Just days after HHS Secretary Kathleen Sebelius warned insurers against using the early benefits in the health care law to justify unreasonable premiums increases, Sens. Max Baucus (D-MT) and Jay Rockefeller (D-WV) have written to the CEOs of WellPoint, UnitedHealth Group, Aetna, Health Care Services Corp., and CIGNA, saying insurers are “mistaken” if they believe they can continue to blame double digit premium increases on reform.” “This level of misinformation is not acceptable,” the two write, pointing out that the early benefits should not increase costs by more than 2 percent on average:

And if an insurer thinks it can continue to impose double-digit premium increases, while providing fewer health benefits and enjoying record surpluses, it is again mistaken. There have been too many reports of insurance companies imposing insurance premiums increases at will with little oversight or public accountability. We are committed to ensuring that premium increases are fair and justified. [...]

We have and will continue to strongly encourage states and HHS to use their existing authority as well as the authority created under the Affordable Care Act to its fullest to ensure that premium increases across the country are justified and communications are honest. We will continue to work toward ensuring that the federal and state governments have the necessary resources and authority to review potentially unjustified premium increases and to hold insurance companies accountable.

Baucus and Rockefeller pledge that they “are committed to ensuring that consumers are treated fairly and will closely examine any potentially misleading communications to consumers,” but there is actually little the federal government can do — outside of publicly shaming insurers or passing a federal rate review law — to hold insurers accountable.

As Sebelius explained today, “it’s a real catch-22. The law assumes that states will regulate rates, that that’s the best marketplace. This is really a state-based bill…only if they abdicate that responsibility or say that they don’t want to participate do we have kind of the back-up responsibility.”

For ways the federal government can pressure states to hold down unreasonable rates, click here.

Inside Health Policy is reporting that Senate Finance health subcommittee Chair Jay Rockefeller (D-WV) is considering “using the jobs bill under discussion in the Senate to extend enhanced federal Medicaid matching funds, the first provision to be carved out of the health reform effort even as Democrats vowed to continue fighting for a comprehensive reform bill.” The additional federal dollars would help struggling states meet the demands of increasing enrollment and reduce the need for tax increases or cuts to other essential state services.

In 2008, states reduced Medicaid payments to hospitals and other health care providers to compensate for budget shortfalls even as enrollment in Medicaid grew 2.6%, up significantly from 0.7 percent in 2007. The Recovery Act increased the federal government’s Medicaid contribution to help states maintain their health programs during the recession, but that extension expires on December 31, 2010 “in the middle of most states’ fiscal years.” Many states are already struggling to keep up with the exploding growth in safety net programs, due to rising unemployment and increasing health care costs.

In Kentucky, Gov. Steve Beshear’s proposed budget “calls for spending an additional $782 million on Medicaid over the next two years.” However, Beshear is also calling for $108 million in cuts to the program over two years, and 2-percent nearly-across the board cuts to Cabinet for Health and Family Services program.” Vermont would have to invest $53 million “to close the gap between available revenues and expenditures next year” in its human service programs and New York is contemplating cutting Medicaid reimbursements to hospitals and nursing homes to reduce Medicaid spending by a $1 billion.

It’s not clear that Rockefeller’s proposal will garner significant Congressional support. The Hill reports that “some of his colleagues are skeptical of his proposal, arguing the funds would not be used directly to create jobs.”

A compromise provision in the Senate health care bill that requires insurers to rebate beneficiaries if they fail to spend 90% of premium dollars on medical care could add new costs to the federal government, limiting health reform’s deficit reductions. Sen. Jay Rockefeller (D-WV) inserted the new medical loss ration (MLR) requirement (for insurers participating in the small or individual group markets) during the Gang of 10 public option negotiations, but a new directive from the Congressional Budget Office (CBO) may force Majority Leader Harry Reid (D-NV) to abandon the provision and could further undermine the now defunct compromise.

The CBO’s “harsh assessment” concluded that the 90% MLR requirement — which insurers would only have to maintain until 2014 — “would devastate the industry“:

A proposal to require health insurers to provide rebates to their enrollees to the extent that their medical loss ratios are less than 90 percent would effectively force insurers to achieve a high medical loss ratio. Combining this requirement with the other provisions of the PPACA would greatly restrict flexibility related to the sale and purchase of health insurance. In CBO’s view, this further expansion of the federal government’s role in the health insurance market would make such insurance an essentially governmental program, so that all payments related to health insurance policies should be recorded as cash flows in the federal budget.

The question of whether certain purchases of private health insurance “should be treated as part of the federal budget” is not insignificant. During President Clinton’s push to pass comprehensive health care reform, the CBO decided that “payments to and from the ‘health alliances’ should be included in the accounts of the federal government.” The decision artificially increased the bill’s score, dooming its chances in Congress.

