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Health care reform: Waivers, risk adjustment and toenail clippings?

February 21, 2011 - Mary Ann Heath
Clipping toenails.

For some, I suppose it can be a little gross at times, but normally does not require any sort of medical help. Correct? Not according to one podiatrist in Michigan who was recently charged with Medicare fraud. The doctor allegedly removed 20 nails on three toes of the same patient at $110 bucks for each procedure. Investigation revealed it was little more than clipping toenails. Not exactly how I’d like to see my taxpayer dollars spent.

According to an Associated Press article published Thursday, 111 people accused of illegally billing Medicare more than $225 million have been arrested. Medicare fraud is estimated to cost the government between $60 and $90 billion each year, the article said. In 2009, Health and Human Services Secretary Kathleen Sebelius and Attorney General Eric Holder partnered to funnel more funding and manpower to fraud hot spots. Thursday’s indictments hopefully send a clear message, “health care fraud is not easy money,” Holder said at a press conference.

The Affordable Care Act widens law enforcement’s authority to crack down on health care fraud. Eliminating funds leaking out of Medicare’s budget will ultimately help pay for the health care overhaul.

But Medicare fraud isn’t what I read about this week. This week I tackled waivers for state innovation, interstate and nationwide health plans, reinsurance programs, risk adjustment and risk corridors (possibly worse than two weeks of reading about exchanges). It ended with what I presume to be just the beginning of my reading on refundable tax credits (something I’ll tackle next week).

What is being made clear to me as I continue reading the bill, is that health care reform places control in the hands of individual states, not the federal government. States have central guidelines to adhere to, but are alloted a lot of flexibility when it comes to health care.

• Waivers for state innovation: Starting in January 2017, states will be able to apply to the secretary of Health and Human Services for waivers of requirements related to health insurance coverage in the state. The waivers can be used for up to five years and may deal with requirements for: qualified health plans, exchanges, cost-sharing reductions, tax credits, individual responsibility requirements or shared responsibility for employers. States, however, must pass a law and follow regulations that guarantee transparency. They must also meet certain standards. According to a release issued from U.S. Senator Ron Wyden (author of this section of the bill), the state first passes a law to provide insurance to its citizens. The secretary of Health and Human Services then ensures that under the waiver: residents get coverage at least as comprehensible as what is provided under federal law; coverage is affordable; as many residents are covered as under the federal plan; and it will not increase the federal deficit. Basically, waivers provide states a little wiggle room when it comes to meeting requirements of health care reform. While I haven’t yet hit the part of the bill where individuals are penalized for not having health insurance, it appears this portion, at least, allows states the opportunity to “waive” the individual requirement.

• Interstate and nationwide plans: The bill also establishes guidelines for “interstate health care choice compacts,” which enables insurance issuers to offer a health plan in more than one state. The plans must adhere to the guidelines in the state in which the plan was written or issued, but not all the guidelines of every state it is offered. The law stipulates such plans would still be subject to market conduct, unfair trade practices, network adequacy and consumer protection standards. Insurance issuers must be licensed in every state where the plan is offered. Issuers must also clearly let consumers know that a policy may not be subject to all laws and regulations of the state in which they live. Issuers must meet specific requirements to be granted the authority to offer health plans as “nationwide qualified health plans.” Nationwide health plans must offer a benefits package that is uniform in each state and the issuer must be licensed in each state it offers the plan. Premiums must determined with regard to each individual state’s rating rules. The law also mandates that issuers must offer the plan in more states each year. The first year, plans must be offered to at least 60 percent of the participating states, 65 percent the second year, 70 percent the third year, 75 percent the fourth and 80 percent in the fifth and subsequent years. Of course, being offered in numerous states would make the plans “nationwide.” Plans must cover essential benefits. States may also choose to “opt out” of offering nationwide plans.

• Reinsurance: This part was a bit tricky, but lucky for me, brief. By January 2014, states must adopt a law or standards under which it will establish a nonprofit reinsurance entity. Under such a program, health insurance issuers in the individual and small group markets make payments to the reinsurance entity. The entity collects these payments and uses them to make payments to issuers in the individual and small group markets that cover high-risk individuals. describes reinsurance as a sort of reimbursement system that protects insurers from very high claims. States are required to run these programs in 2014, 2015 and 2016. The secretary of Health and Human Services will establish standards for determining what “high risk individuals” are, payment formulas and how much insurers must contribute. Overall, the contributions over the next three years must equal $25 billion. It sounds confusing, but ultimately the goal of reinsurance is to counteract possible selection problems that may occur in the first few years of the exchange system. It protects high-risk individuals against anti-selection based on health status.

• Risk Adjustment and Risk Corridors: The secretary of Health and Human Services must create a “risk corridor” for qualified health plans in 2014, 2015, 2016. If a health plan’s costs exceed 103 percent of total premium costs, the secretary must make payments to the plan in order to help offset the excess (this does not include administrative costs). If the plan's costs are less than 97 percent of total premium costs, however, the secretary collects payments from the plan. States are also required to assess charges on health plans that have enrollees with lower-than-average risk, and make payments to plans with enrollees that have higher-than-average risks. This risk adjustment helps maintain a level playing field during the early years of the program. It also protects high-risk individuals against anti-selection and prevents one company from getting excessive amounts of money because they only cover low-risk individuals. Transitional programs like these aim to protect high-risk, low-income individuals from being turned away.


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