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Health Care Reform Memo: June 14, 2010

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.

Health insurance industry update: Watchful waiting

From last week’s AHIP (America's Health Insurance Plans) Policy Institute in Las Vegas, the messages from the array of industry and government leaders were clear:

  • The Patient Protection and Affordable Care Act (PPACA) is a work in progress: follow-on administrative and regulatory decisions that clarify how its provisions will be carried out will be keys to knowing its long-term impact on health plans. There are still too many unknowns.
  • Of immediate consequence to the industry are key determinations about how medical loss ratio (MLR) and premium increase requirements of the bill will be defined and regulated.
  • The attainment of at least a “4 star” rating for Part C (Medicare Advantage) plans for 2010 (the base year for 2013 payment/bonus calculations) is problematic. The industry average is 3.2, which means achieving 4.0 by the end of the calendar year is challenging.
  • New taxes and regulations will add cost to premiums above medical costs. The visibility of premium increases will be high.
  • Economic recovery is not certain and health costs continue to be a problem. Cuts to Medicare/Medicaid/Social Security are necessary to stabilize the economy long-term—a challenge as health reform is being implemented simultaneously. It is likely a combination of additional revenues (taxes) and government spending cuts are required.

Deloitte Pulse Survey: Concern about cost impact of reform is significant, anticipation of changes in employer sponsored benefits high

Key takeaways from survey:

  • Most consumers believe PPACA will increase costs for insurance and delivery of services and many think it will result in limited access to hospitals and doctors.
  • Consumers think employer sponsored coverage will change significantly as a result of the bill: increased premiums and reduction of benefits for dependents and retirees likely.

Select findings of survey:

  • 53 percent believe PPACA will not reduce costs long-term compared to 43 percent of the uninsured.
  • Consumers anticipate higher costs as a result of PPACA for taxes (76 percent); health insurance costs, including premiums and other out-of-pocket costs (65 percent); hospital and physician services (66 percent); and prescription drugs (54 percent).
  • 61 percent believe employers will reduce benefits for dependents and retirees; 80 percent believe employers will pass increase in cost of health benefits through to employees.
  • 32 percent think employers will pay the penalty and discontinue health coverage for employees altogether.
  • Of those who consider themselves “very knowledgeable” about PPACA, 72 percent believe access to hospitals and physicians will decrease as a result of PPACA.
  • 56 percent believe that incentives for doctors and hospitals to use electronic medical records will be “very effective” or “effective” in improving the overall performance of the health care system.
  • Among the insured, satisfaction with health plans is reasonably high: 82 percent of U.S. adults consider themselves “well” or “adequately” insured, and 96 percent of these adults are “somewhat” or “very satisfied” with their health plan.
  • For profit vs. not-for-profit status does not seem to matter to most: 69 percent believe “the issue is not whether an organization is for-profit or not-for-profit — it’s what they do that matters” and 61 percent believe that a “mix of for-profit and not-for-profit organizations stimulates positive competition and innovation.”

Methodology: Survey was conducted via telephone interviews within the United States by Harris Interactive on behalf of the Deloitte Center for Health Solutions May 21-24 (weighted national sample of 1,019 adults –error +/-3 percent at .95 confidence interval).

View the full results of the survey.

Economic outlook mixed: Treasury, WSJ reports

Per the U.S. Department of the Treasury report to Congress Friday, U.S. debt will top $13.6 trillion in 2010 year and climb to $19.6 trillion by 2015. The ratio of debt to the GDP will increase to 102 percent by 2015 from 93 percent this year.

Thursday, the Wall Street Journal reported 2011 predictions of its consensus panel of 53 economists: GDP will grow at 3 percent thru 2011, unemployment will be 8.7 percent, 75 percent said Greece would be unable to pay its debt and 19 percent believe a second recession is possible.

A similar cautionary statement was made Wednesday in testimony to the House Budget Committee by Federal Reserve Chair Bernanke.

Additional Medicaid funding

Tuesday, U.S. Senate Democrats restored $24.2 billion in Medicaid payments to states, bringing to $136 billion additional Medicaid funding for FY10-FY13 ($87 billion in the ARRA stimulus bill, $25 billion in the FY11 budget). Note: PPACA funding for expansion of Medicaid 2014-2019 is $434 billion. The additional $136 billion for FY10-FY13 means the federal government will be responsible for 66 percent of total Medicaid funding, up from 57 percent currently. PPACA anticipates a 21 percent growth in Medicaid enrollment.

