CONTROLLING THE MEDICARE BUDGET—TIME TO FAST FORWARD TO 1999?

The Congressional Budget Office estimates that the government deficit will exceed one and a half trillion dollars this year, with federal health care annual expenditures expected to hit the trillion dollar mark by 2012. The largest federal health care program is, of course, Medicare, with costs projected to be close to $600 billion in 2012, and growing at around seven percent a year thereafter, although forecast to drop to a mere six percent annual increase if and when the Affordable Care Act is fully implemented.

Republicans and Democrats have each offered proposals to reduce projected Medicare expenditures, Republicans by shifting much of the cost of the program to beneficiaries, Democrats by passing responsibility to the already hobbled and politically endangered Independent Payment Advisory Board. Neither proposal has any realistic chance of passage.

Maybe it’s time to blow the cobwebs off the 1999 proposal from the National Bipartisan Commission on the Future of Medicare.

The Commission, co-chaired by Democratic Senator John Breaux and Republican Representative Bill Thomas, was created by Congress as part of the Balanced Budget Act of 1997, back when bipartisan cooperation was still sometimes possible. The Commission spent nine months examining Medicare’s program structure and costs and alternative approaches to reform, with the two co-chairs issuing their joint recommendation in March 1999. The co-chairs’ recommendation was, however, supported by only ten of the seventeen Commission members, one short of the number required for formal adoption, with the more liberal members generally opposed to the proposal’s cost control approach. Ironically—in the light of subsequent economic events—one key reason for the failure of the co-chairs’ proposal to gain more support was the booming economy of the later Clinton years, combined with the success of already enacted program changes dictated by the Balanced Budget Act.

Despite its failure to achieve the two-thirds majority needed for adoption, the 1999 proposal includes some recommendations that together look more practicable and potentially more politically acceptable than those of either Representative Ryan’s Republican plan or President Obama’s Democratic proposal:

1. Medicare would become a premium support program, with federal contributions of 88 percent of average premium cost (and with subsidies for low-income seniors) – Like Representative Ryan’s 2011 plan, the 1999 proposal recommended a voucher-type approach in order to encourage beneficiary cost-consciousness, but with considerably less of a potential financial burden on beneficiaries.

2. Traditional fee-for-service Medicare would remain as an option along with insurer offerings – Unlike the Ryan plan, the three-quarters of seniors enrolled in traditional Medicare would not be forced to switch to an insurance company plan. However, the FFS program would have to be self-funded and self-sustaining and meet the same requirements as private plans, including standards for actuarial soundness, adequacy of reserves, and performance capacity.

3. Medicare program administration would be transferred from HHS to a government-chartered Medicare Board, free of civil service restrictions – Key functions of the Board would include negotiation with health plans, risk adjustment, and premium collection and disbursement, but with the standard Medicare benefits still determined by Congress.

4. The traditional FFS program would have some power to contract with individual providers in order to control costs – Rather than a one-size-fits-all reimbursement approach, the FFS program would have some flexibility of payment methods and would be able to contract selectively in areas where otherwise it would be uncompetitive with insurance plans.

5. Parts A and B would be combined into a single program – With close to 95 percent of beneficiaries enrolled in both Part A and Part B, with the blurring of lines between inpatient and outpatient services, and with the recommended changes in funding, combining Parts A and B seems a logical step.

6. The Medicare eligibility age would be the same as for Social Security – As with Representative Ryan’s plan, the 1999 Commission saw increasing the eligibility age as a reasonable reflection of demographic trends. Tying Medicare eligibility age to Social Security would be a rational approach.

Could the 1999 proposal be the optimal solution for Medicare? Probably not, but with finding an approach that could gain enough votes to reduce the deficit increasingly urgent, it seems more realistic than the recent political offerings, provided steps are also taken to minimize cost-shifting to the non-Medicare market.

The Bipartisan Commission’s proposed average 12 percent beneficiary contribution (roughly equal to today’s Part B premium) would not result in immediate federal savings. However, as the experience of the Federal Employees Health Benefit Plan and state employee plans like California’s CalPERS has shown, a premium support model can result in much greater consumer awareness of coverage cost, without imposing undue financial burdens on beneficiaries. Retaining the traditional FFS Medicare program as an option, but with real price competition with—and between—private plans, would alleviate many seniors’ concerns, while forcing both the private Medicare insurers and the government plan to press their providers to be more cost-effective.

How far could such an approach go towards reducing the deficit and enhancing the financial viability of Medicare? The 1999 Bipartisan Commission’s staff analysis estimated that it would reduce the growth of Medicare spending by approximately 1 percent a year, once fully implemented, or—based on current CMS projections—some $60 billion annually. Given that the 1999 projection was made at a time when Medicare growth was slowing significantly, a new cost analysis might show a bigger potential reduction, while a slightly higher beneficiary contribution would obviously increase the federal savings. What’s needed now is to do that updated analysis—preferably without the pressures of partisan politics—in the hope of finding an acceptable bipartisan solution, before the deficit crisis dictates a more desperate and draconian approach.

NEWS UPDATE April 25, 2011: STOPPED IN ITS (FAST) TRACKS

It wasn’t a huge surprise, but it was—after quite a drought—slightly good news for advocates of health care reform as defined by the Affordable Care Act.

The Supreme Court on Monday rejected the State of Virginia’s request to put the State’s challenge to the ACA (one of several similar cases) on a fast track. The Court’s order provided no explanation, and there were no dissenting votes.

Virginia’s attorney-general had argued that an exception was justified to the usual process of a case moving from federal district court to federal appeals court on its way to an eventual hearing by the Supreme Court, because of the importance of the ACA case and the virtual certainty that it would eventually be heard by the Court. The government agreed with the importance, but proposed the usual more orderly approach, especially since the case is already moving towards appellate review.

Possibly more interesting and important than the Court’s actual decision was the absence of any indication that any of the justices had disqualified themselves from the case. Since the newest justice, Elena Kagan, was previously Solicitor General in the Obama administration, there had been some speculation that she might recuse herself, thereby potentially leaving the Court more heavily weighted towards its conservative wing. Meanwhile, the best guess is that the Virginia ACA case will be heard by the Court some time in 2012, but with a decision not being handed down until later in the year, possibly in time for the presidential election.

CONTROLLING THE MEDICARE BUDGET—TWO INFEASIBLE PROPOSALS

How to slow Medicare’s escalating costs has been the big health care policy issue this month, with Republicans and Democrats offering competing proposals, each part of broader plans for reducing the federal deficit—projected to be $1.5 trillion this year, with the government borrowing 40 cents for every dollar it spends.

Unfortunately, neither the Medicare proposal of Representative Paul Ryan’s House Budget Committee, nor that offered in response by President Obama, can be considered realistic.

Both proposals do have some merits. Representative Ryan’s plan for switching Medicare to a quasi-voucher premium support program in which beneficiaries would pay part of the premium for their choice of health plan could make seniors more cost conscious and introduce more competition among insurers. President Obama’s proposed strengthening of the Independent Payment Advisory Board provision of the ACA by lowering the trigger point for IPAB action would force further efforts to reduce costs, while doing much to remove Medicare policy from lobbyist-vulnerable political considerations. Both, if implemented, would effectively guarantee that federal Medicare expenditures would drop dramatically from current projections.

Neither, however, has any chance of enactment. The Congressional Budget Office’s projection of the average 65-year-old paying more than two-thirds of the cost of Medicare coverage by 2030—and more than twice as much as under the present program—almost certainly dooms Representative Ryan’s proposal. (The CBO’s assumption of the continuation of the differential between traditional Medicare and insurers’ equivalent offerings can be questioned, but it’s the forecast of the unfortunate 65-year-old’s 68 percent share of the tab that will resonate for seniors, their lobbyists, and their political supporters.)

President Obama’s proposal is just as unlikely to succeed. Senior Republicans were scathing in their criticisms of the original IPAB provision, as further increasing bureaucratic meddling in seniors’ care, and can be assumed to be even more opposed to any strengthening of IPAB. Political considerations aside, the President’s plan faces practical problems. The ACA severely limits the scope of IPAB recommendations, specifically excluding increases in beneficiary costs, benefit restrictions, changes to eligibility criteria, or any “health care rationing.” Since the ACA also forbids most targeting of hospital and hospice rates before 2020, the major cost-control option remaining is a severe cut in physician payments (and even that is excluded if a permanent fix to the sustainable growth rate problem is enacted), something that—even if it were politically feasible—would almost certainly lead to a wholesale exit of doctors from the program.

