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FINANCE COMM.
1
Smead
FLEX-I-VISION® HANGING FOLDER
HASTINGS, MN
LOS ANGELES CHICAGO-LOGAN, OM
MoGREGOR, TX-LOCUST GROVE, as
PHOTOCOPY
PRESERVATION
FINANCE COMMITTEE
THE
PHOTO OPY
PRESERVATION
STATE
THE
THE WHITE HOUSE
WASHINGTON
MEMORANDUM
To:
Hillary Rodham Clinton
From:
Chris Jennings
Date:
June 28, 1994
Re:
Senate Finance Committee Update
cc:
Melanne Verveer
Attached is the Chairman's mark that Senator Moynihan released earlier this evening.
This is the proposal that incorporates the same trigger to an employer/employee requirement
that Senator Breaux advocated several weeks ago.
Also attached is the latest version of the "rump group" proposal. Earlier today we met
with Christy Ferguson of Senator Chafee's staff and Susan Foote of Senator Durenberger's
staff to discuss their latest proposal. Interestingly, Mike Dahl of Senator Bradley's office also
was an unexpected participant. During the conversation it became clear that they are
considering other modifications to their proposal that would provide for more certain budget
neutrality guarantees. It is also clear based on other conversations that they and Senator
Danforth's staff remain open to a hard trigger to an individual mandate, yet prefer to hold off
any such change until the full Senate considers floor amendments.
The Finance Committee will be meeting tomorrow to walk through the Chairman's
mark and receive opening statements. Senator Moynihan and Senator Packwood have agreed
to a 36-hour review period of the Chairman's mark. This means that votes on and
amendments to the Chairman's mark will not take place until Thursday. At that time, it
appears that Senator Moynihan will try to push for a vote on his mark; it remains very
unclear however as to whether the other members will be prepared to vote on Senator
Moynihan's proposal.
As of this writing, it appears certain that Senators Boren, Breaux and Conrad will vote
against the hard trigger proposal. Should this occur, we have eight remaining Democrats who
potentially might vote for it and would provide a strong base for an employer requirement.
Having said that, Senators Bradley and Baucus are likely to be very difficult votes to attract
to this package. I am working with Pat, Harold and Steve to develop a strategy to create an
environment in which they would be more likely to vote for this package. (For example, we
may need to work with Senator Baucus in helping him draft an amendment to provide greater
assistance to small businesses; with Senator Bradley, we will continue our outreach effort
with old influential staff such as Susan Thomases and Ken Apfel as well as an ongoing
outreach effort from Harold). We will keep you apprised of any developments.
We are united in our belief that our highest priority is getting a bill, preferably a
reasonably solid bill, out of the Finance Committee as soon as possible. However, keeping in
mind that the committee will insist upon at least some CBO numbers to back up their
proposals, and considering how few days remain before the July 4th recess, it appears highly
unlikely that the committee will report out a bill prior to the members departure for their
break. The best we can hope for is getting some type of agreement on the basic foundation
of a compromise that can achieve committee support (which can be scored by CBO/OMB
over the recess).
To help facilitate timely action by the committee, we have been providing significant
technical assistance to the Chairman's staff. Much of this assistance is represented in the
Chairman's mark. At the lower staff level, they are very appreciative of our assistance. We
will need to continue to build on this relationship in order for the committee to develop a
package that can be scored as a budget neutral or deficit reducing initiative. For example, it
will be very difficult to make the numbers work for a policy marriage between the Chairman's
mark and the Chafee "rump group" proposal. (This is important because the committee now
believes that this is the direction they will go). We will continue to encourage the committee
staff to call on us for assistance.
DRAFT
June 28, 1994
COMMITTEE ON FINANCE
4:28 P.M.
CHAIRMAN'S MARK
HEALTH SECURITY ACT OF 1994
TABLE OF CONTENTS
I. INSURANCE REFORM STANDARDS
1
A. REQUIREMENTS FOR INSURED HEALTH PLANS
1
1. State Responsibilities
1
2. Guaranteed Issue
1
3. Extended Coverage of Dependents
2
4. Guaranteed Renewal
2
5. Limits on Pre-Existing Condition Exclusions
(Portability)
2
6. One-Time Amnesty for Pre-Existing Conditions
3
7. Standardized Benefit Package
3
8. Modified Community Rating
3
9. Risk Adjustment
4
10. Exit from the Market
5
B. REQUIREMENTS FOR SELF-INSURED HEALTH PLANS
5
1. Federal and State Responsibilities
5
2. Guaranteed Issue
5
3. Guaranteed Renewal
5
4. Extended Coverage of Dependents
6
5. Limits on Benefit Reductions
6
6. Limits on Pre-Existing Condition Exclusions
(Portability)
6
7. One-Time Amnesty for Pre-Existing Conditions
7
8. Standardized Benefit Package
7
C. REQUIREMENTS FOR EMPLOYERS
7
1. Employer Responsibility to Make Insurance
Available
7
2. Employers that are Permitted to Self-Insure
8
D. ANTITRUST REFORM
8
II. COVERAGE
10
A. COVERAGE GOAL
10
B. NATIONAL HEALTH CARE COMMISSION
10
C. DETERMINATION BY COMMISSION
10
D. EMPLOYERS SUBJECT TO HARD TRIGGER
11
E. INSURANCE ADJUSTMENTS
12
F. ENFORCEMENT PENALTIES
12
III. SUBSIDIES
13
A. PREMIUM SUBSIDIES
13
B. COST-SHARING SUBSIDIES
15
C. SUBSIDIES FOR EMPLOYERS
16
D. TRUST FUND FINANCING
17
IV. BENEFITS AND THE NATIONAL HEALTH BENEFITS BOARD
18
A. VALUE AND STRUCTURE OF THE BENEFITS PACKAGE
18
B. COVERED SERVICES
18
C. THE NATIONAL HEALTH BENEFITS BOARD
21
V. HEALTH INSURANCE PURCHASING COOPERATIVES
23
A. VOLUNTARY PARTICIPATION IN COOPERATIVES
23
B. ELIGIBILITY TO PURCHASE INSURANCE THROUGH A
COOPERATIVE
23
C. COMPETING COOPERATIVES
23
D. RULES FOR COOPERATIVES
23
E. CHOICE OF HEALTH PLANS AND COOPERATIVES
24
F. GOVERNING STRUCTURE OF COOPERATIVES
24
G. DUTIES OF COOPERATIVES
24
H. FEDERAL EMPLOYEES HEALTH BENEFITS (FEHB) PROGRAM
25
VI. COST CONTAINMENT
26
A. PREMIUM TARGETS
26
B. BUDGET CONTROL: PAY-AS-YOU-GO FAILSAFE
27
1. Timetable for pay-as-you-go mechanism
28
2. Entitlement to subsidies and certain tax
deductions made contingent on automatic
deficit reduction
29
3. Preparation of "pre-health care reform
baseline"
29
4. Determination of deficit increase
29
5. Determination of Required Deficit Reduction
30
6. Determination of Required Reductions
31
7. Alternative Deficit Reduction Legislation
31
8. Fast-Track Procedures
32
9. Implementation of Deficit Reduction
33
10. No-growth suspension
33
11. GAO Audit of Reductions
33
12. CBO Report
34
C. MALPRACTICE REFORMS
34
D. ADMINISTRATIVE SIMPLIFICATION AND PAPERWORK
REDUCTION
36
E. FRAUD
39
VII. REVENUE PROVISIONS
41
A. INCREASE IN EXCISE TAXES ON TOBACCO PRODUCTS
41
B. ADDITIONAL MEDICARE PART B PREMIUMS FOR HIGH-
INCOME INDIVIDUALS
44
C. MODIFICATION TO SELF-EMPLOYMENT TAX TREATMENT OF
CERTAIN S CORPORATION SHAREHOLDERS AND PARTNERS
45
D. EXTENDING MEDICARE COVERAGE OF, AND APPLICATION OF
HOSPITAL INSURANCE TAX To, ALL STATE AND LOCAL
GOVERNMENT EMPLOYEES
48
E. CREDIT FOR HEALTH INSURANCE COSTS OF INDIVIDUALS
NOT ELIGIBLE FOR SUBSIDIZED EMPLOYER-PROVIDED
HEALTH CARE
49
F. LIMITATION ON PREPAYMENT OF MEDICAL INSURANCE
PREMIUMS
50
G. DEFINITION OF EMPLOYEE
51
H. INCREASE IN PENALTIES FOR FAILURE TO FILE CORRECT
INFORMATION RETURNS WITH RESPECT TO NON-EMPLOYEES
53
I. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER
LIFE INSURANCE CONTRACTS
54
J. TAX CREDIT FOR THE COST OF PERSONAL ASSISTANCE
SERVICES REQUIRED BY INDIVIDUALS
56
K. TAX TREATMENT OF ORGANIZATIONS PROVIDING HEALTH
CARE SERVICES AND RELATED ORGANIZATIONS
58
L. MODIFICATION OF RULES FOR CERTAIN QUALIFIED
501 (c) (3) BONDS
67
M. ELIMINATE EXCLUSION FOR EMPLOYER-PROVIDED ACCIDENT
OR HEALTH BENEFITS PROVIDED THROUGH A FLEXIBLE
SPENDING ARRANGEMENT
68
N. PREMIUM ASSESSMENT
69
O. TAX TREATMENT OF FUNDING OF RETIREE HEALTH
BENEFITS
71
P. NONREFUNDABLE CREDIT FOR CERTAIN PRIMARY HEALTH
SERVICES PROVIDERS
73
Q. EXPENSING OF MEDICAL EQUIPMENT USED IN HEALTH CARE
SHORTAGE AREAS
76
R. COORDINATION WITH HEALTH CARE CONTINUATION
PROVISIONS
77
S. DISCLOSURE OF TAXPAYER RETURN INFORMATION FOR
ADMINISTRATION OF HEALTH SUBSIDY PROGRAMS
78
T. TAX TREATMENT OF VOLUNTARY EMPLOYER HEALTH CARE
CONTRIBUTIONS
79
U. ASSESSMENT ON LARGE EMPLOYERS
82
V. INCREASE EXCISE TAX ON HANDGUN AMMUNITION
83
W. PREFUNDING OF POSTAL SERVICE RETIREE HEALTH
BENEFITS
85
VIII. MEDICAID
86
A. ACUTE CARE SERVICES
86
B. SUPPLEMENTAL SERVICES
87
C. DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS
87
D. MEDICAID LONG TERM CARE
87
E. MISCELLANEOUS MEDICAID PROVISION
88
IX. LONG TERM CARE AND SUPPLEMENTAL INSURANCE STANDARDS
89
A. LONG TERM CARE INSURANCE STANDARDS
89
1. Definition of Long Term Care Policies
89
2. Regulatory Oversight
89
3. Marketing Requirements
89
4. Requirements Relating to Coverage Under a
Policy
90
5. Reporting Requirements
90
6. Agent Compensation
91
7. Rules for Issue, Renewals and Cancellations
91
8. Use of Standardized Definitions and
Terminology
91
9. Benefits Standards
91
10. Functional Assessments and Appeals Process
92
11. Inflation Protection
92
12. Non-Forfeiture
92
B. STANDARDS FOR SUPPLEMENTAL INSURANCE
93
1. Definition of Supplemental Health Benefits
Policies
93
2. Standards for Supplemental Service Policies
93
3. Standards for Cost-Sharing Policies
94
4. Prohibiting Offer of Multiple Plans to
Individuals
94
X.
MEDICARE
96
A. INDIVIDUAL ELECTION TO REMAIN IN PRIVATE HEALTH
PLANS
96
B. PROVISIONS RELATED TO PART A
96
1. Payment Updates for Prospective Payment System
(PPS) for Inpatient Hospital Services
96
2. Reduction in Payments for Capital-Related
Costs for Inpatient Hospital Services
97
3. Reductions in Payment Adjustments for
Disproportionate Share Hospitals
98
4. Changes in Payment Methodology for PPS-
Excluded Hospitals
99
5. Extension of Freeze on Updates to Routine
Service Costs of Skilled Nursing Facilities
100
6. Payments for Sole Community Hospitals with
Teaching Programs and Multi-Hospital
Campuses
100
7. Medicare Dependent Hospitals
101
8. Rural Health Transition Grants
101
9. Limited Service Hospitals, Essential Access
Community Hospitals and Medical Assistance
Facilities
102
C. PROVISIONS RELATED TO PART B
103
1. Updates for Physicians' Services
103
2. Substitution of Real Gross Domestic Product
(GDP) for Volume and Intensity in the Volume
Performance Standard
104
3. Payments for Physician Services Relating to
Inpatient Stays in Certain Hospitals
105
4. Incentives for Physicians to Provide Primary
Care
106
5. Development and Implementation of Resource-
Based Methodology for Practice Expenses
107
6. Elimination of Formula-Driven Overpayment for
Certain Hospital Outpatient Services
107
7. Payments to Eye and to Eye and Ear Specialty
Hospitals
108
8. Imposition of Co-insurance for Laboratory
Services
108
9. Application of Competitive Acquisition Process
for Part B Items and Services
109
10. Application of Competitive Acquisition Process
for Clinical Laboratory Services
110
11. Part B Premium
110
D. PROVISIONS RELATED TO MEDICARE PARTS A AND B
111
1. Medicare Secondary Payer
111
2. Expand Centers of Excellence
112
3. Medicare Select
112
4. Medicare Supplemental Insurance Polices
(Medigap)
113
5. Reduction in Routine Cost Limits for Home
Health Care Service
114
6. Improvements in Risk Contracts
114
E. MEDICARE AND MEDICAID COVERAGE BANK DATA
115
XI. ACADEMIC HEALTH CENTERS, GRADUATE MEDICAL
AND NURSING EDUCATION, AND RESEARCH
116
A. ACADEMIC HEALTH CENTERS TRUST FUND
116
B. BIOMEDICAL AND BEHAVIORAL RESEARCH TRUST FUND
117
C. GRADUATE MEDICAL AND NURSING EDUCATION TRUST FUND
118
XII. ACCESS TO HEALTH CARE IN DESIGNATED URBAN AND RURAL
AREAS
120
A. INVESTMENT IN INFRASTRUCTURE DEVELOPMENT
120
B. NETWORK AND PLAN DEVELOPMENT GRANT PROGRAM
121
C. OPERATING ASSISTANCE
121
D. CAPITAL INVESTMENT
122
E. TELEMEDICINE DEMONSTRATION PROJECTS
123
F. PROVISIONS RELATING TO INDIAN HEALTH
123
G. OFFICE OF THE ASSISTANT SECRETARY FOR RURAL HEALTH
124
XIII. STATE FLEXIBILITY
125
A. STATE LAWS THAT DO NOT AFFECT THE ADMINISTRATION OF
HEALTH PLANS
125
B. COMPREHENSIVE STATE PROGRAMS
125
XIV. PRIVACY AND CONFIDENTIALITY
127
A. RULE OF NONDISCLOSURE FOR PROTECTED HEALTH
INFORMATION
127
B. PENALTIES
127
C. INDIVIDUAL AUTHORIZATION OF DISCLOSURES
127
D. LIMIT ON AMOUNT OF INFORMATION DISCLOSED
127
E. PROHIBITION OF REDISCLOSURE
128
F. PATIENT RIGHTS
128
G. SECURITY AND INTEGRITY SAFEGUARDS
128
H. EXCEPTIONS TO THE RULE OF NONDISCLOSURE
128
XV. HEALTH PLAN STANDARDS
130
A. STANDARDS FOR ALL HEALTH PLANS
130
B. ADDITIONAL STANDARDS FOR INTEGRATED HEALTH PLANS
131
C. ADDITIONAL STANDARDS FOR FEE-FOR-SERVICE HEALTH
PLANS
135
D. ACCREDITATION, CERTIFICATION, AND ENFORCEMENT OF
STANDARDS FOR CERTIFIED HEALTH PLANS
136
E. NATIONAL HEALTH PLAN STANDARDS AND QUALITY ADVISORY
COMMITTEE
137
F. PREEMPTION OF CERTAIN STATE LAWS
137
XVI. QUALITY, CONSUMER INFORMATION, AND HEALTH SERVICES
RESEARCH
139
A. ADMINISTRATION
139
B. HEALTH SERVICES AND QUALITY IMPROVEMENT RESEARCH
139
C. QUALITY IMPROVEMENT FOUNDATIONS
139
D. CONSUMER INFORMATION
139
E. REMEDIES AND ENFORCEMENT
139
A. ADMINISTRATION
140
B. HEALTH SERVICES AND QUALITY IMPROVEMENT RESEARCH
140
C. QUALITY IMPROVEMENT FOUNDATIONS
140
D. CONSUMER INFORMATION
141
E. REMEDIES AND ENFORCEMENT
142
APPENDIX: HEALTH PLAN LEXICON
143
HEALTH SECURITY ACT OF 1994
I. INSURANCE REFORM STANDARDS
A. REQUIREMENTS FOR INSURED HEALTH PLANS
Present Law
Federal law generally does not govern the sale of insured health plans
to individuals or groups. The two exceptions are Title XVIII of the Social
Security Act that regulates the sale of supplemental Medicare policies
(Medigap policies) and Title XIII of the Public Health Service Act which
sets out standards (including benefit package and rating) for health
maintenance organizations that choose to be federally qualified. States
set standards for insurance policies and many States have enacted insurance
reforms in the past three years.
Description of Proposal
1. State Responsibilities
Participating States would be required to certify that primary
insurance coverage offered for sale by commercial insurance companies, Blue
Cross plans, integrated health plans, and other organizations that assume
health insurance risks ("insured health plans") comply with new Federal
standards. Federal Medicaid matching payments would not be available to
non-participating States. Federal low-income premium subsidies could only
be paid for individuals enrolled in State-certified standard insured health
plans.
Insured health plans not meeting standards for certification would be
subject to a civil monetary penalty not to exceed 50 percent of gross
premiums during the period in which the violations occurred.
2. Guaranteed Issue
Insured health plans would be required to accept all individuals and
their dependents, and all groups that apply for coverage. Insured health
plans could not deny coverage based on health status, medical condition,
claims experience, receipt of health care, medical history, anticipated
need for health care services, disability, or lack of evidence of
insurability.
Insured health plans would be required to issue coverage to
individuals or groups except when (i) the health plan demonstrates that
such enrollment would cause it to exceed service capacity or (ii) the
individual or group has not requested enrollment during the open enrollment
period. Each health plan would be required to have at least one annual
1
open enrollment period of 30 days. Enrollment in a health plan outside the
open enrollment period would be permitted without penalty under a limited
set of circumstances including marriage, court order, and change in
employment status.
Subject to Part V, insured health plans would be required to offer
coverage through all purchasing cooperatives in a community rating area,
and would be required to sell outside the cooperatives.
An exception to the guaranteed issue rule would be made for religious
fraternal benefit societies that were in existence as of September 1993,
which bore the risk of providing insurance to their members, and which
receive tax-exempt status under Sec. 501(c) (8) of the Internal Revenue
Code.
Effective Date
January 1, 1996.
3. Extended Coverage of Dependents
Insured health plans would be required to offer family coverage that
includes coverage of dependent unmarried children up to age 24 and spouses.
Effective Date
For policies issued or renewed on or after January 1, 1996.
4. Guaranteed Renewal
Insured health plans would be prohibited from terminating or otherwise
failing to renew coverage for groups or individuals except in the case of
1) nonpayment of premiums; 2) fraud on the part of the policyholder or
purchaser; or 3) misrepresentation by the policyholder or purchaser on an
application for coverage or claim for benefits.
Effective Date
For policies in effect on or after June 28, 1994.
5. Limits on Pre-Existing Condition Exclusions (Portability)
a. Insured health plans could not exclude coverage of treatment for a
pre-existing condition for more than 6 months from date of plan enrollment.
A condition is pre-existing if it was treated or diagnosed in the 6 months
prior to the date of enrollment. Insured health plans could not apply
exclusions if individuals were recently insured by another health plan.
Insured health plans could not apply pre-existing condition limitations to
newborn coverage and would be required to offer automatic coverage of
newborns on the parent's policy.
2
Effective Date
For policies issued on or after January 1, 1996.
b. Insured health plans could exclude from coverage only a condition
that was treated or diagnosed in the 3 months prior to enrollment. Insured
health plans could not limit coverage when the pre-existing condition is
pregnancy.
Effective Date
For policies issued on or after January 1, 1997.
6. One-Time Amnesty for Pre-Existing Conditions
Insured health plans would be required to enroll, without pre-existing
condition limitations, any uninsured person who applies for enrollment.
This one-time amnesty would be effective only during the first open
enrollment period after the effective date of this section.
Effective Date
For the first open enrollment period beginning on or after January 1,
1996.
7. Standardized Benefit Package
Insured health plans would be required to offer a standardized benefit
package as a separate package, in conformance with other requirements of
the legislation.
Effective Date
For policies issued or renewed on or after January 1, 1996.
8. Modified Community Rating
a. States would be directed to establish geographic areas ("community
rating areas") within which insured health plans would be required to
community rate. Each State would determine the number of such areas within
it. However, a community rating area could not subdivide a Metropolitan
Statistical Area (MSA) and must contain at least 250,000 individuals. In
establishing a community rating area, States could not discriminate on the
basis of health status or the perceived need for health services. MSAs
that cross State boundaries could be treated as one community rating area
if both States agree to cooperate.
b. The community-rated market would include all eligible individuals
who are not (i) employees (and their dependents) of an employer with 500 or
more employees (other than an employer whose primary business is employee
leasing) ; or (ii) participants in a Taft-Hartley plan, rural cooperative
plan, or multiple employer welfare arrangement (MEWA) grandfathered under
3
section C.2 of this Part.
c. Insured health plans selling policies in the community-rated
market would be permitted to offer only policies that are community rated,
modified for the location of the community rating area, family size, and
age. The age adjustment would be limited so that the ratio between the
highest and the lowest rate within a family class in a given geographic
area could not exceed 2:1 for the population under age 65. The Secretary
of HHS would consult with the National Association of Insurance
Commissioners to develop uniform age categories and rating increments
within 6 months of enactment.
d. Employer discounts for certain workplace wellness activities would
be permitted.
Effective Date
For policies issued or renewed on or after January 1, 1996.
9. Risk Adjustment
a. The Secretary of HHS would be required to develop a risk
adjustment mechanism that States would implement. All insured health plans
in the community-rated market (inside and outside the purchasing
cooperatives) would be required to participate. The risk adjustment
mechanism would account for differences in the demographics, health status,
and poverty and subsidy status of plan enrollees.
b. The Secretary of HHS would be required to develop, and States
would be required to implement, a separate adjustment mechanism to
redistribute losses among insured health plans resulting from the reduced
cost sharing obligations of persons receiving subsidies, which must be
absorbed by individual insured health plans as described in Part III
(Subsidies).
c. States would also be required to operate reinsurance pools which
meet Federal requirements until a risk adjustment mechanism is developed
and implemented.
d. Nothing would prevent a reinsurance system and risk adjustment
system from operating concurrently if the Secretary determines this is
desirable.
Effective Date
States would be required to establish reinsurance pools by January 1,
1996, and implement a risk adjustment mechanism by January 1, 1997. States
would be required to implement a cost-sharing subsidy redistribution system
by January 1, 1997.
4
10. Exit from the Market
During the transition to community rating, insured health plans could
terminate coverage of individuals or employers with fewer than 100
employees only if they terminate coverage for all such individuals or
groups in the State (or terminate coverage in both these markets if the
health plan operates in both markets) and would then be prohibited from re-
entering the market (s) in the State for five years.
Effective Date
Effective upon enactment until January 1, 1996.
B. REQUIREMENTS FOR SELF-INSURED HEALTH PLANS
Present Law
The Federal government regulates employment-based health plans under
the Employee Retirement Income Security Act of 1974 (ERISA). ERISA
requires reporting and disclosure of certain information to the Department
of Labor (DOL) and imposes fiduciary responsibilities on plan sponsors.
Description of Proposal
1. Federal and State Responsibilities
a. Participating States would be required to certify self-insured
plans that operate in only one State. The Secretary of Labor would be
required to certify multistate self-insured plans.
b. Self-insured plans that are not certified as satisfying the
following requirements would be subject to a civil monetary penalty not to
exceed 50 percent of gross health plan expenditures during the period in
which the violations occurred.
2. Guaranteed Issue
Self-insured health plans could not deny coverage or vary premiums
based on health status, medical condition, claims experience, receipt of
health care, medical history, anticipated need for health services,
disability, or lack of evidence of insurability.
Effective Date
January 1, 1995.
3. Guaranteed Renewal
Self-insured plans could not terminate or otherwise fail to renew an
individual's coverage due to the individual's health status, medical
condition, claims experience, receipt of health care, medical history, or
5
lack of evidence of insurability.
Effective Date
June 28, 1994.
4. Extended Coverage of Dependents
Self-insured health plans would be required to offer family coverage
that includes coverage of dependent unmarried children up to age 24 and
spouses.
Effective Date
January 1, 1996.
5. Limits on Benefit Reductions
Self-insured plans could not reduce or limit coverage for any
condition or course of treatment for which the anticipated cost for an
individual is likely to exceed $5000 in any 12-month period. Any such
modification would not be effective and the self-insured sponsor would be
required to provide benefits as though the modification had not occurred.
Effective Date
June 28, 1994 until January 1, 1996.
6. Limits on Pre-Existing Condition Exclusions (Portability)
a. Self-insured plans could not exclude from coverage, for more than
6 months from the date of plan enrollment, treatment of a pre-existing
condition. A condition is pre-existing if it was treated or diagnosed in
the 6 months prior to the date of enrollment. Self-insured plans could not
apply exclusions if individuals were recently insured by another health
plan, nor could plans apply pre-existing condition limitations to newborn
coverage. Plans would be required to offer automatic coverage of newborns
on a parent's policy.
Effective Date
January 1, 1996.
b. Self-insured plans could only exclude from coverage a condition
that was treated or diagnosed in the 3 months prior to enrollment. Plans
could not limit coverage when the pre-existing condition is pregnancy.
Effective Date
January 1, 1997.
6
7. One-Time Amnesty for Pre-Existing Conditions
Self-insured plans would be required to enroll, without pre-existing
condition limitations, any group member who is otherwise eligible for
coverage. This one-time amnesty would be effective only during the first
open enrollment period under reform.
Effective Date
The first open enrollment period beginning on or after January 1,
1996.
8. Standardized Benefit Package
Self-insured plans must provide a standardized benefit package as a
separate package, in conformance with other requirements of the
legislation. Plans could provide additional benefits through certified
supplemental policies.
Effective Date
Effective for new coverage or renewals beginning on or after January
1, 1996.
C. REQUIREMENTS FOR EMPLOYERS
Present Law
No provision.
Description of Proposal
1. Employer Responsibility to Make Insurance Available
a. Employers in the community-rated market
Any employer in the community-rated market would be required to make
payroll deductions for health insurance for each employee that requests it.
These employers would be required to make available at least three
certified standard health plans in the community-rated pool, including a
fee-for-service option and a point of service option. An employer in this
market would be permitted to meet this requirement by offering coverage
through a purchasing cooperative that offers at least three types of
certified standard health plans at the community rate.
b. Other employers
Employers not in the community-rated market would be required to make
payroll deductions for employees who request it. These employers would be
required to make available at least three types of certified standard
health plans, including a fee-for-service plan and a point of service
7
option. These employers would not be permitted to purchase health plan
coverage in the community-rated market.
C. Enforcement
A civil monetary penalty would be assessed on employers for failure to
comply with any of the preceding requirements. The penalty would not
exceed 25 percent of the wages of affected employees during the period in
which the violation occurred.
Effective Date
January 1, 1996.
2. Employers that are Permitted to Self-Insure
I
Only employers and organizations described in one of the following
categories would be permitted to sponsor a self-insured or experience-rated
health plan:
(a) Employers (other than employers whose primary business is
employee leasing) with 500 or more employees;
(b) Grandfathered Taft-Hartley or rural cooperative plans; and
(c) Grandfathered multiple employer welfare arrangements
(MEWAs).
Existing Taft-Hartley and rural electric and telephone cooperative
health plans with at least 500 participants would be permitted to self-
insure or purchase experience-rated insurance. MEWAS in existence as of
January 1, 1991 that are maintained by a bona fide group or association of
employers or by an employee organization and that covered at least 1000
participants as of June 1, 1994 also would be permitted to continue to
provide health care coverage. However, grandfathered MEWAS (1) could not
self-insure, (2) could not increase the number of participants covered
under the arrangement by more than 5 percent, and (3) would be subject to
new, more stringent, Federal standards. (Two or more employers with 500 or
more employees who form a MEWA would not be subject to these MEWA rules.)
Effective Date
January 1, 1996.
D. ANTITRUST REFORM
Present Law
The McCarran-Ferguson Act (15 U.S.C. §§1011-15) provides that the
"business of insurance" is exempt from Federal antitrust laws, provided
that such business is regulated by the State and that the challenged
8
actions do not constitute a boycott or coercion or intimidation.
Description of Proposal
Immunity from antitrust suits under the McCarran-Ferguson Act with
respect to health insurance would be repealed. This would not alter
immunity with respect to other forms of insurance.
Effective Date
Effective for causes of action arising on or after January 1, 1996.
9
II. COVERAGE
Present Law
No provision.
Description of Proposal
A. COVERAGE GOAL
Universal health care coverage is the national goal of this
legislation. An individual is "covered" if insured by a certified standard
or very high deductible health plan, or by one of the following public
plans: Medicare, Medicaid, a Department of Defense health program, a
Department of Veterans Affairs health program or an Indian Health Service
program.
B. NATIONAL HEALTH CARE COMMISSION
An independent National Health Care Commission would be established to
monitor and respond to: (1) trends in health insurance coverage; and (2)
changes in per-capita premiums and other indicators of health care
inflation.
The Commission would be composed of 7 members nominated by the
President and confirmed by the Senate. Commissioners would serve 6-year,
staggered terms. No more than four members of the Commission may be from
the same political party.
C. DETERMINATION BY COMMISSION
If the Commission determines that specified coverage goals (described
in paragraph D) have not been achieved an employer mandate would
automatically be triggered requiring employers to contribute 80 percent of
the cost of a certified standard health plan.
10
D. EMPLOYERS SUBJECT TO HARD TRIGGER
FIRMS WITH 100 OR MORE EMPLOYEES: three years after enactment, if market
reforms in a voluntary system do not result in 85 percent of the currently
uninsured employees of firms in this category gaining coverage, a mandate
would go into effect.
Percent of employees in this category who are currently
uninsured
11 percent
Number of uninsured employees in the category
7.4 million
(85 percent of 7.4 million = 6.3 million)
Percent of all firms
1.6
Percent of all employees
60.8
FIRMS WITH 25 TO 99 EMPLOYEES: four years after enactment, if market
reforms in a voluntary system do not result in 80 percent of the currently
uninsured employees of firms in this category gaining coverage, a mandate
would go into effect.
Percent of employees in this category who are currently
uninsured
21 percent
Number of uninsured employees in this category
3.3 million
(80 percent of 3.3 million = 2.6 million)
Percent of all firms
6.5
Percent of all employees
15.9
FIRMS WITH FEWER THAN 25 EMPLOYEES: five years after enactment, if market
reforms in a voluntary system do not result in 75 percent of the currently
uninsured employees of firms in this category gaining coverage, a mandate
would go into effect.
Percent of employees in this category who are currently
uninsured
26 percent
Number of uninsured employees in this category
9.8 million
(75 percent of 9.8 million = 7.4 million)
Percent of all firms
91.9
Percent of all employees
23.0
11
E. ONGOING MONITORING
The Commission will provide on-going review of coverage rates. If at
anytime after the initial determination of whether coverage goals were met
for the group of firms described in paragraph c, the Commission determines
that coverage has fallen below the specified goals, then the mandate for
that group of firms would automatically be triggered.
F. INSURANCE ADJUSTMENTS
If a mandate goes into effect for all firms, insurance reform
standards would be adjusted as follows:
1. Guaranteed Issue: Health plans would be required to provide
unrestricted open health plan enrollment.
2. Pre-Existing Condition Limitations: Health plans would be
prohibited from applying any pre-existing condition limitations.
G. ENFORCEMENT PENALTIES
Any employer that fails to comply with the mandate would be subject to
an excise tax equal to $100 for each day for each employee for whom the
employer has failed to provide coverage.
Effective Date
Upon enactment.
12
III. SUBSIDIES
A. PREMIUM SUBSIDIES
Present Law
No provision.
Description of Proposal
1. Eligibility
Subsidies are payable according to the following criteria:
(a) full subsidy for individuals and families with income that does
not exceed 100 percent of poverty; beginning in 1997, the subsidy is phased
out for those with income between 100 percent and the following percentages
of poverty:
Calendar Year
Percentage of Poverty
1997
125
1998
150
1999
175
2000
200
(b) the benefit package to be subsidized is limited to the value of a
certified standard health plan;
(c) no subsidy is payable for those entitled to a subsidy of $150 or
less; and
(d) there is no poverty adjustment for family size above a family size
of 4.
Resident citizens and aliens permanently residing in the U. S. under
color of law are eligible for a subsidy for the purchase of a certified
standard health plan. Undocumented aliens are not eligible.
The poverty level that will be used in determining eligibility is the
official poverty line as defined by the Office of Management and Budget,
and revised annually in accordance with section 673 (2) of the Omnibus
Budget Reconciliation Act of 1981.
2. Subsidy value
The full subsidy will equal the cost of the premium for a certified
standard health plan, but no higher than the average cost of such a plan in
the community rating area minus the amount of any contribution offered by
an employer.
13
3. Definition of income
Income is defined as adjusted gross income (as determined for purposes
of paying Federal income taxes), modified to include nontaxable interest
income, the portion of social security benefits that are not subject to
taxation, and welfare payments.
4. Subsidies for AFDC recipients
Recipients of AFDC who are integrated into the reformed health care
system are eligible for subsidies on the same basis as all other eligible
individuals. Individuals may file an application for a premium subsidy at
the same time that they apply for AFDC.
5. Eligibility determination
The Secretary of Health and Human Services is directed to promulgate
regulations specifying procedural requirements that States must follow in
determining eligibility for subsidies, which shall include regulations
relating to procedures for filing of applications, verification of
information, timeliness of decision-making, appeals of adverse decisions,
and such other matters as the Secretary determines to be necessary.
Outreach activities by Federal and State governments will be required.
Eligibility will be calculated on an annual basis. An individual or
family that has an approved application for a subsidy must file an end-of-
year income reconciliation statement at such time as is specified in
regulations. Failure to file a reconciliation statement will result in
ineligibility for subsidies until the statement is filed, unless there is
good cause.
The Secretary of the Treasury in consultation with the Secretary of
Health and Human Services shall promulgate regulations providing for the
use of income tax return information in determining and verifying
eligibility to the extent practicable.
The agency administering the subsidy program shall pay the subsidy to
which an individual or family is entitled directly to the plan in which the
individual or family is enrolled. An employer of an employee whose
application for a subsidy has been approved must, upon request of the
employee, adjust any premium amount being withheld on behalf of the
employee to reflect the premium subsidy for which the employee is eligible.
An individual who knowingly understates income in an application for a
subsidy shall be liable for any excess payments made based on the
understatement and for interest. An individual who knowingly misrepresents
material information shall be liable for $2,000 or, if greater, three times
the excess payments made based on the misrepresentation.
6. Responsibility for administration
The State shall be responsible for administration, and may designate
14
the public agency that it deems appropriate to carry out necessary
functions. The Secretary of Health and Human Services must develop
standards to assure consistency among States with respect to data
processing systems, application forms, and such other administrative
activities as the Secretary determines necessary to promote the efficient
administration of the subsidy program. A State shall be liable to the
Federal government for payments made in error.
Funds required to pay the subsidies will be transferred to the State
at such time and in such form as provided in regulations. The Secretary of
Health and Human Services shall provide for regular audits. A State shall
be liable for payments made in error.
The Federal government will match State administrative costs at a rate
of 75 percent Federal, 25 percent State.
Effective Date
States have the option of providing subsidies to those who are
eligible beginning with the month of January 1996, and must provide
subsidies for months after December 1996.
B. COST-SHARING SUBSIDIES
Present Law
No provision.
Description of Proposal
1. Cost-sharing for those up to poverty
Individuals and families eligible for a full subsidy (up to 100
percent of poverty) are eligible for reduced cost-sharing at point of
service, as determined by the National Health Benefits Board. The plan
will absorb any short-fall.
Effective Date
Upon implementation of the State subsidy program.
2. Cost-sharing for those above poverty
States will have the option of providing subsidies for cost-sharing
for individuals and families with income between 100 percent and 200
percent of poverty. The State would be required to pay 50 percent of the
cost, and would be responsible for establishing eligibility requirements
and for administration. Capped entitlement funds will be allocated to the
States on the basis of State population, beginning in fiscal year 1997.
Two billion dollars a year will be available for this purpose.
15
C. SUBSIDIES FOR EMPLOYERS
Present Law
No provision.
Description of Proposal
1. Eligibility
a. Employers will be eligible to receive subsidies if an employer
mandate is triggered (as described under Part II).
b. Employers who are subject to the mandate are required to pay 80
percent of the cost of a certified standard health plan. In general,
however, employer contributions for the 80 percent share of the premium are
limited to no more than 12 percent of each employee's wage.
c. Subsidies are targeted to low-wage employees irrespective of where
they are employed.
d. Although eligibility for the subsidy is based on the individual
employee's wage irrespective of the average wage or firm size, the amount
of the subsidy is based on firm size and the average wage of the firm.
Contributions are limited to 5.5 - 12.0 percent of the wage of each
employee within the firm in accordance with the following schedule:
Average Wage in Firm
Firm Size
<12K
12-15K
15-18K
18-21K
21-24K
24K+
<26
5.5%
6.8%
8.1%
9.4%
10.7%
12.0%
26-50
6.8%
8.1%
9.4%
10.7%
12.0%
12.0%
51-75
8.1%
9.4%
10.7%
12.0%
12.0%
12.0%
e. If an employer mandate is triggered it will be implemented in
accordance with a schedule described in Part II. Under this schedule,
firms with fewer than 100 full-time equivalent employees are not
immediately subject to the mandate. However, such firms would be eligible
for subsidies, in accordance with the subsidy structure outlined in d.
above, provided the firm contributed at least 50 percent to the cost of a
certified standard health plan. When the mandate is phased in for these
firms the subsidy would continue based on the 80 percent contribution
required under the mandate.
2. Definition of Wages
16
Wages are defined as in the Internal Revenue Code for the purpose of
determining contributions for the Hospital Insurance Trust Fund. Wages
will be defined equivalently for State and local governments that do not
contribute to Social Security. In the case of a partner in a partnership,
a 2-percent shareholder in an S corporation, or a sole proprietor, the
individual's net earnings from self-employment are deemed to be wages.
Effective Date
This provision would be effective if an employer mandate is triggered
under the provisions of Part II, on or after January 1, 2002.
D. TRUST FUND FINANCING
There is created in the Treasury a Health Security Trust Fund ("Trust
Fund"). All subsidies required by this Act shall be paid from funds
available in the Trust Fund, as would payments for infrastructure
development for designated urban and rural areas (Part XII), and quality
improvements.
Revenues attributable to the increase in excise taxes on tobacco
products and other revenues raised by this Act would be deposited into the
Trust Fund.
Amounts equivalent to the reductions in Federal Medicaid expenditures
resulting from this Act, and State Maintenance of Effort payments required
under this Act, would be deposited into the Trust Fund.
If Trust Fund obligations in a year exceed Trust Fund receipts, any
shortfall would be automatically deposited into the Trust Fund from general
revenues.
Effective Date
Upon enactment.
17
IV. BENEFITS AND THE NATIONAL HEALTH BENEFITS BOARD
A. VALUE AND STRUCTURE OF THE BENEFITS PACKAGE
Present Law
No provision.
Description of Proposal
The value of the standard benefit package would be based on the
actuarial value of the Blue Cross/Blue Shield Standard Option (BC/BS-SO)
under the Federal Employees Health Benefits (FEHB) program, adjusted for an
average population. Fee-for-service plans would have an actuarial value
equivalent to the BC/BS-SO under FEHB adjusted for an average population.
Integrated plans could have reduced cost-sharing, set at a level to keep
average premiums at, or below, the fee-for-service levels.
Cost sharing arrangements would include co-payments, co-insurance, and
deductible amounts for services other than clinical preventive services.
There would be three options for certified standard health plans:
1. Higher cost sharing plan would have an annual out-of-pocket
maximum of $2500 per individual or $3000 per family; $400 per individual or
$800 per family deductible; 25 percent co-insurance; $250 per admission
hospital deductible; $250 prescription drug deductible.
2. Lower cost sharing plan, details of which would be specified
by the National Health Benefits Board.
3. Combination cost sharing plan, in which an enrollee can
choose any physician, but pay higher out-of-pocket costs for physicians who
are not part of the network. Cost sharing details to be specified by the
National Health Benefits Board.
In addition, a certified very high deductible health plan consisting
of the same covered services with a $5000 per individual or $10,000 per
family deductible would be available, but not as a certified standard
health plan. (Only certified standard health plans can be offered by
employers.)
B. COVERED SERVICES
Present Law
No provision.
Description of Proposal
Health plans would be required to offer a standardized set of covered
services. Categories of covered services would be specified in statute. A
18
National Health Benefits Board would be directed to refine covered services
by reference to standards of medical necessity or appropriateness.
