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Hpm   Final Presentation   5 11 12
 

Hpm Final Presentation 5 11 12

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An analysis of Vermont Health Reform and the ERISA legal constraint

An analysis of Vermont Health Reform and the ERISA legal constraint

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  • Talk about why I chose this topic. Employee Benefits rep I sell benefits in Vermont and this is effecting many of the people I work with.
  • Who came up with this? Dr. William Hsiao (Harvard Economics) and Jonathan Gruber (MIT Economics) 2010 Study “ Independent” outside third party experts Act 128 : Health System Reform Design: Achieving Affordable Universal: Health Care in Vermont 130 page report on findings Taiwan System Taiwan expanded coverage from 57 to 96% in 2 years, but did not increase health care spending QUESTION What is a single payer system? A publicly financed insurance fund that provides basic benefits for all citizens aiming for universal coverage and controlling costs Eligibility based on residency in Vermont Signed by Governor Shumlin on May 26, 2011 (144 pages) First state to pass (at least a dozen have tried the last 20 years) QUESTION How did this thing pass? Political window of opportunity Shumlin ran on Health Reform Platform ticket Both houses democratically controlled Strong grassroots support for health reform Benefits and financing for both Medicaid and Medicare remain unchanged Both programs would be rolled into the single claims and payment system Uniform payment structure for providers Run by Green Mountain Care Board
  • What are the doctors saying? Thoughts? Savings not generated from lowering provider reimbursements Risk Adjusted Capitated Fee Reimbursements “ No Fault” liability for medical malpractice An administrative body would award damages based on a standard schedule Not contingent on proof of negligence Thoughts? What would Jodi and Wendell think about this? How will RACFR and No Fault liability work together? Said differently, what are some of the potential concerns about capitation? How does a “no fault” system effect these concerns? BCBS will likely adjudicate claims Keeping this private encourages innovation Problem with this? So what if I have services issues? Financing Not completely figured out yet Bill only alludes to “a reformation of the payment system for health services to encourage quality and efficiency in the delivery of health care as set forth in 18 V.S.A. chapter 220”. Needs to be finalized by January 2013
  • Estimated 25.3% decrease in health spending in 10 years 7.3% reduction in administrative costs Why? Consolidation of insurance functions Uniform claims system 5% reduction from fraud and abuse Why? Tougher to catch abusers when there are multiple payers, each with their own claims system 10% reduction from “wasteful and duplicated services” For example: By running the capitated payments through ACOs, rather than an individual physician, incentives would exist to integrate the delivery of health care, improve outcomes, and reduce wasteful or inappropriate care 1% reduction due to competition for claims administration 2% reduction from “No Fault” malpractice and reduced defensive medicine
  • In the first year employer spending estimated to drop $100 mil ( $260 per employee) Employers not currently offering health insurance (small employers) would increase costs about $1422 per employee Employers currently offering benefits would see decrease in costs of health benefits of $1429 per employee. 14.2 % tax rate needed (projected public financing option) Employers pay 10.6%, Employees pay 3.6% In contrast the ACA would have employers pay 12 % Net benefit to households is $100 per person (or $370 per household) Households below the 133% of poverty line would see net gain of $500. Households with incomes between 133% and 400% of poverty line would see gains of $1,110 per household Higher income households pay more with progressive tax Families over 400% of poverty line would pay $550 more per household Families with 2 high wage earners hit the hardest 3800 new jobs in first year 2900 annual new jobs by 2019 Resulting from covering new uninsured and underinsured Some lost jobs in administration, mostly out of state Total economic output projected to increase $100 million
  • QUESTION? Has anyone ever heard of ERISA? What do you know? Employee Retirement Income Security Act of 1974 (Gerald Ford, signed on Labor Day) Where did it come from? JFK, Studebaker, “Pensions: The Broken Promise” (1972) The history of ERISA can be said to have begun in 1961 when President John F. Kennedy created the President's Committee on Corporate Pension Plans. The movement for pension reform gained some momentum when the Studebaker Corporation, an automobile manufacturer, closed its plant in 1963; the pension plan was so poorly funded that Studebaker could not afford to provide all employees with their pensions. A turning point in the history of ERISA came on September 12, 1972, when NBC broadcast Pensions: The Broken Promise , an hour-long television special that showed millions of Americans the consequences of poorly funded pension plans and onerous vesting requirements. In the following years, Congress held a series of public hearings on pension issues and public support for pension reform grew significantly. Amendments COBRA (Consolidated Omnibus Budget Reconciliation Act, 1985) HIPAA (Health Insurance Portability and Accountability Act, 1996) Newborns’ and Mothers’ Protection Act, Mental Health Parity Act, Women’s Health and Cancer Rights Act Established a series of funding, disclosure, and reporting requirements for all employee benefits, including employer based purchased health insurance Primary focus was to ensure that retirement benefits would be properly funded and available to employees that retire. Also, to ensure that whatever employees were entitled to would be, in fact, be provided Why do we care? ERISA protects employees for the benefits offered by employers Provides a mechanism of enforcement if benefits are not paid Federal law “preempts” all state laws that relate to to any benefit plan (ERISA preempts state laws that have “a connection with or reference to” an ERISA plan.)
