Monster Media 1993 #3/MONSTER.ISO/textfile/hspln.txt

Text File | 1993-10-24 | 363KB | 10,311 lines

THE PRESIDENT'S HEALTH SECURITY PlAN


The American
Health Security Act


 THE PROBLEM

All Americans, those who have health insurance and
those who do not, understand that serious problems
exist in the health care system:


   Americans lack security. One out of four peo-
ple--or 63 million people--will lose health insurance
coverage for some period during the next two years.
Thirty-seven million Americans have no insurance and
another 22 million lack adequate coverage.

  Losing or changing a job often means losing insur-
ance. Becoming ill or living with a chronic medical
condition can mean losing insurance coverage or not
being able to obtain it.

   Health care costs are rising faster than
other sectors of the economy. Precipitous growth
in health care costs robs workers of wages, fuels the
growth of the federal budget deficit and puts affordable
care out of reach for millions of Americans.

  Left unchecked, rising health care costs will consume
almost two-thirds of the increase in Gross Domestic
Product for each American for the rest of the decade.

Health care costs will grow from 14 percent of GDP
to 19 pereent even without an expansion of coverage to
insure all Amerieans.

 Bureaucracy overwhelms consumers and
health providers. Excessive paperwork confuses and
frustrates doetors, nurses, patients and their families.

Bureaucracy also drives up costs. Studies document
that administrative costs contribute a steeply rising por-
tion of the expenses involved in running a typical doc-
tor's office or hospital.

 Quality is uneven. Because no clear standards
define best medical practice, lack of information and
inadequate attention to prevention make the quality of
health care across America uneven. Consumers have no
reliable information with whieh to measure the quality
of their health care or coverage.

 Coverage for long-term care is inadequate.
Many elderly and disabled Americans enter nursing
homes and other institutions when they would prefer
to remain at home. Families exhaust their resources
trying to provide for disabled relatives.

 Many Americans cannot obtain quality
care. In many rural and inner-city areas, shortages of
doctors, clinics and hospitals form barriers to care.

 Fraud and abuse cheat everyone. Many
Americans believe that exorbitant charges, fraud and
abuse undermine both quality and access to care.


  OVERVIEW

  The American Health Security act guarantees compre-
hensive health coverage for all Americans regardless of
health or employment status. Health coverage contin-
ues without interruption if Amcricans lose or change
jobs, move from one area to another, become ill or
confront a family crisis.

  Through a system of regional and corporate health
alliances that organize the buying power of consumers
and employers, the American Health Security Act stim-
ulates market forces so that health plans and providers
compete on the basis of quality, service and price.

  Under thc Act health plans must meet national stan-
dards on benefits, quality and access to care but each
state may tailor the new system to local needs and con-
ditions. Thus the program encourages local innovation
within a national framework.

  It frees the health care system of much of the accu-
mulated burden of unnecessary regulation and paper-
work, allowing doctors, nurses, hospitals and other
health providers to focus on providing high-quality care.


Creating Security

The American Health Security Act enhances the secu-
rity of the American people by extending universal cov-
erage in a environment that improves quality and
controls rising costs:


   All employers contribute to health coverage for
their employees, creating a level playing field among
companies.

   Everyone shares the responsibility to pay for cov-
erage.

   Limits on out-of-pocket payments protect Ameri-
can families from catastrophic costs, while subsidies
ease the burden on low-income individuals and small
employers.

 A comprehensive benefit package with no lifetime
limits on medical coverage guarantees access to a full
range of medically necessary or appropriate services.

 Elderly and disabled Americans receive coverage
for outpatient prescription drugs under Medicare for
the first time.

 Guaranteed choice of health plans and providers
enhances choice for many Americans.

 No health plan may deny enrollment to any appli-
cant because of health, employment or financial status
nor may they charge some patients more than others
because of agc, medical condition or other factors
related to risk.

 All health plans meet national quality standards
and provide useful information that allows consumers
to make valid comparisons among plans and providers.

 Separate programs increase federal support for
long-term care and improve the quality and reliability
of private long-term care insurance.


Controlling Costs

The American Health Security Act brings growth in
health care costs in line with growth in Gross Domes-
tic Product by 1997. It accomplishes this goal by
increasing competition in hcalth care, reducing admin-
istrative costs and imposing budget discipline:


 A standard, universal package of health benefits
 and reliable information about the price and perfor-
 mance of hcalth plans encourages informed choices.

 Consumers pay less for low-cost plans and more for
high-cost plans, ereating incentives for cost-conscious
choice.

 Health plans receive fixed premiums based on risk
characteristics of their patients. Working under a fixed
budget, they have incentives to spend resources cost
effectively.


If savings attained through effective competition and
reductions in administrative costs do not achieve the
spending goals, the national health care budget provides
a backstop, ensuring that health care spending is in line
with economic gowth.

Like the private sector, major government pro-
grams, including Medicare and Medicaid, also operate
under a budget restraining the growth of federal and
state spending for health care.


Enhancing Quality

The American Health Security Act improves the qual-
ity of health care by creating standards and guidelines
for practitioners, reorienting quality assurance to mea-
suring outcomes rather than regulatory process,
increasing the national commitment to medical research
and promoting primary and preventive care.


 Explicit quality goals and standards shape the
health care system.

 Health plans are held accountable for quality
improvement.

 Regular publication of accessible information
about quality and cost allows consumers to make
informed choices among health care plans.

 Increased investment in research advances medical
knowledge.

 A special funding mechanism ensures that aca-
demic health centers continue their vital role in
research, training and specialty care.

 New investments support training for primary care
physicians and other health professionals; federal action
helps remove artificial barriers to practice that hinder
nurses and other non-physicians.

 Investments in public health enhance the level of
protection for all Americans.

 Changes in Medicare rate schedules and in the allo-
cation of federal funds supporting graduate medical edu-
cation provide new incentives for primary care physicians.

 Preemption of state laws limiting the scope of
practice and new funding for the education of health
professionals who are not physicians enhance opportu-
nities for nurses, social workers and other non-physician
providers.


Expanding Access to Care

The American Health Security Act invests in the devel-
opment of an adequate health care system in areas with
inadequate service. Those investments hold the promise
of improving the availability and quality of health care
in rural communities and urban neighborhoods.


 Health alliances assume responsibility for building
health networks in rural and urban areas with inade-
quate access.

 National loan programs support the efforts of local
health providers to develop community-based plans.

 Investments in new health programs such as
 school-based clinics and community clinics expand
 access to care for underserved populations.

 Financial incentives attract health professionals to
 areas with inadequate care.


Reducing Bureaucracy


The American Health Security Act reduces the burden
of paperwork and administration; regulatory, billing
and reporting requirements decline, and consumers
experienee a streamlined and simpler system:


 A single, comprehensive benefit package that cov-
ers every eligible person eliminates confusion about
coverage.

 Administrative costs caused by multiple policies
with different benefits and risk seleetion disappear.

 Standard forms for insurance reimbursement, the
submission of claims and clinical encounter records
simplify paperwork and reduce administrative costs.

 The cost of administering coverage in small com-
panies declines because they purchase through health
alliances that benefit from economics of scale.

 Federal regulatory requirements for Medicare,
Medicaid and other programs are simplified.

 Health care services covered by workers' compen-
sation and automobile insurance merge into the new
health system, reducing duplication and waste.

 Malpractice reform reduces incentives in the cur-
rent system to perform excessive tests or unnecessary
procedures.


Reducing Fraud and Abuse

The American Health Security Act cracks down on
health care providers and institutions that impose
excessive charges or engage in fraudulent practices, set-
ting tough standards and imposing stiffer penalties
including:

   New criminal penalties for fraud related to health
care and for the payment of bribes or gratuities to
influence the delivery of health services and coverage.

   New civil monetary penalties against providers
who submit false claims.

   Tighter restrictions eliminate referral "kickbacks"
in the private sector, and new standards prohibit physi-
cians from prescribing services delivered at institutions
in which they hold financial interests.

   Accountability standards make provider fraud and
other misbehavior automatic grounds for exclusion
from all health plans.

THE PRESIDENT'S HEALTH SECURITY PLAN


Ethical Foundations
of Health Reform


THE VALUES AND principles that shape the new health
care system reflect fundamental national beliefs about
community, equality, justice and liberty. These convic-
tions anchor health reform in shared moral traditions.


UNIVERSAL ACCESS: Every American citizen and
 legal resident should have access to health care
 without financial or other barriers.

COMPREHENSIVE BENEFITS: Guaranteed benefits
 should meet the full range of health needs, includ-
 ing primary, preventive and specialized care.

CHOICE: Each consumer should have the opportunity
 to exercise effective choice about providers, plans
 and treatments. Each consumer should be
 informed about what is known and not known
 about the risks and benefits of available treatments
 and be free to choose among them according to his
 and her preferences.

EQUALITY OF CARE: The system should avoid the cre-
 ation of a tiered system providing care based only
 on differences of need, not individual or group char-
 acteristics.

FAIR DISTRIBUTION OF COSTS: The health care sys-
 tem should spread the costs and burdens of care
 across the entire community, basing the level of con-
 tribution required of consumers on ability to pay.

PERSONAL RESPONSIBILITY: Under health reform,
 each individual and family should assume responsi-
 bility for protecting and promoting health and
 contributing to the cost of care.

INTER-GENERATIONAL IUSTICE: The health care
 system should respond to the unique needs of each
 stage of life, sharing benefits and burdens fairly
 across generations.

WISE ALLOCATION OF RESOURCES: The nation
 should balance prudently what it spends on health
 care against other important national priorities.

EFFECTIVENESS: The new system should deliver care,
 and innovation that works and that patients want.
 It should encourage the discovery of better treat-
 ments. It should make it possible for the academic
 community and health care providers to exercise
 effectively their responsibility to evaluate and
 improve health care by providing resources for the
 systematic study of health care outcomes.

QUALITY: The system should deliver high quality care
 and provide individuals with the information nec-
 essary to make informed health care choices.

EFFECTIVE MANAGEMENT: By encouraging simpli-
 fication and continuous improvement, as well as
 making the system easier to use for patients and
 providers, the health care system should focus on
 care, rather than administration.

PROFESSIONAL INTEGRITY AND RESPONSIBIL-
 ITY: The health care system should treat the clin-
 ical judgments of professionals with respect and
 protect the integrity of the provider-patient rela-
 tionship while ensuring that health providers have
 the resources to fulfill their responsibilities for the
 effective delivery of quality care.

FAIR PROCEDURES: To protect these values and
 principles, fair and open democratic procedures
 should underlie decisions concerning the operation
 of the health care system and the resolution of dis-
 putes that arise within it.

LOCAL RESPONSIBILITY: Working within the frame-
 work of national reform, the new health care sys-
 tem should allow states and local communities to
 design effective, high-quality systems of care that
 serve each of their citizens.


THE PRESIDENT'S HEALTH SECURITY PLAN
Coverage
THE PRESIDENT'S HEALTH SECURITY PLAN



ALL AMERICANS and legal residents are guaranteed
access to health services in a nationally defined, com-
prehensive package of benefits with no lifetime limits
on coverage. Categories of eligible individuals:


   American citizens

   Nationals

   Citizens of other countries legally residing in the
United States

   Long-term non-immigrants.


Sources of Health Coverage

A health security card provided to each eligible person
entitles him or her to obtain coverage through a health
plan that delivers services covered in a nationally
defined, comprehensive benefit package.

Eligible individuals enroll in a health plan through a
health alliance unless they are covered under govern-
ment-sponsored health programs that continue, including:


 Medicare

   Military personnel covered by the Department of
Defense

   Department of Veterans Affairs

  o Indian Health Service


  Individuals eligible for those programs continue to
receive care through them, although the Department of
Defense, Department of Veterans Affairs and the Indian
Health Service may gradually integrate some of their
services into the new health care system. (See section
on Government Programs.)

  Individuals eligible for Medicaid receive coverage
through regional health alliances. (See Medicaid Section.)

  All employed persons choose a health plan through a
corporate or regional health alliance. Employees of
firms with 5,000 or fewer workers become members of
a regional alliance established to serve the area in which
they reside. Employees of firms with more than 5,000
employees obtain coverage through a corporate alliance
established by their employer unless the employer
chooses to purchase coverage through regional alliances.

  Members of Taft-Hartley plans with more than
5,000 covered workers obtain coverage from an
alliance formed by the Taft-Hartley plan. Employees of
rural electric and telephone cooperative plans that
include more than 5,000 covered workers may receive
coverage through a corporate alliance formed by the
cooperative.

  Employees of government, including federal, state,
local, and special-purpose agencies, obtain coverage
through the regional alliance where they live. All indi-
viduals who are self-employed or not employed obtain
coverage through regional alliances unless they are eli-
gible for Medicare. The United States Postal Service
may operate as a corporate alliance.


Obtaining Coverage

Individuals obtain health coverage by enrolling in a plan
through a regional or corporate health alliance. The
national health security card serves as proof of eligibility.

  An individual eligible for cash assistance (AFDC or
SSI), whether employed or unemployed, has coverage
purchased from the regional alliance by the Medicaid
program.

  Individuals over age 65 continue to enroll in the
Medicare program. The Medicare secondary payer pro-
gram remains for Medicare eligible individuals who
continue to work. Individuals over the age of 65 but
not eligible for Medicare receive coverage through
regional alliances, into which they pay premiums.
Depending on income, they may be eligible for subsi-
dies to pay all or part of the cost of premiums and
required cost sharing. Individuals who are eligible for
Medicare because of disability continue to receive
Medicare coverage.

  Retired workers under 65 are eligible for health care
coverage through regional alliances, and pay only the
20 percent share they would have paid if employed.
Retirees who receive health coverage through former
employers or through pension funds continue to be eli-
gible for payment for their share of the premium from
those sources.


Assurance of Coverage

It is the obligation of every eligible individual to enroll
in a health plan. Anyone who does not meet the estab-
lished deadline for enrollment automatically is enrolled
in a health plan when he or she seeks medical care.
Regional alliances assign patients who do not seek
enrollment to a health plan; they automatically assign
any newborn infant who is not enrolled through his or
her parents to a plan.

  No health plan may cancel an enrollment until the
individual enrolls in another plan.


Employer Obligation

All employers contribute to the purchase of health cov-
erage for their employees. All employers pay 80 per-
cent of the weighted-average premium for health
insurance coverage in the regional allianccs which serve
their employees or in their corporate alliance. The
required employer contribution in regional alliances is
capped at a percentage of payroll, with lower caps for
small and low-wage employers. (See section on Financ-
ing Health Coverage.)

  Firms that employ more than 5,000 workers ensure
that their employees are enrolled in health plans that
meet federal guidelines and report information about
enrollment. Employers with more than 5,000 employ-
ees that choose to operate corporate alliances may be
required to continue to pay for health insurance cover-
age for thcir terminated employees for six months fol-
lowing termination or may have to pay 1 perccnt of
payroll to cover unemployed workers.

  Large employers may fulfill their obligation to pro-
vide coverage by operating a program of self-insurance
through a corporate alliance, contracting with a certi-
fied health plan or joining the regional alliance. If a
large employer mcrges with a firm in the regional
alliance, it may continue as a corporate alliance. If the
number of employees falls below 4,800, the employer
joins the regional alliance.


Individual Obligations

Families and individuals pay 20 percent of the weighted-
average premium for an average cost health plan chosen
through an alliance. An individual or family who
chooses a less expensive plan pays less, and someone
who chooses a more expensive plan pays more.

  An employer also may elect to pay some or all of the
employee's portion of the premium.

  Self-employed and unemployed individuals are
responsible for paying the family share of the premium
as well as the employer share, unless they are eligible
for assistance based on income.


Enforcement

The Secretary of Labor ensures that all employers ful-
fill the obligation to make contributions or provide
coverage through a qualified health plan.


Coordination of Coverage

When an individual obtains necessary medical services
outside the geographic area served by his or her
regional or corporate alliance, the plan pays for care
under arrangements established among alliances.


Undocumented Persons

Undocumented persons are not eligible for guaranteed
health benefits. However, employers are required to
pay health insurance premiums for all of their employ-
ees, regardless of immigration status.

  Alliances do not share information related to health
insurance premiums paid by employers with the Immi-
gration and Naturalization Service.

  Individuals living in the United States without
proper documentation may continue to use emergency
and other health services as provided under current
federal law. Health care institutions that serve a large
number of patients who are not eligible for coverage
continue to receive federal funding to compensate for
their care.

  Any individual not eligible for the national benefit
package may purchase coverage from a private insur-
ance plan to the extent such plans are available.


Territories

Individuals who reside in territories of the United
States receive the comprehensive benefit package
through their existing health care systems.


Others

States with migrant labor populations are required to
address the needs of migrant workers and their families
in state plans for the implementation of health reform.
States may extend coverage to migrant workers
through regional alliances or propose alternative pro-
grams tailored to the specific needs of the migrant pop-
ulation.

  Students who are dependents are covered by their
parents' health policies, but may obtain coverage
through the regional alliance where they attend school.
Students who are not dependents enroll in the regional
alliance where their school is located.

  Employees are defined to include not only those
workers defined as employees under Internal Revenue
Service rules but broadly enough to discourage employ-
ers from designating employees as independent con-
tractors in order to avoid payment of health insurance
premiums. For purposes of health insurance, indepen-
dent contractors who earn more than 80 percent of
their annual incomes from one employer are covered as
an employee of that employer.

  Employers make contributions toward health care
premiums for part-time employees (generally individu-
als working more than 10 hours but less than 30 hours
per week) on a pro-rated basis.

  Prisoners remain the financial responsibility of the
various prison systems.


THE PRESIDENT'S HEALTH SECURITY PLAN

Guaranteed National
 Benefit Package


THE HEALTH BENEFITS guaranteed to all Americans pro-
vide comprehensive coverage, including mental health
services, substance-abuse treatment, some dental ser-
vices and clinical preventive services.

The guaranteed benefit package contains no lifetime
limitations on coverage, with the exception of coverage
for orthodontia.


Medical Services Covered

Each health plan must provide coverage for the follow-
ing categories of services as medically necessary or
appropriate with additional limitations and cost sharing
only as specified in the American Health Security Act
of 1993 or by the National Health Board. Covered
health services are:


  Hospital services

Emergency services
  Services of physicians and other health professionals

Clinical preventive services
  Mental health and substance abuse services

  Family planning services

Pregnancy-related services
  Hospice

 Home health care

 Extended-care services
 Ambulance services

 Outpatient laboratory and diagnostic services

 Outpatient prescription drugs and biologicals

 Outpatient rehabilitation services

 Durable medical equipment, prosthetic and
 orthotic devices

 Vision and hearing care
 Preventive dental services for children

 Health education classes.


 Definition of Services

 Hospital services:


 Inpatient hospital, including bed and board, rou-
 tine care, therapeutics, laboratory, diagnostic and radi-
 ology services and professional services specified by the
 National Health Board when furnished to inpatients.

 Outpatient hospital services

 24-hour-a-day emergency department services
 Definition: A hospital is an institution meeting the
 requirements of l86l(e) of the Social Security Act.


 Services of physician and other
 health professionals:


 Includes inpatient and outpatient medical and surgi-
 cal professional services, including consultations, deliv-
 ered by a health professional in home, office, or other
 ambulatory care settings, and in institutional settings.


 Definitions
--A health professional is someone who is
licensed or otherwise authorized by the State to
deliver health services in the State in which the
individual delivers services.

--Covered services are those that a health pro-
fessional is legally authorized to perform in that
state. No state may, through licensure require-
ments or other restrictions, limit the practice of
any class of health professionals except as justified
by the skill or training of such professional.


The benefit package does not require any plan to
reimburse any particular provider or any type or cate-
gory of provider. However, each plan is expected to
provide a sufficient mix of providers and specialties and
appropriate locations to provide adequate access to pro-
fessional services.


Clinical preventive services:

 Specified in Table 1.

 Limitation: Must be provided as consistent with
the periodicity schedule specified in Table 1 or as spec-
ified by the National Health Board in regulations.

 Targeted screening tests and immunizations
required for high-risk patients, as defined by the
National Health Board, are covered under outpatient
laboratory and diagnostic services and outpatient pre-
scription drugs and biologicals.

 Periodic medical examinations: every 3 years for
individuals ages 20 to 39, every 2 years for adults ages
40 to 65, and annually for adults ages 65 or more.

Table 1. Covered Clinical Preventive Services

 Ae Immunizations Tests

 0 - 24 DTP, 3 OPV, 3-4 HiB, 1 Hematocrit, 2 Lead*,
1 MMR,3 HBV 7 Clinician visits***

 3-51 DTP, 1 OPV, 1 MMR 1 Urinalysis, 2 Clinician
visits***

 6 19 1 TdPap/pelvic** every 3 years
after menarche, 5 Clinician
visits***

 20 39 1 Td every 10 years Cholesterol every 5 years;
Pap/pelvic** every 3 years*** t

 40 49 1 Td every 10 years Cholesterol every 5 years;
Pap/pelvic** every 3 years*** t

 50-64 1 Td every 10 years Cholesterol every 5 years;
Pap/pelvic and Mammogramtt
every 2 years

 65 + 1 Td every 10 years Cholesterol every 5 years
Pneumococcal - once Mammogramtt every 2 years
Annual influenza

Preventive coverage includes coverage for women of any age presenting for prenatal care.
 * = For children at high risk for lead exposure only.
 ** = Papanicolaou smears and pelvic exam for females who have reached child-
bearing age and are at risk of cervical cancer.
 *** = Once three annual negative smears have been obtained.
t = For females of childbearing age at risk for sexually transmitted disease, an
annual Pap smear and screeninf Jor chlamylia and aonorrhea.
 tt = Females only.


ttt = Visits Jor tests and immunizations include blood pressure check, risk assess-
ment and appropriate health fluidance.
DTP = Diphthena, tetanus, pertuMis vaccine
OPV = Oral polio vaccine
HiB = Haemophilus intluenzae type B vaccine
HBV = Hepatitis B vaccine
MMR = Measles, mumps, rubella vaccine
Td = Tetanus diphtheria toxoid


Family planning services

Pregnancy-related services

Hospice care:

 Covered services (as under Medicare):
--Nursing care provided by or under the super-
vision of a registered professional nurse.

--Medical social services under the direction of a
physician.

--Physicians' services.

--Counseling services for the purposes of training
the individual's family or other caregiver to pro-
vide care and for the purpose of helping the indi-
vidual and those caring for him or her to adjust to
the individual's death.

--Short-term inpatient care, although respite care
is provided only on an occasional basis and may
not be provided for more than five days.

--Medical supplies and the use of medical appli-
ances for the relief of pain and symptom control
related to the individual's terminal illness.

--Home health aide and homemaker services.
--Physical or occupational therapy and speech-
language pathology.

Limitations
--Only for terminally ill individuals
--Only as an alternative to continued hospitaliza-
tion.

Definition:
--An individual is considered terminally ill if the
individual has a medical prognosis of a life
expectancy of 6 months or less if the terminal ill-
ness runs its normal course.


Home health care:

 Same services as under the current Medicare pro-
gram (including skilled nursing, physical, occupational
and speech therapy, prescribed social services) with the
addition of prescribed home infusion therapy and out-
patient prescription drugs and biologicals.

 Limitations
 --Only as an alternative to institutionalization
 (i.e., inpatient treatment in a hospital, skilled
 nursing or rehabilitation center) for illness or
 injury.

 --At the end of each 60 days of treatment, the
 need for continued therapy is re-evaluated. Addi-
 tional periods of therapy are covered only if
 the risk of hospitalization or institutionalization
 exists.


 Extended-care services:

 Inpatient services in a skilled nursing or rehabilita-
 tion facility.

 Limitations
 --Only after an acute illness or injury as an alter-
 native to continued hospitalization.

 --Maximum of 100 days per calendar year.

 Ambulance services:

 Ground transportation by ambulance; air trans-
 portation by an aircraft requipped for transporting an
 injured or sick individual.


 Limitations
--Ambulance service is covered only in cases in
which the use of an ambulance is indicated by the
individual's condition.

--Air transport covered only in cases in which
other means of transportation are contra-indicated
by the patient's condition.


Outpatient laboratory and diagnostic services:


Prescribed laboratory and radiology services,
including diagnostic services provided to individuals
who are not inpatients of a hospital, hospice or
extended care facility.


Outpatient prescription drugs and biologicals:


Drugs, biological products, and insulin.

 Limitations:
--Must be prescribed for use in an outpatient
setting

--No frequency or quantity limitations other than
reasonable rules for amount to be dispensed and
number of refills. Health plans are permitted to
establish formularies, drug utilization review,
generic substitution, and mail order programs.


Outpatient rehabilitation services:


Outpatient occupational therapy, outpatient physi-
cal therapy, and outpatient speech-pathology services
for the purpose of attaining or restoring speech.

Limitations
--Coverage only for therapies used to restore
functional capacity or minimize limitations on
physical and cognitive functions as a result of an
illness or injury.

--At the end of each 60 days of treatment, the
need for continued therapy is reevaluated. Addi-
tional periods of therapy are covered only if func-
tion is improving.


Durable medical equipment, prosthetic and
orthotic devices:


  Covered services:
--Durable medical equipment.
--Prosthetic devices (other than dental) which
replace all or part of an internal body organ.

--Leg, arm, back and neck braces.
--Artificial legs, arms and eyes (including
replacements if required due to a change in phys-
ical condition).

--Training for use of above items.

  Limitations
--Items must improve functional abilities or pre-
vent further deterioration in function.

--Does not include custom devices.

Vision and hearing care:


  Covered services:
--Routine eye exams, including procedures per-
formed to determine the refractive state of the
eyes

--Diagnosis and treatments for defects in vision
--Routine ear examinations.

  Limitations
--Eyeglasses and contact lenses limited to chil-
dren under the age of 18.

--Routine eye examinations limited to one every
2 years for persons 18 years of age or more.


Preventive dental services for children:


For children under age eighteen, treatment for
prevention of dental disease and injury, including main-
tenance of dental health, and emergency dental treat-
ment for injury.


Health education classes:


Participating health plans are permitted to cover health
education or training for patients that encourage the
reduction of behavioral risk factors and promote
healthy activities. Such courses may include smoking
cessation, nutritional counseling, stress management,
skin cancer prevention, and physical training classes.
Cost sharing is determined by the plan.


Mental Health and Substance Abuse

Mental health and substance abuse services form an
integral component of a national system of health care.
Scientific evidence and societal attitudes have coalesced
to support a benefit structure that represents a signifi-
cant departure from past approaches.

A comprehensive array of services, along with the
flexibility to provide such services based on individual
medical and psychological necessity through effective
management techniques, produces better outcomes and
better cost controls than traditional benefits. By the
year 2001, a comprehensive, integrated benefit struc-
ture with appropriate management replaces prescribed
limits on individual services.

That change of direction requires a phase-in period
to allow health plans time to develop the service sys-
tem capacity to deliver and manage a more compre-
hensive mental health and substance abuse benefit. The
phase-in allows states, health alliances, and health
plans sufficient time to develop appropriate quality
assurance programs essential to a managed compre-
hensive benefit.

It also provides incentives for states to implement a
fully comprehensive, integrated system by combining
state and local funds now supporting the separate pub-
lic system with health care reform to reduce duplica-
tion and inefficiency, assure cost savings and maximi%e
resources. During the phase-in of the more compre-
hensive mental health and substance abuse benefit, the
federal government supports state demonstrations to
prove the efficacy of a comprehensive, integrated sys-
tem of care with improved benefits.

By the year 2001, all states are required to submit
to the National Health Board a plan detailing steps it is
undertaking to move from the traditional two-tier
structure for separate public and private mental health
and substance abuse services and develop an integrated,
comprehensive managed system of care.


Definition of Benefit

Inpatient and residential treatment:


Inpatient hospital, psychiatric units of general hos-
pitals, therapeutic family or group homes or other
types of residential treatment centers, community resi-
dential treatment and recovery centers for substance
abuse, residential detoxification services, crisis residen-
tial services, and other residential treatment services.

  Limitations
--By the year 2001, management of benefit
determines lengths of stay.

Initially, a maximum of 30 days per episode of
inpatient or residential treatment, with 60 days
annually for all settings in this category. Health
plans upon special appeal may grant an exception
waiver of the episode maximum (but only up to
the annual limit) for the limited number of indi-
viduals for whom hospitalization or continued res-
idential care is medically necessary because the
patient continues to make or is at serious risk of
making an attempt to harm him- or herself.

By the year 1998, the annual maximum rises to
90 days.

--Inpatient hospital substance abuse treatment
covers only medical detoxification as required for
the management of psychiatric or medical compli-
cations associated with withdrawal from alcohol or
drugs.

--Inpatient hospital care for mental and substance
abuse disorders is available only when less restric-
tive nonresidential or residential services are inef-
fective or inappropriate.

Definitions:
--A hospital is an institution meeting the require-
ments of l86l(e) or (f) of the Social Security
Act.

--A residential treatment facility is one which
meets criteria for licensure or certification estab-
lished by the state in which it is located.

Eligibility
Individuals are eligible for mental health and sub-
stance abuse services other than screening and assess-
ment and crisis services if they have, or have had in the
past year, a diagnosable mental or substance abuse dis-
order, which meets diagnostic criteria specified within
DSM-III-R, and that resulted in or poses a significant
risk for functional impairment in family, work, school,
or community activities.

--These disorders include any mental disorder
listed in DSM-III-R or their ICD-9-CM equiva-
lents, or subsequent revisions, with the exception
of DSM-III-R "V" codes (conditions not
attributable to a mental disorder) unless they co-
occur with another diagnosable disorder.

--Persons who are receiving treatment but with-
out such treatment would meet functional impair-
ment criteria are considered to have a disorder.

Family members of an eligible participant receiving
mental or substance abuse services may receive medi-
cally necessary or appropriately related services in
conjunction with the patient (so-called collateral
treatment).


Professional and outpatient treatment services:

Professional services, diagnosis, medical manage-
ment, substance abuse counseling and relapse preven-
tion, outpatient psychotherapy.

 Limitations
--By the year 2001, limits on outpatient treat-
ment and cost sharing are eliminated, making this
benefit comparable to other health services; man-
agement of the benefit determines availability of
services. Initially, a limit of 30 visits per year for
outpatient psychotherapy visits (and variation in
cost sharing described later). Medical manage-
ment, crisis management, evaluation and assess-
ment, and substance abuse counseling are not
limited.

- Licensed or certified substance abuse treatment
professionals must provide substance abuse and
relapse counseling.

 Eligibility critcria specified above for inpatient
mental health and substance abuse treatment services
apply, except that all persons are eligible for screening
and assessment and 24-hour crisis services.

 Definitions for serviccs of physicians and other
health professionals apply.

 Coverage for case management with no cost
sharing.


Intensive non-residential treatment services:


 Partial hospitalization, day treatment, psychiatric
rehabilitation, ambulatory detoxification, home-based
services, behavioral aide services.

 Limitations
--By the year 2001, benefit limits are replaccd by
management of the comprehensive benefit to
determine availability of benefit.

Initially, a limit of 120 days per year apply.
-- Provided only for the purpose of averting the
need for, or as an alternative to, treatment in
residential or inpatient settings, or to facilitate
the earlier return of individuals receiving inpa-
tient or residential care, or to restore the func-
tioning of individuals with mental or substance
abuse disorders, or to assist individuals to
develop the skills and access the supports needed
to achieve their maximum level of functioning
within the community.

Eligibility: As specified for inpatient mental health
and substance abuse treatment services.


Integration of Public and Private Mental
Health Care Systems

Through the end of this decade, the structure of the
mental health and substance abuse benefit package
requires continuation of the existing public system that
provides mental health and substance abuse treatment.
It also requires maintenance of the existing block grant
program to the states, which supplements spending on
mental and addictive disorder programs.

 To promote the eventual integration of the public
and private systems, states are encouraged to use the
flexibility allowed under health reform to fold their
expenditures for public mental health and substance
abuse programs into funding available to regional health
alliances to require integrated care for all health needs,
including mental and addictive disorders. States adopt-
ing this direction may obtain a waiver from limits in
the benefit package and are eligible for federal match-
ing funds to develop integrated service systems.


Exclusions

The benefit package does not cover services that are not
medically necessary or appropriate, private duty nurs-
ing, cosmetic orthodontia and other cosmetic surgery,
hearing aids, adult eyeglasses and contaet lenses, in vitro
fertilization serviees, sex change surgery and related ser-
vices, private room accommodations, custodial care,
personal comfort services and supplies and investiga-
tional treatments, except as described below.


Coverage of Investigational Treatmcnts

The comprehensive benefit package ineludes coverage
for medically necessary or appropriatc medical care
provided as part of an investigational treatment during
an approved research trial. The intention of this provi-
sion is to cover routine medical costs associated with an
investigational treatment that would oecur even if the
investigational treatment were not administered.

An investigational treatment is a treatment the
effectiveness of which has not been determined and
which is under clinical investigation as part of an
approved research trial.

An approved researeh trial is a peer-reviewed and
approved research program, as defined by the Secretary
of the Department of Health and Human Services, con-
ducted for the primary purpose of determining whether
or not a treatment is safe, efficacious, or having any
other characteristic of a treatment which must be
demonstrated in order for that treatment to be medi-
cally necessary or appropriate.
Coverage is automatically available if the research
trial is approved by the National Institutes of Health,
the FDA, the Department of Veterans Affairs, Depart-
ment of Defense or a qualified non-governmental
research entity at identified in NTH guideline.


Expansion of Other Benefits

The initial benefit plan provides comprehensive pre-
ventive coverage for all patients and focuses compre-
hensive dental, mental health and substance abuse
coverage on priority concerns including preventive
dental services for children and treatment for seriously
mentally ill adults, seriously emotionally disturbed chil-
dren and individuals with substance-abuse disorders.