Both proposals suffer from another problem: each would shift costs onto Medicare beneficiaries and onto non-Medicare private sector insureds, although in slightly different ways.

Representative Ryan’s proposal would require beneficiaries to contribute to the cost of insurance coverage in excess of the government voucher value. To the extent that insurers respond to beneficiaries’ expected increased cost consciousness by squeezing provider rates, it’s likely that providers will try to recoup by increasing their charges to private sector payers.

President Obama’s proposal would require IPAB to impose cost reduction strategies to meet the targets prescribed in the ACA. Whether these are simply cuts in rates or more stringent applications of “evidence-based” medical criteria, each almost certainly resulting in providers leaving Medicare, the result is likely to be many beneficiaries paying out of pocket to obtain care, and—just as for Representative Ryan’s proposal—providers increasing charges to other payers .

The two proposals have one other feature in common: they each ignore history. Representative Ryan’s plan ignores the total failure of Medicare Advantage’s insurer competition model to reduce expenditures. President Obama’s plan ignores the almost equally total failure of CMS and its predecessors to bring Medicare costs under control in any significant way, other than by reducing provider reimbursement (and anyone who believes the current proposals for Accountable Care Organizations will achieve this cost control miracle would do well to read recent critiques by Ron Klar and Jeff Goldsmith).

REPRESENTATIVE RYAN’S REFORM PLAN

It’s not termed as such, but the 2012 Budget Resolution authored by House Budget Committee Chair Paul Ryan includes the most comprehensive effort so far to define a conservative Republican health care reform plan.

Representative Ryan proposes to attack the federal government’s ever-escalating expenditures on health care by repealing major sections of the Accountable Care Act and by making fundamental changes in the financing of Medicare and Medicaid. Medicare would become a quasi-voucher “premium support” program, with government contributions dependent on age and beneficiary income, as well as being modified to increase the age at which seniors become eligible. Medicaid would be transformed into a state block grant program and the expansions included in the ACA would be rolled back, as would the individual mandate, the requirements for insurance exchanges, and the subsidies for lower-income exchange enrollees.

On the one hand, Representative Ryan’s proposal offers an aggressive approach to cutting the federal deficit. On the other hand, it does so primarily by shifting costs from one payer—the federal government—to others—seniors, low-income individuals, and states. If there are resulting reductions in overall health care expenditures, they may come mainly from the inability of the new payers to afford coverage. Unsurprisingly, the proposal has immediately come under fire from Democrats, seniors’ organizations, and provider groups.

Although it stands no near-term chance of passage in the face of opposition from a Democratic-controlled Senate, Representative Ryan’s proposal should not be written off. The Medicaid recommendations will be welcomed by many state governors—struggling to reconcile federal benefit mandates with budget-squeezed state funding—as offering the chance to craft more affordable eligibility and benefit rules. The Medicare premium support approach is consistent with that recommended in 1999 by the bipartisan National Commission on the Future of Medicare (but quickly discarded by congressional leaders as too much of a political hot potato). Representative Ryan also has attempted to finesse seniors’ reactions by phasing in the Medicare changes so that neither the increase in eligibility age nor the premium support plan would affect any beneficiaries for at least ten years.

While the impact of the Medicaid block grant proposal cannot be evaluated without knowing how states might choose to run their programs, there are existing models for the Medicare premium support proposal. Both the Federal Employees Health Benefit Plan and California’s CalPERS (as well as other state employee programs) take similar approaches. CalPERS in particular is regarded by many health care economists as an exemplary competition model, in which a fixed employer contribution is applied to enrollees’ choices from a limited number of health plans offering similar benefits. However, unlike CalPERS, FEHBP, or the 1999 Medicare Commission’s recommendations, Representative Ryan’s proposal could require very significant beneficiary contributions. CalPERS employer contributions are typically between 90 and 100 percent of the cost of the lowest priced plan, while the Medicare Commission’s recommendation was for an average government contribution of 88 percent of premium. In contrast, the Congressional Budget Office analysis of Representative Ryan’s proposal projects that by 2030, it would result in the average 65-year-old beneficiary paying 68 percent of the total of premium plus cost-sharing (deductibles etc).

Perhaps the biggest problem with Representative Ryan’s approach is that it fails to recognize the “water bed syndrome” of health care costs, in which squeezing costs in one area causes increase elsewhere: reducing Medicare and Medicaid expenditures may be good for government budgets, but—absent even more sweeping changes—may simply result in increased cost shifting to the private insurance market.

Representative Ryan’s Budget Resolution is a much more conservative proposal than that included in his earlier Roadmap for America’s Future. In comparison, the Roadmap—originally published in 2008, with later revisions—differed in two very significant ways: it increased federal control over Medicaid, while giving eligibles credits and subsidies to purchase private insurance; and it replaced the tax exclusion for employment-based insurance by a refundable tax credit for the purchase of coverage, either through an employer or on an individual basis. While it is certainly possible to quibble with the details, these features could have achieved the mainstreaming of Medicaid eligibles into the general health insurance system, and provided the same incentives for cost-conscious purchasing for the larger employed population as for FEHBP and CalPERS enrollees. Applying similar enrollee-choice premium support principles to each of Medicare, Medicaid, and private insurance could have gone a long way to eliminating the inter-program inequities that result in cost shifting.

Whether or not Representative Ryan’s change of direction reflects the increasingly conservative Tea Party-driven philosophy of his party or not, it’s disappointing to see worthwhile ideas being abandoned. A more balanced Roadmap-based Budget Resolution proposal might have received the serious consideration it would have deserved.

REFORM AT ONE YEAR: HINDSIGHT—THE MASSACHUSETTS MISTAKE

A year after the passage of health care reform, fewer than half of Americans support it, a similar percentage believe that it has already been found unconstitutional or soon will be, health care costs are continuing to rise far faster than the CPI, and the Republican Party has seized on the issue as a sure election winner.

The Obama administration and congressional Democrats, now thoroughly on the defensive, are clearly surprised at the public and political reaction. But should they be? This post—on the reliance on Massachusetts as a model—is the first of three that will look at some of the miscalculations—and sheer bad luck—that have helped to undermine reform.

When Governor Mitt Romney signed Massachusetts’ reform bill into law in 2006, it was widely regarded as a bipartisan political triumph, and one that was supported by the public and by most of the state’s insurers and providers. Massachusetts would be the first state to require virtually all legal residents to have coverage (with tax penalties imposed on those not complying), while providing subsidies for lower-income individuals not eligible for government programs, as well as to implement a state-administered brokerage function (the Connector) to allow competitive selection of health plans.

By the fall of 2008, as congressional efforts to design national health care reform moved into overdrive with the election of Barack Obama, the Massachusetts legislation was widely regarded as a success. Public reactions were generally positive, the numbers of uninsured had fallen, and there had been no dramatic increase in costs. It was scarcely surprising that the Massachusetts model emerged from the field of competing proposals as the favorite of most Democratic lawmakers.

Unfortunately, the elected officials in Washington DC failed to recognize that Massachusetts was an exceptional state in terms of health care. Even before the state’s reform bill was enacted, the percentage of uninsured was very low. It was also a socially very liberal state, far more likely than most to support reform efforts (in fact, Massachusetts had passed, but then revoked, a slightly different version of health care reform a dozen years earlier). And, of course, the economy was still in its boom period when the new law was passed.

Massachusetts had other advantages that would not transfer to national reform. As a small state, with only a small percentage of the population likely to be directly affected by reform, implementation could be much faster—less than a year for most provisions of the state’s new law. Similarly, interfaces between programs like Medicaid and the state subsidy program could be handled at the state level, without federal involvement.

In fact, even some of Massachusetts’ apparent success proved illusory or at least oversold, presaging criticisms that would later be leveled at national reform. Although Massachusetts does now have the highest rate of insured in the country, the goal of universal coverage has not been achieved, with some five percent of the state’s population still without insurance. The Connector has failed to influence costs for either public or private payers, and government program expenditures are creating an ever bigger hole in the state budget. The Connector also has had only marginal success in attracting non-subsidized enrollees (although a revamped small business offering is finally showing some gains). And, of course, along with the rest of the nation, Massachusetts has continued to suffer from the effects of the prolonged recession.

