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August 24, 2009

Health Care Reform: Congressional Research Service Report on HR 3200

For those congressmen who have yet to read the 1000+ page healthcare reform bill plus the 100+ amendments, the Congressional Research Service (CRS) published a report summarizing provisions affecting private health insurance in H.R. 3200, America’s Affordable Health Choices Act of 2009.  

The Bill created by the House Committees on Ways and Means, Education and Labor, and Energy and Commerce. In general, H.R. 3200 would require individuals to maintain health insurance (individual mandate) and employers to provide insurance or pay into a fund, with penalties/taxes for non-compliance.

We have broken down the coverage portions of the house bill so that employers and families would potentially understand some of the major revisions of the house bill.

Acceptable coverage would include coverage under a qualified health benefits plan

(QHBP), which could be offered either through the newly created Health Insurance Exchange (the Exchange) or outside the Exchange through new employer plans;  grandfathered employment based plans or non-group plans; and other coverage, such as Medicare and Medicaid. The Exchange would offer private plans as well, and

H.R. 3200 would include the following:

-    Modified community rating and guaranteed issue and renewal;

-    The Exchange would be established under a new independent federal agency (the Health Choices Administration), headed by a Commissioner.

-    Most of these provisions would be effective beginning in 2013.

The Exchange would not be an insurer; it would provide eligible individuals and small businesses with access to insurers’ plans in a comparable way. The Exchange would consist of a selection of private plans as well as a public option.

A family of three at 133% of the federal poverty line ($24,352 in 2009 annual income) would be required to only pay annual premiums of $365 toward a Basic plan in the Exchange.

A family of three at 400% of poverty ($73,240), where the premium subsidies end, would be required to pay no more than $8,056 in annual premiums for a Basic Exchange plan.

Individuals eligible for premium credits would also be eligible for cost-sharing credits. (Although Medicaid is beyond the scope of this report, H.R. 3200 would extend Medicaid coverage for most individuals under 133⅓% of poverty; individuals would generally be ineligible for Exchange coverage if they were eligible for Medicaid.)

Individuals and employers choosing to purchase health insurance in the private market fit into one of the three segments of the market, depending on their situation—the large group (large employer) market, the small group market, and the nongroup market.

More than 95% of large employers offer coverage. Whereas, less than half of all small employers (less than 50 employees) offer health insurance coverage. Allowing these small firms to purchase insurance through the proposed Exchange, could lower premiums for those with high-cost employees.

Individuals who purchase health insurance in the non-group market may be rejected or face premiums that reflect their health status, which can make premiums lower for the healthy but higher for the sick. Even when these individuals obtain coverage, there may be exclusions for certain conditions. Reforms affecting premiums ratings would likely increase premiums for some, while lowering premiums for others, depending on their age, health, behaviors, and other factors.

Employer Mandate

Under the Education and Labor bill, an employer could apply to the Secretary for a waiver from health coverage participation requirements for any two-year period:

-    Employers could offer employment-based or coverage through an Exchange plan;

-    Employment-based health plans would be grandfathered for five years;

-    Employers would contribute at least 72.5% of the lowest-cost qualified benefits plan, (65% for those electing family coverage)—prorated for part-time employees;

-    Salary reductions would not count as amounts paid by the employer.

Employers who fail to meet these requirements would be subject to a tax of $100 per day for each employee to whom the failure applied. This tax would not apply for failures corrected within 30 days. The tax would be limited to the lesser of 10% of the employment-based health plan costs for the prior year or $500,000.

Employers with aggregate wages over $400,000 that chose not to offer coverage would be required to make contributions equal to 8% of the average wages paid by the employer.

Small employers with aggregate wages below $250,000 would be exempt from requirements.

Those with aggregate wages over $250,000 and below $300,000 would be required to pay 2% of average wages, those with aggregate wages over $300,000 and below $350,000 would be required to pay 4%, and those with aggregate wages above $350,000 and below $400,000 would be required to pay 6%.

