California tax authorities have stripped Blue Shield of California, the state’s third largest insurer, of its state tax exemption and ordered the company to file returns dating to 2013, potentially costing the company tens of millions of dollars.

At issue in the unusual case is whether the company is doing anything different from its for-profit competitors to warrant its tax break. As a nonprofit company, Blue Shield is expected to work for the public good in exchange for the state tax exemption.

The California Franchise Tax Board actually revoked the exemption in August, but the move only became public when it was reported Tuesday by the Los Angeles Times. The board said the rationale behind its decision was “not public information.”

One likely explanation, however, is the $4.2 billion the company is holding in financial reserves. That’s four times larger than the national trade organization, Blue Cross and Blue Shield Association, requires members to hold in surplus to pay out member claims.

Over the past decade, the company has contributed a fraction of that amount — about $325 million — to its charitable foundation. (Kaiser Health News receives financial support from the Blue Shield of California Foundation.)

At the same time, Blue Shield’s premium rates are similar to comparable for-profit competitors, and the company’s former chief executive earned a hefty $4.6 million per year.

Blue Shield of California’s director of public policy, Michael Johnson, resigned last week as after raising concerns internally that the company was not doing enough for the public good. This week he went public with his concerns, faulting the insurer in particular for what he considered paltry annual contributions to its foundation.

“We’re talking about a $10 billion public asset, and the only real return the public is getting is $35 million in charitable contributions each year? That’s just a lousy deal,” he said. “It’s time to cash in that asset.”

“For over 70 years, Blue Shield has been a tax exempt entity, subsidized by taxpayers in order to provide benefits to the public,” Johnson added. “But it’s demonstrated that it’s either unwilling or incapable of serving the public good.”

He argued it is time for the company to be converted to a for-profit owned by private investors, and the assets should be transferred to the public. There’s a precedent for that – in the 1990s, Blue Cross of California, at the time a nonprofit insurer, converted to a for-profit company. Some of the assets held by the nonprofit were used to create large foundations in the state, including the California Endowment and the California HealthCare Foundation. But the difference in that case was that the conversion was the insurer’s choice – it wanted to become a for-profit company.

Blue Shield has challenged the Franchise Tax Board’s decision, insisting that it does meet the requirements for a tax exemption in California.

“Blue Shield of California is a mission-driven not-for-profit health plan with a demonstrated commitment to the community,” the company said in a written statement. “A longtime supporter of health care reform, we limit our net income to 2 percent of revenue and have devoted $325 million to our foundation’s efforts to improve the health safety net and combat domestic violence.”

Blue Shield is already paying federal taxes. Following complaints from rival insurers, Congress passed a tax reform law in 1986 that essentially stripped nonprofit Blue Cross and Blue Shield plans of their federal tax-exempt status.  The plans unsuccessfully argued against the move, saying they deserved the status because of their efforts involving charitable, community-based health care.

Following the change in the law, “non-profit Blues plans have paid billions of dollars in federal income taxes,” said Marie Cocco, a spokeswoman for the Blue Cross Blue Shield Association.

For consumers, the important question is whether Blue Shield is operating any different for-profit insurers, explained Anthony Wright, executive director of California Health Access. “Many consumers would say no.”

Before the Affordable Care Act kicked in, he added, Blue Shield denied coverage to people with pre-existing conditions and offer reduced benefit plans just like for-profit competitors.

Wright added that revoking the company’s tax exemption would be unlikely to raise premiums for consumers but would potentially add significant funds to the state’s coffers, which could be used to bolster the health care safety net and expand insurance options for Californians who remain uninsured.

“It’s good for the state and it’s good for taxpayers, ” he said.

Gerald Kominski, a professor of health policy at the University of California Los Angeles, said that the decision to revoke Blue Shield’s tax exemption “sends a very, very strong message to large nonprofits to be sure that you’re functioning as a nonprofit, that you’re not shielding assets or revenue from taxation and that you’re generally serving the public good.”

