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Beyond the headlines: Some Things To Plan for In Federal Health Care Reform Implementation

March 23, 2010

Federal health care reform started with two essential goals: lowering the cost of health care coverage and expanding the availability of coverage. "Bending the cost curve" seemed to take on less importance as the debate progressed than did bringing more of the uninsured under the coverage umbrella.

The bills passed by the House will open Medicaid coverage to many more in the country, raising eligibility thresholds to levels New Yorkers have had had for a number of years. Additionally, there are a number of provisions designed to help small employers and individuals who, unlike large employers, generally have little bargaining power in the market for health insurance, including credits and insurance exchanges. Given the significant number of existing mandates on health plans in NYS — set at the state level — it remains unclear whether small businesses in NY will fully realize the cost savings and benefits anticipated in the federal insurance exchanges.

Because this reform approach has a primary emphasis on bringing more into coverage, this bill fails to really fix the underlying cost drivers of health care coverage, including malpractice reform, in any meaningful way. The major revenue sources in the Reconciliation Agreement derive 48% of payments from increasing the Medicare tax on high income individuals; and 26% of their revenues from fees on the health industry. It anticipates 11% of the overall revenue being generated from the Cadillac plan tax and 8% from individuals. In the long-term, this legislation is more likely to increase costs for NY employers as the cost drivers were not significantly addressed within the context of this bill.

One thing is clear: employers of all sizes will need to put a heavy emphasis on revising the design of the benefit plans they offer to avoid being subject to some of the provisions in the bills including the excise taxes on "Cadillac" plans and penalties or additional taxes for employees opting out of coverage. Additionally, new reporting to the IRS on plans and their benefit thresholds will add additional reporting burdens to most employers. Finally, employers will need to be much more informed on their employees' personal circumstances to assure compliance with items ranging from the new Medicare tax on higher wage earners, to the subsidies available for individuals at the lower end of the wage spectrum.

Congress is going to have to return to health care reform to address issues like Medicare and Medicaid spending if they intend to constrain the growth in health care costs.  This bill doesn't appear to do that in any meaningful way.  Public programs such as Medicaid and Medicare pay providers at levels less than the actual cost of providing the care. Hospitals, doctors and nursing homes have been and will continue to have to make up that difference through private health insurance plans. The expansion of coverage to new people in public programs will likely exacerbate that balance of payments.

Some details of the health reform plan:

Some requirements on employer plans: