Just a quick FYI - Today’s Boston Globe reports that the Federal Government has approved a new 3 year Medicaid demonstration waiver for Massachusetts - with $10.6 billion to enable the continuation and growth of the state’s health insurance coverage expansion program.  The original 3 year waiver expired at the end of June, and the state and Federal officials had been discussing a new 3 year waiver for many months before that deadline.  Since the end of June, the state’s program has been running on a series of several week extensions to the old waiver granted by the Federal Government.

A recent Boston Globe article about a possible legal challenge to Masschusetts’ health reform initiative indirectly raised one of the most stubborn challenges in health reform:  The Federal ERISA law.  (See below for more about ERISA.)

The contentious issue in Massachusetts is a proposal to require employers to both pay at least 33% of full time employees’ health insurance premiums and ensure that at least 25% of their employees are covered by their health plan. (The current requirement is that they do one or the other.) So why should this difference be the basis for a law suit?  Actually, there isn’t really any legal difference.  In either case, an employer that provides health benefits to their employees by self-insuring, (rather than directly buying coverage from a health insurance company), could sue based upon the Federal ERISA law that regulates employee benefits.

The real difference between the proposal and the current law is political and philosophical rather than legal – employers are willing to live with the current either/or requirement, but don’t want to be pushed down a slippery slope where the coverage requirements and/or the small penalty of $295/employee for failing to meet the requirements are increased.  And their legal backup is ERISA.

So What is ERISA?  (Without going into too much detail.)
ERISA stands for the Employment Retirement Income Security Act of 1974, and it is a Federal law that governs how companies provide benefits to their employees.  The law is overseen by the Department of Labor, and was originally designed to ensure that pension benefits were properly managed and funded.  However, it also encompasses health benefits – but only for companies that provide the benefits themselves by self-insuring rather than purchasing health insurance for their employees from insurance companies.  The result is that ERISA mostly applies to larger companies which typically self-insure for several reasons:

• They don’t have to comply with state health insurance mandates – which is one reason why large companies can reduce their health benefit costs by self-insuring
• Since many large companies have employees in more than one state, by self-insuring, they can operate a single health benefits plan – under what is called an ERISA exemption – rather offer different health insurance options in each state based upon the states’ insurance laws
• By accepting the financial risk of self-insuring, they can also receive any financial rewards from controlling health care spending.  This also gives them incentives to keep their employees healthy as well as productive

ERISA is a Linchpin for Federal or State Health Reform
ERISA is a crucial part of health reform that is not very well appreciated and generally not discussed outside of very wonkish circles – which is probably why the Boston Globe article doesn’t even mention it.

At the State level – as in Massachusetts – ERISA theoretically precludes state governments from placing requirements on self-insured company’s health benefits programs.  However, ERISA does regulate how the benefits are provided, has requirements about providing information to employees about their benefits – aspects that are consistent with the law’s original focus on pension benefits – and has four coverage mandates:

• Non-discrimination against pregnancy as a medical condition
• Hospital length of stays for women following delivery: 48-hours or 96-hours following a Cesarean
• Parity between mental health and other benefits
• Reconstruction following mastectomy

ERISA has also been changed to require that companies continue to offer health coverage for a limited amount of time to employees after they leave the company (COBRA in 1986), and to limit or ban the exclusion of pre-existing conditions or other factors that might predict their need for future health care needs (HIPAA in 1997).

ERISA coverage requirements has rarely been modified because of the lack of any clear consensus for what changes should be made, and the concern that adding coverage mandates to ERISA would increase costs without expanding the number of people with insurance or improving quality. In essence ERISA is a major obstacle for health reform because it regulates one of the largest and most stable parts of the employer-based health insurance system. For example, the Kaiser Family Foundation’s annual survey of employers has shown that 98-99% of companies with more than 200 employees have offered health insurance to their employees every year since 1999.  Similarly, the percentages of employees who are eligible and who chose insurance coverage have remained relatively stable from 1999-2007:

Large Companies (>199 employees) Offering Health Benefits:
Eligibility, Take-Up and Coverage Rates

[It should also be recognized that health insurance costs are a significant factor for large companies to outsource jobs to small companies or independent contractors here in the US, or to send those jobs overseas to companies that have cheaper labor costs.]

