Why We Don't Want To Get Rid of Medicare-Our Best Tool for Health Care Reform

Why We Don’t Want To Get Rid of Medicare-Our Best Tool for Health Care Reform

The pressure is on for federal budget slashing and of course social programs (not defense) are top-of-the-list for cost reductions, including the malignant call for block granting the Medicare program. Having previously analyzed the Bush Administration’s Deficit Reduction Act of 2005, including the odious federal government, “claw back provision” for reducing federal contributions for state Medicaid programs, this article reviews some potential impacts of a block grant or per capita allowance for Medicare participants. Parallels are drawn between the Medicaid changes and what may happen to Medicare if it is schlepped to the states. Finally, Medicare’s impact on overall health care policy making in the United States is analyzed.

Would Block Granting Medicare Look like the Medicaid 1115 Waiver Plans?

As of 2005, half the states already had approved Medicaid 1115 plans including: Alabama, Arizona, Arkansas, California, Colorado, The District of Columbia, Florida, Georgia, Idaho, Illinois, Maine, Massachusetts, Michigan, Missouri, New Jersey, New Mexico, New York, Oregon, Puerto Rico, South Carolina, Tennessee, Texas, Utah, and Washington. Oregon is famous for its health care plan which assesses a clinical and cost/benefit value for treatments covered by its subsidized public health care program. Most of the other states with Medicare 1115 Plans have eliminated benefits under the programs or drastically cut enrollment for poor residents. By example, Missouri eliminated 500,000 people from its Medicaid program. Many of the states with Section 1115 waivers used the provision to charge co-payments and premiums to certain Medicaid eligible constituents.

Impact on Drug Costs-Zip

In addition to cutting back on benefits, one of the trends for state implementation of Medicaid 1115 Waiver Programs is to pass more of the prescription drug costs to their plan participants. This does nothing to contain costs and merely makes low-income people pay more for their medicines. Medicare is also doing this with its drug program, by allowing pharmaceutical companies to charge retail market prices (the highest-in-the-world) for drugs while offering “discounts” to Medicare participants. It doesn’t take a rocket scientist to figure out that the pharmaceutical companies just raise their prices to include the “discounts” to the Medicare set.

Side effects of Medicaid 1115 Waiver Programs

Deferring Health Care

One of the provisions that Medicaid 1115 Opt-Out Plans can make, is to transfer more plan costs to the poor who are enrolled on these plans, however, that may mean people avoid medical care. This is a conundrum, though Medicaid enrollees have health insurance, they may not have enough money to contribute to the co-payment requirement. The Journal of Health Affairs published an analysis of the Utah State Medicaid program which showed that cost sharing up to 10% did have a negative impact on the indigent patient’s ability to obtain health care (AKA they deferred treatment).[1]. 

Clinician Access

Patients enrolled on Medicaid plans have insurance, but may not have a primary care clinician who will see them. Merely having insurance does not mean there are clinicians willing to accept those patients.  Medicaid has notoriously been viewed as paying poorly for medical services, although some states have taken steps to alleviate that road block to care. This problem of access to clinical care, especially for wellness or primary care is also rampant for Medicare participants. If they don’t have private insurance, it is very difficult for a Medicare patient to find a clinician who will accept them into their patient mix. This phenomenon is reflective of the poor reimbursement CMS provides for its primary care clinicians.

Another one of the methods that states have used 1115-Waiver provisions to change their Medicaid plans is to offer private insurance coverage, but this is hardly more cost effective, since the administration costs are three times as high as what the Centers for Medicare and Medicaid (CMS) charge, with no cost containment. This could however increase access to doctors who are willing to treat Medicaid patients.

Medicare as the Policymaker for Health Care Treatment and Payment

CMS, which administers health care for Medicare and Medicaid, is by far the largest health care program in the United States. Administrative cost for CMS run about 6%, as opposed to 18% for the private insurance sector. In addition to administering health care programs for the elderly and the poor, two constituents whom the private insurance sector has historically had little interest in insuring, CMS also finances demonstration projects with clinics throughout the country to figure out how to improve health care. An example of such a project is the Advanced Primary Care Demonstration Initiative[2], which is looking at patient-clinician engagement to improve health outcomes and pay clinicians for coordinating well patient care. There are also similar projects for the Accountable Care mandates, which reward clinics that produce better clinical results than those who are more marginal. These efforts are possible with a large enough patient population and an integrated patient tracking system, which coincidentally, is representative of a national health care program.

