Wednesday, April 21, 2010

Good News for Parents: Insurers Agree to Earlier Coverage Date for Some Young Adults up to Age 26

One of the new federal health reform protections scheduled to take effect later this year is expanded insurance coverage for young adults. As of Sept. 23, 2010, if your child is under 26 and unmarried, insurance plans must give you the option of adding insurance coverage for your child. Because this requirement does not technically go into effect until later this year, in many states children graduating from college or about to age out of their parents' plan could lose their coverage for a few months. The good news is that HHS has been working with insurance companies to close this gap, and several insurers have agreed to maintain coverage for these students. HHS Secretary Kathleen Sebelius has just issued two press releases announcing which insurers have agreed to do this and she is trying to get commitments from more. So far, Blue Cross Blue Shield, Kaiser Permanente, Humana, WellPoint, and United Healthcare are among the plans offering to continue coverage. Unfortunately, this does not appear to help young adults who have already lost coverage. They will have to wait until the law goes into effect in September.

For more information, you should check out:
- Recent blog post by HHS Secretary Kathleen Sebellius.
- April 20th Press Release: "HHS Secretary on Growing List of Insurers That Will Provide Coverage for Young Adults under Age 26"
- April 19th Press Release: "HHS To Work With Insurers to Voluntarily Provide Coverage for Graduating College Seniors and Young Adults under Age Twenty-Six in Advance of September Start Date in New Law"
Other Resources on health reform:
For health news and health reform updates directly from the US Department of Health and Human Services, you can go to
To ask questions specifically about the new federal health reform law, you can go to

Wednesday, April 14, 2010

First Step Toward Implementing Insurance Rate Regulation

The Obama administration took an important step toward implementing insurance rate regulation on Monday, April 12. The U.S. Department of Health and Human Services (HHS) is requesting information that will help it effectively regulate medical loss ratios and health premium increases under the new reform legislation. Medical loss ratio refers to the proportion of premium revenues spent on clinical services and quality improvement, as opposed to profits, bonuses, and other overhead expenses.

The new legislation creates several requirements to help ensure that insurance companies do not charge rates that are excessive relative to the benefits provided, which the government hopes will keep rates affordable. For example, health insurers must submit data on their medical loss ratio, the National Association of Insurance Commissioners (NAIC) will establish uniform definitions and standardized methodolgies for determining this medical loss ratio, and state regulators will have the authority to monitor premium increases.
HHS Secretary Kathleen Sebelius wrote a letter seeking the NAIC's help on these issues, as well as requesting its input on establishing a rate review process. NAIC members are the elected or appointed state government officials who, along with their departments and staff, regulate the conduct of insurance companies and agents in their respective state or territory.
HHS also issued two requests for public comment on the implementation of the medical loss ratio requirement and the rate review process to monitor rate increases and prevent unreasonable premiums.
For updates on action taken by HHS to implement health reform, visit

"Interim high risk pool may not significantly reduce ranks of medically uninsured"

Under the new health reform legislation, interim insurance pools will be established to provide coverage for high risk individuals until the requirements prohibiting plans from denying high risk individuals take effect. On his blog, Health Insurance Crisis, Fred Pilot explains why these high risk pools may not significantly reduce ranks of medically uninsured.

Monday, April 12, 2010

State Wins First Round in Legal Battle over Insurance Rates in Massachusetts

Two weeks ago, the Massachusetts insurance commissioner rejected proposed rate hikes by several health insurance companies. The companies want to raise premiums an average of 8%-32% on small group and individual insurance policies, and additional costs may bring the increases up to as much as 40% in some cases, according to an article in the Boston Globe. Insurers were likely shocked because this was the first time that Massachusetts has used its regulatory power to deny rate hikes. Insurers have an opportunity to appeal the decision through the state administrative appeals process, which they are doing, but they also filed a lawsuit last week seeking more immediate relief. Insurers asked a court to allow the rate hikes to take effect pending legal resolution of the dispute, but yesterday the court rejected the insurers' request.

