MSA’s president, Chris Vickrey, recently launched a blog to provide timely commentary on important market developments. While not necessarily limited to healthcare topics, blog posts to date have focused on legislative initiatives for healthcare reform, with links to key primary documents.
On Thursday, March 18, the text of a reconciliation bill, known as the Health Care and Education Affordability Reconciliation Act of 2010, was released. It includes a variety of changes desired by House Democrats to the Patient Protection and Affordable Care Act, the version of the healthcare reform bill passed by the Senate on December 24, 2009. It also includes completed unrelated provisions regarding student loans by the government, hence the reference to education in the title.
The healthcare provisions in the reconciliation bill basically follow the outline proposed by President Obama last month, making insurance premiums more affordable to low-income individuals purchasing healthcare insurance coverage in the insurance exchanges, increasing penalties on large employers who do not provide insurance coverage to employees, and increasing penalties on higher-income individuals who choose not to have healthcare insurance coverage while reducing penalties on low-income individuals who choose not have healthcare insurance coverage.
For pharmaceutical companies, the main change from the Senate bill is an increase in new fees that will be imposed on the industry. With the changes in the reconciliation bill, imposition of the new fees will be delayed until 2011, when they will start at $2.5 billion, increasing to $3.0 billion per year in 2012 through 2016, increasing again to $3.5 billion in 2017 and $4.2 billion in 2018, before dropping to $2.8 billion from 2019 on.
The reconciliation bill gradually eliminates the so-called “doughnut hole” in Part D prescription drug coverage. It preserves the 50% discounts in the Senate bill that pharmaceutical companies would have to offer in the doughnut hole, although it delays implementation until January 2011.
President Obama’s proposal included a ban on settlement agreements between branded and generic pharmaceutical companies in which the generic company receives anything of value in return for an agreement to limit or delay sales of the generic drug, but this provision was not included in the reconciliation bill. The reason could be simply for procedural reasons. Reconciliation bills are supposed to be limited to issues relating to the budget, and any provision not relating to the budget can be challenged. Rather than face potential delays later in the Senate, it appears that a decision was made to drop the settlement ban from the reconciliation bill.
Greater Reduction in Budget Deficit
Also on March 18, the Congressional Budget Office released its estimate of the budget impact of the reconciliation bill combined with the Patient Protection and Affordable Care Act. According to the CBO, the combination would produce a net reduction in federal deficits of $138 billion over the 2010-2019 period. The incremental reduction from the reconciliation bill alone is estimated at $20 billion over the period. The CBO also estimates that the combined legislation would continue to reduce the budget deficit after 2019.
Picking Up Liberals and Blue Dogs
The House is expected to vote on the legislation Sunday, March 21. House Speaker Nancy Pelosi had promised members that they would have 72 hours to review the reconciliation bill before a vote, and since the text of the bill was released on Thursday, Sunday is the earliest a vote could be scheduled. The House will actually vote only on the reconciliation bill, and House Democratic leadership has arranged it so that the Patient Protection and Affordable Care Act will be deemed passed if the reconciliation bill passes.
The House needs 216 votes to pass the legislation. There had been some concerns about whether Speaker Pelosi would be able to round up enough votes, but momentum appears to be building, and it now appears that Speaker Pelosi will be able to pick up the remaining votes she needs by Sunday. President Obama postponed a planned trip to Indonesia and Australia to help in the push to convince wavering Democrats in the House. Earlier in the week, he succeeded in winning the support of Dennis Kucinich, a liberal Democrat from Ohio who had voted against the healthcare reform bill last November. Members of the “Blue Dog” coalition of conservative Democrats, too, had generally been opposed to the reform bill, but later in the week some members announced they were willing to support the legislation. The deficit reduction estimates announced by the CBO on March 18 helped in the effort to convince fiscal conservatives to support the bill.
If the legislation passes the House on Sunday, it will then be up to the Senate to pass the reconciliation bill, for which they will only need 51 votes, and then President Obama will sign the legislation into law. After many ups and downs, it now appears that the healthcare reform bill is heading toward passage.
The Health Care Summit: (from left) Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi, Vice President Joe Biden, President Barack Obama, HHS Secretary Kathleen Sebelius, Senate Republican Leader Mitch McConnell.
