aca and health reform

American Health Reform: Overview and Implications

EMRA

Agenda

► Why Health Reform Was (and still is) a National Priority

► Pre and Post-Reform: How Individuals Acquire Insurance

► Pre and Post-Reform: System From Insurer to Provider

► Pre and Post-Reform: Patient Care

Global PerspectiveThe Case for Reform

Insurer

Provider (Doctor)Individual

Though the healthcare financial system is very complex, at its core goods and services flow cyclically between three main parties

Though we could create a much longer list of organizations involved in healthcare, for the purposes of explaining health reform in a time efficient manner we will focus on these three

Overview | GDP Share | Increased costs | Burden for Family and Business Budgets | Health Spending | Health Outcomes

Healthcare costs are rising at a rate faster than national GDP growth

• Healthcare costs are rising at an alarming rate

• Projected to account for over 25% of the US GDP by the year 2025

Every year healthcare represents a bigger portion of the budgets of American businesses and families and accounts for a larger share of the national GDP


From 2000 to 2007, family health insurance premiums rose 87 percent while median family incomes increased by only 11 percent

Rising healthcare costs are an increasing burden for the budgets of American families


• Large employers typically pay 15 percent of payroll for health costs– For comparison, German companies pay 8%

• Employer health care expenditures are growing faster than the businesses themselves. Corporations report they cannot drive down business costs and optimize margins enough to keep absorbing these increases, and employer-sponsored insurance is eroding as a result.

• Compared to GM, Toyota, which benefits from Japan’s universal health system, “paid $1,400 less per vehicle on healthcare”

• GM spent $4.6 billion on health care in 2007, more than it paid for steel

Rising healthcare costs are an increasing burden for the budgets of American businesses

Rising health costs inhibit the ability of American corporations to invest, expand, compete internationally, and continue to offer health coverage to employees

Source: http://thinkprogress.org/politics/2008/12/05/33286/gm-health-care-reform/


http://thinkprogress.org/politics/2008/12/05/33286/gm-health-care-reform/


- Current spending patterns- Drivers of increased health spending

Source: Achieving a High-Performance Health Care System with Universal Access: What the United States Can Learn from Other CountriesAnn Intern Med. 2008;148(1):55-75. doi:10.7326/0003-4819-148-1-200801010-

00196

The nation's health dollar, calendar year 2005: where it went

Legend: “Other Spending” includes dentist services, other professional services, home health, durable medical products, over-the-counter medicines and sundries, public health, other personal health care, research, and structures and equipment.


7%

29%

48%

Drivers of increased health spending: one thought is that new (expensive) technology is largely responsible

Causes of Growth in Real Per Capita Medical Spending, 1960-2007

Aging of population

Increase in personal income

Technological change:new drugs, procedures,devices, increased “intensity” of care.

Source: Smith et al., 2009, Health Affairs.

More generous Insurance coverage11%

Medical price inflation

5%


Second driver of increased health spending: Chronic disease prevalence is expected to increase significantly in the next decade

Given the large projected increase in healthcare costs associated with chronic conditions, many efforts aim to achieve a better health outcome at a lower cost through improved prevention

and management of disease.

Pulmonary conditionsHypertension

Mental disordersHeart disease

DiabetesCancers

Stroke

0 10,000 20,000 30,000 40,000 50,000 60,000

Estimated cases in 2023 (thousands)

► Increasing disease burden resulting in rising

healthcare costs and reduced productivity

► Driven in large part by increased obesity and

aging of baby boomers

► 20% of people drive 80% of healthcare costs*

2013 20230

2

4

6

2.484.15

Projected annual Healthcare costs* ($ trillions)

Treatment expenditures

Lost productivity

Total (2023)

790 3,363 4,153

Healthcare costs in 2023 ($ billions)

* Includes productivity losses, which account for 70% of costs Source: Study by Milken Institute

*Source: Statistical Brief #73. March 2005. Agency for Healthcare Research and Quality


