• Obama presents legislation for new Medicare rate-setting agency
• Senate, House committees approve reform legislation
• CRS reviews legal implications for ERISA, tax code of reform proposals

• Massachusetts health commission endorses dramatic move from fee-for-service to global payment system

Obama presents legislation for new Medicare rate-setting agency

President Obama on July 17 sent a draft of legislation to Congress that would establish an Independent Medicare Advisory Council (IMAC), which would have the authority to make recommendations to the President on annual Medicare payment rates as well as other reforms.

In a letter to House Speaker Nancy Pelosi that accompanied the draft legislation, Peter Orszag, director of the Office of Management of Budget, explained that the proposed legislation would "require the President to approve or disapprove each set of the IMAC’s recommendations as a package." If the President approved IMAC's recommendations, Congress would then have 30 days to pass legislation to stop implementation.

The proposed legislation is similar to a bill introduced in the Senate by Sen. Jay Rockefeller (D.-W.V.) that would give rate-setting authority to the existing Medicare Payment Advisory Commission (MedPAC), whose annual reports to Congress contain many suggestions for changes.

Senate, House committees approve reform legislation

Comprehensive health care reform legislation passed a significant milestone last week as Senate and House committees approved different legislative packages. At the same time, comments from the head of the Congressional Budget Office (CBO) put a damper on the potential further progress of the legislation.

The Senate Health, Education, Labor and Pensions (HELP) Committee on July 15 approved the "Affordable Health Choices Act," legislation that would, if enacted, introduce several health insurance market reforms designed to provide universal health coverage. Meanwhile, the House Ways and Means and the House Education and Labor Committees on July 16 approved H.R. 3200, the "America's Affordable Health Choices Act of 2009."

The House bill would expand health insurance coverage to 95 percent of the population by 2019, at a cost of slightly more than $1 trillion over that time period, according to estimates from the Congressional Budget Office (CBO)and the Joint Committee on Taxation (JCT).

The vote in the Senate was 13-10, with all Democrats voting for the legislation and all Republicans voting against it. In the House Ways and Means Committee, the vote was 23-18, with three Democrats and all Republicans voting against the legislation.

In the House Education and Labor Committee, the vote was 26-22, again with three Democrats and all Republicans voting against the legislation. Both House committees approved amendments to the legislation that was first introduced on July 14. The House Energy and Commerce Committee is still holding hearings on the bill.

CRS reviews legal implications for ERISA, tax code of reform proposals

Depending on the provisions of any national health care reform legislation that would affect employment-based health insurance benefits, Congress will need to include some changes to ERISA and the Internal Revenue Code. The issues were reviewed in a June 12 Congressional Research Service (CRS) report, Employment-Based Health Coverage and Health Reform: Selected Legal Considerations.

It is estimated that approximately 64% of the U.S. population younger than age 65, or 170 million individuals, receive their health insurance coverage through employers. Although this has many benefits for both employers and employees and their families, the disadvantages include that plans chosen by employers might not meet individual workers’ needs and that job changes might require either obtaining both new insurance and new doctors or losing health insurance entirely.

The major health care reform proposals currently under consideration in Congress involve employers in some way in the provision of health insurance, whether it is with a “play-or-pay” mandate (the Senate Health, Employment, Labor, and Pensions Committee and the House Tri-Committee); or through taxes on workers for “rich” health insurance benefits valued above a certain benchmark. In addition, reform might encourage or allow states to enact their own reforms. These measures might require reform legislation to modify ERISA and/or Tax Code provisions.

“If a national proposal were to require employers to provide or contribute to the payment of health benefits or to provide specific benefits as part of group health plans, ERISA could be a vehicle for this type of proposal,” the CRS report noted. “Second, if Congress were to amend the role of states in regulating employment-based health benefits, ERISA’s express preemption provision, section 514, would likely be implicated. Section 514 of ERISA is commonly seen as a barrier for states in enacting health reform that affects the employer-based system, particularly self-funded employers.”

If any health care reform legislation allows states to implement their own reforms, the ERISA preemption provisions would need to be amended. However, “as was desired by many when ERISA was enacted, there is a need for national uniformity in regulating health plans and a patchwork of state regulation could be burdensome on employers,” the report explained.

The value of employer-provided health insurance generally is not subject to income or payroll taxes, including FICA (Social Security and Medicare) taxes and unemployment (FUTA) taxes. “This effectively results in the subsidization of employer-provided health insurance by the federal government [that is, taxpayers, including those who do not receive employer-provided health insurance],” the CRS report pointed out. “Some have argued that this subsidization is partly responsible for increasing costs of health insurance, as it gives participants an inaccurate sense of the true cost of their health care and leads to increased utilization of health care resources.

