Health Care Reform Memo: March 19, 2012
Deloitte Center for Health Solutions publication
The health care reform memos are issued on a weekly basis, highlighting news from the previous week's activities in the administration and implications for the C-suite and various stakeholder groups.
From Paul Keckley, Executive Director, Deloitte Center for Health Solutions
Gas prices hit $3.83 per gallon last week, and may hit $4 by Memorial Day per energy experts. Its 26 cent increase in the past year has probably gotten everyone’s attention.
What’s also likely to get attention this week is the second anniversary of the passage of the Patient Protection and Affordable Care Act’s (PPACA) as amended by the Health Care and Education Reconciliation Act (HCERA), but perhaps like gas prices, the underlying issues in the industry and all the “energy options” are beyond comprehension for most of us. We just want lower gas prices and a health system that doesn’t hurt us or cost too much—that simple.
Surveys from the Deloitte Center for Health Solutions suggest the public is confused: they support key elements, but seem to push back from the totality of the law. It’s not because they believe the system is flawless: like physicians, they feel the system performs sub-optimally but opinions are mixed about whether the PPACA results in patient protection and affordability:
|Physician Opinions||Consumer Opinions|
|System Grading||60% of physicians grade the U.S. health care system a report card rating of C/D/F, vs. 35% who give it an A or B.
||78% grade the U.S. health care system a C/D/F grade—virtually unchanged since 2009.|
|View of ACA||44% of physicians feel that PPACA is a good start; 44% a step in the wrong direction; 12% don’t know.||49% believe that the PPACA is a good start; 30% say it is a step in the wrong direction, and 21% say they do not know or have no opinion.|
Source: Deloitte Center for Health Solutions’ 2011 Survey of Health Care Consumers and Physician Perspectives about Health Care Reform and the Future of the Medical Profession
In the President’s first televised address as the nation’s CEO, he urged the passage of health reform to reduce costs and cover everyone. Thirteen months later, PPACA passed to the delight of some and consternation of others. Per a report from the Congressional Budget Office (CBO) this week, implementation of PPACA’s coverage provisions will cost $$1.083 billion from fiscal year (FY) 2012 – FY2021 and reduce the ranks of the uninsured by 30 million. Like every forecast, the veracity of these projections is tied to the underlying assumptions on which they’re based. Notably, the CBO cautioned that the $48 billion difference between its March 2012 and March 2011 analyses of ACA’s coverage provisions reflect dynamic market conditions.
I have read PPACA nine times: like every law, it has flaws—requirements that start with no funding or lacking specifics, provisions that can’t be realistically implemented, or in some cases inconsistently with current laws. The U.S. Constitution was such a document—it has been amended 27 times since its signing in 1787.
Some of the fixes to the PPACA have been made or are in process—elimination of the 1099 reporting requirement for health care businesses required to report virtually every vendor relationship (October 2011) and suspension of the Community Living Assistance Services and Supports (CLASS) program (ACA Section 8002) deemed actuarially unsound at the top of the list.
And in some cases, proposed rules are changed before being final reflective of efforts by government officials to listen to key stakeholders (i.e. changes from the proposed to final rules for accountable care organizations [ACOs] reduced the initial burden of quality measures and increased upside bonuses). And the final rule on health insurance exchanges this week seems to encourage state flexibility in operating an exchange while modifying technical requirements for key functions like eligibility determinations and others. At least four final rules relative to PPACA’s implementation came down this week. Others will follow.
Along the way, “PPACA” as amended by “HCERA” became known as the “Affordable Care Act” also known as “ACA” or in political circles “ObamaCare” (a term I choose not to use to avoid the suspicion of partisanship). In scope and gravity, it is likened to the passage of the Social Security Act under Franklin D. Roosevelt (1935) and Lyndon B. Johnson’s Medicare laws (1965)—understandable for a single piece of legislation intended to transform an industry that employs 16 million and consumes 23 percent of the federal budget, 18 percent of the GDP, and 19 percent of the average household’s discretionary spending.
Objectively, the long-term success of ACA in bringing health costs down and affordable insurance coverage up hinges on four big bets:
- Will its individual mandate if deemed constitutional in June, attract 16 million “young invincibles” into the insurance risk pool, or is the penalty too low so as to only attract those with dire health needs who will flood the system with high cost problems and stretch its resources?
- Will employers choose pay over play after 2014 when the state run health insurance exchanges offer qualified health plans to individuals as well as small employers? After all, no company is required to offer employee coverage, and exchanges offer a safety net for employers wishing to extricate themselves from decisions about health treatments and costs.
- Will consolidation in the delivery system — physicians, hospitals, allied health professionals, long term care services — result in higher costs? ACA’s provisions for episode-based payments, accountable care, medical homes, avoidable readmissions, value-based purchasing, elimination of fee-for service payments, transparency of outcomes and business relationships, and alignment of providers as clinically integrated, risk-bearing entities seem certain to result in fewer players with wider scope of services. Might that also increase cost?
- And how will the states fund and implement the key elements of health reform, given 3 successive years of red ink and the prospect of a sluggish economic recovery? ACA requires states to take the lead in setting up health insurance exchanges, expansion of Children’s Health Insurance Program (CHIP) and Medicaid enrollment, and oversight of health insurance business practices in compliance with new federal regulations. Meanwhile, governors face accelerating health benefits costs for state and local employees and retirees, strained public health programs, under-funded administrative processes for licensing and credentialing of its health professionals workforce, unique challenges in oversight of prison and campus health programs, soaring costs in workers compensation and dual eligible programs, and volatile election cycles that make transformational changes risky politics. ACA puts enormous pressure in states accompanied by modest funding.
