A couple of states have just released their estimates of the effect of PPACA on state health care expenditures over the next ten years or so. Democratic Maryland sees significant savings for the decade, while Republican Virginia forecasts huge cost increases over the next thirteen years. Is this political bias or just state-to-state differences?
The Baltimore Sun reports that Maryland’s Health Care Coordinating Council estimates that reform will save the state $829 million between now and 2019 and provide coverage to half of those who would otherwise be uninsured. The report also notes that the savings will peak by 2019 and then start to reverse to become expenditure increases.
In contrast, Virginia’s recently filed lawsuit challenging PPACA claims that the commonwealth would incur $1.1 billion in additional Medicaid costs over the 2015-2022 period.
So, is either estimate realistic? Why are they so far apart?
While there may well be some political bias—conscious or unconscious—in the estimates, and especially in the figures accompanying Virginia’s Republican Attorney-General’s lawsuit, there are also reasons why the numbers are very different in spite of the two states being close in population and geography. First, the Maryland forecast includes only “good years,” in terms of federal funding, while the Virginia estimate also includes three ”bad years,” in which additional costs most outweigh increased federal funding. Second, Maryland’s Medicaid program is currently more generous than Virginia’s and will not require the additional expenditures to meet PPACA’s expanded eligibility levels. Third, Maryland’s unique all-payer hospital reimbursement system means that costs will be reduced for Medicaid (and other payers) as the number of uninsured shrinks.
Perhaps more important than whether or not Maryland’s estimates are optimistic or Virginia’s are pessimistic, the comparison points out that health care reform is going to have a significantly greater impact on some states—those with the least generous Medicaid and state-only health care programs—than others.
Friday, July 30, 2010
Sunday, July 25, 2010
THE COST (AND BENEFITS) OF PREVENTION
One of the less controversial provisions of PPACA is the requirement that preventive services be covered by most health plans, generally with no patient cost sharing, for new and renewed enrollment after September 23, 2010 (the six month anniversary of the signing into law of the new act).
All plans other those grandfathered under PPACA must offer coverage of a list of preventive services based on recommendations from the United States Preventive Services Task Force, the CDC’s Advisory Committee on Immunization Practices, and HHS’ Health Resources and Services Administration.
Although grandfathered plans are excluded from the prevention requirement, many large group plans already cover some preventive services at no cost. As large groups modify their coverage and lose grandfathered status, they will become subject to the prevention provisions.
The interim final regulations just published jointly by HHS and the Departments of Labor and the Treasury are accompanied by a list of expected benefits including improved health from prevention or delayed onset or earlier treatment of disease, lower absenteeism and increased productivity, and lower health care costs due to avoidance of later more expensive treatment.
Also included is an estimate of the impact that the prevention coverage provisions will have on premiums. Not too surprisingly, adding coverage of preventive services with no patient cost sharing is going to result in premium increases. These are likely to be highest for those with individual coverage since these plans typically offer fewer preventive services today, and lowest for large groups which typically already include preventive care.
The average premium increases (due to a combination of increased demand for “free” services and transfer of some coverage costs from patients to insurers) is estimated to be about 1.5 percent, or around $200 a year for family coverage, an amount that reform advocates will likely claim is miniscule and opponents will trumpet as outrageously expensive in the middle of a recession.
All plans other those grandfathered under PPACA must offer coverage of a list of preventive services based on recommendations from the United States Preventive Services Task Force, the CDC’s Advisory Committee on Immunization Practices, and HHS’ Health Resources and Services Administration.
Although grandfathered plans are excluded from the prevention requirement, many large group plans already cover some preventive services at no cost. As large groups modify their coverage and lose grandfathered status, they will become subject to the prevention provisions.
The interim final regulations just published jointly by HHS and the Departments of Labor and the Treasury are accompanied by a list of expected benefits including improved health from prevention or delayed onset or earlier treatment of disease, lower absenteeism and increased productivity, and lower health care costs due to avoidance of later more expensive treatment.
Also included is an estimate of the impact that the prevention coverage provisions will have on premiums. Not too surprisingly, adding coverage of preventive services with no patient cost sharing is going to result in premium increases. These are likely to be highest for those with individual coverage since these plans typically offer fewer preventive services today, and lowest for large groups which typically already include preventive care.
The average premium increases (due to a combination of increased demand for “free” services and transfer of some coverage costs from patients to insurers) is estimated to be about 1.5 percent, or around $200 a year for family coverage, an amount that reform advocates will likely claim is miniscule and opponents will trumpet as outrageously expensive in the middle of a recession.
Friday, July 23, 2010
PUBLIC OPTION REDUX!
Just when we thought it was dead and buried, our old friend the public option has been resurrected by a trio of Democratic congressmen, headed by Representative Pete Stark.
HR 5808, introduced in the House this week with support from some 120 congressmen, would establish a national public health insurance plan to be offered though the new insurance exchanges. This public option would pay providers at rates tied to Medicare, but with physician payments detached from the SGR formula. Providers would not be required to participate in the public plan in order to participate in Medicare.
The CBO estimates that the public option’s premiums would be 5 to 7 percent lower than private plans offered through the exchanges, and that by 2019, some 13 million individuals would be enrolled through exchanges—if the public option were available. The CBO also estimates that while some providers would decline to participate, many would in the expectation that a plan administered by HHS would attract a considerable population of enrollees (and—not mentioned by the CBO—would probably be administered more loosely than a commercial plan). The CBO’s bottom line is a projection of a reduction in federal deficits through 2019 of about $53 billion, due to lower exchange subsidies and increased tax revenues.
So, is there really any life in the public option? Although the positive CBO scoring will give it some appeal, it seems very unlikely that many in Congress—even supporters of reform—will want to revisit the reform battlefield, especially in an election year. (Actually, some Republicans might be delighted to extend the reform debate to include such a socialistic concept.) So, Representative Stark and his fellow liberals will gain a little political traction, but—whatever its merits or otherwise—the public option is likely to quickly find itself returned to the tomb.
HR 5808, introduced in the House this week with support from some 120 congressmen, would establish a national public health insurance plan to be offered though the new insurance exchanges. This public option would pay providers at rates tied to Medicare, but with physician payments detached from the SGR formula. Providers would not be required to participate in the public plan in order to participate in Medicare.
The CBO estimates that the public option’s premiums would be 5 to 7 percent lower than private plans offered through the exchanges, and that by 2019, some 13 million individuals would be enrolled through exchanges—if the public option were available. The CBO also estimates that while some providers would decline to participate, many would in the expectation that a plan administered by HHS would attract a considerable population of enrollees (and—not mentioned by the CBO—would probably be administered more loosely than a commercial plan). The CBO’s bottom line is a projection of a reduction in federal deficits through 2019 of about $53 billion, due to lower exchange subsidies and increased tax revenues.
So, is there really any life in the public option? Although the positive CBO scoring will give it some appeal, it seems very unlikely that many in Congress—even supporters of reform—will want to revisit the reform battlefield, especially in an election year. (Actually, some Republicans might be delighted to extend the reform debate to include such a socialistic concept.) So, Representative Stark and his fellow liberals will gain a little political traction, but—whatever its merits or otherwise—the public option is likely to quickly find itself returned to the tomb.
Wednesday, July 21, 2010
WELCOME TO THE PPACA COST (OR SAVINGS) DARTBOARD
One thing about a democracy, everyone is entitled to publish their predictions about the future, and on the costs (or savings) of the Patient Protection and Affordable Care Act over the 2010-2019 decade, there are enough to cover the dartboard. Whether any have hit the bull’s-eye is another question.
The two most authoritative darts so far are those of the CBO and CMS’ Office of the Actuary. Each assumes that reform will be implemented exactly as stated in the new law, with no successful legal challenges and with legislated cost reduction targets achieved. The CBO forecast is limited to federal spending, while the OA projections cover both federal and overall national expenditures.
The CBO’s well-publicized (by reform advocates, anyway) dart hit the board immediately prior to passage of PPACA with an estimate of federal savings of $86 billion (excluding advance premiums from the new CLASS long-term care insurance program), or slightly less than one percent of projected federal health care spending.
The OA dart, thrown a month later and applauded by reform opponents as contradicting the CBO forecast, landed on the $289 billion number for increased federal spending (prior to CLASS premium collections), and on $310 billion for increased national health care expenditures.
Other darts have been tossed from the left and right of the board by health care economists, including—from the left—David Cutler, and—from the right—Douglas Holtz-Eakin. Not too surprisingly, their darts hit far apart, with Professor Cutler and his co-authors (of a Commonwealth Fund paper) forecasting federal savings of $400 billion and national spending reductions of some $590 billion, and Holtz-Eakin and his co-author (of a Health Affairs article) projecting increased federal costs of a horrendous $554 billion (possibly along with the end of American civilization).
What are we to make of a dartboard spread of more than a trillion dollars?
Let’s start with the CBO and OA numbers.
Trying to reconcile the two governmental forecasts is impossible without more detail of their respective models, although it is apparent that assumptions about individuals’ coverage choices vary significantly. Even approaches to counting the covered population are different: CBO uses an FTE approach, while OA counts enrollment, so that, for example, dual eligibles are counted under both Medicare and Medicaid, leading to total insured enrollment appearing to exceed the entire US population. One common feature of the two forecasts, however, is the very limited savings each believes will be achieved by health care system “modernization,” such as use of ACOs, more effective IT, new payment approaches, and increased emphasis on quality and effectiveness.
Moving on to the health care economists, the range of scores across our dartboard is truly startling.
Professor Cutler and co-authors Karen Davis and Kristof Stremikis start with CBO’s estimate of federal savings, modify this to include all newly covered individuals’ spending, then adjust the result to reflect their estimates of savings from “modernization” and use of exchanges, to give reductions of $590 billion in national health expenditures and $400 billion in federal spending.
Is this a well-aimed dart, or merely a triumph of hope over experience? Certainly, Cutler et al seem cavalier about costs; in comparing their estimate of spending before adjustments with OA’s $311 billion higher figure, they comment: “$30 billion a year is very small on the scale of health expenditures…” (It’s tempting to ask Professor Cutler for the loan of a quarter; with this casual attitude to money, he’ll probably offer his wallet.) Aside from this modest $311 billion item, the major differences between Cutler et al ‘s numbers and those of the CBO and OA are in savings from exchanges and “modernization.” Cutler et al believe that use of exchanges will reduce average insurer administrative costs by three percent, compared with the CBO’s estimate of just 0.4 percent, and that system “modernization” will trim medical costs by one percent a year, each year after 2014, compared with the CBO and OA projections of close to zero.
Meanwhile, on the right-hand side of the dartboard, Douglas Holtz-Eakin and co-author Michael Ramlet also start with the CBO numbers, but reject almost all federal spending cuts as politically infeasible, then add in $260 billion for health grants and physician reimbursement not mentioned in PPACA, to give their estimate of a monster federal spending hike of $554 billion.
So, who is closest to the bull’s-eye? Of the governmental forecasters, OA has the advantage of more detailed federal spending data, so that its estimates for Medicare and Medicaid may be the more credible. On the other hand, one area where OA diverges most from the CBO numbers—by some $330 billion—is in projected revenue from drug manufacturer fees, hospital insurance taxes, and other provisions, which might be more within CBO’s budgetary forecasting capabilities. Inserting the CBO estimates into the OA forecast would give a net reduction of federal spending of $40 billion—reasonably close to the CBO savings of $89 billion.
In contrast to the conservative approaches of CBO and OA, the economists’ darts seem to have been thrown somewhat wildly. Cutler et al’s projection of exchange administrative savings is surely too high given that two-thirds of those privately insured are in large groups, whose costs will be little affected by the exchanges, while their estimates of savings from “modernization” assume a remarkable degree of provider cooperation in revenue reduction. These optimistic forecasts aren’t infeasible, but they assume a degree of behavioral change by insurers and providers that seems unlikely without a major restructuring of the health care system.
The Holtz-Eakin forecast is as overly pessimistic as Cutler et al’s is optimistic. The contention that virtually every PPACA spending cut will be rejected as politically infeasible seems close to absurd, given both political parties’ promises to cut the deficit. Almost certainly, there will be some yielding to lobbyists, but a more likely effect will be modest shortfalls in savings from, for example, IPAB-recommended payment changes.
The conclusion? While both the CBO and OA darts look to land somewhere close to the target in terms of federal expenditures (except for the difference in revenue estimates), the path to the national spending bull’s-eye is much more uncertain. Some of the reform law’s changes are likely to result in insurer industry consolidation, which could begin to change the balance between providers and insurers and lead to lower medical costs. At the same time, providers’ revenue expectations may—in the face of Medicare cuts—result in further cost shifting to the private sector. Basic economic theory may also play a major part: reform-driven demand will increase much faster than supply, implying further increases in medical prices (as appears to have happened in Massachusetts). And, finally, the individual mandate may be overturned by the courts, undermining much of the foundation of PPACA outside of Medicare and Medicaid.
The two most authoritative darts so far are those of the CBO and CMS’ Office of the Actuary. Each assumes that reform will be implemented exactly as stated in the new law, with no successful legal challenges and with legislated cost reduction targets achieved. The CBO forecast is limited to federal spending, while the OA projections cover both federal and overall national expenditures.
The CBO’s well-publicized (by reform advocates, anyway) dart hit the board immediately prior to passage of PPACA with an estimate of federal savings of $86 billion (excluding advance premiums from the new CLASS long-term care insurance program), or slightly less than one percent of projected federal health care spending.
The OA dart, thrown a month later and applauded by reform opponents as contradicting the CBO forecast, landed on the $289 billion number for increased federal spending (prior to CLASS premium collections), and on $310 billion for increased national health care expenditures.
Other darts have been tossed from the left and right of the board by health care economists, including—from the left—David Cutler, and—from the right—Douglas Holtz-Eakin. Not too surprisingly, their darts hit far apart, with Professor Cutler and his co-authors (of a Commonwealth Fund paper) forecasting federal savings of $400 billion and national spending reductions of some $590 billion, and Holtz-Eakin and his co-author (of a Health Affairs article) projecting increased federal costs of a horrendous $554 billion (possibly along with the end of American civilization).
What are we to make of a dartboard spread of more than a trillion dollars?
Let’s start with the CBO and OA numbers.
Trying to reconcile the two governmental forecasts is impossible without more detail of their respective models, although it is apparent that assumptions about individuals’ coverage choices vary significantly. Even approaches to counting the covered population are different: CBO uses an FTE approach, while OA counts enrollment, so that, for example, dual eligibles are counted under both Medicare and Medicaid, leading to total insured enrollment appearing to exceed the entire US population. One common feature of the two forecasts, however, is the very limited savings each believes will be achieved by health care system “modernization,” such as use of ACOs, more effective IT, new payment approaches, and increased emphasis on quality and effectiveness.
Moving on to the health care economists, the range of scores across our dartboard is truly startling.
