Health Care Reform Seen Reducing Insurance Costs, Producing Federal Savings

Michigan Municipal League Advises Cities on Impact of New Legislation

March 28, 2010
By: Dave Rogers

The City of Bay City, Saginaw, Midland and other Michigan Municipal League (MML) members are paying close attention to legislative impacts on finances, especially from health care reform.

MML has produced a memo advising members on potential impacts of the new federal health care legislation.

"There has been much debate as to whether the cost of health insurance premiums will go up, down, or remain the same as a result of the new law." states the memo.

"While there is no consensus as to the law's ultimate impact on the cost of specific health insurance plans, most economists agree that insurance costs for current coverage will go down.

"They also agree that, under the new law, the rate of increase of the cost of health care will be reduced and will result in federal savings of nearly $140 billion over the first ten years and $1 trillion over the first 20 years."

In general, according to MML, while local governments will need to review their health plans to determine if they comply with the new law and may have to modify their plans to meet new requirements, two fundamental and basic aspects of the way in which cities and towns provide health insurance will be retained:

Local governments will be able to continue to self-insure and to participate in state-wide risk pools through which they can provide health insurance.

The new law is not without its controversial requirements, including employer mandates to provide and individual mandates to purchase health insurance; minimum coverage standards that apply to all health plans; public state-wide health insurance exchanges, where health insurance will be sold to individuals and small businesses of 100 or fewer employees; and a 40 percent excise tax on "Cadillac" health care plans that exceed a certain dollar level of benefits beginning in 2018.

Despite any controversy over these requirements and other provisions called for in the law, such as achieving near-universal coverage and expanding Medicaid, nothing in the law appears likely to force cities and towns to dramatically change the ways in which they currently provide health insurance to their employees.

This does not mean that cities and towns will be able to avoid making any changes to their health care benefits packages. New requirements on employers include the following:

Local governments that self-insure must, after two years, demonstrate to the Secretary of Health and Human Services that their self-insurance plans are sufficiently funded or capitalized to cover all likely medical claims.

The health care insurance local governments, like all employers, provide to their employees must meet coverage minimums.

Local governments, like all employers, that already offer insurance to some workers must provide insurance to all workers -- both full and part-time. This insurance will have to meet certain minimum cost, coverage, and reimbursement requirements that are prescribed by the law and the Department of Health and Human Services.

In addition, all plans must include an "essential health benefits package" that would provide a comprehensive set of services that covers no less than 60 percent of the cost of the covered benefit. The "essential health benefits package" components will be defined and annually updated by the Secretary of Health and Human Services, but will have to include hospitalization and general health care by primary and specialty physicians.

Under the law, out-of-pocket expenses for any plan are limited to no more than $6,000 for individuals and $12,000 for families, and all plans must reduce out-of-pocket expenses for lower-income individuals and households by nearly 40 percent, without increasing overall costs.

Public sector employers, like all employers, may opt out of providing employees with health benefits, but if they do they must either provide subsidies for the purchase of insurance or may face penalties as high as $3,000 per full-time worker depending on the nature of non-compliance.

A 40 percent excise tax applies to employment-based health plans with premiums exceeding $10,200 for single coverage, $27,500 for a family plan, $11,850 for retirees, and $30,950 for employees in high-risk professions, such as police officers and firefighters.

Several key provisions of the law take effect immediately (for a new federal law this means within six months) and will require changes in health insurance plans and documents.

The law:

Prohibits pre-existing condition exclusions for children in all new plans;

Provides immediate access to insurance for Americans who are uninsured because of a pre-existing condition through a temporary high-risk pool;

Prohibits dropping people from coverage when they get sick;

Lower seniors' prescription drug prices by beginning to close the donut hole and provides a $250 rebate to Medicare beneficiaries who hit the donut hole in 2010;

Offer tax credits to small businesses to purchase coverage;

Eliminates lifetime limits and restrictive annual limits on benefits in all plans;

Requires plans to cover enrollees? dependent children until age 26;

Requires new plans to cover preventive services and immunizations without cost-sharing;

Ensures consumers have access to an effective internal and external appeals process to appeal new insurance plan decisions; and

Requires premium rebates to enrollees from insurers with high administrative expenditures and require public disclosure of the percent of premiums applied to overhead costs.

Over the next several months, the Department Health and Human Services, the Department of Labor, and the Internal Revenue Service will publish interim and final regulations governing the implementation of the health care reform law.

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