Washington Extension

October 7, 2011

Medicare News

Researchers at the Harvard School of Public Health found that among Medicare beneficiaries in their last year of life in 2008, one-third had a surgical procedure performed. One-fifth had surgery in the last month of life, and one in ten had surgery in the last week of life. The rates of surgery varied dramatically across the country, but geographic variation is controversial because it is unclear whether it reflects unnecessary care or true differences in patient needs. This report adds to the influential research conducted by the Dartmouth Atlas of Health Care showing Medicare beneficiaries living in areas of the country with lower intensity of end-of-life care do not have higher mortality rates.

The Michigan state legislature voted to end retiree health benefits for future and newer sitting legislators, in the face of state budget shortfalls. Retiree health benefits cost the state about $5 million in the last fiscal year. Governor Rick Snyder has promised to sign the legislation.

ACA Updates

The Institute of Medicine (IOM) released its highly-anticipated report on the criteria for determining essential health benefits (EHB) that ACA-qualified health plans must cover. The ACA defined ten categories of commonly-covered health services that plan benefits must include. The IOM identifies criteria for defining and updating specific components of the EHB, including: use a public deliberation process, include only medically necessary services that are value-based, promote some state flexibility, make annual updates based on credible evidence of effectiveness of benefits, and rely on typical coverage in the small employer market. Unlike Medicare’s coverage standard of “reasonable and necessary”, the IOM recommends higher standards for benefit coverage, such as the treatment demonstrate meaningful improvement over current effective services/treatments, and is cost effective. These criteria (among others) are aligned with the criterion that the EHB package, in aggregate, be affordable.

In ongoing litigation regarding the ACA, 26 states and the NFIB filed petitions to the Supreme Court to appeal the ruling in the Eleventh Circuit which struck down the individual mandate but upheld the remainder of the ACA. The Department of Justice also filed its own petition requesting review of the Circuit Court decision, significantly increasing the odds that this issue will appear on the Supreme Court’s docket this term (though the Court may have more than one case to choose from). Outstanding questions remain about the ability of the Court to rule on a federal tax law before anyone has actually paid the tax (i.e. the individual mandate penalty).

Nebraska will wait until the Supreme Court decides on the constitutionality of the ACA before setting up a health insurance exchange. According to the governor, the state is designing a program and applying for federal funding, but won’t build a “formal proposal” until the Court decides. Minnesota’s prospects are less clear: while the governor has secured millions of federal dollars, and has support to design a state-run exchange from the Minnesota Chamber of Commerce and some Republicans in the legislature, a debate rages about whether the governor needs authorization from the GOP-controlled legislature—which has been unwilling to pass a bill—to set up an exchange.

On the Hill

House Republicans released their 2012 draft budget for health, labor and education, totaling $153.4 billion. This compares with the Senate Democrats’ proposed budget of $165.3 billion. The Republicans’ draft bill prohibits funds to implement the ACA, as well as provisions to rescind funding already provided for ACA programs. Rep. Denny Rehberg (R-MT), chairman of the House Appropriations Labor-Health and Human Services subcommittee, recently wrote to the “Super Committee” recommending they cut ACA Medicaid expansions and affordability credits to achieve their $1.2 trillion deficit reduction goal.

Reports/Other News

About one quarter of retirees think that life in retirement is worse than before they retired, according to a RWJF/NPR/Harvard School of Public Health poll. This compares with only 14% of pre-retirees who expect that retired life will be worse. Retirees cite costs of medical treatment and long-term care as especially worrisome. Many fewer pre-retirees think that their health will be worse (13%) during retirement than retirees who say their health actually is worse (39%). Pre-retirees are also less confident (38%) that Medicare will provide benefits of at least equal value to current benefits than retirees (52%).

Average annual premiums for employer-sponsored health insurance in 2011 rose 8% for single coverage (to $5,249) and 9% for family coverage (to $15,073) over 2010 costs, according to this year’s Kaiser Family Foundation/HRET employer health benefits survey. The percentage of total premium paid by workers is similar to 2010 (18% for individuals, 28% for family coverage). Among firms offering coverage to employees, 26% offer retiree coverage, similar to 2010. State and local governments are most likely to offer retiree health benefits (83%), while large firms in the retail and wholesale industries are least likely (15% and 16%). Nearly all (91%) of offering large firms cover early retirees below age 65, while 71% cover Medicare-age retirees. AHIP blames rising insurance costs on prices for medical services, asserting that Washington must do more to control cost growth. Kaiser attributed 1-2% of the premium increase to provisions of the Affordable Care Act, including allowing children up to age 26 on their parents’ health insurance.

