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Health Care Reform - 92 Proposal - Final Papers
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286185977
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Health Care Reform - 92 Proposal - Final Papers
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Records of the White House Office of Policy Development (George H. W. Bush Administration)
Johannes Kuttner Subject Files
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Originally Processed With FOIA(s):
FOIA Number:
1999-0118-F
1999-0118-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
Library Staff.
Record Group/Collection:
George H.W. Bush Presidential Records
Collection/Office of Origin:
Policy Development, White House Office of
Series:
Kuttner, Johannes, Files
Subseries:
OA/ID Number:
06970
Folder ID Number:
06970-008
Folder Title:
Health Care Reform - 92 Proposal - Final Papers
Stack:
Row:
Section:
Shelf:
Position:
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0
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O
O
MEMORANDUM
OF CALL
Previous editions usable
TO:
Has
YOU WERE CALLED BY-
YOU WERE VISITED BY-
OF (Organization)
PLEASE PHONE
FTS
AUTOVON
WILL CALL AGAIN
IS WAITING TO SEE YOU
RETURNED YOUR CALL
WISHES AN APPOINTMENT
MESSAGE
This Hansas has suddenly become
sensitive, so please don't
circubte it. -D.Bizer
RECEIVED BY
DATE
TIME
63-110 NSN 7540-00-634-4018 STANDARD FORM 63 (Rev. 8-81)
Prescribed by GSA
* U.S. GPO: 1990 - 262-080
FPMR (41 CFR) 101-11.6
Office of Management and Budget
TO: Dr Bradford
FROM: Store Banderan
Date: 1/21/92
Time:
Number of attached pages: 3
Fax Destination
Place:
Phone number:
Notes:
FAX Number: 202/395-3910
Voice Confirmation: 202/395-3844
Summary of Market Reform Discussions
1.
Small Group Market Reforms (excluding HINs)
--
Follows "mainstream" approach on interim basis, as
outlined in previous documents: e.g., guaranteed issue,
guaranteed renewability, limitation on preexisting condition
exclusions, interim premium variation limit and interim
reinsurance or assigned risk pooling. Premium bands and other
requirements (?) [would]/[could] be phased-out with full
implementation of risk pooling system.
Phased-in implementation of health risk pooling, as described in
previous papers over a five year period, starting in third year.
--
Health risks would be pooled within age categories to prevent a
transfer from younger to older workers.
2.
Pooling for Tax Credit Recipients
--
A health risk pool for tax credit recipients would be imple-
mented simultaneously with initial implementation of the
health tax credit system. The pool would be administered by the
state.
--
The pool would cover all credit recipients, including those
receiving partial credits and including coverage provided
through employment based plans, possibly with an exception for
coverage provided through firms employing over 100 workers.
Each insurer providing coverage to a credit recipient would pay a
flat per capita amount into the pool for each credit recipient.
--
On an annual basis, each credit recipient would be assigned to a
unique health status category. (Age could be included as an
explicit basis for categorization, though this is not necessary.)
Each insurer would receive a transfer from the pool for each
credit recipient with higher than average expected health care
costs.
The transfer would equal the difference between the average
expected cost for all credit recipients and the expected cost for the
health status category involved.
The pooling for credit could result in some transfer from young
to old.
3.
Federal State Relations
--
Sce attached table which indicated proposed method for
implementing various reforms.
i
Reforms can be implemented through direct Federal preemption
(through ERISA or otherwise) or through incentives for states to
enact laws that comply with Federal standards.
-
Under the incentive approach, if a state's health insurance laws
do not meet Federal minimum standards, then insurance sold
in-state would be certified through Federal back-up mechanism
and a non-complying state's Medicaid administrative grant
funding would be frozen at base year levels.
Summary of Market Reform Discussions
1.
Small Group Market Reforms (excluding HINs)
Bentsen Durenberger
--
Follows "mainstream" approach on interim basis, as outlined in
previous documents: e.g., guaranteed issue, guaranteed
renewability, limitation on preexisting condition exclusions,
interim premium variation limit and interim reinsurance or
50%
assigned risk pooling. Premium bands and other requirements
hi=1.5low
(?) [would]/[could] be phased-out with full implementation of
risk pooling system.
--
Phased-in implementation of health risk pooling, as described in
previous papers, over a five year period, starting in third year.
--
Health risks would be pooled within age categories to prevent a
transfer from younger to older workers.
2.
Pooling for Tax Credit Recipients
--
A health risk pool for tax credit recipients would be imple-
mented simultaneously with initial implementation of the
health tax credit system. The pool would be administered by the
state.
--
The pool would cover all credit recipients, including those
receiving partial credits and including coverage provided
through employment based plans, possibly with an exception for
coverage provided through firms employing over 100 workers.
--
On an annual basis, each credit recipient would be assigned to a
unique health status category. (Age could be included as an
explicit basis for categorization, though this is not necessary.)
{The public write-up would be modified to down play the
mechanics, including attribution of credit recipients to health
status categories. The public-write up would talk about
adjustments being made in the aggregate, based on aggregate
differences in the populations insured by different carriers.}
--
Each health category would have a corresponding weight based
on expected health care costs, assuming a "core" benefit package
with a weight of 1.0000 equal to average costs.
422 1/22/92
Each insurer would calculate an average weight for all credit
recipients covered by the insurer. Insurers with an average of
more than 1.000 would receive net transfers from the pool while
insurers below 1.000 would be net losers.
--
As is the case for any broad-based health insurance pooling
which includes individuals of all ages, this scheme would result
in significant transfers from young to old.
3.
Federal State Relations
--
See attached table which indicates proposed method for
implementing various reforms. Table is for discussion purposes
today and will not be included in public paper.
--
Reforms can be implemented through direct Federal preemption
(through ERISA or otherwise) or through incentives for states to
enact laws that comply with Federal standards.
--
Under the incentive approach, if a state's health insurance laws
do not meet Federal minimum standards, then insurance sold
in-state would be certified through Federal back-up mechanism
and a non-complying state's Medicaid administrative grant
funding would be frozen at base year levels.
Examples of How the Health Risk Pool Would Operate in Practice:
Pool for Credit Recipients
Example 1:
--
Credit recipient -- 55 year old single male with diabetes and heart
disease applies for "core" coverage. Income below poverty,
receives a full $1,250 credit.
--
Carrier is free to charge any premium for this individual.
Without the pooling system, carrier A would have charged
$8,000, because the individual is in a high risk category.
--
With the pooling system, carrier A will charge a premium closer
to $1250 because carrier A will receive a transfer from the pool to
make up the difference between average cost and expected cost
for the individual involved. (Competition among insurers
participating in the program will drive premiums down to the
$1250 level.)
Example 2:
--
Credit recipient is healthy 20 year old male.
--
Without the pooling system, carrier would have charged $500,
because recipient is in a low risk category.
--
With the pooling system, carrier will charge a premium closer to
$1250 because as a result of covering this individual, the carrier
will pay into the pool an amount equal to the difference between
the average cost for credit recipients and expected cost for the
low-risk individual involved.
Small Business Pool for Individuals Not Eligible for Credit
Example 1A -- Same individual as example 1, but not a credit recipient.
--
Insurer will charge premium equal to average cost for 55 year old
men.
Example 2A -- Same individual as example 1, but not a credit recipient.
--
Insurer will charge premium equal to average for 20 year old
men.
Market Reform -- Federal State Relations
(for discussion purposes only)
State Mandated
State Premium Taxes
State AntiManaged
State Solvency
Market Reforms*
Benefit Laws
Care Laws
Standards
Current Law
Self-insured employers
ERISA preemption
ERISA preemption
Not protected
ERISA preemption
n/a
Fully insured coverage
Not protected
Not protected
Not protected
State regulation
n/a
purchased by employers
applies
Individual coverage
Not protected
Not protected
Not protected
State regulation
n/a
applies
Proposal
Self-insured employers
No change; ERISA
No change; ERISA
Preempt or
No change; ERISA
n/a
preemption
preemption
discourage through
preemption
Federal standards
Coverage purchased by
Extend ERISA
Extend ERISA
Preempt or
State regulation
State regulation
employer or individuals
preemption
preemption
discourage through
applies
encouraged by
through HIN
Federal standards
Federal standards
and incentives
Other fully insured
?
?
?
State regulation
State regulation
coverage purchased by
applies
encouraged by
employers
fee pu- empt
Federal standards
and incentives
Individual coverage
?
?
?
State regulation
State regulation
purchased by credit
applies
encouraged by
recipient
Federal standards
and incentives
Other coverage purchased
?
?
?
State regulation
State regulation
by individuals
applies
encouraged by
Federal standards
and incentives
Still
*
"Market reforms" include guaranteed issue, guaranteed renewability, limitation on preexisting conditions, premium bands, and health risk pooling.
Modification of Market Reform Proposal
Problem: To promote competition, credit-eligible individuals should have
choice and be able to buy coverage from one of a number of competing health
plans. However, providing this choice could lead to severe risk selection
problems.
Proposed Solution: There would be no limit on choice. Small group market
reforms would be extended to the individual insurance market, with the
inclusion of age as an explicit basis for health risk adjustment. This would
extend broad risk pooling to unemployed or self-employed credit recipients.
Specifics:
Each state would define a "core" benefit package with an estimated
actuarial value equal to the value of the health tax credit.
Any health plan in a given state could offer the state-defined "core"
benefit package to credit recipients and to others. Health plans would
be free to charge a market price (e.g., there would be no requirement
that the package be sold at a price equal to the credit amount).
To ensure that credit recipients have a variety of options available, the
insurance commissioner could require two or more health plans with
a substantial market share to offer the "core" benefit plan.
--
In this case, the health plan would be required to offer "core"
benefit coverage to any one receiving a full or partial credit or
anyone not offered coverage through an employer group.
--
Insurers would be free to charge a market price for the package.
The small group market reforms would be extended to "core" benefit
insurance sold on an individual basis.
--
Specifically, such insurance, would be subject to premium bands,
on an interim basis, and to the health risk adjustment system on
a permanent basis. As a result, such insurance would be subject
to a mandatory reinsurance premium and pooling mechanism.
--
Moreover, any insurance sold to a credit recipient would be
subject to the mandatory reinsurance premium, though, in the
case of non-core coverage sold on an individual basis, the health
plan would not receive net positive transfers from the pool.
For both the small group and for "core" benefit coverage sold on an
individual basis, the health risk adjustment system would imple-
mented immediately. Initial implementation would be limited to use
of age as a health risk adjustment factor.
--
Within four years after this initial implementation, diagnosis-
based health risk adjustment would be implemented as well.
--
Implementing an age adjustment would help to ensure
affordability of coverage to older credit-recipients.
In an emergency, [random]/[rotating] assignment would be used to
enroll an uninsured credit-eligible individual to a specific health plan
if the individual were unable to make a choice.
States would be [required]/[encouraged] to implement outreach
programs with the goal of securing 100% participation among credit
eligibles.
--
Broader participation would help prevent unnecessary and
costly emergency care by encouraging primary and preventative
care.
--
Moreover, for the $1250 credit to be adequate to purchase basic
coverage, healthy people must be paying premiums to offset the
higher health care costs generated by sick people.
Cost-Containment Measures
Tax Cap:
Conceptually, the most important part of the proposal package, because for the
first time consumers will assess insurance benefits at the margin relative to
other goods and services.
alone an incentive
Medicaid
FFS capitation
Reform:
Contains costs through two features: (1) increased reliance on managed care
(10-15% savings initially) and (2) increased State flexibility for innovation and
cost-effective approaches.
Medicare
Reform:
Contains costs through two features: (1) increased reliance on coordinated care
initiatives, and (2) re-investment in Medicare HMO-risk contract program.
Increased market penetration of 10% for Medicare enrollees in HMOs could
produce up to 7% lowered growth in costs relative to FFS.
Medicare
Budget
Avogue min ant shifting
Savers:
Targets providers, not beneficiaries; impact on private costs unclear.
Self-
Referrals:
Recent evidence indicates self-referrals can increase (inappropriate) diagnostic
testing by 300-400 percent.
Insurance
Market
Reforms:
Several aspects help contain costs:
(1)
reduced administrative costs (due to larger pooling by small employers);
(2)
reduced "churning" in market generally of companies
underwriting/dropping coverage/marketing to new groups;
(3)
decreased role for brokers (and broker fees of typically 20%) who
identify and market to low-risk groups.
(4)
strengthens price competition based on quality of care provided rather
than risk selection;
(5)
requiring broader availability of group coverage (increasing risk pools
will lower average costs);
(6)
ending State mandated benefits;
(7)
ending State anti-managed care laws;
(8)
HINs increase market power for small employers and reduce
administrative costs by increasing risk pools and negotiating discounts.
investment in outcomes research
Consumer
Information:
Plans and providers that demonstrate equivalent or superior outcomes at lower
premium cost would gain a competitive edge. Service utilization and costs
could be cut appreciably with no deterioration in outcomes.
Malpractice
Administrative Costs Savings
HHS Secretary's initiatives --
(1) encourage expedited development of data standards for electronic claims
processing;
(2) explore possible application of electronic medical record and/or "smart
card" for health insurance enrollees;
Encourage electronic billing under Medicare Part B through differential
payment rates
Small market reform initiatives -- reduces churning, broker fees and other
marketing practices, and larger pooling for coverage.
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
01. Paper
Certification of Health Insurance Credit for Working Poor
01/07/92
P-5
(6 pp.)
Collection:
Open on Expiration of PRA
Record Group:
Bush Presidential Records
(Document Follows)
Office:
Policy Development, Office of
ByJRD (NLGB) on 1/5/2005
Series:
Kuttner, Johannes
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
1-7-92
Certification of Health Insurance Credit for Working Poor
1.
Employers certify workers as eligible for advance payments of the Health Insurance
Credit (HIC). Under one option, employees would submit an application (a Schedule
HIC) to the employer. The employer would verify information concerning wages paid
to the worker and contributions to health insurance plans. Employers would be required
to perform some due diligence in verifying other information needed to determine
eligibility for the credit (for example, eligibility for Medicaid, VA-CHAMPUS; other
income sources; number of dependents).
Effects of Proposal:
Administrative costs are passed to employers (many of whom likely to be small
businesses). To the extent that employers are unlikely to bear administrative costs,
compliance costs are likely to be high.
