Investment in health care is one of four cornerstones of President Obama's proposed economic stimulus plan ("the Obama Plan"). This memorandum provides an overview of several key initiatives outlined in the President's electoral platform1 and inaugural address. Health care issues addressed in the economic stimulus bill passed by the House on January 28, 2009, as well as other reform and legislative efforts that have momentum and the support of key members of Congress, are also described briefly here. Finally, conclusions by the Congressional Budget Office ("CBO") regarding the costs and benefits of various proposals, which are likely to influence health care reform efforts, are also summarized below.

Recognizing and responding to opportunities and risks created by the health care reform effort will require close attention to unfolding developments, as well as to lessons learned from past reform attempts. Winners and losers in the health care market will be determined by the details of final legislative and regulatory developments - details that remain very much in flux. But themes that seem to have universal support among influential players in the reform effort include:

  • Access: Maintaining an employer-based health insurance system while expanding coverage through a public health insurance option.
  • Quality and Efficiency: Using health care technology, data reporting, payment policies, and preventative health care to improve the quality and efficiency of care.
  • Value: Reducing costs, including costs associated with fraud and waste in the health care system.

Despite the seeming sense of urgency surrounding health reform issues, real change is likely to be incremental and slow. Most commentators believe that consumers and businesses will not see significant results from these efforts before the end of 2010. For example, Representative Pete Stark has already introduced sweeping legislation (discussed in additional detail below) that - even if quickly enacted - would not begin to take effect until 2011. President Obama appears to be focused on first taking stimulus actions that will create immediate jobs, and a recently released study estimates that the Obama stimulus plan could result in the creation of between 3.3 and 4.1 million jobs by the fourth quarter of 2010; 244,000 of those jobs are expected to be created in the health care sector.2 Proposals to impose additional costs on large employers to fund employee health insurance could have a significantly negative impact on job creation efforts, however.

The Key Pending Proposals

President Obama's election platform focused on the skyrocketing costs of health care, the fact that over 45 million Americans lack health insurance, and the lack of investment in public health initiatives. To address these issues, the Obama Plan includes a number of initiatives that are aimed at:

  • decreasing the cost of care,
  • increasing access to coverage,
  • improving the quality of care, and
  • increasing the use of preventative health care.

These same themes appear in a universal health care bill introduced by House Ways and Means Health Subcommittee Chairman Stark (D-CA) on January 6, 2009. Finally, and most recently, the economic stimulus bills working their way through the House and Senate contain a number of provisions that directly and indirectly address the common themes.

Improving Access And Decreasing The Cost Of Health Care

In his inaugural address, President Obama stated: "That we are in the midst of a crisis is now well understood . . . . Homes have been lost, jobs shed, businesses shuttered. Our health care is too costly." The new President pledged that his administration "will restore science to its rightful place and wield technology's wonders to raise health care's quality and lower its costs."

President Obama's electoral platform identified the high cost of health insurance, administrative and overhead costs, and inefficiencies stemming from reliance on a paper-based system as the primary factors making health care unaffordable and inaccessible to many Americans.

The Obama Plan therefore includes initiatives that would:

  • require "large" employers to bear a more significant portion of their employees' health care costs or to contribute to the costs of a public plan;
  • seek to improve competition in the insurance and pharmaceutical industry;
  • increase the percentage of premiums spent on patient care, rather than administrative costs; and
  • move to a paperless medical records system.

Establishment of a National Health Insurance Exchange. The Obama Plan proposes a National Health Insurance Exchange ("Exchange"), through which businesses and individuals would be able to purchase private health insurance. Private insurance providers can participate in the Exchange if approved by the Government. To be approved, these health plans must agree to:

  • provide "comprehensive" benefits equivalent to those provided under government plans, such as the Federal Employees Health Benefit Program (FEHBP);
  • cover pre-existing conditions; and
  • charge "fair and stable" premiums.

Individuals insured through the Exchange proposed by President Obama would be able to keep their insurance when they change jobs, but they might be responsible for premiums if not covered by their new employer.

Incentives and Taxes Affecting Employers. The Obama Plan includes a Small Business Health Tax Credit (providing a dollar-for-dollar reduction in the amount of tax owed, rather than the reduction in taxable income provided by a tax deduction) for small businesses that subsidize their employees' health care. The Small Business Tax Credit would apply to up to 50 percent of health insurance premiums paid by small businesses on behalf of employees. "Large employers" (which, like "small business," is a term not defined in the Obama Plan) will be required either to make a "meaningful contribution" to their employees' coverage or contribute a percentage of payroll towards the cost of the public plan. The Obama Plan would also reimburse employer health plans for catastrophic costs above a certain threshold, if the employer guarantees that its savings on catastrophic care are used to reduce the cost of workers' premiums. Because a high percentage of health care costs cover catastrophic illnesses, these amounts could be significant.

