House Passes Medicare Doctor Payment Fix

The House of Representatives voted 243-183 yesterday to adjust provider reimbursements under Medicare for the next 10 years, giving physicians the long-term fix to the annual reduction problem that they have sought for many years. The only GOP vote was Representative Michael Burgess (R-TX), a practicing obstetrician. While there is bipartisan support for increasing Medicare provider rates, the concern the GOP had with this particular measure is that its $210 billion price tag was not offset with other spending cuts or revenue increases. Similar legislation failed to get enough votes to proceed in the Senate a few weeks ago because moderate Democrats joined with the GOP to object on fiscal responsibility grounds to the lack of financing in the measure.

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CMS’s Chief Actuary Finds the House Bill Will Increase the Cost of Health Care by $289 Billion over 10 Years

An analysis prepared by the Center for Medicare and Medicaid Services’ (CMS) chief actuary and released late last Friday also shows that the House-passed legislation would also significantly increase health care costs. The analysis was conducted at the request of House Republicans, and shows that H.R. 3962 will increase costs over the next decade by $289 billion. It explicitly states that other than cutting payments to Medicare providers over time, the House bill’s cost-containment provisions actually save very little. In addition, the Medicare provider payment cuts are projected to be unsustainable, since they will likely result in even less providers in the Medicare system. The analysis also predicts that by 2014, Medicare Advantage enrollment would drop 64% from 13.2 million to 4.7 million because of less-generous benefit packages.

Other interesting projections include that up to 18 million people will remain uninsured and choose to pay the fines for not carrying insurance rather than buy coverage under the House bill, and that the Medicaid expansion and new coverage provisions will further exacerbate our nation’s primary care provider shortage—something the bill strove to address. According to the report, “The additional demand for health services could be difficult to meet initially with existing health provider resources and could lead to price increases, cost-shifting and changes in providers’ willingness to treat patients with low-reimbursement health coverage.”

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$848 Billion? $2.5 Trillion? How Much Does the Senate Bill Really Cost?

One of the reasons it took weeks to merge the two Senate committee-passed bills into one piece of legislation is that it needed to be determined exactly how much the comprehensive health reform was going to cost the federal government, and that number needed to be below President Obama’s stated cost ceiling of $900 billion. The Congressional Budget Office has determined that H.R. 3590’s initial cost to the federal government will be $848 billion over the next 10 years. However, when determining the “score,” CBO noted that the bill includes two significant provisions that will likely alter the true cost of the bill. Medicare participating providers are assumed to get a 21% payment cut in 2011, which would carry into subsequent years. Fixing the rate cut, which is historically and politically likely to happen, would cost $247 billion. Additionally, the CLASS Act provisions, which address the creation of a new federal long-term care program, generate $72 billion over the budget window and account for 56% of the projected savings because fees are collected initially for five years before any claims would be paid. Once the program is fully implemented, it is estimated to run at a significant deficit.

According to the Senate Republican Budget Committee, when these factors are accounted for, the legislation is $189 billion in the red. It would also put the real cost of the bill at $1.2 trillion for the first 10 years, and when fully implemented, the provisions of the bill would cost $2.5 trillion over a 10-year period. The bill also includes $494 billion dollars in tax increases and $465 billion in cuts to the Medicare program. You can view the Budget Committee’s fact sheet on the legislation here.

Another huge concern is that instead of bending the health care cost curve downward, the CBO actually shows that the merged bill will bend it upward, and health care costs would increase. The CBO report says, “Under the legislation, federal outlays for health care would increase during the 2010–2019 period, as would the federal budgetary commitment to health care.” The coverage expansion would drive a net increase in government spending on health by $160 billion over 10 years and would still leave 24 million Americans uninsured.

Also, it is important to keep in mind that these projections are only focused on the cost of the legislation to the federal government. The CBO is still determining the cost impact of this legislation on private health insurance premiums, but private actuarial studies by AHIP and Blue Cross Blue Shield of the Senate Finance version of the legislation, which had less-restrictive age bands, estimated that private insurance costs could increase between 20% and 50%. The oppressive age bands in this bill, coupled with a weak individual mandate, a heavy range of mandated benefits, increased cost-shifting and new taxes on health insurers, medical devices, pharmaceuticals and high-cost plans, will most certainly result in increased premium costs for all privately insured Americans.

