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.

No healthcare decision from SCOTUS today. It could be any day from Tuesday to Thursday this week.

SCOTUSblog expects the healthcare opinion Thursday. I will be checking each morning to be sure. Stay tuned here and @brycewatch on Twitter. Thanks for following.

We hired a very smart, super-qualified new product marketer a couple of months ago who spent the last couple of years in D.C. working for HHS, helping to roll out ACA regulations. We asked John to put together some thoughts on the Wyden-Ryan proposal – recommended reading.

I wish you all a fantastic holiday and here’s to a great 2012 for everyone.

Bryce

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Earlier this year, I wrote an article for InsuranceNewsNet offering my opinion that the individual mandate provision of the Patient Protection and Affordable Care Act (PPACA) is not essential to achieving the law’s goal of ensuring that tens of millions more Americans have health care coverage.  The individual mandate provision requires all citizens to obtain health insurance by 2014 or pay a fine.

In the past 30 days, court rulings on both sides of the question of whether the individual mandate provision is constitutional makes it even more likely that the U.S. Supreme Court will review the matter sooner rather than later.

The unconstitutionally of the individual mandate has become the central argument of opponents in legal challenges to the entire law. They argue that if such a key provision is ruled unconstitutional, the entire law should be unconstitutional. It also remains unpopular with average Americans. In a new poll out last week from the Associated Press and National Constitution Center, 82% of respondents said “no” when asked, “Do you think the Federal Government should have the power to require all Americans to buy health insurance, and to pay a fine if they don’t?”

We’ll have to wait and see how the U.S. Supreme Court rules to know the fate of the provision. But my own opinion hasn’t changed. Based on our experience at Extend Health, if a health insurer offers seniors a private Medicare plan that meets their needs at a price they can afford, they will buy. This is because certain conditions for Medicare-eligible seniors exist that do not exist for all Americans. Most important, Medicare is guaranteed issue and requires standard plan designs.

Guaranteed issue means seniors cannot be denied coverage because of their health status. Standard plan design makes it possible to compare and contrast different plans from different carriers more easily. And these are exactly the conditions all uninsured Americans will experience under PPACA starting in 2014.

While I still believe that these conditions are necessary for large numbers of uninsured Americans to buy health plans without a mandate, today I would also argue they are not sufficient. In addition, the key stakeholders driving the extension of health care coverage to more Americans will need effective outreach programs to ensure that all Americans know their options, understand their eligibility for the federal subsidies that will be offered, and know where and how to purchase health plans.

A large group of these stakeholders – health insurers, health care providers, associations and health care nonprofits – took a major step in the right direction last week when they launched a nonprofit coalition with the mission of ensuring that “all Americans are enrolled in and retain health coverage.” Enroll America  will do this by working to ensure that enrollment processes are simple and streamlined and that people know where they can go to find the right information at the right time.

It’s too early to tell whether Enroll America will be successful. But the importance of its mission cannot be underestimated. While the ACA lays the foundation for insuring tens of millions more Americans with guaranteed issue and standard plan design, finishing the job will require that every American understand what’s coming, and what they can do and when.

Visit Extend Health — the nation’s largest private Medicare exchange.

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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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We all know that many Americans do not have health insurance because it costs too much. Even people who can afford it are often denied coverage because of the current state of their health or preexisting conditions. That’s because unless you are guaranteed coverage under your employer’s group plan or a group plan from some other source such as a professional association, you must buy health insurance on the individual market. Without guaranteed issue, good luck with that.

In contrast, consider the experience of purchasing homeowners’ insurance.

Like most American homeowners, I buy homeowners’ insurance from a local agent. When I bought the house I live in now, my real estate agent referred me to someone who was friendly, appeared competent and gave me what seemed like a reasonable quote. I signed a contract on the spot and didn’t think much more about it for the next three years.

Then one day out of the blue, I got a letter from my insurance company – a “Premium Increase Notice.” The notice informed me that my homeowners’ insurance premiums would be going up by 25%. I was stunned. In three years, I had never filed a claim and I had never been late with a premium payment. I called my insurance agent, expecting to learn that the letter was sent to me by mistake.

Instead, my agent began mumbling about “state building regulation changes, “ “recent company losses due to severe weather,” and other extraneous points that had nothing to do with me or my house or how I had used my homeowners’ insurance benefits – which was not at all. Bottom line, the letter was not a mistake, and if I wanted to renew my policy, it would me cost 25% more.

That very day, I became an empowered consumer of homeowners’ insurance. I have never looked back. With some Internet research and a few phone calls, not only was I able to purchase a new policy from another reputable company, I got nearly identical coverage for less money than my previous policy before the premium increase.

What does homeowners’ insurance have to do with health insurance?

If only health insurance was more like homeowners’ insurance. The homeowners’ insurance market is highly competitive and consumers unhappy with their coverage or the price of it can switch carriers and plans at will. We have no such luxury in the individual health insurance market.

For a compelling account of just how bad it can be, I recommend a recent guest editorial New York Times in which a successful CEO chronicles her nightmarish experience when, after the sale of her company, she had to shop for health insurance for her family in the individual market. The editorial is called “Money Won’t Buy You Health Insurance.”

My point is this: If we are serious about controlling health insurance costs in America, it is imperative that we turn more Americans into empowered consumers.  To do that, we need a viable individual health plan market with guaranteed issue and standardized plan design – both key provisions of the Patient Protection and Affordable Care Act (PPACA). For good measure, PPACA also includes a provision for state-run health insurance exchanges.

The signatures of President Barack Obama, Vice...

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With guaranteed issue, consumers cannot be denied health insurance based on the status of their current health or a preexisting condition. With standardized plan design, they can compare and contrast different plans from different carriers. With exchanges, they can quickly and easily identify and chose a plan that both meets their health care needs and budgets.

I know this from my own experience operating the nation’s largest private Medicare exchange for the past six years. In fact, because Medicare-eligible seniors today are the only group in America with guaranteed issue and standardized plan design, they are the most empowered and the most relevant individual consumers of health insurance in the nation.

Simply put, there is nothing like a little competition between carriers to keep costs down.

Don’t believe me?

The average premium increase in the group health insurance market over the past three was 9-12%. In the Medicare supplement market, it was 2-3%.

Visit Extend Health — the nation’s largest private Medicare exchange.

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