Medically necessary or appropriate treatments would be defined by law as
those intended to maintain or improve the biological or psychological
condition of the enrollee or to prevent or mitigate an adverse health
outcome to the enrollee. For individuals under 22 years of age, the Board
would be directed to give consideration to age and health status to prevent
or ameliorate the effects of a condition, illness, injury or disorder, to
aid in the individual's overall physical and mental growth and development,
or assist the individual in achieving or maintaining maximum functional
capacity.
Categories of covered services and equipment would include:
1. hospital services, including inpatient, outpatient, 24-hour a day
hospital emergency, and hospital services provided for the treatment of a
mental or substance abuse disorder. The definition of the term "hospital"
would be the same as in Medicare, with additional reference to facilities
of the uniformed services, Department of Veterans Affairs and Indian Health
Service.
2. health professional services, including inpatient and outpatient
services and supplies (including drugs and biologicals which cannot be
self-administered). Health professional services means professional
services that are lawfully provided by a physician or another person who is
legally authorized to provide such services in the State in which the
services are provided.
3. emergency and ambulatory medical and surgical services, including
24-hour a day emergency services, or ambulatory medical or surgical
services.
4. clinical preventive services, including services for high risk
populations, age-appropriate immunizations, tests, or clinician visits
consistent with any periodicity schedule specified by the National Health
Benefits Board. The National Health Benefits Board would be directed to
consult with appropriate government agencies, task forces, and professional
groups (for example, using recommendations of the Advisory Committee on
Immunization Practices, the US Preventive Services Task Force, and for
children, the American Academy of Pediatrics).
5. mental illness and substance abuse services. The Secretary of HHS
would be directed to define such services so as to achieve parity with
services for other medical conditions and would develop standards for the
appropriate management of these benefits. Mental disorders and substance
abuse disorders would be defined, respectively, as those listed in the
Diagnostic and Statistical Manual of Mental Disorders, Fourth Edition or
revised version of such manual, or the equivalent listed in the
International Classification of Diseases, 9th Revision, Clinical
Modification, Third Edition or a revised version of such text.
6. family planning services and services for pregnant women,
19
including contraceptive drugs and devices dispensed by prescription and
subject to approval by the Secretary of HHS under the Federal Food, Drug,
and Cosmetic Act.
7. hospice care services, as defined in Medicare.
8. home health care services, as defined in Medicare with limitations
such that these services would be an alternative to inpatient treatment in
a hospital, skilled nursing facility or rehabilitation facility and would
be reevaluated after each 60 day period. Covered services to include
treatment as a result of an illness, injury, disorder or other health
condition.
9. extended care services, as defined in Medicare when provided in
inpatient skilled nursing facility or a rehabilitation facility as an
alternative to inpatient hospital services to include treatment as a result
of an illness, injury, disorder or other health condition.
10. ambulance services provided by ground, air or water
transportation using equipment for transporting injured or sick
individuals, only if indicated by the medical condition of the individual
or in cases in which there is no other method of transportation or where
use of other methods is contra-indicated by the medical condition.
11. outpatient laboratory, radiology and diagnostic services,
provided upon prescription to individuals who are not inpatients of a
hospital, hospice, skilled nursing facility, or rehabilitation facility.
12. outpatient prescription drugs, home infusion drug therapy and
biologicals, including accessories and supplies used directly with drugs
and biologicals, including any use approved by the Food and Drug
Administration or if cited in the American Hospital Formulary Service-Drug
Information, the American Medical Association Drug Evaluations, the United
States Pharmacopoeia-Drug Information and other authoritative compendia as
identified by the Secretary. Blood clotting factors would be defined as in
Medicare. The Secretary of HHS may revise the list of compendia.
13. outpatient rehabilitation services, including outpatient
occupational therapy; outpatient physical therapy; outpatient respiratory
therapy; and outpatient speech-language pathology services and audiology
services as a result of an illness, injury, disorder or other health
condition. The need for continued services would be reevaluated at the end
of each 60 day period by the person primarily responsible for providing the
services.
14. durable medical equipment (DME), prosthetics and orthotic and
prosthetic devices, including accessories and supplies necessary for
repair, function and maintenance of DME. DME would be defined as in
Medicare; prosthetic devices are devices that replace all or part of the
function of a body organ including replacement of DME and prosthetic
devices; orthotic devices are those accessories and supplies used directly
with prosthetic devices to achieve therapeutic benefits and proper
20
functioning; orthotics are leg, arm, back, and neck braces; prosthetics are
artificial legs, arms, and eyes including replacements if required; and
fitting and training for use of these items.
15. vision care, hearing aids and dental care for individuals under
22 years of age including eyeglasses; contact lenses; emergency dental
treatment for acute infections, bleeding and injuries to prevent risks to
life or significant medical complications; prevention and diagnosis of
dental disease including oral dental examinations, radiographs, dental
sealants, fluoride application and dental prophylaxis; treatment of dental
disease including routine fillings, prosthetics for congenital defects,
periodontal maintenance and endodontic services; space maintenance
procedures to prevent orthodontic complications and interceptive
orthodontic treatment to prevent severe malocclusion.
16. investigational treatments, including routine care provided in
research trials approved by the Secretary of HHS, the Directors of the
National Institutes of Health, the Commissioner of the Food and Drug
Administration, the Secretary of Veterans Affairs, the Secretary of
Defense, or a qualified nongovernmental research entity as defined in
guidelines of the National Institutes of Health, including guidelines for
National Cancer Institute-designated cancer center support grants; or a
peer-reviewed and approved research program as defined by the Secretary of
HHS.
Effective Date
For all policies in effect on or after January 1, 1996.
C. THE NATIONAL HEALTH BENEFITS BOARD
Present Law
No provision.
Description of Proposal
A National Health Benefits Board would be established within the
Department of Health and Human Services. The Board would consist of ;
members nominated by the President and confirmed by the Senate who would
serve for six-year, staggered terms. No more than four members may be from
the same political party.
The Board, in consultation with expert groups, would be authorized to
promulgate regulations to: clarify covered services and cost-sharing,
refine the statutory definition of medical necessity or appropriateness,
develop appropriate schedules for covered services, and refine policies
regarding coverage of investigational treatments.
The Board would also be authorized to issue regulations to modify the
categories of covered services and cost sharing that would go into effect
21
unless Congress overturns the regulations by joint resolution considered
under fast-track procedures.
Effective Date
Board members would be named by the President within 90 days after
enactment.
22
V. HEALTH INSURANCE PURCHASING COOPERATIVES
Present Law
No provision.
Description of Proposal
A. VOLUNTARY PARTICIPATION IN COOPERATIVES
No employer or individual would be required to purchase insurance
through a health insurance purchasing cooperative. Individuals and
employers eligible to purchase insurance through a cooperative could also
elect to purchase insurance at modified community rates through a broker or
directly from an insurance company.
B. ELIGIBILITY TO PURCHASE INSURANCE THROUGH A COOPERATIVE
All purchasers in the community-rated market would be eligible to
purchase insurance through a cooperative. These include: (1) employers
with fewer than 500 employees (and the individual employees of such
employers) i (2) self-employed individuals; (3) individuals not connected to
the workforce; and (4) employers whose primary business is employee
leasing. Eligible individuals could also purchase insurance on behalf of
their dependents.
C. COMPETING COOPERATIVES
More than one cooperative could operate within a community rating area
defined by the State under Federal standards. Cooperatives would not be
required to contract with every certified health plan. If a cooperative
negotiates a price lower than the community rate, that price becomes the
health plan's community rate, which must be offered to all purchasers
within the community rating area.
A cooperative would be permitted to serve more than one community
rating area.
If a cooperative were not established in every community rating area
by 1996, the State would be required to sponsor or establish a cooperative.
In such cases, the State would only be required to sponsor or establish one
cooperative that could serve all unserved areas within the State.
D. RULES FOR COOPERATIVES
Cooperatives would be required to accept all eligible individuals and
employers in the community rating area they serve. Cooperatives would be
required to ensure that their services were accessible in all parts of the
community rating areas in which they operate. To ensure accessibility,
23
cooperatives would be authorized to make enrollment material available at
designated public access sites, such as public libraries and local
government offices.
Individuals not connected to the workforce would enroll in a
cooperative based on residence.
Cooperatives would also be required to provide enrollees with a choice
of at least three types of health plans, one of which must be a fee-for-
service plan and one of which must be a plan that offers a point-of-service
option. Governors could waive the requirement that cooperatives and
employers offer a choice of at least three types of health plans in rural
areas where the cooperative demonstrates to the Governor's satisfaction
that there is insufficient population density to support three types of
plans.
Cooperatives could require payroll deductions for employed
individuals. Also, if employees ask their employers to make payroll
deductions for a cooperative, employers would be required to comply.
Cooperatives would be prohibited from entering into contracts with
health plans that are not certified.
E. CHOICE OF HEALTH PLANS AND COOPERATIVES
Enrollees, not employers, would choose a health plan within a
cooperative. Employees of the same employer could choose different health
plans within a cooperative.
Employers with fewer than 500 employees could choose a cooperative for
their employees as an alternative to the requirement that they offer at
least three types of health plans.
F. GOVERNING STRUCTURE OF COOPERATIVES
Cooperatives would be non-profit corporations governed by a board of
directors elected by members of the cooperative. Units of State or local
governments would be permitted to form a cooperative. Insurers would be
prohibited from forming a cooperative, but would be permitted to administer
one. Cooperatives would be eligible for Federal tax-exempt status (subject
to rules concerning private inurement, lobbying and political activity
restrictions).
G. DUTIES OF COOPERATIVES
Duties of cooperatives would include: entering into agreements with
certified health plans, employers, and individuals; collecting and
forwarding premiums to certified health plans; coordinating with other
cooperatives; and providing a complaint process regarding cooperative
actions. Cooperatives would be expressly prohibited from approving or
enforcing provider payment rates, performing any activity relating to
premium payment rates, and bearing insurance risk.
24
Cooperatives would be required to report to the State such information
regarding marketing, enrollment and administrative expenses as required by
the Secretary. The Secretary would be required to promulgate rules
regarding fiduciary responsibilities of cooperatives.
H. FEDERAL EMPLOYEES HEALTH BENEFITS (FEHB) PROGRAM
All health plans participating in the Federal Employees Health
Benefits Program would be required to offer coverage in the community-rated
market in the areas in which they operate. Non-federal employee purchasers
would pay the local community rate for that plan, and would not be a part
of the FEHB insurance pool. Government-wide FEHB plans would not be
required to open to non-federal employee enrollment.
Effective Date
January 1, 1996.
25
VI. COST CONTAINMENT
A. PREMIUM TARGETS
Present Law
No provision.
Description of Proposal
1. National Health Care Commission
The Commission (established under Part II of this document) would
monitor the change in per-capita health insurance premiums for certified
health plans.
2. Premium Targets
Targets for changes in per-capita premiums would be set in law as the
projected percentage increase in the CPI-U, plus a percentage increment
reflecting three factors: (1) increases in real per-capita income, (2)
changes in demographics and health status indicators, and (3) changes in
medical technology and the use of services. The premium targets'
increments over CPI-U would be the following:
For 1996, 4.0 percentage points;
For 1997, 3.5 percentage points;
For 1998, 3.0 percentage points;
For 1999, 2.5 percentage points;
For 2000 and thereafter, 2.0 percentage points.
3. Functions of Commission
On February 15, 1997, and each February 15 thereafter through 2005,
the Commission would report to the Congress and the President on the
increase in per capita premiums. If the Commission finds that premiums
during the prior calendar year increased at a rate in excess of the targets
(adjusted to reflect the actual increase in the CPI-U), the Commission
would be required to make appropriate recommendations to the Congress on
measures to keep premium costs within the targets.
The Congress would be required to consider the recommendations of the
Commission under expedited procedures. The proposals, upon transmittal to
Congress, would be drafted as a joint resolution by House Legislative
Counsel, in consultation with Senate Legislative Counsel, and would be
introduced by the Majority Leaders of the Senate and House of
Representatives, for themselves and the respective Minority Leaders by
March 15. Committees would have 45 session days to report the resolution
or be discharged. Committees may report amendments relevant to cost
26
containment. Three days after the measure is placed on the calendar, any
Member could make a non-debatable motion to proceed to the resolution.
Motions to proceed would be non-debatable. If the motion to proceed is
agreed to, consideration of the resolution would proceed under a 50-hour
time limitation and amendments relevant to cost containment would be in
order. At the expiration of the 50 hours, a vote on final passage of the
resolution would occur. Debate on conference agreements would be limited
to 20 hours.
Effective Date
Upon enactment.
B. BUDGET CONTROL: PAY-AS-YOU-GO FAILSAFE
Present Law
Congress enacted the Gramm-Rudman-Hollings Act (Pub. L. No. 99-177) in
late 1985, to provide an incentive for the President and Congress to reduce
the deficit each year through the regular legislative process. The Gramm-
Rudman-Hollings Act established a declining series of deficit targets
(referred to as "maximum deficit amounts") leading to a balanced budget in
fiscal year 1991. The Act enforced the deficit targets by the
"sequestration process," under which automatic spending reductions would
occur if the projected deficit exceeded the deficit targets.
In 1987, after the Supreme Court ruled the sequestration triggering
mechanism in the Gramm-Rudman-Hollings Act unconstitutional due to
Legislative Branch involvement, Congress amended the Act, extending the
goal of a balanced budget to fiscal year 1993 and placing responsibility
for the automatic triggering of sequestration in the hands of the Director
of the Office of Management and Budget (OMB).
Congress revised the sequestration process in the Budget Enforcement
Act (BEA) of 1990. First, the Act extended the process through fiscal year
1995 (although the budget was not required to be balanced by that time).
Second, the Act shifted the focus of deficit control away from overall
deficit reduction targets, to a policy requiring that new Federal
legislation not increase Federal deficits. This pay-as-you-go requirement
was accomplished by establishing: (1) discretionary spending caps which
effectively require that new or increased discretionary spending be offset
by decreases in other discretionary programs; and (2) a pay-as-you-go (PAY-
GO) requirement to ensure that legislative changes in entitlement spending
and revenues are fully paid for. The BEA made the spending caps and PAY-GO
requirement enforceable by sequestration (i.e. automatic budget
reductions). Congress extended the spending caps and the PAY-GO
requirement through fiscal year 1998 in the Omnibus Budget Reconciliation
Act of 1993, Pub. L. No. 103-66.
The pay-as-you-go policy was strengthened in the FY 1994 and FY 1995
concurrent resolutions on the budget, which imposed a 10-year pay-as-you-go
27
requirement on entitlement and revenue legislation considered by the
Senate. Legislation violating the requirement is subject to a point of
order, which may only be waived by a supermajority of 60 votes.
The existing statutory PAY-GO constraints through FY 1998 and the
Senate's 10-year pay-as-you-go point of order, operate to prevent the
enactment of legislation which is projected at the time of enactment to
cause increases in the deficit for any year through fiscal year 2004.
Description of Proposal
This proposal would establish a mechanism for mid-course corrections
in the event of increases in the deficit attributable to health care
reform.
1. Timetable for pay-as-you-go mechanism
January/February - In the years 1997, 1999, 2001, 2003 and 2005, five
days prior to the President's budget submission, CBO is required to submit
to the Congress and OMB a determination of whether health reform has caused
an increase in the deficit in the prior year. Five days later, the
President's Budget for the fiscal year is to include OMB's determination of
whether health care reform caused a deficit increase in the prior fiscal
year. OMB must explain any differences from CBO's preliminary
determinations. If a deficit increase is attributed to health care reform,
automatic and proportional reductions in: (1) subsidies and (2) the tax
credit for insurance premiums paid by the self-employed and individuals not
covered at work, go into effect September 20 unless alternative deficit
reduction legislation is enacted prior to that time.
June 1 - Deadline for the President to submit to the Congress an
alternative deficit reduction resolution, which offsets the deficit
increase attributable to health care reforms.
June 10 - CBO to report to the Senate and House Budget Committees on
whether the alternative deficit reduction resolution submitted by the
President will produce the same amount of deficit reduction in the upcoming
fiscal year as is required to be achieved through automatic reductions. If
the Chairmen of the Senate and House Budget Committees certify that the
alternative deficit reduction resolution produces the required deficit
reduction, it is protected by fast-track procedures, as follows.
June 15 - Deadline for the Majority Leaders of the House of
Representatives and the Senate to introduce alternative deficit reduction
legislation. Legislation to be referred to all relevant committees.
Committees are to review the legislation, but no amendments are permitted.
June 25 - House committees discharged of alternative deficit reduction
legislation if they have not reported.
July 1 - If no real economic growth in the two most recent quarters,
28
the Chairman of the Council of Economic Advisers is to make a "no-growth"
report which suspends the subsidy reductions and congressional alternative
deficit reduction fast-track.
July 10 - Deadline for House of Representatives to vote on alternative
deficit reduction legislation. Bill may not be amended; debate limited to
20 hours, equally divided.
July 20 - Senate committees discharged if they have not reported bill
received from the House.
August 5 - Deadline for Senate vote on alternative deficit reduction
legislation. Bill may not be amended; debate limited to 20 hours, equally
divided.
September 20 - If OMB made a determination in the President's budget
that the deficit increased in the prior fiscal year due to health care
reform, and if alternative deficit reduction legislation has not been
enacted into law, then proportional reductions in: (1) subsidies and (2)
the tax credit for insurance premiums paid by the self-employed and
individuals not covered at work, go into effect.
November 1 - GAO audit of automatic reductions, or implementation of
alternative deficit reduction legislation, as the case may be.
January/February - cBo report to Congress on success of automatic
reductions or alternative deficit reduction legislation in eliminating
health care deficit.
2. Entitlement to subsidies and certain tax deductions made contingent on
automatic deficit reduction
The legal entitlement to subsidies and the tax credit for insurance
premiums paid by the self-employed and individuals not covered at work,
would be subject to the operation of the back-up deficit reduction
mechanism explained below.
3. Preparation of "pre-health care reform baseline"
CBO and OMB would be required, within 60 days following enactment, to
prepare a baseline for total Federal health care expenditures, projected
for each fiscal year through 2004, as would have occurred without the
enactment of health care reform. CBO shall transmit its estimates to the
Congress and OMB within 30 days of enactment. Five days after CBO's
transmittal, OMB shall transmit to the Congress its determinations,
explaining in detail any differences from CBO's estimates.
4. Determination of deficit increase
29
In calendar years 1997, 1999, 2001, 2003 and 2005, five days prior to
the President's budget submission, CBO is required to submit to the
Congress and the OMB estimates of whether health care reform has caused an
increase in the deficit in the prior fiscal year. Five days later, the
President's annual Budget for the upcoming fiscal year is to include OMB's
determination of whether health care reform caused a deficit increase in
the prior fiscal year. OMB must explain any differences from CBO's
estimates.
In determining whether health care reform "has caused an increase in
the deficit for the prior fiscal year,' CBO and OMB shall proceed as
follows:
a. Determine "total Federal health care spending for the prior fiscal
year. "
b. Adjust the "pre-health care reform baseline" for Federal spending
in the prior fiscal year to reflect all identifiable health care spending
variables not attributable to health care reform.
C. Subtract pre-health care reform spending for the prior fiscal year
(as adjusted), from total Federal health care spending for the prior fiscal
year--producing the "net increase in Federal health care spending for the
prior fiscal year.
d. Subtract from the net increase in Federal health care spending, net
revenues for the prior fiscal year currently estimated to have resulted
from enactment of health care reform. If the "net increase in Federal
health care spending" exceeds "net revenues,' the difference shall be
designated the deficit increase for the prior fiscal year resulting from
health care reform legislation.
Example of calculation: In January of 1997, CBO and OMB will
determine how much total Federal health care spending was in fiscal
year 1996; they will subtract from that total, the amount of pre-
health care reform spending which had been projected by OMB for FY
1996 (in the pre-health care reform baseline) as adjusted to exclude
increases in spending unrelated to health care; the resulting number
will reflect the net increase in Federal health care spending for FY
96 which has resulted from health care reform; finally, the net
revenues projected to have been raised in FY 96 due to health care
reform are offset against the net spending increase; this yields the
FY 96 deficit increase, if any, resulting from health care reform.
5. Determination of Required Deficit Reduction
If OMB has determined that health care reform caused an increase in
the deficit in the prior fiscal year, OMB must report in the President's
Budget how much deficit reduction is required to be implemented in the
upcoming fiscal year. This is to be determined by inflating the amount of
deficit increase from the prior fiscal year, using the CPI-U.
30
For example, suppose that OMB determines in January 1997 that in
Fiscal Year 1996, the deficit increased by $10 billion due to health care
reform. OMB would then apply the projected inflation rate for FY 97 and FY
98 to the $10 billion deficit increase to determine how much of a deficit
offset is required in FY 98. If inflation is estimated to be 3.1 percent
in fiscal years 1997 and 1998, the adjusted deficit reduction required for
FY 98 would be $10.63 billion.
These determinations would occur every two years, beginning in 1997
and through 2005. This biennial structure would operate to avoid double-
counting deficit increases. For example, suppose a determination in 1997
causes an automatic subsidy reduction in FY 98. If there was a deficit
determination only one year later in 1998, the "look-back" at FY 97 would
fail to capture the effects of the already implemented deficit reduction.
However, the biennial process, which calls for a look back in 1999 at FY
98, will take into account the implemented deficit reduction under the
prior cycle.
6. Determination of Required Reductions
If OMB reports in the President's budget that deficit reduction is
required for the upcoming fiscal year to offset a deficit increase
resulting from health care reform, the President is required on September
20 to implement proportional reductions in: (1) subsidies and (2) the tax
credit for insurance premiums paid by the self-employed and individuals not
covered at work--unless alternative deficit reduction legislation is
enacted in the interim. The President must report in the Budget for that
fiscal year specifically what reductions are to be implemented on September
20.
The required deficit reduction is to be achieved through a progressive
formula, so that: (1) subsidies for the lower income recipients would
receive the smallest reductions and subsidies for the higher income
recipients would receive the largest reductions; and (2) the reduction in
the tax credit for insurance premiums paid by the self-employed and
individuals not covered at work would be applied progressively, based on
income.
7. Alternative Deficit Reduction Legislation
A procedure is established for fast-track consideration of a
legislative alternative to the automatic reductions. If OMB determines a
deficit increase attributable to health care reform for the prior fiscal
year, the President would be required to submit to Congress by June 1: (1)
alternative deficit reduction legislation designed to achieve the required
deficit reduction for the upcoming fiscal year; or (2) a report explaining
why such alternative legislation is not being transmitted.
It is expected that the alternative deficit reduction legislation
would be developed through a process similar to the trade fast-track
31
process used for the implementing bills for the North American Free Trade
Agreement and the Uruguay Round of the General Agreement on Tariffs and
Trade. Those processes have involved extensive consultation among the
Senate and House committees of jurisdiction through "mock mark-ups and
conferences," as well as extensive consultation with the Executive Branch.
The alternative deficit reduction legislation is to be submitted as a
joint resolution stating in the resolving clause that the "Congress has
determined that it is necessary to avert automatic reductions in Federal
health care subsidies by enacting the following changes in law, which are
estimated to eliminate projected deficit increases resulting from the
enactment of health care reform."
If alternative deficit reduction legislation is transmitted to the
Congress, cBo is to report to the Senate and House of Representatives by
June 10, estimates of whether the alternative deficit reduction language
submitted by the President will produce the same amount of deficit
reduction in the upcoming fiscal year as is required to be achieved through
automatic reductions (as estimated by OMB). If the Chairmen of the Senate
and House Budget Committees certify by June 13, that the alternative
deficit reduction legislation produces the required amount of deficit
reduction, it will proceed through the Congress under the following
procedural "fast-track" protections.
8. Fast-Track Procedures
Introduction of Resolution. --Under the fast-track procedure, the
Majority Leaders of the House of Representatives and the Senate are
required, no later than June 15, to introduce the alternative deficit
reduction legislation, transmitted by the President, on behalf of
themselves and the respective Minority Leaders.
Referral. The legislation is to be referred to all relevant
committees. Committees are to review the legislation, but no committee
amendments are permitted.
Discharge --On June 25, House committees are to be discharged of
alternative deficit reduction legislation if they have not yet reported.
Vote by House of Representatives. The House of Representatives must
vote on the alternative deficit reduction legislation no later than July
10. During consideration by the House of Representatives, the bill may not
be amended and debate is limited to 20 hours.
Discharge by Senate Committees. If alternative deficit reduction
legislation passes the House of Representatives, all Senate committees to
which the legislation was referred are discharged no later than July 20 if
they have not reported the legislation.
Vote by Senate. The Senate must vote on the alternative deficit
reduction legislation no later than August 5. During consideration by the
32
Senate, the bill may not be amended and debate on the bill (and all motions
and appeals) is limited to 20 hours, equally divided between the Majority
and Minority Leaders or their designees. A motion to proceed to the
alternative deficit reduction legislation is non-debatable. Motions to
recommit the alternative deficit reduction legislation are not in order.
Section 313 of the Congressional Budget and Impoundment Control Act of
1974, commonly known as the "Byrd Rule," would apply in the Senate so that
any "non-budgetary" provisions included in the alternative deficit
reduction legislation, as submitted by the President, could be stricken
from the bill.
9. Implementation of Deficit Reduction
If alternative deficit reduction legislation has not been enacted by
September 20: (1) the President is required to implement automatic
reductions in subsidies by executive order; and (2) the Secretary of the
Treasury is required to promulgate regulations reducing the tax credit for
insurance premiums paid by the self-employed and individuals not covered at
work.
10. No-growth suspension
No later than July 1, the Chairman of the Council of Economic Advisers
(CEA) shall make a "no-growth" report to the President and the Congress, if
the Commerce Department has reported less than zero percent real economic
growth for the fourth quarter of the preceding calendar year and the first
quarter of the current calendar year. If the CEA Chairman makes a no-
growth report to the President and the Congress: (1) the President shall
not issue an executive order implementing across-the-board reductions in
subsidies and the Secretary of the Treasury shall not issue Treasury
regulations reducing tax credits; and (2) the fast-track procedures in the
Congress shall be automatically suspended. If an alternative deficit
reduction resolution is in the fast-track process when a no-growth report
is issued, legislative consideration may continue, but without the
expedited procedures of the fast-track.
11. GAO Audit of Reductions
If alternative deficit reduction legislation has been enacted, or if
the President has issued an executive order and the Secretary of the
Treasury has issued regulations imposing the required reductions, the
General Accounting Office is required to report to Congress no later than
November 1: (1) in the case of an executive order and Treasury
regulations, an analysis of whether the reductions have been implemented
according to statutory requirements; or (2) if alternative deficit
reduction legislation has been enacted, an analysis of whether the
reductions have been implemented as required in the statute.
33
12. CBO Report
If alternative deficit reduction legislation has been enacted, or if
the President has issued an executive order and the Secretary of Treasury
has issued regulations making required reductions, the Congressional Budget
Office must include in its January publication of the Economic and Budget
Outlook, an analysis of whether the reductions are likely to be successful
in eliminating the deficit overage.
Effective Date
Upon enactment.
C. MALPRACTICE REFORMS
Present Law
No provision.
Description of Proposal
1. Alternative Dispute Resolution (ADR) Procedures
Health plans would be required to establish ADR procedures and
malpractice claims could not be brought in court until the claims had gone
through and reached a final resolution under the plan's procedures. Each
health plan would be required to adopt at least one of the specified
dispute resolution methods for resolving medical malpractice claims arising
from the provision of health care services to individuals enrolled in the
plan. Acceptable ADR procedures would include arbitration; required
mediation; and a process requiring parties to make early offers of
settlement.
2. Actions in State Courts
After final resolution of an enrollee's claim under an ADR procedure,
an enrollee dissatisfied with the resolution would be permitted to bring a
cause of action to seek damages or other redress with respect to that
claim, to the extent permitted under State law.
3. Contingency Fee Limits
Contingency fees paid to attorneys would be limited to a sliding-scale
schedule. An attorney who represents a plaintiff in a medical malpractice
action on a contingency fee basis would not be permitted to charge, demand,
receive or collect more than a specified percentage of the total amount
recovered by judgment or settlement in the action. This limitation would
also apply to proceedings under any ADR procedure.
4. Collateral Source Offsets
34
Awards would be reduced by the amount of any payment for the same
injury from another source. The reduction in damages would take into
account the amount of past or future payment that the individual has
received, or is eligible to receive, from other sources. Such sources
include Federal or State disability or sickness programs; Federal, State or
private health insurance programs; private disability insurance programs;
employer wage continuation programs; and any other program, if the payment
is intended to compensate the claimant for the same injury for which
damages are awarded.
5. Periodic Payments
Payments of over $100,000 could be made on a periodic schedule
determined by the court. At the request of any party to a medical
malpractice liability action, the defendant would be permitted to make such
payments periodically, based on a schedule that the court considers
appropriate, taking into account the periods for which the injured party
would need medical and other services.
6. Enterprise Liability Demonstrations
Demonstration projects for limiting liability to health plans rather
than physicians would be authorized. The Secretary of Health and Human
Services would be required to establish and fund a demonstration project in
one or more States to demonstrate whether making the plan in which a
physician participates, rather than the physician, liable for the
physician's medical malpractice improves the quality of health care
provided under the plan, reduces defensive medical practices, and improves
risk management. To be eligible to participate in the demonstration
project, a State would be required to enter into an agreement with a health
plan under which the plan assumes legal liability for malpractice claims
arising from the provision or failure to provider services under the plan
by any participation physician. The State would also be required to
provide by statute that physicians participating in such plans would not be
liable for damages and would not be required to indemnify the plan for the
value of any awards.
7. Medical Practice Guideline Demonstrations
Demonstration projects for adopting medical practice guidelines as the
standard of care in medical liability actions would be authorized. The
Secretary of HHS would establish and fund the demonstration projects at the
State level. To be eligible to participate, the State would be required to
provide assurances that under the law of the State, in a medical
malpractice action alleging that the defendant was negligent in providing
(or failing to provide) services, the appropriate medical practice
guideline would establish the standard of care.
8. Preemption
Federal malpractice reforms would preempt inconsistent State laws
except to the extent such laws imposed greater restrictions on attorney
35
fees or a person's liability, or permitted additional defenses to
malpractice actions. The Federal provisions would apply in any malpractice
liability action brought in any State or Federal court, with the exception
of cases involving claims or actions for damages arising from an injury or
death subject to resolution under other Federal laws.
9. No Right to Action in Federal Court
The Federal malpractice provisions would govern actions in State
courts and would not establish a basis for bringing malpractice actions in
Federal court.
Effective Date
Effective for causes of action arising on or after January 1, 1996.
D. ADMINISTRATIVE SIMPLIFICATION AND PAPERWORK REDUCTION
Present Law
Federal law does not regulate the collection of private sector health
information except for Medicare claims, which are collected by the Health
Care Financing Administration of the Department of Health and Human
Services for a centralized database. The Omnibus Budget Reconciliation Act
of 1993 also calls for a data bank of all insurance coverage from any
source to be used for coordination of benefits to prevent Medicare and
Medicaid from paying claims for which another insurer was responsible.
This data bank has not yet been established.
Description of Proposal
1.
Purpose
This section would implement a national health information network to
reduce the burden of administrative complexity, paperwork, and cost on the
health care system; to provide the information on cost and quality
necessary for competition in health care; and to provide information tools
that allow improved fraud detection, outcomes research, and quality of
care.
2.
Requirements for the Secretary of HHS
The Secretary would be required to implement a national health
information network by adopting standards for:
(a) representing the content and format of health information in both
paper and electronic forms,
(b) transmitting health information over the network,
(c) conducting transactions using this information,
(d) certifying public or private entities to perform the intermediary
functions which implement the network, and
(e) monitoring performance to assure compliance.
36
The Secretary would be required to establish expedited procedures to
adopt health information standards that are already in common use or that
are recommended by public or private standards setting organizations such
as the American National Standards Institute.
The Secretary would be required to establish procedures for:
(a) adding codes to previously adopted standards;
(b) making changes to previously adopted standards; and
(c) developing, testing, and adopting new standards.
3.
Establishment of a Health Information Advisory Committee
The Secretary would be required to consult with a Health Information
Advisory Committee consisting of 15 members from the private sector
including providers, consumers, and experts with practical experience in
developing and applying health information and networking standards. The
members would be appointed by the President and serve staggered, 5 year
terms.
4.
Requirements for Health Plans and Health Care Providers
All health plans, including Federal and State health programs, and all
health care providers would be required to participate in the health
information network either directly or through a contract with a certified
health information network service. Plans and providers would be required
to conduct transactions electronically over the health information network
for:
(a) claims and claims attachments (or encounters in the case of
providers who do not submit claims), and
(b) research and quality data inquiries.
In addition, plans would be required to conduct transactions
electronically over the health information network for:
(a) enrollment;
(b) eligibility determination;
(c) claims status;
(d) payment and remittance advice;
(e) coordination of benefits;
(f) first report of injury; and
(g) referrals, certification, and authorization.
The Secretary may require other transactions to be conducted
electronically, consistent with the goal of reducing administrative costs.
In addition, plans and providers would be required to make certain standard
data available electronically on the health information network to
authorized inquiries.
5.
Standards for Accessing Health Information
The Secretary would be required to establish technical standards for
requesting standard health information from participants in the health
information network which assure that a request for health information is
37
authorized under the Privacy and Confidentiality Part or that it requests
health information that is not protected under the Privacy and
Confidentiality Part because individuals cannot be identified using the
information requested.
The Secretary would be required to establish standards for the
appropriate release of health information to researchers and government
agencies, including public health agencies. The Secretary would establish
standards for the electronic identification of a request as one which comes
from a person authorized to receive the requested health information under
the Part on Privacy and Confidentiality.
6.
Preemption of State "Quill Pen" Laws
Requirements of this Part would preempt State laws which conflict,
including provisions that require health records to be maintained in
written, rather than electronic, form. The Secretary would be required to
establish standards for an electronic identifier which would serve the same
function as a signature and its use would supersede State laws requiring a
written signature.
7.
Health Security Cards
The Secretary would be required to determine a standard format for a
health security card which includes a form of the social security number to
uniquely identify each individual. Using this standard, health plans will
issue cards to individual enrollees.
8. Penalty for Failure to Comply
All participants would be required to comply with this section within
a reasonable time unless specifically excluded or waived. The Secretary
would be required to impose a penalty of not more than $1,000 for each
violation of health information network standards and requirements.
Additional penalties would be imposed for violation of the Part on Privacy
and Confidentiality.
9. Health Information Continuity
To prevent the loss of health information due to bankruptcy of a
health information network participant, the Secretary would be required to
establish procedures for the rescue and reassignment of information held by
participants who cease to function or who function in a manner that would
threaten the continuous availability of their information.
10. Demonstration Projects for New Applications
The Secretary would be authorized to make grants for demonstration
projects to promote the development and use of electronically integrated,
community-based clinical information systems and computerized patient
record systems.
38
11. Replacement of Medicare and Medicaid Coverage Data Bank
The function of the Medicare and Medicaid Coverage Data Bank would be
replaced through the requirement on all health plans to ensure the
electronic availability on the health information network of standardized
enrollment and eligibility information on every covered individual.
In order to be certified, health information network services would be
required to be capable of performing automated electronic coordination of
benefits and responding to queries from health care providers and health
plans, in standardized transactions as defined by the Secretary, regarding
the enrollment and coverage for any individual under any health plan.
Effective Date
Upon enactment.
E. FRAUD
Present Law
1. Sanctions for Fraud that Affects Federal Outlays
Title XI of the Social Security Act provides penalties for health care
fraud and abuse within the Medicare and Medicaid programs. These penalties
include exclusion from participation in the programs and the imposition of
civil monetary penalties and criminal penalties. The Office of the
Inspector General of HHS and the Attorney General are responsible for
investigating and prosecuting such violations. State agencies also provide
health care fraud control programs to restrict fraud and abuse within the
Medicaid program.
2. Health Care Anti-Fraud Trust Fund
No provision.
Description of Proposal
1. Sanctions for Fraud that Affects Federal Outlays
a. The Secretary of HHS would be required to exclude from
participation in a health plan for not less than five years an individual
or entity convicted of violations described in section 1128 (a) of the
Social Security Act, as amended to include actions affecting Federal
outlays under this Act. The Secretary would be authorized to exclude from
participation in a health plan for periods of different duration an
individual or entity convicted of violations described in specified
subsections of section 1128 (b) of the Social Security Act, as amended. The
Secretary would be required to provide notice of exclusions to health
plans, State health care administrative agencies, and State licensing
agencies. Requirements with respect to notice, hearings, and judicial
review of exclusions would be established.
39
b. The Secretary of HHS would be authorized to impose civil monetary
penalties for actions affecting Federal outlays, including ones that are
similar to those that would subject a person to a penalty under specific
provisions of section 1128A of the Social Security Act. The Secretary
would generally follow procedures and provide for appeals as would be
required for similar proceedings under section 1128A of the Social Security
Act, or the State in which the plan is located could initiate such a
proceeding.
C. A number of related amendments would be made to conform and
strengthen the anti-fraud and abuse provisions under the Social Security
Act.
2. Health Care Anti-Fraud Trust Fund
A health care anti-fraud trust fund would be created with a portion of
administrative penalties and assessments imposed under the Social Security
act, civil monetary penalties imposed under this Act, and other penalties
paid for related violations and actions. Amounts in the trust fund would
be available without appropriation and could be used by the Secretary and
the Attorney General to cover the costs of combatting fraud affecting
Federal outlays. Such funds would be supplementary to appropriated
operating budgets of the agencies.
Effective Date
January 1, 1996.
40
VII. REVENUE PROVISIONS
A. INCREASE IN EXCISE TAXES ON TOBACCO PRODUCTS
Present Law
1. Tax rates
Excise taxes are imposed on the manufacture or importation of
cigarettes, cigarette papers and tubes, snuff, chewing tobacco, and pipe
tobacco. The present-law tax rates are as follows:
Cigarettes
Small cigarettes (weighing
no more than 3 pounds per
thousand)
1
$12 per thousand (i.e., 24
cents per pack of 20
cigarettes)
Large cigarettes (weighing
more than 3 pounds per
thousand)
2
$25.20 per thousand
Cigars
Small cigars (weighing no
more than 3 pounds per
thousand)
$1.125 per thousand
Large cigars (weighing
more than 3 pounds per
thousand)
12.75 percent of
manufacturer's price (but
not more than $30 per
thousand)
Cigarette papers and tubes
Cigarette papers³
0.75 cent per 50 papers
1
Most taxable cigarettes are small cigarettes.
2
Large cigarettes (measuring more than 6-1/2 inches in
length) are taxed at the rate prescribed for small cigarettes,
counting each 2-3/4 inches (or fraction thereof) as one
cigarette.
3 Cigarette papers measuring more than 6-1/2 inches in
length are taxed at the rate prescribed, counting each 2-3/4
inches (or fraction thereof) as one cigarette paper. No tax is
41
Cigarette tubes4
1.5 cents per 50 tubes
Snuff, chewing tobacco, pipe tobacco
Snuff
36 cents per pound
Chewing tobacco
12 cents per pound
Pipe tobacco
67.5 cents per pound
2. Exemptions; use of revenues
No tax is imposed on tobacco products exported from the United States.
Exemptions also are allowed for (1) tobacco products furnished by
manufacturers for employee use or experimental purposes; and (2) tobacco
products to be used by the United States. In addition, no tax is imposed
on tobacco to be used in "roll-your-own" cigarettes.
Revenues from the tobacco products excise taxes are retained in the
general fund of the Treasury. Revenues from taxes on tobacco products
brought into the United States from Puerto Rico and the American Virgin
Islands are transferred ("covered over") to those possessions if the
products satisfy a domestic content requirement with respect to the
possession from which they are received.
Description of Proposal
1. Rate increases; extension of coverage
The proposal would increase the tax rate on small cigarettes by $88.00
per thousand ($1.76 per pack of 20 cigarettes) and on large cigarettes by
$184.80 per thousand. The tax on other currently taxable tobacco products
generally would be increased by $29.33 per pound of tobacco content and a
$29.33 per pound tax would be imposed on "roll-your-own" tobacco.
The new tax rates on tobacco products would be--
Cigarettes
Small cigarettes (weighing
no more than 3 pounds per
thousand)
$100.00 per thousand (i.e.,
$2.00 per pack of 20
cigarettes).
imposed on a book or set of cigarette papers containing 25 or
fewer papers.
4
Cigarette tubes measuring more than 6-1/2 inches in
length are taxed at the rate prescribed, counting each 2-3/4
inches (or fraction thereof) as one cigarette tube.
42
Large cigarettes (weighing
more than 3 pounds per
thousand)
$210.00 per thousand.
Cigars
Small cigars (weighing no
more than 3 pounds per
thousand)
$89.13 per thousand.
Large cigars (weighing
more than 3 pounds per
thousand)
106.21 percent of
manufacturer's price (but
not more than $249.90 per
thousand).
Cigarette papers and tubes
Cigarette papers
6.25 cents per 50 papers.
Cigarette tubes
12.50 cents per 50 tubes.
Snuff, chewing tobacco,
pipe tobacco, "roll-your-own"
tobacco
Snuff.
$29.69 per pound
Chewing tobacco
$29.45 per pound
Pipe tobacco
$30.00 per pound
"Roll-your-own" tobacco
$29.33 per pound
Revenues from the increase in excise taxes on tobacco products
provided for in the proposal would be paid into the Health Security Trust
Fund.
The proposal would impose the increase in the excise tax rate on
tobacco products to such products in Puerto Rico. Revenues from these
taxes also would be paid into the Health Security Trust Fund.