Massachusetts clearly has some value as a prototype for national reform, but the Accountable Care Act might have been very different if its authors had recognized just how small a percentage of the state’s population had gained coverage (and added to overall expenditures), or realized that the state’s efforts had had no discernable cost control effect.

MEDICAL LOSS RATIOS – AGAIN!

A new study, reported in the American Journal of Managed Care, seems likely to add more heat to the continuing medical loss ratio controversy.

The Accountable Care Act effectively mandates that health insurers achieve MLRs of 85 percent for large group business and 80 percent for small group and individual business, with insurers not meeting these thresholds required to make rebates to affected policyholders. However, the ACA allows HHS to issue a waiver if the requirement would disrupt a state’s insurance market. So far, an individual coverage waiver has been granted to the State of Maine, with eight other states’ waiver requests being considered.

The study reported by AJMC examined individual coverage data from health insurer filings to state regulators, as reported to the National Association of Insurance Commissioners. For each state (except California, where most health insurers report to a state agency other than the Insurance Commissioner), the study computed the number of individuals with coverage (in terms of enrollee-years), the number of insurers offering coverage, and the medical loss ratios (recomputed to reflect differences between ACA’s definition of MLR and that used by the NAIC). Based on this data, the study went on to estimate the number of enrollees in plans failing the ACA’s 80 percent threshold, and the number of higher-risk individuals who might have difficulty in finding coverage if their insurer exited the market.

At first sight, the findings seem dramatic and very different from the expectations of the MLR provision’s Senate authors. The AJMC article estimates that in nine states (Arkansas, Illinois, Louisiana, Nebraska, New Hampshire, Oklahoma, Rhode Island, Wyoming, and West Virginia) at least half of the individual health insurers missed the 80 percent threshold in 2009, while in twelve states (Arkansas, Arizona, Florida, Illinois, Indiana, New Hampshire, Nevada, South Carolina, Tennessee, Texas, Virginia, and West Virginia) more than half of the enrollees were covered by insurers failing the standard, with some two million individuals nationally covered by such insurers. The study then projected that overall more than a hundred thousand enrollees (with more than ten thousand in each of Florida, Illinois, Texas, and Virginia) would find it difficult or impossible to find coverage if their non-MLR-compliant insurers exited the market.

If the study’s findings are accurate, somewhere between a dozen and twenty states could reasonably demand waivers of the individual market MLR standard. However, as the authors note, there were significant study limitations as well as possible source data inaccuracies. Enrollment in health plans offered by life insurers was generally omitted, as was all data from California. Additionally, the findings are dependent on state reporting to the NAIC, something that some of the data shown in the article suggests may be unreliable. For example, Maine—the only state so far granted an MLR waiver—is shown as having an average MLR well above the 80 percent threshold, while insurers in Michigan are shown as having an average MLR in excess of 1.0 in both 2002 and 2009—an unlikely consistently money-losing trend in a large state.

Given the apparent data limitations, what can be deduced from the study? In general—although not in the case of Maine—it supports the claims of the nine states that have so far submitted waiver requests. On the other hand, it appears that many insurers who in 2009 were below the 80 percent level were only just below, suggesting that they might be able to achieve the standard in the future, while in states with fewest consumer protections, the possible exit of some minimal benefit insurers may actually be beneficial. In addition, insurers failing the 80 percent standard will not necessarily exit the market; some may prefer to keep their policyholders in the hope that the potential implementation of the individual mandate and new benefit standards in 2014 will make the individual market profitable again.

None of this, however, is an argument for the ACA’s MLR requirements. Assuming HHS continues its recent generous waiver policy, the overall effect is likely to be the exit of a minimal number of low benefit carriers at the expense of cancellation of coverage for several thousand individuals, some imaginative manipulation of numbers by some insurers, some reductions in profit and administrative costs by others, and a substantial increase in bureaucratic oversight.

REFORM AT ONE YEAR: THE ECONOMIST’S VIEW

Sometimes, in the middle of a hotly-argued partisan battle, it can make sense to look at the opinions of more distant and possibly more objective observers. When the battle involves American politics, the international press sometimes offers valuable—and possibly more realistic—perspectives than those available to readers and viewers of domestic media.

Accordingly, on the first anniversary of the enactment of the Affordable Care Act, it was particularly interesting to look at health care reform’s coverage in the influential Economist magazine.

The Economist, in its March 19-25 edition, was less than positive about the present status of reform or either the hopes of its backers or the allegations of its opponents.

In terms of current status, the magazine noted “the administration has rushed into force provisions affecting consumers directly, in an effort to win popular support…” and listed Medicare’s new preventive service coverage and drug “donut hole” rebates, as well as the new prohibitions on lifetime payout caps and on denying coverage to children with pre-existing conditions. (In fact, the implementation was “rushed” only to comply with the schedules built into the new law.) The magazine commented that while all this may seem impressive, one recent poll indicated that half of those polled believed that the entire ACA had already been repealed or at least could be unconstitutional.

The Economist went on to ask what the likely long-term impact of the ACA will be, and commented that both Democrats’ hopes for lower costs and Republicans’ forecasts of the destruction of employer-sponsored insurance are probably wrong.

As the magazine pointed out, forecasts of the death of employer coverage are countered by recent studies that project the opposite: many employees facing the individual mandate (if is not found unconstitutional) are likely to pressure their employers for tax-assisted coverage.

On the other hand, as the Economist notes, the Obama administration’s hopes for ACA-influenced cost control seem even more unrealistic, with Massachusetts, the prototype for ACA reform, now seeing cost control as the immediate urgent issue.

The bottom line, says the Economist: “America will soon have no choice but to come to grips with cost. Whatever one thinks of Mr. Obama’s reforms, there is no denying that they have brought that day of reckoning closer.”

But is the Economist correct? In a later post, we’ll look at proposals for health care cost control, and their chances of success.

MAINE WAIVER EXPECTED TO INCREASE INSURER PRESSURES ON STATES

HHS’s bellwether decision of last week to grant the State of Maine a three-year waiver from the medical loss ratio provision of the ACA may lead to new efforts by insurers across the country to persuade states to demand similar waivers.

The HHS decision on Maine was not unexpected. The ACA language clearly allows for waivers when imposition of the MLR 80/85 percent threshold penalties would lead to disruption of a state’s insurance market. Maine, a state with very few major employers, has a higher than average percentage of small group and individual policies which typically provide higher out-of-pocket costs—and consequently higher administrative percentages. HealthMarkets, one of the two dominant insurers in Maine, had threatened to abandon the state’s individual market unless a waiver was granted. (According to a Bloomberg report, HealthMarkets, which is majority-owned by two large investor funds, was recently sued by the City of Los Angeles for selling policies with provisions that allegedly effectively eliminated needed coverage.)

Three other states (Kentucky, New Hampshire, and Nevada) have already filed waiver requests with HHS, and an additional eleven states are reported to be preparing waiver requests.

Almost certainly, every insurer with significant business in the small group and individual markets will be eying the Maine waiver decision with a view to applying pressure to those state insurance regulators who are not yet preparing waiver requests. While Maine appears to have had an unusually strong case for a waiver, the absence in the ACA of any specific measures for “market disruption” may make it difficult for HHS to reject such requests.

THE INDIVIDUAL MANDATE: ANOTHER LOOK AT THE PENALTY TRADE-OFF

Most of the recent attention on the 2010 health care reform legislation has focused on the individual mandate. After two federal court rulings upholding the mandate, a third federal judge—in Virginia—ruled that the Constitution does not allow the government to require the purchase of insurance as part of regulating an interstate commerce market. Simultaneously, Congressional Republicans have reiterated their intention of preventing the individual mandate from being implemented, regardless of the constitutionality of the provision.

One interesting response to the resulting media coverage came in the form of a Kaiser Health News article [http://www.kaiserhealthnews.org/Columns/2010/December/121410laszewski.aspx] suggesting that the issue might be overblown since, even if the mandate were implemented, it would be relatively unsuccessful in leading the uninsured to purchase coverage. Unfortunately, the article misinterprets some of the legislative language, not entirely surprisingly given the complexity of the mandate provision. Following are clarifications of the mandate and associated requirements, and a somewhat more careful look at the mandate’s possible impact.

