Blues Public Policy Brief *Customer Edition* February 24, 2012

Blues Public Policy Brief *Customer Edition* February 24, 2012 FEDERAL NEWS Congress Passes Payroll Tax Bill with SGR Fix Last week, both the House and the Senate approved a conference report for H.R. 3630, the Middle Class Tax Relief and Job Creation Act. This measure was approved by bipartisan votes of 293 to 132 in the House and 60 to 36 in the Senate. This bipartisan legislation provides for a Medicare physician payment fix and extensions of the payroll tax holiday and unemployment benefits through the end of 2012. President Obama has indicated that he will sign this legislation into law. The bill s Medicare physician payment fix which maintains reimbursement rates at their current levels through December 2012 is scored as costing $18 billion. Additional provisions address Medicare FFS reimbursement policies for ambulance services, therapy caps, the physician work geographic adjustment, physician pathology services, and rural hospitals. The bill also includes provisions that extend through December 2012 the Qualifying Individual (QI) program under which Medicaid pays Part B premiums for low-income Medicare beneficiaries with incomes between 120 percent and 135 percent of poverty, and the Transitional Medical Assistance (TMA) program, which allows low-income families to maintain their Medicaid coverage as they transition into employment and increase their earnings. In addition, the agreement includes the following health-related budget offsets: a reduction in Medicare bad debt payments to hospitals and other providers ($6.9 billion in savings); a reduction in funding for the ACA Prevention and Public Health Fund ($5 billion in savings); a requirement to rebase Medicaid Disproportionate Share allotments in 2021 ($4.1 billion in savings); a reduction in Medicare reimbursement for clinical laboratory services ($2.4 billion); and A technical correction to an ACA provision that provides a special Medicaid Federal Medical Assistance Percentages adjustment for states that are recovering from a major disaster ($2.5 billion). Dr. David Share Testifies at Hearing on Physician Payment Models On February 7, the House Ways & Means Health Subcommittee held a hearing that looked to the private sector including Blue Cross Blue Shield of Michigan for innovative provider payment and incentive models that could be applied to Medicare. The hearing coincided with the ongoing conference committee negotiations that included a Medicare physician payment fix. 1

Subcommittee chair Wally Herger (R-Calif.) stressed his view that providers, not the government, should lead efforts to reform the Medicare payment system. In his opening statement, Herger pointed out nearly all the witnesses at the hearing were physicians, including David Share, vice president of value partnerships for BCBSM. Share discussed BCBSM s Physician Group Incentive Program, which is based on the tenet that it is more effective to promote and measure quality of care at the group rather than individual physician level. One provider, acting independently, simply doesn t have enough time in the day to provide all of the preventive, acute care and chronic illness management services patients need without the support of a multi-disciplinary team, Share told the committee in his testimony. Measuring at the individual practice and individual physician level is essential for focusing providers attention on opportunities to improve processes and outcomes of care. But, given the methodological limitations which constrain the accuracy of results, ideally it is best to hold a community of caregivers responsible for aggregate performance at a population level and leave the management of individual cases, and individual performance, to the community of providers in the physician organization, Share said. Herger noted the end goal of the hearing and related discussions remains addressing the [Medicare] sustainable growth rate formula through comprehensive physician payment reform done in a fiscally responsible manner. White House Proposes Policy Change on Contraception Rule On February 10, the White House made an announcement aimed at addressing objections from religious employers that are not exempt from a Patient Protection and Affordable Care Act (PPACA) rule that includes contraceptive services in coverage requirements for women s preventive services. According to a White House release, the Administration plans to issue a new regulation [that] will require insurance companies to cover contraception if the non-exempted religious organization chooses not to, adding, Insurance companies will be required to provide contraception coverage to these women free of charge. Details of the proposal such as whether employees must pay a premium for contraceptive coverage and the impact on religious employers who self-fund coverage or health plans that carve out drug coverage are unclear. The new policy is discussed in a White House fact sheet, and will be addressed in a forthcoming regulation. In addition, the Administration on Feb. 10 issued a final rule that reiterated a narrow exemption for certain religious institutions (such as churches) from coverage of contraceptive services under the PPACA (the same exemption that was included in the interim final rule in August) and provides a one-year safe harbor from enforcement for certain non-exempt religious employers (for example, religiously affiliated hospitals and charities), which was first announced last month. The temporary enforcement safe harbor will be in effect until the first plan year that begins on or after August 1, 2013. President Obama Submits FY 2013 Budget to Congress On February 13, President Obama submitted his fiscal year 2013 budget to Congress, outlining his budget proposals for programs and agencies across the entire federal government. Overall, the President s budget calls for $3.8 trillion in federal spending in the current fiscal year, which is projected to lead to a budget deficit of $1.3 trillion or 8.5 percent of the nation s gross domestic product. According to the 2

