The Rubber Meets the Road

November 20, 2012

Exchanges are the new vehicle for health care reform changes coming down the road, and the on-ramp is coming right up

With elections and this past summer’s SCOTUS decision behind us, the major events that could have altered the macro course of the Patient Protection and Affordable Care Act (PPACA or ACA) are behind us.

The health care providers, insurers and those closely tied to getting health care benefits into the hands of consumers – particularly employers – now face a series of milestones, not all clearly defined, through  Jan 1, 2014 – when 30 million previously uninsured Americans could begin new health care coverage – and beyond.

Just how these different interests– consumers, insurers, providers and the law – converge is where the rubber meets the road.

Circle these dates on your calendar

  • Dec 14, 2012 – States can declare whether they will run their own state health care exchange, let the Feds run it for them or partner with the Feds.
  • 2013 –Medicare payroll tax increases for higher-wage employees. Employee pre-tax contributions to health flexible spending accounts get capped at $2,500.
  • Feb 15, 2013 – States must declare if they would prefer to partner with the Feds
  • March 1, 2013 – Employers must notify employees of exchange-based coverage options
  • Fall 2013 – State and private health benefit exchanges will be operational for people to begin signing up for new Jan 1, 2014 health plan start-dates.
  • 2014 – The mother lode of rules comes online: individual mandate, play-or-pay mandate, premium and cost-sharing subsidies, Medicaid eligibility expanded in some states and additional group health plan mandates.
  • 2016 – Sales of health insurance across state borders permitted if neighboring states agree.
  • 2017 – States can choose to open exchanges to large employers.
  • 2018 – Cadillac tax kicks in.

Pieces of the regulatory puzzle that have to be filled in

  • Just out today – Proposed rules on essential health benefits, guaranteed issue and employment-based wellness programs were published by Health and Human Services.
  • Full-time vs. part-time – More specifics distinguishing full-timers and part-timers will be clarified for the purpose of applying penalties for not offering health benefits.
  • Premium tax credit – How this will be calculated by the IRS.

Stay tuned for a shift in focus in these areas

  • Fix-it – Look for a PPACA-fix bill to be proposed in early 2013. There are some provisions that will need to be adjusted, where costs or incentives don’t necessarily promote the best behaviors.
    • Look for adjustments in how health savings accounts and health reimbursement accounts are capped and taxed.
    • Expect health insurers to be more vocal on the Feds minimizing the health care premium tax and on states taking up ACA’s Medicaid expansion.
    • At issue in the Senate will be the Independent Payment Advisory Board (IPAB) and the medical device tax among other negotiations.
  • Providers take on new gravitas in the cost arena – Accountable care organizations will be going full-steam ahead. Over 80% of the ACOs created to date have been created by hospital and doctor groups, which could signal a shift in control away from the health insurance carriers to providers. The jury is still out on whether ACOs will lower total health care costs, but hospitals are certainly now incented to hold down preventable readmissions and hospital acquired conditions.
  • Entitlement reform – Medicare will continue to evolve according to the plan laid out in the ACA and will be a big part of talks during grand bargain negotiations in 2013. With both sides of the political spectrum far apart on reform, this will be interesting.

Stay tuned for a shift in focus in these areas

As these timeline, rule and structural developments start coming online, there will be a lot to keep track of and many calculations to make. I pay close attention to these and will write on new trends in the health care and insurance space as they break.

Read more

For regular commentary on developments and trends in health care, technology and insurance, follow @brycewatch and @ExtendHealth on Twitter and check out www.extendhealth.com.

At 10:07 a.m., Thursday 6/28, the Supreme Court of the United States issued its ruling on the constitutionality of the individual mandate, and ended (for now) the challenge to the Affordable Care Act.

With Chief Justice Roberts siding with the majority, the Supreme Court decided in a 5-4 vote to uphold the individual mandate as a tax. The case before the court on Medicaid expansion was upheld narrowly, with the Court ruling that the federal government may not cut off all of the Medicaid funding of states that opt out of Medicaid expansion – but the expansion can continue.

For the actual text Supreme Court ruling, go to the Supreme Court of the United States website. To see a replay of a live blog of the orders and opinions of the court, go to the SCOTUS LiveBlog.

I will be linking to thought provoking commentary on and reactions to the decision from my Twitter account @brycewatch.

The road map for state exchange health plans in 2014 was just released. Posting it here to make the whole report available.

