House Passes Affordable Health Care for America Act
On Saturday night November 7, 2009, the U.S. House of Representatives passed the Affordable Health Care for America Act (H.R. 3962) by a vote of 220 to 215. One Republican, Representative Joseph Cao (R-LA), joined 219 Democrats in supporting the bill.
The vote was the culmination of efforts that began early this year, when the three House committees with jurisdiction over health care issues, Energy and Commerce, Ways and Means, and Education and Labor, worked together to create one draft bill. Each committee held hearings and "marked-up" their version of the bill, and the legislation passed by the House on Saturday night represented a merger of the bills passed by the three committees.
The legislation would create the most significant changes in health care policy since the passage of Medicare in 1965. In fact, in a symbolic move illustrating the importance of the bill, Representative John Dingell (D-MI) served as the Speaker Pro Tempore of the House and used the same gavel used in 1965 to shepherd in passage of the Medicare Act. Representative Dingell, who joined the House in 1955, has introduced a bill supporting national health insurance at the beginning of every session.
While the bill that passed the House was hailed as historic, the process is far from over. The Senate leadership needs to finalize the Senate bill and take it to the full Senate for debate and amendment. Once both houses pass legislation, the bills would be merged by a conference committee before a final bill could be sent to the President for signature. The timeline for action in the Senate is unclear.
The bill contains several provisions that would be significant for group health plans and for restructuring of the health insurance delivery system. Among the changes are the following items.
Health Insurance Exchanges: Effective in 2013, the bill would create a national Health Insurance Exchange, which would serve as a marketplace in which individuals and certain businesses could purchase health insurance coverage. The Exchange would regulate plan standards and cost-sharing, as well as the enrollment process. Included among the insurance options offered by the Exchange would be a public plan. Generally, individuals with employer-sponsored coverage would not be eligible to participate in the Exchange. Employers' ability to purchase coverage through the Exchange would be phased in based on employer size – in 2013 small employers (under 25), in 2014 employers with under 50 employees, and employers with up to 100 employees in 2015. The Exchange could permit larger employers to buy coverage after that time. Within the Exchange, individuals would have a choice between four plan types – basic, standard, premium, and premium plus, which would vary based on the actuarial value of the covered benefits.
Medicaid Eligibility and Subsidies: In 2013, Medicaid eligibility would be expanded to those with incomes up to 150% of the Federal Poverty Level (FPL), while those with incomes between 150% and 400% of the FPL would be eligible for subsidies that would assist them in purchasing insurance in the Exchange.
Individual and Employer Mandates: In 2013, both an individual and employer coverage mandate would take effect. Under the employer mandate an employer could either elect to provide both single and family coverage that meets specific standards for benefits coverage, employer contributions, and actuarial value or pay an amount equal to eight percent of payroll as an excise tax. Employers would have to provide contributions of 72.5% of the premium for single coverage (65% for family coverage) to avoid the penalty and the amount is prorated for part-time employees. Employers with payrolls between $500,000 and $750,000 would pay a sliding scale excise tax between two and six percent. Those employers with less than $500,000 in payroll would be exempt from the employer mandate. Employers would be required to automatically enroll employees into their employment-based health plan with the lowest applicable premium. Employer plans would not have to meet all applicable benefits standards until 2018.
Health Reforms Effective in 2010-2011: Other requirements in the bill that would apply directly to group health plans include the following, many of which would be effective in the first year of enactment:
- Group health plans would be prohibited from imposing an aggregate dollar lifetime limit on benefits.
- Group health plans that provide coverage for dependent children would be required to extend coverage (at the participant's option) to dependent children under 27 years old.
- COBRA would be extended for those receiving COBRA benefits on the date the bill is enacted. COBRA coverage would have to extend until the participant is eligible for other coverage or is eligible for the Exchange, whichever is earlier.
- Group health plans that cover surgical benefits would also have to cover outpatient and inpatient diagnosis and treatment of a minor child's congenital or developmental deformity, disease, or injury.
- HIPAA requirements concerning preexisting condition exclusions would be amended to shorten the "look-back" period to one month and the "exclusion" period to three months.
- The tax exclusion for employer-provided health coverage would be extended to any person eligible for coverage under the employer's plan.
