The heat on the Obama Administration and Congressional leadership over the cost of health care reform is not expected to ease anytime soon, with the release last week of additional information from the Congressional Budget Office on the Patient Protection and Affordable Care Act. The updated analysis shows the cost of the new law could easily exceed $1 trillion because of possible discretionary spending of at least $115 billion over the 2010-2019 period.

The number of states now challenging the new law in court stands at 20, and the states have been joined in the suit by the National Federation of Independent Business. Also last week, the Milliman Medical Index for 2010 was released, and it contains more worrisome news — health care costs continue to rise at an unsustainable rate. The report found that costs increased $1,303 for the typical family of four in the past year and now stand at $18,074.

Federal

As the comment period ended with respect to medical loss ratio (MLR) regulations, a flurry of letters were sent last week to both the National Association of Insurance Commissioners and the U.S. Department of Health and Human Services. Several insurers and several employer groups have written with comments and concerns, including the American Benefits Council, the National Coalition on Benefits and the National Retail Federation. In all cases, the comments point out that it's important to assure that positive, quality-oriented elements of health care, such as health information technology, disease management and wellness programs, fraud and abuse regimens, all should count as quality measures when calculating a company's MLR. The National Retail Federation in particular noted the need for a national MLR for large employer business.

In the never-ending roll-out of proposed health care reform regulations, the Administration last week published yet another set of Interim Final Regulations. This set deals with coverage for dependent children up to age 26 pursuant to the requirement that insurers and group plans allow kids to stay on their parents' policies or coverage until age 26.  Comments are due by August 11, but the rule is effective July 12, 2010. Many insurers have already announced that they will implement this provision early (e.g., May 31 for Aetna) to cover graduating college students who may have otherwise faced the summer without insurance. Whether self-funded employers follow suit is not as clear. Also, with the temporary fix of Medicare physician reimbursement rates set to run out the end of May, the House is expected to take up a more lasting fix sometime this week. If the House proceeds as expected it will attempt to install a five-year suspension of any physician rate cuts. Aetna supports the change, as it will give this market predictability.

States

COLORADO: The General Assembly recently adjourned a 2010 session that was focused heavily on health care issues. Outgoing Governor Bill Ritter succeeded in his goal of leaving a health care reform legacy with the passage of unisex rating in the individual market, a plain language requirement for insurance forms and contracts, an all-payer database and the creation of a task force to develop standard coding and edits for claims. Although the oral chemotherapy mandate passed, the industry was successful in helping to defeat a bill that would have prohibited carriers from setting rates for non-covered services and one making the wrongful denial of a claim an unfair claim practice.

DELAWARE: Debate resumed last week on a bill that would prohibit health insurers from denying coverage for medically necessary procedures and tests. The bill was voted out of committee with the understanding that significant changes are needed before a full vote occurs. The Department of Insurance presented testimony applauding the intent of the sponsor but reserving full support, indicating there is benefit in allowing preauthorization to limit unnecessary medical testing. Additionally the Comptroller General provided testimony on the potential cost impact to the state health benefits plan.  An actual dollar figure has not yet been quantified.The legislature will be in recess for the next two weeks, returning June 1.

FLORIDA: The legislature adjourned for 2010 with no significant health care bills passing. The only exception was in the area of Medicaid, legislation regarding provider-sponsored networks was passed. Legislation that was defeated includes mandates for coverage of Down's Syndrome and other developmental disabilities, and problematic pharmacy legislation.

GEORGIA: The legislature adjourned for 2010 after a number of negative health care bills were defeated, including a proposed tax on health plans and restrictions on rental networks. Among the legislation that did pass was, most significantly, a bill that would

apply state prompt-pay laws to self-funded plans. The bill also contains an extension of time for payment of paper claims and a compliance threshold of 95 percent before any fines are imposed. Several interested parties are working with the Governor's office to encourage a veto of the bill, but this is unlikely.

INDIANA: After a financial review of the Patient Protection and Affordable Care Act's impact on the Indiana Medicaid program and the state budget, Milliman reported its findings last week to the State Budget Committee. Milliman placed the total fiscal impact to the budget during the next 10 years at an estimated $3.6 billion. The predominant driver is expected to be enrollment expansions, which are estimated to increase from 1 million in 2010 to 1.55 million under PPACA. Other cost drivers include the impact of a reduced FMAP on Medicaid eligibles, pharmacy rebate loss, administrative expenditures (personnel and data systems), and increases to the Indiana Medicaid fee schedule from 60-65 percent of Medicare today to 80 percent of Medicare, to assure access to care. It was stressed that the final actual cost will be largely dependent on how many residents enroll in health care programs while eligible for Medicaid.

