In This Issue: Answers to a Few Questions From Readers

1. “If ERISA will preempt California’s new Pay or Play law, how has Hawaii managed to enforce its version?”


2. “I have a self-insured client who says half his workforce consumes no health care in the course of a year. How will providing an HRA not cost him more than he currently spends?”


3. “I need some information on mandated benefits on a state-by state basis. Where can I find this information?”


_______________________________________________________



I thought I’d do something a little different in this issue. Over the past week I have received a number of good questions from readers that required fairly detailed replies. In case you have similar questions, I’ll answer them here as well.


1. “If the Employee Retirement Income Security Act (ERISA) will preempt California’s new Pay or Play law, how has Hawaii managed to enforce its version?”


Hawaii enacted its law in 1974, about the same time ERISA was adopted. The law was challenged in 1976 and overturned by a federal appellate court in 1981. That decision was upheld by the U.S. Supreme Court. In 1983, Congress enacted legislation exempting Hawaii’s mandate from ERISA preemption. The rationale for Congress’s action was that the Hawaii law coincided with the enactment of ERISA and so should be grandfathered from the scope of ERISA. At the same time, Congress disallowed Hawaii from expanding the scope of its mandate from what was passed in 1974.


For more information about the scope of ERISA, see:

? Patricia Butler and Karl Polzer, “Private-Sector Health Coverage: Variation in Consumer Protections Under ERISA and State Law,” National Health Policy Forum, George Washington University, June, 1996.

? G. Lawrence Atkins and Kristin Bass, “ERISA Preemption: The Key to Market Innovation in Health Care,” Corporate Health Coalition, Washington DC, 1995.


_______________________________________________________




2. “I have a self-insured client who says half his workforce consumes no health care in the course of a year. How will providing a Health Reimbursement Arrangement (HRA) not cost him more than he currently spends?”


This is the primary advantage HRAs have over Medical Savings Accounts (MSA). MSAs are “pre-funded” — that is, cash money is put into the MSA account to pay for future health care needs. The employer gets to deduct that contribution as a normal business expense when it is made. If an employer contributes $1,000 to the account of a worker who would normally incur no expenses, that seems to be $1,000 more than the employer would usually spend.


This has been a tough sell to employers who are considering setting up an MSA program, and it is part of the reason MSAs have been more popular with the self-employed. It can be argued that over time it all evens out – that the $1,000 put into a worker’s account today will offset that worker’s expenses five years later. It is also the case that an employer will not spend more money if it simply contributes the premium savings from the higher deductible policy into the MSA. But many employers are skeptical of paying out cash today for the future needs of an employee who may be gone in five years.


HRAs solve this problem. They may be unfunded and carried on the books as a future liability – what accountants call a “notional account.” In fact, the employer may take a tax deduction only when an actual health expense is incurred and paid for. The employer is not allowed to deduct “contributions” that are made for future health care needs.


So, the employer may pledge $1,000 to a worker’s HRA, and notify that worker that $1,000 is available in the account. But the employer has not paid out any cash. Only when the employee incurs an expense does the employer pay out actual money (and have a tax deductible expense). If that payment is $250, the employer notifies the worker that $750 remains in the account. Depending on the rules the employer has established, that $750 liability may roll-over into the next year, and the worker may get another $1,000 pledge for a total “account balance” of $1,750.


The mechanics are entirely up to the employer. The amount of roll-over may be capped by dollar or by percentage or have some vesting provision. The year-two contribution may be limited by the amount rolled-over, so it doesn’t exceed the deductible. Or excess balances may go into other benefit programs such as vision or dental. These are the kinds of design features the market is currently testing, and we do not yet know what the optimal approach will be.


_______________________________________________________



3. “I need some information on mandated benefits on a state-by state basis. Where can I find this information?”


This question threw me for a loop. I developed a chart when I was with the Blue Cross Blue Shield Association listing all the states on one axis and all the mandates on the other axis and entering the year of enactment in the boxes. The Blues maintained this chart for many years after I left and I have always referred people to their web site to get the latest version of it.


But this time, I couldn’t find it. In its place was a whole new approach by the Blues to state mandated benefits. The majority of my work in the 12 years I was in the Blue system was trying to kill mandates, arguing that they were special interest pleadings that raised the cost of coverage and increased the number of uninsured. The attitude of the Blues towards mandates was summed up in CCM #17, in which we reported:


“Managed Healthcare Executive” includes a very interesting interview with Mike Cascone, the CEO of Blue Cross Blue Shield of Florida. The article quotes him as saying the most important issue in health care is, “keeping the government out of benefits definition, and allowing people to shape the marketplace according to the benefits they want.” He adds that mandated benefits have “forced (people) into buying the Cadillac package of benefits.”


