SCI Teleconference: Federal Health Reform Update Charles Milligan October 12, 2009

Preview of Presentation Status Process Policy Endgame

Status

House – HR 3200 Jurisdiction held by three separate committees Passed Education & Labor Committee by party line vote of Passed Ways & Means Committee by party line vote of Passed Energy & Commerce Committee by party line vote of The version passed by Energy & Commerce included key amendments required by moderate “Blue Dog” Democrats: (a) states share cost of Medicaid expansion; (b) reduce subsidies to population between % FPL; (c) exempt more small employers from mandate; and (d) require public plan to negotiate provider rates, and to follow same insurance reforms. The bill awaits action on the floor

Senate Jurisdiction held by two committees Passed the Health, Education, Labor and Pensions (HELP) Committee by a party line vote of Sen. Baucus introduced his Chairman’s Mark before the Senate Finance Committee on September 16; SFC vote is scheduled for October 12 But don’t forget: Senate Budget Committee passed the Budget Resolution by a vote of on April 29: It said: reform must be budget neutral over 10 years

Process

House HR 3200, as amended in the Energy & Commerce Committee, has advanced to the full House, where versions will be merged via House Rules Committee. The merged version will be scored by CBO. Then the House will take up various amendments, and once that process has concluded, a vote by the full House will occur. Key issue # 1: Whether “Blue Dog” amendments survive Key issue # 2: Whether House moves toward the Senate version, per pressure from White House. Passage requires simple majority.

Senate Senate Finance Committee: Several amendments were made to the original Chairman’s Mark. (The Chairman’s Mark was the default bill, and only was amended by a majority vote in the SFC.) Final committee vote scheduled for October 12

Senate continued Once the bill emerges from SFC, both bills (SFC and Senate HELP) will be merged on the Senate Floor, per Senate Rules Committee, with heavy input. Then CBO will score the merged bill. Then the full Senate will address the merged legislation. The full Senate will consider and vote on various amendments, and once that process has concluded, a vote by the full Senate could occur. Key issue # 1: Will a comprehensive reform bill be able to secure 60 votes? Key issue # 2: If not, what is achievable through Reconciliation?

Senate “Reconciliation” Reconciliation: Bill may pass the Senate with simple majority Key problems with Reconciliation: Byrd Rule: Can only take up “budget” matters to “reconcile” legislation with Senate Budget Resolution; Senate Parliamentarian decides Laws are time-limited to 10 year budget window; then sunset Example: SCHIP – created in 1997, not permanent, nearly died in 2007 Example: “Bush tax cuts”

Political Problems with Reconciliation 1.Lack of bipartisanship 2.Is reconciliation version too far right for the House, because some Democrats are jettisoned to garner a few Republicans? 3.Is reconciliation version too far left for the House, because moderate Democrats and all Republicans are jettisoned? 4.Is reform possible when limited to finance only? 5.Is reform stable if it sunsets?

Conference Committee and Endgame The version that passes the House, and the version that passes the Senate, will not be identical. A Conference Committee will be formed to reconcile the two versions, and it will be scored by CBO. After those deliberations, the Conference Committee’s version will return to the respective Chambers for a final vote up or down vote. If those versions pass, the bill goes to the President.

Policy

General Areas of Agreement across Proposals Coverage expansion Expand Medicaid to an across-the-board eligibility floor, particularly to help childless adults, probably to 133% FPL Provide tiered subsidy to others; up to somewhere between % FPL Create Exchange/Connector/Gateway Purchasing pool model for individuals, small employers, and those without access to ESI Individual mandate With hardship exception “Medical home” Workforce development grants

General Areas of Agreement across Proposals ( continued) Employer engagement For large employers (pay or play mandate; or weaker “free rider” penalty) For “larger” small employers, with concomitant tax credits for some Insurance market reforms Community rating rules (e.g., tobacco use; age; family size) Guarantee issue/pre-existing condition underwriting prohibition No annual or lifetime benefit caps No rescission Process to define qualifying “minimal benefit package” Necessary for purchasing products in the Exchange, and to know whether the individual mandate has been met; pre-empt state rules