President Obama spent yesterday with key members of Congress from both parties in an all-day televised meeting ostensibly designed to bridge differences over healthcare reform. Unsurprisingly, Congressional Republicans had no interest in reaching a compromise. The real objective of the event, however, was to create momentum for Democrats in Congress to push ahead with legislation, using the reconciliation process to bypass a Republican filibuster in the Senate.
The Obama Plan
Leading up to yesterday’s meeting, President Obama started the week by releasing his own proposal for healthcare reform. In essence, it is an attempt to bridge the differences in the House and Senate versions of the healthcare reform bill, basically by tweaking the Senate bill in order to make it more palatable to House Democrats.
For example, compared to the Senate bill, the President’s proposal increases subsidies for beneficiaries, particularly lower-income beneficiaries, who purchase health insurance in the insurance exchanges that will be created. Both the House and Senate bills impose penalties on individuals who choose not to purchase health insurance even when they have affordable insurance options available to them, with exemptions for people who cannot afford any insurance. The President’s proposal would lower the penalties on lower-income individuals while increasing the penalties for higher-income individuals. Like the Senate bill, the President’s proposal does not impose a mandate on employers to provide insurance to their employees, but it does require employers to help cover the cost of insurance if their employees get subsidized coverage in the exchanges. Compared to the both the House and Senate bills, however, the President’s proposal lowers the assessment that employers would have to pay.
The President’s proposal also gradually eliminates the “doughnut hole” in the Part D prescription drug benefit for Medicare beneficiaries, making it so that, by 2020, beneficiaries would only pay 25% coinsurance once they reach the doughnut hole threshold.
One somewhat controversial provision in the President’s proposal would ban settlement agreements between branded and generic pharmaceutical companies in which the generic company receives anything of value in return for an agreement to limit or delay sales of the generic drug. The Federal Trade Commission has long sought to restrict such “pay for delay” settlement agreements, but the courts consistently have upheld them. The President’s proposal would make them illegal.
Like both the House and Senate bills, the President’s proposal reduces overpayments to Medicare Advantage plans, with greater reductions compared to the Senate bill. Like the Senate bill, the President’s proposal imposes excise taxes on high-premium health insurance policies, but it exempts plans whose annual premiums for families are under $27,500, up from $23,000 in the Senate bill, and delays implementation of the tax for all plans until 2018.
The Senate bill imposed $23 billion of fees over 10 years on pharmaceutical companies. The President’s proposal increases the fees to $33 billion over 10 years, but delays in the implementation of the fees by one year, to 2011. The Senate bill also imposed $67 billion in fees over 10 years on all health insurance plans. The President’s proposal delays implementation of these fees until 2014. The President’s proposal also replaces a fee on the medical device industry with an excise tax starting in 2013 that would raise the equivalent amount, $20 billion over 10 years.
In addition, the President’s proposal provides additional federal payments to states to cover a portion of the additional costs states will face as a result of an expansion in the Medicaid program.
The Road Ahead
Even with these changes, however, it is still not clear whether the Obama administration will succeed in attracting sufficient Democratic votes in Congress to push through legislation. It appears that the administration is hopeful that the House will pass the Senate bill along with a reconciliation bill that incorporates the President’s proposed changes to the Senate bill, and then get 51 Democrats to approve the reconciliation bill in the Senate. Still, while a number of difficult challenges remain, including the issue of covering abortions in the exchanges, the Obama administration is doing its best to revive momentum for major healthcare reform legislation.
With the election of Scott Brown in yesterday’s special election in Massachusetts, the Republicans have 41 votes in the Senate, enough to block healthcare reform and any other legislation initiative they oppose.
In yesterday’s post, I wrote, “While not likely, it is still possible that the whole healthcare reform effort could collapse.” Today a collapse is looking much more likely. I had assumed that, in the event of a victory by Mr. Brown, the House would move quickly to vote on the Senate version of the healthcare reform bill. Judging by today’s news reports, it appears that the House has no immediate intention to vote on the Senate’s version of the bill, partly because many House Democrats object to specific provisions of the Senate bill, and partly because some House Democrats now seem to fear the political consequences of pushing forward on the bill.