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What Happens Next? How the Senate Bill Moves Forward

The process Majority Leader Reid and the Democratic leadership will need to go through is dictated by the very complicated Senate rules of procedure, and the time frame will be as follows.

Yesterday, Senator Reid filed a cloture motion to proceed on H.R. 3590 and bring it to the floor. This is a three-day process with filing on the first day (November 19), a review day on day two (November 20), and a vote on the third day (November 21). Currently, debate is scheduled for all day today and Saturday, with a vote projected for the motion to proceed at 8:00 pm. The GOP agreed to not read the entire 2,072-page bill aloud into the Senate record at this time (a process that could take more than 48 hours straight) in exchange for a two days of debate on whether or not the discussion on this particular health reform bill should even continue at all. Sixty senators then must vote yes on the cloture motion or H.R. 3590 cannot be brought to the Senate floor for consideration.

Over the past few weeks, many moderate Democrats have been bargaining with their leadership to secure their votes to move forward. As of today, it looks like Senator Reid will eventually get the votes he needs. Two Democratic senators, Blanche Lincoln (D-AR) and Mary Landrieu (D-LA), have not given their commitments yet, but the vote is likely to be successful if not Saturday, then later next week. Many moderate senators, like Joe Lieberman (I-CT), Evan Bayh (D-IN) and Ben Nelson (D-NE), have voiced serious concerns about the bill, but have made the distinction between the procedural vote to move forward and support for a final bill on the floor. Senators Lieberman and Nelson have indicated that they will stand with Republicans and filibuster if a final bill includes a public plan option or if it does not sufficiently address Senator Nelson’s concerns about potential public financing of abortions.

Assuming the motion to proceed is successful, the Senate will recess for Thanksgiving and return on November 30, when floor debate will begin. The process is expected to be a slow one, filled with consideration of hundreds of floor amendments. Despite leadership promises to try to have a bill to President Obama by Christmas, or at least have a bill passed through the Senate, most Democrats concede privately that the desired schedule is unrealistic and that they expect floor debate to take anywhere from three to eight weeks. For a detailed explanation of how the Senate floor debate will work, you can read NAHU’s primer on why the Senate will move slowly.

Relative to the floor debate, Senator Reid made a huge concession yesterday when he completely ruled out using budget reconciliation rules to pass the bill — a major shift from previous statements. Using the reconciliation process would have allowed him to pass portions of the bill under limited debate rules and with a simple majority of 51 votes. But all provisions that did not have a direct federal budgetary impact would have been required to be abandoned, making the bill next to impossible to conference with the House-passed legislation. Also, many Senate Democrats have been vocal in their complete opposition to the use of this procedural trick to pass health reform.

As the bill moves to the Senate floor, it is important to remember that NAHU still has ample opportunity to influence the political process and the outcome of any legislation. We intend to pursue all such opportunities aggressively to advance the cause of health insurance agents, brokers and consultants and the private-market delivery system. NAHU staff is actively meeting with congressional staff and participating in a variety of coalition meetings and activities relative to the floor debate. We are providing offices with potential amendment language, as well as information to be used in floor speeches and discussions, and we will continue to keep you up to date on all breaking developments.

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NAHU News: Senate Democratic Leadership Unveils Their 2,072-Page Version of Health Reform

On Wednesday evening, Senate Majority Leader Harry Reid (D-NV) released the Senate Democratic leadership’s version of a comprehensive health reform bill, the Patient Protection and Affordable Care Act, or H.R. 3590. This legislation is the product of weeks of work by the leadership to combine the reform bill passed in July by the Senate Health, Education, Labor & Pensions (HELP) Committee, and the mark passed by the Senate Finance Committee in October into one bill for consideration on the Senate floor.