The four big bets are still on the table: it’s too soon to know. That a vigorous public debate is useful to transforming the U.S. health system is undeniable. That it is done best via sound bites in election cycles I question.
Might a small group of employers, health professionals and consumers sequester themselves, consider facts and trends, and arrive at solutions that improve the system’s performance dramatically? If done properly, I suspect so. But previous citizen-led efforts have fallen short—the reality is our system of laws is inextricably linked to our system of politics. Thus, the law of the land is ACA, and it is likely to stand for years to come.
What’s clear on the second anniversary of its passage is that health reform like gas prices is hitting home for everyone. At $3.82 per gallon, gas prices in the U.S. are still 40 percent lower than what Europeans pay and half what Asians pay (per the Energy Information Administration and American Petroleum Institute). But for most Americans, comparison of our gas prices to gas prices in other countries is irrelevant: what matters is what we pay and what we get.
The same is true for health care in the U.S. That our per capita health costs are 30 percent higher than Europeans and ten times higher than Asians (per Organization for Economic Cooperation and Development) is interesting, but we care more about how “our” system operates today and its affordability tomorrow.
Will the ACA be the answer to reducing costs and covering everyone? Time will tell. In his inaugural address January 20, 2009, the President said “our health care is too costly; our schools fail too many; and each day brings further evidence that the ways we use energy strengthen our adversaries and threaten our planet…We will restore science to its rightful place, and wield technology’s wonders to raise health care’s quality and lower its cost.”
Its second anniversary will no doubt be marked this week by political sparring over its intent and scope, and vintage footage of the drama around its passage might find its way to TV screens Friday. Hopefully, for most, the reminder will conjure the gravity of what’s at stake.
Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions
ACA implementation update
|Focus||Completed in 2010||Completed in 2011|
|Increase access to health insurance, prescription drugs coverage, doctors and hospitals||
|Improve quality, safety and efficiency of delivery system||
|New ACA Funding mechanism implemented||
In 2012, key elements of ACA are scheduled for implementation in addition to resolution of Supreme Court challenges:
Summary of benefits and coverage: requires group health plans, employers, and health insurers to provide a uniform summary of benefits and coverage explanation prior to enrollment or re-enrollment by March 23.
Final rule on Health Insurance Exchanges released (see below)
U.S. Supreme Court hears arguments on ACA to include:
ACOs become operational under the Shared Savings Program: first set of ACOs become operational under the Medicare Shared Savings Program on April 1. ACOs can also opt for a July 1, 2012 start date. All ACOs that start in 2012 will have agreement periods ending at the end of 2015.
CER: PCORI to release its first report on research priorities for comparative effectiveness
ICD-10: Expected release of ICD-10 rule re: delayed implementation*
|June||NA||Supreme Court ruling on ACA expected.|
|July||2702||Medicaid payments prohibited for provider-preventable conditions: Medicaid will no longer pay providers for preventable conditions. This provision was effective July 1, 2011, but CMS will delay enforcement until July 1, 2012.|
|August||1001||MLR rebates: plans that do not meet MLR requirements will have to pay consumers rebates by August 1 each year.|
|October||3001||Hospital VBP program effective: Medicare will start tying Medicare payments for inpatient hospitals to performance on quality measures for hospital discharges on or after October 1, 2012 (FY 2013).|
|October||3025||Medicare reduces payments for hospital readmissions: CMS will reduce Medicare payments for inpatient hospitals for preventable hospital readmissions starting October 1, 2012. CMS plans to release requirements in the future regulations.|
*Part of American Recovery and Reinvestment Act of 2009 (ARRA) passed by Congress February 13, 2009 (signed into law by President Obama February 17 in Denver): $147 billion in health care investments including: $27 billion for health information technology (health IT) meaningful use, $87 billion to states for Medicaid expansion, and $10 billion additional for National Institute of Health (NIH) funding.
Note: ACA creates other programs and initiatives effective in 2012, but the U.S. Department of Health and Human Services (HHS) has not released any guidance or regulations on implementing them, therefore we do not know exactly when in 2012 they will be implemented. For a comprehensive view of key health reform provisions taking effect from 2010 – 2018, please view the attached ACA Timeline from the Deloitte Center for Health Solutions
HHS final rules for health insurance exchanges, health plan risk adjustment
Background: per Section 1321 of ACA, starting January 2014, health insurance exchanges (HIXs) (state-based, federal, or joint partnership model) must be operational facilitating the purchasing of health coverage for individuals and small group markets (up to 100 employees for the individual and small group markets). HIXs are required to perform four functions: (1) eligibility and subsidy determination; (2) IT and website infrastructure; (3) outreach, marketing, and advertising; and (4) qualified health plan (QHP) procurement.