Suddenly, all of that has changed. Now mandated benefits are viewed as “important consumer protections” that “ensure appropriate access to health care.” Rather than a state-by-state list of mandates that implies the states have gone overboard by enacting some 1,500 laws requiring coverage of everything from In Vitro Fertilization to Acupuncture, the Blues now provide a state-by state list celebrating laws that “ensure health plans cover important benefits.” Rather than opposing mental health parity laws, it applauds state laws “that go beyond federal requirements.”


What, you might ask, would cause such a drastic turnabout of 25 years of well-established policy? Why would the Blues suddenly embrace mandated benefits? Well, it couldn’t be political convenience, could it? They wouldn’t be trying to pull the wool over the eyes of Congress, would they? Well, by golly, they just might be doing exactly that. Their sudden endorsement of “important consumer protections” is aimed directly at Association Health Plan legislation. AHPs would be exempt from these mandates, while the Blues would not be. So, of course, such mandates are suddenly wonderful laws that should apply to everybody.


The trick will be how to finesse this when they get back home. For instance, this new 50 state report lists only 11 states that have “the important consumer protection” of an in vitro fertilization mandate (AR, CA, CT, HI, IL, MD, MA, NJ, RI, TX, WV). It will be amusing to watch the Blue Cross lobbyists in the other 39 states explain why such a law should not be enacted in, say Florida, when the national association considers it an important consumer protection.


The other trick will be how long they can fool Congress. The Blues may scrub all of the anti-mandate rhetoric from their web site, but the record doesn’t disappear that easily. Indeed, I was finally able to track down the listing I was originally looking for. It stops counting in the year 2000, but you should be able to access it at: http://bcbshealthissues.com/state/appendix/XYZAABB.pdf?PROACTIVE_ID=cecfcac6c8cfc9cbccc5cecfcfcfc5cececdc7c6cecfcecbcbc5cf


You may also want to look at the New and Improved Blue Cross Blue Shield attitude toward excessive regulation by going to:

http://BCBSHealthIssues.com/relatives/20425.pdf

______________________________________________________



Please send all comments/questions directly to me at gmscan@aol.com.


“Consumer Choice Matters” is a free weekly newsletter published by the Galen Institute, a not-for-profit public policy organization specializing in research and education on health policy. Visit our website at http://www.galen.org for more information.


If you wish to subscribe/unsubscribe or update your address, please send an e-mail to galen@galen.org.


The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.

SHARE THIS ARTICLE

About the author

1. “If ERISA will preempt California’s new Pay or Play law, how has Hawaii managed to enforce its version?”


2. “I have a self-insured client who says half his workforce consumes no health care in the course of a year. How will providing an HRA not cost him more than he currently spends?”


3. “I need some information on mandated benefits on a state-by state basis. Where can I find this information?”


_______________________________________________________



I thought I’d do something a little different in this issue. Over the past week I have received a number of good questions from readers that required fairly detailed replies. In case you have similar questions, I’ll answer them here as well.


1. “If the Employee Retirement Income Security Act (ERISA) will preempt California’s new Pay or Play law, how has Hawaii managed to enforce its version?”


Hawaii enacted its law in 1974, about the same time ERISA was adopted. The law was challenged in 1976 and overturned by a federal appellate court in 1981. That decision was upheld by the U.S. Supreme Court. In 1983, Congress enacted legislation exempting Hawaii’s mandate from ERISA preemption. The rationale for Congress’s action was that the Hawaii law coincided with the enactment of ERISA and so should be grandfathered from the scope of ERISA. At the same time, Congress disallowed Hawaii from expanding the scope of its mandate from what was passed in 1974.


For more information about the scope of ERISA, see:

? Patricia Butler and Karl Polzer, “Private-Sector Health Coverage: Variation in Consumer Protections Under ERISA and State Law,” National Health Policy Forum, George Washington University, June, 1996.

? G. Lawrence Atkins and Kristin Bass, “ERISA Preemption: The Key to Market Innovation in Health Care,” Corporate Health Coalition, Washington DC, 1995.


_______________________________________________________




2. “I have a self-insured client who says half his workforce consumes no health care in the course of a year. How will providing a Health Reimbursement Arrangement (HRA) not cost him more than he currently spends?”


This is the primary advantage HRAs have over Medical Savings Accounts (MSA). MSAs are “pre-funded” — that is, cash money is put into the MSA account to pay for future health care needs. The employer gets to deduct that contribution as a normal business expense when it is made. If an employer contributes $1,000 to the account of a worker who would normally incur no expenses, that seems to be $1,000 more than the employer would usually spend.


This has been a tough sell to employers who are considering setting up an MSA program, and it is part of the reason MSAs have been more popular with the self-employed. It can be argued that over time it all evens out – that the $1,000 put into a worker’s account today will offset that worker’s expenses five years later. It is also the case that an employer will not spend more money if it simply contributes the premium savings from the higher deductible policy into the MSA. But many employers are skeptical of paying out cash today for the future needs of an employee who may be gone in five years.


