Senate Passes Health Reform Bill
Note added March 21, 2010: The House passed H.R. 3590 on March 21, 2010, and the bill is expected to be signed by the President on or about March 23, 2010. However, the Senate is expected to follow the House in passing a separate package of changes to the bill, which would significantly affect this summary. When these changes are enacted, the summary will be revised.
The U.S. Senate passed health reform legislation (H.R. 3590) just after 7 a.m. on December 24, 2009. The vote, 60-39 along party lines, was the first taken by the Senate on Christmas Eve since 1895.
The legislation would result in the most significant changes in health care policy since the passage of Medicare in 1965. The Senate vote was the culmination of a process begun early in 2009 when the two Senate committees with jurisdiction over health care, Finance and Health, Education, Labor and Pensions, held hearings on and finalized bills.
Congressional leadership will now have to combine the Senate bill with the one passed by the House several months ago. This process, through a conference committee, will occur after the beginning of the New Year. There has been some talk of asking the House to accept the Senate bill unchanged, but that appears unlikely in the face of significant differences between the two bills, such as the public option, the design of health insurance exchanges, the employer mandate, and the financing through the excise tax as opposed to a tax on the wealthy. Key legislators have expressed a desire to have a final bill ready to send to the President by the time he delivers his State of the Union address in late January or early February.
The bill contains several provisions that would be significant for group health plans and for restructuring of the health insurance delivery system. Among the changes are the following items.
Health Insurance Exchanges: Effective in 2014, the bill would require each state to establish an Exchange, which would serve as a marketplace in which individuals and small businesses could purchase health insurance coverage. The Exchanges would regulate plan standards and cost-sharing, as well as the enrollment process. Employers with 100 or fewer employees could provide coverage through a plan in an Exchange. Prior to January 1, 2016, states would have the option to limit employer participation in an Exchange to employers with 50 or fewer employees. Beginning in 2017, states could allow large employers (101 employees or more) to purchase health insurance coverage through an Exchange. Within an Exchange, individuals would have a choice between four plan types – bronze, silver, gold, and platinum – that would vary based on the actuarial value of the covered benefits. In addition, an Exchange could offer a catastrophic plan to young adults that could include preventive benefits.
Unlike the House bill, the Senate bill does not create a national Exchange, and does not provide for a public plan within the Exchange. Instead, it would require the Office of Personnel Management (OPM) to contract with health insurers to offer at least two multi-state qualified health plans (at least one being non-profit) through Exchanges in each state. The plans would have to comply with the minimum standards and requirements of the Federal Employees Health Benefits Program (FEHBP), but the FEHBP would remain a separate program in a separate risk pool.
Medicaid Eligibility and Subsidies: In 2014, Medicaid eligibility would be expanded to those with incomes up to 133% of the Federal Poverty Level (FPL), while those with incomes between 133% and 400% of the FPL would be eligible for subsidies that would assist them in purchasing insurance in the Exchange. As a rule, full-time workers who are offered coverage from their employer would not be eligible to obtain federal subsidies via an Exchange, unless the free rider rule, discussed below, applies.
Individual Mandate and Employer Free Rider Penalty: In 2014, both an individual mandate to purchase coverage and an employer free rider penalty would take effect.
Under the free rider penalty rule, an employer with 50 or more full-time employees that fails to provide "minimum essential coverage" would have to pay a fine for every month that at least one full-time employee is receiving federal subsidies in the Exchange. This fine would equal $750 times 1/12th times the number of full-time employees the employer had that month. Under the bill, an employee is not considered to have minimum essential coverage if (1) the employee's contribution to the employer's coverage exceeds 9.8 percent of the employee's household income, or (2) the employer plan has an actuarial value of less than 60 percent.
In addition, even employers that provide "minimum essential coverage" would be fined for each full-time employee who opts out of the employer's plan and receives federal subsidies through the Exchange. In this circumstance, the fine for every month that each such employee receives a federal subsidy would equal $750 times 1/12th times 400%. The bill also includes a maximum penalty amount.
A special rule for construction industry employers provides that they would be subject to the free rider rules if, during the preceding calendar year, the employer employs at least 5 full-time employees and has a payroll of $250,000 or more. The bill defines "full-time employees" as those employed an average of 30 hours per week, determined on a monthly basis.
Free Choice Vouchers: The bill would require an employer that offers "minimum essential coverage" and pays any portion of it, to offer employees who meet certain income standards and do not participate in the employer's plan, a "Free Choice Voucher." The voucher is the employer portion of the health plan contribution for the plan to which the employer contributes the highest portion of cost, and can be used to purchase coverage in the Exchange. If the voucher is larger than the price of the plan in the Exchange, the employee receives the difference in pay. In order to qualify for a voucher, an employee would have to have a household income less than 400% of the Federal Poverty Level (approximately $88,000 a year for a family of four); and the employee's contributions for coverage must exceed 8% of their household income (but not exceed 9.8% of household income). The percentages are indexed.