The Deloitte Center for Health Solutions estimates that between 23 and 65 million individuals may enroll in HIXs in 2020 accounting for scenarios including overall economic conditions, health costs, and employers’ decisions to keep or drop coverage as exchanges become operational (Health Insurance Exchanges: A strategic perspective, July 2011)
Monday, HHS released the first final exchange rule on the establishment of exchanges, QHPs, and exchange standards for employers per ACA Sections 1301, 1302–1304, 1311–1313, 1321–1322, 1331, 1334, 1402, and 1411–1413 combining two proposed rules (July 2011 on state framework for operating exchanges and August 2011 on standards for eligibility)
The final rule specifies standards for:
- Establishment and operation of a HIX by the states
- Participation requirements for health insurance company (i.e. QHPs) that participate in a HIX
- Eligibility determinations to enroll in HIX health plans and in insurance affordability programs
- Methodology and operational requirements for individual/small group enrollment in QHPs offered thru through a HIX
- Employer eligibility for and participation in the Small Business Health Options Program (SHOP)
Notably, the final rule differs from the earlier proposed rules in key areas, perhaps reflective of the 24,780 comments HHS received in the past 5 months. In most cases, the final rule increases state flexibility in setting up and operating their exchanges, and encourages commercial health plan participation increasing flexibility in meeting quality reporting and in the role of brokers in assisting QHP member services.
|Establishment and approval of state HIXs||
HIXs must receive HHS approval by January 1, 2013 to offer QHPs by January 1, 2014. States must submit an Exchange Blueprint to HHS detailing how the HIX meets statutory standards. HHS can provide conditional approval to states if they show that they are likely to be ready by January 1, 2014. The rule also allows states not ready for 2014 to apply for HIXs in 2015 and following years.
A state’s request to make major changes to the Exchange Blueprint (or plan) where any change would receive written approval or denial within 60 days, or an automatic approval after 60 days (which may be extended by 30 days by HHS).
|Health plans offered through HIXs must be certified as QHPs. HIXs may work with health insurers to structure QHP choices.The final rule gives HIXs flexibility to set the timeline for health insurers to become accredited for their quality performance (if they are not already) and changes the grace period policy for QHPs.|
|HIXs must use a single streamlined, coordinated, and web-based system to determine eligibility for enrollment in QHPs. The rule extends the initial open enrollment period from February 28, 2014 to March 31, 2014. HIXs may negotiate earlier effective dates and later plan selection cutoff dates, while securing agreement from all participating QHP issuers. HIXs may also automatically enroll individuals if they demonstrate good cause to HHS.|
|Agents and brokers||Agents and brokers may help individuals apply for advance payments of the premium tax credit and cost-sharing reductions for QHPs. The rule also allows agents and brokers to facilitate QHP selection through a non-Exchange website.|
|Navigators||HIXs will award grants to “Navigators” whose duties include: maintaining expertise in enrollment, eligibility, and program specifications and conducting public training and education activities to raise awareness of QHPs. States must establish licensing or certification requirements; Navigators will not receive federal funding.|
|Income self-attestation||HIXs may accept an applicant’s attestation of his or her projected annual household income for certain circumstances during the income verification process; however, HIXs will never accept such an attestation without attempting to acquire tax data (for purposes of verification of income for determining eligibility for advance payments of the premium tax credit and cost-sharing reductions).|
|Privacy and security||The final rule includes additional standards for privacy and security of personally identifiable information (PII), requiring HIXs to align such standards with those identified in the Office of the National Coordinator for Health Information Technology (ONC) National Privacy and Security Framework for Electronic exchange of Individually Identifiable Health Information.|
|SHOP||Starting 2014, HIXs will operate a SHOP for small businesses. States can establish the small group market as: 1-50 or 1-100 employees until 2016. In 2016, employers with 1-100 employees can participate in a SHOP and in 2017; employers with 100+ employees can participate. The rule also requires SHOPs to develop and offer a premium calculator. Starting in 2014, small employers (25 or fewer employees) purchasing coverage through SHOP may be eligible for a tax credit up to 50% of their premium payments if they pay an average annual wage of $50,000 or less to employees, provide all full-time employees coverage, and pay at least 50% of the premium.|
|Rate review||Requires HIXs to justify QHP rate increases on its website. Multi-state health plans are exempt from the HIX process for receiving and considering rate increase justifications, and they are also exempt from the HIX process for receiving annual rate and benefit information.|
|Provider networks and integrated care||QHPs must have an appropriate number of essential community providers, including mental and behavioral health specialists, geographically located, to provide care for low-income and medically underserved individuals. The rule also establishes an alternate standard for integrated delivery systems and staff model plans.|
|Costs and funding||
HHS estimates that it will spend $3.4 billion through grants to states from FY 2012-2021 for HIXs. HHS will provide new HIX funding through a date to be announced no later than December 31, 2014. The budget and project period for Level One Exchange Establishment Grants is up to one year from the award and for Level Two Exchange Establishment Grants is up to three years from the award date.
Note: HHS has awarded 49 states and D.C. $50 million to start planning HIXs and recently announced that 33 states and D.C. received over $667 million in Establishment Grants to build their HIXs. States will be fully financially responsible for operating HIXs in 2015.
|Interim regulations||HHS seeks comments for 45 days on several regulations published as “interim final,” (i.e. they are not entirely finalized) to include regulations related to the eligibility and enrollment requirement and the ability of states to allow agents and brokers to assist individuals in enrolling in QHPs, Medicaid, and CHIP among several provisions.|
Note: Additional guidance is expected about areas not addressed in the final rule including details about the HIX certification process and its timeline, the federally facilitated exchange, exemptions for eligibility, appeals of individual eligibility determinations, QHP quality requirements, and individual exemption appeals.
