We are pleased to bring you the first of our alerts on the U.S. Healthcare Reform Initiative. The current model of healthcare delivery, payment, and insurance in the United States is the subject of a sweeping reform initiative that has the potential to transform U.S. healthcare. Committees of the U.S. House of Representatives and the U.S. Senate are considering and drafting reform bills directed at three principal issues: (i) healthcare access and affordability; (ii) healthcare funding and cost-savings mechanisms; and (iii) healthcare system sustainability. The impact of the resulting legislation, if passed, will not be limited to the healthcare industry. Rather, the impact will be felt through all business sectors and by all U.S. citizens. Highlights of the healthcare reform initiative follow.

Access and Affordability

Various proposals have been put forward to address the issue of access including proposals for insurance reform, expansion of Medicaid, and a public healthcare insurance option. Proposals for health insurance reform have included, among others, a prohibition upon exclusions for pre-existing conditions; a restriction upon premium ratings based on gender, health status, or occupation; a limitation upon the portion of premium dollars that may be used for administrative expense; a requirement of guaranteed availability and coverage; and a prescribed minimum set of benefits. Health insurers that satisfy these requirements, along with other requirements, would qualify to compete for subscribers through health insurance exchanges.

An expansion of the Medicaid Program has also been proposed to allow individuals and families who are above the poverty level but unable to afford health insurance to participate in Medicaid.

Both the House and Senate proposals include penalties for employers and individuals who do not purchase insurance, with certain hardship exceptions.

The most contentious proposal has been whether healthcare reform requires a public option to compete with private insurers in the health insurance exchanges. To ensure access, the public option would make government subsidies available to individuals whose income levels fall below certain specified levels.

Criticism of the overall cost of the reform bills has led to various proposals to offset their cost. In an effort to gain bipartisan support for healthcare reform, the Senate Finance Committee has labored to develop an alternative to the public option. One proposal under consideration is the creation of private-sector cooperatives. In these cooperatives, prospective subscribers with some direction and/or financial assistance from the federal government would join together to underwrite their healthcare and contract directly with providers on terms of payment.

Funding and Cost Savings

In pressing a healthcare reform initiative, the President and Congress have been insistent on identifying the funding and savings that would pay for healthcare reform so as not add to the budget deficit. The current projected cost of the healthcare reform initiative is slightly over $1 trillion over ten years, which would be paid for through a combination of tax increases and cost savings.

Proposed tax increases have come in various forms including a surtax, a proposal limiting the itemized deductions of individuals earning over $250,000 per year, and a proposal that would tax health benefit programs that exceed an agreed cost.

Costs savings are anticipated to come in the form of Medicare payment reform, programs to improve the efficiency and quality of healthcare delivery, and programs to combat over-utilization, waste, fraud, and abuse.

The White House has sent a proposal that would replace the Medicare Payment Advisory Commission (MedPAC) with an independent advisory council that would have authority to set Medicare reimbursement rates subject to the approval of the President. Congress could overturn action of the council only upon joint resolution.

Sustainability

Ongoing increases in the cost of U.S. healthcare are not sustainable. The healthcare reform initiative addresses the issue of sustainability in two ways. First, the healthcare reform proposals put an emphasis upon wellness and prevention.

Second, the healthcare reform initiative seeks sustainability by encouraging quality and efficiency in healthcare delivery. The Senate HELP committee bill provides for the establishment of a Center for Health Outcomes Research and Evaluation. The purpose of the Center is to foster research with respect to comparing healthcare outcomes, effectiveness, and appropriateness of healthcare services and procedures in order to identify the most effective manner of prevention, diagnosis, treatment, and clinical management of diseases and disorders.

It is unclear, however, whether the healthcare reform initiative does enough to reduce the cost of healthcare within the U.S. and thereby ensure sustainability. Well respected medical providers such as the Mayo Clinic and Intermountain Healthcare have made the point that to achieve a sustainable healthcare system, the healthcare reform initiative must address payment reform as well as efficiency, quality, wellness, and prevention. The experience of Massachusetts, which despite universal access continues to experience annual increases in healthcare costs of 6% or more, underscores this point.

For a more detailed description of the reform initiative, please download the Summary of the U.S. Health­care Reform Initiative, prepared by Lewis J. Hoch, Esq.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.