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Health Care Reform Memo: December 17, 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.

My take: in memory: Newtown, Connecticut

From Paul Keckley, Executive Director, Deloitte Center for Health Solutions

On Friday afternoon, I did interviews with two TV news networks about the letters of intent and blueprint applications sent to the U.S. Department of Health and Human Services (HHS) by ten states indicating their desire to operate their own health insurance exchange (HIX) starting in 2014, and the additional six states that had received conditional approvals earlier in the week to plow ahead (now a total of eight states and the District of Columbia). But the tragic news from Connecticut dwarfed the story of HIXs―as it should.

It seems these stories are all too frequent—communities like Aurora, Columbine, Blacksburg, and now Newtown are perhaps better known for tragedies rather than their people, culture, and accomplishments.

The details from Newtown, Connecticut are still being sorted out. Understandably, there are questions by grieving parents and public officials about how it happened, and how it might have been prevented.

Somehow, in the midst of the fiscal cliff and breaking news about HIXs, I find myself thinking about the moms, dads, brothers, sisters, grandparents, and husbands in Newtown who now face the holiday season with an empty chair at the dinner table and a hole in their hearts.

Today, hug your kids. We will figure out the exchanges, fiscal cliff, and grand bargain in time.

Paul Keckely

Paul Keckley, Ph.D., Executive Director, Deloitte Center for Health Solutions

Health insurance changes in the Affordable Care Act (ACA)*
Prohibits lifetime limits
Restricts annual limits
Restricts rescissions
Requires coverage for preventive services with no cost-sharing
Extends dependent coverage to age 26
Requires uniform explanation of plan benefits
Prohibits discrimination based on employee compensation
Requires quality of care reporting
Requires reporting of medical loss ratio and provision of rebates
Requires internal and external appeals processes
Patient protections
Annual rate review
Prohibits coverage exclusions for pre-existing conditions
Imposes adjusted community rating rules
Imposes guaranteed issue requirements
Imposes guaranteed renewability requirements
Prohibits discrimination based on health factors
Prohibits discrimination against medical providers
Requires coverage for essential health benefits
Limits out-of-pocket spending
Limits cost-sharing
Prohibits excessive waiting periods
Requires coverage for clinical trials for qualified individuals

(Sources: ACA and Congressional Research Service [CRS] analysis, *Includes Sections 1302, 1341, 1342, 1343, 1101, 1104, 1001 and 1201)

The health insurance lexicon
Term Definition
Premium The amount an individual pays to an insurance company for insurance coverage, either monthly or in a lump sum.
Cost-sharing Enrollee is responsible for some portion of cost of service, through coinsurance, copayment, and/or deductible.
Coinsurance Enrollee must pay a percentage of medical expenses after deductible has been paid.
Deductible A fixed dollar amount the enrollee must pay during the benefit period before insurer starts reimbursing for costs.
Co-payment Enrollee must contribute some fixed amount whenever service is received; insurer is responsible for remainder of reimbursement.
Fee-for-service Providers are paid separately (care is “unbundled”) for each service they provide, with no consideration of the quality of care.
Capitation The contracted fee paid to a health care provider for each participant in a health plan, regardless of the number or type of services provided.
Lifetime limits A cap on the benefits paid under a given policy.
Community rating Premium rates are set equal for all members of a community regardless of age, health status, or claims history.
Actuarial value The percentage of total average costs for covered benefits that a plan will cover.
Initial enrollment period for HIX

The period when an individual can enroll in a qualified health plan (QHP) or change to a new QHP on the HIX:

  • 2014: October 1, 2013 to March 31, 2014
  • 2015 onward: October 15-December7
Special enrollment period for HIX Specified triggering events grant qualified individuals the right to enroll in or change QHPs within 60 days of event.
Premium stabilization programs Provide payments to health insurance plans that cover higher-risk populations in an effort to spread the issuer’s financial risk.
Reinsurance Per the ACA, temporary program that will pay out funds to health plans that cover high-risk individuals (2014-2016).
Risk adjustment Health insurance plans compensated based on the underlying health status of the people they enroll; protected against losses incurred by covering people with high-cost conditions.
Medical loss ratio (MLR) Total health benefits divided by total premium; ACA mandates minimum MLR of 85% for large group market, 80% for individual/small group markets.
Guaranteed issue The right to purchase insurance regardless of any pre-existing condition.
Rescission The act by an insurance company of dropping coverage for an expensive enrollee in an effort to contain costs.