Status of HIX implementation in states:
- Eleven states — CA, CO, CT, HI, IL, MD, NV, OR, VT, WA, WV — enacted laws in 2011 to establish HIXs
- Four states — MS, ND, VA, WY—enacted legislation signaling intent to establish their exchanges
- Governors in seven states — AL, GA, IN, ME, MN, OH, RI — are considering alternatives to establishing exchanges through non-legislative means (i.e., executive orders)
- At least seven states are likely to pursue federal or state-federal partnership models — AZ, FL, MT, LA, SC, SD, WI
- Lawmakers in two state — KS, OK — indicated that they will wait until the Supreme Court ruling on the ACA before moving forward with HIX implementation
- NM Governor vetoed legislation passed by its legislature to enact an exchange and created an Office of Health Reform to provide insight on HIXs
Sources: Politico and the National Conference of State Legislatures
Friday, HHS released its final rule covering mechanisms to be used by health insurance companies that wish to participate in HIXs, account for risk adjustment, reinsurance, and risk corridors in order to remove adverse selection incentives for health insurance plans to avoid insuring individuals with pre-existing conditions:
- Risk adjustment: HHS gives states flexibility in how they collect data for risk adjustment (a distributed data collection approach will be used when HHS operates risk adjustment on behalf of a state). As a result, private insurers will not be required to give personal consumer health data to the federal government.
- Reinsurance: HHS allows states the option to establish a reinsurance program (regardless of whether or not they establish a HIX). If a state does not develop a reinsurance program, HHS will establish and operate a program for the state. Under this program, reinsurance payments are similar to commercial reinsurance.
- Risk corridors: ACA states that HHS will administer the risk corridor program 2014 – 2016, protecting against uncertainty in rate-setting in the first few years of HIXs. The program will do this through a mechanism for risk sharing between the federal government and QHPs.
For commercial health insurance companies considering participation, Paul Lambdin, Director Deloitte Consulting LLP, offers the following comments: “the final rule is helpful directionally to the health plans. For example, the confirmation of the role of the broker (if it stands) helps health plans think through distribution. The nod to state flexibility regarding quality accreditation suggests that this will not be a hurdle to participation. And, at least in one instance – allowing plans to “pend” claims after 30 days (rather than having to pay them) of premium delinquency – one can hear a collective sigh of relief from the plans. However, that is an example of one of too few areas where specificity emerges. Overall, the reaction of the plans will be that the continued deference to the states and now to the federal facilitated exchange rules, kicks the can down the road. The plans remain unable to do the detailed mechanical planning required to be ready to plug into and play on the exchanges, and the clock keeps ticking down toward the open enrollment of 2013.”
For states, Patrick Howard, Principal who leads Deloitte Consulting LLP’s Public Sector State Health Care Practice, observes: “the release of the final regulations begins to provide clarity to states in moving forward with structuring the business processes and technology to support HIX. Specifically, additional direction was provided related to income reporting, the interplay between the eligibility system and the HIX in MAGI determination and the role of brokers and navigators. The regulations clearly demonstrate the federal government’s desire to provide state flexibility while addressing the requests by states for more direction.”
HHS releases final rule on Medicaid, CHIP expansion
Friday, HHS released a final rule covering Medicaid expansion in 2014 for individuals age 19 to 64 with incomes of less than 133 percent of the federal poverty level (FPL) as well as clarification around CHIP and Medicare dual eligibles:
- From FY2014 – 2016, the federal government will fund 100 percent of the newly eligible individuals, and reduce the match to 90 percent by 2020 where it will permanently remain
- For CHIP and Medicare applications and renewals, a single “Modified Adjusted Gross Income” (MAGI) standard will be used to determine eligibility documented in a timely manner
- Clarification that individuals with disabilities or who are in need of long-term services may enroll in an existing Medicaid eligibility category
- Consolidating eligibility categories into four main groups: adults, children, parents, and pregnant women
- Updating eligibility verification procedures to rely mostly on electronic data, and allows states to request additional information from applicants
- Making it a policy for Medicaid to automatically renew individuals based on existing information in current data sources and limiting renewals for those enrolled through the simplified, income based rules to once every 12 months, unless the individual reports a change or the agency has reason to reassess eligibility
The rule also contains provisions regarding the implementation of a seamless system across HIXs, Medicaid, and CHIP. Per ACA Section 2201, states must begin coordinating enrollment procedures for all three services in order to provide a “no wrong door” policy for individuals residing in the state.
Note: states voiced objections to the draft rules issued in August of last year that stipulated exchanges would have been allowed to determine who is eligible for Medicaid—creating one-stop-shopping for coverage options. The new rule allows states to decide whether or not the HIX will enroll beneficiaries into Medicaid or allow the state Medicaid agency to determine eligibility.
HHS releases final rule for student health plan coverage
Friday, CMS released a final rule on requirements for student health insurance coverage under the Public Health Service Act and ACA Section 1560 adjusting the proposed rule to include:
- Annual limits: changing requirements surrounding annual limits to essential health benefits (EHBs): on or after July 1, 2012 up to September 23, 2012, student health plans cannot have annual limits of less than $100,000; on or after September 23, 2012 up to January 1, 2014, no less than $500,000; and after January 1, 2014, no annual limits on EHBs will be permitted.
- MLR calculations: applying a methodological adjustment to the medical loss ratio calculated for student health plans: starting in 2013, this makes student health plans subject to the reporting and rebate requirements of the medical loss ratio rule; the adjustment is meant to address the “unusual expense and premium structures” of these plans. Student coverage must now be aggregated nationally as its own pool, rather than it is currently on a state-by-state basis.