This legal battle over insurance rate hikes in Massachusetts is important because it signals the potential benefits and challenges of federal reform to ensure affordable health insurance for all. The success of current federal reform efforts depends on insurance becoming more affordable for those in the individual and small group market, yet high profile rate increases in California and now Massachusetts lead some to question whether this is a realistic goal.
Massachusetts already has in place the kind of private insurance reform that we have just enacted at the federal level. Thus, federal and state policymakers, insurers, and consumer advocates are watching Massachusetts to learn from the successes and weaknesses of its system. One lesson from this latest battle seems to be that if we expect to achieve universal coverage by mandating people to purchase of insurance, state insurance commissions must use their regulatory power to control the rise of health care premiums.
The other lesson from this battle, however, is that doing this may not be as simple as it seems. This battle raises two critical questions that will likely come up once federal reform is implemented. One question is substantive: How do we determine whether premium increases are "excessive" and "unreasonable in relation to the benefits provided," as Massachusetts regulators are claiming, or whether they are reasonable based on future projections of rising medical costs, something insurers have been allowed to factor into their rate-setting process? In fact, there is no clear test or legally mandated method for determining rates.
The other question is procedural: What is the scope of power that state insurance agencies have to review and deny insurance rate hikes, and what kind of deference will courts give to their decisions? The fact that the state won the first round in this legal dispute is not surprising: Courts are very deferential to state agencies acting pursuant to the regulatory power granted to them by the state legislature. Here, the insurance commissioner has express authority to review rates, there is an important need for this kind of consumer protection in light of the individual mandate to purchase insurance, and courts often defer to agency's decisions on technical matters that involve special expertise and policy considerations.
There are important limits to regulators' power, however. State officials cannot wield their power in an arbitrary way or to score political points, and their actions must be consistent with state law. According to the Boston Globe, the insurers in Massachusets are alleging precisely these kinds of violations. For example, they claim that by denying the increases the state has failed to ensure that rates are high enough to maintain plan solvency, and they do not take into account prediction of future medical cost, something the law expressly allows. Apparently, these allegations were not enough to convince a court to allow the rate hikes to go forward. But as the appeals process unfolds, we'll get alot more information about the reasoning and factors used by both the state and insurance companies to support their respective positions.
Unless the insurers can prove that the state has failed to consider factors that the law has expressly required, violated express procedural requirements, or used a process that was arbitrary and irrational, insurers will have a difficult time getting a court to overturn the state's decision.

Sunday, April 11, 2010

Regulation of Insurance Rates Key to Reform Success

One of the most important pieces of the new health reform legislation is the expansion of private insurance. Congress tries to accomplish this by doing three things:

(1) Creating health insurance exchanges that will serve as a centralized place for regulating, standardizing, and purchasing insurance.

(2) Creating shared responsibility by individuals, employers, and the government. Employers with more than 50 employees that do not provide insurance will have to pay a fee that will be used to fund the insurance provided through exchanges. Individuals will be required to purchase insurance if it satisfies certain requirements, but will pay a tax penalty if they choose not to buy it. And to help people buy insurance, the government will provide tax credits to small employers and subsidies to individuals who make between 100%-400% of the federal poverty level (for 2009, the poverty level is $18,310 for a family of three).

(3) Creating new consumer protections and regulation of insurance to ensure that plans are affordable, provide a minimum level of benefits that are meaningful, and to prohibit plans from refusing to cover people who may seem high risk (guaranteed issue and nondiscrimination protections).

I recommend visiting the Kaiser Family Foundation website for a nice overview of the health reform legislation.