2. Exemptions; administrative provisions
The proposal would repeal the present-law exemptions for tobacco
products provided to employees of the manufacturer and for use by the
United States, and would include administrative and compliance provisions.
These provisions would--
(1) Limit the exemption for exports to products that are marked or
43
labelled under Treasury Department rules designed to prevent the diversion
of such products into the domestic market.
(2) Prohibit the re-importation of tobacco products previously
exported without payment of tax (other than for return to the manufacturer)
and impose a new penalty, equal to the greater of $1,000 or five times the
amount of tax on all parties involved in any prohibited re-importation.
(All tobacco products and cigarette papers and tubes, as well as all
vessels, vehicles, and aircraft used in such re-importations, would be
subject to seizure by the United States.)
(3) Extend current manufacturer inventory maintenance, reporting
requirements, criminal penalties, and forfeiture rules to importers of
tobacco products.
(4) Repeal the present-law exemption for books or set of cigarette
papers containing 25 or fewer papers.
(5) Limit the cover over of tobacco product revenues to Puerto Rico
and the Virgin Islands to present-law tax levels.
Effective Date
The proposal generally would be effective for tobacco products removed
after December 31, 1994. A floor stocks tax would be imposed on taxed
tobacco products held on January 1, 1995.
B. ADDITIONAL MEDICARE PART B PREMIUMS FOR HIGH-INCOME
INDIVIDUALS
Present Law
Medicare, authorized under Title XVIII of the Social Security Act, is
a nationwide health insurance program for the aged and certain disabled
persons. It consists of two parts: the hospital insurance (Part A) program
and the supplementary medical insurance (Part B) program.
Most Americans age 65 or older are automatically entitled to coverage
under Part A of Medicare. Fart B of Medicare is voluntary. All persons age
65 or older may elect to enroll in Part B of Medicare by paying a flat
monthly premium. The flat premium for 1994 is $41.10 per month. The premium
rate is equal to 25 percent of estimated program costs for the coming year.
Each individual who enrolls in Medicare Part B pays the same premium
regardless of his or her income level. Benefits received under Part A and
Part B of Medicare are excludable from the gross income of the recipient.
Description of Proposal
Under the proposal, taxpayers with modified adjusted gross income
(AGI) above a threshold amount would be required to pay additional premiums
for each month of coverage under Part B of Medicare. The maximum Medicare
44
Part B premium for high-income Medicare Part B enrollees would cover
approximately 75 percent of estimated program costs, up from the current
level of 25 percent.
For the purpose of these additional premiums, modified AGI would be
AGI plus tax-exempt interest, certain foreign source income, and income
from higher education U.S. savings bonds. The threshold amount would be
$90,000 for unmarried taxpayers, $115,000 for married taxpayers filing
joint returns, and $0 for married taxpayers filing separate returns. The
amount of additional premiums would be phased in for taxpayers with
modified AGI which exceeds the threshold amount by less than $15,000
($30,000 for married taxpayers filing joint returns if each spouse is
required to pay additional premiums).
Any additional Medicare Part B premiums imposed under this proposal
would be treated as income taxes for purposes of subtitle F of the Code
(relating to income tax procedure and administration) but would not be
treated as income taxes for alternative minimum tax purposes (Code sec.
55), or for the purpose of determining the amount of other tax credits
under the Code. Further, additional premiums imposed under this proposal
would be deductible to the extent the premiums, when added to other medical
expenses not otherwise deductible, exceed 7.5 percent of AGI.
Under the proposal, penalties for failure to pay estimated income tax
would not be imposed on a taxpayer for any period prior to April 16, 1997,
to the extent that the underpayment resulted from the failure to pay
additional Medicare Part B premiums.
Proceeds from the collection of additional Medicare Part B premiums
would be credited at least quarterly to the Supplemental Medical Insurance
Trust Fund.
Effective Date
The proposal would be effective for taxable years beginning after
December 31, 1995.
C. MODIFICATION TO SELF-EMPLOYMENT TAX TREATMENT OF CERTAIN
S CORPORATION SHAREHOLDERS AND PARTNERS
Present Law
1. Employment taxes, in general
As part of the Federal Insurance Contributions Act (FICA), a tax is
imposed on employees and employers up to a maximum amount of employee
wages. The tax is composed of two parts: old-age, survivor, and disability
insurance (OASDI) and Medicare hospital insurance (HI). For wages paid in
1993 to covered employees, the OASDI tax rate was 6.2 percent on both the
employer and employee on the first $57,600 of wages and the HI tax rate was
1.45 percent on both the employer and employee on the first $135,000 of
45
wages. The cap on wages subject to the OASDI portion of FICA taxes is
indexed to changes in the average wages in the economy. The cap on wages
subject to the HI tax was repealed for wages and income received after
December 31, 1993.
Similarly, under the Self-Employment Contributions Act (SECA), a tax
is imposed on an individual's net earnings from self-employment (NESE).
The SECA tax rate is the same as the total FICA rates for employers and
employees (i.e., 12.4 percent for OASDI and 2.9 percent for HI) and the
SECA base is capped and indexed in the same manner as is the FICA base. In
general, the SECA tax is reduced to the extent the individual had wages for
which FICA taxes were withheld during the year.
2. Treatment of partners and S corporation shareholders
The NESE of a partner in a partnership generally is the partner's
distributive share from any trade or business of the partnership, adjusted
for certain items of income that are passive in nature (e.g., rentals of
real estate, dividends, and interest are excluded from NESE unless such
amounts are received in the course of a trade or business of a dealer in
the related property). However, the distributive share of a limited
partner generally is excluded from NESE except to the extent the
distributive share is a guaranteed payment for services actually rendered
to or on behalf of the partnership.
Similar rules are not provided for shareholders in S corporations.
Thus, shareholders are not required to include as NESE their pro rata share
of the income of an S corporation. Rather, shareholders who perform
services for the S corporation are subject to FICA taxes on the wages paid
to them.⁵
Description of Proposal
1. In general
The proposal would: (1) amend the definition of NESE to include eighty
percent of certain S corporation income of shareholder-service providers
owning more than two percent of the stock of the S corporation; (2) modify
the NESE rules applicable to limited partners in a partnership; and (3)
5
Furthermore, a shareholder of an S corporation may be
subject to FICA tax even if the shareholder is not paid amounts
denominated as "wages" by the corporation. In Rev. Rul. 74-44,
1974-1 C.B. 287, the IRS held that two shareholders who performed
services for an S corporation but did not draw salaries were
subject to FICA tax on dividend distributions from the
corporation because the dividends represented reasonable
compensation for the services performed. See, also, Spicer
Accounting, Inc. V. U.S., 918 F2d 90 (9th Cir. 1990) and Dunn &
Clark, P.A. V. U.S., No. CV 93-0108-E-EJL, (DC Idaho, 3/25/94)
for similar results.
46
provide a special SECA exclusion for certain income derived from inventory
for all taxpayers.
2. S corporation shareholders
Under the proposal, in the case of a "2-percent shareholder" of an S
corporation for any taxable year who provides significant services to or on
behalf of the corporation during the year, NESE would include 80 percent of
the shareholder's pro rata share of taxable income or loss from "service-
related businesses" carried on by the S corporation. A "2-percent
shareholder" would be any shareholder that owns more than 2 percent of the
stock of an S corporation at any time during the year (sec. 1372(b)). The
shareholder's pro rata share of the income or loss of an S corporation
would be determined pursuant to the general rules of subchapter S (sec.
1366). A "service-related business" would be any trade or business
involving the performance of services in the fields of health (other than
with respect to in-patient personal care facilities), law, engineering,
architecture, accounting, actuarial services, performing arts, consulting,
athletics, financial services (other than lending or brokerage services),
or any trade or business where the Secretary of the Treasury determines
that capital is an insignificant income-producing factor for the trade or
business.
The present-law exclusions from NESE for certain passive income that
apply to sole proprietors and partnerships would also apply to S
corporations.
3. Limited partners
In the case of a limited partner of a partnership who provides
significant services to or on behalf of the partnership during the year,
NESE would include 80 percent of the partner's distributive share (other
than guaranteed payments for services) of taxable income or loss from
service-related businesses (as defined above) carried on by the
partnership. The proposal would retain the present-law guaranteed payment
rule for limited partners who provide services to or on behalf of the
partnership. Thus, a limited partner who provides significant services to
or on behalf of the partnership during the year would include in NESE: (1)
100 percent of any guaranteed payments received for services plus (2) 80
percent of any remaining distributive share of taxable income from service-
related businesses carried on by the partnership.
4. Inventory income
The proposal would allow a taxpayer to reduce his or her NESE for the
taxable year by a percentage of the lesser of: (1) the amount of the
taxpayer's allocable share of inventory income or (2) the amount that the
taxpayer's NESE for the year exceeds $135, 000. For this purpose,
"inventory income" generally would be gross profit from the sale of
inventory, less the appropriate trade or business expenses allocable to
such activity. In the case of a dealer in securities (as defined in sec.
475), inventory income generally would include interest, dividends, and
47
other income with respect to securities held as inventory (as generally
defined in sec. 475). The $135,000 amount would be reduced by the amount
of the taxpayer's wages that are subject to FICA and would be indexed to
changes in the average wages in the economy.
5. Other
The proposal would make conforming amendments to the Social Security
Act.
The proposal is not intended to change the present-law authority of
the Internal Revenue Service to ascertain the reasonable compensation
derived by a self-employed taxpayer (or a shareholder-employee) from his or
her trade or business (or the trade or business of his or corporation) for
payroll tax purposes.
Effective Date
The proposal would apply to taxable years of individuals beginning
after December 31, 1995, and to taxable years of S corporations and
partnerships ending with or within such taxable years of individuals.
D. EXTENDING MEDICARE COVERAGE OF, AND APPLICATION OF HOSPITAL
INSURANCE TAX To, ALL STATE AND LOCAL GOVERNMENT EMPLOYEES
Present Law
Under present law, State and local government employees hired before
April 1, 1986, are not covered under Medicare unless a voluntary agreement
providing for such coverage is in effect. Although the hospital insurance
payroll tax does not apply to such employees, they may receive Medicare
benefits, for example, through their spouse. Medicare coverage and the
hospital insurance payroll tax is mandatory for State and local government
employees hired on or after April 1, 1986, and for Federal employees.
For wages paid in 1994 to Medicare-covered employees, the total
hospital insurance tax rate is 2.9 percent of total wages. One-half of the
hospital insurance tax (1.45 percent) is imposed on the employee and
one-half on the employer.
Description of Proposal
The proposal would extend Medicare coverage on a mandatory basis to
all employees of State and local governments not otherwise covered under
present law, without regard to their dates of hire. These employees and
their employers would become liable for the hospital insurance tax, and the
employees would earn credit toward Medicare eligibility.
In addition, the service of State and local government employees prior
to October 1, 1995, would be considered covered employment for purposes of
determining eligibility for Medicare coverage. The Department of the
48
Treasury would be required to reimburse the Federal Hospital Insurance
Trust Fund for additional payments made, administrative expenses incurred,
and any interest losses which occur as a result of the recognition of the
prior service of State and local government employees for Medicare
eligibility purposes.
Effective Date
The proposal would apply to services performed by State and local
government employees after September 30, 1995.
E. CREDIT FOR HEALTH INSURANCE COSTS OF INDIVIDUALS NOT
ELIGIBLE FOR SUBSIDIZED EMPLOYER-PROVIDED HEALTH CARE
Present Law
Under present law, individuals who itemize deductions may deduct
amounts paid during the taxable year (if not reimbursed by insurance or
otherwise) for medical care of the taxpayer, or the taxpayer's spouse and
dependents, to the extent that the total of such expenses exceeds 7.5
percent of the taxpayer's adjusted gross income (AGI). For purposes of the
deduction, medical care generally includes insurance premiums, as well as
out-of-pocket medical expenses.
In addition, under present law, self-employed individuals cannot
exclude the cost of health insurance from gross income. For this purpose,
self-employed individuals include sole proprietors, partners in
partnerships, and more than 2-percent shareholders of S corporations.
Prior to January 1, 1994, a self-employed individual could deduct from
gross income 25 percent of the health insurance costs of the individual and
his or her spouse or dependents. The 25-percent deduction was not
available for any month if the self-employed individual was eligible for
employer-paid (i.e., employer subsidized) health benefits under a plan of
an employer of the individual or the individual's spouse. In addition, no
deduction was available to the extent that the deduction exceeded the
taxpayer's earned income.
Description of Proposal
1. In general
The proposal would extend the 25-percent deduction for health
insurance expenses of self-employed individuals, effective for taxable
years beginning after December 31, 1993. For taxable years beginning on or
after January 1, 1996, the proposal would provide a nonrefundable tax
credit for health insurance costs of individuals (including self-employed
individuals) who do not have employer-subsidized health coverage.
2. Credit for health insurance costs
The credit would equal 15 percent of premiums, net of any government
49
subsidies, paid by an individual (including a self-employed individual) for
health insurance for the individual, or the individual's spouse or
dependents, with respect to a certified standard health plan. In the case
of an individual in the 15 percent rate bracket, the 15- percent credit is
equivalent to a deduction for 100 percent of premiums. The credit is
equivalent to a deduction for more than 50 percent of premiums in the case
of an individual in the 28 percent rate bracket.
The credit would apply only to the cost of insurance with respect to a
certified standard health plan. Thus, uninsured and out-of-pocket medical
expenses (e.g., copayments, deductibles, and uncovered expenses), and
premiums paid for supplemental or other nonstandard health insurance, would
not be eligible for the credit, but would be deductible to the extent that
total medical expenses exceed 7.5 percent of AGI. Expenses that are
eligible for the credit would not be taken into account for purposes of
determining whether total medical expenses exceed the 7.5 percent floor.
The credit would not be available for any month with respect to
coverage of an individual if the individual is eligible to participate in a
subsidized certified standard health plan maintained by an employer. For
example, if an individual is eligible to participate in a subsidized health
plan of an employer, but such plan does not offer subsidized coverage of
dependents of the individual, then the credit would be available with
respect to the purchase of dependent health insurance coverage. In such a
case, the credit would apply only with respect to the additional cost of
the dependent coverage.
Effective Date
The 25-percent deduction for self-employed individuals would be
extended effective for taxable years beginning after December 31, 1993, and
before January 1, 1996. The credit for insurance expenses would be
effective for taxable years beginning on or after January 1, 1996.
F. LIMITATION ON PREPAYMENT OF MEDICAL INSURANCE PREMIUMS
Present Law
Under present law, individuals who itemize deductions may deduct
amounts paid during the taxable year (if not reimbursed by insurance or
otherwise) for medical care of the taxpayer, and the taxpayer's spouse and
dependents to the extent that the total of such expenses exceeds 7.5
percent of the taxpayer's adjusted gross income (AGI).
Under a special rule, premiums paid during the taxable year by a
taxpayer before he or she attains age 65 for insurance covering medical
care for the taxpayer, or the taxpayer's spouse or a dependent, after the
taxpayer attains age 65 are treated as expenses paid during the taxable
year for insurance that constitutes medical care if premiums for the
insurance are payable (on a level payment basis) under the contract for a
period of 10 years or more or until the year in which the taxpayer attains
50
age 65 (but in no case for a period of less than five years).
A series of revenue rulings has held that, under certain
circumstances, the portion of a fee paid for lifetime care that is properly
allocable to medical expenses is deductible in the year paid, even though
the medical services will not be performed until a future time, if at all.
The Internal Revenue Service has recently issued a revenue ruling stating
that the prior rulings should not be interpreted as allowing a current
deduction of payments for future medical care (including medical insurance)
extending substantially beyond the close of the taxable year in situations
where the future care is not purchased in connection with obtaining
lifetime care of the type described in the prior rulings. The recent
revenue ruling states that it will not be applied to amounts paid before
October 14, 1993, or to amounts paid on or after October 14, 1993, pursuant
to the terms of a binding contract entered into before that date if such
terms were in effect on that date.
Description of Proposal
The proposal would provide that, for purposes of the itemized
deduction for medical expenses and the credit for health insurance costs of
individuals not eligible for subsidized employer-provided health care,
amounts paid during a taxable year that are allocable to insurance coverage
or medical care to be provided more than 12 months after the month in which
the payment is made would be treated as paid ratably over the period during
which the coverage or care is to be provided. The proposal would not amend
the special rule under present law for post-age 65 medical insurance.
Effective Date
The proposal would apply to amounts paid after December 31, 1994.
G. DEFINITION OF EMPLOYEE
Present Law
1. In general
In general, the determination of whether an employer-employee or
independent contractor relationship exists for Federal tax purposes is made
under a common-law test. Under this test, an employer-employee relationship
generally exists if the person contracting for the services has the right
to control not only the result of the services, but also the means by which
that result is accomplished (Treas. Reg. sec. 31.3401 (c) (1) (b) Whether
the requisite control exists is determined based on the facts and
circumstances. The Internal Revenue Service (IRS) uses a 20-factor test
for this purpose. Rev. Rul. 87-41, 1987-1 C.B. 296. In addition to the
common-law test, there are statutory provisions classifying certain
employees as employees or independent contractors for certain purposes.
2. Section 530 of the Revenue Act of 1978
51
In the late 1960s, the IRS increased enforcement of the employment tax
laws, and controversies developed between the IRS and taxpayers as to
whether businesses had correctly classified certain employees as
independent contractors rather than as employees. In response to this
problem, Congress enacted section 530 of the Revenue Act of 1978 ("section
530"), which generally permits a taxpayer to treat an individual as not
being an employee for employment tax purposes regardless of the
individual's actual status under the common-law test, unless the taxpayer
has no reasonable basis for such treatment and if certain additional
requirements are satisfied. Section 530 does not apply in the case of an
individual who, pursuant to an arrangement between the taxpayer and another
person, provides services for such other person as an engineer, designer,
drafter, computer programmer, systems analyst, or other similarly skilled
employee engaged in a similar line of work.
Under section 530, a reasonable basis is deemed to exist for a period
if the taxpayer reasonably relied on any of the following: (1) judicial
precedent, published rulings, technical advice with respect to the
taxpayer, or a letter ruling to the taxpayers; (2) a past IRS audit of the
taxpayer in which there was no assessment attributable to the treatment
(for employment tax purposes) of the individuals holding positions
substantially similar to the position held by the individual in question;
or (3) long-standing recognized practice of a significant segment of the
industry in which such individual was engaged. These factors are a safe
harbor, not the exclusive means of meeting the reasonable basis
requirement.
Section 530 does not apply for income tax purposes. Thus, the
determination of whether an individual is an employee for income tax
purposes is made without regard to section 530.
Section 530 bars the Department of the Treasury (including the IRS)
from publishing any regulation or revenue ruling classifying individuals
for purposes of employment taxes under interpretations of the common law.
Taxpayers may, however, obtain private letter rulings from the IRS
regarding the status of employees.
Description of Proposal
The proposal would authorize the Department of the Treasury to issue
regulations relating to the classification of workers as employees or
independent contractors under the common-law test. Such regulations, which
would apply only on a prospective basis, could not have the effect of
repealing the ability of any taxpayer to utilize a safe harbor provision
contained in section 530 of the Revenue Act of 1978. Thus, any taxpayer
who relies on a safe harbor provision of section 530 under present law
cculd continue to do so.
Effective Date
The proposal would be effective on the date of enactment.
52
H. INCREASE IN PENALTIES FOR FAILURE TO FILE CORRECT
INFORMATION RETURNS WITH RESPECT TO NON-EMPLOYEES
Present Law
1. Information reporting requirements
Under sections 6041 and 6041A of the Internal Revenue Code, a person who
makes payments of $600 or more to a person during a calendar year for
services received in the course of a trade or business generally must file
with the Internal Revenue Service (IRS) an information return reporting
such payments, and the name, address, and taxpayer identification number of
the payee. A similar statement must also be furnished to the payee.
2. Failure to file correct information returns
Any person that fails to file a correct information return with the
IRS on or before the prescribed filing date is subject to a penalty that
varies based on when, if at all, the correct information return is filed.
If a person files a correct information return after the prescribed filing
date but on or before the date that is 30 days after the prescribed filing
date, the penalty is $15 per return, with a maximum penalty of $75,000 per
calendar year. If a person files a correct information return more than 30
days after the prescribed filing date but on or before August 1 of the
relevant year, the penalty is $30 per return, with a maximum penalty of
$150,000 per calendar year. If a correct information return is not filed on
or before August 1 of the relevant year, the amount of the penalty is $50
per return, with a maximum penalty of $250,000 per calendar year.
Special rules are applicable to certain small businesses and to
incorrect information returns that are corrected on or before August 1 of
the relevant year.
Description of Proposal
The proposal would modify the penalty for failure to file correct
information returns under Code sections 6041 and 6041A with respect to
services.⁶ In general, the proposal would increase the penalty for
failure to file correct information returns on or before August 1 of the
relevant year from $50 for each return to the greater of $50 or 5 percent
of the amount required to be reported correctly but not so reported.
The proposal would also provide an exception to this increase where
substantial compliance has occurred. This exception would apply with
respect to a calendar year if the aggregate amount that is timely and
correctly reported under Code sections 6041 and 6041A with respect to
services for that calendar year is at least 97 percent of the aggregate
6
The proposal would not apply to information returns
required under section 6041 that are not with respect to payments
for services.
53
amount required to be reported under these two sections of the Code for
that calendar year. If this exception applies, the penalty of $50 for each
return would continue to apply.
Effective Date
The proposal would apply to information returns the due date for which
(without regard to extensions) is more than 30 days after the date of
enactment.
I. TAX TREATMENT OF ACCELERATED DEATH BENEFITS UNDER
LIFE INSURANCE CONTRACTS
Present Law
If a contract meets the definition of a life insurance contract, gross
income does not include insurance proceeds that are paid pursuant to the
contract by reason of the death of the insured. In addition, the
undistributed investment income ("inside buildup") earned on premiums
credited under the contract is not subject to current taxation to the owner
of the contract. The exclusion from income applies regardless of whether
the death benefits are paid as a lump sum or otherwise.
Amounts received under a life insurance contract (other than a
modified endowment contract) prior to the death of the insured are
includible in the gross income of the recipient to the extent that the
amount received exceeds the taxpayer's investment in the contract
(generally, the aggregate amount of premiums paid less amounts previously
received that were excluded from gross income).
In contrast, if a contract fails to meet the definition of a life
insurance contract, inside buildup on the contract is generally subject to
tax. To qualify as a life insurance contract for Federal income tax
purposes, a contract must be a life insurance contract under the applicable
State or foreign law and must satisfy either of two alternative tests: (1)
a cash value accumulation test, or (2) a test consisting of a guideline
premium requirement and a cash value corridor requirement.
The Treasury Department has issued proposed regulations under which
certain "qualified accelerated death benefits" paid to an insured because
of his or her terminal illness would be treated as paid by reason of the
death of the insured and therefore would qualify for the present-law
exclusion from income.
7
Under the proposed regulations, a benefit would qualify
as a qualified accelerated death benefit only if it meets three
requirements. First, the qualified accelerated death benefit can
be payable only if the insured becomes terminally ill. Second,
the amount of the benefit must equal or exceed the present value
of the reduction in the death benefit otherwise payable. Third,
54
Description of Proposal
The proposal would provide an exclusion from gross income for certain
amounts received under a life insurance contract⁸ if the insured under the
contract is terminally ill. For this purpose, an individual would be
considered terminally ill if the insurer determines, after receipt of an
acceptable certification by a licensed physician, that the individual has
an illness or physical condition that is reasonably expected to result in
death within 12 months of the certification.
The exclusion under the proposal would be applicable only if two
requirements are met. First, the amount received must equal or exceed the
present value of the reduction in the death benefit otherwise payable under
the life insurance contract. The present value would be determined by
reference to a maximum permissible discount rate, and by assuming that
the death benefit would be paid on the date that is 12 months from the date
of the physician's certification. Second, the payment of the amount must
reduce the cash surrender value and the death benefit payable under the
contract proportionately.
The proposal would not apply in the case of a distribution to any
taxpayer other than the insured, if such taxpayer has an insurable interest
by reason of the insured being an officer or employee of the taxpayer, or
the payment of the benefit must make a pro rata reduction in the
cash surrender value and the death benefit under the policy. For
purposes of the proposed regulations, an insured person would be
treated as terminally ill if he or she has an illness that,
despite appropriate medical care, is reasonably expected to
result in death within 12 months from the date of payment of the
accelerated death benefit. The proposed regulations would not
explicitly require a doctor's certification as to the patient's
condition. Under the proposed regulations, the maximum
permissible discount rate would be the greater of (1) the
applicable Federal rate (AFR) that applies under the discounting
rules for property and casualty insurance loss reserves, or (2)
the interest rate applicable to policy loans under the contract.
8
The amount received for this purpose would include an
amount received that gives rise to a lien of the issuing company
against the contract.
9
The maximum permissible discount rate would be the
highest of the following three government and commercial rates:
(1) the 90-day Treasury bill yield, (2) Moody's Corporate Bond
Yield Average-Monthly Average Corporates (or any successor rate)
for the month ending two months before the date the rate is
determined, or (3) the rate used to determine cash surrender
values under the contract during the applicable period plus 1
percent per annum.
55
by reason of the insured being financially interested in any trade or
business carried on by the taxpayer.
For life insurance company tax purposes, the proposal would treat a
qualified accelerated death benefit rider to a life insurance contract as
life insurance.
Effective Date
The proposal generally would apply to amounts received after the date
of enactment. A transition rule would provide that the rule determining
the present value of the reduction in the death benefit (by reference to a
maximum permissible discount rate and a 12-month period) would not apply to
any amount received before January 1, 1995. The issuance of a qualified
accelerated death benefit rider to a life insurance contract would not be
treated as a modification or material change of the contract. The proposal
treating a qualified accelerated death benefit rider as life insurance for
life insurance company tax purposes would take effect on January 1, 1995.
J. TAX CREDIT FOR THE COST OF PERSONAL ASSISTANCE SERVICES
REQUIRED BY INDIVIDUALS
Present Law
There is no tax credit for the costs of personal assistance required
by individuals. Certain medical expenses, however, are deductible under
section 213. Also, the costs of certain improvements to property may be
included in the basis of a taxpayer's property unless it is otherwise
deductible under section 213.
Description of Proposal
The proposal would provide a nonrefundable tax credit for up to 50
percent of an individual's personal assistance expenses up to $15,000.
Individuals would be eligible to claim the credit if, by reason of any
medically determinable physical impairment, they are unable to engage in
any substantial gainful activity without personal assistance in carrying
out activities of daily living. Such physical impairment must be expected
to result in death or must be expected to last for a continuous period of
not less than 12 months. Nonresident aliens would not be eligible to claim
the credit.
Personal assistance expenses would include expenses for: (1) personal
assistance services appropriate to carry out the activities of daily living
in or outside the home, (2) homemaker/chore services incidental to the
provision of such personal assistance services, (3) assistance with life
skills (in the case of an individual with a cognitive impairment), (4)
communication services, (5) work-related support services, (6) coordination
of services described in this paragraph, (7) assistive technology and
devices (including assessment of need and training for such services), and
56
(8) modifications to the principal place of abode of the individual.
Activities of daily living would be defined to include eating, toileting,
transferring, bathing, and dressing.
The maximum annual amount of credit would be the lesser of $7,500 or
one-half of the individual's earned income. The amount of the credit would
be phased out by providing a lower credit rate for taxpayers with modified
adjusted gross income (AGI) of $50,000 or more. The credit rate would be
reduced by ten percentage points for each $5,000 of modified AGI, starting
at $50,000 of modified AGI. Thus the credit would not be available for
individuals with modified AGI of $70,000 or more.
The rate of the credit would be determined as follows -
For taxpayers with
The credit rate would be:
modified AGI:
Less than $50,000
50 percent
At least $50,000, but less than $55,000
40 percent
At least $55,000, but less than $60,000
30 percent
At least $60,000, but less than $65,000
20 percent
At least $65,000, but less than $70,000
10 percent
At least $70,000
0 percent
The $15,000 (maximum amount of personal assistance expenditures
eligible for the credit) and $50,000 (beginning of the credit's phaseout
range) amounts would be indexed for inflation for taxable years beginning
after 1996. The amount of modified AGI at which the credit is entirely
phased out would not be indexed for inflation, but would always be $20,000
greater than the beginning of the phaseout range.
Modified AGI would mean adjusted gross income: (1) determined without
regard to the exclusions provided for (a) interest on education savings
bonds (sec. 135), (b) certain foreign earned income of United States
citizens or residents living abroad (sec. 911), (c) certain income from
sources within Guam, American Samoa, or the Northern Mariana Islands (sec.
931), and (d) income from sources within Puerto Rico (sec. 933) ; and (2)
increased by the amount of tax-exempt interest received or accrued by the
taxpayer during the taxable year.
Any amount taken into account in determining the credit could not be
taken into account in determining deductible medical expenses (under sec.
213). Similarly, if a credit is allowed for expenses that would otherwise
increase the basis of property, the basis increase would be reduced by the
amount of the credit. The proposal also would deny the credit for payments
to any person related to the taxpayer within the meaning of sections 267 or
707 (b).
Effective Date
The proposal would be effective for taxable years beginning after
57
December 31, 1995.
K. TAX TREATMENT OF ORGANIZATIONS PROVIDING HEALTH CARE
SERVICES AND RELATED ORGANIZATIONS
Present Law
1. Exempt status of charities
Code section 501 (c) (3) lists certain types of organizations that are
exempt from taxation, including those organized and operated exclusively
for religious, charitable, scientific, testing for public safety, literary,
or educational purposes no part of the net earnings of which inures to the
benefit of any private shareholder or individual. Contributions to such
organizations generally are deductible for Federal income tax purposes. In
addition, such organizations are eligible for tax-exempt financing that is
not subject to the State volume cap otherwise applicable to private users
of tax-exempt financing and, in the case of hospitals, are exempt from the
$150 million limit otherwise applicable to the amount of tax-exempt
financing from which a section 501 (c) (3) organization can benefit.
Although section 501 (c) (3) does not specifically mention the
furnishing of medical care and the operation of a not-for-profit hospital,
such activities have long been considered to further charitable purposes
described in section 501 (c) (3) if they provide a community benefit (the so-
called "community benefit standard") The community benefit standard is a
facts-and-circumstances test that the IRS has applied since 1969, under
which a number of factors are examined (e.g., whether a hospital has an
open emergency room, a board of directors drawn from the community, an open
medical staff, treats Medicare and Medicaid patients, and applies surplus
receipts to improving facilities, patient care, and medical education and
research) to determine whether the organization provides benefits to the
community as a whole rather than serving private interests. The same
community benefit standard applies in determining whether a health
maintenance organization ("HMO") qualifies for tax-exempt status under
section 501 (c) (3), although slightly different characteristics are
examined.
2. Exempt status of social welfare organizations
Code section 501 (c) (4) provides an exemption from income tax for
organizations operated primarily to promote the common good and general
welfare of the people in the community. Although social welfare
organizations are exempt from income tax, contributions to such
organizations are not deductible, and such organizations are not eligible
to benefit from tax-exempt financing beyond financing available to other
private users.
An HMO seeking exemption as a social welfare organization under
section 501 (c) (4) is not required to possess all of the same
characteristics as an HMO that qualifies for exemption under section
58
501 (c) (3) ; however, its activities must generally satisfy a community
benefit standard similar to, but less exacting than, that imposed on
charitable HMOs.
3. Private inurement
a. Charities. Section 501 (c) (3) specifically conditions tax-exempt
status for all organizations described in that section on the requirement
that no part of the net earnings of the organization inures to the benefit
of any private shareholder or individual (the so-called "private inurement
test").
Organizations described in section 501 (c) (3) are classified as either
public charities or private foundations. Private foundations (but not
public charities) are subject to special penalty excise taxes that may be
imposed on "self-dealing" transactions or on expenditures that do not
accomplish a charitable purpose. Nonprofit hospitals, and other nonprofit
entities the principal purpose or functions of which are providing medical
care, automatically are eligible for public-charity status and, thus, are
not subject to the special penalty excise taxes.
b. Social welfare organizations. There is no specific statutory rule
prohibiting the net earnings of a social welfare organization described in
section 501 (c) (4) from inuring to the benefit of a private shareholder or
individual.
C. IRS remedy in cases of private inurement. Because the Code
generally does not provide for the imposition of penalty excise taxes in
cases where a section 501 (c) (3) public charity or a section 501 (c) (4)
social welfare organization engages in a transaction not furthering a tax-
exempt purpose, the only sanction that may be imposed under the Code is
revocation of the organization's tax-exempt status.
4. Filing and public disclosure rules applicable to tax-exempt
organizations
Tax-exempt organizations generally are required to file an annual
information return (Form 990) with the IRS. Code section 6104 requires
that a tax-exempt organization (other than a private foundation) make
available for public inspection at the organization's principal office a
copy of the organization's Form 990 (except for the names of contributors
to the organization) for the three most recent taxable years, as well as
the organization's application to the IRS for recognition of tax-exempt
status.
5. Insurance activities of tax-exempt organizations
Section 501 (m) provides that an organization is not eligible for tax-
exempt status under section 501 (c) (3) or 501 (c) (4) if a substantial part of
its activities consists of providing "commercial-type insurance."
Commercial-type insurance generally includes any insurance of a type
provided by commercial insurance companies, but does not include incidental
59
health insurance provided by an HMO of a kind customarily provided by an
HMO.
6. HMOS as taxable entities
The tax treatment of a taxable HMO (e.g., an HMO organized on a for-
profit basis) depends largely on the extent to which it qualifies as an
insurance company. In determining taxable income, property and casualty
insurance companies include underwriting income. In calculating
underwriting income, the company generally may take a reserve deduction for
a portion of its unearned premiums and for the discounted amount of losses
incurred (including incurred but not reported losses). These deductions
may not reflect the "all events" test or the economic performance
requirements that generally apply to accrual-method taxpayers.
7. Special rules applicable to certain taxable insurance companies
Section 833 provides special relief for Blue Cross and Blue Shield
organizations existing on August 16, 1986, which were exempt from tax for
their last taxable year beginning before January 1, 1987, and which have
experienced no material change in their structure or operations since
August 16, 1986. In addition, section 833 provides special relief for
certain other organizations, substantially all of the activities of which
involve the provision of health insurance, that meet certain
community-service-related requirements.
Section 833 exempts eligible organizations from the rule (referred to
above) that is generally applicable to property and casualty insurance
companies, requiring a 20-percent reduction in the amount a company can
deduct for any increase in unearned premium reserves. In addition, section
833 permits eligible organizations to claim a special deduction with
respect to their health business in an amount equal to 25 percent of claims
and expenses incurred during the taxable year, less adjusted surplus at the
beginning of the year.
Description of Proposal
1. Requirements for tax-exempt health care service organizations
The proposal would impose new requirements on section 501 (c) (3) or
501 (c) (4) organizations that have as their predominant activity the
provision of "health care services. 110 The requirements, therefore,
10 The term "health care services" would mean --
(i) any activity for the diagnosis, cure,
mitigation, treatment, or prevention of
disease, or for the purposes of affecting any
structure or function of the body;
(ii) any activity (such as nursing or old age
60
generally would apply to tax-exempt hospitals, clinics, nursing homes, old
age homes, and HMOs. The proposal would not apply to organizations whose
predominant activities are non-health care service activities (e.g., an
educational organization, if the predominant activities of the organization
do not involve the delivery of health care services to patients). In
addition, the proposal specifically would provide that the new requirements
do not apply to an organization that demonstrates, consistent with Treasury
guidance, that a principal purpose of the organization is academic training
or medical research, or to an organization that provides only uncompensated
care regardless of the patient's income. The proposal would not apply to
State and local governmental entities.
Under the proposal, in addition to satisfying a community benefit
standard, tax-exempt organizations described in present-law section
501 (c) (3) or 501 (c) (4) that have as their predominant activity the
provision of health care services would be required to:
(1) provide (directly or indirectly) significant "qualified
outreach services." The term "qualified outreach services" would be
defined as health care services, or related education or social services
programs, provided (a) in an area that is medically underserved with
respect to such health care services (such as a health professional
shortage area "HPSA" designated by the Secretary of HHS or an area or
population group reasonably determined by the organization, consistent with
Treasury guidance, to have a shortage of health professionals relative to
the number of individuals and their health needs in the area or population
group) (b) below cost to individuals otherwise unable to afford such
services; or (c) at specialty emergency care facilities that normally
operate at a loss (i.e., emergency trauma, emergency psychiatry, or burn
centers). An organization would demonstrate that it provides significant
qualified outreach services on a facts-and-circumstances basis. An
organization would have the option of directly furnishing such services or
indirectly providing such services by making a grant or contribution to a
donee organization that furnishes qualified outreach services. The
provision of insurance would constitute a "qualified outreach service" only
if provided on a subsidized basis.
(2) with the participation of community representatives, annually
assess the health care and qualified outreach service needs of the
community and develop a written plan that sets forth how the organization
plans to meet those needs;
home care) which is part of the exempt
purpose of a 501 (c) (3) organization solely
because it is carried on as part of an
activity described in (i) above; and
(iii) insurance (that is not commercial-type
insurance under section 501 (m)) with respect
to an activity described in (i) or (ii)
above.
61
(3) not discriminate in the provision of health care services on
the basis of whether an individual is insured by a government-sponsored
health plan (e.g., Medicare) ; and
(4) if the organization provides emergency health care services,
not discriminate in the provision of such emergency services on the basis
of the patient's ability to pay.
Disclosure requirements.--Organizations would be required to make
available to the general public and the IRS the written community health
care and outreach service needs plan required in (2) above, in the same
manner that the Form 990 is required to be available under present law. In
addition, organizations would be required to comply with requests from
individuals who seek a copy of such plan (and, if so requested, a copy of
the Form 990) by supplying copies without charge other than a reasonable
fee for reproduction and mailing costs. (The requirement to provide copies
could be waived by the IRS in cases involving abusive, excessive requests
for documents). Organizations would be required to disclose information
regarding the organization's implementation of the prior year's plan
(including unrecovered costs and revenues foregone in furtherance of such
plan). An organization also would be required to disclose if it has
participated in an improper private inurement transaction that has resulted
in the imposition of penalty taxes on a disqualified person or organization
manager (see intermediate sanctions described below).
Effective date.-The new statutory requirements for certain tax-exempt
health care service organizations would be effective on January 1, 1995.
2. HMO qualification under section 501 (c) (3)
Under the proposal, an HMO seeking tax-exempt status under section
501 (c) (3) would be required to furnish substantially all of its primary
care health services at its own facilities through health care
professionals who do not provide substantial health care services other
than on behalf of such organization. Thus, tax-exempt status under section
501 (c) (3) would be available to an HMO only if it is organized according to
a so-called "staff model" or "dedicated-group model." In contrast, an HMO
seeking tax-exempt status under section 501 (c) (4) would not be required
directly to furnish health care services at its own facility (but would,
however, be required to meet the requirements of section 501 (m), discussed
below).
Effective date.--The proposal would be effective on the date of
enactment.
3. Tax-exempt status for health insurance purchasing cooperatives and
certain parent organizations
Qualified health insurance purchasing cooperatives would be eligible
for Federal tax-exempt status, provided that private inurement, lobbying,
and political activity restrictions are satisfied (similar to present-law
section 501 (c) (3) Health insurance purchasing cooperatives generally
62
would not be eligible to use financing provided from the proceeds of tax-
exempt bonds.
The proposal further would clarify that, under present-law section
509 (a) organizations that serve as parent holding companies for hospitals
or medical research organizations qualify as public charities rather than
private foundations.
Effective date.--These proposals would be effective on the date of
enactment.
4. Extend private inurement prohibition to social welfare organizations
The proposal would amend section 501 (c) (4) to provide that if a social
welfare organization or other organization described in that section has as
its predominant activity the provision of health care services, such
organization is eligible for tax-exempt status only if no part of its net
earnings inures to the benefit of any private shareholder or individual.
Effective date.-The proposal generally would be effective on the date
of committee action. However, under a special transition rule, the
proposal would not apply to inurement occurring within two years of the
date of committee action if such inurement results from a contractual
arrangement that was in effect on the date of committee action and is not
materially changed before such inurement occurs.
5. Intermediate sanctions for violations of private inurement prohibition
The proposal would impose two-tiered penalty excise taxes as an
intermediate sanction in cases where "applicable tax-exempt health care
organizations, " meaning organizations described in section 501 (c) (3) or
section 501 (c) (4) that have as their predominant activity the providing of
health care services (other than private foundations), engage in a
transaction resulting in "taxable inurement." These intermediate sanctions
could be imposed by the IRS in lieu of revocation of an organization's tax-
exempt status. The IRS would have authority to abate the excise tax
penalty if the organization establishes that the violation was due to
reasonable cause and not due to willful neglect.
"Taxable inurement" would mean any direct or indirect inurement of any
part of the net earnings of an organization to the benefit of a
disqualified person. Prohibited inurement would result from transactions
in which a disqualified person receives unreasonable compensation or
engages in a non-fair-market-value transaction with the organization, or
from revenue sharing arrangements with a disqualified person that violate
the present-law private inurement prohibition. The proposal would clarify
that existing tax law standards would apply in determining reasonableness
of compensation and fair market value and would identify certain procedural
measures that an organization could take to create a presumption of the
reasonableness of a compensation arrangement (e.g., approval of the
compensation arrangement by an independent board). The proposal also would
clarify that payment of personal expenses of, or other benefits granted to,
63
disqualified persons generally would be treated as compensation only if the
organization intended and made the payments as compensation for services
(e.g., the payments were included on the W-2 of the disqualified person).