The ERISA Chasm
ERISA is a huge uncrossed chasm for health reform because virtually any state law that places requirements on the health benefits provided by self-insured companies could be subject to a Federal lawsuit.  And at the Federal level – as noted above – nobody has come to a consensus as to what should be done, except for some chipping at the edges with worthwhile requirements.  In addition, the Committees with jurisdiction for ERISA generally have not made ERISA health benefit issues a high priority: In the Senate, jurisdiction for ERISA is shared between the Finance and the Health, Education, Labor and Pension Committees.  Each of these committees has significant other responsibilities, including Medicare, Medicaid, biomedical research and the FDA.  And in the House of Representatives, the Education and Labor in the House of Representatives has jurisdiction for ERISA, which is really their only health related area of authority.

ERISA’s Implications for Obama and McCain Health Reform Proposals
The importance of ERISA and its Federal oversight over all self-insured employer provided health benefits raises the question of how the plans of Senators Obama and McCain would be effected by ERISA?

Senator Obama’s plans clearly call for more Federal regulation of health insurance which could significantly change how health benefits are provided to employers.  This avenue for  creating a more stable system for health insurance/benefits changes would have to involve ERISA. However, his proposals explicitly state that individuals could keep the coverage they now have – which would likely mean limited changes to ERISA, and those changes might not raise too many objections from the large business community.

Senator McCain’s plans are based upon shifting the purchase of health benefits from the company to the employee by moving the tax deductibility from the company to the individual.  (It appears that there would also be a dollar limit on this deduction, and in essence also shifting from the general current situation of health benefits being a “defined benefit” to being a “defined contribution” – something that happened with many pension plans in the last ten years as a means for companies to control or limit their future financial liabilities.)  If a McCain plan required everyone buy their own insurance from insurance companies, then changes to ERISA wouldn’t be required, but it might lead to much more state legislative and regulatory action as millions more people become subject to state laws for both insurance company marketing and plan design.  In addition, one selling point used for McCain’s campaign positions, is that it would enable employees to take their health insurance with them as they went from job to job.  For that to be true across state lines, then tremendous changes to ERISA would be necessary – and probably much more than under the proposals that might come from an Obama Administration.

Conclusions
Sorry about the very long post, but as the title states, ERISA is truly an unbridged chasm.  Many health reform proposals have raced up to its brink only to suddenly stop short at the edge of the ERISA cliff – sort of like the comedy Westerns of the 1950s where the rider gets pitched over the head of the horse into the canyon.  In this analogy, perhaps the public and the politician are the horse, (I’ll let you decide which half is which), and the proposal is the rider – which gets lost in the depths of the canyon because the horse can’t find a way across.

For significant health reform to be achieved, all constituencies and stakeholder groups need to reach some consensus to build a bridge across the ERISA chasm.  Otherwise, no action will likely continue to be everyone’s second and fall-back option.

A couple of months ago I wrote about how one percent of adults in the US get free government health care.  While the statistics in the February Pew study were very interesting (and somewhat shocking), I saw a report in a local Connecticut newspaper (The Day, June 26th) that put a face on these statistics.

The Day’s story was about Jihad Abdulshaheed, a 36-year-old man who had been incarcerated since November 2007.  The judge was prepared to sentence to a one year sentence, and since he had already served at least 50% of his time, under the Department of Corrections guidelines for nonviolent prisoners he could have been released the next day.

However, this is where the story gets very interesting.  The man asked the Judge to hold off his sentencing “because he is waiting for the Department of Correction to schedule his surgery for a groin hernia.”  The newspaper also noted that the DOC’s health care budget for its 23,000 prisoners was $99.3 million.  This works out to a little more than $4,300 per prison.  It seems that finding a way to release this man, and still pay for his hernia surgery would make more sense than keeping him locked up until the DOC can pay for the surgery……. I also wonder about his follow-up care? Where will he get it - in prison or outside?  And how will that be paid for?

This man’s situation and the Pew study illustrates how communicating the essence of a healthcare story can involve statistics, analyses, and anecdotes.  The first two provides a framework if the issue, and the anecdote puts a face on that skeleton.  Each one can be powerful, but together they create a remarkable picture that can change policies, attitudes and actions.

A year ago the hype in healthcare was about state-based reform initiatives. Massachusetts was implementing its law, and several other states - including California - were considering their own proposals for increasing insurance coverage as a first step towards universal coverage and cost containment.

