Frequently Asked Questions

The Rolling HIlls Group's plan for health reform will change the way that health insurance is offered and purchased, in addition to requiring all indiviudals to have comprehensive coverage. While it strives to provide coverage for the uninsured, it is not a repeat of the TennCare effort to cover more without a clear source of funding. These questions and answers will help explain why this plan is not like TennCare and describe the individual's impact on payers, providers and consumers.

What is the overall goal of the Rolling Hills proposal?

The goal is to create a sustainable, universal insurance system with health reforms that lead to better incentives and health for all Americans over a 10-year period. This is accomplished through the creation of regional risk pools through which competing private insurance plans are offered, much like the current federal employees health benefit Plan. The regional risk pools would be overseen by a federal health entity similar to the Federal Reserve Board.

How will this proposal impact Medicare, Medicaid and the State Childrens Health Insurance Program (SCHIP)?

Medicare remains for those who are disabled or over 65, and this proposal continues Medicaid and SCHIP.

How does this program impact the effort to cover the uninsured through Cover Tennessee?

Cover Tennessee includes three insurance options: CoverTN, AccessTN and CoverKids. CoverTN provides a limited benefit, low cost plan for small employers, the self-employed and individuals. The CoverTN plan of the Cover Tennessee program could be restructured and offered through the risk pool; however, CoverTN would be required to expand the benefit package to provide comprehensive health coverage. Because of the insurance reforms included in the Rolling Hills plan, high risk pools like AccessTN should no longer be needed because the payers in the state risk pool are required to guarantee issue to all comers and, therefore, would not exclude individuals based on health risk. Coverage for individuals currently in AccessTN also would be more affordable through the state risk pool that is community rated and governed by the regional health boards. One goal of the Rolling Hills plan is to maximize participation in the CoverKids program by requiring all eligible children to enroll by 2010.

How is the Rolling Hills plan different from TennCare?

Through a five-year Section 1115 waiver that began in January 1994, TennCare was created for two primary reasons:

To slow the growth in cost of the Medicaid program.
To extend coverage to the working poor and other uninsured Tennesseans.

TennCare extended coverage to 400,000 uninsured and uninsurable individuals, in addition to 800,000 Medicaid enrollees. At the same time, the benefit package was expanded. The only additional funding source was the redirection of $437 million dollars (state and federal match combined) that had been allocated for the disproportionate share payment into the general funding of services provided by the program, a DSH payments to hospitals were eliminated. The state believed the overall cost of the services would decline as a result of contracting with managed care organizations (MCOs) to manage acute and behavioral care.

According to the first Price/WaterhouseCoopers actuarial study of TennCare completed in 1999, the capitation rates that were set for the program in 1994 were seriously flawed. The net effect of the errors in the determination of the capitation rates was rates that were far too low to pay for covered services for TennCare enrollees. While the state met its objectives of slowing the growth in the cost of the Medicaid program and adding 400,000 enrollees to the program, it was done at the expense of the MCOs and the providers participating in the program.

The only real similarity to the Rolling Hills Group plan is the extension of coverage to those who were uninsured. However, TennCare only extended coverage to low income uninsured, and closed enrollment to the uninsured after the first year of the program, leaving the state with many uninsured residents who continued to require charity care from providers. The Rolling Hills plan requires all citizens to have comprehensive health coverage, which would almost eliminate charity care.

TennCare is a government-operated program. The Rolling Hills Group plan will create a risk pool overseen by a Federal Reserve-like entity operated by private health plans. Providers will be in a position to negotiate with payers for rates instead of having rates controlled by government.

TennCare recaptured DSH payments under the assumption that charity care would go away, which did not occur. The Rolling Hills plan will only recapture DSH payments after charity care has been significantly reduced.

TennCare assumed that the program could save enough under managed care to offset the cost of increasing both the number of enrolled residents and to expand the benefits. The Rolling Hills Group has a new funding source that has been actuarially shown to be adequate to fund the cost of the proposal. Additional savings to the overall healthcare system could be generated by the healthcare payment and system reform components but are not depended on to fund the coverage for the uninsured.

Why are federal changes needed in order to do truly comprehensive reform?

Federal reform is needed because of the way in which the current federal tax structure subsidizes employer-sponsored health insurance and federal law creates plans through the Employee Retirement Income Security Act (ERISA) that operate outside of a state’s reach.