Insurance Reforms: In 2013, insurers would be required to guarantee issue and renew health coverage. Preexisting condition exclusions would be prohibited, and premium variation would only be allowed for age (2:1), family size, and geographic area.
Provisions of Interest to Retiree Health Plan Sponsors
Retiree Reinsurance Program: Effective within 90 days of enactment, the bill would establish a temporary reinsurance program to reimburse employers who sponsor retiree health care for a portion of the claims for pre-Medicare retirees between 55-64. The program would reimburse plans for 80% of the claims for a covered individual between $15,000 and $90,000. Plans would be required to use the funds to lower costs borne by the retirees. The program would be funded with $10 billion.
High-Risk Pools: The legislation would establish a national high risk pool beginning in 2010 for individuals who have been uninsured for several months or denied coverage due to health status or a pre-existing condition. Among those eligible for the high risk pool would be retirees who had employment-based retiree health coverage but whose annual premiums increase beyond a certain percentage to be determined by the Secretary of Health and Human Services.
Medicare Program Changes: The bill contains significant changes to the Medicare program. Those that directly affect employer-sponsored plans including the following:
- Effective in 2013, employers would be prohibited from taking a deduction for costs for retiree drug claims that were reimbursed under the Medicare Part D Retiree Drug Subsidy.
- For Prescription Drug Plans (PDPs), the coverage gap ("doughnut hole") would be reduced by $500 in 2010 and would be fully eliminated by 2019. Individuals in PDPs will receive a 50% discount on brand-name drugs while they are in the doughnut hole. These changes to the PDP benefit would increase the actuarial value of the standard Part D benefit, meaning that the "bar" employer-sponsored plans must meet in order to receive the Retiree Drug Subsidy would increase.
- Starting in 2011, Medicare Advantage plan payments would be decreased to the level of Medicare fee-for-service payments, phased in over three years.
Retiree Maintenance of Benefits: ERISA-governed health plans would be prohibited from reducing the benefits provided under the plan to a retired participant if the reduction would affect benefits provided to the participant as of the date that he or she retired. The reduction could be made if the same reduction applied to active participants, or if the reduction is not deemed "substantial." A "substantial" reduction is an increase in premium or a decrease in the actuarial value of the benefit package that is greater than five percent.
The Congressional Budget Office (CBO) has scored the House bill at $1,055 billion over 10 years. The net cost would be approximately $894 billion, taking into account revenues generated from the payment of tax penalties to the government under the individual and employer mandates.
The House bill is funded primarily by a surcharge on high-income individuals. The surcharge has been revised and now would levy a 5.4% income tax on incomes above $500,000 (higher for married couples). Other revenue raising provisions added to the House bill include a prohibition on the reimbursement of over-the counter medications through a health reimbursement arrangement (HRA), health flexible spending account (FSA), and a health savings account (HSA). The bill would also cap health FSA contributions at $2500 a year and increase the penalty for withdrawing HSA funds for nonqualified expenses from 10% to 20%.
Copies of the bill, manager's amendment, summaries, and implementation timelines are available on the Education and Labor Committee Web site at http://edlabor.house.gov/blog/2009/10/affordable-health-care.shtml.
Senate Activity Underway
In the Senate, efforts are still underway to finalize a bill that would merge the health care reform bills passed by the Senate Finance Committee and the Health, Education, Labor and Pensions Committee. Efforts appear to have been stalled slightly as they await cost projections from CBO. It is not clear whether a merged bill will be released and go to the Senate floor for a vote before Thanksgiving. With floor debate expected to last several weeks, the Senate Majority Leader has hinted that the process will spill over into 2010.
Short and Long Term Implications
As the health reform debate has developed, a pattern has emerged of both immediate action items and phased-in longer term changes. For example, if a bill similar to the House health reform bill is enacted, plan sponsors would immediately have to take actions including to remove lifetime limits, change certain benefits and change dependent coverage rules. Plan sponsors who provide retiree health coverage would have to evaluate whether the Retiree Drug Subsidy is available, due to the higher value of the Part D standard benefit and the impact of the subsidy being taxable. Longer term, plan sponsors will need to evaluate the individual and employer mandates and the impact of the Exchange on their health benefits program. Consequently, it is important to monitor how the timeline of events is structured in the reform bills and prepare for a long implementation period.