Administration, its budget would reduce the federal budget deficit to 3.9 percent of GDP in fiscal year 2014 and 2.7 percent of GDP in fiscal year 2018. The President s budget includes approximately $364 billion in budget savings over the next 10 years from Medicare, Medicaid, and other health programs. These savings include $267.9 billion from Medicare provider cuts, $32.4 billion from Medicare structural reforms, and $51.6 billion from Medicaid changes. The budget also includes health policy proposals that would increase federal spending and reduce federal revenue. Some l specific proposals include: The budget would expand the ACA s small business health coverage tax credit by making it available to employers with up to 50 full-time employees, by eliminating a requirement that an employer make a uniform contribution on behalf of all employees, and by eliminating a requirement that links the maximum tax credit to the average small group premium in the state. The budget would make state innovation waivers available starting in 2014, three years earlier than under current law. Under the ACA, a state may apply to the HHS Secretary to be exempt from certain ACA provisions if the state plan is at least as comprehensive as the ACA. Several modifications to Medicare and Medicaid programs. Senate Bill Addresses MLR s Impact on Agents and Brokers On February 2, Sens. Mary Landrieu (D-La.), Johnny Isakson (R-Ga.), Lisa Murkowski (R-Alaska), and Ben Nelson (D-Neb.) introduced bipartisan legislation, S. 2068, addressing the impact of the Affordable Care Act s medical loss ratio requirements on agents and brokers. The Senate bill is similar to a House bill, H.R. 1206, sponsored by Reps. Mike Rogers (R-Mich.) and John Barrow (D-Ga.), that would exclude remuneration paid to licensed agents and brokers from the calculation of the MLR. The Senate bill differs from the House bill in several ways: Under the Senate bill, bonuses paid to agents and brokers would still be categorized as administrative expenses. Under the Senate bill, the proposed exclusion would apply only to commissions for coverage purchased in the individual and small group markets. The Senate bill does not include provisions of the House bill that would: (1) require HHS to defer to the State s findings and determinations regarding destabilization should a state request an adjustment to the MLR standard for either the individual or small group market; and (2) expand HHS s authority to grant MLR waiver adjustments which currently applies only to the individual market to also include the small group market. The Senate is not currently expected to pass S. 2068. House Approves Bill to Repeal CLASS Program On February 1, the House approved legislation, H.R. 1173, that would repeal the Community Living Assistance Services and Supports (CLASS) Program. The resolution cleared the House by a 267-159 bipartisan vote and now awaits consideration in the Senate, where final action is uncertain. The Administration suspended CLASS in October because of concerns it was financially insolvent but does not support repealing the long-term care program. 3