IOWA: Insurance Commissioner Susan Voss held a meeting with insurance industry representatives on May 7 to discuss the implementation of a health care cost bill. Specifically,certain provisions require the Iowa Insurance Division to 1) hold a public hearing regarding any proposed rate increases that exceed national health care spending by at least 15 percent; and 2) convene a work group to consider ways to reduce the cost of health care and health insurance premiums. Commissioner Voss noted that the requirement for a hearing applies only to rates filed for approval – the individual market in Iowa. Also, there will be only one hearing per carrier even when the carrier makes filings for several products. Hearings are intended to collect comments from consumers; carriers are not expected to address comments or make a presentation.  Commissioner Voss announced that the work group on reducing costs will not be convened until at least July 1, 2010.  The Commissioner is requesting input from health insurance industry representatives and consumer groups on costs.

MASSACHUSETTS: Small businesses are opposing a proposal they say would shift more health insurance costs onto them for the treatment of developmentally disabled children. The proposal would require insurance companies to absorb the cost of copayments and deductibles for physical and speech therapy and other services provided through a state-run, early intervention program for children up to 3 years old. Until now, the state has funded co-pays and deductibles for the program, but it now faces a $10 million shortfall. Businesses leaders say this would add about $4 million in costs onto smaller companies. The Retailers Association of Massachusetts and 11 other business and insurance groups sent a letter last week to Senate Ways and Means Chairman Steven Panagiotakos urging him to kill the proposal. Panagiotakos said his committee has not decided whether to include the measure in the proposed state budget but that it has the support of many of his colleagues. Currently, families with developmentally disabled children are charged a fee, based on their income, to participate in the program. The Patrick administration has said those fees could go up by as much as 600 percent. Advocacy groups developed a plan, approved by the House last month, that would cut the program’s shortfall nearly in half. It would raise fees more modestly but would also require insurers to pick up the $4 million in co-pays and deductibles currently covered by the state.

MISSOURI: An autism mandate bill was passed by the legislature just prior to the conclusion of the current session last week. It is now on its way to the desk of Governor Jay Nixon, who has spoken publicly in support of the measure. Effective with all policies renewed or delivered on or after January 1, 2011, coverage of autism disorder treatment would be mandated for children through age 18 and capped at $40,000 annually; coverage may exceed that amount with approval of the health plan. The coverage limit would be raised every three years per the consumer pricing index. Small employers can ask for a waiver if their costs exceed 2.5 percent of total claims in a year.

NEW JERSEY: Governor Chris Christie is establishing an executive work group to oversee implementation of federal health care reform. The full membership has yet to be announced, but it is expected to include key leadership from the Banking & Insurance Department, Health & Senior Services, and Human Services. In other business, the June 30 budget deadline and the state’s nearly $11 billion deficit have set the stage for an ideological showdown. Despite the governor’s outright defiance in refusing to signany legislation that increases taxes, Senate and Assembly leadership have introduced legislation to temporarily raise the income tax on residents earning more than $1 million. The revenue generated from this proposed tax would be used to restore cuts made to the senior pharmaceutical assistance program and property tax rebates.

Legislative action was taken on a bill designed to lighten the impact of an employer tax for the state’s unemployment fund. A significant deficit in the fund triggered a $1 billion employer tax to replenish the fund, which currently equates to an approximate tax of $400 per employee.  In response to advocacy from the business community, the legislature is attempting to do a phased-in reduction of the tax to $300 million this year.

No sooner had President Obama signed the last piece of the health care reform package on March 30 than he hit the road, traveling to a number of states to sell the public on the new health care law of the land. On their Easter/Passover recess break, many members of Congress were engaged in their own hearts and minds campaign on health reform back in their home districts. A new Gallup poll, however, seems to show that Democratic supporters of the bill have the tougher selling job. The poll shows that 47 percent of Americans believe it is a good thing that the bill passed while 50 percent believe it to be a bad thing. And, the results show that both opponents and proponents agree that the new law does not do nearly enough to address rising health care costs. Health plans have maintained that the success of health care reform will hinge on addressing health care costs, and we have pledged to continue working toward reforms that would achieve affordability.