H.R. 3200 would create a temporary reinsurance program, with funding not to exceed $10 billion. The Secretary would reimburse the plan for 80% of the portion of a claim above $15,000 and below $90,000 (adjusted annually for inflation). The Education and Labor bill adds a provision that would bar group health plans from reducing retiree health benefits for either the retiree or their beneficiaries.

 Small Business Credit

Certain small businesses would be eligible for a 50% credit toward the cost of coverage. This credit would be phased out as average employee compensation increased from $20,000 to $40,000, then as the number of employees increased from 10 to 25. Employees would be counted if they received at least $5,000 in compensation, but the credit would not apply toward insurance for employees whose compensation exceeded $80,000. This credit would be treated as part of the general business credit and would not be refundable; it would be available only to a business with a tax liability.

The annual out-of-pocket limit in 2013 would be $5,000 for an individual and $10,000 for a family, adjusted annually for inflation. To the extent possible, the Commissioner would establish cost-sharing levels using copayments (a flat dollar fee) and not coinsurance (a percentage fee). Cost-sharing under the essential benefits package would be designed so that the plan covers approximately 70% of the full value of benefits in the essential benefits package; QHBPs could cover a higher percentage.

 A Health Benefits Advisory Committee (HBAC) would be established to make recommendations to the Secretary regarding coverage offered through the Health Insurance Exchange, including covered benefits, cost-sharing, and updates to the essential benefits package.

 Health Insurance Exchange Structure

H.R. 3200 would also create a “Health Insurance Exchange,” to facilitate the purchase of QHBPs by certain individuals and small businesses. The federal Exchange’s startup and operating costs, along with payments for premium and cost-sharing credits discussed below, would be paid for out of a new Health Insurance Exchange Trust Fund, funded by (1) taxes on certain individuals who did not obtain acceptable coverage, (2) penalties for employers whose coverage failed to meet the requirements for coverage, (3) payments by employers who opted not to provide insurance coverage, (4) payments by employers whose employees opt for Exchange coverage instead of employment-based coverage, and (5) such additional sums as necessary to be appropriated for the Exchange.

Individual and Employer Eligibility for Exchange Plans

 Exchange-eligible employers could meet the requirements of the employer mandate by offering and contributing adequately toward employees’ enrollment through the Exchange. In the Ways and Means version of H.R. 3200, in 2013, employers with 10 or fewer employees would be Exchange-eligible. In 2014, employers with 20 or fewer employees would be Exchange-eligible. Beginning in 2015, the Commissioner could permit larger employers to participate in the Exchange.

In the Education and Labor version of H.R. 3200, in 2013, employers with 15 or fewer employees would be Exchange-eligible. In 2014, employers with 25 or fewer employees would be Exchange-eligible. In 2015, employers with 50 or fewer employees would be Exchange eligible. Beginning in 2015, the Commissioner could permit larger employers to participate in the Exchange. Exchange plans would have to be equivalent to approximately 70% of the essential benefits package, 85% of a Basic Plan; and 95% for an Enhanced Plan

 Public Health Insurance Option

 Under H.R. 3200, the Secretary of Health and Human Services (HHS) would establish a public health insurance option through the Exchange. Any individual eligible to purchase insurance through the Exchange would be eligible to enroll in the public option, and may also be eligible for income-based premium and cost-sharing credits.

Physicians would be able to participate in the public option as preferred or non-preferred providers; preferred physicians would be prohibited from balance-billing, that is billing amounts above the established rates, while non-preferred physicians could balance-bill up to 115% of the established payment rate. Non-physician providers would be prohibited from balance-billing.

Payments for outpatient prescription drugs would be based on negotiated rates.

For the first three years of the public option, physicians and other health care practitioners who participate in both Medicare and the public option, and certain other providers, would receive a 5% payment increase above the adjusted Medicare rate.

 Overall the CRS confirms just how expensive this bill will be to small businesses, and the additional cost/employee will have to somehow be passed onto customers, and in the end this bill if adopted will lead to wage inflation and potentially worsen unemployment.

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