The deal reached Tuesday between the Obama administration and Indiana Gov. Mike Pence to expand Medicaid under the president’s health law should help sway reluctant Republican officials in other states because it imposes new costs on poor adults, promotes healthy behaviors and relies on financing from smokers and hospitals instead of state taxpayers, health experts say.

Pence, a potential GOP presidential candidate in 2016, won a three-year waiver from the federal government to make Medicaid more like private insurance by including cost-sharing for recipients below the poverty level.

Under the agreement, Indiana will pay for its share of the expansion costs beginning in 2017 with hospital fees and a cigarette tax. “It’s a great talking point,” to answer opponents who question how states will pay their share of the program’s costs, said Joan Alker, executive director of the Georgetown Center for Children and Families. “This is really an important feature.”

The agreement, which will take effect next week, makes Indiana the 28th state to expand the federal-state insurance program to insure everyone under 138 percent of the federal poverty level, or $16,100 annually for an individual.

About 350,000 Indiana residents are expected to qualify.

Republican lawmakers in Florida, Texas and other states have resisted expanding the program in part because they’re against giving non-disabled adults “free” health coverage. They also worry about having to pick up some costs after 2016 when the federal government stops paying the full bill. Federal funding gradually declines to no less than 90 percent of costs beginning in 2017.

“I think this raises the level of interest in looking at these issues in states that have not expanded Medicaid,” said Joe Antos, a health economist at the conservative American Enterprise Institute. “Lawmakers in Texas may not be influenced but there are other states that will want to know more.”

Several states are expected to debate Medicaid expansion this winter and spring including Florida, Tennessee, Wyoming, Utah and Montana.

But critics of the Indiana deal warn the complexity of the program could make it harder for poor people to get health care and will require major education to teach people how to use so-called “POWER accounts,” modeled on private sector health savings accounts which the state requires to pay the premiums.

The plan gives poor adults the option to buy a basic Medicaid plan called Healthy Indiana or the broader Healthy Indiana Plus, which includes dental and vision benefits and more comprehensive prescription drug coverage. The Plus plan will require enrollees to deposit between $3 to $25 a month into their health savings accounts, based on a sliding scale, although the amount can be reduced if recipients follow some healthy behaviors, such as quitting smoking or getting an annual checkup.

The fees are optional for those under the federal poverty level but if they fail to pay, they will be excluded from the Plus plan and have to make nominal co-payments for care. With limited exceptions, people between 100 percent and 138 percent of the federal poverty level who fail to pay their premiums will be locked out of Medicaid coverage for six months. Both of these provisions are unique to Indiana.

Though the original plan had also sought tying coverage to work incentives, the administration did not approve that.

Georgetown’s Alker said the Indiana deal provides fresh evidence that the Obama administration will give flexibility to states that agree to expand the program. Indiana is the fifth state to expand through a special federal waiver after Arkansas, Iowa, Michigan and Pennsylvania.

Still, she says the six-month lockout period is “unnecessarily harsh.”

Some consumer advocates also worry the Obama administration made too many concessions to win the state’s participation.

“It is worrisome that the Healthy Indiana Plan will charge significant premiums and penalize some who aren’t able to pay by locking them out of coverage for up to six months,” said Robert Restuccia, executive director of Community Catalyst in Boston. “A large body of research demonstrates that premiums and unreasonable cost-sharing requirements impede access to coverage and needed health care services and can lead to increased medical debt, especially for low-income people. “

But Grace-Marie Turner, president of the conservative Galen Institute, said the deal moves Medicaid in the right direction.

“I see it as taking advantage of an opportunity to lay the groundwork for the kind of Medicaid reform that we must move toward in the future. …By winning approval of these changes through a Medicaid waiver, other governors have a much stronger platform to move toward other changes that will work for their states.”

States worried about how they will pay for expansion beginning in 2017 when they have to start paying a percent of the costs also got a boost from the Indiana strategy. Hospitals in Arizona and Colorado have also agreed to fund part of state share of Medicaid expansion, and that’s been proposed in Tennessee where lawmakers will hold a special session next week on the issue.

Hospitals for decades have contributed money to many states to help support Medicaid because that money helps draw down more federal funding. Hospitals in Indiana agreed to pay the money — more than $80 million in 2017 —because they believe they will make it up by having fewer uninsured patients, said Brian Tabor, a vice president of the Indiana Hospital Association.

Medicaid has allowed states to charge nominal co-pays to all adults and premiums for people above the poverty level. Iowa this year began charging a small premium to some people below the poverty level, but there is no penalty if they can’t or won’t pay it.

Kip Piper, a health care consultant with Sellers Dorsey in Washington D.C., said the Indiana agreement is likely a bigger political deal than a major policy change. “It shows the Obama administration has moved slightly to allow the state to test this particular model.”