The National Health Board has discretion to intro-
duce additional benefits earlier if savings from reform
and budget resources permit. Additional benefits
included in planned expansion include:


Dental Services:

Preventive dental care extended to adults
Restorative services

--Low cost sharing: $20 per visit
--High cost sharing: 40 percent co-insurance,
$50 deductible, and $1,500 annual maximum ben-
efit for prevention and restoration

Orthodontia in cases in which it is necessary to
avoid reconstructive surgery

--Low cost sharing: $20 per visit
--High cost sharing: 40 percent co-insurance,
$50 deductible, and $2,500 lifetime maximum
benefit.


Cost Sharing

Consumer out-of-pocket costs for health services in the
comprehensive benefit packages are limited, to ensure
financial protection, and standardized to ensure sim-
plicity in choosing among health plans.

Health plans use standard consumer cost sharing
requirements. Health plans may offer consumers one of
three cost sharing schedules:


Low cost sharing: $10 co-payments for outpa-
tient services; no co-payments for inpatient services;
may offer point of service option with 40 percent coin-
surance.

 Higher cost sharing: $200 individual/$400
family deductibles; 20 percent coinsurance; $1,500/
3,000 maximum on out-of-pocket spending.

Combination: Plan provides low cost sharing if
participants use preferred providers and higher cost
sharing (20 percent coinsurance) if they use out-of-
network providers.

Low Cost Sharing

Cost-sharing Limitations

Overall


Deductible None

Coinsurance $10 per visit

--Out-of-pocket max


Individual $1,500

Family $3,000

Inpatient hospital Full coverage Private room only when
medically ncessary

Professional services, $10 per visit
outpatient hospital
services

Emergency services $25 per visit Waived in emergency

Preventive services, Full coverage Services limited to periodicity
including well-baby,in Table
prenatal

Hospice Full coverage As hospital alternative for
terminally ill

Home health care Full coverage As inpatient alternative;
coverage reassessed at 60 days;
added coverage only to prevent
institutional care

Extended care lacilities Full coverage As hospital alternative
(SNFs, rehab facility) 100 day limit

Outpatient physical, $10 per visit Only to restore function or
occupational, minimize limitations from
speech therapy illness or injury; reassessment
at 60 days; additional coverage
only if improving

DME, outpatient lab, Full coverage
ambulance

Routine eye and ear $10 per exam Eyeglasses limited to children
exams, eyeglasses or 1 set glasses only


Cost-sharing Limitations

Dental services

--Initial: Prevention $10per visit For <18 only


--Additions in 2001: Remove age limit on prevention

Restoration $20 per visit

Orthodontia $20 per visait Only to avoid reconstructive
surgery

Prescription drugs $5/prescription

Mental health/
substance abuse


Initial

Inpatient services: Full coverage 30 day/episode; 60 day/year
max

Hospital alternatives: Full coverage 120 days maximum

Brief office visits for
medical management: $10 per visit no limits

Psychotherapy: $25 per visit 30 visits maximum


2001

Inpatient services: Full coverage

Hospital alternatives: Full coverage no limits

Outpatient incl. 1-12
psychotherapy visits: $10 per visit


High Cost Sharing

Cost-sharinLimitations

Overall


Deductible $200/  400
            indiv/family

Coinsurance 20%

Out-of-pocket max
(oop Max)

Individual $1,500

Family $3,000

Inpatient hospital 20% co-ins Private room only when
medically necessary

Professional services, 20% co-ins
outpatient hospital
services including
emergency

Preventive services, Co-ins and Services limited to periodicity
including well-baby, deductible in Table
prenatal do not apply

Hospice 20% co-ins As hospital alternative for
terminally ill

Home health care 20% co-ins As inpatient alternative;
coverage reassessed at 60 days;
added coverage only to prevent
institutional care

Extended care facilities 20% co-ins As hospital alternative;
(SNFs, rehab facility) 100 day limit

Outpatient physical, 20% co-ins Only to restore function or
occupational, minimize limitations from
speech therapy illness or injury; reassessment
at 60 days; additional coverage
only if improving

DME, outpatient lab, 20% co-ins
ambulance

Routine eye and ear 20% co-ins Eyeglasses limited to children
exams, eyeglasses only


Cost-sharing Limitations

Dental services

--Initial: Prevention 20% co-ins For <18 only


--Additions in 2001: Remove age limit on prevention

Restoration $50 deduct
40% co-ins

Orthodontia 40% co-ins Only to avoid reconstructive
surgery; $2500 lifetime max

Prescription drugs $250/year deduct
20% co-ins
oop max applies

Mental health/
substance abuse

Initial

Inpatient services: 20% co-ins; 30 day/episode; 60 day/year
oop max applies max

Non-residential
intensive services: 20% co-ins 120 days maximum

All outpatient: 20% co-ins no limits

Psychotherapy: 20% co-ins 60 visit maximum


2001

Inpatient services: 20% co-ins;
oop max applies

Non-residential
intens ive services: 20% co-insno limits

Outpatient including
psychotherapy visits: 20% co-ins


Combination Cost Sharing

Services (with same In network Out of network
 limitations as above)

Overall

--Deductible None   $200/400 indiv/family

--Coinsurance $10 per visit 20%

--Out-of-pocket max

Individual $1,500 $1,500

Family $3,000 $3,000

Inpatient hospital Full coverage 20% co-ins

Professional services, $10 per visit 20% co-ins
outpatient hospital
services

Emergency services $25 per visit 20% co-ins

Preventive services, Full coverage Full coverage
including well-baby,
prenatal

Hospice Full coverage 20% co-ins

Home health care Full coverage 20% co-ins

Extended care facilities Full coverage 20% co-ins
(SNFs, rehab facility)

 Outpatient physical, $10 per visit 20% co-ins

occupational/
speech therapy

DME, outpatient lab,Full coverage 20% co-ins
ambulance

Routine eye and ear $10 per exam 20% co-ins
exams, eyeglasses or 1 set glasses

Dental services

--Initial: Prevention $10 per visit 20% co-ins


Additions in 2001:

Restoration $20 per visit $50 deduct 40% co-ins

Orthodontia $20 per visit 40% cc.-ins

Prescription drugs $5/prescription $250/year deduc
20% co-ins
oop max applies

Mental health/
substance abuse

Initial

Inpatient services: Full coverage 20% co-ins; oop max applies

Hospital alternatives: Full coverage 20% co-ins

All outpatient: $10 per visit 20% co-ins


2001

Inpatient services: Full coverage 20% co-ins; oop max applies

Non-residential
intensive services: Full coverage 20% co-ins

Outpatient $10 per visit 20% co-ins
THE PRESIDENT'S HEALTH SECURITY PLAN


National Health Board


THE AMERICAN Health Security Act creates an indepen-
dent National Health Board responsible for setting
national standards and overseeing the establishment and
administration of the new health system by states.

 The National Health Board and existing executive
agencies divide responsibility for administration of the
new health care system at the national level.


Authority of the National Health Board

 The Board undertakes the following functions:

  Oversight of the state system

 The Board establishes requirements for state plans,
monitors compliance with those requirements, provides
technical assistance, and ensures access to health care
for all Americans.

  Comprehensive benefit package

 The Board interprets and updates the nationally
guaranteed benefit package and issues regulations. The
Board may recommend to the President and Congress
appropriate adjustments to the nationally guaranteed
benefit package to reflect changes in technology, health
care needs and methods of service delivery.


 Budgets

The Board issues regulations concerning implemen-
 tation of the national budget for health care spending
 and enforces the budget.

The board establishes baseline budgets for alliances
 by allocating national spending among alliances to
 reflect regional variations.

The Board certifies compliance with the budget.
 (See section entitled Budget Development and Enforce-
 ment . )

 National quality management system

The Board establishes and manages a performance-
 based system of quality management and improvement
 described in the section entitled "Quality Management
 and Improvement." The Board develops measures
 reported in the annual quality performance report of
 health plans. In developing these measures, the Board
 consults with appropriate parties, including providers,
 consumers, health plans, states, purchasers of care, and
 experts in law, medicine, economics, public health, and
 health services research including appropriate agencies
 such as AHCPR, NIH and HCFA.

 To measure quality, the Board develops and imple-
 ments standards to establish a National Health Informa-
 tion System as described in the section on Information
 Systems and Administrative Simplification.

 Breakthrough drug committee

 To encourage reasonable pricing of breakthrough
 drugs, a committee of the National Health Board has
 the authority to make public declarations regarding the
 reasonableness of launch prices.

The committee could address new drugs that repre-
sent a breakthrough or significant advance over existing
therapies. The committee could also address all drugs
subject to a "reasonable price" clause in a contract with
the National Institutes of Health.

The committee could investigate drug prices only in
those cases where available evidence suggests that the
price may be unreasonable. The committee could make
an initial determination about the reasonableness of a
drug price based on a comparison of prices for thera-
peutically similar drugs in the United States and seven
other industrialized countries.

If the drug price exceeds what the committee thinks
to be reasonable based on the information available, or
if there is insufficient data, the committee would have
the authority to obtain information from the company
about the drug's price. The committee could then issue
a report regarding the reasonableness of the drug price.
The committee would have no authority to set or con-
trol drug prices.

National Health Board decisions related to benefits,
standards of performance and accountability apply to
health plans operating through both regional and cor-
porate alliances.


Membership

The National Health Board consists of seven members
appointed by the President by and with the advice and
consent of the Senate. At least one of the members
represents the interests of states.

The President designates one member as chairman.
The chairman serves a term concurrent with that of the
President and serves at the pleasure of the President.
The chairman may serve a maximum of three terms.

 The other members serve staggered four-year terms.
These members may be reappointed for one additional
term. The President may remove a member for neglect
of duty or malfeasance in office.
 When a vacancy occurs, the President appoints a suc-
cessor to serve the remainder of the term. A vacancy in
the membership of the Board does not impair the right of
the remaining members to exercise all powers of the
Board. The Board designates a member to act as chairman
during any period when no chairman is designated by the
President.
 Upon expiration of a term of office, a member con-
tinues to serve until a successor is appointed and qual-
ified. The President has the power to fill all vacancies
that occur during the recess of the Senate by granting
commissions that expire with the next session of the
Senate.

Qualifications

The President nominates Board members on the basis
of their experience and expertise in relevant subjects,
including health care finance and delivery, state health
systems, consumer protection, business, law or deliv-
ery of care to vulnerable populations. Members of the
National Health Board must be citizens of the United
States.

 During the term of appointment, Board members
serve as employees of the federal government and may
hold no other employment. A member of the Board
may not have a pecuniary interest in or hold an official
relation to any health care plan, health care provider,
insurance company, pharmaceutical company, medical
equipment company or other affected industry. Before
assuming an appointment to the National Health Board,
the prospective member must certify under oath that
he or she has complied with this requirement.

After leaving the Board, former members are subject
to post-employment restrictions applicable to compara-
ble federal employees.


Operation of the Board

The National Health Board appoints and sets the com-
pensation of an executive director. The Board also
appoints additional officers and employees, subject to
applicable civil service rules, as necessary to carry out
its functions. The Board hires sufficient staff to carry
out the tunctions described above.

 The Board establishes advisory committees that
include representatives of states, health providers,
employers, consumers and affected industries.

 The Board may contract with the Department of
Health and Human Services and other governmental
and nongovernmental bodies to conduct research and
analysis as required to execute its responsibilities. The
Board has access to all relevant information and data
available from appropriate federal departments and
agencies. It coordinates its activities, particularly the
conduct of original research and associated studies,
with the activities of appropriate federal agencies.

 The Board prepares and sends to the President and
Congress an annual report addressing the implementa-
tion of the health care system, including federal and
state action, data related to quality improvement and
other issues. The annual report includes recommenda-
 tions for changes in the administration, regulation and
 laws related to health care and coverage, as well as a
 full account of Board decisions and activities during the
 previous year.

The Office of Management and Budget reviews the
 Board's budget, which is submitted to Congress in con-
 junction with the President's budget. The Office of
 Management and Budget does not review regulations
 issued by the Board or its annual report to Congress
 prior to publication.

The General Accounting Office conducts periodic
 audits of the Board.


 Responsibilities of Department of Health
 and Human Services


 The Department of Health and Human Services contin-
 ues to administer existing programs, such as Medicaid,
 Medicare and the Public Health Service. The Depart-
 ment of Health and Human Services also administers
 and implements those aspects of the new health care
 system not delegated to the National Health Board or
 any other federal department.


NATIONAL ADMINISTRATION

 The National Health Board reviews plans submitted by
 the states for the implementation of the new health
 care system. Corporate alliances are supervised through
 ERISA and the Department of Labor. (See Corporate
 Alliances/ERISA.)

In the event that a state fails to meet the deadline for
establishing regional health alliances or fails to operate
the alliance system in compliance with federal require-
ments, the National Health Board ensures that all eligi-
ble individuals have access to services covered in the
comprehensive benefit package.

To induce a state to act, the National Health Board
informs the Secretary of the Department of Health and
Human Services of a state's failure to comply. The Sec-
retary has the authority to order the withholding of
federal health appropriations.

If a state persists in its failure to comply with federal
requirements, the National Health Board informs the
Secretary of Health and Human Services. The Secretary
is required to take one of the following actions to
ensure that all eligible individuals have access to nation-
ally guaranteed health benefits:


 Dissolve an existing health alliance and establish
one or more regional alliances in compliance with fed-
eral requirements.

 Contract with private parties or others to establish
and operate regional alliances.

 Order regional alliances or health plans to comply
with specific federal requirements.

 Take other steps as needed to assure coverage.


When the National Board notifies the Secretary of
 Health and Human Services that a state has failed to
 comply with federal requirements, the National Board
 shall also notify the Secretary of the Treasury. The Sec-
 retary of the Treasury will impose a payroll tax on all
 employers in the state. The payroll tax shall be suffi-
cient to allow the federal government to provide health
coverage to all individuals in the state and to reimburse
the federal government for the costs of monitoring and
operating the state system.

An alliance operating under the supervision of the
Secretary of the Department of Health and Human
Services is responsible for meeting all requirements
imposed on regional health alliances.

When a state demonstrates to the National Health
Board that it is prepared to resume its statutory respon-
sibilities, the state may establish its own alliances or
take over management of alliances established under
federal supervision.
THE PRESIDENT'S HEALTH SECURITY PLAN


State Responsibilities


STATES ASSUME primary responsibility for ensuring that
all eligible individuals have access to a health plan that
delivers the nationally guaranteed comprehensive bene-
fit package.


State Plans

Each state submits to the National Health Board a plan
for implementation of health reform, demonstrating
that its health care system meets requirements under
federal law. States periodically update their plans, as
required by the National Health Board.

State plans designate an agency or official to coordi-
nate the state responsibilities under federal law and del-
egate those responsibilities to state agencies or entities.
The plan also describes how the state intends to per-
form each of the following functions:

Administration of subsidies for low-income indi-
viduals, families and employers.

Certification of health plans.

Financial regulation of health plans.

Administration of data collection and quality man-
agement and improvement program.

Establishment and governance of health alliances,
including a mechanism for selecting members of the
boards of directors and advisory boards for alliances.


Establishment of Alliances

No later than January 1, 1997, each state must estab-
lish one or more regional health alliances responsible
for providing health coverage to residents in every area
of the state.

The state ensures that all eligible individuals enroll in
a regional alliance and that all alliances offer health
plans that provide the comprehensive benefit package.
The state also ensures that each alliance enrolls all eli-
rgible persons in the geographic area covered by the
alliance.

Alliance Size and Population

The geographic area assigned to each regional alliance
must encompass a population large enough to ensure
that it controls adequate market share to negotiate
effectively with health plans. States may establish one,
and only one, regional alliance in each area.
States may not establish boundaries for health
alliances that concentrate racial or ethnic minority
groups, socio-economic groups or Medicaid beneficia-
ries. An alliance may not subdivide a primary
metropolitan statistical area, but an alliance that covers
a Consolidated Statistical Metropolitan Area within a
state is presumed to be in compliance with these
requirements.

An alliance may not cross state lines, but two or
more contiguous states may coordinate the operation of
alliances. Coordination may include adoption of joint
operating rules, contracting with health plans, enforce-
ment activities and negotiation of fee schedules with
health providers.


Risk Adjustment

States ensure that each alliance establishes a risk-adjust-
ment mechanism that meets federal standards and
accounts for differences in patient populations related
to age, gender, family size and health status. (See sec-
tion on Risk Adjustment.)


Incentives to Serve Disadvantaged Groups

States may determine that financial incentives are needed
to ensure that health plans enroll disadvantaged groups
and provide appropriate extra services, such as outreach
to encourage enrollment, transportation and interpreting
services to ensure access to care for certain population
groups that face barriers to access because of geographic
location, income levels, racial or cultural differences.


State Regulation of Plans

States qualify health plans to participate in alliances.
Each state establishes a mechanism to assess the quality
of health plans, their financial stability and capacity to
deliver the comprehensive beneft package to the
proper geographic market of each plan. States will dis-
close the criteria that each health plan must satisfy to
become qualified. Health plans which satisfy those cri-
teria shall be qualified. Only plans qualified by the state
may offer health coverage through regional alliances.

 States define requirements related to levels and geo-
graphic distribution of services required of health plans to
ensure adequate access for all eligible participants, includ-
ing residents of low-income areas and areas in which the
health care system is inadequate. States must ensure that
all consumers have the opportunity to purchase coverage
under a qualifled health plan at a price equal to or less
than the weighted-average premium. To fulfill that obli-
gation, states may either require at least some plans to
cover the entire alliance area, or sub-alliance service
areas, or may provide a subsidy that allows consumers to
pay only the weighted-average premium.

 Where no plan applies, the state must assure that at
least one health plan is available for every eligible indi-
vidual residing within an area.

 States may establish requirements for health plans to
assure access to services, including the requirement to
reimburse or contract with designated specialty
providers and centers of excellence.

States may not discriminate against health plans on
the basis of their domicile.

A state may not regulate premium rates charged by
health plans, except when necessary to meet budget
requirements or to ensure plan solvency. (See section
on Budget Development and Enforcement.)

Solvency and Fiscal Oversight

Each state establishes capital standards for health plans
that meet federal requirements established by the
National Health Board in consultation with the states.

The minimum capital requirement consists of
$500,000. Additional capital may be required for fac-
tors likely to affect the financial stability of health
plans, including:


Projected enrollment, number of providers and
rate of growth.

Market share and strength of competition.

Degree and approach to risk sharing with
providers and financial stability of providers.

Structure of the plan and degree of integration.

Prior performance of plan, risk history and liquid-
ity of assets.


Each state defines financial reporting and auditing
requirements and requirements for fund reserves ade-
quate to monitor the financial status of plans.

States designate an agency that assumes control if a
health plan fails. Procedures established by states to
handle the failure of health plans assure continuity of
coverage for consumers enrolled in the plan.


Guaranty Funds

Each state operates a guaranty fund to provide financial
protection to health care providers and others if a
health plan becomes insolvent. States may use existing
guaranty fund arrangements provided that the arrange-
ment meets national standards.

Guaranty funds pay health providers and others if a
health plan is unable to meet its obligations. Guaranty
funds cover liability for services rendered prior to health
plan insolvency and for services to patients after the
insolvency but prior to their enrollment in other health
plans. Guaranty funds are liable at least for payment of
all services rendered by a health plan for the compre-
hensive benefit package, including any supplemental
coverage for cost sharing provided by the health plan.

If a health plan cannot meet its financial obligations
to health care providers, providers have no legal right
to seek payment from patients for any services covered
in the comprehensive benefit package other than the
patients' obligations under cost sharing.

If a health plan fails, health providers are required to
continue caring for patients until they are enrolled in a
new health plan.

All health plans must participate in a guaranty fund,
and the fund is liable for all claims against the plan by
health care providers, contractors, employees, govern-
ments or any other claimants. The guaranty fund stands
as a creditor for any payments made on behalf of a plan.

If a health plan fails, the state may assess payments
of up to 2 percent of premiums on other plans within
the alliance to generate sufficient revenue to cover out-
standing claims against the failed plan. The failure of a
health plan is defined as the imminent inability to pay
legitimate claims.

A guaranty fund has the ability to borrow funds
against future assessments in order to meet the obliga-
tions of the failed plan.


Additional Benefits

Any state may provide health benefits in addition to
those guaranteed under the comprehensive national
package. However, in order to expand benefits, a state
must appropriate revenue from sources other than
those established by the American Health Security Act
to support delivery of the nationally guaranteed bene-
fit. A state may not rely on a payroll mandate on
employers or another revenue source applicable solely
to corporations or payroll.


Single-Payer Option


A state may establish a single-payer health care system
rather than an alliance system offering multiple plans.
A state may establish a single-payer alliance that serves
a portion of the state.

A single-payer system is one in which the state or its
designated agency makes all payments to health care
providers with no intermediaries, health plans or other
entities assuming financial risk. However, providers,
such as HMOs, networks of physicians and hospitals
may assume risk by accepting capitated payments to
cover the health needs of individuals.

A single-payer system provides, at a minimum, the
health services defined in the comprehensive benefit
package and imposes requirements for co-insurance,
co-payments, deductibles and out-of-pocket limits no
greater than those charged by regional alliance health
plans. Single-payer systems also must comply with
requirements for quality management and improve-
ment, the collection of health data and other guidelines
for health plans and alliances.

If a state chooses to establish a single-payer health
system, the federal government may waive any of the
following requirements under the alliance system:

ERISA rules governing corporate alliances

 Rules delineating participation in regional and cor-
porate alliances

Rules continuing Medicare as a separate program
outside the alliance structure consistent with require-
ments for the protection of Medicare beneficiaries

Guaranty fund rules


A single-payer system established by a state may
eliminate cost-sharing requirements; however, a state
must appropriate revenue from sources other than
those established by this Act to support delivery of the
benefits equal to or in excess of the nationally guaran-
teed benefit package.
THE PRESIDENT'S HEALTH SECURITY PLAN


Regional Health Alliances


REGIONAL HEALTH alliances assume the following respon-
sibilities:

Representing the interests of consumers and pur-
chasers of health care services.

Structuring the market for health care to encour-
age the delivery of high-quality care and the control of
costs.

Assuring that all residents in an area who are cov-
ered through the regional alliance enroll in health plans
that provide the nationally guaranteed benefits.


Operation of Alliances

A regional alliance may operate as a non-profit corpo-
ration, an independent state agency or an agency of the
state executive branch. A board of directors, composed
of representatives of consumers and employers who
purchase coverage through the alliance, governs
alliances that are non-profit corporations. States estab-
lish a mechanism for selecting members of alliance
boards.


The board of each alliance includes an equal number
of employer and consumer representatives, plus one
additional member to serve as chairman. The board
must include the following:


Employers who purchase health coverage through
the alliance.

Employees who purchase through the alliance.

Self-employed individuals who purchase through
the alliance.

Other individuals who obtain coverage through the
alliance.


The board of an alliance may not include members
of the following groups or their immediate families:


Health care providers or their employees, owners
of health plans or their employees, or other persons
who derive substantial income from health plans or the
provision of health care.

Members of associations, law firms or other insti-
tutions or organizations that represent the interests of
health care providers, health plans or others involved in
the health care field, or who practice as a professional
in an area involving health care.

Owners, employees, board members or individu-
als who derive substantial income from pharmaceutical
companies and suppliers of medical equipment, devices
and services.


To ensure that alliances are accountable to con-
sumers and employers, states may establish statewide
councils composed of representatives of employer and
consumer organizations to prepare lists of nominees for
alliance boards.

States require each alliance to provide an ombuds-
man to assist consumers in dealing with problems that
arise with health plans and the alliance. States may also
permit consumers at annual enrollment to check off a
$1 contribution from their premium payment to sup-
port the office of the ombudsman or other consumer
representatives.

In addition to a Board of Directors or Advisory Board,
each regional alliance establishes a Provider Advisory
Board made up of representatives of health care profes-
sionals who practice in health plans administered by the
alliance.

In the case of a health alliance that is a state agency
or an independent state entity administered by a state-
appointed authority, an advisory board consisting of
representatives of the same groups is appointed to pro-
vide advice to the agency.


Enrollment

Each regional alliance enrolls all eligible persons,
including low-income and non-working persons, who
reside in the geographic area it serves into a health plan
that provides the comprehensive benefits.

Alliances hold an annual open enrollment period
during which each individual and family participating in
the alliance has the opportunity to choose among health
plans offered through the alliance. Enrollments made
during the annual open season become effective on a
date established by law.

Alliances also provide a mechanism for promptly
enrolling individuals and families who become eligible
for coverage between open-enrollment periods. Individ-
uals and families who move into the region served by an
alliance notify the alliance within 30 days. If the indi-
vidual is employed, the employer notifies the alliance. If
the individual is not employed, he or she notifies the
alliance.

Within 10 days of receiving notification that an eli-
gible person has moved into its service area, regional
alliances provide enrollment materials. Within 30 days
of receiving enrollment materials, eligible individuals
are responsible for choosing a health plan and applying
to the alliance for enrollment.

An application for coverage submitted by the fif-
teenth day of any month becomes effective on the first
day of the following month. An application made after
the fifteenth of the month becomes effective on the
first day of the second month following application.

Alliances establish a mechanism for enrolling indi-
viduals who have not chosen a health plan or purchased
insurance when they seek health services. The point-of-
service mechanism follows these guidelines:


Within 10 days of enrollment at a point of service,
the alliance provides an individual with materials
describing health plans.

If the individual does not choose a health plan
within 30 days, the alliance assigns the individual to the
lowest-cost plan available.

Using the fee-for-service schedule adopted by the
alliance, the health plan to which the patient is assigned
reimburses the provider who brought the uninsured
individual into the system for services rendered prior to
enrollment.


Managing Access to Plans

In the event that more consumers apply to enroll in a
particular health plan than its capacity allows, alliances
develop a process of random selection for use in deter-
mining which new applicants may enroll. Consumers
already enrolled in the plan continue their coverage
without interruption.


Marketing

Alliances control direct marketing to consumers by
health plans. Marketing rules include at least the fol-
lowing requirements:


The alliance must approve marketing materials
used by health plans.

If a health plan uses direct marketing, it may not
limit distribution to an area smaller than the geographic
area it serves within the alliance.

Health plans and their agents are prohibited from
attempting to influence an individual's choice of plans
in conjunction with the sale of any other insurance.


Information

Alliances publish (or otherwise make available to
consumers) easily understood, useful information,
including brochures, computerized information and
interactive media, that allows them to make valid
comparisons among health plans. The following infor-
mation must be included:

Cost to consumers, including premiums and aver-
age out-of-pocket expenses.

Characteristics and availability of health care pro-
fessionals and institutions participating in the plan.

Any restrictions on access to providers and ser-
vices.

The annual Quality Performance Report, which
contains measures of quality presented in a standard
format.


Insurance Risk

An alliance may not bear insurance risk.


Relations with Plans

Each regional alliance negotiates with health plans to
provide the comprehensive benefit package to all
eligible persons in the alliance area through a choice
of plans. Only health plans that enter into contracts
with the appropriate regional or corporate alliance
are authorized to provide the guaranteed benefit
package.

Alliances contract with health plans on at least an
annual basis but may enter into multi-year contracts.
Multi-year contracts may not specify premium increases
for future years in excess of the projected inflation fac-
tor for the alliance budget.


Contracting Requirements
and Exclusion of Plans


Alliances write uniform contracts with health plans,
including all certification requirements imposed by fed-
eral or state law. Alliances must offer a contract to each
qualified health plan seeking to serve its area unless:


The proposed premium exceeds the weighted-
average premium within the alliance by more than 20
percent.

The health plan's quality of service or care are
unsatisfactory as determined by the state.

The plan engages in practices that have the effect of
discriminating against one or more classes of persons
based on race, ethnicity, gender, income or health
status.

The plan fails to comply with contract require-
ments.

The plan is a fee-for-service plan that is not a suc-
cessful bidder. Through a competitive bidding process,
an alliance may limit to three the number of plans that
pay any willing provider on a fee-for-service basis and
have no network of providers operating under a con-
tract with the plan.


An alliance may decline to enter into a contract with
a health plan if the health plan's proposed premium
would cause the alliance to exceed its budget target.

Alliances may not discriminate against health plans
or providers on the basis of race, gender, ethnicity,
religion, mix of health professionals or organizational
arrangement.


Areas with Inadequate Health Services

Alliances may use financial incentives to encourage
health plans to expand into areas that have inadequate
health services.

Alliances may organize health providers to create a
new health plan targeted at such an area, providing
assistance with setting up and administering the plan.
An alliance may not assume risk on behalf of a new
health plan but may arrange favorable financing to
encourage a health plan to operate in an area with inad-
equate health services.


Risk Adjustment

Alliances use a risk-adjustment mechanism to account
for variations in enrollment across health plans with
respect to the health status and risk of participants and
access to basic health services. (See section on Risk
Adjustment.)


Fee-for-Service Plans

Each Alliance includes among its health plan offerings at
least one plan organized around a fee-for-service sys-
tem. A fee-for-service system is one in which patients
have the option of consulting any health provider sub-
ject to reasonable requirements. Reasonable require-
ments may include utilization review and prior approval
for certain services but do not include a requirement to
seek approval through a gatekeeper.

Under certain conditions, with approval from the
National Health Board, a state may waive the require-
ment for each alliance to offer a fee-for-service health
plan if the alliance demonstrates that:


A fee-for-service plan is not financially viable in
the area.

There is insufficient provider interest in participat-
ing in a fee-for-service plan.

There is insufficient enrollment to sustain a fee-
for-service plan.


Each alliance, after negotiations with providers,
establishes a fee schedule for the fee-for-service com-
ponent of health plans in that alliance. Each health plan
uses the same schedule and must reimburse health
providers under its fee-for-service option up to the
level of the fee schedule. Providers may collectively
negotiate the fee schedule with the alliance. A state
may choose to adopt a state-wide fee schedule.


Balance Billing


A provider may not charge or collect from a patient a
fee in excess of the fee schedule adopted by an alliance.
A plan and its participants are not legally responsible
for payment of any amount in excess of the allowable
charge.


Prospective Budgeting of Fee-for-Service

States have the authority to impose prospective budget-
ing on fee-for-service plans offered through health
alliances.


Under prospective budgeting:


The alliance chooses or develops one fee-for-
service plan as the designated plan for its service area.
The alliance negotiates with health providers annually
to develop a budget for the plan.

The negotiated budget establishes spending targets
for each sector of health expenditures.

The fee-for-service plan periodically reviews ser-
vice utilization and adjusts payments to providers to
assure compliance with the negotiated budget.

Provider groups may establish fee-for-service plans.
A board composed of representatives of providers may
manage fee-for-service plans, developing a utilization
review system and other procedures to assure the finan-
cial viability of the plan.


Portability

Health plans pay for urgent care delivered outside the
plan's service area. An eligible individual who intends
to establish residence in an area for longer than six
months registers with the local health alliance.

An eligible individual who establishes residence in an
area for more than three months but less than six
months may choose to:


Continue coverage through the regional alliance
and health plan in which he or she is enrolled, limiting
the use of health care to emergency services and urgent
care.

Register with the alliance serving the temporary
residence and choose a local health plan.

Enroll in a health plan with a fee-for-service com-
ponent that covers care provided outside the alliance
service area.


Enforcement

The Department of Labor oversees the financial opera-
tions of the alliance. The Department of Labor con-
ducts audits of management and financial systems, and
may recommend to the National Board that remedial
action is required.
THE PRESIDENT'S HEALTH SECURITY PLAN


Corporate Alliances and the
Employment Retirement
Income Security Act


THE FOLLOWING organizations and firms must either
form corporate health alliances or join regional health
alliances:


Employers with more than 5,000 employees.

Existing plans formed pursuant to collective bar-
gaining with more than 5,000 covered employees, (or
a group of plans within the same union structure) such
as Taft-Hartley plans, although certain limitations apply
to the ability of such plans to provide coverage to asso-
ciate union members

Plans formed by rural electric and telephone coop-
eratives with more than 5,000 covered employees.


The term employer is defined as it is under the
ERISA statute.

The threshold of 5,000 employees is applied by cal-
culating the number of workers employed by a firm
nationally. The common control test determines
whether separate trades or businesses are treated as a
single employer.

Employers whose primary occupation is employee
leasing are required to participate in regional health
alliances regardless of the number of employees. Fed-
eral, state, local and special purpose units of govern-
ments are required to participate in regional alliances
regardless of their size. The United States Postal Ser-
vice may operate as a corporate alliance.

A firm or organization that is certified as a corporate
alliance must discontinue as a corporate alliance if the
number of full-time employees of the firm or the num-
ber of full-time employees covered by the organization
falls below 4,800.

The Department of Labor regulates employers and
determines whether a corporate alliance may continue
to operate in the case of mergers, acquisitions and
bankruptcies.

A state adopting a single payer approach may require
all employers and individuals to participate in the sin-
gle payer system.


Election to Form a Corporate Alliance

Large employers eligible to form corporate alliances
elect to exercise that option or to purchase health cov-
erage through a regional alliance.

During the implementation of the new health sys-
tem, a large employer has a one-time opportunity to
enroll in regional alliances at community rates workers
residing in regional alliances where less than 100 of the
employer's workers reside.

Large employers periodically have the opportunity
to switch to regional alliances, according to the follow-
ing terms:


The employer pays a risk-adjusted, weighted-aver-
age premium for a period of four years, after which the
rates charged to that employer adjust to obtain a com-
munity rate over four years.

The election applies to all employees of the
employer, nationwide.

Employers or establishments that join regional
alliances must continue to purchase coverage through
them.