In computing the credit, the employer will immediately become aware of the advantages
to him of substituting the credit for any contribution he may be making which is less than
or equal to the amount of the credit for the which the employee qualifies, thus hastening
the "buying out of the base."
Employers have access to relevant information only
the extent of wages and
contributions to employer health insurance plans. Employers do not have personal
knowledge of workers' incomes (other than wages), their family living arrangements, or
their eligibility for other Federal health programs.
A.
As part of due diligence, employers could be required to collect additional
information to verify eligibility:
--
This raises privacy concerns. Employees will not want to share
personal information with employers.
--
Employers have neither superior ability nor incentive to discern whether
workers, in fact, meet criteria. Indeed, in cases where employers are self-
insured, they will keep the credit even if the worker is not eligible.
B.
Workers would determine if they were eligible and provide a Schedule HIC to
their employers, who would not be subject to due diligence requirements.
Alternatively, employers could certify eligibility for those workers who voluntarily
provide information necessary to determine eligibility.
Employers have no incentive to monitor workers' eligibility.
2
Workers must be both willing and able to determine that they
meet eligibility criteria.
This approach is similar to current withholding practices, where individuals
can claim additional exemptions, or the advance payment system for the
EITC. However, experience with the advance payment system for the
EITC demonstrates the difficulties in allowing this practice among low-
income recipients.
Less than one percent of EITC claimants receive the credit in
advance.
Many who do receive advance payments do not have a tax liability
and are unaware that they are supposed to file a return at the end
of the year and reconcile actual annual income with advance credit
payments.
GAO estimates that about 45 percent of those who, according to
W-2 records, may have received the advance payment never filed
a tax return.
GAO also estimates that about 49 percent of workers who both
received advance payments and filed a tax
rn did not report
payments of the advance credit on their final tax return. Since the
IRS automatically calculates the credit based on information on the
tax return and sends eligible workers a refund, these persons
probably received excessive payments for the entire year. In many
cases, these workers were not eligible for the credit at all.
Given normal processing delays in matching returns and W-2's, the
IRS is not able to begin to detect these problems until nearly a year
after the filing of the final return (or as much as two years after the
advance payments may have been made).
Recommendation:
Oppose. Administrative and compliance costs too high, because employers will not have
incentives or ability to make correct certifications. In cases where employer is self-
insured, he may have incentives to claim credits for ineligible persons. In view of GAO
data, it will be extremely difficult to recapture overpayments.
3
2.
Insurers could certify workers as eligible for the credit. The insurer could receive the
completed HIC from the employee, on which the employer has certified the wage or
salary income paid to the employee and the amount, if any, of the employer's
contribution to health insurance. Otherwise the certification process would be similar
to that required of the employer.
Effects of Proposal:
There would be no neutral party between the two groups who benefit from the
certification (the recipient worker and the recipient insurer).
The insurer does not have easy access to information confirming participation by the
employee or members of his family in other Federal government health programs.
The insurer has no incentive to be diligent in certifying the information on the HIC. If
the individual is not eligible, the insurer receives the full credit.
Some liability scheme for insurers could be devised SO that they are no longer held
harmless for errors. However, such a scheme will cut down eligibility for the credit.
Requiring disclosure by the applicant to the insurer of family income and structure may
violate an individual's privacy. In some cases, insurance companies may be able to infer
from this information other characteristics of the worker (such as propens to test
positive for HIV). Using such information, insurers might deny eligibility for the credit.
The Federal government would still bear sizable administrative costs for determining
fraud.
Recommendation:
Oppose. Administrative and compliance costs too high, because insurers will not have
ability to make correct certifications and will only have incentives to certify any plausible
applicant. It will be extremely difficult to recapture overpayments.
4
3.
For 1993 through 1995, the state welfare agencies would certify workers as eligible for
the credit. During these years, applicants for the maximum credit amounts must have
income of between 50 and 75 percent of the tax thresholds, and applicants in the phase-
down range have incomes of between 100 and 125 percent of the tax thresholds. These
income ranges roughly approximate the income eligibility ranges for poverty programs,
including the Food Stamp program.
Applicants would obtain and complete a Schedule HIC ("HIC") which would require
certain information necessary to establish eligibility for the credit. If employed, workers
would obtain certification by their employer of their wages and the amount, if any, of
the employer contribution. They would present the completed HIC to state
welfare office, along with evidence of income and dependents. The state welfare office
will verify HIC information for a six-month period and compute the six-month credit
based on tables provided by the IRS. These verification procedures would be subject to
periodic quality control review by HHS. Certifications would be made effective January
1 and July 1. Information gathering necessary for semi-annual recertification could be
spread over some period prior to the certification date to avoid unacceptable bunching
of the workload. Persons receiving the credit system prior to a certification date would
receive prorated credits.
After certification of the credit, the state welfare office will file a copy of the HIC with
the IRS. The claimant will transfer the certified HIC to the insurer or employer, as
appropriate, in payment for insurance coverage.
For 1996 and beyond, the IRS, HHS, and the Social Security Administration will develop
a comprehensive database and computer system that will permit timely and semi-
automatic verification of applicants. The database will contain up-to-date information on
eligibility criteria. Coordination between the agencies will be critical because the
database will contain information from tax returns, IRS information reports, and
participation data in other Federally-subsidized health programs. Implementation of this
verification system will coincide with the expansion of eligibility for credits, in excess
of the basic minimum amount, to the non-poverty population.
Effects of Proposal:
Unlike employers and insurers, the welfare agencies have much less incentive to certify
ineligible applicants.
Government agencies have superior access to information concerning certain eligibility
criteria, and their staffs are familiar with the processes for determining eligibility for low-
income programs.
5
In addition, many of those eligible for the credit would have contact with welfare offices.
Despite being operated at the national level by the Agriculture Department, the Food
Stamp program is administered at the state and local levels by the same welfare offices
and personnel that operate AFDC and general assistance. Moreover, many of those
eligible for the Health Insurance Credit will also be eligible for Food Stamps. Food
Stamps are available to families (including those with workers) with incomes up to 130
percent of poverty.
Recommendation:
Support. Welfare agencies have superior ability to verify eligibility for the credit among
the low-income population and fewer incentives to certify ineligibles. Quality control
studies, following common practices, will serve as a check on compliance. This option
also provides the IRS, HHS, and SSA time to construct the type of dataset which would
be necessary for large-scale, semi-automatic certifications. Construction of this dataset
should coincide with the expansion of the credit to the non-poverty population, which
currently has little contact with the welfare offices.
6
A counter-argument made be made against a proposal to transfer certification responsibilities to
the state welfare agencies. States may have incentive to move persons off Medicaid (a program
which is partially funded with state funds and also administered by state welfare offices) and
enroll them, instead, in the fully Federally funded health tax credit.
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
02. Memo
From Hanns Kuttner to Tom Scully
01/07/92
P-5
Re: Medicaid Option #2, Integration with Tax Credit
[2 copies] (4 pp.)
Collection:
Record Group:
Bush Presidential Records
Open on Expiration of PRA
Office:
Policy Development, Office of
(Document Follows)
Series:
Kuttner, Johannes
By BYJRD (NLGB) on 10/28/2005
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
THE WHITE HOUSE
WASHINGTON
January 7, 1992
MEMORANDUM FOR TOM SCULLY
FROM:
HANNS KUTTNER
Xam
SUBJECT:
Medicaid Option #2: Integration with Tax Credit
Our thinking about Option #2, "Unified Program," has been
contorted by an anarchistic view of how it would operate. You
have focused on how states would find this option attractive
because they could drop the cumbersome Medicaid eligibility
process. However, we could not allow complete anarchy and drop
all eligibility determination processes. It is this fact, it
would seem to me, that saves the day.
I would suggest the following scenario for making Option
#2 workable:
At present the Medicaid paper says, "States would be
required to provide a core benefit package and to cover
everyone up to the poverty level who filed for coverage."
This assumes some kind of eligibility process. (There is
no way to get away from this burden on the state,
including some quality assurance mechanism that has
penalties on states for overcertifying people for the
credit. Otherwise we face something worse than Medicaid
scams: states could station eligibility workers in
hospitals who could give out $1250 certificates to anyone
who could not produce an insurance card.)
A determination would be made at the beginning of the year
of a state's estimated payment. The estimated amount
would cover (A) the Medicaid per capita payments, based on
the method discussed for estimating Medicaid eligibles and
(B) the estimated number of Health Tax Credit (HTC)
eligibles multiplied by $1250/$3125. States would
continue to follow the same financial arrangements as for
Medicaid: periodic drawdown from the Treasury, quarterly
estimates, etc.
The state would capture Social Security numbers and family
unit size (is anything else required?) from individuals
made eligible for the Unified Program (UniPro.)
The state would allow individuals to opt out of UniPro if
they chose, giving them the same certificate under the
same terms as people get their certificates in non-UniPro
-2-
states.
At the end of the year, the state would mail 1099s to all
UniPro eligibles. Those people would include the credit
amount on their tax returns. (This does not distinguish
between those who would be eligible for Medicaid and those
are part of the newly insured tax credit crowd. It is the
only approach possible without maintaining a shadow
Medicaid eligibility process. It has the unfortunate
consequence of causing those people who would have been in
the old Medicaid program and who have upward income shifts
-- into the phase out range or beyond -- to have a tax
consequence, something they would not have had in
traditional Medicaid or in any of the Option 1 states.)
The state provides the IRS with a tape providing social
security numbers of UniPro participants for the past year
and also those who opted out. The IRS, working with HCFA,
then settles up with the state for the relevant year in
the following process:
1.
Subtract the number opted out from the original
estimate of UniPro participants.
2.
Subtract the estimated number of Medicaid eligibles
from the number of UniPro participants.
3.
Compare the remaining number. If greater than the
estimated number of full credit persons, the state's
payment is adjusted upward. If lower than the
estimated number of UniPro participants, adjust
future payments downward.
copies:
OMB - Bandeian
Treasury - Hubbard, Leonard, Holtzblatt
HCFA - Hudson, Gustafson, Johnson
THE WHITE HOUSE
WASHINGTON
January 7, 1992
MEMORANDUM FOR TOM SCULLY
FROM:
HANNS KUTTNER Xam
SUBJECT:
Medicaid Option #2: Integration with Tax Credit
Our thinking about Option #2, "Unified Program," has been
contorted by an anarchistic view of how it would operate. You
have focused on how states would find this option attractive
because they could drop the cumbersome Medicaid eligibility
process. However, we could not allow complete anarchy and drop
all eligibility determination processes. It is this fact, it
would seem to me, that saves the day.
I would suggest the following scenario for making Option
#2 workable:
At present the Medicaid paper says, "States would be
required to provide a core benefit package and to cover
everyone up to the poverty level who filed for coverage."
This assumes some kind of eligibility process. (There is
no way to get away from this burden on the state,
including some quality assurance mechanism that has
penalties on states for overcertifying people for the
credit. Otherwise we face something worse than Medicaid
scams: states could station eligibility workers in
hospitals who could give out $1250 certificates to anyone
who could not produce an insurance card.)
A determination would be made at the beginning of the year
of a state's estimated payment. The estimated amount
would cover (A) the Medicaid per capita payments, based on
the method discussed for estimating Medicaid eligibles and
(B) the estimated number of Health Tax Credit (HTC)
eligibles multiplied by $1250/$3125. States would
continue to follow the same financial arrangements as for
Medicaid: periodic drawdown from the Treasury, quarterly
estimates, etc.
The state would capture Social Security numbers and family
unit size (is anything else required?) from individuals
made eligible for the Unified Program (UniPro.)
The state would allow individuals to opt out of UniPro if
they chose, giving them the same certificate under the
same terms as people get their certificates in non-UniPro
-2-
states.
At the end of the year, the state would mail 1099s to all
UniPro eligibles. Those people would include the credit
amount on their tax returns. (This does not distinguish
between those who would be eligible for Medicaid and those
are part of the newly insured tax credit crowd. It is the
only approach possible without maintaining a shadow
Medicaid eligibility process. It has the unfortunate
consequence of causing those people who would have been in
the old Medicaid program and who have upward income shifts
-- into the phase out range or beyond -- to have a tax
consequence, something they would not have had in
traditional Medicaid or in any of the Option 1 states.)
The state provides the IRS with a tape providing social
security numbers of UniPro participants for the past year
and also those who opted out. The IRS, working with HCFA,
then settles up with the state for the relevant year in
the following process:
1.
Subtract the number opted out from the original
estimate of UniPro participants.
2.
Subtract the estimated number of Medicaid eligibles
from the number of UniPro participants.
3.
Compare the remaining number. If greater than the
estimated number of full credit persons, the state's
payment is adjusted upward. If lower than the
estimated number of UniPro participants, adjust
future payments downward.
copies:
OMB - Bandeian
Treasury - Hubbard, Leonard, Holtzblatt
HCFA - Hudson, Gustafson, Johnson
01-08-92 02:34 PM FROM OLP
P02/02
II. Brief Summary of Proposal for States
($ in billions, Fedaral
1992
1993
1994
1995
1996
1997
93-97
Share)
Current Law:
Total Medicaid
72.3
64.5
98.3
113.8
131.2
150.9
578.7
Aoute Care
31.0
36.5
42.9
50.2
58.5
67.9
255.9
Dual-Eligibles
12.3
14.5
17.1
20.0
23.3
27.1
114.3
DBE 1/ - Non-add
8.4
9.8
11.4
13.2
15.2
17.2
75.5
Long-term Care
26.6
30.5
34.9
39.8
45.2
51.1
189.4
Administration
2.6
3.0
3.4
3.8
4.2
4.8
19.1
Medioaid Reform Proposal:
Acute Care Payment
31.0
35.3
39.5
43.5
47.7
51.7
540.0
Add-on to CPI 3/
N.A.
5%
5%
4%
3%
2%
N.A.
Savings:
Acute Care
0.0
1.2
3.4
6.6
10.8
16.2
38.2
Administration
0.0
0.0
0.0
0.1
0.1
0.2
0.5
Total Savings V
0.0
1,2
3.4
6.7
10.9
16.4
38.7
Additional Savings
Proposals:
Capitating Dual-Elig. 1/
0.0
0.5
1.4
2.6
4.3
5.6
15.4
Phase-down DSH Spend. 5/
0.0
1.0
2.3
5.3
10.6
12.6
31.8
1/ These amounts for disproportionate share hospital (DSH)
payments under current law are included in the other numbers;
they do not add into yearly totals.