  • So what does the Statute actually say? Title I protects employees' rights to their benefits. The following are some of the ways in which it achieves that goal: Participants must be provided plan summaries. Employers are required to report information about the plan to the Labor Department and provide it to participants upon request. The information is reported on Form 5500, which is available for public inspection and may be viewed at websites such as freeerisa.com and free5500.com If a participant requests, the employer must provide the participant with a calculation of her or his accrued and vested pension benefits. Employers have fiduciary responsibility to the participants and to the plan. Certain transactions between the employer and the plan are prohibited. A pension plan is barred from investing more than 10% of its assets in employer securities. Employee Benefits Secuirty Commission (SBSC) is responsible for overseeing Title 1 Example of ERISA documentation out of an actual contract
  • ERISA Section 504 “ supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.” Federal Law pre-empts all state laws in relation to employee benefit plans with few enumerated exceptions Insurance Exception Nothing in ERISA "shall be construed to exempt or relieve any person from any law of any State which regulates insurance." Law must regulate insurance companies or contracts, not mandate scope and content For example: Any state mandate for employers to purchase health insurance, or to mandate the quality of benefits to be purchased would be preempted Savings Clause provisions saving for the states the general authority to regulate in the areas of insurance, banking, and securities Deemer Clause Prohibits any state from deeming that an employer who self funds is a health insurer for purposes of state insurance laws. Allows large, self funded groups, to avoid even indirect effects of state regulatory programs “ Any effort by a state to contain health care costs, expand the availability or insurance, or otherwise reform health care delivery or financing that relates to ERISA governed health benefits will be preempted unless it is regarded as a state law that regulates insurance – and even then it will not be enforceable against self insured employers” (Wing p. 180)
  • Metropolitan Life Insurance Co v Massachusetts (1985) Massachusetts enacted legislation that required all insurers selling policies providing hospital coverage for physical illnesses to also provide equivalent coverage for mental illnesses Did not Require employees to purchase mental health beenfits Court found ERISA pre-emption does not apply Court recognizes that Massachusetts could require benefit plans to include minimum, mandatory mental health benefits without being subject to ERISA pre-emption Also recognizes that Massachusetts could not deem self funded groups “insurers”, or it would be pre-empted “ Section 47B, as applied, is a law "which regulates insurance" within the meaning of § 514(b)(2)(A), and therefore is not preempted.” (Justice Blackmun) Section 47B was designed to address problems encountered in treating mental illness in Massachusetts. The Commonwealth determined that its working people needed to be protected against the high cost of treatment for such illness. It also believed that, without insurance, mentally ill workers were often institutionalized in large state mental hospitals, and that mandatory insurance would lead to a higher incidence of more effective treatment in private community mental health centers.
