Health Care/Insurance Committee Update
June 9, 2011
End of Session Legislation: Tricks Not Treats?
As the end of the state legislative session draws near, the Legislature continues to advance bills that will put employers squarely on the hook for the costs. Numerous issues remain on the agenda that seek to add to health insurance mandates – and drive up premiums – fundamentally threatening the continued benefit of health insurance as an employee benefit. Unlike many states which are cautiously implementing aspects of federal health care reform, the negotiations on the New York health insurance exchange have ranged from “build it and they will come” to “let’s take this one step at a time”. End of session issues to keep your eye on include:
States opting to create their own exchange and not cede this to the federal government need to enact legislation which sets out the governance model for their exchange this year. Many states have already adjourned their legislative sessions and have taken no action, ignoring the “lure” of federal funds to take the appropriate time to understand the very complex issues involved in establishing the appropriate parameters for their exchange. Serious negotiations among legislators and the Executive Branch ramped up in April, with far ranging discussions on merging markets, having the exchange act as an active purchaser of products, rate setting authority within the exchange, to governance. One area of common agreement has been the governance model New York is likely to adopt – an independent public authority. The power of that authority however, remains under intense negotiations and The Business Council believes, and will be advocating for, an approach that does not cede public policy decisions to an exchange governance model. Health exchanges may alter significantly how small businesses and their employees access health insurance and without sufficient public debate on the implications of changing employee benefits, we do not support legislation which will make these decisions in the absence of a full airing of the data and a study on the intended and unintended consequences of policy decisions. The State Senate introduced its bill last evening (Senate 5652); the bill takes a minimalist approach which the Business Council believes is the prudent approach given the limited time left in the session and our primary objective to “do no harm” in enacting a statute which may have far reaching unintended consequences.
Several bills under active negotiation will drive up the cost of health insurance premiums. With health insurance costs the number one issue for Business Council members, we will continue to oppose bills which will drive costs employer and employee premium costs even higher:
- The autism coverage mandate bill, amended on June 8, is an improvement over the original bill, this new version still contains open ended service thresholds, does not reflect evidence based medicine and contains no age limitations. Employers are not insensitive to the emotional issues surrounding the care and treatment for individuals with autism; this bill however reflects an unfunded mandate whose cost will be borne solely by those with coverage in the commercial market and will fall particularly hard on those in the small group market.
- The mail order pharmacy bill requires that pharmaceutical plans permit reimbursement to other than mail order pharmacies when the prescription is filled at a cost ‘comparable’ to that of the mail order pharmacy. The practical impact of the bill is to eliminate the ability of the plan to negotiate discounted drug costs with the mail order pharmacy – and pass that savings along to the employer/employee. While ‘consumer convenience’ may sound appealing, the ability to leverage discounted drug costs is key to keeping the cost of pharmaceutical riders affordable. Driving up the cost of pharmaceutical riders for customer convenience may well have the unintended consequence of forcing employers to choose whether or not to keep the rider.
An underlying driver of higher insurance premiums-the growing market power of hospitals and physicians to negotiate higher payment rates-has gone largely unexamined, according to a Center for Studying Health System Change (HSC) study published by Health Affairs. The study commissioned by the California Health Foundation points out that California offers a cautionary tale for reform proposals that encourage hospitals and physicians to form tighter relationships through accountable care organizations. One of the study’s authors notes, "Reform proposals that encourage hospitals and physicians to integrate have the potential to improve quality and increase efficiency, but the savings may not be passed on to private payers if provider market power to command higher prices goes unchecked."
From left coast to right coast, Massachusetts Attorney General Martha Coakley and her health care division released its study on health care cost drivers, noting, “We found that health care costs most closely correlated to the market leverage of hospitals and physician groups, rather than other issues that we would expect – like quality of care or patient population. Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.”
A new study in McKinsey Quarterly notes that “when employers become more aware of the new economic and social incentives embedded in the law and of the option to restructure benefits beyond dropping or keeping them, many will make dramatic changes.” The Congressional Budget Office has estimated that only about 7 percent of employees currently covered by employer-sponsored insurance (ESI) will have to switch to subsidized-exchange policies in 2014. McKinsey’s early-2011 survey of more than 1,300 employers across industries, geographies, and employer sizes, as well as other proprietary research, found that reform will provoke a much greater response:
- Overall, 30 percent of employers will definitely or probably stop offering ESI in the years after 2014.
- Among employers with a high awareness of reform, this proportion increases to more than 50 percent, and upward of 60 percent will pursue some alternative to traditional ESI.
- At least 30 percent of employers would gain economically from dropping coverage even if they completely compensated employees for the change through other benefit offerings or higher salaries.
- Contrary to what many employers assume, more than 85 percent of employees would remain at their jobs even if their employer stopped offering ESI, although about 60 percent would expect increased compensation.