2/ The percentage add-on is part of the per capita annual update
adjustment that includes the CPI(u) and a population growth
factor.
31 Total savings from the reform capitated program exclude the
dual-eligibles (those eligible for both Medicare and Medicaid),
and assume the continuation of the DSH program.
4/ An additional $15.4 billion could be saved if spending for
dual eligibles were included in the reform capitated program.
5/ Additional savings of $31.8 billion could be acheived if DSH
spending were phased-down over five years -- reduced, for
example, by 10% in year one, 20% in year two, 40% in year three,
70% in year four, and 80% in year five.
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
03. Paper
Medicaid Reform Options (7 pp.)
01/06/92
P-5
Collection:
Open on Expiration of PRA
Record Group:
Bush Presidential Records
(Document Follows)
Office:
Policy Development, Office of
By JRD (NLGB) on 10/28/2005
Series:
Kuttner, Johannes
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
January 6, 1992
MEDICAID REFORM OPTIONS
I. Background
Medicaid is a joint Federal/State program to provide health
insurance to certain low-income individuals. Medicaid
eligibility rules follow certain categorical requirements (age,
disability, dependent children) and exclude able-bodied singles
and childless couples. Mandatory Medicaid eligibility has
historically been linked to receipt of cash assistance under AFDC
and SSI, but in recent years, mandatory eligibility has been
extended to a certain groups based on poverty status, e.g., poor
and near-poor pregnant women and children. Optional eligibility
extends to a variety of groups including the "medically needy,"
whose high medical expenses cause them to "spend down" their
income to within Medicaid limits in order to qualify for
benefits. Medicaid also pays the Medicare cost sharing for poor
Medicare beneficiaries, the so-called dual eligibles.
Mandatory Medicaid services include hospital (inpatient and
outpatient), physician and nursing home care. Optional services
include prescription drugs among other benefits.
Provider payments are established by the States within broad
Federal parameters. Based on recent legislation, hospital
disproportionate share payments for hospitals serving large
numbers of Medicaid or low-income patients are limited to 12
percent of total Medicaid benefit payments.
States set most program rules within broad Federal guidelines,
determine beneficiary eligibility, and pay provider claims.
The program is funded jointly by the Federal and State
governments. The Federal share varies by State per capita income
from 50 to 83 percent for program expenditures and from 50 to 90
percent for program administration.
Continued reliance on fee-for-services payment, limited use of
coordinated care, low provider participation, and over-reliance
on emergency room care are symptomatic of perverse incentives in
the current program.
II. Brief Summary of Proposal for States
($ in billions, Federal
1992
1993
1994
1995
1996
1997
93-97
Share)
Current Law:
Total Medicaid
72.5
84.5
98.3
113.8
131.2
150.9
578.7
Acute Care
31.0
36.5
42.9
50.2
58.5
77.9
255.9
LTC/Dual-Elig.
38.9
45.0
52.0
59.8
63.5
68.2
303.7
Administration
2.6
3.0
3.4
3.8
4.2
4.8
19.1
Medicaid Reform
Proposal:
Per-capita Payment
31.0
35.3
39.5
43.5
47.6
61.5
540.0
Add-on to CPI
N.A.
6%
5%
4%
3%
2%
N.A.
Savings:
Acute Care
0.0
1.2
3.4
6.6
10.8
16.2
38.2
Administration
0.0
0.0
0.0
0.1
0.1
0.2
0.5
Total Savings 2/
0.0
1.2
3.4
6.7
10.9
16.4
38.7
Additional Savings
Proposals:
Additional Savings by
0.0
0.5
1.4
2.6
4.3
6.6
15.4
Including Dual-Eligibles
Total DSH Spending 3/
8.4
9.8
11.4
13.2
15.2
17.5
75.5
1/ The add-on factor is part of the per capita adjustment factor
includes the CPI(W), which also includes a population growth
factor.
2/ Total savings assumes the exclusion from the per capita
program of the dual-eligibles, both Medicare and Medicaid
eligible, and assumes the continuation of the current
disproportionate share hospital (DSH) program.
3/
These amounts are included in the Medicaid baseline based on
the recently passed legislation on donations and taxes.
2
General: Federal payments to States for acute care services
under Medicaid would be shifted from the current open-ended
entitlement approach to an indexed per capita payment.
In order to continue to afford their current programs in future
years, States would be required to deliver all acute care
services through coordinated care.
Medicaid and Health Tax Credit (HTC) :
States would have two options to deal with the interaction
between the acute care services under Medicaid program and the
HTC.
Option 1 - Separate Medicaid and Tax Credit Programs: States
would retain responsibility for the current acute care benefits
under the Medicaid program. The benefit structure, eligibility,
and provider payment rules would remain basically the same as
under the current Medicaid program.
States would serve as "program administrators" and "brokers" for
a HTC program for certain low-income individuals for the purchase
of private insurance coverage. As program administrators, the
States would be required to certify eligibility for and amount of
the HTC program for those who wish to obtain their tax credit
prospectively. As brokers, States would be required to contract
with at least one private health plan to provide "core benefits"
and at least one plan that offers major medical coverage, each at
a cost no greater than the amount of the tax credit.
Option 2 - Unified Program: States would be allowed to establish
a unified program under which they would receive a lump sum
payment from the Federal government, equal to the sum of per
capita payments for those who meet Medicaid eligibility
requirements and HTC payments for those who are eligible for
them. When the program is fully phased-in, States would be
required to provide a core benefit package and to cover everyone
up to the poverty level who filed for coverage.
States would be required to contract with at least one private
plan to offer coverage at a cost no greater than the maximum
amount of the tax credit.
States would be expected to continue to pay their share of the
unified program, with amounts indexed to their share of the 1992
per capita Medicaid spending.
All eligible individuals would be allowed to opt-out of the
unified program and obtain the HTC to purchase insurance on the
same basis as individuals above the poverty line.
3
III. Detailed Description of Options
OPTION 1 - Separate Medicaid and Tax Credit Programs
States would retain responsibility for the current Medicaid
program. However, for the acute care portion of the program, the
Federal payment would be converted to a indexed per capita
payment. The expenditures for dual-eligibles, covered by both
Medicare and Medicaid, and those receiving long-term care
services would not be covered in this program. Their
expenditures would continue to be matched by the Federal
government as the have previously been.
States would serve as "program administrators" and "brokers" for
the HTC program under which the Federal government would provide
tax credits to certain low-income individuals.
Benefits: At a minimum, States would be required to continue
to provide the same package of acute care benefits under
Medicaid, in the same amount, duration and scope they did as
of January 1, 1992. However, States would have the option to
alter the package of acute care services, provided the
resulting package was actuarially equivalent.
Eligibility: States would be required to continue to cover
all current mandatory eligibility groups under Medicaid, as
well as any optional groups they covered as of January 1,
1992, including the medically needy, i.e., those with high
medical expenses compared to their incomes who would be
allowed to spenddown into Medicaid eligibility.
Provider Payment: Current Medicaid payment policies that
require providers to accept Medicaid rates as full payment
with no significant cost sharing or balance billing would
apply.
Federal Payments to States: Different Medicaid per capita
amounts would be calculated for different age-sex or other
groupings. States would receive a "pro-rated" per capita
payment for those covered under Medicaid for a part of a year.
Private Insurance Option under Credit Program: States would
be required to contract with at least one private health plan
to provide "core benefits" at a cost no greater than the
amount of the tax credit and at least one plan that offers
major medical coverage at a reasonable price. Also, States
could "buy-out" -- purchase private insurance for Medicaid
eligibles. Where private insurance offers fewer benefits than
Medicaid, Medicaid would provide wrap-around coverage.
Maintenance of Effort (MOE) : MOE concerns would be largely
addressed by the requirement that States maintain their
4
existing benefit and eligibility provisions. In addition, a
Federal "look-behind" function would be established to assure
State compliance.
Coordinated care: In order to continue to afford their
current programs in future years, States would be required to
deliver all acute care services through coordinated care. To
facilitate this, existing impediments to coordinated care
(e.g., the rule requiring no more than 75 percent of the
enrollment be Medicaid or Medicare beneficiaries) would be
relaxed. As the HTC program is phased in, more thorough
Federal standards for coordinated care would be prescribed,
and the direct Federal role in quality enforcement would
expand.
State Program Administration:
Medicaid: States would continue their current administration
of their Medicaid programs.
HTC: In addition, States would be required to dętermine
eligibility for the HTC program for those non-workers who wish
to obtain their tax credit prospectively. Individuals would
have to file for the tax credit and have their eligibility
determined by the State welfare/Medicaid office. There would
be no asset/resource test for eligibility for the HTC program.
Eligibility for the HTC for non-workers would be redetermined
by the State every six months.
Insurers would do all the claims processing for those eligible
for the HTC. Insurers would be guaranteed premiums for
prospective eligibles for six months.
Federal look-behind or quality control efforts would be
conducted to assure proper program administration, e.g.,
proper eligibility determination, and fraud and abuse
monitoring.
Treasury/IRS would administer all other aspects of the HTC
program.
5
OPTION 2 -- Unified Program
States would be allowed to establish a unified program, combining
their current Medicaid program with the HTC program.
The Federal Medicaid payment would be converted to an indexed per
capita payment and combined with a tax credit amount for those
under 100 percent of poverty who file for the tax credit.
Individuals would have the freedom to choose between coverage
under the State program and private insurance coverage.
Many Federal rules governing Medicaid would be relaxed.
Core Benefits: States would be required to provide a core
benefit package, defined as all mandatory Medicaid services,
on a Statewide and comparable basis. However, States would
have the flexibility to modify the amount, scope and duration
of these services (as they can now). Prescription drugs would
not be covered in this core benefit package.
Eligibility: When the reform is fully phased in, States would
be required to cover everyone under 100 percent of the poverty
level who filed for coverage.
Provider Payment: Current Medicaid requirements that
providers accept Medicaid rates as full payment, with no
balance-billing or significant cost-sharing, would continue to
apply.
Federal Payments to States: States would receive a lump sum
payment from the Federal government, which would be the sum of
per capita payments for those who meet Medicaid eligibility
requirements and HTC payments for those who are eligible for
them and who do not opt-out. The Federal payment to the
States would be reduced by the amount of tax credits for
individuals who opt out of the program.
The Federal government would estimate both the Medicaid and
HTC populations, and base its lump sum payment to the State on
this estimate. While States might wish to retain some ability
to verify eligibility for the Medicaid and HTC payments in
order to assure more accurate payment from the Federal
government, they could choose to simplify their eligibility
determination processes, easing their administrative burdens
substantially.
Maintenance of Effort (MOE) : States would be expected to
continue to pay their share of the Medicaid program (i.e.,
indexed 1992 per capita spending). In a State that kept
existing Medicaid eligibility determination, claims processing
and reporting requirements in place, State spending should be
readily verifiable.
6
In order to assure that States are not encouraging the sickest
individuals to opt out, the States would be required to report
certain information on these individuals to enable the Federal
government to assess the actuarial cost of health care for
those individuals. If the actuarial cost of those individuals
exceeded the amount of the tax credit, in addition to the
routine deduction of the tax credit amount from the Federal
payment to the State, there would be a further reduction by
the amount that the actuarial cost exceeded the tax credit
amount.
Private Insurance Option under the Credit Program: States
would be required to contract with at least one private plan
to offer coverage at a cost no greater than the maximum amount
of the tax credit. Individuals eligible for the HTC would
have the freedom to choose between coverage under the State
program or private insurance coverage.
Coordinated care: In order to continue to afford their
current programs in future years, States would be required to
deliver all acute care services through coordinated care. To
facilitate this, existing impediments to coordinated care
(e.g., 75 percent rule on public enrollment and voluntary
enrollment) would be relaxed. As the HTC program is phased
in, more thorough Federal standards for coordinated care would
be prescribed and the Federal role in quality enforcement
would expand.
State Program Administration: States would operate their
unified program including eligibility determination and claims
processing for everyone below 100 percent of poverty. Federal
look-behind or quality control efforts would be conducted to
assure proper program administration, e.g., proper eligibility
determination, and fraud and abuse monitoring.
States and Treasury/IRS would split administrative
responsibilities for the HTC program for those whose incomes
were above 100 percent of poverty in the same manner as under
Option 1.
7
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
04. Paper
Medicaid Reform Proposal - Issues [2 copies] (14 pp.)
01/06/92
P-5
Collection:
Open on Expiration of PRA
Record Group:
Bush Presidential Records
(Document Follows)
Office:
Policy Development, Office of
Series:
Kuttner, Johannes
ByJRD (NLGB) on 10/28/2005
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
January 6, 1992
MEDICAID REFORM PROPOSAL -- ISSUES
STATES' OPTION 1 - Separate Medicaid and Tax Credit Programs
States could choose to keep their current Medicaid programs.
Those doing so would be required to serve as "program
administrators" and "brokers" for a tax credit program for
certain low-income individuals for the purchase of private
surance coverage.
Issue: Disproportionate Share Hospital (DSH) Payments.
Should a State's payments to disproportionate share hospitals
be subtracted from its expenditure base before the State's per
capita payments are calculated?
Savings estimates assume that DSH payments will be
included in a State's expenditure base. Subtracting
these payments from the base would increase estimated
savings by $75.5 billion over five years.
However, subtracting DSH payments would appear to
abrogate the agreement which the Administration recently
negotiated with Congress to enact legisiation to limit a
State's DSH payments to no more than 12 percent of total
Medicaid expenditures.
DSH payments are used by States for a combination of
purposes -- covering uncompensated care for the
uninsured and low Medicaid payments -- to hospitals that
serve a large number of Medicaid and low-income
patients.
In most States, DSH are the hospitals that serve the
majority of the poor population. Many are under severe
financial distress.
Suggested resolution. To be identified.
2. Issue: Dual Medicare-Medicaid eligibles.
Should this group be included in the per capita payment to
States or continued as under current law?
Savings estimates assume that Federal payments to States
for dual eligibles continue on an open-ended basis as
currently. Putting dual eligibles under the per capita
payment program would increase total savings by $15.4
billion over five years.
Dual eligibles are different from other Medicaid
eligibles in two fundamental ways. First, Medicare is
the primary payer of acute care services. Consequently
States have minimal opportunities to serve this
population in coordinated care arrangements. Second,
dual eligible are heavy users of care, especially care
care related to long-term, chronic medical conditions.
Suggested resolution. To be identified.