- Disclosures by health insurance companies: the new regulation requires insurance companies to inform the student in policy materials that the policy does not meet the minimum annual limits requirements. The rule also specifies that insurers must notify students under the age of 26 that they may be eligible for insurance coverage as a dependent of their parents’ employer plan. This requirement changes after 2014 when insurers are no longer allowed to have annual limits.
CMS noted that this rule does not apply to self-funded student health plans, and in order for the rule to apply, a change in regulation would be required.
House committee hearing on insurance coverage slated for Wednesday
The House of Representatives’ Energy and Commerce Subcommittee on Oversight and Investigations will hold a hearing March 21, 10 a.m. on the Center for Consumer Information and Insurance Oversight (CCIIO). The subcommittee released a statement saying, “in light of CBO's new analysis that reveals the health care law's gross cost is $1.8 trillion and fewer Americans will be able to maintain their current employer-sponsored health insurance, the hearing will examine the status of the many lofty promises made by the law's proponents.”
House Committee on Rules to consider repeal of IPAB
The House of Representatives’ Committee on Rules is scheduled this week to consider legislation (the Medicare Decisions Accountability Act [H.R.452]) to repeal the Independent Payment Advisory Board (IPAB). IPAB is 15 appointees by the White House with Congressional approval empowered to set Medicare reimbursement rates in order to control costs.
Final briefs to Supreme Court on ACA; transcripts of oral arguments available to public
Last week the 26 states challenging the ACA filed briefs to the U.S. Supreme Court arguing that ACA’s Medicaid coverage expansion is “unconstitutionally coercive” and that ACA in its entirety is “uniquely coercive.” The states’ and the National Federation of Independent Business (NFIB) also filed briefs claiming that the individual mandate is not severable from the law and that ACA should be struck down if the court rules the mandate unconstitutional. The attorney appointed to represent the position of the 11th U.S. Circuit Court of Appeals decision argued that the mandate is severable from the entire law.
Note: in a press release on Friday, the Supreme Court indicated that, although requests to televise the oral arguments on ACA set to be heard March 26-28 had been denied, audio recordings and transcripts will be provided “on an expedited basis” through the website.
CBO updated analysis of ACA costs, coverage, FY2013 budget estimates
Last week, the Congressional Budget Office (CBO) and the Joint Tax Committee (JTC) released updated estimates from its March 2012 baseline in three key areas. Highlights:
1. Impact of changes in health insurance coverage:
The updated estimate concludes that the insurance coverage provisions of the ACA will have a net cost of slightly under $1.1 trillion over the 2012–2021 period—$48 billion less than the agencies’ March 2011 estimate for that 10-year period (see table below). CBO also predicts the ACA will lead to a net loss of employer-based coverage for between 3 million and 5 million people each year between 2019 and 2022, compared to what would have happened before the law. It also lays out scenarios for 2019 that could lead to anything from a loss of coverage for 20 million Americans to a gain of coverage for 3 million. The net costs reflect:
- Gross additional costs of $1.496 trillion for Medicaid, the CHIP, tax credits and other subsidies for the purchase of health insurance through the newly established exchanges and related costs, and tax credits for small employers
- Offset by about $0.413 trillion in receipts from penalty payments, the new excise tax on high-premium insurance plans, and other budgetary effects (mostly increases in tax revenues)
ACA’s insurance coverage provisions were projected last March to increase the federal deficit by $1.131 billion vs. the March 2012 estimate it will increase deficits by $1.083 billion. The net cost was boosted by an additional $168 billion in estimated costs for Medicaid and CHIP and $8 billion less in estimated revenues from the excise tax on high-premium health insurance plans. But those increases were more than offset by a reduction of $97 billion in the projected costs for the tax credits and other subsidies for health insurance provided through the exchanges and related spending, a reduction of $20 billion in the projected costs for tax credits for small employers and a reduction of $107 billion in deficits from the projected revenue effects of changes in taxable compensation and penalty payments and from other small changes in estimated spending.
This report also presents estimates through fiscal year 2022, because the baseline projection period now extends through that additional year. The ACA’s provisions related to insurance coverage are now projected to have a net cost of $1.252 billion over the 2012–2022 period (see table below); that amount represents a gross cost to the federal government of $1.762 billion, offset in part by $510 billion in receipts and other budgetary effects (primarily revenues from penalties and other sources).
|CBO estimates of ACA coverage provisions||March 2011||March 2012|
|Changes in coverage in 2016 (in millions for nonelderly individuals)|
|Medicaid and CHIP||16||17|
|Non-group and other||-5||-2|
|Impact of the Federal Deficit FY2012-2021 (negative dollar amounts indicate savings to the federal government)|
|Medicaid and CHIP outlays||
|Exchange subsidies and related spending||
|Small employer tax credits||$41||$21|
|Penalty payments from uninsured individuals||$-34||$-45|
|Penalty payments from employers||$-81||$-96|
|Excise tax on high-premium insurance plans||$-87||$-79|
|Other effects on tax revenues and outlays||$-113||$-193|
|Total cost of coverage provisions||$1,131||$1,083|
Source: CBO and the staff of JCT, “Updated Estimates for the Insurance Coverage Provisions of the Affordable Care Act,” March 2012
Note: CBO and JCT estimates account for: (1) legislation enacted last year which reduced ACA costs by $38 million (e.g. The Three Percent Withholding Repeal and Job Creation Act which amended the calculation for the modified adjusted growth income, The Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, and The Department of Defense and Full-Year Continuing Appropriations Act of 2011 (P.L. 112-10) repealed the Free Choice Voucher); (2) an improved economic outlook, and (3) increased growth in private health insurance premiums. They also made technical changes in cost estimating procedure. CBO’s March 2011 estimates for insurance coverage expansion do not include estimates for the total cost and savings associated with ACA in its totality. The insurance coverage provision includes the individual mandate, state exchanges, expansion of Medicaid eligibility, excise tax on health insurance plans with higher premiums, and penalties on employers who do not provide employees with minimum health benefit.
