The recently passed health insurance reform legislation,
HR 3103, more commonly known
as the Kennedy-Kassebaum bill, has a number of provisions
that should be of concern to alternative health care providers.
1. The Portable Insurance Provisions
The major focus of the legislation is an attempt to make
health insurance more portable for people who lose their
jobs. Under the bill, an individual who has had insurance
coverage for the previous 12 months can move from one job
to another without being subject to preexisting condition
exclusions. He cannot be denied coverage or charged higher
premiums than a healthy person. Individuals who lose their
jobs are also guaranteed the right to convert their previous
group policy to individual coverage.
The portability concept underlying Kennedy-Kassebaum
is seriously flawed. The notion of removing preexisting
restriction exclusions is based on the faulty premise
that insurers should have to sell fire insurance on a
burning house. Ending preexisting condition exclusions
has a worthy intent, expanding access to insurance for
those with pre-existing conditions who find it difficult
or impossible to purchase insurance under the current
system. However, the reforms may have unintended consequences
that will increase the cost of insurance and actually
leave more people without insurance.
Insurance is a business of risk allocation in which
the insurer receives payment in exchange for agreeing
to cover the expense of certain risks. The cost and scope
of coverage are determined by morbidity-mortality statistical
analysis. To the degree insurers are prevented from basing
their contracts on actuarial values, other policyholders
will be forced to absorb the additional costs associated
with covering high-risk individuals. Indeed, studies estimate
that, while employers with high-risk employees would certainly
notice improved access to coverage under proposed insurance
reforms, overall premiums could increase substantially.
While the sponsors of Kennedy-Kassebaum suggest the premium
increase will be no more than 3-5 percent, other estimates
indicate that for some small groups and individual policies,
the increase could be as much as 100 percent or more.
Moreover, the bill's removal of restrictions on pre-existing
conditions for individual policies is particularly troubling.
Our employment-linked health insurance system presents
a real problem. If you lose your job, you generally lose
your health insurance. If you lost your employer-provided
health insurance under Kennedy-Kassebaum, you would have
the right to purchase an individual policy regardless
of your health. However, most people who lose their jobs
are not prepared to assume the high cost of individual
insurance premiums. Healthy people will be likely to gamble--to
take a chance and go without insurance during the few
months of unemployment. However, sick people will almost
certainly choose to purchase insurance. As a result, the
insurance pool will become sicker and sicker, driving
prices higher in an ever- increasing spiral.
2. The Anti-Fraud Provisions
The danger to alternative providers is that the increase
in premiums will accelerate the push toward managed care,
resulting in additional restrictions on the type of treatment
that will be reimbursable under most health plans. However,
such dangers are indirect.
There are several lesser known provisions that hold
more direct threats for alternative health care providers.
Most significant, the legislation would strengthen and
expand federal "anti-fraud" enforcement efforts. Many
of the anti-fraud provisions were lifted word-for-word
from the abortive Clinton health care plan and would not
only increase federal programs to combat Medicare and
Medicaid fraud but would also expand federal authority
over private commercial health insurance.
For example, the bill calls for the Departments of Justice
and Health and Human Services to develop a plan to coordinate
federal, state, and local programs investigating fraud
and abuse in commercial health insurance. Both the Justice
Department and the Health and Human Services Inspector
General would also be empowered to conduct investigations,
audits, and inspections involving the "delivery of and
payment for health care in the United States."
Until now HHS has been restricted to investigations
of Medicare and Medicaid fraud. The Justice Department
has always had authority to pursue mail and wire fraud
but has rarely exercised that power in the context of
private health insurance plans.
Several federal agencies would receive additional funding
to expand their anti-fraud efforts. HHS would receive
$820 million over the next 7 years for anti-fraud efforts,
while the Justice department would receive $330 million
over seven years, mostly targeted toward hiring additional
prosecutors. HHS plans to use the majority of its funding
to establish an anti-fraud office in all 50 states and
to expand its two-year old pilot program, Operation Restore
Trust, targeting fraud in home health care, nursing home
services, and durable medical equipment.
In addition, the FBI would receive $548 million over
seven years to hire additional investigators. The Health
Care Financing Administration (HCFA) would receive approximately
$500 million per year to establish a new Medical Integrity
Program. Altogether, anti-fraud programs will cost more
than $5 billion over the next 7 years.
Of course, no one condones health care fraud. Anyone
actually guilty of fraud should be severely punished.
