Much Progress on Healthcare.gov, But "Back End" Fixes Will Determine Success
Of the many, many things I gave thanks for last week, there was Jeffrey Zients, the White House management guru brought in to sort out the mess that is the launch of ObamaCare, and for his geek squad working feverishly on the fixes. His long-awaited progress report was released on Sunday, and it's amazingly sanguine for a government document. Knowing big IT projects as we do, it's impressive how far the fix team has gotten in a matter of weeks, much of it in consumer-facing functionality on the "front end" of the website and the enrollment process. What remains to be seen is what can be done this month on the crucial "back end" functions that connect to insurance companies participating in the exchanges -- the functions for which ObamaCare will ultimately be judged when coverage kicks off on January 1, and the true test for Mr. Zients and his geeks.
"HealthCare.Gov on December 1 is night and day from where it was on October 1," Zients told reporters in his victory lap Sunday morning. "While we still have work to do, we've made significant progress with HealthCare.gov working for the vast majority of consumers." The administration released some geek speak to make its case. Response times, capacity, and system stability are markedly improved, and conventional wisdom is that the consumer-facing functionality -- the "B to C" part -- is in much better shape.
It's the "B to B" piece that's still a problem. The metrics Zients released Sunday focused almost exclusively on the front end of healthcare.gov -- there were precious few details on the back end, specifically on the all-important "834" transmissions to insurers that tell them who's signed up, and which have been problem-plagued since the launch. You'll recall that last month Henry Chao, who oversaw healthcare.gov's technical development, said 30-40% of the back end functions remained to be completed, including a system to send payments to insurers. Without timely and accurate 834s from the Federal data hub, coverage can't be effectuated, members can't get their insurance cards, insurers can't get paid, and claims can't start flowing through the system for the uninsured.
The omission was glaring, and the Administration jumped in to address it. White House spokesman Jay Carney said that 834 fixes were ongoing but that the problems were "vastly improved." "We believe that the majority of fixes to the 834 forms have been made, including significant ones over the weekend," Carney said. "We're going to continue to work with issuers to make sure that the remaining problems for issuers will be fixed."
"A number of the fixes that went into place this weekend in particular will significantly address some of the highest priority things that we know were a particular concern with those transaction forms," said Julie Bataille, spokeswoman for CMS.
But there's still clearly a very long way to go. Administration officials and a new "Payer Exchange Performance Team," made up of insurance industry leaders, in a meeting on Monday acknowledged that about one-third of completed applications since Oct. 1 contain errors generated by healthcare.gov. The errors included failure to notify insurers about new customers; duplicate enrollments or cancellation notices for the same person; incorrect information about family members; and miscalculated federal subsidies. It's still bad enough that yesterday CMS recommended that consumers who choose a health plan through HealthCare.gov contact the insurer afterward to make certain they are actually enrolled. "Consumers should absolutely call their selected plan and confirm that they have paid their first month's premium, and coverage will be available Jan. 1," Bataille said.
There is no margin for error this month. Deadlines for enrollment are coming up in less than 2 weeks for people to get insured by Jan. 1. If the 834s can't be fixed by then, and it appears likely they won't, the next big barrier to enrollment is the ACA's requirement that eligible exchange customers pay their first month premium before they receive coverage. Without clean 834s, susbidy verification and calculations given to the plans, no one knows what the first month's premium will be. That may be the next "audible" to be called on the field: the Administration will seek a way around the premium payment requirement, and then ask insurers to take a leap of faith, issue coverage, and hope that premiums and subsidies catch up later. And that's a real problem that strikes at cash flow for many of the smaller, regional players in the exchanges, and especially for start-ups, like the ACA's co-ops. Nobody set aside contingency funds for this kind of headache.