Professor Cutler and co-authors Karen Davis and Kristof Stremikis start with CBO’s estimate of federal savings, modify this to include all newly covered individuals’ spending, then adjust the result to reflect their estimates of savings from “modernization” and use of exchanges, to give reductions of $590 billion in national health expenditures and $400 billion in federal spending.
Is this a well-aimed dart, or merely a triumph of hope over experience? Certainly, Cutler et al seem cavalier about costs; in comparing their estimate of spending before adjustments with OA’s $311 billion higher figure, they comment: “$30 billion a year is very small on the scale of health expenditures…” (It’s tempting to ask Professor Cutler for the loan of a quarter; with this casual attitude to money, he’ll probably offer his wallet.) Aside from this modest $311 billion item, the major differences between Cutler et al ‘s numbers and those of the CBO and OA are in savings from exchanges and “modernization.” Cutler et al believe that use of exchanges will reduce average insurer administrative costs by three percent, compared with the CBO’s estimate of just 0.4 percent, and that system “modernization” will trim medical costs by one percent a year, each year after 2014, compared with the CBO and OA projections of close to zero.
Meanwhile, on the right-hand side of the dartboard, Douglas Holtz-Eakin and co-author Michael Ramlet also start with the CBO numbers, but reject almost all federal spending cuts as politically infeasible, then add in $260 billion for health grants and physician reimbursement not mentioned in PPACA, to give their estimate of a monster federal spending hike of $554 billion.
So, who is closest to the bull’s-eye? Of the governmental forecasters, OA has the advantage of more detailed federal spending data, so that its estimates for Medicare and Medicaid may be the more credible. On the other hand, one area where OA diverges most from the CBO numbers—by some $330 billion—is in projected revenue from drug manufacturer fees, hospital insurance taxes, and other provisions, which might be more within CBO’s budgetary forecasting capabilities. Inserting the CBO estimates into the OA forecast would give a net reduction of federal spending of $40 billion—reasonably close to the CBO savings of $89 billion.
In contrast to the conservative approaches of CBO and OA, the economists’ darts seem to have been thrown somewhat wildly. Cutler et al’s projection of exchange administrative savings is surely too high given that two-thirds of those privately insured are in large groups, whose costs will be little affected by the exchanges, while their estimates of savings from “modernization” assume a remarkable degree of provider cooperation in revenue reduction. These optimistic forecasts aren’t infeasible, but they assume a degree of behavioral change by insurers and providers that seems unlikely without a major restructuring of the health care system.
The Holtz-Eakin forecast is as overly pessimistic as Cutler et al’s is optimistic. The contention that virtually every PPACA spending cut will be rejected as politically infeasible seems close to absurd, given both political parties’ promises to cut the deficit. Almost certainly, there will be some yielding to lobbyists, but a more likely effect will be modest shortfalls in savings from, for example, IPAB-recommended payment changes.
The conclusion? While both the CBO and OA darts look to land somewhere close to the target in terms of federal expenditures (except for the difference in revenue estimates), the path to the national spending bull’s-eye is much more uncertain. Some of the reform law’s changes are likely to result in insurer industry consolidation, which could begin to change the balance between providers and insurers and lead to lower medical costs. At the same time, providers’ revenue expectations may—in the face of Medicare cuts—result in further cost shifting to the private sector. Basic economic theory may also play a major part: reform-driven demand will increase much faster than supply, implying further increases in medical prices (as appears to have happened in Massachusetts). And, finally, the individual mandate may be overturned by the courts, undermining much of the foundation of PPACA outside of Medicare and Medicaid.
Wednesday, July 14, 2010
PLANNING FOR MLR REGS—AND CONTINUED RECESSION?
The regulations for PPACA’s limits on medical loss ratios have not yet been published, but faced with declines in enrollment due to the recession, insurers are busy making plans to slash administrative costs.
Just in the past couple of days, Blue Plans in North Carolina and Oklahoma have announced cuts of up to twenty percent in administration, and other plans are expected to follow. Marketing is one obvious target area, as this will be most affected by the implementation of insurance exchanges for individual and small group business.
While reform is expected to increase insurer enrollment and more than balance recession losses, the imposition of the MLR limits (85 percent for large groups, 80 percent for small groups and individual plans) is likely to force further cuts in administrative costs, especially for plans with the least large group business (in which typical MLRs are already above the 85 percent level).
Just in the past couple of days, Blue Plans in North Carolina and Oklahoma have announced cuts of up to twenty percent in administration, and other plans are expected to follow. Marketing is one obvious target area, as this will be most affected by the implementation of insurance exchanges for individual and small group business.
While reform is expected to increase insurer enrollment and more than balance recession losses, the imposition of the MLR limits (85 percent for large groups, 80 percent for small groups and individual plans) is likely to force further cuts in administrative costs, especially for plans with the least large group business (in which typical MLRs are already above the 85 percent level).
Tuesday, July 6, 2010
PITFALLS OF PPACA #7 – THE INDIVIDUAL MANDATE
The individual mandate is the single most controversial feature of the Patient Protection and Affordable Care Act. Everyone who can afford coverage—unless an undocumented immigrant or exempted on religious grounds—is required to have it or pay a penalty of $695 or 2.5 percent of income.
The rationale is straightforward: without a mandate, many people would wait until they needed care before buying insurance, driving up premiums for those with ongoing coverage, and potentially creating an “insurance death spiral” as the higher premiums lead to increasing numbers simply dropping their coverage. (This last part is basically what we have today, but will be magnified by PPACA’s ban on preexisting condition exclusions.)
The individual mandate was preferred for obvious reasons over the alternative of a general tax offset by credits for premiums paid. Democratic lawmakers had no wish to be blamed for imposition of a new tax—no matter how reasonable the arguments in its favor. In fact, as President Obama made clear in an ABC television interview: “I absolutely reject that notion [that the penalty is a tax].”
The individual mandate has now become the centerpiece in Republicans’ legal fight against reform. Suits challenging PPACA have been filed by the attorneys general of nineteen states (with the first, in Virginia, already being argued), with the constitutionality of the mandate a key issue in every case.
The latest Health Affairs includes articles affirming and denying the mandate’s constitutionality, by Timothy Jost and Ilya Shapiro respectively. Jost argues that the mandate is covered by the commerce clause of the Constitution, allowing the government to regulate interstate commerce—broadly defined as all economic activity—since a decision not to buy insurance has an economic impact on those who do have coverage. Shapiro argues that the government’s constitutional power cannot extend to a non-activity, like not buying insurance. Both authors also discuss whether or not the mandate penalty is really a tax and, if so, whether the government can impose it. Not surprisingly, Jost concludes that the penalty is a legitimate tax, and Shapiro concludes the opposite.
The Supreme Court’s eventual response is anyone’s guess, although reform advocates might well worry about the Court’s present conservative leaning. The timing of a Court ruling is equally uncertain; Jost notes that the Court might find the issue premature until the government attempts to impose the mandate penalty on specific individuals, something that will not happen until 2015 at the earliest, while Shapiro suggests that the Court may try to find a way to duck the constitutionality issue entirely.
All this uncertainty has important implications. States involved in the various legal challenges may drag their feet in setting up the insurance exchanges, possibly leaving the federal government to step in at the last minute. Insurers, already faced with actuarial problems, will face even more uncertainty in estimating enrollment from the currently uninsured (and typically healthier) population. And individuals, of course, will have their own gamble: risk the penalty or not.
What would be the possible impact of a Supreme Court finding of unconstitutionality? The federal government will lose anticipated penalty revenues of some $10 billion a year. Insurance premiums for individuals and small groups will rise with the loss of enrollment of many younger and healthier individuals. Most important of all, the number of uninsured will be significantly higher than if the penalty were in force, somewhere between the CBO estimate (assuming mandate penalties) of 22 million and today’s 50 million.
The reactions of individual states to an unconstitutionality finding would presumably reflect their politics, with states to the right of center being able to claim a fundamental failure of reform, especially as premiums increase in the absence of new healthier enrollees. Left-leaning states might take the option, however, of imposing their own individual mandates consistent with their state constitutions—much as Massachusetts did in 2006, although possibly with a different, more effective structure that would further lower the number of uninsured. And that might make for some interesting comparisons.
The rationale is straightforward: without a mandate, many people would wait until they needed care before buying insurance, driving up premiums for those with ongoing coverage, and potentially creating an “insurance death spiral” as the higher premiums lead to increasing numbers simply dropping their coverage. (This last part is basically what we have today, but will be magnified by PPACA’s ban on preexisting condition exclusions.)
The individual mandate was preferred for obvious reasons over the alternative of a general tax offset by credits for premiums paid. Democratic lawmakers had no wish to be blamed for imposition of a new tax—no matter how reasonable the arguments in its favor. In fact, as President Obama made clear in an ABC television interview: “I absolutely reject that notion [that the penalty is a tax].”
The individual mandate has now become the centerpiece in Republicans’ legal fight against reform. Suits challenging PPACA have been filed by the attorneys general of nineteen states (with the first, in Virginia, already being argued), with the constitutionality of the mandate a key issue in every case.
The latest Health Affairs includes articles affirming and denying the mandate’s constitutionality, by Timothy Jost and Ilya Shapiro respectively. Jost argues that the mandate is covered by the commerce clause of the Constitution, allowing the government to regulate interstate commerce—broadly defined as all economic activity—since a decision not to buy insurance has an economic impact on those who do have coverage. Shapiro argues that the government’s constitutional power cannot extend to a non-activity, like not buying insurance. Both authors also discuss whether or not the mandate penalty is really a tax and, if so, whether the government can impose it. Not surprisingly, Jost concludes that the penalty is a legitimate tax, and Shapiro concludes the opposite.
The Supreme Court’s eventual response is anyone’s guess, although reform advocates might well worry about the Court’s present conservative leaning. The timing of a Court ruling is equally uncertain; Jost notes that the Court might find the issue premature until the government attempts to impose the mandate penalty on specific individuals, something that will not happen until 2015 at the earliest, while Shapiro suggests that the Court may try to find a way to duck the constitutionality issue entirely.
All this uncertainty has important implications. States involved in the various legal challenges may drag their feet in setting up the insurance exchanges, possibly leaving the federal government to step in at the last minute. Insurers, already faced with actuarial problems, will face even more uncertainty in estimating enrollment from the currently uninsured (and typically healthier) population. And individuals, of course, will have their own gamble: risk the penalty or not.
What would be the possible impact of a Supreme Court finding of unconstitutionality? The federal government will lose anticipated penalty revenues of some $10 billion a year. Insurance premiums for individuals and small groups will rise with the loss of enrollment of many younger and healthier individuals. Most important of all, the number of uninsured will be significantly higher than if the penalty were in force, somewhere between the CBO estimate (assuming mandate penalties) of 22 million and today’s 50 million.
The reactions of individual states to an unconstitutionality finding would presumably reflect their politics, with states to the right of center being able to claim a fundamental failure of reform, especially as premiums increase in the absence of new healthier enrollees. Left-leaning states might take the option, however, of imposing their own individual mandates consistent with their state constitutions—much as Massachusetts did in 2006, although possibly with a different, more effective structure that would further lower the number of uninsured. And that might make for some interesting comparisons.
A LITTLE GOOD NEWS—WELL, SORT OF…
Those who hate big insurers won’t be happy, but recent comments by Wellpoint’s VP for investor relations at an investment conference in Boston suggest that some details of health care reform may be more effective than expected in reducing administrative costs. The combination of the medical loss ratio rules (still to be defined by HHS), limits on premium increases (also awaiting final rules), and insurance exchange competition is expected—at least by Wellpoint—to cause a number of smaller insurers to drop out of the market or be acquired by larger firms.
This forecast is supported by comments from a Sanford Bernstein analysis that projects that at least one hundred insurers with 200,000 enrollees or fewer will be pushed out of the health insurance market by the effects of reform.
These estimates also won’t please those who believe that “if some competition is good, more is better.” On the other hand, having insurers with high administrative costs leave the market will lower average costs and—presumably—premiums, as well as strengthening the remaining companies’ negotiating position in setting provider payments.
This forecast is supported by comments from a Sanford Bernstein analysis that projects that at least one hundred insurers with 200,000 enrollees or fewer will be pushed out of the health insurance market by the effects of reform.
These estimates also won’t please those who believe that “if some competition is good, more is better.” On the other hand, having insurers with high administrative costs leave the market will lower average costs and—presumably—premiums, as well as strengthening the remaining companies’ negotiating position in setting provider payments.
Monday, June 28, 2010
DOC FIX FIXED TEMPORARILY—AGAIN. NOW WHAT?
As expected, the House fell into line last week with the Senate’s six-month extension of the delay in imposing SGR-based Medicare physician payment cuts, just in time to prevent docs from getting checks 21 percent smaller than a month earlier.
Congress has been ducking the payment cuts almost since the SGR mechanism was put in place in 1997, fearful of offending physicians and fearful of reducing access as docs quit Medicare in disgust. Time may be running out, however, with the passage of health care reform with its own increases in coverage and potential Medicare payment restrictions. It’s no coincidence that Congress is getting closer and closer to the brink of letting the cuts take place, and imposing shorter and shorter delays in their imposition.
So, having bought themselves another six months, what should our elected representatives do?
Simply leaving the SGR process in place is less and less an option. After thirteen years, and with a potential thirty percent payment cut in 2011, SGR is an increasingly hot political potato. On the other hand, proposing any change is politically risky, and no change is likely before the November 2010 election. After that, Congress may get serious.
One politically courageous approach then would be to tie physician payment updates to hospital region cost increases, reflecting the Dartmouth Atlas findings of wide variations in Medicare costs and cost growth. (Take that, New York Times reporters!) Regions with highest physician costs per beneficiary and highest cost growth would be granted smallest physician payment increases. Docs in the high cost regions would undoubtedly shrilly object, with some abandoning Medicare (not necessarily bad, given that more docs leads to more utilization), while their peers in lower cost areas would look on in amusement. Worth trying? It might be a lot quicker and easier than waiting for the Independent Payment Advisory Board to make its recommendations.
Congress has been ducking the payment cuts almost since the SGR mechanism was put in place in 1997, fearful of offending physicians and fearful of reducing access as docs quit Medicare in disgust. Time may be running out, however, with the passage of health care reform with its own increases in coverage and potential Medicare payment restrictions. It’s no coincidence that Congress is getting closer and closer to the brink of letting the cuts take place, and imposing shorter and shorter delays in their imposition.
So, having bought themselves another six months, what should our elected representatives do?
Simply leaving the SGR process in place is less and less an option. After thirteen years, and with a potential thirty percent payment cut in 2011, SGR is an increasingly hot political potato. On the other hand, proposing any change is politically risky, and no change is likely before the November 2010 election. After that, Congress may get serious.