NAHU has a number of serious concerns about this bill, which we articulated in a press statement issued Thursday. Some of the more disturbing components include:

• A government-run public plan option to be sold through the exchanges with the opportunity for states to opt out. Payment rates to providers would be determined by HHS and capped at the average rate of private plans. In addition, start-up funds are provided for the creation of co-ops and states are allowed to offer their own public programs for those between 133% and 200% of the Federal Poverty Level (FPL).
  
• An employer mandate for groups of 50 or more to provide qualified coverage with a $750 fine, indexed for premium growth, for non-covered employees.
  
• A weak individual mandate to obtain qualified coverage with a fine that begins at $95 in 2014, rises to $750 by 2016, and is indexed for inflation. Exemptions include hardship waivers and those for whom the cost of coverage will exceed 9.8% of household income.
  
• Potential for government rate-setting of agent and broker commissions on policies sold through the exchange.
  
• Subsidies through the exchanges up to 400% of the FPL, with a 2.8-7% cap on beneficiary costs as a percentage of income.
  
• An expansion of Medicaid up to 133% of the FPL.
  
• Market reforms that include guaranteed issue and renewability of all policies, no preexisting condition limitations or lifetime or annual limits, prohibitions on rating based on health status and gender, and only allowing rating factors of age (3:1), tobacco use (1.5.1), family status and geography.
  
• The creation of a new opt-out federal long-term care program (CLASS Act provisions) with a limited daily benefit.
  
• $494 billion in tax increases and $465 billion in cuts to the Medicare program.

To help our members understand all of the various provisions in the 2,072-page bill, we have prepared a detailed side-by-side analysis of the measure showing how it stacks up against H.R. 3962, the Affordable Health Care for America Act, which was passed by the House of Representatives 220-215 on November 7. In addition, the NAHU government affairs staff has prepared a two-page issue summary for you to use when communicating about the bill, and we have also prepared a sample update on this week’s health reform developments for you to use as a communication tool for clients.

Additionally, you may find the following resources helpful:

• Democratic Leadership’s Section-by-Section Summary
• Democratic Leadership’s Short Summary
• Democratic Leadership’s Summary of Immediate Reform Elements
• GOP HELP and Finance Committee’s Minority Analysis of H.R. 3590
• Two-Page Summary/House Bill Comparison by Our Coalition for Affordable Health Care

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Make the Mandate Matter

By Janet Trautwein

Upon learning that a key Senate panel had approved much of his health care reform plan, President Obama warned, “this is not the time to pat ourselves on the back.” He’s right. Lawmakers still have much work to do in order to ensure that the bill that lands on the president’s desk actually fixes our health care system’s shortcomings.

One of the key items to improve? The “individual mandate,” or the requirement that individuals purchase health insurance. If Congress fails to strengthen the mandate, health care costs will not only continue to rise, but will increase at an even faster rate than they have in the past. As a result, vast numbers of Americans will remain uninsured.

Every health reform bill that has passed the initial hurdle of committee approval contains substantial market reforms that will dramatically increase a person’s ability to access health insurance coverage.  Whether you are an individual or work for an employer of any size, you will be able to get coverage regardless of your health condition and the coverage you get will not have premiums based on your health status or any limits on any health conditions you already have.

Each one of these same bills also contains a requirement that individuals carry health insurance coverage on a continual basis.  The problem is that this new requirement to be covered doesn’t really have any teeth.  If a person decided they didn’t want to comply with the law, they would be faced with a small penalty that would be far less than the cost of buying coverage.

Sen. Baucus’s bill would fine those who opt not to purchase a policy $200 starting in 2013. Over the next five years, the fine would eventually reach $750. Yet by the time the mandate is in full force, the price of the average individual health insurance policy will have reached $5,000, according to the non-partisan Congressional Budget Office.

Some people would argue that people will carry coverage anyway because they need a way to pay for their health care.  But many people don’t need health care every day and every month.  For these people, because the new coverage will be so easy to access, it would be less expensive to just enroll in coverage when you need it, get your health care services, drop the coverage, and then enroll in coverage again when you need it again.

