Right down to the wire on health care reform

The way the negotiations for health-care reform in Massachusetts have played out reminds Christopher Anderson of the tale of the blind men and the elephant. Their descriptions of the animal depended upon which part of it they could touch. In the case of state health-care reform, the involvement of different parties appears to depend on which part of the issue touches them.

"The health-care community drove this thing," he said days before we went to press. Led by Jack Connors Jr., chair of Partners HealthCare, a leading Boston hospital chain, hospitals and insurers pushed for an assessment on employers rather than the no-new-taxes, individual mandate approach favored by Gov. Mitt Romney, the National Federation of Independent Businesses, and the Massachusetts High Tech Council, among other trade groups.

Lawmakers involved in the talks on final legislation decline comment due to confidentiality concerns while negotiations are ongoing. But the business community — while awaiting a final bill to be passed before commenting on specifics — is more vocal.

Anderson says that without a cause and effect between an employer assessment and reduction of use of the state’s free care pool, called the Uncompensated Care Trust Fund, "this is a bad deal for our economy." Intensifying the debate is a July 1 federal deadline by which the state must submit a plan to increase the number of Massachusetts residents with some form of health insurance or lose $385 million in extra Medicaid funds each year. That’s the predicament that made health-care reform a Beacon Hill priority in the first place.

Anderson says the negotiation process "was not the way we would have liked to have seen it." When the Massachusetts High Tech Council met with Partners HealthCare last summer, he says, he emphasized that the goal of getting the federal Medicaid reimbursement should not come at the expense of job creation.

But the rest of the business community didn’t insist on a linkage between employer assessments and increased insurance coverage, he says.

The all or nothing stance

"People don’t think hospitals need to make money, but they do," says Christopher Murphy, a spokesman for Boston-based Blue Cross and Blue Shield of Massachusetts. When the government underfunds hospitals for care delivered under Medicaid, hospitals seek to make that money back somewhere else. "The only other place to go to is us," the insurers, by charging them more for services their members receive. And that drives up employers’ premium costs.

As we’ve all read by now, insurers pay into the free care pool and levy a surcharge on the employers who offer health-care insurance, which, statewide, comes to an estimated $62 per covered employee per year. Employers who don’t offer health insurance don’t pay into the pool at all. The compromise reached in House bill 4479, precursor to the final bill, calls for a $295 per employee assessment on companies of 11 employers or more that don’t offer health insurance.

That figure, determined by the Massachusetts Taxpayers Foundation, represents an estimate of how much it costs the state’s free care pool, the Uncompensated Care Trust Fund, to pay for care for employees who aren’t offered health insurance. They cost the pool an aggregate $88 million, divided by the number of people who work in targeted companies that don’t offer health care, resulting in the $295 figure. The proposed legislation does not apply to companies with 10 employees or less.

Michael Widmer, president of the Massachusetts Taxpayers Foundation, defines it as an assessment that targets only companies that do not provide insurance, and says that it would decline over time as the number of insured people grows and use of the free care pool shrinks. Others in the business community follow suit, calling the $295 levy as a way to equalize business contributions to the free care pool.

But not everybody in the business community is on board. The Associated Industries of Massachusetts, which says its 7,600 members all provide health insurance coverage, initially agreed to an assessment in order to stave off a wider reaching payroll tax (a measure that has since been scrapped) but has withheld its support of the $295 figure. In an open letter posted March 10, AIM President and CEO Richard Lord expressed concern that the amount is too high, and until a final proposal can be evaluated, "we will continue to reserve judgment and to withhold support."

Last week, lawmakers turned down Gov. Romney’s effort to eliminate the $62-per-employee fee on companies that do provide health insurance. He’s also reportedly concerned that the $295 assessment might be construed as a new tax. The day we went to press, The Boston Globe reported Romney saying he was undecided as to whether he’d sign the proposal under development, and - as are many in the business community – he will wait to see the language of the final bill.

Hidden charges

But while employees of so-called "free rider" companies that don’t offer insurance cost the free care pool $88 million a year, employees who are offered health insurance by their employer but don’t take it cost the pool $200 million, or more than twice as much.

Additionally, 93 percent of the companies that don’t provide health insurance have fewer than 10 employees, so they’re not covered by the health reform legislation in the first place. Another wrinkle: companies that do business in more than one state are covered by federal law, not state law, so whether they provide insurance to their employees has been strictly up to them.

Combine these factors – employees voluntarily "going bare" with no coverage, despite its availability, and employees of small companies or big multi-state companies who don’t now have a choice, and the concept of individual insurance becomes critical to expanding the number of insureds in the state.

"The game plan is, how do you incentivize people to be insured, or companies to offer insurance?" asks Alan Macdonald, director of the Massachusetts Business Roundtable. "That’s what it’s about, rather than how do we get more money into the free care pool." He cites a November 2005 report by the state Office of the Inspector General (see sidebar) that found use of the free care pool by people making more than 400 percent of the federal poverty level, which now stands at about $20,000 for a family of four and $9,800 for an individual. It also found instances of high charges for services on the part of hospitals with a high Medicaid population, which one unnamed hospital in the study frankly stated was being done to compensate for Medicaid underfunding. While acknowledging that such hospitals need to make up the shortfall, he says, it’s not such a good idea to charge the free care pool $4,000 for a CAT scan when the same scan at another facility costs $400.