3. Issue: Administrative costs.
Would State administrative costs for the tax credit program be
fully Federal or shared with the States?
HCFA assumes 15 to 20 million credit individuals will
qualify for tax credit program. (Treasury has not
provided their own estimates.) Preliminary estimates of
average annual cost for determining eligibility are
$150-350. Hence, the total administrative cost would
range from a low of $2.25 billion to $7 billion per
year.
Administrative costs would be less if States were
allowed to use existing methods of counting income and
family members, rather than being required to implement
a whole new set of IRS-based methods.
Suggested resolution. To be identified.
4. Issue: Limits on Federal payments.
Should the Federal payment be based on a per capita amount or
the lesser of the per capita amount or the amount actually
spent by the State?
If the Federal payment to a State is a per capita amount
determined without regard to the State's actual
Option issue
spending, then it would be possible for the State to
"win," i.e., reduce its relative share of total Medicaid
spending, particularly if coordinated care becomes
widespread and is successful at limiting per capita
costs.
Without the possibility of "winning" under this payment
scheme, States could be reluctant to support this
approach.
Suggested resolution. To be identified.
2
5. Issue: Defining "coordinated care".
Who should define "coordinated care" -- the Federal government
or each State?
If States had complete flexibility, then they could
choose to deliver all coordinated care through public
hospital/health clinic networks. On the other hand,
they might adopt a limited version of coordinated care,
to provide only outpatient care through a primary care
case management network, leaving inpatient hospital care
on its present basis.
If the Federal government wished coordinated care to be
more encompassing and uniform, then the Federal
government could develop a list of options for
coordinated care from which the States could choose, or
the Federal government could narrowly define coordinated
care. (Exceptions for rural areas could be devised.)
Suggested resolution. To be identified.
STATES' OPTION 2 - Unified Program
States could choose to establish a unified program under which
they would receive a lump sum payment from the Federal
government, equal to the sum of per capita payments for those who
meet Medicaid eligibility requirements plus tax credit payments
for those who are eligible for them. When fully phased-in, the
unified program would cover everyone up to the poverty level who
filed for coverage. Many Federal rules governing Medicaid would
be relaxed.
6. Issue: Prescription drugs.
Should prescription drugs be included as a mandatory (core)
benefits? Should recipient copayments be required or allowed?
Currently, prescription drugs are an optional Medicaid
benefit, but all States cover it, often with nominal
cost-sharing.
The tax credit amount, as initially calculated, did not
explicitly account for the cost of prescription drugs.
If States are required to cover drugs as a core benefit,
the cost could be reduced by requiring recipients to
cost-share. Should cost-sharing be Federally mandated?
Left to each State? Limited to nominal amounts as
currently or substantially raised?
3
Suggested resolution. To be identified.
7. Issue: Ensuring State maintenance of effort (MOE).
What measures are necessary to prevent States from encouraging
low-income people to opt out of the State program and into the
Federal tax credit program, thus shifting costs from the State
to the Federal government?
O States will be expected to continue to pay their share
of the Medicaid program (i.e., indexed 1992 per capita
spending). The Federal government must have a mechanism
for enforcing this requirement.
o
Stringent Federal enforcement mechanisms (e.g.,
requiring extensive reporting by States, extensive
Federal quality control activities, severe financial
penalties) involve significant administrative effort and
Federal involvement, diminishing the attractiveness of
the option to have a unified program.
Looser enforcement mechanisms, though less costly and
burdensome, could lead to uneven implementation of
maintenance of effort requirements and shifting of
persons to the Federal tax credit program.
Suggested resolution. To be identified.
4
ADMINISTRATION OF THE HTC -- ISSUES
1. Issue: Prospective eligibility certification for workers.
Treasury's proposal. States would determine eligibility
for anyone wishing an advance tax credit, whether they are
employed or not.
Problems. Employed people might be reluctant to apply at a
welfare office because of the stigma associated with
welfare programs.
Possible solutions. Applications could be processed by the
States (which in all cases have to determine whether an HTC
applicant is eligible for Medicaid) but applicants could
have the choice of submitting them at other sites, e.g.,
Social Security District Offices or employers. However
such an arrangement could lead to administrative delays and
mistakes and, in the case of employers, could lead to
potentially serious privacy concerns.
2. Issue: Treasury administration through the tax code.
Treasury proposal. The HTC would be administered by
Treasury and reconciled through the tax system.
Problem. States, in option 1, would be performing the
eligibility determination for all HTC recipients. States,
in option 2, would be operating the entire program for
those under 100 percent of poverty. Both options assume
that the States would perform their functions in a
prospective manner. The Treasury operates in a
retrospective manner. The reconciliation of these two
approaches by its nature must put someone at financial
risk. The Treasury approach under Medicaid State option 1
would put the individual at risk. Under option 2, the
State appears to be at risk.
Possible solutions. None yet identified.
3. Issue: qualified dependents and size of credit.
Treasury proposal. Size of the credit would depend on the
number of qualified dependents in the tax filing unit.
Problem. States, which will determine eligibility for the
advance credit, cannot know how many qualified dependents
will be claimed for any filing unit. Treasury will not
know this either until the unit files its income tax return
the year following the tax year.
5
Possible solutions. None yet identified.
4. Issue: Tax credit-subsidized insurance and other Federally
subsidized health benefits.
Treasury proposal. Other Federal programs - IHS, PHS, and
VA - would be required to bill insurers for the cost of
medical care they provide to persons insured under the tax
credit program.
Problems. Health care providers cannot distinguish between
insured persons who are and are not eligible for the tax
credit.
Most Federal programs seek reimbursement from patients'
insurance, though with mixed level of effort and mixed
success. More stringent requirements could be imposed,
although it is not clear whether these would be cost-
effective.
Possible solutions. Other Federal programs could be
encouraged to seek payment from insurers of all their
patients with insurance coverage of any sort.
5. Issue: Participation in the tax credit program by persons
whose employers now pay part or all of the insurance premiums.
Treasury proposal. Employers would receive the benefit
through reduced tax liability.
Problems. Individuals eligible for the tax credit have
little or no incentive to apply for it.
Employers have every incentive to encourage their employees
to apply. The incentive would be especially pronounced for
employers paying low wages.
The proposal does not specify the disposition of the credit
in cases where the employer and employee each pay a share
of the premium.
Possible solutions. None yet identified.
6. Issue: Certification for users of emergency room care.
Treasury's possible resolution. Hospitals could assist the
individual to apply. Immediate but temporary certification
of eligibility could be made.
6
Problems. Insurers are generally unwilling to immediately
enroll someone who will plainly incur high costs and whose
temporary eligibility certification may soon be withdrawn.
For this proposal to work, all insurers (employer-based,
small group, State-contracted programs) would have to be
required to modify or drop enrollment and coverage
restrictions on persons with pre-existing conditions.
Possible solutions. None yet identified.
7
January 6, 1992
MEDICAID REFORM PROPOSAL -- ISSUES
STATES' OPTION 1 - Separate Medicaid and Tax Credit Programs
States could choose to keep their current Medicaid programs.
Those doing so would be required to serve as "program
administrators" and "brokers" for a tax credit program for
certain low-income individuals for the purchase of private
surance coverage.
Issue: Disproportionate Share Hospital (DSH) Payments.
Should a State's payments to disproportionate share hospitals
be subtracted from its expenditure base before the State's per
capita payments are calculated?
Savings estimates assume that DSH payments will be
included in a State's expenditure base. Subtracting
these payments from the base would increase estimated
savings by $75.5 billion over five years.
However, subtracting DSH payments would appear to
abrogate the agreement which the Administration recently
negotiated with Congress to enact legisiation to limit a
State's DSH payments to no more than 12 percent of total
Medicaid expenditures.
DSH payments are used by States for a combination of
purposes -- covering uncompensated care for the
uninsured and low Medicaid payments -- to hospitals that
serve a large number of Medicaid and low-income
patients.
In most States, DSH are the hospitals that serve the
majority of the poor population. Many are under severe
financial distress.
Suggested resolution. To be identified.
2. Issue: Dual Medicare-Medicaid eligibles.
Should this group be included in the per capita payment to
States or continued as under current law?
Savings estimates assume that Federal payments to States
for dual eligibles continue on an open-ended basis as
currently. Putting dual eligibles under the per capita
payment program would increase total savings by $15.4
billion over five years.
Dual eligibles are different from other Medicaid
eligibles in two fundamental ways. First, Medicare is
the primary payer of acute care services. Consequently
States have minimal opportunities to serve this
population in coordinated care arrangements. Second,
dual eligible are heavy users of care, especially care
care related to long-term, chronic medical conditions.
Suggested resolution. To be identified.
3. Issue: Administrative costs.
Would State administrative costs for the tax credit program be
fully Federal or shared with the States?
HCFA assumes 15 to 20 million credit individuals will
qualify for tax credit program. (Treasury has not
provided their own estimates.) Preliminary estimates of
average annual cost for determining eligibility are
$150-350. Hence, the total administrative cost would
range from a low of $2.25 billion to $7 billion per
year.
Administrative costs would be less if States were
allowed to use existing methods of counting income and
family members, rather than being required to implement
a whole new set of IRS-based methods.
Suggested resolution. To be identified.
4. Issue: Limits on Federal payments.
Should the Federal payment be based on a per capita amount or
the lesser of the per capita amount or the amount actually
spent by the State?
If the Federal payment to a State is a per capita amount
determined without regard to the State's actual
Oprian issue
spending, then it would be possible for the State to
"win," i.e., reduce its relative share of total Medicaid
spending, particularly if coordinated care becomes
widespread and is successful at limiting per capita
costs.
Without the possibility of "winning" under this payment
scheme, States could be reluctant to support this
approach.
Suggested resolution. To be identified.
2
5. Issue: Defining "coordinated care".
Who should define "coordinated care" -- the Federal government
or each State?
If States had complete flexibility, then they could
choose to deliver all coordinated care through public
hospital/health clinic networks. On the other hand,
they might adopt a limited version of coordinated care,
to provide only outpatient care through a primary care
case management network, leaving inpatient hospital care
on its present basis.
If the Federal government wished coordinated care to be
more encompassing and uniform, then the Federal
government could develop a list of options for
coordinated care from which the States could choose, or
the Federal government could narrowly define coordinated
care. (Exceptions for rural areas could be devised.)
Suggested resolution. To be identified.
STATES' OPTION 2 - Unified Program
States could choose to establish a unified program under which
they would receive a lump sum payment from the Federal
government, equal to the sum of per capita payments for those who
meet Medicaid eligibility requirements plus tax credit payments
for those who are eligible for them. When fully phased-in, the
unified program would cover everyone up to the poverty level who
filed for coverage. Many Federal rules governing Medicaid would
be relaxed.
6. Issue: Prescription drugs.
Should prescription drugs be included as a mandatory (core)
benefits? Should recipient copayments be required or allowed?
Currently, prescription drugs are an optional Medicaid
benefit, but all States cover it, often with nominal
cost-sharing.
The tax credit amount, as initially calculated, did not
explicitly account for the cost of prescription drugs.
If States are required to cover drugs as a core benefit,
the cost could be reduced by requiring recipients to
cost-share. Should cost-sharing be Federally mandated?
Left to each State? Limited to nominal amounts as
currently or substantially raised?
3
Suggested resolution. To be identified.
7. Issue: Ensuring State maintenance of effort (MOE).
What measures are necessary to prevent States from encouraging
low-income people to opt out of the State program and into the
Federal tax credit program, thus shifting costs from the State
to the Federal government?
States will be expected to continue to pay their share
of the Medicaid program (i.e., indexed 1992 per capita
spending). The Federal government must have a mechanism
for enforcing this requirement.
Stringent Federal enforcement mechanisms (e.g.,
requiring extensive reporting by States, extensive
Federal quality control activities, severe financial
penalties) involve significant administrative effort and
Federal involvement, diminishing the attractiveness of
the option to have a unified program.
Looser enforcement mechanisms, though less costly and
burdensome, could lead to uneven implementation of
maintenance of effort requirements and shifting of
persons to the Federal tax credit program.
Suggested resolution. To be identified.
4
ADMINISTRATION OF THE HTC -- ISSUES
1. Issue: Prospective eligibility certification for workers.
Treasury's proposal. States would determine eligibility
for anyone wishing an advance tax credit, whether they are
employed or not.
Problems. Employed people might be reluctant to apply at a
welfare office because of the stigma associated with
welfare programs.
Possible solutions. Applications could be processed by the
States (which in all cases have to determine whether an HTC
applicant is eligible for Medicaid) but applicants could
have the choice of submitting them at other sites, e.g.,
Social Security District Offices or employers. However
such an arrangement could lead to administrative delays and
mistakes and, in the case of employers, could lead to
potentially serious privacy concerns.
2. Issue: Treasury administration through the tax code.
Treasury proposal. The HTC would be administered by
Treasury and reconciled through the tax system.
Problem. States, in option 1, would be performing the
eligibility determination for all HTC recipients. States,
in option 2, would be operating the entire program for
those under 100 percent of poverty. Both options assume
that the States would perform their functions in a
prospective manner. The Treasury operates in a
retrospective manner. The reconciliation of these two
approaches by its nature must put someone at financial
risk. The Treasury approach under Medicaid State option 1
would put the individual at risk. Under option 2, the
State appears to be at risk.
Possible solutions. None yet identified.
3. Issue: qualified dependents and size of credit.
Treasury proposal. Size of the credit would depend on the
number of qualified dependents in the tax filing unit.
Problem. States, which will determine eligibility for the
advance credit, cannot know how many qualified dependents
will be claimed for any filing unit. Treasury will not
know this either until the unit files its income tax return
the year following the tax year.
5
Possible solutions. None yet identified.
4. Issue: Tax credit-subsidized insurance and other Federally
subsidized health benefits.
Treasury proposal. Other Federal programs - IHS, PHS, and
VA - would be required to bill insurers for the cost of
medical care they provide to persons insured under the tax
credit program.
Problems. Health care providers cannot distinguish between
insured persons who are and are not eligible for the tax
credit.
Most Federal programs seek reimbursement from patients'
insurance, though with mixed level of effort and mixed
success. More stringent requirements could be imposed,
although it is not clear whether these would be cost-
effective.
Possible solutions. Other Federal programs could be
encouraged to seek payment from insurers of all their
patients with insurance coverage of any sort.