(Sources:; Kaiser Family Foundation)

Implementation update

18 states and DC to run state-based exchanges

By last Friday’s deadline, 18 states and the District of Columbia had submitted their blueprint applications and letters of intent to HHS indicating their plans to operate a state-based exchange (nine of which have received conditional approval on their applications from HHS).

Note: HIX must be fully operational by January 1, 2014.

As of Friday, 32 states will either elect a state-partnership or a federally-facilitated exchange.

State-based exchange based on letters sent to HHS* Federal-partnership or federally-facilitated exchange

*Numbers are based on publically available information as of Monday, December 17, 2012.
(Sources: State Reform, “Exchange Blueprint Chart,” December 16, 2012; HHS, “States Moving Forward to Implement Health Care Law,” December 17, 2012)

HIXs are not a new concept: state run exchanges currently operate in Massachusetts and Utah with quite contrasting models (see below). Efforts to create HIXs in Texas and California failed as a result of adverse selection: the exchanges attracted sicker, costlier enrollees that private plans could not afford to cover and the state could not afford to fund. The combination of the ACA’s provision of guaranteed issue in 2014 and the individual mandate upheld by the Supreme Court on June 28, 2012 are viewed by HIX proponents as key mechanisms to mitigate adverse selection and “cherry picking.” Until the HIXs are fully operational in every state, no one knows for sure how many will purchase coverage or how commercial health plans might elect to play. As a result, our analysis of HIX based enrollment ranges from 23 million to 69 million based on a number of factors yet to play out. (To learn more, check out the Deloitte Center for Health Solutions’ report: The impact of health care reform on insurance coverage: Update 2012)

At the top of the list are these questions:

  • Will individuals who currently lack coverage and are eligible for subsidies enroll?
  • Will small businesses that do not provide coverage purchase through the HIXs?
  • Will companies with more than 50 full-time employees that provide insurance coverage drop coverage, losing their pre-tax exclusion, pay the penalty and walk away from coverage knowing the exchanges offer their employees and option?
  • Will the states be able to operate state-based exchanges successfully and on time?
  • Will the federal government be able to manage and operate the federally-facilitated exchanges on time and efficiently in collaboration with state officials? And will its federal HIX hub be ready on time?
  • Will states face unforeseen costs in running their own HIXs? How much will infrastructure for eligibility, enrollment, income verification for subsidy qualification, etc. cost? Will the necessary infrastructure be in place by October 1, 2013?
  • Will private health insurance exchanges pose a threat or compliment public HIXs?
  • Will private health insurance companies agree to participate by offering QHPs on HIXs?

Background: Section 1311 of the ACA mandates the creation of at least one state-based, state-partnership or federally facilitated exchange in every state, with the intent that each community would thereby provide access to affordable insurance plans for individuals and small companies under 100 employees starting in 2014. The law and subsequent guidance specify characteristics of the QHPs that will be sold on HIXs, and gives states the option of starting a non-profit CO-OP plan if private insurers do not elect to sell policies on the HIX. The HIX will not act as an underwriter: it is the administrator of the program tasked with monitoring compliance with eligibility, enrollment, plan design, and working with QHPs to ensure that the laws surrounding the advanced premium tax credit for financially eligible individuals are followed. HIXs are not themselves insurers; they do not bear risk, but determine the insurance companies that are allowed to participate in them.

Utah, Massachusetts exchanges as reference points:

The two exchanges most frequently cited as prototypes are in Utah and Massachusetts—two states with decidedly different demography, provider density, utilization and cost characteristics:

  Massachusetts Connector Utah Health Exchante
Established: 2006 2009
Enrollment: 225,000 (2012) 7,300 (2012)
Number of Carriers: 9 (2013 plan year) 3 (2013 plan year)
Funding: $25 million initial funding; now self-sustaining through surcharge to health benefit plans offered through exchange. $600k initial funding; sustained through annual appropriation and monthly subscriber fees.
Structure: Quasi-governmental organization; not subject to supervision or control by any state executive office. Administered by Utah Office of Consumer Health Services, a sub-agency of the Governor’s Office of Economic Development.
Governance: 11-member board (4 designees and 7 appointees selected by state Governor and Attorney General). Operated by Office of Consumer Health Services with input from “Exchange Advisory Board” and “Defined Contribution Risk Adjuster Board.”

Manages subsidized coverage for eligible individuals (below 300% FPL) and enables non-eligible individuals to purchase coverage from private plan offerings.

Acts as an “Active Purchaser” requiring carriers who offer plans through exchange to meet basic criteria.