Chronic Conditions Drive Health Spending

• 20% of people drive 80% of health spending• Chronic conditions specifically are the main

drivers of health spending• Daily medication management of chronic

conditions is relatively cheap• Acute manifestations (ER visits and

hospitalizations) drive the expense • A better health outcome can be achieved at

a lower cost by better managing chronic conditions



- What we get for health spending

18%

21%6%

56%

*Medicaid also includes other public programs: CHIP, other state programs, Medicare and military-related coverage. The federal poverty level for a family of three in 2011 was $18,530. Numbers may not add to 100% due to rounding. SOURCE: KCMU/Urban Institute analysis of 2012 ASEC Supplement to the CPS.

18% of Americans lacked health insurance in 2011

47.9 Million Uninsured

266.4 Million Nonelderly

Employer-Sponsored Coverage Uninsure

d

Medicaid*

Private Non-Group

Health Insurance Coverage of the Nonelderly, 2011

Income

≤138% FPL Medicaid

(51%)

139-399% FPL

Subsidies (39%)

≥400% FPL

(10%)


Health outcomes: The US compares unfavorably to other countries on a number of core health quality measures


Though per capita health spending in the US outpaces that of other industrialized nations, the American healthcare system performs relatively

poorly in terms of health outcomes

Health outcomes: The US compares unfavorably to other industrialized nations on measures of access and quality

Source “Annals of Internal Medicine”: http://annals.org/data/Journals/AIM/20151/8FF5.jpeg

Relative to the health systems of other industrialized nations, the US healthcare system costs much more but compares poorly in terms of quality and access


http://annals.org/data/Journals/AIM/20151/8FF5.jpeg

Health ReformChanging how individuals acquire insurance

- Insurance market reform- Mandates- Exchanges- Subsidies for private coverage- Medicaid expansion for low income- Risk adjusted payouts to insurers

Insurer


Pre-ACA

• Policies are medically underwritten

• Many policies exclude benefits such as prescription drugs and maternity care

• Policies typically have high cost sharing

• Premiums are unsubsidized leaving them unaffordable for many

Post-ACA

• Insurers are prohibited from discriminating based on health status

• Policies must cover the essential health benefits

• Consumer out-of-pocket spending is limited

• Premium and cost-sharing subsidies are available

ACA Includes New Rules for Coverage in the Non-group Market

No Individual Mandate Individual Mandate• Old system: No individual mandate and large barrier to

acquiring insurance when ill• New system: Mandate to have health insurance and no

health status discriminationInsurance Regulation | Individual and Employer Mandates | Exchanges | Expansion of Coverage | Risk Adjustment | Summary

Some employers will be legally bound to contribute to the health coverage of their employees or pay a penalty

• Penalizes employers with =>50 employees who do not offer coverage if any of its full-time employees receives a premium assistance credit for purchases over an exchange plan

• If more than 200 employees, new employees automatically enrolled in employer’s plan, if any.

• If less than 200 employees, continue enrollment of current employees and notify employees of right to opt out.– If don’t like employer’s plan, you can “opt out”and receive a

voucher to shop for plans in the exchange


The employer mandate is among the most controversial elements of the health reform bill. Many health policy professionals argue that the employer mandate

is necessary to avoid motivating employers to stop providing coverage, thus forcing the government to pick up the tab for their employees’ health coverage

Whether or not a company will be subject to the employer mandate depends on a number of factors

2015_____


Plan Type“Actuarial Value” Typical Deductible

TypicalCoinsurance

Maximum Out-of-Pocket Cost

Bronze 60% $5,000 30% $6,350

Silver 70% $2,000 20% $6,350

Gold 80% $0 20% $6,350

Platinum 90% $0 10% $6,350

Catastrophic(up to age 30)

NA $6,350 0% $6,350

All figures are for single coverage. Amounts for families would be double.

All plans must cover essential benefits: hospitalization, outpatient medical, emergency care, Rx drugs, maternity, mental health, rehab, lab tests, preventive services, pediatric dental & vision.