One politically courageous approach then would be to tie physician payment updates to hospital region cost increases, reflecting the Dartmouth Atlas findings of wide variations in Medicare costs and cost growth. (Take that, New York Times reporters!) Regions with highest physician costs per beneficiary and highest cost growth would be granted smallest physician payment increases. Docs in the high cost regions would undoubtedly shrilly object, with some abandoning Medicare (not necessarily bad, given that more docs leads to more utilization), while their peers in lower cost areas would look on in amusement. Worth trying? It might be a lot quicker and easier than waiting for the Independent Payment Advisory Board to make its recommendations.
Friday, June 25, 2010
PITFALLS OF PPACA #6 – PROBLEMS OF PILOTS AND DOUBTS ABOUT DEMONSTRATIONS
As might be expected of reform legislation, the Patient Protection and Affordable Care Act places a lot of emphasis on innovation. Reasonably enough, most of the potential changes—at least in Medicare—are to be preceded by pilot or demonstration projects designed to test their feasibility. In fact, according to one health care blogger with time on his hands, PPACA includes no less than 312 mentions of demonstrations and 80 mentions of pilots.
Just how important are all these pilots and demos? Harvard’s David Cutler, who served as a key advisor to the Obama administration in developing the reform strategy, clearly believes they are vital. Writing in the June Health Affairs, he stresses the need for rapid implementation of the pilots and demonstrations in order to help achieve eventual savings of “enormous amounts of money while simultaneously improving the quality of care.”
How realistic are Professor Cutler’s expectations?
CMS’ Medicare chronic care demonstrations provide some clues. With data showing that the costliest 25 percent of beneficiaries account for 85 percent of total Medicare spending and that 75 percent of the high-cost beneficiaries have one or more major chronic conditions, the demonstrations were expected to show big benefits from care coordination—the major theme of PPACA’s proposed demos.
The outcomes were decidedly discouraging, as noted by MedPac’s 2009 report to Congress: “Results suggest that some of these programs may have modest effects on the quality of care and mixed impacts on Medicare costs, with most programs costing Medicare more than would have been spent had they not been implemented….In almost all cases, the cost to Medicare of the intervention exceeded the savings generated by reduced use of inpatient hospitalizations and other medical services.”
What went wrong with such a promising effort? And what are the implications for PPACA’s pilots and demos?
The simple answer is that few providers will participate in a pilot or demonstration if it’s likely to cause their income to drop. As a result, CMS must attract “volunteers” with generous promises of shared savings or payments for additional services–essentially, bribes to compensate for lost revenue and the time-consuming process of dealing with CMS bureaucracy. So far, the bribes have outweighed the savings in almost every case. Worse still, and often overlooked in evaluations of pilots, participating providers are likely to be those most able to achieve savings—the “good guys,” rather than the typical—with resultant optimistic skewing of the results.
Will the PPACA projects be more successful? Even assuming that the heavy hand of government can be lightened to speed up project implementation and minimize the oversight burden, the picture is gloomy. PPACA includes four main categories of pilot and demonstration projects: bundling, accountable care organizations, pay-for-performance, and coordinated care. Of these, only some aspects of pay-for-performance avoid the problems of trying to tie together activities of multiple providers—exactly the problems that sank the chronic care demos.
While new IT systems might facilitate coordination of care, the jealously guarded independence of providers (and their jealously protected incomes) will continue to be a huge obstacle. Theoretically, the Independent Payment Advisory Board could recommend implementation of some changes (for example, bundling) without the PPACA pilots and demos, but this could leave IPAB without the required actuarial justification for such recommendations.
The bottom line? Trying to fix our fragmented and unorganized health care system from the bottom up, through pilots and demos, probably isn’t going to work, at least in any acceptable timeframe—and certainly isn’t going to lead to Professor Cutler’s hoped-for savings of enormous amounts of money.
Just how important are all these pilots and demos? Harvard’s David Cutler, who served as a key advisor to the Obama administration in developing the reform strategy, clearly believes they are vital. Writing in the June Health Affairs, he stresses the need for rapid implementation of the pilots and demonstrations in order to help achieve eventual savings of “enormous amounts of money while simultaneously improving the quality of care.”
How realistic are Professor Cutler’s expectations?
CMS’ Medicare chronic care demonstrations provide some clues. With data showing that the costliest 25 percent of beneficiaries account for 85 percent of total Medicare spending and that 75 percent of the high-cost beneficiaries have one or more major chronic conditions, the demonstrations were expected to show big benefits from care coordination—the major theme of PPACA’s proposed demos.
The outcomes were decidedly discouraging, as noted by MedPac’s 2009 report to Congress: “Results suggest that some of these programs may have modest effects on the quality of care and mixed impacts on Medicare costs, with most programs costing Medicare more than would have been spent had they not been implemented….In almost all cases, the cost to Medicare of the intervention exceeded the savings generated by reduced use of inpatient hospitalizations and other medical services.”
What went wrong with such a promising effort? And what are the implications for PPACA’s pilots and demos?
The simple answer is that few providers will participate in a pilot or demonstration if it’s likely to cause their income to drop. As a result, CMS must attract “volunteers” with generous promises of shared savings or payments for additional services–essentially, bribes to compensate for lost revenue and the time-consuming process of dealing with CMS bureaucracy. So far, the bribes have outweighed the savings in almost every case. Worse still, and often overlooked in evaluations of pilots, participating providers are likely to be those most able to achieve savings—the “good guys,” rather than the typical—with resultant optimistic skewing of the results.
Will the PPACA projects be more successful? Even assuming that the heavy hand of government can be lightened to speed up project implementation and minimize the oversight burden, the picture is gloomy. PPACA includes four main categories of pilot and demonstration projects: bundling, accountable care organizations, pay-for-performance, and coordinated care. Of these, only some aspects of pay-for-performance avoid the problems of trying to tie together activities of multiple providers—exactly the problems that sank the chronic care demos.
While new IT systems might facilitate coordination of care, the jealously guarded independence of providers (and their jealously protected incomes) will continue to be a huge obstacle. Theoretically, the Independent Payment Advisory Board could recommend implementation of some changes (for example, bundling) without the PPACA pilots and demos, but this could leave IPAB without the required actuarial justification for such recommendations.
The bottom line? Trying to fix our fragmented and unorganized health care system from the bottom up, through pilots and demos, probably isn’t going to work, at least in any acceptable timeframe—and certainly isn’t going to lead to Professor Cutler’s hoped-for savings of enormous amounts of money.
Saturday, June 19, 2010
NO SURPRISE! MANDATE ROLLBACK FAILS
No one was astonished this week when a Republican effort to repeal the individual mandate in the Democrats’ health care overhaul failed Tuesday afternoon on a largely partisan vote.
A procedural motion to roll back the individual mandate was defeated 187-230, with essentially the same ayes and nays as for the final House vote on the original reform bill.
Republicans apparently pushed for the vote in order to be able to reiterate their opposition to—and Dems support for—a law requiring individual Americans to purchase health insurance. However, given the almost total lack of media coverage, the vote may have aroused interest only in the respective caucuses.
A procedural motion to roll back the individual mandate was defeated 187-230, with essentially the same ayes and nays as for the final House vote on the original reform bill.
Republicans apparently pushed for the vote in order to be able to reiterate their opposition to—and Dems support for—a law requiring individual Americans to purchase health insurance. However, given the almost total lack of media coverage, the vote may have aroused interest only in the respective caucuses.
PITFALLS OF PPACA #5 – THE EFFECTIVENESS OF IPAB—MAYBE?
For the first time, the Department of Health and Human Services may be able to sidestep Congress and impose its own Medicare cost-containment policies. At least, that’s what Section 3403 of the Patient Protection and Affordable Care Act promises in creating the Independent Payment Advisory Board.
The action, so far as the public is concerned, will begin in 2014. On January 15, 2014, and annually thereafter, IPAB will make recommendations to Congress for cutting Medicare spending growth if the CMS Chief Actuary projects that per capita spending will grow faster than the average of the medical services CPI and the overall urban consumer CPI (or, after 2019, the GDP growth rate plus one percent). If Congress doesn’t pass either IPAB’s or its own legislation to meet the IPAB spending reductions within six months, HHS must implement the recommendations. IPAB may also make non-binding recommendations relating to other aspects of Medicare and to overall national health care costs.
The IPAB process for recommending and imposing changes to Medicare straddles three years. A determination in the first year (starting in 2013) by the Chief Actuary that growth will exceed the CPI targets is followed, in the second year, by IPAB submitting recommendations—which must reflect specific spending reduction targets—to Congress, and, in the third year, by HHS’s implementation of the recommendations (assuming they have not been blocked by Congress passing its own legislation).
At first sight, the IPAB process, in depoliticizing much of the authority for payment policy, seems like a huge step towards controlling the cost growth of Medicare (and of overall national health care, of which Medicare is a large component). However, IPAB’s ability to constrain spending may be limited by factors beyond its control, including:
1. Hospitals and hospices are placed “off limits” for IPAB cost cutting recommendations (other than via changes to Medicare Advantage) until 2020.
2. Changes that might raise revenues or premiums, increase beneficiary cost-sharing, restrict benefits, modify eligibility criteria, or “ration healthcare” are also excluded from IPAB’s purview.
3. The growth rate reduction percentages that will be invoked are less—at least in the earlier years—than the expected rate by which Medicare growth will exceed CPI targets.
4. Some providers may take a “first strike” approach to the threat of IPAB spending cuts (for example, by increasing utilization) in the period before the first determination by the Chief Actuary that target rates have been exceeded.
5. There is no guarantee that IPAB recommendations will succeed in reducing growth by the required amount, especially in later years when few “low-hanging fruit” remain. There could be a significant “bubble effect” as cuts in one area are balanced by increased growth elsewhere.
6. In election years, Congress may be particularly unwilling to approve IPAB recommendations, especially if they can be characterized by lobbyists as threats to beneficiary care.
7. Congress may, at any time, make changes to Medicare that increase spending growth.
One big unknown is the resolution of the “doc fix.” If Congress fails to permanently resolve the SGR issue, and physician payments are slashed by 20 percent or more, medical service costs will increase more rapidly in following years as physicians attempt to recoup lost income by driving up utilization (and intensity, too, through some diligent upcoding).
A New England Journal of Medicine article by Timothy Jost raises additional concerns. Jost notes the contradiction between PPACA’s emphasis on IPAB members being nationally recognized experts and the executive grade salaries they will receive. Certainly it’s hard to see a major league health care expert giving up speaking and writing fees to become one of a panel of eighteen that emerges once a year. Although IPAB should attract competent individuals, it will be weakened in dealing with Congress by the lack of big name credibility.
Jost also worries that the annual growth reduction targets will lead to short-term fixes, rather than longer-term changes that would bend the cost curve. Given that Medicare cost growth in the next few years is likely to exceed the CPI rates, almost regardless of policy changes, a series of one-off reductions is more likely to comply with the targets than more far-reaching changes in payment methodology.
What’s likely to be the result of IPAB’s efforts? The CBO—assuming that reduction targets would be hit—estimated Medicare spending reductions of $15.5 billion over ten years, approximately 0.3 percent of projected costs . The CMS Chief Actuary, however, has expressed skepticism, noting that history suggests that the target growth rates may be unachievable. Conservative economist (and former CBO director) Douglas Holtz-Eakin, writing in Health Affairs, dismisses IPAB’s impact out of hand on the grounds that Congress will find its recommendations politically infeasible.
A more probable result than that forecast by the CBO or Holtz-Eakin is that IPAB will be optimistic in its forecasts of spending reductions, and that Congress will turn a blind eye to this optimism while also occasionally loosening payment restrictions as beneficiaries find access to care increasingly difficult—a scenario that might produce some fraction of the CBO savings estimate.
The action, so far as the public is concerned, will begin in 2014. On January 15, 2014, and annually thereafter, IPAB will make recommendations to Congress for cutting Medicare spending growth if the CMS Chief Actuary projects that per capita spending will grow faster than the average of the medical services CPI and the overall urban consumer CPI (or, after 2019, the GDP growth rate plus one percent). If Congress doesn’t pass either IPAB’s or its own legislation to meet the IPAB spending reductions within six months, HHS must implement the recommendations. IPAB may also make non-binding recommendations relating to other aspects of Medicare and to overall national health care costs.
The IPAB process for recommending and imposing changes to Medicare straddles three years. A determination in the first year (starting in 2013) by the Chief Actuary that growth will exceed the CPI targets is followed, in the second year, by IPAB submitting recommendations—which must reflect specific spending reduction targets—to Congress, and, in the third year, by HHS’s implementation of the recommendations (assuming they have not been blocked by Congress passing its own legislation).
At first sight, the IPAB process, in depoliticizing much of the authority for payment policy, seems like a huge step towards controlling the cost growth of Medicare (and of overall national health care, of which Medicare is a large component). However, IPAB’s ability to constrain spending may be limited by factors beyond its control, including:
1. Hospitals and hospices are placed “off limits” for IPAB cost cutting recommendations (other than via changes to Medicare Advantage) until 2020.
2. Changes that might raise revenues or premiums, increase beneficiary cost-sharing, restrict benefits, modify eligibility criteria, or “ration healthcare” are also excluded from IPAB’s purview.
3. The growth rate reduction percentages that will be invoked are less—at least in the earlier years—than the expected rate by which Medicare growth will exceed CPI targets.
4. Some providers may take a “first strike” approach to the threat of IPAB spending cuts (for example, by increasing utilization) in the period before the first determination by the Chief Actuary that target rates have been exceeded.
5. There is no guarantee that IPAB recommendations will succeed in reducing growth by the required amount, especially in later years when few “low-hanging fruit” remain. There could be a significant “bubble effect” as cuts in one area are balanced by increased growth elsewhere.
6. In election years, Congress may be particularly unwilling to approve IPAB recommendations, especially if they can be characterized by lobbyists as threats to beneficiary care.
7. Congress may, at any time, make changes to Medicare that increase spending growth.
One big unknown is the resolution of the “doc fix.” If Congress fails to permanently resolve the SGR issue, and physician payments are slashed by 20 percent or more, medical service costs will increase more rapidly in following years as physicians attempt to recoup lost income by driving up utilization (and intensity, too, through some diligent upcoding).
A New England Journal of Medicine article by Timothy Jost raises additional concerns. Jost notes the contradiction between PPACA’s emphasis on IPAB members being nationally recognized experts and the executive grade salaries they will receive. Certainly it’s hard to see a major league health care expert giving up speaking and writing fees to become one of a panel of eighteen that emerges once a year. Although IPAB should attract competent individuals, it will be weakened in dealing with Congress by the lack of big name credibility.
Jost also worries that the annual growth reduction targets will lead to short-term fixes, rather than longer-term changes that would bend the cost curve. Given that Medicare cost growth in the next few years is likely to exceed the CPI rates, almost regardless of policy changes, a series of one-off reductions is more likely to comply with the targets than more far-reaching changes in payment methodology.
