said she was.

“Yes, it can be the sole factor but we’re not saying it is the sole factor,” she said.

Read the whole thing.

SOURCE: Concord Monitor


NORTH CAROLINA: NO CUTBACKS ON IN-HOME CARE

Consider this the flip side of the above story:

A federal judge has stopped the state from ending services for some Medicaid recipients who receive in-home care.

The decision is a victory for elderly and disabled people who need personal care services. But it will likely dip the state’s Medicaid budget, already short $139 million, deeper into red ink.

The state Department of Health and Human Services said it would appeal the ruling.

The state had increased eligibility requirements for personal care services, so that to qualify recipients would need limited help with three “activities of daily living” such as bathing, dressing and eating, rather than two.

About a dozen residents sued in federal court to stop the cut, arguing the state was violating the federal law by setting higher standards for Medicaid recipients receiving care in their homes than it did for people living in adult care homes. U.S. District Court Judge Terrence W. Boyle granted an injunction Wednesday that stopped the state from using the new rules.

“This is good news,” said Vicki Smith, executive director of Disability Rights North Carolina, one of the groups representing in-home care recipients. “This is a minimum level of service that will make a concrete difference for these individuals and their families.”

The decision, however, could put another ding in the state’s Medicaid budget.

Squeezing providers or squeezing states – which do you prefer?

SOURCE: Newsobserver.com


FLORIDA: SCOTT AIDES DEFEND MEDICAID CUTS

Cuts like these are troubling many states:

Gov. Rick Scott’s proposal to pay less to hospitals to control spiraling Medicaid costs drew skepticism from some lawmakers and hostility from hospitals Thursday.

Scott’s plan is central to his $66 billion budget proposal, and ensures that his own history as CEO of a for-profit hospital chain that paid a record $1.7 billion in fines for Medicare fraud would attract new attention.

Explaining Scott’s plan to legislators, senior aides touted the governor’s background as having built Columbia/HCA into the nation’s biggest and most profitable hospital network.

“The governor operated 343 hospitals,” Scott budget director Jerry McDaniel told the Senate Budget Committee. “He was very successful at it. He said his best paying clients were Medicaid and Medicare. He loved serving those populations. He was able to make a lot of money doing that. But unfortunately, the payer on this end is the taxpayer.”

Scott wants to boost public school spending by $1 billion next year and the only way to do that in a sputtering economy without raising taxes is to cut other programs. One of the biggest is Medicaid, a state-federal health care program for low-income adults and children that covers 2 million Floridians.

Scott says he can cut Medicaid costs by nearly $2 billion by paying many hospitals less to treat Medicaid patients than they get now. He says rates vary widely and illogically around the state for the same services.

The change would require approval by the Legislature and federal government, and close scrutiny of Scott’s plan began Thursday in the Senate.

SOURCE: Miami Herald


COLORADO: MEDICAID CHALLENGES BUDGET, BUT GOVERNOR WON’T SEEK WAIVER

In Colorado, a similar challenge – but perhaps no such bias against tax increases.

Gov. John Hickenlooper helped end a standoff over the state budget between Democratic and Republican lawmakers in the last legislative session, but a fiscal fracas shaping up for 2012 may prove much harder to quell.

That’s because this time the Democratic governor himself is squarely in the middle of it, recommending a 2012–13 budget that would suspend a property tax break for seniors that would cost the state $98.6 million.

The Senior Homestead Exemption allows Coloradans 65 and older who have lived in their homes for at least 10 years to exempt 50 percent of the first $200,000 of the property value of their homes from taxes.

But Republicans say they don’t want to delay the tax break for additional years. Instead, they say, Hickenlooper should be trying to seek a federal waiver to trim the cost of Medicaid, the state and federally funded health care program for the poor that takes nearly a third of the state’s general fund.

SOURCE: Denverpost.com

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)