  • New York State Conference of Blue Cross and Blue Shield (BCBS) Plans v. Travelers (1995) Court upholds law (reversing lower court opinion) imposing hospital surcharge on all commercial insurers except BCBS. In its ruling, the Court found a general presumption against preemption in areas of traditional state regulation Ruled that the indirect influence of the surcharge was not sufficiently connected to ERISA plans so as to “bind plan administrators to any particular choice”. If it was ruled that the surcharge “related to”, (Shaw Supra), ERISA, it would have triggered ERISA preemption Justice Souter further explained that an “exorbitant” tax could possibly reach a level where health plan buyers would have no real choice and offered to suggest that such a hypothetical mandate might violate ERISA. Such a test has not yet reached the Supreme Court
  • Retail Industry Leaders Association v. Fielder (2007) Court of Appeals for the 4th Circuit struck down a Maryland law requiring very large employers to spend at least 8% of their total payroll on their employees’ health insurance costs or pay to the state the amount their spending fell short. The law was created to lessen the state’s Medicaid burden from the emloyees of Walmart. Only effected Walmart The court found that because Wal-Mart’s options were either to increase contributions to its own plan or to pay money to the state of Maryland, Wal-Mart effectively had no choice but to restructure its employees’ health benefit plans, and that lack of choice was an ERISA violation Direct Effect Were we to approve Maryland’s enactment solely for its noble purpose, we would be leading a charge against the foundational policy of ERISA, and surely other States and local governments would follow.
  • Phyllis Borzi, Assistant Secretary of Labor for the Employee Benefits Security Administration and former attorney and research professor at the George Washington Medical Center’s School of Public Health and Health Services “ Clearly ERISA is not an impediment for states that choose to levy a fee or tax on all employers and to then use the funds to subsidize health care coverage expansions. In such a situation, the regulated entity is the employer, not the employer plan.” “ Requiring an ERISA plan to be administered in a specific way or through a single processor would most likely violate ERISA.” “ It is clear that ERISA would not preempt a state rate-setting program that established rates for all providers – including hospitals, physicians and other providers - as long as it dictates what providers must charge rather than what payers must pay.” “ But if those [Capitation] payments in no way determine the scope of benefits, and leave employers free to design benefits with insurers, they should not be treated any differently in the courts than fee for service rates.” “ Risk adjustment mechanisms, for any kind of payment, should be easily defended against an ERISA challenge. The surcharge on hospital bills paid by commercial insurers in New York was in fact a risk-adjustment mechanism.”
  • About 1 out of 10 people in Vermont effected. IBM is not happy since it has high income wage earners (average engineer makes $72k, average support person makes $55k) Payroll tax hits higher wage earners harder They have threatened to “pull the plug”; being referred to as “IBM exodus” Why would self funded groups continue with expensive wellness programs like smoking cessation/weight loss/ etc if just paying a flat tax?
  • QUESTION: How are large employers like IBM reacting? He has a friend that moved his business to South Carolina and has Granite shipped to him from Barre” and its less expensive…
  • The legal issue is whether or not a single payer system would be pre-empted by ERISA Does the law “relate to” ERISA protected plans? Would the deemer clause apply and self funded employers be exempt? Would there be a direct or indirect effect on Employers? Employers could argue that such a system violates ERISA because public benefits would induce them to drop or modify their self funded plans (therefore binding them to a particular choice (NY v. Travelers) ) Or in the case of payroll taxes, double pay for both taxes and existing benefits ERISA legal experts, like Patricia Butler, however point out that taxation and financing are traditionally areas of state authority, which could protect it from “preemption”. Reformers urging Congress to pass ERISA waiver for those states seeking to expand health insurance. Accountable Care Act Implications Having to run an exchange along side single payer system would mean running two programs with similar goals and different administrative structures In 2017 states will be able to apply for waiver if they have their own systems in alignment with ACA goals Lump sum payment equal to ACA amount No cases regarding tax financed universal health care have been heard at state level.