A Brief Summary of the Mandate

The individual mandate requires almost all legal residents of the United States to have at least a defined level of health care coverage. Those lacking such coverage will be subject to a penalty to be paid as part of tax filing. Exclusions are made for members of certain religious groups, Indian tribes, incarcerated individuals, and those whose income is below the tax filing threshold or inadequate to pay for coverage. To assist those with lower incomes but not eligible for Medicaid or SCHIP, the legislation provides for both premium credits and cost-sharing subsidies.

Definition of “Income”

The penalty and premium credit (and cost-sharing subsidy) provisions are each tied to “income.” The legislative language defines household income (which may be that of an individual or several family members) to be “modified adjusted gross income.” Adjusted gross income is that normally reported at the foot of the first page of a Form 1040, before subtraction of personal exemptions; the modifications add non-taxable interest and excluded foreign income to this number. Thus, “income” may be more or less than paycheck earnings.

Taxpayer versus Individual versus Family versus Household

Although income is derived from tax return data and therefore may relate to multiple household members, the penalty for non-compliance is applied per individual. The reform legislation uses all of the following terms: taxpayer, household, family, and individual, creating potential problems of interpretation, for example, where multiple returns are filed within a single household. Although penalties apply to individuals, they must be paid as part of a tax return, raising questions of taxpayer responsibility for other household members.

Percentage versus Fixed dollar Penalty

The penalty is the greater of a fixed dollar amount or a percentage of income above the filing threshold. An individual’s taxable income is the household income divided by the number of household members, as reported on the tax return. The fixed dollar penalty is set at $95 in 2014, $325 in 2015, $695 in 2016, and indexed to inflation thereafter (but with the amount halved for under-18-year-olds, and capped for a family at 300 percent of the individual amount). The percentage of income penalty goes up less rapidly than the fixed dollar amount, from 1 percent in 2014, to 2 percent in 2015, and to 2.5 percent in 2016 and after, and is capped at the national average premium for Bronze coverage.

Low Income Exclusions

Individuals in households with income below the tax filing threshold are excluded from the minimum essential coverage requirement.

Also excluded are individuals whose “required contribution” exceeds 8 percent of the individual’s household income. Where employer-sponsored coverage is available, the required contribution is the amount the employee would have to contribute. Otherwise, the required contribution is the premium for the lowest cost Bronze plan available, less the premium credit that would have been available had coverage been purchased. However, the premium credit effect means there are likely to be few, if any, families for whom their required contribution would exceed 8 percent of income.

Premium Credit Calculation

Premium credits, paid directly to insurers by the Treasury, are offered to those with incomes below 400 percent of Federal Poverty Level and without other coverage options, and also to individuals eligible for employer-sponsored coverage where the coverage is below 60 percent actuarial value or the employee premium share exceeds 9.5 percent of income. The credit is the lesser of the actual premium and the amount by which the second lowest exchange Silver plan premium exceeds a defined percentage of family income. The percentage is tied to the ratio between family income premium and applicable FPL.

Cost-Sharing Subsidy

In addition to premium credits, the legislation provides for subsidies of cost-sharing. However, unlike the premium credits, the cost-sharing subsidy is available only to those actually enrolled in Silver plans. The subsidy is calculated on a sliding scale from one-third to two-thirds of the out-of-pocket limit, depending on income relative to FPL.

Effect of Non-Payment of Penalty

The legislation requires that the penalty, if any, be reported on federal income tax returns, and paid at tax filing time. However, individuals who fail to pay the penalty will not be subject to criminal penalties, liens, or levies.

Premium Payment versus Penalty Trade-offs: Revising the Conclusions of the Kaiser Health News Article

Based on the preceding discussion, it is apparent that the KHN piece overstates the percentage-of-income penalties; these are applied to income in excess of the filing threshold, not just to income. More significantly, the KHN piece fails to recognize that although the premium credit calculation is based on the cost of Silver coverage, people will be able to purchase Bronze coverage (or even, if eligible, catastrophic coverage) and receive the same credit.

Three examples, reflecting the distribution of the currently uninsured (assumed to be those most likely to choose to pay a penalty rather than purchase coverage) show the combined effects. The premiums and credits shown are based on Kaiser Family Foundation’s Health Reform Subsidy Calculator, with premium estimates reduced to reflect lower actuarial values of Bronze and catastrophic coverage. The penalties are calculated at the 2016 rate, and the mainland FPL schedule is assumed.

Example 1: A young adult with $25,000 income could have "catastophic" coverage for an estimated premium of $2,500, offset by a $1,664 credit for a net premium of $836--compared with a potential penalty of $695.

Example 2: A family of four with two children under 18 and $55,000 income could have Bronze coverage for an estimated premium of $9,500, offset by a $6,969 credit for a net premium of $2,531--compared with a potential penalty of $2,085.

Example 3: A family of four with two children under 18 but with $85,000 income could have Bronze coverage for an estimated premium of $9,500, offset by a $3,029 credit for a net premium of $6,471--compared with a potential penalty of $2,085.

Of the approximately half of the currently uninsured who will not be eligible for Medicaid or CHIP under reform, some 20 percent are young adults who will be able to choose catastrophic coverage for little more than the potential penalty cost. Approximately 50 percent are in the 133-250 percent of FPL range, where a family earning $55,000 would be typical and could purchase Bronze coverage for a few hundred dollars above the penalty rate. Approximately 25 percent are in the 250-400 percent of FPL range, and would face premiums several thousand dollars more than the non-compliance penalties. The 20-25 percent above 400 percent of FPL will face even larger premiums or penalties. (Percentages do not total to 100 because the young adults are also counted in the other groups.)

Based on these estimates, it appears that a substantial majority of the non-Medicaid-eligible uninsured should find subsidized coverage attractive, especially as the penalties increase from 2014’s minimal levels. Only for incomes above 250 percent of FPL does the penalty begin to be significantly less costly than buying Bronze coverage, and at these levels families may have rather more disposable income.

The conclusion? Although there will undoubtedly be those who choose the risk of penalties over the cost of coverage, and while there will certainly be regional variations in premium costs relative to penalties, it seems inappropriate to conclude that the individual mandate will be ineffective if it is found to be constitutional.

SO, ARE EHRs A WASTE OF TIME AND MONEY?

The 2009 Health Information Technology for Economic and Clinical Health Act (HITECH) authorized incentive payments, potentially totaling some $27 billion over ten years, to clinicians and hospitals when they implement electronic health records in such a way as to achieve “meaningful use,” in terms of advances in health care processes and outcomes.

But, are EHRs really “meaningfully useful” or are they more likely to be costly and ineffective?

The latter seems to be one possible interpretation of a recent RAND study of EHR adoption in US hospitals.

The RAND study statistics are impressive: five study authors tallied 17 “quality measures” for three medical conditions against three possible levels of EHR capability (no EHR, basic EHR, advanced EHR) for more than two thousand hospitals for each of 2003 and 2007. They then related changes in quality over the four year timeframe against changes in EHR status (for example, from no EHR to an advanced EHR).

The reported results were disappointing to EHR proponents. Among the hospitals whose EHR capability remained unchanged over the four years, there was no statistically measurable difference in quality improvement between hospitals with EHR capability and those without. For hospitals which upgraded their EHR capability, the performance improvement was generally less than for those who didn’t change, including those with no EHR at all.

So, should we forget about EHRs? Maybe defund HITECH?

Not necessarily.

As the study’s authors point out, there are a several possible explanations for their results other than ineffectiveness of EHRs. Implementation of an EHR—a very demanding effort—might temporarily disrupt other quality improvement efforts. Hospitals with EHRs typically had higher quality measures to begin with, and—like trying to catch up with the speed of light—would likely find improving quality more challenging as 100 percent quality is approached. Results might have been different for other medical conditions. And the timeframe of the study may have been inadequate to measure the impact of new EHRs, some of which may have been implemented only just before the end of the time period.

It can also be argued that the measurement methodology was flawed. Using simplistic indicators of quality like whether or not aspirin was dispensed on arrival or discharge instructions were provided is a little like judging the quality of a meal by whether or not there was a caterpillar in the salad. Presence of a caterpillar definitely indicates a problem, but its absence says nothing about other aspects of the meal. The study authors indicate their awareness of this limitation in stating “we are concerned that the standard methods for measuring hospital quality will not be appropriate for measuring the clinical effects of EHR adoption.”