While most of the recent media and legal attention has been focused on the first two parts of this reform, the real key to success is the affordability component. In fact, people will only be required to purchase insurance if it is deemed "affordable" based on the requirements set out in the law.
This is how it works. U.S. citizens and legal residents will be required to purchase "qualifying" health coverage. But "qualifying" coverage means that individuals only have to buy insurance that meets requirements for minimum coverage and affordability. The law exempts those for whom the lowest cost plan option exceeds 8% of an individual’s income, and those with incomes below the tax filing threshold. Even for individuals that do not meet these exact requirements, exemptions will be granted for financial hardship.
Many people are concerned that this reform is a "give-away" to the insurance companies. And I do not dispute that there are legitmate concerns about our reliance on private insurance companies to deliver and arrange health care in this way. However, I think that recent trends in insurance rates evidence a different potential problem with the legislation - that not nearly as many people will become insured as we hope because insurance won't be affordable.
Insurance companies across the nation have been raising rates significantly, forcing many people to give up coverage. In fact, the most recent rate hike by Anthem Blue Cross in Calfornia (39% increase) is credited with reviving health reform legislation after it sparked outrage from insureds, consumer advocates, and lawmakers. Criticism of the rate hikes has been fueled by reports that while insureds' rates have skyrocketed, compensation for CEO's have been rising dramatically. Just a few weeks ago, the LA Times published a story about how WellPoint, Inc. (a subsidiary of the Anthem Blue Cross) increased its CEO's compensation to $13.1 million from $8.7 million, and increased three other executives' compensation by as much as 75%.
Despite all the attention, the rate hikes have not gone away; they've simply been delayed until May 1st. The fact is that this kind of regulatory and political attention to insurance rates is exceedingly rare. Despite the fact that state insurance commissioners have authority to review and even reject proposed rate increases by insurance companies, typically states have not used this power. Private insurance companies have had almost absolute discretion to increase rates despite the lack of evidence that rate hikes were justified by increases in health care costs.
There is a recent and noteworthy exception. In Massachusetts, which already has its own version of a universal mandate and health care exchange, the state Division of Insurance used its authority to reject the majority of proposed rate hikes by insurance plans as excessive and unreasonable. The Bureau of National Affairs reports that this is the first time the Massachusetts agency has used this power.
The new federal reform law creates certain limits on insurance companies' discretion to set rates - an important one is the medical-loss ratio. This requires health plans in the individual and small group market to spend at least 80% of its premiums (85% for plans in the large group market) on costs related to medical care, including clinical services and quality improvement measures. Plans must also submit reports showing how much of its premiums it is spending on these kinds of servcies -presumably for regulators to review and ensure that the plans are meeting these requirements. The law doesn't establish rates or even create a cap on rates, but it should increase transparency, protect consumers against unjustified rate hikes, and empower regulators to ensure that a significant percentage of premium dollars are spent on consumers medical needs.
But people question whether these protections will work. Similar medical-loss ratio requirements at the state level haven't prevented dramatic rate hikes, and people question whether these requirements are being adequately enforced by regulators. Affordability is critical to the success of health care reform, and affordability will depend, in large part, on government enforcement of these protections.

Monday, April 5, 2010

Federal Oversight & the Medicaid Access Crisis

As Congress debated health care reform, many people criticized the expansion of Medicaid as an illusory promise to expand care. In many states there is a Medicaid access crisis. Beneficiaries have trouble accessing care because providers refuse to treat them. And in communities where the numbers of Medicaid beneficiaries and the uninsured are high, providers like private hospitals, physicians, and other specialty centers are fleeing the community altogether.

The federal government has a critical role to play in fixing this problem, but the latest health care reform law does not signal a serious commitment by federal goverment to use its power in that way.