What’s likely to be the result of IPAB’s efforts? The CBO—assuming that reduction targets would be hit—estimated Medicare spending reductions of $15.5 billion over ten years, approximately 0.3 percent of projected costs . The CMS Chief Actuary, however, has expressed skepticism, noting that history suggests that the target growth rates may be unachievable. Conservative economist (and former CBO director) Douglas Holtz-Eakin, writing in Health Affairs, dismisses IPAB’s impact out of hand on the grounds that Congress will find its recommendations politically infeasible.
A more probable result than that forecast by the CBO or Holtz-Eakin is that IPAB will be optimistic in its forecasts of spending reductions, and that Congress will turn a blind eye to this optimism while also occasionally loosening payment restrictions as beneficiaries find access to care increasingly difficult—a scenario that might produce some fraction of the CBO savings estimate.
Wednesday, June 16, 2010
NEW FED REGS MAY SLASH GRANDFATHERING
The Department of Health and Human Services has issued its regulations defining what health plans may be “grandfathered” under reform, along with estimates of the percentage of plans likely to be affected.
The regulations will surprise those who took a broad interpretation of President Obama’s promise that anyone who likes their current plan can keep it. While the new regs don’t contradict the president’s promise, they do reflect a narrow reading of it. Changes that would result in a plan being no longer grandfathered (and therefore subject to all the provisions of reform) include:
· Reductions in benefits
· “Significant” increases in co-payments
· Any percentage increase in coinsurance
· “Significant” increases in deductibles
· “Significant” reductions in employer contributions
· Reductions in annual payment caps
· Changes in insurance companies (excluding self-funded administration)
However, it appears that any increases in coverage would not trigger exclusion from grandfathering.
The effect of the new regs will vary according to the size of plan. HHS estimates that large group plans (with over 100 employees) will see fewest changes to their grandfathered status, since these are the most stable types of plan, with more than 80 percent still grandfathered in 2011, and more than half still grandfathered in 2013, immediately prior to the establishment of insurance exchanges and most other reform provisions. HHS also estimates that smaller group plans will see a much faster move out of their grandfathered status as they attempt to control costs by tightening benefits; 70 percent are projected to be grandfathered in 2011, but only a third will retain their grandfathered status by 2013. Individuals will be most impacted by the new regs: because of their typical plan “churn,” almost all will switch from a grandfathered plan over the next three years.
HHS cautions that the estimates will depend on medical inflation and other factors; higher medical costs will likely cause more employers to seek to cut benefits and therefore lose their plan grandfathering. It is also possible—but not considered by HHS—that insurers will make extra efforts to minimize benefit changes in order to avoid what they may perceive as the more intrusive aspects of reform.
A very rough guess—since the HHS estimates reflect numbers of plans rather than numbers of insureds—is that three-quarters of those currently covered will be in grandfathered plans in 2011, but only around half will still be grandfathered in 2013.
The regulations will surprise those who took a broad interpretation of President Obama’s promise that anyone who likes their current plan can keep it. While the new regs don’t contradict the president’s promise, they do reflect a narrow reading of it. Changes that would result in a plan being no longer grandfathered (and therefore subject to all the provisions of reform) include:
· Reductions in benefits
· “Significant” increases in co-payments
· Any percentage increase in coinsurance
· “Significant” increases in deductibles
· “Significant” reductions in employer contributions
· Reductions in annual payment caps
· Changes in insurance companies (excluding self-funded administration)
However, it appears that any increases in coverage would not trigger exclusion from grandfathering.
The effect of the new regs will vary according to the size of plan. HHS estimates that large group plans (with over 100 employees) will see fewest changes to their grandfathered status, since these are the most stable types of plan, with more than 80 percent still grandfathered in 2011, and more than half still grandfathered in 2013, immediately prior to the establishment of insurance exchanges and most other reform provisions. HHS also estimates that smaller group plans will see a much faster move out of their grandfathered status as they attempt to control costs by tightening benefits; 70 percent are projected to be grandfathered in 2011, but only a third will retain their grandfathered status by 2013. Individuals will be most impacted by the new regs: because of their typical plan “churn,” almost all will switch from a grandfathered plan over the next three years.
HHS cautions that the estimates will depend on medical inflation and other factors; higher medical costs will likely cause more employers to seek to cut benefits and therefore lose their plan grandfathering. It is also possible—but not considered by HHS—that insurers will make extra efforts to minimize benefit changes in order to avoid what they may perceive as the more intrusive aspects of reform.
A very rough guess—since the HHS estimates reflect numbers of plans rather than numbers of insureds—is that three-quarters of those currently covered will be in grandfathered plans in 2011, but only around half will still be grandfathered in 2013.
Monday, June 14, 2010
PITFALLS OF PPACA #4 – ACCOUNTABLE CARE ORGANIZATIONS: HIT OR MYTH?
In addition to Medicare Advantage payment cuts and potential reductions in fee-for-service payment updates, PPACA includes various provisions intended to facilitate ongoing Medicare cost containment, notably creation of the Independent Payment Advisory Board and the Center for Medicare and Medicaid Innovation. In addition to CMI’s broad scope, PPACA requires specific pilot projects, including (in Section 3022) demonstration of accountable care organizations (ACOs).
What does PPACA mean by an ACO? Dr. Elliott Fisher of Dartmouth Medical School, a primary originator of the concept, defined it as “a provider-led organization whose mission is to manage the full continuum of care and be accountable for the overall costs and quality of care for a defined population” and listed several provider groupings that could form ACOs. PPACA provides additional criteria, including having a formal legal structure and administrative systems, meeting CMS requirements for quality assurance and reporting, and serving at least 5000 Medicare beneficiaries. PPACA also specifies a deadline for the ACO pilot: “Not later than January 1, 2012, the Secretary shall establish…a program…”
The goal of an ACO is to reduce costs and improve quality of care through cooperation and coordination among providers, similar to that achieved by integrated delivery systems like Geisinger, HealthPartners, and Intermountain Health Care, but within what may be essentially a virtual organization superimposed on a loose network of providers and covering only a subset of patients.
The ACO concept has been enthusiastically supported by an impressive list of health care experts, plus Dartmouth and the Brookings Institute, but not by Jeff Goldsmith, the author of a critical piece posted on the Health Affairs blog. Goldsmith is particularly skeptical about the difficulty of getting providers to work together, noting “a thundering absence of collegiality – in my view, the central precondition of assuming risk and managing care…” Goldsmith is also doubtful about economic aspects of ACOs: “40% of physicians no longer have any Medicare hospital-related fee income. So squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.” In a rebuttal piece, Brookings’ Dr. Mark McClellan and others defended ACOs as a critical step away from volume-based health care payment and toward better care at lower cost, but provided no examples of successful implementations.
And that’s the problem. Like some mythical medieval creature, the ACO has not been sighted, other than within existing formal organizational structures in which providers are subject to centralized management—and payment.
This doesn’t mean that we won’t be reading about some ACO successes. The Brookings-Dartmouth ACO Learning Network has attracted an impressive list of interested provider organizations and is assisting in pilot implementations. However AultCare and Carilion Clinic—the Network’s first pilot sites—both have existing health plans and have much in common with integrated delivery systems. Even so, efforts to revamp IT and financial systems have been substantial, with key details—like how to reward providers for cost savings—still to be worked out, according to a recent article in Modern Healthcare.
Prospects for the virtual forms of ACOs seem much less promising, given the need to create, more or less from scratch, the support systems necessary to make the concept feasible, plus the extreme difficulties of changing the mindset of providers who may demonstrate Goldsmith’s “thundering lack of collegiality.” Vermont—where the ACO concept has been studied since 2008, and where the schedule for pilot project start-up has already slipped a year, to 2011—provides a measure of the time and effort involved, with a recent Commonwealth Fund report providing a lengthy list of “lessons learned” (so far, that is).
An even greater obstacle than lack of provider collegiality may be provider fear of loss of income. Physicians used to having control over their own fee-for-service world may well hesitate to sign up for a “share of savings” that is dependent on reduced billings by ACO providers, especially if the share will be net of the administrative costs necessary to support the ACO.
None of this means that Dr. Fisher and his colleagues are wrong in their objectives. If the health care “waste” identified by the Dartmouth Atlas project and other studies is to be reduced, providers must work cooperatively. It may even be that successful implementation of ACO concepts, first by formal integrated delivery systems, and then by less tightly organized systems with existing central management, will start to put enough pressure on other providers they too begin to look beyond billings to better integrated patient care.
Or more likely not, at least in the near term, given the practical and behavioral problems involved. ACO principles of a continuum of care, resource planning, and performance measurement represent huge challenges to all but centrally managed systems. Unless the CMS ACO pilot is to be based on such a system, its deadline seems unlikely to be met, and yet its objective—to use another medieval analogy—of finding a way to turn the leaden dross of health care waste into the gold of high performance care depends on making the ACO concept work in much looser networks —and CMS has shown very little talent for alchemy.
What does PPACA mean by an ACO? Dr. Elliott Fisher of Dartmouth Medical School, a primary originator of the concept, defined it as “a provider-led organization whose mission is to manage the full continuum of care and be accountable for the overall costs and quality of care for a defined population” and listed several provider groupings that could form ACOs. PPACA provides additional criteria, including having a formal legal structure and administrative systems, meeting CMS requirements for quality assurance and reporting, and serving at least 5000 Medicare beneficiaries. PPACA also specifies a deadline for the ACO pilot: “Not later than January 1, 2012, the Secretary shall establish…a program…”
The goal of an ACO is to reduce costs and improve quality of care through cooperation and coordination among providers, similar to that achieved by integrated delivery systems like Geisinger, HealthPartners, and Intermountain Health Care, but within what may be essentially a virtual organization superimposed on a loose network of providers and covering only a subset of patients.
The ACO concept has been enthusiastically supported by an impressive list of health care experts, plus Dartmouth and the Brookings Institute, but not by Jeff Goldsmith, the author of a critical piece posted on the Health Affairs blog. Goldsmith is particularly skeptical about the difficulty of getting providers to work together, noting “a thundering absence of collegiality – in my view, the central precondition of assuming risk and managing care…” Goldsmith is also doubtful about economic aspects of ACOs: “40% of physicians no longer have any Medicare hospital-related fee income. So squashing hospitals and physicians back together into economic interdependence in a joint hospital/physician economic pool makes no real-world sense.” In a rebuttal piece, Brookings’ Dr. Mark McClellan and others defended ACOs as a critical step away from volume-based health care payment and toward better care at lower cost, but provided no examples of successful implementations.
And that’s the problem. Like some mythical medieval creature, the ACO has not been sighted, other than within existing formal organizational structures in which providers are subject to centralized management—and payment.
This doesn’t mean that we won’t be reading about some ACO successes. The Brookings-Dartmouth ACO Learning Network has attracted an impressive list of interested provider organizations and is assisting in pilot implementations. However AultCare and Carilion Clinic—the Network’s first pilot sites—both have existing health plans and have much in common with integrated delivery systems. Even so, efforts to revamp IT and financial systems have been substantial, with key details—like how to reward providers for cost savings—still to be worked out, according to a recent article in Modern Healthcare.
Prospects for the virtual forms of ACOs seem much less promising, given the need to create, more or less from scratch, the support systems necessary to make the concept feasible, plus the extreme difficulties of changing the mindset of providers who may demonstrate Goldsmith’s “thundering lack of collegiality.” Vermont—where the ACO concept has been studied since 2008, and where the schedule for pilot project start-up has already slipped a year, to 2011—provides a measure of the time and effort involved, with a recent Commonwealth Fund report providing a lengthy list of “lessons learned” (so far, that is).
An even greater obstacle than lack of provider collegiality may be provider fear of loss of income. Physicians used to having control over their own fee-for-service world may well hesitate to sign up for a “share of savings” that is dependent on reduced billings by ACO providers, especially if the share will be net of the administrative costs necessary to support the ACO.
None of this means that Dr. Fisher and his colleagues are wrong in their objectives. If the health care “waste” identified by the Dartmouth Atlas project and other studies is to be reduced, providers must work cooperatively. It may even be that successful implementation of ACO concepts, first by formal integrated delivery systems, and then by less tightly organized systems with existing central management, will start to put enough pressure on other providers they too begin to look beyond billings to better integrated patient care.
Or more likely not, at least in the near term, given the practical and behavioral problems involved. ACO principles of a continuum of care, resource planning, and performance measurement represent huge challenges to all but centrally managed systems. Unless the CMS ACO pilot is to be based on such a system, its deadline seems unlikely to be met, and yet its objective—to use another medieval analogy—of finding a way to turn the leaden dross of health care waste into the gold of high performance care depends on making the ACO concept work in much looser networks —and CMS has shown very little talent for alchemy.
ROLLBACK RHETORIC—BUT WHO’S NOTICING?
Politico.com has a couple of related stories about the ongoing Republican opposition to health care reform.
The first is about lack of media interest in the GOP’s latest bill to repeal reform—a non-starter, obviously, but designed to capture public attention in the run-up to the November elections. Politico.com’s headline says “Spill Drowns Out GOP Health Message,” and notes that with public attention on the BP oil spill, there’s not much interest in an issue that’s starting to be old—except for the effective PR value associated with the mailing out of $250 checks to seniors whose drug expenses fell into the “donut hole.”
The Medicare D check mailing is part of the second story, too—a report of President Obama’s speech to seniors at a nationally televised town hall meeting that focused on the GOP threats of repeal of the benefits of reform, including—as well as the $250 checks—free preventive care, and new protections for the insured.
Expect to see plenty of Democratic ads featuring those checks as we get closer to November!
The first is about lack of media interest in the GOP’s latest bill to repeal reform—a non-starter, obviously, but designed to capture public attention in the run-up to the November elections. Politico.com’s headline says “Spill Drowns Out GOP Health Message,” and notes that with public attention on the BP oil spill, there’s not much interest in an issue that’s starting to be old—except for the effective PR value associated with the mailing out of $250 checks to seniors whose drug expenses fell into the “donut hole.”
The Medicare D check mailing is part of the second story, too—a report of President Obama’s speech to seniors at a nationally televised town hall meeting that focused on the GOP threats of repeal of the benefits of reform, including—as well as the $250 checks—free preventive care, and new protections for the insured.
Expect to see plenty of Democratic ads featuring those checks as we get closer to November!
Tuesday, June 8, 2010
DEMOCRATS PREPARE TO SPEND BIG $ ON REFORM SUPPORT
According to politico.com, Democratic allies are about to initiate a huge publicity campaign—the Health Information Center—to defend health care reform.
The estimated $125 million campaign is expected to be co-chaired by former Senate Majority Leader Tom Daschle and by Victoria Kennedy, the late Senator’s widow.
Funding is already being raised from unions, businesses, and foundations, with a budget target of $25 million a year to cover the five years through the implementation of the bulk of PPAC’A’s provisions.
