Finance Committee approves measure; bill to full Senate soon

by Jerry Geisel of Business Insurance Magazine, www.businessinsurance.com

WASHINGTON—The stage is set for a debate on the Senate floor as health care reform legislation advances amid growing employer concerns about the impact of recent changes that would significantly ease penalties on individuals who do not enroll in a health insurance plan.

The Senate Finance Committee last week approved reform legislation assembled by panel chairman Max Baucus, D-Mont. Before the 14-9 vote, Sen. Baucus revamped the bill somewhat and panel members proposed various amendments that the committee adopted.

With Democrats in control, committee approval of the legislation was not a surprise. But there was an unexpected positive vote by Sen. Olympia Snowe, R-Maine, who said she would support the bill, at least for now. While not in favor of all the bill’s provisions, Sen. Snowe said the status quo is unacceptable and she wants to see the reform drive continue.

“I happen to think that the consequences of inaction dictate the urgency of Congress to take every opportunity to demonstrate its capacity to solve” one of the monumental issues of our time, Sen. Snowe said. She emphasized that her vote in favor of the Finance Committee bill should not be interpreted as a sign of how she will vote on the Senate floor.

“My vote today is my vote today. It doesn’t forecast what my vote will be tomorrow,” the senator told panel members. Still, Sen. Snowe, whose support President Obama courted, became the first Republican to break party ranks and vote for health care reform legislation since the current reform drive began.

By the end of the month, the full Senate will take up a compromise reform bill with central provisions that include federal health insurance premium subsidies for the low-income uninsured and reform of the individual lines markets. Senate Democratic leaders will fashion one bill from the different measures approved by the Senate Finance Committee and the Senate Health, Education, Labor and Pensions Committee (see box).

“A chapter has been closed, but the full story has yet to play out,” said Paul Dennett, senior vp-health care reform at the American Benefits Council in Washington.

“A milestone was reached, but there are obstacles ahead yet to be overcome,” said Frank McArdle, a consultant in the Washington office of Hewitt Associates Inc.

Contention is expected on the Senate floor on issues such as whether the legislation should include a public option—a government-run health insurance plan to compete against private insurers, an employer mandate and the strength of an individual mandate.

“There are going to be some flash-point issues,” said Helen Darling, president of the National Business Group on Health in Washington.

The individual mandate already has set off fireworks. In his original measure, Sen. Baucus proposed penalties as high as $3,800 a year for those who did not enroll in a health care plan. The penalty would not apply to those who could prove that affordable coverage—health insurance plans for which premiums do not exceed 10% of income—is not available. Sen. Baucus later slashed that maximum penalty to $1,900.

Finance Committee members, though, approved amendments to delay and drastically reduce the penalties.

In 2013, the first year much of the legislation would go into effect, there would be no penalty. In 2014, the penalty would be $200 for each adult without coverage; in 2015, $400; in 2016, $600; and in 2017, $750. As a comparison, Massachusetts’ 2006 health care reform law carries a maximum for each adult without coverage of just over $1,000 for 2009.

In addition, under the Finance Committee bill, a penalty would not be imposed for coverage lapses of less than three months, and the penalty would not be assessed if the cost of available health insurance coverage exceeds 8% of income compared with 10% in the original bill.

Business groups said gutting the individual mandate could send health insurance premiums spiraling and defeat a key goal of the reform legislation: easing the rate of health care cost increases.

Without a relatively stiff mandate, individuals in good health would be less likely to purchase coverage. That would saddle insurers with a risk pool heavily weighted with big users of medical services. This is due to other provisions in the legislation that would prevent insurers in the personal lines market from denying coverage, as they now can, for those with pre-existing medical conditions, observers say.

“You are going to have tremendous adverse risk selection,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

That adverse risk selection ultimately would lead to higher premiums, making coverage even less affordable and potentially forcing insurers to boost rates in the group market to make up for those losses.

In addition, without a meaningful penalty, healthy individuals might wait until they have medical problems before getting coverage, Mr. Dennett said. If those problems end, the individuals might then decide to drop coverage.

If that scenario were to develop, loading down the individual market with the highest-cost risks could cause the market to collapse, Mr. Dennett said.

“You are talking about a crash-and-burn” scenario, Ms. Darling said.

But the issue is far from settled and an intense Senate debate is expected.

“This is an issue that certainly will be revisited,” Mr. McArdle said.

Plenty of other issues will come up as well. Public option plan advocates have said that if the bill combining elements of the Finance and HELP committees’ bills does not include the public option, they will try to win approval on the Senate floor.

In addition, Sen. John Kerry, D-Mass., has said he will try to win approval of a mandate that employers offer coverage or pay a penalty.

Efforts also are expected to ease an excise tax on the costliest health insurance plans. Under the Finance Committee bill, a 40% excise tax would be imposed on group health insurance premiums that exceed $8,000 a year for individual coverage and $21,000 for family coverage. The cost threshold for triggering the tax would be somewhat higher for plans covering early retirees and employees in certain high-risk professions.

The threshold amounts, which start in 2013, would rise in tandem in succeeding years to match the rise in the Consumer Price Index for urban areas, plus one percentage point. With medical inflation rising far faster than the overall CPI, which in fact fell slightly over the last 12 months, the tax over time would apply to more health care plans.

For employers, “It is a kind of ticking time bomb,” said Steve Raetzman, a Watson Wyatt Worldwide senior consultant in Arlington, Va.

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This entry was posted by Adam V. Russo on Thursday, October 22nd, 2009 at 8:42 am and is filed under Health Care Legislation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.