Automatic Enrollment: Employers with more than 200 employees would be required to automatically enroll employees into their employment-based health plan with the lowest applicable premium.
Annual Reporting for Self-Insured Plans: The bill would require annual reporting by self-insured plans to the Secretary of Labor on information including enrollment, benefits, number of participants, funding arrangements, assets, liabilities, expenses, and investments.
Grandfathered Group Health Plans: The Senate bill would "grandfather" all group health plans that were in effect on the day of enactment. Specifically, any grandfathered insured or self-insured group health plan would not have to comply with the health insurance reforms listed below. It does not appear as if plans would lose this grandfathering protections even when new employees or family members the plan, or the plan changes the benefit design. However, collectively bargained plans would lose grandfathering protection, and be subject to the insurance reforms, on the date on which the last of the collective bargaining agreements, which were ratified before the date of enactment, terminates. All plans would still have to comply with new rules concerning standardized information disclosure.
Waiting Periods: The bill would ban waiting periods for health care coverage of more than 90 days; and impose a penalty for waiting periods of longer than 60 days of $600 per full-time employee. However, the waiting period rule would not apply to grandfathered plans.
Health Insurance Reforms Effective in 2010-2011: Other requirements in the bill that would apply directly to group health plans include the following, many of which would be effective six (6) months after enactment:
- Dollar lifetime limits would be prohibited. Beginning in 2014, annual limits would also be prohibited. Before 2014, the Secretary of Health and Human Services (HHS) would establish rules concerning restrictions on annual limits.
- Group health plans would have to meet new standards concerning coverage of preventive care and cost-sharing requirements that set maximum annual out-of-pocket amounts for participants.
- Group health plans that provide coverage for dependent children would be required to extend coverage (at the participant's option) to dependent children under 26 years old.
- New standards would be enacted for appeals processes for group health plans, including requiring both internal and external appeals.
- Group health plans would be required to cover preventive and wellness benefits with no deductibles or other cost-sharing.
- Group health plans would have to allow plan participants to choose any participating primary care provider.
- Plans would be prohibited from requiring prior authorization or referral before a woman visits an ob-gyn. Plans that require the designation of a participating primary care provider would have to treat the provision of care by an ob-gyn as that of a primary care provider.
- Emergency care services would have to be provided without prior authorization and with the same cost sharing both in and out of network.
- Group health plans would be prohibited from establishing any eligibility rules for health care coverage that discriminate in favor of highly compensated employees.
- Preexisting condition exclusions could not be imposed with respect to children effective six months after the date of enactment (adults effective in 2014).
- Coverage would have to be provided with respect to individuals who are participating in a clinical trial.
Insurance Reforms: In 2014, insurers in the individual and small group markets would be required to guarantee issue and renew health coverage. Insurers would be prevented from rescinding insurance coverage when claims are filed, except in cases of fraud or intentional misrepresentation (effective 6 months after enactment). Preexisting condition exclusions would be prohibited, and premium variation would only be allowed for age (3:1), tobacco use (1.5: 1), family size, and geographic area. Beginning in 2011, insurers (including grandfathered plans, but not self-insured plans) would be required to maintain a medical loss ratio of not less than 80% (85% for the large group market). Insurers that do not met the medical loss ratio standard would be required to provide rebates to policyholders.
Wellness Programs: The bill would codify the existing wellness regulations developed under the Health Insurance Portability and Accountability Act (HIPAA) which permit wellness incentives or penalties of up to 20% of premium, provided that the program meets certain conditions. In addition, the bill would increase the amount of the potential incentive/penalty to 30% of premium, and permit the agencies to increase that amount to 50% after they conduct a study on wellness programs. In addition, the bill would create a new $200 billion, 5-year program to provide grants to small employers (fewer than 100 employees) for comprehensive workplace wellness programs. The employer cannot have a wellness program in place as of the date of the Act. Finally, the bill would prohibit questions in health risk assessments that ask about gun ownership.
Small Business Tax Credits: Tax credits of up to 35% of premiums would be available to small business that offer health coverage beginning in 2010. Additional credits would be available in 2014 when the Exchanges are operating. The credits would be available on a sliding scale to small businesses with fewer than 25 employees and average annual wages of less than $50,000. The full credit would be available to employers with 10 or fewer employees and average annual wages of less than $25,000.
New Long-Term Care Program (Class Act): The bills would create a new, voluntary, public long-term care insurance program. Benefits are a daily or weekly cash benefit to help people with functional limitations purchase the services and supports needed to maintain personal and financial independence. CLASS would supplement, not supplant, traditional payers of long-term care (e.g. Medicaid and/or private long-term care insurance).
