H.559 – An act relating to health care reform implementation
Q. and A.
Q. What does H.559 do?
A. H. 559 covers a range of topics. Here are the important ones:
- Insurance market reforms compliant with the federal Affordable Care Act
- Integration of Medicaid with the Exchange, renewal of Global Commitment, and pursuit of a plan to integrate health care for individuals eligible for Medicaid and Medicare
- Creation of the most viable and dynamic exchange possible that also supports Vermont’s long-term health care reform goals
- Refinement of the hospital budget process, certificate of need process and rate review functions of the Green Mountain Care Board
Q. What are the insurance market changes in H.559?
A. H. 559 proposes these changes related to the exchange:
- Defining small groups to include 100 employees or less beginning in 2014 rather than 2016
- Requiring all individual and small group coverage to be sold in the exchange
- Allowing grandfathering for groups of fifty or less and for associations (but under federal law all plans will continue to lose grandfathered status when benefits or cost-sharing provisions are materially changed)
Other insurance changes include:
- Ending the use of discretionary clauses
- Prohibiting annual benefit limits and capping out-of-pocket payments for pharmaceuticals
Q. Why define small group as 100 employee lives or less rather than 50 or less in 2014?
A. First of all, if we choose 50 we are only postponing for two years the federal requirement that small groups include 100 employee lives or less in 2016.
Vermont’s goal of a single payer health care system requires the incremental merger of existing insurance market segments. This decision merely begins promptly a process Vermont committed to in Act. 48.
By bringing more groups into the exchange we will have a group that is about 36% larger than otherwise. The largest possible population in the exchange means a more stable rating group, better predictability of rates, fewer rate spikes and lower per capita administrative expense.
Q. Are we going to eliminate consumer choice if there is no small individual or group insurance market outside the exchange?
A. Having the very limited range of plans that federal law allows outside an exchange really won’t increase meaningful consumer choice because all plans, inside the exchange and out, will have to meet certain federal rules:
- All must have the same covered services (“essential benefits package”) chosen by Vermont from a number of options mandated by federal law. These options are:
- The existing commercial plan with highest enrollment in small group market
- A managed care plan with highest enrollment
- A State employee plan
- A Federal employee plan that may not include Vermont’s mandated benefits
- All plans must meet the actuarial cost-sharing levels required by the ACA (silver, gold, platinum) that determine how much on average is paid by the insurer versus how much is paid by the purchaser/employee.
- All small group plans have limits on deductibles of $2000 for an individual; $4000 for a family.
So, while there can some variety of covered services and cost sharing, under federal law–from which Vermont cannot depart—they must be relatively similar. Plans outside the exchange would offer a choice with very little difference. A two-marketplace model is an invitation to adverse selection that is so harmful to those most in need of care.
There will be choice inside the exchange:
- There will be multiple insurers in the Exchange. Act 48 requires two insurers in 2014. Federal rules for small groups call for two issuers as well. That’s exactly how many small group carriers operate in Vermont right now! In addition, there will be two national health plans, which may be run by new insurers (or by existing Vermont insurers). So there will very likely be more carriers selling in the exchange than are selling small group coverage in Vermont today.
- There will be a minimum of eight plan choices within the Exchange and there could be more.
- two insurers with plans at 3 levels = 6 plans
- 2 national plans
The administration is working with small employers to determine how many plans is the right number.
Many employers have said they don’t want lots and lots of choices – they want a manageable number of real options to compare to choose from.
- Requiring marketing and sales of plans outside of the Exchange results in two separate administrative processes: one for plans sold by the Exchange, one for plans sold by insurance brokers. This is a needless expense.
- Individual premium tax credits and cost-sharing subsidies are only available inside the Exchange. We want the largest possible number of Vermonters to receive federal support.
- Small business tax credits are only available in the Exchange between 2014 and 2016 to employers with 25 employees or less w/ average wages under $25,000.
Q. Could HSAs be offered in the Exchange?
A. Yes. An HSA (health savings account) is a savings account that an employer can set up for its individual employees to put aside money pre-tax to pay for high-deductibles. These are regulated by the IRS.
- In 2011, to be a high deductible plan, the deductible must be at least $1,200 for a single person and not more than $5,950, and for a family at least $2,400 and not more than $11,900.
- In 2014, federal law requires all small group plans to limit deductibles to $2000 for an individual and $4000 for a family regardless of whether the plan is purchased inside or outside of the Exchange.
Employers choose whether to offer HSAs to employees and how much to contribute to them. Vermont can neither prohibit nor require employers to contribute. Silver and even gold plans in the individual and small group markets could be high-deductible plans and could be offered in the Exchange.
Q. Has the federal government offered any guidance to states regarding products that can be offered outside the exchange?
A. Yes, but not much.
The ACA states that all plans sold inside and outside the exchange must comply with the same rules regarding essential benefits (which the federal government is now allowing the states to define), cost-sharing levels and deductible limits.
Federal law does not require a market outside the exchange.
Federal law allows non-qualified plans to be sold outside the exchange but the requirements for being qualified have little to do with benefits or cost-sharing, the key components of insurance plan design.
The ACA state that “qualified plans” (the only kind that can sold in an exchange) can also be sold outside, but they must be sold at the same price inside and outside the exchange.
Q. If I’m the employer of a group smaller than one hundred what’s to keep me from dropping coverage and sending my employees to the exchange for a better deal?
A. Nothing. There has never been any legal requirement that an employer offer health insurance coverage to employees other than to complete coverage in a given benefit year or a collective bargaining agreement. If an employer ceases to offer coverage, employees become eligible for tax credits and cost-sharing subsidies in the exchange.
Q. So, when the exchange is up and running, won’t employers be tempted to cease offering health insurance altogether and direct their employees to the exchange?
A. It is possible, and that may be a good thing for employers and employees.
Employers would be relieved of one of their biggest financial burdens, the ever-growing cost of purchasing and managing health insurance benefits. They would also no longer have to do as much paperwork related to employee health benefits. Some employers may wish to drop coverage but continue making a reduced contribution to the cost of employee health insurance by raising salaries.
Affected employees would all be eligible for coverage in the exchange–in many cases more comprehensive coverage than they have today–and would get a significant federal tax credit to offset a part of the cost.
Overall, the combined cost to employers and employees would be reduced. Our challenge will be to create a financing system in 2013 that is equitable for all employees and all non-employees too.
Q. Is there a penalty for an employer that drops employee coverage?
A. There is no penalty for an employer simply because he or she ceases to provider coverage. Beginning in 2014, however, there will be per-employee penalties for all employers with fifty or more employees who require employees to contribute more than 9.5% of salary to the cost of coverage or contribute less than 60% of the cost of covered services or have at least one fulltime employee in the exchange and qualified for a tax credit. It is generally thought that the size of penalties would be smaller than the cost to employers of providing coverage.