Hpm   Final Presentation   5 11 12 Hpm Final Presentation 5 11 12 Presentation Transcript

  • Vermont Health ReformA Single Payer System &ERISA Legal Constraints
  • Agenda• Vermont Health Care Situation• Act 48• ERISA – Pre-emption Clause• Case History• Expert Opinions• Conclusion
  • Vermont Health Care Situation
  • Act 48• Who came up with this?• What is a single payer system?• Act 48 (May 26, 2011) – How did this bill pass?• Medicaid and Medicare benefits remain unchanged• Single claims and payment system• Uniform payment structure for providers• Green Mountain Care Board
  • Act 48 (cont)• How will this effect providers? – Risk Adjusted Capitated Fee Reimbursements• “No Fault” liability for medical malpractice• BCBS will likely adjudicate claims• Financing – “a reformation of the payment system for health services to encourage quality and efficiency in the delivery of health care”
  • Savings• 25.3% decrease in overall health spending in 10 years – 7.3% reduction in administrative costs – 5% reduction from fraud and abuse – 10% reduction from “wasteful and duplicated services” – 1% reduction due to competition for claims administration – 2% reduction from “No Fault” malpractice Source: William C. Hsaio Ph.D., Steven Kappel, Jonathan Gruber. Act 128 : Health System Reform Design: Achieving Affordable Universal: Health Care in Vermont, 2011.
  • Impacts• Employer spending – Small employers not currently offering benefits – Employers currently offering benefits• Projected tax rate – Employers pay 10.6%, Employees pay 3.6%• Net benefit to households is $100 per person (or $370 per household) – Net gain of $500 for 133% of poverty line – Net gain of $1,110 between 133% and 400% – Families over 400% of poverty line would pay $550• Other economic impacts – 3800 new jobs in first year – 2900 annual new jobs by 2019 – Total economic output projected to increase $100 million Source: William C. Hsaio Ph.D., Steven Kappel, Jonathan Gruber. Act 128 : Health System Reform Design: Achieving Affordable Universal: Health Care in Vermont, 2011.
  • ERISA• What is ERISA? – Employee Retirement Income Security Act of 1974• Where did it come from? – JFK, Studebaker, “Pensions: The Broken Promise”• Amendments – COBRA, HIPAA, Newborns’ and Mothers’ Protection Act, Mental Health Parity Act, Women’s Health and Cancer Rights Act• Why do we care? – ERISA protects employees for the benefits offered by employers – Provides a mechanism of enforcement if benefits are not paid – Federal law “preempts” all state laws that relate to to any benefit plan
  • The Statute• Title I protects employees rights to their benefits. The following are some of the ways in which it achieves that goal: – Participants must be provided plan summaries. – Employers are required to report information about the plan to the Labor Department and provide it to participants upon request. The information is reported on Form 5500, which is available for public inspection and may be viewed at websites such as freeerisa.com and free5500.com. – If a participant requests, the employer must provide the participant with a calculation of her or his accrued and vested pension benefits. – Employers have fiduciary responsibility to the participants and to the plan. h – Certain transactions between the employer and the plan are prohibited. – A pension plan is barred from investing more than 10% of its assets in employer securities. – Employee Benefits Security Commission (SBSC) is responsible for overseeing Title 1. h
  • All I want for Christmas iscompensation for my healthplan’s denial of benefits Sorry, even Santa is preempted by ERISA
  • Pre-emption Clause• ERISA Section 504 – “supersede[s] any and all State laws insofar as they may now or hereafter relate to any employee benefit plan.”• Few enumerated exceptions – Insurance Exception• Savings Clause• Deemer Clause• “Any effort by a state to contain health care costs, expand the availability or insurance, or otherwise reform health care delivery or financing that relates to ERISA governed health benefits will be preempted unless it is regarded as a state law that regulates insurance – and even then it will not be enforceable against self insured employers” (Wing p. 180)
  • The result Clearly youwill be clear are unclearif you just on the clarityfollow of ERISA.ERISA.