Julie Appleby contributed reporting.

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

More than a dozen insurers offer plans on the New York health insurance marketplace, and depending on where they live, shoppers may have more than a hundred products to choose from. But despite being spoiled for choice in many ways, there’s one popular feature that most New Yorkers can’t find in any of the health plans offered on their state exchange: out-of-network coverage.

Except for offerings by a few insurers in far western New York and the Albany area, the only options available elsewhere in the state, including the entire New York City metro area, are health maintenance organization-style plans that cover care provided only by doctors and hospitals in the plan’s network. People who go out of network for anything other than emergency care are generally going to be responsible for the entire bill.

Although New York may not be the only place where HMOs are the sole marketplace option for many consumers, it’s an unusual situation. According to figures from McKinsey & Co., in 2015 just 1 percent of people who were eligible to shop for coverage on the exchanges across the United States had only HMOs to choose from. Four percent could choose either HMOs or EPOs,  the acronym for exclusive provider organizations that, like HMOs, don’t generally provide non-emergency out-of-network coverage.

New York officials didn’t respond to requests for comment.

Experts point to a number of factors that contributed to the New York marketplace’s dearth of plans such as preferred provider organizations that typically have some coverage for  out-of-network doctors and hospitals. In those plans, consumers generally have to pay more out of pocket than they do for in-network care, because deductibles and co-insurance charges are higher.

Some experts say New York’s difficult history in the individual insurance market — which includes people who don’t buy coverage through work — is a key reason insurers are wary of offering products with out-of-network benefits.

In 1992, a new state law required insurers on the individual market to cover anyone seeking a plan, regardless of their health. (A handful of other states also had similar requirements long before the health law made this mandatory for all states in 2014.) A few years later, the state required that two standardized HMO plans be offered in the individual market, only one of which offered out-of-network benefits, says Peter Newell, director of the health insurance project at the United Hospital Fund of New York, a research and philanthropic organization.

But it was difficult to maintain a customer base that wasn’t too costly for the insurers to cover since healthy people were not required to buy insurance. “That out-of-network product attracted a lot of high users of medical care, and prices went through the roof,” says Newell. Many insurers left the individual market at that time, and because of the high costs, enrollment on the individual market plummeted from more than 100,000 in 2000 to under 20,000 in 2012, according to a 2012 study by Health Management Associates for the New York Department of Health.

Following that experience, “insurers are a little gun shy” about offering plans with out-of-network coverage on the exchange, says Newell.

Health law requirements also give insurers pause, say experts. Obamacare requires insurers that sell plans on the individual and small group markets to cover a comprehensive set of essential health benefits.

“It’s a very broad, comprehensive package of benefits,” says Leslie Moran, senior vice president at the New York Health Plan Association, a trade group. “There were concerns about being able to maintain an affordable product. You’d attract only very expensive patients, and the ability to price it moving forward was a concern.”

While that could be a concern in every state, in New York another requirement has likely discouraged insurers from offering PPO-type plans, says Sabrina Corlette, project director at Georgetown University’s Center on Health Insurance Reforms, who has co-authored reports about state efforts to implement the health law.

In New York, the exchange required that any insurer that sold plans with out-of-network benefits outside the marketplace had to also sell plans with out-of-network benefits inside the marketplace.

Rather than offering PPOs both on and off the exchange, most insurers opted not to sell PPOs at all. “They were worried about adverse selection, so they only offered HMO-style plans,” Corlette says.

Having access to out-of-network benefits is generally high on consumers’ wish list, but it can be a double-edged sword, say consumer advocates. When beneficiaries go outside the network, even if the plan pays some of the bill, the doctor or hospital can refuse to accept the insurer’s rate and, depending on the state, may demand that the consumer pay the balance.

“It’s not much of a consumer protection because they can be balance billed,” says Lynn Quincy, associate director for health policy at Consumers Union, referring to that practice.