2. Impact of the Medicare sequester:
CBO estimates that the Budget Control Act’s Medicare sequester will reduce Medicare spending by $4.6 billion in across-the-board reductions in 2013 and would gradually increase to $13.7 billion in 2021, and lower to $6.6 billion in reductions in 2022. The estimated total impact of the sequester on Medicare is $122.9 billion. Other payment reductions include:
- Acute providers (hospitals) $33.0 billion
- Medicare Advantage Plans (Part C): $27.5 billion
- Medicare Part B (physicians and Part B drugs): $16.34 billion
- Medicare Part D (prescription drugs): $14.76 billion
- Hospital outpatient payments: $10.2 billion
- Skilled nursing facilities: $6.35 billion
- Home health agencies: $4.55 billion
- Long-term care acute hospitals: $1.23 billion
- Hospice: $3.07 billion
- Dialysis: $2.34 billion
- Durable medical equipment: $1.84 billion
- Labs: $1.97 billion
Source: Amy Lotven, “CBO Medicare Data Suggest Inpatient Facilities Hit Hardest By Sequestration,” InsideHealthPolicy, March 14, 2012.
3. Impact of FY2013 budget proposal:
President Obama's FY2013 budget proposal would reduce Medicare spending by $276 billion over ten years and Medicaid spending by $66 billion. Assuming current tax and spending is unchanged, CBO estimates that the deficit for 2012 will be $1.2 trillion (8.1 percent of GDP, $82 billion more than originally projected) and cumulative deficits from 2013 to 2022 will be $2.9 trillion. The report also noted:
- In FY2013, the deficit will fall to $977 billion (6.1 percent of GDP), $365 billion more than the original projection.
- Deficit levels will reach a low of 2.5 percent of GDP by 2017 but will increase until reaching 3 percent of GDP in 2022 (Medicare demand, cost a major factor).
- Federal debt held by the public will increase from $10.1 trillion (68 percent of GDP) at the end of 2011 to more than $18 trillion by the end of 2022 (76 percent of GDP).
CMS delays 5010 enforcement
Thursday, CMS Office of E-Health Standards and Services announced that it would not be enforcing penalties on noncompliant medical practices regarding the 5010 implementation before June 30, extending the date of March 31, 2012. To date, the Medicare fee-for-service program is processing approximately 70 percent of Medicare Part A claims and more than 90 percent of Part B claims in the new format. CMS stated that they are “aware that there are still a number of outstanding issues and challenges impeding full implementation.”
Note: announcement of the anticipated delay in ICD-10 is expected the end of March. For a complete update about ICD-10 implementation status and preparedness, tune in to Deloitte’s Dbriefs Webcast: Navigating the ICD-10 Delay: Insights and Smart Next Steps for Health Care Organizations March 23, 2012 at 1 p.m.
Medical societies challenge usefulness of transparency about physicians inducements by manufacturers; cite flaws in process of reporting
Tuesday, the American Medical Association (AMA) and 92 medical societies asked CMS to revise its proposed regulations (December 2011) to give physicians additional time to contest erroneous information about consulting and speaking fees, travel and lodging, and other "transfers of value" from industry before they are published and relaxation of language requiring transparency of all transactions involving industry. The proposed rule gives physicians 45 days to review CMS’ filing for an entire year’s worth of interactions with manufacturers.
Note: In ACA Section 6002, inappropriate relationships between manufacturers and physicians that might unduly influence the latter's professional judgment are addressed. By September 30, 2013, after the final regulations are issued, manufacturers must inform CMS about all financial relationships with physicians, beginning at the $10 level or with smaller transactions that add up to more than $100 a year which in turn will make its information public. Product samples, educational materials intended for patients, and short-term loans of medical devices are excluded from the reporting requirements.
GOP Senators propose phase out of Medicare
Thursday, Republican Senators, Rand Paul (KY), Mike Lee (UT), Lindsey Graham (SC), and Jim DeMint (SC) released a plan that would move Medicare enrollees into the federal employee health care program in an effort to “protect seniors’ interests and give them the best quality health care.” The plan would also gradually increase the retirement age (adding 3 months every year until reaching 70 in 2024) and require wealthier individuals to pay more.
Community-Based Care Transition Program expands, avoidable readmissions key focus
Wednesday, CMS announced 23 additional participants in its Community-Based Care Transitions Program (CCTP) that works with hospitals to prevent readmission into hospitals by high risk Medicaid patients. The 30 CCTPs will be working with 126 hospitals in 2012 with a goal reducing preventable readmissions by 20 percent over a three year period. Per CMS, the program has the potential to save to 60,000 lives and $50 billion for Medicare over ten years.
MedPAC leaders express concern about managed care for dual eligible citing lack of quality measures
Citing increased efforts by state officials to move dual eligible into managed care programs, the Medicare Payment Advisory Commission (MedPAC) leaders (Glenn Hackworth and Robert Berenson) notified CMS of their concerns that current managed care efforts lack adequate measures of quality upon which the capitated pilots may be calibrated to assure quality and safety of care provided.