Fraud Detection-The Government Has the Bigger Stick

Medicare is the number one detector of fraudulent billing for health services in the country and it is essential that this bully pulpit be preserved. In The Battle Over Health Care[3], big pharmacy is now cited as the number one defrauder of the government and hence the United States people, even ahead of the perennial defense industry. Do any of us really trust the drug companies to police themselves, or for that matter any of the medical suppliers? In a fragmented Medicare system fraud detection would be more difficult not less.

Patient Safety-Do You Want to Leave it up to the Private Sector?

 In Rosemary Gibson’s and Janardan Prasad Singh’s brilliant, The Battle Over Health Care, numerous frightening examples abound of drug company, medical device supplier, and hospitals actually harming patients. Perhaps most egregious are the methods some of these companies (most of the abusers are for-profits) use to avoid accountability when they harm patients. A bright spot on this tarnished map is the University of Michigan Health Systems, which has a protocol mandating that its clinicians/facilities which harm patients; take responsibility, offer transparent information on what occurred, offer a settlement to the patient/family(without litigation), apologize, and provider free ongoing health care.[4] It is this type of candor which would go a long way toward improving patient safety in American health care. Imagine clinicians and hospital administrators who fess up rather than lawyer-up.

Conclusion

Though Medicare certainly has its detractors and is not lithe when it comes to adopting changes, it is more economical than any private sector health insurance program, and it covers  high-risk populations like the elderly and those with end-stage renal disease. Medicare drives policy changes throughout the entire United States health care system by determining how it will pay for services. This is ultimately the way the country can start to reduce its health care costs, by negotiating with drug companies, eliminating fraud, and equally important, unnecessary procedures. Because Medicare changes also impact private sector insurance companies, it is an essential component of health reforms and well as other national health care initiatives. CMS, which administers both Medicare and Medicaid, provides the nationwide health care partnership to test and deploy health care program changes. Through this surveillance process we can learn what works for the disparate U.S. health care system and attempt to lower costs and improve not only primary health care, but also preventive care. Too much of the U.S. health care dollar is spent on late-stage disease treatment versus patient health maintenance. If we hope to be competitive in a world economy, we must bring the per capita cost of our health care in line with the rest of the world and turning it over to the private sector foxes is not the answer.

For more discussion on this health care article, feel free to comment below. This article was written by Roberta E. Winter, the healthpolicymaven, and may be reprinted with her permission. Feel free however to share it voraciously with your friends and family.

Also, for those who want to read more of The Battle Over Health Care go to the New York Journal of Books for my review, by following this link: http://www.nyjournalofbooks.com/review/battle-over-health-care-what-obama%E2%80%99s-reform-means-america%E2%80%99s-future

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[1] http://content.healthaffairs.org/content/25/2/532.full

Samantha Artiga, David Rosseau, Barbara Lyons, Stephen Smith, and Daniel Gaylin, Can States Stretch the Medicaid Dollar Without Passing the Buck? Lessons from Utah, Health Aff., March 26, 2006, vol. 25, no. 2. p. 532-540

[2] http://healthreform.gov/newsroom/factsheet/medicalhomes.html

[3] Rosemary Gibson and Janardan Prasad Singh, The Battle Over Health Care, chapter 2, page 24

[4] Rosemary Gibson and Janardan Prasad Singh, The Battle Over Health Care, chapter 13, page 163