HIT update

HITECH deadlines approaching: Federal incentive payments become available to hospitals in October and to doctors in January. To qualify under the administration plan, doctors would have to meet 25 criteria and hospitals would have to meet 23. A physician can receive up to $18,000 in 2011 and up to $44,000 through 2015. To qualify, doctors and hospitals must use certified electronic health record systems to check insurance eligibility, submit claims, and provide patients with “an electronic copy” of their diagnostic test results on request. And, physicians and hospitals must demonstrate they can “electronically exchange key clinical information.” Example: 10 percent of a hospital’s medication orders must be entered through a computerized provider order entry (CPOE) system for a minimum of 90 days in the first year of funding.

VA pilots: Last week, the Veterans Affairs Department announced $80 million funding for its Innovation Initiative (VAi2) to find information technology enabled solutions for veteran homelessness, outpatient kidney disease treatment, etc. The VA Innovation Initiative also includes MyHealtheVet, a patient portal for vets (previously veterans had to use

Deal announced: the proposed merger of Allscripts and Eclipsys last week ($1.35 billion deal) announced last week will draw increased attention to e-prescribing as a key application of HIT deployment.

Part D update: $250 checks in the mail

This week, 80,000 seniors who hit the doughnut hole are expected to receive $250 checks per the Department of Health and Human Services. Note: under the Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA, 12/03), seniors enrolled in a Medicare Part D plan pay 25 percent of the cost of their prescription drugs until the total bill reaches $2,830, then 100 percent of total out-of-pocket costs until $7,380 (total $4,550), then 5 percent of drug costs for the rest of the year. Under PPACA, the doughnut hole provision is eliminated by 2020. In 2010, the $250 rebate is required for the 4 million seniors who will hit the doughnut hole in 2010. In 2011, seniors whose costs fall within the doughnut hole will get a 50 percent discount on drugs that gradually increases to 75 percent discount in 2020.

Q and A

Q: What’s to stop an employer from dropping insurance benefits and paying the penalty? Isn’t it cheaper for an employer?

A: The bottom line: yes, it’s cheaper. But there are several considerations besides savings.

Under terms of PPACA, if an employee's contribution for his or her company-sponsored health plan costs more than 9.5 percent of the family's household adjusted gross income, it will be deemed unaffordable by the government and the employer will be penalized, paying a penalty of $3,000/year for each fulltime employee who uses a government subsidy to buy insurance (maximum $2,000 times total number of employees in excess of 30).

Since an employer plan is required to follow regulations in PPACA (coverage without pre-existing conditions for children under 19, coverage for eligible dependents, etc.), it is likely the costs will be above today’s average $13,600 for a family of four. A company could pay the penalty, lose the tax deduction for health insurance benefits, and still come out ahead financially.

Most companies will watch as health exchanges and insurance regulations unfold before making a decision about long-term health insurance benefits for employees. It is likely companies will consider workforce recruitment and productivity issues along with competition within their industry before making a final decision.

Clearly, employer sponsored benefits costs and the possibility that health exchanges might provide a default for companies that drop benefits is on the radar among policy analysts and economists. Note: Employer sponsored coverage covers 164 million in the U.S. today. In its assessment, the Congressional Budget Office (CBO) estimated 4 million would lose employer benefits and go to exchanges for their coverage by 2016.

My view: The exit from employer-sponsored coverage has the potential to be much higher than the CBO thinks if the economic recovery lags, health costs increase at double-digit rates, and health exchanges are successfully implemented in states by 2014 per the bill. Stay tuned.

Q: Where in the reform bill is preventive health considered? Seems a major oversight.

A: PPACA references preventive health in at least 24 sections of the bill:

Title One: Quality, Affordable Health Care for All Americans

  • Section 1302: “Essential health benefits package” required of health plans shall be defined by Secretary of Health and Human Services to include (not limited to) (1) preventive and wellness services and chronic disease management and (2) pediatric services, including oral and vision care.
  • Section 1311: The Secretary of Health and Human Services shall create a national strategy for quality improvement that includes incentives and innovation in preventive and chronic care management with attention to disparities.
  • Section 1501: Requires all individuals to purchase insurance that covers “minimum essential benefits” including basic preventive and chronic care services (the individual mandate).