The estimated $125 million campaign is expected to be co-chaired by former Senate Majority Leader Tom Daschle and by Victoria Kennedy, the late Senator’s widow.
Funding is already being raised from unions, businesses, and foundations, with a budget target of $25 million a year to cover the five years through the implementation of the bulk of PPAC’A’s provisions.
Monday, June 7, 2010
PITFALLS OF PPACA #3 – INSURANCE EXCHANGE ISSUES
(This is the third of a series of commentaries on details of the 2010 health care reform legislation.)
Although the Patient Protection and Affordable Care Act incorporates numerous health care system fixes, including new regulations to protect consumers, new rules for insurers, expansions of existing programs, new payment incentives and subsidies, and penalties for non-coverage, it mandates almost no structural changes, with one big exception: establishment of insurance exchanges in each state.
Insurance exchanges, designed to facilitate enrollees’ coverage choices within a competitive market, are not new. Exchange mechanisms have been used for several years for employee coverage selection by the federal government and by many states. And, since 2007, Massachusetts has operated what is probably closest in design to the PPACA concept—the Connector.
What’s been the experience so far?
The Federal Employees Health Benefit program provides by far the largest existing exchange, used by eight million government employees and retirees. Although employee surveys show that the FEHBP model works well in facilitating coverage choice, its market competition effect is limited. With no standard benefit package, apples-to-apples comparisons of coverage value are impossible, while with the government picking up some three-quarters of premium costs, employees may be relatively insensitive to price differences. While FEHBP presumably gains the lower premium advantages of large groups, the rate of premium increases has been close to that of the non-exchange private sector, according to a 2006 GAO report. (Premiums for California’s CalPERS, the largest state exchange, rose slightly faster than the private sector’s, according to the same report.)
Efforts have also been made by states and business groups to create exchanges for private sector employee coverage but, almost without exception, these have failed. In most cases, the primary problem was adverse selection: insurers marketing outside the exchange cherry-picked the best risks, leaving older and sicker groups to seek coverage via the exchange, which inevitably found itself in a death spiral as premiums rose and the better risks found coverage elsewhere.
So what about Massachusetts?
Although Massachusetts’ Connector is the prototype for the PPACA exchanges, extrapolating from the Connector experience requires caution. The state reform law that created the Connector was enacted in a strong economy, in a state with an exceptionally low level of uninsured, and with bipartisan political support and the backing of providers, consumers, and businesses, a combination unlikely to be true when the PPACA exchanges are rolled out. The Connector has two components: a subsidized program for lower-income individuals who do not qualify for other government coverage, and a much smaller (only 20,000 participants) unsubsidized program for small groups and individuals. As with FEHBP, the Connector seems to have functioned well in helping consumers choose health plans, but has had little success in controlling premium costs—perhaps because enrollment is low relative to the overall market. The Connector board has rejected most plans’ premium proposals for the next year and insurers are currently threatening to withdraw from the exchange.
Does PPACA adequately consider the experience of other exchanges? The regulatory details of PPACA’s exchanges are yet to be determined, but the legislative language implies some potential problems:
1. Enrollment numbers will depend on consumers’ acceptance of the individual mandate. (The CBO estimates 24 million exchange enrollees, assuming the mandate is found constitutional.) Massachusetts’ mandate was imposed pre-recession, but even so, the uninsured rate has only been halved, indicating that some states—Texas and Florida, for example—may continue to have large numbers without coverage.
2. Exchange participation by insurers will be voluntary, suggesting that some plans may prefer to focus entirely on their grandfathered business. Any insurer will be able to offer non-grandfathered coverage outside the exchanges (but must offer similar benefits), potentially offering cherry-picking opportunities to carriers who avoid the exchanges and the single risk pool for exchange participants.
3. Some smaller states, and others with low percentages of uninsured, may find that the number of exchange options results in insufficiently diverse risk pools, in which older and sicker individuals may dominate. PPACA provides for the option of separate pools and exchanges for individuals and small groups (Massachusetts combined them), as well as Co-Op plans (a sop for public plan advocates) and Multi-State plans (to be established by the federal Office of Personnel Management, FEHBP’s parent), each with up to four benefit levels, plus a young adult catastrophic coverage plan, plus an under-21 plan. While PPACA includes some risk-sharing provisions, this elaborate structure seems sure to present some actuarial challenges.
4. The flexibility (or vagueness) of benefits required to be offered seems likely to make value comparisons difficult. PPACA includes only a generic list of covered services, with specific benefits “to be determined by the Secretary of HHS and equal to the scope of benefits under a typical employee-based plan,” and also allows additional benefits to be offered beyond these. (In contrast, Massachusetts initially required plans to provide similar “actuarial values,” but recently decided to mandate identical benefits to make price comparison easier.)
5. Some state governors have indicated that they will not comply with the requirement to establish an exchange. While PPACA would then require the federal government to create an exchange, the lack of state support could be problematic, especially since the legislation provides only twelve months for federal implementation.
So, how likely are the new exchanges to succeed? Much depends on the extent to which the final regulations can bridge the gap between the PPACA provisions and experience. In most states, the exchanges should be effective in facilitating coverage selection, although the efforts that Massachusetts found necessary to establish and maintain an exchange serving a very small population imply that a large state with many currently uninsured could find this a big task. The exchanges should also reduce administrative costs for participating plans as broker commissions and some marketing and enrollment costs are eliminated. (The CBO estimates reductions of 1 to 4 percent in small group premiums and 7 to 10 percent for individual premiums for exchange participants.)
The bigger problem may be that of increased medical costs, as relatively static provider supply is faced with demand increased by the previously uninsured. (Even with only a small percentage increase in the number of insured, Massachusetts health care costs have increased faster than most other states since reform was implemented.)
Insurance exchanges do have considerable cost-containment potential, but if experience is any guide, the PPACA versions will fall short unless their enrollment numbers are large enough to attract competitive rates from insurers and provide risk pool diversity, and unless competing plan benefits are sufficiently comparable that consumers can determine best value—and even then, exchange savings may be offset by the effects of reform-driven imbalances between consumer demand and provider supply.
Although the Patient Protection and Affordable Care Act incorporates numerous health care system fixes, including new regulations to protect consumers, new rules for insurers, expansions of existing programs, new payment incentives and subsidies, and penalties for non-coverage, it mandates almost no structural changes, with one big exception: establishment of insurance exchanges in each state.
Insurance exchanges, designed to facilitate enrollees’ coverage choices within a competitive market, are not new. Exchange mechanisms have been used for several years for employee coverage selection by the federal government and by many states. And, since 2007, Massachusetts has operated what is probably closest in design to the PPACA concept—the Connector.
What’s been the experience so far?
The Federal Employees Health Benefit program provides by far the largest existing exchange, used by eight million government employees and retirees. Although employee surveys show that the FEHBP model works well in facilitating coverage choice, its market competition effect is limited. With no standard benefit package, apples-to-apples comparisons of coverage value are impossible, while with the government picking up some three-quarters of premium costs, employees may be relatively insensitive to price differences. While FEHBP presumably gains the lower premium advantages of large groups, the rate of premium increases has been close to that of the non-exchange private sector, according to a 2006 GAO report. (Premiums for California’s CalPERS, the largest state exchange, rose slightly faster than the private sector’s, according to the same report.)
Efforts have also been made by states and business groups to create exchanges for private sector employee coverage but, almost without exception, these have failed. In most cases, the primary problem was adverse selection: insurers marketing outside the exchange cherry-picked the best risks, leaving older and sicker groups to seek coverage via the exchange, which inevitably found itself in a death spiral as premiums rose and the better risks found coverage elsewhere.
So what about Massachusetts?
Although Massachusetts’ Connector is the prototype for the PPACA exchanges, extrapolating from the Connector experience requires caution. The state reform law that created the Connector was enacted in a strong economy, in a state with an exceptionally low level of uninsured, and with bipartisan political support and the backing of providers, consumers, and businesses, a combination unlikely to be true when the PPACA exchanges are rolled out. The Connector has two components: a subsidized program for lower-income individuals who do not qualify for other government coverage, and a much smaller (only 20,000 participants) unsubsidized program for small groups and individuals. As with FEHBP, the Connector seems to have functioned well in helping consumers choose health plans, but has had little success in controlling premium costs—perhaps because enrollment is low relative to the overall market. The Connector board has rejected most plans’ premium proposals for the next year and insurers are currently threatening to withdraw from the exchange.
Does PPACA adequately consider the experience of other exchanges? The regulatory details of PPACA’s exchanges are yet to be determined, but the legislative language implies some potential problems:
1. Enrollment numbers will depend on consumers’ acceptance of the individual mandate. (The CBO estimates 24 million exchange enrollees, assuming the mandate is found constitutional.) Massachusetts’ mandate was imposed pre-recession, but even so, the uninsured rate has only been halved, indicating that some states—Texas and Florida, for example—may continue to have large numbers without coverage.
2. Exchange participation by insurers will be voluntary, suggesting that some plans may prefer to focus entirely on their grandfathered business. Any insurer will be able to offer non-grandfathered coverage outside the exchanges (but must offer similar benefits), potentially offering cherry-picking opportunities to carriers who avoid the exchanges and the single risk pool for exchange participants.
3. Some smaller states, and others with low percentages of uninsured, may find that the number of exchange options results in insufficiently diverse risk pools, in which older and sicker individuals may dominate. PPACA provides for the option of separate pools and exchanges for individuals and small groups (Massachusetts combined them), as well as Co-Op plans (a sop for public plan advocates) and Multi-State plans (to be established by the federal Office of Personnel Management, FEHBP’s parent), each with up to four benefit levels, plus a young adult catastrophic coverage plan, plus an under-21 plan. While PPACA includes some risk-sharing provisions, this elaborate structure seems sure to present some actuarial challenges.
4. The flexibility (or vagueness) of benefits required to be offered seems likely to make value comparisons difficult. PPACA includes only a generic list of covered services, with specific benefits “to be determined by the Secretary of HHS and equal to the scope of benefits under a typical employee-based plan,” and also allows additional benefits to be offered beyond these. (In contrast, Massachusetts initially required plans to provide similar “actuarial values,” but recently decided to mandate identical benefits to make price comparison easier.)
5. Some state governors have indicated that they will not comply with the requirement to establish an exchange. While PPACA would then require the federal government to create an exchange, the lack of state support could be problematic, especially since the legislation provides only twelve months for federal implementation.
So, how likely are the new exchanges to succeed? Much depends on the extent to which the final regulations can bridge the gap between the PPACA provisions and experience. In most states, the exchanges should be effective in facilitating coverage selection, although the efforts that Massachusetts found necessary to establish and maintain an exchange serving a very small population imply that a large state with many currently uninsured could find this a big task. The exchanges should also reduce administrative costs for participating plans as broker commissions and some marketing and enrollment costs are eliminated. (The CBO estimates reductions of 1 to 4 percent in small group premiums and 7 to 10 percent for individual premiums for exchange participants.)
The bigger problem may be that of increased medical costs, as relatively static provider supply is faced with demand increased by the previously uninsured. (Even with only a small percentage increase in the number of insured, Massachusetts health care costs have increased faster than most other states since reform was implemented.)
Insurance exchanges do have considerable cost-containment potential, but if experience is any guide, the PPACA versions will fall short unless their enrollment numbers are large enough to attract competitive rates from insurers and provide risk pool diversity, and unless competing plan benefits are sufficiently comparable that consumers can determine best value—and even then, exchange savings may be offset by the effects of reform-driven imbalances between consumer demand and provider supply.
Tuesday, June 1, 2010
THE BERWICK NOMINATION – REFORM RHETORIC REDUX
Politico.com, Kaiser Health News, The Health Care Blog, and other on-line health care news and opinion sources all have lengthy pieces on Republican threats to derail Dr. Donald Berwick’s nomination as Administrator of the Centers for Medicare and Medicaid.
Dr. Berwick’s specific sins, according to the GOP, relate to his work for—and admiration for—Britain’s National Health Service, which gained him an honorary knighthood in 2005.
A l-e-n-g-t-h-y piece in THCB by Maggie Mahar on Dr. Berwick’s nomination is titled “Support for Berwick to Head Medicare Grows,” and emphasizes the apparently almost unanimous support (so far) for Dr. Berwick from medical groups around the country, including the American Hospital Association. This support is obviously vital to the nomination, but it could be swamped in the rapids of political rhetoric.
Given Dr. Berwick’s exemplary career experience, it seems highly unlikely that he will fail to be confirmed. What is certain, however, is that the confirmation hearings—tentatively scheduled for late June, but with the possibility of delay—will serve as an opportunity for opponents of health care reform to revisit the entire reform debate. Dr. Berwick’s hearing will provide a national stage—four months or less before the November election—for concerted attacks on the Democrats’ reform legislation, attacks that Senate Republicans will make every effort to prolong. And that could have a very big impact on reform, as some of its Congressional supporters are defeated and others suddenly discover that they really weren’t as enthusiastic as they said they were back in 2009.
Dr. Berwick’s specific sins, according to the GOP, relate to his work for—and admiration for—Britain’s National Health Service, which gained him an honorary knighthood in 2005.
A l-e-n-g-t-h-y piece in THCB by Maggie Mahar on Dr. Berwick’s nomination is titled “Support for Berwick to Head Medicare Grows,” and emphasizes the apparently almost unanimous support (so far) for Dr. Berwick from medical groups around the country, including the American Hospital Association. This support is obviously vital to the nomination, but it could be swamped in the rapids of political rhetoric.
Given Dr. Berwick’s exemplary career experience, it seems highly unlikely that he will fail to be confirmed. What is certain, however, is that the confirmation hearings—tentatively scheduled for late June, but with the possibility of delay—will serve as an opportunity for opponents of health care reform to revisit the entire reform debate. Dr. Berwick’s hearing will provide a national stage—four months or less before the November election—for concerted attacks on the Democrats’ reform legislation, attacks that Senate Republicans will make every effort to prolong. And that could have a very big impact on reform, as some of its Congressional supporters are defeated and others suddenly discover that they really weren’t as enthusiastic as they said they were back in 2009.
Thursday, May 27, 2010
PITFALLS OF PPACA #2 – THE GRANDFATHERING PROBLEM
(This is the second of a series of commentaries on details of the 2010 health care reform legislation.)
Throughout his election campaign and his subsequent efforts to achieve passage of health care reform, President Obama assured Americans that anyone with existing coverage could keep that coverage. Consistent with the president’s promise, Democratic lawmakers worked to include language guaranteeing continuation of coverage in the reform legislation.
They may have been too successful.
Section 1251 of the Patient Protection and Affordable Care Act provides assurances that nothing in the Act requires that an individual terminate existing coverage, excludes many of the provisions of the Act from applying to existing coverage, and goes on to guarantee that existing coverage can be extended to new employees (in a group plan) and additional family members (if allowed by any plan).
