HEALTH LAW FINANCE OUTLINE THE EVOLUTION OF HEALTH INSURANCE AND HEALTH INSURANCE LAW Medicare and Medicaid Enacted in 1965, together the programs fill critical needs and their roots trace to the U.S.’s decision to rely on private employer-sponsored coverage arrangement. Medicare Like health insurance systems in other countries, is a compulsory and universal entitlement vesting in workers covered through the SS system and it rests on a financing base mad of employer/employee payroll taxes, individual premium payments, and general government financing. - Enactment Development: o Although (Part A) the hospitals and after-care in certain situations is compulsory and financed through payroll taxes, (Part B) physician and medical supplier services including home health care is voluntary and financed through premiums and general revenues. Part B’s voluntary structure was a concession to attract the support of organized medicines which violently opposed the enactment. o Second, the original law let physicians and hospitals control the payment terms and lacked any cost control mechanisms to address price, coverage design, or utilization of benefits. Physician payment was based on their usual and customary fees, i.e., payment essentially tracked what physicians charged, amounts that were greatly increased just before Medicare became effective, whihle hospital payments were tied to their reasonable costs as determined in accordance, with cost principles developed by Blue Cross and the American Hospital Association. o The original Medicare law also assured doctors and hospitals that the medical necessity of care could only be revied by professional peer processes. Medicare costs exploded during the 1970s leading to the introduction of major payment reforms in physician and hospital care in the 1980s which slowed the program’s growth rate but didn’t address underlying dynamic which caused price and volume increases. - Its financing was modelled after private pensions, its health care delivery was modeled on private health insurance, i.e., it covers primary services including some specified preventative procedures and medical care for conditions requiring costly and advanced curative care. - It does not cover long-term care furnished at home, institutions, or in community settings. Huge contributor to heath care system – Insures 47 million as of 2010 and provided coverage for medical and institutional care along with outpatient prescription drugs, added through 2003 amendments. o 2008: It accounted for 23% of total health care spending, including 29% of all hospital expenditures, 21% of total physician services expenditures, and 22% of prescription drugs spending. - Conditional Participation: Participation by hospitals/other intuitional providers is conditioned on compliance with federal civil rights laws such as Title VI (1964 Civil Rights Act), and its been credited with desegregating hospitals which meant the halt of segregated treatment and exclusion of minority patients. - Contributions to health care: its created a sure in hospital growth, tech’ innovation, and advances in surgical and medical techniques, and in later years, tremendous diffusiof care to outpatient sector. - Coverage Benefits: Modest compared to big employer-group plans. It offers less in coverage, e.g., dental/vision/hearing aren’t covered. o Leaves beneficiaries exposed to greater cost-sharing levels, even for covered services. HEALTH LAW FINANCE OUTLINE o o Comparison: in 2007, Medicare covered 74% of health care costs compared to 85% in large private-employer sector and 83% under Federal Employee Health Benefit Plan (FEHBP) *As patients’ health worsens, Medicare remained limited in value compared to the other plans, leaving the sickest exposed tot out of pocket costs between 50-100% more than those incurred by the sickest of large employer group plans. Medicaid It is Medicare’s legislative companion and plays a central role in he health care system. In 2010 in covered 68 million people. - Operates like health insurance covering people entitled to assistance and acting as a 3rdd party payere of covered health care services. This structure reflects its fundamental aim to move the U.S. away from direct financing of the public health care systems in public hospitals and clinics as the central, segregated means by which poor people get their care. Its also the most important health care financing source for health care safety net providers like public hospitals and health care centres. - The program’s historical connection tto cash-welfare programs has meant coverage of poor noneldery adults who are neither disabled, nor the deeply impoovreished caretakers of minority kids, historically has been very low; coverage to parents in some states is around 20% of the federal povertly level. Also, Medicaid has played a large not just for families with kids but also as a supplement for Medicare coverage in low-income Medicare beneficiary cases, known as dual eligibles. - It is the nationa’s single biggest source of insurance and I also hhaas duties borne by not other player, i.e., in the long-term institutional and community care for kids add adults with disabilities area; expenditure for these groups account for 2/3 of all program spending. - It has no pre-existing condition exclusion clauses and no waaiting periods (ddisabled people qualifying for SS must wait 24 months before meedicare coverage begins). For Medicaid, enrollment at the point fo health care need is not onlu possible but per federal law, the coverage can be extended ona retroactive basis, starting up to 3 months before the application ate and so allows for retrospective coverage of costly procedures. - Cooperative Federalism Limitation: Like