The federal tax code provides for a tax exclusion that employer-sponsored health insurance that works as an upside-down subsidy. The largest subsidies go to high-income taxpayers who would be most likely to obtain employer-provided insurance, while those with low incomes get little or no benefit. Individuals and families with the highest premium burden as a share of income receive the smallest subsidy value in the current system. Higher income workers generally have higher cost coverage, and thus more expensive total subsidies and receive a larger tax benefit Those individuals and families with low incomes often do not have employer-provided coverage, and often do not file taxes and, therefore, receive no benefit. This results in an inefficient use of federal dollars. This inequitable distribution of the subsidy can be reformed to redistribute benefits and ease the transition into a universal insurance system.

ERISA is a federal law which permits what are known as “ERISA plans.” These are health plans offered by employers who “self insure” and are not subject to each individual state’s regulation. Usually employers who offer ERISA plans are larger employers and often are multi-state employers for whom meeting the varying standards of several state requirements would create obstacles in providing consistent coverage. ERISA plans offer employers the advantage of developing a plan that can be used across state lines. It also allows those plans to opt out of state regulation and mandates. By operating as an ERISA plan, these plans usually can lower benefit cost because companies “self-insure” or carry the risk themselves rather than paying a health insurer to underwrite risk.

On a state level, the presence of ERISA plans also means a potentially large group of individuals is out of reach of any state-based reforms. Federal and state reforms should work cooperatively so the advantages and legitimate benefits of ERISA continue, while allowing states to include these large self-insured groups in their reformed structures.

How does this proposal work?

Tennessee Beginning in 2010, Tennessee would create a risk pool, offering individuals and employers competing plans. (Plans could not participate as ERISA plans until federal reforms occurred.) Tennessee would enact insurance reforms that include modified community rating, guarantee issue and prohibit excluding pre-existing conditions; establish guidelines for participating insurer profits and make medical loss ratios and other information public and provide employers annual plan and group utilization reports and administrative simplification. In addition, Tennessee could begin to put in place demonstration projects to better align provider incentives and determine better ways to provide prevention, and chronic disease management. Tennessee could mandate coverage for those with income greater than 400 percent of poverty and mandate participation in CoverKids for all eligible children in the state.

When federal reforms were put in place, regional risk pools would be put in place to offer competing plans across the country. A federal tax subsidy limited to the actuarial value of a Blue Cross Blue Shield Standard Plan PPO with a deductible of $750 for an individual would be available to lower income Americans. A federal reserve-like Board insulated from politics would establish a basic plan design and act as a connector.

ERISA plans could continue to operate outside the federal insurance system, but would participate in the risk pools via a “risk adjustment.” If the plan had a workforce that was healthier than the participants in the state risk pool, the plan would make a payment to the pool. If the plan had a less healthy workforce, the risk pool would make a payment to the plan.

Over the 10-year transition, coverage would be mandated beginning in 2012 with those with income greater than 350 percent of poverty and those with income less than 100 percent of poverty. As funding becomes available for subsidies , the remaining group with income between 100 percent and 350 percent of poverty would be phased in.

Does anyone get a subsidy to make the insurance affordable?

Those individuals not eligible for Medicaid, Medicare or SCHIP with income up to 350% of the poverty level would receive a subsidy. The intent of the plan is to cover 100% of the cost of the plan up to 100% of the federal poverty level initially and increase full subsidies as funding allows up to 150% of the federal poverty level. For those with income from 150% up to 350% of poverty, the intent of the plan is to provide income related subsidies on a sliding scale basis.

How do individuals get their insurance subsidized?

The subsidy amount would be based on income. Individuals would file a statement about their income, and the federal reserve-like entity would match the person, the insurance and the subsidy. The U.S. Treasury would send the amount of the subsidy directly to the insurer (refundable tax credit). This is similar to the manner in which the child day care tax credit works today.

What if someone does not choose a plan?

Enforcement of the coverage requirement would be through a person’s normal interaction with government. For example, if a person was renewing a driver’s license and failed to show proof of coverage, the individual could be referred to the Federal Reserve-like entity to be randomly assigned to a plan. If an individual presented in a hospital without insurance, they could be randomly assigned to a plan.

If individuals do not pay their premiums, the portion of the premium not eligible to be subsidized would become a federal tax liability.

What does this plan cost?

At a national level, the plan is estimated to cost approximately $100 billion. How is this system paid for? There are three sources of funding for this universal insurance system:

Beginning in 2010, only the actuarial value of the basic plan benefit would be excludable from income for individuals.
Beginning in 2010, only the actuarial value of the basic plan benefit would be deductible as a business expense to employers. From 2010 through 2019, the deduction to employers would be further phased down to 50 percent of the actuarial value of the base plan to discourage employers from over-subsidizing health costs and to move to a system of purchasing insurance through the regional risk pools.
The third source of funding is recapturing spending on existing provider subsidies for indigent care from public programs. As the uninsured levels fall, the supplemental payments would not be as needed and would be redirected to help fund the subsidies and administrative costs of the program.