Amending the 2010 Health Care Reforms Checklist

Suggestions for Amending the 2010 Health Care Reforms
Now that the teeth gnashing is on-going over proposed changes to the health care reforms of 2010, this article addresses some areas for potential modifications. If any of you are under the delusion that everything will be repealed, wake-up, because the Medicare changes are essential to management of that costly federal entitlement program. I am speaking of the pay-for-performance initiatives where Medicare (Center for Medicare Services) pays more money to organizations which have fewer medical errors and re-admissions for patient procedures. I am referring to the Accountable Care Act will have a major impact on how medical care is organized, models for disease interventions, and the reporting of performance metrics(I wrote about this last fall). So, that stays, but the rest of this article addresses some of the things that could go or at least be modified.
Federal Insurance Purchasing Subsidies for Mandated Health Insurance
A few months ago I did an analysis of the federal insurance purchasing subsidies for the middle-class under the Health Care Affordability Act and it was pretty eye opening. Based on World Bank data the mean income in the United States is $47,240, which is the average income per person using 2009 Gross Nation Income data . Using this average income as a starting point, what kind of a subsidy would someone receive in 2014, when the insurance exchanges are in place and medical insurance is mandated? Families with seven or more children and incomes equal to 133% of the federal poverty rate will receive a federal subsidy equal to 97% of the insurance premiums. This seems fair to me, as that is a modest income for a huge family. However, the federal subsidies also are slated to provide assistance to folks who fall within 400% of the federal poverty level, which can be a very decent income. For example, someone who is single and earns $54,120 is eligible to receive 90.5% of their insurance premium paid for by the federal government. First of all if you are single and have that much income you ought to be able to scrape by. Secondly, this income is higher than most of the world averages and higher than the USA’s average per capita. But it gets worse, based on the 400% of Federal Poverty Level criteria people who earn up to $185,160 are eligible to receive the same federal subsidy if they have at least eight children. Now, I think by anyone’s standards someone with that income, which falls into the top 10% of all incomes in the country, is not poor. I can see giving a subsidy to a family of four with the $54,120 income or even higher, but not over $100,000!
Budget Saving Suggestion
Here is my suggestion, only provide medical insurance subsidies to people who earn up to 150% of the mean national income, which equates to $71,131 and is roughly equivalent to $73,835 for a large family in the federal poverty criteria. For people who want tax subsidies for families earning over $100,000 I say start eating beans or tuna noodle casserole, which I ate a-lot-of as a child.
Possible Places for Federal Budget Cuts
For crying out loud, it would be nice if both parties could focus on the real apocalyptic events for the country, such as the fiscal meltdown from a strong country with reserves to the largest national debt in history in eight short years. The real concern should be reducing the national debt by cutting spending so the country will have to do less begging for financing from China and other creditors. According to the non-profit Kaiser Foundation, 40% of the entire 2010 federal budget was for defense spending. To decrease that by 50%, just cut the discretionary defense spending budget which equals nearly 20% of the entire federal budget, and we can get the country back in fiscal shape in no time. The country needs to find a way to pay for its existing programs, like Medicare, Medicaid, and Social Security and reducing spending on other ones is required.
Of course the Medicare expenses are of concern and the changes to the program in 2010 are a start towards reworking that care model. The USA will move to a Medicare model which provides services for the treatments that are most effective and hopefully pays the physicians a decent fee. There is still much to be done on aligning clinical reimbursement in both the Medicare and Medicaid programs. The latter is very onerous, because the federal government dictates Medicaid benefits but provides grossly uneven support to the states which are charged with administering the program.
Focus on the Real Issues which have significant Cost/Benefit Ratios
It would be nice if the Democrats would quit focusing on who-is-shagging-who or what someone’s sexual orientation is, because I really don’t want them to tell me about it. As long as it isn’t a crime (certain southern states excepted) I don’t need to hear about it and this goes for anyone’s sexual persuasion, I don’t care to hear about your predilections. I prefer to focus on issues we have in common, such as education, health care, and oh, not-going-into-the-poor-house as a nation. Don’t ask, don’t tell, don’t care is where I am at in this tired issue.
Republicans, I am tired of having abortion as such a divisive issue and I question whether the paltry amount of federal money that is actually spent on abortions for Medicaid women who have been raped (one of the criteria) is the real problem. What would it take to make you folks quit yapping about this issue, a total ban on federal money? The big stink made about offering birth control options, not just abortion in the federal insurance exchanges far exceeds the estimated $1 cost-per-head factor for this provision. Although I think it is immoral to prevent poor women from seeking birth control options which are legal, I believe the rational and generous people of this country will rise to their aid through contributions to Planned Parenthood and women's health organizations. Of course I know the right wingers will still flail away state-by-state (I reported on this in a July article for an east coast distribution and in my November blog about state appeals to the health care reform mandates) attempting to demonize women who seek medical procedures for which they do not agree. We can at least aspire to have a more effective and civilized national conversation about resource allocations.
Current focus on re-defining rape is actually part of the Republican Agenda in Congress
It would be nice if the vagina control police would spend less time defining what constitutes the a rape of a female, thereby qualifying her for federal funding for an abortion under the tan-your-Hyde Amendment, and focus on delivering cost effective primary care to everyone. The discussions on whether drug or alcohol induced sex with an incapacitated female constitute rape are too prurient for this voter. To say nothing of the “men's room chats” about redefining what is considered incest in the case of sexual intercourse. In other words if your uncle coerces his thirteen-year-old-niece to have sex with him and she gets pregnant that may not be considered rape unless other physical violence was involved (barring rape or incest the girl would not be eligible for a federally paid abortion). Also, since when are thirteen year-old girls women? The marginalizing of women in America is in full force, what is next, wearing burkas?