When the only people in the insurance pool are those with chronic or serious conditions along with those who have enrolled because they currently require services, the cost of coverage goes up for everyone.  This is because insurance of any kind is a risk spreading mechanism that functions effectively by spreading risk over a large population that includes both good and poor risks.

In the absence of a robust individual mandate, healthy, low-risk patients — 12.6 million of them, according to one study — would opt out of the insurance market and wait until they were sick to buy insurance. And that makes perfect sense — why pay monthly premiums if you can just get insurance once you need it? Only high-risk patients would remain in the insurance pool. That’s a recipe for higher health care costs for everyone. In fact, without a strong mandate, the premiums for a newly enrolled family would increase about $3,300 each year.

To mitigate the effect of easy access to coverage, there must be a strong incentive for people to be covered.  In order for the mandate to be effective, the penalty for remaining uninsured must be at least somewhat comparable to the price of a policy.

To understand why, imagine that parking tickets were only 25 cents. Drivers would have no incentive to obey parking laws or feed quarters to the meter. After all, why pay a couple bucks for parking if the fine for not doing so is only 25 cents?

A weak individual mandate would have much the same result. Cash-strapped Americans — particularly healthy ones — would likely choose to pay the fine and remain uninsured instead of shelling out thousands of dollars for an insurance policy.

Congress has rightly set out to both expand insurance coverage and reduce health care costs for all Americans. But without an effective and enforceable individual mandate that guarantees the participation of everyone, neither goal is attainable.

Janet Trautwein is CEO of the National Association of Health Underwriters.

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With Employer Mandate, Feds Actually Mandate Job Losses

By Janet Trautwein

With each passing day, the price tag for Congress’s health reform plan seems to shoot higher. Nervous lawmakers are flailing about in search of the trillions of dollars they need.

The latest “solution” is to make somebody else pay for it. Several lawmakers are looking to mandate that businesses pick up the health insurance tab for employees and their families or face a hefty payroll tax.

Unfortunately, this “pay-or-play” ultimatum would cripple businesses, particularly smaller ones that have been reeling because of the recession. In the end, by mandating that employers provide insurance, Congress would force many of the workers they’re trying to help out of their jobs.

How would pay-or-play work? The House Democrats’ plan would compel firms with annual payrolls of $500,000 or more to cover at least 72.5 percent of an individual worker’s insurance premium or 65 percent of the premium for each worker’s family. If a business chose not to play along, it’d pay a tax of between 2 and 8 percent of its employees’ wages.

Health plans would have to meet federal standards for minimum benefits, co-pays, deductibles, and the like — even if the employee didn’t want a policy that adhered to such standards.

A study from the National Federation of Independent Business concluded that an employer mandate would cause the economy to lose 1.6 million jobs within the first five years. The Congressional Budget Office warns that low-wage jobs would be among the first eliminated — a cruel blow to those at the bottom of the economic ladder trying to work their way up.

Of course, we expect the nation’s largest companies to provide coverage for their employees. But under the House plan, even small businesses with razor-thin profit margins would be forced to provide insurance for their workers. A mom-and-pop firm with just six employees each earning a five-figure salary, for instance, would easily surpass the $500,000 payroll threshold where the mandate would kick in.

Most employers already provide health benefits to their employees without being bullied to do so, despite soaring health care costs. Indeed, 71 percent of Americans employed by private firms have access to employer-sponsored health benefits.

These employers invest in their workers’ health because they know that doing so will help them attract and retain the best workers and build a productive workforce.

And although it’s politically popular to blame employers for our nation’s current health care woes, an employer mandate would do nothing to address the real culprit in our country’s health care crisis — rising costs.

Requiring businesses to purchase insurance coverage they can’t afford will do little to reduce the number of uninsured. In fact, by making the cost of labor even higher, an employer mandate may increase the number of uninsured, as companies hold off on hiring new workers — whom they’d immediately have to cover.

Congress may think an employer mandate compels businesses to do their part to pay for health reform. Unfortunately, the pay-or-play plan under consideration would drive down wages and employment, drive up the price of health care, and drive many firms out of business altogether.

Janet Trautwein is CEO of the National Association of Health Underwriters.

