Join us Thursday for First in New Webinar series: Risk adjustment in the exchanges
On Thursday July 26th at 1pm ET we'll kick off our new webinar series, "Lessons from Medicare Advantage and Part D", a monthly webinar series around what we've learned in Medicare that can be applied to the exchanges and other aspects of health reform. We'll begin with a deep dive on risk adjustment in the exchanges.
Risk adjustment is the defining health care finance issue of the decade, and MA and Part D represent the largest experiments in risk adjustment on the planet. MA and Part D's risk adjustment system is the blueprint for ACOs, the exchanges, and a growing number of state Medicaid programs as well. We'll explore the risk adjustment provisions in the ACA and the final regulation, and apply what we've learned in the last 7 years to the future of health plan payment, with our partner Dr. Jack McCallum, CEO of GHG sister firm CenseoHealth. Bring your CFO, Chief Strategy Officer, CMO,Chief Marketing Officer, and your actuaries for a geektastic discussion on how to follow the money post-2013. In the coming months we'll examine other reform topics where the Medicare, Part D and Medicaid Dual Eligible experience shines a light: In early September: Distribution In and Around the Exchanges: Lessons from MA and Part D. We'll explore how individuals with subsidies and small groups will be sold the "metal" plans, especially in the Exchanges through Navigators and other impartial facilitators, to the deployment of brokers and sales management. Our focus will be on the Federally-Facilitated Exchange, which could operate in as many as 40 states, with updates on specific states as applicable. In late September: we'll explore the Nuts and Bolts of the Federal Exchange: Lessons from MA and Part D. We'll focus on how the Federal Exchange will function from a 10,000-foot level perspective, where the plan interfaces are and the broad strokes of anticipated reporting requirements. In late October: Product Strategy in the Exchanges: Lessons from MA and Part D. How subsidies will work based on income determinations; a landscape view of where states are on accepting ACA Medicaid expansion dollars in the wake of the SCOTUS ruling. For Red States: what the new "near-Medicaid coverage gap" means in those states that refuse the ACA funds. We'll examine how to segment the market for Platinum, Gold, Silver, and Bronze plans, and the allowability of supplemental insurance products (like dental) in the exchanges. What existing commercial and government programs provider networks mean to product pricing and strategy. The imperative for a database of local individual claims to wargame product designs on. More to come. The scars on our collective backsides in Medicare the last 16 years provide some great "teachable moments" for the new world post-ACA. We look forward to the discussion.
The Supremes Say the Mandate is Constitutional. But Voters Get the Final Word.
Washington's best-kept secret since JFK and Marilyn Monroe came out today: the Supreme Court upheld the individual mandate in the ACA in a 5-4 decision made by Chief Justice John Roberts. The President ducked a bullet in the ruling and comes out strong heading into the election on this issue; the decision will galvanize the right and embolden the left; and Chief Roberts finessed the issue by calling the mandate a tax, avoiding new precedent and getting the Supremes out of the nastiest domestic squabble since Bush v. Gore. But the Supremes didn't get the last word on the ACA: that rests with the voters in November. Making Obama a one-termer is now the GOP's only hope to stop health reform.
The Supremes' decision means reform moves forward without delay. That means most of the 26 Red States that brought the case to the Court, and a handful of others, are now WAY behind in implementation and will likely have the Federal Exchange jammed down their throats in January 2014 for their intransigence. That's the Supreme irony of the case: for all their bitching about a government takeover, that's exactly what those states will get for having done nothing while the case worked its way through the Courts.
The decision also means there is no impact whatsoever to Medicare. The cuts to Medicare Advantage (MA) remain and will continue to be phased in. The Star Ratings bonuses and rebates remain untouched. The new Part D coverage expansions -- the "jelly" in the donut hole -- are as sweet as ever. Accountable Care Organizations (ACOs) move forward. Minimum medical loss ratios (MLRs) take effect in Medicare Advantage in 2014. The coding intensity adjustment in MA remains. The Retiree Drug Subsidy (RDS) continues to phase down by 2016, compelling more employers to push their retirees into MA and Prescription Drug-only Plans. Insurer and provider taxes stay put. And 9 Million Dual Eligibles continue their march into health plans. It's as if the case never happened. And that means, as we've said many times here, it's still all about Star Ratings, Risk Adjustment, and chronic care management as keys to survival in Medicare this decade.
Now the only thing standing in the way of ACA implementation in January 2014 is if Obama is deposed in November and the GOP can get enough votes for "repeal and replace". Republican nominee Mitt Romney -- the original baby-daddy of the individual mandate in Massachusetts -- said he raised over $1M in campaign contributions in the first two hours after the decision came down. Obama will use the decision to try to reboot his health reform message. And the election becomes a referendum on the ACA.