Standardized Plans Sold through Exchanges Will Be Easier to Compare


• Pregnant women and Non-Medicare eligible individuals <65 with income =<133% FPL

• In 2010 that is $14,404 for a single person and $29,327 for a family of four

• Premium assistance credit equals cost of second most expensive silver policy less amount taxpayer expected to pay for insurance. This runs between 2% to 9.5%, indexed to income

• 40% excise tax on high cost health plans: over $10,200 for single coverage and $27,500 for family coverage

• Created due to regressive economic nature of health benefits and some evidence of overutilization with highly generous health policies

CadillacTax

Subsidies up to 400% FPL

Medicaid up to 133% of Federal Poverty Level

Reform makes quality affordable health coverage widely accessible through a multi-tiered approach complemented by robust health premium assistance

Policies intended to make quality health coverage more affordable account for much of health reform’s cost to taxpayers


% FPL % of income

Occupation Annual salary

2nd lowest cost silverUnsubsidized: $3,018 age 24 $3,857 age 40 $9,054 age 64

BronzeUnsubsidized: $2,501 age 24 $3,197 age 40 $7,505 age 64

24 40 64 24 40 64

<133% 2% Fast food worker $14,500 $290 $290 $290 $0 $0 $0

133-150% 3% - 4% Retail clerk $17,000 $660 $660 $660 $143 $0 $0

150-200% 4% - 6.3% Dishwasher $18,930 $886 $886 $886 $369 $225 $0

200-250% 6.3% - 8.05%

Home health aide $24,320 $1,631 $1,631 $1,631 $1,115 $971 $82

250-300% 8.05% - 9.5%

Pre-school teacher $30,750 $2,633 $2,633 $2,633 $2,116 $1,972 $1,083

300-350% 9.5% Construction worker $38,380 $3,018 $3,646 $3,646 $2,501 $2,986 $2,096

350-400% 9.5% Reporter $45,120 $3,018 $3,857 $4,286 $2,501 $3,197 $2,737

Source: KFF Subsidy Calculator, http://www.kff.org/interactive/subsidy-calculator/

Most Consumers in Marketplaces Will Be Eligible for Subsidies to Lower the Cost of Coverage

This chart indicates the maximum amount an individual will be expected to pay out of pocket for

health insuranceInsurance Regulation | Individual and Employer Mandates | Exchanges | Expansion of Coverage | Risk Adjustment | Summary

http://www.kff.org/interactive/subsidy-calculator/

Government Subsidy Decreases With a Person’s or Family’s Annual Income

Type of Insurance Person/ Government person/family policy price family pays pays

Single male w/ $6,000 $500 $5,500income of $18,000

Couple w/ $12,000 $1,800 $10,200income of $30,000

Family of 4 w/ $12,000 $6,000 $6,000income of $66,000 Though expensive, subsidies are at the heart of

making quality health coverage accessible Insurance Regulation | Individual and Employer Mandates | Exchanges | Expansion of Coverage | Risk Adjustment | Summary

Medicaid Expansion

Estimated 16 million newly insured IF all states expand eligibility (and it is clear now that not all states will)

The income limit for Medicaid eligibility increases to 133% of the poverty level. Many people who are currently ineligible (e.g., childless adults, parents w/ low income in “stingy” states) could now qualify.

Federal government will fund all of the costs of newly eligible members for the first few years before eventually lowering their rate of support to 90%.


*138% FPL = $15,856 for an individual and $26,951 for a family of three in 2013.