 

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State Budgets Will Suffer Because of Public Plan

By Janet Trautwein

Of all the health care reform proposals bouncing around the halls of Congress, none is as divisive as the “public option,” a government-run insurance plan that would compete against private insurers. Proponents claim it will drive down prices. Critics worry it could destroy private health insurance and result in a government takeover of health care.

But very few observers have acknowledged another effect of the public option, one that would spell disaster for reeling state budgets: the public option will cause state tax revenues to plummet.

How so? Taxes paid by private insurers are a major source of income for most state governments. For instance, in at least 37 states, HMOs pay premium, income, corporate, or franchise taxes, with rates as high as 3.5 percent.

Similarly, Blue Cross Blue Shield plans, many of which are not-for-profit, pay premium taxes in at least 34 states.

A new public insurance program run by the feds will poach customers from private insurers, driving many out of business in the process. And if there are fewer private insurance companies — and fewer privately insured consumers — it follows that state insurance tax revenues will dwindle.

How will the public option possibly wreak such havoc on private insurers and state budgets alike? For starters, it will be able to attract patients with below-market prices. The plan won’t have to worry about making money, as any losses can be erased by dipping into the federal treasury.

The public option will also be able to reimburse doctors and hospitals at artificially low rates. The federal government’s existing public options, Medicare and Medicaid, are notorious for routinely underpaying health care providers by 20 percent.

Providers make up for such short-changing by charging privately insured patients more. Milliman Inc., a consultancy, estimated that Medicare and Medicaid offloaded $88 billion to private patients in 2007. As a result of such systematic underpayment, the average family of four shells out an extra 1,500 a year in insurance premiums.

If the public option employs reimbursement rates similar to Medicare’s — which it no doubt eventually will — private patients will face even higher premiums, thanks to even more Medicare-style cost-shifting. As private insurance becomes less affordable, more and more patients will flee to the lower-priced public plan.

The Lewin Group found that the public option could cause nearly six of every 10 Americans with private coverage — roughly 118 million people — to switch to public insurance.

Now, federal insurance programs don’t pay state taxes. If patients leave private insurance companies in droves, those firms’ revenues will decrease significantly. And that will yield an equally severe dip in tax revenues for the states.

For most states, such a drop in tax income would be catastrophic. The recession has already left many deeply in the red. The Rockefeller Institute of Government calculates that state tax collections fell by nearly 12 percent over the first four months of the year — a record high.

Fully 45 states are facing budget shortfalls this year. New York’s is a whopping $18 billion. New Jersey’s is nearly $9 billion. And Florida’s is $6 billion.

The fiscal situation isn’t going to get better for state governments anytime soon. Nearly two-thirds have projected budget gaps for 2011. And at least 15 expect gaps in 2012.

Over 90 percent of taxes paid by insurers fund programs unrelated to insurance. In North Carolina, for instance, taxes on insurance premiums finance firefighting equipment. Without tax revenue from insurers, state governments will likely be forced to cut funding for vital programs.

A public option could make the states’ terrible fiscal situation even worse. By driving private insurers from the market, the public option would scrap a vital source of state tax revenues and push state governments to the brink of insolvency.

Janet Trautwein is Executive Vice President and CEO of the National Association of Health Underwriters.

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A New Public Insurance Program Won’t Work

By Janet Trautwein

There’s little doubt that Washington will move forward with health reform this year.

Central to many proposals is the creation of a government-run insurance plan that every American could purchase. By injecting more competition into the insurance market, this might seem like an intelligent way to lower overall health care costs. The truth, though, is that a “public option” would simply shift health care costs onto private payers — and undermine the private insurance system in the process.

As currently proposed, the public option would be sold through a new National Health Insurance Exchange. This Exchange would serve as a marketplace where consumers from across the country could choose from a range of private policy offerings or opt for the public plan.

Proponents call this competition. Unfortunately, the game would be rigged from the start in favor of the public plan.

Consider how America’s current public options — Medicare and Medicaid — fit into our health sector. Both government programs systematically underpay hospitals and physicians by as much as 15-20 percent in order to keep costs down.