“From an employer’s perspective, the principal tax implication of providing health care to employees, instead of the comparable value in cash, is a reduction in the wage base of their employees. The reduction in wages means employers’ tax burden, under FICA and FUTA, can be reduced by offering health insurance instead of increasing actual wages.”

For more information, visit http://assets.opencrs.com/rpts/R40635_20090612.pdf

Massachusetts health commission endorses dramatic move from fee-for-service to global payment system

On July 16, 2009, Massachusetts' Special Commission on the Health Care Payment System (Commission) unanimously endorsed recommendations for improving the quality of patient care in the state by dramatically changing the way patients pay for health care.

Rising health care costs --both in Massachusetts and nationwide --threaten individuals, families, businesses, and the state's successful health care reforms, without necessarily supporting the highest quality of care. Administration officials, legislators, providers, insurers and others worked collaboratively to recommend reforms to move away from the current fee-for-service payment system, which encourages the overuse and misuse of services and establishes incentives to provide more care without assuring the highest quality care.

The Commission offered a bold vision for payment reform in Massachusetts, endorsing a global payment system that encourages comprehensive patient care with significant incentives for high-quality care. A global payment system will encourage more careful coordination and collaboration between a patient's physicians, nurses, hospitals and other care providers.

"Massachusetts has led the nation in expanding health insurance coverage to virtually all of its residents. With these recommendations, it is now poised to lead the nation in tackling the challenge of containing health care costs and improving the quality of care," said Massachusetts' Administration and Finance Secretary Leslie Kirwan, who co-chaired the Commission. "These payment reforms chart a bold but achievable path to a better health care system."

"These recommendations represent a vital first step in reforming how we pay for health care in Massachusetts. There is broad agreement that payment reform is the cornerstone strategy for improving health care quality and moderating health care costs," said Division of Health Care Finance and Policy Commissioner Sarah Iselin, who also co-chaired the Commission. "While there is still much work to be done, I am confident that our strong health care community has the expertise and commitment to achieve the vision we have outlined today."

The mission of the Commission, which was established by Massachusetts' legislature in 2008, was to identify effective ways of restructuring the health care payment system to promote efficient, patient-centered care and to reduce cost growth in the Commonwealth, as the state works to maintain successful health care reform delivering coverage to more than 97 percent of residents.

While Massachusetts ranks among the best in health care quality, it has among the highest health care costs in the United States. Insurance premiums have increased almost every year for the past two decades at a pace that well exceeds the annual increase in wages and the cost of living.

"Massachusetts is again leading the way on how to reform the health care system of the state and the nation," said Stuart Altman, a national health policy expert and professor at Brandeis University. "The recommendations of the Special Commission on the Health Care Payment System, if approved by the legislature and governor will help move our health system away from its reliance on the outdated and wasteful fee-for-service approach to paying for medical services and to facilitate the restructuring of the delivery of care towards providing those services that provide true value to patients."

The Commission recommended phasing in a global payment system statewide over five years and anticipates that, when fully implemented, global payments in Massachusetts would include the following key features:

• A global payment system in which providers would receive a payment per person, adjusted for patients' health status and other factors to ensure that they are compensated fairly for their patients' health care needs. Payments would also be based on meeting common core performance measures to ensure high-quality care.
• An emphasis on patient-centered medicine, with doctors and other providers providing coordinated, evidence-based, high-quality care for patients. In addition to providing more effective care for patients, this approach will also help to reduce health care costs in the longer term.
• A careful transition to global payment within five years, during which "shared savings" would serve as an interim payment model to help some providers become more familiar with global payment with no or reduced exposure to risk. There would also be infrastructure support for providers to facilitate the transition to global payments, including technical assistance and training and information technology.

The Commission also identified a number of additional strategies to complement payment reform, including administrative simplification, examining health plan benefit design and coverage policies, and consumer engagement. While it did not make specific policy recommendations in these areas, its report highlights ongoing or contemplated work in these areas that will be critical to the long-term success of efforts to control costs.

The full report can be viewed at http://www.mass.gov/dhcfp/paymentcommission.

Source: Massachusetts Health and Human Services Press Release, Payment Reform Commission Unanimously Supports Move to Global Payment System to Improve Patient Care and Contain Health Care Costs, issued July 16, 2009.