ACA Medicaid Expansion Fills Current Gaps in Coverage

Adults

Elderly & Persons with Disabilities

Parents

PregnantWomen

Children

Extends to Adults ≤138% FPL*

Medicaid Eligibility Today

Medicaid Eligibility in 2014Limited to Specific Low-Income

Groups Extends to Adults ≤138% FPL*


http://www.google.com/url?sa=i&source=images&cd=&cad=rja&docid=nbJ0O0n8qkILNM&tbnid=HHMnDnAHDPNGiM:&ved=0CAgQjRwwAA&url=http://www.clker.com/clipart-193969.html&ei=TTseUYK0PIr29gT0goCgAg&psig=AFQjCNHleCT_l_KNSmLfs-4TMR8baErQzg&ust=1361022158066889

http://www.google.com/url?sa=i&source=images&cd=&cad=rja&docid=nbJ0O0n8qkILNM&tbnid=HHMnDnAHDPNGiM:&ved=0CAgQjRwwAA&url=http://www.clker.com/clipart-193969.html&ei=TTseUYK0PIr29gT0goCgAg&psig=AFQjCNHleCT_l_KNSmLfs-4TMR8baErQzg&ust=1361022158066889

Current Status of the Medicaid Expansion Decision, as of March 14, 2016


In States That Do Not Expand Medicaid, There Will Be Large Gaps in Coverage for Low-Income Adults

Eligibility for Medicaid and Subsidies as of 2014 in 21 States Not Expanding Medicaid at this Time:

Current Medicaid Eligibility Limit for Parents

Median of 21 States Not Expanding:48% FPL


ACA Insurance Highlights Summary Slide

Expands health insurance coverage to 32 million(?) people through a combination of private and public sector initiatives.

Creates state health insurance exchanges for individuals and small employers.

Carrots: private insurance subsidies offered to families making up to about $88,000 per year.

Mandates and sticks: Fine individuals $695 or 2.5% of household income in 2016 if don’t have health insurance. Low-income are

exempt. An estimated 4 million will pay fine. Fine employers $2,000/worker for not offering insurance.

Small employers (fewer than 50 employees) are exempt. Prohibitions on lifetime limits, pre-existing conditions, and insurance cancellation when individuals becomes sick.

Health ReformChanging incentives for providers

- Pre-reform: fee for service and reciprocal consolidation- Health reform transforms financial incentives- Evidence in support of financial incentives

Insurer


26.3

50

12.7

8.2 1.8

Private health insurance and self-pay FFS

Medicare FFSCapitation(all payers)

Medicaid FFS Charity care

Source: MGMA Cost Survey.

Currently, Most Physician Practices Are Paid On a Fee-for-Service (FFS) Basis

Fee For Service | Reciprocal Consolidation | Price Variation | Reform Physician Pay | Outcomes Evidence | Summary

Fee for service reimbursement means providers are being paid based on the number of procedures (labs, exams, scans etc.) they perform

Chart: Methods of Paying Providers

The Dartmouth Institute for Health Policy and Clinical Practice conservatively estimates that 30 percent or more of U.S. health care spending is on

unnecessary care.

Studies indicate that the number of services rendered per disease manifestation vary wildly across the country with no subsequent difference in health outcome

Regional differences in hospital admissions:


InsurerProvider(Doctor)

Insurers and provider groups with increasingly large market shares have made many markets non-competitive

In an effort to strengthen their negotiation positions, insurers and providers have gone through periods of reciprocal consolidation


U.S. Health Insurance Industry

Consolidated,and

Consolidation Increases

Bargaining Power


Source: New York Times, August 13, 2013.

Strategy #1: Gain Pricing Power

# of MergersHave Doubledas Hospitals

Try toMaintain

Pricing PowerOver

Insurers


2,400

2,500

2,600

2,700

2,800

2,900

3,000

3,100

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Hos

pita

ls

Systems Can Negotiate Collectively With Private Health Insurers and Drive Up Prices

# of Hospitals in Health Systems, 2001 – 2011

59% of hospitals are in a system

Source: Avalere Health analysis of AHA Annual Survey data, 2012 for community hospitals.

Individual hospitals are increasingly parts of larger health systems that collectively wield greater negotiating power


Empirical Studies: Hospital Market Power Matters


Driving Up the Price Per Admission is Critical, EspeciallyWhen Admissions are Declining

Source: S&P Industry Surveys, Healthcare Facilities, 2013.