  • Participation in all plan offerings (individual, small group, and young adult plans).
  • Standardized benefit packages for all three benefit levels (Gold, Silver, Bronze).
Currently only offers coverage for small employers (less than 50 employees), allowing them to compare and purchase commercial health insurance online.
Acts as a clearinghouse requiring insurers to meet minimum standards. Conducts rate reviews to ensure plans are price comparatively both on and off the exchange.

(Source: Kaiser Family Foundation; New England States Collaborative for Insurance Exchange Systems, “Massachusetts Health Reform: A Five-Year Progress Report)

Private and public exchanges

While implementing Section 1311 of the ACA is the focus for most states, commercial health insurers along with financial partners have started developing private health insurance exchanges to sell group and individual coverage in the states. The distinctions between the two are significant:

  Private insurance exchange Public insurance exchange (HIX) per section 1311 of the ACA
Model types

Various models that include…

Group market: a private exchange that sells group plans to employees of employers.

Individual, group exchange: a private exchange that allows individuals of an employer to purchase plans on the individual market as opposed to the group market.

Individual market: a private exchange that sells health insurance plans to individuals and their families in the individual insurance market.

Various models will likely include…

Information aggregator: delivers bare-minimum capabilities to meet ACA requirements. Impartial aggregator of information on health plan products and quality; provides structure to allow plan design and price comparisons.

Retail-oriented: creates a retail shopping experience with robust service capabilities (e.g., the ability to shop by price or benefits needs)

Guided: limits carriers through competitive selection process. Products may be standardized; more prescriptive mandates and regulatory oversight over market. Likely an interim model for states lacking the funds.

Market curator: creates a robust, end-to-end consumer experience from shopping to enrolling. Limits carriers through competitive selection process. Selects products that best fit customers, organizes them, and maintains product data files.

Governing structures Private exchange company – typically operated by brokers or insurers. If not run by the executive branch agency (e.g., State Department of Health and Human Services), an exchange will likely be administered by a formal, publicly-adopted operating charter or by-laws; hold regular public meetings; offer opportunities for public comment on its policies and procedures.
Purchasing power “Employers can accelerate the drive toward a more mass, consumer-driven insurance market and gain more control over their health care contribution costs, capping their contributions, and shifting to workers the authority to control the terms (and to some extent, the costs) of their own health insurance.”1 Ranges from high (market curator) to low (information aggregator) and depends on state governance.
Benefits offered

Among benefits of private exchanges include…

  • Allows health care consumers to shop from among a variety of health plans and supplemental insurance offerings such as hospitalization, disease, disability, dental coverage.
  • Decision support.
  • Recommendation technology services.
  • End-to-end transactional services.
  • “Large employers may view private exchanges as a viable alternative to the penalty under the ACA for not offering coverage. An employer that provides a defined contribution to purchase coverage through a public exchange would be subject to the $2,000 penalty. However, an employer offering access to a private exchange would be considered to be offering health insurance coverage and would therefore not be subject to the penalty.”1

Information aggregator: enrollment transactions are passed to health plans’ websites.

Retail-oriented: offers a broad range of products in price and design, and provides education, outreach, and technical assistance for consumers and enrollment information and assistance.

Guided: functions “owned” by exchange are minimal (e.g., basic tools and plan comparison information).

Market curator: provides extensive member management services (e.g., initial enrollment and billing).

Benefits in an exchange are offered at different “metal levels” by QHPs: bronze at 60% actuarial value, silver at 70% actuarial value, gold at 80% actuarial value, and platinum at 90% actuarial value. All QHPs must cover 10 statutorily required essential health benefits: ambulatory patient services, emergency services, hospitalization, maternity and newborn care, mental health and substance use disorder services, prescription drugs, rehabilitative and habilitative services, preventive services, and pediatric services.

Regulatory insight


  • Employee Retirement Income Security Act of 1974 (ERISA): provides legal framework for uniformity of benefits.
  • Section 9001 of the ACA levies excise tax of 40% on insurance companies and plan administrators for coverage above specific thresholds; Section 9002 of the ACA requires employers to disclose the value of benefits provided on W-2.
  • Public Health Service Act, Title XXVII: regulates health insurance issuers and self-insured governmental plans.
  • Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA): requires employers of certain sizes to make continued health care coverage available for a specified period to certain terminated employees.


  • Individualized to states, but could involve: State Departments of Health and Human Services, Departments of Insurance, Departments of Health Care, Medical Insurance Boards, and State Commissioners of Insurance.


  • The ACA requires regulatory oversight from the Office of Personnel Management, U.S. Internal Revenue Service, U.S. Department of Health and Human Services (HHS) –including Centers for Medicare & Medicaid Services (CMS) and the Center for Consumer Information & Insurance Oversight (CCIIO).
  • Public Health Service Act, Title XXVII: regulates health insurance issuers and self-insured governmental plans.