Increased Antitrust Regulation and Enforcement in the Insurance Industry. Citing high medical malpractice insurance rates as one cause for rising health care costs, President Obama proposes to increase competition among medical malpractice insurance companies by strengthening antitrust laws. The Obama Plan provides no details on how this would be accomplished. The Obama Plan also pledges to stimulate competition among health insurance companies through antitrust regulation. In markets in which the insurance business is not competitive, the Obama Plan would require insurers to commit a "reasonable share" of premiums to patient care, rather than profit or administrative costs. The Obama Plan does not include specifics as to how these objectives would be met.

Increased Competition in the Pharmaceutical Industry. The Obama Plan proposes to repeal restrictions that prevent Americans from buying prescription medications from other developed countries. This practice would be permitted by the Obama Administration for medications that are comparable to those available in the United States and offered at a lower price. Additionally, President Obama proposes to increase the use of generic drugs in all of the country's key public health insurance plans. President Obama also intends to repeal a provision in the 2003 Medicare Prescription Drug Improvement and Modernization Act that prohibits the government from directly negotiating prescription drug prices with drug companies.

Increased Transparency. The Obama Plan proposes that health plans should be required to disclose the percentage of premiums committed to patient care, as opposed to administrative costs. Additionally, hospitals and medical professionals would be required to publicly report "disparities in care and costs."

Expanded Funding for SCHIP, Medicaid, and COBRA. Efforts to improve access to health care are included in several pending bills, including a bill passed by the House today and approved by the Senate last week; that legislation will provide a $32.8 billion infusion of cash to the State Children's Health Insurance Program (SCHIP) over the next 4 1/2 years, providing coverage for 4 million previously uninsured children. President Obama supports the legislation, and is expected to sign that bill into law today. Additionally, the House and Senate economic stimulus bills provide for up to $87 billion of federal matching funds for state Medicaid programs, and up to $39 billion to subsidize COBRA premiums for employees involuntarily terminated between September 1, 2008 and December 31, 2009.

Representative Stark's Pending Proposal to Provide Universal Coverage For All United States Residents. Representative Stark's AmeriCare bill, H.R. 193, would add a new title to the Social Security Act, making every resident of the United States entitled to the same benefits offered under Medicare Parts A and B. The AmeriCare program would also provide coverage for pregnancy care, well-baby care, routine immunizations, family planning, mental health and substance abuse treatment, and prescription drugs and biologicals.

Representative Stark proposes to fund universal coverage by establishing an AmeriCare trust fund modeled on the Medicare trust fund. One twelfth of the funding for the trust would be provided by the states, as the bill is currently drafted. Individuals would be required to pay deductibles, a portion of the premiums (paid through a payroll withholding), and co-payments (with exceptions and phase-outs for certain low income individuals) for their own coverage and the coverage of family members. Comparable coverage through a group health plan would allow individuals to opt out of the AmeriCare program, but employers must pay at least 80 percent of the cost of that comparable coverage for every employee in order to avoid mandatory financial contributions to the AmeriCare program. Costs to employers for parttime employees would be pro-rated under the Stark legislation, and the federal government would pay premiums for certain low-income residents. Representative Stark has not provided a cost estimate for the AmeriCare program.

Improving The Quality And Efficiency Of Care

Electronic Health Information Technology Systems. The Obama election platform proposed a $10 billion investment over the next five years dedicated to the adoption of standards-based electronic health information systems, including health records. The Obama Plan calls for the development of requirements for "full implementation of health IT" and pledges the support of the necessary federal resources. It is not clear to what extent hospitals and health plans would be required to invest in this initiative under President Obama's plan, how much financial support they can expect from the federal government when moving toward adoption of electronic health information systems, or what deadlines would be imposed for achieving "full implementation." Moreover, limits on interoperability among various forms of health care IT mean that there will almost certainly be winners and losers in this market as legislators and policymakers determine which technologies merit additional investment.

The Health Information Technology for Economic and Clinical Health ("HITECH") Act, which is one section of the economic stimulus bill recently approved by the House of Representatives, addresses those interoperability concerns by establishing an "Office of the National Coordinator for Health Information Technology" in the Department of Health and Human Services.3 Similar provisions are also found in the Senate version of the HITECH Act.4 This office would be tasked with establishing "a nationwide health information technology infrastructure,"5 including standards facilitating the nationwide exchange of electronic health information. Stricter standards for protecting the privacy of this information are also an element of both bills.