But healthcare providers don’t just glumly accept whatever the government gives them. As a matter of financial necessity, they shift unpaid costs onto private interests.

The consulting group Milliman Inc. estimated that Medicare and Medicaid offloaded $88 billion in costs to commercial payers in 2007. That $88 billion came directly out of consumers’ pockets. In fact, the average family of four saw its insurance premiums increase $1,500 as a result of the public programs’ systematic underpayment.

In the state of Washington, where Medicare pays about 25 percent less than private insurers, hospitals charged consumers an extra $738 million to make up for Medicare underpayments in 2004. Physicians charged consumers an extra $620 million. That adds up to almost $1.4 billion in additional costs, or $902 per family insurance policy.

A new public option would only exacerbate cost-shifts like these. Private insurers would be forced to raise their prices to make up for cost-shifting. Eventually, private insurance would become prohibitively expensive.

After all, private insurers must cover their costs; they can’t afford to run a deficit. A public plan, on the other hand, would have a direct line to the federal treasury. It could price itself well below its true costs and operate at a loss.

Over time, more and more Americans would opt for an artificially cheap public plan. Private carriers would be forced from the market, unable to compete. Soon, the public option would be the only option.

There are better ways to expand insurance coverage — even to the intended targets of a public plan, like those who are nearing retirement and those with pre-existing conditions.

Consider Idaho’s program for high-risk patients. Lawmakers there have allowed private carriers to cede the financial risk for certain high-risk individuals to a reinsurance pool. All private insurers in the state pay into this pool, which then covers high-risk beneficiaries’ more expensive medical costs.

A public option in health care may seem like a clever way to expand insurance coverage and lower costs. But America’s existing public options prove that another government-run health plan will only raise the cost of private insurance and crowd out private alternatives — until the public option is the only one around.

Janet Trautwein is Executive Vice President and CEO of the National Association of Health Underwriters.

 

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House’s 1,990-Page, $2.2 Million-a-Word Bill is Long on Tricks, Short on Treats

From NAHU -

Speaker of the House Nancy Pelosi (D-CA) released a revised version of health care reform legislation on Thursday. The 1,990-page measure, now known as H.R. 3962, includes a government-run public plan option to be offered through a national health insurance exchange that would negotiate rates with providers. However, the plan would initially be financed with public money and would not have to pay taxes and maintain solvency standards like private insurers. The Congressional Budget Office has provided a preliminary estimate that the bill will cost $894 billion over a 10-year period. The Joint Committee on Taxation has also prepared a fiscal analysis.

One of the few points of the bill NAHU views as positive is the retention of language that NAHU worked tirelessly with Blue Dog Democrats to advance during the committee process that specifically ensures the role of licensed health insurance agents and brokers in the national exchange. The simple language states “Nothing in this division shall be construed to affect the role of enrollment agents and brokers under state law, including with regard to the enrollment of individuals and employers in qualified health benefits plans including the public health insurance option.”

Unfortunately, the new bill also includes a provision that we are extremely concerned about, granting authority to the exchange’s commissioner, in consultation with the Small Business Administration, to include within the exchange the following services: “Educational activities to increase awareness of the Health Insurance Exchange and available small-employer health plan options; distribution of information to small employers with respect to the enrollment and selection process for health plans available under the Health Insurance Exchange, including standardized comparative information on the health plans available under the Health Insurance Exchange; distribution of information to small employers with respect to available affordability credits or other financial assistance; referrals to appropriate entities of complaints and questions relating to the Health Insurance Exchange; enrollment and plan selection assistance for employers with respect to the Health Insurance Exchange; and responses to questions relating to the Health Insurance Exchange.”