  • State Medicaid/Children’s Health Insurance Programs must interact throughout, as application processes for all must be streamlined.
  • Individualized to states, but could involve: State Departments of Health and Human Services, Departments of Insurance, Departments of Health Care, Medical Insurance Boards, and State Commissioners of Insurance.

(Sources: Deloitte Center for Health Solutions, “Health insurance exchanges: A strategic perspective,” 2011;
Liazon Corporation, “Private Health Insurance Exchanges: What Are They and What Makes Them Successful?” 2012;
1Paul Fronstin, Employee Benefit Research Institution, “Private Health Insurance Exchanges and Defined
Contribution Health Plans: Is It Déjà Vu All Over Again?
” July 2012)

My Take: while no one knows for sure how many will be covered by HIX or how much they’ll cost to operate, what’s known by state officials and the private health insurance industry is the urgency required by the law to be ready for open enrollment by October 1, 2013. Yet guidance from states about how they will regulate their HIXs, how they will define essential health benefits, how they will police medical loss ratios and a myriad of additional guidance is not available. Time is running short for clarity about HIXs from policymakers. No one argues the potential merits of HIXs; but everyone should be concerned if everything necessary for their success at the federal and state levels will be in place by the deadlines. And no one should be surprised that the private insurers are anxiously awaiting these details.

Recent guidance to states

Last week HHS released a frequently asked questions (FAQ) document to provide states further clarification on issues surrounding HIX and Medicaid implementation:

Health insurance market

  • HHS notified states that it will not expand deadlines for states to declare level of participation in the implementation and operation of HIX (i.e., state-based, state-partnership, or federally-facilitated)—states have until February 15, 2013 to declare and submit a blueprint to run a state-partnership exchange. A state, however, may apply at any time to run a state-based exchange in future years.
  • Per the ACA, HIXs must be self-sustaining by January 1, 2015.
  • For federally-facilitated exchanges, the role and authority of HHS is limited to the certification and management of participating QHPs; HHS officials will be versed in state insurance laws and Medicaid and Children's Health Insurance Program (CHIP) eligibility standards.
  • If states provide resources to the federal government to help operate a federally-facilitated exchange, HHS will reimburse the state for the cost of participation in certain circumstances.
  • HHS plans to issue federal guidance and regulation regarding implementation of Basic Health Plans (BHP)—no date has been provided.
    Note: Per Section 1311 of the ACA, states may operate a BHP for low-income individuals ineligible for Medicaid.


  • HHS is no longer considering a blended rate for Medicaid as previously proposed in the President's fiscal year (FY) 2013 budget proposal.
    Note: a blended rate for Medicaid means all states would receive the same amount of funding through FMAP. Currently, Medicaid funding varies by state and is determined by a formula based on states per capita income; states with a below average per capita income receive higher federal matching. In 2014, states that choose to expand their Medicaid program to 133 percent of the federal poverty line (FPL) will receive 100 percent FMAP for the newly eligible population. States will continue to receive the lower FMAP for individuals currently eligible for the Medicaid program.
  • CMS also clarified that there is no deadline for states to expand Medicaid, and if a state opts to expand, coverage can be dropped at any time. However, states may not partially expand the state Medicaid program and receive the 100 percent FMAP per Section 2001 of the ACA. HHS stated that the law “does not provide for a phased-in or partial expansion.”
  • CMS will propose a methodology for reducing disproportionate share hospital (DSH) payments for public comment by early next year that will factor in the possibility that some states will not expand their Medicaid program.
    Note: DSH payments are set to be reduced beginning in FY 2014 per Section 3133 of the ACA. The concept behind this provision was to reduce DSH payments as the rate of uninsured and cost of uncompensated care declined; in states opting out of Medicaid expansion, DSH hospitals may still encounter high costs associated with uncompensated care.

Related: Thursday, the U.S. House of Representatives Energy and Commerce Subcommittee on Health held a hearing on the implementation of the ACA to gauge the readiness of the federal government and states to implement certain aspects of the health reform law, specifically HIX and Medicaid expansion. Witnesses included Director of Consumer Information and Insurance Oversight (CIIO) Gary Cohen, CMS Deputy Director Cindy Mann, and various state health officials from Louisiana, Wisconsin, Pennsylvania, Maryland, and Arkansas. Gary Cohen stated that the federal government will be ready to operate federally-facilitated exchanges by October 2013. GOP leaders voiced concern regarding the lack of guidance from HHS, questioning Mr. Cohen on whether CMS purposely withheld regulatory guidance until after the 2012 general election to avoid controversy. Mr. Cohen denied CMS’ intent to purposefully withhold regulatory guidance for political reasons. During the hearing state health officials noted they would favor block granting Medicaid to states, as it would allow them more flexibility to tailor a program for their low-income residents.

