Affordable Care Act State Action Newsletter 42

Patient Protection and Affordable Care Act: State Action Newsletter

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September 28, 2012

Legislators in Three States Get Executive Health Reform Briefings

Governors and executive agencies in Indiana, Minnesota and Virginia are updating state legislators on the latest health reform findings.

The Indiana Family and Social Services Administration presented the Medicaid Fiscal Impact Analysis, a report from Milliman, Inc., to the legislature last week. The report analyzes Indiana’s Medicaid costs under four different scenarios, including no, partial, and full Medicaid expansion. The fourth scenario assumes full expansion and 100 percent participation by all eligible beneficiaries and is intended to be an upper limit estimate. The report find that the additional cost to the state for implementing all PPACA Medicaid changes but opting out of the Medicaid expansion for people with incomes up to 138 percent of the federal poverty guidelines is estimated at $612 million over seven years. These costs are due to the individual mandate bringing in people who are currently eligible but not enrolled, referrals from the exchange, and the possibility that employers will reduce coverage. The estimate increases to $2.5 billion over the seven year period if the state implements the full expansion of Medicaid and everyone who is eligible enrolls.  See the Milliman report for more details on the analysis.  

In a recent letter to legislative leaders, Minnesota Governor Mark Dayton announced that the next phase of health insurance exchange planning and implementation efforts will be led by James Schowalter, Minnesota’s Management and Budget Commissioner. Until now, the Department of Commerce oversaw the planning and implementation. The governor explains that the move comes because of conflict of interest concerns given the department’s role in regulating and purchasing insurance.

Virginia’s Senate Finance Committee heard an update from Secretary of Health and Human Resources, Bill Hazel, last week. The presentation included a summary of the Supreme Court ruling, recommendations from the essential health benefit subcommittee and the various exchange options on which the state has to decide. The subcommittee recommended the Anthem Small Group PPO as the benchmark for insurance offered in their state health insurance exchange. The deadline for states to make a final decision on benchmark plans is Sept. 30. For more information on Virginia’s activities, click here.

Between March 2010 and April 2011, at least 31 states developed one or more entities to study and/or provide recommendations on PPACA. Of the states that have established such entities, 18 were created by the legislature and 20 were created by the executive branch, largely through executive orders by the governor. Some of these entities remain active today.

Inside This Issue

Premium Rate Reviews Save Consumers $1 Billion

Until 2010, about two-dozen states gave their state insurance department or commission some legal power of prior approval, or disapproval, for certain types of health insurance rate changes. Those states served as models for a more uniform 50-state review requirement in PPACA (in Title I, Subtitle A, Sec. 1003). As implemented, insurance companies in all states “cannot raise rates without specified accountability or transparency.” 

As of Sept. 1, 2011, HHS requires health insurance companies seeking to increase premium rates by 10 percent or more in the individual or small group markets to justify the increase and submit it for expert review. Insurers must provide information on the factors contributing to the proposed increase. 

Forty-four states run approved programs to review the proposed increases; in the six states without such programs, HHS reviews the proposals. All explanations of the increases and the state or HHS’ decisions are available to the public online. To date, health policyholders have saved an estimated $1 billion on health insurance premiums according to HHS, with some of the impact lowering the cost to employers. Individual state figures are online.

Forty-two states also used federal rate review grants to upgrade or create a process that is more transparent for consumers (see map below).
United States map of Rate Review Grant States

HHS 2012 Annual Rate Review Report, Sept. 11, 2012.

Oklahoma Suit Addresses Insurance Exchange Tax Credits

Oklahoma Attorney General Scott Pruitt filed an amended lawsuit in federal court last week challenging a significant component of PPACA’s health insurance exchanges.
In January 2011, Oklahoma filed a lawsuit challenging the federal health law’s constitutionality. The original lawsuit was stayed until the Supreme Court’s ruling came down in June 2012.

Oklahoma’s new filing focuses on the law’s distribution of tax credits to low-income Americans to help them purchase insurance and the employer penalties for not offering affordable insurance to employees.  According to a state press release, “Among the issues raised in the complaint is a new IRS rule that violates the Administrative Procedures Act and conflicts with the ACA.”  Section 1401 of PPACA created section 36B of the Internal Revenue Code, which relates to tax credits for certain Americans purchasing health insurance through an exchange established by the state(s). Employers with more than 50 workers whose employees receive such credits will be subject to a penalty. 
Oklahoma does not plan to create its own state-based health insurance exchange; therefore, according to PPACA, the federal Department of Health and Human Services will run the exchange in the state. 

Oklahoma’s legal claim is that the federal health law provides insurance tax credits only within state-run exchanges and that the IRS does not have the statutory authority to disperse credits to people in a federally run exchange.   

“Employers in Oklahoma should not be subject to the employer mandate,” said the Oklahoma complaint.

CBO Updates Penalty Tax Estimates

Updated figures from the Congressional Budget Office estimate that about 30 million nonelderly Americans will be uninsured in 2016 and six million of them will be subject to PPACA’s penalty tax.   The penalty tax will be phased in over time, starting with $95 in 2014 and rising to a flat fee of $695 per person, or 1.0 percent of taxable income in 2014 up to 2.5 percent in 2016, whichever is greater. The penalty for children is half of this amount and family payments will be capped.  PPACA provides exemptions for financial hardship, religious objections, American Indians, those without coverage for less than three months, undocumented immigrants, incarcerated individuals, those for whom the lowest cost plan option exceeds 8 percent of an individual’s income, and those with incomes below the tax filing threshold.  

The report’s estimates show that, in 2016, one-third of people subject to the penalty tax have incomes of more than 400 percent of FPL and will contribute two-thirds of the revenue. The penalty tax is expected to raise $7 billion in revenue in 2016, and increase to $8 billion per year thereafter.

The number of people subject to the penalty tax increased significantly from prior estimates because the CBO now predicts that more people will become or remain uninsured. The unemployment rate is higher than expected, which means fewer people have access to employer-sponsored insurance.  Wages and salaries are also lower. Finally, the Supreme Court’s ruling, which made the Medicaid expansion optional for states, increases the estimated number of uninsured people by 3 million because they do not qualify for Medicaid under current requirements but make too little to be eligible for health insurance exchange subsidies. The recent analysis factors in the likelihood that some states will not expand Medicaid, or will do so gradually, but not meet the law’s 2014 timeline.

Bipartisan Policy Center Launches Initiative to Analyze Cost Drivers

The Bipartisan Policy Center (BPC) recently launched a new initiative to explore and analyze health care cost drivers with a background paper called, What Is Driving U.S. Health Care Spending? America’s Unsustainable Health Care Cost Growth. The BPC says, “With the leadership of former Senate Majority Leaders Tom Daschle (D-SD) and Bill Frist (R-TN), former Senator Pete Domenici (R-NM) and former Congressional Budget Office Director Dr. Alice Rivlin, the BPC Health Care Cost Containment Initiative will explore and evaluate strategies to contain health care cost growth on a system-wide basis, while enhancing health care quality and value.” The report states its purpose as “provid[ing] a basic overview of the drivers of health care cost growth, and serv[ing] as an analytical starting point for BPC’s work on health care cost containment.”


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