Perhaps most importantly, as with other IT systems, EHR success depends on the competence of the implementers and the willingness of the users to accept change, with poorly managed projects more likely to foul up existing processes than improve them. The RAND authors praise programs initiated by the Office of the National Coordinator for Health Information Technology to improve EHR implementation, and comment—in spite of the inconclusive results of their study—that “We believe that these programs are well conceived and anticipate that they will lead to more effective use of EHRs, which will in turn lead to improved quality in US hospitals.”

EHR systems are no panacea, and clearly there have been both successful and troubled EHR implementations. What is needed now is a closer look at what works and what doesn’t, how well EHRs perform over a longer timeframe than the RAND study, and a much less simplistic look at what is really happening to clinical quality as a result.

CLUELESS IN UTAH?

The trials and tribulations of Utah’s much-touted Health Exchange continued in December, with the announcement that yet another chief executive had quit, along with the admission that very few eligible employer groups had signed up for the exchange.

The Utah exchange differs from that of Massachusetts in that it currently focuses on coverage for small employers offering defined contribution plans, a policy that was hoped to demonstrate the effectiveness of such plans. However, so far enrollment has been far too low to test the merits of this approach.

The Salt Lake Tribune reported in late December that a new executive director had been appointed to head the exchange, which is administratively located in the Governor’s Office, making the third director in just over six months.

The Tribune went on to compare the expectations of State officials, who had anticipated enrolling 3,000 small employers with an estimated total of 40,000 employees, with the current reality. As of late December, with coverage scheduled to start on January 1, 2011, just 43 of the State’s estimated 50,000 small businesses had signed up and been determined eligible.

Back in September, when the Utah exchange started to accept coverage applications, Utah’s Governor Gary Herbert was quoted as saying: “[the exchange] is quickly becoming a model for the rest of the nation when it comes to health care reform."

Hopefully not.

2009 HEALTH SPENDING REPORT RELEASED—AND OPEN TO INTERPRETATION

The New York Times headline was “Health Spending Rose in ’09, but at Low Rate,” but it could just as appropriately have been “Health Spending in ’09 Took Biggest Jump Ever in GDP Share.”

The computers in the CMS Office of the Actuary have finally quit grinding away and disgorged their findings for US health care spending for 2009. Total spending did rise at the lowest rate in fifty years—just 4 percent over 2008—but health care’s share of the economy jumped from 16.6 percent to 17.6 percent—the highest rate of increase in fifty years—as the economy shrank. In other terms, 2009 saw US health care cross another half-trillion dollar threshold—to $2.5 trillion for total expenditures—and pass yet another thousand dollar per capita marker—to just over $8,000 a head.

As the economy started to emerge from the recession, federal spending on health care accelerated, but many individuals deferred or declined medical care. Medicare expenditures rose to $502 billion, an increase of almost 8 percent, while Medicaid expenditures jumped to $374 billion, an increase of 9 percent, fueled by a 22 percent increase in federal support that was only partially offset by a drop of 10 percent in state funding. In comparison, in the private insurance sector, total premium dollars paid increased by just 1.3 percent to $801 billion, with an average premium increase of 4.6 percent.

In terms of population, Medicare enrollment rose by about 2 percent to 46.5 million, Medicaid enrollment rose by 8.3 percent to 48.6 million, and private insurance enrollment fell by more than 6 million—3.2 percent—to around 197 million.

What does this imply for the next two to three years, until the scheduled 2014 date for full implementation of health care reform? Will we revert to pre-recession increases in expenditures?

It seems highly possible.

Assuming the current economic pattern of a very slow recovery from the recession, enrollment increases in Medicaid and decreases in private insurance should indeed return to earlier trends—close to stable for Medicaid and a slow erosion for private insurance—while Medicare enrollment will continue to grow with the number of older Americans.

In terms of expenditures, a slowly improving economy may result in more use of medical services as some families have more household income while others who deferred care in 2008-2010 now find it necessary. Providers and insurers may be tempted to build “war chests” in anticipation of the impacts of reform, with Medicare spending in particular jumping ahead of the uncertain potential impacts of the Independent Payment Advisory Board and accountable care organizations, as well as reductions in Medicare Advantage spending. Even ahead of 2014’s big expansion, Medicaid will continue to grow, with some possible face-offs over funding between the federal government and those states in the most serious financial straits. The one area of slight statistical improvement is likely to be in health care’s share of GDP, with the annual increases back below half a percentage point—but still pushing health care rapidly towards a fifth of the economy, and with an even bigger increase expected with reform implementation in 2014.

HAPPY NEW YEAR!

A very happy New Year to all readers of Health Care REFORM UPDATE!

And, also, some happy New Year gifts from the Obama administration, by way of the Affordable Care Act… January 1, 2011 is the date that a number of the ACA changes designed to make health care coverage more attractive become effective, along with a few that will be less popular—notably to insurance companies.

Most Medicare beneficiaries will indeed be beneficiaries of the ACA changes. The Part D doughnut hole will effectively shrink, with 50 percent discounts on brand-name drugs for those whose expenditures put them “in the hole.” All Medicare plans, including traditional fee-for-service Medicare, will also cover all preventive care with no out-of-pocket charges (although many Medicare Advantage plans already provided this benefit). Meanwhile, physicians may bail out of the program less rapidly as a new ten percent bonus is added to payments to primary care docs and general physicians. On the other side of the ledger, however, wealthier beneficiaries will see lower subsidies and the beginning of higher Part B premiums.

Also on the negative side, it will no longer be possible for individuals with HRAs or HSAs to treat reimbursement for over-the-counter medications in the same way as prescription drugs. Only if prescribed by a physician will OTC items be eligible for HRA or HSA tax-free reimbursement.

Finally, insurers will take some more hits. New “fees” will be levied on drug companies based on their sales of brand-name pharmaceuticals. The much-debated medical loss ratio restrictions [see earlier REFORM UPDATE posts] will also take effect, while the “confess and explain” rule for premium increases over ten percent will be effective upon final rulemaking. And, going back to Medicare, insurers with Medicare Advantage plans will have their 2011 payments frozen at 2010 levels, with a start also being made on reducing the excess of Advantage payments over FFS costs.

THE “UNREASONABLE” PREMIUM INCREASE RULE

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.

WHAT ‘S THE MISSION OF INSURERS?

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.

Health Care REFORM UPDATE FEATURED IN BENEFITS BLOG CARNIVAL

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!

THE VIRGINIA DECISION: WHAT DOES IT MEAN?

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.

MINI-MEDS: THE SAGA CONTINUES

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.

CREATING INSURANCE EXCHANGES: A RACE WITH NO FINISH LINE?

State governments, like California’s, that are already well into the efforts involved in establishing insurance exchanges meeting ACA requirements, may be starting to worry after the mid-term election results.

With Republican politicians apparently unified in their determination to roll back health care reform, is there a risk that come 2014 there will be neither a statutory requirement nor any funding to support exchanges? Could states’ efforts to build exchanges be in vain?

About-to-be-Speaker Boehner is promising a House bill to repeal ACA early in 2011. It’s likely to pass, but then will almost certainly die in the Senate. In the highly unlikely event of a repeal bill passing the Senate, it will then certainly be vetoed by President Obama.

In the cynical world of politics, of course, having Democrats kill a reform repeal bill is exactly what Republicans are aiming for, so that it’s almost certain that the Boehner bill will be little more than a simple repeal, rather than any attempt to restructure reform in accordance with conservative principles. Having watched the Democrats tie themselves in knots during the 2009 reform debate, no sensible Republican politician will want to risk the same by proposing anything much more specific than a simple rollback.

All of this is part of the prologue to the 2012 election, when Republicans—still playing on public confusion and dissatisfaction with reform—hope to capture the Senate and the White House. And that’s really the big worry for states trying to implement ACA.

President Palin (h-m-m, maybe) will certainly make repeal of ACA a priority. So where does that leave state exchanges, which even under the current reform legislation don’t have to be implemented until 2014, but for which planning and implementation efforts may take three or more years?

One problem that President Palin will face is that, after four years of unrelenting Republican criticism of ACA, people will expect the new administration to have an alternative. And with unrelenting premium increases continuing and perhaps as many as sixty million uninsured, this expectation will be accompanied by considerable public pressure. In other words, a simple rollback of ACA isn’t in the cards.