Note: health officials and policymakers opposing block granting Medicaid are concerned that it will reduce funding for the Medicaid program, putting low-income individuals at risk of becoming uninsured or underinsured.

Legislative update

Fiscal cliff update: economists estimate impact of fiscal cliff to Joint Economic Committee

On December 6th, the Joint Economic Committee heard testimony from two witnesses: Dr. Mark Zandi, Chief Economist at Moody’s Analytics, and Dr. Kevin Hassett, Director of Economic Policy at the American Enterprise Institute. Both predicted a recession in 2013 if Congress and the President do not reach an agreement to avoid the fiscal cliff.

Zandi testified that $3 trillion in deficit reduction is needed over the next decade to achieve fiscal sustainability suggesting $1.4 trillion in new revenue, $1.2 trillion in spending cuts, and $400 billion in interest savings. He recommended that structural changes to Medicare and Medicaid be delayed until after it is clear whether the ACA is successful in bending the cost curve.

Hassett testified that “fiscal consolidations based more heavily on expenditure cuts than revenue increases are more likely to be successful at producing lasting reductions in debt.” He expressed concern that if the fiscal cliff is not avoided, the projected revenue increases ($492 billion) will significantly exceed the projected spending reductions ($123 billion) in fiscal year 2013 and recommended that new revenue account for no more than 15 percent of any deficit reduction package.

Think tanks issue fiscal cliff recommendations

The Center for American Progress, a liberal think tank, and Heritage Foundation, considered conservative, have released several reports proposing strategies for tax reform and deficit reduction:

Reform area CAP key recommendations Heritage Foundation key recommendations
  • Enact a top marginal rate for personal income tax of 39.6% as it was under President Bill Clinton*
  • Convert tax reductions that tend to favor those in top tax brackets into uniform credits that bestow equal benefits on taxpayers in all brackets*
  • Enact a top marginal rate of 28% on capital gains as it was under President Ronald Reagan and throughout much of the 1990s*
  • Close tax loopholes*
  • Simplify tax filing*
  • Extend tax cuts for all Americans for two years, at least 
  • Repeal taxes in the ACA, specifically the Medicare tax on unearned income
  • Extend unemployment insurance benefits and reduce spending on “less beneficial programs”
  • Require unemployment  insurance recipients to take continuing education or skill building courses, phasing out benefits when unemployment levels decrease 
  • Use competitive bidding for Medicare Advantage and all health care products†
  • Expand Medicare’s ban on physician self-referrals†
  • Promote shared decision-making in Medicare†
  • Repeal the sustainable growth rate (SGR) †
  • Permanently increase Medicare fees for primary care by 10%†
  • Identify and correct Medicare payments for overpriced services†
  • Rationalize cost-sharing to ensure access to needed care†
  • Increase premiums for high-income Medicare beneficiaries†
  • Reduce excessive Medicare payments to home health providers†
  • Reduce excessive Medicare payments to skilled nursing facilities†
  • Choose alternative savings over Medicare provider cuts
  • Repeal SGR 
  • Implement premium support 
  • Raise the age of eligibility from 65 to 681
  • Require Medicaid managed care programs to use competitive bidding and pay-for-performance†
  • Simplify administration for all payers and providers†
  • Avoid and collect improper Medicaid payments from third parties†
  • Place spending caps on Federal Medicaid spending at 2007 spending levels when unemployment reaches 6%1
  • Implement premium support for some Medicaid beneficiaries1

* CAP, “A Synopsis of CAP’s Comprehensive Tax Reform and Deficit Reduction Plan,” December 4, 2012
†Excerpt from CAP, “The Senior Protection Plan,” November 15, 2012
 The Heritage Foundation, “What’s in the Fiscal Cliff?” November 28, 2012
1Heritage Foundation, “Saving the American Dream: the Fiscal Cliff and Beyond,” December 11, 2012

State update

Fiscal health of states improving but lag pre-recession revenues: NGA

In its annual report on Friday, December 14th, the National Governor’s Association report concluded that states will collect $692.8 billion in general fund revenues this fiscal year, but after adjusting for inflation, revenues are 7.9 percent lower than 2008 collections. The report said 21 states are below pre-recession collection levels, and half are spending less than they did in 2008. Efforts like privatizing the state lottery (Pennsylvania) and borrowing from future highway toll revenues (Ohio) are among states are taking to fund state programs.

