Health Care Reform Legislation Costs – PPACA

While health care reform will help achieve a historic increase in access to health care services for millions of Americans, this public policy advance comes at a cost. Mercer, the benefits consulting firm, last week put the cost of a single health reform law provision — dependent eligibility expansion — at up to an extra 2 percent in medical premiums beyond what would otherwise be expected for 2011. It is clear that it costs more to get more, which is why many insurers continue to call for additional reforms to help improve affordability and improve the quality of health care.

Still, legislative and regulatory news from the past week shows a number of states (see below) believe that regulating insurance rates will address the cost picture. Only Governor Schwarzenegger articulated a deeper understanding of the real drivers of health care costs — the underlying cost and utilization of health care services.


Another week and another set of regulations has been released by the Administration to aid the implementation of health care reform. This set addresses the law’s requirement that health plans and health insurers provide coverage for certain preventive services without imposing any cost-sharing requirements (e.g., copayment, coinsurance, deductibles).  The new regulations are effective for plan or policy years beginning on or after September 23, 2010; they do not apply to grandfathered plans. The regulation impacts coverage of evidence-based items or services with an “A” or “B” rating from the government list of such services — immunizations; certain screenings for infants, children and adolescents. From insurance firm’s perspective, these regulations are a positive step as they catch up to where the industry has been all along, in that they both encourage adoption of evidence-based medicine and increase access to evidence-based clinical preventive services.


CALIFORNIA: Governor Arnold Schwarzenegger recently announced his opposition to rate regulation. In a letter to HHS Secretary Kathleen Sebelius, the Governor noted that, “I remain concerned that rate regulation is a blunt instrument that does nothing to contain the underlying cost drivers in the system. The medical loss ratio will significantly limit the administrative costs of insurers, but little has been done to expose and examine the other cost drivers in the system.” However, his administration is advocating for greater public rate filings requirements for individual and group, independent actuarial review and cost transparency in the provider sector. The hospital and provider communities have privately expressed their concerns with the Governor’s measure.

COLORADO: The Health Reform Implementation Board distributed a fact sheet on GettingUSCovered, the high-risk pool established under the Patient Protection and Affordable Care Act (PPACA). The pool is being administered by two non-profit entities, Rocky Mountain Health Plan and CoverColorado, the existing state high-risk pool. GettingUSCovered is expected to provide coverage for up to 4,000 previously uninsured people for premiums ranging from $115 to $601 per month, with a $2,500 deductible. Colorado expects to receive $90 million from the federal government to subsidize the program over three years.

CONNECTICUT: Two major decisions from the U.S. Court of Appeals for the Second Circuit issued last week could turn financing of political campaigns in Connecticut upside down. The cases challenged several aspects of Connecticut’s campaign finance laws. In the first case, the court upheld the part of the original law that prohibits state contractors and their families from making political contributions. However, the court struck down the part that prohibits state contractors and their families from soliciting contributions. They also threw out the ban on lobbyists’ contributions and solicitations, ruling both unconstitutional infringements on free speech. The court did indicate that the legislature may choose to limit these contributions, but did not suggest an amount that could withstand a constitutional challenge.  In the second case, the court overturned the trigger provisions that allow candidates using public financing to access additional funds based on expenditure levels of their opponents, again holding that this was an unconstitutional infringement on free speech. Top Senate Democratic leaders said that they are working to set a date for a special session of the legislature to respond to these two court rulings by the Second Circuit Court of Appeals.

ILLINOIS: The Department of Insurance (DOI) outlined its plan for enhanced review of health insurance premium increases as it applied for a $1 million federal grant to support premium review efforts beginning August 9, 2010. The DOI plans to accomplish its goals through: establishment of infrastructure necessary for premium rate review and new processes to collect, publish, and analyze premium information to educate consumers and state policymakers. The DOI is expecting to increase actuarial staffing and invest in a technological infrastructure for increased premium rate reporting, analysis, and stakeholder engagement. DOI complained that the current process does not permit the Department’s actuaries to analyze and effectively draw conclusions from the information submitted by insurers. DOI also indicated that it will conduct public hearings, develop interactive tools on the Department’s website allowing consumers to search current health insurance premium rate information and provide feedback on insurance products, and publish reports on rate increases, health care costs, health care utilization and the impact of benefit design on utilization.