On the one hand, these provisions counter some concerns about reform (at least for those who understand them). On the other hand, the grandfathering of existing coverage undermines much of the intent of other parts of PPACA. Grandfathered plans are exempt from each of the following reform requirements (and others):
(1) Elimination of cost-sharing for preventive care
(2) Elimination of annual limits (individual plans only)
(3) Elimination of preexisting condition exclusions (individual plans only)
(4) Provision to consumers of “plain language” plan information
(5) Availability of a standard appeals process
(6) Limitation on premium variations by age and other factors
(7) Guaranteed availability of coverage
(8) Guaranteed renewal of coverage
(9) Prohibition on discrimination based on health status
(10)Provision of comprehensive health care coverage
In other words, grandfathered plans will be able to continue most of the practices that have angered consumers—and discriminated against those most in need of coverage.
There’s another problem, too. In the small group market—and possibly also in the individual market in some states—the effect of grandfathering may be to reduce the diversity of the insurance exchange risk pools. Insurers will be eager to perpetuate their current plans and avoid most of the new regulatory requirements, while employers with younger and healthier employees will want to retain their prior lower-cost coverage, leaving older and sicker groups to migrate to the exchanges, with regulations and rates more favorable to them. The effect in states currently with high numbers of uninsured—and therefore potentially with the most exchange enrollees—may be minimal, but in others the result may be that premiums are higher for plans available through exchanges than for those outside, while many insurers may decide to focus on their present less-regulated business and simply avoid the exchanges.
Throughout his election campaign and his subsequent efforts to achieve passage of health care reform, President Obama assured Americans that anyone with existing coverage could keep that coverage. Consistent with the president’s promise, Democratic lawmakers worked to include language guaranteeing continuation of coverage in the reform legislation.
They may have been too successful.
Section 1251 of the Patient Protection and Affordable Care Act provides assurances that nothing in the Act requires that an individual terminate existing coverage, excludes many of the provisions of the Act from applying to existing coverage, and goes on to guarantee that existing coverage can be extended to new employees (in a group plan) and additional family members (if allowed by any plan).
On the one hand, these provisions counter some concerns about reform (at least for those who understand them). On the other hand, the grandfathering of existing coverage undermines much of the intent of other parts of PPACA. Grandfathered plans are exempt from each of the following reform requirements (and others):
(1) Elimination of cost-sharing for preventive care
(2) Elimination of annual limits (individual plans only)
(3) Elimination of preexisting condition exclusions (individual plans only)
(4) Provision to consumers of “plain language” plan information
(5) Availability of a standard appeals process
(6) Limitation on premium variations by age and other factors
(7) Guaranteed availability of coverage
(8) Guaranteed renewal of coverage
(9) Prohibition on discrimination based on health status
(10)Provision of comprehensive health care coverage
In other words, grandfathered plans will be able to continue most of the practices that have angered consumers—and discriminated against those most in need of coverage.
There’s another problem, too. In the small group market—and possibly also in the individual market in some states—the effect of grandfathering may be to reduce the diversity of the insurance exchange risk pools. Insurers will be eager to perpetuate their current plans and avoid most of the new regulatory requirements, while employers with younger and healthier employees will want to retain their prior lower-cost coverage, leaving older and sicker groups to migrate to the exchanges, with regulations and rates more favorable to them. The effect in states currently with high numbers of uninsured—and therefore potentially with the most exchange enrollees—may be minimal, but in others the result may be that premiums are higher for plans available through exchanges than for those outside, while many insurers may decide to focus on their present less-regulated business and simply avoid the exchanges.
Wednesday, May 26, 2010
ACCELERATING (SOME PARTS OF) REFORM
According to Politico.com, the Obama administration is making a very big push to increase awareness of some of the most attractive aspects of health care reform and ensure that their implementation is a success.
Even though PPACA was structured so that the most politically attractive provisions would come into effect early (starting in 2010), while more controversial (and costly) provisions are mostly delayed until 2014, the public view of reform remains negative.
The administration’s efforts to change public opinion include accelerating the comment process for regulations providing for addition of young adults to parents’ coverage, disseminating information to small businesses about potential breaks on this year’s taxes, and (mostly successfully) pressuring insurers to drop their most egregious rescission practices, and to allow this summer’s college graduates to stay on their parents’ policies even though the corresponding PPACA provision is not effective until September.
With spending on anti-reform advertising currently running at close to twice that of pro-reform, we can probably expect to see even greater efforts by the government to publicize the short-term benefits of reform, especially among seniors who will gain from gradual elimination of the Medicare D “doughnut hole”.
Even though PPACA was structured so that the most politically attractive provisions would come into effect early (starting in 2010), while more controversial (and costly) provisions are mostly delayed until 2014, the public view of reform remains negative.
The administration’s efforts to change public opinion include accelerating the comment process for regulations providing for addition of young adults to parents’ coverage, disseminating information to small businesses about potential breaks on this year’s taxes, and (mostly successfully) pressuring insurers to drop their most egregious rescission practices, and to allow this summer’s college graduates to stay on their parents’ policies even though the corresponding PPACA provision is not effective until September.
With spending on anti-reform advertising currently running at close to twice that of pro-reform, we can probably expect to see even greater efforts by the government to publicize the short-term benefits of reform, especially among seniors who will gain from gradual elimination of the Medicare D “doughnut hole”.
Sunday, May 23, 2010
THE PITFALLS OF PPACA #1 – THE MEDICAL LOSS RATIO RULE
(This is the first of a series of commentaries on details of the 2010 health care reform legislation.)
The Patient Protection and Affordable Care Act, signed into law by President Obama in March, is in many ways a significant step towards a more equitable health insurance system in the US, potentially making coverage available to millions of the currently uninsured. Unfortunately, health care reform’s political strategy of let’s-just-apply-lots-of-bandaids-to-the-present-broken-system is likely to produce some major disappointments.
Positive changes like assuring coverage for children with preexisting conditions are likely to be overshadowed by others that are equally well-intentioned but fatally flawed—like PPACA’s limits on insurers’ medical loss ratios.
Beginning in 2011, unless medical loss ratios (the percentage of premiums paid out for medical care) are at least 85 percent for large group health plans, and at least 80 percent for small group and individual plans, insurers will be required to offer rebates to enrollees.
Given that the MLRs of the ten largest for-profit health insurers dropped from 95 percent in the early 1990s to around 80 percent today (or, put another way, administrative expenses, overhead and profit jumped fourfold from 5 percent of premium to 20 percent in just over 15 years), it’s easy to see why this provision seemed so attractive to its principal backer, Senator Jay Rockefeller.
Unfortunately, as with other reform issues, the politicians’ understanding is proving incomplete. Two weeks after enactment of PPACA, the Federal Register invited comments on how the new MLR requirement should actually be interpreted. The 70-page response (including appendices) from the National Association of Insurance Commissioners demonstrates just how complicated the issue really is. (A separate response from AHIP, the insurers’ lobbying group, argues for treatment of almost anything that reduces medical expense as part of the MLR “medical care” numerator.)
PPACA’s (imprecise) MLR definition is quite different from that currently used by state insurance regulators, but NAIC does estimate that most large and small group health plans will meet the new requirement, thanks to the exclusion of state and federal taxes from non-medical costs (and implicitly assuming that the impact on MLRs of the currently uninsured will not be significant). In other words, most group plans are likely to be unaffected—and if AHIP is at all successful, may even be tempted to increase their profit percentages while boasting compliance with the PPACA limits.
Individual plans present a very different case, and one where the political cure may be much worse than the disease. NAIC comments “Some issuers would likely have aggregate MLRs below 80% in at least some states even after the adjustments...” The reasons for individual plans’ possible MLR problems include the higher administrative costs of such plans, the typically more restricted benefits (thereby reducing medical care costs relative to non-medical costs), and greater year-to-year volatility. So, are plans with MLRs below the 80 percent threshold going to pay rebates to enrollees or, alternatively, slash administrative costs or profit?
Probably not. No insurer will want to pay rebates, not only for the obvious reason of not wanting to see dollars going out the door, but because this will be perceived by consumers as a signal that premiums are too high. Equally, cutting profit for investor-owned plans will cut share value, something that insurance executives with stock options will certainly resist. Administrative costs could be cut by reducing care management and fraud detection efforts (assuming AHIP fails in its lobbying to include these as medical expenses), but doing so would simply increase the costs of care—and premiums.
Insurers are going to be left with a couple of strategies. One is to increase both benefits and premiums in order to reduce the impact on the MLR percentage of non-medical costs, an actuarially risky approach that could result in plans attractive only to high utilizers. The other is simply to withdraw from the individual market—one that plans like American National Insurance are already starting to choose.
It’s easy to criticize the shareholder profits and CEO incomes of investor-owned insurers (and the inefficiencies of some of their non-profit competitors), but this kind of political micromanagement isn’t the answer. While there is certainly a case for consumers knowing how their premium dollars are being spent, legislating expense ratios—rather than encouraging effective market competition—is more likely to lead to loss of coverage than to lower premiums.
The Patient Protection and Affordable Care Act, signed into law by President Obama in March, is in many ways a significant step towards a more equitable health insurance system in the US, potentially making coverage available to millions of the currently uninsured. Unfortunately, health care reform’s political strategy of let’s-just-apply-lots-of-bandaids-to-the-present-broken-system is likely to produce some major disappointments.
Positive changes like assuring coverage for children with preexisting conditions are likely to be overshadowed by others that are equally well-intentioned but fatally flawed—like PPACA’s limits on insurers’ medical loss ratios.
Beginning in 2011, unless medical loss ratios (the percentage of premiums paid out for medical care) are at least 85 percent for large group health plans, and at least 80 percent for small group and individual plans, insurers will be required to offer rebates to enrollees.
Given that the MLRs of the ten largest for-profit health insurers dropped from 95 percent in the early 1990s to around 80 percent today (or, put another way, administrative expenses, overhead and profit jumped fourfold from 5 percent of premium to 20 percent in just over 15 years), it’s easy to see why this provision seemed so attractive to its principal backer, Senator Jay Rockefeller.
Unfortunately, as with other reform issues, the politicians’ understanding is proving incomplete. Two weeks after enactment of PPACA, the Federal Register invited comments on how the new MLR requirement should actually be interpreted. The 70-page response (including appendices) from the National Association of Insurance Commissioners demonstrates just how complicated the issue really is. (A separate response from AHIP, the insurers’ lobbying group, argues for treatment of almost anything that reduces medical expense as part of the MLR “medical care” numerator.)
PPACA’s (imprecise) MLR definition is quite different from that currently used by state insurance regulators, but NAIC does estimate that most large and small group health plans will meet the new requirement, thanks to the exclusion of state and federal taxes from non-medical costs (and implicitly assuming that the impact on MLRs of the currently uninsured will not be significant). In other words, most group plans are likely to be unaffected—and if AHIP is at all successful, may even be tempted to increase their profit percentages while boasting compliance with the PPACA limits.
Individual plans present a very different case, and one where the political cure may be much worse than the disease. NAIC comments “Some issuers would likely have aggregate MLRs below 80% in at least some states even after the adjustments...” The reasons for individual plans’ possible MLR problems include the higher administrative costs of such plans, the typically more restricted benefits (thereby reducing medical care costs relative to non-medical costs), and greater year-to-year volatility. So, are plans with MLRs below the 80 percent threshold going to pay rebates to enrollees or, alternatively, slash administrative costs or profit?
Probably not. No insurer will want to pay rebates, not only for the obvious reason of not wanting to see dollars going out the door, but because this will be perceived by consumers as a signal that premiums are too high. Equally, cutting profit for investor-owned plans will cut share value, something that insurance executives with stock options will certainly resist. Administrative costs could be cut by reducing care management and fraud detection efforts (assuming AHIP fails in its lobbying to include these as medical expenses), but doing so would simply increase the costs of care—and premiums.
Insurers are going to be left with a couple of strategies. One is to increase both benefits and premiums in order to reduce the impact on the MLR percentage of non-medical costs, an actuarially risky approach that could result in plans attractive only to high utilizers. The other is simply to withdraw from the individual market—one that plans like American National Insurance are already starting to choose.
It’s easy to criticize the shareholder profits and CEO incomes of investor-owned insurers (and the inefficiencies of some of their non-profit competitors), but this kind of political micromanagement isn’t the answer. While there is certainly a case for consumers knowing how their premium dollars are being spent, legislating expense ratios—rather than encouraging effective market competition—is more likely to lead to loss of coverage than to lower premiums.
BACK IN BUSINESS!
Health Care REFORM UPDATE came to a screeching halt late last fall when I left for a trip to Southeast Asia, and discovered just how difficult posting comments on reform bills could be from small towns in Laos and the mountains of northern Vietnam.
By the time I returned, in December, it was clear that the details of reform legislation were not going to be influenced by anything other than political expediency.
Now, we have reform legislation (although no regulations as yet), and it’s time to look at how its implementation may work—and maybe, influence the regulatory process. Over the next several weeks Health Care REFORM UPDATE will provide a series of commentaries on details of the legislation, along with news relating to implementation of the new law.
By the time I returned, in December, it was clear that the details of reform legislation were not going to be influenced by anything other than political expediency.
Now, we have reform legislation (although no regulations as yet), and it’s time to look at how its implementation may work—and maybe, influence the regulatory process. Over the next several weeks Health Care REFORM UPDATE will provide a series of commentaries on details of the legislation, along with news relating to implementation of the new law.
Tuesday, October 27, 2009
SENATE HEALTH CARE REFORM: TWO HUGE PROBLEMS, ONE GIANT RED HERRING
Pity poor Senator Harry Reid. Not only is he facing an uphill reelection fight in Nevada, but as Majority Leader, he must reconcile the health care reform bills from the Finance and the Health, Education, Labor and Pensions committees so as to attract sixty Senate votes. He’s guaranteed support from the more partisan Democrats, but to attract Democratic and one or two Republican centrists without losing liberals, he has to find ways to deal with two huge problems with the bills—and one giant red herring.
The giant red herring is the public option, THE big stumbling block for reform, mostly thanks to the efforts of lazy-thinking doctrinaire politicians of both parties—especially in the House. (Yes, Speaker Pelosi and Minority Leader Boehner, I mean you.) The reality is that for a public option to provide an adequate network, its payments to hospitals and physicians must be at least at Medicare levels. As experience with Medicare Advantage shows, this means its costs will be close to those of private coverage or higher, especially if it adopts Medicare’s uncontrolled fee-for-service structure and attracts the least utilization-conscious providers and patients. All this makes nonsense of liberal claims that the public option is necessary to control costs, and equally, of conservative allegations that it will destroy the insurance industry—and leaves Senator Reid’s “opt-out” solution looking merely perverse.
Unfortunately, the quasi-religious war over the public option has taken attention away from the two huge real problems with the Senate bills.