The Secretary of Treasury would be instructed to conduct a study of and
issue guidance regarding transactions and arrangements that give rise to
taxable inurement.
"Disqualified persons" would mean any person who was an organization
manager at any time during the five-year period prior to the transaction at
issue, as well as certain family members and 35-percent owned entities.
The term "organization manager" would mean any officer, director, or
trustee of a public charity or social welfare organization (or an
individual having powers or responsibilities similar to those of officers,
directors, or trustees of the organization), as well as any other
individual who is in a position to exercise substantial influence over the
affairs of the organization. Any person performing substantial medical
services as a physician pursuant to an employment or other contractual
relationship with the organization would be treated as an "organization
manager."
Beneficiaries of taxable inurement would be subject to a first-tier
penalty tax equal to 25 percent of the amount of the taxable inurement
(e.g., the amount paid to a disqualified person exceeding reasonable
compensation). Organization managers who knowingly participate in taxable
inurement would be subject to a first-tier penalty tax of 2.5 percent of
the amount of taxable inurement (subject to a maximum amount of tax of
$10,000).
Additional, second-tier taxes would apply if "taxable inurement" is
not corrected within a specified time period. In such cases, the
beneficiary would be subject to a penalty tax equal to 200 percent of the
amount of taxable inurement. Organization managers who refused to agree to
correction would be subject to a penalty tax equal to 50 percent of the
amount of taxable inurement (subject to a maximum amount of tax of
$10,000). The term "correction" would mean undoing the inurement to the
extent possible, establishing safeguards to prevent future inurement, and
where fully undoing the inurement is not possible, such additional
corrective action as prescribed by Treasury regulations.
Effective date.--The proposal would apply to inurement occurring on or
after the date of committee action.
6. Insurance activities of tax-exempt organizations
Present-law section 501 (m) would be clarified to provide that a health
maintenance organization shall be treated as not providing commercial-type
insurance if and only if: (1) care is provided by the organization to its
members at its own facilities through health professionals who do not
provide substantial health care services other than on behalf of the
organization; (2) care is provided by a health care professional to a
member of the organization on a basis under which substantially all of the
risk with respect to rates of utilization by the member is assumed by the
64
health care professional; or (3) if ancillary to care described in (1) or
(2), either (a) care other than primary care is provided to a member
pursuant to a referral by the HMO, or (b) emergency care is provided to a
member at a location outside the member's area of residence.
Effective date.--The proposal would be effective on the date of
enactment.
7. Definition of taxable property and casualty insurance companies
The proposal would expand the scope of organizations treated as
taxable property and casualty insurance companies. Under the proposal, any
organization that is not tax-exempt, is not a life insurance company, and
whose primary and predominant business activity during the taxable year
falls into one of three categories, would be treated as a property and
casualty insurance company. The three categories of activities are: (1)
issuing accident and health insurance contracts or reinsuring accident and
health risks; (2) operating as an HMO; or (3) entering into arrangements
under which fixed payments or premiums are received by the organization as
consideration for providing or arranging for the provision of health care
services. The proposal would modify the "primary and predominant"
requirement in the case of organizations that have, as a material business
activity, the issuing or reinsurance of accident and health insurance
contracts. For such organizations, the administering of accident and
health insurance contracts would be treated as part of such business
activity for purposes of determining whether the organization's activities
fall within the scope of category (1) above.
Effective date
The proposal would be effective for taxable years beginning after
December 31, 1994. A transition rule would provide that, for an
organization other than one which (1) treated itself as subject to tax as a
property and casualty insurance company on its original Federal tax return
for taxable years beginning in 1992 through 1994, or (2) was tax-exempt for
its last taxable year beginning before 1995, the change made by the
proposal would be treated as a change in method of accounting, and required
adjustments would be taken into account for its first taxable year
beginning after December 31, 1994. A transition rule for any organization
that was tax-exempt for its last taxable year beginning before 1995 and
that becomes taxable under the proposal for its first taxable year
beginning after December 31, 1994 would provide that, in general, (1) no
adjustment would be made under section 481 due to a change in method of
accounting required by the proposal for the organization's first taxable
year beginning after December 31, 1994, and (2) adjusted basis for
determining gain or loss of assets would be equal to fair market value on
the first day of its first taxable year beginning after December 31, 1994.
8. Special rules applicable to certain taxable insurance companies
The proposal would repeal the special rules provided under section 833
to Blue Cross and Blue Shield organizations and other eligible
65
organizations (i.e., the special exception to the 20-percent reduction with
respect to unearned premium reserves and the special deduction for 25
percent of claims and expenses).
The proposal would also apply the special rules under section 833 to
the same extent they have been provided to certain existing Blue Cross or
Blue Shield organizations, in the case of any organization that (1) is not
a Blue Cross or Blue Shield organization existing on August 16, 1986, and
(2) otherwise meets the requirements of section 833 (c) (2) (including the
requirement of no material change in operations or structure since August
16, 1986) Under the proposal, an organization qualifies for this
treatment only if (1) it is not a health maintenance organization and (2)
it is organized under and governed by State laws which are specifically and
exclusively applicable to not-for-profit health insurance or health service
type organizations.
Effective date.--The proposal generally would be effective for taxable
years beginning after December 31, 1996. However, for eligible
organizations, the proposal generally would be effective for taxable years
beginning after December 31, 1998. Eligible organizations would be those
that, for each of the three taxable years beginning before the date of
enactment and each taxable year beginning on or after the date of enactment
and before December 31, 1998, meet standards for open enrollment, community
rating, coverage of pre-existing conditions and related standards 11
Transition rules would be provided. For the repeal of the exception
to the 20-percent reduction, the proposal would require ratable income
inclusion over a 6-year period following the effective date of 20 percent
of the unearned premium reserve outstanding at the end of the most recent
taxable year beginning before January 1, 1997 (or 1999, for organizations
eligible for the December 31, 1998 effective date). For the repeal of the
25 percent of claims deduction, a phase-out would be provided for
organizations meeting the community service requirements of present law.
11 These standards would be met by an organization if (1)
substantially all its activities involve the providing of health
insurance or health-related activities, (2) at least 10 percent
of the health insurance it provides is provided on a community
rated, open enrollment basis to individuals and small groups
(taking into account any medicare supplemental coverage), (3) it
provides continuous full-year open enrollment (including
conversions) for individuals and small groups, (4) its policies
covering individuals provide full coverage of pre-existing
conditions of high-risk individuals without a price differential
(with a reasonable waiting period), and coverage is provided
without regard to age, income, or employment status of
individuals under age 65, and (5) no part of its net earnings
inures to the benefit of any private shareholder or individual.
For this purpose, a small group would be the number of
individuals required for a small group under applicable State
law.
66
L. MODIFICATION OF RULES FOR CERTAIN QUALIFIED 501 (c) (3) BONDS
Present Law
Interest on State and local government bonds generally is excluded
from income if the bonds are issued to finance direct activities of these
governments (Code sec. 103). Interest on bonds issued by these governments
to finance activities of other persons, i.e., private activity bonds, is
taxable unless a specific exception is included in the Internal Revenue
Code (the "Code"). One such exception is for private activity bonds issued
to finance activities of private, charitable organizations described in
Code section 501 (c) (3) ("section 501 (c) (3) organizations") when the
activities do not constitute an unrelated trade or business (sec.
141 (e) (1) (G) )
Before enactment of the Tax Reform Act of 1986, State and local
governments and section 501 (c) (3) organizations both were defined as
"exempt persons,' under the Code bond provisions, and their bonds generally
were subject to the same requirements. As exempt persons, section
501 (c) (3) organizations (with respect to their exempt activities) were not
treated as "private" persons, and their bonds were not "industrial
development bonds" or "private loan bonds" (the predecessor designations
for most current private activity bonds).
Present law treats section 501 (c) (3) organizations as private persons,
thus, bonds for their use may only be issued as private activity "qualified
501 (c) (3) bonds," subject to the restrictions of Code section 145. The
most significant of these restrictions limits the amount of outstanding
bonds from which a section 501 (c) (3) organization may benefit to $150
million. In applying this $150 million limitation, all section 501 (c) (3)
organizations under common management or control are treated as a single
organization. The limit applies to bonds for all section 501 (c) (3) health
care facilities except hospital facilities, defined to include only acute
care, primarily inpatient, organizations.
Description of Proposal
The proposal would repeal the $150 million per organization limit on
outstanding bonds that applies to nonprofit health care facilities that are
not acute care, inpatient facilities, and to other section 501 (c) (3)
organizations. In addition, the proposal would change the tax-exempt bond
provisions of the Code to conform generally the treatment of bonds for
nonprofit health care and other section 501 (c) (3) organizations to that
provided for bonds issued to finance direct State or local government
activities.
Certain other restrictions, described below, that have been imposed on
qualified 501 (c) (3) bonds (but not on governmental bonds), and that address
specialized policy concerns, would be retained--
(1) The requirement that existing residential rental
67
property acquired by a section 501 (c) (3) organization
in a tax-exempt-bond-financed transaction satisfy the
same low-income tenant requirements as similar housing
financing for for-profit developers;
(2) The present-law maturity limitations applicable to
bonds for section 501 (c) (3) organizations, and the
public approval requirements applicable generally to
private activity bonds; and
(3) The penalties on changes in use of tax-exempt-bond-
financed section 501 (c) (3) organization property to a
use not qualified for such financing.
Effective Date
The proposal would apply to bonds issued after December 31, 1994.
M. ELIMINATE EXCLUSION FOR EMPLOYER-PROVIDED ACCIDENT OR
HEALTH BENEFITS PROVIDED THROUGH A FLEXIBLE SPENDING ARRANGEMENT
Present Law
1. Cafeteria plans
Under present law, compensation generally is includible in gross income
when actually or constructively received, i.e., when it is made available
to the individual or the individual has an election to receive such amount.
Under one exception to the general principle of constructive receipt, no
amount is included in the gross income of a participant in a cafeteria plan
maintained by an employer solely because the participant may elect among
cash and certain employer-provided qualified benefits. In general, a
qualified benefit is a benefit that is excludable from an employee's gross
income by reason of a specific provision of the Internal Revenue Code.
Employer-provided accident or health coverage is a qualified benefit.
The cafeteria plan exception from the principle of constructive
receipt also applies for employment tax purposes.
2. Flexible spending arrangements
A flexible spending arrangement ("FSA") is a reimbursement account or
similar arrangement under which an employee is reimbursed for medical
expenses or other employer-provided qualified benefits, such as dependent
care. FSAs that are part of a cafeteria plan generally are funded through
salary reduction. FSAs may also be provided by an employer outside a
cafeteria plan. FSAs are commonly used, for example, to reimburse employees
for medical expenses not covered by insurance. If certain conditions are
satisfied, amounts reimbursed under an FSA are excludable from gross income
and wages for employment tax purposes.
68
Proposed Treasury regulations define a health FSA as a benefit program
that provides employees with coverage under which specified, incurred
expenses may be reimbursed (subject to reimbursement maximums and any other
reasonable conditions) and under which the maximum amount of reimbursement
that is reasonably available to a participant for a period of coverage is
not substantially in excess of the total premium (including both employee-
paid and employer-paid portions of the premium) for such participant's
coverage. A maximum amount of reimbursement is not substantially in excess
of the total premium if the maximum amount is less than 500 percent of the
premium.
Description of Proposal
Under the proposal, accident or health benefits provided under an FSA
would be includible in income and wages for income and employment tax
purposes. A health FSA would be defined generally as under the proposed
Treasury regulations.
Effective Date
The proposal would be effective on and after January 1, 1996.
N. PREMIUM ASSESSMENT
Present Law
There is no excise tax or other special Federal assessment on domestic
health insurance policy premiums. A one-percent excise tax is imposed on
premiums for certain foreign-issued sickness and accident insurance and
reinsurance policies (sec. 4371).
Description of Proposal
1. In general
The proposal would impose an assessment on certain health expenses.
Expenses subject to the assessment generally would include the costs of
providing health coverage, as well as related administrative expenses and
any costs of reinsurance. Health coverage would include, but not be
limited to, coverage for sickness, accident, dental, preventive care, or
payment of a fixed amount for hospitalization or other specified types of
care. To the extent all of these costs are reflected in the premium or
other charge to the purchaser of such benefits, the assessment would be
imposed on the premium amount. If the costs are reflected in separate
charges to the purchaser (i.e., a purchaser buys a health insurance policy
and enters into an administrative services contract), the assessment would
be imposed on each separate component.
In general, with respect to indemnity health insurance, the assessment
would be imposed on premiums. With respect to prepaid health care
arrangements, the assessment would be imposed on the fixed payments or
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premiums paid by members. With respect to self-insured plans, the
assessment would be imposed on the plan's health care expenditures and
administrative expenses.
A portion of amounts derived from the imposition of this premium
assessment would be used to fund the Academic Health Centers Trust Fund and
the Health Research Trust Fund.
2. Assessment on health insurance policy premiums
The proposal would impose a 1.75 percent assessment on certain health
insurance policy premiums, effective in 1996. The assessment would be paid
by the issuer of the policy and would be imposed regardless of who pays the
premium.
The assessment would be imposed on policies providing health care
coverage. It would not be imposed on policies if the health care coverage
is part of the coverage of liabilities incurred under employees'
compensation laws, tort liabilities, or other similar liabilities. If a
policy provides both health and other coverage, the assessment would be
imposed only on the health portion if the charge for the nonhealth coverage
is both separately stated and reasonable in relation to the total policy
charges.
Certain prepaid health care arrangements also would be subject to the
assessment. Such arrangements would include those pursuant to which an
entity receives fixed payments or premiums (that do not vary in amount
depending on the amount of health care provided) in exchange for an
agreement to provide or arrange for the provision of health care. The
entity receiving the payments or premiums would be treated as the issuer of
the policy and would pay the assessment.
3. Assessment on health-related administrative services
The proposal would also impose the applicable assessment on amounts
paid for certain health-related administrative services not included in the
premium for a policy. The assessment would be paid by the provider of the
services.
Services subject to the assessment would include claims processing or
other administrative services performed in connection with health care
coverage (if the charge for such services is not included in the premiums
for such policy), and claims processing, arranging for the provision of
health care, or other administrative services performed in connection with
a self-insured plan established or maintained by another person.
4. Treatment of self-insured plans
Certain self-insured plans would be subject to a monthly assessment
equal to the applicable assessment rate times the sum of the plan's health
care expenditures and direct administrative expenses. This assessment
would be paid by the plan sponsor.
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Plans subject to the assessment would be plans that provide health
care (other than through an insurance policy) that are established or
maintained by one or more (1) employers for the benefit of their current
and former employees; (2) employee organizations for the benefit of their
current and former members; (3) employers and employee organizations
jointly for the benefit of current or former employees; and (4) multiple
employer welfare arrangements or plans maintained by rural cooperatives,
not described in (1)-(3) above.
5. Exemption applicable to certain governmental programs
Certain direct governmental insurance programs would be exempt from
this premium assessment. These would include Medicare, Medicaid, Indian
Health Services, and any program that provides health care to members of
the Armed Forces or veterans or to their spouses or dependents. Other
government programs would be subject to the premium assessment as set forth
above.
6. Academic Health Centers Trust Fund, Graduate Medical and Nursing
Education Trust Fund, and Health Research Trust Fund
The revenues derived from the premium assessment would fund the
Academic Health Centers Trust Fund, the Graduate Medical and Nursing
Education Trust Fund, and the Health Research Trust Fund established under
the proposal.
Effective Date
The proposal would be effective after December 31, 1995.
O. TAX TREATMENT OF FUNDING OF RETIREE HEALTH BENEFITS
Present Law
Under present law, employer-provided post-retirement medical benefits
are generally excludable from the gross income of a plan participant or
beneficiary. In addition, an employer may deduct contributions, within
limits, made to a welfare benefit fund for retiree health and life
insurance benefits of its employees. A welfare benefit fund is, in general,
any fund that is part of a plan of an employer, and through which the
employer provides welfare benefits to employees or their beneficiaries.
Contributions by an employer to a welfare benefit fund are not
deductible under the usual income tax rules, but, if they otherwise would
be deductible under the usual rules (e.g., if they are ordinary and
necessary business expenses), the contributions are deductible within
limits for the taxable year in which such contributions are made to the
fund.
The amount of the deduction otherwise allowable to an employer for a
contribution to a welfare benefit fund for any taxable year may not exceed
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the qualified cost of the fund for the year. The qualified cost of a
welfare benefit fund for a year is the sum of (1) the qualified direct cost
of the fund for the year and (2) the addition (within limits) to the
qualified asset account under the fund for the year, reduced by (3) the
after-tax income of the fund.
A qualified asset account under a welfare benefit fund is an account
consisting of assets set aside to provide for the payment of disability
payments, medical benefits, supplemental unemployment compensation benefits
or severance pay benefits, or life insurance benefits. Under present law,
an account limit is provided for the amount in a qualified asset account
for any year.
The account limit for any taxable year may include a reserve to
provide certain post-retirement medical and life insurance benefits. This
limit allows amounts reasonably necessary to accumulate reserves under a
welfare benefit plan so that the liabilities for post-retirement medical
and life insurance benefits with respect to a group of employees can be
prefunded over the working lives of such employees.
Under present law, if an employer maintains a welfare benefit fund
that provides a disqualified benefit during any taxable year, the employer
is subject to an excise tax equal to 100 percent of the disqualified
benefit. A disqualified benefit includes (1) a benefit provided to a key
employee other than from a separate account required to be established for
such an employee, (2) any post-retirement medical or life insurance benefit
that is provided in a discriminatory manner, and (3) any portion of a
welfare benefit fund reverting to the employer.
Description of Proposal
Under the proposal, the minimum period during which the cost of
post-retirement medical and life insurance coverage could be funded under a
welfare benefit fund would be at least 10 years. Thus, an employer would be
permitted to deduct the costs of funding such coverage on a level basis
over the working lives of covered employees, but not over a period of less
than 10 years.
The proposal would clarify that a reserve to provide post-retirement
medical and life insurance benefits under a welfare benefit plan would be
maintained as a separate account. In addition, the proposal would include
any payment from the separate account required to be maintained for
post-retirement medical and life insurance benefits that is not used to
provide a post-retirement medical or life insurance benefit in the list of
disqualified benefits for which the employer is subject to a 100-percent
excise tax.
Effective Dates
The proposal relating to reserves for post-retirement medical and life
insurance benefits under welfare benefit plans would be effective for
contributions paid or accrued after December 31, 1994, in taxable years
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ending after that date. The proposal that would require that the reserve
for post-retirement medical and life insurance benefits be maintained as a
separate account would be effective for contributions paid or accrued after
the date of enactment, in taxable years ending after that date.
P. NONREFUNDABLE CREDIT FOR CERTAIN PRIMARY HEALTH SERVICES
PROVIDERS
Present Law
1. Geographically targeted tax provisions
In general, the operation of Internal Revenue Code rules does not
vary based on the location within the United States of income-producing
activity. Nonetheless, present law provides favorable Federal income tax
treatment for certain U.S. corporations that operate in Puerto Rico, the
U.S. Virgin Islands, or possessions of the United States to encourage the
conduct of trades or business within these areas. In addition, certain
Code sections provide additional benefits in targeted geographic areas
(e.g., low-income housing credit and qualified mortgage bond provisions
target certain economically distressed areas).
The Omnibus Budget Reconciliation Act of 1993 ("1993 Act") provides
for the designation of nine empowerment zones and 95 enterprise communities
in economically distressed areas satisfying certain criteria. The
designations are to be made during 1994 and 1995, and generally will remain
in effect for 10 years. During the period the designation is in effect,
special tax incentives (i.e., an employer wage credit, additional section
179 expensing, and expanded tax-exempt financing) are available for certain
business activities conducted in empowerment zones. Expanded tax-exempt
financing benefits are available for certain facilities located in
enterprise communities. In addition, the 1993 Act provides accelerated
depreciation benefits and an incremental employer wage credit for certain
business activities conducted on Indian reservations.
2. Tax benefits available for medical care providers
Code section 108 (f) provides an exclusion from Federal income tax for
what otherwise would be discharge-of-indebtedness income if a student loan
is discharged pursuant to a provision in the loan agreement that requires
the student to work for a period of time in certain professions for any of
a broad class of employers. Section 108 (f) applies only to student loans
made from funds provided by the Federal Government, a State or local
government, or certain public benefit corporations described in section
501 (c) (3) For example, the favorable treatment provided by section 108 (f)
applies when a government agency discharges a student loan upon the
student's provision of medical services to an underserved area.
Present law does not provide for a special credit against Federal
income taxes for individuals who provide medical services in medically
underserved geographic areas.
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3. Nontax benefits for medical care providers
Other, non-tax provisions of Federal law provide that certain health
care professionals who agree to work full time for at least two years at an
approved government or nonprofit employment site within a "health
professional shortage area" (HPSA) are eligible for scholarships or
repayments of student loans. 12 The scholarship and loan repayment
programs are administered by the National Health Service Corp (NHSC), which
is part of the Department of Health and Human Services. 13
Description of Proposal
A physician who provides primary health services in certain medically
underserved areas would be eligible for a nonrefundable credit against
Federal income taxes of $1,000 per month for up to 36 months ($500 per
month if the physician already was providing medical services in an
underserved area at the time the credit becomes effective). The credit
rate would be $500 per month in the case of a physician assistant,
nurse-practitioner, or certified nurse-midwife (regardless of when the
individual began providing medical services in an underserved area). The
credit would be available to a taxpayer only if he or she provides primary
12 HPSAs are designated geographic areas, as well as
certain designated population groups and government facilities.
Currently, more than 2,400 primary care HPSAs have been
designated, covering all or parts of 1,800 counties in the United
States. There are also over 1000 dental HPSAs and over 700
mental health HPSAs. HPSAs are designated by the Bureau of
Primary Health Care, which is part of the United States Public
Health Service. HPSAs are identified on the basis of State and
local government requests for designation. Primary care HPSAs
are designated on the basis of rate of poverty, access to primary
health care, low birthweight births, infant mortality, and the
physician/population ratio. See vol. 59 Federal Register no. 14
(January 21, 1994) at 3411-5307. The NHSC Revitalization
Amendments of 1990 ( sec. 333A of Pub. Law 101-697) require that
the Secretary of HHS annually prepare a list of HPSAs in order of
greatest shortage of medical practitioners (by using certain
exclusive factors) and that priority in the assignment of
National Health Service Corp (NHSC) personnel be given to
government or nonprofit entities serving HPSAs with the greatest
shortages. See 42 U.S.C. 254f-1.
13 As of September 30, 1993, a total of 1,163 practitioners
(i.e., primary-care physicians and physician assistants, general
practice dentists, primary-care nurse practitioners, and
certified nurse midwives) were providing medical care in HPSAS
throughout the United States pursuant to the NHSC scholarship and
loan repayment programs.
74
health services¹⁴ on a full-time basis in a "health professional shortage
area" (HPSA) (as defined under present-law section 332 (a) (1) (A) of the
Public Health Service Act) 15 To be eligible for the credit, the taxpayer
would be required to obtain certification from the Bureau of Primary Health
Care, United States Public Health Service of the Department of Health and
Human Services, that he or she is a full-time provider of primary health
services in a HPSA, and, in the case of a taxpayer working in an urban
HPSA, that he or she performs services (as an employee or independent
contractor) for a governmental or nonprofit entity. 16 The credit would
not be available, however, if the taxpayer participated in the National
Health Service Corps (NHSC) scholarship or loan repayment program.
Under the proposal, a taxpayer would be required to work full time
providing primary health services in the HPSA for two consecutive years
(following certification) in order to receive the tax credit. If a
taxpayer did not provide primary health services on a full-time basis in
the HPSA for at least two consecutive years (following certification), any
credit previously claimed would be completely recaptured. The Secretary of
the Treasury, in consultation with the Secretary of Health and Human
Services, would be granted authority to waive recapture of credits when a
taxpayer ceases to provide services in the HPSA due to extraordinary
circumstances.
Effective Date
The proposal would be effective for taxable years beginning after
1994.
14 For purposes of the provision, the term "primary health
services" would have the meaning given such term by section
330 (b) (1) of the Public Health Service Act.
15 See Title 42, U.S. Code, sections 254e and 254f-1. For
purposes of the proposal, medically underserved areas would
include population groups and public facilities that have HPSA
designation.
16 For purposes of the credit, a health care practitioner
would be treated as providing services in a HPSA, even if the
area no longer has designation as such, so long as the area was
designated as a HPSA when the practitioner was certified by the
Department of HHS as being eligible for the credit (i.e., the
practitioner was already working in an area designated as a HPSA
at the time the credit became effective or subsequently began
practicing in an area when it was designated as a HPSA).
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Q. EXPENSING OF MEDICAL EQUIPMENT USED IN HEALTH CARE
SHORTAGE AREAS
Present Law
1. Depreciation rules
In general, the cost of property that has a useful life longer than
one year must be capitalized and recovered over time pursuant to
depreciation or amortization rules. Tangible depreciable property placed
in service after 1986 is depreciated under the modified Accelerated Cost
Recovery System (MACRS) enacted as part of the Tax Reform Act of 1986.
Under MACRS, high technology medical equipment is depreciated for regular
tax purposes over a 5-year recovery period using the 200-percent declining
balance method. "High technology medical equipment" means any electronic,
electromechanical, or computer-based high technology equipment used in the
screening, monitoring, observation, diagnosis, or treatment of patients in
a laboratory, medical, or hospital environment.
In general, MACRS deductions are reduced for property under an
alternative depreciation system by calculating depreciation using the
straight-line method over the property's class life. A property's class
life generally corresponds to its Asset Depreciation Range (ADR) midpoint
life and often is longer than the recovery period applicable for regular
tax purposes. The alternative depreciation system applies to foreign use
property, tax-exempt use property, tax-exempt bond financed property,
certain imported property, and property which the taxpayer so elects and is
used to compute corporate earnings and profits. The class lives of the
alternative depreciation system also are used for purposes of the corporate
and individual alternative minimum tax. The class lives of some assets are
set by statute, regardless of the asset's ADR midpoint life. The class
life of high technology medical equipment is set by statute at five years.
2. Section 179 expensing allowances
In lieu of depreciation, a taxpayer with a sufficiently small amount
of annual investment may elect to deduct up to $17,500 of the cost of
qualifying property placed in service for the taxable year under section
179.17 In general, qualifying property is defined as depreciable tangible
personal property that is purchased for use in the active conduct of a
trade or business. The $17,500 amount is reduced (but not below zero) by
17 Section 13116 of the Omnibus Budget Reconciliation Act
of 1993 increased the amount allowed to be expensed under section
179 from $10,000 to $17,500 for qualified property placed in
service in taxable years beginning after 1992. In addition,
under section 13301 of the 1993 Act, the amount allowed to be
expensed under section 179 by an enterprise zone business is
increased by the lesser of: (1) $20,000 or (2) the cost of
section 179 property that is qualified zone property placed in
service during the taxable year.
76
the amount by which the cost of qualifying property placed in service
during the taxable year exceeds $200,000. In addition, the amount eligible
to be expensed for a taxable year may not exceed the taxable income of the
taxpayer for the year that is derived from the active conduct of a trade or
business (determined without regard to this provision). Any amount that is
not allowed as a deduction because of the taxable income limitation may be
carried forward to succeeding taxable years (subject to similar
limitations).
Description of Proposal
The proposal would increase the amount allowed to be expensed under
section 179 in a taxable year by the lesser of: (1) the cost of section 179
property which is health care property placed in service during the year or
(2) $15,000. For this purpose, "health care property" would mean section
179 property: (1) which is medical equipment used in the screening,
monitoring, observation, diagnosis, or treatment of patients in a
laboratory, medical, or hospital environment; (2) which is owned (directly
or indirectly) and used by a physician (as defined by section 1861 (r) of
the Social Security Act) in the active conduct of such physician's full-
time trade or business of providing primary health services (as defined in
section 330 (b) (1) of the Public Health Service Act) in a health
professional shortage area ("HPSA") (as defined in section 332 (a) (1) (A) of
the Public Health Service Act) i and (3) substantially all the use of which
is in such area. Similar to the proposed nonrefundable credit for certain
primary care providers, physicians working in urban HPSAs would be eligible
for the additional section 179 expensing only if they perform services for
a government or nonprofit entity.
Effective Date
The proposal would apply to property placed in service in taxable
years beginning after December 31, 1994.
R. COORDINATION WITH HEALTH CARE CONTINUATION PROVISIONS
Present Law
In general, an employer with 20 or more employees must provide health
plan participants with the opportunity to continue their coverage in the
employer's health plan for a specified period of time after the occurrence
of certain qualifying events that otherwise would have terminated such
coverage.
The qualifying events that may trigger rights to continuation coverage
are (1) the death of the employee, (2) the voluntary or involuntary
termination of the employee's employment (other than by reason of gross
misconduct), (3) a reduction of the employee's hours, (4) the divorce or
legal separation of the employee, (5) the employee becoming entitled to
benefits under Medicare, (6) a dependent child of the employee ceasing to
be a dependent under the employer's plan, and (7) in certain cases the
77
commencement of bankruptcy proceedings with respect to an employer. The
maximum period of health care continuation coverage that may be elected is
36 months, except in the case of termination of employment or reduction of
hours for which the maximum period is 18 months. The 18-month period is
extended to 29 months in certain cases involving the disability of the plan
participant. Certain events, such as the failure by the plan participant
to pay the required premium, may trigger an earlier cessation of the health
care continuation coverage.
Within limits, employers may require health plan participants that
elect health care continuation coverage to pay for such coverage.
Description of Proposal
The proposal would retain the present-law health care continuation
rules, except that the maximum period of continuation coverage that could
be elected by a qualified beneficiary for any qualifying event would be
reduced. Under the proposal, a qualified beneficiary could elect health
care continuation coverage for the longer of 6 months or until the end of
the calendar year in which the qualifying event occurs.
Effective Date
The proposal would be effective with respect to qualifying events that
occur on or after January 1, 1997.
S. DISCLOSURE OF TAXPAYER RETURN INFORMATION FOR
ADMINISTRATION OF HEALTH SUBSIDY PROGRAMS
Present Law
The Internal Revenue Code prohibits disclosure of tax returns and
return information, except to the extent specifically authorized by the
Code (sec. 6103) Unauthorized disclosure is a felony punishable by a fine
not exceeding $5,000 or imprisonment of not more than five years, or both
(sec. 7213). An action for civil damages also may be brought for
unauthorized disclosure (sec. 7431). No tax information may be furnished by
the Internal Revenue Service (IRS) to another agency unless the other
agency has established procedures satisfactory to the IRS for safeguarding
the tax information it receives (sec. 6103 (p)
Description of Proposal
The proposal would permit disclosure of certain taxpayer return
information to any Federal, State, or local agency administering health
subsidy programs for use in verifying eligibility for such subsidies.
Disclosable information would include taxpayer return information relating
to adjusted gross income, the untaxed portion of social security benefits,
78
and tax-exempt interest income. 18 In addition, information regarding
marital status and dependents could be disclosed.
Taxpayer return information would only be disclosed in response to a
taxpayer's application for a health subsidy, only to the agency responsible
for determining eligibility for the subsidy, 19 and only to the extent
necessary to make that determination.
Under the proposal, any Federal, State, or local agency receiving
taxpayer return information would be required to comply with the safeguards
presently contained in the Code governing the use of disclosed tax
information. Also, the present-law penalties for unauthorized disclosure of
information would apply to recipient agencies and their employees.
Effective Date
The proposal would be effective on the date of enactment.
T. TAX TREATMENT OF VOLUNTARY EMPLOYER HEALTH CARE
CONTRIBUTIONS
Present Law
There is currently no requirement that employers contribute to health
plans on behalf of their employees. If an employer elects to contribute
towards the cost of a health plan on behalf of its employees, the employer
generally may determine the level of contributions it will make to the
plan. Employers can generally deduct the full cost of employer-provided
health care as an ordinary and necessary business expense.
Employer-provided health coverage is generally fully excludable from
gross income. However, if an employer provides its employees with health
benefits under a self-insured medical reimbursement plan (sec. 105(h)),
reimbursements under such plan are excludable with respect to a highly
compensated individual only to the extent that the plan does not
discriminate in favor of highly compensated individuals either as to
eligibility to participate or as to benefits. Under the requirements for
nondiscrimination in benefits, a self-insured plan may establish a limit
for the amount of reimbursement which may be paid for any single benefit or
18 In addition, welfare benefits would be considered to be
income for purposes of computing eligibility for a health
subsidy. Welfare benefits are not income for tax purposes and are
not presently reported to the IRS. They are therefore not return
information for purposes of the tax disclosure rules. A separate
reporting system for welfare benefits would be established under
the proposal.
19 Disclosure would also be permitted for reviewing and
auditing health subsidy determinations.
79
combination of benefits under the plan. However, any maximum limit on the
amount of reimbursement for health expenses attributable to employer
contributions under a self-insured medical expense plan must be uniform for
all participants and for all dependents of employees who are participants
and may not be modified by reason of a participant's age or years of
service (Treas. Reg. § 1.105-11 (c) (3) (i)
Description of Proposal
1. In general
The proposal would not require employers to contribute toward the cost
of health coverage for any employee. However, employers that voluntarily
contribute toward the cost of health coverage for their employees would be
required to satisfy certain voluntary contribution rules. Employers that
violate the voluntary contribution rules would be subject to an excise tax
designed to approximate the effect of denying the employer deduction for
health expenses.
2. Limitation on deductibility of employer contributions for health
coverage other than permitted coverage
Under the proposal, employer contributions to an accident or health
plan other than employer contributions for permitted coverage would be
subject to an excise tax designed to approximate the effect of denying the
employer deduction for such health expenses. Permitted coverage would
include (1) coverage under a certified standard health plan, (2)
cost-sharing amounts under a certified standard health plan (including
cost-sharing policies), (3) coverage providing wages or payments in lieu of
wages for any period during which the employee is absent from work on
account of sickness or injury, (4) coverage providing payment for permanent
injuries of an employee, his or her spouse or a dependent that are computed
with reference to the nature of the injury without regard to the period the
employee is absent from work (but not coverage under a long-term care
insurance policy), (5) coverage provided to an employee or former employee
after such employee has attained age 65 unless such coverage is provided by
reason of the current employment of the individual with the employer
providing the coverage, (6) coverage provided under Federal law to veterans
or any member of the Armed Forces of the United States and their spouses
and dependents and (7) coverage under a certified supplemental health plan,
and (8) coverage under a certified long-term care insurance policy.
The provision does not affect the present-law rules regarding taxation
of employer contributions for coverage or the taxation of any payments
received by the individual. Whether or not something is permitted coverage
for purposes of the excise tax is independent of income or employment tax
treatment.
The excise tax would not be imposed with respect to any period for
which it is established to the satisfaction of the Secretary that the
employer did not know nor, through exercising reasonable diligence, should
have known, that coverage did not meet the applicable standards.
80
3. Voluntary employer contributions cannot vary based on health status
Any employer that voluntarily contributes towards the cost of coverage
for employees under a health plan cannot impose a waiting period, deny
coverage, or vary the amount of the contribution based on any employee's
health status, claims. experience, medical history, receipt of health care,
or lack of evidence of insurability.
4. Same voluntary employer contribution
Any employer that voluntarily contributes towards the cost of coverage
for any employee under a certified standard health plan would be required
to contribute either the same dollar amount or the same percentage (with or
without a dollar cap) towards the cost of the standard coverage selected by
any other employee. This rule would be applied separately with respect to
full-time employees and part-time employees. Employers that voluntarily
contribute to the purchase of any part-time employee's coverage would be
required to make a contribution to all part-time employees proportionate to
the number of hours worked by the part-time employee. The voluntary
contribution requirement would apply only to coverage under a certified
standard health plan made available by the employer (consistent with other
parts of the proposal).
For example, assume that an employer offers to pay 80 percent of a
$4,000 premium for single coverage under a certified health maintenance
organization for all of its full-time salaried employees, but not for any
of its part-time employees. Under the proposal, the employer would be
required to offer to contribute one of the following amounts towards the
cost of single or family coverage for all full-time employees: (1) the same
dollar amount ($3,200), (2) the same percentage (80 percent) of the single
or family premium, or (3) the same percentage (80 percent) of the single or
family premium, but no more than $3,200. NO contribution would be required
with respect to part-time employees.
A full-time employee would be an employee who is normally employed at
least 24 hours in a week. A part-time employee would be an employee who is
normally employed at least 10 hours per week and less than 24 hours per
week. The following employees (whether full-time or part-time) would be
excluded for purposes of this rule: (1) employees who have not completed 6
months of service; (2) employees who normally work not more than 6 months
during any year; (3) employees who are included in a unit of employees
covered by a collective bargaining agreement if health coverage was the
subject of good faith bargaining; (4) employees who have not attained age
18; and (5) employees who are non-resident aliens and who receive no U.S.
source earned income.
For purposes of the proposal, certain aggregation rules would apply.
All employees of corporations that are members of a controlled group of
corporations, or all employees of trades and businesses (whether or not
incorporated) that are under common control, would be aggregated and
treated as if employed by a single employer (sec. 414 (b) and (c))
Similarly, all employees of employers that are members of an affiliated
81
service group would be treated as employed by a single employer (sec.
414 (m) Finally, the Secretary of the Treasury would have general
regulatory authority to prevent avoidance of the voluntary contribution
requirements through the use of certain arrangements (sec. 414 (o) ) Under
the proposal, if an employer is treated as operating separate lines of
business for a year for pension plan purposes, the employer may apply the
voluntary contribution rules separately to each separate line of business
for that year.
5. Penalties for employer violations of the voluntary contribution rules
Employers that violate either of the voluntary contribution rules
would be subject to an excise tax designed to approximate the effect of
denying the employer deduction for health expenses. If an employer
impermissibly varies health care contributions based on health status or
violates the rules relating to contributions for health coverage other than
permitted coverage, the excise tax would be equal to the product of the
highest corporate income tax rate in effect (currently 35 percent) and the
total health care expenses for coverage other than permitted coverage
incurred by the employer during the period in which the violation occurs.
If an employer violates the rules relating to employer contribution levels,
the excise tax would be equal to the product of the highest corporate
income tax rate in effect (currently 35 percent) and the total health care
expenses for standard coverage incurred by the employer during the period
in which the violation occurs.
Both excise taxes would be imposed on all employers that violate the
voluntary contribution requirements, including tax-exempt and governmental
employers. The excise taxes would not be deductible. The Secretary of the
Treasury would be permitted to waive all or part of both excise taxes under
certain circumstances, to the extent that the payment of such taxes would
be excessive relative to the failure involved.
Effective Date
The voluntary contribution rules would apply to employer contributions
made on or after January 1, 1996.
U. ASSESSMENT ON LARGE EMPLOYERS
Present Law
No provision.
Description of Proposal
Under the proposal, an annual assessment of 1 percent of payroll would
be imposed on employers with 500 or more employees. Payroll would mean the
sum of (1) wages (as defined for hos al insurance tax purposes under the
proposal) ; (2) in the case of a sole proprietorship, the net earnings from
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self employment of the proprietor attributable to the trade or business;
(3) in the case of a partnership, the aggregate of the net earnings from
self employment of each partner which is attributable to the partnership;
and (4) in the case of an S corporation the aggregate of the net earnings
from self employment of each shareholder which is attributable to such
corporation. Net earnings from self employment would be defined as under
the proposal.
Effective Date
The proposal would be effective on and after January 1, 1996.
V. INCREASE EXCISE TAX ON HANDGUN AMMUNITION
Present Law
1. Ad valorem excise taxes
A 10-percent excise tax is imposed on the sale of pistols and
revolvers by a manufacturer, producer or importer thereof. Other firearms
and shells and cartridges are subject to an 11-percent excise tax (Code
sec. 4181).
An exemption is provided for sales of firearms and ammunition for use
by the United States Department of Defense. In addition, no excise tax is
imposed on sales by manufacturers, producers or importers: (1) for use by
the purchaser in further manufacture, or for resale by the purchaser for
use by the second purchaser in further manufacture; (2) for export, or for
resale by the purchaser to a second purchaser for export; (3) for use by
the purchaser as supplies for military vessels or aircraft; (4) to a State
or local government for their exclusive use; or (5) to a nonprofit
educational organization for its exclusive use. In general, the effect of
the State and local government exemption is to exempt sales to State and
local police departments.
Amounts equivalent to revenues from these excise taxes fund the
Federal Aid to Wildlife Program for use in making grants to support State
wildlife programs.
2. Transfer and making taxes; special occupational taxes
a. Transfer and making taxes.--Present law also imposes making and
transfer taxes on certain firearms and other destructive devices. A
transfer tax of $200 is imposed on each "firearm" transferred, and a making
tax at the rate of $200 is imposed on each firearm made (Code secs. 5811
and 5821). The ad valorem excise taxes described above do not apply to
firearms subject to these making and transfer taxes.
Firearms subject to the making and transfer taxes are machine guns,
short-length or short-barrelled rifles or shotguns, pen guns, handguns with
smooth bore barrels, firearms silencers, mufflers or suppressors, silencer
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parts, machine gun receivers and parts designed to convert a weapon into a
machine gun (generally, firearms subject to regulation under the National
Firearms Act ("NFA firearms") )
In general, Federal, State and local governments are exempt from the
making and transfer taxes. In addition, transfers between persons subject
to the special occupational tax (described below) are exempt from the
transfer tax, as are transfers of unserviceable firearms and exported
firearms.
b. Special occupational tax.--All importers, manufacturers and
dealers in NFA firearms are required to register with the Secretary of the
Treasury. Importers and manufacturers are subject to a special
occupational tax of $1,000 per year (small importers and manufacturers are
eligible for a reduced rate of tax) ; dealers are subject to a special
occupational tax of $500 per year (Code sec. 5801).