High-Risk Pools: The legislation would establish a national high-risk pool beginning in 2010 for individuals who have been uninsured for several months and have a preexisting condition.
Provisions of Interest to Retiree Health Plan Sponsors
Retiree Reinsurance Program: Effective within 90 days of enactment, the bill would establish a temporary reinsurance program to reimburse employers who sponsor retiree health care for a portion of the claims for pre-Medicare retirees between 55-64. The program would reimburse plans for 80% of the claims for a covered individual between $15,000 and $90,000. Plans would be required to use the funds to lower costs borne by the retirees. The program would be funded with $5 billion.
Medicare Program Changes: The bill contains significant changes to the Medicare program. Those that directly affect employer-sponsored plans including the following:
- For Prescription Drug Plans (PDPs), the coverage gap ("doughnut hole") would be reduced by $500 in 2010. Effective July 1, 2010, individuals in PDPs would receive a 50% discount on brand-name drugs while they are in the doughnut hole. The full negotiated price of the drug would count toward a beneficiary's True Out of Pocket (TrOOP) costs. These changes to the PDP benefit would increase the actuarial value of the standard Part D benefit, meaning that the "bar" employer-sponsored plans must meet in order to receive the Retiree Drug Subsidy would increase.
- Sponsors of Medicare PDPs and MA-PDPs would be allowed to waive copayments for first fills of generic drugs, effective January 1, 2011.
- Medicare Part D premium costs would be higher for high-income beneficiaries, in the same manner that Part B premiums are increased under current law.
- Starting in 2011, Medicare Advantage plan payments would be decreased to the level of Medicare fee-for-service payments, phased in over three years.
- Beginning on January 1, 2011, Medicare beneficiaries would receive a free, annual wellness exam and will have all cost-sharing waived for preventive care.
- A variety of Medicare programs would be enacted with potential for cost savings, including the following: An Independent Payment Advisory Board to review Medicare payments, comparative effectiveness research, and pilot projects around payment/quality reform, including paying based on medical outcomes, bundling of payment, medical home demonstrations, and limited payment for hospital readmissions.
The Excise Tax on Health Plans: The Senate bill would impose, beginning in 2013, a 40% excise tax on the cost of health plans above a threshold of $8,500 for single coverage and $23,000 for family coverage. The thresholds would be increased for retired individuals over the age of 55 and individuals engaged in high-risk professions, longshore workers, or workers employed to repair or install electrical or telecommunications lines, by $1,350 for individual coverage, and $3,000 for family coverage, and would be indexed for inflation by the Consumer Price Index for All Urban Consumers (CPI-U) plus one percent.
Both labor and employers are opposed to the Senate excise tax on high cost health plans. Segal has been part of a process to help educate the Senate about the impact on plan sponsors. On December 11, 2009, Ed Kaplan, Segal's National Health Practice Leader, participated in a Congressional Staff Briefing on the Effects of the Senate's Proposed Excise Tax on High-Cost Health Plans. Ed presented a study of Segal's multiemployer plans, which showed that at the latest proposed threshold ($8,500/$23,000), 13 percent of our multiemployer plan clients would hit the excise tax threshold in 2013. However, unless the annual index is inflated at the same rate as private sector health plan cost trends, the number of plans hitting the tax could grow rapidly. The results of the study that were presented by Ed are now available online at http://www.segalco.com/uploads/Segal-Excise-Tax-Study.pdf
Health FSA Maximums and Restrictions on Paying for OTC Medication: The Senate bill includes a prohibition on the reimbursement of over-the counter medications (unless a physician prescribes them) through a health reimbursement arrangement (HRA), health flexible spending account (FSA), and a health savings account (HSA). Beginning in 2011, the bill would also cap health FSA contributions at $2,500 a year (indexed) and increase the penalty for withdrawing HSA funds for nonqualified expenses from 10% to 20%.
Taxation of Medicare Retiree Drug Subsidy: Effective in 2011, employers would be prohibited from taking a deduction for costs for retiree drug claims that were reimbursed under the Medicare Part D Retiree Drug Subsidy.
Provider Fees: The bill would impose annual fees on various health care providers, including pharmaceutical manufacturers, medical device manufacturers, and health insurers.
Employer W-2 Reporting: Employers would be required to disclose the value of the benefit provided by the employer for each employee's health insurance coverage on the employee's annual Form W-2.
Medicare HI Insurance Increase: The Medicare hospital insurance (HI) tax on high-income individuals (single $200,000/couple $250,000) which was going to increase .5 percent would instead increase .9 percent.
Excise Tax on Tanning Salons: The bill would impose an excise tax of 10% on indoor tanning services effective July 1, 2010.
A summary of the House bill is available at