A second problem for President Palin is that her own party (Republican, not Tea) will be less than unified in their opinions. In fact, some of the pre-ACA proposals for insurance exchanges came from the GOP side of the aisle. This shouldn’t be too surprising, since it was the conservative Heritage Foundation that was an early backer of the exchange concept, while key congressman Paul Ryan is a strong supporter of a voucher approach, something that needs an exchange in order to be effective.

So, will our first female president dump the insurance exchange model along with the parts of reform she really hates? Probably not. Aside from the likelihood of outcries from states who will already have made major investments in their exchanges, it’s a model that could support a conservative rewrite of ACA.

What’s a reasonable conclusion? While there will continue to be plenty of uncertainty about implementation of many details of reform, the states that have already indicated their intent to establish exchanges probably will continue to have federal support. After all, what could be more Republican than effective market competition?

NEWS UPDATE 11/18/2010: LOOKING AHEAD?

A combination of commission reports and announcements from individual senators this week points to efforts to think beyond the current provisions of the Affordable Care Act, although with varying motivations.

On the surface, the release of draft recommendations from the co-chairs of the National Commission on Fiscal Responsibility and Reform, set up by President Obama earlier this year, would seem to be the most likely to lead to change. The Commission’s charge is a challenging one: “to identify policies to improve the [nation’s] fiscal situation in the medium term and to achieve fiscal sustainability over the long run.” It’s also one that inevitably includes some emphasis on health care expenditures, especially Medicare and Medicaid.

With the Commission’s final report due on December 1, the co-chairs’ draft might be expected to be both detailed and politically realistic. However, the almost universally negative reaction to the draft from Commission members, politicians, and interest groups, suggests that neither is the case and that the likelihood of a final set of recommendations gaining majority approval is very slim indeed.

For Medicare and Medicaid the co-chairs’ draft might be summarized as “everyone pays a little more, everyone gets a little less.” Medicare and Medicaid cost-sharing would be increased, fraud would be reduced (as usual), adopt tort reform (as usual), expand successful cost containment demonstrations (if there are any), and cap Medicaid long-term care payments (that should improve nursing home conditions), etc, etc.

Meanwhile, elsewhere in the DC swamp, a second commission just released its deficit reduction recommendations. This “unofficial” commission, created by the Bipartisan Policy Center and co-chaired by former Senator Pete Dominici and Alice Rivlin (also, oddly enough, a member of the President’s National Commission) produced much more aggressive recommendations for health care than the “trimming the undergrowth” approach of their cross-town rival.

The BPC commission’s proposals include phasing out the tax exclusion for employer health benefits, hiking Medicare premiums, and gradually moving Medicare to a partial voucher program, and imposing big taxes on sweetened drinks. It’s a package that, were it to be implemented, stands a much better chance of bending the health care cost curve. Implementation, however, seems as unlikely as for the “official” commission co-chairs’ draft, with liberals and conservatives alike already raining objections on the recommendations.

Meanwhile, individual senators are tossing out ideas.

Very-vulnerable-to-defeat-in-2012 Senator Ben Nelson, actually isn’t so much tossing out ideas as soliciting them. He’s desperate to find an alternative to the ACA individual mandate (not a big winner in the Senator’s home state of Nebraska) and has asked the GAO to come up with suggestions. Stay tuned…

One proposal that stands a better chance has come from Senators Ron Wyden (D) and Scott Brown (R). They want to move up to 2014 the possibility of states’ being granted ACA waivers. This is something that vulnerable senators like Ben Nelson (and maybe Scott Brown, too, by 2012) could find very appealing: potentially it offers states the opportunity to try to achieve what reform was intended to do, but without the unpopular ACA. The downside is that passage of the proposal could result in having fifty health care systems with different rules (not to mention the effects of the uncertain future in every state); the upside is that there might be one among them that is effective.

Or maybe, all these ideas will die an early death…

ABOUT THOSE REGULATIONS, MS SEBELIUS…

American businesses spend a lot of time complaining about overregulation, but with the passage of the Affordable Care Act now some eight months in the past, it’s the lack of regulations that is becoming a problem.

The most obvious and urgent area concerns the medical loss ratio provisions of ACA. With just six weeks left before the MLR rules will be imposed on insurers who must decide whether to remain in certain markets, the Secretary of Health and Human Services still has not released final regulations.

It’s not all the fault of HHS. The core definitions and computations of MLRs were entrusted to the National Association of Insurance Commissioners, who initially promised delivery by the end of May, then delayed, and delayed, and delayed, before finally submitting their proposal to HHS in late September. Given the likely impact of the NAIC proposal on some insurers in the individual market (and on their consumers), and the certain Republican response to their problems, it’s not surprising that Secretary Sebelius is hesitating.

HHS has already backpedaled on MLR rules for mini-med policies like those offered to McDonalds’ employees, and supposedly is now trying to craft “special rules” for calculating these plans’ administrative costs for MLR purposes, presumably in an effort to allow them to pass the ACA ratio test. The trouble is, creating special rules for the plans that would otherwise fail the MLR test by the widest margin opens up a major can of worms. Why not have special rules for more generous plans? Why not have special rules for every type of high-deductible plan? How can the dilemma be solved without rejecting the regulatory language that ACA delegated to the NAIC?

Meanwhile in an another part of the insurance swamp, it’s state governments who may be starting to be anxious about the lack of ACA regulations. Those states, like California and Washington, that are moving fastest towards implementation of insurance exchanges, are about to discover that vague and contradictory language in ACA is going to make policymaking hazardous and IT design of dubious value. Without at least having draft regulations, states will find it hard to make critical policy and procedural decisions. Republican state governors may shed few tears over the problem, but unless the GOP succeeds in rolling back reform, even they may prefer to implement their own exchanges rather than yield to federal control—and that means having regulations sooner, not later.

A GOP HOUSE: WHAT NOW FOR HEALTH CARE REFORM?

Having pulled off a very big win in the House of Representatives and substantially reduced the Democrats’ majority in the Senate, Republicans are now faced with deciding just what strategy to adopt towards health care reform.

GOP leaders are already promising a bill to repeal reform early in the new session, but with the Senate and the White House in Democratic hands, this is political posturing. Almost certainly there will be a repeal bill offered, and the odds are that it will pass the House, only to die or be vetoed in the following weeks. Given the huge amount of public confusion about the contents of the Affordable Care Act, much of it created by commentators on the right, the best guess is that the Republican bill will be a simple one, intended just to roll back most ACA provisions. The real objective, however, given its certain fate, will be to reemphasize how out of touch Democrats are with the “will of the people.”

More realistically, Republicans will then turn to their alternative strategy, of trying to starve reform of funding by voting against the budget. This is a risky strategy, as Newt Gingrich discovered in the time of the Clinton administration, but with Democrats having just a half-dozen majority in the Senate, it could be one that forces some compromises by the Democrats.

What might such compromises look like? It may be too late for the much-debated medical loss provision to be eliminated, although many Dems would surely be glad to offer this embarrassment up as a sacrifice. Medicare changes are an obvious area, since the program is dependent on the federal budget. Insurance exchanges could also be a victim, perhaps being reduced to a series of demonstrations, for example only in states where governors are actually eager to put them in place. Given the Tea Partiers’ emphasis on slashing expenditures, some of the subsidies and credits in ACA may also see some cutbacks, although neither party’s leaders will want to be accused of taking away individuals’ entitlements. There may also be a few areas, like the opt-out provision for lower-income group plan enrollees, that would simplify ACA without significantly generating political opposition on either side of the aisle. One last possibility, given the Democrats’ small Senate majority, is a revival of some of the features of last year’s bi-partisan Wyden-Bennett bill, like changing the tax treatment of employer premium payments, although the tempting threat to union negotiating power may not be enough to offset other employee and employer concerns.

One area where a compromise will not happen is the individual mandate. The White House will not give on something so fundamental to universal coverage—or so necessary to spread insurance risk and premium dollars—while many Republicans may feel confident that the Supreme Court will find it unconstitutional and be willing to wait for that ruling.

Finally, it’s also possible that Republicans may really not worry too much about repealing reform. With the majority of state houses in GOP hands, and given the inherent difficulties of implementing insurance exchanges and expanding Medicaid, there may be political advantages to waiting for the inevitable problems to start to become apparent in the fall of 2012, just in time for the next presidential election.

