Wednesday, December 29, 2010


HHS has now released its final set of draft regulations for provisions of the Affordable Care Act scheduled to go into effect early in 2011. This last regulatory publication—actually a “notice of proposed rulemaking” inviting comments prior to implementation—provides proposed rules for disclosure and justification of “unreasonable” premium increases.

The proposed “confess and explain” regulation requires insurers to publicly disclose rate increases in the individual or small group markets of ten percent or more in 2011, or above individual state-by-state thresholds starting in 2012. The thresholds will be set by HHS, presumably in conjunction with the states.

Although the proposed rules require review either by HHS or, if a state has an “effective rate review system,” by the state, no authority is provided for the rejection or modification of rate increases. Apparently, the Congressional drafters of the ACA language—which the proposed rule generally follows—felt that the threat of a premium increase being called unreasonable would have an adequate sentinel effect. However, insurers who show a “pattern or practice of excessive or unjustified premium increases” can also be excluded from insurance exchange participation.

In summary, the process proposed by HHS would require insurers requesting premium increases exceeding the thresholds to disclose their justification either to the appropriate state regulator or—if HHS has determined that the state does not have an adequate rate review procedure—to HHS itself. If the state (or HHS) then decides that the increase is excessive or unjustified, it is expected to make this decision public, with HHS then posting the determination on its website. The hope, obviously, is that an insurer will want to avoid such negative publicity and will trim or abandon the increase.

Reform advocate Timothy Jost has posted a lengthy critique of the HHS proposal in the Health Affairs Blog. He expresses concern that the rule would not apply to the large group market, that by tying the proposed rule to so-called “products” individual groups could face increases much higher than the nominal thresholds, and that the information that insurers would be required to disclose would be too limited (and could be further limited by recourse to protestations of trade secrets).

In a comment on Jost’s critique, Jeff Goldsmith questions the capability of HHS in evaluating a requested increase—and notes the potentially substantial effort involved—given that it might be driven by risk selection or the actions of monopolistic providers or other factors that may be difficult to determine. Goldsmith comments: “it’s a charter for arbitrary ‘jawboning’ of the industry, not an explicit charter for actually regulating it.”

HHS provides some statistics that help provide an estimate of the amount of effort that insurers, states, and HHS may incur as a result of the proposed rule. Based on HHS’ numbers, it seems likely that somewhere between 500 and 1000 premium increases a year could be subject to the disclosure and review processes, with the number gradually increasing as groups lose their grandfathered status, and with each review requiring hundreds or thousands of man-hours. How many of these reviews might result in insurers trimming their increases is anyone’s guess, but Goldsmith’s expressed preference for market competition over HHS rules may well be justified.

Tuesday, December 21, 2010


Included in the latest Benefits Package blog carnival (see previous post) is a piece from Joe Paduda’s Managed Care Matters, criticizing health plans and their industry groups for their contradictory attitudes to escalating hospital costs and government involvement in the health care system. On the one hand, Paduda comments, health plans are looking for help from the government in controlling health care costs, while on the other hand fighting any government intervention in their own industry. Paduda complains: “health plans have not fulfilled their primary mission – [to] control costs and deliver quality care.”

This produced the scathing comment from one reader to the effect that insurers perceived their mission very differently; it was simply to extract profit from the system.

Therein lies one of the major reasons for the public’s dissatisfaction with the insurance industry. The public believes that insurers exist to control the costs of health care for consumers, while for-profit insurers, like other businesses, believe that their primary responsibility is to their shareholders. This doesn’t mean that insurers don’t try to negotiate affordable provider rates or limit their networks, but it does mean that they are much less hard-nosed than if consumer cost were the only criterion.

Like other businesses, insurers succeed by giving their consumers what they want—and it turns out that for the majority of Americans whose coverage is being paid for in large part by their employers, lower cost is less important than access to the most prestigious hospitals or being able to keep the same providers. Only when employees have to pay significantly more for these benefits do they decide that lower cost is truly important.

If the public really wants insurers to control health care costs more aggressively, there are a couple of options. One is to go beyond the “confess and explain” premium increase provision of the Accountable Care Act to impose absolute limits on increases—a crude tool that fails to consider individual insurer circumstances, and that could prove counter-productive. The other is to eliminate the tax break for employer-paid coverage in order to raise employees’ cost-consciousness—an increasingly popular idea on Capitol Hill but one that would face enormous opposition from unions and from many employers.

Monday, December 20, 2010


The second Benefits Package blog carnival is out, including a piece (on the Virginia individual mandate decision) from Health Care REFORM UPDATE.

With an emphasis on health care and other employee benefits, the Benefits Package carnival includes some interesting pieces from a slightly different viewpoint than other blog collections. Take a look!

Wednesday, December 15, 2010


Notwithstanding the dramatic headlines in the New York Times and elsewhere, no-one should have been surprised by Federal Judge Henry Hudson’s decision this week on the constitutionality of health care reform’s individual mandate.