5. Issue: Participation in the tax credit program by persons
whose employers now pay part or all of the insurance premiums.
Treasury proposal. Employers would receive the benefit
through reduced tax liability.
Problems. Individuals eligible for the tax credit have
little or no incentive to apply for it.
Employers have every incentive to encourage their employees
to apply. The incentive would be especially pronounced for
employers paying low wages.
The proposal does not specify the disposition of the credit
in cases where the employer and employee each pay a share
of the premium.
Possible solutions. None yet identified.
6. Issue: Certification for users of emergency room care.
Treasury's possible resolution. Hospitals could assist the
individual to apply. Immediate but temporary certification
of eligibility could be made.
6
Problems. Insurers are generally unwilling to immediately
enroll someone who will plainly incur high costs and whose
temporary eligibility certification may soon be withdrawn.
For this proposal to work, all insurers (employer-based,
small group, State-contracted programs) would have to be
required to modify or drop enrollment and coverage
restrictions on persons with pre-existing conditions.
Possible solutions. None yet identified.
7
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
05. Paper
Medicare Coordinated Care Initiative (8 pp.)
12/17/91
P-5
Collection:
Open on Expiration of PRA
Record Group:
Bush Presidential Records
(Document Follows)
Office:
Policy Development, Office of
By JRD (NLGB) on 10/28/2005
Series:
Kuttner, Johannes
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
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P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
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financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
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P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
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financial institutions [(b)(8) of the FOIA]
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PRM. Removed as a personal record misfile.
12.27.91
MEDICARE COORDINATED CARE INITIATIVE
Concept: Coordinated care is the best way to ensure that cost-
effective and high quality medical care is provided under the
Medicare program. Currently, however, the only coordinated care
alternative to a la carte fee-for-service is the HMO option. In
some areas, beneficiaries don't even have that limited choice.
Although Medicare enrollment in coordinated care plans grew on
average by 9 percent for the past two years, enrollment as a
percentage of the total Medicare population is still only 6.6%
relative to the 40% enrolled in the under 65 population.
If significant strides are to be made in expanding the percentage
of Medicare beneficiaries receiving coordinated care, a two-prong
approach is required. The Administration needs to:
create new options, as alternatives to the most structured
form of coordinated care (HMOs), that would provide
beneficiaries with greater provider choice while introducing
them to the benefits of coordinated care; and
take steps to strengthen the existing HMO option.
1.0 NEW COORDINATED CARE OPTIONS
1.1 Point of Service (POS) Option
Background
Under current law, a beneficiary who wants to receive
full scalt versions of deviews
benefits through an HMO must enroll with that plan.
Beneficiaries enrolling in HMOs with risk contracts are
required to receive all of the Medicare covered
services through the HMO.
In recent years, employers have been moving toward
health plans where individuals make a choice at the
point of service of whether or not to receive care
through the plan's network of providers or outside of
that network. These plans have both been popular with
employees and have achieved the desired results of
moving a significant percentage of services into the
preferred provider network.
Proposal - Create a Medicare Point-of-Service Option
HCFA would enter into multi-year contracts with
entities (POS contractors) to create comprehensive
preferred provider networks (primary care physicians,
specialists, hospitals, labs, etc) for beneficiaries
not enrolled in risk plans.
POS contractors would negotiate discounts for bundled
Part A and Part B payments for high cost/high volume
surgical procedures. They would also negotiate other
discounts from providers and suppliers. POS physicians
would have incentives to make referrals only within the
POS network.
No enrollment would be required for the option:
beneficiaries would make the choice on a service-by-
service basis whether or not to use the POS network.
Beneficiaries would receive incentives for receiving
services through the POS network. These could include:
rebates from Medicare for each physician service
provided by the POS network, equal to 50% of the
coinsurance amount (In any year, total rebates
would be limited to 30% of the Part B premium.). .
a package of preventative services (i.e.
immunizations, screening for colon cancer) that
i no won us?
would be available only through the POS network.
There would be one POS contractor in a given area. The
contractor would receive incentive payments based on
performance in restraining expenditure growth.
Availability of the POS option would be constrained by
the limited number of entities that would be capable of
providing the POS product envisioned. In addition, POS
may never be feasible in some isolated rural areas.
1.2 Employer POS
Background
About 40% of Medicare beneficiaries have employer-based
supplemental benefits.
Employers have been leading the way in the use of new
coordinated care options such as point of service.
However, because of various problem in coordinating
their benefit packages and their coordinated care
systems with Medicare, they have generally not be
including Medicare-eligible retirees in these new
programs.
Proposal - Contract with employer or union-sponsored plans
to provide medical review/utilization review for Medicare
covered services for retirees.
finns want
more =
control over
2
now where
This proposal would enable employers and Taft-Hartley
trusts to coordinate benefits to retirees through the
same administrative structure used to coordinate care
for active employees and/or under-65 retirees.
The employer or union could provide the MR/UR directly
or subcontract with an insurer or another entity to
provide the service. The MR/UR performed under the
contract would have to be as stringent as review
performed by Medicare carriers; they would also follow
national HCFA coverage guidelines.
2.0 STRENGTHEN EXISTING COORDINATED CARE PROGRAM
2.1 Increased Investment in Current Program
Background
HMOs contracting with Medicare on a risk basis compete
directly with the Medicare program -- a large insurer
with substantial monopsony power. By virtue of this
power, Medicare is able in effect to obtain deep price
discounts from fee-for-service providers. These price
discounts may overwhelm potential savings that HMOs can
achieve from negotiated discounts and better control
over utilization.
In addition, HMOs are paid only 95% of comparable fee-
for-service costs (because of presumed efficiencies)
Nevertheless, HMOs face marketing and enrollment costs
unlike government.
Critics of the Medicare risk contract program argue
that the current AAPCC methodology results in
"favorable selection" -- greater numbers of healthy
persons enrolling in HMOs relative to the fee-for-
service sector, thus providing overpayment for care.
Evidence, while mixed, offers some support for this
selection bias argument. Nevertheless, other measures
(e.g., lack of market entry) raise questions about the
extent of this problem.
Recent research (Scheffler, 1989; Welch, 1991;
Robinson, 1991) has found that growth in HMO market
penetration may result in lower overall Medicare costs
since it is correlated with a reduction in the rate of
increase of fee-for-service costs. According to Welch,
if enrollment in risk plans increases by 10 percentage
points, Medicare expenditures would decrease by 1.2% in
the short term and by as much as 3.9% in the long run.
Proposal - Increase payments to HMOs with risk contracts.
3
Option 1 - Increase Payments from 95 to 100% of the AAPCC
The additional 5% could encourage the entry into the
Medicare market of HMOs who currently are not participating.
Existing plans could use the additional 5% to improve their
competitive edge against Medigap plans by offering
additional benefits or providing rebates to beneficiaries.
This proposal has been put forward in the past and was not
well received by the Congress.
Option 2 - Increase Payments to 100% through Outlier
Payments and Beneficiary Rebates
Under this proposal, Medicare would make additional payments
to HMOs for a portion of the costs of high cost cases above
a predetermined threshold. For example, if Medicare paid
for 60% of the costs for cases that exceeded $61,000 in
1993, payments to HMOs would increase on average by 2.5
percent.
In addition to outlier payments, Medicare could provide
rebates to beneficiaries enrolled in HMOs as a concrete sign
of the support of the risk contract program. The rebate
could equal 30% of the Part B premium.
The approximate cost of the two options, taking into account
payment lags but without accounting for the potential impact
of reduced fee-for-services costs would be:
(dollars in millions)
1993
1994
1995
1996
1997
[Acturny's
Option 1
250
420
515
600
685
estimate]
Option 2
Outlier
60
190
230
260
300
Fn
Budget- rebates
Rebates
0
225
280
330
370
only to plans
Total
60
415
510
590
670
that change
a premium]
2.2 Reform of Current Payment Methodology
Background
O
Although the AAPCC methodology is accurate in
predicting the costs for an HMO's total enrollment, its
predictive power in regard to individual enrollees is
extremely low.
4
Even though enrollment in risk plans as a percent of
total Medicare enrollment is low, in some counties
enrollment is greater than 25%. Over the past few
years the increases in the AAPCCs for these counties
has lagged behind the national average increase
(USPCC).
+
For example, while the national average increase
in rates for the past three years was 22.6%, in
one county with 34% enrollment the increase was
15.5%. In another county with 27% enrollment the
AAPCC actually decreased over the past three
years.
+
The industry's response to these developments,
building on the research results cited above, is
to argue that the rewards for a plan decrease to
the extent that it is successful in enrolling
significant numbers of Medicare beneficiaries.
Proposals
A) Break the Link with Fee-for-Service - Index current rates
based on the growth in the USPCC or a blend of the USPCC and
the AAPCC. This would be done immediately for high
penetration areas and would be studied for the program as a
whole.
B) Experiment with Competitive Bidding To Establish Payment
Rates
O
The premium contribution for beneficiaries in a defined
market area could be set equal to the lowest price for
the Medicare benefit package submitted by a qualified
plan. The contribution could be adjusted by risk-
specific categories.
Annual updates could be accomplished through successive
iterations of same process or indexed by some mutually
agreed-upon update factor.
2.3 Increase Flexibility of HMO option
Background
O
HMOs with risk contracts currently cannot deal
exclusively with employer groups but must be open to
all enrollees in their services area.
O
HMOs cannot currently enter into multi-year contracts
with Medicare with fixed rates for the term of the
5
contract. Instead, they are limited to contracting on
a year-to-year basis.
Although Medicare is encouraging beneficiaries to
enroll in HMOs upon entering the program, enrollment
may not be possible because of the timing of open
enrollment periods.
Proposals
A) Establish a new risk contracting option that allows for
provision of coordinated care services to Medicare group
retirees only.
If a group is 1,000 or more, payment to the plan could
be either the current HMO payment rate, or an
experience rate based on the projected health care
utilization of the specific Medicare group retirees
enrolled.
The proposal would eliminate problems under current law
which deter employers from offering an HMO option to
their Medicare-eligible retirees, by allowing (a)
coordinated enrollment with the employer's schedule,
(b) geographic boundaries based on residence of
employer's group retirees, and (c) flexibility of
benefits offered (subject to minimum requirements).
Unlike the Medicare Insured Group (MIG) demonstration,
the HMO rather than the employer would be at-risk.
B) Establish a multi-year based contracting option, for up
to three years.
Each year AAPCC projections would be developed for the
subsequent two years. Plans exercising the multi-year
option could lock-in these rates rather than the AAPCCs
applicable for one-year contracts.
A long-term contract with stable rates would constitute
a commitment on the part of Medicare and the HMO to the
risk contract program.
C) Permit HMOs/CMPs to conduct continuous open enrollment
exclusively for new beneficiaries.
As a result of this proposal, more newly entitled
beneficiaries would have a coordinated care option
available to them upon enrollment.
6
2.4 Refine Current Payment Methodology
Background
Plans argue that the payment rates are slightly
depressed because of the treatment of Medicare
beneficiaries for whom Medicare is the secondary payor
-- working aged. The working aged depress per capita
ratios because these beneficiaries incur no or
significantly reduced Medicare costs yet are included
in the total number of beneficiaries. Medicare payment
are accurate only if the working aged enroll in plans
in a proportion equal to their presence in fee-for-
service. Since this enrollment balance is difficult to
achieve, some plans are underpaid while other are
overpaid.
Another payment issue is the lack of a health status
adjustor. Experience with what was believed to be the
most promising adjustor (DCGs) indicated that it
further exacerbated the current problems with favorable
selection rather than improving the accuracy of
payment.
Proposal
A) Include "Working Aged" Adjustor in the 1993 rates
This would slightly increase payment for non-working
aged enrollees and significantly reduce payment for the
working aged. The net result will be more accurate
payment.
B) Continue Research to Develop a Health Status Adjustor
2.5 Reform Cost Contract Options
Background
O
In addition to the risk contract option, coordinated
care plans currently have two cost-based options under
Medicare.
+
There is a cost contract option for which plans
have to meet many of the same requirements as for
a risk contract.
+
Under a second cost option, plans can enter into
agreements to become Health Care Prepayment Plans
(HCPPs).
7
Neither of these cost options provide incentives for
the efficient delivery of care. In 1989, payments for
beneficiaries enrolled in these plans exceeded 100% of
the AAPCC in 13 out of 34 cost contracts and 19 out of
42 HCPPs. Payments above 100% of the AAPCC totaled
more than $35 million.
In addition, in recent years, HMOs that previously had
risk contracts have converted to HCPPs since there are
fewer requirements for such an agreement. The
requirements that they thus avoid cover such areas as
fiscal soundness, beneficiary appeals and the
prohibition against health screening.
Proposals
A) Modify cost contract provisions to: establish an absolute
limit on payments at 100% of the AAPCC; require plans to
process claims for out-of-plan services; provide plans with
tools for controlling out-of-plan utilization; and provide
incentive bonuses to efficient plans equal to 25% of the
savings below 95% of the AAPCC, up to 2% of the AAPCC.
B) Eliminate the Health Care Prepayment Plan Option (HCPP)
for HMOs and CMPs, and impose requirements on remaining
HCPPs.
2.6 Strengthen Oversight of HMO Program
Background
In addition to contract termination, HCFA can move to freeze
enrollment or impose civil monetary penalties in certain
situations.
Proposal - Expand the intermediate sanction/CMP authority
to allow these enforcement tools to be used against plans
that:
engage in prohibited marketing practices;
distribute marketing material without obtaining the
required prior approval; and
do not cooperate with quality review.
8
TABLE 1. 1993 COST PROJECTIONS FOR PLAN OPTION A: THE UNINSURED POOR
SINGLE PERSONS:
MARRIED ADULTS -
MARRIED ADULTS
SINGLE ADULT
NO CHILDREN;
WITH CHILDREN*;
WITH CHILDREN*:
2439.5
Person - $1,960
Person - $2,870
Person - $1,100 935
Person - $1,260 1071
85%-
1666
Family - $5,740 4879
Family - $5,280 4488
Family - $4,100 3
discount
Inpatient
for
Inpatient
Inpatient
Inpatient
managed
hospitalization up to
hospitalization up to
hospitalization up to
hospitalization up to
cave.
