Sec. Sebelius promotes consumer-directed health plans

Letter from Secretary Kathleen Sebelius replying to Republican governors

U.S. Department of Health and Human Services
February 24, 2011

As a former governor, I can appreciate your interest in having flexibility to establish an exchange that meets the unique needs of your state and its residents.

Your letter identified four areas for greater state flexibility. Specifically, you called for the ability to (1) exercise maximum flexibility to operate exchanges, and in particular to select the insurers that will participate in the exchange, (2) give states authority to determine essential health benefits that participating plans must offer, (3) waive provisions that might inhibit the availability of consumer-driven plans and health savings accounts (HSAs), and (4) enroll Medicaid beneficiaries into private plans without HHS approval. In each of these areas, the Affordable Care Act offers better opportunities than the current marketplace and gives governors and legislatures broad flexibility to capitalize on those opportunities in reshaping state marketplaces for the 21st century.

*  Selection of Qualified Plans in the Exchanges. In a majority of states today, a small number of health insurance issuers dominate the market, sometimes offering only a single plan or product. In implementing their exchanges, states have the option to allow all insurers to participate in the exchanges (the Utah model), or they can be more active purchasers in shaping available choices (the Massachusetts model). Either way, the exchanges will stimulate broader competition, and consumers will end up with more and better choices.

*  Essential Health Benefits. In today's market, many individuals and families have limited health insurance options available to them. The number and quality of options typically depend on applicants' age and health status, and employees of small businesses often have only a single choice. Exchanges will expand consumer choice and give consumers the information they need to comparison shop among their expanded choices. All plans in the individual and small group markets - inside or outside of the exchanges - will provide essential health benefits, which, by law, will be modeled after what a typical employer currently provides today in the private sector. But the law and how states implement it allow a diversity of plan types and benefit designs in exchanges, and states continue to have the option to require coverage of specific, additional benefits.

*  Consumer-Driven Plans. Low-cost, high-deductible plans, including those coupled with HSAs, are growing in popularity. The cost sharing limits required by the essential health benefits package mirror the current out-of-pocket maximum for HSAs under the Internal Revenue Code. Exchanges will offer new choices for consumers because health insurance issuers may offer a variety of plans with broad parameters; consumers who are willing to accept higher cost-sharing in exchange for lower premiums may purchase different levels of coverage. The "bronze" plans and catastrophic coverage for young adults will provide opportunities for expanding enrollment in consumer-driven plans coupled with HSAs. At the same time, exchanges will also improve consumer awareness of options by making it easier to compare plans.

*  Medicaid Flexibility. The Affordable Care Act expands and simplifies Medicaid coverage and provides states with more opportunities to align Medicaid with private health insurance. More specifically, the law permits states to restructure Medicaid coverage to look more like typical private employer coverage, as Medicaid managed care organizations and commercial insurers move into each other's markets and create new opportunities to enhance continuity of care across Medicaid and commercial populations.


NOTE TO: Medicare Advantage Organizations, Prescription Drug Plan Sponsors, and Other Interested Parties

Centers for Medicare and Medicaid Services
February 18, 2011

Section H. End of Medicare Advantage Medical Savings Account (MSA) Plan Demonstration Program

In a July 13, 2006, Federal Register Notice (CMS-4123-N) we announced the availability of an opportunity to participate in an MA MSA demonstration project. In the Federal Register notice we said that waivers provided under our demonstration authority would allow interested entities to offer products that more closely resemble high deductible health plans that are offered in conjunction with health savings accounts to the non-Medicare population. We initially established a deadline of July 21, 2006, for applicants that wanted to participate in the MA MSA demonstration program for 2007. We also asked applicants that wanted to participate in the program in 2008 to submit a notice of intent to us as soon as possible.

Overall we had one applicant that participated in the MSA demonstration program in calendar year 2007. There has been no activity under this demonstration program since then. We are not seeking extension of this demonstration program and will not accept applications for participation in this program for plan years 2012 and thereafter.


Nearly Half Of Families In High-Deductible Health Plans Whose Members Have Chronic Conditions Face Substantial Financial Burden

By Alison A. Galbraith1, Dennis Ross-Degnan, Stephen B. Soumerai, Meredith B. Rosenthal, Charlene Gay and Tracy A. Lieu
Health Affairs
February 2011

High-deductible health plans — typically with deductibles of at least $1,000 per individual and $2,000 per family — require greater enrollee cost sharing than traditional plans. But they also may provide more affordable premiums and may be the lowest-cost, or only, coverage option for many families with members who are chronically ill. We surveyed families with chronic conditions in high-deductible plans and families in traditional plans to compare health care–related financial burden — such as experiencing difficulty paying medical or basic bills or having to set up payment plans. Almost half (48 percent) of the families with chronic conditions in high-deductible plans reported health care–related financial burden, compared to 21 percent of families in traditional plans.


By Don McCanne, MD

To appease the Republican governors, HHS Secretary Kathleen Sebelius has attempted to reassure them that they will have considerable flexibility in qualifying insurance plans for the exchanges, in defining optional benefits for the plans, and in privatizing Medicaid. Perhaps the most alarming flexibility being granted to the governors is the ability to offer consumer-driven plans within the exchanges. Why is that a problem?

In her letter, Kathleen Sebelius offers up the bronze plans in the exchanges and the catastrophic plans for young adults as providing opportunities for expanding enrollment in consumer-driven plans. The bronze plans have an actuarial value of only 60 percent, meaning that an average of 40 percent of health care costs must be paid out of pocket. (The inadequate subsidies for silver plans is another topic not addressed here.) The way that both bronze plans and catastrophic plans achieve lower premiums is by requiring very high deductibles. That is a serious problem.

The current issue of Health Affairs has yet one more article adding to the great body of policy studies on high-deductible plans showing, once again, why they are an inappropriate method of financing health care. This study demonstrates that half of families with chronic conditions in high-deductible plans report health care related financial burdens.

The fact that these plans can be offered with a health savings account (HSA) does not improve the individual's financial security since these funds still must come from the individual who either funds the HSA to draw on later, or draws the funds from other savings, or, more likely, simply doesn't have the funds when needed to pay the deductible. An unfunded or depleted HSA is of no value.

Although Republicans have been supportive of the consumer-directed approach of high-deductible plans with HSAs, there is almost unbelievable irony when we look at another favorite of theirs - the privatized Medicare Advantage plans that replace traditional Medicare coverage. Under the Bush administration a Medicare Advantage Medical Savings Account demonstration project was established, duplicating this consumer-directed approach within the Medicare program. Last week HHS announced that this program was being terminated because of a lack of activity. Obviously consumer-directed does not equate with consumer-demanded.

High-deductible plans are under-insurance products that create financial hardships for people who develop health care needs. It is disappointing that Secretary Sebelius is presenting them as an "opportunity." They're an opportunity to lose your shirt if you get sick.

We could have done so much better... and still can.