Judge Hudson ruled against both of the Obama administration’s primary arguments: that the Commerce Clause of the Constitution allows the government to require the purchase of insurance as part of regulating an interstate commerce market, and that imposing a penalty for noncompliance with the mandate is within the government’s taxing authority.

Judge Hudson, described by the NYT as having “a long history in Republican politics in northern Virginia,” had provided enough clues during the hearing and in preliminary opinions that the Obama administration (and the media) must have been expecting the decision he handed down, at least in terms of support for or opposition to the mandate.

While Judge Hudson’s decision must have disappointed reform advocates, whether they expected it or not, it’s important to remember—as administration officials were quick to point out—that two other federal judges had previously issued opinions supporting the mandate. Meanwhile, at least one other federal case is pending, in Florida, with—as in Virginia—the judicial decision being handed down by a Republican appointee who has already expressed skepticism about the government’s arguments.

It’s clear, and without implying strictly partisan thinking to the judges involved, that judicial conservatives are going to find it much more difficult than their moderate or liberal counterparts to stretch the Commerce Clause to allow the mandate.

However, there’s obviously a long and bumpy road ahead for mandate opponents—and proponents—as suits continue to be filed and heard in federal district court, and then in federal appeals court. Lawyers for and against the mandate will be modifying their arguments to reflect the various judges’ opinions—and to try to demonstrate for the appeals courts how they may or may not be in error.

Supreme Court rulings have, over sixty years, stretched interpretation of the Commerce Clause to include decisions such as preventing farmers from growing wheat for their own consumption (since this would mean they didn’t have to buy it, thereby depressing retail prices), and allowing Congressional regulation of the growing of marijuana personal use (since it is a form of economic activity). Such rulings certainly suggest that a ruling in favor of the individual mandate wouldn’t be outlandish. On the other hand, the government may have to work very hard to persuade the present Supreme Court’s conservatives that the non-purchase of insurance by an individual has a measurable impact on the cost of insurance for others.

Finally, it’s important to emphasize that it may be as much as two years before the Supreme Court hears individual mandate arguments (assuming it chooses to hear the case at all) and that the Court’s make-up may have changed by then.

Tuesday, December 14, 2010


It’s amazing how much trouble a couple of hundred inexpensive health insurance policies can cause.

Up until a few weeks ago, few people were aware of the existence of so-called mini-med policies. Marketed primarily by for-profit insurers Aetna and Cigna, they are designed to provide bare-bones coverage to employees of low-wage low-margin service companies. Unlike other approaches to affordable insurance that emphasize catastrophic coverage, mini-meds typically keep premiums affordable (some as low as $15 a week) by imposing very low annual benefit limits, although with no medical underwriting or pre-existing condition provisions and with fairly generous benefits up to the limits.

Mini-meds first hit the news in September, when McDonalds reportedly threatened to stop offering this coverage to its employees in response to Affordable Care Act rules that set annual benefit limits at $750,000—far, far higher than mini-med limits, and potentially turning mini-med coverage into typical high cost insurance.

With insurers and employers reminding the public of President Obama’s campaign promise to allow Americans to retain their existing coverage, HHS Secretary Kathleen Sebelius quickly backed away from the language of ACA. Early in October, HHS announced the granting of one-year waivers of the ACA benefit limit provision for McDonalds and several other employers, a number that has now climbed to more than 200.

The next mini-med problem to find the spotlight was ACA’s medical loss ratio provision, requiring at least an 85 percent MLR for large group coverage, but with mini-meds’ very low benefit payouts relative to administrative costs making the threshold impossible to achieve. Insurers with only a very small percentage of mini-meds might still be able to meet the MLR threshold, but companies with substantial mini-med business would find achieving the 85 percent target impossible.

One reaction to the mini-meds’ difficulties came from Senator Jay Rockefeller, a key backer of the MLR rules. The Senator quickly convened committee hearings on the issue, and was able to hear testimony from a parade of witnesses who had discovered too late that their “affordable coverage” covered almost none of the costs of any serious illness or accident. In contrast, insurer and employer representatives touted the pluses of offering at least a minimal level of coverage to as many as a million workers, until the premium subsidies of ACA are scheduled to become effective in 2014.

Trapped in a kind of Bermuda triangle between the threat of insurers’ abandoning the plans, Senator Rockefeller’s determination to stamp down on them, and the possibility of a million workers losing their insurance—however inadequate—HHS demonstrated some fancy footwork.

In the MLR final interim regulations released at the end of November, HHS included separate rules for mini-meds, essentially allowing insurers to inflate benefit expenditures in computing MLR percentages in order to have a chance of meeting the ACA thresholds.

Then, last week, HHS issued additional transparency rules for mini-meds: insurers must notify consumers if their health care coverage is subject to an annual dollar limit lower than what is required under the law. Specifically, the notice must include the dollar amount of the annual limit along with a description of the plan benefits to which the limit applies. These latest rules also limit new sales of mini-med plans, including restricting such sales only to insurers who already have obtained waivers of the annual limit provision.

Reactions from insurers have been muted, presumably indicating that the industry believes it can live with the new rules, at least until Republican-dominated House committees can further erode HHS’ implementation of ACA.