State legislative make-up: blue or red, not purple in most

Post-election analysis of state legislative bodies suggests states are either blue or red, but not both. Twenty-five states have veto proof majorities by one party: 16 Republican and 9 Democrat. One-party dominance in state legislatures is at the highest since 1944: in only 3 states— Missouri, Arkansas, Rhode Island—is the legislature controlled by one party and the governor another.

Medicaid expansion update

As of Friday, 10 states reported they will not expand their program; 14 states and the District of Columbia will expand, and 27 plus states are undecided/undeclared.

Participating in Medicaid expansion Not participating Medicaid expansion Undecided/Undeclared

Note: states do not have a deadline to make a decision on Medicaid expansion and may opt in or out of participation at any time.

HHS gives HIX conditional approvals

Last Monday, December 10th, HHS granted Colorado, Connecticut, Massachusetts, Maryland, Oregon, Kentucky, New York, Washington, and DC conditional approval for their plans to establish state-based health exchanges based on its assessment that all are on track to meet implementation deadlines

Industry news

Study: ACA insurance requirements increase premiums 1.9-2.3 percent

Per the America’s Health Insurance Plans (AHIP) report released last week, health insurance tax alone will increase premiums by an average premium increase of 1.9 percent to 2.3 percent in 2014 and will increase 2.8 percent - 3.7 percent by 2023.

Study: insurance costs 20 percent or more of household income for 80 percent of population

Per the Commonwealth Foundation report released last week:

  • 80 percent of the U.S. population under age 65 is living in areas where premiums represent 20 percent or more of income.
  • Employer-sponsored insurance costs per enrollee are increasing faster than Medicare spending per enrollee. Between 2011 and 2021, the Medicare annual rate is projected to grow 2.9 percent vs. 4.6 percent for employer sponsored insurance.

(Source: Commonwealth Foundation, “State trends in premiums and deductibles, 2003-2011,” December 2012)

Study: access barriers to primary care increase ER visits

A study released by the Center for Studying Health System Change (CSHSC) examined patient access to primary care providers (PCP) outside of normal business hours. Using the 2010 Health Tracking Household Survey, the study found that, among those with a usual source of primary care, 40.2 percent reported having access to extended hours (e.g., nights, weekends) from their provider. However, one in five of those who had attempted to contact their PCP outside normal hours reported it was somewhat or very difficult to get in touch with a clinician. According to CSHSC, those who reported less access to clinicians after hours experienced more visits to the emergency department (ED) (37.7 percent vs. 30.4 percent) and higher rates of unmet medical need (13.7 percent vs. 6.1 percent) than those with more access. To help reduce rates of ED visits, the researchers concluded that a priority should be placed on making sure primary care practices provide after-hours care whether by phone, email, or in person.

Information-driven healthcare: BPC report spotlights adoption gap, HHS cautions about mHealth privacy and security

Last week, the Bipartisan Policy Center (BPC) released its report, “Improving Quality and Reducing Costs in Health Care: Engaging Consumers Using Electronic Tools” encouraging greater attention to information-driven health care involving consumers. Its report highlights the “adoption gap” and recommends:

  • Building greater awareness among clinicians, hospitals, and providers of the benefits of electronic tools for engagement
  • Development and dissemination of principles, standards, policies, strategies, and best practices for the use of electronic tools to support patient engagement
  • Building awareness of the benefits of consumers’ use of health care-related electronic tools
  • Public and private sector incentives for patient engagement through electronic tools should be expanded

(Source: Bipartisan Policy Institute, “Improving Quality and Reducing Costs in Health Care: Engaging Consumers Using Electronic Tools,” December 2012)

Related: last week, HHS launched the Mobile Devices: Know the Risks. Take the STEPS. PROTECT and SECURE Health Information initiative to educate health care providers about privacy and security issues involved in mHealth (i.e. password protection, encryption, and remote wiping/disabling). According to HHS, 44 percent of providers encrypt mobile devices.

Related: according to Modern Healthcare, an estimated 15,000 mobile health applications are available for use by health care workers and consumers, and the number of users of mobile devices who have downloaded such “apps” has doubled in the last year. The most important apps, according to the survey results, included two drug reference tools, two clinical decision support reference tools, and email. Communication, access to electronic health records systems, and medical education materials ranked high among the recommendations from users, as well.

