Health issues will be a key congressional focus when Congress returns to work this week from a two-week recess.

Of immediate concern is dealing with a Centers for Medicare and Medicaid Services’ decision not to provide what the industry believes is adequate reimbursement to Medicare Advantage providers through its 2010 rate adjustment.

CMS officials did so despite entreaties from a bipartisan group of senators as they left for recess not to adjust rates based on a 21% cut in physician reimbursement scheduled to go into effect next year–because that rate will be changed before then, the senators said.

At the same time, long-term healthcare reform will take center stage over the next several months. It is a priority of the Obama administration, Congress and the healthcare industry itself.

As Congress returns, healthcare reform could turn on two key issues, industry officials and key members of Congress say.

The first critical decision will be whether to tax employees on the health benefits they receive through their employers.

A second will be to reduce rates for those who do not get adequate subsidy for their health insurance through their employer by establishing a competition between products provided by the health insurance industry and products provided through the existing Medicare/Medicaid systems.

The healthcare industry is voicing deep concern about the proposal.

In an analysis last December, after a proposal by then President-elect Barack Obama, John Sheils, an actuary at the Lewin Group, a healthcare consulting practice, compared it to proposals during the Democratic primary campaign by then-Sen. Hillary Clinton, D-N.Y., and former Sen. John Edwards, D-N.C.

Sheils said he envisioned that such a proposal would be administered through Medicare using Medicare provider reimbursement levels. Employers and individuals would be able to purchase coverage from the public plan by paying a full cost premium.

In his paper, Sheils suggested that premiums would be 30% or more less than premiums for comparable private coverage due to low payment levels and administrative costs.

“Consequently, there would be a mass shift of enrollment from private coverage to the public plan,” he said. “We estimate that, about 119 million people would shift from their current coverage to the public plan, which is a two-thirds reduction in the number of people with private coverage (currently 170 million people).”

Medicare premiums would be lower than private premiums because of the exceptional leverage that Medicare has with providers. Medicare’s “take it or leave it payment system” pays hospitals about 30% less than private insurers for the same service, he said, noting that physician payments are about 20% less than under private coverage. Also, because Medicare has no insurer profits or broker/agent commissions, administrative costs for this population are about one-third of administrative costs in private health plans, he added.

He projected that health insurer net income would decline under the proposal, even after accounting for reduced uncompensated care and increased utilization for the newly insured.

In comments April 1, Rep. Frank Pallone, D-N.J., chairman of the Health Subcommittee of the House Energy & Commerce Committee, said the House bill, on which drafting will start this week, will include the “public” option. But, he said, the government will also offer to subsidize private insurance plans devised to cover those without health coverage.

That, he said, constitutes a compromise between liberals who want a single-payer program and conservatives who want to retain the current system. “We will seek to have these programs designed so they will compete with each other,” he said.

A House bill, he added, will also include an individual mandate. “We want the wealthy people and the young people to be in the pool because that will bring down the total cost to everyone,” Pallone said.

At the same time, he said, cuts in the Medicare Advantage program are likely to be one of the means utilized by Congress to pay for the program.

That issue constitutes both an immediate and long-term issue for insurers.

In the short-term, the 2010 reimbursement rates for MA providers announced April 6 by the CMS is 0.8% greater than the level for the current year.

This is higher than the half-percent gain CMS proposed in a preliminary projection released in February, but it is much lower than increases of 4.24% and 5.71% seen for rates this year and in 2008.

But, according to Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, it is based on the 21% cut in physician reimbursement for next year that Congress is expected to nullify before it goes into effect.

He projected that if this proposed payment structure is implemented, reimbursement to Medicare Advantage providers could drop nearly 5%.

This could lead to higher premiums and benefit reductions for the more than 10 million people enrolled in MA. “It’s an unnecessary disruption in the health security of seniors on Medicare Advantage,” he said.

Zirkelbach noted that MA providers must submit bids for 2010 plans in June, but he expects Congress to step in before then.

He cited a provision inserted in the Senate version of the budget resolution dealing with the issue and a letter sent the next day by the chairman and ranking minority member of the key Senate Finance Committee asking CMS to approve final rates based on the expectation Congress will not allow the 21% cut to be implemented.

In the April 2 letter, Sen. Max Baucus, D-Mont., and Sen. Charles Grassley, R-Iowa, chairman and ranking minority member of the Finance panel, wrote, “Congress does not intend to ignore the problems in the physician fee schedule, nor does it intend for these consequences to Medicare Advantage to take place,” citing the language in the budget resolution.

“Given the extraordinary nature of the circumstances surrounding the fee schedule and Medicare Advantage, we urge CMS to take appropriate steps to address this issue,” Baucus and Grassley wrote. “We remain firmly committed to CMS following its statutory mandate. But, we also see this as a circumstance that warrants an innovative solution.”