Title II – Role of Public Programs

  • Section 1202: Provides for primary care physicians who treat Medicaid patients to be paid at Medicare rates in 2013, 2014.
  • Section 2701: The Secretary shall develop a uniform set of quality measures for Medicaid enrollees and report to Congress on its usefulness by September 30, 2014.
  • Section 2703: Creates mechanism for states to create medical homes for Medicaid enrollees with two or more chronic conditions.
  • Section 2713: Coverage of preventive health services: made available without respect to income, race, etc.
  • Section 2717: Ensuring quality of care for preventive services: standards of efficacy and effectiveness assured for public programs i.e. Medicaid, State Children's Health Insurance Program (SCHIP), others.
  • Section 2951: Requires states to assess the safety and healthiness of home environments for maternal and child health beneficiaries of SCHIP and create five year improvement goals.
    • Section 2953: Allocates $75 million/year for FY10-FY14 for “Personal Responsibility Education for Adulthood Training.”
  • Section 2954: Allocates $50 million/year for FY10-FY14 for abstinence education.

Title III: Improving the quality and efficiency of health care

  • Section 3011: The Secretary of Health and Human Services shall submit a national strategy for health care quality improvement on or before January 1, 2011 inclusive of preventive, chronic, acute and long term care.

Title IV: Prevention and Public Health

  • Section 4101: Authorizes $50 million/year for FY10-13 for school-based health clinics in under-served populations.
  • Section 4102: Creates an oral health care prevention education program in the Centers for Disease Control and Prevention (CDC).
  • Section 4103: Effective January 1, 2011, authorizes an annual wellness visit using a comprehensive health risk assessment for Medicare enrollees: “The Secretary shall set standards for the electronic tools that could be used to deliver the assessment.”
  • Section 4104: Removes co-payments for certain preventive health services for Medicare enrollees.
  • Section 4105: Requires the Secretary of Health and Human Services to evaluate and report on the evidence-based coverage of preventive services.
  • Section 4106: Expands Medicaid coverage requirements for approved preventive services.
  • Section 4107: Requires states to provide smoking cessation counseling for pregnant women in the Medicaid programs.
  • Section 4108: Provides grants to states for incentives to participate in prevention and chronic disease management programs.
  • Section 1040: Requires the Secretary of Health and Human Services to develop a national diabetes care management program.
  • Section 10408: Authorizes up to $200 million in grants for small business workplace wellness programs.
  • Section 10410: Authorizes $100 million/year FY10-15 and $150 million/year FY16-20 for development of centers of excellence for depression management.
  • Section 10413: Creates a national education program to increase breast health awareness.

With respect to preventive health, the key takeaways from the bill are:

  • Preventive health is a key element of the national quality strategy to be developed by the Secretary of Health and Human Services based on recommendations from the U.S. Preventive Services Task Force and public health officials. Addressing health disparities and public health issues is a primary focus.
  • The elimination of barriers to preventive health via co-payments and deductibles in insured populations and their inclusion in “essential health benefits” in insurance reforms is a critical element of the bill’s preventive health framework.
  • The expansion of primary care services, improvements in public health, elimination of disparities, expansion of patient centered medical home pilot projects, creation of the Patient Centered Outcome Research Institute, expansion of chronic care programs and comparative clinical effectiveness research are the key elements of the bill that connect preventive health directly to a national effort.
  • The bill does not appear to encourage consumers to live healthier lives based on a set of incentives/penalties or advance an expectation of individual accountability. Increased transparency among providers for safety, outcomes and costs along with increased use of health care information technologies (including the national goal of widespread access to personal health records by 2019) come closest to assuring consumers have tools upon which to make judgments and act responsibly.


“I want to send a notice to all who would swindle and steal from seniors and the Medicare system. We are going to find you, we will prosecute you, and we will ultimately prevent those crimes from happening ever again.” 

– Source: President Obama Tuesday in Wheaton, MD town hall meeting, announcing plans to increase fraud oversight in Medicare. Per the U.S. Department of Justice, $2.5 billion was recovered in 2009; HHS estimates $35 billion is paid annually in fraudulent claims.

“The timelines and specifications of HITECH are too rigid, requiring too much change in too short a time. At this date, Intermountain could not meet 36 of the 48 meaningful use requirements.” 

– Source: Paul Wallace, MD, Intermountain Healthcare Wednesday.

“We want to strike a balance. We will provide flexibility for doctors and hospitals, but push them to elevate their performance. Final rules will be out in early summer.” 

– Source: Jonathan D. Blum, deputy administrator of the Centers for Medicare and Medicaid Services responding Wednesday to concerns that HITECH stimulus timelines for adoption of electronic medical records might be too ambitious.