Other troubling aspects of the new bill include:

• Market reforms that include modified community rating for all groups that do not self-fund limited to age bands of 2:1, geography and family composition. In addition, all such plans will be guaranteed issue, no preexisting condition limitations, out-of-pocket caps at $5,000/$10,000 and no lifetime or annual limits. Individuals that keep their exact same policy with no changes at all can be grandfathered indefinitely, but group coverage must convert to the new standards within five years.
• A mandate requiring employers to pay 72.5% of the cost of acceptable coverage for individuals and 65% for family coverage, and part-time employees must be covered on a prorated basis based on average hours worked. In lieu of paying for coverage, the measure creates a “pay or play” option allowing the employer to pay eight percent of wages, but that fine goes to the federal treasury and would not benefit the non-covered employees. Small employers with annual payroll up to $500,000 will be exempt from the requirement and the fines would phase in for employers with payrolls between $500,000 and $750,000.
  
• The creation of a new national purchasing pool-based exchange where people can purchase private coverage and the public option. The exchange starts by allowing small employers and individuals without employer-sponsored coverage to purchase in the pool, but eventually any size employer may be allowed to buy coverage through the exchange, meaning that the bill does not adhere to the promise that the public plan is limited to a small population.
  
• The inclusion of a very rich essential benefit package with 70% the minimum actuarial value allowed for purchase.
  
• An individual mandate enforced solely through an income tax penalty of the lesser of 2.5% of income or an average premium in the exchange. Individuals with incomes below the tax filing standard are exempt and may also apply for hardship waivers.
  
• Sliding-scale subsidies available in the exchange for people with family incomes of up to 400% of the Federal Poverty Level (over $80K annually for a family of four) and very limited business tax credits for the smallest of companies with low-income wage earners.
  
• A dramatic expansion of Medicaid to all legal residents with incomes up to 150% FPL. CHIP beneficiaries will either be folded into Medicaid or be eligible for subsidized coverage through the exchange based on family income.
  
• Pay-fors that include a 5.4% income tax surcharge on Americans with adjusted gross incomes in excess of $500,000, a limitation that over-the-counter prescription drugs may not be reimbursed through FSAs, an increase on  the tax on distributions from a Health Savings Account that are not used for qualified medical expenses to 20% (from 10%), the elimination of the deduction for employer-sponsored retiree prescription drug plans, a tax on medical devices and significant cuts to the Medicare Advantage program.

Other interesting provisions include grants for the creation of cooperatives (co-ops), a temporary national high-risk pool and interstate compacts to sell coverage across state lines. Relative to medical malpractice, there is language that provides for early offers and certificate of merit demonstration projects and language to clarify that practice guidelines are not considered to be evidence of the standard of care owed by a health care provider. NAHU is still is in the process of conducting a detailed analysis, and will release more information about the measure over the next week.

It is expected that the vote on this measure on the House floor will come extremely quickly, as soon as next Thursday or Friday. The release on October 29 gives the Democratic leadership three days to post the legislation online and another three days to post a final manager’s amendment by the Democratic leadership on the Rules Committee’s website. That amendment is expected to address concerns about the bill that arise as members wade through it over the weekend. Majority Leader Steny Hoyer has stated that the manager’s amendment could be made publicly available as soon as Monday.

More resources available on the bill include the following:

• America’s Affordable Health Choices Act Implementation Timeline
• Topline Changes from Introduced Bill to Blended Bill
• Detailed Summary of Affordable Health Care for America Act
• Immediate Investments on the Road to Reform
• Affordable Health Care for America Act Section-by-Section Analysis

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Weekly Market Commentary Week of October 26, 2009

What do Caterpillar, Netflix, Apple and Microsoft have in common? They all posted quarterly earnings last week that exceeded analyst expectations—and they are not alone.

We are about one-third of the way into the quarterly earnings season and a remarkable 78% of the S&P 500 companies have delivered a positive earnings surprise, according to HSBC as reported in Financial Times. Only 12% have missed to the downside. The huge stock market surge since March has foreshadowed these strong results and companies are delivering.

Generally speaking, the better-than-expected earnings are still being driven by lower expenses rather than higher revenue. For the stock market to continue its meteoric rise, investors want to see year-over-year revenue growth—not just more cost cutting.

The next big test for the markets may be the upcoming Holiday shopping season. If consumers shake off their frugality and spend freely, that could pump up corporate earnings into next year and keep this rally roaring. So this year, your gift purchases may deliver a double benefit—a big smile to the gift recipient and a big smile to you in the form of higher stock prices.

