Federal Legislative Issue Update and A Look at What the Future May Hold for Health Care Financing

1. Federal Legislative Issue Updateand A Look at What the Future May Hold for Health Care Financing Presented by Janet Trautwein, National Association of Health Underwriters

2. Lots of Unresolved Business in 2008 • Reauthorization and possible expansion of or changes to the STATE Children’s Health Insurance Program (SCHIP) • Mental Health Parity • Long Term Care • Various “reform” bills • Presidential Candidates

3. State Children’s Health Insurance Program • NAHU’s current top federal legislative priority is the SCHIP reauthorization, with our focus on increasing access to private premium assistance programs to minimize the effects of “crowd out.” • Substitution of public for private health insurance coverage occurs when public subsidies are provided. Crowd out is inevitable. CBO estimates SCHIP crowd out to be between 25-50%. • The goal for policy makers should be to mitigate the effects of crowd out, to ensure that SCHIP plays a coordinated partnership role with existing private sector health insurance coverage.

4. State Children’s Health Insurance Program • The 1st Session of the 110th Congress produced a stalemate on SCHIP reauthorization • Funding for SCHIP expired on September 30, 2007; Congress has passed short term extension of current law to buy more time for reauthorization agreement • President Bush and many Republicans objected to the size of SCHIP expansion being proposed in Congress

5. State Children’s Health Insurance Program • In July 2007, both the House and the Senate passed very different versions of SCHIP reauthorization legislation • The House measure H.R. 3162, significantly expanded the scope of SCHIP, including providing coverage to individuals up to age 25 • Rather than improving the current premium assistance provisions of S-CHIP, it did just the opposite, by allowing employers to buy into the S-CHIP program • As a partial funding mechanism, it significantly cut funding to Medicare Advantage plans. • Passed mostly on party lines: 225-204

6. Senate S-CHIP • The Senate-passed legislation, H.R. 976, also expands program funding, but would do so in a more limited way and primarily through an increase in the federal tobacco excise tax • Greatly improves current premium assistance provisions would help reduce crowd-out by phasing out SCHIP coverage of childless adults • Senate bill passed with a veto-proof margin of 68-31 • President Bush promised veto of both the Senate bipartisan measure and the House bill, citing too large an expansion of the government program and opposition to tobacco tax increases

7. House – Senate Compromise Agreement • Congress attempted to send President Bush two different versions of SCHIP reauthorization (H.R. 976 and H.R. 3963), essentially Senate bill’s $35 billion expansion and tobacco tax funding increase • Newer versions sought to tighten income eligibility levels, speed termination of coverage of childless adults, make stronger proof of eligibility rules • President Bush vetoed both versions, and Congress failed to override vetoes (2/3 of each chamber needed)

8. S-CHIP • Still possible reauthorization compromise attempted again in 2008. But unlikely – Bush says tobacco tax increase is non-starter, and he objects to size of expansion ($35 billion) • Good resource on S-CHIP and crowd-out issues: Alliance for Health Reform “Toolkit” www.allhealth.org/publications/Child_health_insurance/Crowd-out_and_SCHIP_toolkit_70.pdf

9. What Health Issues is Congress Working on Now? • Reauthorization and possible expansion of or changes to the Children’s Health Insurance Program • Mental Health Parity • Other Congressional Efforts • Medicare for All and Various “reform” bills • Presidential Candidates

10. Mental Health Parity • Since 1996, current law has required parity for mental health coverage • Defines parity as no lower annual or lifetime dollar limit for MH coverage than any annual or lifetime dollar limits that may apply to medical and surgical benefits covered by a plan • Current law explicitly permits plans to have separate cost sharing provisions, limits on the duration of coverage and to define what benefits the plan chooses to cover • Also does not apply to coverage for substance abuse at all

11. Mental Health Parity • Current law included a 5-year sunset provision • Each year since the sunset, Congress has extended the 1996 provisions by one year • Proponents, led by the late Sen. Paul Wellstone (D-MN) and Sen. Pete Domenici (R-NM) have pushed each year to significantly expand current law to require parity in plan cost sharing provisions, limits on the duration of coverage of services, coverage of all conditions listed in the so-called DSM-IV manual, and limit plans ability to manage this benefit • Employers and health plans have (previously) vigorously resisted efforts to expand current law, leading to a stalemate where the temporary extension of current law was the only common ground action on which all sides could agree.