Strap on your crash helmet and hold onto your butt -- the next 4 months will be the nastiest campaign cycle this country has ever seen. But for now, the ACA lives. And if you're in health care, you should be turning cartwheels today.
If Mandate Survives SCOTUS, Will GOP States Be Caught Flat-Footed on Exchanges?
I keynoted the Opal Events Medicare Executive Forum last week and stated there -- as I have here -- that I think there's slightly more than an even chance that SCOTUS will overturn the individual mandate in its ACA ruling later this month. The presentation raised an interesting question: if the mandate survives the Court, will the 26 GOP governors who filed suit be caught flat-footed on exchanges, and have a Federal fallback exchange jammed down their throats in 2014 for their inaction? Remember that the states must demonstrate to HHS this fall that they'll be ready to launch their exchanges by January 1, 2014, and that there are dozens of states waiting to see what the Court will decide before taking any action. Politico held a policy briefing Friday with a couple influential state regulators that argued at least a few of those red states are moving forward on exchanges.
The most heartening news for ACA supporters were remarks by Bill Hazel, Virginia's secretary of health and human resources. Virginia is in the vanguard of states opposing the law but nonetheless has been busy getting ready to open an exchange if the court doesn't strike down the measure."We've done a lot of the planning," he said, adding that Virginia is in the "weird position" of being in relatively good shape to launch its exchange while opposing the law. "Virginia's done it and we don't want to," he said.
One of the most difficult things for states to pull together even if they are enthusiastic about exchanges is the information technology required. "We are one of the handful of states that could probably pull the IT piece off" if the Court upholds the law, Hazel said. Hazel added that he thinks it's a mistake for states opposed to the law to sit idle and watch the federal government struggle to open exchanges to fill the gap. Amen to that. "There is a group of individuals who believe that the states should just stop all work now, default into a federal plan, and assume that the feds can't get it
done," Hazel said. "That's not a bet that I would recommend yet that the Governor take because there's been a tremendous amount of work at the federal level."
Ron Pollack, executive director of Families USA, a pro-ACA consumer group, also called Virginia an "important lesson" and added that states opposed to the law may be doing more to get ready for exchanges than many realize. The narrative in press coverage is that only a few more than a dozen states will be ready to open exchanges by 2014, an assessment he said is based on the relatively small number of states that have passed laws to open the marketplaces. But, he said, a more telling sign of readiness is the number of states that have gotten the first round of grants to set up exchanges: 34, according to Pollack.
"Behind the scenes there is work being done to set up exchanges," he said. Pollack added that it makes a significant difference that the federal government is willing to share in the work of opening state exchanges by entering into
partnership arrangements. Both Pollack and Joshua Sharfstein, Maryland's secretary of Health and Mental Hygiene, struck an upbeat tone when talking about the health law in sharp contrast to the mostly gloomy talk of late about implementation struggles. Sharfstein downplayed the difficulty of opening an exchange.
It appears — initially at least — that the Maryland and Virginia exchanges would not be markedly different, assuming the health law survives and they both open. Left-leaning states are thought to be more likely to drive a hard bargain with insurers by excluding those that don't offer relatively low rates. But Sharfstein says that's not in the cards right now at least; Maryland officials first want to get their exchange up and running for a while before they think about becoming an "active purchaser."
One state out of 26 doesn't make a trend but the hope is that Pollack is right and that 34 planning grants will be enough to break through GOP gubernatorial intransigence on exchanges. The clock is ticking, almost no matter what happens in the SCOTUS ruling this month.
The End of Health Insurance?
Writing in the January 30 New York Times, Zeke Emanuel and Jeffrey Lieberman predict that accountable care organizations will totally replace health insurance within the next eight years.
They credit the health care reform act with establishing this revolutionary new form of care, in which claim processing is unnecessary, and ACOs will perform the risk-pooling function of insurance. This is uninformed twaddle raised to breathtaking heights.
First of all, the affordable care act did not create accountable care organizations. They have been around, under different names such as capitated physician groups and independent practice associations, since the San Joaquin Foundation for Medical Care pioneered the concept in the 1950s. If the notion of capitated groups of physicians hasn't supplanted health insurance over the past sixty years, it's hard to understand how the affordable care act will suddenly cause that effect now.