Taft-Hartley Plans and Rural Cooperatives

The board of directors of an existing Taft-Hartley plan
or rural cooperative elects whether to form a corporate
alliance. If it elects not to form a corporate alliance, its
member employers purchase health coverage through
regional alliances like any other employer. These new
rules regarding Taft-Hartley plans do not affect and are
in addition to current rules governing the collective
bargaining process.

If an employer that participates in a Taft-Hartley
plan or rural cooperative leaves the arrangement, it
purchases coverage through the regional alliance like
any other employer.


Enrollment

Each corporate alliance offers all eligible persons health
plans that provide the nationally guaranteed compre-
hensive benefits.

Corporate alliances hold annual open enrollment
periods during which individuals and families choose
among health plans. The open enrollment period for
the corporate alliance coincides with the enrollment
period for regional alliances.


Enrollment of Newly Eligible Persons

Corporate alliances provide a mechanism for promptly
enrolling individuals and families who become eligible
for coverage between open enrollment periods.


Over-Subscription in a Plan

A health plan may become over-subscribed, meaning
that the plan does not have sufficient capacity to serve
everyone who wants to enroll. When a plan is over-
subscribed, existing members of the plan have prefer-
ence to continue in the plan. In determining which new
members join an over-subscribed plan, a corporate
alliance uses a process of random selection.


Health Plans

Corporate alliances provide health benefits to eligible
employees and dependents either through a certified
self-funded employee benefit plan or through contracts
with state-certified health plans.

Contracts between health plans and corporate
alliances comply with the following requirements:

Premium rates charged to the corporate alliance
may be based on community rating, adjusted commu-
nity rating or experience rating.

For corporate alliances composed of more than
one employer, such as Taft-Hartley plans and rural
electric or telephone cooperatives, premium rates
charged to individual employers must be community
rated.

Health plans that contract with corporate
alliances must accept all eligible employees and their
dependents, regardless of individual characteristics,
health status, anticipated need for health services,
occupation, affiliation with any person or entity
(except for affiliation with another alliance or health
plan).

Health plans may not terminate, restrict or limit
coverage for the nationally guaranteed comprehensive
benefit package.

--Exclusions for existing medical conditions and
waiting periods or riders that exclude certain indi-
viduals are prohibited.

--Health plans may not cancel coverage for eligi-
ble employees and dependents until they enroll in
another health plan.


Failure to Pay Premiums

If a corporate alliance fails to make premium payments
to a health plan, the plan may terminate coverage after
reasonable notice. If coverage is terminated, the corpo-
rate alliance is responsible for providing coverage to
individuals previously insured under the contract.

A health plan that notifies a corporate alliance of its
intention to terminate coverage also sends a copy of the
notice to the Secretary of Labor.


Information

Corporate alliances assure that employees have ready
access to comparative information about health plans.

Information is obtained through a brochure published
annually. At a minimum, the brochure must include
the following information about health plans:

Cost to consumers, including premiums and aver-
age out-of-pocket expenses.

Characteristics and availability of health providers.
Restrictions on access to providers and services.

The annual Quality Performance Report for each
health plan containing measures of quality presented in
a standard format.


Corporate alliances are responsible for assuring that
employees are aware of information they may obtain
from participating plans.


Choice of Plans

Each corporate alliance contracts with at least one fee-
for-service health plan. A corporate health plan has a
fee-for-service component if a participant has the
option of consulting any health provider, subject to rea-
sonable plan requirements.

Reasonable plan requirements include utilization
review and requirements to obtain approval for certain
service before they are obtained but does not involve
primary care physicians or networks acting as gate-
keepers.

A corporate alliance may be excused from the
requirement to offer a fee-for-service option in a geo-
graphic area in which the regional alliance obtains a
waiver from the requirement.

In addition to a fee-for-service plan, a corporate
alliance contracts with at least two other health plans
offering the comprehensive benefits. A corporate
alliance may be excused from this requirement if an
insufficient number of state-certified plans exist in a
particular geographic area, or if the plans are unwilling
to contract with the corporate alliance.


Contracts with Health Plans

Corporate alliances contract with health plans on at least
an annual basis but may enter into multi-year contracts.

Contracts include certification requirements outlined
in federal and state law, as well as a statement regard-
ing the maximum capacity the plan is willing to serve.
A corporate alliance may set additional requirements
for contracting health plans.


Risk Adjustnnent

A corporate alliance may, but is not required to, use a
risk adjustment system to account for variations in
enrollment among health plans with respect to risks
and access to basic health services among participants.


Payments and Ratings

A corporate alliance makes direct payments to health
plans.

A corporate alliance has the option of using any type
of rating arrangement with health plans, including full
or partial self-funding, prospective or retrospective
experience rating, adjusted community rating, commu-
nity rating by class, or community rating. In a Taft-
Hartley plan or a rural cooprative, participating
employers are charged on a community rated basis
within the plan.
Employees covered in all corporate alliances pay a
community rate for their portion of premiums, however.


Plan of Operation

Corporate alliances submit plans of operation to the
Department of Labor. The Secretary of the Department
of Labor determines whether the plan meets all statu-
tory and regulatory requirements.


ERISA

The American Health Security Act amends the
Employee Retirement Income Security Act of 1974
(ERISA) to create a new chapter governing employee
health benefit plans and modifying the current ERISA
preemption section.


Requirements Related to Employee Health
Benefit Plans


A new chapter or title of ERISA establishes fiduciary
and enforcement requirements for employers and others
sponsoring health benefit plans in corporate alliances.
Current provisions of ERISA do not apply to health ben-
efits except by specific reference. Provisions address:

Ensuring that everyone enrolled in corporate
health alliances obtains coverage providing at least the
nationally guaranteed benefit package

Establishing fiduciary requirements for employers,
plan sponsors and plan fiduciaries

Setting requirements related to information and
notification made available to employees

Ensuring compliance with national standards with
respect to uniform claims form, data reporting, elec-
tronic billing and other areas

Applying grievance and benefit dispute procedures
to self-funded health benefit plans

Establishing financial reporting requirements for self-
funded health benefit plans and for corporate alliances

Setting financial reserve requirements for self-
funded health benefit plans.


The new title or chapter also sets fiduciary require-
ments for employers in regional alliances governing the
withholding of employee contributions from wages.
The Department of Labor may enter into agreements
with states to enforce these requirements.


Financial Reserve Requirements

New requirements for financial reserves apply to self-
funded health plans. Self-funded health plans establish a
trust fund that is maintained at a level equal to the esti-
mated amount that the plan owes providers at any
given time. The plan pays claims from the trust fund.
Trust funds are protected by special status in
bankruptcy proceedings if the sponsoring employer
fails.

Reserve requirements may be met through letters of
credit, bonds or other appropriate security rather than
establishing the trust fund.

A new national guaranty fund for self-funded health
plans provides financial protection for health providers
in case of financial failure of a plan. The Department of
Labor oversees the national guaranty fund; it operates
in a manner similar to state insurance guaranty funds.

The Department of Labor may inspect the books and
records of self-funded health plans and assume control
over plans if they fail to meet reserve requirements.
Health benefit plans notify the Department of Labor if
they fail to meet requirements.


Preemption of State Laws

The ERISA preemption provision is modified to:


Apply the preemption only with respect to employ-
ers and health benefit plans in corporate alliances.

Permit taxes and assessments on employers or
health benefit plans in corporate alliances if the assess-
ments are nondiscriminatory in nature.

Permit states to develop all-payer hospital rates or
all-payer rate setting.

States also may require all payers, including health
benefit plans in corporate alliances, to reimburse essen-
tial community providers.
THE PRESIDENT'S HEALTH SECURITY PLAN


Health Plans


HEALTH PLANS provide coverage for the nationally guaran-
teed comprehensive benefit package through contracts
with regional or corporate alliances. Only state-certified
health plans are allowed to provide health insurance and
benefits in regional alliances.


Enrollment


Health plans accept every eligible person enrolled by an
alliance without regard to individual characteristics,
health status, anticipated need for health care, occupa-
tion, affiliation with any person or entity (exeept affil-
iation with a corporate allianee or health plan).

Health plans may not terminate, restrict or limit
coverage for the comprehensive benefit package for any
reason, including non-payment of premiums. They may
not cancel coverage for any individual until that indi-
vidual is enrolled in another health plan.

Health plans may not exclude participants because of
existing medical conditions or impose w aiting periods
before coverage begins. Riders that serve to exclude cer-
tain illnesses or health conditions also are prohibited.

With the approval of the state, health plans may limit
enrollment because of restrictions on the plan's capacity
to deliver services or to maintain financial stability.


Community Rating

Health plans use community rating to determine premi-
ums, establishing separate rates to reflect family status.

Beginning in August of each calendar year, alliances
negotiate premium rates with each health plan con-
tracting for coverage through that alliance. Negotiations
set individual and family premiums for each health plan
within the alliance. During an annual open enrollment
period, alliances publish the negotiated rates for all
health plans.

Employers and employees pay a community-rated
premium. However, payments to health plans by
alliances are adjusted to account for the level of risk
associated with individuals enrolled in plans. The adjust-
ment is made using a formula developed by the National
Health Board.


Reinsurance

Health plans may purchase reinsurance to cover dispro-
portionate costs beyond those predicted by risk adjust-
ment formulas.


Information

Each health plan provides to the alliance and makes
available to consumers and health care professionals
information concerning:


Costs
Qualifications and availability of providers
Procedures used to control utilization of services
and expenditures
Procedures for assuring and improving the quality
of care
Rights and responsibilities of consumers and
patients.

Health plans are responsible for the accuracy of
information submitted and may be disqualified from
participating in an alliance if information is inaccurate.

In keeping with the overall goal of increased con-
sumer knowledge about health care issues and choices,
health plans are expected to encourage patients to par-
ticipate in decisions about treatment options and to offer
consumers up-to-date information regarding potential
benefits, risks, and costs of various medical and surgical
procedures.

Health plans in states that allow advance directives
and surrogate decision making related to medical treat-
ment are required to provide information about those
legal options at the time of enrollment in the plan.

Grievance Procedure

Health plans offering coverage through both regional
and corporate alliances are required to establish a ben-
efit claims dispute procedure. The new health care sys-
tem relies on the development of alternative dispute
resolution procedures to reduce costs and increase the
efficiency of the grievance process by setting specific
deadlines for resolution and providing for early review
of disputes by neutral third parties. If the grievance
procedure fails to resolve a complaint, consumers have
the option of pursuing the issue with the alliance,
ombudsman or pursuing other legal remedies.

The Department of Labor will ensure that both
regional and corporate alliance health plans establish
grievance procedures and monitor the performance of
such procedures.

Health Plan Arrangements with Providers

Health plans enter into agreements with health care
providers to deliver services. Notwithstanding state
laws to the contrary and except for services provided
under a fee-for-service component, a health plan is
authorized to:


Limit the number and type of health care
providers who participate in the health plan.

Require participants to obtain health services other
than emergency services from participating providers
or from providers authorized by the health plan.

Require participants to obtain a referral for treat-
ment by a specialized physician or health institution.

Establish different payment rates for participating
health providers and providers outside the plan.

Create incentives to encourage the use of partici-
pating providers.

Use single-source suppliers for pharmacy, medical
equipment and other health products and services.


In addition, state laws related to corporate practice
of medicine and to provider ownership of health plans
or other providers do not apply to arrangements
between integrated health plans and their participating
providers.

Health plans cover emergency and urgent care pro-
vided to members outside of its service area. Reim-
bursement is based on the fee-for-service rate schedule
in the alliance where the services are provided.

During a transitional period, health plans must cover
services provided to their members by designated
essential community providers. Payments to essential
providers are based on the Medicare method for com-
munity health centers.

A state has the authority to waive the obligation to
reimburse essential community providers for a particu-
lar health plan operating in a particular area. To obtain
a waiver, a health plan demonstrates that it has the
capacity to deliver a comparable range and level of ser-
vices to consumers in the area served by the essential
community provider.

Health plans may not discriminate against providers
on the basis of race, ethnicity, gender, religion, mix of
health professionals or patient population.


Provider Participation in Plans

Each health plan in each regional alliance has an advi-
sory board composed of providers participating in the
health plan. The providers will select the membership
of the advisory board.

The health plan consults frequently with the advisory
board, and must respond to concerns raised by the
advisory board. The advisory board has access, under
rules established by the National Board, to health plan
information that relates to the delivery of health care
by that health plan.


Loans to Community-Based Health Plans


A loan program will be established in HHS to assist the
development of community-based health plans. The
program may provide direct loans to health plans or
guarantee loans made by private financial institutions.


Additional Requirements for Plans

In addition to the requirements discussed above, health
plans must meet national, uniform Conditions of Par-
ticipation established by the National Health Board,
including:

Fiscal soundness, including minimum standards for
financial reserves, and disclosure of financial con-
dition to all purchasers.

Truth in marketing, including standards for fair
marketing practices and disclosure to consumers of
all material information regarding the plan and its
performance.

Verifying credentials of practitioners and facil-
ities, including bi-annual checks of providers
against national databases, investigating and resolv-
ing consumer complaints and dropping providers
who consistently fail to meet quality standards
or are responsible for fraud or mismanagement.
Health plan must ensure that all practitioners and
health institutions meet state licensing standards.

Consumer protection including disclosure of a
material information regarding the plan and the
rights and responsibilities, providing due process for
patients to appeal denial, termination or reduction
of coverage and resolving appeals of complaints.
Confidentiality, including maintaining a policy for
protecting patient privacy and confidentiality in
compliance with law and allowing patients to
obtain copies of their medical records upon
request. (See Information Systems and Administra-
tive Simplification.)
Complaints, including investigating and attempting to
resolve complaints about practitioners, providers,
treatments, access to care and health plan policies
and procedures.

Disenrollment for cause, including permitting con-
sumers to resign from health plans at any time for
good cause.

Utilization management, including disclosure of
protocols for controlling utilization and costs.

--Methods used to manage the network of
providers, such as the selection criteria and inter-
nal performance standards.

--Compensation methods for providers, such as
capitation;

--Incentives to providers to control utilization;
--Utilization review criteria--criteria by which
health care services are determined to be inappro-
priate; and

--Protocols for managing the care of high-cost
patients.

Data management and reporting, including main-
taining encounter data and required quality data
electronically and reporting the data to the national
network. (See Information Systems and Adminis-
trative Simplification, and Quality Management and
Improvement.)


SUPPLEMENTAL INSURANCE

Supplemental insurance to cover both cost sharing and
additional health benefits is allowed.

A supplemental benefit policy may cover all or some
portion of benefits not included in the comprehensive
package, such as long-term rehabilitation services and
cosmetic surgery. A policy covering cost sharing might
pay a portion of co-payments and co-insurance required
by a health plan.

Any entity that offers supplemental policies must
abide by the rules for supplemental insurance. How-
ever, the following types of insurance policies are not
subject to these rules:


 Long-term care insurance

 Insurance against specific diseases

 Hospital or nursing home indemnity insurance

 Medigap insurance

 Insurance against accidents.


 Cost Sharing


The National Health Board develops two standard, sup-
plemental cost-sharing policies. One model provides
standard coverage; the other maximum coverage. Once
developed, only the model policies may be offered, and
every health plan that uses the high cost sharing model
(described under Guaranteed National Benefit Package)
is required to offer both.

Limitations on pre-existing medical conditions are
prohibited, and supplemental policies must be available
to every participant in a health plan at the same price.

Policies may not exclude cost-sharing coverage for spe-
cific diseases or conditions.
Only qualified health plans with the high cost sharing
option (see section on Guaranteed National Benefit Pack-
age) may offer supplemental insurance for cost sharing
under the comprehensive benefit package. A member of
a health plan may purchase supplemental insurance for
cost sharing only during the annual enrollment period.

The price of any insurance policy covering cost shar-
ing includes the cost of additional benefits plus any
expected increase in utilization caused by the insurance.

No plan may sell coverage for cost sharing at a price
that results in a loss-ratio less than 90 percent. (The loss
ratio is the ratio of the premium returned to the con-
sumer in payout relative to the total premium collected.)

The National Health Board develops rules for the
coverage of cost sharing in corporate alliances. The rules
may require that only one standard, supplemental pol-
icy is offered, or that no policy is offered if an employer
already substantially covers cost-sharing.


Additional Benefits

No health plan, insurer, or any other person may offer
anyone eligible for the guaranteed benefit package a
supplemental insurance policy that duplicates coverage
in the national benefit package.


Any health plan that sells duplicate coverage is dis-
qualified from participating in alliances. Any firm or
individual who offers such policies is subject to loss of
the license to sell insurance.
No policy covering additional health services may fail
to cover for a period longer than six months, limit or
restrict coverage for any illness, disease, or other con-
dition that existed prior to the purchase of the policy.
All policies covering additional benefits must be offered
at a single price to all individuals in an alliance.
Insurance policies providing coverage for additional
benefits must be available to any purchaser, subject to
the capacity and financial limits of the insurer. Cover-
age available only through membership in fraternal,
religious, professional and other organizations and poli-
cies sold to employers to cover benefits for their
employees are exceptions.
The National Health Board develops, in consultation
with the states, minimum standards that prohibit mar-
keting practices by insurance companies and agents that
involve:

Tying or otherwise conditioning the sale of sup-
plemental insurance to the purchase of the comprehen-
sive benefit package.
Providing compensation to an agent selling supple-
mental benefits for promoting or otherwise encourag-
ing the purchaser of supplemental benefits.
Using or disclosing to any party information about
the health status or claims experience of participants in
the plan for the purpose of marketing supplemental
benefits.
THE PRESIDENT'S HEALTH SECURITY PLAN


Risk Adjustment


ALLIANCES ADJUST premium payments to health plans to
reflect the level of risk assumed for patients enrolled in
comparison to the average population in the area. The
adjustment mechanism takes into account factors such
as age, gender, health status and services to disadvan-
taged populations.


Development of Federal Model System

Nine months before the date on which states first enroll
consumers in regional alliances, the National Health
Board promulgates a risk-adjustment system.

Regional alliances are required to use the risk-
adjustment system unless an alliance obtains a waiver
from the National Health Board. The Board provides
technical assistance to states and alliances in imple-
menting the federal system.

The federal system takes into account the following:


Appropriate compensation for health plans that
enroll individuals with higher or lower-than-average
health costs.

Variations in health costs and utilization such as
demographic characteristics and health status.

Factors that impede access to health care, such as
geographic location, prevalence of poverty, language
and cultural barriers.

Factors related to the unique problems of mental
illness.


The risk adjustment system uses prospective adjust-
ment of payments to health plans and reinsurance to
protect health plans that have a disproportionate share
of high cost cases. Greater reliance may be placed on
reinsurance in the first years, until a more sophisticated
risk adjustment system is fully implemented.


Incentives to Enroll and Serve
Disadvantaged Groups


Certain population groups face barriers to care due
to their geographic location (rural or inner city), to
poverty, or to other factors such as language or cultural
differences. States may determine that financial incen-
tives are needed to insure that health plans enroll dis-
advantaged groups and provide appropriate outreach
services for them.


Advisory Committee


The National Health Board creates an advisory com-
mittee to provide technical advice and recommenda-
tions regarding the development of the risk-adjustment
system. The advisory committee is composed of fifteen
representatives of health plans, alliances, consumers,
experts, employers and health providers. Once it is
adopted, the committee makes recommendations for
updating the risk-adjustment system.

The National Health Board may conduct research
and undertake demonstration projects to support the
development of the system.


Risk Adjustment System Required

States are required to assure that alliances use the fed-
eral risk-adjustment system.

A state that wishes to modify the system or substi-
tute another risk-adjustment mechanism applies to the
National Health Board. The Board grants a waiver if
the alliance demonstrates that its proposed system is at
least as effective and accurate as the model system.
THE PRESIDENT's HEALTH SECURITY PLAN


Rural Communities--
in the New System


ECONOMIC ANd demographic characteristics of many
rural communities result in a larger number of unin-
sured and underinsured citizens in rural areas. Under
the American Health Security Act, access to care is
ensured for Americans who live in rural areas through:

Alliance requirements to serve rural areas
Investment in infrastructure

Creation of incentives to expand rural community-
based networks and plans

Investments for the development of the health
workforce

Expansion of the rural public health system.


Guaranteed Universal Access

Alliances have the capacity to ensure adequate health
services in rural areas by:


Creating alliance-sponsored plans

Fostering cooperative relationships among rural
and urban providers

Requiring urban health plans to serve rural areas in
the alliance

Developing an information and referral infrastructure
to link academic health centers and rural health providers

Offering long-term contracts to health plans serv-
ing rural areas.


Infrastructure Development During Transition

As described in the section on Public Health Service
Access Initiatives, qualifying community-based organi-
zations in rural areas have access to federal loan guar-
antees for capital improvements.


Rural Community-Based Networks and Plans

Federal funding and technical assistance become avail-
able to support local planning and development of pri-
mary care systems in areas with inadequate health
services, such as rural areas. Grants support the devel-
opment of telecommunications capacity to link rural
providers with health care centers and institutions as
well as continuing education and professional support.
In addition, grants to Academic Health Centers assist in
the development of an information and referral infra-
structure to support rural health networks.


Workforce

The National Health Services Corps and related pro-
grams expand to reduce the shortage of health care
providers in rural areas. Incentives are provided to
attract and retain health professionals in rural areas.

Tax incentives encourage practice in rural areas.
Incentives include:


A non-refundable personal tax credit of $1,000
per month that can be recaptured during the first five
years of practice by a physician in a rural area with a
shortage of health professionals ($500 for physician
assistants and nurse practitioners).

The exclusion from gross income of National
Health Service Corps Loan Repayments received under
section 338B.

An allowance of up to $10,000 annually (depreci-
ation not required) for the purchase of medical equip-
ment used in areas with a shortage of health
professionals.

Deductibility of up to $5,000 in annual student
loan interest for physicians, physician assistants,
advanced practice nurses and registered nurses perform-
ing services under agreements with rural communities.


The allocation of residency positions in new health care
systems involves special attention to geographic factors.

Increased relative compensation for primary care
physicians also encourages practice in rural areas. (See
section on Creating a New Health Workforce.)


Public Health System

To assure access to health care in rural areas, supple-
mental services are provided for low-income popula-
tions. These services include: transportation, outreach,
non-medical case management, translation, child care
during clinic visits, health education, nutrition, social
support and home visiting services. (See section on
Public Health Initiatives.)
THE PRESIDENT'S HEALTH SECURITY PLAN


Workers' Compensation
Insurance and Automobile
Insurance


HEALTH PlANS provide treatment for individuals with
work-related injuries covered under workers' compen-
sation insurance.

Workers' compensation insurers (including self-
funding employers) continue to be responsible for the
costs of treatment based on current law and reimburse
health plans for services provided. Reimbursement is
based on a fee schedule or on an alternative arrange-
ment established by alliances or negotiated between
workers' compensation insurers and health plans.

To obtain state certification, a health plan demon-
strates its ability to provide or arrange for comprehen-
sive medical benefits for work related-injuries and
illnesses, including rehabilitation and long-term care
services.

Health plans employ or enter into contracts with
specialists in industrial medicine and occupational therapy.

Health alliances are responsible for coordinating
access to specialized health providers or centers of excel-
lence in industrial medicine and occupational therapy.

Alliances may designate as subcontractors health
care professionals and institutions that provide special-
ized services for the treatment of work-related injuries
and illnesses on behalf of all health plans serving the
alliance region.


Individuals enrolled in health plans within the
alliance receive treatment for work-related injuries or
illnesses from their health plans, although emergency
treatment may be obtained from any provider.
State laws regarding choice of provider for workers'
compensation cases are overridden with respect to indi-
viduals covered through health alliances. Exceptions
may be necessary in cases of disputes.

Each health plan designates a workers' compensation
case manager to coordinate the treatment and rehabilita-
tion of injured workers. The case manager ensures that:


The plan of treatment for an injured worker meets
appropriate protocols and is designed to assure rapid
return to work.

The plan of treatment is coordinated with the
workers' compensation insurance carrier and/or the
employer to facilitate rapid return to work.

The health plan complies with medical and legal
requirements related to workers' compensation.

If the health plan is unable to provide a needed
service to treat a work-related injury or illness, the
workers' compensation case manager, in consultation
with the workers' compensation carrier, refers the
worker to an appropriate provider.


Health plans are reimbursed by workers' compensa-
tion insurance carriers or self-funded employers for
work-related medical benefits in accordance to the fee-
for-service schedule in the alliance.

Alliance fee schedules include rehabilitation, long-
term care and other services commonly used for the
treatment of work-related injuries and illnesses.

Alliances are permitted to adopt varying arrange-
ments with health plans for providing work-related
medical benefits, including negotiating per case capita-
tion payments.

Health plans are permitted to negotiate fees that
vary from the fee-for-service rate schedule with work-
ers' compensation insurers and employers.


Information related to provider and health plan per-
formance in treating work-related injuries and illnesses
(including the health plan performance in facilitating
injured workers' returning to work) are included in
reporting information about the quality of care pro-
vided by the health plan.

Nothing in this policy alters or diminishes the effects
of state workers' compensation laws as the exclusive
remedy for work-related injuries or illnesses. Disputes
related to whether an injury or illness is work-related
are resolved in accordance with existing state laws.

Health benefits for work-related injuries and ill-
nesses continue to be defined by states. Health plans
and providers are not allowed to balance bill patients
with work-related injuries or illnesses for additional
charges beyond those covered by the health plan.
Workers will not be subject to requirements for co-
payments and deductibles related to medical services as
a result of workplace illness or injuries.

For regional alliances, the federal requirements
related to workers' compensation become effective two
years after implementation of the state health reform
program. For corporate alliances and federal workers'
compensation programs, the federal requirements
become effective in 1998.
Compensation programs under FECA, the Jones Act
and the Longshoreman's Act are subject to similar
requirements.
A Commission on Health Benefit and Integration is
created to study the feasibility and appropriateness of
transferring the financial responsibility for all medical
benefits (including those now covered under workers'
compensation and automobile insurance) to the new
health system. The Department of Labor and Depart-
ment of Health and Human Services provide staff sup-
port to the Commission. The commission reports to
the President and presents a detailed plan for integra-
tion, if it is recommended, on or before July 1, 1995.
The Department of Health and Human Services and
the Department of Labor are authorized to conduct a
demonstration program in one or more states related
to treatment of work-related injuries and illnesses.

The Department of Health and Human Services
and the Department of Labor, in consultation with
states and experts on work-related injuries and ill-
nesses, develop protocols for the appropriate treatment
of work-related conditions.
The Department of Health and Human Services
and the Department of Labor enter into contracts with
one or more alliances to test the validity of protocols.
The demonstration may include the development
of per-case capitation payments to health plans for the
treatment of work-related injuries and illnesses.


INTEGRATION OF AUTOMOBILE INSURANCE

Individuals receive treatment from health plans for
injuries sustained in automobile accidents.

In cases in which an automobile insurance carrier is
responsible for the costs of treatment (based on current
law), the automobile insurer reimburses the health plan
for services provided. Reimbursement is based on a fee
schedule or on an alternative arrangement established
by the alliance or negotiated between the automobile
insurer and the health plan.

To obtain state certification, a health plan demon-
strates its ability to provide or arrange for (through
contracts with appropriate health care providers) med-
ical benefits for automobile injuries.


Health plans provide or arrange for the full range of
services commonly reimbursed by automobile insurance
carriers for the treatment of automobile injuries, includ-
ing long-term rehabilitation and long-term care services.

Health alliances may enter into contracts with cen-
ters of excellence or with certain specialists for the pur-
pose of providing all health plans with access to providers
of specialized treatments for automobile injuries.


Health providers may not bill patients injured in
automobile accidents for charges in excess of payments
made by health plans. Health plans may negotiate dif-
ferent fees with automobile insurance carriers.

For regional and corporate alliances, the federal require-
ment for automobile insurance is effective two years after
the state health reform program is implemented.
THE PRESIDENT'S HEALTH SECURITY PLAN


Budget Development
and Enforcement


THE AMERICAN Health Security Act organizes the mar-
ket for health care and creates mechanisms to control
costs through enhanced competition, consumer choice,
administrative simplification, and increased negotiating
power through health alliances. A national health care
budget serves as a backstop to that system of incentives
and organized market power. The budget ensures that
health care costs do not rise faster than other sectors of
the economy.

The national health care budget centers on the
weighted average premium for the nationally guaran-
teed benefits package in regional health alliances, estab-
lishing a target for how much that average premium
may increase each year. The federal government
assumes responsibility for enforcing alliance budgets.


Covered Expenditures

Health care expenditures covered by the budget include
premiums paid to cover the guaranteed comprehensive
benefit package whether paid by employers, employ-
ees, or individuals. Medicare and Medicaid expendi-
tures are included under separate budgets.

Supplemental benefits beyond the comprehensive
benefit package, as well as workers' compensation and
auto insurance benefits, are not included in the budget.
Premiums for insurance policies providing coverage for
cost sharing are not included.


Annual Increases

Allowed increases in Medicare and Medicaid spending
are described in the table called Growth Rate of Health
Care Spending at the end of the plan. The growth in
premiums in regional alliances is also limited through a
national inflation factor. Regional alliance inflation fac-
tors are as follows:


Projected increase in the Consumer Price Index
(CPI) plus 1.5 percentage points for 1996

Projected 1997 increase in the CPI plus 1.0 per-
centage points

Projected increase in the CPI plus 0.5 percentage
points in 1998

Projected increase in the CPI for each year there-
after


Health expenditures for the guaranteed benefits
package increase at these rates plus increases in popu-
lation.

Projected inflation factors are detailed in the table
called Growth Rate of Health Care Spending at the end
of the plan.

The National Health Board adjusts the inflation fac-
tor for each alliance to reflect unusual changes in the
demographic and socio-economic characteristics of the
population covered by the alliance. The National Health
Board develops a methodology for making such adjust-
ments using commonly accepted actuarial principles.
Demographic changes considered include, at a mini-
mum, age and gender.

The Board consults with states and alliances prior to
the establishment of the annual inflation factor.


National per Capita Baseline Target

The National Health Board calculates a national per
capita premium target based on:


Current per capita health expenditures for the
guaranteed benefits package trended forward to 1996
based on projected increases in private sector health
care spending.

With adjustments for expected increases in utiliza-
tion by the uninsured and under-insured and to recap-
ture currently uncompensated care.


First Year Bidding and Negotiation Process

In the year prior to implementation, each alliance con-
ducts a bidding and negotiation process with health
plans. The Board provides alliances with information
and technical assistance to aid in the bidding process.
The bidding is conducted either by providing plans with
the alliance's budget target prior to bidding, or by invit-
ing blind bids followed by negotiations and re-bidding.

Once an alliance is satisfied with the negotiated
health plan premiums, it submits them to the National
Health Board for review. The first-year bidding process
occurs earlier than in subsequent years to allow time
for a more thorough review by the National Health
Board and possible re-negotiation of premiums.


National Board Review

The Board calculates for each alliance a per capita pre-
mium target, using the national per capita baseline tar-
get as a reference point. For each alliance, the Board
adjusts the national target for current regional varia-
tions in health care spending and for rates of under-
insurance and underinsurance. To measure regional
variations in health care spending, the Board uses such
factors as:


Variations in premiums across states based on sur-
veys and other data.

Variations in per capita health spending by state, as
measured by the Health Care Financing Administration.

Variations across states in per capita spending
under the Medicare program.

Area rating factors commonly used by actuaries.


The Board establishes the premium targets for
alliances so that the weighted average of the alliance
targets equals the national per capita baseline target.

In states establishing regional alliances after 1996,
alliance targets increase annually by the national infla-
tion factor. Targets are not, however, enforced until
alliances are formed.

The Board calculates an estimated weighted-average
premium for each alliance, using the proposed premi-
ums submitted by the alliance and a projection of the
distribution of enrollment across plans. If the estimated
weighted average premium for an alliance is greater
than the alliance's premium target, then the Board
notifies the alliance and allows it to renegotiate premi-
ums. If an alliance chooses to re-negotiate premiums, it
submits the revised premiums to the Board and pro-
ceeds with enrollment.


First Year Budget Enforcement

The Board calculates an estimated weighted-average
premium based on the final bids submitted by the
alliance. If the estimated weighted-average premium for
the alliance exceeds the alliance's premium target, an
assessment is imposed on each plan whose bid exceeds
the target, and on the providers receiving payment from
that plan. Revenues from assessments on plans are used
to reduce required employer premium contributions
The assessment on the plan is equal to a portion of the
percentage amount by which the alliance target is below
the bid. The "portion" is calculated so that the weighted
average of premiums after assessments equals the
alliance's premium target. Payments to providers by
that plan are assessed at the same percentage, with rev-
enues from the assessment retained by the plan.


Establishing a Baseline Budget
for Each Alliance


Following the first open enrollment period, the Board
calculates for each alliance the weighted average pre-
mium, using actual premiums and enrollment figures.

The first year weighted average premium becomes the
baseline per capita budget for the alliance.

In each subsequent year, an alliance's per capita bud-
get equals its budget for the previous year, increased by
the inflation factor.


Adjusting the Premium Inflation Factor

In general, as described above, the premium inflation
factor is the increase in the Consumer Price Index. If,
however, an alliance's actual weighted-average pre-
mium in a given year exceeds its premium target, then
the inflation factor for that alliance is reduced for the
following two years to rccover excess spending.


Process for Making Adjustments in Targets
over Time


The National Health Board appoints an advisory com-
mission to recommend adjustments to the methodo]ogy
for calculating premium targets. The Board provides
states and alliances with information about regional dif-
ferences in health care costs and practice patterns. The
commission explores methods to reduce variations in
budget targets across states due to differences in prac-
tice patterns, physician supply, population characteris-
tics, and other appropriate factors. Adjustments to
targets may not be made without Congressional action.