Pence can now argue he has changed Medicaid and is making beneficiaries more responsible for their actions, Piper said.

“This moves the dial ideologically in favor of what the governor wanted,” Piper said. “It might invite other states to explore this and other changes that would make expansion more palatable to legislators.”

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

A new poll finds that most people think Congress or states should act to restore health insurance subsidies if the Supreme Court decides later this year they are not permitted in states where the federal government is running the marketplace.

The court in March is set to hear King v. Burwell, a lawsuit arguing that the wording of the Affordable Care Act means that financial assistance with premiums is available only in the 13 states that created and are running their own online insurance exchanges. If the court sides with those challenging the law, millions of people in the 37 states that use the federal Healthcare.gov site would lose the help they have been getting. A decision in the case is expected in late June.

Less than half the respondents in the monthly tracking poll by the Kaiser Family Foundation said they had heard about the case. (Kaiser Health News is an editorially independent project of the foundation.) But if the court were to invalidate subsidies in the federally run states, 64 percent said Congress should restore them, and 59 percent said states should create their own exchanges.

Democrats and Independents are most strongly in favor of ensuring that subsidies are available in every state if the court rules otherwise. But 40 percent of Republicans said Congress should act to address the issue, and 51 percent of Republicans said states should act if the Supreme Court makes subsidies unavailable in states using Healthcare.gov.

In fact, it may not be that easy. Republicans in Congress say they are preparing their own health law alternative in the event the court invalidates the subsidies, while in several states, legislative action would be needed. Most legislative sessions conclude by late June.

The poll also found that many of those at risk of losing their financial aid aren’t aware of it. Only a third of those in federally run states know their exchange is run by the federal government, while 39 percent incorrectly thought their state runs its own exchange. Another 28 percent said they didn’t know. Meanwhile, the U.S. Department of Health and Human Services reported Tuesday that just over 7 million people are signed up for coverage through the federal marketplace, with less than a month to go in the current open enrollment season. An estimated 87 percent of those people are eligible for subsidies, with coverage at risk depending on how the court rules.

Overall, awareness of the law and its requirements continues to lag. Only 17 percent of those without insurance were able to correctly identify Feb. 15 as the last day to sign up for coverage for 2015, and only 42 percent are aware that financial help is available to pay premiums.

Kaiser polled a nationally representative sample of adults by phone between Jan. 15 and 21. The poll has a margin of error of plus or minus three percentage points for the full sample.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

HHS to work with non-profit organizations and tax preparers to help consumers understand the intersection of taxes and health care

Nurses from Seattle Children’s Hospital got down and groovy for an online video challenge to their very own remake of Abba’s Dancing Queen.  The nurses went all out with disco moves and sparkly bell bottoms. Watch the fun video below.

Nurses from Seattle Children’s Hospital got down and groovy for an online video challenge to their very own remake of Abba’s Dancing Queen.  The nurses went all out with disco moves and sparkly bell bottoms. Watch the fun video below.

https://kaiserhealthnews.files.wordpress.com/2015/01/010915_khn_appleby_warsaw.mp3
>> Don’t see the audio player? Click here to download.

WARSAW, Ind. – Tom Till eyes the morning’s email to see who’s angling to hire his students: A local employer, which had already hired 23 people in less than a year, says it needs three more to help make the artificial hips, knees and other devices manufactured here in the self-proclaimed “Orthopedic Capital of the World.”

“Everyone is going gangbusters,” said Till, who oversees an advanced manufacturing program at Ivy Tech Community College in this lake-dotted region two hours north of Indianapolis.

Till’s bullish view of the medical device industry – he says he can’t crank out graduates fast enough — contrasts sharply with what industry lobbyists are telling lawmakers in the nation’s capital. They say a 2.3 percent tax on the sale of medical devices put in place two years ago by the Affordable Care Act has already cost more than 30,000 jobs and is stifling innovation.

The tax, projected to bring in $29 billion over 10 years, is the industry’s share of the cost of expanding health coverage to millions of Americans. Other industries expected to gain business from the health law, including hospitals, insurers and drug makers, are also paying a share of its costs, but none has been as vocal in opposition as the device makers, which have poured $30 million a year into lobbying Congress since 2010.

This month, with Republican leaders citing repeal of the tax as a top priority, the industry may finally achieve its aim. The effort also has the support of at least a handful of Democrats from districts with large concentrations of device makers, including Sens. Elizabeth Warren of Massachusetts and Al Franken and Amy Klobuchar of Minnesota.

(Whether GOP leaders would have enough Democratic support to muster a two-thirds override should President Barack Obama veto a repeal bill is unclear.)

“No one likes a tax, especially this tax, which goes onto a lot of innovative companies,” said Dan Mendelson, CEO of Avalere Health, a health care consulting firm. It “was not a tax that even the people who voted for the bill liked. It was put in to establish parity with other health industry payments.”

