December 28, 2009

There is not going to be any final federal health care reform (HCR) legislation in 2009 – but such legislation may be adopted as early as next month. If it does pass, it will have a significant impact on employers as well as on patients and providers. This Alert will preview the impact on anesthesia groups, as employers, of the massive overhaul of the United States health care system entitled the "Patient Protection and Affordable Care Act" (H.R. 3590) passed by the Senate on Christmas Eve, December 24th.

The Senate bill must now be reconciled with a different version passed by the U.S. House of Representatives on November 7, 2009 (the “Affordable Health Care for America Act,” H.R. 3962). Within the next few weeks, House and Senate negotiators will likely reach a compromise agreement and both chambers may approve the bill that emerges from conference. The Democrats' objective is now to have President Obama sign a bill into law before the State of the Union address in January. (The Republicans still hope to block any legislation.)

You have read much about the impact of the various HCR proposals on the deficit, on patient access to care and on physician payment. For the record, the Congressional Budget Office (CBO) estimated the ten-year cost of the coverage components of the Senate bill at $871 billion and the ten-year reduction in the deficit at $132 billion, through cost savings and new revenues. Thirty-one million additional persons would obtain health care insurance. The infamous 21.2 percent cut in Medicare payments to physicians has been temporarily halted by an extension of 2009 rates through January and February, 2010 in the defense appropriations bill approved earlier this month. The Senate HCR bill does not eliminate the Sustainable Growth Rate (SGR) formula that drives year-after-year physician payment reductions, unlike the House counterpart.

Most anesthesia groups employ physicians, nurse anesthetists,- and/or anesthesiologists assistants, other clinical and/or administrative personnel. A number of provisions in the current Senate and House bills impose responsibilities on employers. The most important provisions affecting anesthesia-group employers follow.

1. “Pay or play;” penalty for employers not offering coverage. Beginning in 2014, under the Senate bill, employers with at least 50 full-time employees that do not offer acceptable health care coverage will pay a penalty of $750 per FTE if even one FTE receives a tax credit (subsidy) to purchase insurance directly from one of the new health insurance exchanges. Most anesthesia practices do offer acceptable health benefit plans, but even in this case, if one or more FTEs receive the subsidy, the employer will be assessed $3,000 for each employee receiving the subsidy or $750 per FTE, whichever is less.

The employer can avoid the penalty by offering “free choice vouchers” that will permit certain employees with incomes below 400% of the federal poverty level to enroll in a health plan through the insurance exchange

Groups with more than 200 employees must automatically enroll employees in a health insurance plan, if they offer one. Employees must be given notice and the opportunity to opt out.

There will also be a penalty of $600 per FTE if the employer imposes a waiting period of 61-90 days before employees can enroll in the health plan offered. The waiting period may not exceed 90 days.

In contrast, the House legislation would require employers with an annual payroll of more than $750,000 to offer coverage to their employees and contribute at least 72.5% of the premium for single coverage and 65% of the premium for family coverage of the lowest cost qualifying plan. The pay or play assessment would be 8% of payroll for employers with annual payroll costs greater than $750,000, which would include most anesthesia practices. The House bill provisions would become effective on January 1, 2013.

Under neither bill will anesthesia groups qualify for small business tax credits, even if they come under the 25-employee size limitation, because their average annual wages will exceed $50,000 (Senate) or $40,000 (House).

2. Employer participation in health insurance exchange plans. The insurance exchanges would be open to employers with 100 or fewer employees. States may limit participation to employers with 50 or fewer employees until 2017. From 2017 on, states may open up the exchanges to larger employers.

Existing health plans would be grandfathered and thus not subject to the restrictions on underwriting and on medical loss ratios (i.e., administrative costs and profits) that will apply to plans offered through the exchanges. Some anesthesia practices may find it advantageous to change their coverage to exchange plans.

3. Excise tax on high-cost health insurance. Effective in 2013, the Senate bill would levy an excise tax of 40% on insurance companies and plan administrators for any health coverage plan above the premium threshold of $8,500 for single coverage and $23,000 for family coverage. The tax, which applies to the amount of the premium exceeding the threshold, would be indexed for inflation. The threshold would be increased for retirees. Note that insurers, not employers, would be liable for this tax – but it would be passed through.

Employers would be required to report the annual cost of coverage received by their employees.

4. Reinsurance program for retired employees. Both the Senate and the House bills would create a temporary reinsurance program for employers providing coverage to retirees over age 55 who are not eligible for Medicare. The program would reimburse employers (or insurers) for 80% of retiree claims between $15,000 and $90,000. While the Senate bill calls for $5 billion to finance the program, which would become effective 90 days following enactment through January 1, 2014, the House bill would appropriate $10 billion. The reinsurance program could be beneficial to anesthesia groups whose 55+ year old anesthesiologists have been able to retire early despite the recession.

5. Lower cap on contributions to health care flexible spending accounts (FSAs). In a pure revenue-raising provision, the Senate bill would cap contributions to FSAs at $2,500 instead of $5,000, the current ceiling. Furthermore, FSAs could no longer cover over-the-counter medicines without a prescription. In the last year, a growing number of anesthesia practices have begun substituting FSAs for conventional health insurance plans as premiums have continued to skyrocket. A $2,500 cap on contributions to FSAs would tend to make these accounts less attractive to employees.

6. Surtax on high-income individuals. Like the excise tax on high-cost health insurance, the additional Medicare tax on high earners is not, strictly speaking, an employer issue, but it may drive salaries upward in markets where there are workforce shortages – such as anesthesia. The Senate bill would increase the Medicare Part A tax rate on wages by 0.9% (from 1.35% to 2.35%) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly, effective January 1, 2013.

The House bill would impose a tax, beginning in 2011, of 5.4% on individuals with modified adjusted gross incomes exceeding $500,000 and families with modified adjusted gross incomes exceeding $1,000,000.

While the dollar impact of HCR legislation on anesthesia practices as employers may be profound, the greatest concern is still future payments for professional services. The American Society of Anesthesiologists, the Medical Group Management Association and many other provider organizations wrote to Senate Majority Leader Harry Reid expressing their strong opposition to the Independent Payment Advisory Board (IPAB) proposed in the Patient Protection and Affordable Care Act. The IPAB would be charged with submitting recommendations to the President, Congress and private entities on ways to reduce the rate of growth in Medicare outlays if spending exceeds a target growth rate. Beginning in 2010, the Senate bill requires the IPAB to make binding biennial recommendations to Congress if the growth in overall health spending exceeds growth in Medicare spending.

There is much reason, therefore, for all members of the anesthesia community to remain engaged in the HCR campaign. Continue sharing your views with your Congressional representatives and Senators.

With all good wishes for success now and throughout the New Year,

Sincerely,

Tony Mira
President and CEO

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