Note: dual eligible represent 15 percent of Medicaid enrollment and 40 percent of Medicaid costs. In Medicare, duals are 18 percent of enrollees and 33 percent of spending.
CMS awards $75 million for Medicaid Emergency Psychiatric Demonstration
Tuesday, CMS awarded $75 million in Medicaid matching funds, distributed over three years, for a new demonstration that allows private psychiatric hospitals to treat psychiatric emergency patients. ACA Section 2707 established the Medicaid Emergency Psychiatric Demonstration where states reimburse private psychiatric hospitals (IMDs) for providing mental disease services for Medicaid beneficiaries aged 21 to 64 who need medical assistance. States that received funding include: AL, CA, CT, IL, ME, MD, MS, NC, RI, WA, WV, and DC
Note: prior to ACA, federal law prohibited Medicaid from covering IMD services for Medicaid beneficiaries ages 21 to 64, leading these individuals to seek care in general hospital emergency departments or psychiatric hospitals that would not receive reimbursement. The demonstration will assess whether it increased access to care and health care quality and if states expenses decreased in general emergency departments.
March 9, Florida lawmakers passed a $70 billion budget awaiting passage from Governor Rick Scott (R) that would reduce Medicaid payment rates by about 5.6 percent( reduction of $303 million in hospital reimbursement). The legislation also reduces nursing home payments 1.25 percent, limits the number of emergency department visits for non-pregnant adults over age 21 reimbursed under Medicaid to six per fiscal year starting August 1, costing hospitals $46.7 million, according to the Florida Hospital Association. and prohibits payments for preventable hospital errors by $2.7 million.
Wednesday, Maine Governor Paul LePage (R) released a plan to rework the state’s Department of Health and Human Services. Among significant changes proposed include:
- Merging the Offices of Substance Abuse and Adult Mental Health Services, Elder Services, and Cognitive and Physical Disability Services
- Reorganizing the Office of Child and Family Services to link together its four major service areas
- Eliminating 91 positions, and creating 44 jobs for a net of 47 positions lost
Officials have predicted modest savings to the state of approximately $500,000 would occur from implementing these changes.
Thursday, CMS Center for Medicaid and CHIP Services notified Texas officials that its Women’s Health Program covering 130,000 women across the state must be phased out due to non-compliance with federal regulations. The state is required to submit a proposal for a phase-out plan to CMS by April 16. Note: late Friday, the Texas Attorney General’s office announced it will file suit against the federal government over CMS denial of the Women’s Health Program family planning waiver.
Florida crackdown on pill mills: In 2010, 90 of the top 100 prescribers of pain meds were in Florida, in 2011, 13 (DEA) and # of clinics reduced 38 percent (943 to 582), prosecutions up 42 percent--Governor Scott initiated 7 regional strike forces in March ’11, then July new law barring physicians dispensing from offices and increased reporting requirements
The New Jersey state Senate voted (22-13) Wednesday to pass a bill creating an HIX for the state operated in its Department of Banking and Insurance. Sponsored by Senators Nia Gill (D) and Joseph Vitale (D), the bill passed the in the state Assembly (41-35) an hour earlier despite Governor Chris Christie’s (R) desire to wait until the Supreme Court rules on the constitutionality of ACA. Note: 1.3 million (15 percent) of New Jersey residents are uninsured, ranking it 28th in the country for uninsured rates. Vs. the U.S. average is 16 percent. 80 percent of the state’s uninsured are non-elderly adults; 60 percent are employed, and mostly in full-time positions. (Source: Raymond Castro, Newsroom New Jersey, “N.J. Health Benefit Exchange Act would help address un-insurance crisis,” March 14, 2012)
Administration launches Global Health Service Partnership to address global workforce shortages
Tuesday, the Peace Corps, the nonprofit Global Health Service Corps, and President Obama’s Emergency Plan for AIDS Relief (PEPFAR) announced a Global Health Service Partnership program to send health professionals to developing countries to teach at medical and nursing schools for one year to address health care workforce and increase support for medical education programs. The program starts July 2013.
Commonwealth Fund releases health system score card for 306 local U.S. areas; 66 million live in low performing markets
Wednesday, the Commonwealth Fund released results from its health system score ranking 306 U.S. markets on 43 performance metrics including access to health care, health care prevention and treatment, avoidable hospital use and cost, and health outcomes. Midwest and Northeastern markets performed the best and markets in the West and South lowest. The study found 66 million individuals reside in the local areas that scored in the bottom 25 percent and wide variation in private insurance spending per-person variation (up to about a 250 percent difference between the lowest and highest spending areas) and average per-person Medicare reimbursements. Medicare costs were generally higher in the East and South than in the Midwest and West. (Source: David Radley et al., “Rising to the Challenge: Results from a Scorecard on Local Health Performance, 2012,” Commonwealth Fund, March 14, 2012)
Study: Personalized medicine for cancer care likely more costly as result of need for multiple biopsy’s
UK scientists discovered major differences in the mutation of genes in the same tumor and in the genetics of the main tumor and other places where it has spread. The net result: analyzing a single sample of a patient’s tumor may miss important genetic mutations necessary to treatment planning. (Source: Swanton et al New England Journal of Medicine, March 8, 2012, Vol. 366 No. 10)
CMS released final rule on DMEPOS Supplier Safeguards
Wednesday, CMS released its final ruling on revisions to the Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Supplier Safeguards. The final ruling removed the definition of “direct solicitation,” now allowing DMEPOS suppliers to contract with licensed agents to provide DMEPOS supplies, unless state laws prohibit it. It also changed provisions corresponding to state licensure and regulatory requirements to stipulate that, if a state requires licensure to furnish items or services, the DMEPOS supplier must be licensed to provide the item or service, and they may contact with a licensed individual or entity to provide the services, unless prohibited by state law.