Last year New York passed a law that aims to protect consumers from surprise out-of-network bills. Among the provisions is one that beefs up the adequacy standards for plans’ networks, so consumers will be less likely to need out-of-network care in the first place.

“I’m OK with consumers being offered a plan that’s in-network only as long as the network is robust,” says Quincy.

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.

MOUNT VERNON, Texas—Despite residents’ concerns and a continuing need for services, the 25-bed hospital that served this small East Texas town for more than 25 years closed its doors at the end of 2014, joining the ranks of dozens of other small rural hospitals that have been unable to weather the punishment of a changing national health care environment.

For the high percentages of elderly and uninsured patients who live in rural areas, closures mean longer trips for treatment and uncertainty during times of crisis. “I came to the emergency room when I had panic attacks,” said George Taylor, 60, a retired federal government employee. “It was very soothing and the staff was great. I can’t imagine Mount Vernon without a hospital.”

The Kansas-based National Rural Health Association, which represents around 2,000 small hospitals throughout the country and other rural care providers, says that 48 rural hospitals have closed since 2010, the majority in Southern states, and 283 others are in trouble. In Texas along, 10 have changed. 

“If there was one particular policy causing the trouble, it would be easy to understand,” said health economist Mark Holmes, from the University of North Carolina, whose rural health research program studies national trends in rural health care. “But there are a lot of things going on.”

Experts and practitioners cite declining federal reimbursements for hospitals under the Affordable Care Act as the principal reason for the recent closures. Besides cutting back on Medicare, the law reduced payments to hospitals for the uninsured, a decision based on the assumption that states would expand their Medicaid programs. However, almost two dozen states have refused to do so. In addition, other Medicare cuts caused by a budget disagreement in Congress have also hurt hospitals’ bottom lines.

But rural hospitals also suffer from multiple endemic disadvantages that drive down profit margins and make it virtually impossible to achieve economies of scale.

These include declining populations; disproportionate numbers of elderly and uninsured patients; the frequent need to pay doctors better than top dollar to get them to work in the hinterlands; the cost of expensive equipment that is necessary but frequently underused; the inability to provide lucrative specialty services and treatments; and an emphasis on emergency and urgent care, chronic money-losers.

‘Another Disaster’ 

Rural health care experts caution that national and state officials need to address the problems for rural hospitals or they could face a repeat of the catastrophic closings that followed changes in the Medicare payment system 30 years ago. That 1983 change, called the “prospective payment system,” established fixed reimbursements for care instead of payments based on a hospital’s reported costs. That change rewarded large, efficient providers, but 440 small hospitals closed before the system was adjusted in 1997 to help them. Those adjustments created the designation of critical access hospitals for some small, isolated facilities, which are exempted from the fixed payment system.

“And now, beginning in 2010, we’ve had another series of cuts that are all combining to create another expansion of closures just like we saw in the ‘90s,” said Brock Slabach, senior vice president of the Rural Health Association. “We don’t want to wake up with another disaster.”

The current surge in closures means federal officials need to come up with new legislation to halt the recent cuts to small hospitals in order to “buy time” to figure out how rural hospitals should effectively operate in the future, said the association’s chief lobbyist, Maggie Elehwany. “It is important to stop the bleeding right now.”

In Mount Vernon, a town of 2,678 people nestled in grassland and dairy country about two hours east of Dallas, family practitioner Jean Latortue has taken out a lease on the now-vacant hospital building to convert it into an outpatient and urgent care clinic at his own expense. Reopening may be a risky move, he acknowledged, but the need is there.

“The community went into panic mode,” he said. “I figured I had to step up.”

The non-profit ETMC Regional Healthcare System, based in Tyler, Texas, closed the Mount Vernon hospital and two others of its then-12 rural hospital affiliates because it could no longer sustain operating losses that had persisted for five years.

“There was no ill will,” Franklin County Judge Scott Lee said in an interview from his Mount Vernon office. “They were losing money. We had a good working relationship for years, and they had a business decision to make.”