For more information, download Deloitte Center for Health Solutions report: mHealth in an mWorld: How mobile technology is transforming health care—released December 4th, 2012.

CRS: federal funding for health-related R&D 21.5 percent of total R&D budget

Per the Congressional Research Service (CRS) report released last week, federal support for health-related R&D is 21.5 percent of the total federal R&D budget—second only to funding spent on defense. CRS concluded that while there is widespread recognition of R&D benefits to the health and well-being of the U.S. population, it is unknown whether there will be future alterations to the balance between government, industry, and university relationships given budgetary pressures in the federal government and commercial interests of bio-pharma companies.

Background: the Bayh-Dole Act provides universities, nonprofit organizations, and small businesses with ownership of certain patents coming out of federally-funded R&D. In 2012, the U.S. government is expected to spend approximately $138.9 billion on R&D in order to meet the mission requirements of federal departments and agencies.

Nurse practitioner groups merge

The American Academy of Nurse Practitioners and American College of Nurse Practitioners will merge January 1, 2013 to form a 40,000 member organization focused on expansion of expanded primary care. Nurse practitioner programs graduate 11,000 annually and currently support license 158,000 practitioners—70 percent of these identify themselves as primary care providers.

GAO report: payments for dialysis care in 2011 higher than necessary due to drug costs

On December 7th, the Government Accountability Office (GAO) released findings on the bundled-payment rate for treatment of end-stage renal disease (ESRD) treatment through dialysis. GAO found in 2011, Medicare paid $650-880 million more than necessary for ESRD services due to unnecessary payments for ESRD drugs. GAO recommends that Congress require HHS to rebase the bundled-payment rate to account for the decrease in utilization of ESRD drugs—23 percent lower in 2011 than it was for 2007.

Background: the Medicare Improvements for Patients and Providers Act of 2008 required CMS and HHS to change the way Medicare pays for dialysis care. Prior to 2011, dialysis facilities were paid a single rate for certain services and items related to dialysis treatment—known as bundling. In January 1, 2011, the bundled payment rate for dialysis care through Medicare was expanded to include items and services such as injectable ESRD drugs and their oral equivalents, items previously paid for separately by Medicare. This expansion was recommended by GAO in 2006 to improve efficiency and dissuade providers to provide more injectable drugs than necessary.

Meaningful use update

Last week, the Center for Disease Control and Prevention’s National Center for Health Statistics (NCHS) reported that the percentage of doctors adopting electronic health records increased from 48 percent in 2009 to 72 percent in 2012. The ONC reported that since 2009, the percent of office-based physicians that reported to have a system that meets basic criteria doubled from 22 percent to 40 percent in 2012. In 2012, 66 percent of physicians said they already have, or intend to apply, meaningful use incentives, and 27 percent of the 66 percent reported having computerized systems to support Stage 1 meaningful use requirements.

Note: Maine (42 percent), Delaware (34 percent), and Massachusetts (33 percent) are the states with the highest percentage of eligible physicians and hospitals being paid meaningful use incentives by CMS.

(Source: NCHS Data Brief, “Use and Characteristics of Electronic Health Record Systems Among Office-based Physician Practices: United States, 2001-2012,” December 2012)


“Ten months from today, Americans in every state can begin to choose health insurance in new state marketplaces where they will have access to affordable coverage. Many will have never had health insurance, or had been forced to make the decision to go without insurance after losing a job or becoming sick. It is a groundbreaking time for health care in our country….. Today’s approval for these six early states and our continued effort to give states the guidance and tools they need to move forward, ensures that starting in October 2013, consumers in all states can begin filling out applications for private health insurance in affordable, quality plans. And our work with states will continue. If states decide they want to play a larger role in running the new marketplace in their state in 2015, 2016 and beyond, we will work with them so they can have the opportunity to take on that role. We are excited about the progress we’re announcing today, and we will continue to work side-by-side with states as they implement the critical reforms to our health care system that our citizens need and deserve.”

—Kathleen Sebelius, Secretary of Health and Human Services, Blog, December 10, 2012

“Ladies and gentlemen, in this corner, weighing in at $5 trillion dollars, your reigning world heavyweight champion: the American consumer. In the opposing corner, at a menacing $600 billion, the fiscal cliff…With the champ looking sluggish on his feet, a few well-placed jabs from the fiscal cliff may tempt him to throw in the towel.”

—Spencer Jakab, The Mighty Consumer is on the Ropes” Wall Street Journal, December 13, 2012

“[Medicaid] is a program that operates on a low margin. It’s a very cost-effective program, which means it’s a lean program...And often proposals to get money out of the Medicaid program end up shifting costs to states and to providers. So there may be some opportunities, but I think those are the concerns that we’ve heard from across the ranks of Congress about moving forward on the Medicaid side.”

