Investigating the Affordable Care Act: Five Areas for Congressional Oversight of the Healthcare Reform Law Douglas Holtz-Eakin & Michael Ramlet l November 2010 Introduction In the midst of the legislative debate over the Patient Protection and Affordable Care Act (PPACA), Speaker Pelosi famously said, We have to pass the bill so that you can find out what s in it. Indeed, the 112th Congress must find out what is in the law before irrevocable damage is done to our care delivery system, private health insurance, and the federal budget deficit. Oversight hearings should begin immediately as the Obama Administration has abused the traditional rulemaking process to limit public comments from key stakeholders and the American people. We recommend the following five areas for oversight hearings in the 112th Congress. Hearing #1: High-Risk Insurance Pools The PPACA allocated $5 billion for the implementation of high-risk health insurance pools. States were able to choose whether to operate their own pool or outsource operations to the Department of Health and Human Services (HHS). The Obama Administration s implementation of the high-risk pools has been marked by missed deadlines and low-enrollment. Independent government agencies had estimated that the high-risk pools would extend coverage to as many as 375,000 uninsured Americans but to date the administration has only enrolled 8,000 people. The failed implementation of the high-risk pool program may stem from ineffective marketing by the Administration to eligible enrollees and the poorly structured pre-existing condition insurance plans with expensive premiums. Continued low enrollment has led the Obama Administration to recently cut the high-risk pool insurance premiums by 20 percent. High Risk Insurance Pools Key Takeaways Examine what has caused the failed implementation of the high-risk insurance pools. Employer Coverage Drop and Special Exemption Waivers Evaluate concerns regarding the number of employers who intend to drop insurance and explore the circumstances under which the Obama administration has offered special exemption waivers to coverage mandates. Medicare Advantage Plans Evaluate the impact of the Medicare Advantage cuts on senior insurance options. Long-Term Care Insurance Program Request implementation plans and consider the impact on private long-term care insurance markets and the State Medicaid programs Insurance Exchange Subsidies Assess the preparedness of the Treasury Department and Internal Revenue Service to administer health insurance exchange subsidies and determine the potential for fraud, waste, and abuse. The views and opinions expressed here are not necessarily reflective of the views of the American Action Forum. Douglas Holtz-Eakin (dholtzeakin@americanactionnetwork.org) is the President of the American Action Forum. Michael Ramlet (mramlet@americanactionforum.org) is the Director of Operation Healthcare Choice at the American Action Forum.
What caused the Obama administration to miss the deadline for implementing the high-risk pools? Who is responsible for overseeing the high-risk insurance pools and have there been personnel changes to address the failed implementation? What lessons has the Obama Administration drawn from the failed implementation and what steps are being taken to address these failures before implementing the more complex and larger-scale state insurance exchanges? Are the high-risk insurance pools underfunded and has this led to the unaffordable premiums that reportedly caused low beneficiary enrollment? Who did the Obama Administration consult with to ensure that the 20 percent reduction in high-risk pool premiums is financially sound? Hearing #2: Employer Coverage Drop and Special Exemption Waivers to Coverage Mandates Prior to the PPACA, 163 million workers and their families received health insurance coverage from their employers. The Obama Administration and congressional proponents of the law insisted that a key tenet of the law was to build on this system of employer-sponsored coverage. To do this, the PPACA included an employer mandate requiring firms with 50 or more employees to offer health insurance or face a federally enforced excise tax. For large employers who do not offer minimum essential coverage to full-time employees and their dependents, the yearly excise tax is $2,000 multiplied by the total number of the firm s full-time employees reduced by 30 employees. If the large employer does offer minimum essential coverage, but one or more full-time employees qualify for the premium tax credit through the exchange, the yearly tax is $3,000 per subsidized employee. In its final score of the PPACA, the Congressional Budget Office (CBO) estimated that the law will lead to a net employer coverage drop of 3 million persons. CBO projects that 6 to 7 million people will be newly covered by an employer but 8 to 9 million people are expected to lose existing employer coverage or chose to be one of the 1 to 2 million people who voluntarily enter the insurance exchanges in 2014. Since the PPACA s passage, state governments and major private employers have indicated that the coverage drop rate may be substantially greater than this initial estimate. In November, the Human Resources Policy Association released a member survey identifying that one in five employers said they were not likely to offer insurance coverage in 2020, with another 47 percent reporting that they were unsure about their company s continued involvement in insurance. In October, Tennessee Governor Phil Bredesen noted that the state of Tennessee could drop coverage for its employees, pay the $2,000 employee penalty to the federal government, give raises to workers to compensate for the state benefits, and still come out at least $146 million per year ahead. In September, McDonald s Corporation warned federal regulators that it could drop its health insurance plan for nearly 30,000 hourly restaurant employees unless the Obama Administration waived a new provision that mandated a minimum medical loss ratio. Other major employers including Home Depot Inc., Disney Worldwide Services, CVS CareMark, and Staples have express similar concerns. Shortly after the initial employer coverage drop reports appeared in the Wall Street Journal, the Obama administration granted special exemption waivers to the PPACA mandated medical benefits for limited benefits plans.