  • Case History• Metropolitan Life Insurance Co v Massachusetts (1985) – Court found ERISA pre-emption does not apply • Mandated benefits may relate to employee health plans – Insurance Law Exemption – Regulation• Court recognizes that Massachusetts could require benefit plans to include minimum, mandatory mental health benefits without being subject to ERISA pre-emption• Massachusetts could not deem self funded groups “insurers”, or it would be pre-empted• “Section 47B, as applied, is a law "which regulates insurance" within the meaning of § 514(b)(2)(A), and therefore is not preempted.” (Justice Blackmun) – “Section 47B was designed to address problems encountered in treating mental illness in Massachusetts. The Commonwealth determined that its working people needed to be protected against the high cost of treatment for such illness. It also believed that, without insurance, mentally VS ill workers were often institutionalized in large state mental hospitals, and that mandatory insurance would lead to a higher incidence of more effective treatment in private community mental health centers.” (Justice Blackmun)
  • Case History (cont.)• New York State Conference of Blue Cross and Blue Shield (BCBS) Plans v. Travelers Ins. Co. (1995) – Court upholds law – There is a presumption against preemption in areas of traditional state regulation • Ruled that the indirect influence of the surcharge was not sufficiently connected to ERISA plans so as to “bind plan administrators to any particular choice” – “An indirect economic influence, however, does not bind plan administrators to any particular choice and thus function as a regulation of an ERISA plan itself” (Justice Souter) • Shaw Supra – “relate to” – “Exorbitant” tax could possibly reach a level where health plan buyers would have no real choice and offered to suggest that such a hypothetical mandate might violate ERISA. • Such a test has not yet reached the Supreme Court VS
  • Case History (cont)• Retail Industry Leaders Association v. Fielder (2007) – Court of Appeals for the 4th Circuit struck down a Maryland law • Very large employers must spend at least 8% of their total payroll on their employees’ health insurance costs or pay to the state the amount their spending fell short • Walmart left with “no choice” – Direct Effect• “Were we to approve Maryland’s enactment solely for its noble purpose, we would be leading a charge against the foundational policy of ERISA, and surely other States and local governments would follow.” VS
  • Expert Opinions• Phyllis Borzi, Assistant Secretary of Labor for the Employee Benefits Security Administration and former attorney and research professor at the George Washington Medical Center’s School of Public Health and Health Services – “Clearly ERISA is not an impediment for states that choose to levy a fee or tax on all employers and to then use the funds to subsidize health care coverage expansions. In such a situation, the regulated entity is the employer, not the employer plan.” – “Requiring an ERISA plan to be administered in a specific way or through a single processor would most likely violate ERISA.” – “It is clear that ERISA would not preempt a state rate-setting program that established rates for all providers – including hospitals, physicians and other providers - as long as it dictates what providers must charge rather than what payers must pay.” – “But if those [Capitation] payments in no way determine the scope of benefits, and leave employers free to design benefits with insurers, they should not be treated any differently in the courts than fee for service rates.” – “Risk adjustment mechanisms, for any kind of payment, should be easily defended against an ERISA challenge. The surcharge on hospital bills paid by commercial insurers in New York was in fact a risk- adjustment mechanism.”
  • Broker Response• What are brokers thinking about the bill? – “If it gets through, we are out of business” – Cuts out brokers from the equation (part of Dr. Hsaoi’s administrative savings)• How are physicians responding? – “Extremely nervous. Bill promises not to cut reimbursements, but nothing compels it not to.”• What about Dr. Hsaoi and Taiwan? – “In Taiwan if you don’t like the system, you’d have to swim to the next island, in VT you can just drive to NH” • Dartmouth Hitchkock is heavily used by Vermont networks – “The savings in the Hsaoi report were unrealistic, he only showed the best case scenario”• Funding is to be passed in 2013, and its going to be a “bloodbath”• In order for Vermont to move to the next step… • Needs exemption from PACA • “Prove they can do the same or better for the same or less”
  • Broker Response• How are large employers like IBM reacting? – “IBM Exodus effect” • “IBM employs 7000 in the Essex semi conductor facility. For every IBM employee, there’s 2.5 other employees employed because of them. If IBM goes, you’re talking about 20,000 people unemployed. 60,000 people if you count the implications on families.” – “It would almost be like nuclear bomb fallout from Upper State New York, to Middlebury to Canada”• So why did this bill pass? – “To create jobs. Shumlin wanted Vermont to be the place where businesses would go to stabilize health care costs. However you have New Hampshire (with no state income tax) right next door. You also have all the states in the south with better weather, tax incentives, and lower costs of living.”• Most people think the bill is dead and the Exchange Bill 559 (passed May 4, 2012) will be the new focus – “Most people in Vermont political circles think If it wasn’t for IBM and other large corporations then the ERISA and PACA exemptions would likely have been sought.”