Enforcement of the Budget

The federal government is responsible for enforcing
the health care budget. By October 1 of each year--
beginning in 1996--alliances submit to the National
Health Board for approval their proposed health plan
premlums.

Based on proposed premiums, the Board calculates
the anticipated weighted average premium for each
alliance. The anticipated weighted average premium is
the average of the proposed premiums weighted by
current enrollment in each plan, with special rules in
cases of plans entering or leaving the alliance.

If an alliance's anticipated weighted-average pre-
mium exceeds its per capita budget target, an assess-
ment is imposed on each plan whose premium increase
(adjusted upward to reflect the previous year's assess-
ment) exceeds the alliance's premium inflation factor.
Revenues from assessments on plans are used to reduce
required employer premium contributions. The same
assessment is imposed on providers receiving payment
from that plan. The assessment on the plan is equal to
a portion of the difference between the plan's premium
increase and the alliance's budget inflation factor
(adjusted upward to reflect the previous year's assess-
ment). The "portion" is calculated so that the weighted
average of premiums after assessments equals the
alliance's per capita budget target. Payments to
providers by that plan are assessed at the same percent-
age, with revenue from the assessment retained by
the plan.

Tools to Meet Premium Targets

In addition to creating a well-structured marketplace
for health coverage, alliances have the ability to control
costs through premium negotiations and the authority
to refuse contracts with health plans whose premiums
are too high. Tools available to states to contain costs
include:

Premium negotiation and regulation.

Limiting enrollment in high-cost plans by:
 --Freezing new enrollment in high-cost plans.
 --Surcharging high-cost plans or paying rebates
 to consumers who enroll in low-cost plans.

Setting rates for health providers.

Controlling health care investments through plan-
ning.


Budgets for Corporate Alliances


A large employer may operate a corporate alliance
rather than purchasing health coverage through a
regional alliance, provided it complies with cost-con-
tainment goals. Large employers whose health plans do
not meet national spending goals are required to pur-
chase coverage through regional alliances.

The allowed rate of growth for corporate alliance
premiums is the same as the national inflation factor for
regional alliances.

The National Health Board develops a methodology
for calculating an annual premium equivalent within a
corporate alliance. Beginning after the third year of
implementation of health reform, each corporate alliance
annually reports its average premium equivalent for the
previous three years to the Department of Labor.

If the increase in the premium equivalent exceeds the
allowed rate of growth during two of any three years,
the Department of Labor shall require the employer to
purchase health coverage through a regional alliance. An
employer may petition the Department of Labor for an
adjustment in its inflation factor to compensate for
unusual change in the risk profile of its workforce.
THE PRESIDENT'S HEALTH SECURITY PLAN


Quality Management
and Improvement


HEALTH REFORM transforms the current prescriptive
quality assurance program into a quality-management
system focused on performance measures and continu-
ous improvement.

Quality assurance programs in the current system
rely on external checks, forms and process manuals.
Insurance carriers, peer review organizations, state and
federal inspection agencies audit the work being done
in hospitals, doctors' offices and laboratories, and
penalize the providers if they fail to follow rules.
Patients play a minor role, lacking reliable information
upon which to compare the quality of health plans,
providers or treatments.
Under the American Health Security Act, customer-
focused continuous improvement assures quality
improvement.

National Quality Management Program

The National Quality Management Program develops
the quality information and accountability program. An
advisory council under the National Health Board,
appointed by the President, oversees the program.

The council consists of fifteen members representa-
tive of the population, including representatives of con-
sumer groups, health plans, states, purchasers of care
and experts in public health and quality of care and
related fields of health service research.

The National Quality Management Program:


Develops the core set of quality and performance
measures and consumer survey questions and updates
them over time to reflect changing goals for quality
improvement in health care.

Conducts consumer surveys that measure access to
care, use of health services, outcomes and satisfaction.

As part of that effort, the program develops sam-
pling strategies to ensure that performance reports
reflect populations difficult to reach with traditional
consumer-sampling methods, including consumers
who fail to enroll in a health plan or resign from
plans.

Sets national goals for performance on selected
quality measures.

Establishes minimal standards of access and quality
for plans on selected measures.

Supports research, technology assessment and
development of reliable tools for measuring health out-
comes.

Evaluates the impact of health reform on the qual-
ity of care.

Reports annually on performance of the health
care system.

Reviews and recommends changes to the quality
measures annually and establishes a five-year priority
list for measures to be included in the future.

Uses the national network of regional centers to
obtain quality management data. (See section on Infor-
mation Systems and Administrative Simplification.)


Performance Reports

The National Quality Management Program under the
National Health Board develops a core set of measures
of performance that apply to all health plans, institu-
tions and practitioners. It publishes annual performance
reports outlining the results of those measures for each
health plan, creating a public system of accountability
for quality and providing consumers with meaningful
information.

It also provides annual reports to the states on the
comparative performance of health plans and state qual-
ity programs. Quality reports include information on
the performance of alliances and health plans on as
many as 50 measures of access to care, appropriateness
of care, health outcomes, health promotion, disease
prevention and satisfaction with care.

It provides the results of a smaller number of qual-
ity measures for health care institutions, doctors and
other practitioners if the available information is statis-
tically meaningful. State performance reports include
trends, performance on national quality measures and
on goals for national performance on access, appropri-
ateness and health outcomes.

The following criteria determine the selection of
national measures of quality performance:


The measures reflect important aspects of care in
terms of prevalence of illness, morbidity, mortality
or cost.

The set is representative of the range of services
provided to consumers by the entities in question.

Measures are reliable and valid and data needed
for calculation can be obtained without undue burden.

Performance on measures included in the set
vary widely among the entities on the performance
report.

When the measures are rates of process of care,
these processes are linked by strong scientific evidence
to health outcomes.

When the measures are outcomes of care, perfor-
mance lies within the control of providers and adequate
risk adjustment can be accomplished.

The measures incorporate minimal standards for
meeting public health objectives.


State Role


As part of the Quality Management Program, states
assume responsibility to:


Develop and implement plans to meet enrollment,
access and quality standards established by the federal
government.

Assure that plans and providers meet essential
national standards through licensure and certification
procedures.

Monitor the extent to which plans make the full
range of benefits covered in the guaranteed package
accessible to all population groups.

Prepare comparative reports on the performance
of alliances, plans, providers and practitioners.

Establish in each alliance a premium check-off sys-
tem at enrollment where an annual amount--up to $1
per participant--can be designated for the purpose of
supporting a consumer advocacy program.

Establish a program of technical assistance admin-
istered through either a non-profit foundation or
another organization dedicated to that purpose.

--Eligible organizations may include public-pri-
vate partnerships, consortia led by academic med-
ical centers or other forms.

--Technical assistance may include a variety of
activities such as: fostering collaboration among
health plans and providers; disseminating informa-
tion about successful quality-improvement pro-
grams, practice guidelines and research findings;
and providing educational courses and other
forums for providers to exchange information on
the valuative sciences and quality improvement
activities and providing information to encourage
the adoption of employee participation committees
and other high-performance work practices.

--Technical assistance is targeted at improving
quality management practices and not designed to
regulate or interfere with the administration of
plans and providers.

--A per capita levy on insurance premiums, with
the amount established by the National Health
Board, funds the program.

--Providers and health plans are not required to
use technical assistance resources as a condition of
participation in the new health care system,
although health plans are accountable for improv-
ing performance on national quality measures.


Role of Alliances

As part of the quality management program, health
alliances:


Resolve consumer complaints, grievances and
requests to leave a health plan.

Disseminate to consumers information related to
quality and access to aid in their selection of plans.

Prepare comparative reports on the quality of
health plans, providers and practitioners and assure
through their negotiations with plans that performance
and quality standards are met.

Conduct education programs to assist consumers
in using quality and other information in choosing
health plans.


Role of Health Plans

As part of the Quality Management Program, health
plans:

Measure and disclose performance on quality mea-
sures.

Report on, maintain and improve the quality of
care delivered by providers and practitioners.

Meet national, uniform Conditions of Participation
established for health plans by the National Health
Board. (See Health Plans.)


Developing Information
for Quality Management


enrollment, financial and utilization data is created, as
outlined in the section on Information Systems. Health
plans, providers and alliances report information
required for the national Quality Management Program
through the regional network; information required
includes data related to enrollment, clinical encounters,
consumer satisfaction and specific quality measures.

Regional centers electronically link state-level qual-
ity programs, health alliances and plans, providing qual-
ity and utilization information for each health plan and
provider as well as comparative information on other
health plans and states. Regional centers audit samples
of data to ensure integrity.

To supplement routinely collected information,
health plans gather clinical data specified by the national
Quality Management Program from samples of medical
records. To assure coordination with other informa-
tion-gathering activities, consumer satisfaction surveys
are conducted as described in the section on Informa-
tion Systems. Results from consumer surveys, in com-
bination with other information, will gauge access to
health care, use of service, outcomes and satisfaction.


Dissemination of Knowledge to Improve
the Quality of Care


To enhance the practice of medicine and promulgate
information about best practices and effective treatment
approaches, the National Quality Management Program:


Surveys statistically valid sample populations to
gather information related to consumer satisfaction,
access to care and health outcomes. Survey samples
include representation of populations considered to be
at risk for inadequate health care. The national quality
program administers the survey; states may add quality
measures of local interest.

Develops practice guidelines that assist providers
in achieving quality standards and underpin national
measures of quality.

Develops methodology standards for practice
guidelines, an evaluation and voluntary certification
process for guidelines developed by the private sector.

Operates a clearinghouse and dissemination pro-
gram for practice guidelines.
Disseminates information documenting clinically
ineffective procedures and treatments.

Supports research on topics central to quality
management and improvement, including outcomes
research, dissemination methods, ways of measuring
quality and design of electronic information systems
and new ways of organizing work systems.

Establishes scientific standards and procedures for
evaluating the clinical appropriateness of protocols used
to manage health service utilization.

With the advice of the national quality advisory
committee, defines priorities for health-care evaluation
research and recommends projects. The priorities will
target diagnoses with the highest level of uncertainty in
treatment decisions, widest variation in practice pat-
terns, significant costs and incidence.


Streamlining Regulatory Activities
 I

Minimum Standards for Health Care Institu-
tions. The National Quality Management Programs
develops uniform standards for licensing of health
care institutions that focus on essential performance
requirements related to patient care. As they are devel-
oped, those standards replace current regulations
except in areas of fire safety, sanitation and patient
rights and without undermining recent reforms in nurs-
ing home care.

When the new standards are in place, agencies
charged with certifying health institutions focus their
attention on institutions with problematic records,
responding to complaints and randomly selected valida-
tion sites.

By January 1, 1996, the National Quality Manage-
ment Program completes demonstration projects for
new performance standards and revises standards
according to the findings. Demonstration projects
evaluate the impact of these standards in assuring
quality of care, reducing cost and burdens on
providers.

Current standards are retained until new ones are
tested, promulgated, evaluated and implemented. In
the interim, government agencies responsible for
licensing and certifying health care institutions coordi-
nate inspections, reduce paperwork and control the
number of inspections.

Medicare Peer Review Organizations. The
peer review organization system under Medicare con-
tinues until the new quality system is implemented and
the Secretary of the Department of Health and Human
Services determines that Medicare enrollees are pro-
tected adequately through National Quality Manage-
ment Program. PROs will end at that time.


During the interim, the PRO program is stream-
lined. (See Information Systems and Administrative
Simplification.)

The Clinical Laboratory Improvement Act.
Regulations of clinical laboratory testing are refocused
to emphasize quality protection while reducing admin-
istrative burdens.

Regulation will continue for labs that:


a. perform a comprehensive menu of tests; or

b. perform a large volume of tests (50,000 or
greater); or

c. engage in critical testing (a test is critical if an
answer is needed quickly or an error can result in seri-
ous harm to an individual); or

d. conduct testing to monitor care while it is being
delivered.


Ease regulatory burden on laboratories
performing simple tests.

Exempt laboratories performing waived tests and
microscopy from all requirements under CLIA, includ-
ing registration and payment of fees to the DHHS.
Approximately 79,000 labs will be exempted (under
review).
Add more simple tests to the list of waivered
tests.

In accordance with recommendations by the Clini-
cal Laboratory Improvement Advisory Committee
(CLIAC), the physician-performed microscopy cate-
gory will be expanded to include those tests per-
formed by midlevel health care providers (e.g. nurse
practitioners, physician's assistants, nurse midwives,
etc.).

Ease regulatory burden on laboratories
performing moderate complexity tests.

Create a new category of moderately complex tests
that are performed using FDA-approved, highly reliable
equipment that would be subject to less stringent
inspection requirements.

By January I, 1996, the Secretary of the DHHS
issues a report on the extent to which regulation of lab-
oratories performing moderate complexity tests should
continue. Within six months, the Secretary determines,
based on the report, where continued regulation for
these laboratories is necessary.

Revise personnel standards to provide
needed relief in urban and rural areas.

In accordance with recommendations by the CLIAC,
all individuals who are currently engaged in laboratory
testing or supervision will be able to continue to per-
form such testing (in the absence of evidence of
demonstrated poor performance).

To address the concerns of rural and underserved
areas, the DHHS will modify personnel requirements
for certain laboratory positions.

Focus proficiency testing primarily on edu-
cation.

DHHS will only take proficiency-related enforce-
ment actions where a laboratory's performance is
extremely poor or it has failed to take corrective action
when proficiency testing problems are identified.

DHHS will work with Congressional committees to
develop a modified approach to cytology proficiency
testing.

Streamline inspections.

DHHS will target on-site inspections at high-volume,
high-risk labs, and they will be announced (under
review).,

Expand information and education activi-I
ties.

To eliminate confusion and misinformation with
respect to CLIA requirements, DHHS will work with
professional groups to expand activities in information
and education.
THE PRESIDENT'S HEALTH SECURITY PLAN

Information Systems and
AdministratiVe Simplification


TIMELY AND RELIABLE information represents a critical
element in efforts to reform the health care system and
to protect and improve the health of the nation.

Health care reform establishes a new framework for
health information. Using standard forms, uniform
health data sets, electronic networks and national stan-
dards for electronic data transmission, the information
framework supports:


The development of clear and useful information
for consumers.

a Measurement of health status.

Monitoring and evaluation of the health care
system.

Issuance of Health Security Cards.

Development of links among health care records
to improve patient care.

Analysis of patterns of health care.

Streamlined and simplified administration with
associated cost savings.

Identification of fraudulent activities.


The new information system features:


Strong privacy, confidentiality and security protection.

The formation of partnerships between the public
and private sectors.

National standards for clinical and administrative data.

Appropriate links to the National Information
Infrastructure programs.

Electronic network to ensure the timely availabil-
ity of reliable information.


Data and Information Framework

Every American receives a national health security card
to assure access to needed health services throughout
the United States. Much like ATM cards, the health
security card allows access to information about health
coverage through an integrated national network. The
card itself contains a minimal amount of information.

The National Health Board, in consultation with
state and private entities and other relevant organiza-
tions, develops and implements uniform national stan-
dards for administrative, clinical, financial and other
health care related information. Standards include:


Uniform minimum health data sets with standard
data items and definitions.

Electronic data interchange standards for transfer
of information.

A comprehensive health care information privacy,
framework is established based on federal legislation,
applicable to all states, alliances, health plans and
providers. Provisions include mechanisms for manage-
ment and oversight of privacy and security. Principles
of the framework include:

Uniform privacy and confidenbality rights with
special emphasis on protection of highly sensitive data.

Appropriate security measures and technology.
Enforcement mechanisms and penalties.

Coordination with policies established under the
National Information Infrastructure.
Creation of a national privacy panel focusing on
privacy protection as applied to health care information
(see discussion below).


The Board establishes national, unique identifier
numbers for plans, providers and patients, selecting an
identification number system at the conclusion of a
process that includes public hearings and formal notice
and comment procedures.


Information Systems

Health plans implement and maintain core discrete
electronic documentation of all clinical encounters with
health providers using current information system tech-
nology as the foundation for the system. Encounter
records are captured, retained and transmitted as a
byproduct of the routine provision of care.


Records may be based on insurance claims or clin-
ical encounters (depending on the type of health deliv-
ery system).

The record may be plan- or community-based, or
shared among several plans.

Encounter records conform to the uniform mini-
mum administrative and clinical data sets developed by
the board and transmitted as appropriate to the national
network (see discussion below).

Emphasis is placed on the goal of electronic
records and electronic data interchange with associated
economic efficiencies. A phase-in period, with incen-
tives, is planned to achieve this goal. During the phase-
in period, standard forms may be used.

Current information systems technology readily
supports the capture, retention and electronic data
interchange of encounter records as a byproduct of the
provision of care and with favorable benefit cost effi-
ciencies.

Development of regional encounter data systems in
this fashion will also support analysis of utilization and
treatment patterns, as well as quality and outcome mon-
itoring and research as a basis for improving health care.


Within this framework, plans are encouraged to make
innovations:


It is not the intent of health care reform to man-
date explicit approaches to this requirement. Rather,
flexible, local solutions to local needs and conditions
will be fostered. Within the broad framework of
national uniform standards, health plans and alliances
are free to collect data and patient-care information
according to their own local needs and conditions.

This requirement does not call for implementation
of a costly, full-scale computerized patient record. It
calls for using today's technology to provide informa-
tion to providers.


The framework promotes the formation of com-
munity-based health information systems that improve
the quality of care and reduce cost by minimizing
duplicate procedures, tests and adverse drug interac-
tions.

Plans, providers, states and health allianees reeeive
federal technical assistance to enable timely confor-
mance with these requirements and to select cost effec-
tive technical solutions.

Federal assistance is focused on long-term goal of
developing a Point-of-Service system.


A Point-of-Service Information System


The long-term strategy for health care information
envisions creation of a Point-of-Service information sys-
tem that brings valuable information to consumers,
health providers, payers and policy makers. The envi-
sioned system offers significant potential for more
effective, continuing quality improvement. In such a
system, clinical, administrative and payment data move
electronically among employers, health plans, physi-
cians' offices, hospitals, laboratories, pharmacies and
other providers. The system:


Collects information as a by-product of the deliv-
ery of care.

Protects the privacy, confidentiality and security of
information.

Provides ready access to information for appropri-
ate uses.

The national system will evolve from information
systems established by health plans, alliances and
regional centers. Accelerating its development requires
additional funding from the federal government to sup-
port technology development and regional demonstra-
tion projects in health plans, communities, alliances and
federal health centers.


Federal, State, Alliance and Health
Plan Data Network


An electronic network of regional centers containing
enrollment, financial, and utilization data is created.
The network receives standardized enrollment,
encounter, and related data from plans for aggregation,
analysis and feedback to plans, alliances, states and the
Federal Government. The network will be pilot-tested
before full-scale implementation.


The network supports analytic needs, such as
 monitoring of budgets, measuring access and state
accountability, assessing quality, among states, health
plans, health alliances and the federal government.

States and alliances could operate their own
regional centers and serve the switch function as part of
the national network.

Federal funds will assist in financing the network,
which is built in collaboration with private sector, state
and existing federal programs.

Required data is entered once and is a by-product
of routine administration and provision of care by
health plans and alliances.

Health plans maintain uniform electronic records
of encounters or claims.

Plans transmit encounter data, in the form of a
uniform minimum data set, to the network on a regu-
lar basis. The uniform encounter data set is designed to
meet a variety of data needs.

The network records national enrollment informa-
tion. Health alliances and plans maintain detailed local
enrollment files and submit at least a portion of those
files to the network on a regular basis.


Creation of the network does not inhibit plans and
health and health alliances from being innovative in
meeting the information needs discussed above.


Consumer Surveys and Public
Health Surveillance

Consumer surveys of satisfaction, access to care and
related measures are conducted on a plan-by-plan and
state-by-state basis. The National Health Board
approves a nationally standard design for the survey.

Surveys will monitor the implementation of health
care reform and assess its impact on the general popu-
lation, potentially vulnerable populations, states and the
health care system. The integration of survey data with
administrative and public health data systems provides
better measures of health status, risk factors and per-
formance measures for consumers to use in choosing
health plans.

Certain public health surveillance and data systems
will continue to be needed to monitor the health sta-
tus of the population and to identify and address
emerging threats to the public health. Public health
data systems, involving the federal government, states,
and local governments are strengthened and more
closely integrated within the overall information sys-
tems framework.


Governance

A National Health Data Advisory Council is established.
The Council, reports to the Board and oversees the
information and data activities, including standard set-
ting and privacy protection, of the federal government
under health care reform. Membership includes con-
sumers, users and providers of data developed by plans,
alliances, states, public-health agencies and the federal
government.


Administrative Simplification

The National Health Board enters into contracts for the
development and implementation of:


Standard forms to record enrollment, clinical
encounters and insurance reimbursement.

Automation of insurance transactions and industry-
wide adoption of standard forms.

Simplified coordination of benefits.

The creation of "standard and unique" identifica-
tion numbers for all health care providers, health plans,
employers and enrolled consumers.

Steps to streamline the administration of the Medi-
care program.


Standard Forms

After consultation with providers, plans, employer
groups, and others, standard forms for insurance reim-
bursement, health plan enrollment and to record clinical
encounters are adopted. Standard information require-
ments include coding, content and data elements.
By January 1, 1995, all health plans adopt a single,
standard form for reimbursement according to the fol-
lowing classes of providers:

The UB-92 for institutional providers

The Standard Health Insurance Claim Form (similar
to the HCFA- 1500) for all non-institutional providers
except pharmacies and dentists

HCFA-1500 for dentists

The Universal Drug Claim Form developed by the
National Council on Prescription Drug Programs for
pharmacies that seek reimbursement.


The standard claim form serves the secondary purpose
of collecting information required for state monitoring,
accountability and the measurement of quality outcomes.

All health plans and employers also adopt a national,
standard enrollment form. In conjunction with standard
claim reimbursement and encounter information,
enrollment data is used for monitoring accountability
and performance.


Insurance Transactions

The National Health Board oversees the development
of standards for the automation of insurance transac-
tions, including claims payments and status reports,
remittance advice, eligibility, coordination of benefits
and utilization management.

Standard coding and content requirements eliminate
multiple, conflicting requirements on health providers
for information, formats and definitions.

The National Health Board identifies and consoli-
dates existing standards in the health care industry,
working from prototypes developed by the American
National Standards Institute.

The Board reviews standards in consultation with
groups such as the Workgroup for Electronic Data
Interchange, the American National Standards Institute,
the National Institute of Standards and Technology.

Within one year of enactment, the National Health
Board designates national standards that providers,
plans, alliances and employers adopt as a condition of
participation in the health system. The Board estab-
lishes requirements related to content, definitions and
a strategy for implementation no less than six months
before the requirement for standardized transactions
takes effect.

All government health programs, including the
Department of Defense, CHAMPUS, Department of
Veterans Affairs, Medicare and Medicaid adopt national
standards immediately. All private payers, including
purchasers of health insurance through regional and
corporate alliances, adopt national standards for elec-
tronic transactions after January 1, 1995.

Major public and private payers, hospitals, major
employers and corporate alliances, as well as clinics and
group practices of twenty or more professionals auto-
mate the core transaction set within six months of
adoption. States may deny payments to plans that have
not automated transactions by that date.

To speed implementation, the National Health Board
provides technical assistance to health alliances and plans.


Unique Identification Numbers

The National Health Board undertakes a process to
determine, adopt and enforce unique identification
numbers for consumers in health plans.


Streamlining Medicare

The Medicare program participates in the implementa-
tion of standard forms, uniform billing, electronic
claims submission, remittance notices, coordination of
benefits, unique identification numbers and streamlin-
ing of utilization review as required under health
reform.

In addition, the Medicare program consolidates cur-
rent roster of 80 insurance companies that act as con-
tractors; it contracts separately for different functions
(e.g., claims processing using a common system across
contractors, provider profiling, provider relations,
audit, fraud and abuse prevention).
Medicare eliminates extra billing for Part B
providers such as durable medical equipment providers,
orthotic and prosthetic suppliers and ambulances. The
program simplifies its claims processes by:

Deleting information related to Medicare as a sec-
ondary payer from claim form and incorporating into
national eligibility file.

The Department of Health and Human Services devel-
ops and mandate model coordination of benefit rules
immediately for Medicare, workers' compensation, auto
insurance and other non-alliance health coverage.
Additional coordination of benefits reforms occurs
when the national enrollment file is developed and
operational (January 1, 1996). After the enrollment file
is operational, insurers are required to forward coordi-
nation of benefits claims to appropriate insurers,
through the enrollment file if necessary.
Deleting Medigap reporting requirement from the
claim form; supplemental insurance becomes part of
the national eligibility file.

The Health Care Financing Administration also:

Gives physicians presumptive waivers from col-
lecting or filing for beneficiary cost sharing in cases
where the cost sharing would pose a financial hardship
on the beneficiary or in cases of professional courtesy.

Incorporates evaluations from physicians and their
representatives into annual performance evaluations of
carriers, expanding the current five-state pilot project
nationally.

Eliminates complexities caused by dual funding
sources and rules for Medicare Part A and Part B
claims.

Efforts already underway by HCFA eliminate some
complexities. In 1996, the Health Care Financing
Administration begins to implement national, stan-
dard, integrated claims processing system for all Medi-
care claims, with the goal of full implementation by
1998.

Streamlines the process for settling cost reports,
working through the Medicare-Technical Advisory
Group on Hospital Administrative Issues.

Eliminates the requirement for physicians to sign
an acknowledgement of awareness of penalties associ-
ated with falsifying claims information on an annual
basis and replaces with a single acknowledgement when
granted hospital privileges.

Eliminates pre-billing requirement for attestation
by physician of diagnoses and major procedures per-
formed in the hospital.

Simplifies the "Important Letter to Medicare
Patients" in consultation with the Medicare-Technical
Advisory Group.

Repeals legislation requiring review of at least ten
surgical procedures.

Improves upkeep of data in "Common Working File."

Limits system changes for Medicare and Medicaid
programs to once every six months and notifies health
care providers 120 days in advance of any major change
in billing procedures.

Consistent with the 4th Scope of Work, the PRO
program will continue to move toward analysis and
improvement of patterns of health care and outcomes,
and away from individual case review, as appropriate.


The National Health Board explores developing stan-
dards for a single annual inspection of health care insti-
tutions to replace multiple inspections performed by
federal, state, local and private accreditation, survey
and certification agencies.
THE PRESIDENT'S HEALTH SECURITY PLAN


Protection of Privacy


To ASSURe the protection of privacy, security and con-
fidentiality in the new health care system, the federal
government undertakes to:


Establish national privacy safeguards covering all
health records, based on a Code of Fair Information
Practices, including

--Uniform and comprehensive privacy and confi-
dentiality protection for individually identifiable
health care information. A uniform national stan-
dard simplifies compliance for organizations that
operate nationwide and provide protection for
data that are linked or potentially linked to other
data systems.

--Protection for all types of health care informa-
tion:

Whether it is part of the new health care sys-
tem or exists outside it.

With the same level of protection for all ill-
nessesand diseases.

Regardless of the form in which records are
kept (paper, microfilm or electronic), location
(storage, transit, archive), owner, user or repository
(government, health provider, private organization).

Establish effective mechanisms for enforcement,
including significant penalties for breach of legal
requirements.

Establish a national privacy framework is founded
on a Code of Fair Information Practices stipulating, for
example, that individuals who are the subject of data
collected:

--Have the right to know about and approve the
uses to which the data are put.

--Are assured that no secret data systems are
permitted to exist.

--Have the right to review and correct data
about themselves.

--Have adequate assurance that data may be col-
lected and used only for legitimate purposes.

Establish a system of universal identifiers for the
health care system:

--A unique individual identifier for participants
in health plans. The unique identifier may be the
Social Security Number or a newly created num-
ber limited to the health care system. (See discus-
sion of selection under Information Systems and
Administrative Simplification.)

--In either case, the national privacy policy explic-
itly forbids the linking of health care and other
information through the identification number.

Issue effective security standards and guidance for
health care information.

Currently, no uniform, comprehensive privacy stan-
dards related to health care information exist.

The National Health Board develops and periodically
revises health care information security standards with
active participation by other relevant federal agencies
(e.g., Department of Health and Human Services,
Department of Defense, Department of Veterans
Affairs, National Highway Traffic Safety Administra-
tion, Consumer Product Safety Commission, and
National Institute of Standards and Technology in the
Department of Commerce).

Establish a Data Protection and Security Panel
under its direction. The panel oversees and manages
privacy and security by, for example:

--Setting privacy and security standards through
interpretive rules and guidelines.

--Monitoring and evaluating the implementation
of standards set by statute, regulations and guide-
lines.

--Sponsoring or conducting research, studies and
investigations.

--Supporting the development of fair and com-
prehensible consent forms governing the disclo-
sure and redisclosure of information to authorized
persons, for authorized purposes, at authorized
times.

--Developing the technology for implementing
security standards and sharing information in the
health care setting.

--Working with health care providers to foster
development of security practices.

Establish an education and awareness program to
train personnel with access to health care information
as well as to inform consumers of their rights with
respect to the collection and disclosure of personal
information.
THE PRESIDENT's HEALTH SECURITY PLAN


Creating a New
Health Workforce


ENSURING QUALITY health care and access for all Amer-
icans requires adjustments to the focus of investments
in health care training and education in the following
areas:


Shifting the balance in the graduate training of
physicians from specialties to primary care.
'Increasing investments in the training of nurse
practitioners and physician assistants.

Recruiting and supporting the education of health
professionals from population groups under-repre-
sented in the field.

Supporting workforce planning for health profes-
sions at the state level.

Adjusting Medicare payment formulas to increase
reimbursement for primary care.


Development and Support
for Graduate Medical Education


Legislative authority establishes a new system to manage
the supply of specialty training for physicians, encom-
passing several initiatives:


Managing the number of post-graduate train-
ing positions for physicians. After a five-year
phase-in period, at least 50 percent of new physicians
are trained in primary care rather than in the specific
specialty fields in which an excess supply currently
exists. Primary care includes family medicine, general
internal medicine and general pediatrics.
To achieve the goal of bringing primary care
and specialty training into balance, the number of
filled primary care residency positions increases by
approximately 7 percent each year over the five-year
period. During the same period, the number of filled
specialty training positions in specialties in which
excess supply exists decline by approximately 10 per-
cent each year.
The total number of first-year residency positions
available continues to exceed the number of graduates
of U.S. medical and schools in the new system. The
new system also encourages the location and focus of
physician training to more closely reflect community
medical practice.
Determination of approved residency posi-
tions. The Secretary of the Department of Health and
Human Services determines the number of training
positions in each specialty acting on the recommenda-
tions of the National Council on Graduate Medical
Education and allocated to regional councils. Regional
councils distribute positions to individual residency
programs within each area of the country.
The Secretary appoints the National Council on
Graduate Medical Education, which includes medical
educators, practicing physicians, consumers, hospital
administrators, nurses and others.

The Council recommends the total number of train-
ing positions for each medical specialty, based on the
national need for new physicians in specific specialties.
The national Council apportions residency positions to
regions taking into account:


Current regional distribution and quality of train-
ing programs.

The need to maintain access to a range of primary
care and specialty training positions for members of
under-represented minority groups.

Other factors relating to specific specialties and
training programs.


In developing its recommendations, the Council
seeks the views of professional medical, hospital and
educational associations and other appropriate organiza-
tions. Positions are allocated for each post-graduate
year to account for differences among specialties in the
point of training when residents enter specialty train-
ing. For example, family medicine training begins in
the first year of post-graduate training, while training in
internal medicine specialties begins in the fourth year.

Because the integrity and success of the Graduate
Medical Education system depends on commitment to
it by all programs and training institutions, programs
operating in institutions that continue training slots not
covered in the allocation under the Graduate Medical
Education system become ineligible for GME funding.

Allocation of residency positions. The Secre-
tary of the Department of Health and Human Services
appoints ten regional councils to allocate training slots
among individual residency training programs.

Regional councils include representatives of aca-
demic institutions training physicians in the region, as
well as representatives of regional health alliances and
health plans, consumers and others.

Regional councils receive applications from training
institutions in each area for residency positions in each
specialty. Positions are allocated to accredited resi-
dency programs based on such factors as:


Program quality.

Relevance of the training program curricula to the
future practice of physicians.

Participation of under-represented minority groups.

Participation of locally coordinated education pro-
grams.


The Secretary of the Department of Health and
Human Services reviews regional council decisions and
retains the right to amend allocations for good cause.
To ensure continuity, allocations to programs are
available for periods of up to three years and are made
at least one year in advance of the residency training
year.

Funding for residency training. Funds to sup-
port graduate medical education are pooled from all
insurers to reflect the benefits that all patients and
health plans receive from graduate medical education
and training. Residency programs receive funds for
each approved training position. Payments are based on
a formula which considers the national average for res-
ident salaries and the costs of faculty supervision and
other related teaching expenses.

Funds from two sources are pooled (estimated at $6
billion for FY 1994):

Medicare contributes to the direct medical educa-
tion fund based on the percentage of hospital bed days
its patients use (38 percent in 1992).
Other payers contribute through a surcharge on
health plan premiums.

Currently, Medicare pays explicitly for graduate
medical education, based on historic costs. In FY-1992,
Medicare payments for Graduate Medical Education
totalled $1.5 billion. (Other payers currently support
Graduate Medical Education implicitly through elevated
hospital charges.)

Allocation of payments. Funding is provided
directly to training programs approved for residency
training positions, encouraging the development of
non-hospital based training, particularly programs that
provide a greater portion of their training in ambula-
tory and primary-care settings, such as health mainte-
nance organizations and community clinics.