The real work is about to begin

The real work will begin once the Conference Committee signs off on a compromise bill, which, as we went to press, was expected to happen this week. How to make an expanded insurance program available will depend on the specific language in the final bill.

Other points to be worked out include the makeup of the insurance Exchange, a component that observers think will be a key part of the new legislation. The Exchange will determine whether or not a $200 per year insurance product provides good value based on its categories of coverage. AIM’s Eileen McAnneny, vice president of government affairs, says the organization wants to see the Exchange set up as an independent state authority controlled by a board whose members are health-care experts.

Once the conference committee passes a final bill to Gov. Romney for his signature or veto, there’s a 10-day window for him to review the bill before taking action. Mass. High Tech’s Anderson says that his group will use that post-passage window to focus on the specifics in the final legislation and determine whether the linkage his group wants is in the bill. If the governor vetoes the bill, the business group will use the opportunity in advance of the expected veto override vote to communicate to employers and other constituencies to tell them why their state representative or senator should sustain the governor’s veto.

Back to the individual

Do the math, says Macdonald. Health-care coverage for a family of four now costs about $13,000. If the current 10 percent a year increases continue, the same policy will cost $30,000 by 2015. Tacking that on to an employee salary of $50,000 to $60,000 would discourage new hiring.

Employers want to stay involved in solving the issue, he says; they’re educating their employee groups on the proper setting for health care at different levels of insurance coverage. Over time, such efforts will increase affordability and empower consumers.

A 2002 study done by the Massachusetts Business Roundtable found that, in 1960, out-of-pocket payments accounted for half of the money that came into the state’s health-care system. By 2000, only 17 percent came from individuals.

"The pendulum is coming back to us as individuals," Macdonald says. "I think employers want to stay involved in it but they can’t pick up the whole bill any more."

Christina P. O’Neill can be reached at coneill@wbjournal.com

SIDEBAR: Massachusetts’ free care pool needs critical care

Would your business pay an invoice without verifying whether the goods or service had been received, without matching it up to a purchase order, or establishing that the price was fair and equitable? Would your business justify charging higher per-unit prices to bigger accounts than to smaller ones?

That’s what the state’s 20-year-old Uncompensated Care Trust Fund does, and that’s why state Inspector General Gregory Sullivan wants to see it under tighter management purview. Any new health-care legislation that is passed in the near future is likely to address this. And there’s a lot to address.

The Uncompensated Care Trust Fund is at the center of debate over health-care legislation reform because of the way it’s funded. Hospitals pay into it, and so do insurers - who pass on their levy to the employers who provide health care (see main story). Employers who offer health insurance pay about $62 per employee per year. Employers who don’t offer health-care insurance don’t pay into the fund at all.

The IG’s report says the Division of Health Care Finance and Policy doesn’t exert the type of administrative control over the fund that would eliminate overcharging, duplication, cost-shifting, use of the pool by ineligible people and payments for treatment the fund wasn’t supposed to cover.

Hospitals seeking to make up for shortfalls in Medicaid reimbursement often overcharge the Uncompensated Care Trust Fund, the IG’s study found. Because the DHCFP doesn’t limit payments to specific negotiated rates, prices vary widely for the same procedure from hospital to hospital. The gap is wider for hospitals with a high percentage of Medicaid patients, for which they receive 71 to 80 cents on the dollar.

Hospitals with a smaller Medicaid caseload actually pay more into the pool than the reimbursements they receive for providing free care, the IG found. An example is the Milford-Whitinsville Medical Center, a "net payer" into the pool. In 2004, the hospital system paid $1.9 million in assessments into the pool, provided $2.4 million of allowable free care and received $1.5 million in payment for that care.

Other examples of considerable overcharging the pool for tests and pharmaceuticals - some of the latter with a markup of more than 1,000 percent – led the IG to call for better administration of the electronic claims review system.

The IG’s report recommends the following measures to the Division of Health Care Finance and Policy:

• Implement the Legislature’s 2003 mandates immediately.

• Analyze the Medicaid and free-reimbursement systems and adjust them to compensate hospitals adequately

• Conduct in-depth electronic claims reviews to reject inappropriate claims

• Set negotiated rates for all medical procedures, tests, services and equipment

• Monitor and control pharmacy rates to detect and avoid overcharges

• Establish and enforce guidelines for clinically appropriate and medically necessary medical care and make sure they’re followed

• Conduct an in-depth review of the system that identifies individuals eligible for Medicaid

• More closely review emergency bad debt claims

• Encourage patients seeking care at Boston hospitals to get that care at lower-cost suburban hospitals

• Reform the payment system from a prospective payment system to a transactional model

C.P.O.