Michigan Health Law Link : Michigan Health Care Lawyer & Attorney : Smith Haughey Rice & Roegge Law Firm : Ann Arbor, Grand Rapids, Traverse City

The Obama administration reported that in 2011, the first full year of the new healthcare reform law, 3.6 million people in the Medicare program saved $2.1 billion on prescription drugs. According to Kathleen Sebelius, the Secretary of Health and Human Services, eventually healthcare reform will close the Medicare donut hole completely.

The "donut hole" is the informal name for the Medicare Part D coverage gap. When a Medicare beneficiary has a Part D prescription plan, the beneficiary is responsible for paying an initial deductible. Then, the beneficiary enters the initial coverage phase, where the beneficiary is responsible for paying a co-payment on all prescriptions while their insurance pays the remaining balance. After a Medicare beneficiary surpasses the prescription drug coverage limit for the year, however, the Medicare beneficiary is financially responsible for the entire cost of prescription drugs until the expense reaches the catastrophic coverage threshold. Then, insurance will again cover the primary cost of the prescriptions until the end of the year. This "gap" when the beneficiary must cover the entire cost of prescriptions is known as the "donut hole". These costs can be extremely burdensome on Medicare beneficiaries, which is why the Affordable Care Act's ("ACA") provisions that lower such costs are so appealing to beneficiaries.

According to the Detroit News, the savings on prescription drugs created by healthcare reform had a substantial impact on Michigan Medicare beneficiaries in 2011. More than 84,000 Michigan residents receiving Medicare benefits saved nearly $49 million on prescriptions in 2011. This amounted to an average savings of $582 on prescriptions for each Michigan Medicare beneficiary who hit the donut hole.

This savings is due to certain provisions in the ACA. Beginning in 2011, the ACA provided Medicare recipients a 50% discount on brand-name prescriptions. By 2020, these changes will effectively close the coverage gap and rather than paying 100% of the costs, beneficiaries' responsibility will be 25% of the costs.

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In August, we reported that Michigan had submitted an application to the Department of Health and Human Services (HHS) requesting a waiver of the Affordable Care Act's (ACA) medical loss ratio requirements for its individual health insurance, claiming that without a phase-in to the medical loss ratio requirements, many insurers would stop offering insurance in Michigan. Under the ACA, health insurers must spend 80% (individual and small group revenue) to 85% (large group revenue) of premiums on direct care for patients and efforts to improve care quality. This percentage is called the medical loss ratio (MLR). Starting in 2012, insurers who come short of the MLR must provide a rebate to their customers under the ACA.

Michigan's waiver application requested a phase-in of the MLR requirements between now and January 1, 2014.

HHS denied Michigan's request in full, finding that research in Michigan showed that most of its insurers were either profitable or adjusting business models to meet the 80% standard. This, according to HHS, showed no intent by the insurers to stop offering insurance in Michigan, and consequently that no waiver was justified.

Of the 17 states that have asked for adjustments to the MLR requirements, six have been turned down, five received partial exemptions, and only Maine had its full request approved. The rest of the applications remain outstanding.

Smith Haughey Rice & Roegge will continue to monitor this decision and its impact on Michigan.

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On July 28, 2011, Michigan submitted an application to the Department of Health and Human Services (HHS) requesting a waiver of the Affordable Care Act's (ACA) medical loss ratio requirements for its individual health insurance.

Many insurance companies spend a portion of consumers' premiums on administrative costs and profits, including executive salaries, overhead, and marketing. Under the ACA, consumers will receive more value for their premiums. New regulations require health insurers to spend 80% (individual and small group revenue) to 85% (large group revenue) of premiums on direct care for patients and efforts to improve care quality. This percentage is called the medical loss ratio (MLR). Starting in 2012, insurers who come short of the MLR must provide a rebate to their customers under the ACA.

To compensate for transitional difficulties, the ACA allows the Secretary of Heath and Human Services to adjust the MLR standard for a State "if it is determined that meeting the 80 percent medical loss ratio standard may destabilize the individual market and . . . result in fewer choices for consumers." On July 28, 2011, Michigan submitted an application to HHS, requesting an adjustment to the MLR standard. The request may be found here.

Michigan's application requests a phase-in of the MLR requirements between now and January 1, 2014 where the MLR for 2011 would be 65%, followed by 70% for 2012, and 75% for 2013. Michigan's request stated that without this adjustment to its MLR requirements, "fourteen (14) companies would be scheduled to issue rebates totaling $30.6 million, with eight (8) paying rebates in excess of their after tax profit for 2010." This could lead such insurance companies to stop offering health insurance in Michigan. Currently, "the market is dominated by one insurer, Blue Cross Blue Shield of Michigan, [who] already operates at an MLR [of 93%]." Thus, the loss of competitors could substantially reduce a consumer's choice of where to purchase health insurance. In addition to Michigan's request, U.S. House Representatives Dave Camp and Fred Upton have together submitted a letter to HHS in support of Michigan's adjustment.

According to the HHS website, Michigan's application is under review for completeness. Upon a finding by HHS that the application is complete, public comment will be invited regarding Michigan's request for ten days.

Smith Haughey Rice & Roegge will continue to monitor the progress of Michigan's request to adjust federally mandated MLR requirements.

Summer Associate Peter Afendoulis assisted in the writing of this entry.

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On July 11, 2011, the U.S. Department of Health and Human Services (HHS) published two Notices of Proposed Rulemaking (NPRM). The first proposed rule, the Exchange NPRM, will enable States to build Affordable Insurance Exchanges (AIE). AIEs are new State-based competitive insurance marketplaces created under the Affordable Care Act. The second NPRM addresses standards related to re-insurance, risk corridors, and risk adjustment to assure stability in these newly established markets. The main topics of the proposed NPRMs include standards for:

1. States that elect to establish and operate an Exchange;
2. Health insurance plans to participate in an Exchange;
3. Enrollment in health plans through Exchanges; and
4. Employers who opt to participate in the Small Business Health Options Program (SHOP).

These exchanges are intended to level the playing field for individuals and small businesses by consolidating their purchasing power, making it easier for them to comparison-shop among a larger field of competing plans and ensuring that all available options meet minimum standards.

The law will offer tax credits to offset the cost of insurance for small businesses with 25 or fewer employees. However, states will be able to set the size of small businesses that can buy insurance through the exchange at anywhere from 50 to 100 employees through 2016. Furthermore, States may open the exchanges to larger companies after this time. "Flexibility is the name of this game," said Donald Berwick, administrator of the Centers for Medicare and Medicaid Services.

Both NPRMs may be found here.  

Smith Haughey Rice & Roegge will continue to monitor the progress of new State-based competitive insurance exchanges created under the Affordable Care Act.

Summer Associate Peter Afendoulis assisted in the writing of this entry.

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