This article was written by Roberta E. Winter, MHA, MPA a health policy analyst and independent journalist and may be reprinted with her permission.

The Brave New World of Accountable Care Organizations

Brave New World for Health Care in America
Recently I attended a health care conference, sponsored by ECG Management Consultants, on the impact of accountable care as mandated by new government regulations for quality and transparency. An accountable care organization is a clinical group that receives a patient management fee from Medicare in exchange for improved patient oversight and quality standards. In short, this is pay for performance, not only for procedure. All of the panelists at the conference were in agreement that the health care paradigm has shifted irrevocably. There was much discussion around organizational adaptation for integrating quality measures in reporting and contracting, including one from a clinician in attendance, who decried the poor reimbursement for solo primary care practitioners. Essentially he was told that only clinicians whose model meets the new requirements for reporting and care metrics will be able to adapt. Wow, pinch me, did someone running a health care organization really say that in public? This is definitely the first time I have been in a conference where all of the experts were in agreement and publicly stating the old model for doing business in health care is dead, which is to treat and bill for services, based on usual customary and reasonable charges. It is no longer adequate to do a good job with your patients; you have to be able to demonstrate that with your quality metrics. Certainly some clinicians will choose to retire, others will join larger clinics to be able to compete, and some will be the leaders in this adaptation. The Everett Clinic comes to mind, a leader for decades in the provision of affordable care to a diverse patient population, and with excellent quality measures, as reported by Leapfrog and other quality watch dogs.

The medical community, as represented at the conference, is anxious to adopt a new compensation model beyond the fee for service practice and though it will be a process of adaptation to include medical home and other primary care provisions into a reimbursement model, it is happening. The accountable care organization provisions encourage health care entities to reduce waste, provide measureable improvements in care, and improve the end stage of life care process. The first article I wrote in my health care column in 2007, was about end-of-life-care and the impact on the patient as well as the cost to society, with my brother as the benchmark for the shift away from prolonging life regardless of quality.

Conference speakers from Monarch HealthCare, Brown & Toland Physicians, The Everett Clinic, and Premera Blue Cross were in agreement on the following principles derived from the recent health care reforms:
1.Health care decisions will be driven by the individual and less so by the corporations.
2. We are going to have to provide a lot more care to an aging population for less money.
3. The system has to make meaningful cost management changes.
4.One of the big costs that need to be confronted is inappropriate end of life care due to the absence of medical directives, lack of palliative care programs, and general lack of awareness on the part of patients.
5.Other cost vectors that need to be controlled are reducing unnecessary procedures, allocating technology more efficaciously, and reducing excessive administration costs.


Government Processing Speed
Concerns raised by this group of health care administrators include the speed with which the Center for Medicaid Services, CMS will be able to process all of these changes. It took a year and a half for them to measure the Everett Clinic’s results in a demonstration project. Since the scale and degree of health care changes are significantly greater with the 2010 health care reforms, one has to wonder how many years it will take for the reporting to occur, let alone system integration.
New Medical Model
The model for an effective health care delivery organization will have to include these criteria to succeed in the new health care environment in the United States:
1.Clinically integrated multispecialty physician networks
2 An economic model to manage risk and deliver patient value
3.Immersion in evidence based medicine
4.Successful communicators of their value
Benchmarks for America’s New Health Care Program
The United States’ ability to compete for goods and services on a global scale demands a more efficient health care system, because we cannot continue to spend 20% more than everyone else for health care. Several countries have managed private insurance programs for the provision of health care including; The Netherlands, Switzerland and Taiwan. The USA would be wise to observe how these models function and to adapt best practices. One thing that is clear, despite the catcall for subsidizing health insurance costs, these other countries provide subsidies, up to 40% of the premiums, depending on the income level and location of the enrollee. So to all of the whiners who criticize insurance subsidies for the middle class, if you want an inclusive national medical program using private insurance, this is a mandatory element, so get over it! It is in the best interest of everyone for the focus to remain on how those dollars are spent and on the value we are getting for improved health care, for example, managing hypertension to reduce the incidence of kidney dialysis, which costs a minimum of $50,000 per patient. If we improve our health care model and deliver care more efficiently we can bring down the relative per capita cost of health care over time.