15 days
15 days
15 days
15 days
-1090 Pm
Person - $1,100
Person - $1,700
Person - $560
Person - $660
shift
Family - $3,400
Family - $2,690
Family - $2,150
+9%
Advin
Inpatient physician,
Inpatient physician,
Inpatient physician,
Inpatient physician,
lab, emergency room,
lab, emergency room,
lab, emergency room,
lab, emergency room,
and ambulatory
and ambulatory
and ambulatory
and ambulatory
physician visits
physician visits
physician visits
physician visits
covered with a 10%
covered with a 10%
covered with a 10%
covered with a 10%
copay on services up
copay on services up
copay on services up
copay on services up
to $500 out-of-pocket
to $500 out-of-pocket
to $500 out-of-pocket
to $500 out-of-pocket
and $5 fee per visit for
and $5 fee per visit for
and $5 fee per visit for
and $5 fee per visit
the first three
the first three
the first three
for the first three
physician visits
physician visits
physician visits
physician visits
Person - $860
Person - $1,170
Person - $540
Person - $600
Family - $2,340
Family - $2,590
Family - $1,950
*Family size for married with children is 4.8; for single persons with children is 3.25.
Source: 1987 National Medical Expenditure Survey, Household. Agency for Health Care Policy and Research.
1993 Cost Projections for Insurance Plans for
the Uninsured Poor
Premium
PLAN A
$1,256
Includes Inpatient Hospital up to 15 days,
Inpatient Physician, lab, emergency room, and
ambulatory physician vists covered for $5 fee
per visit for the first three physician visits,
then a 10 percent co-pay up to a $500 out-of-pocket
limit.
PLAN B
Includes all services under PLAN A, but requires a
$1,200
20 percent co-pay on physician visits after 3 visits.
PLAN C
Includes unlimited Inpatient Hospital, and Inpatient
$1,057
Physician care.
PLAN D
Includes all services under PLAN C, with an addition
$1,183
of 3 ambulatory physician visits and associated lab
fees with a $10 co-pay per visit.
PLAN E
Includes all services under PLAN C, with an addition
$1,225
of 5 ambulatory physician visits and associated lab
fees with a $10 co-pay per visit.
PLAN F
Includes all services under PLAN C, with an addition
$1,267
of 10 ambulatory physician visits and associated lab
fees with a $10 co-pay per visit.
Premiums are based on the 1987 National Medical Expenditure
Survey, Household Survey, trended to 1993 using HCFA growth factors.
Estimates of expenditures for the Poor, Uninsured are based
on an AHCPR, two stage regression analysis.
Prices reflect private market rather than Medicaid fees.
Premiums include 15 percent offset for managed care savings,
a 10 percent offset for savings from no cost-shifting, and
an addition of 9 percent for administrative costs.
These adjustments are estimated, and may require further refinement.
DMES/CGHSIR
TABLE 1. 1993 COST PROJECTIONS FOR INSURANCE PLANS FOR THE UNINSURED POOR, PLANS A, B,
AND C
PLAN OPTION A: $1,495
PLAN OPTION B: $1,428
PLAN OPTION C: $1,258
Inpatient hospitalization up to 15
Inpatient hospitalization up to 15
Unlimited inpatient
days
days
hospitalization and inpatient
physician care
:771
$ 800.00
$ 800.00
$ 1,258
Inpatient physician, lab,
Inpatient physician, lab,
emergency room, and ambulatory
emergency room, and ambulatory
physician visits covered with a
physician visits covered with a
10% copay on services up to $500
20% copay on services up to $500
out-of-pocket and $5 fee per visit
out-of-pocket and $5 fee per visit
for the first three physician visits
for the first three physician visits
$ 695.00
$ 628.00
Source: 1987 National Medical Expenditure Survey, Household Survey. Agency for Health Care Policy and Research.
wec y,y, 14.10 NO.004 r.us
TABLE 2. 1993 COST PROJECTIONS FOR INSURANCE PLANS FOR THE UNINSURED POOR, PLANS D, E,
AND F
PLAN OPTION D: $1,408
PLAN OPTION E: $1,458
PLAN OPTION F: $1,508
Unlimited inpatient
Unlimited inpatient
Unlimited inpatient
hospitalization and inpatient
hospitalization and inpatient
hospitalization and inpatient
physician care
physician care
physician care
$ 1,258.00
$ 1,258.00
$ 1,258.00
Three ambulatory physician visits
Five ambulatory physician visits
Ten ambulatory physician visits
and associated lab fees with a $10
and associated lab fees with a $10
and associated lab fees with a $10
copay per visit
copay per visit
copay per visit.
Note, approximately 90 percent of
persons would have 10 or fewer
visits.
$ 150.00
$ 200.00
$250.00
Source: 1987 National Medical Expenditure Survey, Household Survey. Agency for Health Care Policy and Research.
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
06. Paper
Health Tax Credit - Administrative Issues (8 pp.)
12/27/91
P-5
Collection:
Record Group:
Bush Presidential Records
Open on Expiration of PRA
Office:
Policy Development, Office of
(Document Follows)
Series:
Kuttner, Johannes
BYJRD (NLGB) on 10/28/2005
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
December 27, 1991
HEALTH TAX CREDIT -- ADMINISTRATIVE ISSUES
BRIEF SUMMARY OF PROPOSAL
The health tax credit (HTC) would be available only to
individuals who are not eligible for Medicaid, Medicare, VA and
CHAMPUS, or other Federal health subsidies and have modified
adjusted gross income (defined as the sum of adjusted gross
income, nontaxable Social Security payments, nontaxable Railroad
Retirement Social Security equivalent payments, and tax-exempt
interest) below certain thresholds. The amount of the credit
depends on the size of the filing unit and the individual's
modified adjusted gross income. In 1993, the maximum credit
would be $1,250 for filers claiming one exemption, $2,300 for
filers claiming two exemptions, and $3,125 for filers claiming
three or more exemptions.¹ The credit would phase down to a
minimum credit of $125/$230/$313 between 50 percent and 100
percent of the tax threshold (defined as the sum of the standard
deduction and personal exemptions). The minimum credit would
phase out over modified adjusted gross income levels of $30,000 -
$40,00 for single filers, $40,000 - $50,000 for heads of
households and $60,000 - $70,000 for married filers filing
jointly. Income thresholds for phasedown of the full credit to
the minimum credit would rise to 100 percent and 150 percent of
e tax threshold over a 5-year period.
There would be offered a combined credit/deduction
alternative for use by credit recipients who have taxable income.
If an individual participates in an employer-sponsored health
care plan to which the employer makes contributions (a
contributory plan), the deduction would be reduced by the amount
of the employer's contribution.
plan
The HTC would be transferable to an insurance company or, in
the case of a person covered by a contributory plan, to the
employer. Insurance companies would be required to offer a basic
health insurance coverage ("Plan A") at a price not in excess of
the amount of the full credit. Credits would be transferable to
employers only if they provide coverage equivalent to Plan A.
To demonstrate eligibility for the credit, individuals would
be required to fill out a new Schedule HIC (Health Insurance
Credit). The schedule would show the individual's modified
adjusted gross income, the number of qualified dependents, and
eligibility for other forms of subsidized insurance.
1
All credit and income threshold amounts would be
indexed for inflation (using the CPI(U) index).
- 2 -
ADMINISTRATIVE ISSUES
Summarized below are a number of administrative issues that
will have to be resolved before the HTC can be instituted.
Although the administrative problems are numerous, the one issue
that dwarfs most of the others is the fact that for the
foreseeable future, it will not be feasible to issue credits on
the basis of income information that has been verified through
the IRS matching programs. As a consequence, credits will be
issued on the basis of unverified information reported by
into-
applicants for the HTC. This is the same unverified information
on which EITC eligibility has been based. Serious compliance
concerns have been raised about the EITC. Although the EITC
compliance problems have been eased by legislative modifications
to the credit, these modifications would not be readily adaptable
to the HTC. It is therefore likely that the use of this
unverified information would result in serious compliance and
collection problems. Only slightly less troublesome is the
mismatching of credits and the need for credits during periods of
fluctuating income that arises from the administrative necessity
of basing credit amounts on prior year income. These issues and
others are discussed below.
1. De mining income eligibility.
a. Should the HTC be based on projected current year
income, or last year's income?
Basing the credit on current year income would require
estimates of income, which are likely to be inaccurate, resulting
in an erroneous credit amount determination. If an individual
underestimates income, the IRS would have to recapture the
excess, either from the individual or from the insurer or
employer to which the credit was transferred. Recapturing the
excess from the insurer or employer would raise costs and would
discourage providing coverage to credit holders. Recapturing the
excess from the individual would be costly and would work a
serious hardship on low-income persons who do not have cash to
repay the excess.
SUGGESTED RESOLUTION: To avoid these compliance and
collection problems, base the HTC on the prior year's income.
Related issues arise in connection with other eligibility
criteria, such as the number of dependents claimed on the return.
This information would also be based on prior year returns for
similar reasons.
- 3 -
b. How does prior year income rule affect persons with
transitory declines in income?
POSSIBLE RESOLUTION: The resolution to Issue 1.a. will not
help a person whose income drops in the current year (e.g.,
someone who becomes unemployed and loses health insurance or a
divorced woman no longer covered under her ex-husband's policy).
One possibility would be to allow such persons to estimate income
and make up the difference at the end of the year. This solution
brings with it the compliance and collection problems raised
above. It would also mean that if the individual went on the
prior year income system described in 1.a. in the year following
the drop in income, the first low income year would be the basis
for two credits rather than one. If the individual remains on
the current year system, the problems of the current year income
system are perpetuated.
NOTE: For such persons, the mere availability of Plan A may be a
substantial benefit, even if they do not receive the credit.
2. Verifying income eligibility.
a. Where does the individual file the Schedule HIC?
The individual could file the Schedule HIC with the IRS,
which would the provide a certification for the credit, which
what prosent happens n
could be taken to the insurance company or the employer for the
purchase of health insurance. The processing of these forms
runge
would probably take several months and would add to the IRS
[value?"
[value
administrative burden, because many persons submitting a Schedule
HIC would not otherwise be filing a return. This would require
additional IRS resources, or the reallocation of resources now
deployed elsewhere.
Alternatively, the individual could be required to submit
the Schedule HIC to the insurer (or to the employer, in the case
M was will empones
of an individual covered by a contributory plan). The insurer
(or employer) could verify against the IRS database the
other.
information submitted by individuals who file tax returns. The
insurer could also provide information submitted by non-filers to
the IRS, which could be matched against information returns.
PROPOSED RESOLUTION: Subject to the limitations discussed
in d.2., below, have Schedule HIC filed with the insurer or
employer. Insurers and employers would be required to exercise
some due diligence before submitting the Schedule HIC information
to the IRS.
b. When is the IRS database available for confirming
Schedule HIC information?
The IRS can provide a database containing information
- 4 -
provided on timely filed returns by August of the year following
the relevant taxable year. (Information from returns on
extension and amended returns would not be available in August.
Information on non-filers would not be available on this database
at all.) This information has been checked only for internal
consistency. The IRS does not run its matching programs until
spring of the following year, so that true verification of
Schedule HIC income information is not possible until that time.
(Under the IRS modernization program, it is expected that the
time at which matching runs can be done will move closer to the
August date, but no date for that development has been
established.) Although the use of verified information would be
extremely desirable from a compliance standpoint, it would
require that income eligibility be based on two year old
information, which would unacceptably exacerbate the problems
described in 1.b.
SUGGESTED RESOLUTION: Base eligibility verification on
information available on the IRS database in August, or, in the
case of non-filers, on the unconfirmed information provided by
the individual on Schedule HIC.
NOTE: With its current capacity, the IRS database can
provide quick responses only with respect to a limited number of
returns (typically, those showing a balance due). Other requests
require a 24 hour response time. The IRS would require
additional capacity to be able to respond on a same-day basis to
eligibility checks.
C. Will eligibility checks done before August reflect
the proper year's income on which to base the HTC?
If the IRS database is available for use year-round,
eligibility checks done prior to August will be based on aging
information.
SUGGESTED RESOLUTION: To assure that all individuals
receive credits based on information of comparable age, we could
adopt a "plan year" that runs from August through July and
provide an open season beginning in August during which
applicants come into the system. Pro-rated credits would be
issued for partial years beginning after the end of the open
season and ending in July.
d. May the IRS disclose return information to insurers
or employers?
Disclosure of the return information needed to confirm the
Schedule HIC would almost certainly violate section 6103. Even
if the legal impediment were eliminated by amending section 6103,
the IRS would have to develop a system that could (1) limit the
insurer's or employer's access to items necessary for an
- 5 -
eligibility determination, (2) identify the persons dialing in as
authorized, and (3) protect the larger system against inadvertent
or intentional transmission of computer viruses.
POSSIBLE RESOLUTION: Disclosure of information can be
minimized if the insurer or employer supplies only the
individual's name and TIN to the IRS, which would determine the
necessary information and compute the credit. Although insurers
and employers could still infer certain taxpayer characteristics
from the amount of the credit, this system might be less
offensive than the direct disclosure of line item information.
It would also reduce the risk of erroneous credit calculations by
the insurer or employer.
POSSIBLE INTERIM RESOLUTION: Since privacy and security
issues are a function of an electronic verification system, they
can be avoided by having individuals file their Schedule HICs
with the IRS and obtaining an IRS certification. Although paper
filing with the IRS results in the delays and administrative
burdens described in 1.a., it may be a necessary stopgap system
until the IRS can provide a system that alleviates its privacy
and security concerns.
e. Should automatic recertification be permitted?
PROPOSED RESOLUTION: Providing automatic recertification
until the IRS determines that the recipient is no longer eligible
would eliminate the need to go through the process of
demonstrating eligibility on an annual basis. Nevertheless,
given the interval that would elapse between the time eligibility
lapses and the time the IRS can verify eligibility (i.e., after
the matching programs are run), there could be a lot of revenue
loss that would be difficult to recoup. Therefore, annual
recertification should be required.
f. Should coverage be extended for some period after an
individual loses certification?
Although it should be possible for a recipient to know he is
no longer eligible when he files his tax return, it is unlikely
that much of the population receiving the credit will be
sensitive to all the factors that could terminate eligibility.
Dropping people without warning could create hardship.
POSSIBLE RESOLUTION: (1) Require that access to the group
in which the recipient was covered remain available at the same
cost despite termination of the subsidy, or (2) if the recipient
can't afford to continue his coverage immediately, provide a
grace period of perhaps 30 days during which coverage continues
after loss of certification.
- 6 -
g. How will the eligibility verification procedure
work for emergency care?