Mount Vernon’s Issues 

Perry Henderson, senior vice president of affiliate hospitals for ETMC, a major health care provider in East Texas, noted that rural hospitals have many uninsured patients, and Medicare accounts for “60 to 70 percent of the business,” while in “Dallas or Houston it’s a fraction of that.”

Mount Vernon, with lakefront properties that are attractive to retirees, has its share of elderly patients. Henderson also noted that many rural hospitals also have to deal with large numbers of agricultural accidents. Farming, another Mount Vernon staple, is one of the country’s most dangerous occupations. Finally, he added, country roads bring large numbers of traffic accidents. When there’s no hospital, emergencies mean longer trips to get help.

Henderson and other experts cite three reasons for the rash of closures nationally. Sequestration, the across-the-board federal budget cut that arose out of the legislative impasse between the Obama administration and congressional Republicans, has resulted in a 2 percent reduction in Medicare reimbursements since 2013.

“If Medicare is 50 percent of your revenue and you lose two points,” North Carolina’s Holmes said, “it can be a killer.”

Rural hospitals took a second hit from the federal health law’s reductions in “disproportionate share hospital” payments to hospitals with large numbers of indigent and uninsured patients. Federal officials made the cuts assuming that the law would assure that more patients had insurance.

It hasn’t worked well in rural areas, the Rural Health Association’s Elehwany said, because annual deductibles for the new insurance plans, which come out of consumers’ pockets, “are running between $2,500 and $5,000,” and people can’t pay them.

And in communities such as Mount Vernon, this problem is exacerbated because Texas, along with 22 other states, has refused to expand Medicaid, a key provision of the Affordable Care Act.

“That’s a big deal,” ETMC’s Henderson said. “That’s when we had the hurt.”

Latortue, who came to Mount Vernon as an ETMC hospital doctor in 2008, appears undaunted by the challenges of reinventing the hospital, which was treating an average of eight inpatients a week when it closed. Still, he said, “I’m very busy, and patients need to be seen—we’ll be all right.”

He intends to provide both outpatient services, including lab work, at the new clinic, and emergency care, stabilizing patients until they can be transferred to the Titus Regional Medical Center in Mt. Pleasant, 16 miles away, or to a smaller facility in Winfield, eight miles away. He also plans a wellness clinic to treat obesity and will offer Botox and laser cosmetic services. A cardiologist and a gastroenterologist will make weekly visits, and he is also looking for an ob-gyn.

Latortue got a favorable lease from the town of Mount Vernon and inherited an X-ray machine and other equipment from ETMC, but he still took out $150,000 in loans for remodeling and needs another $60,000 to $70,000 for equipment.

Still, none of this will replace the hospital, and his patients know it. “I live right behind the building,” said Mary Hunter, a very fit grandmother of 73. “I’ve had very good health until my blood pressure spiked last week,” she said. “We retired in 2006 and moved here, partly because of the hospital. And now it’s gone.”

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 total of 16.4 million non-elderly adults have gained health insurance coverage since the Affordable Care Act became law five years ago this month – a “historic” reduction in the number of uninsured, the Department of Health and Human Services said Monday.

Those gaining insurance since 2010 include 2.3 million young adults aged 18 to 26 who were able to remain on their parents’ health insurance plus another 14.1 million adults who obtained coverage through expansions of the Medicaid program, new marketplace coverage and other sources, according to HHS’ report .

Officials say the percentage of people without coverage has dropped by about a third since 2012: from 20.3 percent to 13.2 percent in the first quarter of 2015.

“The Affordable Care Act is working to drive down the number of uninsured and the uninsured rate,” Richard Frank, HHS assistant secretary for planning and evaluation, told reporters. “Nothing since the implementation of Medicare and Medicaid has seen this kind of change.”

Latinos, who traditionally have been least likely to have health coverage, have seen the largest drop in their uninsured rate, according to the report. The Latino uninsured rate fell 12.3 percentage points, from 41.8 percent to 29.5 percent. The uninsured rate for African Americans fell by nearly half, from 22.4 percent to 13.2 percent. The rate for non-Latino whites fell by just over five percentage points.