But what alternative do they have? There is some talk of trying to start over and pass much more limited reforms that would have the support of at least some Senate Republicans. Given that, even after dropping the “public option,”the Democrats were unable to get any Republican support for their bill in the Senate, it is not clear how realistic an alternative that would be.
At least some House Democrats appear willing to walk away from healthcare reform. Unless President Obama and Speaker Pelosi can herd these cats toward the effort to pass legislation, the opportunity will, once again, slip away.
In a surprising development, the future of the healthcare bill in Congress will hinge on the outcome of today’s special election in Massachusetts to fill Ted Kennedy’s Senate seat, in which the state’s Democratic attorney general, Martha Coakley, is running against Republican State Senator Scott Brown.
Although Massachusetts is often considered a reliably Democratic state, many polls show Mr. Brown ahead in a tight race, in part because popular support for healthcare reform has eroded. If he should win, Republicans would have 40 votes in the Senate, enough to filibuster any healthcare bill, and Mr. Brown has stated his intention to block the legislation. Needless to say, this possibility has sent the Democrats into panic mode. President Obama was in Massachusetts over the weekend to campaign for Ms. Coakley. Instead of highlighting how important a victory by Ms. Coakley would be for healthcare legislation, however, Mr. Obama focused on the need for support in the Senate for a new proposal to tax banks, a telling sign that the White House realizes that healthcare reform is no longer a winning proposition, even in Massachusetts.
If Mr. Brown wins, it is likely that the Democrats will push the House to vote on the healthcare reform bill that passed the Senate, thereby avoiding the need for a vote in the Senate over a revised bill. Given that House Democrats opposed certain provisions in the Senate bill and just barely passed their own version of the bill, getting the House to pass the Senate version of the bill might not be easy. While not likely, it is still possible that the whole healthcare reform effort could collapse.
As snowplows worked overtime in Washington DC over the weekend to clear the nearly two feet of snow that blanketed the city in a record snowstorm, Senate lawmakers, too, worked overtime, staying late night Sunday night and into the wee hours of Monday morning to pass, at slightly after 1AM this morning (December 21), the first of several procedural votes to avoid a filibuster of the Senate healthcare bill. The 60-40 vote on party lines sets the stage for a Senate vote on the bill that is currently scheduled for Christmas Eve.
Also over the weekend, the Congressional Budget Office released its analysis of the Senate bill as amended. According to the CBO, the bill is estimated to have the following effects:
Over the course of the first 10 years, through 2019, it would reduce the federal budget deficit by $132 billion.
It would reduce the number of legal US residents who lacked health insurance in 2019 by 31 million, leaving 23 million nonelderly people uninsured (about one-third of whom would be illegal immigrants).
Most Americans would continue to receive insurance coverage through their employers, but 26 million would receive coverage through newly-created insurance exchanges, with subsidies for individuals and families with incomes between 133% and 400% of the Federal Poverty Level (FPL). Individuals with incomes below 133% of the FPL would become eligible for Medicaid, resulting in an increase in the population covered by Medicaid and SCHIP to 50 million in 2019 (from 35 million in 2019 without the reforms).
It would establish an Independent Payment Advisory Board, which would be responsible for limiting growth in Medicare spending and whose recommendations automatically would go into effect unless blocked by Congress.
It would establish a voluntary federal program for long-term care insurance.
Beyond the first decade, the CBO expects the provisions of the bill to continue to slightly reduce the federal deficit after 2019, possibly by 0.25-0.5% of GDP. In contrast to the original language of the bill, which allowed a slight growth in physicians’ payments under Medicare Part B in 2010, the amended bill eliminates this increase, which would result in a cut of 21% in physician payments 2010 under the Sustainable Growth Rate (unless, as is likely, these cuts are subsequently overturned later in 2010). Among other changes, the amendments also cut the annual fees the medical device and insurance industries would have to pay, although there is no mention of cutting the fees the pharmaceutical industry would have to pay.
If the Senate bill passes as expected on Christmas Eve, the next step will be to reconcile the House and Senate versions and have each chamber vote on the final bill in time for President Obama to sign into law by his State of the Union address next month.