When an apparently poor and uninsured person is admitted to
the hospital, the hospital will then have an incentive to procure
insurance for the person through the HTC program.
SUGGESTED RESOLUTION: An eligible individual could
(assisted by the hospital) submit a Schedule HIC. If eligibility
were confirmed by the IRS database, the individual could get a
pro-rated credit and purchase insurance that would cover the
emergency care.
3. Eligibility criteria not shown on income tax return.
a. How will the insurer know whether an individual
receives other federal health subsidies?
At this point, neither the IRS nor any other Federal agency
has comprehensive information. Nevertheless, insurers will need
to confirm this information before granting coverage.
PROPOSED RESOLUTION: Insurance companies could call
affected state and Federal agencies for confirmation. State and
Federal agencies would also be require to send tapes containing
this information to the IRS to confirm igibility. [NOTE: Forty
states currently provide the IRS with data identifying AFDC
recipients. Ten states, including New York, refuse to provide
such information without a legislative mandate.] The IRS would
need information on the availability, compatibility, and timing
of the tapes.
Related questions remain regarding the time at which receipt
of other subsidies is tested. Presumably the resolution of these
questions depends on the time when the information can be made
available for confirmation.
b. Will individuals eligible for other benefits for
part of the year be eligible for partial credit?
PROPOSED RESOLUTION: The pro-rated credits available under
the plan year/ open season program should permit the issuance of
partial year credits.
C. If one member of a filing unit is ineligible, is
the entire unit disqualified?
PROPOSED RESOLUTION: Eligibility should be determined on
an individual by individual basis. For example, the fact that a
dependent grandparent is eligible for Medicare should not leave
the remaining parents and children without coverage. The amount
of the credit would be based on the number of eligible members in
- 7 -
the filing unit. There are related issues concerning the
treatment of the income of ineligible members as well as the
inclusion of income of dependents that is reported on separate
returns (such as the kiddie tax).
4. Transferability of credits.
a. Should credits be refundable?
The HTC is available to be used only for the purchase of
health insurance. If the individual claims the credit on his
return, the IRS will have to verify the purchase.
PROPOSED RESOLUTION: Require that individuals transfer
credits. An information return would be required on which the
transferee would report the name and TIN of the transferor, the
amount of the credit transferred and the policy number
associated with the credit to assure that only one credit per TIN
per year was awarded and the credit was used to purchase
insurance. Credits would be nonrefundable to the insurer or
employer, although a carryover would be permitted, either
indefinitely or for some specified period of time. It may be
necessary to make the credit refundable for transferees that are
tax-exempt employers or state programs.
b. Should the credit be available to offset payroll
taxes?
For some insurers and employers without tax liability, an
offset against payroll taxes would provide an immediate benefit
from the credit. The HTC proposal was estimated assuming an
offset against income taxes only. New numbers would have to be
run for a payroll tax offset.
C. How does the transfer of credits to the employer
work? UNRESOLVED ISSUES:
If two members of a filing unit are covered by a
contributory plan, must one member claim it or can it be split?
Administration would be simplified if one member claimed and
transferred the credit awarded to the filing unit. However, a
filing unit may include dependents that would not be covered
under an employer-sponsored family plan. It may be necessary to
allow the credit to be divided to permit coverage of all eligible
members of the family unit.
What happens when an individual transfers a credit to the
employer and then leaves her job? Can the individual recover a
pro rata portion of the credit to take to a new employer or to
buy insurance privately? If so, and if the employer has already
claimed the full credit, there would have to be a recapture
- 8 -
mechanism to avoid doubling up the prorated portion of the credit
recovered by the individual.
6. Recapture of overpaid credits.
a. Should recapture be formally limited to persons
with income above a certain level?
SUGGESTED RESOLUTION: If an individual qualifies for the
HTC on the basis of prior year's income but experiences an
increase in income during the current year, it may be appropriate
to recapture all or a portion of the credit. Nevertheless, a
recapture mechanism may discourage persons from claiming the
credit out of fear they may owe additional tax at the end of the
year and may also be a disincentive for taking employment near
the end of the year. In the case of overpaid credits resulting
from erroneous information on the Schedule HTC that is discovered
on audit, collection of the overpaid amounts may be difficult
because the recipients lack cash to pay and also creates the
image of the IRS extracting dollars from the destitute.
Recapture should therefore probably be limited to cases in
which the individual's income is substantial. Following this as
a formal policy rather than an administrative practice would
provide comfort for individuals fearful of taking a job or
claiming the credit but would at the same time eliminal the
incentive for persons expecting to be below the recaptu.e
threshold to report information accurately on the Schedule HIC.
7. Credit/deduction alternative.
a. How will the IRS know the amount of the employer
contribution? PROPOSED RESOLUTION: Employers would be required
to report amounts contributed to health plans on the Form W-2.
b. What will the form look like? We should soon be
preparing a mock-up of the form for determining the
credit/deduction, since it promises to be complex.
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
07. Paper
Health Insurance Market Reform Proposal (9 pp.)
12/31/91
P-5
Collection:
Open on Expiration of PRA
Record Group:
Bush Presidential Records
(Document Follows)
Office:
Policy Development, Office of
Series:
Kuttner, Johannes
By JRD (NLGB) on 10/28/2005
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
12/31/91
Health Insurance Market Reform Proposal
I.
Introduction
There is widespread agreement that the market for private health insurance is in
need of reform. Problems are most severe in the health insurance market for small
business. Workers at small firms are much more likely to be uninsured than
workers at medium and large size firms.
Number of Uninsured Workers and Dependents By Firm Size - 1987
Firm Size
Number of
Percent of
Number
Percent
Percent of All
Workers &
Workers &
Uninsured
Uninsured
Working
Dependents
Dependents
Uninsured
<25
74.2 m
44%
17.2 m
23.1%
68%
26 100
34.6 m
21%
4.3 m
12.3%
17%
>100
59.2 m
35%
3.9 m
6.6%
15%
Totals
168.0 m
100%
25.4 m
15.1%
100%
A key problem is that the market for health insurance for small business is in
turmoil due to intense competition based on risk selection. A single small business
cannot serve as a stable risk pool. One or two sick workers can greatly increase
average per employee health benefit costs. Insurers originally combined many
small businesses into a single risk pool and charged all members of the insured
group a uniform (or age-adjusted) premium that did not vary based on health risk.
In today's market, however, some insurers are "cherry picking" low risk business --
while other businesses are left with unaffordably high premiums.
Broad insurance pooling helps make coverage affordable for individuals with
chronic illness. However, current marketing methods provide an opportunity for
aggressive insurers to make a quick profit by (i) offering low premiums to attract
healthy groups and (ii) discontinuing coverage (or increasing premiums to a
prohibitive level) once a group becomes more costly. An aggressive insurer can also
use medical information to exclude coverage groups, individuals, or preexisting
conditions. Further, as the aggressive insurer succeeds in attracting low-risk groups
and avoiding high-risk groups, conservative insurers face a premium spiral. This
makes it difficult for conservative insurers to spread risk among a broad pool of
companies and forces them to shift to narrower pools to compete.
While there is no definitive information concerning the extent of current problems,
the market for small business is unstable. As a result, the insurance industry is sup-
porting corrective legislation. A number of bills have been introduced on Capital
Hill. These bills follow the general outlines of model state legislation developed by
1
12/31/91
the National Association of Insurance Commissioners (NAIC). They include bills
introduced by Senators Durenberger, Chafee, and Mitchell in the Senate and by
Representatives Nancy Johnson and Rostenkowski in the House. The Health
Insurance Association of America (HIAA) and Blue Cross Blue Shield (BCBS) have
similar proposals.
The proposal described below also follows the NAIC model, but differs in three basic
respects. First, the proposal relies on regulatory oversight of premium setting
methods only as a temporary measure, pending implementation of a risk
equalization pool (a less regulatory approach that will be more stable in the long
term). Second, the proposal encourages small employers to form groups to purchase
health insurance. Finally, the proposal provides Federal incentives to encourage
states to enact the proposed reforms.
II.
Availability of Coverage for the General Market
The reforms specified in subparagraphs (A) - (E) apply broadly to all private
health insurance coverage provided within a state.
A.
Prohibition on Exclusion from Coverage Due to Health
1.
All insurers wishing to sell group health insurance in a state
would be required as a condition of doing business to (i) accept
every employer group in the state that applies for coverage and
(ii) provide coverage to all members of the employer group.
[Similar to NAIC, HIAA, BCBS, Johnson, Rostenkowski, Chafee,
Durenberger, Mitchell, Bentsen]
2.
All employers (regardless of size) wishing to do business in a
state would be prohibited from excluding any individual from
health insurance coverage for reason of health status. [Note:
would require ERISA amendment.] [Similar to Bentsen and
Rostenkowski]
B.
Guaranteed Renewability Insurers wishing to sell group coverage in a
state would be required to renew coverage (though not necessarily at
on the same terms) for a group except in the case of nonpayment of
premiums, fraud or misrepresentation by the insured, and certain
other exceptions following the NAIC model. [Similar to NAIC, HIAA,
BCBS, Johnson, Rostenkowski, Chafee, Durenberger, Mitchell, Bentsen]
C.
Portability Use of preexisting condition exclusions would be limited
for all insurers and employers. In 1993, the maximum duration for a
preexisting condition exclusion would be 5 months. This would phase
2
12/31/91
down to zero by 1997. Thus, by 1997, a worker could move from job to
job without fear of losing coverage. Prior to 1997, preexisting
conditions would only affect the typical worker's first entrance into the
work force. [Note: this needs to be clarified; also need to indicate that
portability would apply to individuals leaving Medicaid for private
insurance and vice versa.] [Similar to Bentsen and Rostenkowski]
D.
Access to Group Coverage for Workers and Dependants
1.
All employers would be required to offer access to health
insurance with individual and family coverage to all employees
working more than 17.5 hours a week -- but would not be
required to pay for it. [Similar to Johnson]
2.
The coverage offered must cover at least a "core" benefit package
equal in value to the maximum refundable health credit. The
core benefit package would be defined by the states.
3.
The employer need not make any contribution towards the cost
of coverage under such a plan but would be required to arrange
for enrollment and deduction of premiums from paychecks. A
penalty would be imposed for non-compliance.
E.
Access to Group Coverage for College Graduates
1.
All colleges and universities that provide group coverage (most
do) would be required to extend group coverage to new
graduates for 6 months after graduation from under graduate
and post-graduate programs. This could fill a significant
uninsured gap for new work force entrants.
2.
The college or university need not make any contribution to-
wards the cost of coverage under such a plan.
III.
Small Group Market Reforms
All insurers wishing to sell small group coverage within a state must be in
compliance with the premium standards specified in subparagraph (A) and
must participate in a risk spreading system as specified in subparagraph (B).
The mechanism for state implementation is discussed in section VI (page 7).
3
12/31/91
A.
Premium Standards
These standards limit variation in premiums within each insurance
company's overall set of offerings. They would not constrain
premium variation between insurers. The premium standards would
be temporary and would be phased-out with full implementation of a
system to equalize risk among insurers. (See below)
1.
Premium Standards Across "Blocks of Business" Premiums
could vary by up to 20% across different blocks of business. A
carrier may establish different blocks of business: (i) for business
acquired from another carrier, (ii) for business obtained through
a distinct system of marketing (e.g., brokers vs. associations), and
(iii) for business obtained through a different associations.
Carriers could establish three different blocks of business for each
of the three reasons, for a total of nine different blocks of
business.
2.
Premium Standards Across Age/Sex Categories Insurers could
vary premiums without limit by age and sex. This means that
younger workers would not directly subsidize older workers.
3.
Premium Standards Within Age/Sex Categories Insurers would
be limited in their ability to vary premiums based on health
status or prior use of care. Premiums could not differ by more
than 50% within age/sex categories in the first year decreasing to
35% by the third year. [Same as Bentsen proposal].
4.
Rate of Increase for Renewal Premiums --same as Bentsen.
5.
Enforcement An independent actuary would certify compliance.
Failure to have a valid certification would trigger a violation.
The enforcement agency could conduct a look-behind
investigation to verify certifications.
4
12/31/91
Maximum Allowed Variation in Premiums Across and Within Demographic Categories
(highest premium allowed to be xx% above lowest)
NAIC
HIAA
Duren-
Chafee
Bentsen
Mitchell
Johnson
Rosten-
berger
kowski
Across
No limit
No limit
No limit
No limit
No limit
10%
No limit
70%
Age/Sex
phased-
in
Within
70%
110%
50%
50%
50%
50%
70%
0%
Age/Sex
phased
phased
to 35%
to 0%
B.
Spreading Risks Among Insurers (Long Term Stability)
Because of guaranteed issue/renewability requirements and premium
limits, an insurer that enrolls a disproportionate share of high-risk
groups would be forced to charge higher premiums than competing
insurers. Some method is needed to spread risks among insurers to
prevent this unfair competitive disadvantage.
1.
Interim Measures -- States would be required on an interim basis
to implement a prospective reinsurance¹ or risk allocation
system. 2 States would have flexibility regarding the details of
these systems, [but could follow the NAIC model].
2.
Health Risk Adjustment/Risk Equalization Pool Starting in the
third year, states would phase-in a risk equalization pool for
small group carriers. The Secrerary of Health and Human
Services would be authorized to phase-out premium limits and
interim risk pooling measures as minimum Federal standards if
the Secretary determines that the risk adjustment system is
sufficient to make these limits and interim measures
unnecessary.
a.
All participating small group carriers would pay a flat per
enrollee premium to cover the risk of enrolling a
disproportionate share of high risks.
b.
At the beginning of each year, each insurer would assign
each insured individual to a unique health risk category
based on diagnosis.³
5
12/31/91
C.
Each category would have a weight corresponding to a
different level of expected health care use with a weight of
1.000 for average expected utilization (a weight of 2.000
would reflect an expected cost of two times average).
d.
The insurer would calculate an average weight for the
entire insured group. Insurers with an average of more
than 1.000 would receive net transfers from the pool
while insurers below 1.000 would be net losers.
e.
A random sample audit of claims and medical records
would be used to verify the accuracy.
f.
Pilot tests could be conducted either through FEHBP or
Medicare.
This approach reduces incentives for "cherry picking and refocuses
insurers' incentives on pooling risk efficiently while competing to
provide services at low cost.
IV.