But the federal government's definition of fraud often
hinges on its interpretation of "appropriate" medical
care. Given the government's long-standing bias in favor
of traditional allopathic medicine, it is likely that
alternative health care providers could easily become
targets of federal harassment or prosecution.
Beyond the general dangers of expanding federal authority
to define and prosecute health care fraud, there are several
specific provisions that are cause for additional concern.
3. The Informant and Fraud Prosecution Provisions
One of the most dangerous provisions would give financial
rewards for informants who provide information leading
to the collection of at least $100 in penalties. The bill
also provides civil immunity to informants. This is an
open invitation for abuse.
The bill establishes a Health Care Fraud and Abuse Trust
Fund to accept gifts, criminal fines, civil monetary penalties,
and forfeited property. The more zealous the prosecutor,
the more money that will be available for prosecutions.
This could quickly lead to the same type of abuses seen
with other types of asset forfeiture provisions. Indeed,
the legislation significantly expands asset forfeiture
in health care fraud cases. Under the bill, "[t]he court,
in imposing sentence on a person convicted of a Federal
health care offense, shall order the person to forfeit
property, real or personal, that constitutes or is derived,
directly or indirectly, from gross proceeds traceable
to the commission of the offense."
The bill includes draconian fraud and abuse provisions
that make criminal penalties for miscoding a Medicare
form tougher than penalties for robbery or rape. Civil
monetary penalties are also expanded, increased from $2,000
to $10,000 per item or service. In what could be a particular
threat to alternative health care, new civil penalties
are created for billing for "a medically unnecessary procedure."
Fortunately, in a last minute victory for health freedom,
language was added to the bill requiring that "intent
to defraud" be proved before penalties can be imposed.
In a provision opposed by the Clinton administration,
the bill now would allow prosecution for fraud only if
the provider "knowingly" presents a claim that the person
"knows or should know" is fraudulent. Early versions of
the bill did not require any proof of an intent to defraud,
but an outcry from physician groups and others forced
In what seems to abrogate 4th and 5th Amendment protections,
failure to provide information to a criminal investigator
carries a five-year prison term. In addition, the bill
says that "[i]n any investigation relating to any act
or activity involving a Federal health care offense, .
. . [the Attorney General] may require the production
of ANY records that MAY be relevant." The person who supplies
patient records in response to such a subpoena "shall
not be liable in any court of any State or the United
States to any consumer or other person for such production
or for nondisclosure of that production to the customer."
Health information so produced could be used against
the patient if "the action or investigation arises out
of and is directly related to the receipt of health care
or payment for health care." These provisions could severely
compromise patient privacy and could empower the federal
government to use medical records to prosecute almost
4. The Patient File Provisions
There are other reasons to be concerned about health privacy.
The legislation could compromise patient privacy by establishing
a central, government-controlled data base for medical records.
The secretary of health and human services is directed to
establish a system of unique health identification numbers
for every health care provider, patient, and health plan.
These identification numbers will make it possible to track
every individual patient through every encounter with the
health care system.
The National Commission on Vital and Health Statistics
is supposed to advise the secretary on ways to ensure
patient privacy. However the threat of abuse is enormous.
Every health care provider, including alternative providers,
will be required to register with the federal government
to receive his or her identification number. Patients
will know that every diagnosis and every treatment will
be on file, accessible by insurers or government agencies.
A separate data bank is established for records of health
care fraud and abuse, including mere allegations of abuse.
5. Other Provisions
The bill does contain one small bit of good news for alternative
care providers. The bill would allow a pilot program experimenting
with a limited number of medical savings accounts. Because
money in medical savings accounts could be used for any
health care expense deemed reimbursable under IRS rules,
patients would be able to use these funds to pay for many
alternative treatments not covered under most traditional
Unfortunately, the MSA experiment will be an extremely
small one, limited to only 750,000 policies. In addition,
only businesses with 50 or fewer employees or the self-employed
will be eligible to participate.
Other provisions in the bill would increase the health
insurance deduction for the self-employed from 30 percent
of premiums to 80 percent by 2006; allow a tax deduction
for long-term care expenses, including premiums for long-term
care insurance; and allow life insurers to offer accelerated
death benefits to terminally ill policyholders.
Copyright © 1996. All rights reserved. Reprint permission
obtained from Emord & Associates. This report is an excerpt
from Emord & Associates' FDA REGULATION