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The 9.5% Solution

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NEW YORK — A health care reporter said here Thursday that she has heard tales of an alarming new approach to structuring health benefits in the age of the Patient Protection and Affordable Care Act of 2010 (PPACA).

PPACA will require large employers to offer full-time employees affordable health coverage or else pay a penalty.

The Internal Revenue Service says it may assume that an employer’s coverage is affordable if the employee’s share of the cost for individual coverage is less than or equal to 9.5% of the lowest-paid employee’s W-2 earnings from that employer.

The health care reporter said she has heard benefits experts suggest that employers might game the PPACA “play or pay” penalty system by holding the employee’s share of the cost of individual coverage to 9.5% of the lowest-paid employee’s earnings, then jacking up the cost of family coverage.

That reporter and others, including me, were attending a panel discussion on states’ implementation of PPACA organized by the Association of Health Care Journalists (AHCJ), Columbia, N.J.

The AHCJ organized the event with support from the Alliance for Health Reform, Washington, and the Robert Wood Johnson Foundation, Princeton, N.J.

The panel included Timothy Jost, a Washington and Lee University law professor who serves as consumer representative at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo.; Deborah Bachrach, a former New York state Medicaid director who is now a public health insurance program consultant in the New York office of Manatt Health Solutions; Trudy Lieberman, a health care journalist who writes about health care journalism for the Columbia Journalism Review; and James Tallon Jr.

Tallon is president of the United Hospital Fund of New York, which hosted the event. He also is chair of the Commonwealth Fund, New York, and chair of the Kaiser Commission on Medicaid and the Uninsured. He served in the New York State Assembly from 1975 to 1994.

One observation is that AHCJ event organizers seem to have trouble lining up doctors or health insurance industry representatives to appear as panelists.

The group has held similar PPACA implementation events in Atlanta, Los Angeles, Philadelphia and San Francisco in recent weeks. Aside from Bachrach, the former New York state Medicaid director, none of the other panelists listed experience as health insurance company executives, benefit plan administrators or benefits buyers in their biographical notes, and none of the panelists have identified themselves as being doctors, psychologists or dentists.

Larry Levitt, executive director of the Kaiser Initiative on Health Reform and Private Insurance, Menlo Park, Calif., spoke at an AHCJ PPACA implementation event in San Francisco, and he formerly was a senior manager at Lewin Group, a health policy consulting firm that is part of UnitedHealth Group Inc., Minnetonka, Minn. (NYSE:UNH).

Another observation is that the panelists at the New York event had a hard time listing all of the major changes that PPACA is supposed to bring about at the state level, let alone dealing with many PPACA-related topics in depth.

Panelists did talk about matters such as the individual mandate, rate review rules, the medical loss ratio rules, the possibility that the Supreme Court could toss out PPACA, and Medicaid reform efforts.

Panelists did not talk in any depth about the Pre-existing Condition Insurance Plan program, the Consumer Operated and Oriented Plan (CO-OP) program, the multi-state plan program or a number of other PPACA-related programs.

Panelelists and reporters did talk about some of the quirks that could appear as PPACA is implemented, such as the “9.5% solution” response to group coverage affordability requirements.

PPACA calls for health insurance exchanges, or Web-based health insurance supermarkets, to give consumers a chance to use new tax subsidies to buy policies. Carriers are supposed to offer 4 different levels of coverage. The cheapest plans, the bronze plans, will cover 60% of the actuarial value of a standard essential health benefits package.

Lieberman said she thinks insurers will introduce limited-benefit plans designed to fill in gaps in exchange-sold coverage, and especially in bronze plans.

Lieberman also noted that individual health insurance buyers who make more than 400% of the federal poverty level will get no new health insurance subsidies in 2014 and may face higher insurance prices.

If many U.S. residents with moderately high incomes continue to have trouble buying health insurance, that could be another big story, Lieberman said.

Also at the meeting: 

- Jost said he has been impressed by how effective consumer groups and patient advocacy groups have been at influencing PPACA implementation. The groups were successful at shaping the final U.S. Department of Health and Human Services (HHS) Summary of Benefits and Coverage (SBC) regulations, he said.

Jost also had kind words for the NAIC’s consumer representative program.Jost

Through the program, the NAIC pays travel expenses for individuals who work to represent consumer views in NAIC proceedings.

“They treat us pretty respectfully most of the time,”Jost said.

- Bachrach said, that whatever happens with the PPACA exchange program, PPACA is already paying for states to replace their Medicaid information systems.

That is a huge, important shift all by itself, because many Medicaid systems are decades old, written in ancient computer languages such as COBOL, and difficult or impossible to update, Bachrach said.

PPACA also has helped insurance regulators and Medicaid program managers learn how to talk to one another, and that prove to be another important, lasting accomplishment, Bachrach said.

- Tallon quipped that the current problems in the health care system should not surprise anyone.

“We sell health care services as capitalists,” he said. “Then we buy them as very poorly organized socialists.”


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