FINALLY! NAIC SENDS MLR PROPOSAL TO HHS

Many weeks after its original target date, the National Association of Insurance Commissioners sent its proposed regulations for computation of medical loss ratios and associated rebates to HHS Secretary Kathleen Sebelius yesterday. Secretary Sebelius must now decide whether or not to accept the proposal (ACA provides no other option) for inclusion in the full set of federal MLR regulations.

The NAIC cover letter forcefully reemphasizes state regulators’ concerns about the MLR provisions: “We continue to have concerns about the potential for unintended consequences arising from the medical loss ratio. As we noted in our letter of October 13th, consumers will not benefit from higher medical loss ratios if the outcome is destabilized insurance markets where consumer choice is limited and the solvency of insurers is undermined. This is of particular concern in the period before guaranteed issue and exchanges are implemented in 2014, as those who lose coverage may be unable to find or afford other coverage.”

The letter goes on to remind Secretary Sebelius of NAIC’s earlier point that state regulators are better able than HHS to determine if waivers are necessary: “We reiterate our request that your Department give deference to the analysis and recommendations of state regulators when determining how the new requirements will be implemented in a destabilized market.”

Finally, the cover letter reiterates NAIC concerns that insurance agents and brokers will be hard hit by the MLR provisions, since their commissions are counted as insurer expenses in the proposed MLR computation, and insurers will presumably be unwilling to cover these costs in future.

Whatever HHS’ response is to the NAIC comments, federal officials and state regulators will have very little time to prepare for their implementation on January 1, 2011, and—if there are further changes— health insurers will have even less time to decide how to respond, including whether to remain in existing markets.

REFORM LIMBO: INSURERS WAIT FOR REGULATIONS, ELECTIONS, AND WAIVERS

One expectation in the wake of the passage of the Affordable Care Act seven months ago was that it would lead to major changes in the health insurance industry.

Throughout the reform debate, insurers were painted as the “bad guys” of the American health care system, guilty of egregious policy cancelations, huge premium increases, heartless rejections of applications for coverage, and overly generous executive compensation, all in the context of an inefficient and ill-structured industry.

Not surprisingly, insurers became the primary targets of the new law. ACA will prevent insurers from imposing annual and lifetime benefit limits, arbitrarily canceling policies, denying coverage to children with pre-existing conditions, imposing copayments on preventive care, excluding necessary services, and basing premiums on health status or gender. ACA will also force far more open competition though insurance exchanges and limit insurer administrative expenses and profits.

So far, though, in spite of a steady stream of complaints from America’s Health Insurance Plans, the industry lobbying group, there has been little apparent impact on the health insurance industry.

Many insurers have increased premiums to compensate for ACA’s increased benefits, and some have decided to no longer offer “child only” policies, to avoid the risk of accepting children with very costly pre-existing conditions. In terms of the overall market, however, these are very small blips.

There have been a few other blips. Following national publicity over McDonalds’ threat to cancel its min-med employee insurance plan, HHS granted waivers of the annual benefit provision to the burger chain and some thirty other employers. A couple of small insurers have withdrawn from the health insurance market and transferred their policies to larger competitors. And three states have applied to HHS for waivers of the MLR provisions.

Overall, however, there has been a remarkable absence so far of change in the health insurance industry. Given all the potential threats of ACA, why do insurers seem to be in some kind of limbo?

There are three reasons: delay in finalizing medical loss ratio regulations; uncertainty about HHS’ approval of waivers; and the November mid-term election.

ACA’s medical loss ratio provisions offer a huge threat to smaller insurers, especially those specializing in “affordable” high-deductible policies which typically have high administrative expenses relative to benefit costs. The National Association of Insurance Commissioners has finally—after several delays—completed its proposal for MLR computation, but until this is accepted by HHS Secretary Sebelius and incorporated into regulations, insurers will continue to be unsure of its impact.

Secretary Sebelius also must decide how to rule on MLR waiver requests already submitted by a handful of states, and on the larger issue raised by NAIC of how to measure the potential market destabilization that ACA requires to trigger a waiver. Again, this is an issue with huge ramifications for many insurers. A rigid interpretation by HHS of waiver requirements could lead to a wholesale insurer exit from the individual market.

Finally, the November election is seen by insurers as providing the chance to squeeze the Obama administration’s implementation of ACA. With a strong enough showing by Republicans, the insurance industry hope is that threats of a funding cut-off by the new Congress will lead to dilution of many of the more onerous or profit-crippling ACA provisions.

And if insurers don’t get everything they are hoping for? Starting in January 2011, when the new MLR regulations are scheduled to be effective, we can expect to see three things: insurers dumping their small group and individual business, replacing high-deductible policies by more costly coverage with lower limits, and the wave of consolidation in the industry that executives from the largest carriers have been forecasting for several months.

PPACA PREMIUM SUBSIDIES—THE GOVERNMENT IS HERE TO HELP YOU!

If anyone ever doubted the extent to which Congressional committees could turn good intentions into a bureaucratic nightmare, they need only to look at PPACA’s premium subsidy provisions and their potential impact on insurance exchanges.

PPACA offers premium and enrollee cost-sharing subsidies for lower-income people not eligible for Medicaid or SCHIP as one of the three key components—along with liberalizing Medicaid income restrictions and requiring everyone to have coverage—of reform’s attempt to solve the affordability problem that’s resulted in fifty million Americans being uninsured.

How will the subsidy process work? It takes up 25 pages of the final reform legislation, so the following is a vastly simplified description. It’s also one that assumes that the final regulations will not deviate significantly from the law itself.

First, anyone wishing to be eligible for a subsidy must submit an application to an exchange. The application must include all information necessary to determine if the applicant is eligible for Medicaid or SCHIP, as well as for the PPACA subsidies. (Massachusetts’ Connector—the prototype exchange—requires a 12-page page form to convey this information.)

Second, the exchange transfers the applicant’s information to the state Medicaid and SCHIP agencies to determine possible eligibility for those programs. If either is the case, and depending whether all or just some family members are affected, the applicant must be notified, and may no longer be eligible for exchange enrollment.

Third, assuming no eligibility for Medicaid or SCHIP, the exchange must determine if the applicant’s income appears to meet PPACA subsidy rules. If not, the applicant must be notified that no subsidy is available.

Fourth, the applicant’s information is forwarded to HHS, which will—in conjunction with the IRS and other federal agencies—verify the submitted information. (The Congressional Budget Office estimates that the cost to the IRS of implementing the eligibility determination, documentation, and verification processes would be between $5 billion and $10 billion over 10 years.)

Fifth, HHS will notify the exchange of the results of verifying the submitted information. The exchange must then notify the applicant, including whether any discrepancies were found and must be corrected.

Sixth, assuming the application meets PPACA subsidy rules, the applicant can finally select an insurance plan from the exchange. However, in order to receive a cost-sharing subsidy as well as a premium subsidy, only Silver plan selection is allowed. Thus, lower-cost Bronze plans cannot be chosen by anyone wanting to reduce their out-of-pocket costs. The exchange must also notify the applicant of the reduced premium amount and the impact of any reduced cost-sharing.

Seventh, the exchange must notify HHS of the applicant’s choice of plan.

Eighth, HHS must notify the Treasury Department, which will then make the monthly premium subsidy and reduced cost-sharing payments to the selected insurer.

Of course, the above describes the most straightforward situation in which a well-organized individual applies for subsidies well ahead of the start of coverage deadline, during an annual open enrollment period, with timely and accurate communication among the various agencies involved.

Unfortunately, there are likely to be many cases when a subsidy application is incomplete or inaccurate, or when it is submitted only just before a deadline, or when information supposed to be forwarded from one agency to another goes astray, or when an individual moves from one state to another in mid-year, or when any of the myriad of other problems occur associated with 11 million people (CBO’s premium subsidy population estimate for 2015) encountering a new government program on January 1, 2014, the same date that an estimated 15 million others will become newly eligible for Medicaid or SCHIP, with every one of these 26 million individuals’ applications being processed by the same state agencies.

Could it be that reform’s attempt to solve American’s health care problems by applying a giant Band-Aid to the existing system is going to lead to an even more incomprehensible muddle?

