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Health Care Reform Memo: May 17, 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 new administration and implications for the C-suite and various stakeholder groups.

CBO ups PPACA cost estimate by $115 billion

Last week, the Congressional Budget Office (CBO) updated its ten-year analysis of PPACA costs, adding $10-$20 billion in administrative costs for implementation, $34 billion for community health centers, $39 billion for Indian health care among others. Its first estimate was $938 billion (March 19, 2010).

Understanding the new additional 0.9 percent employee wage tax

Beginning in 2013, the Act imposes a new Medicare hospital insurance (HI) tax on individuals equal to 0.9 percent of wage or self-employment income that is received above specific thresholds. The additional tax applies to earnings of self-employed persons or wages of an employee received in excess of $200,000. If a taxpayer files a joint return, then the tax applies to all earnings and wages in excess of $250,000 on that return. The Act does not change the tax liability of an employer for the “employer share” of the current HI tax.

For employer withholding obligation purposes, the difference between single and married taxpayers is irrelevant. The withholding obligation attaches to wages in excess of $200,000 regardless of marital status. Thus, unlike the current 1.45 percent HI tax, the new HI tax will not be accurately withheld for many higher-income individuals filing a joint return. That is, a married person with a non-working spouse will have over-withholding with respect to the first $50,000 of earnings above $200,000. In contrast, a two-earner couple in which each earns $200,000 will be under-withheld on $150,000 of income. That couple would have to pay the 0.9 percent tax on the $150,000 on their joint return.

Note: This tax is one of the major sources of funding in PPACA, along with Medicare cuts, the tax on premium health plans, and industry excise fees (insurance, medical devices, drug companies).

FDA aims to channel drug company promotion to physicians

Last week, the Food and Drug Administration (FDA) announced plans for a campaign to assist physicians in dealing with “questionable pitches” by drug company sales representatives. In the announcement, the agency noted that the pharmaceutical industry spends $12 billion for detailers, in addition to $4.8 billion for direct to consumer advertising.

Preventive health and wellness incentives in PPACA

Starting January 2014, two new initiatives will expand access to preventive health and wellness services: (1) employers will be able to invest in programs and offer rewards to workers, worth up to 30 to 50 percent of their cost if meeting health benchmarks and (2) individual policy-holders will be able to participate in similar programs in a new ten-state pilot program.

Note: for companies with fewer than 100 employees, new grants totaling $200 million per year are available starting next year for wellness and preventive health programs.

$5 billion available to employers for early retiree premium subsidies

Wednesday, the White House released a 77-page report providing details of the program targeting employers who provide retiree health coverage. Up to 80 percent of the employer-paid premium is available to companies as a subsidy if the subsidy is invested in qualified wellness, preventive health and chronic care management programs for all employees.

For more information about this program and other employer implications of PPACA, contact Steve Kraus, Principal, Human Capital, Deloitte Consulting LLP.

Henry takes SEIU leadership post

Last week, Mary Kay Henry was named President of the Service Employees International Union (SEIU), succeeding Andy Stern. SEIU is a prominent player in health reform representing 1.2 million health care workers, primarily in hospitals and long-term care settings. Henry negotiated SEIU labor contracts with Beverly Enterprises, Catholic Healthcare West, Tenet and HCA, among others.

HITECH patient privacy procedures published; public comment period ends this week

May 3, the Department of Health and Human Services (HHS) published information about provisions of HITECH (Title 13 of the American Reinvestment and Recovery Act of 2009) that expand consumer access to personal health information. Under the Health Insurance Portability And Accountability Act of 1996 (HIPAA), consumers had the right to request an accounting of disclosures over the prior six years, however, the accountings exempted information about treatments, payments and other health care transactions. The proposed changes would take effect January 1, 2011; section 13405(c) expanding the consumer access related treatment, payment and health care operations, for the prior three years for covered entities (doctors, hospitals, health facilities, etc). The comment period is open to May 18, 2010.