Transition payments. Transition payments are
provided to teaching hospitals which are required to
reduce their residency training programs. Hospitals
receive transition payments to offset a portion of the
costs associated with hiring replacement staff and main-
taining services.
Payments phase out over a five-year period, begin-
ning at the rate of 150 percent of the national average
for direct medical education payments for an equivalent
position under the new payment system. Payments
decline by 25 percent each year.


Loan Forgiveness Program for Primary Care

A national "loan forgiveness" program for medical stu-
dents is established to encourage physicians to devote
their first years of practice to primary care.


Retraining Physicians in Primary Care

In order to further expand the availability of primary
care physicians, support is provided for the develop-
ment of programs to retrain mid-career specialists to
serve as primary care physicians. Areas to be explored
include the use of incentives, the type and length of
effective retraining programs and the development of
certification criteria.


Community-Based Training
of Primary Care Physicians

Health reform supports community-based undergradu-
ate and graduate medical training, continuing education
and faculty development in primary care, broadening
the impact of existing public support, which is limited
to programs at the pre-doctoral and residency levels in
family medicine and general internal medicine and gen-
eral pediatrics.


Support for Training of Minorities
and Disadvantaged Persons


To increase the diversity of the health care workforce,
support is provided to programs that increase the num-
ber of health professionals among racial minority
groups and disadvantaged persons. The goal of these
programs is to double the level of underrepresented
minorities enrolled in the first year of medical school
to a level of 3,000 students by the year 2000.

Strategies include:


Continuing financial assistance for under-repre-
sented minorities and disadvantaged students entering
health professions training programs.

Increasing support for recruitment and retention
of under-represented minority and disadvantaged stu-
dents in medicine, dentistry, nursing, public health and
other health professions.

Maintaining efforts to foster interest in health
careers among under-represented minorities at the pre-
professional and professional levels.

Supporting programs to increase the number of
minority faculty in the health professions, minority
health services researchers and minority basic scientists.


Training for Nurse Practitioners,
Nurse Midwives and Physician Assistants


Expanded training. Current funding for training of
nurse practitioners and physician assistants will be
amended to


Increase current funding levels to double the num-
ber of graduates produced annually, giving priority to
the expansion of existing programs, and

Establish long-term goals and a funding strategy to
maintain the supply of practitioners.


A similar program is implemented to support nurse
midwives.

Barriers to practice. To remove inappropriate
barriers to practice, the Secretary of the Department of
Health and Human Services develops and encourages
the adoption of model professional practice statutes for
advanced practice nurses and physician assistants.


Rural Health Provider Grants

A rural health provider grant program supports a wide
range of activities, including new community training
programs for rural practitioners, the development of
rurally oriented health education curricula, and the
improvement of medical communications technology.


Priority Projects

A health professions special projects and demonstration
training authority is established to support the transi-
tion to the new health system, including support for
the following new projects:


Training of providers in mental health, substance
abuse treatment and prevention, geriatrics, and devel-
opmental disabilities.

Training for school-based health providers in immu-
nization, reduction of substance abuse, dealing with teen
pregnancy, control of violence, and linking students and
families with the community health system.

Students in baccalaureate-level nurse training pro-
grams preparing for careers in teaching, community
health service, and specialized clinical care.


Training related to managed care, cost-effective
practice management, continuous quality improvement
practices, and provision of culturally sensitive care.

Training of lower-level administrative and clerical
workers in the health care field for higher-wage,
higher-skill positions as technicians, nurses and physi-
cian assistants.

Demonstration programs to develop more open
occupational career ladders in health care institutions.


Programs also support Priority Health Training Pro-
grams designed to improve the supply, distribution,
and quality of providers, including those in areas with
inadequate health systems, especially rural areas and
inner-city areas.

Support expands for:


Service-linked regional educational networks; e.g.,
AHECs, geriatric education centers

Health administration, public health training posi-
tions, special projects and preventive medicine

Professional nurse clinician and nurse anesthetist
training positions and nursing special projects

Primary care loans are provided for students in nurs-
ing and targeted allied health professions; e.g., occupa-
tional health and physician therapy.

Federal support for development of information
related to the health care workforce expands, including
research on primary care training practices in such
areas as: relationship between education and practice
patterns, effective use of practitioners and development
of skills to meet future needs in health care.

INCENTIVES FOR PHYSICIANS TO PROVIDE
PRIMARY CARE

In addition to refocusing federal support for physician
education to focus on primary care, the Medicare pro-
gram increases its rates of reimbursement for primary
care physicians.


Rate Increases


Reduce rates for office consultations to equal office vis-
its and use savings to increase fees for all office visits:

Office consultations are reduced to the same level as
other office visits. The relative values for office consul-
tations are redistributed to office visits without increas-
ing total spending.

Because office consultations currently pay more than
office visits, the change has the effect of increasing
fees for office visits. Because primary care physicians
perform consultations less often than sub-specialists
perform them, it increases payments for primary care
without increasing Medicare spending.

Increase the relative value of allowances for
office visits to reflect time spent before and after
visits. Currently, the relative values for procedures,
including medical visits, account for physician time spent
immediately prior to an office visit for preparation and
immediately after an office visit for chart work, patient
instructions, etc. Increasing the work component under
primary care services by 10 percent increases spending
for those services; the increase is offset by reducing rel-
ative values for all non-primary care services.

Establish a resource-based method to pay for
the physician overhead component of the
physician fee-schedule. The Secretary develops a
methodology and data sets for implementing a resource-
based system for determining practice expense relative
value units for each physician's service. In addition, pri-
mary care practice expense RVUs increase 10 percent.

The current physician-fee schedule includes a work
component that accounts for the physician's activities
and a practice expense component that accounts for
overhead (other than malpractice). The work compo-
nent is based on resources used; the practice expense
component is based on historic charges.

Because primary care services occur more often in
office settings, actual overhead costs are higher than for
surgical services. Under the current system, surgical
services are assigned a higher overhead fee than primary
care services. Collecting data on actual overhead costs
and developing an allocation method for assigning over-
head to individual procedures increases the relative
value primary care services and decreases it for many
non-primary care services.

Provide a higher expenditure target rate of
growth for the separate primary care services
target. Increasing the target for primary care services
to GDP per capita plus 5 percentage points for FY-
1995 decreases the target for other services.

Bonus payments. The 10 percent bonus payment
for non-primary care services in urban Health Profes-
sional Shortage Areas will be eliminated. This will
increase the bonus payment to 20 percent for primary
care services in rural and urban HPSA's.

Reduce outlier intensity procedures. Reducing
the work component of services with "outlier intensity"
values allows the application of savings to increase the
work component of the relative value of primary care
services.
THE PRESIDENT'S HEALTH SECURITY PLAN


Academic Health Centers


THE AMERICAN Health Security Act creates a national
pool of funds to support costs associated with the insti-
tutional costs of research, development of new medical
technology, treatment of rare and unusually severe ill-
nesses and provision of specialized patient care.

Medicare payments and a surcharge on private health
insurance premiums flow into the pool (estimated at $6
billion for FY 1994). Funds are allocated to academic
health centers and affiliated teaching hospitals through a
fixed percentage added to hospital payments.

Academic health centers, including affiliated teaching
hospitals, receive a new, separate payment as reim-
bursement for costs incurred over and above the cost
of routine patient care. Only institutional costs not
covered by typical fees for patient care, and which can
be analytically justified, are included in the formula.

This approach represents a revision of the current
Medicare indirect medical education payment formula
to factor in the impact of universal health insurance
coverage. The revised system reduces Medicare pay-
ments to teaching hospitals for the cost of caring for
uninsured patients and disproportionate share of low-
income patients because such payments will no longer
be required once universal coverage exists.

In Fiscal Year 1992, Medicare Indirect Medical Edu-
cation payments totalled $3.6 billion, including the cost
of bad debts, charity care and other costs not related to
medical education. As these costs decline, Medicare
IME costs are reduced accordingly, and Medicare pay-
ments reflect the program's proportionate share of the
total remaining costs. All private payers also contribute
explicitly to the national fund on a proportionate basis.


Financing Clinical Research

The American Health Security Act expands investment
in clinical investigations and research related to the
delivery of health services and outcomes. Health plans
also are required to provide coverage for routine
patient care associated with approved clinical trials.
(See Guaranteed National Benefit Package.)


Ensuring Access to Academic Health Centers

To ensure that all patients receive the specialized ser-
vices available through academic health centers when
appropriate (see Health Care Access Initiatives):

The Department of Health and Human Services, in
cooperation with states and health alliances, identifies
rare diseases, specialized procedures and treatments for
which health plans are required to establish contractual
relationships with academic health centers.

Health alliances monitor contractual relationships
between health plans and academic health centers to
assure appropriate coverage for severity of illness and
to prevent anti-competitive pricing.

Health alliances oversee quality management and
patient grievance mechanisms to ensure appropriate
detection, referral, morbidity and mortality of illnesses
eligible for referral and specialized treatment.

Health alliances provide health professionals and
consumers with information regarding potential eligi-
bility for clinical trials of relevant investigational treat-
ments.


Ensuring Rural and Urban Access
to Academic Health Centers


To secure appropriate access to academic health centers
for patients in rural and urban areas with inadequate
health care systems:

Grants to academic health centers assist in the
development of an information and referral infrastruc-
ture to support rural health networks.

Grants to establish health-care networks in inner-
city areas build on existing urban charity hospitals and
affiliated neighborhood clinics.

Health alliances institute additional protection to
ensure access by rural and urban underserved popula-
tions to special services.
THE PRESIDENT'S HEALTH SECURITY PLAN


Health Research Initiatives


THE AMERICAN Health Security Act encourages cost-
conscious choices on the part of consumers and health
care providers through explicit financial incentives. At
the same time, expanded investments in health research
represent integral features of cost control and quality
goals under health reform. The assessment of costs and
effectiveness of new procedures and technologies will
be increased through expanded funding and refocusing
of clinical trials on more common conditions, high cost
procedures, and highly variable treatment patterns.

Advances in medical science, development of new
medications and technology, as well as innovations in the
organization and delivery of personal and public health
services hold the promise of increased efficiency in the
health care system, longevity and improved quality of life.

New funding for health research focuses on two areas:

Prevention research related to biomedical and
behavioral aspects of health promotion and prevention
of disease.

Health services research related to the devel-
opment of quality and outcome measures, access and
financing and cost effectiveness, as well as research
related to consumer choice and decision making, pri-
mary care and evaluation of health reform.


Priority Areas for Prevention Research


The National Institute of Health expands prevention
research in priority areas including:


Child health, including perinatal health, birth defects
and diseases of childhood, unintentional injuries, learning
and cognitive development, and adolescent health.

Chronic and recurrent illnesses, including research
on Alzheimer's disease, cancer, cardiovascular diseases,
bone and joint diseases, and other chronic diseases and
conditions.

Reproductive health, including contraceptive devel-
opment and use, sexually transmitted diseases, adoles-
cent pregnancy, and pregnancy-related complications.

Mental health, including research in the area of
mental disorders in children and adolescents, child
abuse and neglect, women's mental health, mental dis-
orders in the elderly and their caregivers, severe men-
tal disorders, and violence.

Substance abuse, including targeted research
related to vulnerable populations, such as high-risk
youth, the development of medications and prevention
of dependence on tobacco, alcohol, and drugs.

Infectious diseases, focusing on new and emerging
infectious diseases, vaccine development and basic vac-
cine research, as well as infectious diseases including:

--HIV infection and AIDS--Research on behav-
ior, vaccines, transmission of HIV, and prevention
of disease progression to AIDS.

--Tuberculosis--Research on new vaccines to
prevent TB, early diagnosis, and preventing dis-
ease progression.


Health and Wellness Promotion including:
--Nutrition--Includes defining optimal diets,
dietary links to disease, and obesity.

--Physical activity--Includes an emphasis on fit-
ness for all ages, and fitness and aging.

--Environmental health--Includes an emphasis
on identifying health hazards and their effects, and
disorder-specific research.

Prevention research and infrastructure resource
development including basic science development pro-
viding foundations for prevention efforts across a range
of diseases and disorders, encompassing behavioral and
social approaches, and genetics.

Resource development including support for pre-
vention research training and enhancement of statistical
and epidemiologic techniques.


Coordination and Funding
of Prevention Research


The National Institutes of Health distributes funds using
three mechanisms: grants, contracts, and NIH intramu-
ral research.

The NIH Associate Director for Prevention coordi-
nates the prevention research programs of the national
research institutes and will report annually to the NIH
Director and the Secretary on the status and progress
of prevention research activities.

In consultation with the national research institutes,
the NIH Associate Director will develop an ongoing plan
for prevention research activities conducted by the NIH.

Prevention research findings are translated into, or
appropriately integrated with, personal health services
and public health programs to maximize the impact of
prevention research on disease reduction and improved
health status.


Priority Areas for Health Services Research


This research provides the knowledge to increase the
cost effectiveness, appropriateness and quality of care in
a reformed health care system. The health services
research program includes research designed to improve
the effectiveness and appropriateness of clinical practice
through several interrelated activities, including:


Effectiveness research
Quality and outcomes research
Development and dissemination of clinical practice
guidelines

Research and evaluation related to administrative
simplification under health eare reform

Research on consumer choice and information
resources

Evaluation of health eare reform

Workplace injury and illness prevention research
and demonstration programs


A new generation of health services research
intended to answer critical questions on the effective-
ness of treatments for common clinical conditions is
initiated. Patient-outcomes research and the develop-
ment of clinical practice guidelines form a central part
of the health services research agenda.

Examples of specific areas of health services research:


Effectiveness research which examines the appro-
priateness and effectiveness of alternative strategies for
the prevention, diagnosis, treatment, and management
of clinical conditions, in terms of patient outcomes.
The Medical Treatment Effectiveness Program research
focuses on conditions that meet one or more of the fol-
lowing criteria:

--Large number of individuals are affected.

--Uncertainty or controversy regarding effective-
ness of treatment exists.

--Associated risks and/or costs of treatment are
high.

Patient outcomes research teams (PORTs) are
five-year grants that include elements of formal litera-
ture synthesis, data acquisition and analysis, develop-
ment of clinical recommendations, dissemination of
findings, and evaluation of the effects of findings on
change in clinical practice.

The development of clinical practice guidelines
improves the quality, appropriateness, and effectiveness
of health care. The guidelines also represent standards of
quality, performance measures, and medical review crite-
ria through which health care providers may assess or
review the provision of health care. Guidelines assist in
the determination of how diseases, disorders, and other
health conditions can most effectively and appropriately
be prevented, diagnosed, treated, and managed clinically.

Research and evaluation regarding computerized
medical records and information systems simplifies the
administration of health care.

Studies assess the impact of barriers to access, uti-
lization, and continuity of health care services on health
care reform.


Research and analytic work contributes to efforts
to devise, implement, maintain, and evaluate the new
system of health care budgets, at the national, state and
alliance levels.

Expanded research into risk adjustment facilitates
efficient measurement of health care needs.

Long-term care research and demonstrations
focused on new program models expand the range of
financing and administration for those services.

Research into service organization and structure
include examination of the relationship of continuity,
accessibility, and comprehensiveness of primary care to
cost, quality, and access.


Evaluation of Health Care Reform


The introduction of comprehensive health reform
affects every aspect of American health care. To sup-
port implementation of the American Health Security
Act, evaluation research includes:

Short-term research--Evaluate the responsiveness
of the system to health care reform, including its effects
on institutions, health care professionals, and specific
population groups.

Long-term monitoring--Examine the effect of
reforms on cost, quality and access. Longitudinal stud-
ies using databases developed through the augmentation
of national and regional surveys and analyses of sec-
ondary data are needed.

Demonstrations and evaluations--Address critical
issues in health care reform, such as quality assurance
and medical liability.


Consumer Choice and
Decision-Making Research

Research aimed at improving information resources that
enable purchasers to make health care choices based on their
relative value and quality assumes top priority. This
research contributes to improved decision making by con-
sumers, resulting in more cost-effective service delivery and
health plan selection. Prospective research efforts include:


Consumer awareness of benefit plans, availability
of supplemental coverage, cost-sharing, and utilization.

Effect of consumer knowledge on the selection of
health plans including the relationship between health
status and choice of plan.

Types of information and form of media most effective
in assisting consumers in selecting health plans and
providers, including information on costs and quality of care.

Impact of improved information on consumer satis-
faction, access to care, quality of care and cost of services.

Patient choice and decision making related to
treatment alternatives.


Coordination of Health Services Research

The Agency for Health Care Policy and Research in the
Public Health Service and the Office for Research and
Demonstrations in the Health Care Financing Adminis-
tration assume administrative responsibility for research
related to the impact of health care reform. Research
activities are conducted through intramural and extra-
mural programs using the mechanisms of grants, con-
tracts, and cooperative agreements.
THE PRESIDENT'S HEALTH SECURITY PLAN


Public Health Initiatives


THE PUBLic health system and the reformed health care
delivery system share a common purpose: to improve
the health of the American population at an affordable
cost.

While health reform strengthens the personal care
delivery system, an enhanced public health system also
plays an essential role to:


Protect Americans against preventable, communi-
cable diseases, exposure to toxic environmental pollu-
tants, harmful products and poor quality health care.

Identify and control outbreaks of infectious disease
and patterns of chronic disease and injury.

Inform and educate consumers and health care
providers about their roles in preventing and control-
ling disease and the appropriate use of medical services.

Define and validate new prevention and control
interventions.


The public health initiative builds on the capability of
health alliances and plans to reach out to their partici-
pants, providing them with information about preven-
tion and appropriate use of medical services. The
initiative promotes readiness and flexibility in the pub-
lic health system by strengthening core functions at the
local, state, and federal level. It also focuses attention
on specific health problems of regional and national
significance to consolidate categorical programs into
an integrated health system, reducing administrative
burdens.

The public health initiative repairs, strengthens and
consolidates essential federal, state and local public
health functions through three approaches:


Improving the performance of the core functions
of public health.

Authorizing a flexible pool of resources to address
priority health problems of regional and national signif-
icance.

Expanding federal support for unified data sys-
tems, technical assistance and information networks.


Because dealing effectively with public health prob-
lems requires the coordinated involvement of multiple
parties, the initiative is designed to foster inter-agency
collaboration and public-private partnerships, including
close working relationships between public health,
community groups, alliances, and plans.


Core Public Health Functions

Health reform clears the way for the emphasis of public
health activities to shift away from the direct delivery of
health services. It positions public health to maintain a
strong defense against preventable diseases and condi-
tions that affect local communities and to work with the
health delivery system to address them. The following
essential functions are supported:


Health-related data collection, surveillance,
and outcomes monitoring. The basic tool for the
health care system as a whole, providing for regular col-
lection and analysis of information on key dimensions to
ensure timely awareness, decisions, and interventions
related to epidemics, emerging patterns of disease and
injury, prevalence of risks to health, and outcomes of
personal health services.

Protection of environment, housing, food,
and water. Enforcement functions related to air pol-
lution (including indoor air), exposure to high lead lev-
els, water contamination, handling and preparation of
food, sewage and solid waste disposal, radiation expo-
sure, radon exposure, noise levels and abatement, con-
sumer protection and safety.

Investigation and control of diseases and
injuries. Identification, containment and provision of
appropriate emergency and treatment resources for
community-wide health problems, including emergency
preparedness and control of violence.

Public information and education. The
mobilization of communities and motivation of individ-
uals to reduce risks to health, such as tobacco use,
abuse of alcohol and other drugs, sexual activity that
increases vulnerability to HIV infection and sexually
transmitted diseases, inadequate nutrition, physical
inactivity, and childhood immunization.

Accountability and quality assurance.
Enforcement functions to ensure that providers, clinics,
hospitals, long-term care facilities, laboratories, and
allied health providers meet established standards
through licensure, certification, and inspection.

Laboratory services. The provision of individ-
ual testing and pathology services, including the system
of state laboratories that screen for metabolic diseases
in newborns, provide toxicology assessments of blood
lead levels and other environmental toxins, diagnose
sexually transmitted disease and tuberculosis requiring
partner notification, test for cholera and other infec-
tions or food-borne diseases, and monitor the safety of
water and food supplies.

Training and education. Ensuring adequate
training with special emphasis on public health profes-
sionals such as epidemiologists, biostatisticians, health
educators, public health administrators, sanitarians, and
laboratorians.

Leadership, policy development, and
administration. Public health's responsibility to
define health goals, standards, and policies that affect
the health of whole communities; to define health
issues of major importance and devise interventions to
address them; to build coalitions with related public
sectors such as housing, public transportation, and agri-
culture; and to ensure accountability for public
resources devoted to health. Public health coordinates
closely with the leadership of alliances and plans, mobi-
lizing community support for public health policies and
initiatives.

Funds are distributed to states using a formula based
on three weighted factors that take into account popu-
lation (one-third), poverty rate (one-third), and years
of productive life lost (one-third). No state receives an
allocation less than the State's grant in the last year
preceding enactment of this initiative. To receive funds
under the formula, states are required to maintain their
current level of support for public health and preven-
tion activities at no less than the average of the past
two years' funding level.

Funds are used to develop and strengthen public
health core functions at the state and local level, includ-
ing county, district and municipality levels. Account-
ability for effective use of state formula grant funds
are monitored through reporting progress in achieving
health improvements using a common data set of health
outcomes developed as a part of the Healthy People 2000
initiative.


Priority Health Problems of Regional
and National Significance


Additional funds support a federal program to develop
innovative strategies for addressing priority health
needs of regional and national significance. The purpose
of this program is to address specific issues in ways that
are responsive to the needs of populations served by
alliances and plans and that consolidate rather than pro-
liferate authorities, management structures, and fund-
ing and reporting requirements.

Congress establishes some priorities for funding
through dedicated appropriations. The Secretary of the
Department of Health and Human Services identifies
other areas of priorities relying on recommendations
of a national advisory board representing the perspec-
tive of the Public Health Service, states and local pub-
lic health agencies, as well as regional health alliances
and plans.

The Secretary solicits proposals for innovative inter-
ventions that link public health agencies and the delivery
system to achieve measurable reductions in the inci-
dence of illness and injury. Grants are made through
competitive awards to state and local government agen-
cies, not-for-profit organizations and research institu-
tions. As effective interventions from these projects areI
identified, information is disseminated to facilitate their
adoption in other communities.

The following are examples of the types of regional
and national priority health issues to be addressed:


Infectious diseases

Immunization. Education and outreach to ensure
the broadest possible immunization coverage against
childhood vaccine-preventable infectious diseases, as
well as influenza, pneumonia, hepatitis B, and tetanus
among adults.

HIV/AIDS. Education for prevention, confidential
screening programs, and partner notification programs
particularly in urban areas with special focus on minori-
ties, women, children, and adolescents.

Tuberculosis. Case location, targeted education,
and training for providers regarding treatment and con-
trol measures, with special attention to its spread
among homeless people.

Chronic and environmentally related dis-
eases

Diabetes. Community-oriented diabetes education
and control programs, directed especially to minority
and low-income populations at highest risk, appear to
offer economies of scale to complement individually
provided medical services.

Violence and injury control. The leading cause
of years of potential life lost among Americans and the
leading cause of death among children, adolescents, and
young adults, this category requires close collaboration
among several systems, including law enforcement,
education, transportation, and recreation and parks. It
is linked to alcohol misuse and requires an integrated
multi-faceted set of interventions.

Health-related behavior and other priority
issues

Tobacco prevention. The increasing incidence of
smoking among adolescents and women poses future
risks for heart disease and cancer, as well as low-birth-
weight babies and infant morbidity.

Comprehensive school health. Furthering
development of links between health and education in
a nascent program of comprehensive school health
program.

Maternal, child health, and family planning.
With continued special attention is needed to provide
education and outreach to prevent infant mortality and
morbidity. In addition, the persistent and intractable
incidence of adolescent and unwanted pregnancy calls
for targeted education and outreach in support of
family planning services. Closely linked to social ser-
vices, interventions include targeted public education,
programs of home visiting, case management for chil-
dren with special needs, and child and spouse abuse
services.


Enhancement of Federal Capacity
to Support Public Health


In support of federal assistance for core public health
functions and categorical activities, additional funds
improve direct federal capacity, including:

Federal surveillance and health statistics,
laboratories, and epidemiologic services.
Whether fighting the "old" diseases such as tuberculosis
and cholera or "newer" ones such as Lyme disease or
antimicrobial-resistant infections, public health's basic
tools are data collection and biostatistical analysis, lab-
oratory capacity, and epidemiologic expertise. An
effective and efficient central capacity at the Federal
level provides for economies of scale in addressing
many of these health problems.

An essential part of reinventing public health is the
consolidation of currently fragmented public health
data systems and the integration of these systems with
the regional and national data network described in the
Information Systems chapter. The need for separate
public health data systems is minimized to the extent
that the elements included in the regional and national
data network support public health functions. The uni-
fied health information system provides timely infor-
mation to support health policy development, budget
formation, efficient program administration and general
improvement of the public's health and does so at the
lowest cost and burden.

Technical assistance and national health
information networks. To support the refocus of
public health at local, State, and Federal levels and the
application of findings from priority health programs
described above, technical assistance and information
networks are needed to link Federal, State, and local
public health agencies and various grant-supported pro-
grams carried out by State, local, and not-for-profit
agencies. Information from these networks and the
health data system provide the basis for regular reports
to the President and the Congress for purposes of mon-
itoring the effectiveness of this initiative.
THE PRESIDENT'S HEALTH SECURITY PLAN


Long-Term Care


A NEW LONG-TERM care program, created through Title
XV of the Social Security Act, encompasses five com-
ponents:


Expanded home and community-based services.

Improvements in Medicaid coverage for institu-
tional care.

Standards to improve the quality and reliability of
private long-term care insurance and tax incentives to
encourage people to buy it.

Tax incentives that help individuals with disabili-
ties to work.

A demonstration study intended to pave the way
toward greater integration of acute and long-term care.


Home and Community-Based Services

The American Health Security Act increases federal
authority to provide home and community based ser-
vices to individuals with severe disabilities without
regard to income or age.

The expanded home and community-based service
program is a federal/state partnership. The federal gov-
ernment provides most of the funding. The state contri-
bution is set roughly equal to current state Medicaid and
some state-only spending on the severely disabled. When
fully implemented, federal funding is capped based on
the estimated cost of serving the eligible population.

The Home and Community Based Services program
supplements other coverage for care. It does not reim-
burse for services to which the individual is entitled
under the nationally guaranteed, comprehensive benefit
package, Medicare or private insurance.

Each state submits for federal approval a plan out-
lining the implementation of expanded home and com-
munity-based services.

Eligibility. The Secretary of the Department of
Health and Human Services issues regulations establish-
ing uniform eligibility criteria, which states implement
using a standard instrument developed by the Depart-
ment. To be eligible, an individual meets one of the
following conditions:


Requires personal assistance, stand-by assistance,
supervision or cues to perform three or more of the
following five activities of daily living (ADLs): eating,
dressing, bathing, toileting and transferring in and out
of bed.

Presents evidence of severe cognitive or mental
impairment as indicated by a specified score on a stan-
dard mental status protocol developed by the Secretary
of the Department of Health and Human Services or

--A score specified by the Secretary on the stan-
dard mental status protocol described above, as
well as evidence of the need for constant supervi-
sion because the applicant poses a significant dan-
ger to self or others, has multiple and significant
behavior problems, or is unable to administer pre-
scribed medications, or

Has severe or profound mental retardation as indi-
cated by a score of 36 or less on a standard intelligence
test.

For children under the age of six, is dependent on
technology and otherwise requires hospital or institu-
tional care.

Benefits. At a minimum, States provide to each eli-
gible individual a standardized assessment and an indi-
vidualized plan of care. Personal assistance services are
available throughout all states for every category of eli-'
gible participant. Personal assistance services are defined
as "assistance (including supervision, standby assistance,
and cuing) with activities of daily living." Both agency-
administered and consumer-directed personal assistance
services are available. Consumer-directed services are
those provided by individuals who are hired, trained and
managed by the person receiving the services.
States have the flexibility to design and define their
community based services system and to provide any
other community based long-term care service includ-
ing: case management, homemaker and chore assis-
tance, home modifications, respite services, assistive
technology, adult day services, habilitation and rehabil-
itation, supported employment and home health ser-
vices not otherwise covered under Medicare, private
insurance or through the basic health plan. Room and
board are not covered services.
Services other than those listed above may also be
covered; they may be delivered in a person's own
home, a range of community residential arrangements,
or outside the home, except in licensed nursing homes
or intermediate care facilities for the mentally retarded
(ICFs/MR)

States may also elect to offer vouchers or cash
directly to eligible individuals or to capitate benefits to
health plans or other providers.

Consumer choice regarding services and providers is
honored by states to the extent possible.

Co-insurance. Eligible individuals pay co-insurance
to cover a portion of the cost of all services they
receive according to a sliding scale. Income may be
adjusted downward to take medical expenditures into
account.


Individuals with incomes between 150 and 249
percent of the federal poverty standard contribute
10 percent of the cost of services; between 250 and 399
percent of the federal poverty standard they contribute
25 percent, and over 400 percent of the federal poverty
standard individuals pay 40 percent of service cost.

States have the option of imposing nominal cost
sharing on individuals with incomes below 150 percent
of the federal poverty standard.

Co-insurance is calculated based on the amount
paid by the program. Providers must accept the com-
bined program reimbursement and co-insurance as pay-
ment in full.


State Administration. To implement the pro-
gram, the state plan:

Designates an agency or agencies to administer the
program.

Specifies benefit and payment policies.

Defines services included in the state program in
addition to personal care/personal assistance and any
limits on those services.

Specifies how the state determines eligibility,
develops care plans (including responding to consumer
choice), allocates resources, coordinates services (in-
cluding how case management will be used in the program
and for whom), administers co-insurance requirements,
reimburses providers, administers voucher/cash pay-
ments (including compliance with applicable Social
Security and unemployment insurance laws), ensures
quality (including safeguarding the health and safety of
consumers), defines (as applicable) licensure or certifi-
cation requirements for provider agencies, obtains con-
sumer input in services monitoring (including measuring
consumer satisfaction with services).
Specifies how states will comply with federal
requirements for claims processing and information to
be specified by the Secretary of HHS.

Describes how the program will be managed and
resources allocated during the phase in.


States hold public hearings on the community ser-
vices plan to solicit input from individuals in the state
with disabilities and their representatives. The state
plan reflects input from these hearings..

Administrative Costs. The costs of administering
the program (including the eligibility determination
process and care planning) are included under the
national budget ceiling. The Secretary of HHS defines
administrative costs and specifies limits on the propor-
tion of expenditures that may be used for such costs.

Funding. The Department of Health and Human
Services allocates funds for the program to the states.

The Department of Health and Human Services estab-
lishes a national budget for home and community based
services. States may claim federal matching funds up to
maximum budgeted amount, which is based on the aver-
age estimated cost of serving individuals eligible for the
program when the program is fully implemented.

The maximum budgeted amount (or national expen-
diture ceiling) increases annually consistent with the
rate of increase allowed in the national budget for
health care and changes in the number of people over
the age of 75. The Secretary determines a formula to
allocate funds to the states based on:


Estimated number of individuals with severe dis-
abilities.

Age and gender distribution in the population.

Prevalence of poverty.

Average wage for individuals in service occupa-
tions in the state.


Federal Matching Rates. The Secretary of the
Department of Health and Human Services determines
federal matching rates for allowable costs according to
a formula that reflects the total estimated cost of fully
funding the program for the eligible population minus
the amount spent by states under Medicaid and state
only programs on community long term care services
for the eligible population.

The federal matching rate is approximately 30 points
higher than the current Medicaid FMAP rate, but is in
no case lower than 75 percent or higher than 95 percent.


States are prohibited from using other federal dollars
to match the federal share under the new program.
Current restrictions under Medicaid on use of dona-
tions and taxes apply.

Funding phases in beginning in fiscal year 1996. In
that year, states receive 20 percent of their allocation
under the national budget, 40 percent in FY-1997, 60
percent in FY-1998, 80 percent in FY-199g and 100
percent in FY-2000. Minimum benefit requirements do
not take effect until the program is fully implemented.
States specify how they will phase in the program;
however, income cannot be used as a criteria for allo-
cating resources during the phase in.


Treatment of Medicaid Community
Long-Term Care

, .

The new program of community-based services for
people with severe disabilities is available to all people,
regardless of income--including low income people
previously served under the Medicaid program. Some
people now receiving Medicaid community LTC ser-
vices, however, do not meet the functional eligibility
requirements of the new program. To avoid reductions
in service for this population, current Medicaid pro-
grams for those who do not meet the eligibility criteria
of the new program are replaced with a new commu-
nity-based LTC program for low income people.

The Medicaid community LTC services which are
combined into the new low income program are: per-
sonal care, home and community based waiver services,
frail elderly, Community Supported Living Arrange-
ments, the long term care portions of Medicaid home
health, targeted case management, clinic services and
rehabilitation services.

Eligibility. States must continue to serve all indi-
viduals currently receiving Medicaid community LTC
services. Beyond current recipients, states set functional
eligibility standards for the low income program and use
the same intake and assessment process that is used for
the new program for people with severe disabilities.
States set financial eligibility at a point that is no lower
than Supplemental Security Income (SSI) eligibility and
no higher than the federal poverty standard or the State
Supplemental Payment level, whichever is higher.


States set resources limits, but they cannot be
lower than $2,000 or exceed $12,000 per individual.

States have the option to apply asset transfer pro-
hibitions.


Benefits. Eligible individuals are assessed and
receive a plan of care. There is no further entitlement
to community services. States define the services to be
included in their program and can incorporate at their
discretion any community long term care services pre-
viously funded under Medicaid.