Medicare, it doesn’t have spending contraints built into law but its biggest constraint still is that it has a structure of cooperative federalism, i.e., its administered and partially funded by states and that federal spending is ttieed to Medicaidd, and many states aelected over years to cover relatively fewer people, to place harsher lmitts on benefist and keep provider payments low. o Medicaid makes up a huge chunk of of state budgets. The ederal/state tensions inherint in the structure are huge and so reflecst state concerns over the extent of federal requirements relating to coverage and expenditures. Still, Medicaid is the largest source of federal grant funding to the states, making it a central feature of state economies. o Its rules for coverage have hihstorically have been far broadedr than private insurance and Medicare. This reflects the deep impoverishment and poorer health of beneficiaries. Coverage ergo spans not only treatments and services linked to preventative and primary health care and acute probems’ treatments, but also long-teerm iinstutionial and home and community sercvicse for people with seere activitu limitationis who require ongoing health care to maintain theiri hheaelthh, gain or preeservee functional capacbilities, or avert sserious diminiution in health status. An Evolving State Regulatory Framework - Paul v. Virgina (1868) USSC: USSC held states haave power tto regulate insurance conraxcts (issue being whether state could require out of sate insurance agens doing business insate o pos security bons), and tha insurers dodn’ enjou exemption from statet regulation either because they engage in interstate commerce or are protect by Article 4 Privileges and Immunities Clause. HEALTH LAW FINANCE OUTLINE - - U.S. v. Soutth-Easstern Undewriters Ass’n (1944) [Overrulede Paul v. Virginia]: Resultedd in Sherman Antitrust Act Being applied to insurance industry. o Congress Response: Given the potential evisceration of state authority from this, they implemneted the McCarran-Ferguson Act (15 USC §1012) which declared business of insurance should continue to be subject to the laws of the several states which relate to regulation/taxation of such business. It also provided tha federal regulation would be applicable to the businesses of insurance o the exten such business is not regulated by state law. (The Act preserved primacy of state law sxceept to the extent state law was silent on an issue, then EERISE pre-emption cases came in. leading congress to sharply limit state power to regulate employer-sponsored group health plans). Purposes of State Insurance Laws: o 1) States attempt to ensure insurers’ solvency through requirements of licensure, capitalization, opearattioons and management (including conrol of experience raing and medical underwriting practices) and via other methodsd to ensure financial stability. Firms have o have adequate payout reserves an dstate agencies also have authority to order rehabilitation or liquidation of firms with insufficient reserves. o 2) Regulating insurer conduct in the market, prohhbiting overreaching, undairness, rau, and edceptiive ractices. Laws require agents’ licensure an dregistraitoin and prohibit bad sales tactics nd mandate ffairness in claims processing. States also approve form oof salees contracts and oftetn give appeals processes to ensure aappropriaate enforemecent of insurance contracts. Insurance edpartmens aacn investigates and impose penalsties/issue cease and desist orders. o 3) States regulate access to insurance and the content of coverge: State laws defined who must be allowed tot access individual and group policies, when coverage cn be restricted via pre-existing coonddition exclusions and waitin periods, subject to federal restrictions, and what benefits must be covered in individual and group markets like coverage treattmenst/processsdures for mental illness/substance abuse, maternity care, prescriptions, and other services. Sme states limit insurers’ ability to vary premiums in relationi to characterisstics of certain individual or small0group policy ohlders, i.e., age, genders, health status, or prior claims experience. Limitations to States’ Powers: They exercise their powers moderately especially because insurance companies operate on a multi-national level and so they have political clout. State insurance commissions often don’t have resources to regulate wisely or engage in enforcement. The NAIC has been attempt to remedy this as it allows state authorities to pool ddata/ideas and share model regulaions. Fearing the companies may leave if states are over-demanding: o Many states hhistorically set insurers’medical loss ratios – proportion of premium that must be spent on payment of medical claims and permissible admistration costs, very low so insurers can reap large profits compared tto the claims paid out. Patient Protection and Affordable Care Act: Established a federal floor of 80% for medical-loss ratios in the individual market (effective 01/2011) before the Act’s universal coverage provisions commence (01/2014). Limitations of State Laws: HEALTH LAW FINANCE OUTLINE - - They’re weak and give lots of discertioni to he industry. E.g., Per regulation of group health insurance market, more tthan 35 staets require health insurers to cover childhood immnuizations to some dedgreeebut no state required insurers to cover the full complement of childhood vaccines recommended by the CDC for kisd under 18. Health Insurance Portability and Accountability Act (1996) [HIPAA]: Congress’s first significant effort to directly address insurers’ tendency to engage in risk selection (against poor risks). HIPAA provided a minimum federal standard barring discrimination based on