An exemption from the special occupational tax is available for
persons who conduct business exclusively with or on behalf of the United
States.
Description of Proposal
The proposal would increase the ad valorem excise tax rate on certain
handgun ammunition. Centerfire cartridges with a cartridge case of less
than 1.3 inches in length and cartridge cases of less than 1.3 inches in
length would be taxed at 50 percent. A 10,000-percent rate would apply to
(1) jacketed, hollow point projectiles which may be used in a handgun and
are designed to produce, upon impact, evenly-spaced sharp or barb-like
projections that extend beyond the diameter of the unfired projectile; and
(2) cartridges with a projectile measuring 0.500 inch or greater in
diameter which may be used in a handgun. The taxation of rifle ammunition
and .22 caliber rimfire cartridges generally would not be affected by the
proposal.
Amounts equivalent to revenues from these increased excise taxes would
be added to the General Fund and would not be used to fund the Federal Aid
to Wildlife Program.
The proposal also would impose a special occupational tax on each
importer and manufacturer of handgun ammunition (i.e., centerfire
cartridges with a cartridge case of less than 1.3 inches in length and
cartridge cases of less than 1.3 inches in length) of $10,000 per year.
These importers and manufacturers also would be required to register with
the Secretary of Treasury.
Effective Date
The proposal generally would be effective after December 31, 1994. A
floor stocks tax would be imposed on taxed ammunition products held for
sale on January 1, 1995.
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W. PREFUNDING OF POSTAL SERVICE RETIREE HEALTH BENEFITS
Effective February 1, 1995, the U. S. Postal Service would be required
to prefund health benefits for retirees.
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VIII. MEDICAID
Present Law
Title XIX of the Social Security Act (Medicaid) provides for mandatory
coverage by all States of acute care services for individuals and families
receiving either Aid to Families with Dependent Children (AFDC) or
Supplemental Security Income (SSI) income support payments. These groups
are referred to as the "cash population" within Medicaid. In addition,
States must extend coverage to pregnant women and children up to age six
with family incomes up to 133 percent of the Federal poverty level and
children born after September 1983 up to 100 percent of the Federal poverty
level. The Medicaid program provides States the option to extend coverage
of pregnant women and children up to age one up to 185 percent of poverty.
There are many other optional and mandatory coverage groups for acute care
Medicaid services, one of which is Medically Needy eligibility under which
families with significant medical care expenses can 'spend down' into
Medicaid eligibility.
Federal law establishes a basic set of mandatory services that States
must provide including: inpatient and outpatient hospital services;
laboratory and x-ray services; rural health clinic and federally qualified
health center services; nursing facility services; family planning
services; early and periodic screening, diagnostic and treatment (EPSDT)
services for children under 21 years old; home health services; and
physician, nurse midwife and certain certified nurse practitioner services.
There are many other services a State may choose to offer including:
prescription drugs, case management, personal attendant care, physical
therapy, rehabilitation, and mental health services.
Description of Proposal
A. ACUTE CARE SERVICES
1. AFDC and Acute Care Non-Cash Population
Both groups would be integrated into the general health care reform
program and these groups would be treated like other low-income people
eligible for Federal subsidies and enrollment in certified health plans.
States would be required to make general maintenance of effort (MOE)
payments for services covered under the standard benefit package. The
State MOE would be indexed to new Federal premium targets. The Federal
government would subsidize the health coverage purchase of this group in
the same manner as other low-income individuals.
2. Disabled Medicaid Population
SSI/Medicaid beneficiaries would not be included in the community
rated market. States would have the option to pay a per capita amount for
each SSI/Medicaid recipient (who is not enrolled in Medicare) to certified
health plans. States would negotiate with certified health plans for rates
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for the Medicaid disabled population that are separate from the community
rate. No certified health plan could have more than 50 percent of its
enrollment composed of SSI/Medicaid recipients.
3. Individuals Dually Eligible for Medicaid and Medicare
This group would remain under Medicaid and would not be enrolled in
health plans.
Effective Date
January 1, 1997.
B. SUPPLEMENTAL SERVICES
Current Medicaid rules governing covered services and recipient
eligibility would be retained to cover services not otherwise provided
through certified health plans. Because Medicaid is a secondary payer when
a recipient has private coverage, the program would provide supplemental
services for low-income groups currently entitled to Medicaid. The current
flexibility provided to States to determine the optional services and
groups it will cover would be retained.
Effective Date
January 1, 1997.
C. DISPROPORTIONATE SHARE HOSPITAL (DSH) PAYMENTS
The Federal share of these matching payments would be gradually phased
down over a period of years, beginning Fiscal Year 1997. The DSH program
would be changed into a more targeted program to compensate hospitals for
uncompensated care.
D. MEDICAID LONG TERM CARE
The Medicaid program would be amended to:
1. Increase the Federal Medical Assistance Percentage by 10
percentage points for: personal care attendant services, Sec. 1915 home and
community based long term care waiver services, and the frail elderly home
care option under Medicaid.
2. Allow States to expand eligibility for home-based Medicaid long
term care services for single individuals by increasing the asset limit
from $2,000 to $4,000 for services including personal care attendant
services, the Sec. 1915 waiver programs, and the frail elderly home care
option.
3. Expand the Program of All-inclusive Care for the Elderly.
Increase authorized demonstration sites from 15 to 40. Require the
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Secretary of HHS to develop provider and service protocols.
4. Eliminate the requirement that individuals need to have been
institutionalized as a condition of eligibility for habilitation services
under a home and community based care waiver.
5. Eliminate the 'cold bed rule' for waiver programs that currently
requires States to demonstrate the availability of an institutional bed in
order to have an equivalent slot in a home and community based waiver
program.
E. MISCELLANEOUS MEDICAID PROVISION
State Medicaid programs would be required to reimburse directly for
services provided by all certified nurse practitioners or clinical nurse
specialists that they are legally authorized under State law or regulation
to perform, whether or not they operate under the supervision of a
physician or other health care provider.
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IX. LONG TERM CARE AND SUPPLEMENTAL INSURANCE STANDARDS
A. LONG TERM CARE INSURANCE STANDARDS
Present Law
No provision.
Description of Proposal
1. Definition of Long Term Care Policies
Policies covered under this Part include any insurance policy, rider
or certificate that is advertised, marketed, offered or designed to provide
coverage for not less than 12 consecutive months for each covered person on
an expense incurred, indemnity prepaid or other basis for one or more
diagnostic, preventive, therapeutic, rehabilitative, maintenance or
personal care services, provided in a setting other than an acute care
hospital. Policies not covered under this Part include policies designed
to provide basic Medicare supplemental coverage, basic hospital expense
coverage, basic medical-surgical expense coverage, disability income or
related asset protection coverage, accident-only coverage, specified
disease coverage or limited health benefit coverage. Policies that
accelerate death benefits and that provide the option of lump sum payments
are not covered in this Part.
2. Regulatory Oversight
a. Participating States would be required to certify policies as
meeting new Federal standards. An insurer selling a policy not certified
by the State would be subject to a civil monetary penalty not to exceed 50
percent of gross premiums received from sale of the policy. States would
be permitted to develop stricter standards as long as no State provision is
inconsistent with Federal standards.
b. The Secretary of HHS, in consultation with the National Association
of Insurance Commissioners (NAIC), would be required to develop model
standards incorporating the requirements of this Part within one year of
enactment.
C. Participating States would be required to develop a long term care
insurance standard regulatory and enforcement program, which includes
adoption of the NAIC model act standards, a process for individuals to file
complaints about violations of the standards, consumer access to those
complaints, and a premium review and approval process.
3. Marketing Requirements
a. Insurers or agents would be prohibited from knowingly making any
misleading representation, or incomplete or fraudulent comparison, of any
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long term care insurance policy. They would be prohibited from using any
force, fright, threat, or undue pressure, whether implicit or explicit.
They also would be prohibited from employing any marketing method that
fails to be explicit that the purpose of the marketing is solicitation of
insurance.
b. The Secretary of HHS in consultation with the NAIC would be
required to develop minimum financial standards for the purpose of advising
potential purchasers as to the costs and amounts of coverage needed.
c. Insurers and agents would be prohibited from knowingly selling a
long term care insurance policy to an individual who is eligible for
Medicaid.
d. Insurers and agents could not knowingly sell policies that
duplicate coverage already held by the potential purchaser unless the
purchaser provides written documentation that the new coverage did not
duplicate the coverage already held or that the new policy would replace
existing coverage.
e. Any agent who sells, or offers for sale, a policy in violation of
the marketing and sales standards would be subject to a civil monetary
penalty not to exceed $15,000 for each violation. An insurer or carrier
that offers for sale a policy in violation of these requirements would be
subject to a civil monetary penalty not to exceed $25,000 for each
violation.
f. The Secretary in consultation with the NAIC would be required to
establish standards for the training of agents who sell long term care
policies and specify procedures for the certification of agents who have
completed such training.
4. Requirements Relating to Coverage Under a Policy
a. If an application for coverage is denied by an insurer, the insurer
would be required to return directly to the applicant any premiums paid
within 30 days of the date of denial.
b. If an application for coverage is accepted, the insurer shall
provide the insurance policy and an outline of coverage within 30 days of
coverage approval.
C. If a claim for coverage under a policy is denied, the insurer would
be required to notify the policyholder in writing within 15 days of the
reason(s) for the denial of coverage. The insurer shall make available all
records related to the denial and inform the policyholder how to appeal the
denial.
5. Reporting Requirements
Insurers would be required to report annually, to the State Insurance
Commissioner, information including the number and type of long term care
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policies in effect and the associated premiums, the rate of premium
increase for these policies, the lapse rates and replacement rates for
these policies, and the number of claims denied.
6. Agent Compensation
Agent commissions from the sale of a long term care policy to a first-
time holder of the policy would be limited to no more than 200 percent of
the commission paid for renewing the policy in the second year. Agent
commissions, if based on a percent of premium costs, could not exceed 50
percent of the first year premium. Agent commissions or compensation would
be required to be level for policy renewals over the next 5 years.
7. Rules for Issue, Renewals and Cancellations
a. A long term care policy could only be canceled due to nonpayment of
premiums, or material misrepresentation or fraud on the part of the
policyholder.
b. Each group long term care insurance policy would be required to
provide covered individuals with the option for continuation or conversion
from a group to an individual policy that meets certain criteria.
Conversions from a group policy would be required meet certain premium
pricing requirements.
C. Insurers and agents would be required to guarantee the issue of a
policy if the individual meets the minimum medical underwriting guidelines.
d. The Secretary in consultation with the NAIC would be required to
develop standards concerning policy rating and pricing of policy benefit
upgrades.
e. The Secretary in consultation with the NAIC would be required to
develop standards concerning policy rate stabilization.
f. A long term care policy must allow for reinstatement of a policy
canceled due to non-payment of premium if the policyholder is determined to
be cognitively incapacitated and the policyholder acts to reinstate (with
full payment of back premiums) within five months.
8. Use of Standardized Definitions and Terminology
The Secretary of HHS, in consultation with the NAIC, would be required
to develop standard definitions and terminology, and standard policy
description formats for use in all long term care policies.
9. Benefits Standards
a. Benefits would not be permitted to be conditioned on the need for,
or receipt of, any other service, nor on the medical necessity for the
benefit, nor on services furnished by providers or facilities meeting
conditions beyond those required by State licensure or certification.
91
b. If home health benefits are covered under a policy, the policy
would not be permitted to restrict these services to those provided by
registered nurses or licensed practical nurses, nor to services provided by
Medicare certified agencies. Services would be required to include those
of a home health aide or other home care employee under certain conditions,
and would be required to provide personal care, respite, and certain other
basic community-based services.
C. If nursing facility benefits are covered under a policy, the policy
would not be permitted to restrict the type of nursing facility covered.
d. A per diem policy could not condition benefit payments on the
receipt of specific services nor on the receipt of services from specific
types of providers.
e. A long term care policy would not be permitted to treat covered
benefits for individuals with Alzheimer's disease, other progressive
degenerative dementia, mental illness, or mental retardation differently
from benefits for individuals with a functional impairment.
f. An insurer would be permitted to exclude or condition benefits
based on a medical condition for which the policyholder received treatment
or was otherwise diagnosed within 6 months before the issuance of the
policy. The policy would be permitted to exclude coverage of that pre-
existing condition for up to 6 months from the start of coverage under the
policy.
g. An insurer could not deny coverage due to a pre-existing condition
if the application for coverage did not request such information with
resepct to such condition.
10. Functional Assessments and Appeals Process
Functional assessments would be conducted by individuals or
organizations not under the control of the insurer. Each insurer would
provide for an independent process, meeting certain standards, for appeal
of functional assessments and claims denials.
11. Inflation Protection
Long term care policies would be required to include inflation
protection meeting minimum Federal standards unless the insurer obtains
from the policyholder a written rejection of this coverage.
12. Non-Forfeiture
Long term care policies would be required to include mandatory non-
forfeiture benefits in a form to be established by the Secretary, in
consultation with the NAIC.
Effective Date
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States would be required to implement enforcement programs by April 1,
1997. States without such a program would be subject to a loss of Federal
Medicaid matching payments for long term care services.
B. STANDARDS FOR SUPPLEMENTAL INSURANCE
1. Definition of Supplemental Health Benefits Policies
Present Law
Health plans that supplement private health benefits purchased by
employers and individuals are not subject to Federal standards. Policies
that supplement Medicare benefits are subject to Federal regulation under
Section 1882 of the Social Security Act.
Description of Proposal
Supplemental health benefits policies would be defined to include two
types of policies: (a) supplemental services policies, and (b) cost-sharing
policies. Supplemental services policies would include: (a) coverage for
services and items not offered in the certified standard health plan, and
(b) coverage for items in the certified standard health plan, but not
covered because of limitation in amount, duration or scope. Cost-sharing
policies would include those that provide coverage for out-of-pocket
payments, including co-insurance, deductibles and copayments.
In order to be certified, health plans or insurers offering a
supplemental health benefits policy would be required to meet Federal
standards. States, or in the case of multistate self-insured plans the
Secretary of Labor, would be required to certify that the supplemental
health benefits policies meet the Federal standards. A health plan or
insurer offering a supplemental health benefits plan in violation of
Federal standards would be subject to civil penalties not to exceed 50
percent of gross premiums from the provision of policies in violation of
the standards.
The following types of policies would not be defined as supplemental
health benefits policies and would not be covered by Federal standards
regarding supplemental health benefits policies: (a) insurance that
provides benefits only with respect to specific diseases; (b) hospital or
nursing home indemnity policies; (c) Medicare supplemental insurance
policies; (d) insurance with respect to accidents; (e) coverage only for
disability income; (f) coverage issued as a supplement to liability
insurance; and (g) employees' compensation or similar insurance. Long term
care insurance policies are not included in the definition of supplemental
health insurance plans and are regulated elsewhere in this Part.
2. Standards for Supplemental Service Policies
Health plans or insurers offering policies that supplement services in
the certified standard health plan would be required to meet the following
93
Federal standards: (a) guaranteed issue, with one annual open enrollment
period of at least 30 days, except in cases where supplemental service
policies are offered to employees by their employer or to individuals based
on their membership in a fraternal, religious, professional, educational or
other similar organization; (b) guaranteed renewal, except for nonpayment
of premiums, fraud, or misrepresentation of a material fact; and (c)
community rating, with rates modified by community-rating area, family size
and age, as in certified standard health plans. Health plans or insurers
would not be permitted to deny coverage or vary premiums for eligible
persons based on health status, medical condition, claims experience,
receipt of health care, or medical necessity.
Health plans or insurers would be prohibited from offering: (a) a
supplemental health benefits policy that duplicates coverage provided in
the standardized benefit package of a certified standard health plan; and
(b) a supplemental health benefits policy that duplicates coverage provided
under Medicare to a Medicare eligible individual.
Not later than January 1, 1996, the Secretary would be required to
develop minimum standards that prohibit marketing practices by health plans
or insurers offering supplemental services policies that involve: (a) tying
or otherwise conditioning the sale of a supplemental services policy to the
sale of a certified standard health plan sold by the same company; (b)
using or disclosing any information about the health status or claims
experience of participants in a certified standard health plan; or (c)
prohibiting managed care plans which provide the certified standard health
plan from offering a supplemental services policy to a person not enrolled
in the managed care plan.
3. Standards for Cost-Sharing Policies
Persons are only permitted to obtain a cost-sharing policy from the
same certified standard health plan in which they are enrolled. Health
plans would only be permitted to offer cost-sharing policies to persons
enrolled in their certified standard health plan. Nothing would require a
person to obtain a cost-sharing policy and nothing would require a health
plan to provide one.
Certified standard health plans offering cost-sharing policies would
be required to offer them to all individuals enrolled in their certified
standard health plan. Cost-sharing policies would be offered during the
same open enrollment period established for certified standard health plans
and supplemental services policies. Certified standard health plans would
be required to provide coverage for items and services in the cost-sharing
health plan to the same extent as provided in the certified standard health
plan. Certified standard health plans would be required to offer a cost-
sharing policy at the same price to all individuals (community rating).
The price at which the cost-sharing policy is offered would be required to
take into account any increase in utilization for items and services in the
certified standard health plan.
4. Prohibiting Offer of Multiple Plans to Individuals
94
Health plans or insurers would be prohibited from offering a
supplemental health benefits policy to an individual covered under another
supplemental plan of the same type, unless the individual's coverage under
the new policy begins after the old coverage is terminated.
Effective Date
January 1, 1997.
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X. MEDICARE
A. INDIVIDUAL ELECTION TO REMAIN IN PRIVATE HEALTH PLANS
Present Law
Under current law, individuals who become eligible for Medicare cannot
choose to remain in a private managed care plan unless that plan has a risk
or cost contract with Medicare.
Description of Proposal
The proposed change would require health maintenance organizations
that have or would be eligible for a Medicare risk contract under Section
1876 of the Social Security Act to offer continued membership in the health
plan (with the same benefits) to enrollees who become eligible for Medicare
and their spouse and dependents. Payment would be made to such health
plans on the same basis as Medicare payments to risk contracting
organizations. Individuals electing this option would be charged a premium
by the health plan equal to the difference between the health plan's
premium (adjusted to reflect the actuarial difference between the Medicare
beneficiaries and other plan enrollees) and the Medicare payment amount.
Payments would begin in the first month an individual is eligible for
Medicare and would cease in the open enrollment month specified by the
Secretary, or the month in which the individual ceases to be eligible for
Medicare. Payments under this section would be the sole Medicare payment
to which the beneficiary is entitled.
B. PROVISIONS RELATED TO PART A
1. Payment Updates for Prospective Payment System (PPS) for Inpatient
Hospital Services
Present Law
Under the prospective payment system, there are different standardized
base payment amounts for hospitals located in large urban areas
(metropolitan statistical areas with a population over 1 million or 970,000
in New England), other urban areas, and rural areas. Different update
factors apply to the urban and rural base payment amounts. Medicare
dependent and sole community hospitals are paid based on the higher of the
applicable standardized amount or a hospital-specific rate updated
annually. The update factors are based on the projected increase in the
hospital market basket, an index that measures changes in the prices of
goods and services purchased by hospitals. The update factors are as
follows:
(a) Fiscal year 1995: For urban hospitals, the estimated
percentage increase in the hospital market basket minus 2.5 percentage
points; for rural hospitals, the amount necessary to equalize the
96
rural and "other urban" standardized amounts. The update factors for
the hospital-specific rates applicable to a sole community hospital or
a Medicare-dependent, small rural hospital are set equal to the
percentage increase in the hospital market basket minus 2.2 percentage
points.
(b) Fiscal year 1996: For all hospitals, the percentage increase
in the hospital market basket minus 2.0 percentage points.
(c) Fiscal year 1997: For all hospitals, the percentage increase
in the hospital market basket minus 0.5 percentage point.
(d) For fiscal years 1998 and thereafter, the update factor for all
hospitals is set equal to the percentage increase in the hospital
market basket.
Description of Proposal
For fiscal years 1997 through 2000, the update factor for all
hospitals (urban, rural, sole community, and Medicare-dependent) would be
set equal to the percentage increase in the hospital market basket minus
2.0 percentage points.
Effective Date
Upon enactment.
2. Reduction in Payments for Capital-Related Costs for Inpatient Hospital
Services
Present Law
Medicare pays hospitals for inpatient capital expenses under a
prospective payment system. During a ten-year transition that began in
fiscal year 1992, hospitals are paid based on a blend of Federal rates and
hospital-specific capital rates. The initial Federal rate was computed
based on unaudited 1989 cost-report data, trended forward to 1992. The
hospital-specific rates were based on data from each hospital's 1990 cost
report, trended forward to 1992. The Federal and hospital-specific rates
are updated annually for inflation.
The Omnibus Budget Reconciliation Act of 1993 reduced the Federal
capital rate by 7.4 percent to correct errors in the inflation forecasts
used to establish the Federal rates.
Hospitals excluded from the prospective payment system (psychiatric,
rehabilitation, children's, cancer, and long-term hospitals and psychiatric
and rehabilitation distinct part units) are paid on a reasonable cost basis
for the capital-related costs of inpatient services.
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Description of Proposal
Adjustments would be made to the Federal and hospital-specific capital
payment rates. For discharges occurring after September 30, 1995 the
Secretary would reduce by 7.31 percent the unadjusted standard Federal
capital rate in effect as of the date of enactment, and would reduce by
10.4 percent the unadjusted hospital specific rate in effect on that date.
Payment for capital-related costs for hospitals excluded from the PPS
payment system would be reduced by 15 percent.
Effective Date
Effective for hospital discharges occurring on or after October 1,
1995.
3. Reductions in Payment Adjustments for Disproportionate Share Hospitals
Present Law
Under the prospective payment system, Medicare provides additional
payments to hospitals serving a disproportionate share of low income
patients. The adjustment amount is determined using formulas based on the
disproportionate share patient percentage. The disproportionate share
patient percentage is defined as the sum of the percentage of total patient
days that are attributed to non-Medicare-eligible Medicaid beneficiaries
and the percentage of Medicare patient days that are attributed to Medicare
beneficiaries that are also eligible for Supplemental Security Income
benefits. Separate formulas are provided for various categories of urban
and rural hospitals.
Description of Proposal
The Secretary would be required to reduce payments that would
otherwise be made under the disproportionate share adjustment by 25
percent.
Effective Date
Effective for hospital discharges occurring on or after October 1,
1997.
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4.
Changes in Payment Methodology for PPS-Excluded Hospitals
Present Law
Hospitals excluded from the prospective payment system (psychiatric,
rehabilitation, children's, cancer, and long-term hospitals and psychiatric
and rehabilitation distinct part units) are paid on a reasonable cost basis
subject to a rate of increase limit on operating costs per discharge. The
per discharge limit, or target amount, is updated annually.
Description of Proposal
Rehabilitation hospitals and distinct part units would be assigned
their 1990 and 1991 Medicare cost reporting periods as a new base year.
Limits for subsequent periods would be determined based on per-discharge
Medicare operating cost averaged over the two year period. The rebasing
would:
(a) Hold harmless those hospitals and units under their limits by
paying them their costs plus incentive payments;
(b) Provide a floor of 70 percent of the national average for each
type of facility for those facilities with very low limits; and
(c) Provide a ceiling of 110 percent of the national average for
each type of facility for new facilities.
The Secretary would be required to complete development of a
prospective payment system for rehabilitation hospitals and distinct part
units, including a patient classification system, and present
recommendations to Congress by October 1, 1996.
Conditions for exclusion of rehabilitation hospitals and distinct part
units from the PPS would be expanded to account for the impact of new
technologies and survival rates and the changes in the practice of
rehabilitation medicine over the past decade.
Any long term hospital meeting a two year financial loss test and a
low-income patient load test, would be assigned an average of their 1990
and 1991 Medicare cost reporting periods as a new base year. In any
subsequent two year period in which both tests were met, the Secretary
would be required to assign the hospital a new base year averaging the
costs of the two years. A hospital meets the financial loss test if it has
had two consecutive years of losses where its costs exceed its limit. A
hospital satisfies the low-income patient load test if it has a Medicare
disproportionate share patient percentage of greater than 25 percent.
Effective Date
October 1, 1994.
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5. Extension of Freeze on Updates to Routine Service Costs of Skilled
Nursing Facilities
Present Law
Medicare payment for skilled nursing facility services is made on a
reasonable cost basis subject to a limit on routine costs per diem. The
limit is based on 112 pèrcent of the mean per diem routine service costs
for freestanding facilities. There is an add-on to the limit for hospital-
based facilities equal to 50 percent of the difference between 112 percent
of the mean per diem routine costs for freestanding facilities and 112
percent of the mean per diem routine costs for hospital-based facilities.
OBRA 1993 prohibited the Secretary from applying an update factor to the
cost limits for skilled nursing facility cost reporting periods beginning
in fiscal years 1994 and 1995.
Description of Proposal
The Secretary would be required to limit to 100 percent the upper
limit on payment for reasonable routine service costs for services in
skilled nursing facilities.
Effective Date
October 1, 1995.
6. Payments for Sole Community Hospitals with Teaching Programs and Multi-
Hospital Campuses
Present Law
The Secretary is required to determine diagnosis-related group (DRG)
specific rates for hospitals in different areas. Requirements to reimburse
multi-campus facilities based on the location of the discharge applies only
to hospitals not exempt from PPS and to hospitals reimbursed on the basis
of DRGs and not to hospitals reimbursed on a cost basis.
Description of Proposal
The Secretary would establish separate rates of payment for each
facility of a sole community hospital with multi-hospital campuses when at
least one of the hospitals of the multi-hospital campus is eligible to
receive indirect medical education payments.
Effective Date
October 1, 1993 for hospitals that merged after October 1, 1987.
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7. Medicare Dependent Hospitals
Present Law
To qualify for Medicare Dependent Hospital (MDH) status, a hospital
must be located in a rural area, have no more than 100 beds, and have at
least 60 percent of its inpatient days or discharges attributed to Medicare
patients during the cost reporting period beginning during fiscal year
1987. MDHs are eligible for payment under the same rules as sole community
hospitals for cost reporting periods beginning on or after April 1, 1990
and ending before April 1, 1993. For discharges occurring during any cost
reporting period beginning on or after April 1, 1993, through September 30,
1994, an MDH would receive 50 percent of the difference between its payment
under the MDH rules and the payment regularly provided under the
prospective payment system.
Description of Proposal
The proposal would clarify that payment amounts are determined by
using a 36 month cost reporting period. The target amount definitions
needed to make the calculations for MDHs would be extended to September 30,
1998.
MDHs would receive 50 percent of the difference between their payment
under the MDH rules and the payment regularly provided under the
prospective payment system through September 30, 1998.
Effective Date
Effective beginning with hospital discharges occurring on or after
October 1, 1994.
8. Rural Health Transition Grants
Present Law
OBRA 87 instituted grant programs to assist rural hospitals with fewer
than 100 beds in developing and implementing projects to modify the type
and extent of services they provide. Grants may be used to develop health
systems with other providers, diversify services, recruit physicians,
improve management systems, and provide instruction and consultation via
telecommunications to physicians in health professional shortage areas.
The program was authorized at $25 million per year for fiscal years 1990
through 1992.
Description of Proposal
Appropriations for the rural health transition grant program would be
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authorized at $30 million per year for fiscal years 1993 through 1999.
Rural primary care hospitals would be eligible for grants.
Effective Date
Upon enactment.
9. Limited Service Hospitals, Essential Access Community Hospitals and
Medical Assistance Facilities
Present Law
Under the Essential Access Community Hospitals/Rural Primary Care
Hospital (EACH/RPCH) program, up to 7 States may be designated by the
Secretary to receive grants to develop rural health networks consisting of
EACHs and RPCHs.
The Medical Assistance Facility (MAF) program currently operates a
demonstration project that exempts small rural hospitals from certain
licensure laws, expands the role of mid-level practitioners and improves
Medicare payment.
There is no provision for limited service hospital programs or for
rural emergency medical services programs.
Description of Proposal
The Secretary would be required to establish a limited hospital
service program to coordinate rural hospital payment methodologies and
delivery systems, including MAF, EACH/RPCH, and rural emergency medical
services.
The MAF demonstration program would be made permanent, and all States
would be permitted to participate. Funding of $5,000,000 per year for MAF
would be authorized for fiscal years 1996 through 1999.
The Essential Access Community Hospital (EACH) /Rural Primary Care
Hospital program (RPCH) would be extended to all States and authorized for
$15,000,000 per year for fiscal year 1990 through fiscal year 1998. The
requirement that RPCH hospitals not have a length of stay exceeding 72
hours would be changed to allow an average length of stay not exceeding 96
hours. The requirement that hospitals be designated as EACHS would be
discontinued. RPCHs, however, would be required to establish linkages with
other providers. The requirement that the Secretary develop a prospective
payment system for RPCHs would be repealed. Instead, RPCHs would be
reimbursed using the MAF reimbursement methodology, including costs of
contracts for services with other providers. Hospitals currently certified
as EACHs would be permitted to retain Sole Community Hospital status.
A rural emergency medical services program would be established to
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improve emergency medical services (EMS) operating in rural and frontier
communities. Funding of $5,000,000 per year for fiscal years 1996 through
1999 would be authorized to provide grants to States to coordinate EMS
programs.
Effective Date
Effective for hospital discharges on or after October 1, 1994.
C. PROVISIONS RELATED TO PART B
1. Updates for Physicians' Services
Present Law
Under current law, payments for some services covered under Part B are
updated each year by an inflation index. Prior to 1984, physician fees
were updated annually by the Medicare Economic Index (MEI). The MEI
measures inflation in the cost of providing physician services. From 1984
through 1991, the MEI update was often set in reconciliation legislation.
The MEI is currently estimated to be 2.2 percent for 1995.
Beginning in 1992, Medicare physician fees are updated annually by a
default formula, unless Congress acts. This update is based on two things:
(1) the MEI; and (2) a comparison of actual physician spending in a base
period compared to an expenditure goal known as the Medicare Volume
Performance Standard (MVPS). Separate goals are set for surgical, primary
care, and non-surgical services (excluding primary care).
If the MVPS was exceeded in the base period, the update for services
within the category is equal to the MEI reduced by the percentage by which
the target was exceeded. If expenditures were less than the MVPS, the
update is the MEI increased by the percentage by which expenditures in the
category were below the target.
The Omnibus Budget Reconciliation Act of 1993 (OBRA 93) reduced the
default updates for 1994 by 3.6 percentage points for surgical services,
and 2.6 percentage points for all other services (including anesthesia
services), except for primary care, which received the full default update.
The 1994 updates are 10.0 percentage points for surgical services, 5.3
percentage points for non-surgical service (including anesthesia services),
except for primary care services, which received a 7.9 percent update.
OBRA 93 also reduced the default updates for 1995. The default update
is reduced by 2.7 percentage points for surgical services and all other
services (including anesthesia services), except primary care services,
which receive the full update.
Under the default formula, the Secretary of HHS has estimated that the
1995 updates will be as follows: 13.2 percentage points for surgical
services; 6.7 percentage points for non-surgical services (excluding
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primary care services) ; and 9.4 percentage points for primary care
services.
Description of Proposal
The proposed change would reduce the 1995 default update by 4.0
percentage points for surgical services, 4.0 percentage points for non-
surgical services, and 1.0 percentage point for primary care services.
Effective Date
Upon enactment.
2. Substitution of Real Gross Domestic Product (GDP) for Volume and
Intensity in the Volume Performance Standard
Present Law
The Omnibus Budget Reconciliation Act of 1989 (OBRA 89) established a
system of Medicare volume performance standards (MVPS) which is used to
calculate the annual update in fees (conversion factor) for physician and
certain other Part B services after January 1, 1992. Under this system,
Congress would enact a specific level of increase in expenditures for a
subsequent calendar year. In the absence of Congressional action, the rate
of increase in expenditures is determined by a formula set in law. The
MVPS is based on an estimate of: (1) the percentage increase in Medicare
fees; (2) the increase in the number of Part B enrollees, excluding
enrollees in HMO risk-contracts; (3) an estimate of the historical rate of
increase in the volume and intensity of services delivered; and (4) any
change in payment due to legislation or regulation. This is reduced by a
performance standard factor, which equals 3.5 percentage points in 1994 and
4.0 percentage points in each subsequent year.
Under current law, there is a lower limit on the default updates to
the physician fee schedule. The annual update to the fee schedule can be
no lower than the MEI minus 3.0 percentage points in calendar 1994 and
minus 5.0 percentage points in 1995 and succeeding years.
Description of Proposal
The proposed change would specify that the historical rate of increase
in the volume and intensity of services delivered would be deleted from the
MVPS. Substituted in its place would be the average per capita growth in
real (inflation-adjusted) GDP for the 5 year-period beginning with the
previous fiscal year (1994). The performance standard factor would be
repealed. In addition, the lower limit on the default update would be
repealed.
Effective Date
Upon enactment.
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3. Payments for Physician Services Relating to Inpatient Stays in Certain
Hospitals
Present Law
There generally are no adjustments to amounts payable to physicians
when covered services are provided to inpatients of hospitals. Each
physician submits claims for services rendered, and the amounts paid are
determined in accordance with the Medicare physician fee schedule. The
only exceptions to this general rule are when physicians provide services
as part of a surgical team or when they supervise services provided by
certified registered nurse anesthetists.
Description of Proposal
The Secretary would be directed to develop for all hospitals paid
under the prospective payment system, annual, hospital-specific case-mix
adjusted relative value units per admission and determine whether a
hospital exceeds the allowable average per admission relative value units
applicable to the medical staff for the year. If the Secretary determines
that the rate for the hospital exceeds the allowable average per admission,
the Secretary would reduce payments for physician services to hospital
inpatients. By October 1 of each year, the Secretary would notify each
hospital of its specific relative values.
In the case of urban hospitals, the allowable average per admission
relative value units would be equal to 125 percent for admissions in 1998
and 1999, and 120 percent thereafter of the median 1996 hospital-specific
relative value units per admission for all hospital medical staffs.
In the case of rural hospitals for each year beginning with 1998, the
allowable per admission relative value units would be equal to 140 percent
of the median 1996 hospital-specific relative value units per admission for
all hospital medical staffs.
The hospital specific projected relative value units for a hospital
would be equal to the average relative value units per admission for
physician services furnished to inpatients during 1996 by the hospital's
medical staff and billed to Medicare, adjusted for variations in case mix,
the disproportionate share adjustment, and indirect teaching adjustment, if
applicable.
The projected excess relative value units for a year would mean the
number of percentage points (as determined by the Secretary) by which a
medical staff's hospital specific per admission relative value units exceed
the allowable average per admission relative value units.
The amount of payments otherwise due would be reduced by 15 percent
for each service furnished for hospitals whose relative value units per
admission exceed the allowable average per admission.
Not later than October 1 each year, beginning in 1999, the Secretary
105
would be required to determine each hospital's actual average per admission
relative value units using claims forms submitted not later than 90 days
after the last day of the previous year, adjusted for case mix, and the
disproportionate share and indirect teaching adjustments.
In cases in which a hospital's actual average per admission relative
value units were reduced and were also below the allowable average rate,
the Secretary would reimburse the hospital medical staff's fiduciary agent
the amount that was withheld plus accrued interest. In cases where the
actual average relative value units were less than 15 percentage points
above the allowable average, the Secretary would reimburse the hospital
medical staff's fiduciary agent an amount equal to the difference between
15 percentage points and the actual number of percentage points by which
the staff exceeded the allowable average per admission relative value units
plus accrued interest.
Hospital medical executive committees would be given a one-year
advance notice of projected excessive relative values and would designate a
fiduciary agent to receive and disburse amounts withheld by the Secretary
that are subsequently returned. Alternatively, the Secretary could
distribute such amounts directly to physicians who treated patients in the
hospital on a pro-rata basis based on the proportion of services provided
by each physician during the year.
Effective Date
Effective for services furnished on or after January 1, 1998.
4. Incentives for Physicians to Provide Primary Care
Present Law
Physicians providing services in health professional shortage areas,
as defined in Sec. 332 of the Public Health Services Act, currently receive
a bonus equal to 10 percent of the Medicare payment amount for each
physician service delivered.
Description of Proposal
The proposed change would increase the bonus payment for primary care
services, as defined in Sec. 1842 (i) (a) of the Social Security Act, to 20
percent for each physician service. The bonus payment for other physician
services (excluding primary care) would be set at 10 percent for services
delivered in health professional shortage areas located in rural areas.
The 10 percent bonus payment for non-primary care services delivered in
health professional shortage areas located in urban areas would be
eliminated.
Effective Date
Upon enactment.
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5. Development and Implementation of Resource-Based Methodology for
Practice Expenses
Present Law
From 1992 to 1996, Medicare is phasing in a fee schedule with separate
components for physician work, practice expense and malpractice expense.
Practice expense includes office rents, employees wages, physician
compensation, and physician fringe benefits. Payment for the physician
work component of the fee schedule is based on a resource-based relative
value scale (RBRVS), but payment for practice expense and malpractice
expense are based on historical charges.
Description of Proposal
The Secretary would be required to develop a methodology for
implementing in 1997 a resource-based system for determining practice
expense relative value units for each physician service. In developing the
methodology, the Secretary would consider the staff, equipment and supplies
used in the provision of various medical and surgical services in various
settings. The Secretary would be required to report to Congress on the
methodology by January 1, 1996. The existing payment methodology would be
repealed when the new payment methodology takes effect in 1997.
Effective Date
Upon enactment.
6. Elimination of Formula-Driven Overpayment for Certain Hospital
Outpatient Services
Present Law
The aggregate amount of Medicare payments made for hospital outpatient
services (or rural primary care hospital services) furnished in connection
with ambulatory surgery, radiology and diagnostic tests equals the lesser
of: (1) the lower of a hospital's reasonable costs or its customary
charges, net of deductible or co-insurance amounts, and (2) a blended
amount comprised of a cost portion and a charge portion. The cost portion
of the blend is based on the lower of a hospital's costs or charges net of
beneficiary cost-sharing. The cost portion of the blend is 42 percent for
ambulatory surgery and radiology services and 50 percent for diagnostic
tests. The charge portion of the blend is 58 percent of the ambulatory
surgery center (ASC) payment rates net of beneficiary co-insurance, and 58
percent of the physician fee schedule amount for radiology services net of
co-insurance, and 50 percent of the physician fee schedule for diagnostic
tests net of co-insurance.
A hospital may bill a beneficiary for co-insurance equal to twenty
percent of its charge for an outpatient service. However, the blended
amounts are calculated after application of beneficiary cost sharing (e.g.
lower of hospital cost or charges net of cost sharing and 80 percent of the
107
ASC rate). This inconsistency in application of cost-sharing results in an
anomaly whereby the amount a beneficiary pays in co-insurance does not
result in a dollar for dollar decrease in Medicare program payment.
Description of Proposal
Using the current blend percentages, the payment formula would be
changed to determine the blended payment limit prior to the application of
beneficiary cost-sharing provisions. Medicare's payment amount would be
determined based on the lesser of (1) the lower of the hospital's
reasonable costs or customary charges, or (2) the blended payment limit.
Medicare would then pay the lesser of (1) 80 percent of the lowest amount,
or (2) the lowest amount less the beneficiary cost-sharing amounts.
Effective Date
Effective for services furnished during portions of cost-reporting
periods occurring on or after January 1, 1995.
7. Payments to Eye and to Eye and Ear Specialty Hospitals
Present Law
Hospitals designated as eye, or as eye and ear hospitals receive a
blended payment rate for ambulatory surgery for which 75 percent is based
on the hospital's costs and 25 percent is based on the rate paid to
freestanding ASCs. In general, the blended payment rate to hospitals for
outpatient surgery is based 42 percent on costs and 58 percent on the ASC
rate. This rule applies for cost reporting periods beginning on or after
October 1, 1988, and before January 1, 1995.
Description of Proposal
The use of the 75/25 blend for eye hospitals, and eye and ear
hospitals would be extended to services provided until September 30, 1997.
Effective Date
January 1, 1995.
8. Imposition of Co-insurance for Laboratory Services
Present Law
Medicare beneficiaries are required to make co-insurance payments
equal to 20 percent of Medicare's approved payment amount for certain
services. Since 1987, payment of co-insurance has not been required for
clinical laboratory services.
Description of Proposal
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The proposed change would require Medicare beneficiaries to pay co-
insurance equal to 20 percent of the approved Medicare payment amount for
clinical laboratory services.
Effective Date
January 1, 1995.
9. Application of Competitive Acquisition Process for Part B Items and
Services
Present Law
Medicare pays for computer axial tomography (CT) scans and magnetic
resonance imaging (MRI) tests on the basis of the Medicare physician fee
schedule. The fee schedule has two parts: a technical component for
performing the test and a professional component for interpreting the test.
Either part of the test can be billed separately.
Payments for oxygen and oxygen equipment are made on the basis of a
fee schedule for durable medical equipment.
Description of Proposal
The proposed change would direct the Secretary to establish
competitive acquisition areas for procurement of CT scans, MRI tests and
oxygen and oxygen equipment.