In addition to repealing the CLASS program, the House-passed version of H.R. 1173 includes language that would authorize $3 million annually in discretionary funding for the National Clearinghouse for Long Term Care Information in fiscal years 2013-2015. The House considered four Democratic amendments and one motion to recommit during the floor debate on this legislation all of which were defeated. Looking forward, Senate Democratic leaders are unlikely to bring the CLASS repeal bill to the floor, but it could be offered on the Senate floor as an amendment to other legislation and likely would require 60 votes (out of 100) for approval in that chamber. CBO Report Examines Budget and Economic Outlook On January 31, the Congressional Budget Office (CBO) released a report examining the budget and economic outlook for the next ten years. CBO reports that the federal budget deficit is projected to total $1.079 trillion in 2012, marking the fourth consecutive year in which the deficit has exceeded $1 trillion. CBO also projects that the economy will continue to grow at a sluggish pace over the next two years. While CBO expects economic growth to pick up after 2013, the report suggests that the economy s output will remain below its potential until 2018 and that the unemployment rate will remain above 7 percent until 2015. A number of important budgetary and health policy issues are addressed in the report. Key health care related estimates: Future funding for overseas contingency operations is projected to total $838 billion over 2013 2022. OCO funding has been discussed as a possible budget offset for the Medicare physician payment fix and other issues being addressed by the conferees for H.R. 3630. CBO projects that direct federal spending on mandatory healthcare programs such as Medicare and Medicaid will grow from $856 billion in 2011 to $1.8 trillion in 2022. The $1.8 trillion figure, which includes the ACA impact discussed below, but does not include tax subsidies such as the tax exclusion for employer-sponsored insurance, amounts to 7.3 percent of projected GDP in 2022. CBO estimates that approximately 8 million people will receive exchange subsidies in 2014 and roughly 20 million will receive subsidies by 2022. The annual cost of providing those subsidies, operating the exchanges, and running related programs is estimated to total $104 billion by 2022. If the sequestration required by the Budget Control Act of 2011 actually occurs, it will require $117 billion in Medicare cuts over ten years, beginning with $6 billion in 2013. Permanent repeal of the SGR formula for calculating Medicare physician payments would cost $316 billion. As a result of the Administration s decision not to implement the CLASS program, the federal government will not collect $76 billion in premiums that CBO had projected for 2012-2021 in its August 2011 report. This lowers the overall cost savings that originally were projected to result from implementation of the Affordable Care Act. 4

STATE NEWS Gov. Snyder unveils fiscal year 2013 budget Gov. Snyder unveiled his $48.2 billion state spending plan to a joint House and Senate Appropriations Committee last week. Gov. Snyder s budget recommendations placed a focus on government improvements by tying additional funding for schools and local units of government to performance metrics. Significant budget recommendations made by Gov. Snyder included: $130 million for the state s budget stabilization fund $34 million to cover autism treatment for children under age 6 who are eligible for Medicaid or MIChild, and an additional $15 million to offset the cost of a yet-to-be-enacted autism insurance coverage mandate $25 million to expand coverage of the Healthy Kids Dental program statewide $31.8 million cut to graduate medical education Approximately 75 percent of the entire state budget is dedicated to education, and health and human services. McLaren files CON to build hospital in Clarkston On Feb. 1, McLaren formally filed a Certificate of Need (CON) to relocate 200 acute care hospital beds from POH Hospital in Pontiac to a new facility in Clarkston. The Department of Community Health has 120 days to review the application and issue its decision. Under both the current and proposed CON standards for hospital beds, no need has been demonstrated for an additional hospital in Oakland County, as the area currently has over 1,000 excess hospital beds. In addition, the application exceeds the two-mile relocation limit allowed for hospital beds in Michigan. Legislature to discuss student health insurance The House Appropriations Committee on Higher Education will hold a hearing this week regarding Michigan State University s requirement that students without health insurance purchase coverage. MSU says coverage will help students get the medical treatment they need instead of delaying care because they lack insurance. The university believes healthy students without large medical bills will have a better chance to complete their college education. MSU is the fifth Big Ten university and the first in Michigan to enact this requirement. It is unclear what action the Legislature might take as universities are given great autonomy under the Michigan constitution. Some legislators have expressed concern and view this requirement as a health insurance mandate. Public Policy will continue to monitor this issue and keep stakeholders apprised of the latest developments. 5