In light of the employer reactions to PPACA mandates, should the Obama Administration adjust estimates on the drop in employer healthcare coverage? If a larger employer coverage drop occurred, what would be the impact on the federal budget deficit? Can the proposed health insurance exchanges handle a larger employer coverage drop? What criteria are being used by the Secretary of Health and Human Services to extend special exemption waivers? Are there concerns that the special exemption waivers create strategic imbalances in competitive industries? What steps is the Administration taking to ensure that companies qualifying for waivers are receiving them? Hearing #3: Medicare Advantage Plans To finance the insurance exchange subsidies and the entitlement program expansions, the PPACA cuts $136 billion from Medicare Advantage reimbursement rates. The impact on America s seniors was felt immediately as Cigna Corp, Harvard Pilgrim Health, and several Blue Cross Blue Shield insurance plans announced that they are not renewing hundreds of Medicare Advantage plans. This means that some 700,000 elderly beneficiaries will need to find new policies. For 2011, the Kaiser Family Foundation estimated that there will be a 13 percent decline in the number of Medicare Advantage plans. For the remaining Medicare Advantage plans offered, premiums are expected to increase an average of 10 percent among the top plans that have signed up 70 percent of seniors. About a quarter of seniors get their health insurance coverage through Medicare Advantage plans, which are popular because they tend to have affordable premiums and provide extra medical benefits. The cuts in Medicare Advantage provisions will prove especially burdensome to Hispanics who will lose $2.3 billion in benefits and African-Americans who will lose $6.4 billion in benefits. When analyzed by income, more than 10.3 million Medicare beneficiaries with incomes under $32,400 in today s dollars will lose a total of $38.5 billion per year. The strong reaction from the Obama Administration toward private insurers who raise such concerns with their customers should be reviewed as an integral part of the oversight hearing. In a September letter to America s Health Insurance Plans, the Health and Human Services Secretary wrote, there will be zero tolerance for this type of misinformation and unjustified rate increases. How will the reduction in Medicare Advantage reimbursement rates impact physician access for enrolled seniors? What was the net increase/decrease of Medicare Advantage plans offered for the open enrollment period ending December 31, 2010? What was the annual premium increase for Medicare Advantage medical beneficiaries? What was the annual premium increase for the Medicare Advantage Part D beneficiaries? Did the Obama Administration attempt to coerce private insurers by removing access to the Medicare beneficiary market? Hearing #4: Long-Term Care Insurance Program The PPACA created the Community Living Assistance Services and Support (CLASS) Act, a government administered long-term care insurance program. The insurance plan is intended to take effect in January 2011. While intended to be self-funded and sustainable, many economists expect the CLASS Act to substantially increase the federal
deficit because its actuarial structure is unsound. Both the Office of the Actuary in the Centers for Medicare and Medicaid Services and the American Academy of Actuaries has expressed concern that the CLASS act will likely fail. President Obama s fiscal debt commission highlighted the budget risk of expanding the federal government s role in the long-term care market when it recommended that the President convert the federal share of Medicaid Payments for long-term care into a capped allotment. Implementing the CLASS Act runs counter to President Obama s commitment to reducing the federal deficit. Is the CLASS Act s long-term care insurance program on target to launch in January 2011? Where will the long-term care insurance program be housed within the Department of Health and Human Services? Who will oversee the management of the long-term care insurance program? Who has been nominated to the CLASS Independence Advisory Council, the Board of Trustees of the CLASS Independence Fund, and the Personal Care Attendants Workforce Advisory Panel? What impact will a government sponsored long-term care insurance plan have on the private long-term care insurance market? What specific criteria will be used to guide the Health and Human Services Secretary to establish premiums and benefits levels? Hearing #5: Insurance Exchange Subsidies The PPACA makes $358 billion in subsidies available to qualifying beneficiaries for purchasing health insurance on the exchanges starting in 2014. Some analysts have expressed skepticism that the Administration will be able to identify those Americans eligible for subsidies, compute the correct level of subsidies, deliver subsidies to the correct insurance company through the exchange in the correct state, and do so on a monthly basis. They point out that the very long implementation timelines for a limited health insurance tax credit in the Trade Adjustment Assistance program, casts doubt on the ability of the Administration to implement the law successfully. What is the administrative plan to build the capacity to provide subsidies? What is the expected success rate in identifying eligible individuals on a monthly basis? What is the likely payment error rate in the subsidy program? What are the potential sources of payment errors? What new information-reporting requirements will the subsidy program impose on firms, households, and states? Conclusion In the midst of the legislative debate over the Patient Protection and Affordable Care Act (PPACA), Speaker Pelosi famously said, We have to pass the bill so that you can find out what s in it. Indeed, the 112th Congress must find out what is in the law before irrevocable damage is done to our care delivery system, private health insurance, and federal budget deficit. Oversight hearings should begin immediately as the Obama Administration has repeatedly abused the rulemaking process to limit public comments from key stakeholders and the American people. We recommend these five areas as a starting point for oversight hearings in the 112th Congress.
The American Action Forum is a forward-looking policy institute. The Forum produces realtime, fact-based, innovative policy analysis and solutions for policy makers and the public alike. Our mission is to promote common-sense, innovative and solutions-based policies that will reform government, challenge outdated assumptions, and create a smaller, smarter government. Operation Healthcare Choice is the Forum s public policy center focused on promoting highvalue healthcare and higher quality health insurance that expands consumer choice. Operation Healthcare Choice experts conduct research, offer commentary, and develop policies aimed at eliminating healthcare s burden on the economy.