States that expanded the Medicaid program to 138 percent of the poverty line also saw large reductions in their low-income uninsured populations – an average of 13 percent among people with incomes under the new Medicaid threshold. States that have not expanded the program still saw a decline, though not as large, of about 7 percent.

HHS officials said they expect to have better state-by-state breakdowns and estimates of the number of children covered later this year. The ACA turns five on March 23.

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

SAN FRANCISCO — Rose Gutierrez has a big decision to make.

Gutierrez, who was diagnosed with breast cancer last spring, had surgery and 10 weeks of chemotherapy. But the cancer is still there. Now Dr. Jasmine Wong, a surgeon at UC San Francisco, is explaining the choices – Gutierrez can either have another lumpectomy followed by radiation, or she can get a total mastectomy.

“I think both options are reasonable,” Wong said. “It’s just a matter of how you feel personally about preserving your breast, how you feel about having radiation therapy.”

“I’m kind of scared about that,” said Gutierrez, 52, sitting on an exam table with her daughter on a chair beside her.

“Well if you made it through chemo, radiation is going to be a lot easier,” Wong told Gutierrez, who is from Merced, Calif.

In many hospitals and clinics around the country, oncologists and surgeons simply tell cancer patients what treatments they should have, or at least give them strong recommendations.  But here, under a formal process called “shared decision making,” doctors and patients are working together to make choices about care.

It might seem like common sense:  Each patient has different priorities and preferences; what’s right for one patient may be wrong for another.  Of course patients should weigh in. But many aren’t accustomed to speaking up. Even the most engaged or educated patients may defer to their doctors because they are scared, they don’t want to be seen as difficult or they think the doctor knows best.

For their part, not all doctors want to cede control to patients who have far less medical knowledge or who may be relying on information they got from friends and the Internet. Also, many physicians don’t have the time for long discussions and the health care system isn’t set up to pay for them.

Even so, hospitals and clinics in several other states, including Massachusetts, Minnesota and Washington, have created collaborative programs to ensure that information and concerns flow back and forth between patient and doctor. UCSF’s approach, in particular, has been a model for other programs around the nation.

The concept of shared decision making has been around for years, but it is gaining new traction with the nation’s health law, which specifically encourages its use.

“Patients and families need to be in the driver’s seat with their doctors, making decisions that are the right choice for them for their unique circumstances,” said UCSF associate professor Jeff Belkora, who runs the shared decision-making program also known as the Patient Support Corps.

That way, he said, patients avoid “a rocky, bumpy ride” of either too much or too little treatment.

At UC San Francisco, patients receive DVDs, pamphlets or links approved by the physicians that explain available options for treatment. During appointments, the doctors not only explain carefully the benefits and the risks of those options but also ask about patients’ priorities and goals.

Patients are paired with college students or recent graduates who help them make a list of questions for the doctor beforehand. These young people also record the visit and type notes for the patients, who then leave with a definitive account of what was said.

That’s important because patients are nervous and emotional after a cancer diagnosis and often freeze up, said premed student Edward Wang. Wang said his presence helps put them at ease. “You’re just making a question list and you’re just taking notes,” he said. “But these simple things really do matter to the patient and to the doctor as well.”

Shared decision making has been used for patients with breast and prostate cancer, heart disease, back pain and other conditions for which there are multiple treatment options that offer similar results.

“It’s a massive cultural change,” said Glyn Elwyn, who researches shared decision making at The Dartmouth Institute for Health Policy and Clinical Practice. “It’s going from ‘I’m the expert, take my recommendation’ to ‘I am going to inform you and respect your wishes.’”

Elwyn and other researchers have found that patients are more satisfied with their care when they have a say in it. Also, it may save money. Some research shows that patients who are involved in their treatment decisions are more likely to be conservative, opting against costly procedures or surgeries.