Change in Revenue Per Admission at For-Profit Hospitals Between 2011 and 2012

Universal

HCA

Tenet

Community

LifePoint

HMA

0.2

0.3

2.4

3.0

4.6

6.1

Medicareand Medicaidare not raisingprices much

(or are droppingthem)

Health systems are using their enhanced negotiating power to increase revenue per admission


Source: Research Brief, Center for Studying Health System Change, September 2013.

Private Insurer Payments to Hospitals Vary Substantially Both Across and Within Markets


More Evidence of Price Variation Within a Market

• Negotiations between providers and insurers result in wildly different prices for the same service at different hospitals

• Negotiations also result in wildly different prices for the same service at the same hospital based on the market power of the insurer


Source: company documents of publicly traded managed care plans.

4.9%4.4%

3.8% 3.9%

4.9%

5.8%

6.9%7.8%

6.6%7.1% 7.5%

5.6%5.0%

6.3% 6.5%

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

10%

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Med

ian

Ope

ratin

g M

argi

ns

Insurer Profit Actually Increased When TheyRelaxed Cost Control Measures Median Operating Margins for the 11

Largest Publicly Traded Insurers, 1997–2011

Reciprocally consolidated health markets are more profitable for providers and insurers, but fail to control health costs for patients


90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05 '06 '07 '08 09 10 11 12 13-2

0

2

4

6

8

10

12

14

16

18

Source: Kaiser Family Foundation, Employer Health Benefits 2013Annual Survey.

PercentChange

Average annual % change in private health insurance premiums

4.0%

13.9%

Height of managed care

4 Recent Health Insurance Eras

Providers strike back

Self-managed care

Claims processing


Instituting Reform

Reform encourages innovative reimbursement mechanisms for health service providers intended to enhance quality and lower costs

The health reform bill created the Centers for Medicare and Medicaid Innovation (CMMI) to fund research and help implement best practices in this rapidly

innovating field

• Pay for performance• Pay for quality and

cost goals• Pay per episode of

health care• Pay globally for each

patient each year• Pay a yearly salary

Many options available to reimburse strategically


Source: Baicker and Levy, NEJM, August 2013.

New Medicare Policies Encourage MDs and Hospitals to Coordinate and Consolidate. Effect on Prices?


Example of innovative payment scheme: Medicare Hospital Value-Based Purchasing in the ACA (type

of pay for performance program)• Timing

– Hospitals are receiving SMALL value-based incentives payments beginning in 2013 for processes of care in certain disease areas.

– Hospitals with high (preventable) re-admissions or hospital-acquired infection rates will also receive lower payments.

– Physicians penalized for not providing data on quality. • Funding: Program will be funded by reducing base

operating DRG payments for hospital discharges. • Measures: clinical process, patient ratings, mortality.


Evidence to support financial incentives: utilizing financial incentives and disease management techniques lower costs and improve quality

A better health outcome can be achieved at a lower cost by utilizing robust incentive programs for healthcare service providers

Through improved management of chronic conditions, insurers have the opportunity to offer the highest quality service at the lowest cost in the market

The more robust the incentives the better

Quality Score


Program with most incentives

Summary Slide: Changing Incentives for Providers

• Fee For Service payment fails to align payment with goals of prevention and improved health

• Health reform encourages restructured financial incentives intended to align goals of quality with financial efficiency

• Evidence from demonstration projects show that financial incentive programs can work

• Whether or not these incentives will decrease large-scale cost growth in often non-competitive health markets is an open question. Research is ongoing.


Health ReformWorking to improve patient care

- Health infrastructure- Lack of care support systems- Reform incents EHR use- Infrastructure reform- Vertical integration- Summary

Insurer


Hospitals have an increasingly low average inpatient occupancy rate. Outpatient visits are increasing rapidly.