State Administration. To implement the pro-
gram, states develop a state plan which is a component
of the state plan for the new LTC program for people
with severe disabilities, addressing:


the definition of functional and financial eligibility
requirements.

the designation of an agency or agencies to admin-
ister the program and clarification of how the low
income program will be integated with the new pro-
gram for people with severe disabilities.

specification of the benefit and payment policies
and definition of services.

specification of how the state develops care plans,
allocates resources, coordinates services and assures
quality.


States may distribute grants through medical vendor
payments to providers, through vouchers or cash pay-
ments to individuals, or through capitated payments to
providers such as HMOs.

Funding. Funding for the low income program is
based on each state's FY 1993 Medicaid expenditures.
Until full implementation, this amount increases
according to HHS projections of the growth rate that,
if Medicaid had been left unchanged, would have
occurred in Medicaid community-based LTC expendi-
tures on behalf of low income people who are disabled
but do not qualify for the new LTC program for peo-
ple with severe disabilities.

At full implementation, expenditures under the low
income program are pooled with the funds for the new
LTC program for people with severe disabilities and
are subject to the national budget ceiling.

Administrative Costs. Administrative costs for
the low income component of the program are treated
in the same manner in which they are treated under the
new LTC program.

Match Rates. The current Medicaid FMAP rate
applies to all expenditures for eligible individuals
served in the low income program.

Maintenance of Effort. In the combined pro-
gram, states must continue to serve at least the same
number of low income individuals as they served in
their FY 1993 Medicaid community LTC program.


Optional Combined Cap for Community
and Institutional LTC


At state option, states may combine into a single
capped program the new community LTC program
expenditures, former Medicaid community funding,
and Medicaid institutional expenditures for any or all
categories of recipients of LTC, and create a new, sep-
arate program.

If a state elects to operate this new combined capped
community/institutional LTC program, the state has
increased flexibility to set financial or functional eligi-
bility standards.

The Secretary of HHS will specify in regulation the
formula for developing the cap for this program, and
the formula for growth rates in the cap.


Improvements to Medicaid Coverage
for Institutional Care


The American Health Security Act amends Title XIX of
the Social Security Act to provide the following improve-
ments in coverage for institutional care under Medicaid:


States establish a medically needy program for all
residents of a nursing home or an intermediate care
facility for the mentally retarded.


States permit residents of nursing homes and inter-
mediate care facilities for the mentally retarded to
retain $100 per month as a living allowance.

That amount is excluded from calculation of an indi-
vidual's obligation to spend down private assets to
qualify for Medicaid coverage.

States allow single residents of nursing homes and
intermediate care facilities for the mentally retarded to
retain up to $12,000 in personal assets in determining
eligibility for Medicaid coverage.


Regulation of and Tax Incentives for Private
Long-Term Care Insurance

A long-term care insurance policy is any insurance pol-
icy, rider, or certificate advertised, marketed, offered,
or designed to provide coverage for not less than
twelve consecutive months for each covered person on
an expense incurred, indemnity, prepaid, or other basis
for diagnostic, preventive therapeutic, rehabilitative,
maintenance, or personal care services provided in a
setting other than an acute-care hospital.

Long-term care insurance policies include:


Group and individual annuities and life insurance
policies, riders or certificates that provide directly or
indirectly, or that supplement long-term care insurance.

Policies, riders or certificates that pay benefits
based on cognitive impairment or loss of functional
capacity.


Long-term care insurance excludes any insurance pol-
icy, rider or certificate that primarily offer supplemen-
tal coverage for Medicare, hospital expenses, medical
and surgical expenses, hospital confinement indemnity
coverage, major medical expense coverage, disability
income or related asset protection, accident coverage,
coverage in the case of specifed diseases or specified
accidents, or limited health insurance coverage.

The definition of long-term care insurance also
excludes life insurance policies that provide accelerated
payment of benefits and a lump-sum payment and in
which neither the benefits nor eligibility are based on
the need for long-term care services or the standard
eligibility triggers.

Any other product advertised, marketed, or offered
as a long-term care insurance policy, rider, or certifi-
cate is considered a long-term care insurance policy
subject to these limitations.

Consumer Education. The federal government
establishes a grant program to states and organizations
for fiscal year 1996-98, providing grants for consumer
information, counseling and technical assistance to edu-
cate consumers about long-term care insurance.

Regulation. Minimum long-term care insurance
product and business standards and requirements for
monitoring and enforcing insurance industry practices
and state regulatory systems are established. States may
exceed these minimum standards. The Department of
Health and Human Services awards grants to states to
establish demonstration programs to improve enforce-
ment of long-term care insurance.

A Long-Term Care Insurance Advisory Council is
appointed by the Secretary of HHS to advise and assist
the Secretary on matters relating to long-term care
insurance and to monitor the development of the insur-
ance market. The Council consists of five members
chosen for their expertise in provision and regulation of
long-term care insurance.

The Secretary of the Department of HHS, after con-
sidering recommendations of the Council, promulgates
federal regulations for long-term care insurance offer-
ings within two years of enactment of the American
Health Security Act. At a minimum, Federal regula-
tions require that policies:


Provide for nonforfeiture of benefits in the event
of policy lapse.

Offer inflation protection at an annually com-
pounded benefit rate.

Do not limit payment of benefits based on pre-
existing conditions that are not documented at the time
of sale.

Require third-party notification of pending lapse
and reinstatement for up to five months after termina-
tion if lapse was due to incapacitation.

Clearly define covered services, benefit eligibility
triggers, premiums and expected increases, and the tax
treatment of the long-term care insurance policy.

Define eligibility for benefits based on an indepen-
dent professional functional assessment.

Contain requirements concerning continuation and
conversion of group policies and other regulations for
group policies.


Federal regulation of business practices related to
long-term care insurance include, but are not limited
to:


Requirements for states to establish an appeals
process for beneficiaries.

Mechanisms for timely resolution of consumer
complaints.

Provisions regarding adequate responses to claim
denials.

Training and certification of agents.

Limits on commissions paid to agents.

Requirements for premium approval and pricing
assumptions.

Prohibitions against improper sales practices.

Association endorsement or sale of policies.


The Secretary of the Department of Health and Human
Services also may regulate the long-term care insurance
aspects of Continuing Care Retirement Communities.

States implement and enforce standards for long-term
care insurance. Within two years of enactment of the
American Health Security Act, states submit to the Sec-
retary of the Department of Health and Human Services
a plan describing the implementation and enforcement.

If a state fails to submit a plan or its plan is not
approved, no long-term care insurance policy may be
sold in the state until it submits an acceptable plan.
Penalties apply for agents and insurers who fail to com-
ply with these requirements.

States submit annual reports; the Department of
Health and Human Services conducts periodic audits of
state performance.

Tax Treatment of Premiums for Long-Term
Care Insurance. The Internal Revenue Code is
amended to provide for:


The exclusion from taxable income of amounts
paid for services or as cash payments under a qualified
long-term care policy.
Requirements for a policy to qualify for tax pur-
poses, including criteria that trigger eligibility for ben-
efits, shall be developed by the Secretary of HHS in
consultation with the Treasury Department.

The maximum daily benefit excluded is $110 in
1994 with annual adjustments based on increases in the
wage price index or an alternative selected by the Trea-
sury Department in consultation with the Department
of Health and Human Services.

The cost of qualified long-term care policies as
defined in this section may be included as an itemized
medical expense deduction.

The definition of medical expenses is clarified to
include qualified long-term care services.

Employer-paid premiums for long-term care
insurance are treated as deductions for employers and
excluded from taxable income for employees.


Tax Incentives for Individuals
with Disabilities Who Work


Employed individuals who require assistance with activ-
ities of daily living and who purchase personal care and
personal assistance services may obtain a tax credit for
50 percent of their costs, up to a maximum of $15,000
per year.

The Internal Revenue Service issues regulations
defining personal care/personal assistance services eligi-
ble for the tax credit, including:


Personal services, including, but not limited to,
those appropriate to carrying out activities of daily liv-
ing in or out of the home.

Home services, including meal preparation and
shopping.

Assistance with life skills, including money manage-
ment.

Communication services.

Security services, including monitoring alarms.

Mobility services.

Work-related support services.

Service coordination.

Assistive technology services, including evaluation
and training of family members.

Emergency services, including substitute services.


Demonstration Study of Acute
and Long-Term Care Integration


The Secretary of the Department of Health and Human
Services conducts a demonstration program for inte-
grated models of acute and long-term care services for
individuals with disabilities and chronic illnesses. The
demonstration:


Defines organizational arrangements to integrate
models of acute and long-term care services.

Assesses the operational and financial viability of
the integrated models developed and tested.

Evaluates the impact of integrated models.

Determines the appropriateness of including these
models as program options in the managed competition
structure.


The Secretary of the Department of Health and
Human Services establishes minimum benefit specifica-
tions. Sponsors of integration models include the fol-
lowing services:

Comprehensive medical benefits.

Specialized transitional benefits.

Long-term care benefits.

Specialized habilitation services for participants
with developmental disabilities.


The Secretary of the Department of Health and
Human Services establishes eligibility criteria for the
demonstrations including one or more of the following
groups:


Individuals with disabilities covered under the
basic health insurance program.

Medicare beneficiaries who qualify for Part A and
participate in Part B.

Medicaid beneficiaries eligible for Medicare or
otherwise eligible for long-term care services under the
SSI program.


The Secretary of the Department of Health and
Human Services establishes criteria for sponsor partici-
pation. The criteria assesses financial controls, commit-
ment to the goals of the demonstration, information
systems and compliance with applicable state laws.

Demonstration sponsors provide enrollment ser-
vices, client assessment and care planning, simplified
access to services, on-going integrated acute- and
chronic-care management, continuity of care across set-
tings and services, quality assurance, grievance and
appeal procedures, member services and strong con-
sumer participation.


LTC System Performance Review

The overall performance of the new program will be
assessed in terms of quality, access, and availability of
long-term supports for individuals with disabilities. Five
years from the date of implementation of the long-term
care reform plan, or by the year 2000 (whichever is
sooner), the Secretary of HHS will submit to the
Congress an interim assessment of the effectiveness of
the new package of long-term care reforms.

The assessment will include the following compo-
nents:


An evaluation of access to long-term care services
(both community based and residential) for individuals
with disabilities of all ages representing diverse disabil-
ity groups, levels of disability, income levels, minori-
ties, and rural areas.

A review of the quality of services.

An evaluation of the performance of the private
sector in offering affordable insurance products that
provide adequate protection against the high cost of
nursing home care. This component of the assessment
will also entail a review of the adequacy of the stan-
dards for private long-term care insurance and an
assessment of how well the standards are being
enforced.

An evaluation of the system's effectiveness in con-
taining long-term care costs.

An evaluation of the impact of the program on
individuals with lower incomes.

An evaluation of the system's performance with
regard to coordination and integration of services, and
providing services in the least restrictive environment
to the degree possible.

The Secretary will submit a final report on the
assessment to Congress by the year 2002, or two years
after the interim assessment, whichever is earlier.
THE PRESIDENT'S HEALTH SECURITY PLAN


Malpractice Reform


REFORM OF THE dispute resolution system for medical
malpractice in the American Health Security Act
encompass both changes in tort law and the develop-
ment of alternative approaches to resolving patients'
claims against providers. Reforms are:

Creation of Alternative Dispute Resolution
Mechanisms

Each health plan establishes an alternative-dispute
resolution process using one or more of several models
developed by the National Health Board. Potential
model systems include early offers of settlement, medi-
ation and arbitration.

Consumers who have a claim against a health care
provider are required to submit the claim through the
alternative dispute system. At the completion of the
alternative dispute system, if the consumer is not satis-
fied with the outcome, he or she is free to pursue the
complaint in court.

Requirement for Certificate of Merit


Lawsuits claiming injury from medical malpractice
include submission of an affidavit signed by a medical
specialist practicing in a field relevant to the claimed
injury. The affidavit must attest that a specialist exam-
ined the claim and concluded that medical procedures
or treatments that produced the claim deviated from
established standards of care.

Limits on Attorney Fees

Attorneys' fees for malpractice cases are limited to a
maximum of 3301/3 percent of an award. States may
impose lower limits, as many have.

Repeat Offenders

The Department of Health and Human Services
establishes rules for public access to information con-
tained in the National Practitioner Data Bank, which
tracks health care providers who incur repeated mal-
practice judgments and settlements.

All malpractice awards and settlements must be
reported to the National Practitioner Data Bank, initi-
ated in 1990 and administered by the Department of
Health and Human Services. The Data Bank collects
information concerning malpractice awards, along with
other information about adverse professional actions,
but the information is not available to the public.

Collateral Sources

New rules require reduction of the amount of any
award in a medical malpractice case by the amount of
recovery from other sources, such as health insurance
payments, disability, workers compensation, or any
other programs that compensate an individual for an
injury.

Periodic Payment of Awards

Consistent with the relevant portions of the Uniform
Periodic Payment of Judgements Act proposed by
the National Conference of Commissioners on Uniform
State Laws, either party to a malpractice case may
request that an award be made payable in periodic
installments as appropriate to reflect the need for med-
ical and other services.

Enterprise Liability Demonstration Project

Federal funds support states demonstration projects
to establish enterprise liability. Projects are designed to
determine whether substituting physician liability with
liability on the part of the health plan leads to improve-
ments in the quality of health care, reductions in defen-
sive medicine and better risk management.

Standards Based on Practice Guidelines

Based on a five-year program underway to determine
the effect of using practice patterns in three specialty
areas (anesthesia, emergency medicine and gynecology),
the Department of Health and Human Services will
develop a medical liability pilot program based on prac-
tice guidelines adopted by the National Quality Man-
agement Program.

Under such a system, a physician able to demonstrate
that his professional conduct or treatment complied
with appropriate practice guidelines is not liable for
medical malpractice.

The Department of Health and Human Services has
authority to work with states to invest practice guide-
lines with the force of law for physicians and other
health care providers participating in the pilot program.
After the first practice guideline is available, the Depart-
ment reports annually to Congress on the results of the
pilot program and makes recommendations about
whether changes in malpractice law should follow.
THE PRESIDENT'S HEALTH SECURITY PLAN


Antitrust Reform


THE ANTITRUST laws serve an important function in the
new health care system, enforcing rules of competition
critical to the efficient operation of the new system.

While the vigorous enforcement of the antitrust
laws is important, in several areas legitimate concerns
exist about the need for greater clarity concerning
enforcement policy and the ability of some health care
providers to be sure their conduct comports with
antitrust rules.


Hospital Mergers

Hospitals smaller than a certain size, as measured, for
example, by number of beds or patient census, require
certainty that they will not be challenged by the federal
government if they attempt to merge. Such hospitals
often are sole community providers that do not com-
pete with other hospitals.

The Department of Justice and the Federal Trade
Commission publish guidelines that provide safety zones
for such mergers and an expedited business review or
advisory opinion procedure through which the parties to
such mergers can obtain timely (i.e., within 90 days)
additional assurance that their merger will not be chal-
lenged. Guidelines also will provide the analysis the
agencies use to evaluate mergers among larger hospitals.


Hospital Joint Ventures
and Purchasing Arrangements


Hospitals may enter into joint ventures involving high
technology or expensive equipment and ancillary ser-
vices, as well as joint purchasing arrangements involv-
ing the goods and services they need.

The Department of Justice and the Federal Trade
Commission publish guidelines that provide safety
zones for such joint ventures and arrangements, exam-
ples of ventures that would not be challenged by the
agencies, and an expedited business review or advisory
opinion procedure through which the parties to joint
ventures can obtain timely (i.e., within 90 days) advice
and assurance as to whether ventures that do not fall
within the safety zones will be challenged.


Physician Network Joint Ventures

Physicians and other providers require additional guid-
ance regarding the application of the antitrust laws to
their formation of provider networks that would nego-
tiate effectively with health plans.

The Department of Justice and the Federal Trade
Commission publish guidelines that provide safety
zones for physician network joint ventures that do not
possess market power (below 20 percent) and that
share financial risk, examples of networks that would
not be challenged by the agencies, and an expedited
business review or advisory opinion procedure through
which the parties to networks that do not fall within
the safety zones can obtain timely (i.e., within 90 days)
advice and assurance as to whether their network will
be challenged.

Within the safety zones physicians may bargain col-
lectively with health plans about payment, coverage,
decisions about medical care, and other matters with-
out fear of federal enforcement of the antitrust laws.


Provider Collaboration

During the transition to the new health care system,
physicians and other providers may require some pro-
tection to negotiate effectively with health plans and to
form their own plans. To protect physicians and other
providers from the market power of third party payers
forming health plans, providers are provided a narrow
safe harbor to establish and negotiate prices if the
providers share financial risk. The financial risk may
not be simply fee discounting.

Physicians who provide health services for the bene-
fit package may combine to establish or negotiate prices
for the health services offered if the providers share risk
and if the combined market power of the providers
does not exceed 20 percent. This safe harbor does not
apply to the implicit or explicit threat of a boycott.


State Action Immunity

The Department of Justice and the Federal Trade Com-
mission publish guidelines that apply the "state action
doctrine" where a state seeks to grant antitrust immu-
nity to hospitals and other institutional health providers.
If a state establishes a clearly articulated and affirma-
tively expressed policy to replace competition with
regulation and actively supervises the arrangements, the
hospitals and other institutional providers involved will
have certainty that they will not face enforcement
action by the federal government.


Provider Fee Schedule Negotiation

The Department of Justice and the Federal Trade Com-
mission publish guidelines that describe under existing
law the ability of providers to collectively negotiate fee
schedules with the alliances.

Alliances, as established and supervised under state
law, are required under federal law to establish a fee
schedule for fee-for service plans, and providers in
order to participate in the negotiation process need cer-
tainty that their actions will not violate the antitrust
laws.


McCarran-Ferguson

The current exemption from the antitrust laws enjoyed
by health insurers is repealed, eliminating the ability of
health plans to collectively determine the rates they
charge, and other terms of their relationship with
providers.
THE PRESIDENT'S HEALTH SECURITY PLAN


Fraud and Abuse


THE AMERICAN Health Security Act establishes an all-
payer health care fraud and abuse enforcement pro-
gram, increases funding for and coordinates activities
of various branches of government for enforcement
against fraud and abuse in the health care system.


Improved Coordination


The fraud and abuse enforcement program coordinates
federal, state and local law enforcement activities
aimed at health care fraud and abuse. The Department
of Justice and the Department of Health and Human
Services jointly direct the program.


Trust Fund


Fines, penalties, forfeitures and damages (other than
restitution) for fraud or abuse in health care delivery
are deposited in a trust fund to supplement federal
efforts to combat health care fraud and abuse.

Exceptions are made to the extent that current law
directs that the money be given to other parties (such
as the states) or deposited in other trust funds (such as
the Medicare Trust Fund).


Control Kickbacks

The American Health Security Act expands the scope
of the current anti-kickback statute from covering only
Medicare and Medicaid to covering all health payers.
The new provision calls for punishment for the pay-
ment or receipt of any item of value as an inducement
for referral of any type of health care business (subject
to the exceptions described below).

The federal government is authorized to seek civil
remedies in U.S. District Court, including: civil penal-
ties, injunctive relief to halt kickback schemes and abil-
ity to secure assets in appropriate cases. The statute
provides a new administrative remedy involving civil
monetary penalties for kickback violations.

Exceptions to the kickback provision include pay-
ments for items or services furnished to patients paid
for on an at-risk basis to that provider furnishing the
items or service, such as capitated payments. Also
included are payments made on an "at risk" basis to a
health plan ("at risk" would include capitation, global
fees, and perhaps other bundled payment arrange-
ments). The exception covers all "downstream" pay-
ments made to providers by such an "at risk" plan, even
fee-for-service payments. Similarly, if a provider net-
work is paid by a plan on an "at risk" basis, any down-
stream payments for ancillary items and services made
by the network are covered by the exception. In addi-
tion, the statutory and regulatory ("safe harbor") excep-
tions under the current kickback statute apply to an
expanded kickback statute that applies to all payers.


End Self-Referrals

Payment to an entity for any item or service is prohib-
ited (subject to the exceptions discerned below) in
which the physician ordering services has a financial
relationship with the entity and in which the physician
does not render that item or service.

Self-referral limitations carry an exception in which
items or services are paid for on an at-risk basis to that
provider, such as capitated payments. The exception to
the anti-kickback prohibitions for "at risk" payments to
plans and networks, described above, also applies to self-
referral prohibitions. The exceptions in section 1877 are
retained except that:


The exception for group practices is narrowed to
prevent the creation of sham groups.

Exceptions for investments by large entities
require that the company hold $100 million in share-
holder equity.


Toughen Penalties for Wrongdoers

Current federal authority is amended to allow forfei-
tures of proceeds derived from health care fraud. The
forfeiture remedy allows the federal government to use
either criminal or civil remedies to seize assets derived
from fraudulent or illegal activities.

A new health care fraud statute, modeled after
existing mail and bank fraud statutes, sets penalties for
schemes to defraud either public or private health care
programs. The existing mail fraud statute is amended
to address schemes that use private delivery services in
addition to the United States mail system.

A new federal criminal statute prohibits deliberately
making false statements to health plans, health alliances
or state health care agencies.

A new federal criminal statute prohibits the payment
of bribes, gratuities or other inducements to adminis-
trators and employees of health plans, health alliances
or state health care agencies.

The federal government is authorized to assess civil
monetary penalties against individuals who engage in
any of the following prohibited activities:


False Claims
--Submitting a claim for an item or service not
provided as claimed. (See section I 128A(a)(I)(A)
of the Social Security Act. All references in this
section are to the Social Security Act unless other-
wise specified.) (Many of these actions are already
the basis for civil monetary penalties with respect
to Medicare and Medicaid.)
--Submitting a false or fraudulent claim for an
item or service. (See section I 128A(a)(l)(B).)
--Submitting a claim for a physician's service
provided by a person who was not a licensed
physician, whose license was obtained through
misrepresentation or who improperly represented
to a patient that he or she was a certified special-
ist. (See section I 128A(a)(I)(C).)
--The routine waiver of co-payments if co-
payments are required under a health plan.

--Claiming a higher health-service code in order to
obtain higher reimbursement for a health service.

--Unbundling or fragmenting charges as part of a
bundled-payment scheme. (See section 1866(,).)

--Engaging in practices such as unnecessary mul-
tiple admissions to a hospital or other health care
institution or engaging in other inappropriate med-
ical practices in order to circumvent a bundled
payment scheme.

False Statements
--Failing to report information or reporting inac-
curate information that is required to be submitted
to a data bank. (See section 421(C) of the Health
Care Quality Improvement Act.)

--Submitting false or fraudulent statements to
the National Health Board, a health alliance or a
plan. (See section 1876(i)(6)(A)(v).)

Violations Specific to Plans
--Failing substantially to provide medically nec-
essary services, items or treatments required
(under law or contract) to be provided to an indi-
vidual. (See section 1876(i)(6)(A)(I).)

--Acting to cancel the enrollment of or refusing
to enroll an individual in violation of the law. (See
section 1876(i)(6)(A)(iii))

--Engaging in any practice that reasonably could
be expected to have the effect of denying or dis-
couraging enrollment by eligible individuals whose
medical condition or history indicates a need for
substantial future medical services. (See section
1 8 76(i)(6)(A)(iV))

--Employing or contracting with any individual
or entity excluded from participation in the health
care system for the provision of services, utiliza-
tion review, medical social work or administrative
services or employing or contracting with any
entity for the provision (directly or indirectly)
through such an excluded individual or entity of
such services. (See section 1876(i)(6)(A)(vi).)

Miscellaneous

Failing to cooperate with quality program or
utilization review.

Paying or receiving unlawful kickbacks (subject
to exceptions).

Submitting a claim for an item or service sub-
mitted by an excluded person. (See section
I 128A(a)(I)(D).

Failing to report violations of federal criminal
law. Whistleblowers are protected against adverse
employment actions through mechanisms similar
to section 7 of the Inspector General Act.


The penalty amount is $10,000 per item or service
claimed (consistent with the Civil False Claims Act
(31 U.S.C.3729) and an assessment of no more than
triple the amount claimed. The law provides for pre-
judgment interest or penalties and assessments imposed
by an administrative law judge.

The standard of knowledge in these cases is "knows
and should know."

The basis for exclusion from Medicare and state
health programs serves as the basis for an exclusion
from all other health programs.

The following actions represent the basis for exclu-
sion from health care programs. The exclusion from
the programs is mandatory:


Criminal conviction relating to fraud, theft, embez-
zlement, breach of fiduciary responsibility or other'
financial misconduct in connection with the delivery of
a health care item or service. (See section I 128(a)(l)
and (b)(l).)

Criminal conviction relating to the neglect or
abuse of patients in connection with the delivery of a
health care item or service. (See section I 128(a)(2).)


With respect to the following bases for exclusion,
the Department of Health and Human Services deter-
mines whether, given the facts of the case, an individ-
ual should be excluded:


Criminal conviction relating to fraud, theft,
embezzlement, breach of fiduciary responsibility or
other financial misconduct in connection with an act or
omission in a program operated by or financed in
whole or in part by any federal, state or local govern-
ment agency. (See section I 128(b)(l).) (This would
cover convictions for fraud against any non-health
related government program.)

Criminal conviction relating to the unlawful man-
ufacture, distribution, prescription, or dispensing of a
controlled substance. (This would not include convic-
tions for simple possession.) (See section I 128(b)(3).)

Revocation, suspension, or loss of a license to pro-
vide health care for reasons of professional competence,
performance, or financial integrity or the surrender of a
license pending a formal disciplinary proceeding for alle-
gations of professional competence, performance or
financial integrity. (See section I 128(b)(4).)1

Exclusion from Medicare or other federal or state
health care programs (e.g., CHAMPUS, VA). (See sec-
tion I 128(b)(5))

Furnishing or causing to be furnished items or ser-
vices to patients that fail to meet professionally recog-
nized standards in a gross and flagrant manner or in a
substantial number of cases. (See section I 128(b)(6)(B).)

Commission of an act described in the federal
criminal laws specifically related to health care or civil
monetary penalty laws specifically related to health
care. (See section I 128(b)(7).)

Entities controlled by an excluded individual. (See
section I 128(b)(8))

Individuals who have a majority ownership interest
in or hold significant control over the operations of an
entity convicted of an offense related to the delivery of
a health care item or service.

Failure to disclose required information regarding
ownership, controlling interests or convictions of indi-
viduals with ownership or controlling interests, officers,
directors, agents or managing employees. (See section
I 128(b)(9))

Failure to provide access to documentation or to
provide documentation related to the health care claims
submitted to a health benefit plan, a health alliance or
the government. (See section I 128(b)(11).)

Failure to grant physical access, with reasonable
notice, to appropriate authorities for on-site reviews
and surveys. (See section I 128(b)(12).)

Defaulting on repayment of scholarship funds or
loans in connection with health professions education
made or secured in whole or in part, by the Secretary
of the Department of Health and Human Services. (See
section I 128(b)(14).)


The current procedure under which the Department
of Health and Human Services may exclude an individ-
ual or entity prior to a hearing continues conditional
on the prior determination of another tribunal, such
as a criminal conviction or action by a federal or state
administrative body.

All other exclusions take effect after a hearing
and administrative law judge decision regarding the
exclusion.


Anti-Fraud Standards
for Electronic Media Claims


A requirement for standards to safeguard against fraud
and abuse in an electronic media environment (i.e., to
assure the identity of those submitting claims electron-
ically, and impose provider responsibility for such
claims) is included.
THE PRESIDENT'S HEALTH SECURITY PLAN


Health Care Access Initiatives


IN THE EXISTING health care system, major financial and
non-financial barriers reduce access for a number of
population groups in American society. Population
groups that particularly confront barriers to care
include:


Low-income groups and individuals who have little
education.

Members of certain racial, cultural and ethnic
groups and those who speak languages other than
English.

Residents of central cities, rural and frontier com-
munities.

Individuals who lack a stable residence, such as
migrant workers and homeless individuals or families.

Adolescents.

Individuals with certain severe health problems,
such as HIV infection, AIDS, chronic mental illness,
substance abuse or serious disability.


As a result, members of those population groups
often experience reduced health status and quality of
life. Health care reform will significantly improve
access to care by providing all Americans with com-
prehensive coverage for treatment services, clinical
preventive services, mental health and substance abuse
services.

However, universal insurance coverage and market
reforms alone will not eliminate all barriers to care or
ensure quality. In order to meet their obligations to
provide comprehensive health care benefits, health
plans will require assistance and financial incentives to
expand into low-population areas and to ensure that
hard-to-reach populations have access to quality care.

In order to fulfill the promise of health reform,
other inadequacies requiring attention include: the sup-
ply of providers and health plans in both rural and low-
income urban areas; poor integration and coordination
of care between primary care and specialized services;
cultural and linguistic barriers; transportation and hours
of service; lack of understanding among consumers
about the availability of services; and resistance to the
use of services. Many health care providers who are
skilled and committed to serving populations most
affected by access barriers also will require special assis-
tance to prepare for and ensure their effective partici-
pation in the reformed system.


Goals and Strategy of the Public Health
Service Access Initiatives

The programs described in the following section are
designed to reduce disparities in health status by
ensuring access to needed services for low-income,
underserved, hard-to-reach, and otherwise vulnerable
populations. They build on the strengths of the
reformed delivery system, the expertise and experience
of current public health providers, and the enhanced
capacities of state and local public health agencies.

The Public Health Service access initiatives are
designed to:


Expand capacity by increasing the supply of
practitioners, practice networks, clinics, and health
plans in underserved areas.

Assist alliances and health plans to deliver
culturally sensitive care to vulnerable segments of their
populations.

Achieve accountability by assuring that health
plans enroll vulnerable populations and meet their per-
sonal health care needs.

Assist organizations and professionals sup-
ported by public funding to adapt to the reformed
system. Integration of these providers into practice
networks or health plans will ensure that they receive
payment for covered services from plans. It will pro-
vide critical support services (administration, informa-
tion systems, telecommunications, specialty services) to
improve the delivery and coordination of care.

Shift the emphasis of existing public fund-
ing away from the delivery of services covered in the
standard benefit package and toward:

--Activities designed to enable, enhance and
ensure access to care by addressing persistent bar-
riers, especially hard-to-reach populations.

--Services not covered in the benefit package
but essential to prevent morbidity and mortality
among certain populations;

--Integrate and coordinate current pro-
grams to provide the federal government, states,
health departments and community-based organiza-
tions flexibility to tailor their activities to the varied
health needs and problems of different populations and
geographic regions.

--Reduce the current administrative burden of
multiple grant application procedures, management
structures, funding requirements, and reporting
systems.


Access Initiative Programs


The National Health Service Corps expands
to reduce the shortage of primary care practitioners in
underserved areas.

Categorical Programs and Formula Grants
continue to pay for personal health services for specific
populations that confront barriers to care (such as com-
munity and migrant health centers, family planning clin-
ics, health care for the homeless program, and portions
of the maternal and child health block grant) continue.

However, as reform is implemented, with the excep-
tion of the Ryan White HIV/AIDS program, funding
shifts from clinical services to expansion of health care
capacity in underserved areas in order to ensure access
for vulnerable populations (see discussion below).

New Grants and Loans support capacity expan-
sion undertaken by a new federal authority with the
mission of ensuring adequate choice of providers and
health plans in underserved areas, supporting the devel-
opment of networks of care providers, and overseeing
the integration of federally funded providers into the
new system.

Flexible grants provide start-up and operating
and guaranteed loans to community-based providers
and public and non-profit health care institution,
Funds also provide capital infrastructure development
to expand access in underserved areas for low-income,

hard-to-reach, or otherwise vulnerable populations.

New funds allocated for this purpose are supple-
mented by development and expansion funds trans-
ferred from existing programs. The federal government
determines the allocation of funding among states and
types of programs. A specific portion supports initia-
tives such as school-based clinics. States have expanded
input into the decision-making process.
New Formula Grants to states provide funds to
ensure access to health care for low-income, under-
served, hard-to-reach, and otherwise vulnerable popu-
lations. Grants cover:

Outreach and enabling services (e.g., trans-
portation, translation/interpretation, child care).

Supplemental services.
--The development of linkages between health
plans and providers through improved information
and referred systems.

Integration of health services with community
health and social services.

Advocacy and follow-up services.

States become eligible for formula grants as they
implement reform, using funds to reduce disparities in
access and health status among population groups and
monitor access for vulnerable populations. (Programs
designed to build state capacity are described in the
section on public health initiatives.)


To assure accountability, state and local public health
agencies follow local indicators measuring access as
well as health status measures closely linked to access.
To participate in the formula-grant program, states
must demonstrate improvement over time.
State allocations are based on demographic and need
factors. To encourage states to implement reform and
encourage enrollment of vulnerable populations, the
program will not include a matching requirement
other than maintenance of effort in state and local
funding for services to vulnerable populations. After
reform is fully implemented, a state matching formula
will be developed.
Designation of Essential Community
Providers assures access and continuity of care dur-
ing the first five years of reform by requiring health
plans to contract with and reimburse established
community-based providers. Independent health pro-
fessionals and health care institutions operating in
underserved areas may apply to the Department of
Health and Human Services for designation as essen-
tial providers.
Plans are required either to contract with essential
providers at a capitated rate no less than that paid to
other providers for the same services or to reimburse
them at rates based on Medicare payment principles.
By the end of five years, providers either become
integrated into health plans or join together to create
new, community-based health plans. At that time,
health plans must either demonstrate their capacity to
provide access for all participants or continue contract-
ing arrangements with essential providers.

Adolescent and School-Aged Youth Initia-
tive supports the delivery of clinical services through
school-based or school-linked sites (consistent with
goals of health reform and Goals 2000) and compre-
hensive health education in high-risk schools.

