Business groups question Malloy health reform funding plan

Gov. Dannel P. Malloy’s proposal to hire nine workers to help develop a state-level health reform initiative isn’t, in itself, especially controversial.

But the way the governor wants to pay for it — by imposing a new fee on health insurance policies — has drawn opposition from business groups. One has warned that the state could face a lawsuit if the measure passes.

At issue is how the state would come up with $3.2 million for expenses and new staff to work on a project, known as the state innovation model, or SIM. The project is aimed at improving the quality of health care by changing the way private insurers and public programs like Medicaid pay for it, creating a system that rewards keeping patients healthy rather than doing more tests or procedures.

Instead of using state tax dollars to fund the project’s development, Malloy proposed raising the money by charging a fee to health insurance companies and health plans, based on membership.

Business groups say the fee will get passed on to individuals and employers who buy health insurance, increasing the burden they already face in a state with high health care and health insurance costs. They note that employers who provide coverage are already facing new fees related to the federal health law.

“It’s pushing unaffordability over the edge,” said Jennifer Herz, assistant counsel for the Connecticut Business & Industry Association.

If the health reform initiative is so important, Herz added, it should be paid for with state funds.

In tight fiscal times, state leaders have looked to shift funding for programs outside the general fund, the chief operating funding source the state uses.

And money is still tight this year.

Anne Foley, an official in Malloy’s budget office, said funding SIM by raising money from insurance fees is consistent with how the state funds other insurance-related initiatives.

“The short answer is that SIM is an insurance-related initiative, and insurance-related initiatives are funded through the insurance fund,” said Foley, the undersecretary for policy development and planning at the state Office of Policy and Management.

The budgets of the Connecticut Insurance Department and the Office of the Healthcare Advocate are funded by an assessment on insurance companies.

But the proposed SIM funding method extends the assessment to another group of health plans, and that could run afoul of of the federal law that governs many health plans in Connecticut, according to a national organization of employers, benefits administrators and other groups.

Many large employers “self-insure” their health plans, meaning that they take on the financial risk for paying medical claims. Self-insured health plans are not subject to state insurance regulation, and don’t have to cover state-mandated insurance benefits. Instead, they’re governed by a federal law known as ERISA — the Employee Retirement Income Security Act.

But under that law, Connecticut might not have the authority to require the administrators of self-insured plans to count their members in the state and pay an assessment based on the membership, said Adam Brackemyre, director of state government relations for the Self-Insurance Institute of America.

If the governor’s proposal were to become law as written, the institute or individual employers would likely challenge it in federal court, Brackemyre said in testimony on the proposal.

Foley said insurance department attorneys advised the administration that the fee would not be a problem under the federal law because it’s not intended to regulate the health plans themselves, but to issue a charge based on the number of Connecticut members.

“We are hopeful that litigation would not be initiated on this assessment method,” Foley said.

Self-insured plans, like other health plans, are already required to pay a state assessment that’s used to raise money to purchase childhood vaccines that the state then distributes free to health care providers. That system is an alternative to having children’s families or their insurers charged for each vaccine.

The SIM assessment method Malloy proposed is based on the vaccine assessment.

Foley noted that the state has not faced a legal challenge for its vaccine funding method.

But Brackemyre said that the fact that something hasn’t been challenged in court doesn’t mean a judge would rule that it’s legal.

And Brackemyre said there’s a difference between vaccine funding and SIM. Using a fee to purchase vaccines benefits self-insured plans because their members receive vaccines free. But the health reform effort, he said, doesn’t guarantee the same clear benefit for self-insured plans.

The idea behind the SIM effort is to get as many different payers as possible — including private insurers and employers, the state employee health plan and Medicaid — to adopt a common set of standards for paying health care providers that would reward keeping patients healthy, rather than doing more tests and procedures. State officials hope to qualify for close to $50 million in federal funds to support the efforts.

Brackemyre said self-insured companies with workers in multiple states are not likely to incorporate state-level health reforms into their health plans, since the standards adopted by each are likely to vary. Trying to adapt to each of them would be complicated and costly to administer, he said.

The SIM funding plan was included in Malloy’s proposed budget, and his administration and legislative leaders are still negotiating a final budget agreement. In their budget proposal, majority Democrats in the legislature maintained Malloy’s plan for paying for the additional SIM staff.