“Americans comparison-shop for items as small as groceries and as big as cars. But they rarely compare prices on their health care. When a doctor recommends a test or a procedure, most patients simply go where the doctor tells them to go. Even if a patient does want to comparison-shop, there is no easy way to obtain complete and useful information. It is a hole in the market that some companies see as an opportunity, especially because many Americans will soon have to pay more attention to what they are paying for, rather than count on insurance to cover everything.” 

– Source: “Bringing Comparison Shopping to the Doctor’s Office,” New York Times Friday, June 11; story profiles price transparency efforts by Cleveland Clinic, Aetna, Thomson Reuters, and the state of New Hampshire in addition to venture-backed startups like change:healthcare and Castlight Health.

“We’re evolving from being cultivators of personal knowledge to being hunters and gatherers in the electronic data forest.” 

– Source: Nicholas Cart, The Shallows: What the Internet is Doing to Our Brain 2010.

“While drug companies continue to pour huge amounts of money into genome research, it has become clear that the genetics of most diseases are more complex than anticipated and that it will take many more years before new treatments may be able to transform medicine.” 

– Source: Nicholas Wade, “A Decade Later, Genetic Map Yields Few New Cures,” New York Times, June 13, 2010.

Fact file

  • From 2000-2009, disposable income/capita grew 1.6 percent annually although down overall since 2007 (2007=$32,690 and 2009=$32,590) (Source: Moody’s)
  • Total state budget shortfall: $89 billion for 2010, revenues down 11 percent from ‘08 to ’09 (Source: National Association of State Budget Officers)
  • Regional variation: when environmental factors i.e. poverty, etc. are factored into geographic variation analytics, the blended average rate of variation from highest to lowest for Medicare expenditures decreases from 52 percent to 33 percent (Source: New England Journal of Medicine, May 12, 2010)
  • States with gross receipts taxes on hospitals: 3-TN, GA, WI. Note: This allows states to qualify for matching federal grants of 3:1 and avoid Medicaid/other cuts to providers (Source: National Governors Association)
  • Infection controls in ASCs: A study of 68 same-day surgery centers found 67 percent had at least one lapse in infection-control measures and 57 percent had deficiencies. Proper hand hygiene, device cleaning were the most frequently cited lapses. (Source: Journal of the American Medical Association, June 9, 2010)
  • Healthy living: Smart shoes (that facilitate optimal muscle development in ankles and lower leg) have gained market share at three times the rate of growth of others. (Source: Sports one Data)
  • Physicians: 300,800—total number of independent, non-aligned office-based physicians in the U.S. Current AMA membership: 228,000 (down from 241,000 in 2007, includes free memberships given first year residents). Membership in American Medical Group Association is up 9,700 members, now represents 360 groups. (Sources: National Center for Health Statistics, National Ambulatory Care Survey, AMA, AMGA)
  • The rate of children living in poverty in 2010: 22 percent—the highest in two decades, up from 17 percent in 2006. (Source: Foundation for Child Development’ Child and Youth Well-Being Index of 28 indicators including infant mortality, preschool enrollment )
  • Specialty-pharmaceutical update: Expected to grow twice as fast as traditional pharmaceuticals during through 2015 to $100 billion in sales by 2013. (Source: IMS Health)
  • 40 percent of workers in the private sector do not get sick pay; 73 percent of fulltime workers in private sector receive sick pay. (Source: Office of Senator Ted Kennedy (deceased) in re-introduction of Healthy Families Act last week that requires seven days paid sick pay guaranteed for companies with 15 or more employees)
  • Americans spend 8.5 hours/day interacting electronically—text messaging, e-mail, online searches, interactive TV, etc. (Source: Nicholas Cart The Shallows: What the Internet is Doing to our Brain 2010)
  • Between 1997 and 2000, the number of long-term acute care hospitals doubled from 192 to 408, the percentage of Medicare patients transferred to a long-term acute care hospital after a critical illness tripled from 0.7 percent of patients to 2.5 percent of patients, total associated costs increased from $484 million to $1.325 billion, and the one-year survival for these patients increased from 50.7 to 52.2. (Source: CMS)
National health reform: What now?




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 today.

Please see the attached Health Care Reform Issue Brief #2, entitled “Implementing and communicating changes to Health FSAs: Smart first steps” prepared by Deloitte’s Employer Health Care Solutions and Washington Rewards Policy Center of Excellence.

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