Private Sector Exemptions from 2010 Health Care Reforms and the Wellness Mandate

Private Sector Exemptions from 2010 Health Care Reforms and the Wellness Initiative
According to an article in the New England Journal of Medicine, 57% of private employer plans are ERISA self insured plans and are exempted from many of the 2010 health insurance coverage mandates, since these plans are not considered insurance. This means most of the large employers out there will continue to manage their own health care programs as they have in the past. Smaller employers will be the ones most impacted by the insurance mandates and often, they are the least able to pay. The federal subsidies help some small employers, but if you have over 25 employees you are required to provide the expensive first dollar coverage and pay a significant portion of the cost. Perhaps the small employers will elect to pay the penalty rather than play in this pool. It is also worth noting that a lot of start-up companies and nonprofit organizations fall into this size category and their funding is quite restricted.
Cost to Produce the Baseline Surveillance
The impact on the health plan’s cost will of course be a factor in the hiring of new employees. Though it is illegal to discriminate against older workers, one has to wonder why a small employer wouldn’t consider age when it would impact the cost of their medical plan. Even under the Obama reforms age is still a factor in establishing a community rate for the price of a health insurance plan. Yet another nail in the coffin for anyone who is over forty and looking for work. As a student of government policy making I am wondering if the unintended economic consequences were fully considered with this 2010 health care mandate for small employers to buy expensive front-end loaded insurance for their employees.
Encouraging the Desired Effect
I favor the carrot incentive method much more than the punishment stick and keeping the tax deductions for health and welfare plans is critical to employer sponsorship, as well as keeping some flexibility in plan design so the smaller businesses, both for-profit and not-for-profit can participate. The federal subsidies apply only to very small employers with 25 or fewer employees and are targeted to firms with 10 and under workers, which is understandable from a budget standpoint. It is telling that the government considers small business only those with less than 50 employees (the standard most likely to be adopted by the majority of the states), who are exempt from the penalties for not providing medical insurance plans. In the private sector, employers with less than several hundred employees are considered small and in my insurance career, several companies considered all firms with less than 2,000 employees to be small employers. This difference in standards is based on the volatility of the claims performance data and the management required in order to replicate a similar outcome for the smaller firm versus a larger client.
Wellness Care Mandates
Though I understand the importance of providing primary care, which means early detection of costly diseases like high blood pressure (which is a precursor to kidney failure and cardiac problems) through annual exams, perhaps having them provided by insurance companies is not the most effective method. The insurance industry is deft at managing large risks and not at providing disease surveillance or wellness. Any efforts to do so by insurance companies involve add-on commission based products that are provided through a third party and generally not well integrated into program performance. You can bet that plenty of insurance agents are selling wellness programs now that the coverage is a government mandate, but what is the efficiency of this model, other than to make more money for the insurance industry?
Better Way to Provide Wellness Services
Another way to provide disease audit and management could include using public health nurses or clinics to do the surveillance, which would protect the privacy of the individual and provide key surveillance information for a community trying to manage its health care. Since large employers may already use on-site clinics to provide the wellness services, the small employer sector needs a better model for identification of at-risk employees. Also, the public health programs need an infusion of capital and this would be a great way to take the old “school nurse program” and create a community nurse program nationwide. As someone who went through a Minnesota winter with untreated bronchitis I wish there would have been a school nurse in my high school. I would love to see a cost benefit study on using public health programs and federally qualified clinics to provide the wellness services versus the insurance industry products. Everyone likes to complain about the inefficiency of government programs, but the financial support of federally qualified health centers through federal grants has proven so effective it has been reauthorized by three presidencies. Public health programs have been on the front lines in addressing health risks for a hundred years. These programs are effective and they don’t require sophisticated and costly marketing schemes to pitch their results, but they could use your advocacy.
For those of you who have a fear of public health, I can attest to the efficacy of the program as I have been a customer of Seattle Public Health on many occasions, for my travel immunizations (they have the best travel clinic), for primary care treatment when I have been without insurance, and for referrals to other medical facilities, when no one in the private sector would see me. At least with the Obama protocols many of the uninsured will have medical insurance, which will at least enable them to get a private sector physician to schedule an appointment. The Obama health reforms are creating a new baseline for health care design and reporting and maybe in the long run it will empower consumers.
For more information on how the states are reacting and their regulatory authority for the federal health reform mandates, read the September 15th article in my contributing column for the life sciences newsletter of the east coast consulting group Tag44.com at http://www.tag44.com/newsletters/ls%20newsletters.asp?cat=lifescience.
This article was written by Roberta E. Winter, MHA, MPA and may be reprinted with her permission.