Huge Problem #1 is the conflict between mandated coverage and consumer affordability. Even with penalties of $750 or more per person, and with subsidies that limit premiums to 13 percent of income, the Congressional Budget Office estimates that 16 million eligible individuals will fail to be insured. (Rather than paying $4,000 for coverage, a $750 penalty may seem a good risk for someone earning $30,000 a year.) Since those taking the non-insured gamble are most likely to be young and healthy, the result will be a huge adverse selection impact on insurers required to guarantee issue—followed by the giant jump in premium costs that insurers (reasonably, for once) are forecasting.
With the Senate Finance Committee insisting on its approach of grafting more and more new rules onto the present health care system (remember, these are the guys who brought you the United States tax code), is there any way to deal with Huge Problem #1? Aside from big increases in penalties (politically unacceptable) or major increases to the subsidies (unaffordable), possible approaches include exceptions to guaranteed issue for those who fail to acquire coverage (the insurers will like this), allowing buy-in to Medicaid (a better deal than private insurance, so long as you don’t need care), and tying coverage selection to tax return filing (a pre-emptive strike approach that conservatives will erupt over). None of these, however, seems likely to appeal to sixty senators.
Huge Problem #2 is the need to slow the rate of increase of national health care expenditures. The Senate Finance bill assumes that slashing Medicare expenditures is the primary way to do this—ignoring the likely resulting cost shift to private payers. Can we do better? With Democrats unwilling to offend supporters by proposing real penalties for excessively generous employee coverage (unions will fight this) or nationwide tort reform (trial lawyers will resist), or effective limits on provider resources (the Obama administration has cut deals with docs and the drug industry) the best bet ought to be the insurance exchanges. Unfortunately, the Senate bills allow insurers to continue to sell directly to any employer, with all the potential for cherry picking (and resultant adverse selection and ultimate bankruptcy for the exchanges) that this implies. It’s not surprising that the insurance industry has been relatively subdued in its comments on the Senate’s efforts to date.
The sad conclusion: even IF Senator Reid manages to cobble together a reform package that attracts sixty Senate votes AND can be made acceptable to the House, we should be prepared for more of the same: lots of uninsured, skyrocketing premiums, a continuing exodus of providers from Medicare, bigger deficits (remember those premium subsidies), and a series of defeats for the party in power—but the Dems, this time.
Or, perhaps Senate Democratic leaders will suddenly see the wisdom of what CBO Director Doug Elmendorf told them in July: to control the costs of United States health care (and begin to make it affordable to individuals) will take fundamental change.
But don’t hold your breath.
The giant red herring is the public option, THE big stumbling block for reform, mostly thanks to the efforts of lazy-thinking doctrinaire politicians of both parties—especially in the House. (Yes, Speaker Pelosi and Minority Leader Boehner, I mean you.) The reality is that for a public option to provide an adequate network, its payments to hospitals and physicians must be at least at Medicare levels. As experience with Medicare Advantage shows, this means its costs will be close to those of private coverage or higher, especially if it adopts Medicare’s uncontrolled fee-for-service structure and attracts the least utilization-conscious providers and patients. All this makes nonsense of liberal claims that the public option is necessary to control costs, and equally, of conservative allegations that it will destroy the insurance industry—and leaves Senator Reid’s “opt-out” solution looking merely perverse.
Unfortunately, the quasi-religious war over the public option has taken attention away from the two huge real problems with the Senate bills.
Huge Problem #1 is the conflict between mandated coverage and consumer affordability. Even with penalties of $750 or more per person, and with subsidies that limit premiums to 13 percent of income, the Congressional Budget Office estimates that 16 million eligible individuals will fail to be insured. (Rather than paying $4,000 for coverage, a $750 penalty may seem a good risk for someone earning $30,000 a year.) Since those taking the non-insured gamble are most likely to be young and healthy, the result will be a huge adverse selection impact on insurers required to guarantee issue—followed by the giant jump in premium costs that insurers (reasonably, for once) are forecasting.
With the Senate Finance Committee insisting on its approach of grafting more and more new rules onto the present health care system (remember, these are the guys who brought you the United States tax code), is there any way to deal with Huge Problem #1? Aside from big increases in penalties (politically unacceptable) or major increases to the subsidies (unaffordable), possible approaches include exceptions to guaranteed issue for those who fail to acquire coverage (the insurers will like this), allowing buy-in to Medicaid (a better deal than private insurance, so long as you don’t need care), and tying coverage selection to tax return filing (a pre-emptive strike approach that conservatives will erupt over). None of these, however, seems likely to appeal to sixty senators.
Huge Problem #2 is the need to slow the rate of increase of national health care expenditures. The Senate Finance bill assumes that slashing Medicare expenditures is the primary way to do this—ignoring the likely resulting cost shift to private payers. Can we do better? With Democrats unwilling to offend supporters by proposing real penalties for excessively generous employee coverage (unions will fight this) or nationwide tort reform (trial lawyers will resist), or effective limits on provider resources (the Obama administration has cut deals with docs and the drug industry) the best bet ought to be the insurance exchanges. Unfortunately, the Senate bills allow insurers to continue to sell directly to any employer, with all the potential for cherry picking (and resultant adverse selection and ultimate bankruptcy for the exchanges) that this implies. It’s not surprising that the insurance industry has been relatively subdued in its comments on the Senate’s efforts to date.
The sad conclusion: even IF Senator Reid manages to cobble together a reform package that attracts sixty Senate votes AND can be made acceptable to the House, we should be prepared for more of the same: lots of uninsured, skyrocketing premiums, a continuing exodus of providers from Medicare, bigger deficits (remember those premium subsidies), and a series of defeats for the party in power—but the Dems, this time.
Or, perhaps Senate Democratic leaders will suddenly see the wisdom of what CBO Director Doug Elmendorf told them in July: to control the costs of United States health care (and begin to make it affordable to individuals) will take fundamental change.
But don’t hold your breath.
Thursday, October 22, 2009
UPDATE 10/22: BAD NEWS FOR REFORM?
Hopes for Senate passage of a health care reform bill were further dented last night when the Democratic leadership’s proposal for eliminating the Medicare physician fee reductions required by the sustainable growth rate formula was soundly defeated.
A dozen Democrats and one independent senator joined Republicans in opposing the change proposed by Senate Majority Leader Harry Reid, which would have cost an estimated $247 billion over the next ten years. Backers of the change had hoped that it would be possible to treat the increased costs as a simple addition to the deficit, separate from other health care reform costs, but opponents refused to allow it without offsetting savings or increases in revenue.
The vote sends an ominous message to health care reform advocates: Democratic senators are unwilling to hang together behind their leadership just to facilitate the passage of reform. At the same time, since physician groups had considered passing the “doc fix” vital to their support of reform, it must be assumed that they will now shift more visibly into the opposition camp, making reform supporters’ efforts even more difficult.
A dozen Democrats and one independent senator joined Republicans in opposing the change proposed by Senate Majority Leader Harry Reid, which would have cost an estimated $247 billion over the next ten years. Backers of the change had hoped that it would be possible to treat the increased costs as a simple addition to the deficit, separate from other health care reform costs, but opponents refused to allow it without offsetting savings or increases in revenue.
The vote sends an ominous message to health care reform advocates: Democratic senators are unwilling to hang together behind their leadership just to facilitate the passage of reform. At the same time, since physician groups had considered passing the “doc fix” vital to their support of reform, it must be assumed that they will now shift more visibly into the opposition camp, making reform supporters’ efforts even more difficult.
Thursday, October 8, 2009
UPDATE 10/8: GETTING CLOSER TO A SENATE FINANCE BILL
Publication of the CBO’s scoring of the final Chairman’s Mark version of the Senate Finance Committee’s draft reform bill at $829 billion over ten years, while covering some 94 percent of American residents, has given a big boost to Chairman Baucus’ efforts.
The CBO number is rather better than expected, and well below the $900 billion figure set by President Obama as a maximum acceptable amount. The CBO forecast that the draft bill would reduce the federal deficit by some $81 billion over the next decade, also a better-than-expected number, and one that has left Republican opponents struggling to find persuasive arguments against the bill. The CBO also estimated that the deficit would be further reduced over the subsequent decade (starting in 2020) at a rate of between one-quarter and one-half of GDP, as reform-related revenues and savings continue to exceed expansion costs.
A number of caveats are included in the CBO scoring letter and accompanying tables, including the effect of the proposed Medicare Commission’s efforts and that the forecast is based on an “English-language” version of the Finance Committee draft bill, rather than on actual legislative language. Other important cautions not specifically stated are the validity of assumptions about national health trends and the overall economy.
Chairman Baucus has now scheduled a vote on the legislative-language version of the draft bill for Tuesday, October 13. Assuming that the Democratic-majority Finance Committee votes to approve this version, it will then be combined with the version already created by the Senate Health, Education, Labor and Pensions Committee—a process that will involve some fierce horse-trading over inclusion or exclusion of a public option. Meanwhile, House Democrats are working to finalize a single version of the bills that emerged from the three House committees with responsibility for government health care programs—a version that will definitely include a public program option.
The CBO number is rather better than expected, and well below the $900 billion figure set by President Obama as a maximum acceptable amount. The CBO forecast that the draft bill would reduce the federal deficit by some $81 billion over the next decade, also a better-than-expected number, and one that has left Republican opponents struggling to find persuasive arguments against the bill. The CBO also estimated that the deficit would be further reduced over the subsequent decade (starting in 2020) at a rate of between one-quarter and one-half of GDP, as reform-related revenues and savings continue to exceed expansion costs.
A number of caveats are included in the CBO scoring letter and accompanying tables, including the effect of the proposed Medicare Commission’s efforts and that the forecast is based on an “English-language” version of the Finance Committee draft bill, rather than on actual legislative language. Other important cautions not specifically stated are the validity of assumptions about national health trends and the overall economy.
Chairman Baucus has now scheduled a vote on the legislative-language version of the draft bill for Tuesday, October 13. Assuming that the Democratic-majority Finance Committee votes to approve this version, it will then be combined with the version already created by the Senate Health, Education, Labor and Pensions Committee—a process that will involve some fierce horse-trading over inclusion or exclusion of a public option. Meanwhile, House Democrats are working to finalize a single version of the bills that emerged from the three House committees with responsibility for government health care programs—a version that will definitely include a public program option.
Saturday, October 3, 2009
UPDATE 10/2: A FIRST FOR BAUCUS (ALMOST)
Skeptics (like this blog author) were dumfounded last night when—for the first time in the excruciatingly drawn-out health care reform saga—the Senate Finance Committee came close to meeting a deadline set by Chairman Max Baucus. The deadline—completion of markup of the Committee’s draft bill—wasn’t quite met, but missing it by a mere couple of hours seemed like a major achievement given the more than five hundred amendments that had been proposed.
Of the changes to Baucus’ original draft, most are tweaks, with the most notable being reductions in penalties for non-compliance with the individual mandate (intended to gain support from Senator Olympia Snowe)—along with (thanks to Senator Charles Grassley) a requirement that members of Congress get their own coverage through insurance exchanges.
The next step will be a formal vote next week by the full Finance Committee—with the big question being which way Senator Snowe will go.
And then, the Finance and HELP bills must be merged prior to Senate floor debate—something that will tax Senate leadership, who must struggle to reconcile the public option preferences Absolutely NO versus absolutely YES) of the two committees.
And then, if it survives, the bill faces reconciliation with the House versions…
Of the changes to Baucus’ original draft, most are tweaks, with the most notable being reductions in penalties for non-compliance with the individual mandate (intended to gain support from Senator Olympia Snowe)—along with (thanks to Senator Charles Grassley) a requirement that members of Congress get their own coverage through insurance exchanges.
The next step will be a formal vote next week by the full Finance Committee—with the big question being which way Senator Snowe will go.
And then, the Finance and HELP bills must be merged prior to Senate floor debate—something that will tax Senate leadership, who must struggle to reconcile the public option preferences Absolutely NO versus absolutely YES) of the two committees.
And then, if it survives, the bill faces reconciliation with the House versions…
Thursday, October 1, 2009
UPDATE 10/1: “A BILL BY NIGHTFALL” (BELIEVE IT OR NOT)
In the latest of a long series of optimistic pronouncements, Senate Finance Committee Chairman Max Baucus stated this morning that he wanted to complete markup of the Committee’s health care reform bill “by nightfall” today.
If the Committee were indeed to meet this schedule, the next move would be up to Senate Majority Leader Harry Reid, who would work to combine the Finance Committee and Health, Education, Labor, and Pensions (HELP) Committee bills into a single bill to be brought to the Senate floor for debate, a process that could take weeks, and one that Senator Reid is already shifting recess schedules to allow for.
More realistically (and reflecting Senate Finance’s failure to meet any of Senator Baucus’ previous timing hopes), markup will take at least a couple more days, followed by review of the CBO’s preliminary scoring of the bill, followed by a final Committee vote.
Best guess? A combined bill will reach the Senate floor in two or three weeks’ time, to be followed by a multi-week debate.
If the Committee were indeed to meet this schedule, the next move would be up to Senate Majority Leader Harry Reid, who would work to combine the Finance Committee and Health, Education, Labor, and Pensions (HELP) Committee bills into a single bill to be brought to the Senate floor for debate, a process that could take weeks, and one that Senator Reid is already shifting recess schedules to allow for.
More realistically (and reflecting Senate Finance’s failure to meet any of Senator Baucus’ previous timing hopes), markup will take at least a couple more days, followed by review of the CBO’s preliminary scoring of the bill, followed by a final Committee vote.
Best guess? A combined bill will reach the Senate floor in two or three weeks’ time, to be followed by a multi-week debate.
Wednesday, September 16, 2009
THE SENATE FINANCE CHAIRMAN’S MARK – GOOD IDEAS AND POTENTIALLY FATAL FLAWS
So, at long last, Senator Max Baucus has released his Chairman’s Mark draft health care reform bill for discussion by the full Senate Finance Committee. The 223-page draft bill is generally consistent with the “Framework for a Plan” document that Senator Baucus issued last week. So, no big surprises. But can it make coverage more accessible and affordable? Can it put the brakes on skyrocketing health care costs? Is it likely to help or hurt the economic recovery?
Accessibility and affordability are the main thrusts of the draft. As with the other Senate and House bills, an individual mandate would be imposed and the insurance market would be reformed to assure coverage on a guaranteed issue basis. Also as with the other bills, Medicaid would be expanded to cover anyone below 133 percent of FPL (but with the federal government picking up more of the tab), while subsidies would be available to other lower-income individuals who buy coverage through an insurance exchange. Additionally, benefit standards would be set for the individual and small group markets, with limits on cost-sharing.
Overall health care costs are the focus of other provisions. The biggest target area is Medicare, where Medicare Advantage “excess payments” would be slashed, a variety of other cost containment measures would be implemented (but not a reduction in physician fees), and a new Medicare Commission would be charged with making cost control proposals to Congress that would be subject to straight-up-or-down votes. Other cost containment provisions are less direct: “overly generous” employee benefits would be subject to a tax to be paid by insurers, while the insurance exchanges are presumably intended to engender price competition.