What the ACA did do was authorize a variant of ACO as an adjunct to the fee-for-service Medicare program (and set up a largely ignored demonstration program for pediatric ACOs under Medicaid). Unlike the imaginary ACO that Emanuel and Lieberman conjure up, the Affordable Care Act version is based on fee for service payments, not capitation. While the Pioneer demo program will experiment with capitation, the vanilla ACO version authorized under health care reform requires that all healthcare providers continue to submit claims and receive fee payments from Medicare. How does this threaten health insurance? It doesn't touch the non-Medicare world at all, and it consciously avoids changing benefits or payment mechanisms in the nation's largest health insurance scheme, Medicare itself.
Emanuel and Lieberman assume that ACOs will be paid on a per capita basis, and that the capitation will somehow flow from the ACO to individual practitioners. In practice, this process requires the enrollment and claim processing functions of an insurance company. From whom, if not insurance companies, will payment be received? They rightly note that about 60% of people who receive coverage from employers are actually insured by the employer, who contracts with an insurance company to perform the tasks of determining eligibility, paying claims, maintaining networks of health care providers (including ACOs of various descriptions), and providing insurance to protect the employer from unusually large claims. How would a Medicare program designed to reward efficiency have any impact on these employer programs?
They envision ACOs pooling risk for populations of 15,000 or more beneficiaries, as insurance companies do now. Any that do so will come under state insurance statues, and will either have to become insurance companies themselves, or contract with insurance companies as risk-bearing provider organizations. Someone, either the ACO or an upstream carrier, will have to carry the reserves and comply with state mandates.
With the advent of health insurance exchanges, it is probably that local provider organizations will be able to develop and market their own insurance plans in competition with the national giants. The exchanges will create a retail marketplace in which the advantages enjoyed by the large carriers in marketing wholesale to employers will be diluted. But make no mistake, these new entrants will still be insurance companies, and will still need to operate in compliance with both the statutory requirements and economic realities that govern the business of health insurance.
2012 has a lot in store
2012 will be a busy year for GHG and our clients. The first Legislative agenda item will be the Medicare physician Sustainable Growth Rate (SGR) fix. The 27 percent physician fee schedule cut has only been postponed for the first 2 months in 2012. The big question is how the Congress will choose to pay for the doc fix. Medicare Advantage cuts were on the table briefly as part of the House discussion, but the House ended up cutting Medicare payments to hospitals to cover their one year fix.
The Innovation Center has a lot of activities on the docket for 2012. 32 Accountable Care Organization (ACO) Pioneers are starting this month and organizations that are interested in the ACO Shared Savings model must submit their applications by January 20, 2012 for an April 1, 2012 start date or March 30 for a July 1, 2012 start date. Some of the applicants for the Shared Savings program will also be submitting an application for the Advanced Payment ACO model. Applications for the Health Care Innovation Challenge grants are due January 27 for the first round and if the $1 billion is not fully awarded there will be a second round of applications due in the summer. Due to the large provider response, CMS has extended the deadline until April 30, 2012 for applications for the Bundled Payments for Care Improvement program for models 2 — 4.
CMS will release the Advance Notice of MA and Part D Payment changes and the Call Letter around February 17 with final rates and the final Call Letter issued in April. We would also expect CMS to issue final regulations for MA and Part D Benefit Programs for CY 2013 in the first quarter of 2012.
Applications for new Medicare Advantage plans and service area expansions for CY 2013 are due February 23, 2012 followed by bids on June 4, 2012.
Work will continue on implementing meaningful use and the Medicare Advantage and provider value based purchasing initiatives that reward quality and penalize failure to meet targets.
On the Health Care Reform front the first six months of 2012 will focus on the Supreme Court review of the ACA. Oral arguments will begin March 26 and a decision is expected in late June. States will continue their work on developing the infrastructure for the Exchanges. CMS must certify that sates have made sufficient progress by January 2013. The Exchanges will go live in October 2013 for coverage and subsidies to begin January 1, 2014.
HHS will develop a back up federal Exchange for states that aren't certified. The federal government is also building a data hub to support the Exchanges that will link Social Security, IRS and Medicaid data to facilitate eligibility and subsidies.
CMS will have to issue final regulations and guidance on policies that will govern the Exchanges. While states will have flexibility on the Essential Benefits that plans must offer in the first two years, additional regulatory guidance is expected from HHS.
The presidential election in November will underscore future changes that we can expect, especially in the area of Medicare reform and additional budget cuts. Most observers expect the big cuts to start in 2013. The conventional wisdom is that it won't be the 2 percent sequester for Medicare that was passed in the Budget Control Act of 2011 but substantially higher cuts to both the public and private Medicare plans.
The Impact of Health Reform
Estimates and projections of the costs of a new health program are often way off the mark. Two major expansions of Medicare had opposite impacts. The ESRD benefit which was added to Medicare in 1972 has resulted in significantly higher costs than originally estimated while the Medicare Part D program ended up costing about 40 percent less than originally projected.
