Health Care Reform: 2010 and Beyond

William A. Peck, M.D. Director, Center for Health Policy Alan A. and Edith L. Wol Distinguished Professor of Medicine Washington University School of Medicine October 12, 2011

Strengths of Americas Health Care Industry:

q Basic

and clinical research and research training, and innovative and entrepreneurial applications of research advances. diagnostic, prescription drug and medical device discovery and marketing.

q Pharmaceutical,

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Strengths of Americas Health Care Industry:

q Sound

specialty and sub-specialty care, provided by excellent physicians, surgeons, emergency physicians and other health professionals. academic health centers.

q Outstanding

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Strengths of Americas Health Care Industry:

q Outstanding

health care facilities.

q Americas

large investment in health care.

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We do not have a system that provides all Americans with easily accessed, timely, high quality health care and freedom of choice at a price they and the nation can afford.

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America Lacks a Unified Health Care System

Imagine an industry providing essential services to the public, representing 1/6 of the nations economy and employing 10% of its workforce

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Failing to effectively serve more than 25% of the population; Costing far too much; Providing highly variable quality; and Replete with wastage and inefficiency.
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Americas approach to health care is by far the most fragmented, uncoordinated, complex, inefficient and costly in the developed world.

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The Major Problem List:

Excessively high and unsustainably rising costs; The un-insured and under-insured (recession exacerbated); Inadequate overall quality, many costly inefficiencies in delivery care;
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The Major Problem List

(cont.)

Racial, ethnic, gender and rural disparities in access and outcomes; Worsening workforce shortages;

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The Major Problem List

(cont.)

Minimal use of information technology;

Disordered medical tort system.

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PPACA:
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Preserves current insurance sponsors private health insurance (individuals, employers, certain Medicare customers), Medicare, Medicaid and SCHIP.

Mandates universal health care insurance.

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Mandate/Penalties:
Mandate
l

Penalties
l

Excludes undocumented aliens, American Indians, prisoners, religious objectors, income tax non-filers and individuals whose only insurance access costs more than 8% of their income.

Up to $695 or 1% of AGI for individuals.

Up to $2,095 or 2.5% of AGI for families.

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Provisions to reduce the uninsured from 52 million to less than 20 million (effective 2014)

Subsidized access to private health insurance for people and families with incomes up to 4x federal poverty (maximum $88,000) about 16 million people eligible. Choice of four benefits packages, from moderate to enhanced. Must purchase insurance through state exchanges.
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Exchanges:
l

States authorized to establish exchanges (connectors) to enable uninsured to engage with appropriate insurance packages from health insurers. Exchanges pre-identify appropriate insurers, arrange proper benefits and costs, reconcile eligibility and subsidy level, and ensure proper referral of Medicaid eligibles. Federal government will establish exchanges in states that refuse to do so.
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Medicaid (effective 2014):

PPACA raises Medicaid eligibility to 133% of federal poverty, which is higher than most states at present will increase by more than 16 million the Medicaid population.

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Health Care Reform:

Regulation of Private Insurance (2014):
l

Guaranteed issue (no exclusions for preexisting or existing illnesses). Minimum coverage standards. Covers prevention (no cost sharing).
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Health Care Reform

(cont.)

Regulation of Private Insurance (2014):

l

No lifetime or annual coverage limits. Medical loss minimum (80-85%). No changes in terms and conditions to initial package.
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Health Care Reform

(cont.)

Regulation of Private Insurance (2014):

l

Guarantees renewability. No discrimination. No recission.

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Health Care Reform

l

(cont.)

Allows premium variation with age, geography, smoking. Allows insurers to offer individual benefits across state lines (states can collaborate); insurers tightly regulated. Offers insurance assistance for those with pre-existing conditions who have been uninsured for at least 6 months. Premium increases above 10% reported to HHS and publicized.
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PPACA and Small Businesses:

l

Small businesses without self-insurance are not penalized; individual employees pursue private insurance through exchanges.

If self-insured, eligible for escalating subsidies and exchange access; Phase 1 subsidy of 35% of premiums up to 25 employees; Phase 2 subsidy of 50% up to 50 employees.
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PPACA and Large Businesses:

l

Self-insured large businesses continue their programs without penalty (grandfathered) must adhere to specific coverage requirements.

In 2014, financial penalties for large employers that do not offer its employees affordable minimal coverage.

New rules for private health insurers apply.

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Medicare:
l

Preserved as a federal entity.

Advantage program funding reduced with no loss of benefits.

Payments to hospitals decreased (acceptance of $155 billion cut over 10 years).

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Medicare
l

(cont.)

Hospitals accept financial risk; penalized for poor quality performance, including avoidable re-admissions.

Part D coverage gap (doughnut hole) phased out.

Support for home care and skilled nursing facilities reduced.

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Medicare
l

(cont.)

Long-term care insurance (CLASS Community Living Assistance Services and Support).

Financing begins in 2012 (front load).