One of the biggest sources of this Medicaid access crisis has been low payment rates, and in response to budget crises, states are cutting rates even further. This crisis was acknowledged by the authors of the Patient Protection and Affordable Care Act, and the new law does include one improvement: the Act increases Medicaid payments for primary care services provided by primary care doctors (physicians with a primary specialty designation of family medicine, general internal medicine, or pediatric medicine) to 100% of the Medicare payment rates. The reality, however, is that this isn't enough.
While this may help improve primary care somewhat, it doesn't help Medicaid beneficiaries who need on-going specialty care for chronic conditions, rehabilitation, or surgical care. Other Medicaid providers, including many specialists, dentists, pharmacies, and hosptials, are reimbursed at rates that are less than Medicare and, in many cases, far below their costs. There should be parity in reimbursement for these providers as well.
The new law also fails to establish a clear, transparent process for states to follow in setting rates. While federal law establishes certain general factors that must be considered by states, states retain essentially total discretion to establish their own payment methodologies, prioritize among various criteria, and set the rates. There is no uniform procedure or methodology outlined that states must follow to minimize disparities or ensure the adequacy of rates.
It is disappointing that the new law doesn't do a better job of expressly remedying this problem. Nonetheless, the federal government can still try to address the problem through its administrative oversight of the Medicaid program: it has always had this power and the new law doesn't change this.
First, the federal Medicaid Act requires states to consider factors, such as access and quality of care, in setting payment rates for providers. Payment rates must be sufficient to ensure that enough providers will participate in the program so that Medicaid patients will have meaningful health care access. Many states clearly violate these procedural and substantive requirements, which have led to a number of lawsuits discussed in my prior post, California Lawsuit Evidence of Medicaid Access Crisis.
Second, the Medicaid Act requires states to submit their plans for Medicaid administration, including payment rates, to the federal government for approval. CMS (the Centers for Medicare and Medicaid Services), is the division of the U.S. Department of Health Services that administers Medicaid. CMS has the authority and duty to review state plans for compliance and can reject plans that violate any of these conditions. In addition, prior law created something called the Medicaid and CHIP Payment and Access Commission, also known as MACPAC. One of MACPAC's duties is to review Medicaid and CHIP payment policies to determine what factors and methodolgies are used to set payments and to assess the impact of these on access and quality of care for Medicaid and CHIP beneficiaries, specifically, as well as for health care delivery generally.
The problem is that there has been no meaningful federal oversight of state administration of Medicaid or response to evidence of the harmful impact on health care access and quality. Despite blatant defects in states' processes, the federal government has essentially been hands-off, approving plans without real scrutiny. Just as states must comply with certain federal requirements in the Medicaid Act, the federal government must also be held accountable for its oversight obligations under this Act. CMS has a clear legal duty to protect Medicaid beneficiaries and providers by ensuring that a state's Medicaid plan and administration is fair and transparent, and that it facilitiates, rather than undermines, health care access.
So the question remains: Will Medicaid expansion really improve health care access? The answer depends, in part, on the willingness of the federal government to meaningfully review state Medicaid plans and to use its oversight power to enforce federal access protections. But history shows us that this is not very likely.

California Lawsuit Evidence of Medicaid Access Crisis

Expanding Medicaid eligibility is an important part of the current health reform law, but many question whether this will mean better health care access. Medicaid beneficiaries have had trouble accessing care for years. From the beginning, Medicaid has been plagued with two problems: low payment rates for providers, and a slow, often confusing, reimbursement system. Medicaid pays far less than Medicare for the same service, and rates are usually too low to even cover providers' costs. Recent state budget cuts have exacerbated the problem - states are cutting already low rates as a way to fix their budget deficits.