That doesn’t mean the decisions are easy – even for knowledgeable patients.

Ilene Katz, a UCSF nurse who often works with cancer patients, was recently diagnosed with breast cancer and became a patient herself.

At first, she wanted a mastectomy. “My knee jerk reaction, which probably a lot of women have … is there is cancer in my body, cut it out, cut all of it out,” she said.

But on this February day, she came out of the exam room feeling different. A long conversation with the surgeon and the oncologist helped her decide that, for her, there was no real benefit to having a mastectomy over a lumpectomy.

Katz said she was relieved someone was there taking notes so she could go over it later. “I don’t remember everything,” Katz said, her eyes red from crying. “It’s all a black cloud.”

Katz’s doctor, Laura Esserman, said some patients want her to make choices for them. But Esserman, head of the UCSF breast care center, sees herself more as a coach, often asking questions to make sure patients don’t act out of fear or lack of knowledge: What’s the most important thing to you? How do you feel about your body image? What complications are you worried about?

Typically, Esserman said, she tells patients, “I need to know more about your thought process … and how you are going to feel a year from now.”

Candace Walls, 41, appreciates having some control over her care. Diagnosed with cancer six years ago in Stockton, Walls said the doctor recommended a mastectomy and then did the surgery.

“I didn’t have lots to choose from,” Walls said. “It was just kind of like, ‘This is what I think you should do.’”

Since coming to UCSF a year ago, however, she has been very involved with her decisions about breast reconstruction, even asking the doctor to redo part of the surgery when she didn’t like how it turned out. At a February appointment, Dr. Wong answered her questions one by one. “It is a very good feeling to know you can say what you want to your doctor,” Walls said afterward.

That same day, Gutierrez, the patient from Merced, sat nervously in Wong’s exam room as the doctor explained more about her surgery choices.

“With the partial mastectomy we just need to take a little bit more tissue out … and then we would have to do radiation,” Wong said, as a note taker sat typing quickly. “With the [total] mastectomy, you probably wouldn’t need radiation but obviously it’s a bigger operation.”

Gutierrez said that as a single woman in her 50s, she wasn’t too concerned about keeping her breast. But she was worried about how her body would react to radiation.  Most important, she wanted to be sure doctors got rid of the cancer.

“I have 12 grandbabies,” she said. “I want to be here for them.”

Still, Gutierrez told the doctors she was leaning toward the lumpectomy, saying she felt nervous about the pain. “I’m a big sissy,” she said.

“No, you are doing great,” Wong said. She encouraged Gutierrez to take the time she needed to talk over the choices with her family and to call if she needed to talk more. “I don’t want you to feel like you are pressured to make a decision.”

A few days later, Gutierrez decided on a mastectomy, mostly to avoid the radiation and the worry about cancer’s return. She had surgery in early March.

Reached by telephone the next day, Gutierrez said she felt good about her decision – and how she made it with her doctors. “It makes us seem like we are a team,” she said.

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

With a deadline fast approaching, bipartisan negotiations are heating up in the House to find a permanent replacement for Medicare’s physician payment formula. But the tentative package being hammered out behind closed doors contains some key provisions that are likely to raise objections from both Republicans and Democrats.

Unless Congress takes action by the end of this month, doctors who treat Medicare patients will see a 21 percent payment cut.

For doctors, the nail-biter has become a familiar but frustrating rite. Lawmakers invariably defer the cuts prescribed by the 1997 reimbursement formula, which everyone agrees is broken beyond repair. But the deferrals have always been temporary because Congress has not agreed to offsetting cuts to pay for a permanent fix. In 2010, Congress delayed scheduled cuts five times.

The current proposal for a permanent fix may not include full financing for repealing the payment formula, according to congressional aides and industry lobbyists who have been briefed on the talks but spoke on the condition of not being named because of the sensitivity of the discussions. That provision could run into concerns from many Republicans and some Democrats. 