Government Regulations for Employer Health Care Mandates by September 23,2010

Health Care Reform Mandates by September 23, 2010
The most recent federal guidelines on the administration of the Patient Protection and Affordable Care Act and the Public Health Service Act are actually requiring All existing health and welfare plans to offer the following benefit mandates:
 Elimination of any lifetime limits on coverage for all medical plans
 Inability to rescind medical coverage for insureds except in the event of fraud
 Must include children of the insured through age 25
 Immediate coverage for children with preexisting conditions(no waiting periods)

The rules state that restrictions on dollar limits for conditions, will be mandated as well, TBD. These will be revealed by the plan anniversaries one would hope.

One could start to feel a bit verklempt(forgive my poor Yiddish), but again, the laws of economics dictate that the government steps in where there is private market failure. Currently, the American public feels that the insurance sector, representative of the private market has failed in providing basic coverage for families. It is not just about the money, its about the health care continuum.

Grandfathered Plan Status
The regulations state that health plans which make significant changes will lose their grandfathered status as far as the exceptions to the other health plan mandates. This appears to be a sticky wicket, but prohibitive actions include:
• Cannot significantly cut or reduce benefits; so you can raise rates and mandate benefits but they can’t change their plans to keep afloat?
• Cannot raise co-payment charges, even a $30 to $50 change will trigger this intervention, so I think many employers will just bail on health insurance.
• Cannot significantly raise deductibles, apparently more than 20% is prohibitive. This does not make any sense as employers might fund health purchasing accounts with high deductibles, which are very cost effective.
• Cannot significantly lower the employer contribution to employee health plans; again mandates raise costs in a BAD economy and employers can’t pass on any of it? OK kids, I was in the insurance business when they still used carbon paper and my deductible was based on my income.

Required Transparency of Plan Changes
One of the provisions that does make sense, is the requirement of employer sponsored plans to distribute notices to plan participants if they are subject to a grandfathered plan status.

Apparently there are 133 million American’s with employer sponsored plans that would come under this regulation (100 or more FTE’s under 5500 reporting requirements). The Obama Administration predicts that 70% of businesses fall under the “grandfathered status” but this could drop to as little as 30% because of the compliance challenges.
Medical Inflation
Allowable Changes in Co-payments will be tied to medical inflation, so up to 19% in 2011, which is much higher than the rest of the world and is not sustainable.

The insurance exchanges still appear to be a long way off and it is questionable if they are being designed by anyone who actually understands risk management and the insurance business. If your hiring standards are prejudiced toward other government workers and political considerations, are you really hiring the best utility workers for such a major social policy change by excluding the private sector?

Well, that is all for now, this is the health policy maven signing off, and you know I always tell the truth.
Thanks for your attention.

Citations:
http://www.dol.gov/federalregister/HtmlDisplay.aspx?DocId=23967&AgencyId=8&DocumentType=2

This article was written by Roberta E. Winter,a Seattle health policy consultant and may be reprinted with her permission.