Challenging Times

To hear the industry tell it, the last few years have been particularly tough ones marked by flat revenues and declining investment, especially in early-stage innovations.

The biggest challenge is “price pressure, mostly from hospitals” seeking to curb their own costs, said analyst Jeff Jonas, portfolio manager for Gabelli Funds in Rye, N.Y. “The effect of the tax has been a negative, but the device industry has been able to offset it,” primarily through layoffs and restructuring.

While a few large firms account for the lion’s share of annual sales – estimated between $106 billion and $116 billion a year — the companies range from startups to global giants like Johnson & Johnson and Medtronic.

Publicly traded firms reported flat revenues in 2013, the first year the device tax was in effect, according to EY, an advisory service that is part of Ernst & Young Global Limited.

Slow or flat revenue growth continued in 2014, said Jason McGorman, medical device analyst for Bloomberg Intelligence.

As in other health care sectors, a slew of mergers has swept the industry – in Warsaw, Zimmer Holdings has made a $13.4 billion bid to buy cross-town rival Biomet – raising concerns about consolidations and layoffs. A few firms are also reportedly considering moves overseas both to capture fast-growing markets and take advantage of less demanding regulations and taxes.

Yet a visit to Warsaw, a town often viewed as a barometer of the device industry because one of every four jobs here is tied to it, suggests a stable, if not thriving, sector. Besides Zimmer Holdings and Biomet, Warsaw is also home to DePuy Synthes, part of Johnson & Johnson, along with about 14 other device companies and suppliers.

Students in Till’s program sometimes get job offers even before they finish their coursework.  And unemployment in surrounding Kosciusko County in November was 4.8 percent, lower than the national average of 5.8 percent.

To be sure, the area may be more insulated from job losses because its firms specialize in orthopedic devices, which have been more profitable in recent years than cardiac devices or spinal implants, say analysts.

Amy Pritchett, who went back to school to learn to operate specialized machinery after a back injury forced an end to her 15 years as a nursing home aide, revels in her new career as a machinist.

“The money is better. Life is better. And I’m nowhere near as stressed,” said the 34-year-old about her job at the vast Paragon Medical plant just outside Warsaw.

Pritchett got four job offers last January, right after she finished a 22-week training program at Ivy Tech.  “They literally all came in on the same day,” she said.

Who Will Really Pay The Tax?

Proponents of the device tax say the industry will simply pass the cost along to customers, or will make up for it through increased use of their products as more people gain health insurance.

Wells Fargo Securities analyst Larry Biegelsen projects that demand for medical devices will grow, along with the number of insured Americans.  “We believe this will be sufficient to offset the 2.3 percent med-tech tax,” Biegelsen wrote during the first year of the tax.

Wall Street has also been optimistic about the industry’s prospects, with companies’ share prices growing faster than the S&P 500 in the first half of 2014. Orthopedic companies saw a 39 percent increase in share prices, according to a report from Mercer Capital, a valuation firm based in Memphis.

While there have been some jobs lost as a result of the device tax, industry figures of tens of thousands are greeted skeptically by Wall Street, as well as by government analysts.

In November, the Congressional Research Service reported the device tax had “fairly minor effects,” with output and employment dropping by “no more than two-tenths of 1 percent.”

The industry’s lobbying arm, AdvaMed, fired back, saying the report is flawed because it assumes the cost of the tax would be passed along to customers. But that’s been difficult to do because hospitals are seeing their own reimbursements drop, and are pushing back against price increases.  Analyst McGorman said prices across the industry have fallen 1 to 3 percent annually.

AdvaMed said it surveyed members after the first full year of the tax and they cited a loss of “approximately 33,000 industry jobs,” with about 14,000 of those direct cuts and the rest a more speculative accounting of jobs that would likely have been created without the tax.

Chilling Effect On Startups

Still, a jobs’ tally isn’t the only way to measure the impact of a tax which comes right off the top of revenues and can be harder on smaller, newer companies.

“We have not as a result of this tax had to lay people off … but it has definitely had a chilling effect on our ability to grow head count,” said Mark Throdahl, president and CEO of OrthoPediatrics, an 82-employee company in Warsaw that specializes in child-sized devices used in orthopedic surgery.

The tax put on hold plans to proceed with developing a ligament repair tool for a specific type of knee surgery. The tax will cost the not-yet-profitable seven-year-old firm $500,000 this year, he said.

“If we were a big company, we would have a profit stream to tap into to pay a tax like this,” he said, “but we’re not there yet. The only way we can pay it is by reducing expenses.”

Repealing the tax may have political appeal, but it could prove challenging as other industries that pitched in to cover the cost of ACA demand similar relief.