Dedicated funds in the capacity expansion program
(see above) support school-based clinics targeted at
middle schools and high schools. Clinics provide physi-
cal and mental health services and counseling in disease
prevention and health promotion as well as in individ-
ualized risk behavior reduction.

School-based clinics established under the program
are automatically designated as essential community
providers.

Authorized as a formula grant to states funded
jointly by the Department of Health and Human Ser-
vices and the Department of Education, health educa-
tion focuses on the reduction of risk behaviors among
adolescents and adults. The curriculum is linked to
Healthy People 2000 objectives and will target those
areas of health risk where research suggests that health
education can reduce risk-taking behavior and improve
health outcomes.

Grantees have flexibility in determining what ser-
vices and what service delivery mechanisms are most
appropriate for their community.


Mental Health and Substance Abuse Services

Mental health and substance abuse initiatives refocus
existing formula grants to encourage development of
community-based programs by:


Restructuring Existing Formula Grants

As states implement reform, funding through Com-
munity Mental Health and the Substance Abuse Pre-
vention and Treatment Formula Grant is required only
for treatment in excess of the comprehensive benefit.
Funds shift from support for direct treatment to service
system development, supplemental services, and popu-
lation-based prevention services.

State Systems Development Program and Mental
Health Systems Improvement Program continue to be
funded with the five percent technical assistance set
aside from formula grants.

Maintenance of Effort

States are required to maintain support for mental
health and substance abuse treatment activities,
although they may obtain a waiver to assist in the
development of community-based systems of care to
promote the eventual integration of the public and pri-
vate systems for the treatment of mental and addictive
disorders.

Special Initiatives

Competitive project grants to states support pilot
projects related to integrating the private and public
mental health and substance abuse systems. Funds
support linkage of treatment and prevention for sub-
stance abuse with a broad array of health services and
systems management for seriously emotionally dis-
turbed children.

Research and Demonstration Projects

Funds support the development of improved outreach
strategies for AIDS and HIV-infected drug abusers, the
homeless, individuals involved in the criminal justice
system, and populations with co-morbidity, including
mechanisms for sharing information about the applicabil-
ity of promising approaches to prevention within specific
populations and service-delivery settings and the effec-
tiveness of prevention and early intervention services in
reducing health costs.

Funds also support development of systems that link
substance abuse and mental health treatment with pri-
mary care, target rural and remote areas and culturally
distinct populations, and facilitate the transfer of
knowledge.

Training and Staff Development

The Department of Health and Human Services
expands its curriculum development and health educa-
tion efforts in clinical prevention within schools of
medicine, nursing, and social work as well as its infor-
mation services for current health professionals and
provides primary care professionals with information
and training to screen and identify mental health and
substance abuse problems and risk factors.

Capital Assistance

Direct loan and loan-guarantee programs support the
development of additional non-acute, residential treat-
ment centers and community-based ambulatory clinics,
particularly in medically underserved areas.


American Indians and Alaska Natives

Supplemental financing and services provide access to
health care for American Indians and Alaskan Natives
populations with diverse language and cultural needs,
many of whom live in remote and underserved reser-
vation areas. Supplemental services include trans-
portation, outreach and follow-up, community health
representatives, public health nurses, non-medical
case management, child care during clinic visits,
health education, nutrition, home visiting, and sup-
plemental mental health and substance abuse preven-
tion and treatment services.

The Indian Health Service also expands population-
based public health and prevention activities. Under
new authority, it covers all residents, Indian and non-
lndian, living on reservations in addition to populations
living near reservations.

Population-based public health and prevention activ-
ities include surveillance and monitoring of health sta-
tus, medical outcomes, threats to public health, public
health laboratories, community-based control pro-
grams, community health protection and public health
information.


Health Workforce


To increase the recruitment, preparation, and retention
of American Indians and Alaska Natives into medical,
nursing, public health and other health professions,
existing programs are expanded.

The Indian Health Scholarship Program and Loan
Repayment Program expands to fund all eligible
applicants under the current authorities of sections
104 and 108 of P.L. 94-437. Additional financial
assistance increases the number of American Indians
and Alaska Natives entering training programs under
current authorities of sections 103 and loss of P.L.
94-437.

Sanitation and Environmental Health

Additional funding expands construction of water,
sewer, and other sanitation and environmental health
facilities, as well as provide for training and technical
assistance to tribes that wish to operate tribal facilities
under P.L. 86 121 and Section 30Z of P.L. 94-437.
THE PRESIDENT'S HEALTH SECURITY PLAN


Medicare


State Integration

The Secretary of the Department of Health and Human
Services has authority to permit states to integrate
Medicare beneficiaries into health alliances under spec-
ified conditions that ensure:


Beneficiaries have the same or better coverage as
standard Medicare benefits

Federal financial liability is not increased.


Alliances must offer at least one fee-for-service
option that offers the Medicare benefit package at no
greater cost to the beneficiary than traditional Medi-
care. If only an enhanced benefit package is offered, the
cost to the beneficiary still can be no greater than
under traditional Medicare.


Transition

After a state establishes health alliances and enrolls its
population in them, states can request inclusion of
Medicare beneficiaries in the population covered under
health alliances. States submit proposals to the Secre-
tary of HHS describing:


The state plan for integration of Medicare and pro-
viding evidence regarding compliance with standards
related to access, quality of care and cost containment

The state's capacity to ensure equity for Medicare
beneficiaries and providers

Administrative capacity to carry out the option

Ability to ensure that the financial and fiduciary
interests of the federal government are served by the
proposal.


States are permitted to discontinue a Medicare inte-
gration program at the end of any fiscal year with suf-
ficient notice to the federal government, beneficiaries
and health providers.

The federal government assumes administration of
Medicare in a state if assurances are not met and the
state is not operating an effective Medicare program.


Assurances

To approve a waiver, the federal government requires
assurance that Medicare beneficiaries have:


Access to the same, or higher, level of benefits as
standard Medicare.

Access to care that is substantially comparable to
standard Medicare. The state must demonstrate ade-
quate risk adjustment methodologies to assure that
plans have sufficient compensation to provide appropri-
ate access to care.

Assurance of at least one fee-for-service option with
out-of-pocket expenses no higher than under traditional
Medicare program for comparable or better benefit.

Assurance of equal, or better, protection against
balance billing.

Protection under comparable, or better, quality
assurance mechanisms.

Assurance of the same, or better, appeal rights in
the event of disputes, including right to an administra-
tive law judge hearing and judicial review when appli-
cable.


States operate within a capitation rate consistent
with budget limits on growth of federal spending for
Medicare. No cost-shifting to the Medicare program
occurs as a result of Medicare integration in a state.
Savings accruing to the state are shared with the federal
government and/or Medicare beneficiaries (savings
may be used to reduce the Medicare Part B premium
in the state).

States assume additional administrative costs (e.g.,
special processing of claims by out-of-state carriers and
intermediaries for claims received from residents of
states in which Medicare is integrated). The federal
government retains the right to evaluate, directly or
through contractors, the state's program and audit
records to determine compliance with assurances.


Individual Election at Age 65 to Remain
in the Health Alliances


After establishment of health alliances, individuals have
the right to elect to remain in an alliance when they
reach age 65. If they remain in the alliance, they con-
tinue to receive the nationally guaranteed comprehen-
sive benefit package with the full range of options avail-
able to individuals younger than age 65.

Plans negotiate rates with alliances for participants
over age 65 choosing to remain in the alliances; these
rates are separate from those covering younger partici-
pants. Any plan providing coverage through an alliance
must bid to cover the older population to continue
operating through the alliance.

Alliances make risk adjustments to premiums among
plans using methods prescribed by the National Health
Board. Medicare pays a fixed contribution to alliances
equal to the costs that Medicare would be projected to
bear--under the new budget constraint--for the same
beneficiary population in the alliance. Beneficiaries pay
the difference between Medicare's payment and the
plan's premium.

During the annual enrollment period, beneficiaries
over age 65 may return to Medicare or choose a new
plan through the alliance.


Medicare Managed Care

Changes in payment methodology improve and
strengthen the Medicare managed care program:


A research initiative focuses on the development
and demonstration of health-status adjustors.

Interim measures improve the current payment
methodology, including:

Making adjustments to reflect payments cur-
rently not captured in the payment methodology
because of coordination of benefits or services
received through VA or DOD.


--Seeking discretionary authority to establish a
ceiling and floor for payments and to create a spe-
cial pool for high-cost cases.


For the longer term, demonstrations of alternative
payment methodologies (such as competitive bidding,
new risk sharing arrangements and cost reimbursement
subject to limits) are implemented.

Coordinated open enrollment promotes managed
care. Medicare establishes an annual open enrollment
period for Medicare managed care plans and Medigap
plans. Medicare develops and distributes comparative
materials on all managed care and Medigap plans, with
the plans paying the cost. A third party coordinates
enrollment to reduce the possibility of favorable selec-
tion. One-year enrollment replaces current month-to-
month commitment.

Medigap insurance practices conform with the new
requirements for open enrollment and other new insur-
ance reform standards for supplemental insurance
under health care reform.

Medicare offers beneficiaries greater choice of man-
aged care options through the following changes:


Expanding choice of managed care plans: Within
three years of enactment, all health plans capable of
qualifying for a Medicare contract are required to enter
into a cost contract as a condition for participation in
health alliances.

Medicare Point-of-Service option: A non-enroll-
ment based Point-of-Service option is created within
fee-for-service Medicare. Medicare contracts with for
the creation of comprehensive preferred provider net-
works in major metropolitan areas. Beneficiaries not
enrolled in a capitated health plan choose whether to
use the network of preferred providers on a service-by-
service basis.


MEDICARE OUTPATIENT PRESCRIPTION
DRUG BENEFIT

Two years from the date of enactment of the plan, but
no later than July 1, 1996 benefits offered under the
Medicare program expand to cover outpatient pre-
scription drugs. Thus, assuming enactment in Decem-
ber 1993, the new drug benefit would be in effect
beginning in January 1996.

Any Medicare beneficiary who elects to enroll in the
Part B program (97 percent of the Medicare popula-
tion) automatically enrolls in the new prescription drug
benefit.

As with other Part B benefits, the Medicare pre-
scription drug benefit is funded by both general rev-
enues and beneficiary premiums. The Part B premium
increases to cover the new benefit. Premiums currently
finance 25 percent of the cost for Part B coverage.
Thus, beneficiaries would pay 25 percent of the cost of
the new drug benefit. Other rules related to enroll-
ment in Medicare Part B also apply to the prescription
drug benefit.


Coinsurance, Deductibles and Caps

The new drug benefit carries a $250 annual deductible.
Once the deductible has been met, beneficiaries pay 20
percent of the cost of each prescription with an annual
limit on out-of-pocket expenditures of $1,000.

Both the annual deductible and out-of-pocket cap are
indexed each year to assure that the same percentage
of beneficiaries continue to receive benefits as did
with the initial $250 deductible and $1000 out-of-
pocket cap.


Coverage

The Medicare drug benefit covers all drugs, biological
products and insulin approved by the Food and Drug
Administration (FDA) for their medically accepted
indications as defined in at least one of the three com-
pendia which are the American Medical Association
Drug Evaluations, the American Hospital Formulary
Service and the United States Pharmacopeia, or other
authoritative compendia identified by the Secretary or
as determined by the carrier based on evidence pre-
sented in peer reviewed medical literature.

The Medicare drug benefit includes coverage of
home IV drugs. In addition, the current limited cover-
age of outpatient drugs under Medicare such as
immunosuppressive drugs are incorporated into the
drug benefit.

The Secretary of Health and Human Services has the
discretion not to cover certain pharmaceutical products
listed in Section I 927 (d) of the Social Security Act.
Examples include fertility drugs, medications used to
treat anorexia and drugs used for cosmetic purposes.
However, benzodiazepines and barbiturates would be
covered under the Medicare drug benefit. Further, the
Secretary has the authority to establish maximum quan-
tities per prescription or limit the number of refills in
order to discourage waste.

The Secretary may require physicians or pharmacists
to obtain approval before prescribing or dispensing
certain medications based on evidence that they are
subject to clinical misuse or inappropriate use or
because the Secretary determines that they are not cost
effective.


Cost Containment

As a condition of participation in Medicare and Medi-
caid, drug manufacturers must sign rebate agreements
with the Secretary. Rebates are paid to the Secretary
on a quarterly basis.

For single source and innovator multiple source
drugs, manufacturers pay a rebate to Medicare for each
drug based on the difference between the average man-
ufacturer price (AMP) to the retail class of trade and
the weighted average of the prices of the drug in the
non-retail market, or 15 percent of the AMP,
whichever is greater. The Secretary has the authority to
verify the AMP.

For single source and innovator multiple source
drugs, an additional rebate is required on a drug-by-
drug basis for manufacturers who increase prices at a
higher rate than inflation. The baseline indexed price is
the average manufacturers price from April through
June 1993.

In the case of new drugs that the Secretary deter-
mines are excessively or inappropriately priced, the
Secretary has the authority to negotiate a special rebate
with the manufacturer. Such a determination by the
Secretary would be based on such factors as the prices
of other drugs in the same therapeutic class, cost infor-
mation supplied by the manufacturer to the Secretary,
prices of the drug in other comparable countries, and
other relevant factors. If a manufacturer refuses to
negotiate or the Secretary is unable to negotiate a price
that the Secretary determines to be reasonable, the Sec-
retary may exclude the new drug from coverage under
Medicare.

In the case of dual eligibles, to prevent manufactur-
ers from paying rebates to Medicare and Medicaid,
Medicare will be the recipient of the rebate.

A manufacturer is the entity holding legal title to or
possession of the new drug code (NDC) for the cov-
ered outpatient drug.

The new program provides incentives to encouragei
the use of generic drugs. The benefit only covers
generic drugs unless the physician indicates that a brand
name medication is required. The Secretary may
require that physicians obtain prior approval before
prescribing specific brand-name products if a generic
substitute is available.

Reimbursement

For brand name drugs, reimbursement is the lower of
the 90th percentile of actual charges in a previous
period, or the estimated acquisition cost (EAC) plus a
dispensing fee.

For generic drugs, Medicare pays the lower of the
pharmacist's actual charge or the median of all generic
prices (times the number of units dispensed) plus a dis-
pensing fee.


For participating pharmacies, the dispensing fee is
$5, indexed to the Consumer Price Index (CPI). Par-
ticipating pharmacies are required to accept assignment
on all prescriptions. Non-participating pharmacists
receive $2 less per prescription.


Changes in Private Insurance Requirements

The National Association of Insurance Commissioners
(NAIC) will be instructed to make the necessary adjust-
ments to Medigap policies to reflect the prescription
drug coverage under Medicare. Private insurance plans
may cover Medicare deductibles and co-payments for
prescription drugs.


Subsidies

Low-income Medicare beneficiaries receive the same
financial assistance for out-of-pocket costs associated
with the drug benefit as provided for other cost-sharing
amounts.


Reviews

The Medicare DUR program parallels the program
established in OBRA 1990 for Medicaid. Participating
pharmacists are required to offer counseling to Medi-
care customers on the use of medications.

The Secretary establishes a national system of Elec-
tronic Claims Management as the primary method for
determining eligibility, processing and adjudicating
claims, and providing information to the pharmacist
about the patient's drug use under the Medicare drug
program.


Equal Access for Purchasers
to Pharmaceutical Discounts


As a condition of participation under Medicare and
Medicaid, manufacturers of prescription pharmaceutical
products sold in interstate commerce would have to
offer discounts to all purchasers of pharmaceuticals on
equal terms. This provision would not prohibit phar-
maceutical manufacturers from offering differential dis-
counts to purchasers in return for differential economic
advantages realized by the manufacturer, such as vol-
ume buying, prompt payment, prompt delivery, or
other mechanisms that can influence physician prescrib-
ing behavior.

Under this provision, pharmaceutical manufacturers
would be precluded from providing discounts to pur-
chasers based solely on the class of trade to which the
purchaser belongs. Sales to federal health care pro-
grams that directly purchase pharmaceuticals, such as
the Departments of Veterans Affairs and Defense,
would be exempt from these provisions.

These provisions would become effective two years
after the date of enactment Medicare Cost Savings.


Medicare Cost Savings


Growth in Medicare expenditures will be budgeted
(see Budget Section). The following changes in the
Medicare program will reduce the rate of growth in the
Medicare program and allow Medicare to operate
within the constraints of the budget:

Reduce the Hospital Market Basket Index (HMBI)
update by a further 0.5 percent in FY 1997 and 1 per-
cent in FY 1998-2000.

Reduce IME Adjustment to 5.65 percent in FY
1995 and 3.o percent in FY 1996 and thereafter.

Reduce payments for hospital inpatient capital.

Phase down the Disproportionate Share Hospital
(DSH) adjustment by 1998.

Establish cost limits (similar to SNFs) fee long-
term care hospitals.

Expand centers of excellence.

Lower home health cost limits to 100 percent of
Median by July 1, 1999.

Delete volume and intensity from the Medicare
volume performance standard (MVSP) formula.

Establish cumulative expenditure goals for physi-
cian expenditures.

Reduce the Medicare fee schedule conversion fac-
tor by 3 percent in 1996, with primary care services
exempt.

Establish prospective payment for hospital outpa-
tient radiology, surgery, and diagnostic services.

Contract competitively for all Part B Laboratory
Services, except in rural areas.

Competitively bid other Medicare Part B services.

Extend the Medicare Secondary Payor (MSP) data
match with SSA and IRS.

Establish a threshold of 20 employees for MSP for
the disabled.

Extend Medicare Secondary Payor Provisions for
ESRD patients.

Improve HMO payment.

Increase Part B premiums for individuals with
incomes above $100,000 and for couples with incomes
above $125,000.

Require a 10 percent coinsurance on home health
visits for visits more than 20 days after a hospital dis-
charge.

Establish a 20 percent coinsurance for laboratory
services.

Phase down the coinsurance paid by beneficiaries
to 20 percent of the total payments to hospitals for all
outpatient surgery, radiology and diagnostic services.

Subject all state and local employees to hospital
insurance tax.

Set Part B premium into law.
THE PRESIDENT'S HEALTH SECURITY PLAN


Medicaid*


Guaranteed Benefits for Non-Cash Recipients

Under-65 Medicaid recipients who are not receiv-
ing either AFDC or SSI cash payments will no longer
receive insurance through Medicaid. They will enter
regional and corporate alliances based on their employ-
ment status.

An exception to this policy is that undocumented
persons will continue to receive Medicaid coverage for
emergency services.


Guaranteed Benefits for Recipients
of AFDC and SSI Cash Payments


The Medicaid program will continue to make pay-
ments on behalf of AFDC and SSI recipients. For ser-
vices covered in the comprehensive benefit package
Medicaid will make capitated payments to regional
alliance health plans (instead of making fee-for-service


* Long-term care policy is described in the chapter on Long-
Term Care.

payments directly to providers at Medicaid specific
rates, as is currently the norm).

Cash assistance recipients, just like other members
of the alliance, will choose from among plans partici-
pating in the regional alliance. Medicaid recipients can
choose any plan at or under the weighted average pre-
mium without making an additional payment. Just like
other members of the alliance, AFDC and SSI recipi-
ents with incomes below 150% of poverty will receive
subsidies for copayments and deductibles if no plan
with low cost sharing is available at or below the
weighted average premium.

In many regions of the country, organized delivery
systems have little experience providing care to
severely disabled persons. During a transition period it
is important that disabled Medicaid recipients have
access to a fee-for-service plan, and additional subsidies
will be made available to secure this access. If no fee-
for-service plan is available at or below the weighted
average premium, an additional premium subsidy will
be provided for Medicaid disabled so that they can join
the lowest priced fee-for-service plan without addi-
tional payment. Further, deductibles and copayments
will be subsidized for disabled Medicaid recipients in
fee-for-service plans.

The National Board will assess the extent to which
organized delivery systems are capable of providing
high quality care to disabled persons. At such time that
the National Board determines that access to freedom
of choice plans is not necessary to assure high quality
care for the disabled, these additional premium and
cost sharing subsidies will be phased out.


Supplemental Services

Supplemental services for cash recipients (e.g.,
non-emergency transportation, vision care) will remain
as in current law. Under consideration is conversion of
supplemental services payments for cash and non-cash
recipients into a block grant and providing states greater
flexibility in targeting and delivering these services.

Medicaid benefits and payments will continue to
supplement Medicare as under current law.


Payments to Plans

Per capita payments from Medicaid to regional
alliances for the coverage of AFDC and SSI recipients
will be equal to 9percent of:

--Each state's per capita Medicaid spending on
behalf of the recipient group to pay for services
provided in the comprehensive benefit package;

--In the year prior to implementation of reform;
--With annual rates of increase subject to the
national health care budget (see chapter on Bud-
geting).

The federal and state shares of these and other
Medicaid costs continue as under current law.

Health plans submit premium bids to alliances for
the non-AFDC, non-SSI population. Following negotia-
tions with the alliance, as described in the budget chap-
ter, premiums are adjusted, if necessary, to comply with
the requirements of the budget. Required employer and
employee payments are calculated based on the premi-
ums negotiated between alliances and plans.

For each health plan and policy type, the alliance
computes a 'blended premium.' The blended premium
for each plan is the weighted average of the plan's pri-
vate sector premium and the Medicaid capitations,
where the weights are the alliance wide proportion of
private sector, AFDC and SSI persons. The blended
premium for each health plan will depend on the pri-
vate sector premium for the plan, but will not vary
with the proportion of welfare recipients in the plan.

Employers and employees continue to make pay-
ments into the alliance based on the private sector, not!
the blended rate.

Alliances pay health plans based on the blended
premium for all enrollees. In other words, a health
plan receives the same payment for a person of a given
risk class regardless of that person's welfare status.

Payments from the alliance to health plans are risk
adjusted, as described in the chapter on risk adjust-
ment. If the risk adjustment is sufficiently refined, the
risk adjuster will be blind to the welfare status of
enrollees.

However, if the risk adjustment system is not suf-
ficiently refined, payments to plans on behalf of welfare
recipients might actually be below the level of total
dollars contributed for such persons by the Medicaid
program. To prevent such an outcome, the risk adjust-
ment system may include receipt of AFDC or SSI as a
risk adjustment factor.

If the National Board determines that, even with
the risk adjustment system, plans that serve dispropor-
tionately large numbers of Medicaid recipients are paid
less for the care of these recipients than they would be
paid if the same recipients were not AFDC or SSI
enrollees, then the Board creates a payment transfer
system in which plans within an alliance that serve
disproportionately low numbers of SSI and AFDC
enrollees pay money to plans within the alliance with
disproportionately high numbers of such enrollees.


Employed Recipients of AFDC or SSI

Employers of AFDC or SSI recipients make pay-
ments to the alliance as specified in the financing
chapter.


State Maintenance of Effort

States maintain spending for the acute-care portion of
health coverage under Medicaid at a level equal to its
share of total Medicaid spending for services covered in
the nationally guaranteed benefit package in the year
prior to implementation of reform. That figure is pro-
jected forward by the budgeted growth in the State's
weighted-average premium for the state population not
covered by Medicaid.

These expenditures pay health insurance premiums
in alliances on behalf of individuals eligible for Medicaid
and, if additional resources exist, other population
groups. The Board makes adjustments as necessary in
the amounts required of individual states so long as the
total Medicaid maintenance of effort remains constant.
The Board may increase the payments for "low effort"
states (i.e., those with spending that is substantially
below their revenue base).


Disproportionate Share Payments

Under health reform hospitals and other providers will
receive insurance payments for virtually all patients
they serve, and the need for disproportionate share
payments will be eliminated. Therefore, DSH payments
will be eliminated. The implementation schedule for
this proposal is under review.


Implementation

With the possible exception of the elimination of DSH
payments, provisions go into effect on the same date
that states implement health reform.


THE PRESIDENT'S HEALTH SECURITY PLAN


Government Programs


Department of Defense

The Secretary of Defensc supports coordinating the mil-
itary health system with national health reform, and the
Department will develop a plan for implementation.

The Department of Defense maintains the readiness
capabilities of the military health care system as its crit-
ical priority and carries out commitments to beneficia-
ries in the military health care system at the time that
national health reform is enacted.

To develop and implement the specific elements of
a plan for the military health care system, the Secretary
establishes ongoing consultation with the branches of
the armed services and with appropriate committees of
Congress.

Chapter 55 of Title 10 is amended to permit imple-
mentation when the Secretary decides to coordinate the
military system with national health reform.


Establishment of Plans

The Secretary may establish military health plans
covering broad regions in which military medical treat-
ment centers play a central role. Military health plans
may contract with civilian health providers to deliver
services to military beneficiaries.

Military health plans conform to requirements and
standards for all health plans. Military plans may be
offered within the regional alliance in which the mili-
tary medical center is located.

Since military plans may also be subject to federal
regulation under Chapter 55, however, military plans
may not be rejected from participation in regional
alliances because of a conflict between health plan
requirements and federal law or regulations applicable
to military health plans.


Eligibilty

In areas in which a military health plan is established,
active-duty personnel automatically enroll in the military
health plan. Under current rules for priority described in
Chapter 55 of Title 10, dependents of active-duty per-
sonnel, military retirees, dependents of retirees and sur-
vivors are eligible to enroll. Individuals who are not
currently eligible for care in the military system, are not
eligible to enroll in a military health plan.

Benefits

Military health plans provide the nationally guaranteed
benefit package. Under regulations issued pursuant to
section I 112(a), supplemental services may be provided.

Appropriations and Reimbursement

Payment responsibilities of the Department of
Defense, military beneficiaries and others are established
by regulations issued pursuant to section I 112(a).

Regulations provide that each category of enrolled
beneficiaries who have continuously been beneficiaries
under sections 1079 or 1086 (without regard to the
exclusion of subsection (d) of section I 086) since
December 31, 1993, do not pay higher costs than
under the current military system.

Employers of all military beneficiaries enrolled in a
military health plan pay the employer contribution to
the plan. Military health plans may receive capitated
payments from Medicare for services to Medicare ben-
eficiaries enrolled in military plans (under review).

Each military health plan establishes a financial
account for receipts from military beneficiaries and oth-
ers on behalf of military beneficiaries enrolled in the
plan. These funds are used for the delivery and financ-
ing of care under the plan.


Veterans Afairs

The Department of Veterans Affairs may organize
its health centers and hospitals into health plans or
allow them to function as health providers contract-
ing with health plans or other providers to deliver
services.

Health plans organized within the VA system con-
form to the requirements and standards for all other
health plans. If the VA plan meets requirements for
health plans, it is offered as an enrollment choice
within the regional health alliance that serves the area
in which the VA plan is based.

Because VA health plans may also be subject to fed-
eral regulation under Title 38 of the United States
Code, however, health alliances may not reject VA
health plans from inclusion within the alliance because
of a conflict between health plans requirements and
federal law or regulations applicable to VA health
centers.


Eligibility

All veterans are eligible to enroll in a VA health plan if
one exists in their area. If capacity in the health plan is
limited, veterans are eligible to enroll in the following
order of priority:


Veterans with service-connected disabilities
Veterans meeting the income criteria set forth in
38 U.S.C.l722(b) ("low-income veterans")

Veterans with higher incomes who do not have ser-
vice-connected disabilities ("higher-income veterans").


Americans who are not veterans are not eligible to
enroll in a VA health plan or to receive services on a con-
tract basis from a VA health plan. However, dependents
of veterans currently eligible under the Civilian Health
and Medical Program--Veterans Aftairs (CHAMPVA)
may receive care through a VA health plan. The Secre-
tary of Veterans Affairs may determine if a VA health
plan offers family coverage to the dependents of veterans.


Benefits

VA health plans provide the nationally guaranteed com-
prehensive benefit package to every eligible person who
enrolls. VA health plans may contract with other VA
health centers or non-VA health providers or health
plans to deliver the comprehensive benefit package.

Veterans who enroll in non-VA health plans may not
receive care at VA centers for services in the compre-
hensive benefit package, except that non-VA health
plans may contract with the VA to provide services in
the comprehensive benefit package to veterans enrolled
in non-VA plans.

Veterans with service-connected disabilities and low-
income veterans will continue to be eligible for supple-
mental benefits not included in the comprehensive benefit
package, such as treatment for post-traumatic stress dis-
order and certain dental services, at no cost to those indi-
viduals. The VA may offer these supplemental benefits to
higher-income veterans at an additional premium.


Appropriations and Reimbursement

Federal appropriations for the VA health system cover
actual costs of delivering the comprehensive benefit
package for which the VA health plan is not reimbursed
by other sources of revenue on behalf of veterans with
service-connected disabilities and low-income veterans
who enroll in a VA plan. Appropriations also cover the
actual cost of supplemental benefits for veterans with
service-connected disabilities and low-income veterans.

Higher-income veterans who select the VA plan pay
their share of the premium and any applicable co-pay-
ment or deductible. Employers of all employed veter-
ans enrolled in a VA health plan pay the employer
contribution.

The VA has the right to retain all premiums,
deductibles, co-payments or other cost sharing paid to
the VA by individuals or employers as well as revenue
obtained as reimbursement by third-party payers.

Medicare may reimburse VA health plans and cen-
ters for services to higher-income veterans eligible for
Medicare. The Secretary of the Department of Veter-
ans Affairs and the Secretary of the Department of
Health and Human Services will undertake negotiations
to determine the application of Medicare rules and
rates of reimbursement for VA services (under review).

VA centers that provide health services on a contract
basis to veterans and their dependents enrolled in other
health plans have the right to retain reimbursement
from these plans.


Regulatory and Management Changes

Restrictions on the Secretary's authority to contract for
services are eliminated if contracting is more cost effec-
tive than providing services at VA centers. Redundan-
cies in oversight activities also are removed.

The Secretary may waive current requirements cap-
ping travel funds and restricting use of personnel funds.


Transition

The provisions of Chapter 17 of Title 38 governing VA
health care remain in effect at any VA health center not
functioning as a health plan.

National health reform establishes a revolving fund
(with an appropriation to seed the fund) for investment
in the start-up costs of VA health plans. VA health plans
may borrow funds from the revolving fund and obtain
multi-year authority to re-pay the fund with interest.
The fund continues without fiscal-year limitations.


Indian Health Service

Indian Health Service clinics and hospitals, tribal health
centers and urban Indian programs operate outside
regional health alliances. National health reform does
not limit options currently available to tribes to control
and operate health facilities under the Indian Self-
Determination and Education Assistance Act. Public
Health Service programs for American Indians and
Alaska Natives continue and expand as described under
public health programs.


Eligibility

American Indians and Alaska Natives and their depen-
dents currently eligible to receive services at Indian
Health Service are eligible to enroll. All eligible Amer-
ican Indians/Alaska Natives choosing to receive care
through the Indian Health Service must enroll.

American Indians and Alaska Natives may enroll in a
health plan offered through the alliance but receive no
federal subsidies for health care costs on the basis of
their status as an American Indian or Alaska Native.
American Indians and Alaska Natives, whether enrolled
in a health plan in an alliance or enrolled with the Indian
Health Service, are eligible for financial subsidies on the
same basis as other Americans. American Indians and
Alaska Natives who enroll in a health plan in the alliance
may receive care through the Indian Health Service if
the health plan contracts with the Indian Health Service.

An Indian Health Service center may serve non-Indi-
ans enrolled in health plans in the regional alliance on
a contract basis.


Benefits

After a five-year transition during which the Indian
Health Service renovates and expands its clinics, Indian
Health Service centers begin to deliver the full array of
services guaranteed in the comprehensive benefit pack-
age. Indian Health Service centers may contract with
other providers or health plans in order to provide the
comprehensive benefit package.

Indian Health Service centers continue to provide the
broad range of supplemental benefits currently available,
such as public health nursing and health education, out-
reach services, environmental surveillance, health pro-
motion and injury prevention, technical assistance,
training and construction of sanitation infrastructure.


Appropriations and Reimbursement

The portion of premiums paid by employers on behalf
of individual American Indians and Alaska Natives
enrolled in an Indian Health Service center is paid into
a fund that supplements appropriations to the Indian
Health Service. If the employer is a tribal government,
the employer is exempt from contributing the
employer portion of the premium.

American Indians and Alaska Natives enrolled in an
Indian Health Service center are not required to pay
individual contributions for health insurance premiums.

These provisions do not alter the authority of the
Indian Health Service to bill Medicare, Medicaid and
other third-party payers for services provided in Indian
Health Service clinics and permit the Indian Health Ser-
vice to bill those payers for contract care delivered out-
side the Indian Health Service.

An Indian Health Service clinic receives reimburse-
ment for non-Indians enrolled in a health plan in the
regional alliance.


Federal Employee Health Benefits Plan

As health reform is implemented, federal employees
purchase coverage through regional health alliances that
serve the area in which they live, choosing from among
health plans offered by the alliance much as they choose
among Federal Employee Health Benefit Plans in the
current system.

Coverage of federal employees and their dependents
under FEHBP ends as regional health alliances begin
operation in the area in which a beneficiary resides.
The transition to new coverage occurs on a specified
date or the last day of the first pay period beginning
after January 1 of the first full year that a regional
health alliance is fully operational in the area in which
the federal employee resides.

If any covered family member resides outside the
health alliance area, family enrollment may continue in
FEHBP until all covered family members live in an area
served by a health alliance and reciprocal arrangements
to provide coverage outside the area are in place.

Enrollees who move out of the enrollment area of an
FEHBP plan into an area served by a regional health
alliance change their enrollment to a health plan offered
through the health alliance. The transition occurs as a
non-opcn season FEHBP enrollment change.