Note: privacy and security of personal health information is a concern to many, according to the 2010 Deloitte Survey of Health Consumers:

Privacy and security of personal health information

NFIB joins states in challenging constitutionality of PPACA

Friday, the National Federation of Independent Business (NFIB) announced it had joined a federal lawsuit filed in Florida by 20 state attorneys general and governors to oppose PPACA on the grounds of its constitutionality. NFIB represents small employers. The suit contends that the individual mandate in PPACA is a usurpation of federal powers limited to matters of commerce in Article 10 of the United States Constitution. Note: Constitutional law experts believe the repeal effort will be dismissed as federal powers such as intervention in integration dating back to 1958 support a broader definition of the federal roll.

Five-year temporary physician fix likely this week

The House is likely to vote this week a five-year fix to physician payments costing $89 billion. The costs will likely add to the deficit but also allay fears of physicians who elect to drop Medicare patients from their practices.

Childhood obesity—focus of First Lady

Noting that one of three children 2-19 years of age is overweight or obese, First Lady Michele Obama released a 120-page report Tuesday. “Solving the Problem of Childhood Obesity Within a Generation” outlines steps regulators, family, health professionals, media, schools and industry should take to reduce progression of the diseases associated later in life with diabetes, heart disease and depression. Notable in the report, data from the U.S. Department of Agriculture indicate that average calories per day has increased from 1826 (1978) to 2157 (2008); and the percentage of calories from food not eaten at home doubled in the same period, from 18 percent to 37 percent.

State watch: early Medicaid enrollment, budgeting pressures mount

  • Last week, Minnesota legislators passed a bill authorizing $200 million to expand Medicaid enrollment in advance of PPACA provisions to take advantage of $1 billion federal matching dollars.
  • In Missouri, House member legislators authorized a referendum challenging the individual mandate—the first state to schedule a public vote on PPACA. According to the National Conference of State Legislators, and American Legislative Exchange Council, anti-PPACA laws have passed in Arizona, Idaho and Virginia, and proposed state constitutional amendments will be on November ballots in Arizona, Florida and Oklahoma.
  • Wisconsin’s State Assembly passed the Health Care Transparency Bill requiring health care providers to disclose, upon request, their median charges for a service, test, or procedure.
  • And in budget strapped California: Wednesday, Gov, Schwarzenegger proposed $12.4 billion of budget cuts to address its $19 billion deficit and 12.6 percent unemployment. Cuts to mental and child health programs were among targeted budget items.

Medicare Advantage plans (Part C) update

Ten-year funding for PPACA includes among other Medicare cuts a $132 billion reduction in payments to Medicare Advantage (Part C) plans. Currently Medicare pays Part C plans 13 percent more than the cost of covering the same beneficiaries under fee-for-service Medicare. In PPACA, payments are reduced to slightly above traditional fee-for-service rates with a 5-15 percent adjustment based on geographic variation.

Q and A: The new Independent Medicare Advisory Board

Q: How will health costs for Medicare be contained in the bill? What’s the role of the new board?

A: Among the more prominent new entities in PPACA is the Independent Medicare Advisory Board (IMAB) -- a 15-member board appointed by the President for six-year terms to monitor and constrain Medicare spending.

IMAB’s statutory authority (Section 3403(c)(2)(A)(iii) is significant: it is the first time an official ceiling has been put on Medicare spending giving IMAB wide-ranging latitude re: eligibility, premiums, benefits, and Medicare payments to health care providers, facilities, and plans. The Secretary of HHS is obligated to implement IMAB recommendations unless Congress adopts alternative proposals that achieve the same or higher level of savings (cuts) or vetoed by the President and subsequently not overridden by Congress. Currently, The Medicare Payment Advisory Commission (MedPAC) submits annual recommendations to Congress on a broad range of Medicare issues, but it has no targets, no statutory authority and Congress is not obligated to follow its recommendations.

In addition to IMAB, a ten-member consumer advisory council will also be established to advise IMAB. Note: Until 2019, IMAB is prohibited from proposals that would increase enrollee premiums, ration care, change Part D benefits, and reduce payments to providers and suppliers in excess of scheduled productivity adjustments and low-income subsidies, per terms of PPACA. Its efforts are triggered if Medicare spending exceeds the five-year average growth rate per beneficiary per Office of Management and Budget (OMB) and CMS Office of Actuary review.

The current rate is the projected five-year average rate of change of the Consumer Price Index for All Urban Consumers (CPI-U) and the CPI for Medical Care (CPI-M). In 2018 and following years, the target growth rate is the projected five-year average percentage increase in the per capita gross domestic product (GDP) plus 1 percent.