12. Mental Health Parity • 110th Congress -- Sen. Domenici and his new co-sponsors, Sen. Ted Kennedy and Sen. Mike Enzi (R-WY) agreed to take a fresh look at issue and work to find consensus. • More moderate bipartisan agreement reached (S. 558) -- requires parity on all cost sharing and duration of coverage limits, but leaves plans and employers the ability to define benefits and to use medical management practices to control health costs, make sure enrollees receive the right care for their conditions. • The House sponsors of H.R. 1424 proceeded into the new Congress with essentially the same, highly restrictive version of parity legislation as before.

13. Major Differences in the Bills • Mandated Benefits • Definition of Mental Illness • Medical Management • The right care at the right time • Network Management • Requirement of out-of-network services • Expanded Remedies • State vs. federal • Effective Dates • January 1, 2008 vs. 12 months from enactment

14. What Health Issues is Congress Working on Now? • Reauthorization and possible expansion of or changes to the Children’s Health Insurance Program • Mental Health Parity • Other Congressional Efforts • Medicare for All and Various “reform” bills • Presidential Candidates

15. Other Issues Congress is Working On • Trade Adjustment Assistance Act • Authorization expired in 2007, but Congress extended current law for a few months to allow time for agreement • Trying to make it easier for states with purchasing options • Possible expansion to other populations – S. 1848 was introduced by Sen. Baucus to modify the bill and expand it to service workers and others • High-Risk Pools • FY08 appropriations bill provides $49 million in federal funding

16. Other Issues Congress is Working On • Health Information Technology (IT) • Significant interest in House and Senate to employ greater Health IT to improve the quality of patient care and lower costs • House and Senate measures would seek to establish national standards, provide grants and loans to health care providers and to states to spur adoption of health information technology • Failure to reach agreement in past couple of years due to funding amounts and privacy issues • E-Prescribing • S. 2048 and other measures being promoted as first step to Health IT -- would require all doctors to use electronic prescriptions for Medicare patients, starting in 2011 • Proponents seek to make this part of any “physician fee schedule” fix under Medicare Part B

17. Other Issues: Long-Term Care • NAHU is working with a coalition to pass legislation to allow long-term care insurance to be sold pre-tax under cafeteria 125 and FSA arrangements • Senators Grassley and Lincoln have sponsored S. 2337 and Rep. Pomeroy sponsored H.R. 3363 • Bipartisan but cost of bill must be paid for in other tax increases or spending reductions

18. Other Issues Congress is Working On • Insurance Producer Oversight in Medicare Sales / Ethics • Widespread press reports in 2007 of “bad apples” in our industry who have been behaving in what appears to be an unethical manner • NAHU led the way in getting out in front in communications with CMS and Congress, touting and reinforcing considerable time, effort and resources educating our membership about the rules concerning Medicare-related product sales. Also working closely with CMS and state regulatory agencies.

19. What Health Issues is Congress Working on Now? • Reauthorization and possible expansion of or changes to the Children’s Health Insurance Program • Mental Health Parity • Genetic Discrimination • Other Congressional Efforts • Various “reform” bills • Presidential Candidates

20. Health Reform Proposals • Senator Wyden — Dismantles existing employer-based system, state pooling arrangements, community rating and guarantee issue, Individual Mandate, Employer Mandate • Senator Kennedy/Representative Dingell — Medicare for All • Senator Bingaman/Representative Baldwin -- Grants to states to carry out any of a broad range of strategies to increase health care coverage • Senator Enzi — Individual mandate, guarantee issue and tight rating requirements on all products, pooling of individual and group markets, required community rated and price-controlled products from each carrier, small business health plans, and standard deduction to pay for individual or employer coverage. • Senator Harkin — Allows employers a 50% tax credit for the costs of providing employees with a qualified wellness program • Bush Tax Proposal – Removing employer paid benefit tax exclusion and replacing it with a deduction

21. Changing Tax Exclusion of Employer-Sponsored Insurance • Health benefits a big potential target for raising revenue • Currently, the amount that employers contribute toward health benefits and health insurance is generally excluded, without limit, from workers’ payroll and income taxes. • Tax treatment of health benefits established in the tax code through a series of laws and rulings that date back to the 1920s.