These problems have discouraged a number of medical providers - including physicians, hospitals, nursing homes, and specialty clinics - from treating Medicaid patients. As rates are cut further, even more are leaving the Medicaid program. This means that Medicaid patients are having a difficult time finding accessible, qualified providers to treat them. For patients with chronic health conditions, it also means that they end up relying more on the emergency room. Hospitals and emergency room physicians cannot refuse to treat Medicaid patients because of state and federal mandates that they screen and stabilize anyone who comes to the ER, regardless of ability to pay. The frequent use of emergency rooms by Medicaid patients and the uninsured creates a serious financial strain on hospitals in underserved communities, and makes it very difficult to find physicians willing to work there.
State Medicaid payment cuts have been criticized as bad health policy, but in some cases, they are also illegal. Generally states have a great deal of discretion to administer Medicaid, including setting payment rates, but they must comply with certain federal requirements. One of the most important of these is commonly known as the Equal Access Provision (or Section 30(A)) of the Medicaid Act. It requires states to “assure that payments are consistent with efficiency, economy, and quality of care and are sufficient to enlist enough providers so that care and services are available under the plan at least to the extent that such care and services are available to the general population in the geographic area.” This creates express procedural and substantive requirements: state officials must consider factors such as access and quality in their rate-setting process, and the rates should ensure equal and timely access to care for Medicaid beneficiaries. The Ninth circuit has interpreted this to mean that rates must bear a reasonable relationship to a provider's costs and therefore that the state must rely on responsible cost studies in setting its rates.
In California, patients and providers used this provision to successfully halt the recent Medicaid cuts passed by the legislature. In Independent Living Center of Southern California (ILC) v. Shewry, the Ninth Circuit upheld a preliminary injunction to prevent the state from cutting Medi-Cal payments by 10% to physicians, dentists, pharmacies, adult health care centers, clinics, and other providers. This seemed like a pretty easy case to win. The state did not consider any of the factors required under the Equal Access Provision. State officials admitted that they reduced the rates solely because of the budget deficit; they did not do any cost studies nor did they try to determine what impact, if any, the cuts would have on access or quality. The plaintiffs also presented significant evidence of the harm that would result: the cuts would lead to a mass exodus of providers from the Medicaid program that would send the health care system into further crisis.
The reality, however, that these kinds of cases are usually difficult to win. In fact, this case is merely the latest in a long line of cases in California and other states challenging inadequate rates, many unsuccesfully. Courts do not like second-guessing resource decisions that are viewed as political (as opposed to legal) in nature. And it is very easy for states to dress up their decisions with a miniminal level of process that allow courts to avoid scrutiny of the merits.
The ILC case was "easier" than most because the plaintiff's sought to enjoin state cuts; it is much easier to get a temporary injunction to stop state action where there are obvious legal procedural defects, than it is to try to force the state to act. This is because courts are very deferential to government agencies. The federal government oversees the Medicaid process through its Centers for Medicare and Medicaid Services (CMS). CMS has authority to review and approve or reject state Medicaid plans, including payment rates. In practice, however, federal oversight is lacking and meaningful reviews are not done. Nonetheless, if the federal government has not rejected a state plan or found it noncompliant, then courts do not want to question it either. The reality is that lawsuits trying to force a state to raise existing Medicaid rates or to revise its rate-setting process will be much more challenging.
California is a bellwether state for health care, and ILC v. Shewry has given patients and providers renewed hope that federal courts will hold states more accountable for the legal promises they make. But ILC has been appealed to the U.S. Supreme Court, and a number of other lawsuits will be heard this year, so it is not yet clear what ILC really means for Medicaid beneficiaries and providers.
For a more detailed description of these lawsuits and legal trends, I highly recommend reading the October 2009 Issue Brief, titled Medicaid Payment Rate Lawsuits: Evolving Court Views Mean Uncertain Future for Medi-Cal, published by the California HealthCare Foundation.

Friday, April 2, 2010

Legal Challenges to Medicaid Expansion Likely to Fail

The political fight over health care reform did not end when President Obama signed the Patient Protection and Affordable Care Act (the "Care Act") into law on March 23. It evolved into a legal fight that is now being waged in federal courts in Florida and Virgina. Many Republicans see this legal battle as their second chance to scuttle health care reform, but this is going to be an even harder battle to win.