Federal

Since Congress was in recess last week, there is no Federal report this week.

States

ARIZONA: After a lengthy debate in special session, the legislature voted along party lines to permit a lawsuit challenging the newly enacted federal health care reform law. It is unclear whether Governor Jan Brewer will join other states in the lawsuit filed in Florida, since the attorney general has advised that he will not participate in any litigation on this issue. Brewer had asked lawmakers for authority to go around the attorney general and sue on the state's behalf.

COLORADO: A bill prohibiting the use of gender as an underwriting factor in setting rates for individual policies passed both chambers and will become effective with plans issued or renewed after January 1, 2011. The bill is part of Governor Ritter’s health reform package.

GEORGIA: A bill that originally would have imposed a tax on health plans – the language regarding a health plan tax was removed recently — was passed out of the Senate last week. However, whether the Governor will sign the bill in its current form is not clear.

IDAHO: The legislature adjourned a week early last week, but not before passing a number of items to close out the session. Governor Otter has signed a number of the bills, including the “Idaho Health Freedom Act”, reserving citizens' right to choose or decline health care services without being penalized by the federal government and authorizing the state attorney general to seek legal recourse to uphold this policy. Also signed were bills regulating the relationship between third-party administrators and insurers, and establishing an immunization board to maintain a single distribution center for providers and determine an assessment on carriers to fund the program.  Another bill amends the duties of the Commission of Health Information Technology Planning to include monitoring the state’s health data exchange and recommending improvements to IT capabilities. Bills awaiting the governor’s signature include a proposed prohibition on a carrier’s ability to require a participating dentist from charging a member at a non-par rate for services that are not covered under the provider contract, and a proposed requirement that both the prescribing physician and patient be notified by the pharmacist of generic substitutions for epilepsy or seizure drugs. Defeated were mandates for oral chemotherapy parity and prosthetic limbs, an any-willing-provider requirement, and a bill permitting small employers to enroll in the state employees’ plan.

ILLINOIS: The House has unanimously passed the Illinois Health Information Exchange and Technology Act to establish a state authority to operate the Illinois Health Information Exchange. Expected to pass in the Senate, the bill supports the adoption of electronic health records among health care providers in Illinois, and building the infrastructure necessary to make HIE possible. Aetna was one of three insurers supporting the new act as part of a coalition of provider, consumer groups and unions. The HIE is designed to promote and facilitate the sharing of health information among health care providers within Illinois and in other states, and foster the widespread adoption of electronic health records. The bill also sets forth the Authority's powers, with public and private representation, to facilitate the secure exchange of electronic health records to deliver better health care. No later than January 1, 2015, each state agency that implements, acquires, or upgrades health information technology systems shall use systems and products that meet minimum standards adopted by the Authority for accessing the HIE.

IOWA: The Iowa legislature ended its annual legislative session last week and passed bills that include a clinical trial mandate for cancer patients, a prohibition of dental fee schedules for non-covered services, and an increase in the amount the guaranty association will pay for hospital, med-surg and major med coverage. Also, an Insurance Department omnibus bill that passed includes several insurance reform amendments, including making rate increase applications public record and requiring an annual report from the Commissioner to include information from health plans on medical loss ratios, rate increase data, health care expenditures in Iowa and their effect on premiums, ranking and quantification of the factors that result in higher and lower costs, the plan’s current capital, surplus and reserves, any apparent medical trends affecting insurance costs, and any other data the commissioner might deem pertinent. Carriers now must also notify policyholders of any application for a rate increase exceeding the average annual health spending growth rate stated in the most recent national health expenditure projection published by CMS. Additional amendments included a mental health & substance abuse mandate for veterans, an expansion of IowaCare, the establishment of a health information clearinghouse/exchange, and prohibition of plans using genetic information to discriminate among patients. Bills of interest that died would have created mandate-light health benefit plans, a

public access cost and quality transparency portal, mandated coverage for autism, and income tax deductions for section 125 health plans.

MAINE: The legislature passed legislation that would prohibit health plans from imposing annual, lifetime or other caps on the amount they will pay for covered medical services. If signed by Governor John Baldacci as expected, the bill would take effect January 1, 2011. The legislation defines “health plan” as a plan offered or administered by a carrier that provides for the financing or delivery of health care services to persons enrolled in the plan (other than a plan that provides only accidental injury, specified disease, hospital indemnity, Medicare supplement, disability income, long-term care or other limited benefit coverage). A similar provision in the federal health care reform legislation recently enacted by Congress abolishes lifetime or annual dollar limits on essential health benefits. The federal reform law allows health plans to establish restricted annual limits on essential health benefits prior to January 2014 and to place limits on benefits that are considered non-essential health benefits.