The House bill provides for a total of $20 billion in new spending on health care IT.6 The proposal includes direct funding for health care IT to rural health care providers and agencies, such as the United States Public Health Service, as well as financial incentives intended to encourage physicians, hospitals, and other providers to adopt electronic health care technologies. Eligible physicians (or their employers, in some circumstances) could receive five annual payments that begin at $15,000 the first year, $12,000 the second year, and then diminish by 50 percent for each of the next three years.7 Hospitals could receive "several million dollars" through the Medicare and Medicaid programs, if - like physicians – they can demonstrate that they are "meaningfully using health information technology."8 However, providers that have not adopted health care IT systems within five years would receive lower payments from the Medicare and Medicaid programs.9 The Senate bill contains substantially similar provisions.10

Both bills also contain some provisions that could have a significantly negative impact on some sectors of the health care IT market. These include, but are not limited to, the following:

  • Data mining companies would be subjected to new constraints on their access to patient data. The House media release describes its bill as "shutting down the secondary market that has emerged around the sale and mining of patient health information by prohibiting the sale of an individual's health information without their authorization."11
  • Companies that develop electronic health records could also be affected by a provision in both bills that would make an electronic health record available at a "nominal" fee if the marketplace is not adequately meeting the needs of providers.12

Some of the health care IT provisions in the HITECH Act have been strongly criticized. For example, a University of Pittsburgh Medical Center representative testified at a Senate hearing this week that the privacy standards do not provide a "comprehensive and workable framework" for health care IT. Another witness said that proposals to replace existing health IT certification and standards-setting bodies would "turn the clock back four or five years."13 The House bill passed by a vote of 244 to 188 and is on its way to the Senate; not a single Republican representative voted for the bill. Senate debate on its own health care IT legislation is expected to begin this week.

Increased Transparency and Reporting. The Obama Plan would impose additional data reporting requirements on medical professionals, including hospitals. Health care providers would be required to gather and publicly report data on:

  • preventable medical errors,
  • nurse staffing ratios,
  • hospital-acquired infections, and
  • health care quality measures for populations that have been empirically proven to be more likely to receive lower quality health care than others.

The health care IT proposals pending in Congress also impose a number of reporting requirements in exchange for IT funding. Additionally, President Obama's plan proposes to require the development of best practices, and providers with patients enrolled in the new public plan, the National Health Insurance Exchange, Medicare and the FEHBP would be reimbursed in relation to their adherence to such practices.

Chronic Care. The Obama Plan would require that any health care plan that participates in the new public plan, Medicare, or the FEHBP to implement disease management programs. These programs are aimed at assisting patients with chronic conditions, such as diabetes, high blood pressure, and heart disease, in the management of their care. The conventional wisdom behind such programs is that helping individuals control chronic conditions will help minimize long-term negative effects.

Preventative Health Care. The Obama Plan pledges support for a variety of preventative care measures, including patient education, screening, disease prevention, vaccinations, nutritional counseling, and exercise facilities in workplaces and school systems.

Obtaining Maximum Value From Health Care Investments

Trimming Perceived Fat. A number of studies claim that insurance companies are experiencing higher than usual profit margins in Medicare managed care plans (Medicare Advantage), and that some of these profits are attributable to marketing and other abuses. Some analysts also believe that the government is simply paying health insurers too much for their Medicare Advantage plans. The Obama Plan proposes that amounts paid by the government to insurance companies for Medicare Advantage plans be reduced to mirror the payments the government makes under other Medicare programs.

Stepped-Up Enforcement Activity. Aggressive enforcement of existing health care fraud laws, as well as efforts to strengthen enforcement authorities, are also on the agenda in Washington. The Congressional Budget Office recently issued an important report in which it evaluated the costs and benefits of 115 health care proposals.14 One of the few meaningful sources of savings identified in that report was a proposal to increase funding to the Health Care Fraud and Abuse Control (HCFAC) program. That proposal would provide a total $1.1 billion in additional funding to HCFAC over the next ten years. HCFAC funding supports investigative and enforcement efforts by the FBI, Department of Justice, Health and Human Services (HHS) Office of Inspector General, and the Centers for Medicare and Medicaid Services. The CBO estimates that increased funding to the HCFAC program would yield a return on investment of 1.75 to 1.0, with $1.75 saved for each dollar invested. Additionally, the House bill provides approximately $200 million of new funding to support the investigative and enforcement efforts of the government's various Inspector General offices, with some of the largest amounts set aside for the HHS Office of Inspector General. The Senate bill gives an additional $31 million to the HHS Office of Inspector General "for purposes of assuring the proper expenditure" of federal Medicaid funds.