How things have changed in a year. Not only has California’s initiative crumbled under the expected costs to employers, but the economic downturn has undercut states’ healthcare expansion ideas, and may force them to cut back Medicaid enrollment and/or services. This week’s National Journal has an article titled “State’s Rapidly Shifting Gears,” that discusses these and other issues, including how a few years ago states cut their Medicaid payments to providers, so that on average Medicaid pays physicians 69% of Medicare levels, and how pending Federal Medicaid rules and proposals would reduce funding for State Medicaid programs making it difficult for states to reverse these payment reductions.

The importance of our current economic uncertainty for health reform initiatives is tremendous. Consider the following facts:

• Massachusetts’ Medicaid waiver is up for renewal this summer. If this isn’t successfully negotiated and renewed, it could mean the collapse of the state’s insurance expansion program - which is already running well over budget because of underestimates of the number of uninsured who would enroll.
• As the economy falters, not only do more people end up out of work, but they also end up uninsured - with about 40% of them enrolling in Medicaid or SCHIP.
• Medicaid costs represent about 20-24% of state budgets, and 49 states have requirements for balanced budgets.
• National Journal’s poll of political insiders (April 12th issue) showed that 83% of Democrats and 79% of Republicans believe that the economy is much more important issue national security for the 2008 presidential election. AND, these percentages are WAAAAY up from November 2007, when they were only 35% (D) and 34% (R), and national security were deemed more important at 56%(D) and 59%(R).
• The Kaiser Family Foundation’s analysis of public opinion polls found a similar dramatic rise in voters’ interest in the economy as an issue for the 2008 campaign:

The key factors that I believe will determine the fate of health reform intiatives over the next several years are:

• How deep the economic downturn goes
• How long it lasts
• What actions the states and the Federal government take to preserve or dismantle the healthcare delivery, financing and public health systems
• When the economy rebounds, how well prepared the states and the Federal government are to pursue health reform initiatives, and what resources are available for these initiatives

The economic drain imposed by the ongoing conflicts in Iraq and Afghanistan, and the inflationary ripple rising energy costs are sending through the world economy are also factors that may very well undermine anyones ability to expand coverage, while at the same time, increasing incentives and efforts to control healthcare costs.

As Homer Simpson might paraphrase James Carville from the 1992 Presidential campaign, “It’s the Stupid Economy.”

I caught part of the report on NPR this morning about the Presidential candidates’ positions on healthcare. The gist of the story was that Clinton favors more extensive individual mandates than Obama (who only favors mandates to cover children), while McCain favors tax credits to make health insurance more affordable.

Whoever becomes the next President, something will clearly be different starting in 2009. Regardless of the candidates’ campaign/political statements, the next President’s actions on healthcare (unlike in foreign affairs), will largely depend on what they can negotiate with the next Congress - which seems like it will be more Democratic than it is currently, but probably not with 60 Senators to force votes on matters that the minority finds objectionable.

Since individual and business mandates here in Massachusetts have succeeded in significantly increasing coverage, they are now part of the national debate. One of the challenges to the Massachusetts plan will be the Federal government’s renewal of the state’s Medicaid waiver - which is funding a large part of the’ new program. If the waiver is not renewed/extended, then the new healthcare program will face a significant financial crunch.

I think mandates make sense when people (or companies) are able to get something that makes sense. In Massachusetts, the health plan options were crafted in a reasonable and measured way to provide relative affordability, with the phase-in of some factor such as prescription drug coverage. However, other states face additional hurdles to implementing something like Massachusetts mandates because they have many more insurers and populations centers - as well as much higher rates of uninsured….. So just replicating any part of Massachusetts’ plan in other states will clearly not be an easy task - even with Federal financial support. And even Massachusetts hasn’t really tackled the issue of cost containment - although moving towars near universal coverage is a significant step towards being better able to control the growth in healthcare spending.

So what do you think 2009 will bring? How will individual mandates be incorporated into health reform proposals by the next Administration and Congress? Will something significant actual happen? Will budget pressures limit what the Federal Government can do, and will this cause them to punt the actual decisions to the States and entice the States into action with a limited amount of money? And will this play out something like the welfare reform initiative of the Clinton Administration - which has had some successes, but when passed severely upset some more liberal Democrats?