Hooray for the Tax Code!

I know you might not believe this, but sometimes the Tax Code (or IRC as we like to call it around here) is our friend. Take for instance, Code Sections 105 and 106. These little gems provide that employees are not taxed on (that is, they may “exclude” from gross income) the value of employer-provided health coverage under an accident or health plan. In addition, any reimbursements under an accident or health plan for medical care expenses for employees, their spouses, and their dependents (as defined in Code Section 152) generally are excluded from gross income.

Well, isn’t that special?

Yes, it’s definitely special, but not for everyone. Cheers for the Tax Code won’t be heard when a person who has employer-provided coverage isn’t the employee’s spouse or doesn’t meet the definition of dependent.

Code Section 152 defines a dependent as a qualifying child or qualifying relative. There are a bunch of other rules that explain what those terms mean, but I won’t go into them here. Suffice it to say that some folks, such as domestic partners, don’t usually qualify as dependents. And, thus, they can’t get the special tax treatment (in other words, an employee currently pays tax on the fair market value of the cost of coverage for the employee’s domestic partner).

House bill might herald more hoorays. The House-passed health reform bill, the Affordable Health Care for America Act (H.R. 3962), would amend Code Sections 105 and 106 to extend the general exclusion for employer-provided health coverage to “eligible beneficiaries.” An eligible beneficiary is defined as any individual who is eligible to receive benefits or coverage under an accident or health plan. The provision does not place a limit on the number of eligible beneficiaries an individual is able to claim for purposes of the exclusion.

House bill would ban domestic violence as pre-existing condition

One little-noticed, though important, provision in the House-passed version of health reform (HR 3962) would prevent health insurers from treating domestic violence as a pre-existing condition. Currently, eight states (Idaho, Mississippi, North Carolina, North Dakota, Oklahoma, South Carolina, South Dakota, and Wyoming) and the District of Columbia allow insurers to reject men and women who’ve been victims of spousal abuse for coverage.

The House bill would ban the practice for both employer-provided, group health coverage and for the individual health insurance market. A similar provision exists in the Senate Committee on Health, Education, Labor and Pensions health reform bill.

Apparently, or so the thinking goes, if a person has survived spousal abuse, he or she is more likely to be beaten again and thus, is more expensive to insure. According to one commentator, “in human terms, it’s a second punishment for a victim of domestic violence.” It’s not that no one has tried before this to ban the practice; there have been a number of attempts at the federal level, but so far, these efforts have been unsuccessful.

Apparently, state law bans haven’t been enough to totally outlaw the practice. According to one commentator, “even in those states that have passed legislation prohibiting the practice, insurance companies are said to often initially reject past victims seeking insurance in the individual market.” According to Kaiser Health News, “it’s unclear how often such rejections [due to domestic violence] take place. But it is clear, experts say, that the fact that they occur at all can have a chilling effect on victims, who may be afraid to tell their doctors about attacks out of concern they'll have trouble getting insurance in the future.”

How soon could relief arrive for domestic violence abuse victims? Under the House bill, the provision barring domestic violence as a pre-existing condition would apply to group health plans, and health insurance issuers offering group health insurance coverage, for plan years beginning on or after January 1, 2010. The provision also would apply to health insurance coverage offered, sold, issued, renewed, in effect, or operated in the individual market on or after that date.

In a September speech, First Lady Michelle Obama said that using domestic violence as a preexisting condition is among the insurance practices that "still wake me up at night." This is one provision, at least, that can’t come soon enough.

The Essential Benefits Package--An Employer Model

The Affordable Health Care for America Act, H.R. 3962, which the House approved by a narrow margin on Saturday, Nov. 7, eventually requires employer-sponsored health insurance plans to provide, at a minimum, a certain essential benefits package. Abortion services definitely will not be a part of this package, as yesterday’s post indicates. And, since the essential benefits package would be based on the benefits typically covered by employer-sponsored health insurance, it appears that employers need not worry about major adverse effects of this particular health reform bill.