We are now starting to see the impact of several new programs added by the ACA. A recent IRS study found that fewer small employers took advantage of a new tax credit with the result that costs to date are approximately one-fourth of the CBO estimate. Similarly, expenditures for the pre-existing condition insurance plan have been less than expected due to the low take up rate. On the other hand, thousands of employers have benefited from the subsidies under the Early Retiree Reinsurance program and the funds are expected bo be exhausted before 2014 and millions of children have been insured by the provisions to extend coverage to young adults.
Several articles in the November issue of Health Affairs have taken a second look at projections for expanded coverage under Medicaid and the health exchanges which will start in 2014. In an article reviewing the estimate of 16 million new Medicaid recipients by faculty from Harvard, the title says it all: "Policy Makers Should Prepare for Major Uncertainties in Medicaid Enrollment, Costs and Needs for Physicians Under Health Reform". Authors Benjamin Sommers, Katherine Swartz and Arnold Epstein estimate that there will be 13 million new enrollees with a range of 8.5 — 22.4 million new enrollees and that costs could range from $34 - $98 billion per year. Discussion at a conference to roll out the new Health Affairs issue concluded that the take up rate could vary dramatically by state, for example take up could be discouraged in states with budgetary woes through limited marketing or could be high in states that have historically had aggressive outreach programs to expand Medicaid eligibility.
At the same conference John Shiels from Lewin discussed his article "Without the Individual Mandate, The Affordable Care Act Would Still Cover 23 Million; Premiums Would Rise Less Than Predicted". The article concludes that if the individual mandate is overturned, there will be no death spiral since the government subsidies are so generous that they will not deter large numbers of individuals from signing up. The authors estimate that premiums will increase 12.6% if fewer young and healthy individuals sign up. While the government would have to pay more for the costs of the newly insured who qualify for subsidies, overall costs to the government will be lower since fewer people will qualify for subsidies and there will be fewer Medicaid enrollees.
It will be interesting to see how it all turns out.
It's Official: the Supremes Will Decide on the Mandate. Smack in the Middle of the Presidential Election.
On Monday the Department of Justice confirmed that it did not request a review of an appeals court's decision to overturn the ACA's individual mandate. The decision ensures the Supreme Court will rule on the mandate sometime in June of 2012: just months before the Presidential election.
My thinking up until today was that health reform wouldn't play a prominent role in the election; it's all about jobs and the economy. But a decision coming in the heat of the campaign could escalate the issue for voters. The ACA is one of the most contentious and visible ways the President differs from his Republican rivals. A decision by the Supremes either way — that the law is a valid exercise of Congress's power or an unconstitutional overreach — could have political effects neither side can predict.
I remain convinced the Supremes will uphold the mandate -- legal precedent is well-established that the Congress can tax interstate commerce and even "inactivity" like refusing to buy health insurance. And if it's struck down, there are several other mechanisms by which Congressional Democrats can achieve the same effect of getting the maximum number of uninsured Americans into the insurance pool of the exchanges, like "auto-enrollment" with an opt-out and penalties for late enrollment like we have in Medicare Part D.
Either way, the Republican field must be thrilled about the timing, and the President's spin team will use the decision as an opening to tout reform's successes to date -- like 2.3 million twentysomethings already allowed to stay on their parents' insurance until age 26 -- and the promise of coverage for 32 million uninsured in 2014.
The individual mandate doesn't get a lot of love. It polls horribly, is thought by many to be unconstitutional and, from a policy perspective, is tagged as too weak to push Americans into buying coverage. But let's remember that last month there was new evidence that the mandate could work: 76% of the uninsured say they would rather purchase insurance than pay the law's penalty. That would reduce the number of people without insurance to 5% of the population and have 25 million Americans purchasing through the exchanges, just slightly higher than the 24 million that the CBO projected.
This is surprising - and it isn't. On the one hand, health reform's penalty for not purchasing health insurance - which will rise to $695 by 2016 - is a lot less than the cost of buying health insurance coverage. But on the other, Massachusetts - the only state that has implemented an individual mandate - has seen high uptake.
One other interesting finding to point out here: those with the lowest incomes turned out to be the most likely to comply with the mandate. That bodes well for a sop to Obama's base when the Supremes make their call next summer. But again, it's impossible to predict the effect the Supremes will have on the 2012 elections, so hold onto your backside next summer.
Obama and Boehner Have Forever Changed the Medicare Debate
President Obama and House Speaker Boehner may have failed to strike a "grand bargain" on the nation's deficit, but they have accomplished one thing in our world: they have forever changed the terms of the Medicare debate. There is an air of inevitability about some of the proposals they have put forth brewing here in DC.