HRAs solve this problem. They may be unfunded and carried on the books as a future liability – what accountants call a “notional account.” In fact, the employer may take a tax deduction only when an actual health expense is incurred and paid for. The employer is not allowed to deduct “contributions” that are made for future health care needs.


So, the employer may pledge $1,000 to a worker’s HRA, and notify that worker that $1,000 is available in the account. But the employer has not paid out any cash. Only when the employee incurs an expense does the employer pay out actual money (and have a tax deductible expense). If that payment is $250, the employer notifies the worker that $750 remains in the account. Depending on the rules the employer has established, that $750 liability may roll-over into the next year, and the worker may get another $1,000 pledge for a total “account balance” of $1,750.


The mechanics are entirely up to the employer. The amount of roll-over may be capped by dollar or by percentage or have some vesting provision. The year-two contribution may be limited by the amount rolled-over, so it doesn’t exceed the deductible. Or excess balances may go into other benefit programs such as vision or dental. These are the kinds of design features the market is currently testing, and we do not yet know what the optimal approach will be.


_______________________________________________________



3. “I need some information on mandated benefits on a state-by state basis. Where can I find this information?”


This question threw me for a loop. I developed a chart when I was with the Blue Cross Blue Shield Association listing all the states on one axis and all the mandates on the other axis and entering the year of enactment in the boxes. The Blues maintained this chart for many years after I left and I have always referred people to their web site to get the latest version of it.


But this time, I couldn’t find it. In its place was a whole new approach by the Blues to state mandated benefits. The majority of my work in the 12 years I was in the Blue system was trying to kill mandates, arguing that they were special interest pleadings that raised the cost of coverage and increased the number of uninsured. The attitude of the Blues towards mandates was summed up in CCM #17, in which we reported:


“Managed Healthcare Executive” includes a very interesting interview with Mike Cascone, the CEO of Blue Cross Blue Shield of Florida. The article quotes him as saying the most important issue in health care is, “keeping the government out of benefits definition, and allowing people to shape the marketplace according to the benefits they want.” He adds that mandated benefits have “forced (people) into buying the Cadillac package of benefits.”


Suddenly, all of that has changed. Now mandated benefits are viewed as “important consumer protections” that “ensure appropriate access to health care.” Rather than a state-by-state list of mandates that implies the states have gone overboard by enacting some 1,500 laws requiring coverage of everything from In Vitro Fertilization to Acupuncture, the Blues now provide a state-by state list celebrating laws that “ensure health plans cover important benefits.” Rather than opposing mental health parity laws, it applauds state laws “that go beyond federal requirements.”


What, you might ask, would cause such a drastic turnabout of 25 years of well-established policy? Why would the Blues suddenly embrace mandated benefits? Well, it couldn’t be political convenience, could it? They wouldn’t be trying to pull the wool over the eyes of Congress, would they? Well, by golly, they just might be doing exactly that. Their sudden endorsement of “important consumer protections” is aimed directly at Association Health Plan legislation. AHPs would be exempt from these mandates, while the Blues would not be. So, of course, such mandates are suddenly wonderful laws that should apply to everybody.


The trick will be how to finesse this when they get back home. For instance, this new 50 state report lists only 11 states that have “the important consumer protection” of an in vitro fertilization mandate (AR, CA, CT, HI, IL, MD, MA, NJ, RI, TX, WV). It will be amusing to watch the Blue Cross lobbyists in the other 39 states explain why such a law should not be enacted in, say Florida, when the national association considers it an important consumer protection.


The other trick will be how long they can fool Congress. The Blues may scrub all of the anti-mandate rhetoric from their web site, but the record doesn’t disappear that easily. Indeed, I was finally able to track down the listing I was originally looking for. It stops counting in the year 2000, but you should be able to access it at: http://bcbshealthissues.com/state/appendix/XYZAABB.pdf?PROACTIVE_ID=cecfcac6c8cfc9cbccc5cecfcfcfc5cececdc7c6cecfcecbcbc5cf


You may also want to look at the New and Improved Blue Cross Blue Shield attitude toward excessive regulation by going to:

http://BCBSHealthIssues.com/relatives/20425.pdf

______________________________________________________



Please send all comments/questions directly to me at gmscan@aol.com.


“Consumer Choice Matters” is a free weekly newsletter published by the Galen Institute, a not-for-profit public policy organization specializing in research and education on health policy. Visit our website at http://www.galen.org for more information.


If you wish to subscribe/unsubscribe or update your address, please send an e-mail to galen@galen.org.


The views expressed in this newsletter are the opinions of the authors and do not necessarily reflect the views of the Galen Institute or its directors.

SHARE THIS ARTICLE

About the author