Eligibility

Enrollees and covered family membcrs are no longer
eligible for FEHBP on the date that transfer to the new
system is complete in the region in which they reside.
Temporary employees retain existing eligibility rights.


Restored employees and survivor or disability annu-
itants retain the rights they had until such time as they
become eligible for coverage through a health alliance.

Any person losing coverage under the FEHBP,
except for voluntary cancellation by them, gross mis-
conduct, or because they are eligible for coverage
through a health alliance is entitled to continued cover-
age under the FEHBP. Enrollees covered under this
provision pay the entire premium plus a 2 percent
administrative fee.

Coverage continues for federal employees working
abroad. Annuitants without Medicare obtain insurance
through regional alliances; annuitants with Medicare
obtain coverage through an OPM-administered Medi-
gap plan. In both cases, OPM pays a premium contri-
bution sufficient to prevent an increase in annuitants'
costs over current fees.


Transition

During phase-out, health plans offered on the date of
repeal are offered as long as a contract continues
between the Office of Personnel Management and the
sponsoring carrier. The office continues to conduct
annual open seasons and makes plan information avail-
able to individuals covered by the FEHBP to the maxi-
mum extent feasible.

Carriers continue to offer the same scope of benefits
being offered on the effective date of repeal. Benefit
levels are subject to annual negotiations until the
FEHBP phases out entirely.

The office may continue to contract with carriers that
have a signed contract in place on the effective date of
repeal. Contract provisions in effect for the contract
term ending on the date of repeal remain in effect
unless OPM and the carrier agreed to modifications
during the annual negotiations for the new contract
term and signed contract amendments are in place.

The office may not enter into contracts during the
phase-out period with carriers not already participating
in the FEHBP on the effective date of repeal.

The Office of Personnel Management may terminate
contracts at the end of a contract term at the conve-
nience of the government. Generally, decisions to termi-
nate are based on significant loss of enrollment resulting
in a non-viable risk pool or other such phase-out prob-
lems. Enrollees and covered family members in termi-
nated plans are automatically enrolled in the Standard
Option of the government-wide Service Benefit Plan.


Contributions During Transition

During the phase-out period, the employer contribu-
tion continues at current levels. Employees pay the
remainder of the premium. Postal employees eligible
for a higher employer contribution than the new sys-
tem requires continue to receive that benefit.

Both the employer and the participant contribution
are funded, collected and distributed in accordance
with existing mechanisms.

The phasing-out of FEHBP occurs on a state-by-state
basis, as regional alliances take over FEHBP's function
and role. When phase-out is complete, the FEHBP
office continues to receive annual appropriations, to be
made available until expended to pay the required
employer contribution to premiums for annuitants as
provided under provision of national health reform leg-
islation.

The employer contribution for federal enrollees cov-
ered through a health alliance are made directly by the
employing office to the health alliance. The Office of
Personnel Management has no further functions relative
to the health insurance coverage of federal enrollees
covered through health alliances.


Employee Health Benefits Fund

The Employee Health Benefits Fund continues to oper-
ate as a reserve fund until phase-out is complete. When
phase-out is complete, and all allowable claims for cov-
ered services are provided, any funds held in accounts
held by participating carriers, except for monies in the
contingency reserve accounts of community rated
plans, are divided in the ratio of 72 percent to the
employer and 28 percent to individuals enrolled in a
fee-for-service plan on the date of repeal of federal
employee health insurance.

Funds remaining in the contingency reserve accounts
of community rated plans will be pooled and dis-
tributed in the same proportion as above to the gov-
ernment and those enrolled in community rated plans
on the date of repeal.


Administration

Regulations prescribed by the Office of Personnel Man-
agement to carry out Chapter 89 of Title 5 of the United
States Code remain in effect unless amended or unless
they conflict with the provisions of this statute. In addi-
tion, the federal office may prescribe any regulations
necessary to implement the provisions of this statute.

The Office of Personnel Management and the Gen-
eral Accounting Office retain the rights to audit pro-
vided in prior statute and under regulation and the
provisions of the carrier contracts.
THE PRESIDENT'S HEALTH SECURITY PLAN


Transition


Schedule for Phase-in of States

States begin implementation of the new system as early
as January I, 1995.

Implementation involves enactment of a statute
adopting federal program standards, formation of
regional health alliances, and imposition of requirements
for employers and individuals to obtain coverage.

At the time of state implementation, federal support
systems and reforms take effect, including:


Subsidies to assist low-income individuals and
small, low-wage employers in purchasing health insur-
ance.

Limitations on balance billing by health care
providers.


All states have implemented plans approved by the
National Health Board by January 1, 1997. The Board
may extend the deadline for six months for states that
have made a good faith effort to begin implementation
of the new system.

Incentives are offered for states implementing reform
prior to January 1, 1997. The incentives include:


Access to special start-up funds

Access to subsidies

Expedited federal consideration, with federal dis-
approval of state plans only if failure to comply with
statutory requirements.


Medicaid Maintenance of Effort

States maintain current levels of financial support for
the Medicaid program.


Federal Support for Implementation

States become eligible for federal support for adminis-
trative costs related to implementation of health reform
in three phases:

Phase 1: Within one month of the passage of fed-
eral legislation, each state receives a planning grant to
aid in the development of health care reform plans and
alliances. Planning grants total $100 million and are
distributed based on a formula specified in federal law.

Phases 2 and 3: Following passage of state statutes
implementing health reform, the federal government
provides financial support for start-up of the regional
alliance system.

Funds provided under this provision support start-up
costs only; after implementation of the new system,
health insurance premiums absorb administrative costs
associated with regional alliances.

The National Health Board develops the formula for
distribution of federal funding for implementation. The
formula takes into account projected start-up costs for
administration and the development of the regional
alliance system in each state. States are required to
match federal financial support.

States receive one-third of their total allocation of
federal funding for start-up costs upon passage of legis-
lation implementing health care reform. The National
Health Board releases funds following a determination
that the state law conforms with federal requirements.

The remaining two-thirds of federal funds are
released upon submission to the National Health Board
of a state plan of operation. The board forwards funds
after determining that the state plan of operation con-
forms with federal requirements.


Technical Assistance

The federal government assists states during the transi-
tion by drafting model legislation for state considera-
tion, drawing up regulations and requests for proposals.

Federal funds support technical assistance provided
by non-governmental entities in areas such as contract-
ing, development of automated information exchange
system, data collection and analysis.


Rulemaking

Rapid implementation of the American Health Security
Act is vital to assure access to health care for millions
of Americans to reduce the runaway growth in health
care spending. To expedite implementation, the
National Health Board, the Department of Labor and
the Department of Health and Human Services are
authorized to issue any regulations by the Act on an
interim and final basis.


Implementation of Corporate Alliances

Large employers and other entities eligible to form cor-
porate alliances must form an approved corporate
alliance or join regional health alliances by January 1,
1997. Corporate alliances can be formed earlier.
If a state implements universal coverage prior to the
date an eligible employer or other entity forms a cor-
porate alliance, the eligible employer or other entity
must form and maintain an employee benefit plan for
its employees and their dependents who reside in the
state. The plan must cover at least the benefits in the
comprehensive benefit package. The eligible employer
or other entity must contribute at least 80 percent of
the cost of the comprehensive benefits.


Insurance Reform

To reduce the potential for disruption in the health
insurance industry during the transition to the new
health system, the American Health Security Act
imposes interim insurance regulations.

States enforce the regulations; the Department of
Health and Human Services enforces them in states that
default on the requirement to enforce reforms.

Partially self-funded groups, self-funded multiple
employer welfare arrangements (MEWAs), HMOs and
other health plans are subject to the same regulatory
requirements as insurers.

Requirements to Keep Coverage in Force.
Insurers are prohibited from terminating or failing to
renew health insurance coverage for any insured per-
son, except for non-payment of premiums or other
strictly defined cause.


Insurers are required to accept all newly hired, full-
time employees and dependents added to groups cur-
rently insured. Rates charged coincide with rates set
according to a state-approved rate table.

Restrictions on Premium Increases. Premium
increases during the transition to health reform are sub-
ject to the following requirements:


Each insurer divides its business in each state into
three sectors:

--Individual contracts
--Contracts covering groups with less than 100
participants

--Contracts covering larger groups.


Any increases in premium rates must apply equally
to all covered groups and individuals:

--All small groups and individuals receive the
same percentage increase in rates.

--For larger groups, a portion of any increase
could be based on group credibility as long as the
total average increase equals the increase charged
to individuals and small groups.


To address changes in group composition, each
insurer is required to develop a single rate manual for
each segment of its market in compliance with guide-
lines set forth in federal law or emergency regulation.
Base rates in the manual are fixed at the average costs
in each segment.

Changes in premium rates for groups due to changes
in the demographic composition of the group are cal-
culated from the manual. New additions to groups and
groups applying for new coverage are accepted at rates
established in the manual.

States with existing statutes reforming the market
for health insurance may modify rules related to pre-
mium increases to accommodate the goal of rate com-
pression. The Department of Health and Human
Services, in consultation with states (e.g., the National
Association of Insurance Commissioners), issues guide-
lines for state modifications.

Premium increases that exceed a prescribed percent-
age are subject to prior approval by state insurance reg-
ulators. An administrative process provides a channel
for appeal by insurers damaged by this requirement.

Portability. To increase portability of coverage dur-
ing the transition to the new health insurance system:


Insurers and self-insured employer plans are pro-
hibited from applying exclusions for pre-existing medi-
cal conditions to new employees and their dependents
who were insured within the 90-day period immedi-
ately prior to current employment.

For new employees and their dependents previously
not insured, exclusions for pre-existing conditions may
not extend beyond six months.

These rules apply both to individual and group insur-
ance policies.

Self-funded health plans and employers with
insured health plans are prohibited from imposing wait-
ing periods for coverage on any employee otherwise
eligible under the terms of the plan.


Reductions in Benefits. To ensure that employ-
ers and insurers do not impose caps or exclusions on
coverage for specific medical conditions during the
transition, employers and insurers are prohibited from
reducing existing coverage for any medical condition or
course of treatment if the anticipated cost is likely to
exceed $5,000 in a year.

As under current law, employers may impose over-
all caps or reduce coverage as long as these changes are
applied equally to all participants in a health plan.

Access to Coverage. To assure that health insur-
ance is available during the transition for individuals
who lose coverage or are unable to obtain coverage
because of health status, the Secretary of Health and
Human Services may organize a national risk pool.

The Department of Health and Human Services
administers the pool which contracts with one or more
private insurance firms to act as its intermediaries and
administrative agents.

The risk pool provides coverage to any uninsured
person or group unable to obtain coverage in the private
insurance market. Premiums are set in a manner similar
to existing state high risk pools. Because the pool is vol-
untary, it operates under traditional insurance rating
methods. Premiums vary according to age, gender and
place of residence. Premiums and assessments against all
insurers support the pool, with assessments calculated
based on market share in the health insurance market.
Self-funded health plans also contribute to the pool
through an assessment.

If premiums are not sufficient to pay claims incurred
by the pool, additional assessments against insurers and
self-funded health plans make up the difference.

The pool reimburses providers who treat partici-
pants based on Medicare payment rates; providers may
not bill patients for the balance of any fee covered
under the pool.


States with existing risk pools continue their opera-
tion or enroll individuals currently insured through
pools in the federal pool. A state that transfers partici-
pants in its risk pool to the federal pool must continue
its financial support at the same level.

The Department of Health and Human Services may
enter into contracts with risk pools in states to admin-
ister the federal pool.


Short-Term Voluntary Cost Containment

Upon introduction of the reform plan, the President
announces a program urging all sectors of the health
care system, hospitals, physicians, laboratories, drug
manufacturers, and all others, to limit price and expen-
diture increases to a specified amount.

The Secretary of the Department of Health and
Human Services begins a program to monitor prices
and expenditures in the health care system. The Secre-
tary reports periodically to the President on the extent
to which each sector is conforming to the voluntary
restraints.

The Secretary has the authority to obtain information
on prices and expenditures. All individual information is
confidential. The Secretary periodically issues public
reports on the levels of compliance in each sector.
THE PRESIDENT 'S HEALTH SecURITY PLAN


Financing Health Coverage


OVERVIEW

Contributions for Health Coverage

Payments for health coverage will be divided into two
shares: contributions by individuals and families and
contributions by employers.

Individuals who work less than a full year, as well as
families whose members jointly have less than one full
year's employer contributions, are also responsible for
any unpaid employer share to the extent they have non-
wage income.


Individual and Family Contributions

Each individual and family is guaranteed health coverage
through the alliance in which they are enrolled. Where
families have workers at firms in two different corpo-
rate alliances or in one regional and one corporate
alliance, they may choose coverage through either
alliance.

Alliances offer consumers a choice of health plans.
All consumers receive the same schedule of premiums
for enrollment.


Premiums vary according to four family types: single
individual, couple without children, single-parent fam-
ily, and two-parent family.

Employer contributions pay for 80 percent of the
average priced plan in the alliance for each family type.

Families and individuals pay the difference between
80 percent of the average priced premium and the
actual cost of the plan they select.

The following example illustrates the choices that
might face a single individual in an alliance where the
average individual premium is $1,800. The employer
contribution is 80 percent of $1,800, or $1,440.


Subsidies for Low-Income
Families and Individuals

Families and individuals with incomes below 150 per-
cent of poverty in a regional alliance may apply to their
alliance for help in paying their premium. The subsidy
will depend on their family income and the average
premium for that family type in the alliance. If, for
example, a family qualified for a subsidy of $460,
could apply $460 toward the cost of any plan. If that
family chose a plan costing less than $460 because of its
quality or convenience, their subsidy would be limited
to the actual cost of the plan.

Subsidy costs are borne by the federal government.


Employer Contributions

The contributions of employers total 80 percent of
average premiums for each family status in an alliance.

Firms in the regional alliance pay a fixed per-worker
contribution for each employee according to his or her
family status.

The per-worker employer contribution depends on
the average number of workers per family within each
family status in the alliance. For example, if two-parent
families in a region have an average of 1.5 workers
per family, the per-worker contribution for a two-par-
ent family is 80 percent of the average family premium
divided by 1.5. In an alliance where 80 percent of the
average family premium is $3,360, the per-worker con-
tribution is $2,240 ($3,360 per family divided by 1.5
workers per family). Thus, each employer pays a flat
$2,240 premium for each family worker, and total
employer contributions for all family workers cover 80
percent of family premiums.

The following chart shows the relationship between
premiums and per-worker contributions in an alliance
where the average individual premium is $1,800, the
average family premium is $4,200, and the average
number of workers per family is as listed:


Example: Average Premiums, Workers per Family,
and Premiums per Worker for Employers
by Family Status of Worker

Total, 80%, number of workers, Employers
Single
individual $1,800 $1,440 1.0 $1,440

Two-parent
family $4,200 $3,360 1.5 $2,240

Premiums and the number of workers per family will vary from one alliance
region to anorher.


Subsidies for Employers

No employer in a regional alliance will be required to
pay more than 7.9 percent of payroll for health cover-
age annually. Firms with fewer than 50 employees will
be eligible for caps varying from 3.5 to 7.9 percent of
payroll, depending on the employer's average wage.


PREMIUMS IN REGIONAL ALLIANCES

Families and employers pay premiums for coverage
under the new system. Separate premiums are calcu-
lated for four categories:

Single individuals.

Couple.

Single-parent families.

Two-parent families with children.


Health plans submit premium bids to alliances,
which review the bids and either accept them or nego-
tiate lower amounts.

Premium bids are made on the basis of community
rating, with rate variation allowed only for family cat-
egory. Premiums are not adjusted for geographic area
within an alliance.

Premiums are divided into two shares: the employer
share and the family share. In general, employer con-
tributions are calculated to equal 80 percent of the
weighted average premium in the alliance for each pre-
mium category. A weighted average premium (here-
after referred to as an average premium) is the average
premium bid for each category, weighted by plan
enrollment. Families contribute the difference between
80 percent of the average premium and the price of the
plan they choose.

To assure equity across all employers, employers
make a contribution for each worker ("per-worker con-
tribution") based on the family status of the worker.
Because some workers have working spouses, the
employer per-worker contribution rates for couples and
two-parent families will be less than 80 percent of the
average premium. The employer contribution rates for
each category are calculated so that their total contribu-
tions equal 80 percent of the average for that category.

The alliance collects and aggregates all employer
contributions and credits each working individual or
family with an amount equal to 80 percent of the
appropriate (based on family status) weighted average
premium in the alliance. The family pays the difference
between the credit and the premium of the plan that
they choose.


INDIVIDUAL AND FAMILY CONTRIBUTIONS

Paying for Coverage in Both Regional
and Corporate Alliances


All individuals and families in an alliance are charged
the same community rates to enroll in a health plan.


Individuals and families pay the difference between
80 percent of the average premium in their alliance for
their family status and the premium of their chosen plan.

Those who select a plan costing the average pay 20
percent of the premium. They pay the full difference
for a plan costing less than or more than the average.


Working individuals and families may pay their share
of premiums in one of several ways:


Withholding from wages by one employer.

Withholding from sources of non-wage income.

Directly to the alliance in annual, quarterly, or
other installments, as the alliance may arrange.


Alliances may require employee withholding to
avoid bad debt.

Employers may pay part or all of the individual or
family share of the premium.

Employers that do so must make the same dollar
contribution for all employees with the same family sta-
tus, unless a bona fide collective bargaining agreement
requires otherwise.

Any additional employer contribution may not
vary according to the health plan selected by the
employee, and the employer must provide a rebate to
the employee if the contribution exceeds the em-
ployee's share of the premium. Such a rebate is taxable
income to the employee.


Individuals and Families in Regional Alliances

Premium Subsidies for Low-Income Persons

During the annual open enrollment period conducted
by alliances, each regional alliance publishes a table
showing subsidies available to individuals and families
toward the cost of premiums by income level. Subsi-
dies are available to individuals and families with
incomes up to 150 percent of poverty.
An individual or family eligible for a subsidy pays the
difference between: (1) Their plan's premium and (2)
The sum of their subsidy and 80 percent of the average
premium in the alliance.

Subsidized individuals and families may sometimes
be unable to enroll in a plan at or below the average
premium because none is available or enrollment is
limited. In such cases, the alliance raises the subsidy to
permit them to enroll in the lowest-cost plan above the
average.

Example: Premiums, Subsidies, and Payments
for a Family with Subsidy


Premium, Premium, Subsidy, Payment
Total

Plan A $3,600 $3,460 $460 $0

Plan B $4,000 $3,360 $460 $180

Plan C $4,200 $3,360 $460 $380

Plan D $4,500 $3,360 $460 $680


Cost-sharing Subsidies
for Low-Income Persons


In areas not served by a plan or network with low cost
sharing and a premium at or below the average pre-
mium in the alliance, individuals with family incomes
less than 150 percent of the poverty level qualify for
subsidies to cover co-payments and deductibles. Subsi-
dies reduce cost sharing to the level charged by a low
cost sharing plan. Alliances determine whether such a
plan is available. The same process used for determining
eligibility for premium subsidies is used for determining
eligibility for cost-sharing subsidies.


Administration of Subsidies
for Low-Income Persons


Individuals and families may apply for premium and
cost-sharing subsidies during any open enrollment
period, at the same time of transfer to a new alliance,
or after a change in life circumstances, such as unem-
ployment or divorce.

Alliances distribute applications for subsidies directly to
consumers and through employers, banks, and designated
public agencies. Consumers forward completed applica-
tions to alliances or an agency designated by the state.

Determination of eligibility is based on family
income. When applying for a subsidy, eligible individ-
uals and families submit a declaration of estimated
annual income. After the end of the year, the alliance
or another agency designated by the state checks self-
declared estimates of income against income tax
returns and other data presented by the beneficiaries
and reconciles estimates with final income for the year.

Beneficiaries receive notice of any additional pay-
ment or rebate due following a year-end reconciliation.
Subsidies are conditional until a year-end determination
that the individual or family qualified for the subsidy.


Individuals and Families
in Corporate Alliances


Employees of corporate alliance employers pay the dif-
ference between 80 percent of the average premium in
the corporate alliance and the premium of their chosen
plan. Employees who select a plan costing the average
pay 20 percent of the premium. They pay the full
amount less for a plan costing less than the average;
they pay the full amount more for a plan costing above
the average.

For low-wage full-time workers, the employer con-
-1
tributes an additional amount. If the worker earns
annualized wages of $15,000 or less, the employer con-
tributes the greater of 80 percent of the average pre-
mium of 95 percent of the premium for the lowest cost
plan available to the employee in the corporate alliance.


Family Choice

Alliances may establish procedures for spouses to enroll
in separate health plans.


Choice of Alliances

A family in which one full-time worker is eligible for
coverage through a corporate alliance and one full-time
worker is eligible for coverage through a regional
alliance may choose one alliance in which to enroll.

If the entire family enrolls in a plan through the
regional alliance, the family may qualify for a subsidy
based on income. If the family enrolls in the corporate
alliance, subsidies are not available.

A family with full-time workers eligible for coverage
in different corporate alliances may also choose one
alliance in which to enroll.


EMPLOYERS IN THE NEW SYSTEM

Regional Alliances

For each of their eligible full-time employees, employ-
ers participating in a regional alliance contribute 80
percent of the appropriate per worker contribution for
the employee's family status.


The per worker contribution paid by the employer
varies only by the alliance area in which the employee
lives and the family status of the employee. There are
per worker contributions for:


A single worker.
A couple.
A single-parent worker.
A worker with a spouse and children.


Employers receive subsidies that cap total premium
contributions for employees at 3.5 percent to 7.9 per-
cent of the firm's payroll.

Contributions for employers with 50 or fewer
employees are capped at a lower level, based on the
average wage of the firm. Caps vary as follows:

Employers with more than 50 employees pay no
more than 7.9 percent of payroll.


Small Employer's Average Cap on Employer
Wage per Full-Time contributions as an
Equivalent Worker Percentage of Total Payroll
Less than $12,000 3.5%
$12,000 to $15,000 3.8%
$15,000 to $18,000 4.4%
$18,000 to $21,000 5.5%
$21,000 to $24,000 6.5%
Greater than $24,000 7.9%


Corporate Alliances

For each of their eligible full-time employees, employ-
ers in corporate alliances contribute a minimum of 80
percent of the weighted average premium among the
health plans they offer to employees. The employer
contribution varies according to the type of policy cho-
sen by the worker--single, couple, single-parent fam-
ily, or two-parent family.

For low-wage full-time workers in corporate
alliances, the employer contributes an additional
amount. If the worker earns annualized wages of
$15,000 or less, the employer contributes the greater
of 80 percent of the average premium or 95 percent of
the premium for the lowest cost plan available to the
employee in the corporate alliance.

No subsidies are available for corporate alliance
employers.

If a large employer chooses to join the regional
health alliances, the rules are the same as for other
employers, except that the per worker premiums con-
tributed by the employer are adjusted for the risk pro-
file of its employees. Risk is measured based on the
industry classification of the employer and the demo-
graphic characteristics of its workforce.

For the first four years after choosing to join
regional alliances, the employer pays the greater of the
community rated per worker premiums or its risk
adjusted per worker premiums. The risk adjustment
uses a national formula developed by the Department
of Labor, but is calculated separately for each alliance
area in which the firm's employees live.


The employer contribution for each regional alliance
area is adjusted over the four subsequent years until it
reaches the level of the community rated per worker
premium:

In the fifth year, the employer's payment is equal
to 75 percent of the risk adjusted employer share of the
per worker premium plus 25 percent of what the
employer would pay under a community rated per
worker premium.

In the sixth year, the employer's payment is equal
to 50 percent of the risk adjusted employer share of the
per worker premium plus 50 percent of what the
employer would pay under a community rated per
worker premium.

In the seventh year, the employer's payment is
equal to 25 percent of the risk adjusted employer share
of the per worker premium plus 75 percent of what
the employer would pay under a community rated per
worker premium.

In the eighth year, the employer begins paying
on the basis of community rated per worker premi-
ums.

Subsidies to which an employer is entitled are simi-
larly phased in over several years. The employer
receives no subsidies in the first four years. It receives
25 percent of the subsidies to which it would normally
be entitled in the fifth year, 50 percent in the sixth
year, 75 percent in the seventh year, and 100 percent
beginning in the eighth year.


Employer Contributions for Families
with Workers in Multiple Alliances


For families where two full-time adult workers are eli-
gible for coverage through different alliances, the fam-
ily chooses an alliance through which to enroll in a
health plan.

The employer in the chosen alliance makes a pre-
mium contribution as it normally would. The employer
in the alliance that is not chosen contributes 80 percent
of the appropriate per worker premium for the
regional alliance area in which its employee lives. The
employer in the alliance that is not chosen makes this
payment regardless of whether it participates in a
regional alliance or corporate alliance. The employer
payment is forwarded to the chosen alliance to pay for
a portion of the family's coverage.


Employer Contributions
for Part-Time Employees


Regional alliances cover part-time workers, whether
they work for a regional alliance or corporate alliance
employer. A part-time worker who is the spouse or
child of a full-time worker covered through a corporate
alliance is an exception, and is instead covered through
the corporate alliance.

For part-time workers, all employers regardless of
whether they participate in a regional or corporate
alllance contribute a pro-rated portion of the regional
alllance's appropriate per worker premium (varying by
the worker's iamily status). The contrihution is pro-
rated based on the ratio of hours worked to a thirty
hour work week.

All employer payments for part-time workers are
forwarded to the regional alliance.


Administration

When an employee begins a new job, employers col-
lect the following information and forward it to the
appropriate health alliance:


Registration information, including: name, address,
identification numbers, family status, and names and
Social Security numbers of spouse and dependent chil-
dren.

Choice of health plan, if the employee is new to
the area or newly hired by a corporate alliance.


Employers forward the information to the alliance
within 30 days. Pending notice by the alliance, employ-
ers make contributions according to the premiums pro-
vided by the alliance.

Employers are required to make premium contribu-
tions to alliances at least monthly, but may make them
more frequently. Alliances may require electronic pay-
ment of premiums for employers already required to
do so under the federal tax system, and may create dis-
incentives for paper transactions.

When making premium contributions, employers
cap their total contributions at the relevant percentage
of total payroll for the period. If an employer is mak-
ing contributions to multiple regional alliances, its pay-
ments--capped, if relevant--are distributed across
alliances based on the proportion of uncapped premi-
ums due to that alliance. With its last premium pay-
ment for a year, each employer reconciles its total
premium payments for the year capped at the relevant
percentage of its total annual payroll, and reports the
information used for this reconciliation to the alliance.

Employers maintain records for auditing purposes
that document premium contributions. The regional
alliance that covers the largest share of an employer's
workforce has responsibility for auditing the
employer's records. Other alliances abide by that
alliance's audit determinations. The employer or
another alliance may appeal the result of an audit to the
Department of Labor.


SELF-EMPLOYED, NON-WORKERS, PART-TIME
AND SEASONAL EMPLOYEES

Self-employed individuals, part-time and seasonal
employees, and non-working single individuals and
families pay premiums based on their family status.


Self-Employed Individuals

Self-employed people pay the employer share and the
individual share of the appropriate premium (e.g., indi-
vidual, couple, single parent family, or two-parent fam-
ily). Contributions are made to alliances at least
quarterly.

The employer share paid by the self-employed per-
son is equal to the amount employers contribute for
workers in the alliance with the same family status. The
contribution is capped as a percentage of self-employed
income, using the percentage caps applied to small
businesses in the alliance.

If a self-employed person also works for another
employer, any amount contributed by that employer--
prior to any employer subsidies--reduces the person's
premium obligation as a self-employed person.

The self-employed person and his or her family are
also responsible for the family share of the premium.
Subsidies are provided to families whose income is
below 150 percent of poverty.

All premium payments made by self-employed per-
sons are fully tax deductible.


Non-Workers and Part-Time Workers

All part-time workers and non-workers without a
spouse working full-time for a corporate alliance
employer are covered through a regional alliance.

Non-working and part-time single people and fami-
lies make contributions based on their unearned
income. Non-workers and part-time workers pay
towards the employer share and the family share of the
appropriate premium for their family status.

Single people and members of families who work
only part-time or part of the year owe one per worker
contribution for the appropriate family status minus any
employer contributions (before subsidies) made on
their behalf. The required payment is reduced for fam-
ilies whose family income is less than 250 percent of
poverty.

Non-workers make such payments to the alliance at
the end of the year.

Non-workers also are responsible for family share of
the premium. Subsidies are provided to families whose
income is below 150 percent of poverty.


Retirees [Under review]

Retired people not yet eligible for Medicare who are
over 55 years of age and who meet the Social Security
requirements for quarters of work are eligible for a
subsidy for the employer share of their premium.

If a retiree has a working spouse, the contribution
from the retiree subsidy program covers only the
unpaid portion of the employer share of the premium.
The retiree subsidy equals one per worker contribution
for the appropriate family status minus the amount con-
tributed by the spouse's employer.

If the retiree works part-time, the amount con-
tributed by the retiree subsidy program is reduced by
any employer contributions due to the part-time work.

Alliances administer the retiree subsidies. To be eli-
gible for a subsidy, the person must submit an applica-
tion to the alliance. The alliance verifies compliance
with the prior work requirement with the Social Secu-
rity Administration. Information received from SSA is
held strictly confidential.

The retiree and his or her family are also responsi-
ble for the family share of the premium. Subsidies are
provided to families whose income is below 150 per-
cent of poverty.

Where an agreement exists for employers to pay
retiree health benefits, the employer's responsibility
will shift to paying the 20 percent family share on
behalf of the retiree.

Employers who realize a reduction in retiree health
costs may be assessed a one-time payment for the extra
cost associated with induced early retirements due to
the retiree subsidy program. ]under review].

Students

A full-time student covered under a family's policy
receives coverage through the alliance where he or she
attends school. The alliance receiving premium pay-
ments from the family and its employer transfers a por-
tion of the family's premium payments to the alliance
providing coverage.


MANAGEMENT OF REGIONAL ALLIANCE FUNDS
AND RECORDS

Federal Payments to Alliances for Subsidies

Alliances will periodically request payments from the
Department of Health and Human Services to make up
shortfalls as a result of employer and family subsidies.

Alliances will maintain records justifying subsidy pay-
ments, which may be verifed and audited by HHS.
Federal payments for subsidies are net of state Medicaid
maintenance of effort payments made to alliances.

Alliance Management Standards

States set standards for procedures, policies, due dili-
gence, and good faith in the management of alliances.
These standards are required, at least, to meet federal
minimums. These standards will include record-keeping,
budgeting, credit and collections, internal controls and
internal audit, bonding, and general board oversight.

Alliances are required to publish periodic financial
statements, including year-end audited statements pre-
pared in accordance with generally accepted auditing
standards and bearing an unqualified opinion from an
outside, independent auditor.


Failure to Pay Premiums

Federal guidelines require that regional alliances exer-
cise due diligence in collecting unpaid employer and
consumer premium contributions, including the impo-
sition of interest charges and late fees for non-payment
and other credit and collection procedures. Premium
contributions owed to regional alliances are privileged
compared to other corporate or personal obligations in
bankruptcy proceedings.

Alliances recover for unpaid premium contributions
through a premium assessment paid by employers and
consumers. This bad debt premium assessment is not
included in the alliance's weighted average premium for
the purposes of budget enforcement, and is in excess of
any capped employer or consumer premium payments.


State Maintenance of Effort Payments

States make Medicaid maintenance of effort payments
to offset subsidy costs. Maintenance of effort payments
are made to regional alliances by states, and reported
and documented to the Department of Health and
Human Services.


Alliance Management of Funds

Regional alliances are required to safeguard premium and
subsidy payments held in alliance accounts. Operating
funds are held only in banks meeting the Basel capital
standards, and are transferred into investment accounts
at least daily. Investment funds, which are those held
longer than one day, are held in instruments or in sepa-
rate accounts collateralized by instruments that qualify as
collateral for U.S. Treasury funds held in banks.

ERISA standards continue to apply to corporate
alliances in their management of funds representing
employee premium contributions.


Standardization of Information

The Departments of Labor and Health and Human Ser-
vices develop standardized forms--and, in the case of
electronic submissions, standardized data fields--for
use by alliances, employers, and consumers. DOL and
HHS also develop standards for minimum frequency of
information submission to alliances and for alliance
record keeping responsibilities.


Privacy

Federal guidelines ensure the confidentiality of financial
and other records submitted to alliances by employers and
consumers, and restrict the merger of information held by
alliance and health status information held by plans.


Power to Borrow

Alliances have the power to borrow to cover short-
term cash flow shortages created by mismatching of
required payments to plans and receipts of premium
payments and subsidies.


TAX SUBSIDIES

Employer contributions toward the premium and
toward cost sharing for the nationally guaranteed com-
prehensive benefit package and for additional benefits
phased in by the year 2000 are tax deductible to the
employer and not counted as income to the employee.

Any premium payment by a self-employed person for
the comprehensive benefit package is fully tax deductible.

Once alliances are established, contributions continue
to be tax-preferred only if made through an alliance.

Benefits that exceed the fully phased in benefit pack-
age are taxable to the employee, however they con-
tinue to be fully tax preferred for ten years after
enactment if they were provided as of January 1, 1993.


How Reform Is Financed
($ billion, 1994-2000)

Sources of Funds, Uses of Funds

Medicare Savings ($124) Long-term Care ($80)

Sin Taxes ($105) later years - -Medicare Dnug Benefit ($72)

Public Health Admin ($29)

Medicaid Savings ($114)\ Subsidies for Low-income

Other Federal Program Savings ($47) Firms and Workers' ($169)

Revenue Gains ($51) Deficit Reduction ($91)

Former Medicare and Medicaid
Recipients Now Covered by Alliance Coverage ($259)

Alliance Plans ($259)


End of Text