The Secretary would be permitted to establish different competitive
acquisition areas for different items and services. The competitive
acquisition areas would be required to be, or be within, metropolitan
statistical areas (MSAs). They would be chosen by the Secretary based on
the availability and accessibility of suppliers and the probable savings to
be realized from the use of competitive bidding.
The Secretary would be required to conduct a competition among
individuals and entities supplying items and services for each competitive
acquisition area. The Secretary would only be permitted to award a
contract if the individual or entity meets quality standards specified by
the Secretary.
A competitive acquisition contract would specify: (1) the quantity of
items and services to be provided; and (2) other terms and conditions
specified by the Secretary.
If competitive acquisition failed to result in at least a 10 percent
reduction in the payment amount for these services, the Secretary would be
required to make reductions in payment levels for these services to achieve
a 10 percent reduction.
Effective Date
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January 1, 1995.
10. Application of Competitive Acquisition Process for Clinical Laboratory
Services
Present Law
Medicare payments for clinical laboratory services are made on the
basis of local fees in payment areas designated by the Secretary. Each fee
schedule payment is limited by a national cap. The cap is set at 84
percent of the median of all fee schedule payments for a particular test in
1994, 80 percent in 1995, and 76 percent in 1996 and thereafter.
Description of Proposal
The proposed change would direct the Secretary to establish
competitive acquisition areas for procurement of clinical laboratory
services.
The Secretary would be permitted to establish different competitive
acquisition areas for different items and services. The competitive
acquisition areas would be required to be, or be within, metropolitan
statistical areas (MSAs). They would be chosen by the Secretary based on
the availability and accessibility of suppliers and the probable savings to
be realized from the use of competitive bidding.
The Secretary would be required to conduct a competition among
individuals and entities supplying items and services for each competitive
acquisition area. The Secretary would only be permitted to award a
contract if the individual or entity meets quality standards specified by
the Secretary.
A competitive acquisition contract would specify: (1) the quantity of
items and services to be provided; and (2) other terms and conditions
specified by the Secretary.
If competitive acquisition failed to result in at least a 10 percent
reduction in the payment amount for laboratory services, the Secretary
would be required to make reductions in payment levels for these services
to achieve a 10 percent reduction.
Effective Date
January 1, 1995.
11. Part B Premium
Present Law
From 1984 through 1990, the Part B premium was set to cover 25 percent
of Part B spending for aged beneficiaries. The remaining 75 percent was
funded from general revenues. The Omnibus Budget Reconciliation Act of
110
1990 established the monthly Part B premium in statute through 1995 to
cover 25 percent of Part B spending as follows: $29.90 in 1991, $31.80 in
1992, $36.60 in 1993, $41.10 in 1994 and $46.10 in 1995. The Omnibus
Budget Reconciliation Act of 1993 extended the 25 percent Part B premium
policy through 1998, but did not specify actual premiums in law.
Description of Proposal
The proposed change would permanently set Part B premiums at 25
percent of Part B spending for aged beneficiaries.
Effective Date
Upon enactment.
D. PROVISIONS RELATED TO MEDICARE PARTS A AND B
1. Medicare Secondary Payer
Present Law
(a) Extension of Transfer of Data
OBRA 89 authorized the establishment of a database to identify working
beneficiaries and their spouses to improve identification of cases in which
Medicare is secondary to third-party payers. The data match links Internal
Revenue Service (IRS) tax records with data from the Health Care Financing
Administration (HCFA). The Omnibus Budget Reconciliation Act of 1993
authorized an extension of the transfer of data through September 30, 1998.
(b) Extension of Medicare Secondary Payer for Disabled Beneficiaries
Medicare is the secondary payer to certain group health plans offered
by employers of 100 or more employees for disabled beneficiaries. The
authority for this provision expires September 30, 1998.
(c) Extension of 18-Month Rule for ESRD Beneficiaries
Medicare is the secondary payer to certain employer group health plans
covering beneficiaries with end stage renal disease (ESRD) during the first
18 months of a beneficiary's entitlement to Medicare on the basis of ESRD.
The authority for this provision expires September 30, 1998.
Description of Proposal
(a) Extension of Transfer of Data
The authority for the transfer of data would be made permanent.
(b) Extension of Medicare Secondary Payer for Disabled Beneficiaries
The Medicare secondary payer requirements for disabled beneficiaries
111
would be made permanent.
(c) Extension of 18-Month Rule for ESRD Beneficiaries
The Medicare secondary payer requirements for beneficiaries with end
stage renal disease would be made permanent.
Effective Date
Upon enactment.
2. Expand Centers of Excellence
Present Law
Medicare currently has two demonstration projects that involve
competitive contracts with "centers of excellence" to perform coronary
artery bypass graft surgery and cataract surgery for one payment that
includes all services provided in connection with these procedures. The
bypass surgery demonstration is currently being conducted in seven cities
and the cataract surgery demonstration is being conducted in three cities.
Description of Proposal
The proposed change would direct the Secretary to expand the
demonstration projects for coronary artery bypass and cataract surgery in
urban areas. Payment would be made on the basis of a negotiated or all-
inclusive rate, beginning with fiscal year 1995.
The amount of payment would be required to be less than the aggregate
amounts of payments the Secretary would have made if the demonstrations
were not conducted. Payment for coronary artery bypass surgery would
include the bypass procedure and related services.
The Secretary would be required to make a payment to each beneficiary
to whom services are provided under this demonstration equal to 10 percent
of the difference between what the Secretary would have paid for these
services in the absence of this provision and what the Secretary actually
paid for the services under this provision.
Effective Date
Upon enactment.
3. Medicare Select
Present Law
The Omnibus Budget Reconciliation Act of 1990 (OBRA 90) requires that
all Medigap policies conform to one of ten standard benefit packages,
including a core benefit package that must be made available by all Medigap
insurers, and nine other packages that an insurer has the option of
112
offering. In general, Medigap policies may not be canceled and must be
guaranteed renewable as long as premiums are paid. OBRA 90 also permitted
the offering of a new Medicare supplement policy, known as Medicare Select,
in 15 States. The only difference between standard Medigap and Medicare
Select is that Select policies will only pay full benefits if covered
services are obtained through selected health professionals.
Description of Proposal
The proposed change would permit Medicare Select policies to be
offered in all States. The three year limitation would be eliminated. A
health maintenance organization could offer a Medicare supplemental policy
that does not conform to at least one of the ten standard benefit packages
if: (1) the benefits include at least the core benefits package, although
the plan could charge nominal copayments, and (2) the benefit package
including any copayments, when combined with Medicare benefits, is
substantially similar to benefits provided to non-Medicare enrollees of the
health maintenance organization. A Medicare Select policy may be canceled
or not renewed in the case of an individual who leaves the service area of
the policy, except that if the individual moves to an area for which the
issuer of the Medicare Select policy (or an affiliate) offers a Medigap
policy, the alternative must be made available to the individual.
Effective Date
The National Association of Insurance Commissioners (NAIC) would have
nine months after the date of enactment to revise the current model
regulations to reflect this provision and to make other changes of a
technical nature. If the NAIC does not revise its model regulations within
the stated time frame, the Secretary would be required to develop a
regulation and would have 9 months to do so.
The revised model regulations or Federal regulations would apply in
each State on the date the State adopts such regulations or one year after
the regulations are developed, whichever is earlier. Special provisions
are included for States whose legislatures will not meet during the one
year period following the development of the regulations.
4. Medicare Supplemental Insurance Polices (Medigap)
Present Law
Medical underwriting and certain other practices are prohibited with
respect to Medicare supplemental policies for which an individual age 65 or
older applies during the six-month period beginning with the first month
which an individual is first enrolled for benefits under Medicare Part B.
Description of Proposal
The proposed change would require Medicare supplemental policies
(Medigap) to have an annual open enrollment period of 30 days.
113
Effective Date
January 1, 1996.
5. Reduction in Routine Cost Limits for Home Health Care Services
Present Law
Home health care services are reimbursed on a reasonable cost basis,
subject to aggregate cost limits which are updated annually. The Omnibus
Budget Reconciliation Act of 1987 limited payment for home health agency
costs to 112 percent of the mean labor-related and non-labor per visit
costs for freestanding home health agencies (HHAs). OBRA 1993 prohibited
the Secretary from applying an update factor to the cost limits for home
health services for cost reporting periods beginning in fiscal years 1994
and 1995. OBRA 1993 also eliminated additional payments for administrative
and general costs of hospital-based HHAS.
Description of Proposal
The upper limit on payment for allowable visit-related costs for home
health services would be limited to 100 percent. The cost limits are
changed from a percentage of the mean cost to a percentage of the median
cost.
Effective Date
October 1, 1995.
6. Improvements in Risk Contracts
Present Law
Approximately 5 percent of beneficiaries are enrolled in health
maintenance organizations (HMOs) under risk contracts with Medicare. Under
risk contracts, Medicare pays HMOs 95 percent of the estimated amount it
would have cost to provide Medicare benefits to demographically comparable
beneficiaries in the same county who had not enrolled in an HMO. The
payment amount is the average adjusted per capita cost (AAPCC).
Description of Proposal
Health plans entering into Medicare risk contracts would be required
to meet the standards for integrated health plans specified in Part XV.
Such plans would also be required to maintain compliance with the
following: (1) Section 1876 (f), which requires that at least 50 percent
of enrolled membership consists of non-Medicare or Medicaid eligible
individuals; (2) Section 1876 (i) (7), which requires that health plans with
a risk contract maintain an agreement with a utilization and quality
control peer review organization; and Section 1876 (i) (6), which authorizes
114
the Secretary to impose civil monetary penalties and other sanctions for
failure to provide medically necessary items and services, charging
premiums in excess of those permitted, and other violations.
The Secretary would be required to use community-rating areas, rather
than counties, as the basis for calculating the AAPCC. The Secretary would
be required to provide uniform marketing materials to all Medicare
beneficiaries in a community-rating area for purposes of enrolling in a
health plan.
Effective date
January 1, 1996.
E. MEDICARE AND MEDICAID COVERAGE BANK DATA
Present Law
The Omnibus Budget Reconciliation Act of 1993 established a Medicare
and Medicaid Coverage Data Bank within the Department of Health and Human
Services. The Secretary was required to establish the data bank for the
purposes of identifying and collecting from third parties responsible for.
payment of health care items and services furnished to Medicare
beneficiaries, and assisting in the collection of, or collecting amounts
due from third parties liable to reimburse costs incurred by any State plan
under the Medicaid program. Employers are required to report certain
information to the Data Bank concerning employee health coverage on an
annual basis for years beginning with calendar year 1994 and ending with
calendar year 1997. The first filing is to occur on February 28, 1995.
Description of Proposal
The proposal would repeal the Medicare and Medicaid Coverage Data
Bank.
Effective Date
Upon enactment.
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XI. ACADEMIC HEALTH CENTERS, GRADUATE MEDICAL
AND NURSING EDUCATION, AND RESEARCH
A. ACADEMIC HEALTH CENTERS TRUST FUND
Present Law
The Indirect Medical Education (IME) adjustment factor under
Medicare's prospective payment system for inpatient hospital services
increases payments to teaching hospitals compared with non-teaching
hospitals. The IME payments are intended to reflect differences in patient
care costs due to the indirect costs associated with graduate medical
education, the severity of illness treated, and the complexity of highly
specialized care. Payments to major teaching hospitals based on diagnosis-
related groups (DRGs) are increased by about one-third, under a statutory
formula that increases payments for each discharge by about 7.65 percent
for each 0.1 increase in the ratio of residents to beds (section
1886 (d) (5) (B) (ii) of the Social Security Act). The formula is calculated
on a curvilinear basis, so that the increase in the payment tapers off
somewhat in hospitals with very high resident-to-bed ratios.
Description of Proposal
1. A trust fund would be established to make payments to teaching
hospitals and to academic health centers that operate teaching hospitals,
to high intensity non-teaching rural hospitals, and to dental schools for
dental education.
2. Payments would be made to hospitals, academic health centers, and high
intensity non-teaching rural hospitals to assist with specialized costs
they incur that are not routinely incurred by other entities in providing
health services and that are unlikely to be covered by payments for
hospital services under managed competition.
3. An "academic health center" would be defined as a teaching hospital or
a school of medicine or osteopathy that operates a teaching hospital. A
teaching hospital is a hospital that operates a residency training program
that is accredited by a specialty or subspecialty. A high intensity non-
teaching rural hospital would be defined as one with substantially more
patients who are severly ill as measured by their case mix index.
4. Annual payments from the trust fund would total $6,280,000,000 in
1996; $7,250,000,000 in 1997; $8,220,000,000 in 1998; $9,400,000,000 in
1999; $10,640,000,000 in 2000; and in each subsequent year, $10,640,000,000
increased by the change in the national premium targets (as defined in Part
VI) for such years; of those sums, $50,000,000 in 1996, increased by the
change in the national premium targets in subsequent years, would be
available for dental education.
5. Distribution of funds among teaching hospitals and academic health
centers would be according to a formula modeled after the current Medicare
IME adjustment factor. The current IME payment formula, which is based on
116
DRGs, would be modified to reflect the varying methods of hospital payment
in the private sector. It would also be adjusted to compensate for the
higher costs of research-intensive academic centers and to provide for
payments to dental schools for dental education. Distribution of funds to
high intensity non-teaching rural hospitals would be according to a formula
based on the case mix index and would result in an increase in payments of
approximately five percent.
6. The Secretary of HHS would be required to report to the Committee on
Finance and the Committee on Ways and Means by July 1, 1996, with any
recommendations for further modifications of the formula.
7. Funds for the Academic Health Center Trust Fund would come from all
payers. Medicare would contribute at the rate at which it would otherwise
have made IME payments under current law. The remainder of the funds would
come from a portion of a 1.75 percent assessment on premiums for health
plans (including self-insured health plans). Payments in any year would be
pro-rated if necessary on the basis of available funds.
Effective Date
Upon enactment.
B. BIOMEDICAL AND BEHAVIORAL RESEARCH TRUST FUND
Present Law
No provision (biomedical and behavioral research conducted or
supported by the National Institutes of Health (NIH) is funded by
appropriations authorized under Titles III and IV of the Public Health
Service Act).
Description of Proposal
1. A Health Research Trust Fund would be established to. fund expanded
biomedical and behavioral research through the NIH.
2. Funds for the Health Research Trust Fund would come from a portion of
the 1.75 percent assessment on premiums for certified health plans
(including self-insured health plans). Payments in any year would be equal
to 0.25 percent, or one-seventh of the funds raised by the 1.75 percent
premium assessment.
3. Payments for biomedical and behavioral research conducted or supported
by the NIH from the Trust Fund would be in addition to any monies
appropriated for that purpose. Monies from the Trust Fund could not be
allotted unless total NIH appropriations in that year equaled or exceeded
the appropriations for the prior year.
Effective Date
Upon enactment.
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C. GRADUATE MEDICAL AND NURSING EDUCATION TRUST FUND
Present Law
1.
Graduate Medical and Nursing Education Trust Fund
No provision.
2.
Graduate Medical Education Payments
Under Medicare's payments to hospitals, the direct costs of graduate
medical education are paid separately from the DRG-based payments.
Payments are made on a formula that are based on each hospital's historical
costs per resident. Each hospital's costs per resident are calculated for
the hospital's cost reports for fiscal year 1984, generally updated to the
present. The number of residents is the weighted average number of
residents who are within the minimum number of years required for board
eligibility plus 1, not to exceed 5 years, and one-half the number of
residents in additional years of training. Payments include resident and
faculty salaries and other related direct costs.
3.
Graduate Nursing Education Payments
No provision (the direct costs of training for nurses working toward
the RN degree in provider-operated programs are paid by Medicare on a
reasonable cost basis, but not those in graduate education programs).
4.
Medical School Account
No provision.
Description of Proposal
1. Graduate Medical and Nursing Education Trust Fund
A trust fund for payments for Graduate Medical and Nursing Education
and transitional payments would be established. Payments into the trust
fund would consist of payments that would otherwise have been made for
Medicare direct medical education under current law, plus a portion of
revenues from the 1.75 percent assessment on premiums for health plans
(including self-insured health plans).
2.
Payments for Graduate Medical Education
The Secretary of HHS would make payments from the Trust Fund for the
operation of approved graduate physician and dental training programs,
beginning in calendar year 1996. Payments would total $3,200,000,000 in
1996; $3,550,000,000 in 1997; $5,800,000,000 in 1998; and in subsequent
years, $5,800,000,000 increased by the change in the national premium
targets for each year.
Payments to each eligible applicant would equal the full-time-
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equivalent number of residents in the program multiplied by the historical
costs of training residents as determined under current Medicare direct
medical education law. The full-time-equivalent number of residents would
be calculated as under Medicare. Both calculations would be adjusted to
account for costs and residents in programs not based in teaching
hospitals. Payments in any year would be pro-rated if necessary on the
basis of available funds.
3. Graduate Nursing Education Payments
A program would be established to pay for the costs of graduate nurse
education. Eligible applicants would be programs for advanced nurse
education, nurse practitioners, nurse midwives, nurse anesthetists, and
other training in clinical nurse specialties determined by the Secretary to
require advanced education. The amount available for graduate nurse
training programs from the Trust Fund would be $200,000,000 in 1996,
increased annually thereafter by the change in the national premium targets
for each year. Payments in any year would be pro-rated if necessary on the
basis of available funds.
4. Medical School Account
Payments would be made to medical schools to assist in meeting
additional teaching and research costs associated with the transition to
managed competition and expanded ambulatory and teaching. Payments would
total $200,000,000 in 1996, $300,000,000 in 1997, $400,000,000 in 1998,
$500,000,000 in 1999, and $600,000,000 in 2000, increased annually
thereafter by changes in the national premium targets. Payments in any
year would be pro-rated if necessary on the basis of available funds.
Effective Date
Upon enactment.
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XII. ACCESS TO HEALTH CARE IN DESIGNATED URBAN AND RURAL AREAS
A. INVESTMENT IN INFRASTRUCTURE DEVELOPMENT
Present Law
No provision.
Description of Proposal
An infrastructure development account is created within the Health
Security Trust Fund to support the development of community health networks
and certified community health plans, and to provide operating and capital
assistance to such networks and plans. The Secretary of Health and Human
Services would be required to deposit $1.3 billion in the account annually
and to administer all programs funded through the account.
"Community health networks" are organizations that provide some
services included in the standardized benefit package either directly
through their members or through affiliations with other entities. A
network must ensure that services are available and accessible to each
enrollee with reasonable promptness, and that clients have a primary care
provider. The network would have to include one or more of the following:
1) institutions, physicians, and other providers serving a Health
Professional Shortage Area (HPSA) or serving large numbers of medically
underserved individuals; 2) qualified migrant and community health centers;
3) qualified homeless programs; 4) family planning providers; 5) HIV
providers; 6) maternal and child health block grant recipients; 7) rural
health clinics and other Federally Qualified Health Centers; 8) providers
of services in urban areas under Title V of the Indian Health Care
Improvement Act, or providers of services under the Indian Self-
Determination Act; 8) State or local public health agencies; and 9)
isolated rural facilities.
A "certified community health plan" is a public or nonprofit private
health plan that provides a significant volume of services to medically
underserved populations or individuals residing in HPSAS; includes at least
one of the providers listed above under the definition of a community
health network; and meets all of the other criteria of a certified health.
plan.
The Secretary of Health and Human Services would be required to
develop standards for identifying "designated urban and rural areas" taking
into account financial and geographic access to certified health plans; the
availability, adequacy, and quality of providers and health care
facilities; and the health status of the area's residents. States would
have the authority to identify designated urban and rural areas, subject to
the approval of the Secretary.
Effective Date
Upon enactment.
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B. NETWORK AND PLAN DEVELOPMENT GRANT PROGRAM
Present Law
No provision.
Description of Proposal
The Secretary would be directed to award grants to public and private
non-profit health care organizations to assist them in becoming community
health networks and certified community health plans.
Grant funds could be used to assist in recruitment and retention of
health care professionals; to develop information, billing, and reporting
systems; to link providers together (including through information
systems) ; to meet reserve requirements; and to support other activities
related to developing certified community health plans and community health
networks.
In awarding grants, the Secretary would be directed to give priority
to networks and plans that include the largest number of entities listed
under the definition of a community health network, and that are serving
populations with the highest degree of unmet need.
In exchange for funding, grantees would be required to serve a
designated urban or rural area, and to serve all individuals regardless of
their financial and insurance status.
Effective Date
Upon enactment.
C. OPERATING ASSISTANCE
Present Law
No provision.
Description of Proposal
The Secretary would be required to use funds from the infrastructure
development account to provide operating assistance to certified community
health plans and community health networks to address geographic,
financial, and other barriers to health carę services in designated urban
and rural areas. Grant funds could be used to provide consumer information
and related services that will increase access to care. Related services
could include rural and frontier emergency transportation systems and
translation services. In exchange for funding, grantees would be required
to serve a designated urban or rural area and to provide care to all
individuals regardless of their financial or insurance status.
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Effective Date
Upon enactment.
D. CAPITAL INVESTMENT
Present Law
No provision.
Description of Proposal
The Secretary would be directed to use funds from the infrastructure
development account to provide capital assistance to community health
plans, community health networks, and isolated rural facilities in
designated urban and rural areas. The assistance would be provided in the
form of loans, loan guarantees, and direct grants.
Funds could be used for the acquisition, modernization, conversion,
and expansion of facilities, and for the purchase of major equipment,
including hardware for information systems. The Secretary would be
required to develop criteria for restricting the use of direct grants to
urgent capital needs.
At least ten percent of the funds available for capital assistance
would be reserved for applicants seeking to serve designated rural areas,
provided that a sufficient number of such qualified applications were
approved.
The Secretary would be required to give preference to applicants who
need capital assistance to prevent or eliminate safety hazards in essential
facilities; to avoid noncompliance with licensure or accreditation
standards; and to improve the provision of essential services.
In exchange for receiving capital assistance, grantees would be
required to serve a designated urban and rural area. They would also be
required to serve all individuals regardless of their financial and
insurance status.
Any loans made under this part would be required, subject to the
Federal Credit Reform Act of 1990, to meet such terms and conditions as the
Secretary determined to be necessary to protect the financial interests of
the United States.
Effective Date
Upon enactment.
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E. TELEMEDICINE DEMONSTRATION PROJECTS
Present Law
The Department of Health and Human Services and the Department of
Commerce fund various telemedicine and related telecommunications projects.
None of these projects are focused on developing a reimbursement
methodology for telemedicine services. There is no formal interagency task
force to coordinate various telemedicine projects.
Description of Proposal
The Secretary of HHS would be authorized to use $20 million from the
infrastructure development account to establish telemedicine demonstration
projects. Four of the projects funded under this section would be used to
develop a Medicare reimbursement methodology for telemedicine services.
Health care providers located in rural areas would be eligible to
receive funding under this section if they established partnerships with
other community institutions to identify and implement telemedicine
projects. They would be required to match Federal grants at a rate of at
least twenty percent.
Grants could be used to support the establishment and operation of a
telemedicine system that provides specialty consultation to rural
communities; to demonstrate the application of telemedicine for
preceptorship of medical and other health professions students; to pay for
transmission costs, salaries, maintenance of equipment, and compensation of
specialists and referring practitioners; and to facilitate collaboration
among physicians and other health care providers.
The Secretary would establish an Interagency Task Force on Rural
Telemedicine. The Task Force would be required to identify effective uses
of telemedicine, review and coordinate evaluations of all federally funded
telemedicine demonstration projects, help rural entities to conduct local
needs assessments and develop consortia, and review the Health Care
Financing Administration's policy for reimbursement of telemedicine
services.
Effective Date
Upon enactment.
F. PROVISIONS RELATING TO INDIAN HEALTH
Present Law
Health care for Indians is primarily funded through the Indian Health
Service (IHS). Tribes are currently eligible to apply to State governments
for Federal money the State receives for health initiatives.
123
Description of Proposal
The Indian Health Service would remain as a provider of health care
for the Indian population.
Indian Tribes would be eligible to apply for appropriated funds and
grants created under this legislation, at levels not less than any other
qualified entities.
G. OFFICE OF THE ASSISTANT SECRETARY FOR RURAL HEALTH
Present Law
The Office of Rural Health was established under the Social Security
Act and resides within the Public Health Services Health Resource Services
Administration.
Description of Proposal
The position of the Director of the Office of Rural Health would be
elevated to the position of the Assistant Secretary for Rural Health.
Effective Date
January 1, 1996.
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XIII. STATE FLEXIBILITY
Present Law
State laws that relate to employee benefit plans, other than laws that
regulate the business of insurance, generally are preempted by the Employee
Retirement Income Security Act of 1974 (ERISA). Some courts have
interpreted this to mean that even State laws that have only an indirect
effect on the cost of providing health coverage through an employer-
provided health plan are preempted, even if there is no direct impact on
the administration of such plans.
Description of Proposal
A. STATE LAWS THAT DO NOT AFFECT THE ADMINISTRATION OF HEALTH PLANS
Certain State laws that are intended to increase health care coverage,
fund uncompensated care, or control health care costs and which do not
interfere with the administration of multistate health plans would not be
preempted by Federal law.
The following State laws, to the extent they do not discriminate
against self-insured or other employer-provided health plans, would not be
preempted: All-payer provider reimbursement systems; uniform provider rate
schedules; rate surcharges and premium or other health care assessments or
allowances, the proceeds of which are used to fund uncompensated care or
other State health programs; and community-rating standards that do not
permit variation by age, apply to a larger share of the market, or that
apply before January 1, 1996.
With the approval of the Secretary of Health and Human Services (HHS),
a State's all-payer provider reimbursement system or uniform provider rate
schedules also would apply to Medicare beneficiaries in the State.
B. COMPREHENSIVE STATE PROGRAMS
A comprehensive State program for the management of all health care
benefits provided in the State, if approved by the Secretary of HHS, would
not be preempted by Federal law. With the permission of the Secretary, the
program also would apply to Medicaid and Medicare beneficiaries in the
State.
To secure HHS approval, the State program would have to demonstrate
that it would be expected to significantly increase coverage or lower
health care spending in the State relative to baseline projections.
Examples of the type of program for which a State may seek approval include
a State single-payer or other public plan, an employer mandate, a
combination of public and private coverage, or managed competition. The
State program could not increase Federal outlays to the State.
Any certified self-insured Taft-Hartley multiemployer plan that covers
participants in two or more States, or any certified single-employer plan
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maintained by a multistate employer that has at least 5,000 employees
nationally, would not have to participate in an approved State benefits
management program.
Effective Date
For State laws that are not preempted under paragraph A, the provision
would be effective before and after the date of enactment of the proposal.
The Secretary would be permitted to approve comprehensive State benefit
management programs described in paragraph B after the date of enactment.
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XIV. PRIVACY AND CONFIDENTIALITY
Present Law
The Privacy Act of 1974 and the Computer Security Act of 1987 address
the protection and disclosure of information under Federal control. The
Federal Freedom of Information Act, which requires disclosure of many
Federal records, explicitly excludes from disclosure most individual
medical files held by the Federal government. Federal law also
specifically protects the confidentiality of patient records held by
alcohol and drug abuse treatment programs receiving Federal assistance.
Description of Proposal
A. RULE OF NONDISCLOSURE FOR PROTECTED HEALTH INFORMATION
All health information that could reasonably be related to a specific
individual would be protected from disclosure. Comprehensive protections of
this protected health information would apply regardless of form or medium,
whether kept in paper files or in electronic databases, whether retained in
doctors' offices or insurance company files, or available from an
information system or over a computer network.
B. PENALTIES
Unauthorized disclosures of protected health information would be
subject to criminal sanctions, civil actions, and administrative penalties.
Penalties would range from fines of up to $50,000 and prison terms of up to
one year for wrongful disclosure or obtaining of protected health
information, to fines of up to $100,000 and prison terms of up to five
years for violations committed under false pretenses, to fines of up to
$250,000 and prison terms of up to ten years for offenses committed with
intent to sell protected health information for commercial advantage or
personal gain.
C. INDIVIDUAL AUTHORIZATION OF DISCLOSURES
An individual would be able to authorize disclosure of protected
health information about himself or herself under circumstances that ensure
the authorization is a knowing and meaningful choice, that circumscribe the
uses of the disclosure, and that allow for time limitation and revocation
of permission. Requests for authorization for disclosure would be
structured to serve these purposes.
D. LIMIT ON AMOUNT OF INFORMATION DISCLOSED
When protected health information is disclosed, it would be limited to
the minimum necessary to accomplish the purposes for which the information
was disclosed.
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E. PROHIBITION OF REDISCLOSURE
Protected health information obtained in accordance with law for a
necessary and limited purpose could not be redisclosed or used for an
unauthorized purpose.
F. PATIENT RIGHTS
An individual would have the right to inspect and annotate records of
health information about himself or herself through his or her health care
providers. He or she would also have the right to prohibit the disclosure
of sensitive and personal information so that it would not be included in
the health information that providers are otherwise permitted to share.
G. SECURITY AND INTEGRITY SAFEGUARDS
Administrative, technical, and physical safeguards of the security and
integrity of protected health information would be required of all trustees
of such information.
H. EXCEPTIONS TO THE RULE OF NONDISCLOSURE
An exception to the rule of nondisclosure would be created for each of
the following:
1.
Health Care
Health care providers would be permitted to share relevant protected
health information in the process of diagnosis and treatment.
2.
Payment for Health Care
Health care providers and plans would be permitted to share protected
health information for the purposes of payment and for such other financial
and administrative functions as necessary to the effective operations of
the health system.
3.
Oversight of Health Care
Oversight agencies would be permitted to have access to protected
health information in order to deter, uncover, and remedy health care fraud
and other abuses of the health care system. Except for an action or
investigation arising out of receipt of health care or payment for health
care, no information about an individual disclosed for oversight purposes
could be used in an action against the individual.
4.
Public Health
Disclosure of protected health information required to meet the
requirements of public health authorities and the need for disease and
injury reporting, public health surveillance, and public health
investigations or interventions would be permitted.
128
5.
Medical Emergencies
Disclosure of protected health information required to protect the
health of an individual from imminent harm would be permitted. Disclosures
pursuant to this exception could not be used in an action against the
individual who was the subject of the information disclosed.
6. Health Research
Disclosure of protected health information to health research
projects, for which an institutional review board has determined that
disclosures are necessary, would be permitted. Use of the protected health
information would be limited to the research project and identifying
information would have to be kept secure and confidential. For research
that involves direct contact with the subject of the information, the
subject would have to be given prior notice and given an opportunity to
object to being included in the research project.
7. Judicial Procedings
Court ordered examinations and disclosure of protected health
information when a party has placed his or her medical condition at issue
would be permitted. Disclosure would be limited to the minimum necessary
and could be used only for the purpose for which it was received.
8. General Law Enforcement Requests
Disclosure of protected health information would be permitted to law
enforcement authorities to investigate or prosecute a health care provider
or plan or to identify a victim or witness in a law enforcement inquiry.
Disclosed information could not be used against the subject of the
protected health information.
9.
Subpoenas and Warrants
Disclosure of protected health information would be permitted when
ordered by a subpoena or warrant. A probable cause standard of reason to
believe the protected health information was relevant to a law enforcement
inquiry would be provided and an opportunity for an individual to move to
quash the warrant or subpoena would be included for general law enforcement
subpoenas or warrants. For private party subpoenas, the party seeking the
protected health information would have to justify to the court that the
need for the information outweighs the intrusion into privacy.
Effective Date
Upon enactment.
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xv. HEALTH PLAN STANDARDS
Present Law
The Secretary of HHS determines whether Health Maintenance
Organizations (HMOs) meet standards for Federal qualification.
A. STANDARDS FOR ALL HEALTH PLANS
Description of Proposal
The Secretary, in consultation with the Health Plan Standards and
Quality Advisory Committee (established below), would develop specific
standards and evaluation criteria to be used in the certification of all
health plans. These standards would be based on the following general
standards set in law.
To be certified by the State, or in the case of a multistate self-
insured plan by the Secretary of Labor, all health plans must conform to
the following standards.
1. Health plans would be required to establish alternative dispute
resolution procedures.
2. Health plans would be required to participate in the Health
Information Network. Health plans would be required to have procedures to
report to the Consumer Information Center, in a standardized format, the
data required to produce comparative value information. Health care
professionals and facilities would be required to report a standard set of
data to the Consumer Information Center.
3. Health plans would be required to meet capital and solvency
standards.
a. Guaranty Funds
Each state would be required to establish and operate two guaranty
funds, each of which could assess up to 2% of health plan premiums each
year to cover outstanding claims against failed health plans. One fund
would cover self-insured plans, and the other would cover insured plans.
All health plans (other than multistate self-insured plans) would be
required to participate in the appropriate guaranty fund.
A Federal fund would be established for multistate self-insured plans.
b. Capital Requirements
The Secretary, in consultation with the National Association of
Insurance Commissioners, would be required to develop a risk-based capital
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standards formula for all insured health plans by July 1, 1995.
Nothing in Federal statute would preclude or preempt state law on, or
regulation of, health plan deposit reserve requirements.
The Secretary, in consultation with the Health Plan Standards and
Quality Advisory Committee, would be required to develop capital
requirements for self-funded plans.
B. ADDITIONAL STANDARDS FOR INTEGRATED HEALTH PLANS
In addition to the standards under Section A, integrated health plans
would be required to meet the following standards. An integrated health
plan is organized to provide health care services, either directly or
through arrangements with other providers, to an enrolled population in a
service area. Integrated health plans can be self-insured or insured.
1. Quality Standards
a. Quality Improvement and Assurance
Integrated health plans would be required to develop and implement an
internal quality improvement program designed to measure, assess and
improve enrollee health status, enrollee outcomes, enrollee processes of
care, and enrollee satisfaction.
Integrated health plans would be required to develop and implement
quality improvement goals based on the results of population health status
measurements.
Integrated health plans would be required to maintain a program to
assure the quality of health care services furnished to enrollees meets
minimum standards of safety and clinical practice.
b. Utilization Management
Integrated health plans would be required to use practicing health
professionals with appropriate clinical training in making review
determinations.
Integrated health plans would be required to base utilization
management on current scientific knowledge, stress health outcomes, rely
primarily on evaluating and comparing practice patterns rather than routine
case-by-case review, and be consistent and timely in application.
Utilization management could not create direct financial incentives
for reviewers to reduce or limit medically necessary or appropriate
services.
Upon request, each integrated health plan would be required to
disclose to a participating or prospective provider, enrollee or
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prospective enrollee, utilization review protocols. The standards would
address the need to protect proprietary business information.
c. Credentialing
Integrated health plans would be required to credential participating
physicians and practitioners.
Integrated health plans would be required to ensure that participating
providers and facilities are appropriately accredited, certified and
licensed.
d. Continuity of Care
Integrated health plans would be required to develop and implement
mechanisms for coordinating the delivery of care across provider settings.
e. Medical Recordkeeping
Integrated health plans would be required to maintain an adequate
patient record system to assure that pertinent information is readily
available to appropriate professionals.
2.
Patient Protection Standards
a. Patient Information
Integrated health plans would be required to provide to enrollees
clear descriptive information and information about their rights and
responsibilities.
b. Advance Directives
Each integrated health plan would be required to notify enrollees of
their rights to self-determination in health care decision-making, notify
enrollees of the plan's policy regarding advance directives, and provide
for educational activities for patients and providers. Patients' primary
care physicians would be required to include in the patients' charts their
wishes concerning advance directives.
C. Confidentially of Patient Records
Integrated health plans would be required to have explicit procedures
to protect the confidentiality of individual patient information.
d. Marketing (does not apply to self-insured plans)
Integrated health plans could not engage in selective marketing that
would have the effect of avoiding high-risk subscribers within a health
plan service area. Marketing materials could not contain false or
materially misleading information.
132
e. Grievance Procedure
Integrated health plans would be required to establish a grievance
process for patients dissatisfied with matters other than denial of payment
or provision of benefits by the plan.
f. Consumer Protection
Integrated health plans would be prohibited from engaging, directly or
through contractual arrangements, in any activity, including the selection
of a service area, that has the effect of discriminating against an
individual on the basis of health status, disability or anticipated need
for health services.
In selecting among providers of health services for membership in a
provider network, or in establishing the terms and conditions of such
membership, an integrated health plan may not engage in any practice that
has the effect of discriminating against a provider based on the health
status, disability, or anticipated need for health services of a patient of
the provider.
g. Physician Incentive Plans
Physician incentive plans operated by integrated health plans would
have to meet the requirements of section 1876 (i) (8) (A) of the Social
Security Act, including the provision that no specific payment is made
directly or indirectly under the plan to a physician or physician group as
an inducement to reduce or limit medically necessary services to enrollees.
h. Physician Participation
Integrated health plans would be required to ensure that physicians
participate in policymaking affecting patient care, and that patients would
be able to choose their primary care physician from available
practitioners.
Integrated health plans would be required to provide notification to
physicians of decisions to cancel or deny renewal of contracts and
establish an internal review process for appeals.
i. Ethical Business Conduct
An integrated health plan would be required to develop and implement a
code of ethical business conduct for its activities, including those of its
components, and assure proficient management and planning functions.
j. Enrollment
An integrated health plan could not accept the enrollment of an
individual who is currently enrolled in another health plan.
3.
Access Standards
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a. Essential Community Provider
Integrated health plans would be required to have a contractual
relationship with Essential Community Providers that included adequate
payment rates for services.
The Secretary would be required to certify as an Essential Community
Provider (i) migrant health centers; (ii) community health centers;
(iii) homeless program providers; (iv) public housing providers; (v)
family planning clinics; (vi) service units of the Indian Health Service;
(vii) HIV providers; (viii) public and private non-profit entities
furnishing prenatal, pediatric, or ambulatory services to children,
including children with special health care needs (ix) Federally qualified
community health centers and rural health clinics; (x) providers of school
health services; (xi) community networks receiving development funding in
designated urban and rural underserved areas; (xii) non-profit hospitals
meeting the criteria for public hospitals which are eligible entities under
section 340B of the Public Health Service Act -- Medicare disproportionate
share adjustment exceeding 11.75 percent -- and children's hospitals
meeting comparable criteria determined appropriate by the Secretary.
During the four year transition, the Secretary could set standards for
the designation of additional health professionals and institutions as
Essential Community Providers if the Secretary determines that health plans
operating in areas served by the applicant would not be able to assure
adequate access to the comprehensive benefit package without contracting
with the applicant. The Office of Technology Asessment would be required
to conduct a study on improving access in underserved areas.
Essential Community Provider provisions would be in effect for five
years.
b. Capacity to deliver services to enrollees.
After the expiration of Essential Community Provider provisions,
integrated health plans would be required to have within their network, or
contract with, a sufficient number, distribution, and variety of providers
to assure that the standardized benefit package and any supplemental
benefits are available and accessible in all parts of state-defined service
areas, with reasonable promptness and in a manner which assures continuity.
Emergency services would be required to be available and accessible twenty-
four hours a day and seven days a week.
C. Capability to deliver services to enrollees.
Integrated health plans would be required to make available and
accessible, translation, case management, and transportation services, if
necessary to deliver the standardized benefit package, and any supplemental
benefits.
Integrated health plans would be required to ensure that criteria for
the selection of participating providers take into account the needs of
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diverse populations.
The Essential Community Provider, capacity to deliver services to
enrollees, and capability to deliver services to enrollees standards
(Sections a,b,c) would apply to self-insured plans only to the extent
necessary to deliver services to employees.
d. Specialized services
Integrated health plans would be required to have within their
network, or contract with, a sufficient number, distribution, and variety
of providers of specialized services to assure that such services would be
available and accessible to adults, children, and persons with
disabilities.
Integrated health plans would be required to demonstrate that adults,
children, and persons with disabilities have access to specialized
treatment expertise by meeting evaluation criteria established by the
Secretary.
Integrated health plans could meet this criteria by referring adults,
children, and persons with disabilities requiring specialized services to
designated Centers of Excellence.
Centers of Excellence in the field of institutional care would deliver
care for complex cases requiring specialized treatment and also meet two or
more of the following requirements:
i. Provide specialized education and training through approved
graduate medical education programs with multi-specialty, multi-
disciplinary teaching and services in both inpatient and outpatient
settings, with medical staff with faculty appointments at an
affiliated medical school;
ii. Attract patients from outside the center's local geographic
region, from across the state or nation;
iii. Either sponsor or participate in, or have medical staff who
participate in, peer-reviewed research.
The Secretary would be required to designate Centers of Excellence.
The Secretary would be required to establish evaluation criteria for
health plans who choose to provide specialized services and treatments
within network, including requirements for staff credentials and
experience, and requirements for measured outcomes in the diagnosis and
treatment of patients. The Secretary would develop evaluation criteria for
outcomes of specialized treatment as research findings become available.
C. ADDITIONAL STANDARDS FOR FEE-FOR-SERVICE HEALTH PLANS
In addition to the standards under Section A, fee-for-service health
135
plans would be required to meet the following standards. Fee-for-service
health plans do not have formal provider relationships. Payments are made
to doctors chosen by the insured individuals. These plans can be self-
insured or insured.
1. Quality Standards
The Secretary would be required to develop minimum standards
applicable to fee-for-service health plans.
2.
Patient Protection Standards
The Secretary would be required to develop minimum standards
applicable to fee-for-service health plans.
3. Balance Billing
Fee-for-service plans would be required to establish a participating
physician program under which physicians in the community would agree to
take the plan's payment schedule as payment in full, and not to charge
patients more than the 25 percent co-insurance. Each such plan would be
required to make available the list of participating physicians to
enrollees. Each plan would be required to have an appropriate number of
physicians in each specialty as participating physicians.