22. Changing Tax Exclusion of Employer-Sponsored Insurance • Estimated value of the income tax exclusion: $100 billion per year; payroll tax exclusion: $50 billion per year • Tax exclusion reduces the after-tax cost of health insurance to individuals and families: almost 70 percent of workers and their dependents (more than 160 million individuals under age 65) are incentivized to acquire employment-based health insurance. ESI has take-up rate of about 85%, with fewer than 5 percent of workers eligible for health benefits being uninsured • Growing discussion across ideological spectrum to end current preferential tax treatment for employment-based health benefits and replace it with some other tax preference

23. What Congress is Working On • Reauthorization and possible expansion of or changes to the Children’s Health Insurance Program • Mental Health Parity • Genetic Discrimination • Medicare for All and Various “reform” bills • Other Congressional Efforts • Presidential Candidates

24. Presidential Candidates • Health care will be the top domestic policy issue during this extended campaign cycle. • Many candidates favor comprehensive reform that could dismantle the private market • Single payer, national exchanges, shift away from the employer-based system all under serious debate. • NAHU’s analysis of presidential health care reform proposals is updated regularly and available online.

25. Presidential PlatformsSenator Barack Obama (D-IL) • Wants universal coverage by 2012 • States, employers, and private plans to GI • Lower costs and improve quality • Focus on preventive care, wellness, and public health • Create national “exchange” with federal coverage standards • Mandate children covered up to age 25 • Estimated $50-$60 B a year • Strengthen anti-trust laws for tort reform • Private insurers must invest % of premiums to patient care in non-competitive areas

26. Presidential PlatformsSenator Hillary Clinton (D-NY) • Individual/Employer mandate • Estimated $110 B a year • Cost Containment – preventive/chronic disease mgmt, paperless IT, reduce admin. Costs • Private Insurance – insurers must cover preventive care and meet MLR • GI and modified community rating • “Choice” 1) Keep current private coverage 2) Buy into expanded FEHBP 3) Health Care Choices (public FEHBP)

27. Presidential PlatformsSenator John McCain (R-AZ) • Eliminate fed income tax exclusion for employer-sponsored insurance • Replace the exclusion with a tax credits - $2500/$5000 • Portable health insurance plans/multi-year plans • Coverage across state lines • Purchase health insurance through any association or organization they choose • Transparency with medical outcomes/quality of care • Expand the VA program to use benefits for timely high-quality care

28. Making a Difference

29. Centers for Disease Control & Prevention, 2006 Behavioral Risk Factors Surveillance System Constraining Medical Costs Behavior & Lifestyle: Weight Gain ’86-’06 No Country Can Fund All the Consequences: Hypertension Type 2 Diabetes Osteoarthritis Stroke Coronary Heart Gallbladder Sleep Apnea Respiratory Issues Some Cancers 2006 1993 1985 1986 1987 1988 1989 1990 1991 2005 1992 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 1994 Obesity Trends Among U.S. Adults (BMI>30%) No Data <10% 10%–14% 15%–19% 20%–24% 25%–29% ≥30%

30. Constraining Medical Costs How Much Can Private Insurance Costs Be Affected? Administration 14% Other Claims Cost 45.1% Behavior 15% Inefficiencies 3.3% Government Cost Shift 9.5% Malpractice 5% Uninsured Cost Shift 8%

31. February 2005 Blue Cross Blue Shield Association analysis of Census Bureau’s “Income, Poverty and Insurance Coverage” report Access For All Most Uninsured Not A Crisis 46 Million Considered Uninsured: Eligible for Government Program (but not signed up) 34% 80% $50,000+ Annual Income 32% Temporarily Uninsured 14% Long-Term Uninsured 20%

32. Access for All Smart State Reforms Make a Difference Varying regulatory climates can have a profound impact on insurance affordability. Consider the differences in individual rates for two 30-year-old males living in a Philadelphia suburb located across the bridge from each other – in different states. September 2007 Lowest and Highest Rates for PPO Indemnity Plans: $1000 Deductible 80/20% Coinsurance In Neighboring Philadelphia Suburbs NJ PA $599 - $6,009 Haddonfield, NJ 08033 $70 - $260 Wayne, PA 19087

33. Who Will Pay For Health Care In the Future?

34. Who Will Pay? • Employers • Will they be required to pay? • Who will they be required to cover? • What type of benefit will they be required to provide? • How much will they pay or will they have to pay?

35. Who Will Pay? • Individuals • Will the employer based health insurance system change to one that is individually based? • Will employers still contribute to the cost? • How will that change markets? • Will individuals be required to carry health insurance?

36. Who Will Pay? • The Government • Will the government continue to provide coverage primarily for those who are low income or elderly? • Will the government also begin to subsidize the purchase of coverage in the private market for those with lower incomes • Will the government begin to subsidize the cost of high risk individuals? • Will the government provide a basic level of coverage or catastrophic coverage? • Will the government be the provider for all coverage, i.e., a single payer system?