health status at the point of sale, enrollment, and renewal. o It provided an exclusion of coverage under employer plans for pre-existing conditions couldn’t look back more than 6 months. Since in some sense virtually conditions except trauma and infection could have pre-existed, many insurers denied coverage in many types of cases. It didn’t mandate any other minimum insurance coverage or design. (See Title XXVII of Public Health Service Act 42 USC § 300gg-1.) It was a breakthrough in prohibiting insurers from rejecting small employer groups/singling employees out for exclusion from the group/refusing to new coverage based on costs/claims experience. Portability Protection: It made this so people were continuously covered by a group plan/other creditable coverage type allowing people to move from one employee group to another, or from group coverage to individual insurance market, without subjugation to long waiting periods or existing condition exclusions. Gap in Coverage <63 days: For example, if people lost jobs and couldn’t afford their employers plans. If they got a job after the 63-day period, they’d be subject to pre-existing illness conditions and waiting periods. HIPPA Drawbacks: No regulation on premiums and so people faced with higher premiums couldn’t afford them anymore. So renewability was guaranteed only a formal sense. General State and Common Law Applicability to Insurers: o States have rules for interpreting individual v. insurer disputes which build on long standing CL principles made to address the unequal bargaining power. Contra Proferentem: A significant principal where ambiguities under insurance contracts are construed against the drafter. Bad Faith Breach of Contract: Applied by state courts to injury cases in insurance industry allowing recovery f liquidated contractual damages (usually amount of health care withheld) AND compensatory and punitive damages for tortious conduct if claimant can show insurer’s failure to in good faith via refusing without proper cause to compensate for a claim. The Employment Retirement Income Security Act (1974) [ERISA)] - Enacted to address crisis in private pensions, it establishes a limited regulatory framework for group health benefit plans sponsored by private employers - It sets the standard for disclosure, plan administration, and claims review for benefits. - Amended over time to add coverage requirements related to small groups of people or discrete issues, i.e., moms and newborns threatened with premature hospital discharge, women with breast cancer, genetic non-discrimination, continuation coverage (aka COBRA coverage) for certain qualified people, non-discrimination and portability requirements, and mental health parity. - Pre-emptive effect: This source of its great impact.It pre-empts a lot of state insurance an other state laws that create legal remedies for people injured from an insurer/health plan administrator’s bad faith or negligence. HEALTH LAW FINANCE OUTLINE o - Pre-emption beyond ERISA: HIPAA provides minimum standards for nondiscrimination and portability in insurance coverage otherwise subject to regulation, Medicare precludes application of state insurance laws to insurers participating in Medicare, Medicaid sets conditions of participation that states have to meet. Despite McCarran Ferguson Act’s preserving state regulatory power over insurance, federal law has been taking much power back now given uneven and dysfunctional state regulation. Metro Life Ins. Co. v. Mass (USSC) (1985): USSC made two basic classes of employer sponsored group health plans: o 1) Insured Plans: Employers who purchase state-regulated group health insurance o 2) Self-Insured Plans: Employers self-insuring and usually using insurance companies just as third-party administrators. Self-insured plans are exempt from state laws regulating insurance since they don’t involve purchasing from state-regulated insurance products. Still, ERISA’s exclusive remedies completely pre-empt state law remedies that would otherwise be available. Escalating Costs and New Models of Health Insurance Thee growing cost of public/private insurance and absence of uniform mechanisms to control them led to every payer for itself an so Congress stepped in to halt Medicaid’s growth by eliminating requirements for universal state implementation of full coverage up to federal limits. It also introduced utilization review into Medicare and pressed states to follow suit in Medicaid. - Congress Reforms to Hospital and Physician Payment Systems to Curb Medicare Costs: o 1970s: In 1972, Congress made provisions to assure Medicare payment was given only for care ACTUALLY medically necessary. Carter’s “All-Payer Rate Setting” Experiments: one to spur rising hospital care costs by enabling states to set those rates for private insurers AND Medicare. Purpose was to curb increasing costs while halting cross-payer costshifting via tools that treated hospitals effectively as public utilities and established rates they could charge all payers. (By 2011 only Maryland uses this). National Health Planning and Resource eveelopment Acct (1974) (Amd. 1979) (Repealed in 1986): Introuced formal planning procedures into the development/growth of new health care resources by establishing state and local health planning agencies under federal oversight and with power to control capital incestment, expansioin, and with a focus on hospital an major capital eeequipment purchasese. Repealed in part due to intense industry backlash. Prepaaid Pracctice Plans (Health Maintenanec Organizations) [HMOs]: In 1973, Congress enacted law to spur growth with HMOs purposed to integrate financing and health ccare inito hybrid entities that vi greaetr climical and financial