Officials grapple with new federal health care rules

Posted: Monday, June 28, 2010

State officials are grappling with hundreds of pages of new federal regulations as the new health care reform bill moves from political hot button in Congress to reality.

Gov. Sean Parnell in a few weeks will get his first report from state agencies on what the new federal law may cost the state government.

What it will cost Alaska businesses and individuals will take a little longer, said Deborah Erickson, executive director of the Alaska Health Care Commission, an advisory group that operates within the state Department of Health and Social Services. Erickson is helping coordinate work within the department that will form the cost estimates to be given to Parnell.

"We're working to identity what we have to do, what is mandated under the federal law, and then to identity the parts that are optional," Erickson said.

The initial emphasis is on costs to state government, but the state also will help businesses and citizens understand what reform may be for them.

The costs may be surprisingly modest for the state and private citizens, but much is still unknown. Federal agencies themselves are still figuring out the new law, and interpretations sometimes change, Erickson said.

One known long-term cost for the state will come from Alaska having to pay its share of new Medicaid additions required under the reform bill.

An initial estimate given legislators in March was that the estimated addition of about 24,000 uninsured low-income Alaskans might add $5.5 million to the state fiscal year 2017 budget, increasing to $13.2 million by fiscal 2020, and remaining static after that.

The final cost is likely to be higher, Erickson said. But the numbers don't loom particularly large within the state's overall $5 billion general fund budget.

Medicaid provides health care to low-income families and disabled males with incomes of up to 175 percent of the federal poverty level. The expansion will extend coverage to all low income, including single adults, up to 133 percent of the poverty level, although the law also includes a provision allowing a 5 percent disregard for income. That means the actual percentage works out at 138 percent of the federal poverty level.

Medicaid now covers 123,791 low-income Alaskans, mostly single mothers and children, but includes some single males who are disabled. The cost of Medicaid currently is shared 50-50 between the state and federal government.

The new federal law has the federal government paying for all costs of the expanded coverage until 2017, when the state will pick up 5 percent of the expansion cost. That increases in increments to 10 percent of the costs, with the federal government paying 90 percent in 2020. The state's share is capped after that.

However, the expected 24,000 new Medicaid enrollees is just an estimate, Erickson said. There are a lot of unknowns. One is how people will react to the mandate in the federal law that everyone has health coverage, she said.

For example, lower income people who are employed - the "working poor" - and who have some health coverage for which they might pay a part, could opt to join Medicaid because it will be free, Erickson said. That would increase the enrollment.

Another knotty problem state officials are working with, this one being handled by state insurance director Linda Hall, is how the federal requirement that every state offer a high-risk insurance program, or insurance for those with health conditions who cannot get ordinary coverage, meshes with Alaska's existing Alaska Comprehensive Health Association, or ACHIA, which does the same thing.

The high-risk pool is important for many small employers who have employees with health problems where coverage was denied in the health plan carried by the employer. Having ACHIA available is important for employers to retain these workers, who are usually older, more experienced and more skilled.

The federal requirements are different than those of ACHIA. One example is a federal requirement that premiums for the high-risk coverage be capped at the state average for all health insurance premiums compared. ACHIA has a cap of 150 percent of the state average, although this year the premium charged under the state program is 130 percent of the state average, Hall said.

The problem in combining the two is that ACHIA is a nonprofit association of all insurance companies selling health care coverage in the state (firms selling health coverage are required by state law to be members) and the companies chip in annually to subsidize the program.

The federal high-risk pool will be supported with federal funds, except that the federal subsidy allocation for Alaska is finite. It's estimated that $13 million would be available until the new insurance exchanges mandated in the federal law become effective in 2014.

The subsidy pays the gap between the cost of the program and revenues paid through premiums. Given the high costs of health care for some people who have serious medical conditions, the $13 million in federal funds may not go very far, Hall said.

The ACHIA subsidy, the amount the insurance companies contribute beyond the premiums paid, is typically about $5 million a year, she said.

It would seem ideal is to have to federal government simply recognize ACHIA as meeting the federal requirement so Alaskans won't be confused by having two high-risk pools operating side-by-side, Erickson said.

To do this, however, ACHIA's requirements would have to mesh with the federal law. That may be tricky. For example, if the ACHIA members, the insurance companies, were to lower the premiums to match the federal requirement, the subsidies insurance companies pay into ACHIA would increase. The companies would have to increase premiums they charge all other customers in Alaska to pay for this.

That and other complexities most likely will mean that Alaska will have two pools operating, at least until 2014, Hall said.

When the insurance exchanges become effective, the federal law will bar them from denying coverage because of pre-existing conditions, so the need for all high-risk pools, including ACHIA, will go away.

Until then, however, there are other twists. For example, the federal law prohibits people from joining a federal high-risk pool unless they have been uncovered by insurance for six months, Erickson said.

This would seem to limit people from leaving ACHIA to join a federal program to take advantage of lower premiums unless they were willing to be without health insurance for six months.

Meanwhile, it's still difficult for employers and others to get information about the new health care law, its timetables and requirements. Erickson said the state is working on ways to provide information.

What is effective now, however, is that employers with 25 workers or fewer are eligible for federal tax credits if they offer insurance coverage to employees, Erickson said. The U.S. Internal Revenue Service is distributing information about this.

Another provision not widely known about are federal subsidies for employers offering extended health coverage to early retirees to cover a gap between the time they retire and when they become eligible for Medicare.

Federal subsidies of $15,000 to $90,000 per year per retiree are available for employers offering extended health coverage. This would mainly benefit larger firms who would be best able to offer such extended coverage, Erickson said. Both of these provisions are effective this year.

There's also the requirement to extend dependent coverage to age 26 that are better known. But even here, there are important clarifications and interpretations being made by federal officials. One is a recent ruling that insurance plans held by retirees may not be required to offer the extended coverage, Erickson said.

Another provision affecting insurance companies is the minimum medical loss ratio, which is effective this year as far as reporting the ratios, but the actual limits will be in force in 2011. This is the ratio of total premiums received by an insurance company to actual medical benefits paid out, and what is retained for administration and profit, Erickson said.

The law will allow up to 20 percent of premiums to be used for administration and profit in 2011 and 15 percent retained for administration and profit in years after that after that.

What is still unresolved in this, Erickson said, is just what constitutes "medical benefits." Intense lobbying is taking place within the U.S. Health Department on this as officials try to come up with a precise definition.

There are other unresolved issues involving medical providers, some of which could be difficult in Alaska because of the way health care services are offered in the state.

One example, an idea that will be tested, is a concept of "bundling" to pay for a group of services to cover a medical procedure, Erickson said. The idea here is for services to include all those done within three days of an in-patient procedure and then those done on an outpatient basis for a period following, she said.

This might be easier done in one of the large hospital groups in the Lower 48 but might be problematic in Alaska or another low-population state, where medical services are fragmented and provided by different practices, Erickson said.

Doing this would require a hospital, such as Providence Alaska Medical Center or Alaska Regional Hospital in Anchorage, to negotiate contracts with a group of other providers so that a procedure can be bundled under one payment.

Erickson said there are some things in the health care reform bill that could be good for providers, such as a provision that Medicaid or Medicare will not pay medical costs for infections or medical errors that result from the care provided.

This will be a big incentive for health acre providers to watch the quality of services they offer, she said.

Another provision gives the U.S. Secretary of Health broad authority to implement new payment structures and reforms without having to go through Congress, where lobbyists often fight reforms.

Other ideas are waiting to be tested, like pay-for-performance, where there can be bonuses linked to improvements in health care quality measurements, she said.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.



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