Insurance Changes from the Patient Protection and Affordable Care Act

How Insurance Companies, Employers, and Insureds will fare under the PPAC Act
Some of the legislators think the healthcare reform bill, signed by President Obama is a catastrophe, but from this angle it looks like a big win for the insurance industry. Though lots of things are missing from the bill, such as cost containment, this is the single biggest health care reform since Medicare was enacted in 1965. This article reviews how the current Patient Protection and Affordable Care Act impacts the insurance industry and its offerings.
Top 10 changes to the Insurance Industry with the PPACA law
1. Creation of the Federal Supplementary Medical Insurance Trust, funded through a panoply of new taxes to provide subsidies and expansion of health insurance programs, both government and private sector for the uninsured.
2. Medical insurance is now required for most U.S.A. residents (AKA lots of new customers!!!)
3. Removal of excessive waiting periods prior to commencement of insurance coverage
4. Removal of lifetime limits on benefits for medical insurance contracts
5. Insurers Required to post a Minimum Loss Ratio if participating in federal health plans like Medicare Advantage plans.
6. Extension of healthcare benefits for children to age 26
7. Closure of the prescription drug "donut hole" exclusion for Medicare recipients
8. Drug Rebates are provided for oral medicines that are re-formulations of existing drugs in an attempt to lower the cost of certain prescription medications
9. Establishment of health insurance exchanges and drug purchasing cooperatives
10. No changes in Cafeteria Plans until December 31, 2013