MASSACHUSETTS: Down to the closing days of the formal sessions, the legislature is facing a stand off on health care legislation. House legislation is due to emerge at this late date that would scale back the Senate’s far-reaching bid for reduced health care costs, with provisions to spread small business rate increases across several years and impose new checks against consumers looking to exploit loopholes. Likely to receive a vote in the House but facing an uncertain fate vs Senate President Therese Murray’s bolder Senate version, the leadership draft would avoid Gov. Deval Patrick’s proposal to reopen contracts between providers and insurers (in search of rate relief) and the Senate’s assessment on hospitals. The House bill would follow the Senate in replacing the current method of measuring employees’ ages in five-year increments with one-year gauges, intended to curb fluctuations as employee groups grow older. Similarly, the bill would adopt the Senate approach of shifting to a single open enrollment period for insurance-purchasers, geared toward curbing the practice of buying Connector plans for specific and expensive treatments, and then dropping coverage. 
Under the Senate bill, insurers would be forced to meet a 90 percent MLR. Carriers that do not opt for the 90 percent MLR would face Division of Insurance rate reviews aimed at keeping premium hikes at or below the medical inflation rate. The House does not plan to include a Senate provision requiring hospitals with large reserves and profit margins over 2.5 percent to pay one-time assessments to the state, but aides to Senate President Therese Murray said an aggregate $100 million payment from hospitals would curb small business health insurance costs by 2.5 percent. The Governor did ask the legislature for authority to set a similar limit on the rates providers level at insurers, but lawmakers have largely ignored that request. House leadership called the House bill a starter for the 2011-2012 legislative session. At that time, at least 34 of the 200 legislative seats will have new occupants, and the state could have a new governor. “We could have the biggest legislative session in the next two weeks, or zero,” one House leader said in the Statehouse News .

MISSOURI: State residents last week could begin applying for coverage through the new state-run federal high-risk pool. The pool is being run by, and parallel to, the state’s existing high-risk pool, Missouri Health Insurance Pool (MHIP).  MHIP has contracted with RightChoice, a subsidiary of Anthem Blue Cross and Blue Shield, to administer the new program and Catalyst Rx to provide prescription drug coverage. It is funded in part through $81 million in federal funds and, in part, through premiums. Premiums (100 percent of standard rates) range from $423 to $972 per month, with the annual deductible set at $1,000 and out-of-pocket expenditures limited to $5,950. In contrast, MHIP, which has operated since 1991 and has more than 4,000 enrollees, charges approximately 130 percent of standard rates and is funded by premiums and assessments on carriers. 

On July 7, Lieutenant Governor Peter Kinder joined three other plaintiffs in filing a lawsuit challenging the enactment of federal health reform. The suit challenges those provisions of the federal health care law that it alleges reduce Missourians’ access to affordable health care and violate the United States and Missouri Constitutions. Since the spring, Kinder has been touring the state promoting the lawsuit and raising private funds to support it. He also has expressed support for an August 10 referendum to exempt Missouri from the individual mandate portion of federal health reform.

MONTANA: The Office of the Commissioner of Securities and Insurance (CSI) is signaling its intent to enhance its health insurance rate review system using federal grant funds made available by the passage of PPACA. The proposed use of the grant money is predicated on state legislation that the CSI will propose during the 2011 session to provide it with greater rate review authority. The CSI asserts that Montana does not provide legal authority for the CSI to review or require the filing of rates by major medical health insurers. To correct this scenario, legislation will be introduced that provides the CSI with the authority to require that all major medical health insurance rates be filed, reviewed, and approved. The rating law would permit enforcement of the rating provisions in PPACA and require rebates from insurers if a medical loss ratio does not meet minimum statutory levels. It would also permit consumer input and hearings on “unreasonable” rate requests. Should the legislation not be approved, the federal grant would be used to improve enforcement of existing laws through expanded market conduct examinations and analysis of actuarial certifications.

UTAH: The Utah Insurance Department has submitted a federal grant application signaling its intent to enhance its health insurance rate review system with funds made available by the new health care reform law. The $1 million grant would be used to hire additional personnel and increase the number of rate filings that are thoroughly reviewed, improve IT capacity, and enhance transparency through a public hearing process, public access to rate filings and a web-based rate filing database. Over the next several months, the Health system Reform Task Force in collaboration with UID will review sections of the Utah Code that must be changed in order to retain oversight of insurance regulation in light of changes made by PPACA. Additionally, they will develop policy responses to federal reform that could include legislative proposals for 2011. Topics of discussion are expected to include expanding the Utah Exchange, increasing price transparency, and revision of the uniform application for use by individuals, small groups and large groups.

WASHINGTON: Like many other states, the Office of the Insurance Commissioner is detailing its plans to enhance its health insurance rate review system using federal funds available through the PPACA. Pursuing $871,700 in grant money, the state’s grant application is focused on information technology enhancements. The two major projects to be funded include:

  • Update existing information technology framework to enable receipt of additional information. The program summary predicts improved analysis, review and approval of rate filings, along with ability to provide additional information for improved consumer understanding and transparency about the rate review process. Additionally, staff will be hired and assigned to rate review on a dedicated full time basis.
  • Establish a consumer rate review website to enhance functionality and permit consumers to search and view information about insurer rate requests. The project narrative specifically states the OIC’s desire to develop a form similar to that being used in Oregon.

WYOMING: Governor Dave Freudenthal has announced that he will not apply for federal grant money to establish rate review processes under the health care reform law. The rate review provisions of PPACA allow grants to states over a five-year period to provide information and recommendations on rate reviews and establish centers to collect, analyze, and organize medical reimbursement information from health insurance issuers.  The announcement cites the ambiguous nature of the grant restrictions and the lack of regulations to govern how state’s spend the grant money. Additionally, Freudenthal noted that Wyoming law would likely need amending to expand the authority of the Department of Insurance to engage in rate review processes. Currently, state law permits carriers to file and use proposed rates (both initial and revised) without approval from state regulators.

Michael F. Arrigo

Michael Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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