Many health policy professionals argue that our health infrastructure is either overbuilt or that resources are invested inefficiently

Health Infrastructure| Lack of Care Support Systems | EHR | Reforming Infrastructure | Vertical Integration | Summary

“We find compelling evidence that a positive, statistically significant relationship exists between hospital bed availability and inpatient hospitalization rates. Additionally, the observed relationship is invariant with changes in the geographic scale of analysis.”http://www.plosone.org/article/info%3Adoi%2F10.1371%2Fjournal.pone.0054900

Evidence demonstrates that increased hospital bed availability is by itself an incentive for increased health spending

http://www.plosone.org/article/info:doi/10.1371/journal.pone.0054900

• Nearly one-fourth of Medicare beneficiaries have five or more chronic conditions. These beneficiaries account for two-thirds of the program’s spending

• These patients will have prescriptions from multiple doctors that are not communicating with one another to coordinate care

• These beneficiaries are part of the 20% of patients that drive 80% of costsThe focus of health reform’s effort to improve patient care focuses on program and

infrastructure developments that will facilitate prevention

The lack of support systems that facilitate communication between providers hurts patient care and increases costs


• Lack of care coordination—such as inefficient communication between providers and lack of access to medical records when specialists intervene—leads to duplication of tests and inappropriate treatments that cost $25 billion to $50 billion annually.

• Adverse Drug Events: any injuries resulting from medication use, including physical harm, mental harm, or loss of function– 700,000 emergency department visits and 120,000 hospitalizations

are due to ADEs annually– $3.5 billion is spent on extra medical costs of ADEs annually;– At least 40% of costs of ambulatory (non-hospital settings) ADEs are

estimated to be preventable • Electronic systems can also be used to order drugs, which is

another step that commonly results in errors

Source: http://www.cdc.gov/medicationsafety/basics.html

Source: http://www.americanprogress.org/issues/2010/03/pdf/health_delivery.pdf

Lack of health information systems that support coordinated care harm care quality in a number of ways

The lack of systems in place to coordinate care, lower the risk of adverse drug events, and help providers communicate has serious quality and cost consequences


http://www.cdc.gov/medicationsafety/basics.html

http://www.americanprogress.org/issues/2010/03/pdf/health_delivery.pdf

Instituting Reform

Patient

Patient NeedsBe

st M

edic

al

Evid

ence

Ava

ilabl

e

Provider

Interoperable Electronic

Health Record


• EHRs and other health care IT, "tools can help prevent medical errors and eliminate the duplication of services and tests, saving lives and money," and, "if widely adopted, health IT would have the potential to save more than 250 lives and $452 million daily.“

Electronic Health Records (EHR) have a great deal of potential to help improve quality and reduce costs


• With advances in technology, hospitals are performing more outpatient procedures intended to keep people from having to check into hospitals for care in the first place.

• Changes in insurance reimbursement also have put pressure on hospitals to cut costs and reduce the length of a patient's stay.

• As more care shifts to outpatient clinics, rehabilitation services and home health services, hospitals are becoming a smaller and smaller piece of the overall medical system.

Health reform’s focus on improved disease management has the potential to impact how the infrastructure of health systems is designed

As incentives shift in an attempt to transform our current sick-care system into a true healthcare system, health infrastructure should see a complementary shift to a greater focus

on community outpatient treatment facilities rather than hospitals

Source: http://www.pressherald.com/business/empty-beds-may-signal-too-many-hospitals_2012-12-17.html?pageType=mobile&id=4


http://www.pressherald.com/business/empty-beds-may-signal-too-many-hospitals_2012-12-17.html?pageType=mobile&id=4

http://www.pressherald.com/business/empty-beds-may-signal-too-many-hospitals_2012-12-17.html?pageType=mobile&id=4

Health systems across the country are increasinglymoving to employ physicians directly

Source: Securing Physician Alignment, Advisory Board, 2011.

Health systems are vertically integrating by employing providers directly in an effort to align financial incentives with the quality of care


Summary: Provider to Patient• Average hospital inpatient occupancy rate trending

in the low 60’s• The health system lacks many support programs that

could help coordinate and improve care• Reform incents and funds the creation of systems

that improve care• Healthcare infrastructure is seeing a shift towards

focusing on outpatient treatment facilities• Health systems are increasingly vertically integrating


Health ReformAppendix

Insurer