Rockefeller argues that insurers that receive government subsidies should be required to spend those dollars on health care, not administrative overhead or profit. The 90% ratio replaced an existing provision that required insurers to maintain a medical loss ratio of 85%.

Sen. Jay Rockefeller (D-WV) has long argued that the Baucus health care bill does not do enough to improve affordability and protect Americans from predatory insurance practices. The Senator voted the bill out of committee with grave reservations — reservations he has spelled out in a 13 page document now posted on the Committee’s website.

The document, which does not does not include objections to the low penalties for the individual mandate, excise taxes on so-called “Cadillac plans,” the so-called young invincibles program or the low creditable coverage standards offered in the bill, offers the most comprehensive progressive critique of the Baucus legislation. Specifically, Rockefeller is concerned about the lack of a public option and the lax enforcement and accountability measures, limited regulation of self-insured plans, the free rider provision, ineffective co-operatives, benefit standards for newly enrolled Medicaid patients, employer wellness programs, the Medicare Commission, and the failsafe proposal. (Be sure to hit “More” to use the above hyperlinks.)

Below is a summary of Rockefeller’s concerns:

CONCERN: The Baucus bill showers private insurers with $461 billion of taxpayer- funded subsidies but does not force insurers to compete with a public option or hold the industry accountable:

- Rockefeller debunks the industry argument that a public option that reimburses at or slightly above Medicare rates would shift costs to Americans with private insurance. As MedPAC explained in its March 2009 report to Congress, “while insurers appear to be unable or unwilling to push back‘ and restrain payments to providers, they have been able to pass costs on to the purchasers of insurance and maintain their profit margins.” The CBO has indicated that many hospitals negotiate higher payments with private insurers as a form of price discrimination to maximize profits. They demand higher reimbursements from health insurers because they can, not because they are shifting costs.

- Therefore, “the real issue is not whether private plans pay doctors and hospitals more than government programs, but what is a fair rate based on the actual cost of providing quality care. “One of the major disappointments of the Committee mark is the lack of leverage over private health insurance industry prices….The Committee mark spends nearly one-half trillion dollars in federal premium subsidies to supplement high private health insurance costs, rather than to bring those high costs down for consumers,” Rockefeller notes. “If an average family premium is $13,375, a family wishing to enroll in the public health insurance option could save $1,338 – $2,676.”

- “The Committee mark does not include any new federal resources or infrastructure to regulate private health insurance companies and make certain they are actually abiding by the new insurance market rules. Without a new, robust federal regulatory role, I remain extremely concerned that private health insurance companies will continue their long-standing practice of exploiting loopholes in the law and skimming on coverage for beneficiaries to increase profits.”

CONCERN: The insurance reforms in the Baucus Bill do not apply to the 50% of Americans who purchase coverage from employers that self-insure and may prove inadequate:

- “The Committee mark only includes two new reforms of self-insured plans – they must provide coverage that is at least equal to 65 percent of the actuarial value of the Blue Cross Blue Shield standard plan offered through the Federal Employees Health Benefits Plan (FEHBP), and they must provide first dollar coverage for preventive health benefits.”

- “The Committee mark eliminates pre-existing condition exclusions in the individual and small group markets. However, these provisions are not phased-in until July 1, 2013….The prohibition on pre-existing condition exclusions is phased-in for large group plans over five years beginning in 2017, and the prohibition does not apply to the self-insured market.”

- “The bill also prohibits large-employer plans (including self-insured plans) from implementing “unreasonable” annual or lifetime limits, although the term “unreasonable” is undefined. I remain concerned that the mark does not implement a complete prohibition on annual and lifetime limits for large employer plans, including those in the self-insured market.”

- “While reporting of medical loss ratios is an important first step, I remain concerned that the Committee mark does not require private health insurance companies, particularly those offering federally subsidized coverage through the state exchanges, to spend the majority of the nearly one-half trillion dollars in federal premium subsidies on actual medical care.”

CONCERN: The ‘free rider provision’ could jeopardize the employment of lower-income Americans:

- “I remain concerned that this provision provides a disincentive for employers to hire or maintain employment for low-wage workers. It would be particularly burdensome for states, like West Virginia, with a higher percentage of low-wage workers.”

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Yesterday, during a conference call with reporters, Sen. Jay Rockefeller (D-WV) expressed his strong opposition to the Senate Finance Committee’s health care bill. “I have sat by Max Baucus for 25 years on the Finance Committee, probably his best friend on the Finance Committtee…but I cannot agree with him on this bill,” Rockefeller explained.