Attorneys general (AGs) from fourteen states - Florida, South Carolina, Nebraska, Texas, Utah, Louisiana, Alabama, Michigan, Colorado, Pennsylvania, Washington, Idaho, South Dakota, and Virgia - have filed lawsuits challenging the constitutionality of the Care Act. Thirteen out of the fourteen AGs are Republican. In a handful of these states, there is strong opposition to the lawsuits by Democratic governors, lawmakers, and consumer groups, who have tried or are trying to force the AGs to drop the suit.
The AGs are asserting that the federal government has exceeded the scope of its power, and that Medicaid expansion and the individual mandate to purchase insurance are unconstitutional infringements on states' and individuals' rights. In this post, I will focus on the challenge to the Medicaid reforms, particularly the expansion of eligibility criteria to include all adults with income up to 133% of the federal poverty level.
The federal government has broad power to spend money for the welfare of its citizens, and it is beyond dispute that federal spending in the form of public insurance programs like Medicaid and Medicare is within this power. The AGs are not challenging this general power. Rather, they allege that by increasing the states' legal and financial obligations to cover additional Medicaid beneficiaries as part of the overall health care reform law, the federal government has exceeded the scope of its power. Specifically, they claim that the federal government undermining state sovereignty by compelling the states to enact and enforce health care reform in violation of the Tenth Amendment of the Constitution.
It is true that Congress may not commandeer the legislative process of the States by directly compelling them to enact and enforce a federal regulatory program. However, the Supreme Court has made clear that Congress can do things to encourage a state to adopt a legislative program or act in ways consistent with federal interests, as long as its methods are not coercive. One of the most common ways that the federal government does this is by creating conditions on the receipt of federal funds.
Congress can condition spending on state compliance with federal law, as long as the conditions bear a reasonable relationship to the purpose of the spending. If a state chooses to accept federal funding, then it must comply with those conditions. The "choice" element is critical - as long as participation in the federally funded program is voluntary, the government is not "commandeering" or "compelling" the state to act in violation of the Tenth Amendment.
Medicaid is a perfect example of this. It is structured as a federal-state partnership, jointly funded by the federal and state governments. States administer the program, but the federal government establishes certain minimal standards for the program, including eligibility criteria, types of services covered, and methods for setting reimbursement. States do have a lot of discretion to make their own eligibility, coverage, and reimbursment decisions, but they must comply with these federal requirements or seek a special waiver from the federal government allowing them to deviate from them.
Nothing in the Care Act changes this structure or the allocation of power between the federal and state governments in Medicaid administration. The Act simply expands eligibility criteria - something already regulated by federal law. This expansion is also directly related to the federal government's purpose in creating the program -- to ensure health care financing and access for those most likely to be excluded from the private insurance system and who demonstrate serious economic need.
Moreover, the voluntariness of the program is important because it shows that the federal government is not undermining state sovereignty. Even the AGs admit that states have the option to drop out of the Medicaid program; their complaint is that this is not desirable because it would leave millions uninsured. The choice between dropping out of Medicaid and covering more people may be an undesirable and difficult one to make - but it is not unconsititutional. The potential loss of federal funding alone is not enough to show coercion. It is up to the states to determine whether the potential benefit from the program justifies the additional cost they will incur. In fact, Arizona has recently done this with respect to its state Child Health Insurance Program (CHIP) (a supplemental program to Medicaid for children). Arizona chose to eliminate the program despite the signifiicant federal subsidies it will lose.
Finally, there is nothing in either the substance of the law or manner of implementation that looks coercive.
In fact, a closer look at the interaction between the federal government and states undermines claims of coercion. Section 1115 of the Medicaid Act allows the federal government to waive certain requirements to give states some flexibility in administering Medicaid. Originally, this waiver was designed to encourage demonstration projects that were very limited in scope and time, but the process has evolved in ways that give states much greater flexibility to deviate from federal conditions beyond what was originally intended. The federal government (through the Department of Health and Human Services) has broad authority to grant such waivers, and it's hard to believe that the federal government would not exercise its authority under the waiver program to mitigate financial hardship where necessary. In fact, the Care Act contains express hardship exceptions for certain new requirements, such as the requirement to maintain income eligibility levels for some adults.
The bottomline is that states do not have a viable legal claim to challenge the Medicaid reforms. While Medicaid expansion creates very real financial concerns for some states, it simply does not raise any constitutional problems. In fact, striking down the Medicaid reforms would have the perverse effect of creating a state entitlement to federal Medicaid funds, while depriving the federal government of its right to decide how these funds should be used.