According to news reports, last night the 58 Democrats in the Senate held a closed door meeting with the two independent members of their caucus, Bernie Sanders and Joe Lieberman, in an attempt to reach a consensus on the healthcare reform bill. To secure Joe Lieberman’s support and apparently reach the 60 votes required to avoid a filibuster, the Democrats had to scrap a compromise deal reached last week on a limited expansion of Medicare to some individuals in the 55-65 age group and a private-sector approach to the public option.
From the start, some conservative Democrats had been opposed to the so-called “public option,” in which a government-run health plan would compete in the new-created insurance exchanges with private insurance companies in offering health insurance plans to individuals and small businesses. Last week, a group of Senate Democrats worked out a compromise in which, in lieu of a government-run plan, the White House Office of Personnel Management would oversee national health plans offered by private insurance companies, much like the current health insurance benefits for federal employees. In addition, certain beneficiaries in the 55-65 age group would be able to enroll in Medicare, although their premiums would not necessarily be subsidized.
Over the weekend, however, Joe Lieberman indicated that he would not be willing to support such an expansion of Medicare, leaving the Democrats without enough votes to avoid a filibuster. To win Senator Lieberman’s support, Senate Democrats apparently were willing to drop the public plan completely, including the previous compromise reached over the limited Medicare expansion. While there are still some hurdles to overcome, it appears that the Democrats now have the 60 votes they need to pass a bill in the Senate before Christmas. It would then be up to a Conference Committee to reconcile the House and Senate bills into a final bill for next month.
On Monday, November 30, the Congressional Budget Office released its analysis on the effect of the proposed healthcare reforms in the Senate’s version of the bill on health insurance premiums. Both Democrats and Republicans have seized on this report’s conclusions to support their positions on healthcare reform legislation. Democrats have emphasized that beneficiaries in the non-group market (beneficiaries who purchased individual or family policies on their own, not through their employer) would pay lower premiums, on average, under the Senate’s reform bill, once the impact of government subsidies is taken into account. Republicans, on the other hand, have emphasized the increase in premiums in the non-group market, excluding the impact of government subsidies.
While both of these positions are accurate, it should be emphasized that the non-group market, while expanding under healthcare reform, will still account for a relatively small share of the overall insurance market. The vast majority of the non-elderly will still receive insurance from their employers, with 70% in the large group market and 13% in the small group market (in the CBO’s analysis, “small group” is defined as employers with 50 employees or less). Only 17% of non-elderly beneficiaries would be covered in the non-group market, and these non-group policies would be purchased through the new insurance exchanges. Average premiums for both the small group and large group policies would essentially be unchanged, or may even decrease under the Senate bill, according to the CBO’s analysis.
For the non-group market, however, average annual premiums would increase from $5,500 to $5,800 for singles under the Senate bill, while average annual premiums for families would increase from $13,100 to $15,200 under the Senate bill. For 57% of beneficiaries, however, the actual cost would be substantially lower because their premiums would be subsidized by the federal government. Moreover, the biggest reason for the increase in premiums in the non-group market under the Senate reforms is because the insurance coverage provisions of the new policies would be much better, on average, than current policies in the non-group market. Under the reforms, the insurance coverage for policies in the non-group market would be essentially the same as current group market policies, in contrast to current policies in the non-group market, which often offer poor coverage. Other effects of reform, such as slightly lower administrative costs and a slightly healthier pool of beneficiaries, serve to slightly offset the increase in premiums associated with the more comprehensive coverage provisions. Therefore, according to the CBO’s analysis, average health insurance premiums for most beneficiaries would remain essentially unchanged under the Senate’s version of healthcare reform. In the non-group market, however, premiums would increase, primarily because of better insurance coverage, although 57% of beneficiaries in the non-group market would receive significant subsidies, so their costs would be much lower than the average premiums.
There is an absolutely wonderful article on Intermountain Healthcare’s approach to healthcare delivery by David Leonhardt in yesterday’s New York Times Magazine, which you can read here. We have mentioned Intermountain Healthcare in this blog before, and my colleagues and I interviewed one of Intermountain’s leaders for our weekly publication earlier in the year, so the details of Intermountain’s approach were not new to us, but the author presents a thoughtful consideration of other points of view, highlighting the difficulties of convincing doctors to adopt Intermountain’s approach.