Essential Benefits Package (IOM Oct 6 2011)

In the 1980s and 90s, the uber dry-witted comedian Steve Wright tickled audiences on the Tonight Show with thoughts such as “I received a package of powdered water today, but I’m not sure what to mix it with.” I saw him recently on the Craig Ferguson Show and it reminded me of one of his best jokes from his heyday:

 “Why don’t we make the entire airplane from the stuff the “black box” is made of?”

 Of course, he is referring to the fact that after every major airplane crash, the NTSB finds the “black box” flight recorders intact and usually in perfectly good working condition. The plane, of course, no longer exists – along with the dozens of unfortunate passengers who happened to be aboard.

 It doesn’t take long to note that airplanes are made of aluminum (and not steel, as is the “black box”) for one simple reason: weight. Aluminum in structured form is relatively strong and only a fraction of the weight of steel.  It is not a strong as steel, but it doesn’t need to be. Aluminum does the job. Of course, this allows the airplane to fly. In contrast, an airplane made of “black box” materials has a big problem: It won’t fly. It probably wouldn’t even get to the end of the runway as the landing gear would buckle at the first turn onto the active taxiway.

As HHS looks at creating the definition of “essential benefits package” required by PPACA, word came last month that over 300 lobbying groups and health care special interests had submitted their “issue/condition/solution” for consideration in the definition of “essential benefits package.” If HHS includes even a small fraction of “The 300,” it will build a plane made of “black box” material. It won’t fly; even the basic bronze plan will be so unaffordable as to be a non-starter.

It would be disastrous to see the linchpin of the new exchange benefit delivery system fail before take off. But there is an interesting idea that might appeal to both parties – and cause the exchange concept to flourish in earnest in both Republican- and Democrat-led states.

 President Obama recently issued a waiver giving states more flexibility in designing, launching and managing their exchanges. This was a good start. State leaders worried about “ObamaCare” in general, and the “black box” problem in particular, should ask that the waiver be expanded to allow states to define “essential benefits” as meaning their current individual plan mandates.

 This should work for everyone. The Federal government wants to cede more health care control to the states. The states don’t want Washington telling them what to offer. This change would make plans in states like Idaho (with only eight coverage mandates) attractive to Idaho residents, and potentially all Americans, due to their “aluminum” design that gets the job of health care coverage done at less cost.

 Next, the 29 states with GOP governors and/or state house leadership should bring back one of their better health care ideas and allow individual plans to be sold across states lines subject only to the home state’s mandates and resulting product design. Almost every state requires today that an individual plan provide a minimum $5 million of lifetime coverage – not a bad deal at all, especially if all plans in the USA are guaranteed issue. PPACA will require that all plans have unlimited lifetime caps. This sounds expensive. It really isn’t. The bulk of claims in health insurance happen in the $0-$10,000 amounts and the $100,000 to $1 million range.

 Requiring unlimited lifetime maximums, when spread across a large guaranteed issue individual pool, won’t impact plan pricing in a material way. Having up to 300 “conditions” included in an “essential benefits package” is the real problem. We will be buying coverage for conditions very few people will contract – exploding the cost of even the most basic health plan and therefore the entire PPACA bill as we expand coverage to tens of millions of new entrants.

 A state mandate and interstate competition model could also start a massive job-creating cottage industry. We envision this happening in smaller states willing to offer more basic plans at a better price. Don’t believe me? Look at what happened when South Dakota changed its banking laws to entice Citibank and others to move all retail credit card operations to their state in the 1980s: unemployment in South Dakota in those years was practically non-existent. The same would happen in Idaho and other states unwilling to allow their health care airplane to be built of steel.

During our discussions with dozens of states about powering their insurance exchanges, we also talk to state development officers, and they tell us there is a fierce battle being waged for corporations and jobs. This dynamic of state vs. state competition is happening now as states seek to attract corporations with low personal and corporate income taxes.  What would it mean to the great State of Nevada if health plans based there were to enroll 20 million lives across America over the course of the next 10 years in individual health plans with manageable “essential benefits” at a lower cost than other states? It turns out it would mean a lot. Becoming the leading provider of individual health plans could mean 20,000 jobs in Nevada – making a huge dent in its high current unemployment rate.

 One would think that the federal government and Democrat-led states would be in favor of this also. There is going to be a firestorm when the “essential benefits package” is published for comment and the word “essential” gets abused by special interests and lobbyists who insert their motorized scooter or [name another benefit] in the definition of “essential.” Voters wrath will know no limits when they find out the plane we thought we were all building together won’t fly because the designers forced the use of steel when aluminum was available and more than good enough.

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