THE MASSACHUSETTS CONNECTOR: LESSONS FOR PPACA EXCHANGES

Massachusetts’ Connector, operational since 2006, is the prototype for PPACA’s insurance exchanges. Connector boosters have claimed it is a vital and successful part of Massachusetts’ health care reform; its critics have noted its failure to influence either benefit or administrative costs or to attract significant enrollment. However, whether success or failure, the Connector offers lessons for other states.

LOW ENROLLMENT MEANS FAILURE

As Massachusetts discovered, it’s impossible for the exchange to influence premium rates without a significant share of the small group and individual markets. Massachusetts succeeded with its subsidized plans, where it was the dominant purchaser, but not with its unsubsidized plans. Insurers will see no reason to risk cannibalizing their non-exchange business by offering especially competitive rates within the exchange if the potential enrollment is too low to be attractive.

Low enrollment also means high per capita administrative costs. Implementation expenses ($25 million for the Connector) will be politically unacceptable unless substantial enrollment can be guaranteed, while ongoing operating costs spread over too few enrollees could make the exchange noncompetitive with non-exchange offerings—resulting in even lower enrollment.

Massachusetts attempted to make individual coverage less costly (and therefore more attractive) by combining individual and small group markets. This creates a larger enrollee risk pool, and greater per plan enrollment, but results in higher small group rates.

PPACA exchanges should gain from being the only sources for those receiving premium subsidies, with subsidized and unsubsidized enrollees expected to choose from the same menus of plans (unlike the Connector). However, competition from non-exchange plans may be significant since PPACA puts few limits on such offerings, other than to require that premiums be the same if the identical plan is offered through the exchange, and to require that exchange and non-exchange enrollees be part of the same risk pool.

ENROLLMENT MUST BE ATTRACTIVE, EASY, AND FAST

To maximize enrollment, exchanges must compete successfully with individual insurers. To overcome the government agency stigma, exchange enrollment processes must be exceptionally well-designed to attract potential enrollees (and supported by advertising), be easy to navigate (while providing the information needed by enrollees), and fast (so enrollees don’t quit before enrollment is completed).

Massachusetts’ Connector website provides a good model for plan selection and enrollment by non-subsidized individuals, but could require considerable modification for a state with more plans, and to attract small employers (few of whom have chosen to use the Connector).

PPACA’s subsidized enrollees will present problems because of the need to review income and other details. Exchanges will have an effective monopoly of this group, but enrollment will be a two-step procedure, as in Massachusetts, separated by a—possibly lengthy—state and federal subsidy determination process.

PRICE COMPETITION IS ESSENTIAL

Massachusetts’ Connector (and also California’s 1.3 million enrollee CalPERS public employees exchange) shows that people tend to choose lower cost options IF they can easily compare premiums and benefits. Such comparisons are essential to controlling the costs of coverage and—eventually—medical care.

The Connector (and also CalPERS) offers limited menus of plans, with benefits defined by the exchanges. This reduces the complexity of plan choice and—in theory—means that enrollment isn’t spread so thin that it becomes insignificant to individual plans.

PPACA exchanges may encounter pressure to include the products of every licensed insurer in the state or region, and to allow variations from standard benefits. Insurers may also attempt to cherry pick outside the exchanges by offering products aimed at the best risks, while trying to finesse PPACA’s risk-pooling provisions. Allowing such flexibility would undermine any potential that exchanges have for controlling health care costs.

EXCHANGES MUST BE ACTIVIST

Massachusetts took an activist approach to exchange operation, including specifying allowed coverage options and providing a website that readily allows price comparison. Similarly, CalPERS has worked closely with insurers to provide affordable and comparable options. (In contrast, Utah’s so-called exchange offers little more than would be provided by a Google search on “health insurance.”)

PPACA gives exchanges a lengthy list of responsibilities, including requiring that an exchange provide “standardized comparative information on plans,” and that it assign a “quality and price rating.” However, the law is silent on key issues like the exchange’s ability to determine which insurers and which products are to be included, or exactly how they are to be compared, or whether restrictions could be imposed on competition between exchange and non-exchange products.

Without a strong activist approach, exchanges will provide no incentive for insurers to control their own costs or the costs of their contracted providers—and their success will still be dependent on meeting enrollment and price competition goals.

NEWS UPDATE 10/15/2010: STATE INSURANCE REGULATORS APPLY PRESSURE TO HHS

Having a-l-m-o-s-t completed the final draft of the medical loss ratio calculation rules for approval by the Department of Human Services (a responsibility delegated by PPACA), the National Association of Insurance Commissioners is now pressing for a more generous waiver policy for the individual market than envisioned by Senate proponents of the MLR requirements.

In an October 13 letter to HHS Secretary Kathleen Sebelius, NAIC officers ask that HHS “give deference to” state regulators’ determinations of whether imposition of the MLR and rebate provisions would destabilize individual markets.” The letter lists a series of factors that state regulators would consider, including possible impact on insurer solvency and the ability of policyholders to find alternate coverage if waivers were not granted. In other words, the NAIC is requesting that HHS grant waivers to states with a minimum of argument. As the letter says, “State regulators are most familiar with local health care and health insurance markets.”

The NAIC letter emphasizes the importance of a smooth transition to fully implemented reform, and points out that while the MLR provision is scheduled for 2011, the major components of PPACA will not be effective until 2014. (The letter fails to note that, starting in 2014, the MLR calculation must be based on a 3-year rolling average, so that even with waivers prior to 2014 it may be impossible for insurers to meet the 80 percent individual market threshold in 2014.)

The underlying threat, of course, is that unless state regulators’ requests for waivers are granted, HHS will become the whipping boy for every individual policy that is canceled, and for every departure of an insurer from a state market. Democratic insurance commissioners may not complain too loudly, but the Republican majority certainly will.

What is Secretary Sebelius likely to do? Given the rapidity with which HHS folded in the face of concerns about mini-med policies, it’s a reasonable bet that the final federal regulations will require HHS to consider state regulators’ determinations, at least through 2014. It’s also likely, given that the MLR provisions become effective in just a few weeks, that the waivers already requested (from Iowa, Maine, and South Carolina) will be quickly granted.

BURGERS AND BRONZE: MORE MEDICAL LOSS RATIO PROBLEMS

PPACA’s medical ratio loss rules continue to generate problems. Mini-med health plans, providing extremely modest coverage with low premiums, have been in the news this past week, with HHS’ announcement that plans offered by McDonalds and other low-wage employers will receive waivers from PPACA’s annual benefit limit provision to avoid potential termination of these plans. Given the need to maintain insurance market stability (and avoid the politically embarrassing contradiction of President Obama’s campaign promise that anyone with existing coverage could keep that coverage), it’s easy to see why HHS Secretary Kathleen Sebelius granted the waivers. However, the annual limit provision is only one of the mini-med problems.

Mini-med plans also run afoul of PPACA’s medical loss ratio rules. Because administrative costs are high compared with premium, even a highly efficient, non-profit mini-med plan will fall below the MLR thresholds. Again, HHS has indicated that it will allow some form of waiver for mini-meds. However, an MLR waiver faces two obstacles. First, the NAIC draft regulations for MLRs are based on reporting by legal entity, rather than specific product, implying that a waiver would somehow have to exclude mini-med data from the entity’s MLR calculation. Second, insurers marketing conventional high-deductible plans may reasonably argue that they also should be granted waivers—why should HHS waive a plan that offers almost no coverage, but not a plan that offers much more generous coverage (but less than needed to pass the MLR test)?

There is another potential MLR problem, but it’s one that may not be apparent until closer to 2014. Starting in that year, insurance exchanges will offer up to five levels of coverage (Platinum, Gold, Silver, Bronze, and catastrophic. The problem is that, if past exchange experience is any guide, the less expensive coverage levels (Silver and Bronze) will be most popular—and that will mean MLR trouble for insurers offering these levels.

For example, at the Bronze level, and assuming that exchanges will, as in Massachusetts, fund their operations through a premium levy of 4-5 percent, insurers will find it almost impossible to meet the MLR threshold of 80 percent for individual plans. Currently, the most efficient large group plans have MLRs of around 88 percent, indicating non-benefit costs of some $600 for typical single coverage (roughly equivalent to PPACA’s Gold level). With the addition of a 4 percent premium levy, non-benefit costs increase to $800, enough to cause almost all Bronze plans and many Silver plans to fail the MLR test. Only if insurers enroll startlingly large numbers at the Gold level will they be able to avoid the requirement to offer rebates—and that’s unlikely to happen.