Spearheaded by Dr. Brent James, Intermountain approaches quality in healthcare delivery much the same way that Toyota approaches quality manufacturing. It seeks to reduce variation in the way that its doctors treat patients who present with the same medical condition and then continuously refines its treatment protocols in a drive to improve patient outcomes. One criticism of this approach is that, unlike automobiles, each patient is unique, so a one-size-fits-all approach may result in some patients receiving sub-optimal care. Intermountain, however, recognizes that some patients may require deviations from the standard protocol. In Intermountain’s view, it is in precisely the ability to identify those cases that a physician’s experience and training are the most valuable. As Dr. John Wennberg and his colleagues at Dartmouth have repeatedly shown, however, unwarranted variations in physician treatment practices go a long way in explaining the high cost and poor quality of healthcare delivered in much of the US healthcare system.
One of the keys to Intermountain’s approach is being able to measure results, which is made possible by its electronic medical record (EMR) system. That is one reason why the Obama administration has placed so much emphasis on initiatives to have hospitals and physicians adopt EMRs. Adopting EMRs without changing the way medicine is practiced will not improve quality, but being able to track outcomes through EMRs could be a very important step, providing the foundation of evidence to help convince doctors to adopt best practices.
The House of Representative on Saturday passed its version of the healthcare reform bill by a vote of 220-215, with 39 Democrats voting against the bill and one Republican, Representative Ahn “Joseph” Cao of Louisiana, voting for the bill.
While the House vote is an important milestone, what will be most important to shaping the final legislation is what the Senate is able to pass. This week Senate Majority Leader Harry Reid is expected to unveil the Senate’s version of the bill, which is likely to include less generous subsidiaries for uninsured middle-income Americans to purchase health insurance in the new insurance exchanges, similar to the previous version of the bill put forth by Max Baucus and passed by his Senate Finance Committee.
While the House version of the bill would be very unlikely to pass the Senate, the eventual Senate version of the bill would, in all likelihood, pass the House, particularly since a more fiscally-conservative version of the bill would appeal to the Blue Dog Coalition of Democrats in the House, many of whom voted against the House version of the bill this past Saturday.
We had been expecting Senate Majority Leader Harry Reid to unveil the full Senate’s version of the healthcare reform bill last week, but today there is word that it may not even be released this week. While the specific reasons for the delay have not been disclosed, we suspect he is having difficulty balancing the need to rein in the total cost of the bill against the need to keep health insurance premiums low enough to attract the participation of relatively healthy middle-income Americans who currently lack health insurance.
For example, one criticism of the Baucus bill was that it did not provide sufficiently generous subsidies for middle-income Americans to purchase health insurance, even though limiting the subsidies helped lower the overall cost of the bill. For single Americans with income of $40-50,000, for example, the annual cost of purchasing health insurance in the new exchanges to be established is estimated to be approximately $5,000. There is a concern that younger and healthier Americans in that income range who lack health insurance may decide not to purchase health insurance. In fact, because new regulations would prevent insurance plans from excluding pre-existing conditions, nothing would prevent these Americans from purchasing insurance after they realized that they were sick. Accordingly, they may feel that there is little incentive for them to purchase insurance.
While an individual mandate that imposed high penalties on individuals who did not purchase insurance might avoid this “free rider” problem, Democratic leaders in Congress are reluctant to impose high penalties on middle-income Americans who do not purchase health insurance, particularly if the health insurance policies are not perceived to be easily affordable. High penalties would be politically unpopular, as well. Low penalties, however, are not likely to provide a sufficient incentive to purchase insurance.
One possible result would be that relatively young and healthy Americans who currently lack health insurance would choose not to participate in the insurance exchange, so that the insurance pool would consist of relatively unhealthy Americans with higher healthcare costs, thereby driving up average premium costs. As average premium costs rise, even fewer healthier Americans would choose to participate
To avoid this outcome, Senator Reid will need to find the right mix of subsidies as well as penalties associated with the individual mandate, all while reining in the overall cost of the bill. That it is a difficult needle to thread.