Savings estimates above scheduled Medicare cuts resulting from IMAB recommendations: According to the CBO, IMAB will save $15.5 billion from 2015-2019; the CMS Office of the Actuary reported it estimates $24 billion in the same period.

IMAB critical timeline: July 1, 2014: IMAB is required to produce the first of its annual reports covering all aspects of health spending, utilization of services, quality of care and variance by types of services, location, and provider. Its first recommendations to the Secretary of HHS are due by October 1, 2014.


“For too long, we have been held hostage to an insurance industry that jacks up premiums and drops coverage as they please. But those days are finally coming to an end.” 

—President Obama Radio Address Saturday, May 8, 2010

“Medicare spending—and perhaps all health spending in the United States—might be cut by about 30 percent if the more conservative practice styles used in the lowest spending one-fifth of the country could be adopted nationwide.” 

—Mathematica Policy Research, “Basing Health Care on Empirical Evidence,” May 2010

“There's never been a worse time to try and steal Americans’ health dollars. The days when you could just hang out a shingle and start submitting claims are over.” 

—Kathleen Sebelius, Thursday, May 6 in joint announcement with Attorney General Eric Holder, outlining details of stepped up fraud detection measures ($350 million additional funding in PPACA)

“Policy makers and clinicians should be aware that removing facility directed financial incentives from clinical indicators may mean that performance levels decline.” 

—Longitudinal analysis of 2.5 million patient records in 35 northern California clinics 1999-2007: “The impact of removing financial incentives from clinical quality indicators: longitudinal analysis of four Kaiser Permanente indicators” British Medical Journal, 11 May 2010, doi:10.1136/bmj.c1898)

“It appears that either the home health care reimbursement policy is flawed, some companies are gaming the system, or both. We're working to figure out what's going on.” 

—Charles Grassley, R-IA Wednesday in response to hearings scheduled to evaluate alleged up-coding in the home health industry

Fact file

  • Non-adherence to medications results in $100 billion/year in avoidable hospital costs and 89,000 deaths. (Source: New England Journal of Medicine)
  • Cancer costs: $24.7 billion/year in 1987 vs. $48.1 billion/year in 2005—5 percent of total spending across the 20-year time frame. In the period, Medicaid costs increased 488 percent, private insurer costs by 137 percent, and Medicare by 99 percent, and out-of-pocket costs paid by consumers, including co-pays and deductibles, fell by 7 percent. (Source: Cancer. Monday, May 10, 2010)
  • Travel health insurance: 4-8 percent of the total per-person trip price. (Source: Merchant Medicine)
  • Fraud detection efforts in 2009: $2.94 billion recovered in 2009—a 29 percent increase over 2008; 1,014 new health fraud investigations begun resulting and 583 convictions. (Source: U.S. Department of Justice)
  • In 2009, 17,538 military service members were hospitalized for mental health disorders, 17,354 for pregnancies and 11,156 service members for physical injuries and war wounds. (Source: U.S. Department of Defense)
  • 7.8 percent ($1,303) increase to cost of employer-sponsored family coverage 2009 vs. 2008—highest in history or Milliman studies. Total medical spending for average American family: $18,074 in 2010, compared with $16,771 in 2009. (Source: Milliman Medical Index)
  • 30 percent of adults 18- 26 have no health insurance; in PPACA, 1.2 million of these will be covered per requirements. (Source: Department of Health and Human Services)
  • Outstanding claims at the VA for service-related disabilities – amputations, injured limbs, PTSD, brain trauma – 500,000; almost 40 percent have been on a waiting list for more than four months. (Source: Department of Veterans Affairs)
  • Cell phones as knowledge management devices: Numbers of users of cell phones increased from 85 million in 1999 to 285 million in 2009. Use of the devices for data traffic has soared to 580 pedabytes while use for voice messaging has leveled at 215 pedabytes annually. Average length of a local cell call in 2009: 1.81 minutes (vs. 2.28 in 2008). (Source: CTIA)
  • U.S. retail sales were up 0.4 percent in April and industrial production was up 0.8 percent. But instability in the European economies and the lower-than-expected numbers for April indicate the economy is still transitioning from recession to recovery. (Sources: U.S. Department of Commerce)
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.

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