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WellPoint gets tax delay in Obama health plan

February 22, 2010

Insurers WellPoint Inc. and UnitedHealth Group Inc. would get a delay in taxes on premiums and high-cost medical benefits, along with additional funding for expanding Medicaid, under a White House proposal released Monday.

The proposed plan may also raise costs for drugmakers Pfizer Inc., based in New York, and Johnson & Johnson, based in New Brunswick, N.J. It adds $10 billion in industry fees to help close the so-called “donut hole” in drug coverage for elderly Medicare patients and bans deals in which pharmaceutical companies pay makers of generic medicines to keep cheaper copies of brand-name drugs off the market.

The overhaul plan, expected to cost $950 billion over 10 years, is President Barack Obama’s attempt to bridge the gap between stalled health-care legislation passed by the House and Senate last year. The proposal would cover 31 million uninsured Americans and give the federal government authority to prevent what it deems excessive premium increases by insurers, according to a summary released by the White House.

The plan “is about giving insurance companies more of an incentive to be more efficient, to bring down their rates” said Jason Furman, deputy director of the White House’s National Economic Council, on a telephone conference call with reporters.

Obama’s proposal uses the Senate bill as a framework, said Nancy-Ann DeParle, director of the White House Office for Health Reform. “Essentially what we are talking about is the Senate bill, with some important targeted changes,” DeParle said. White House spokesman Reid Cherlin said in an e-mail that the Senate bill is the default for any provisions not specifically mentioned in the president’s proposal.

UnitedHealth shares rose $1.02, or 3.2 percent, to $32.96 in New York Stock Exchange composite trading early in the day. WellPoint gained 88 cents, or 1.5 percent, to $59.35. Pfizer rose 4 cents to $18.03. Johnson & Johnson fell 11 cents to $63.70.

The Standard & Poor’s 500 Managed-Care Index rose 2.3 percent, led by Louisville-based Humana Inc. with a 4-percent increase. On Feb. 19, Medicare announced an increase in payments to insurance companies for so-called Medicare Advantage policies. The S&P Pharmaceuticals Index declined 0.3 percent.

Obama’s proposal, released in advance of a Feb. 25 meeting with the president and Republican and Democratic leaders, also postpones by two years, to 2013, the start of a levy on medical-device makers led by Medtronic Inc. of Minneapolis and Boston Scientific Corp. of Natick, Mass. It keeps the amount to be raised at $20 billion over the next decade and changes the structure from a fee based on sales to an excise tax.

The change is “good news for the device manufacturers because it gives them more time to prepare,” said Larry Biegelsen, a Wells Fargo Securities LLC analyst in New York, in a note to clients. An excise tax “is preferable to market share-based fees because it is easier to pass along” to customers, he said.

The White House would keep a proposed $67 billion tax on insurers led by Indianapolis-based WellPoint, the largest U.S. health plan by enrollment, and Minnetonka, Minnesota-based UnitedHealth, the biggest by sales. It would start the fee in 2014 rather than 2011 as proposed in current legislation.

Another fee, on so-called “Cadillac” insurance policies, would be imposed in 2018 and would apply to fewer people, to give insurers and policyholders more time to prepare, the White House summary said.

The administration also called for more federal funding for Medicaid, the state-federal program for the poor, an increase that could help private insurance companies that administer those benefits. It would extend to more policies restrictions that ban insurers from denying coverage to sick Americans or imposing annual or lifetime limits on benefits.

The drugmakers fee would rise to $33 billion from $23 billion over 10 years.

The White House blueprint doesn’t include a call for a public option, a government-run insurer that would compete with the private-sector and which was once a feature of Obama’s proposals. The feature was deleted from Senate legislation last year in the face of opposition from Democrats who said it might push the insurance industry out of business.

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