“The public option is one factor, Medicaid is a huge factor. The Children’s Health Insurance Program (CHIP) has been relegated to the Exchange, and affordability. So according to my current understanding, and it changes a lot, of the Finance bill, there is no way in its present form that I would vote for it.”

Along with Professor Jacob Hacker, Rockefeller laid out his criticism’s of Baucus’ legislation:

- Replacing The Public Option With Co-Ops That Won’t Work: “There are only about 4 to 7 [Co-ops] that exist [nationwide]. And I’m very skeptical… of starting up a system that doesn’t work.”

- Insurers Will Pass Tax Onto Beneficiaries: [Baucus] “would impose a 35% excise tax on insurance companies in 2013, when this kicks in. Over $8,000 for singles, and $21,000 for families. Now that raises $200 billion, so I understand the temptation. But …every single coal miner is going to have a big big tax put on them because the tax will be put on the company, the company will immediately pass it down in lower benefits…and probably higher premiums to coal miners who are getting very good health care benefits for a very good reason and that’s because like steel workers and others, they are doing about the most dangerous job that can be done in America [and are therefore expensive to insure]. So that’s not a very smart idea, in fact it’s a very dangerous idea.

- Employers Not Required To Provide Any Coverage: Rockefeller highlighted his concern that self-insured plans “escape all regulation, which is being contemplated for others with insurance under the Baucus plan.” Hacker argued that the free-rider provision (which only requires employers to pay for the subsidies their workers receive through the Exchange) “will encourage firms to offer bare bones coverage so they can avoid having to pay those subsidies and would discourage them from hiring those who are eligible for subsidies in the first place.”

- CHIP Folded Into Exchange, Children Could Lose Special Benefits: “A governor obviously has a low budget and is going through the problems that everybody else is and if he can knock some kids out of CHIP or cut down on Medicaid, many of them are perfectly content to do that because most people aren’t all that sympathetic and these people don’t have voice they can collectively raise.” “[C]hilren had to have special types of benefits, for example, we have mental, we have dental. We do not have, because of what’s in the bill, EPSDT, and you all know what that is, early screening… What Sen. Baucus did is put the children’s health insurance program out of the Medicaid defined package category and put it into the Exchange where it’s just there to compete with anybody else and all of the particular parts to children probably will get ignored because the benefits will change. Kaiser News Network has more on this concern.

- Have To Ensure That Coverage Is Affordable: Hacker pointed out a public option would save approximately $150 billion over 10 years and allow the government to invest those savings into better and stronger subsidies. Other critics have also argued that private insurers could charge older individuals up to five times more for coverage. “You’re just using age as a proxy for health status,” Uwe Reinhardt, an economics professor at Princeton University told the New York Times. Reinhardt estimates that “Senator Baucus’s age-rating plan would allow insurers to cover roughly 70 percent of the additional risk they’d take on by being required to accept all comers, regardless of health.” As the Washington Post explained yesterday, “under the Baucus plan, subsidies would be offered to people who earn up to 400 percent of the poverty level ($43,000 for an individual or $88,000 for a family of four)… The credit would be calibrated on a sliding scale to ensure that people at the bottom of the income range paid no more than 3 percent of their earnings for premiums while those at the top would be liable for as much as 13 percent.” “That would amount to more than $700 a month for a family of four making $66,000 a year — significantly more than most people at the same income level now pay, according to research conducted by Linda Blumberg, a senior fellow in the Health Policy Center at the Urban Institute.” For a full affordability chart, click here.

Finally, other critics have argued that the rules of the Exchange offer insurers too much flexibility for benefits design. The Baucus bill requires insurers participating in the Exchange to offer plans in four different tiers. Each plan an insurer offers would have to meet a different actuarial-value. In the silver tier, insurers would have to cover 73% of the health care expenses of an average population; the remaining 27% would be picked up by individuals.

But Sarah Lueck at the Center on Budget and Policy Priorities warns that “an actuarial-value standard on its own” would not prevent insurers from designing packages that would attract healthier applicants and deter “enrollment by those in poorer health.” “For example, insurers could offer a benefits design that omits or severely limits services needed by people with serious medical conditions, while offering richer benefits in other areas such as vision care or health-club memberships. In that way, an insurer could meet an actuarial standard while designing a package calculated to deter sicker people (by failing to cover basic services they need) and attract healthy ones.” Insurers could offer cheaper preventive services without any cost sharing but cover more expensive services only after a high deductible is satisfied.

Lueck concludes that “many enrollees still are likely to end up underinsured for key health services unless an actuarial-value standard is combined with…[the] requirement that all plans offer basic comprehensive coverage.” She writes that policy makers should establish “limits on the degree of variation in different benefit designs to prevent insurers in an exchange from creating benefit packages designed to deter less-healthy enrollees and attract only individuals in good health.”