Data as of 10/23/09	1-Week	Y-T-D	1-Year	3-Year	5-Year	10-Year
Standard & Poor’s 500 (Domestic Stocks)	-0.7%	19.5%	23.1%	-7.8%	-0.3%	-1.8%
DJ Global ex US (Foreign Stocks)	0.1	39.7	44.3	-3.5	5.9	2.1
10-year Treasury Note (Yield Only)	3.5	N/A	3.5	4.8	4.0	6.2
Gold (per ounce)	1.3	22.0	47.4	22.1	19.9	13.4
DJ-UBS Commodity Index	2.2	17.1	6.0	-6.2	-2.7	4.2
DJ Equity All REIT TR Index	0.3	16.1	15.2	-13.9	0.7	10.1

PRETEND YOU ARE ON A GAME SHOW WITH MONTY HALL and he offers you the following scenario as described in a 2003 article from the Journal of Experimental Psychology.
You face three doors and behind one door is a car, while the other two hide goats. Your goal is to pick the door that hides the car. Here are the rules. First, the car and the goats were placed randomly behind the doors. Second, after you choose a door, the door remains closed for now. Third, Monty knows what is behind each door. Fourth, he has to open one of the two remaining doors. Fifth, the door he opens must have a goat behind it. Sixth, if both remaining doors have goats behind them, he chooses one randomly.

After Monty opens a door with a goat, he will ask you to decide whether you want to stay with your first choice or switch to the last remaining door. Pretend you chose Door 1 and Monty opens Door 3 containing a goat. With only Doors 1 and 2 remaining—one of which contains a car—he asks you, “Do you want to switch to Door 2?”

From a probability standpoint, are you more likely to win the car by staying with your original choice of Door 1, switching to Door 2, or does it make any difference at all if you stay or switch? Before reading further, think of your answer then return to the next paragraph.

As you contemplated your answer, you may have reasoned that since one of the two remaining doors contains the car, you have a 50/50 chance of winning, so there is no need to switch. That may sound reasonable, but it is not correct. Presented with this three-door scenario, you should always switch, in fact, by switching, you have a 2/3 probability of picking the car.

Here’s the explanation, according to Michael Shermer writing in the February 2009 issue of Scientific American.

At the beginning of the game you have a 1/3 chance of picking the car and a 2/3 chance of picking a goat. Switching doors is bad only if you initially chose the car, which happens only 1/3 of the time. Switching doors is good if you initially chose a goat, which happens 2/3 of the time. Thus, the probability of winning by switching is 2/3, or double the odds of not switching.

Over countless studies using this “Monty Hall” problem, the vast majority of participants think that staying and switching are equally good alternatives. So, if you are in that camp, you have lots of company.

For investors, the fact that the majority of people who take the “Monty Hall Challenge” get it wrong suggests that there may be times when the majority of investors are “wrong,” too. At crucial turning points in the stock market, when there is evidence to support two opposite directions for the major averages, the majority of investors may “misread” the data (as in the Monty Hall Challenge) and draw a conclusion that subsequently turns out to be incorrect. While we will not always be “smarter” than the crowd, we do realize that, like the Monty Hall problem, the crowd is not always right. And because of our open mind, our willingness to think differently, we are constantly scanning for opportunities or turning points that may be overlooked by the crowd.

Sidebar: Are you still shaking your head about the answer to the “Monty Hall” problem? Here’s another way to look at it from mathforum.org.

What if there were 1,000 doors? You would initially have a 1/1,000 chance of picking the correct door. If Monty opens 998 doors, all of them with goats behind them, the door that you chose first will still have a 1/1,000 chance of being the one that conceals the car, but the other remaining door will have a 999/1,000 probability of being the door that is concealing the car. Here switching sounds like a pretty good idea.

Weekly Focus – Think About It

“How wonderful that we have met with a paradox. Now we have some hope of making progress.”
–Niels Bohr

Best regards,

The Advisory Team at
The Wealth Consulting Group

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