General Areas of Agreement across Proposals ( continued) New revenue from: Taxing “high benefit” plans Penalties on individuals and employers who violate mandates Savings from: DSH (Medicare and Medicaid) Medicare Advantage plans Medicaid Rx rebates (including inside managed care) Invest in Comparative Effectiveness research But limit use of results

Major Areas of Disagreement Public option Stealth single payer, or necessary where carriers have monopoly or oligopoly? Will it set provider rates (ala Medicare and Medicaid FFS, or negotiate provide rates? Magnitude of expansions, subsidies, tax credits The lower the subsidies and credits, the more people will be exempted from the mandates Involvement with large employers Leave them alone as qualifying plans, or make them conform over time to federally proscribed minimum benefits?

Major Areas of Disagreement ( continued) Federalism: House wants stronger federal role; Senate decentralizes more roles to states: Insurance oversight Locus of Exchange Financing for Medicaid expansion (how much $$ from states; match rate for expansion) SCHIP: Alive and well, or RIP? “Affordability” assumptions for middle class Other forms of revenue (tax on insurers? The wealthy?)

Major Areas of Disagreement ( continued) Payment reform Allow Medicare gain-sharing for “Accountable Care Organizations”? Increase primary care rates relative to specialty care? Cut Medicare payments attributable to avoidable hospital readmissions? Tie some portion of hospital money (in Medicare) to quality/performance? Medicare regional rate re-alignment, per Dartmouth Atlas? Malpractice reform included? If so, with mandate, or merely “Sense of the Senate”?

Endgame

Scenario #1: Democrats cannot get to 60 votes in Senate, and Reconciliation is used In all likelihood, this would limit the scale to financial reforms only, such as: Coverage expansions, including subsidies Medicare payment reform (e.g., cut MA rates and maybe more) Tax “high cost benefit plans” Reduce DSH (Medicaid and Medicare) Increase Medicaid Rx rebates, especially inside managed care Pay for comparative effectiveness studies Create tax credits for small businesses and others Workforce development grants Net costs must be offset with net savings, in 10 years, to reconcile with Senate Budget Resolution

Scenario #1 continued What likely could not be achieved in Reconciliation: Individual mandate Employer mandate Insurance market reforms Creation of Exchange/Connector/Gateway

The less-controversial elements that are not appropriate for Reconciliation could be included in a companion (separate) bill: Insurance market reforms Yet, AHIP released a report on October 11, 2009 arguing that rates will climb much faster than status quo with market reform and no Individual Mandate; AHIP says premiums stay affordable only with all healthy people in the risk pool, or through use of underwriting tools Bless creation of Exchange/Connector/Gateway as a purchasing pool vehicle Scenario #1 continued

Scenario #2: Democrats can get to 60 votes in Senate, and Reconciliation is not needed In all likelihood, this would mean a “moderate” version of reform Coverage expansions with low federal price tag Cost shift more Medicaid to states Smaller subsidy and tax credits for others No public option, unless with (very) limited trigger Similar array of revenue increases, Medicare cuts, and Medicaid cuts as “Reconciliation” version Establish federal benefit benchmark for qualifying plans (and as comparison point for satisfaction of individual mandate)

Scenario #2 continued “Moderate” version of reform, continued Individual mandate More expansive “hardship” exception for individual mandate, given likelihood of reduced subsidies to keep federal $$ down Employer mandate Attachment point only at larger employers Insurance market reform Community rating rules Prohibition on pre-existing condition exclusions/guarantee issue No annual or lifetime caps No rescission

-26- Contact Information Charles Milligan Executive Director The Hilltop Institute University of Maryland, Baltimore County (UMBC)