In terms of the impact on the economy and on taxpayers, the draft is projected to have a ten-year cost of some $850 billion, less than other current reform bills, but with many of its costly provisions deferred until three or more years into the decade. The bill is, however, claimed to be “fully paid for,” with new revenues and savings balancing new expenditures. New revenues would come from insurers and from certain providers, and so would presumably result in higher premiums; others would come from small employers as a result of “free rider” penalties imposed when employees utilize exchange subsidies. The biggest savings would come from Medicare Advantage payment reductions. Large employers would be minimally affected, but some smaller employers would see increases in premiums as a result of new benefit standards—although in some cases these would be partially offset by tax credits.
The political reactions to the Chairman’s Mark have been predictable. Liberal Democrats are distressed that no public plan is included (even though such an option is more likely to increase costs than decrease them), while Republicans have either issued blanket condemnations of the increased federal expenditures (while also criticizing the Medicare Advantage cutbacks) or have focused on hot buttons like abortion and care for illegal immigrants.
A more balanced verdict is that the draft is an uneasy compromise between the political poles. It doesn’t do enough to slow the rate of increase of national health care costs because to do so would result in concerted opposition from both insurers and providers. It doesn’t shift more responsibility for obtaining optimal coverage onto most of the currently insured, because this would alienate employee unions. It doesn’t prevent insurers from cherry-picking the best risks, because this would contradict earlier political promises that “everyone can keep the insurance they have.”
In addition to these “big picture” criticisms, some features are reasonable in intent but seriously flawed as currently proposed.
The penalties to be imposed on those without coverage look to be a classic “gotcha” approach that will have lawyers rubbing their hands in glee as they visualize subsequent court fights. A better approach might be to incorporate coverage selection as part of annual tax filing, permitting a choice of employer coverage, individual exchange coverage, or Medicaid.
The subsidies for low-income individuals above the proposed 133 percent cutoff, combined with Medicaid expansion, are the major reason for the draft’s price tab. With subsidy costs in many cases above Medicaid costs—while still failing to cover total premiums— it would make sense to give lower-income individuals the option of buying into Medicaid.
The almost unlimited latitude for insurers to market directly to groups with the best risks will drive up costs for everyone else and potentially lead to the failure of the insurance exchanges. Instead, insurers should be required to offer their lowest rates to exchange participants, thereby essentially putting all non-ERISA groups and individuals in the same pool.
The multiple benefit options and wide rate range allowed between younger and older insureds seem likely to encourage risk manipulation by insurers and drive up costs for older individuals. Reducing the number of benefit options and shrinking the allowed rate range would simplify choice and enhance affordability.
Overall, the draft moves the debate forward, but perpetuates today’s ineffective and expensive combination of paternalism and the free market. Few employees have many coverage choices, but their “paternalistic” employers have limited interest in tight budget control because of the tax exemption and the assumption that reducing benefits leads to demands for increased pay. Meanwhile, the “free market” for insurers gives them enormous latitude to cherry pick risks and price selectively. Senator Baucus’ draft trims insurer sails somewhat and slightly reduces taxpayer-subsidized employer paternalism—but not enough.
Accessibility and affordability are the main thrusts of the draft. As with the other Senate and House bills, an individual mandate would be imposed and the insurance market would be reformed to assure coverage on a guaranteed issue basis. Also as with the other bills, Medicaid would be expanded to cover anyone below 133 percent of FPL (but with the federal government picking up more of the tab), while subsidies would be available to other lower-income individuals who buy coverage through an insurance exchange. Additionally, benefit standards would be set for the individual and small group markets, with limits on cost-sharing.
Overall health care costs are the focus of other provisions. The biggest target area is Medicare, where Medicare Advantage “excess payments” would be slashed, a variety of other cost containment measures would be implemented (but not a reduction in physician fees), and a new Medicare Commission would be charged with making cost control proposals to Congress that would be subject to straight-up-or-down votes. Other cost containment provisions are less direct: “overly generous” employee benefits would be subject to a tax to be paid by insurers, while the insurance exchanges are presumably intended to engender price competition.
In terms of the impact on the economy and on taxpayers, the draft is projected to have a ten-year cost of some $850 billion, less than other current reform bills, but with many of its costly provisions deferred until three or more years into the decade. The bill is, however, claimed to be “fully paid for,” with new revenues and savings balancing new expenditures. New revenues would come from insurers and from certain providers, and so would presumably result in higher premiums; others would come from small employers as a result of “free rider” penalties imposed when employees utilize exchange subsidies. The biggest savings would come from Medicare Advantage payment reductions. Large employers would be minimally affected, but some smaller employers would see increases in premiums as a result of new benefit standards—although in some cases these would be partially offset by tax credits.
The political reactions to the Chairman’s Mark have been predictable. Liberal Democrats are distressed that no public plan is included (even though such an option is more likely to increase costs than decrease them), while Republicans have either issued blanket condemnations of the increased federal expenditures (while also criticizing the Medicare Advantage cutbacks) or have focused on hot buttons like abortion and care for illegal immigrants.
A more balanced verdict is that the draft is an uneasy compromise between the political poles. It doesn’t do enough to slow the rate of increase of national health care costs because to do so would result in concerted opposition from both insurers and providers. It doesn’t shift more responsibility for obtaining optimal coverage onto most of the currently insured, because this would alienate employee unions. It doesn’t prevent insurers from cherry-picking the best risks, because this would contradict earlier political promises that “everyone can keep the insurance they have.”
In addition to these “big picture” criticisms, some features are reasonable in intent but seriously flawed as currently proposed.
The penalties to be imposed on those without coverage look to be a classic “gotcha” approach that will have lawyers rubbing their hands in glee as they visualize subsequent court fights. A better approach might be to incorporate coverage selection as part of annual tax filing, permitting a choice of employer coverage, individual exchange coverage, or Medicaid.
The subsidies for low-income individuals above the proposed 133 percent cutoff, combined with Medicaid expansion, are the major reason for the draft’s price tab. With subsidy costs in many cases above Medicaid costs—while still failing to cover total premiums— it would make sense to give lower-income individuals the option of buying into Medicaid.
The almost unlimited latitude for insurers to market directly to groups with the best risks will drive up costs for everyone else and potentially lead to the failure of the insurance exchanges. Instead, insurers should be required to offer their lowest rates to exchange participants, thereby essentially putting all non-ERISA groups and individuals in the same pool.
The multiple benefit options and wide rate range allowed between younger and older insureds seem likely to encourage risk manipulation by insurers and drive up costs for older individuals. Reducing the number of benefit options and shrinking the allowed rate range would simplify choice and enhance affordability.
Overall, the draft moves the debate forward, but perpetuates today’s ineffective and expensive combination of paternalism and the free market. Few employees have many coverage choices, but their “paternalistic” employers have limited interest in tight budget control because of the tax exemption and the assumption that reducing benefits leads to demands for increased pay. Meanwhile, the “free market” for insurers gives them enormous latitude to cherry pick risks and price selectively. Senator Baucus’ draft trims insurer sails somewhat and slightly reduces taxpayer-subsidized employer paternalism—but not enough.
Saturday, September 12, 2009
UPDATE 9/13: ANOTHER PROMISE FROM MAX BAUCUS
Politico reports that Senate Finance Committee chair Max Baucus is now promising that his committee’s reform bill will be released on Tuesday September 15.
Since Senator Baucus previously promised, prior to the summer recess, that the “Gang of Six” was already at the point of agreement and would be releasing a bipartisan bill imminently, some caution is indicated about this latest date.
Even more caution is indicated about the level of bipartisan support for the promised bill. On the positive side, the Gang of Six are still meeting and seem to be close to agreement on three sticky issues: malpractice suits, abortion funding (or not), and coverage of both legal and illegal immigrants (or not). On the negative side, at least two of the three Republican members of the Gang of Six (Senators Grassley and Enzi) may have made such intransigent statements during the summer recess that they now cannot support any compromise reform bill without losing political face, while the third Republican member (Senator Snowe) is clearly still undecided.
Since Senator Baucus previously promised, prior to the summer recess, that the “Gang of Six” was already at the point of agreement and would be releasing a bipartisan bill imminently, some caution is indicated about this latest date.
Even more caution is indicated about the level of bipartisan support for the promised bill. On the positive side, the Gang of Six are still meeting and seem to be close to agreement on three sticky issues: malpractice suits, abortion funding (or not), and coverage of both legal and illegal immigrants (or not). On the negative side, at least two of the three Republican members of the Gang of Six (Senators Grassley and Enzi) may have made such intransigent statements during the summer recess that they now cannot support any compromise reform bill without losing political face, while the third Republican member (Senator Snowe) is clearly still undecided.
Wednesday, September 9, 2009
UPDATE 9/9: THE BAUCUS COMPROMISE
Senate Finance Committee Chair Max Baucus has returned from his summer break with a new proposal for his Gang of Six—the three Democrats and three Republicans charged with negotiating details of the Committee’s reform bill.
Baucus has tried to craft a compromise that will attract at least a handful of Republican votes without alienating his own fellow Democrats. Accordingly, the 18-page proposal, described as “a framework of a plan” excludes the controversial public option and also any direct employer mandate. Instead, it proposes a network of insurance cooperatives, with federal start-up money, and a “free rider” levy on employers whose workers purchase government-subsidized coverage through an insurance exchange.
Other details that reflect Baucus’ attempt to walk the political tightrope include a levy on health insurer revenues and requirements for transparency of insurer costs as a condition of exchange participation, but also more limited Medicaid expansion and less generous subsidies for other lower-income individuals. In addition, a low-cost catastrophic coverage plan would be incorporated, available to those under 25 years old. Together, these provisions are expected to reduce somewhat the total reform cost from earlier estimates.
The Capitol Hill reaction so far seems to be closer to yawns than enthusiasm, with Baucus’ Democratic colleague Ron Wyden quick to point out any final Committee bill would depend on other members also.
Baucus has tried to craft a compromise that will attract at least a handful of Republican votes without alienating his own fellow Democrats. Accordingly, the 18-page proposal, described as “a framework of a plan” excludes the controversial public option and also any direct employer mandate. Instead, it proposes a network of insurance cooperatives, with federal start-up money, and a “free rider” levy on employers whose workers purchase government-subsidized coverage through an insurance exchange.
Other details that reflect Baucus’ attempt to walk the political tightrope include a levy on health insurer revenues and requirements for transparency of insurer costs as a condition of exchange participation, but also more limited Medicaid expansion and less generous subsidies for other lower-income individuals. In addition, a low-cost catastrophic coverage plan would be incorporated, available to those under 25 years old. Together, these provisions are expected to reduce somewhat the total reform cost from earlier estimates.
The Capitol Hill reaction so far seems to be closer to yawns than enthusiasm, with Baucus’ Democratic colleague Ron Wyden quick to point out any final Committee bill would depend on other members also.
Saturday, September 5, 2009
HAPPY TRAILS, TRIGGER?
Okay, my apologies to Roy Rogers, but I was pleased to see in the New York Times that the idea of a public plan trigger is finally getting serious consideration by the White House and by Senate Finance Committee members.
I proposed the trigger concept in a piece that ran in The Health Care Blog back in March. It was clear then that a nationwide public plan faced very considerable political obstacles, and I suggested that a more acceptable approach might be to establish a public plan option that would be implemented only where and when private plans failed to meet predetermined cost control targets.
Senator Olympia Snowe proposed the trigger approach to fellow members of Senate Finance some weeks ago, and the NYT reports that the White House—desperate for at least one Republican vote in the Senate—is now analyzing its political feasibility and practicality.
Senator Snowe’s approach, reflecting the situation in her home state of Maine, where the market is dominated by a single insurer, would tie the trigger to affordability, rather than to cost control. This approach has political advantages, but could be labeled as unfair, since it includes a factor that private plans cannot control—individual incomes—in the trigger comparison. It also has the disadvantage of focusing on individuals who are just above the Medicaid income threshold. To achieve affordability for this lower-income group could mean a public plan network virtually identical to that of Medicaid, raising the question: why not just allow this group to buy-in to Medicaid?
However, any trigger is probably better than the nationwide public plan option. It’s also more realistic than Senator Conrad’s proposal for health cooperatives, a concept that has never been successfully implemented (Seattle’s Group Health Cooperative, despite its name, is a Kaiser-type HMO). The experience of Medicare Advantage, in which the private plans with most enrollees cover the basic benefits at lower cost than the government-administered FFS plan, suggests that a trigger approach could provide the best of both worlds. In most areas, especially with real price competition through an exchange, the private plans would compete only with each other, while in those areas in which private plans failed to meet established benchmarks, the trigger would result in public plans being created to provide additional competition.
There is a precedent for a trigger approach. As the NYT points out, the legislation creating the Medicare drug program included a provision for establishing a government drug plan in any area with fewer than two private plans. This hasn’t happened, of course, because competition for Medicare D business has been fierce—and has probably contributed to program costs far below the projections of CMS actuaries.
I proposed the trigger concept in a piece that ran in The Health Care Blog back in March. It was clear then that a nationwide public plan faced very considerable political obstacles, and I suggested that a more acceptable approach might be to establish a public plan option that would be implemented only where and when private plans failed to meet predetermined cost control targets.
Senator Olympia Snowe proposed the trigger approach to fellow members of Senate Finance some weeks ago, and the NYT reports that the White House—desperate for at least one Republican vote in the Senate—is now analyzing its political feasibility and practicality.
Senator Snowe’s approach, reflecting the situation in her home state of Maine, where the market is dominated by a single insurer, would tie the trigger to affordability, rather than to cost control. This approach has political advantages, but could be labeled as unfair, since it includes a factor that private plans cannot control—individual incomes—in the trigger comparison. It also has the disadvantage of focusing on individuals who are just above the Medicaid income threshold. To achieve affordability for this lower-income group could mean a public plan network virtually identical to that of Medicaid, raising the question: why not just allow this group to buy-in to Medicaid?
However, any trigger is probably better than the nationwide public plan option. It’s also more realistic than Senator Conrad’s proposal for health cooperatives, a concept that has never been successfully implemented (Seattle’s Group Health Cooperative, despite its name, is a Kaiser-type HMO). The experience of Medicare Advantage, in which the private plans with most enrollees cover the basic benefits at lower cost than the government-administered FFS plan, suggests that a trigger approach could provide the best of both worlds. In most areas, especially with real price competition through an exchange, the private plans would compete only with each other, while in those areas in which private plans failed to meet established benchmarks, the trigger would result in public plans being created to provide additional competition.
There is a precedent for a trigger approach. As the NYT points out, the legislation creating the Medicare drug program included a provision for establishing a government drug plan in any area with fewer than two private plans. This hasn’t happened, of course, because competition for Medicare D business has been fierce—and has probably contributed to program costs far below the projections of CMS actuaries.
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