D. ACCREDITATION, CERTIFICATION, AND ENFORCEMENT OF
STANDARDS FOR CERTIFIED HEALTH PLANS
1. Accreditation and Certification
The Secretary would be required to develop guidelines for
Accreditation, Certification, and Enforcement (ACE) programs, and approve
ACE programs as meeting Federal guidelines.
The Secretary of Labor would be required to carry out all activities
for certifying multistate self-insured plans.
States would be required to develop ACE programs to certify all health
plans except multistate self-insured plans. States would be encouraged to
use private accreditation organizations. The establishment of an ACE
program would be a condition for receiving Medicaid funds.
2. Enforcement
Health plans not certified as meeting Federal standards would be
subject to a civil penalty not to exceed 50 percent of gross premiums (50
percent of health expenses for self-insured plans), enforceable by the
State.
Intermediate sanctions available to States would include prohibiting
new member enrollment, allowing existing members to leave with no
136
penalties, and civil monetary penalties.
For health plans that do not meet certification requirements, State
ACE programs may operate a health plan to provide transitional access,
develop a correction program for the plan, or develop other options.
No Federal health care subsidies would be paid to any health plan not
certified as meeting Federal standards.
3. Funding
The Secretary would be required to distribute funds to States from the
Health Security Trust Fund in the amounts of $100,000,000 in 1995,
$250,000,000 in each of 1996-1998, and $175,000,000 in each of 1999-2004
for State ACE programs.
The Secretary would be required to develop a bonus payment schedule
for States that institute Independent Review Committees to provide
recommendations concerning health plans that fail certification.
Health plans and providers would be required to pay fees directly to
the accrediting or certifying body.
E. NATIONAL HEALTH PLAN STANDARDS AND QUALITY ADVISORY COMMITTEE
The Secretary would be required to establish a National Health Plan
Standards and Quality Advisory Committee by July 1, 1995 to advise on
standards and evaluation criteria to be used in the certification of all
health plans.
The Health Plan Standards and Quality Advisory Committee would
interact with the Board of the Health Security Trust Fund concerning
funding and program accountability.
Effective Date
The Secretary would be required to establish standards by April 1,
1995. Health plans would be required to be certified by January 1, 1996.
States would be required to meet minimum Federal standards for guaranty
funds and capital by January 1, 1996.
F. PREEMPTION OF CERTAIN STATE LAWS
Present Law
No provision.
137
Description of Proposal
1. Laws Pertaining to Managed Care
State laws would be preempted to the extent that they constrain the
development of managed care plans. In particular, such laws would be
preempted if they have the effect of making it unlawful for plans that are
not fee-for-service plans (or fee-for-service components of plans) to do
the following:
(1) limit the number and types of participating providers;
(2) require enrollees to obtain care from participating providers;
(3) require enrollees to obtain referrals for specialty treatment;
(4) establish different payment rates for network and non-network
providers;
(5) create incentives for the use of participating providers;
(6) use single source suppliers for pharmacy services, medical
equipment, and other supplies and services.
2. Laws With Respect to the Corporate Practice of Medicine
State laws related to the corporate practice of medicine would be
preempted to the extent that they would apply to health plans that are not
fee-for-service plans and their participating providers.
3. Laws With Respect to Health Professional Licensure
State laws restricting through licensure or otherwise the practice of
any class of health professionals beyond what is justified by the skills
and training of such professionals would be preempted.
Effective Date
January 1, 1996.
138
XVI. QUALITY, CONSUMER INFORMATION, AND HEALTH SERVICES RESEARCH
Present Law
A. ADMINISTRATION
No provision.
B. HEALTH SERVICES AND QUALITY IMPROVEMENT RESEARCH
The Secretary of HHS, through the Agency for Health Care Policy and
Research (AHCPR) and the Health Care Financing Administration (HCFA),
conducts and supports general health services research. AHCPR conducts and
supports research on medical effectiveness and outcomes partially funded by
the Hospital Insurance Trust Fund, and also funds the development of
medical practice guidelines.
C. QUALITY IMPROVEMENT FOUNDATIONS
No provision.
D. CONSUMER INFORMATION
No provision.
E. REMEDIES AND ENFORCEMENT
An insured's remedies for denial of a benefit depend on whether the
person is covered through an employment-based plan or through a plan
purchased directly by the person. If the plan is an employee benefit plan,
whether self-insured or insured, the remedies are limited to those provided
under ERISA. If the plan is purchased by the individual and is not an
employee benefit plan, remedies are determined under State law.
Under ERISA, plans must provide a process for reviewing claim denials
within specific time periods. If the appeal fails again within that review
process, the individual may file suit in State or Federal court. The court
may award the person the benefits denied, as well as attorney fees and
costs, may impose statutory penalties, and may grant declaratory or
injunctive relief. Under ERISA, however, the court may not impose
compensatory or punitive damages.
If the plan is not an employee benefit plan, and is one that the
individual purchased directly, the individual may be awarded whatever
damages are available under prevailing State law.
139
Description of Proposal
A. ADMINISTRATION
The National Health Plan Standards and Quality Advisory Committee
established under Part XV would advise the Secretary of HHS concerning
national quality performance measures, population health status measures,
comparative value information criteria, and other aspects of quality and
consumer information.
The Secretary would be required to produce an annual report which
reviews the quality improvement research, evaluates quality improvement
foundations and consumer information, tracks the evolution of national
performance measures and other research, and discusses State, regional, and
national trends on quality of health care.
B. HEALTH SERVICES AND QUALITY IMPROVEMENT RESEARCH
The Secretary would direct AHCPR and HCFA to conduct and support
research on the effects of health care reform on health delivery systems
and methods for risk adjustment.
AHCPR would be required to give priority to supporting research and
evaluation on medical effectiveness through outcomes research, practice
guidelines, technology assessment, and development of dissemination and
implementation techniques.
The Secretary, in consultation with public health experts and the
Health Plan Standards and Quality Advisory Committee, would be required to
develop and define methods to measure population health status, including
risk factor assessment.
The Secretary would be required to establish criteria for, develop,
and continuously upgrade national quality performance measures for consumer
information and evaluation of health care services.
To accomplish these purposes, there would be authorized to be
appropriated $150,000,000 for fiscal year 1995, $400,000,000 for fiscal
year 1996, $500,000,000 for fiscal year 1997, and $600,000,000 for each of
the fiscal years 1998 through 2004, in addition to other authorizations of
appropriations available for these purposes.
C. QUALITY IMPROVEMENT FOUNDATIONS
States would be required to establish independent, community-based,
non-profit Quality Improvement Foundations. The Secretary would be
required to develop standards which the Foundations would be required to
meet. The Quality Improvement Foundations would be required to conduct
activities to translate practice guidelines into clinical practice at the
local and regional levels; to provide technical assistance to health plans
and providers by identifying patterns of health care delivery, health
140
outcomes, and health status; to sponsor collaborations in quality
improvement; and to develop programs in lifetime learning for health care
professionals and patient education.
Quality Improvement Foundations would be governed by a board appointed
by the Governor of the State. The board would be required to have a
majority of members with no substantial personal, business, professional or
pecuniary connection with health care organizations, education, or
research. Other members of the board would include health professionals
and representatives of health plans and providers, purchasers and consumers
of care, and representatives of Academic Health Centers and Schools of
Public Health.
The Secretary would be authorized to pay the States from the Health
Security Trust Fund $100,000,000 in 1995, $150,000,000 per year in 1996-
1997, $200,000,000 per year in 1998-1999, and $250,000,000 per year for
1998-2004 for the Quality Improvement Foundations.
D. CONSUMER INFORMATION
States would be required to establish Consumer Information Centers to
produce annual, standardized comparative value information on the
performance of all health plans in each community rating area, distribute,
educate and provide outreach for consumers on comparative value
information, and receive and seek to resolve complaints.
States would be authorized to establish Consumer Information Centers
directly or through non-profit organizations selected by a competitive
process.
Consumer Information Centers would be governed by a board appointed by
the Governor of the State. The board would be required to have a majority
of members with no substantial personal, business, professional or
pecuniary connection with health care organizations, education, or
research. Other members of the board would include health professionals
and representatives of health plans and providers, purchasers and consumers
of care, and representatives of Academic Health Centers and Schools of
Public Health.
The Secretary would be required to create model formats for
comparative value information, develop methods for case-mix adjusted
comparisons, provide guidelines for handling areas which cross State lines,
develop standard design and sampling strategies for consumer surveys, and
provide technical assistance and training.
The Secretary would develop criteria for the Consumer Information
Centers and determine whether each State meets the criteria. If the State
fails to develop the program, the Secretary would be required to take the
actions necessary to implement a comparable program.
The Secretary would be authorized to pay the States from the Health
141
Security Trust Fund $100,000,000 in 1995, $250,000,000 per year in 1996-
1998, and $175,000,000 per year for 1999-2004 for the Consumer Information
Centers.
E. REMEDIES AND ENFORCEMENT
Individuals would have the same remedies for a denial, reduction or
termination of benefits regardless of whether their plan is an employee
benefit plan or an individual insurance policy.
Each plan would be required to provide notice of benefit denial,
reduction or termination to enrollees. The plan would be required to
establish an appeals process that includes procedures for the review of an
initial decision, and for reconsideration of an adverse decision.
After the plan's appeals process renders a final decision, individuals
would be free to pursue other remedies. These remedies would include
participating in a State-run complaint review process, taking part in a
non-binding dispute resolution program established by the State, or filing
suit in State or Federal court.
Each participating State would be required to establish a complaint
review process to hear complaints and render decisions with respect to
benefit denial, reduction, or termination. The complaint review office
would operate under procedures that include the use of independent medical
experts, special processes in the case of emergency and urgent situations,
and specific standards of evidence. If the review officer ruled that a
plan had acted unreasonably in denying, reducing or terminating benefits,
the officer could award all appropriate relief. States would also be
required to establish dispute resolution procedures to provide an
opportunity for mediation of the claim.
If the individual elected not to pursue the complaint review process,
or if the individual pursued mediation but that process did not lead to a
settlement, the individual would be permitted to file suit in any court of
competent jurisdiction. If the court ruled that a plan had acted
unreasonably in denying, reducing or terminating benefits, the court could
award all appropriate relief.
The Secretary would be authorized to pay the States from the Health
Security Trust Fund $100,000,000 in 1995, $150,000,000 per year in 1996-
1998, and $100,000,000 per year for 1999-2004 for establishing and
maintaining the complaint review and dispute resolution procedures.
Effective Date
Upon enactment.
142
APPENDIX: HEALTH PLAN LEXICON
1. Certified Health Plan.--A standard health plan or a very high
deductible health plan certified as meeting insurance reform, quality, and
other standards set forth in this proposal.
a. Standard Health Plan.--A health plan described in Part IV of this
proposal that provides the standard benefits package. A standard
health plan can be a fee-for-service plan or an integrated plan such
as a health maintenance organization, and can be insured or self-
insured.
b. Very-High Deductible Health Plan. --A health insurance policy
described in Part IV of this proposal that covers the standard set of
services but with a deductible of $5,000 for individuals and $10,000
for families.
2. Certified Supplemental Health Benefits Policy. --A health plan described
in Part IX of this proposal that covers services and benefits not covered
under a certified health plan. A supplemental health benefits policy can
be insured or self-insured. A certified supplemental health benefits plan
is not a certified health plan.
3. Certified Long-Term Care Insurance. An insurance policy described in
Part IX that covers long-term care services. A certified long-term care
policy is not a certified health plan.
143
6/27/94
6 p.m.
MAINSTREAM COALITION PROPOSED AGREEMENT
PART ONE - COVERAGE
I.
INSURANCE COVERAGE
This section guarantees access to Qualified Health Plans for all U.S. citizens and
lawful residents not covered under other public programs such as Medicare,
Medicaid, CHAMPUS and DVA. This section details the establishment of Health
Care Coverage Areas (HCCAs), institutes insurance market reforms, establishes
standardized benefits packages, creates Qualified Health Plans (QHP), establishes
eligibility for low-income assistance vouchers and expands tax deductibility of
health insurance premiums.
A.
Assurance of Universal Coverage
1.
A National Health Commission (as described in Section XIV.) must
report to Congress biennially on the status of health insurance
coverage in the nation. The report must include, but is not limited to,
the structure and performance measures of every market area,
including the following:
a.
Demographics of the uninsured, and findings on why those
individuals are uninsured;
b.
Structure of delivery system;
C.
Number, organizational form of health plans;
d.
Level of enrollment in health plans;
e.
State implementation of responsibilities, including
establishment of coverage areas;
f.
Status of insurance reforms;
g.
Development of purchasing groups and other buyer reforms;
h.
Success of market and other mechanisms of controlling health
expenditures and premium costs in the market area and
nationally;
1
i.
Status of transition of Medicaid toward managed care and
integration into AHPs;
j.
Adequacy of subsidies for low income individuals;
k.
Status of Medicare beneficiaries, transition into Medicare
managed care and QHPs;
1.
Coverage progress among those who are employed, including
status and level of voluntary employer contributions and
participation rates in pools and among large employers;
m.
Percentage of individuals who are enrolled in Qualified Health
Plans, separated into categories of Medicare, Medicaid, employed
individuals and individuals eligible for low-income subsidies;
n.
Informal recommendations, specific to each market area, on
how the area might increase coverage among the residents and
further moderate growth in premiums; and,
o.
Evaluation of adequacy of benefit packages.
B.
Coverage Trigger
1.
Establishes a national goal that 95% of all Americans will have health
care coverage by 2002.
2.
If this goal is not met, the Commission must submit formal and
specific recommendations to Congress by January 1, 2002 as draft
legislation. The recommendations shall include methods to reach 95%
coverage in market areas that have failed to meet that target. They
must address all relevant parties, including states, employers,
employees, unemployed and low income individuals, public program
beneficiaries, etc.
3.
In addition to any other recommendations it submits, the Commission
must make separate recommendations on the following:
a.
A schedule of assessments or contributions to encourage
employers who are not doing so to purchase coverage for their
employees;
b.
A method of encouraging full coverage which does not require
any assessments on or contributions from employers;
2
C.
Possible adjustments to the benefits package;
d.
Possible adjustments to subsidies; and,
e.
Possible adjustments to tax treatment of benefits.
4.
Congressional Consideration of the National Health Care Commission
Report. This proposed process is being reviewed by the Senate and
House Parliamentarians.
A.
Rules for the Senate
1.
The Majority Leader must introduce the Report as a bill
on the first day of session following the submission of the
Report and legislative language. If the Majority Leader
has not introduced the bill within five days of session, any
Senator may do so.
2.
The bill will be referred to the appropriate Senate
Committee.
3.
If the Committee fails to report the legislation by July 1,
2002 (or if the Senate is not in session on this date, by the
first day of session after this date), it shall be automatically
discharged from further consideration of the bill; and the
bill shall be placed on the appropriate Senate calendar.
4.
Within 5 session days after the bill is placed on the
calendar, the Majority Leader, at a time to be determined
by the Majority Leader in consultation with the Minority
Leader, shall proceed to the consideration of the bill.
If on the sixth day of session, the Senate has not proceeded
to consideration of the bill, then the presiding officer must
automatically put the bill before the Senate for
consideration.
5.
30 Hours of consideration
a.
Two hours for first degree relevant amendments
b.
One hour for each relevant second degree
amendment.
C.
30 minutes on each debatable motion, appeal, or
point of order submitted by the presiding officer to
3
the Senate and no motion to recommit shall be in
order.
6.
There shall be five hours of consideration of motions and
amendment appropriate to resolve the differences
between the Houses, at any particular stage of the
proceedings.
B.
Rules for the House of Representatives
1.
The Majority Leader must introduce the Report as a bill
on the first day of session following the submission of the
Report and legislative language. If the Majority Leader
has not introduced the bill within five days of session, any
Member may do so.
2.
The bill will be referred to the appropriate House
Committee or Committees.
3.
If the committee or committees fails to report the
legislation by July 1, 2002 (or if the House is not in session
on this date, by the first day of session after this date), they
shall be automatically discharged from further
consideration of the bill.
4.
On the sixth legislative day (the day on which the House
is in session) after the date on which the bill has been
placed on the appropriate calendar, it shall be privileged
for any Member to move that the House resolve itself into
the Committee of the Whole House on the State of the
Union, for the consideration of the bill, and the first
reading of the bill shall be dispensed with.
5.
After general debate, which shall be confined to the bill
and which shall not exceed four hours, to be equally
divided and controlled by the Chairman and Ranking
Minority Member of the Committee or Committees to
which the bill had been referred, the bill shall be
considered as read for amendment under the five-minute
rule. The total time for considering all amendments shall
be limited to 26 hours of which the total time for debating
each amendment under the five minute rule shall not
exceed one hour.
6.
At the conclusion of the consideration of the bill for
amendment, the Committee shall rise and report the bill
4
to the House with such amendments as may have been
adopted, and the previous question shall be considered as
ordered on the bill and the amendments thereto to final
passage without intervening motion except one motion to
recommit.
C.
Health Care Coverage Area
The major vehicle for reorganizing the health care marketplace would be the
establishment of geographic areas called Health Care Coverage Areas
(HCCAs). Employees of employers with fewer than 100 employees and
individuals residing or working in the HCCA would be pooled together and
would be eligible for insurance at an age-adjusted community rate. HCCAs
are established by each state and a minimum number of 250,000 lives must be
included in the HCCA rating pool. States may enter into cooperative
agreements to establish interstate HCCAs. States may decrease the number of
covered lives included in a rating pool.
Within each HCCA, consumers will have several different options available
to purchase health insurance. Employers and individuals may purchase
coverage directly from an insurer or agent, they may enroll at designated
state enrollment sites or they may chose to join a purchasing cooperative.
Accountable Health Plans may charge different administrative (or
enrollment) fees depending upon how the plan is purchased. If a Point of
Service (POS) Option plan is not available in the HCCA in which an
individual lives or works, the individual may purchase such a plan in an
adjacent HCCA.
D.
Insurance Market Reforms
The Secretary of HHS shall, within six months of enactment, and in
consultation with private expert entities such as the National Association of
Insurance Commissioners (NAIC), develop federal standards with which
Qualified Health Plans must comply in order to be deductible by an employer
or an individual. While these federal standards will be established by the
Secretary of Health and Human Services, the enforcement will be by the state
or the Department of Labor depending on the nature of the Qualified Health
Plan. All Qualified Health Plans must:
1.
Guarantee issue to all qualified applicants.
2.
Guarantee availability throughout the entire area in which it is offered.
3.
Guarantee renewal to all qualified enrollees, except in instances of non-
5
payment of premiums or fraud or misrepresentation.
4.
Not deny, limit, or condition coverage based on health status, claims
experience, or medical history during the annual open enrollment
period. The bill includes a first-time enrollment amnesty extended for
a certain period after the date of enactment. Individuals are
encouraged to maintain continuous coverage. Continuous coverage
means that the period between the date of enrollment in a health plan
and the last date of coverage may be no longer than three months. If
an individual has not maintained continuous coverage or is enrolling
in a plan for the first time after the initial open enrollment period,
coverage may be subject to a pre-existing condition limitation of no
more than six months. Pregnancy and pre-natal care are exempted
from this limitation.
5.
Comply with all rating requirements, including age and family size
adjustments, within the coverage area. ( Special rules will be
established to apply to Employer Sponsored Heatlh Plans and
Qualified Association Plans).
6.
Comply with enrollment process.
7.
Comply with financial solvency requirements, premium and collection
criteria. (Special solvency rules are established for certain types of plans
for large employers).
E.
Benefit Packages
1.
Within six months of enactment, the Commission (described in
Section XIV.) shall develop and submit to the Congress clarification of
the initial standard and basic benefits packages. These packages must
adhere to the following:
a.
The actuarial value of the Standard Benefit Package can not
exceed the actuarial value of the Blue Cross/Blue Shield
Standard Option under the Federal Employees Health Benefits
program.
b.
The Basic Benefit Package must contain higher cost sharing
and/or fewer categories of benefits.
C.
Both benefit packages must include a full range of medically
appropriate treatments and preventive services.
6
2.
Categories:
The following categories of benefits are to be included in the benefits
package:
a.
Inpatient and outpatient care.
b.
Emergency, including appropriate transport services.
C.
Clinical preventive services, including services for high risk
populations, immunizations, tests or clinician visits.
d.
Mental Illness and Substance Abuse.
e.
Family planning and services for pregnant women.
f.
Prescription drugs and biologicals.
g.
Hospice Care.
h.
Home health care.
i.
Outpatient laboratory, radiology and diagnostic.
j.
Outpatient rehabilitation services.
k.
Vision care, hearing aids and dental care for individuals under
22 years of age.
1.
Patient care costs associated with investigational treatments that
are part of approved clinical trial.
3.
Priorities:
Within the constraints of the actuarial limits set in this act, Congress
directs the Commission to adhere to the following priorities:
a.
Parity for mental health and substance abuse services, which
shall consist of a broad array of mental health and rehabilitation
services managed to ensure access to medically necessary, and
psychologically necessary treatment and to encourage the use of
outpatient treatments to the greatest extent feasible.
b.
Consideration for needs of children and vulnerable populations,
including rural and underserved persons.
C.
Improving the health of Americans through prevention.
4.
Medically Necessary or Appropriate
A Qualified Health Plan shall provide for coverage of the categories of
benefits described in this section for treatment and diagnostic
procedures that are medically necessary or appropriate.
An item or service is "medically necessary or appropriate" if, consistent
with prevailing medical standards, it is;
7
a.
For treatment of a medical condition.
b.
Safe and effective (i.e., there is sufficient evidence to
demonstrate that the item can reasonably be expected to produce
the intended health outcome or provide the intended
information).
C.
Medically appropriate for a specific patient (i.e., it can reasonably
be expected to provide a clinically meaningful benefit if
furnished in a setting commensurate with the patient's needs).
Criteria for determination of medically necessary or appropriate are set
forth. QHPs shall make all coverage decisions under these criteria.
The Commission can, in limited circumstances, issue interim coverage
recommendations.
5.
Cost-Sharing
The Commission shall also develop multiple cost sharing schedules
which vary by delivery system organization. In making these
determinations, the Commission will consult with expert groups for
appropriate schedules for covered services. This clarification is subject
to approval by Congress under expedited procedures.
6.
Limitations
The Commission is prohibited from specifying provider types or
specific procedures in the benefit packages.
7.
Additional Commission duties related to defining the basic and
standard benefits packages:
a.
Develop interim coverage decisions in limited circumstances.
b.
Design the basic and standard benefits packages to prevent
adverse risk selection when combined with the risk adjustments
called for in the bill.
C.
May not specify provider types when clarifying covered benefits.
d.
May not specify particular procedures or treatments or classes
thereof.
8
8.
Consideration of Commission Recommendations
The Commission will have the authority to propose modifications to
the benefits package (within the actuarial value ceiling described above)
that would not go into effect unless approved by Congress under base-
closing procedures. The Commission is responsible for any updates to
the benefits packages after the first year and these updates are also
subject to Congressional approval under expedited procedures.
II.
Qualified Health Plans
A.
Accountable Health Plans (AHPs)
1.
Definition: a health plan that may be operated as a variety of delivery
systems such as indemnity plans, preferred provider organizations,
health maintenance organizations, or other delivery systems. An AHP
is a health plan that is certified by the state as meeting insurance
market reform standards, health plan standards, quality, reporting
standards, and other standards.
2.
Standards
The National Health Care Commission (described in Section XIV.) will
establish-standards for AHPs. In addition, AHPs:
a.
Must meet insurance reforms described in (I., C.).
b.
May not engage in marketing or other practices intended to
discourage and/or limit the issuance to eligible individuals on
the basis of health condition, industry, geographic area or other
risk factors.
C.
Must make a health plan available throughout the entire HCCA
area in which it is offered.
d.
Must demonstrate its ability to make available and accessible to
each potential enrolle in the area the full range of benefits
required under the standard and basic benefit packages, when
medically necessary and promptly.
e.
Must provide for the application of coverage standards (for
benefits) which are consistent with the coverage standards issued
by the Commission and disclosed to plan enrollees.
9
f.
Must not accept enrollment of an individual who is currently
enrolled in another AHP.
g.
Must make available to nonparticipating providers the criteria
used in selecting those providers that are permitted to participate
in the plan.
h.
Must comply with federal information requirements.
i.
Must offer the standard and basic benefit packages, but may also
offer benefits in addition to these packages, if such additional
benefits are offered and priced separately from the standard and
basic benefit packages.
j.
Must comply with a system of binding arbitration for coverage
disputes.
B.
Employer-Sponsored (risk-bearing) Plans
1.
Definition: a group health plan that may be operated as a network plan
or an indemnity plan for which the employer retains all or a portion of
the insurance risk, commonly referred to as self-insured.
2.
Standards:
a.
Employer sponsored plans must meet all the standards for AHPs
and insurance market reforms, except they are not required to
take all applicants, and the population served and area covered
is defined by such an employer's employee population.
b.
Financial solvency, reserve, and guarantee fund standards will
be established by the Secretary of the Department of Labor (DoL)
consistent with the applicable rules under Part 4 of Title I of
ERISA.
C.
The Secretary of DoL may take corrective actions to terminate or
disqualify an employer-sponsored plan that does not meet the
above standards.
d.
The Secretary of DoL is appointed as trustee for insolvent
employer-sponsored health plans.
10
C.
Qualified Association Plans (QAPs)
1.
Definition: Association health plans that have been in existence for
three years prior to the date of enactment.
2.
Standards:
a.
Must meet all standards for AHPs with the following exceptions:
i.
Special solvency requirements will be established by DoL
for QAPs.
ii.
Must only take any member in their designated
association.
3.
Requirements for Sponsoring Entity (Association)
a.
Must be organized and maintained in good faith.
b.
Must have appropriate by-laws that specifically state the purpose,
as a trade association, industry association, professional
association, chamber of commerce, religious organization, or
public entity association.
C.
Must have been established and maintained for substantial
purposes other than to provide the health care required under
this section.
d.
Must be, and have been, in operation (together with its
immediate predecessor, if any) for a continuous period of not
less than 3 years.
e.
Must receive the active support of its membership.
4.
Treatment of Multiple Employer Welfare Arrangements (MEWAs)
a.
In general, upon enactment, a MEWA will meet the standards to
become either a QAP or a certified purchasing group.
b.
Any MEWA that has been in effect for not less than 18 months
upon enactment and with respect to which there is application
with the domicile state for certification as a QAP, shall be treated
for purposes of this subtitle as a Qualified Health Plan (if such
plan otherwise meets the requirements of this Act);
11
C.
However, MEWAs will not be able to continue to operate if the
domicile state can demonstrate that --
i.
the sponsor has made fraudulent or material
misrepresentation(s) in the application;
ii.
the plan that is the subject of the application, on its face,
fails to meet the requirements for a complete application;
or
iii.
a financial impairment exists with respect to the applicant
that is sufficient to demonstrate the applicant's inability to
continue its operations.
5.
Treatment of Rural Electric Cooperatives (RECs) and Rural Telephone
Cooperative Associations (RTCs)
RECs and RTCs can continue to exist if they meet the same standards as
QAPs; or if they are certified by the state as a purchasing group.
D.
Multi-Employer (Taft-Hartley) Plans
Taft-Hartley plans must meet the same requirements as large employers. (See
Section III.B. below)
E.
Public Programs
Existing public programs like Medicare, Medicaid, Department of Defense
health programs, Department of Veterans Affairs health programs and Indian
Health Service programs are considered to be Qualified Health Plans for the
purposes of this section.
F.
Pre-emption of Certain State Laws regulating Insurance Plans
The following state laws relating to health plans are preempted for any QHP:
1.
State laws that restrict plans from:
a.
limiting the number and type of providers who participate in a
plan;
b.
requiring enrollees to obtain health services from participating
providers;
12
C.
requiring enrollees to obtain referral for treatment by a specialist
or health institution;
d.
establishing different payment rates for participating providers;
e.
creating incentives to encourage the use of participating
providers;
2.
State corporate practice of medicine laws;
3.
State mandated benefit laws.
G.
Advance Directives
1.
Right to Self-Determination
a.
Each Qualified Health Plan must notify enrollees of their rights
to self-determination in health care decision-making and of the
plan's policy regarding advance directives. Plans must
maintain procedures to require that the existence and content of
an advance directive is recorded in the patient's chart (written or
electronic) and provide for a mechanism to notify all appropriate
health care providers of the information.
b.
Plans must provide for educational activities for patients and
providers and must have a functioning process to provide for
communication between the patient and the appropriate health
care provider regarding all aspects of the patient's care, including
obtaining informed consent, patient prognosis and treatment
decisions, and the formulation of advance directives.
Discussions of prognosis and treatment alternatives should
occur at the time of diagnosis, prior to treatment and whenever
there is a significant change of status which affects diagnosis,
prognosis and treatment.
C.
In order to receive Medicare or Medicaid reimbursement for
particular procedure codes to be determined by the Secretary of
HHS, claims forms (written or electronic) must include the
physician's certification indicating that the patient discussed
with the physician the diagnosis, prognosis and treatment
options and that the patient's questions were answered.
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2.
Decisions by Surrogates
In the event that a state does not have a law on surrogate decision-
maker for health care decisions, a federal health care surrogate standard
shall apply. This standard is:
a.
A surrogate may make a health-care decision for a patient who is
an adult or emancipated minor if the patient has been
determined by the primary physician to lack capacity and no
agent or guardian has been appointed or the agent or guardian is
not reasonably available.
b.
An adult or emancipated minor may designate any individual to
act as surrogate by personally informing the supervising health-
care provider or specifying it in a health care power of attorney.
In the absence of a designation, or if the designee is not
reasonably available, any member of the following classes of the
patient's family who is reasonably available, in descending order
of priority, may act as surrogate:
i.
the spouse, unless legally separated;
ii.
an adult child;
iii.
a parent; or
iv.
an adult brother or sister.
C.
If none of these individuals are reasonably available, an adult
who has exhibited special care and concern for the patient, who
is familiar with the patient's personal values, and who is
reasonably available may act as surrogate.
d.
A surrogate shall communicate his or her assumption of
authority as promptly as practicable to the specified members of
the patient's family who can be readily contacted.
III.
Large and Small Employer Responsibilities and Purchasing Groups
A.
Small Employer Purchasers
1.
Definition: employers with 100 or fewer full-time employees.
2.
Responsibilities:
14
a.
May not be the sponsor of a risk-bearing plan, but if a member of
an eligible Association may join a QAP.
b.
Must provide all employees (including part-time and seasonal)
with information regarding all AHPs offered in the HCCA in
which the employer is located.
C.
If an employee resides in another HCCA, the employer must
provide information regarding how to obtain information
regarding AHPs available in that HCCA.
d.
Small employers must make available to their employees a
choice of at least three Qualified Health Plans either by joining a
purchasing group or through independent brokers or insurance
agents.
e.
Small employers who contribute toward coverage must pay to
any Qualified Health Plan selected by the employee an amount
equal to the contribution they would make on the employee's
behalf to the health plan selected by the employer.
f.
Payroll Deduction. If an employee requests, employer must
arrange for payroll deduction to pay the premium amount due,
less any employer contribution, to the plan or purchasing group
of the employee's choice. However, if the employee selects a
plan other than those offered by the employer, the
administrative cost of making such a payroll deduction may be
charged to the employee.
B.
Large Employer Purchasers
1.
Definition: employers with more than 100 full-time employees.
2.
Responsibilities:
a.
All large employers must offer their employees a choice of at
least three QHPs, one of which must be a point-of-service option
and one of which must offer a basic benefits package. A large
employer may comply with this subsection by offering QHPs
provided by a single entity. Large employers may also meet this
obligation, in part, by making available to their employees the
choice of a Qualified Association Plan (see below).
b.
Large employers are ineligible to join the small employer and
individual purchasing groups or to purchase insurance at the
15
community rate either through a broker, independent agent,
purchasing cooperative, or public enrollment office.
C.
Employees of large employers are also ineligible to purchase
insurance at the community rate either through a broker,
independent agent, purchasing cooperative, or public
enrollment office.
d.
All large employer purchasers are regulated by the DoL and
remain subject to ERISA.
e.
If an employer contributes to its employee's health coverage, it
must provide coverage as of the first day of the month in which
an employee becomes eligible. Once terminated, coverage
continues through the end of the month of termination.
f.
COBRA. An individual whose employment has been
terminated by a large employer must elect within 30 days of the
termination to either remain in the plan provided by the
employer for a period not to exceed 12 months, or until the
individual is reemployed, whichever is less.
g.
Selection of Plan by Majority of employees. Each employer shall
make selection of health plans on an annual basis. Employers,
who are not contributing to coverage, shall comply with a
selection made by more than 50% of employees.
C.
Individual and Small Employer Purchasing Groups
1.
These purchasing groups shall be chartered under state law.
2.
Membership in these purchasing groups will be voluntary and limited
to employers and employees of businesses with 100 or fewer
employees, and to all other non-Medicaid U.S. citizens or legal
residents not employed by a large employer who live in the HCCA
area.
3.
Nothing in the Act shall be construed to require any individual or
small employer to purchase exclusively through a purchasing group.
4.
Nothing in the Act requires the establishment of a purchasing group
nor prohibits the establishment of a purchasing group in an area.
5.
Nothing in the Act shall be construed from preventing a purchasing
group from being the purchasing group for more than one HCCA.
16
6.
Nothing shall be construed to prevent a state from establishing or
designating more than one purchasing group in a HCCA.
7.
Purchasing groups are permitted to contract selectively with Qualified
Health Plans. Purchasing groups are permitted to negotiate a price
lower than the community rate, if so, that price becomes the plan's
new community rate. Nothing in this act shall be construed to prevent
a purchasing group from negotiating prices on administrative fees or
items outside the basic and standard benefits packages which may be
unique to the purchasing group.
D.
Allowing Access to Federal Employee Health Benefit Program
Any plan under the Federal Employee Health Benefit plan offered to federal
employees in a HCCA must be available for purchase by individual and small
group purchasers in that area. Non-federal employee purchasers shall pay a
premium amount based on the local community rate for that plan, and shall
not be a part of the FEHB insurance pool. Plans offered nationally through
FEHB shall not be required to be open to non-federal employee enrollment.
IV.
Nondiscrimination provisions that apply to all employers:
A.
General Rules
Employers that contribute to the purchase of any employee's health care
coverage may not discriminate against any employee based on the employee's
income. Employers that contribute to the purchase of any full-time
employee's health care coverage must make an equal dollar contribution to
all full-time employees choosing to purchase health care coverage offered by
such employer. In addition, employers that contribute to the purchase of any
part-time employee's health care coverage must make a proratated equal
dollar contribution to all part-time employees choosing to purchase health
care coverage offered by such employer.
1.
A large employer that otherwise contributes shall not be required to
offer an equal dollar contribution to an employee or "cash out" an
employee that does not choose to purchase health care coverage offered
by such employer.
2.
For purposes of part-time employees, a dollar contribution will
constitute an equal dollar contribution if the employer makes a dollar
contribution proportionate to the number of hours worked by the part-
time employee.
17
B.
Special Rule for Small Employers
1.
To the extent a small employer contributes to an employee's health
care coverage, the employer cannot discriminate against an employee
that chooses to purchase health care coverage from other than such
small employer.
2.
In no event shall a small employer be required to "cash out" an
employee who does not choose to purchase health care coverage
through the employer. For example, if a small employer makes a
contribution on behalf of a full-time employee that chooses a plan the
employer offers, it must also make a contribution to a full-time
employee that chooses a Qualified Health Plan not offered by the
employer.
3.
Small employers may charge a reasonable fee to cover their
administrative costs associated with withholding and remitting
employee health insurance premiums of employees not opting for the
health care coverage offered by the small employer.
C.
Penalties
To the extent an employer does not comply with these nondiscrimination
rules, a penalty will be assessed for the period of time the employer is in
noncompliance. Such penalty will be equal to $100 for each day, or part
thereof, of such period. (See Section 4980B of the Internal Revenue Code for
analogous rules).
D.
Definitions
1.
A full-time employee is defined as an individual who is employed for
an average of 30 or more hours per week.
2.
A part-time employee is defined as an individual who is employed for
an average of at least 10 hours per week, but less than 30 hours per
week.
3.
An individual does not qualify as a full-time or part-time employee
until the individual has been employed for six months (i.e., seasonal
employees are not treated as part-time employees).
18
E.
Exemption for Collectively Bargained Plans
Single-employer and multi-employer bona fide collectively bargained plans
are exempt from these nondiscrimination rules.
V.
Assistance to Individuals and Families for the General Purchase of Insurance
A.
Eligibility:
Individuals and/or families not otherwise eligible for Medicare or Medicaid,
whose income is less than 240% of the federal poverty level will be eligible for
a voucher for the purchase of a Qualified Health Plan.
B.
Amount of Voucher
1.
For individuals and families with incomes less than 100% of poverty
the voucher will be equal to 100% of the average premium of the
lowest 2/3 of Qualified Health Plans offered in the HCCA in which
they reside or work.
2.
For individuals and families with income above 100% of the federal
poverty level, the Voucher amount will be decreased on a sliding scale
basis to 240% of the federal poverty level.
C.
Phase-in Schedule for Vouchers
Vouchers will be phased-in at the beginning of each year under the
following schedule:
Calendar Year
Percentage of Poverty
1997
90%
1998
120%
1999
150%
2000
180%
2001
240%
D.
Administration of Vouchers
1.
The Secretary of HHS will establish a mechanism for
determining eligibility for vouchers, for distributing application
19
forms, and to the extent practicable, for allowing enrollment in a
Qualified Health Plan at the time of application for subsidy.
2.
The Secretary may provide for administration of Vouchers through an
appropriate State agency.
VI.
Assistance to Individuals and Families -- Expanded Tax Deductibility
(Described in Section XIII.,B.)
VII. Expanding Access for Underserved Populations
A.
Community-Based Primary Care Grant Program
1.
Three grant programs would be established to promote community
health plans and practice networks.
a.
The HHS Secretary will establish a program to administer grants
to the states for the purpose of creating or enhancing
community-based primary care entities that provide services to
low-income or medically underserved populations. This
provision is designed to complement the existing federal
Community and Migrant Health Center programs by making
flexible funding available to local public health departments,
rural hospitals, and other public and private community care
entities.
b.
The Secretary of HHS may make grants to and enter into
contracts with consortia of public and private health care
providers for the development of qualified community health
plans and practice networks. The Secretary will give preference
to plans and networks with three or more categories of providers
such as EACH/RPCHs, MAFs and other rural hospitals, migrant
health centers, community health centers, homeless health
services providers, public housing providers, family planning
clinics, Indian health programs, maternal and child health
providers, federally qualified health centers and rural health
clinics, state and local health department programs and health
professionals and institutions providing services in one or more
Health Professional Shortage Areas (HPSAs) or to medically
underserved populations.
C.
Loans and loan guarantees for capital costs would be authorized
for the development of qualified community health plans or
practice networks.
20
B.
Enhanced Assistance for Federally Qualified Health Centers
1.
Expanded resources will be provided for the Federally Qualified Health
Centers;
2.
This provision is intended to complement the state-based community
primary care grant program described above. Both provisions are
aimed at addressing the shrinking availability of primary health care
services in the country's rural and inner-city communities.
C.
Tax Incentives for Practice in Rural, Frontier, and Urban Underserved Areas
(As described in Section XIII., D.)
D.
Development of Networks of Care in Rural and Frontier Areas
1.
The HHS Secretary is authorized to waive certain Medicare and
Medicaid requirements for demonstration projects to operate rural
health networks. Public and private entities may apply for such
waivers. The Secretary may award grants to assist organizations in
rural networks planning.
2.
The Secretary will conduct a study on the benefits of developing a
supplemental benefit package and making available premiums that
will improve access to health services in rural areas.
E.
Grant Program for Low Interest loans for Capital Improvement in Rural and
Underserved Areas
Loans and loan guarantees for capital costs would be authorized for the
development of qualified community health plans or practice networks.
F.
Office of the Assistant Secretary for Rural Health
Under this provision, the position of Director of the Office of Rural Health
would be elevated to the position of the Assistant Secretary for Rural Health.
The mission of the office would be expanded to include advising on how
health care reform could impact rural areas.
21
G.
Rural and Frontier Emergency Care
A rural emergency medical services program is established to improve
emergency medical services (EMS) operating in rural and frontier
communities. This program will:
1.
Offer a matching grant program for improving state EMS services.
These grants will encourage better training for health professionals and
provide necessary technical assistance to public and private entities
which provide emergency medical services;
2.
Provide federal grants to states for telecommunications demonstration
projects linking rural and urban health care facilities;
3.
Establish an Office of Emergency Medical Services to provide technical
assistance to state EMS programs;
4.
Federal grant support will also be provided to the states for the
development of air transport systems to enhance access to emergency
medical services.
H.
Medicare Dependent Hospitals
1.
Modify Payments to Medicare Dependent Hospitals in the following
manner:
a.
base payments on a 36 month period beginning with the first day
of the cost reporting period that begins on or after April 1, 1990;
b.
conform target amounts to extension of additional payments;
C.
clarify of updates; and,
d.
would extend Medicare-dependent hospital classification
through 1998.
2.
Would establish a demonstration project regarding payment to larger
Medicare dependent hospitals.
I.
EACH/RPCH Program Improvements and Extension to all States
1.
Expands the EACH/RPCh program to all states.
2.