The Government Accountability Office (GAO) released a report showing 170,000 Medicare Part D beneficiaries received prescriptions for controlled substances from five or more physicians in 2008, indicating fraud and prescription drug abuse in Part D. In ten individual cases examined by the GAO, physicians did not know that their patients were receiving drugs prescribed by other physicians. Although Part D plans are required to perform retrospective drug utilization reviews to identify inappropriate or unnecessary medication use, plans are not authorized to restrict drug access based on the findings.

Visit Extend Health — the nation’s largest private Medicare exchange.

Another provision in the Affordable Care Act that may help to rein in medical costs is the Shared Savings Program. The Affordable Care Act requires that the Shared Saving Program be established by January 1, 2012. Under this program, Accountable Care Organizations (ACO) will be administered by the Centers for Medicare and Medicaid Services (CMS) to manage and coordinate care for Medicare fee-for-service beneficiaries. ACOs that meet quality-of-care and cost-reduction performance standards will be eligible to receive a share of the savings (hence the name of the program).

An ACO is a group of providers and suppliers of health care services (hospitals, physicians, etc.) that work together with the goal of delivering high-quality health care while reducing costs. The theory behind this program is that well-run ACOs will improve communication and coordination among physicians and other providers, which will lead to both cost reductions and better care for patients. Most Medicare beneficiaries have multiple chronic conditions and receive care from multiple physicians, hospitals or other health care providers. Poor coordination among these providers can lead to lack of care, unavailable or lost medical records, duplication of care and redundant test procedures, readmissions to hospitals and even medical mistakes, all of which can and do increase the cost of care for Medicare beneficiaries.

On March 31, HHS proposed rules designed to help doctors, hospitals and other health care providers improve the coordination of care for Medicare beneficiaries through Accountable Care Organizations. Among these rules:

  • To become an ACO the group must submit an application to the CMS that includes a plan for delivering high-quality care and reducing costs. The group must have at least 5,000 beneficiaries, and agree to participate in the Shared Savings Program for three years. A governing body that represents the ACO must be established, and each ACO must routinely assess, monitor and report on the care it delivers.
  • ACOs must meet quality performance standards established by the new rules, as well as the savings benchmark set for them by the CMS to receive shared savings. If they fail to meet these standards they will be held liable for a portion of the losses.
  • ACOs will be required to notify beneficiaries that they are participating in an ACO, and that their providers will be eligible for payments for improved care and lower costs. They must also inform beneficiaries that claims data may be shared with the ACO to make it easier to coordinate their care. Beneficiaries have the right to opt out of the data sharing arrangements.

The rules are subject to a 60 day public comment period, and CMS encourages the public, providers, suppliers and Medicare beneficiaries to submit their comments for consideration. HHS will be holding open-door forums and listening sessions to help the public understand what the CMS is proposing and how to comment (dates and times have not been posted yet, but you can check these web sites for updates: http://www.cms.gov and http://www.hhs.gov.). We encourage readers, especially Medicare-eligible individuals, to become informed about the new rules and submit comments during the comment period.

Extend Health CEO Bryce Williams has written a new piece just published on the Society for Human Resource Management Web site. Bryce is known around here not only for his deep knowledge of health care insurance, but for constantly thinking about ways we can empower employers to provide affordable health care benefits to their employees. This new article offers some sage advice for employers who want to continue to offer early retiree benefits but need to control their costs. The key? Start moving them to defined contribution plans now:

“Until 2014, can early retirees be helped? The answer is yes: by beginning to move them from legacy group plans to ‘defined contribution health plans’ and providing education and tools, HR managers can empower their early retirees to become cost-conscious and careful consumers, changing their mindset from ‘I don’t know how much my health benefits cost and I don’t care’ to ‘I know how much my health benefits costs and I do care.'”

The article outlines a roadmap for supporting early retirees through the transition from group plans to individual plans purchased on the coming state insurance exchanges, with advice for the kind of programs and education that will help this vulnerable population become “empowered individual health insurance consumers” — while at the same time giving employers the ability to plan, predict, and control costs.

Update 2/14/2011: See this post for more about the Part D premium charges, and a link to the table on the Social Security web site where you can figure out what your amount will be.

Update 11/4/2010: A reader called Social Security to find out what his IRMAA would be (see comment below) and was told that he needed to call Medicare to get that information. Maybe he got hold of someone who was uninformed about Social Security’s role in determining the fee? If anyone else calls Social Security and DOES get an answer, we would be very appreciative if you’d leave a comment here to let other readers know about it.


We just posted this in a reply to a question from a reader, but it seems like it might be useful to many individuals and to benefits managers who may be getting questions from their retirees.

