Featured Health Business Daily Story, April 27, 2011

Obama-GOP Budget Deal Will Affect Few Participants in Exchanges, Observers Say

Reprinted from AIS's HEALTH REFORM WEEK, the nation’s leading publication on the business implications of the massive changes for the health industry mandated by reform.

By Jennifer Lubell, Editor
April 18, 2011Volume 2Issue 13

An 11th-hour budget deal between the White House and Republican lawmakers chips away funds for some of the health reform law’s coverage options, yet health care consultants are predicting that relatively few individuals will be affected by the changes.

President Obama, in a last-minute effort to avoid a large-scale shutdown of the federal government, orchestrated a deal with Republican lawmakers April 8 to cut $39 billion from the budget for federal programs for the remainder of the fiscal year. At HRW press time, both chambers of Congress had passed the bill containing the cuts, and it was headed to Obama for signature. A separate resolution to withhold funds for reform-law implementation passed the House April 14 but failed in the Senate.

A small portion of the budget cuts targets various health reform provisions, including one that involves the health insurance exchanges. Expected to save at least $4 billion over 10 years, the provision would eliminate the so-called “free-choice vouchers,” which would have enabled low-income employees to take their insurance contributions from their employers and shop for more affordable options under the exchanges.

Chantel Sheaks, principal of government affairs with Buck Consultants in Washington, D.C., tells HRW it’s unlikely that the loss of the voucher program will undermine the exchanges. According to Sheaks, “a very small percentage of people would have been eligible for the free-choice vouchers.” This provision would have allowed individuals to use employer contributions in the insurance exchanges, provided that their coverage would have cost between 8% and 9.8% of their household income.

Sheaks adds that determining a specific number of affected individuals would be difficult, as the voucher was based on adjusted gross income, “and an employer would have no way of finding out someone’s gross adjusted income.” It nevertheless will limit people’s choices, asserted Sen. Ron Wyden (D-Ore.), the author of the free-choice voucher program. In an op-ed article in the Huffington Post April 9, Wyden wrote that the vouchers would have given this group of people “a third option: to take the tax-free money that their employer would otherwise contribute to the cost of their health insurance and use it to buy a more affordable health insurance plan at the exchange.”

The budget agreement also trims more than $2 billion from a $6 billion health reform law program that would encourage development of not-for-profit “cooperatives” that would compete with private payers.

The deal came at a time when lawmakers in Washington are pushing larger agendas to reduce the federal deficit, with Medicare and Medicaid as chief targets. On April 13, Obama unveiled a plan to reshape these entitlement programs in an effort to save $480 billion by 2023 and an additional $1 trillion in the following decade, by strengthening the role of the reform law’s Independent Payment Advisory Board, setting new Medicare cost growth targets while addressing unnecessary spending on prescription drugs, and reforming federal-state partnerships in the Medicaid program.

An April 5 proposal from House Budget Committee Chairman Paul Ryan (R-Wis.) by comparison seeks to trim $1.43 trillion from these programs by replacing traditional Medicare in 2022 with a “voucher-like” program, in which seniors would have to find a private plan that covered their medical needs, and converting Medicaid into a block-grant program (HRW 4/11/11, p. 1). The House was scheduled to vote on the Ryan proposal April 15.

In the greater scheme of things, it is unclear how many people will be affected by the voucher elimination under the latest budget agreement, Vince Ashton, executive director of HealthPass New York, a commercial exchange serving the greater New York region, tells HRW. Exchanges are about choice and competition, “so to take away the free-choice voucher in some ways seems kind of antithetical to what the idea of the reform law was,” Ashton says. At the same time, the voucher program may not necessarily have been easy to qualify for from an administrative point of view, he adds.

Sheaks observes that administration of those vouchers would have been a nightmare, “both for the government and for employers.” The employer would have had to provide the employee with a voucher, and “then if the amount of the employer contribution would have been more than the premium in the exchange, the employer would have to pay [the difference] to the employee as wages subject to income and employment tax. Just imagine the paperwork involved in that,” she says.

Steve Wojcik, vice president for public policy at the National Business Group on Health, tells HRW that adverse selection — not administrative issues — was probably the biggest concern for employers regarding the voucher program. “From the employer’s perspective, I think there was relief that the voucher provision, which was a last-minute addition to the law, was eliminated. Although there’s a small window of eligibility for employees based on incomes, there was always a potential that it could be expanded,” he says.

Lower-wage employees are the ones who most likely would have qualified for the vouchers. From the employer’s perspective, the concern was they would lose some of the younger, healthier participants, “and be stuck with older, sicker, more costly plan participants,” Wojcik says.

Would Employees ‘Take the Money and Run’?

Don Garlitz, benefits consultant with broker FirstWest Benefit Solutions in Utah, says that the voucher “would have allowed employees to ‘take the money and run’ to the individual market,” which would be potentially damaging to the group plan involved.

“Any time an employer sponsors a health plan, the employer needs to keep their risk pool healthy, and part of that effort is to keep as many enrolled as feasible,” Garlitz tells HRW.

Even without the vouchers, Sheaks maintains that these individuals still could get a subsidy from the federal government in the event their employer’s coverage is not affordable — meaning it doesn’t have a 60% actuarial value or an employee premium contribution of less than 9.5% of household income. (According to the Congressional Research Service, actuarial value is the percentage of medical expenses estimated to be paid by the insurer for a standard population and set of allowed charges.)

In some instances, individuals might get a better deal from the government subsidies than they would have from the voucher program, Sheaks suggests.

But as Ashton points out, only some who would have qualified for the vouchers will be eligible for government assistance in the exchange. Really, it’s only those people “between 9.5% and 9.8% [of household income] who will have the ability to peel off” from their employer plans and qualify for the government subsidies, explains Ashton.

Trimming away funds from the reform law’s cooperatives isn’t going to limit people’s choices either, Sheaks suggests. Health care cooperatives aren’t a new idea, but “if you look at the history of cooperatives in the United States, there are few that have really succeeded, because they couldn’t get the risk pool they needed,” Sheaks says.

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