Rural community hospitals meeting eligibility criteria may qualify as
22
Rural Emergency Access Community Hospitals (REACHs).
3.
Current special reimbursement to small rural Medicare--dependent
hospitals enacted in Omnibus Budget Reconciliation Act of 1989 is
extended.
4.
Modify provisions that relate to hospital inpatient services in a Rural
Primary Care Hospital so that:
a.
a RPCH cannot have more than 6 beds;
b.
the RPCH cannot perform surgery or any service requiring
general anesthesia (unless the risk of transferring the patient
outweigh the benefits);
C.
the Secretary can terminate the RPCH designation if the average
length of stay for the previous year exceeded 72 hours. In
determining the average length of stay, cases which exceed 72
hours due to inclement weather or other emergency conditions
are not included in the calculations;
d.
the GAO must submit a report determining if the revised RPCH
criteria have resulted in RPCHs providing patient care beyond
their abilities or have limited RPCHs' abilities to provide needed
services.
5.
Designates EACH hospitals so that:
a.
urban hospitals can be designated as EACHs and do not need to
meet the 35 mile criteria, but do have to meet all the remaining
criteria. Urban EACHs would still be subject to the Medicare
Protective Payment System; and,
b.
hospitals located in adjoining states and otherwise eligible as
EACHs and RPCHs can participate in a state's rural health
network and these hospitals or facilities are permitted to receive
grants.
6.
Permit RPCHs to maintain swing beds in a Skilled Nursing Facility
except that the number of swing beds may not exceed the total number
of swing beds established at the time the facility applied for its RPCH
designation. Beds in a distinct-part SNF do not count towards the total
number of swing beds.
7.
Extend the deadline for the development of prospective payment
system for inpatient RPCH services to January 1, 1996.
23
8.
Clarify that physician staffing criteria only apply to doctors of medicine
and osteopathy.
9.
Adopt technical amendments relating to Part A deductible, coinsurance
and spell of illness.
10.
The Department of Justice and Federal Trade Commission would be
instructed to issue formal guidelines for EACH/RPCHs.
11.
The Secretary would be permitted to designate an unlimited number of
RPCHs in non-EACH states. The RPCHs must establish relationships
with a full-service rural hospital that meet the same criteria as EACHs
with the exception of the criteria that the EACH have 75 beds.
12.
HHS would be required to conduct a pilot program that would allow
RPCHs to admit patients on a limited DRG basis instead of using the
72-hour average length of stay criteria.
13.
Codify the MAF requirements into Medicare, allowing Medicare to
reimburse on a cost basis those facilities which meet the MAF
requirements.
14.
Develop a grant program for states that operate MAFs. The grant
program would be modeled after the EACH/RPCH program.
J.
Extends the Rural Health Transition Grant Program
Extends the program through FY 1998 with authorized appropriations of $30
million annually, FY 1993 - 1998. Reports from grantees would be required
every 12 months. As of October 1, 1994, RPCHs are eligible for rural health
transition grants.
K.
Increases reimbursement to PAs and NPs under Medicare
1.
Certified Nurse Practitioners and Physicians Assistants would be
reimbursed at 85% of the RBRVS rate for services performed in all
outpatient settings.
2.
Under Medicare, certified Nurse Practitioners would be reimbursed at
65% of the RBRVS rate for assisting at surgery in urban areas.
3.
States would be required to directly reimburse all certified Nurse
Practitioners in a rural area under Medicaid. This expands the current
24
requirement that all states directly reimburse pediatric and family
Nurse Practitioners, which gives states the option of directly
reimbursing other types of NPs.
L.
Telemedicine and Related Telecommunications Technology
1.
Coordinates various federal grant programs which fund telemedicine
and related telecommunications demonstrations and grant programs.
This provision establishes a federal interagency task force, coordinated
and chaired by the Department of Health and Human Services, would
be established to oversee telemedicine and other telecommunications
demonstration projects already underway.
2.
A grant program would be established to fund telemedicine and related
telecommunications technology in rural areas. The program would be
administered through the Assistant Secretary for Rural Health.
Applicants for the grant would be rural health care providers such as
rural referral centers, rural health clinics, community health centers,
migrant health centers, area health and education centers, local health
departments and public hospitals.
M.
National Health Service Corps
1.
Fully funds the National Health Service Corps program and require
that at least 20% of those in the Scholarship and Loan Repayment
Program be nurses and physicians assistants
2.
Reauthorize the Community Scholarship Program. In addition, the
criteria for selecting students should be modified and a 15%
administration fee for those agencies administering the scholarships
should be established.
N.
Indian Health Reform Amendments
1.
Indian Health Service remains as a provider of health care for the
Indian population.
2.
Reaffirms current federal policy of guaranteeing that Indian Tribes
should be eligible to apply for all appropriated funds and grants created
under health reform legislation, at levels not less than any other
qualified entities. This provision is simply a reaffirmation of current
Federal policy.
25
3.
Requires the Assistant Secretary for Indian Health to establish a new
formula for the distribution to tribes of all new funds that become
available for health care initiatives and programs under health reform.
This formula would consider differences in local resources, status of
health, socioeconomic status of Tribal people, and
facilities/equipment/staf that are available.
4.
Retains Indian eligibility under current law for additional benefits.
Under this provision, whatever comprehensive benefits one accrues
through health reform legislation, Indians would not lose any current
benefits. Such benefits include all supplemental benefits, such as
environmental health, mental health benefits, and alcohol abuse
treatment.
O.
Transitional Requirements for Plans Serving Special Needs Populations
1.
Nondiscrimination Service Area Standards
Health plans must not discriminate in the drawing of services area
boundaries on the basis of race, ethnicity, socioeconomic status, age, or
anticipated need for health services.
2.
Special Access Standards
Plans must meet special access standards that take into account the
special needs and circumstances of urban and rural underserved areas.
The Secretary would be required to establish access standards for
enrollees living in medically underserved areas that take into account
the following indicators:
a.
Accessibility of primary care services based on measures such as
the ratio of primary care providers to expected enrollees;
b.
Accessibility of other services, based on measures such as travel
time;
C.
Accessibility of health plans services for individuals with
limited ability to speak the English language, and for population
with similar needs.
3.
Reporting Requirements
Health plans must report on key indicators of access, quality and
service in a manner that provides separate information and
monitoring for those in medically underserved areas.
4.
Designation of Underserved Communities and Populations
The Secretary would annually designate underserved areas and
populations as either of the following areas:
a.
Areas with a shortage of personal health services as designated
26
under section 332(a)(3) or 1302(7) of the Public Health Service
Act;
b.
Health Professional Shortage Areas as described in section
332(a)(1)(a) of the PHS Act;
C.
High impact areas as described in section 329(a)(3) of the PHS
Act; or
d.
an area which includes a population group which the Secretary
determines as a health manpower shortage area under Section
332(a)(1)(B) of the PHS Act.
5.
Certification of Essential Community Providers
Any public or non-profit private entity furnishing services in a
designated medically underserved community or population may
apply to the Secretary for certification as an essential community
provider. In order to be certified, the entity:
a.
Must be a public or non profit private entity;
b.
Must be capable of providing for a full range of primary health
care services that are available and accessible promptly, as
appropriate and in a manner which assures continuity;
C.
Have organization arrangements for quality assurance programs
and maintaining patient record confidentiality;
d.
Demonstrate financial responsibility;
e.
Accept all patients notwithstanding their ability to pay;
f.
Make every effort to collect appropriate reimbursement from
Medicare, Medicaid and third party payers;
g.
Establish a sliding-scale fee schedule based on ability to pay for
services;
h.
Reviews annually its catchment area;
i.
Where appropriate, provides access to patients with limited
english-speaking ability;
j.
Meets the requirements of section 1861(z) of the Social Security
Act, compiles appropriate statistical and other information.
6.
Obligation to Offer Contracts for Primary Care Services
All health plans, including self-insured plans, would be required to
offer a contract with a reasonable number as determined by the
Secretary of certified essential community providers. Mandatory
contracting would be in effect for the first five years after enactment.
7.
Scope of Contracts
The contract between health plans shall:
a.
Provide for primary health services that are included in the
uniform benefit package, furnished on an outpatient basis and
provided directly by the essential community provider.
27
b.
Terms and conditions applied to the agreements shall be
comparable to terms and conditions that apply to other
providers furnishing comparable services to the health plan.
C.
Payment will be based on Section 1876 of the Social Security Act.
8.
Health Plan Obligation for Non-primary Care
Health plans must meet general access standards for non-primary care
services to insure accessibility and availability of all covered and non-
covered primary care services for all enrolled members. (Needs more
definition.)
9.
Access in Underserved Areas
The Office of Technology Assessment (OTA) will conduct a study on
improving access in underserved areas.
P.
Urban Safety-Net" Hospitals
Establishes a revolving loan fund and grant program to fund capital
improvements for publicly owned and operated "safety-net" hospitals.
Q.
Other Urban Hospitals
Demonstration for inaccessible other urban Hospitals to qualify as Sole
Community Hospitals.
VIII. New Home and Community Based Long Term Care Program
A.
General
Establishes a new capped program in the Social Security Act to provide
home-and community-based services for older Americans and
individuals with disabilities. The program is administered by the
States with federal matching payments for services provided. Total
funding is capped, and there is no individual entitlement to services
under this program.
B.
Eligibility
The Secretary will issue regulation establishing uniform eligibility
criteria and assessment protocols. In order to receive benefits under
the program, an individual must be determined eligible, must undergo
28
a standardized assessment and have a individualized plan of care
developed. To be eligible, an individual must be in one of the
following categories. The first three categories apply to individuals of
all ages; the final category applies only to children under age six.
1.
Requires hands-on or stand-by personal assistance supervision
or cues in three or more of five activities of daily living: eating
dressing bathing, toileting, and transferring in and out of bed.
2.
Presents evidence of severe cognitive or mental impairment.
3.
Has severe or profound mental retardation.
4.
Is under age six and would otherwise require hospital or
institutional care for a severe disability or chronic medical
condition.
C.
Covered Services
1.
At a minimum, a state's array of services must include personal
assistance (both agency administered and consumer directed) for every
eligible category of participant. Services may include, but are not
limited to: case management, homemaker and chore assistance, home
modifications, respite services, assistive technology, adult day services,
habilitation and rehabilitation, supported employment, and home
health services.
2.
Services may be delivered in a home, a range of community residential
arrangements, or outside the home. Services may not be provided in
licensed nursing homes or intermediate care facilities for the mentally
retarded.
D.
Cost Sharing
Eligible individuals with incomes over 150% of the federal poverty level pay
co-insurance to cover a portion of the cost of all services they receive
according to a sliding scale. Persons with incomes between 150% and 200% of
the federal poverty level pay 10% of the cost of care; between 200% and 250%
of poverty 20% co-insurance, and persons with income over 250% of poverty
pay a 25% co-insurance.
29
E.
State Administration
Each state must have an approved plan, which specifies: administering
agency or agencies; services to be covered, and how the needs of all types of
eligible individuals will be met; provide a plan for making eligibility
determinations: provide information on how the state will develop care
plans, coordinate services, reimburse providers and plans, administer
vouchers or cash payments, license or certify providers. In addition, the state
must develop a system of determining allocation of resources and how the
new program with be integrated with existing long-term care programs, and
must assure that low-income persons in the program is at least equal to the
proportion of low-income persons in the state's population.
F.
Quality Assurance
States are responsible for developing comprehensive quality assurance
programs that monitor health and safety of participants as well as assure that
services are of the highest quality. States must develop, for federal approval,
quality assurance systems that include consumer satisfaction surveys. In
addition, consumer advisory groups are expected to play a strong role in
assuring and enhancing quality.
G.
Federal Matching Payments to States
A federal matching payment will be made to states based on the current
Medicaid match rate plus 28 percentage points. Federal matching percentages
can be no less than 78 percent and no more than 95 percent. No federal
matching payments will be made once the cap is reached.
H.
Funding, Allotments to States
For federal Fiscal years 1996-2002 - No federal funds allocated.
PART TWO - COST CONTAINMENT & CONSUMER PROTECTION
A.
High Cost Plan Assessment
(described in Section XIII., A.)
30
B.
Medical Liability Reform
1.
Alternative Dispute Resolution
a.
No health care malpractice action may be brought in court until
final resolution of the claim under an alternative dispute
resolution (ADR) method adopted by the state from models
developed by the Secretary of HHS, or developed by the state and
approved by the Secretary of HHS.
b.
If the party initiating court action following the ADR receives a
worse result with respect to liability or a level of damages 33
1/3% below that awarded in the ADR, that party must pay the
costs and attorneys fees of the other party incurred subsequent to
the ADR.
2.
Damages
Non-economic damages awarded to a plaintiff in a health care
malpractice claim or action may not exceed $250,000, indexed for
inflation.
3.
Several Liability
The liability of each defendant in a health care malpractice action for
non-economic and punitive damages will be based on each defendant's
proportion of responsibility for the claimant's harm.
4.
Punitive Damages
Seventy-five percent of punitive damage awards will be paid to the
state in which the action is brought and such funds will be used for
provider licensing, disciplinary activities and quality assurance
programs.
5.
Statute of Repose
A twenty year statute of repose will be applied to health care
malpractice actions.
6.
Fee Reform
Lawyers may not charge contingency fees greater than 33 1/3% of the
first $150,000 of the award in a health care malpractice action and 25%
of amounts in excess of $150,000. Calculation of permissible
contingency fees is based on after tax amounts.
31
7.
Limited Preemption
State laws that have higher limits on attorneys fees and non-
economic damages are preempted. State laws that provide for longer
statutes of repose are preempted. Does not preempt those laws with
lower limits on attorneys fees and non-economic damages are
preempted. Does not preempt state laws with shorter statutes of
repose.
C.
Administrative Simplification and Paperwork Reduction
Implements a national health information network to reduce the burden of
administrative complexity, paper work, and cost on the health care system; to
provide the information on cost and quality necessary for competition in
health care; and to provide information tools that allow improved fraud
detection, outcomes research, and quality of care.
1.
National Health Information Network
Requires the Secretary of HHS to implement a national health
information network by adopting standards for:
a.
representing the content and format of health information in
both paper and electronic forms,
b.
transmitting information electronically,
C.
conducting transactions using this information,
d.
certifying public or private entities to perform the intermediary
functions which implement the network,
e.
monitoring performance to assure compliance,
f.
establishing procedures for adding codes to previously adopted
standards,
g.
making changes to previously adopted standards, and
h.
developing, testing, and adopting new standards.
32
2.
Health Information Advisory Commission
In carrying out duties under this part, the Secretary would consult with
an Advisory Commission consisting of 15. members from the private
sector with expertise and practical experience in developing and
applying health information and networking standards. The members
would be appointed by the President and serve staggered 5 year terms,
and would include providers and consumers.
3.
Requirements for Qualified Health Plans and Health Care Providers
All Qualified Health Plans, including Federal and State plans, and all
health care providers would be required to comply with federal
standards for formatting information and electronic transactions.
The Secretary may require transactions to be consistent with the goal of
reducing administrative costs. In addition, certain standard data must
be made available electronically on the health information network to
authorized inquiries. Other requirements for electronic information,
such as quality related information, may be specified in other parts of
the law and would be put through the same standards setting
procedure before becoming required.
4.
Accessing Health Information
a.
The Secretary would establish technical standards for requesting
standard health information from participants in the health
information network which assure that a request for health
information is authorized under federal privacy provisions.
b.
The Secretary would establish standards for the appropriate
release of health information to researchers and government
agencies, including public health agencies. The Secretary would
establish standards for the electronic identification of a request as
one which comes from a person authorized to receive health
information under federal privacy provisions.
5.
Effective Date
A timetable of effective dates would be included which would specify
when each requirement would take effect relative to the date of
enactment. In general, the Secretary would adopt existing standards
within 9 months of enactment and more time is given for standards
which must be developed. At least 12 months grace period is allowed
after any standard is adopted before use of that standard becomes
required.
33
D.
Quality Assurance
The goal of health reform is to ensure that Americans have access to health
care plans that compete on the basis of price and quality. Assessing quality
requires reliable and comparable information on the outcomes and
effectiveness of services provided by plans. Under this subtitle, Qualified
Health Plans are required to annually report data on the quality of their
services to the Secretary of HHS in a format prescribed under the National
Health Information Network. The Secretary may determine the manner in
which these data are provided to certifying authorities in states. This title also
provides direction to the Secretary to improve and expand the capability of
HHS to support and encourage research and evaluation of medical outcomes.
Standards and Measurements of Quality
The Secretary, in consultation with relevant private entities, will develop
quality standards with which all Qualified Health Plans must comply. These
standards are designed to improve the data available upon which to assess
quality and the processes by which quality care is continuously improved.
The Secretary will study the capabilities of entities within its jurisdiction to
accomplish these goals including:
1.
setting priorities for strengthening the medical research base;
2.
supporting research and evaluation on medical effectiveness through
technology assessment, consensus development, outcomes research
and the use of practice guidelines;
3.
conducting effectiveness trials in collaboration with medical specialty
societies, medical educators and qualified health plans;
4.
maintaining a clearinghouse and other registries on clinical trials and
outcomes research data;
5.
assuring the systematic evaluation of existing and new treatments, and
diagnostic technologies in an effort to upgrade the knowledge base for
clinical decision making and policy choice;
6.
designing an interactive, computerized dissemination system of
information on outcomes research, practice guidelines, and other
information for providers.
34
E.
Anti-fraud and Abuse Control Program
This subtitle establishes a stronger, better coordinated federal effort to combat
fraud and abuse in our health care system. It expands criminal and civil
penalties for health care fraud to provide a stronger deterrent to the billing of
fraudulent claims and to eliminate waste in our health care system resulting
from such practices. It also seeks to deter fraudulent utilization of health care
services. It would:
1.
Require the HHS Secretary and Attorney General to jointly establish
and coordinate a national health care fraud program to combat fraud
and abuse in government and Qualified Health Plans;
2.
Finance the anti-fraud efforts by setting up an Anti-Fraud and Abuse
Trust Fund. Monies from penalties, fines, and damages assessed for
health care fraud are dedicated to the Trust Fund to pay for the anti-
fraud efforts;
3.
Increase and extend Medicare and Medicaid civil money and criminal
penalties for fraud to all health care programs;
4.
Bar providers convicted of health care fraud felonies from participating
in the Medicare program;
5.
Require HHS to publish the names of providers and suppliers who
have had final adverse actions taken against them for health care
fraud; and,
6.
Establish a new health care fraud statute patterned after existing mail
and wire fraud statutes under Title XXIII of the Criminal Code and
allows for criminal forfeiture of proceeds.
X. REFORM OF EXISTING PUBLIC PROGRAMS
A.
Medicaid (Some would like to integrate Medicaid faster if it did not adversely
affect the cost of health care reform.)
1.
Integration of Medicaid beneficiaries into Qualified Health Plans
a.
The Secretary shall make recommendations on the integration
of AFDC and non-cash recipients into the community-rated pool
and into Qualified Health Plans. The Secretary's
recommendations shall address:
35
i.
the impact on private health insurance premiums,
ii.
the administration of subsidies,
iii.
the adequacy of services for Medicaid recipients and the
need for and structure of wrap around services.
2.
New State Option for Medicaid Coverage in Qualified Health Plans
States may give their AFDC and non-cash eligible beneficiaries
(excluding medically needy) the option to receive medical assistance
through enrollment in a Qualified Health Plan offered in a local HCCA
instead of through the Medicaid plan.
a.
The state may not restrict an individual's choice of plan and is
not required to pay more than the applicable dollar limit for the
HCCA area.
b.
The number of individuals electing to enroll in a Qualified
Health Plan is limited to a fifteen percent of the eligible
population in each of the first three years, and ten percent in
each year thereafter.
3.
Limitation on Certain Federal Medicaid Payments
Federal financial participation for acute medical services, including
expenditures for payments to Qualified Health Plans, is subject to an
annual federal payment cap.
a.
The cap is determined by multiplying a per capita limit (defined
below) by the average number of Medicaid categorical
individuals entitled to receive medical assistance in the state
plan.
b.
The per-capita limit for fiscal year 1996 is equal to 118% of the
base per capita funding amount (determined by dividing the
total expenditures made for medical assistance furnished in 1994
by the average total number of Medicaid categorical individuals
for that year).
C.
After 1996, the per-capita limit is equal to the per-capita funding
amount determined for the previous fiscal year increased by 6
percent for fiscal years 1997 through 2000, and 5 percent for fiscal
year 2001 and beyond.
36
d.
Expenditures for which no federal financial participation was
provided and disproportionate share payments are excluded
from this calculation.
e.
States are required to continue to make eligible for medical
assistance any class category of individuals that were eligible for
assistance in fiscal year 1994.
4.
State Flexibility to Contract for Coordinated Care Services
a.
States have the option, to establish a program under Medicaid
program to allow states to enter into contracts with at-risk
primary care case management (PCCM) providers.
b.
An at-risk PCCM provider must be a physician, group of
physicians, a federally qualified health center, a rural health
clinic or other entity having other arrangements with physicians
operating under contract with a state to provide services under a
primary care case management program.
C.
Qualified risk contracting entities must:
i.
meet federal organizational requirements;
ii.
guarantee enrolled access; and,
iii.
have a written contract with the state agency that includes:
(a).
an experienced-based payment methodology;
(b).
premiums that do not discriminate among eligible
individuals based on health status;
(c).
requirements for health care services; and,
(d).
detailed specification of the responsibilities of the
contracting entity and the state for providing for, or
arranging for, health care services.
d.
Meet federal standards for internal quality assurance.
e.
Enter into written provider participation agreements with
essential community providers;
1.
States are required to contract directly with essential
community providers, or at the election of the ECP, each
37
risk contracting entity may enter into agreement to make
payments to the essential community provider for
services.
2.
Essential community providers include:
a.
Federally Qualified Health Centers,
b.
Public Housing Providers,
C.
Family Planning Clinics,
d.
AIDS providers under the Ryan White Act,
e.
Maternal and Child Health Providers, and
f.
Rural Health Clinics.
B.
Medicare
1.
Medicare remains a separate program and continues to be federally
administered. Beneficiaries enrolled in Part B continue to pay a
monthly premium. The statutorily defined Medicare benefits continue
to be the Medicare benefit package in both fee-for-service and managed
care.
2.
Beneficiary opt-in to private qualified health plans.
a.
Medicare beneficiaries may opt into a qualified health plan in
their HCCA.
b.
For individuals choosing an AHP, Medicare will pay the federal
contribution calculated for Medicare risk contracts. Individuals
are responsible for paying the difference between the premium
charged and the federal contribution.
C.
During the annual enrollment period, Medicare-eligibles may
choose a new plan through their employer/purchasing
cooperative or they may return to the traditional Medicare
program.
3.
Medicare Select
a.
The Medicare Select program would become a permanent option
in all States.
38
b.
Medicare Select policies will be offered during Medicare's
coordinated open enrollment period.
C.
Plans may not discriminate based on health status.
4.
Medicare Risk Contract Program
a.
Medicare health plans must meet Qualified Health Plan
standards and cover all Medicare benefits under a risk contract
for a uniform monthly premium for a year.
b.
Employers may sponsor Medicare health plans for former or
current employees.
C.
Cost contracts, SHMOs, etc. would continue as under current
law. The 50/50 requirement is terminated at the point at which
the Secretary determines that health plans have alternative
quality assurance mechanisms in place that effectively provide
sufficient quality safeguards. In the interim, the Secretary may
grant waivers of the 50/50 requirement.
e.
Medicare health plans will offer a standard benefit package
comprised of the current Medicare benefits defined in statute or
an alternative package, defined by the Secretary, covering
identical services but with cost-sharing consistent with typical
managed care practice and not to exceed the actuarial value of
FFS.
f.
Standardize supplemental benefits that risk contractors may
offer in addition to Medicare benefits. In addition to the
standardized policies, health plans may offer other supplemental
policies. However, Medicare health plans must at least offer two
supplements to be defined by the Secretary: one which would
cover catastrophic costs (out-of-pocket limit) and other items
traditionally covered in employer-sponsored plans, and one
covering outpatient prescription drugs.
g.
The current standardized Medigap plans would be changed so
that Medigap may only pay up to one-half of the 20% part B
coinsurance. Beneficiaries currently holding Medigap plans
covering the entire 20% coinsurance would be exempt from this
change as long as they renew their current insurance.
h.
The Secretary shall define Medicare market areas which shall be
consistent with the health care coverage areas defined by the
39
non-Medicare population. For the Medicare program, the MSAs
may cross state lines if the Secretary determines it is necessary to
increase choices to Medicare beneficiaries. The federal
contribution for a Medicare health plan will be the same
throughout the Medicare market area.
i.
The Secretary will administer a coordinated annual open
enrollment period during which Medicare beneficiaries will
choose from all plans (including Medigap insurers) offering
products to Medicare beneficiaries. The Secretary may authorize
any variations of participation in the enrollment process.
j.
The Secretary of HHS will provide to all Medicare beneficiaries
in a market area uniform materials for enrolling in health plans.
k.
The federal contribution is calculated as the weighted average of
fee-for-service per capita cost in the market area and the
premiums submitted by Medicare health plans to the Secretary
to provide Medicare benefits. The Secretary is authorized to
adjust for heart disease, cancer, or stroke.
1.
Beneficiaries pay the difference between the federal contribution
and the total premium charged by the health plan they select. If
the health plan's premium is less than the federal contribution,
the beneficiary is entitled to a rebate that the plan may provide
in cash or apply to supplementary coverage. The rebate would
be treated as non-taxable income.
i.
Beneficiaries eligible for Medicare prior to 1999 are
grandfathered under these provisions and may always
enroll in Medicare FFS (regardless of local costs) for the
regular part B premium only.
ii.
If the federal contribution is less than the FFS per capita
cost in the market area and the beneficiary selects
Medicare FFS, the beneficiary pays an additional premium
to the Federal Government equal to the difference
between the federal contribution and FFSPCC.
5.
Administrative Simplification
The Secretary has authority to consolidate the functions of fiscal
intermediaries and carriers. Provides for coordination of Medicare and
supplemental insurance claims processing. Permits standardized,
paperless process.
40
6.
Study and Demonstration for Medicare Cost Containment
a.
Requires ProPAC to study and make recommendations to
Congress regarding ways to slow the rate of Medicare growth at
the local market level. The study should include ways to set
local expenditure targets and monitor success in controlling
costs. Updates for payment rates under Parts A and B should be
set to achieve local targeted expenditure levels, while rewarding
efficient providers and/or markets.
b.
A demonstration is authorized to evaluate Part A expenditures
for hospital service and/or Part B expenditures in fee for service
using provider-group or State-level volume performance
standards.
C.
GRADUATE MEDICAL EDUCATION
[Under Discussion]
41
I.
FINANCING
A.
Financing Totals (Estimated Over 5 years; $ in Billions)
Savings
Medicare Savings
$70.1
Medicaid Savings
$55.8
Postal Service Retirement
$13.0
SUBTOTAL SPENDING REDUCTIONS
$138.9
Revenues
High Cost Plan Premium Assessment
$30.0*
Tobacco Tax ($1.00 increase)
$62.3
HI State/Local
$ 7.6
Income Relating Medicare Part B Premiums
$ 8.0
SUBTOTAL REVENUES
$107.9
TOTAL FINANCING
$246.8
* Preliminary estimate based on available information
B.
Descriptions of Medicare Savings
1.
Adjust Inpatient Capital Payments. This proposal combines three
inpatient payment adjustments to reflect more accurate base year data
and cost projections. The first would reduce inpatient capital payments
to hospitals excluded from Medicare's prospective payment system by
15%. The second would reduce PPS Federal capital payments by 7.31%
and hospital-specific amount by 10.41% to reflect new data on the FY 89
capital cost per discharge and the increase in Medicare inpatient costs.
The third piece would reduce payments for hospital inpatient capital
with a 22.1% reduction to the updates of the capital rates.
2.
Revise Disproportionate Share Hospital Adjustment. This Act limits
the current disproportionate share hospital adjustment with a new
voucher program to cover health care provided to those with out
health insurance.
3.
Extend OBRA 93 Provision to Catch-up after the SNF Freeze Expires
Included in OBRA 93. OBRA 93 established a two-year freeze on
update to the cost limits for skilled nursing facilities. A catch-up is
allowed after the freeze expires on October 1, 1995. This Act eliminates
the catch-up.
4.
Change the Medicare Volume Performance Standard to Real Growth
GDP. This Act substitutes the five-year average growth in real GDP
42
per-capita for this volume and intensity factor and the performance
standard factor for physician's services.
5.
Establish Cumulative Growth Targets for Physician Services. Under
this Act, the Medical Volume Performance Standard for each category
of physician services would be built on a designated base-year and
updated annually for changes in beneficiary enrollment and inflation,
but not for actual outlay growth above and below the target.
6.
Reduce the Medicare Fee Schedule Conversion Factor by 3% in 1995,
Except Primary Care Services. The conversion factor is a dollar amount
that converts the fee schedule's relative value units into a payment
amount for each physician service. This Act reduces the factor by 3% to
account for excessively high targets.
7.
Extend OBRA-93 Provisions on Part B Premium Collections. OBRA 93
established the Part B premium collections at 25% of program costs.
This Act extends the collection of these premiums.
8.
Extend OBRA 93 Catch-up After the Home Health Freeze Expires.
OBRA 93 eliminated the inflation adjustment to the home health
limits for two years. This Act eliminates the inflation catch-up
currently allowed after the freeze expires on July 1, 1996.
9.
Extend OBRA 93 Medicare Secondary Payor Data Match with SSA and
IRS. OBRA 93 included an extension of the data match between HCFA,
IRS and SSA to identify the primary payers for Medicare enrollees with
health coverage in addition to Medicare.
10.
Increase Part B Deductible for Enrollees. Increase the amount that
enrollees must pay for services each year before the government shares
responsibility for physician services. The deductible would be
increased to $150 and indexed to the rate of growth.
11.
Reduce Hospital Market basket Index Update. This proposal reduces
the Hospital Market Basket Index Update by 2%. Currently Medicare
changes the inpatient per-discharge standardized amount by a certain
amount every year to reflect input costs changes in Congressional
direction. OBRA 1993 reduced the Index in Fiscal Years 1994 through
1997. This proposal would reduce the updates by 2% for Fiscal Years
1997 through 2000.
C.
Medicaid Savings
1.
Revise Disproportionate Share Hospital Adjustment. This proposal
eliminates the current disproportionate share hospital adjustment
with the new voucher program to cover health care provided to those
with out health insurance. Medicaid DSH payments are to be
43
eliminated in FY 1996 - 15%, FY 1997 - 25%, FY 1998 - 60% and 1999 -
100% (unless 95% coverage is not reached in which case it will not be
completely phased-out)
2.
- Capitate the Federal Payments Made for Medicaid Acute Care Medical
Services under Medicaid Program. The per-capita federal financial
participation growth rate for acute medical services under the Medicaid
program would be capped at 6% for fiscal years 1997 through 2000 and
at 5% for fiscal year 2001 and beyond.
D.
Revenues
1.
Postal Service Retirement. Require the U.S.P.S. to fund the U.S.P.S.
Retirement System in the U.S.P.S. budget rather than the Federal
Budget. This would free funds from the Federal budget.
2.
Tobacco Tax. The proposal increases the tax on tobacco by $50 per
thousand cigarettes ($1 per pack of 20 cigarettes). Described in Section
XIII., G.)
3.
HI State and Local State and local jurisdictions can opt to pay the HI
payroll tax for State and local workers hired before April 1, 1986. The
proposal would extend the payroll tax to all remaining exempt State
and local workers.
4.
Income Related Part B Premiums. This proposal would charge high-
income enrollees a premium up to 75% of program costs based on an
enrolle's modified adjusted gross income.
XII.
Fiscal Responsibility
Fail-Safe Mechanism
The bill establishes a Fail-Safe mechanism to ensure health care reform does
not increase the deficit. Details are described below:
1.
A Current Health Spending Baseline (CHSB) is established. The CHSB
includes:
a.
Medicare Expenditures
b.
Medicaid Expenditures
C.
Health Related Tax Expenditures
i.
The employee exclusion of employer-provided health
insurance premiums.
44
ii.
Employer deduction for health insurance premiums.
iii.
7.5% floor for deduction of medical expenses.
2.
A Health Reform Spending Estimate (HRSE) is established. The HRSE
includes:
a.
Everything included in the CHSB.
b.
Deduction for purchase of Qualified Health Plans by all
individuals.
C.
Cigarette excise tax.
d.
Vouchers for purchase of a Qualified Health Plan.
e.
High-Cost Plan Assessment
3.
In any year that the Director of OMB notifies Congress that HRSE will
exceed the CHSB, the following automatic actions will occur to prevent
deficit spending:
a.
The voucher phase-in is delayed.
b.
The assessment on high cost insurance plans is increased.
C.
The expanded tax deduction phase-in is slowed down.
d.
Out-of-pocket limits in the standard and basic benefit packages
are increased.
e.
Starting in the year 2004, an employer may no longer deduct and
an employer may no longer exclude supplemental benefits
provided to employees and contributed to by employers.
4.
Congress may act on alternative recommendations made by the
National Health Commission to avoid the actions listed above.
XIII. Tax Provisions
A.
High Cost Plan Assessment
1.
Beginning in 1996, an annual assessment will be imposed on High Cost
Plans. High Cost Plans are those health care packages whose premiums
exceed a target amount. The target amount will be set by the IRS at the
beginning of each year based on the premium bids submitted to the
HCCA for Basic plans (Primary Basics) and Standard plans (Primary
Standards). The target amount will be set at a level such that forty
45
percent of the plans in each area are above that amount.
a.
To determine whether a plan is a High Cost Plan, an insurer
divides its plans into two categories:
i.
Primary Basics including the value of any supplemental
benefits, and
ii.
Primary Standards including the value of any
supplemental benefits.
b.
An insurer then determines which, if any, of such plans are
above the applicable target amount.
C.
The IRS will also determine the lowest 25% of geographically-
adjusted Primary Basic and Primary Standard premiums
nationally. Plans (including supplemental benefits) that fall
within the lowest 25% of the geographically-adjusted premiums
are exempt from the High Cost Plan Assessment.
d.
The geographically adjusted premium will be calculated by the
IRS by adjusting each accountable health plan's premium for
regional variations. Such adjustments shall include, but not be
limited to, variations in the cost of living and demographics.
e.
Treasury will be given the authority to develop regulations
implementing this provision.
2.
The assessment on a High Cost Plan is equal to 25% of the difference
between the premium charged for the Primary Basic plus
supplementals, if any, and the Primary Standard plus supplementals, if
any, and a reference premium.
a.
For purposes of determining the assessment on the Primary
Basic plus supplementals, if any, the applicable reference
premium is the average of all Primary Basic premiums in the
HCCA.
b.
For purposes of determining the assessment on the Primary
Standard plus supplementals, if any, the applicable reference
premium is the average of all Primary Standard premiums in
the area.
3.
The High Cost Plan Assessment also applies to self-insured plans. The
tax will apply to the difference between the self-insured High Cost
Plan's premium (including any supplementals) and the applicable
reference premium for the HCCA. In calculating this tax, the high cost
self-insured plan's premium will be the premium used for meeting the
COBRA requirement. The Department of Treasury will be given
46
authority to develop regulations implementing this provision.
B.
Assistance to Individuals and Families -- Expanded Tax Deductibility
1.
Self-employed individuals purchasing health insurance may take an
above-the-line deduction for 100% of the cost of such insurance (i.e.,
not subject to the 7.5% floor), subject to a phase-in period. However,
the deduction is limited to the cost of either a basic or standard benefits
package. To the extent self-employed individuals purchase benefits
supplementing such packages, the cost of such supplemental benefits
will be deductible as medical expenses under current law (i.e., subject to
the 7.5% floor).
2.
Individuals (other than self-employed) that purchase health insurance
will be allowed an above-the-line deduction (i.e., not subject to the
7.5% floor) for 100% of the cost of either a basic or standard benefit
package. To the extent an individual purchases benefits
supplementing the packages, the cost of such supplemental benefits
will be deductible as medical expenses under current law (i.e., subject to
the 7.5% floor).
C.
Employer-Provided Health Insurance
1.
Employees may continue to exclude from gross income all employer-
provided health insurance.
2.
Employers may take a deduction for amounts contributed towards a
standard benefits package, as well as all benefits supplementing such
package, if any.
3.
Employers may take a deduction for amounts contributed towards a
basic benefits package. However, no deduction is permitted for any
contributions made towards benefits supplementing the basic benefits
package.
4.
Fail-Safe option includes possible employer and employee cap on
supplementals after 2004.
D.
Tax Incentives for Practice in Rural, Frontier, and Urban Underserved Areas
1.
Physicians practicing full-time and either newly certified or newly
relocated to a rural, frontier, or urban Health Professional Shortage
Areas (HPSA) are allowed a tax credit equal to $1,000 a month up to a
total of $36,000. Tax credits will be prorated in direct relation to the
time worked in the HPSA, up to a total of $36,000;
47
2.
Nurse practitioners and physician assistants practicing full-time and
either newly certified or newly relocated to a rural, frontier, or urban
HPSA would be eligible for a similar credit equal to $500 per month up
to the a total of $18,000;
3.
In order to retain the full value of the credit, the physician, nurse
practitioner or physician's assistant must practice continuously in the
area for five years.
4.
Loan repayments made on behalf on an individual as part of the
National Health Service Corps Loan Repayment Program are excluded
from taxable income of the individual;
5.
The cost of annually purchased medical equipment, owned directly or
indirectly, and used by a physician in a rural or frontier Health
Professional Shortage Area (HPSA) can be immediately expensed, up to
$32,500;
6.
Interest, up to $5,000 annually, paid on professional medical education
loans of a physician, registered nurse, nurse practitioner, or physician's
assistant will be allowed as an itemized deduction if the individual
agrees to practice in a rural, frontier or urban Health Professional
Shortage Area (HPSA).
E.
Long Term Care Tax Provisions
1.
Expenditures for qualified long-term care services are deductible as
medical expenses (i.e. subject to the 7.5% floor). Such services include
diagnostic, preventive, therapeutic, rehabilitative, maintenance and
personal care. Provision of such services must be contingent upon
certification of impairment in three or more activities of daily living by
a licensed health care practitioner;
2.
Employer provided qualified long-term care coverage which meets
certain consumer protection standards promulgated by the National
Association of Insurance Commissioners, is excluded from an
employee's taxable income. Premiums paid by an individual for
qualified long-term care coverage are deductible as a medical expense
(i.e. subject to the 7.5% floor);
3.
NAIC is directed to promulgate standards for the use of uniform
language and definitions in qualified long-term care coverage
insurance policies, with permissible variations to take into account
differences in state licensing requirements for long-term care
providers.
F.
Accelerated Death Benefits
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Clarifies the income tax treatment of accelerated death benefits paid to
terminally ill persons. Payments made under a qualified terminal illness
rider can be received tax-free as if they were paid after the insured's death.
G.
Tobacco Tax
The proposal increases the tax on tobacco by approximately $16.67 per pound
of tobacco for cigarettes. At proportional increase is applied to all other
tobacco products. In addition it extends the tax to tobacco to be used in "roll-
your-own" cigarettes. The new tax rates would be:
1.
Cigarettes:
small cigarettes
$62 per thousand (i.e., $1.24 per pack of
20 cigarettes)
large cigarettes
$130.20 per thousand
2.
Cigars:
small cigars
$5.82 per thousand
large cigars
65.875 percent of manufacturers price
(not more than $155 per thousand)
3.
Cigarette papers and tubes:
cigarette papers
3.88 cents per 50 papers
cigarette tubes
7.75 cents per 50 tubes
4.
Snuff, chewing tobacco, pipe tobacco, "roll-your-own" tobacco:
snuff
$1.86 per pound
chewing tobacco
62 cents per pound
pipe tobacco
$3.49 per pound
"roll-your-own" tobacco
$3.49 per pound
5.
The proposal would repeal the present-law exemptions for tobacco
products provided to employees of the manufacturer and for use by the
United States.
6.
The proposal also includes several administrative and compliance
provisions designed to improve the collection of the excise tax.
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XIV. National Health Commission
An independent National Health Commission is established to oversee the
health market much like the Securities and Exchange Commission oversees
the financial markets.
A.
Operation
1.
The Commission shall be composed of 7 members appointed by
the President with the advice and consent of the Senate. The
Commission members will serve 6 year overlapping terms. No
more than four members of the Commission may be from the
same political party. The members shall be compensated at level
IV of the Executive Schedule. One member of the Commission
shall be designated as the Chairman by the President.
2.
The Commission members will have gained national
recognition for their expertise in health markets.
3.
The Commission shall appoint an Executive Director and such
additional officers and employees it deems necessary to carry out
its responsibilities under this act.
4.
The Commission will be advised by expert private sector boards
which focus on health benefits and health plan standards.
B.
Responsibilities
1.
Clarify the standard and basic benefits packages.
2.
Develop and clarify the quality standards set in this act for
Qualified Health Plans and provide for this information to be
distributed to consumers in a standardized format. This
information will include reporting prices, evaluating health
outcomes and measuring consumer satisfaction.
3.
Report to Congress on a biannual basis (described in Section
I.,A.).
d.
Develop risk adjustment factors for Accountable Health Plans.
e.
Monitor the Fail-Safe Mechanism to prevent deficit spending
(described in Section XI.,B,4.).
f.
Recommend methods to achieve universal coverage if trigger
mechanism is engaged in the year 2002 (described in Section
I.,B.).
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