Pay or Play Provisions for Taxing Employers Who Don’t Offer Health Insurance
The Patient Protection and Affordable Care Act amended section 4980H of the Internal Revenue Code to provide tax assessment penalties for employers with fifty or more employees, who do not offer health insurance for their employees. The penalty will be between $2,000 and $3,000 per eligible employee, depending on the size of the employer. For some employers, it will still be worth it to avoid the expense of a medical insurance plan, which would cost over $5000 per employee and over $12,000 per family. According to the Kaiser Foundation’s Statehealthfacts.org, the cost for a single employee’s health insurance was $4,386 and the cost for a family was $12,298 in Washington State in 2008. But no matter how you look at this provision, it mandates more people buy medical insurance, which is a HUGE win for the insurance sector.
Funding of Insurance Mandates
The healthcare reform bill uses health insurance as a means to improve access to health care services for individuals and as such, provides federal tax credits to taxpayers to assist with the cost of the health insurance premiums.
For hospital systems, if more patients have access to insurance, there will be less uninsured services provided, which is a stabilizing factor for the health care industry. What remains to be seen, is how many of the 48,000,000 uninsured will be able to afford insurance for their families and will actually enroll, although the Obama Administration forecasts an additional 32,000,000 will obtain some form of health insurance, either government or private sector with this bill. To encourage participation, the law stipulates a tax penalty for those residents who don’t enroll in an insurance plan.
Medicaid Changes
Medicaid changes are a bright spot for healthcare providers as more people will be eligible for Medicaid, versus having no healthcare coverage now, which should reduce the stress on the under-funded population pass-through costs to private sector insurance participants. Granted Medicaid reimbursement is marginal, it is still better than no reimbursement, so this will increase viability of some hospitals, especially in the cities. The healthcare reform bill increases the allowance for the Federal Medical Assistance Percentage or FMAP for Medicaid Managed Care Plans.
Under fee-for-service reimbursement plans, family medicine, general internal medicine, and pediatric practitioners will also have increased reimbursement for primary care services.
Healthcare Purchasing Subsidy for Low Income Residents
For individuals who are not eligible for Medicaid or Medicare, but qualify for subsidized insurance purchasing, here is the subsidy range under the Patient Protection and Affordability Act, section 1402:
Household Income/ Insured’s Responsibility/ Subsidy
133% of FPL/ 3%/ 97%
Up to 400% of FPL/ 9.5%/ 91.5%
Individual Penalties for Residents who do not Obtain Health Insurance
Section 4980H of the Internal Revenue Code also provides that individuals who do not elect health insurance will be subject to a tax penalty, which would run between $325 and $695, depending on modified adjusted gross income levels. Many people may choose to pay the penalty rather than buy insurance because it is less expensive to pay the tax.
The combination of insurance tax subsidies, coerced employer contributions, and required individual insurance plan participation should help reduce some of the uninsured expenses which health systems experience, although it is difficult to forecast the level at this time. According to Hewitt Associates, when the COBRA subsidy kicked-in, enrollment increased by 20% for those beneficiaries. Also, individual participation in regional purchasing cooperatives is going to depend on how well those plans are communicated and ultimately, the cost of the plans.
Insurance Company Tax
Insurers will be assessed a premium tax to help pay for the provisions of health care under the Patient Protection and Affordability Act. Basically there is a formula that excludes certain activities from tax, has an offset, and has provisions for insurers that derive 80% or more of their revenue from low-income (re. Molina Healthcare), elderly (Medicare supplements), and disabled populations.
Health Insurance Luxury Plan Tax
High cost or "luxury" health plans will have to pay an excise tax up to 40%(yikes), based on an expected premium, with risk adjustments for that area. If the cost of your health insurance exceeds that threshold a tax will be assessed on the residual. The formula for determining which plans are high cost will be based on a per employee factor derived from Blue Cross/Blue Shield industry standards, which are age/risk/sex adjusted. Currently this threshold is $10,200 for an individual and $27,500 for a family, which is indexed for medical inflation. It is difficult to understand how this will help lower health costs, it seems to me it will just encourage employers to pass more costs onto their work force, who are already financially strapped. What are we doing, punishing the good guys who have great healthcare? Why not just mandate design elements with co-payments as opposed to only addressing the spend factor? This tax may force some plans to reduce some benefit levels to comply.
Medicare Changes
Medicare enrollees benefit by the following changes in reimbursements:
1. Closure of the prescription drug "donut hole" exclusion under Medicare Part D
Medicare enrollees who have used all of their prescription drug allowance will be reimbursed up to $250 to close this loophole. This reimbursement will be allowed once per year per enrollee for Medicare Part D drugs.
2. Changes in Medicare Advantage (HMO) payments
Qualifying counties will receive increased allowances, based on enrollment.
3. Quality rankings will impact Medicare Payments
Healthcare facilities with a quality ranking of four or higher will receive increased reimbursement from Medicare. Reimbursements will also depend on Medicare Advantage plan enrollment by county.
4. Transparency about plan expenses and administration costs
Under the Public Health Services Act, Medicare Advantage plans are required to have a claims loss ratio of 85% of premiums or the plan will have to pay a penalty to the government.
5. Physician Ownership Referral (Medical Home Provision)
This provision requires provider agreements to be signed for patients, designating a medical home status. This is part of Medicare’s efforts to improve primary care for Medicare patients by strengthening the primary care relationship.
Medicare Tax Increase
It should come as no surprise that there is an increase in the Medicare payroll tax, from 2.9% of total payroll to 3.80%, split evenly between the employee and the employer. Given the state of the Medicare fund, a bigger tax increase is warranted, and is probably on its way.
Other New Taxes
Medical Device Excise Tax
Medical devices, meaning cardiac pacemakers and such, will now be taxed at 2.9% of the purchase price. Orthopedic devices presumably are included in this category. Exceptions to the tax include; hearing aids, glasses, contacts, and over-the-counter devices purchased at the drug store. This tax will simply make these devices more expensive and will be passed directly through to the ratepayers and healthcare consumers. Also, in a nod to medical tourism, since this is an excise tax, even if you obtain healthcare outside of the United States, the device, if manufactured in this country, you will pay the tax.
Estate and Trust Tax
A tax equal to 3.8% will be levied on estates and trusts
Administrative Changes
Durable Medical Equipment Oversight
Durable Medical Equipment suppliers will be subject to an additional 90-day period of claim review, due to a high degree of suspected fraudulent activity in this supply sector. So, I guess this means they will be getting paid later.
Fraud Detection
The Commission of Medical Services in HHS is going to compare notes with the Internal Revenue Service as an enhanced Medicare fraud detection procedure.
Any semblance of privacy we had was lost with the post-911 anti-terrorist provisions, so lets just add this to the list of big brother invasiveness.
On a closing note, the Public Health Services Act imposes a slew of new taxes on corporations, individuals with investment income, and trusts. I just hope there is transparency in the spending of those funds and that is does actually go towards health care for those who need it.
This article was written by Roberta E. Winter, MHA, MPA, an independent healthcare consultant in the Pacific Northwest region of the United States, and may be reprinted with her permission.