Benefits begin in 2017 (up to $50/day).

PUT ON HOLD!
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PPACA Addl Coverage Provisions:

Re-insurance payments to employers providing health insurance for pre-Medicare retirees. Dependent children up to age 26 covered on their parents policies. Covers un-insured poor (6 months) with pre-existing illness.
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PPACA Addl Coverage Provisions :

(cont.)

Health insurers cannot underwrite nor bar children with pre-existing conditions.

Prohibits cost-sharing for preventive services, including immunizations.

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Paying for PPACA:

CBO cost estimate = $940 billion/10 years (yielding $130 billion deficit reduction).

Estimate does not include physician payment adjustment (sustainable growth rate) - $300 billion additional cost, CLASS Funding.

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Paying for PPACA Direct CostSavings; Medicare:

l

Reduced Medicare Advantage payments.

Reduced payments to hospitals, home and skilled nursing care.

Potential cost savings; integration, increased provider risk, performance transparency new delivery models.
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Paying for PPACA New Taxes:

Ten-year industry fees; medical device ($20 billion); pharmaceutical ($33 billion); health insurance entities ($67 billion).

40% excise tax on employers for rich insurance coverage policies; thresholds, $10,200 for individuals, $27,500 for families (beginning in 2018 and escalating with cost-of-living).

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Paying for PPACA New Taxes

(cont.)

3.9% tax on unearned income (interest, rent, dividends, annuities, royalties) for high income earners; $200,000 AGI individuals; $250,000 AGI joint filers. Raise employee earnings tax by 0.9 percentage points to 2.35%. In addition, intensified tax collection efforts and elimination of fraud and abuse.
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Enhancing Health Care Delivery: Improved Health, Improved Care and Lower Cost Increases:
Three Components:

Organization, structure and process. Treatments. Work force, education and community needs

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Organization, Structure and Process:

Aggressive hospital employment of physicians.

Creation of multi-hospital (specialty and general) collaborations and mergers.

Operational technology linkages among hospitals, physicians offices and home care.
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New Models Effecting Coordination, Collaboration, Shared Financial Risk and Transparency:
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Bundled payments across episodes of care.

Medical (health) homes.

Accountable Care Organizations (ACOs).

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Bundled Payments:
l

Single payment for care episode (payment for all provider services and costs according to a predetermined price, including hospital and ambulatory services). Promotes collaborative, efficient care (higher quality, lower cost). Can be associated with shared savings plans through payment withholds.
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Medical (Health) Homes (many in existence):

PCP leads organized, interactive team of health professionals (physicians, a variety of other health professionals). 24/7 comprehensive, coordinated, continuous services to patients. Emphasizes the social and psychological aspects of the illness scenario.
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Medical (Health) Homes (many in existence) :

(cont.)

Orchestrates all other patient engagements testing, hospitalization, specialist referrals.

Is replete with interoperable IT.

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Medical (Health) Homes (many in existence) :

(cont.)

Some states require Medicaid subscribers to have Medical Homes.

Some homes specialize in the care of the chronically ill.

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ACOs:
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Legally certified independent organizations consisting of various providers (e.g., physicians and hospitals) collectively responsible for complete care of a defined population of beneficiaries.

PPACA requires HHS to create ACO models by 2012.

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ACOs

(cont.)

Private insurer-funded ACOs initiated.

ACOs are financially incentivized to improve health and care and lower expenses for the given population.

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ACOs

(cont.)

Investor (e.g., Medicare, private health insurer) identifies a pre-determined spending limit/patient by the ACO; the ultimate ACO retention (receivable) hinges on spending and a set of quality standards.

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ACOs

(cont.)

The ACO is at-risk sharing any excess if spending is lower than the threshold and quality standards are achieved.

Some models require ACO to pay a penalty to the investor if spending limits are exceeded and quality standards are not met.

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Medicare ACOs:
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CMS releases proposed rules for public comment (429 pages) on March 21, 2011, elicits a storm of controversy.

Basically physician-hospital ACO partnership.

Envisions 70-150 ACOs, yielding over $900 million in shared savings.

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Medicare ACOs

(cont.)

Not less than 5,000 beneficiaries.

Fundamental emphasis on primary care.

Three-year accountability and funding cycle.

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Medicare ACOs
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(cont.)

Medicare beneficiaries assigned retroactively, during first six months.

Targeted cost reductions and 65 quality measures are basis for financial savings/risk.

Capital start-up costs pegged at $1,750,000.

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Medicare ACOs

(cont.)

Higher ACO share if downside financial risk starts in Year One.

Interoperable IT a prerequisite.

Many aspects criticized by industry.

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Addl Delivery Enhancement in PPACA:

l

Work force education and expansion (e.g., PCP, nurses). New investments in public health clinics, other community health enterprises (prevention and wellness), health literacy, elimination of disparities in access, and many more. Substantial funding for comparative effectiveness research, to discover and implement the most cost effective treatments.
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