Health Insurance Networks For Small Employers
Cleveland's Council of Smaller Enterprises (COSE) operates a successful
health insurance group purchasing program for small firms. By pooling
purchasing power, COSE is able to negotiate better rates with insurers. In
addition, COSE is able to reduce overhead and marketing costs, which
otherwise can amount to 40% of benefit costs for groups with fewer than 6
employees. While COSE has been successful, surprisingly little of this type of
group purchasing is going on nationwide. The reforms described in section
III will spur group purchasing by protecting against some of the abusive
practices that have daunted some local purchasing groups.
A.
Incentives for Group Purchasing The Federal preemption of state
regulation of self-insured health benefit plans under ERISA that
benefits virtually all large employers would be extended to small
businesses that purchase coverage on a group basis through a health
insurance network (HIN). This would protect against (i) state
mandated benefit laws that require firms to provide certain costly
services, (ii) state health insurance premium taxes, (iii) and state anti-
managed care laws. HINs could self-insure, but in this case, state
insurance solvency standards would apply.
6
12/31/91
B.
Group Purchasing HINs would contract with insurers to provide
coverage to members. As noted above, HINs could also self-insure, but
would be subject to state solvency regulation. All HINs would be
required to offer at least one managed care/HMO option, and at least
one fee-for-service or other alternative option. Managed care and fee-
for-service alternatives would include a "core" package priced at the
amount of the refundable health credit.
C.
Organization HINs would be structured as non-profit voluntary
membership corporations with a board of directors elected by the mem-
bership. HINs would be required to have a full-time staff to manage
benefits. HINs would be registered and qualified, as applicable, by a
state or Federal agency. A HIN would be required to have a "signifi-
cant" share of the small employment market in the State to assure
effective purchasing power in the market. HINs could be established
along the lines of professional societies, industry or trade associations
and would be subject to the market reforms listed in sections II and III.
V.
Mandated Benefit and Anti-Managed Care Laws
The following provisions of state law would be prohibited:
A.
Requirements for state mandated benefits. These include laws that
require insurers to cover services such as chiropracters and podiatrists.
These mandated benefits drive up costs and are enacted solely because
of intense interest group lobbying in state legislatures.
B.
Provisions that restrict managed care. Many provider groups,
including physicians, lobby state legislatures to impose restrictions
which prevent the development of managed care -- and the
competitive pressure it imposes on fee-for-service providers. Anti-
managed care laws include --
1.
Restrictions on reimbursement rates or selective contracting:
laws that restricts the ability of a carrier to negotiate reim-
bursement rates with providers, or to contract selectively with
one provider or a limited number of providers.
2.
Restrictions on differential financial incentives: laws that limit
the financial incentives that a health benefit plan may require a
beneficiary to pay when a non-plan provider is used on a non-
emergency basis.
7
12/31/91
3.
Restrictions on utilization review: laws that (a) prohibit
utilization review of any or all treatments and conditions, (b)
require that such review be made by an in-state physician or by a
physician in a particular specialty, (c) require the use of specified
standards of health care practice in such reviews, or require the
disclosure of the specific criteria used in such reviews, (d) require
payment to providers for the expense of responding to
utilization review requests, (e) imposes liability for delays in
performing such review.
[Similar to Johnson, Chafee]
VI.
How To Structure Federal and State Roles
To be more than symbolic, the Administration's proposal must include some
mechanism to ensure that the proposed reforms take effect. Because health
insurance traditionally has been regulated by the states,⁴ this mechanism must
affect state laws in some way. Options could range from modest incentives for states
to enact appropriate reforms to outright Federal preemption. Two options are
presented.
Option A:
If a state's health insurance laws do not meet Federal minimum
standards, then insurance sold in-state must be certified through
Federal back-up mechanism with Federal penalty for non-complying
insurance plans. Further, a non-complying state's Medicaid adminis-
trative grant funding will be frozen at base year levels. [Similar to
Bentsen, Mitchell, Johnson, Rostenkowski; but none have the
Medicaid link.]
Option B:
Direct Preemption Health insurance would be directly regulated by a
Federal agency. All applicable state laws would be preempted. [Similar
to Durenberger]
Recommendation:
Incentives for States (Option A) would apply to all requirements
specified in Sections II (Availability of Coverage), III (Small Group
Reforms), and V (Mandated Benefit and Anti-Managed Care Laws).
Direct Preemption (Option B) would apply to protect health insurance
networks from state mandated benefit laws, premium taxes, and anti-
managed care laws.
8
12/31/91
VII. Definition of Small Group Coverage:
Option A: Limited to 50 or fewer employees. [Similar to Chafee, Durenberger,
Bentsen, Rostenkowski].
Pros: Does not impose unnecessary burden on industry and on state
regulators. Extending reforms above group size 50 is unlikely to have
any appreciable effect on encouraging insurance coverage -- since risk
selection problems are unlikely to affect premiums for these workers.
Reduces risk that reforms could put undue financial strain on insurers
with a sicker client base.
Cons: Extending reforms to include all firms, regardless of size, may be a
political selling point.
Option B: Limited to 100 or fewer employees. [Similar to Mitchell]
Option C: Not limited by firm size.
1 Under NAIC's prospective reinsurance model, an insurer could obtain optional reinsurance for any
employer group or any newly eligible group member. The primary insurer would be liable for an
individual's costs up to $5000. Above $5000, the primary insurer would be responsible for 10% while
the reinsurance program would be responsible for 90% of costs. Above $10,000 the program would be
fully responsible. Group reinsurance premiums would be set at 5 times a base rate set by the board,
while individual reinsurance premiums would be set at 1.5 times the base rate. The program would be
funded by (i) reinsurance premiums, (ii) a mandatory assessment on all small group insurers set at a
maximum of 5% of overall revenues, and (iii) other broad based funding if needed.
2 Under NAIC's risk allocation model, guaranteed issue would not apply -- insurers could refuse to
provide coverage based on health risk However, the rejected group or individual would have a right
to receive coverage from an insurer pursuant to an allocation system. Under this system, the state would
maintain a list with quotas of assigned risks for each insurer. Each carrier's quota would generally
reflect the carriers market share. A rejected group or individual could select one of the insurers on the
list, provided that the insurer had not already received a disproportionate share of allocated risks.
Each carrier's quota would be readjusted on an annual basis if the actual cost of the allocated risks to
the insurer differ significantly from the norm.
3 This would be done by running the insurer's previous year claims data basis through a computer
algorithm that makes health risk category assignments based on routinely collected diagnostic codes.
Two health risk adjusters are available today -- the Diagnostic Cost Groups (DCGs) which reflect
inpatient hospital diagnoses and the Ambulatory Cost Groups which reflect ambulatory diagnoses.
4 In recent years, the Federal government has assumed a greater role. Self-insured health benefit
plans are subject to Federal regulation through ERISA with a total preemption of state law, and
Medicare supplemental (Medigap) coverage is subject to a joint federal-state regulatory system.
9
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
08a. Memo
From C. Boyden Gray to Richard Darman
12/20/91
P-5
Re: Medicare Health Care Reform (1 pp.)
Collection:
Record Group:
Bush Presidential Records
Office:
Policy Development, Office of
Open on Expiration of PRA
Series:
Kuttner, Johannes
(Document Follows)
By YJRD (NLGB) on 10/28/2005
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
THE WHITE HOUSE
WASHINGTON
December 20, 1991
MEMORANDUM FOR RICHARD DARMAN
FROM:
C. BOYDEN GRAY City
COUNSEL TO THE PRESIDENT
SUBJECT:
Medicare Health Care Reform
As we discussed many months ago, attached are some suggestions
from the Antitrust Division regarding ways to move away from the
expensive fee-for-service system toward a more competitive
approach for providing Medicare benefits.
Of course, this does not represent a general plan for health care
reform, but a building block for any plan you may develop. The
paper was produced in conjunction with Gail Wilensky and her
staff and is consistent with what I understand to be Alain
Enthoven's approach to health care reform.
CC: Roger Porter
Michael Boskin
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
08b. Memo
From James Rill, DOJ to C. Boyden Gray
12/19/91
P-5
Re: Medicare Cost Containment (4 pp.)
Collection:
Open on Expiration of PRA
Record Group:
Bush Presidential Records
(Document Follows)
Office:
Policy Development, Office of
Series:
Kuttner, Johannes
By JRD (NLGB) on 10/28/2005
Subseries:
WHORM Cat.:
File Location:
Health Care Reform - 92 Proposal - Final Papers
Date Closed:
1/5/2005
OA/ID Number:
06970-008
FOIA/SYS Case #:
1999-0118-F
Appeal Case #:
Re-review Case #:
2005-0296-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
SENT BY:D A A G
:12-20-91 ; 16:49 ;
DEPT OF JUSTICE-
2024566279;# 2
U.S. Department of Justice
Antitrust Division
Office of the Assistant Attorney General
Washington, D.C. 20530
December 19, 1991
Memorandum
TO: C. Boyden Gray
White House Counsel (Tee
FROM: James F. Rill
Assistant Attorney General
Antitrust Division
RE: Medicare Cost Containment
Background
Medicare is one of the largest spending programs within the
federal budget. In 1990, Medicare spending exceeded $100
million. Moreover, Medicare costs are escalating rapidly.
Despite these significant expenditures, there are persistent
questions concerning the quality of care delivered through the
system. Medicare cost containment and quality improvement must
be key features of any effort to reform the American health care
delivery system, and various proposals for fundamental reform of
the Medicare program are being evaluated in that broad context.
A significant part of the Medicare cost problem stems from
the overutilization of health care resources by beneficiaries who
lack incentives to consider cost-effective health care delivery
systems and forms of treatment. A related problem is the absence
of effective competition among providers of health care services.
Both problems could be addressed to a substantial degree by
reforms that would encourage greater utilization of competitive
coordinated care delivery stems. By correcting the incentive
structure facing both beneficiaries and providers, significant
costs savings -- perhaps approaching $2 billion per year -- could
be achieved.
SENT BY:D A A G
:12-20-91 ; 16:50 :
DEPT OF JUSTICE-
2024566279:# 3
Elements of Reform
1.
Promote competition through socially more responsible
pricing of health care benefits to the Medicare
beneficiaries.
The existing Medicare reimbursement system favors expensive
fee-for-service health care delivery. This is because
beneficiaries themselves pay substantially the same price
regardless of whether they select the most expensive or the least
expensive health care plan. Not surprisingly, beneficiaries
usually select the most expensive fee-for-service approach.
(Moreover, Medigap insurance creates additional incentives to
over-utilize health care services.)
In order to move toward a more competitive approach,
Medicare's contribution to the beneficiary's health plan must be
made independent of the actual health plan selected by the
beneficiary.
Under this approach, if a beneficiary chooses a plan that
actually costs less than the amount of the medicare contribution
then the beneficiary would be able to keep the difference. By
the same token, the beneficiary would have to bear the full cost
of a plan that costs more than the fixed contribution level. It
is only through such a benefit scheme that the beneficiary will
have incentives to seek out less expensive health plans that
offer an appropriate mix of price and quality. Health care
providers will have strong incentives to compete against each
other on price, quality, and scope of coverage, because the
reform makes beneficiaries sensitive to price and quality
differences among the various health plans. The government's
contribution to each beneficiary, however, will be based on the
beneficiary's health status and expected health care costs.
Thus, the government's contributions for a very sick beneficiary
will be larger than its contribution for a very healthy
beneficiary. This adjusted-contribution method ensures that no
beneficiary is unable to obtain high-quality health insurance
because of pre-existing conditions. Moreover, adjusted-
contributions promote equity across all Medicare beneficiaries by
ensuring that all beneficiaries face similar out-of-pocket
expenses for health insurance.
If the government's fixed contribution for each beneficiary
is pegged to the lowest cost health plan available to the
beneficiary, beneficiaries can obtain complete health coverage
with virtually no additional out-of-pocket expenses. This
approach will allow Medicare beneficiaries to reduce
significantly their health care expenses, if they so choose.
2
SENT BY:D A G
:12-20-91 ; 16:50 ;
DEPT OF JUSTICE-
2024566279:# 4
2. Create incentives for HMOs to compete for Medicare
beneficiaries.
Reform contemplates that HMOs that are most efficient in
serving Medicare beneficiaries should also have incentives to
compete vigorously for potential enrollees. Firms are motivated
by profits to provide products and services. But HMOs that serve
our elderly are not allowed to realize those same benefits from
lowering costs or increasing enrollment. Instead, HMOs' profits
on Medicare enrollees are restricted, leaving HMOs with
incentives to increase cots by providing low-value, but costly
services. This restriction on HMO profits also reduces HMOs'
incentives to enroll Medicare beneficiaries, thereby reducing the
opportunity to treat Medicare beneficiaries in a low-cost
environment and for Medicare beneficiaries to share in the cost-
savings that HMOs allow.
Market-oriented reform requires that efficient HMOs be
allowed to retain some share of the profits that superior
efficiency generates. Market competition for price sensitive
Medicare beneficiaries will put a constraint on the profits that
will ultimately flow to the HMOs.
3. Contracting.
Medicare program is already experimenting with promoting
centers of excellence where Medicare beneficiaries can obtain
certain high volume services, such as coronary bypass at reduced
rates. Medicare is constrained in its ability to enter contracts
with such centers. Contracting would allow Medicare to take
advantage of its ability to purchase some common procedures for
beneficiaries at reduced rates. Such procedures are those that
the elderly require most frequently. These discounts can reduce
health care costs of those beneficiaries that are not
participating in managed care programs, which already contract
for discounted rates from providers.
4. Increasing information to beneficiaries.
Increasing reliance on market forces to allocate health care
resources requires informed consumers. Medicare beneficiaries
should be provided cheaply with information about managed care
options. Limited standardization of health plans will also
intensify competition because consumers will be in a better
position to compare products. However, markets are innovative in
constructing new packages. We encourage such innovation and the
new Medicare program will not stifle it.
3
SENT BY:D A A G
;12-20-91 ; 16:51 ;
DEPT OF JUSTICE-
2024566279;# 5
Conclusion
Market forces are the most powerful constraint on Medicare
health care costs. For such forces to operate, Medicare
beneficiaries must benefit from selecting lower cost managed care
health care options and managed care providers must be allowed to
benefit from cost reductions and from offering more attractive
insurance products. Competition among managed care providers for
beneficiaries will also exert pressure on fee-for-service
providers, thus reducing aggregate health care costs.
4