integration could both insure the population while managing care through greater focus on preventieon and efficiencies. The HMO model was aa new term for the same integration championed by the CCCMC with ties to insurance and health care. To spur development of HMOs the law required employers of 25+ to offer federally qualified HMOs as an optioini where they existed. o By 1981 <10% of employed population was ienrolled in HMO/other prepaid group practice arrangement. Inter alia, HEALTH LAW FINANCE OUTLINE o o physician opposition to intermediary control making HMOs that met federal qualifications was tough. o Insurance Response: First, health care providers then faced with cutbacks just raised prices on less regulated market areas. Insurers responded to cost control demand with ne coverage models. Utilization Review: This became a feature in private insurance and was initially retrospective (reviewing and denying payments after treatment was given) but courts sometimes truck it down for bad faith breach of implied covenant of good faith/fair dealing in insurance contracts. See Prof. Einthoven’s remarks on p. 212. o 1980s: By 1981 <10% of employed population was enrolled in HMO/other prepaid group practice arrangement Replacing the Blank Check Approach: In 1982, it enacted law replacing Medicare’s retrospective cost-based payment systems for hospitals (blank check approach, i.e., essentially paying them for costs incurred in giving care without accounting for efficiencies like early discharge, reduced procedure volume/intensity, or prices). Prospective Payment System (PPS): Used to redress the retrospective blank check method by paying hospitals flat inpatient services rates tied to treatments for certain conditions. It also revised Medicare’s physician payment plan formula replacing usual and customary rate used by public/private insurers and instead tied it to physician charges. o Resource Based Relative Value Scale: Replaced the PPS system by setting fees for primary AND specialty care. 1990s [Managed Care Revolution]: A response to the twin issues of quality and cost. It involves large intermediaries offering insurance/or plan admin’ services to self-insuring employers contracted with provider networks, whose selection and practice they oversee, in exchange for the promise of patients and revenues. Dominant feature is combining financing and care within a single enterprise where coverage is conditioned in whole/part on use of a network, while providers’ access to insured patients depends on their participation and acceptance of the insurer’s control over access to coverage. Early Years: It seemed to control cost as the model spread across employer plans AND Medicaid, and as plan administrators were able to get price concessions from hospitals, physicians, and other providers in exchange for network membership and volume. Mid 1990s: premiums declined a bit, but the managed care shock was a temporary thing. One reason is because congress and state government enacted “patient protection reforms” which had laws aimed at preventing the arbitrary exclusion of providers from networks (aka any willing provider laws), laws establishing external review of insurers’ treatment decisions, and laws requiring disclosure of information about coverage and care. Otther factors related tto this were managed care coinciding with and enhancing the normal cycle of insurance of premums rising nd falling cyclically. Preemiums wre sometimes seet too high relative to lossese for example. In thee next wav of thee cycle, premiums might be set to low compared to actual losses. Firms will set low premiums when HEALTH LAW FINANCE OUTLINE expected losses are low and their profits are high to gain back market share, i.e., loss leading. The managed care shock coincided with downward part of the cycle where premiums fall or don’t raise as fast, but the initial price discounting by providers outran actuarial predictions. This accentuated the downward cycle and unexpectedly high profits led to aggressive lowering of premiums to gain market share. The combine effects didn’t eliminate the cycle but just elongated it. The upward trajectory last longer and was even higher than normal. So, the downward swing during the managed care period that occurred didn’t prove managed care could hold down price or utilization over longer terms, but showed the cumulative effects of the ordinary cycle and the initial price shock that the introduction of the managed care caused. Managed Care’s effects wearing off: Providers eventually find a way to maximize income within a new set of rules. Although there were deep discounts in the beginning by all providers, resistance to it by physicians and patients was too much for tightly managed, exclusionary networks, to be socially and politically sustainable. Transition from Managed Care: Eventually the system became more loosely structured that partially shieled payres from by shifting it ddireectly onto patients via iscounting provider networks, along withtigght coverage rules, hihgh cost-sharing, and exposure to balance billing for going out og network. But with cost-sharing rising, things might bee swinging back as insurers hhave agains started emphasizing a moree managed approach promising betteere coverage for acceptance of mmoree utilization controls and direct control over procider practice. Overall: Though managed xare hasn’t held own coss but structural changes it wrought like competitive networkeds selecte and managed by intteermediaries and tighteer prospective utilization controls, reflect the funeamntal shift in the structure of US healtht insurance. TThese two structural reforms now amped up by rising point of servcce cost sharing are here to stay.