A new Health Benefits Advisory Committee (HBAC), including employer members, would determine the benefits to be covered in the essential benefits package, be “equivalent in its scope of benefits, as certified by Office of the Actuary of the Centers for Medicare & Medicaid Services, to the average prevailing employer-sponsored coverage in Y1.” To that end, the Department of Labor would conduct a survey of employer-sponsored coverage to determine the benefits typically covered and report results to the HBAC and to the Department of Health and Human Services

The minimum services to be covered are those typically covered by employer-sponsored plans: hospitalization, outpatient hospital services, medical services and related supplies, prescription drugs, behavioral health, and so on. Recommended preventive services, including immunizations and well-baby and well-child care must be covered at no cost to the insured. Currently, most employer-sponsored plans require some cost sharing for preventive care services. .

The cost-sharing under the essential benefits package must be designed to provide a level of benefits that is actuarially equivalent to approximately 70% of the full actuarial value of the benefits provided under the reference benefits package with no cost-sharing.

Unlike today, annual and lifetime limits would be prohibited and the network of providers required to be “adequate,” whatever that means.

If current reported experience is any indication (see our earlier post on a related subject), an essential benefits package in health reform that mirrors typical employer-sponsored health insurance will require insureds to pay ever increasing premiums for continually costlier benefits.

Restrictive abortion language included in House-passed bill (H.R. 3962)

Many employer plans eventually would be compelled to restrict abortion coverage because of an amendment included in the House-passed health reform bill, the Affordable Health Care for America Act (H.R. 3962).

The House passed the bill by a vote of 220 to 215 on Saturday November 7. Consideration of health care refrom now moves to the Senate, which is in the process of merging two competing committee bills. (Lots of potential obstacles loom on the Senate side: see here, here, and here.)

Existing federal policy, known as the Hyde Amendment, bars federal funding for abortion and must be approved annually by Congress. The House amendment, proposed by Rep. Bart Stupak (D-MI), prohibits the use of federal funding for abortion under the public health insurance option and prohibits the use of federal affordability credits to purchase a health insurance policy that covers abortion. The Stupak amendment would not require annual approval. Abortion funding would be allowed in cases of rape, incest or if the mother's life is in danger.

Thus, under H.R. 3962, individuals eligible for affordability credits to help in the purchase of health insurance could not use those credits for coverage under an employer-based plan that included abortion coverage. Under the House bill, plans could offer separate supplemental coverage that included services for abortion.

Hey Democrats, Pass Your Bill With Some Conservative Provisions

Tomorrow, the House of Representatives is scheduled to debate and possibly vote on H.R. 3962, the Affordable Health Care for America Act. Just three days ago, House Minority Leader John Boehner (Ohio) released the text of a proposed substitute amendment, which includes these well-known Republican provisions:

• establishing association health plans and individual membership associations that can operate across state lines;
• federal payments to states that achieve specified reductions in the number of uninsured individuals or in the premiums for small group or individually purchased policies;
• federal funding for states to use for high-risk pools in the individual insurance market and reinsurance programs in the small group market;
• enhancements to health savings accounts (HSAs) to allow funds in such accounts to be used to pay premiums under certain circumstances, to make net contributions to HSAs eligible for the saver’s tax credit, and to provide a 60-day grace period for medical expenses incurred prior to the establishment of an HSA;
• limits on costs related to medical malpractice (“tort reform”), including capping noneconomic damages to $250,000 and punitive damages to $500,000 and making changes in the allocation of liability;
• requirements to adopt and regularly update standards for electronic administrative transactions that enable electronic fund transfers, claims management processes, and verification of eligibility, among other administrative tasks;
• establishment of an abbreviated approval pathway for follow-on biologics (biological products that are highly similar to or interchangeable with their brand-name counterparts); and
• an increase in funding for HHS investigations into fraud and abuses.

With a 40 seat majority in the House, Democrats believe they do not need Republican support to pass H.R. 3962. Thus, the Boehner proposal is reduced to a political ploy intended more to influence future elections than to change H.R. 3962.

There is another alternative for the Democrats, which might not gain any votes but would at least begin to address the reasonable critiques that the Democratic health reform proposal does little to address right of center concerns.

Democrats should agree to as many of the Republican proposals as possible, beginning with medical malpractice reform and allowing enhancements to health savings accounts. Malpractice reform already has been passed in more than two dozen states.  Both malpractice reform and HSA changes will make minor differences in the overall federal budget but would remove at least a couple of thorns that bother health reform advocates.

After that, Democrats and Republicans might get together to address the cost and affordability issues, which so far still remain farfetched dreams rather than realistic (albeit painful) plans.