Laws aimed at punishing fraud and other abusive billing practices, including the Anti-Kickback Statute, would apply to products and services paid for with AmeriCare benefits under the legislation proposed by Representative Stark. These anti-fraud laws have been the source of significant whistleblower and government enforcement actions against Medicare and Medicaid suppliers and providers, including the recently announced $1.4 billion and $2.3 billion settlements by two major pharmaceutical companies. Proposed amendments to the civil False Claims Act introduced during the last Congress are likely to be reintroduced; those amendments would dramatically expand the reach of fraud enforcement laws and make it much easier for plaintiffs (the government and whistleblowers) to prevail in such actions. For more information on the proposed amendments to the FCA, please reference articles "CIVIL FALSE CLAIMS ACT: House Subcommittees Hold Joint Hearing on H.R. 4854's Sweeping Amendments to the FCA" and "FALSE CLAIMS ACT: FCA Amendments Introduced in House by Congressman Berman."

The Reality Check: Paying For It and Making It Work

The proposals described above reflect efforts to address longstanding deficiencies in the American health care system. The reality, however, is that significant challenges remain in the areas of health care access, quality, and cost. Even apparently uncontroversial initiatives face major logistical, economic, and political hurdles. For example, disease management and preventative health care programs have natural appeal: it seems intuitively correct that managing chronic diseases and encouraging patient compliance would reduce overall costs to health care programs by reducing complications and expensive hospitalizations. But a Medicare Disease Management Demonstration Project launched in 2005 ended last year with three of the eight programs dropping out early because of cost overruns. The initial report on the project found that expenses far exceeded any savings produced by the program, and other studies have identified little or no improvement in quality of life and quality of care under similar disease management programs.

Additionally, the CBO concluded that spending on health care IT could improve beneficiary well-being, but would "bring either modest reductions in health care costs or increases in overall spending." Testimony by the Government Accountability Office before the Senate Committee on Health, Education, Labor, and Pensions on January 15, 2009, struck a similarly cautious note.15

Because of the potential costs involved and the complexity of implementation, interested parties can expect that many of the proposals described here will receive significant scrutiny before the government actually makes large expenditures in these areas. Thoughtful analysis is likely to be especially important where past efforts have not generated the desired return on investment for beneficiaries, investors, or the public. Nevertheless, the new administration appears committed to change in the health care arena, and the political will to invest significant sums of public funding to support those changes seems to be at an all-time high.

Footnotes

1. The full text of Obama's health care plan is available at http://www.barackobama.com/pdf/issues/HealthCareFullPlan.pdf.

2. The Job Impact of the American Recovery and Reinvestment Plan, The Council of Economic Advisors and Office of the Vice President Elect (Jan. 9, 2009), available at: http://otrans.3cdn.net/45593e8ecbd339d074_l3m6bt1te.pdf.

3. H.R. 1, 111th Cong. § 3001 (2009).

4. S. 336, 111th Cong. § 3001 (2009).

5. See http://waysandmeans.house.gov/media/pdf/110/hit2.pdf.

6. "Health information technology" is defined as "hardware, software, integrated technologies, and related licenses, intellectual property, upgrades and packaged solutions sold as services for use by health care entities for the electronic creation, maintenance or exchange of health information." S. 336 at § 3000 (5).

7. H.R. 1 at § 4405.

8. Id.

9. H.R. 1 at § 4311.

10. S. 350, 111th Cong. §§ 4201-4206 (2009).

11. Id. See H.R. 1 at § 4405(C); S. 336 at § 13405(e).

12. H.R. 1 at § 3007; S. 336 at § 3007(a).

13. Senate Judiciary Committee Hearing on "Health IT: Protecting Americans' Privacy In The Digital Age," Testimony of John P. Houston and David Merritt (Jan. 27, 2009); available at http://judiciary.senate.gov/hearings/hearing.cfm?id=3632.

14. Budget Options, Vol. I: Health Care, Congressional Budget Office (Dec. 2008), available at: http://www.cbo.gov/doc.cfm?index=9925.

15. Health Information Technology: Federal Agencies' Experiences Demonstrate Challenges to Successful Implementation, GAO- 09-312T (Jan. 15, 2009), available at http://www.gao.gov/new.items/d09312t.pdf.

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