In addition, Senate Democrats are leery of another provision reportedly part of the negotiations – charging wealthier Medicare beneficiaries more for their coverage, according to top Senate aides who briefed reporters Sunday. They also noted that although Democrats are eager to attach to a deal an unrelated measure to extend the Children’s Health Insurance Program, they would like it to cover four years, not the two years that the House is reportedly considering.

Still, they said, with some changes in the package, Senate Democrats might be able to support the developing House package.

“Our members would like to get there,” one of the aides said.

Here are some answers to frequently asked questions about the congressional ritual known as the doc fix. 

Q: How did this become an issue?

Today’s problem is a result of efforts years ago to control federal spending – a 1997 deficit reduction law that called for setting Medicare physician payment rates through a formula based on economic growth, known as the “sustainable growth rate” (SGR). For the first few years, Medicare expenditures did not exceed the target and doctors received modest pay increases. But in 2002, doctors were furious when they came in for a 4.8 percent pay cut. Every year since, Congress has staved off the scheduled cuts. But each deferral just increased the size of the fix needed the next time.

The Medicare Payment Advisory Commission (MedPAC), which advises Congress, says the SGR is “fundamentally flawed” and has called for its repeal. The SGR provides “no incentive for providers to restrain volume,” the agency said.

Q. Why don’t lawmakers simply eliminate the formula?

Money is the biggest problem. An earlier bipartisan, bicameral SGR overhaul plan produced jointly by three key congressional committees would cost $175 billion over the next decade, according to the Congressional Budget Office. While that’s far less than previous estimates for an SGR repeal, it is difficult to find consensus on how to finance a fix.

For physicians, the prospect of facing big payment cuts is a source of mounting frustration. Some say the uncertainty has led them to quit the program, while others are threatening to do so. Still, defections have not been significant to date, according to MedPAC.

In a March 2014 report, the panel stated that beneficiaries’ access to physician services is “stable and similar to (or better than) access among privately insured individuals ages 50 to 64.” Those findings could change, however, if the full force of SGR cuts were ever implemented.

Q: What are the options that Congress is looking at?

A: The bipartisan negotiations among key House leadership and staff from committees with jurisdiction over the SGR have been behind closed doors, and the offices of both House Speaker John Boehner, D-Ohio, and House Minority Leader Nancy Pelosi, D-Calif., declined to comment on the negotiations. But some details are emerging.

Late Friday, the bipartisan leadership of the House Ways and Means and Energy and Commerce committees – the two House panels with jurisdiction over the SGR – said in a statement that “we are now engaging in active discussions on a bipartisan basis – following up on the work done by leadership – to try to achieve an effective permanent resolution to the SGR problem, strengthen Medicare for our seniors, and extend the popular Children’s Health Insurance Program.”

Last year’s proposal from the House Energy and Commerce and Ways and Means committees and the Senate Finance Committee is reportedly the basis of the current SGR talks, according to the lobbyists and aides, in part because it enjoyed bipartisan support and would encourage better care coordination and chronic care management, ideas that experts have said are needed in the Medicare program.

That proposal would have scrapped the SGR and given doctors an 0.5 percent bump for each of the next five years as Medicare transitions to a payment system designed to reward physicians based on the quality of care provided, rather than the quantity of procedures performed, as the current payment formula does.

Tacking on a package of other health measures – known as extenders – that Congress renews each year during the SGR debate would push the cost even higher. They include additional funding for therapy services, ambulance services and rural hospitals, as well as continuing a program that allows low-income people to keep their Medicaid coverage as they transition into employment and earn more money.

As part of the proposal, the House members are also talking about adding two years of funding for the Children’s Health Insurance Program, a federal-state program that provides insurance for low-income children whose families earned too much money to qualify for Medicaid, according to the lobbyists. While the health law continues CHIP authorization through 2019, funding for the program has not been extended beyond the end of September.