MASSACHUSETTS: The Massachusetts Division of Insurance (DOI) has rejected 235 of 274 rate increases filed for small businesses, using 90-day emergency regulations that require HMOs to file any proposed increases to small group rates or changes to small group rating factors at least 30 days in advance of their effective dates. The emergency regulations also require HMOs to provide a significant amount of additional information when filing any proposed small group rate increases or rate changes. The DOI sent letters to carriers outlining the reasons for its actions, including: the disapproved rate filings failed to illustrate how the carriers pay similarly situated providers differing rates of reimbursement based solely on quality of care, mix of patients, intensity of services, and geographic location at which care is provided; the disapproved rate filings failed to demonstrate that carriers have renegotiated provider reimbursement rates; and the disapproved rate filings were significantly above the medical consumer price index without an adequate explanation for the wide difference.

MICHIGAN: Pulling attention away from the legislature's individual market reform bills, Governor Jennifer Granholm implemented an executive order that would put into motion a cabinet level workgroup titled “Health Insurance Reform Coordinating Council” on federal health care reform issues to be implemented in Michigan. Her goal is to identify steps that must be taken to ensure that Michigan citizens reap the full benefits outlined in the federal reform bill, including benefits for dependents to age 26, tax credits for small business, Medicaid expansion beginning in 2014, insurance reforms (e.g., eliminating pre-existing condition exclusions and rescissions),a health insurance exchange, preventative services without co-pays, and changes in the Medicare donut hole. Office of Financial and Insurance Regulation Director Ken Ross will be part of the overall implementation. His immediate assignment is to create a health insurance ombudsman office, begin the framework for the health insurance exchange, as well as have ongoing communication with Health and Human Services and NAIC on the overall rules.

SOUTH DAKOTA: As the legislature adjourned last week, Governor Mike Rounds vetoed a subrogation bill that would have prevented insurers from any subrogation rights until the injured party was first “made whole.” The Senate tried but failed to overturn the veto.  Legislation that was signed by the Governor included a bill prohibiting contracts between an insurer and a dentist that require the use of a fee schedule for non-covered services, a bill changing the premium rate-setting procedure for the high-risk pool,and a Joint Resolution opposing the federal health care reform proposals passed in the U.S. Senate and House. Several significant bills that died included a provision to allow South Dakota to opt out of federal health reform and a bill repealing premium and annuity taxes for insurers.

TEXAS: Last week, the Senate Committee on State Affairs held a joint hearing with the Senate Committee on Health & Human Services to discuss the impact of federal health care reform on the state. The committee heard from Health & Human Services Commissioner Tom Suehs, Texas Department of Insurance Commissioner Mike Geeslin and Special Projects Director Dianne Longley, and the Employees Retirement System. Suehs estimated the cost to the State would total $27 billion over 10 years. When asked why his estimate was so much higher than that of the CBO, Suehs stated that “I know that I’ve got a higher population of uninsured than most states have total population.” Commissioner Geeslin focused his opening comments on the massive scope of the bill and how much change it will bring to consumers. In response to a question, Geeslin said that a new rate review authority could respond to a rate increase they deemed unjustified not with an enforcement action but only to inform the public that the rate increase was deemed unjustified. He also pointed out that the state can opt out in 2017 if it can demonstrate that it could provide similar coverage. He clarified that the exchange function could be outsourced but not to a Medicaid agency or a private insurer. Both agency heads confirmed that their need to add staff to implement the law will be substantial. The Committee members were in agreement that many future hearings would be required to keep up with the pace of reform implementation. Aetna will continue to monitor these hearings.

WASHINGTON: Partisan debate over federal health care reform is moving from the nation's Capitol to the states. Several states, including Washington, are challenging its individual mandate in federal court. Governor Chris Gregoire, a supporter of the health-care overhaul, is threatening to file a lawsuit against Attorney General Rob McKenna in an effort to block his participation in the suit organized and funded through the Florida Attorney General’s office. At the same time, the Democrat-controlled legislature may try to block McKenna’s participation by cutting funding to the Attorney General’s Office, or requiring that McKenna receive approval from the Governor prior to continued participation. Fourteen states are now participating in the lawsuit.