  • Conclusions• The legal issue is whether or not a single payer system would be pre-empted by ERISA – Does the law “relate to” ERISA protected plans? – Would the deemer clause apply and self funded employers be exempt?• Would there be a direct or indirect effect on Employers’ Benefit Plans? – Drop of modify self funded coverage (NY v Travelers) – Double pay for both taxes and existing benefits• ERISA legal experts, like Patricia Butler, however point out that taxation and financing are traditionally areas of state authority, which could protect it from “preemption”• Reformers are urging Congress to pass an ERISA/PACA waivers for states seeking to expand health insurance.• No cases regarding tax financed universal health care have been heard at state level.• Can this law, or another like it, realistically survive?
  • Discussion
  • Additional Cases• Golden Gate Restaurant Association v. City and County of San Francisco (2010)• Rush Prudential HMO, Inc v. Moran (2002)• Kentucky Association of Health Plans v. Miller (2003)
  • Vermont Reform Challenges?• Costs : Extending coverage to those currently uninsured and underinsured – $252 mil in first year • $62 more mil to recruit providers and update facilities • About 2/3 of the expected savings in the first year• Challenges – Providers fear healthcare budgets will be balanced with chronically low reimbursement rates – Different grassroot organizations had different opinions on equitable and generous benefits • Vermont Uniform Health Care Reporting and Evaluation System – Vermont ‘s all payer claims database – Found that 87% of medical costs covered by benefits – 13% out of pocket » The “actuarial value” of this is on par with the Platinum level of the ACA benefit plan – Some advocates wanted “free” care with no cost sharing, but Vermont decided to stay at the 87/13 actuarial value – Businesses weary of increased government control of healthcare • Fear ever increasing taxes • Loss of flexibility in health care choices, which is an important cost center
  • Other Constraints/Considerations• Vermont is in the 2nd Circuit – Decisions in other circuits are not binding on Vermont – Also makes it difficult to ascertain the limits of what may be permitted in this state under ERISA. – Hard to determine how the courts would treat an untested scenario, like a single payer health care system.• ERISA may not preempt a state’s ability to largely align other aspects of the health care delivery system through a single channel – Claims payment rules • Allows the state to replicate some of the beneficial features of a single payer system and keep multiple payer and benefit plans.• Federal rules governing Medicaid and Medicare limit state flexibility with regards to benefits, payments to providers, and claims administration – Will require waivers • Vermont already operating under a waiver program granting flexibility to determine which populations get payments and how much• Accountable Care Act Implications – Having to run an exchange along side single payer system would mean running two programs with similar goals and different administrative structures – In 2017 states will be able to apply for waiver if they have their own systems in alignment with ACA goals • Lump sum payment equal to ACA amount
  • Sources• Information & news for understanding a Universal Health Care System for Vermont.. Vermont Health Care for All: Myths, Realities Pertaining to a Universal Health Care System. 2012.• www.dol.gov/topic/health-plans/erisa/htm• Kenneth R. Wing, Benjamin Gilbert, The Law and the Public’s Health, 7th Edition, Health Administration Press, 2007: 146-147, 178-179, 310-315, 329-330.• William C. Hsaio Ph.D., Steven Kappel, Jonathan Gruber. Act 128 : Health System Reform Design: Achieving Affordable Universal: Health Care in Vermont, 2011.• William C. Hsiao, Ph.D., Anna Gosline Knight, Sc.M., Steven Kappel, M.P.A., and Nicolae Done . What Other States Can Learn from Vermonts Bold Experiment: Embracing a Single-Payer Health Care Financing System. Health Affairs, July 2011 30(7):1232–41.• Justia.com: U.S. Supreme Court Center. Metropolitan Life v. Massachusetts – 471 U.S. 724 (1985).• Cornell University Law School: Legal Information Institute. New York State Conference of Blue Cross and Blue Shield Plans v. Travelers, 514 U.S. 645 (1995).• Harmon, Ron. Health Plan Law: Retail Industry Leaders Association v. Fielder: A Case of Preemption Over Federalism. ERISA Group Health Plan Administration. January 18, 2007.• Frankenfield, Christopher. The relationship between ERISA, state, and local health care experimentation, and the passage of national Health Reform. Journal of Health Care Law & Policy. Volume 13:423. pp. 423-457.