“We feel there is a delicate balance: Is this where Congress ought to spend their first $28 billion, restoring the device tax?” asks Mary Ella Payne, a senior vice president for Ascension Health, one of the nation’s largest nonprofit hospital chains.

Scott Caldwell, CEO of The Resource Group, which helps Ascension buy devices and other products, said that even if the device makers can’t raise prices because groups like his push back, many of the larger firms can handle the tax.

“I looked at the net income for the top five firms that sell devices to Ascension – and it’s 17 times more than Ascension’s,” he said.

But for smaller firms, repeal could restore some research funding and help win back investors, who have been reluctant to put money into firms, knowing a portion would be used to pay the tax, rather than build the product.

“If this tax went away,” said Throdahl at OrthoPediatrics, “it would be transformational to our ability to develop products for kids.”

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.

This week I answered questions from readers who are running into difficulties with premiums and tax credits on their marketplace plans.

My 63-year-old husband has Alzheimer’s disease. Our annual income is $41,000, from a combination of his Social Security disability insurance (SSDI) and a disability policy he had from a previous job. Last year I bought a single policy on the health insurance exchange. My husband gets coverage through the Veterans Administration. The monthly premium was reduced by a $278 tax credit based on our estimated annual income. Now I’m reviewing IRS form 8962 that’s used to reconcile what we received in premium tax credits against what we should have received based on our actual income. It looks like we’ll have to repay $2,500! We can’t afford that. If the marketplace made a mistake in figuring our tax credit, do we still have to pay the money back?

If you received too much in premium tax credits, you’ll generally have to pay some or all of it back. Health policy experts say they know of no provision in the health law or rules that would excuse someone from repayment if  an error that resulted in a tax credit overpayment was made by the online marketplace. An administration official didn’t respond to a request to clarify whether those situations would be handled differently than if someone underestimates their own income and receives too much.

The amount you’ll have to repay is capped based on your income. A couple with an income between 200 and 300 percent of the federal poverty level ($31,460 to $47,190 for a family of two in 2014) would have to repay up to $1,500. (People with incomes above 400 percent of poverty –$62,920 for a couple — would have to repay the entire amount.)

It’s hard to know if or where an error occurred. It’s possible that you or the marketplace calculated your income incorrectly. SSDI counts as income when figuring your eligibility for premium tax credits, but disability insurance payments received from an employer policy may or may not count as income depending on who paid the premium, says Karen Pollitz, a senior fellow at the Kaiser Family Foundation (KHN is an editorially independent program of the foundation.)

Perhaps you or the marketplace entered information incorrectly, transposed figures or made some other manual or computer entry error.

By early February you should receive Form 1095-A from the marketplace detailing how much you received in tax credits for reconciliation purposes. It will be important to use that to make sure your calculations on Form 8962 are correct.

If you discover there was an error in your premium tax credit last year, you’ll still have time to sit down with a navigator to go over your 2015 coverage choices before open enrollment ends Feb. 15.

“If she made a mistake, she doesn’t want to compound it by making it again,” says Pollitz.

I had coverage through a health insurance marketplace plan last year, and this year I’m told my costs will increase significantly. The actual premium the insurance company will charge won’t change and my income hasn’t changed. But the amount of premium tax credit I receive will go down. What can I do?

Before you renew your coverage with the same plan you had last year, go back to the marketplace and check out what else is available. It sounds as if the benchmark plan in your area may have changed, and that could mean a higher bill for you unless you switch plans.

Here’s how it works: Premium tax credits are based on the second-lowest-cost silver plan in your area, called the benchmark plan. If the cost of the benchmark plan this year is lower than it was last year, your tax credit may be lower as well. That’s not a problem if you switch to the new, cheaper benchmark plan. But if you renew your old plan, you’ll have to pay the difference in cost between its higher premium and that of the new benchmark plan.

“Even though your premium didn’t change and your income didn’t change, you could see a significant difference in what your contribution is because the premium for the second lowest cost silver plan is different,” says Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities.

I am being told that I must furnish automatic debit card information before an insurance company will provide me with coverage through the exchange. Can they do that?

Health insurers that sell coverage on the marketplaces are required to accept various forms of payment, says Sandy Ahn, a research fellow at Georgetown University’s Center on Health Insurance Reforms. That includes paper and cashier’s checks, money orders, electronic funds transfers and pre-paid debit cards.

An insurance industry representative said this sounded like a misunderstanding. “Plans accept various forms of payment and wouldn’t limit a consumer only to a debit card,” says a spokeswoman for America’s Health Insurance Plans, an insurance industry trade group. “Health plans regularly work with their members to establish the payment plan that works best for them.”

Please contact Kaiser Health News to send comments or ideas for future topics for the Insuring Your Health column.

Kaiser Health News (KHN) is a national health policy news service. It is an editorially independent program of the Henry J. Kaiser Family Foundation.