Kassebaum-Kennedy Health Insurance Bill Clears Congress
Medical Savings Accounts Limited to Demonstration Program
From: C. Sabatino, ABA Comm'n on Legal Problems of the Elderly - Families USA a.s.a.p. Update
Subject: Analysis of Kassebaum-Kennedy Bill
Date: Tuesday, August 13, 1996
Late in July, the House and Senate finally reached a compromise on legislation to curb some of the worst abuses by health insurers. The insurance reform bill is commonly known as the Kassebaum-Kennedy bill, after its primary sponsors, Sens. Nancy Kassebaum (R-KS), chair of the Senate Labor and Human Resources Committee, and Edward Kennedy (D-MA), the committee's Ranking Minority Member.
The final version of S. 1028, the Health Insurance Reform Act, was adopted by the House on August 1st with only two dissenting votes. The Senate unanimously approved the compromise the next day. The President is expected to sign the bill into law.
Democrats opposed MSAs, fearing they would appeal only to the healthy and wealthy, leaving those with less money and more health problems behind in an increasingly costly insurance pool. The Republican leadership insisted that MSAs be included. Both sides eventually settled on a compromise that permits a four-year, limited test of the MSA idea, clearing the way for final action on the bill.
What the Bill Does: The Good News
The Health Insurance Reform Act will help those Americans -- an estimated one out of four of us -- who are caught in "job lock," afraid to change jobs or start their own businesses because they have preexisting conditions that would prevent them from obtaining new insurance coverage. As finally approved, the bill makes the following changes:
- Limits preexisting condition exclusions. Insurers may not deny coverage or impose preexisting condition exclusions for more than 12 months for any condition diagnosed or treated in the preceding six months. This 12-month exclusion is a lifetime limit: no new preexisting condition exclusions may be imposed on anyone who maintains continuous coverage (i.e., no more than a 63-day gap in coverage).
- Assures the availability of individual policies for those who leave jobs voluntarily or involuntarily and for their dependents. This protection would apply only to those who had maintained continuous private coverage for the preceding 18 months and who were ineligible for further coverage under COBRA.
- Prohibits insurers from denying coverage or charging higher premiums to individuals in group plans who are in poor health. Also prohibits insurers from refusing to sell plans to small employers (defined as those with from 2 to 50 employees).
- Makes long term care expenses deductible for federal income tax purposes. "Qualified" long term care expenses -- both nursing home costs and home health care -- would be treated like other medical costs.
- Increases the deductibility of premiums for the self-employed. Over a 10-year period, gradually raises the percentage of health insurance premiums the self-employed can deduct from their federal income taxes to 80 percent from the present 30 percent.
What the Bill Does: The Bad News
In addition to those positive changes, the bill also includes some less desirable provisions. Specifically, it:- Allows the creation of 750,000 tax-exempt Medical Savings Accounts, beginning in 1997. After four years, there would be no further expansion of MSAs unless Congress voted to extend and expand the program. These MSAs would be limited to the self-employed, the uninsured, and workers in businesses with fewer than 50 employees. The compromise MSA provision also imposes some limits on the size of the tax break and taxes (with penalties) most non-medical withdrawals from MSAs.
- Criminalizes transfers of assets. For the first time, imposes fines of up to $10,000 and jail sentences of up to one year for those who "knowingly and willingly" transfer assets to qualify for Medicaid. According to the National Senior Citizens Law Center, the chief effect of this provision will be a "chilling effect on people needing Medicaid to pay for nursing home services" since it will discourage many from applying for assistance. And nursing homes are likely to use the new law to discourage residents from applying for Medicaid.
- Also, for the first time, premiums for long term care insurance could be deducted from federal income taxes, up to certain specified limits. This is a costly and unnecessary tax break for higher income individuals.
- Lets insurers sell policies duplicating benefits. Permits insurers selling long term care policies to sell multiple policies to unsuspecting seniors without disclosing that the plans duplicate benefits they already have. The earlier bill had also freed insurers selling Medigap policies from the disclosure requirements in current law, but this part of the provision was dropped in conference.
What the Bill Does Not Do
Although the Health Insurance Reform Act will help people with preexisting conditions who have been denied coverage or who fear they will lose coverage if they change jobs, it does little to assure that they can afford these policies. Nor does it help those currently covered by individual policies: the limits on preexisting condition exclusions apply only to those who have been enrolled in group plans. Another disappointing omission is protection for mental health coverage. In its passage of the original bill, the Senate approved an amendment sponsored by Sens. Pete Domenici (R-NM) and Paul Wellstone (D-MN). This amendment required that benefits for mental health and substance abuse be comparable to medical benefits. Fierce lobbying by the business community, who claimed it would increase costs drastically, killed the mental health provision in conference negotiations.
Most importantly, this legislation does nothing to help the uninsured. Millions of Americans who are not covered by their employers or by any public program are unable to afford private coverage. And their numbers have been growing at an alarming rate. The Kassebaum-Kennedy bill will not change this picture.
On a positive note, the Multiple Employer Welfare Arrangement (MEWA) proposal was dropped in conference. The MEWA provision would have permitted small businesses to join together to purchase health insurance as a large group or to "self-insure." MEWAs, because they are largely unregulated, have been plagued by fraud, often collecting premiums but failing to deliver care. Also dropped was a provision limiting awards to victims of malpractice by doctors or Health Maintenance Organizations (HMOs).
This Is Just Step One
Free-market conservatives, with their distaste for government, extol Kassebaum-Kennedy as the only reform we need, and as a model of appropriate governmental action to address our health care problems. "All this can be done without an overdose of government control, which the American people rejected here just a few years ago," claimed then-Senate Majority Leader Robert Dole (R-KS) back in April. But is Kassebaum-Kennedy enough? John Judis, writing in The New Republic, responded to those who have oversold the bill:
"The Kassebaum-Kennedy bill has been celebrated as the kind of simple, incremental reform the Clinton administration should have attempted in the first place. But there was a reason the Clinton bill was so complicated. Health care finance and delivery is a web of extraordinarily intricate relations where progress in one area can easily lead to regression in another. Kassebaum-Kennedy does make improvements in one very narrow area, but, in claiming to do more, it nourishes illusions about the ease of reform .... It stands for change, but does very little to bring it about."
Two years ago, when the former Congressional Budget Office Director Robert Reischauer was asked about an even broader health insurance reform bill some legislators had resorted to in retreat from the doomed Clinton plan, he replied, "Settling for only insurance reform is like putting lipstick on a pig." Commenting on today's more modest effort, Senate Minority Leader Tom Daschle (D-SD) said, "This bill is to health care as one event is to the Olympics."
[This is a long piece about the final bill taken from our a.s.a.p. Update that will be in the mail this week. We thought it was worth e-mailing because some of you will want to save it to use in your own newsletters or in other ways.]
Charlie Sabatino
ABA Commission on Legal Problems of the Elderly
740 15th Street, NW
Washington, DC 20005
202-662-8686
Fax: 202-662-1032
E-mail: sabatinoc@attmail.com