Medicare advantage overpayment recovery
CMS calculates that the rate of overpayments is 11 percent to Medicare Advantage Plans (Part C), $12.4 billion of $112.2 billion paid in FY2011. CMS announced going forward it will audit 30 plans annually to assess overpayments.
AdvaMed announces agenda for medical device industry
Wednesday, AdvaMed’s new Board Chairman, David Dvorak, announced the group’s strategic initiatives for the organization:
- Advocacy issues (appropriate implementation of the U.S. Food and Drug Administration’s [FDA] new user fee agreement; continued efforts to repeal/reduce the 2.3 percent excise tax in ACA)
- Enhancing advocacy efforts in emerging markets (e.g., China, India, Brazil)
- Building upon existing relationships with patient and physician groups
- Strengthening in-house research capacity
“These new marketplaces will offer Americans one-stop shopping for health insurance, where insurers will compete for your business. More competition will drive down costs and Exchanges will give individuals and small businesses the same purchasing power big businesses have today.”
— HHS Secretary Sebelius commenting on HIX final rule
“Effectively filling the health care cost stabilization triangle with enough wedges of waste reduction will require more than a list, however. It will demand a highly self-conscious and intentional leadership agenda, with bold and explicit goals, honest monitoring, and strong cooperation between public and private payers. Furthermore, its success will depend on committed leadership from health care professions, who can most accurately tell the difference between waste and what helps.
We haven’t gone all the way yet. But I’m not sure that patients really want the whole truth all the time, nor that physicians want to provide it. I think a relationship has developed where we as physicians don’t tell patients everything and patients don’t really want to know everything. All of us have colluded in developing a relationship that is not entirely transparent, and I don’t believe that it is really healthy.
I think that we will have no choice but to move toward greater honesty and transparency at all levels, even though both sides are having difficulties with it. But complete transparency is a good thing. I believe we should welcome it in the long run. It’s just that in the short run, it will be painful.”
— A recent article by Dr. Robert D. Truog (executive director of the Institute for Professionalism and Ethical Practice) describing the larger and more complex, social forces that have affected the patient-doctor relationship over the last hundred years, writing in The New England Journal of Medicine
- MedPAC analysis of 2010 Medicare spending released to Congress Thursday: Part D spend increased from $42.5 billion (2006) to $59 billion (2011); Medicare Advantage enrollment increased to 12.1 million (2011)’ home health profit margin increased from 15.4 percent (2006) to 19.4 percent (2010). (Source: Medicare Payment Advisory Commission March 15, 2012)
- Health insurance premiums will reach the median household income ($49,800 in 2009) in 2021 and surpass in 2033. From 2000 to 2009, insurance premiums increased by 8 percent while household incomes only increased by 2 percent. (Source: Annals of Family Medicine, “Who Will Have Health Insurance in the Future? An Updated Projection,” March/April 2012)
- 30-day hospital readmissions are higher for individuals who had non-surgical care for chronic or acute conditions than for individuals hospitalized for surgical procedures, in 15 large states. (Source: Health care cost and Utilization Project (HCUP), “30-Day Readmissions following Hospitalizations for Chronic vs. Acute Conditions, 2008,” February 2012)
- 75 percent of medical residents use the iPad daily; 78 percent report their efficiency increased. (Source: Archives of Internal Medicine, “Impact of Mobile Tablet Computers on Internal Medicine Resident Efficiency,” March 12, 2012)
- From 2007-2010, the number of children and adults with employer-sponsored health insurance dropped from 63.6 to 53.5 percent. From 2001-2010, employer-sponsored insurance coverage dropped from 42 percent to 24 percent for families under 200 percent of the federal poverty level—$44,100 for a family of four. (Source: Chapin White & James Reschovsky, National Institute for Health Care Reform, “Great Recession Accelerated Long-Term Decline of Employer Health Coverage,” March 2012)
- In 2011, 95 percent of U.S. medical school seniors were matched to residency positions—highest in over 30 years. Internal medicine, anesthesiology, and emergency medicine residencies had the biggest increases; family medicine positions increased only 1.1 percent this year. (Source: American Association of Medical Colleges, “Highest Match Rate for U.S. Medical School Seniors in 30 Years,” March 16, 2012)
- 40 percent of individuals with employer coverage and 55 percent of those with individual plans would likely seek coverage in health insurance exchanges. (Source: J.D. Power and Associates, “2012 U.S. Member Health Plan Study” March 2012)
- Infant mortality rate: for U.S. children ages 1 to 4: 441/100,000 deaths in 1935 to 27/100,000 deaths in 2010—a decrease of 94 percent; overall mortality rate: 1,860/100,000 in 1935 to 746/100,000—60 percent decrease. (Source: Centers for Disease Control and Prevention)
National health reform: What now?
National health reform is here. The health reform bills (HR3590 and HR4872) are now law and will trigger sweeping changes and disruptions – some rather quickly and some over many years. The industry is asking, “What now?” At Deloitte, we continue to explore and debate the key questions facing the industry, and we look forward to helping our clients find and implement the right answers for their organizations. To learn more, visit www.deloitte.com/us/healthreform/whatnow today.
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