The healthcare reform bill (the PPACA) created a requirement that as of Jan 1 2011, higher income people will pay an extra amount in addition to their monthly prescription drug premium. This extra amount is called the Income Related Monthly Adjustment Amount (IRMAA). IRMAA will affect those people whose modified adjusted gross income is $85,000 or more (for singles) and $170,000 or more (for couples filing jointly) in 2009 and later.

The extra amount will be deducted automatically from Social Security checks.

We called Medicare to see if they could provide more specifics. They explained that individuals should call Social Security at 1-800-772-1213 to learn what the exact amount will be and to learn if they qualify for assistance with the IRMAA.

Extend Health, our client Volkswagen, and Ford retiree spouse Barry Wood are all part of this very interesting piece just out on Information Week. The story investigates how our web-based and call center technology, much of it developed in-house, work together with our highly-trained benefit advisors to help retirees navigate the “maze of Medicare.” Mr. Wood says that Extend Health’s services “took the fear out of making the wrong choice.” Thanks Mr. Wood – that’s exactly what we aim for: confidence that the plan you enroll in is your best possible choice.

HHS has announced that about 2000 companies, unions, and government entities have been approved to receive a portion of the $5 billion early retiree reinsurance fund created by the health care reform bill. According to the announcement, HHS “has received applications from more than 50 percent of Fortune 500 companies, all major unions, and government entities in all 50 States and the District of Columbia.”  HHS continues to review applications and will announce more grants as they are approved. You can use an interactive map on the page linked to in this post to see a list of the organizations that have been approved for funding in each state.

This is the second post written for Extend Health by Avalere. We asked them to take a look at the changes made by the reform legislation to the Retiree Drug Subsidy, and the potential impact to both retirees and their employer sponsors.

Health Reform and the Changes to the Retiree Drug Subsidy: Potential Implications for Seniors

The Patient Protection and Affordable Care Act (ACA) makes several changes that will affect drug coverage for retirees.  Specifically, you may have heard about changes to the Retiree Drug Subsidy (RDS) and wondered what they might mean for your company’s retiree benefits. 

The RDS was part of the Medicare Modernization Act (MMA), which Congress passed in 2003.  It is a tax-free Medicare payment to employer-sponsored plans, worth 28 percent of allowable drug costs between $310 and $6,300 for each covered retiree not enrolled in Medicare Part D in 2010.  RDS payments were excluded from the employer’s gross income for the purposes of corporate income tax, and employers were also allowed to claim a business deduction for retiree prescription drug expenses even though they also received the federal subsidy to cover a portion of those expenses. 

The ACA changes the tax treatment of the RDS beginning in 2013.  Rather than receiving both the subsidy and the tax deduction for retiree prescription drug coverage, the amount allowable as a deduction will be reduced by the amount of the federal subsidy received.  Some employers may choose to eliminate their retiree drug coverage in response to this change.  However, the impact of these changes may be limited since a significant portion of RDS-covered retirees belong to groups that are exempt from federal taxes, such as state and local governments and non-profits.  Read the rest of this entry »

A couple of new articles came out this week, and both highlight how using a Medicare exchange lets employers continue to offer their retirees health care benefits, while keeping the costs sustainable.

Private exchanges have potential to breathe new life into VEBAs”  in Employee Benefit News features interviews with  former Congressional Majority Leader Dick Gephardt and Caterpillar retiree George Farnall.

How to Stay in the Retiree-Benefit Game” on CFO.com focuses on the cost savings employers can achieve when they move retired employees from group Medicare plans to individual plans paid for with HRA funds, and includes an interview with Phil Belcher from Eastman Chemical.

Check ’em out!

We just published the results of our latest retiree survey. We asked 504 retirees how satisfied they are with their individual Medicare coverage – and how it compares to the group insurance they had with their former employers. 85% said they are “very” or “somewhat” satisfied with their Medicare coverage. And 67% said they are as satisfied, or more satisfied, with Medicare than their previous employer-sponsored group health plans. Top reasons for overall satisfaction were (a) fewer billing and payment problems (37%), (b) better benefits (30%) and (c) lower cost (28%). You can see all the results in this press release.

The latest Kaiser Family Foundation health tracking poll shows some interesting results. The number of people with an unfavorable view of reform has dropped to 35%, from 41% last month, but the number who have a favorable view has only increased by 2%, up to 50%.

This month’s poll took a closer look at the attitudes of seniors, who’ve been the most unfavorable group overall so far. This and an earlier survey by the National Council on Aging give an indication why: both show that a majority of seniors are misinformed about key components of the bill, with many believing that it cuts basic Medicare benefits, institutes so-called “death panels,” and will weaken the financial condition of the Medicare fund. A majority are unaware of new benefits for Medicare recipients such as free preventive screening and yearly checkups.