Obama says he could accept "means testing" the program, which would require affluent seniors to pay more for services. Obama used himself as an example of someone who would pay a higher rate. Obama has also been open to other proposals, including charging co-pays for home health services and for lab work.
Obama also floated on several occasions a provision that would raise Medicare's eligibility age from 65 to 67 -- one that Boehner agrees with him on. In doing so, they gave a controversial idea legitimacy and high political cover. The concept is now likely going to be a fixture in the Medicare debate.
The idea has drawn some support from the GOP in the past. Senators Tom Coburn (R-OK) and Joe Lieberman (I-CT) introduced a bill last month moving the eligibility age up by two years, and Democrats ran from it like scalded dogs. Senate GOP Leader Mitch McConnell didn't endorse the proposal but applauded the effort. Grover Norquist -- the guy behind the GOP's stalwart refusal to move one inch on taxes in this debate -- backed it too.
Under the ACA, in 2014 insurers are banned from turning down any patient — and that could make increasing the eligibility age an easier pill to swallow because 65-66 year-olds would ostensibly have access to coverage in the exchanges. It also means that any increase in eligibility age is unlikely to pass until the exchanges and subsidies are in place in 2014.
The "agreement" between Obama and Boehner -- before talks collapsed last week -- bumped up the eligibility age from 65 to 67 over about two decades. One approach called for increasing the age by one month per year beginning in 2017 until it reached 66 in 2029. In 2030, it would increase two months each year until it hit 67.
The Congressional Budget Office said raising the eligibility age to 67 would save $125 billion over 10 years, adding that the savings would be somewhat reduced by new spending on Medicaid and insurance subsidies to cover the uninsured 65- and 66-year-olds. It's still too big a number to ignore when the bills come due next month.
Expect to see a lot more discussion about these ideas in the coming weeks as we hopefully find our way out of this looming mess. I'm turning 43 next week -- and my retirement plan assumes no Medicare or Social Security for me or my wife by the time we're ready for it. Our generation should be prepared for a very different look to Medicare now that the once unthinkable has become a fixture of the debate.
What If the Individual Mandate is Overturned?
If the individual mandate is overturned, what will happen next will largely depend on the outcome of the 2012 elections. At the moment, it is hard to imagine that the Congress could compromise on any legislation related to health care reform. But that could change.
The biggest problem will be the issue of adverse selection in the individual market with the result that premiums will skyrocket. Even with federal subsidies, the premiums in the individual exchange may not be affordable. Congress might consider delaying the insurance market reforms to see if competition and transparency in the exchanges impacts affordability. Or Congress could consider allowing insurers to return to the practice of waiting periods.
Congress might also consider enacting tax policies that would be more effective than penalties in the ACA to encourage healthy individuals to buy insurance, e.g. allowing full tax credit when individuals purchase qualifying policies or imposing higher taxes on everyone that will go away when purchasing qualifying policies. Or the Congress could do nothing and allow states to consider enacting an individual mandate. And of course insurers will undertake marketing campaigns to remind individuals of limited open enrollment periods and the consequences of failure to buy coverage or lobby for smaller essential benefit policies.
Without an individual mandate, incremental reform will still continue with the addition of 16 million new Medicaid beneficiaries. States will operate exchanges for small groups that will offer more affordable choices for employers and employees. In the meantime states that are moving forward with implementing the individual exchange like Maryland will continue to proceed without regard to the fate of the individual mandate. The federal government will continue to urge states on, fill in the gaps where states need help, and proceed to develop the federal fallback plan for states that are opposed to health care reform or who run out of time while they wait on the fence for the Supreme Court decision.
Exchange Eligibility Regs: Massive and Visionary
Just as we were speculating Friday on timing for the Exchange eligibility and enrollment regs, out it came. The NPRM is a massive and visionary document that starts a discussion about how to revolutionize the way Americans select, enroll and pay for insurance.
States and the Federal government face a daunting task of preparing for a flood of millions of new consumers into Medicaid and subsidy programs in 2014. The ACA mandated a consumer-friendly, one-stop enrollment process with simpler eligibility rules and advanced technologies — referred to by one state official as "radical simplification". Most states couldn't be farther from the ACA's goals, having onerous cultures, manual paper-driven processes, and antiquated and disconnected systems. The Administration has released extensive guidance and unprecedented funding for states to revamp these processes and systems, and the timetable for planning and implementation is brutally tight.
Fact sheets from HHS are here. Tim Jost offered a nice overview at Health Affairs here. The GHG Public Policy team is reviewing the NPRMs and will have more perspectives this week on this page.