How does this plan allow ERISA plans to continue?

ERISA plans could continue under this plan. However, if the employees in the plan are healthier than those enrolled in the state risk pool, the plan would pay into the state risk pool. This is called a risk adjustment. If a plan had a group of employees who were sicker than those enrolled in the state risk pool, the risk pool would pay the plan a risk adjustment. In this way, businesses could continue to enjoy the benefits of ERISA plans, but the plans are participating in the overall risk pool through the risk adjustment structure.

How does this proposal impact major stakeholders?

State Governments: State governments should over time save funds that are committed to provide coverage for more uninsured individuals or provide safety net services for those who remain uninsured. The state matching funds that support supplemental payments to providers would be reduced or redirected to help fund the cost of universal insurance.

Employers: Employers would have a source from which to obtain lower cost coverage or could assist individuals in obtaining coverage through the regional risk pools. Over time, employers may find it more advantageous to no longer provide insurance since their employees would now have a source to get credible, affordable coverage.

Employers with ERISA plans would not have to change other than to make sure their plan was as good as the basic plan. ERISA plans would become full participants because they would either pay into the system if the workforce their plan covered was healthier or would receive a payment if they covered a less healthy workforce.

Employers, including ERISA plans, will help fund the cost of reform through the reduction in the healthcare benefit amount they would be allowed to claim as a business expense.

Federal government: This plan provides additional tax revenue to the US Treasury and redirects federal dollars currently used to fund special payments to providers to help fund the plan. The plan uses existing mechanisms through the tax code to provide subsidies and existing federal interactions to enforce the universal insurance requirement.

Individuals and Families: Individuals and families would still have a choice of plans and over time may move to the reformed individual market. A move towards the individual market would make insurance portable regardless of where within the region they lived and where they worked. Employer benefits in excess of the cost of the risk pool standard benefit plan will become taxable to individuals.

The Health System: Overall, there should be fewer bad debts for providers, and less cross subsidization of those who have insurance paying for those who do not ( cost shifting). In addition, the plan makes recommendations to improve the health system related to both healthcare delivery and healthcare payment mechanisms including transparency, quality, and better aligning incentives for providers. The plan includes changes in federal requirements related to pharmaceutical company marketing and the cost of medical supplies.

How would this proposal impact overall health status?

By having access to inpatient and outpatient services, individuals who have delayed care will be able to better access needed care. Plans would be required to place an emphasis on prevention and, that combined with demonstration projects in Tennessee to better align incentives and develop new care models for chronic diseases. Making more information public, such as plans’ medical loss ratios and how successfully plans and providers manage care, will also provide consumers with tools to seek those providers and plans that are successful in keeping them healthy. Being insured continuously should also lead to individuals receiving care when they need it instead of delaying care until individuals are sicker and more costly to treat.

How does this proposal impact provider reimbursement?

Unlike a system in which rates are set, providers would still negotiate with payers. However, if more people had private coverage paying at private rates, providers would have less indigent care costs. After the system is mature enough to have a defined impact on indigent care costs for providers, supplemental payments that currently fund indigent care services would be reduced and those funds would be redirected to fund a portion of the reform plan.

How does this proposal control health-care costs?

In essence, the plan relies on the competition of plans to control costs. Payers will not be allowed to set premiums based on health status, and their profits will be monitored. In addition, payers also will be required to provide employer groups information that will allow them to more effectively shop for affordable healthcare coverage for their employees. The plan proposes to study the cost of pharmacy and medical supplies. Payment reform would align provider payments and incentives to make the provision of services more cost-effective. In addition, there are recommendations in the plan concerning paying for quality.

Why are ERISA plans allowed to continue and how do they contribute to the plan?

ERISA plans are important for employers that operate across state lines because they provide some administrative simplicity. The Rolling Hills plan allows ERISA plans to continue. However, if the employees in the plan are healthier than individuals enrolled in the state risk pool, the plan would pay into the state risk pool. This is called a risk adjustment. The opposite is also true. If a plan had employees with greater risk than individuals enrolled in the state risk pool of employees than the state average, the risk pool would pay the plan a risk adjustment. In this way, businesses could continue to enjoy the benefits of ERISA plans, but the overall system benefits from the plans participating in the overall risk pool through the risk adjustment structure.