The length of the extension could cause strains with Senate Democrats. Last month, the Senate Democratic caucus signed on to legislation from Sen. Sherrod Brown, D-Ohio, calling for a four-year extension of the current CHIP program, according to senior Senate Democratic aides. Democrats want that CHIP language in the SGR deal because “this may be the only health care vehicle moving,” said one of the Senate aides. 

Just two years of additional CHIP funding is non-starter for Democrats. “We need to make sure that Children’s Health Insurance Program is on a sustainable path,” the aide said.

Q: How would Congress pay for all of that?

A: It might not. That would be a major departure from the GOP’s mantra that all legislation must be financed. Tired of the yearly SGR battle, veteran members in both chambers may be willing to repeal the SGR on the basis that it’s a budget gimmick – the cuts are never made – and therefore financing is unnecessary.

But that strategy could run into stiff opposition from Republican lawmakers and some Democrats. Most lawmakers are expected to feel the need to find financing for the Medicare extenders, the CHIP extension and any increase in physician payments over the current pay schedule. Those items would account for about $60 billion of financing in an approximately $200 billion package.

Conservative groups are urging Republicans to fully pay for any SGR repeal.

“Americans didn’t hand Republicans a historic House majority to engage in more deficit spending and budget gimmickry,” Dan Holler, communications director for Heritage Action for America, said in a statement. “Any deal that offsets a fraction of the cost, like the one currently being discussed behind closed doors and leaked to the press, is a non-starter for conservatives.”

But physicians and other analysts make the point that Congress has already paid out billions on temporary patches that don’t fix the problem.

“Congress has spent a staggering $170 billion on 17 patches in a 12-year period, the cost of which has far exceeded the cost of eliminating the SGR altogether,” American Medical Association President Robert M. Wah wrote last month. “This continuous cycle of putting a Band-Aid on the real problem, creates an unpredictable environment that makes it difficult for physicians to budget and plan for practice innovations that could improve quality and reduce costs.”

Q. Will seniors and Medicare providers have to help pay for the plan?

According to the lobbyists and aides, the potential financing options being looked at by House negotiators include charging wealthier Medicare beneficiaries – who already pay a higher premium – even more and introducing a surcharge on the popular “first-dollar” supplemental Medicare insurance known as “Medigap.” Experts contend that the “first-dollar” plans, which cover nearly all deductibles and co-payments, keep beneficiaries from being judicious when making medical decisions. The change could convince them to reduce opt against treatment they don’t need, thus saving Medicare money. President Barack Obama’s fiscal 2016 budget plan includes similar provisions.

Congress could also extend the automatic 2 percent Medicare cuts in place as part of budget sequestration, but those cuts would face stiff opposition from Medicare providers and the groups they serve.

Senate aides said Democrats there are likely to take issue with the provisions to reduce reimbursements to Medicare providers and to require seniors to pay more.

Medicare beneficiaries already pay 25 percent of all Part B costs (physician services are included in Medicare Part B), so an increase in Medicare reimbursements to physicians would increase what seniors in the traditional Medicare program pay for premiums, deductibles and co-insurance, according to an analysis from the Kaiser Family Foundation. According to the report, half of all people on Medicare live on incomes of about $23,500 or less, and seniors spend three times more than younger households on health care as a share of their household budgets. (KHN is an editorially independent program of the foundation.)

Asking seniors to pay more for their Medicare in exchange for higher Medicare payments to physicians “doesn’t seem like a very fair thing to do for seniors,” a senior Senate Democratic aide said.  Using payment cuts to other Medicare providers, like hospitals, may be problematic as well because such steps “always sort of generate opposition and heartburn for both sides of the aisle,” the aide said.

Q. How quickly could Congress act?

Legislation to repeal the SGR could move in the House as early as the week of March 16, the lobbyists said.

The Senate Democratic aides said that they expected Democrats and Republicans in that chamber will want to offer amendments to the emerging House package, making it extremely difficult to pass any overhaul before the Senate’s two-week break scheduled to begin starting March 30.

If the SGR issue can’t be resolved by March 31, expect Congress to pass a temporary patch as negotiations continue.

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