—Cindy Mann, Medicaid and CHIP Director, December 13, 20120

Fact file

Number of insurers with at least 100,000 enrollees

  Number of insurers % of all insurers
For Profit: 97 63%
Non-profit: 41 27%
Public/Government: 16 10%
Total: 154 100%

(Source: Alliance for Advancing Non-Profit Health Care, 2012)

Plan enrollment (plans with at least 100,000)

  Total Enrollment % of  Total Enrollment
For Profit: 122.4 million 53%
Non-profit: 104.3 million 45%
Public/Government: 4.1 million 2%
Total: 230.7 million 100%

(Source: Alliance for Advancing Non-Profit Health Care, 2012)

Total U.S. HMOs 564
Total U.S. HMO enrollment 70.2 million
HMO Market Penetration 22.5 %
Total HDHP Total HD HP enrollment 13.5 million
HD HP market penetration 7.8 %

(Source: Kaiser Family Foundation)

Health insurance enrollment, by type of health plan

Note: The estimates of source of coverage are not mutually exclusive; some individuals have more than one type of coverage during the year.
(Source: U.S. Census Bureau, Current Population Survey.

Significant absence of health insurer competition exists (Rate as “highly concentrated” based on revised Horizontal Merger Guidelines issued 2010 by the U.S. Department of Justice and Federal Trade Commission) 83% of metropolitan markets studied by AMA
At least one health insurer had a commercial market share of 50% or more Roughly 50% of metropolitan markets
Two largest health insurers had a combined commercial market share of 70% or more
24 of 48 states studied
Average market share of state’s largest insurer Individual Market: 54%
Small Group Market: 51%
Average number of state insurers with at least 5% market share Individual Market: 4
Small Group Market: 4
States with least competitive commercial health insurance markets 1. Alabama, 2. Alaska, 3. Delaware,
4. Michigan, 5. Hawaii, 6. District of Columbia,
7. Nebraska, 8. North Carolina, 9. Indiana and
10. Maine

(Source: AMA, “2011 Competition in Health Insurance: A Comprehensive Study of U.S. Markets”; Kaiser Family Foundation, “How Competitive are State Insurance Markets”)

Percent who believe insurance company costs have a major influence on overall health care costs

Percent who believe insurance company costs have a major influence on overall health care costs

(Source: Deloitte Center for Health Solutions, “2012 Deloitte Survey of U.S. Employers,” “2012 Deloitte Survey of Health Care Consumers,” “Physician perspectives about health care reform and the future of the medical profession,” 2012)

What’s potentially ahead: volatility in the insurance market

  • In our view, employers might exit from coverage after 2014 when health insurance exchanges are operating.
  • Legislators might increase individual mandate and/or employer penalties.
  • Major elements of ACA might be implemented or funded thus delayed or changed.

Scenarios and tables shown below are further explained in our report: The impact of health care reform on insurance coverage: Update 2012.

A — “Intended results”: Baseline D2 — Employer penalty tripled (from $2,000 to $6,000)
B1 — 5% of large and 10% of small employers drop coverage D3 — Combination of D1 and D2 with exchanges and mandates delayed until 2016
B2 — 10% of large and 25% of small employers drop coverage E1 — Six states (FL, LA, MS, SC, TX and WI) reject Medicaid expansion
B3 — 25% of large and 50% of small employers drop coverage E2 — Twenty-nine states reject Medicaid expansion
C — Individual mandate repealed F1 — National Health Expenditures growth averages 4.5% per year through 2021
D1 — Individual penalty tripled (from 1% to 3% of income) and faster phase-in (from 3 years to 2) F2 — National Health Expenditures growth averages 8.5% per year through 2021

(Source: Deloitte Center for Health Solutions, “The impact of health care reform on insurance coverage: Update 2012”)

Projected enrollment in HIX varies depending on different factors

F2 — National Health Expenditures growth averages 8.5% per year through 2021

(Source: Deloitte Center for Health Solutions, “2012 Deloitte Survey of U.S. Employers,” “2012 Deloitte Survey of Health Care Consumers,” “Physician perspectives about health care reform and the future of the medical profession,” 2012 Source: Deloitte Center for Health Solutions, “The impact of health care reform on insurance coverage: Update 2012”)

Health insurance market segment

(Source: Deloitte Center for Health Solutions, “The impact of health care reform on insurance coverage: Update 2012”)

National health reform: What now?

National health reform: 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.

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