So Mr. Zients and his geeks can't let any grass grow under their feet, and we all ought to spill some Starbuck's or Red Bull for what lies ahead for them. But to also give some perspective, a hat tip to Dr. J. Mario Molina, CEO of Molina Healthcare: "A few people are going to have data that's not correct; but compared to the tens of millions of people who don't have coverage right now, that's a minor problem." He's thrilled with the progress made, and points out "We process a couple million patients through our system the last week of the month as it is."
Whether you're a glass half-empty or full type of person, I think we can all agree we are looking at one wild and hairy enrollment reconciliation process in Q1 and 2 of 2014, so grab your shovels. There's a pony in here somewhere.
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Crisis Averted for Medicare and Medicaid. Not So for ObamaCare.
So, just hours from national debt default last night, a deal was struck to reopen the government and raise the debt ceiling. Our long national nightmare is over...at least until January 15, when this entire calamity could be repeated by battered ObamaCare dead-enders. It's a crisis averted for Medicare and Medicaid, but not so for ObamaCare.
As hundreds of thousands of Feds returned to work here in DC this morning, the overwhelming question on the street was, "Wait, what the hell was this for anyway?" (And, "is the PandaCam back on yet?")
You'll recall this episode was caused by Congressional right-wingers led by Senator Ted Cruz (R-TX) forcing a shutdown to defund ObamaCare. Didn't happen, never could have happened. Anyone who's watched the famous "School House Rock" episode "I'm Just a Bill" knew that. In the end, the anti-ObamaCare fanatics got nothing. Not one concession. Instead, the Cruzers managed to distract the entire country and the press from the colossal mess that is the launch of the health insurance exchanges. Oh, wait, his 21-hour filibuster and shutdown antics actually did some good: Cruz himself raised over $800,000 in campaign contributions in the third quarter alone. While conservatives promised not to repeat the economic hostage-taking in January when government funding next expires, that kind of cash-for-obstructionism pays and we'll have to see. It will coincide with the now-all-important effective date of ObamaCare coverage on January 1, and may be too much for the Cruz faction to pass up. In the meantime, the ObamaCare Funhouse is open!
With the shutdown in the rearview mirror it's time for oversight hearing Palooza -- and a press refocused on the messy launch of the exchanges. Every House committee with any healthcare jurisdiction is already calling for hearings. Some of the best reporting I've seen in years is happening as a rolling whodunit of finger-pointing. If Health and Human Services Secretary Kathleen Sebelius keeps her job in the face of this epic mess she's going to need her own parking space on the House side. Despite calls for her sacrifice, I think she'll keep her job, as will CMS Administrator Marilyn Tavenner. If for no other reason, the White House knows they'd never get replacements through Senate confirmation hearings in this environment.
To date, healthcare.gov has had some 15 million visitors, but it appears some 150,000, less than 1%, have been able to enroll given persistent technological snags. Indications this week are that the consumer experience with ObamaCare is improving as CMS and its array of contractors work around the clock debugging and finding workarounds. But the fixes aren't coming fast enough to avoid a whirlwind of scrutiny in the weeks ahead from restive Republicans looking for blood and the ultimate "afflict the comfortable and comfort the afflicted" story for journalists. Four major areas will be probed in the coming weeks:
- The Technological Meltdown: the GOP is already calling the ObamaCare exchange launch a "$400 million disaster" and the technological shortcomings have been well-reported. As consumers manage to establish accounts, the next wave to hit ObamaCare will be harder: subsidy eligibility determination. Health plans participating in the exchanges are seeing a trickle of "834" enrollment transactions come through. It's a small sample but thus far the quality of the data is as questionable as the rest of the launch. This is now a footrace to December 15, the cutoff for January 1 effective enrollment; if widespread problems persist, it will become a serious liability for the Administration.
- The Traffic: healthcare.gov has had 15 million visitors thus far. Last week it was learned that HHS estimated on September 5 that 500,000 would be signed up by October 31, and they're clearly way, way behind. But the stunner was the revelation that HHS built the website to handle 50,000 visitors an hour -- in the face of 50 million uninsured Americans, sorry, but that's like 1-800-FLOWERS being unprepared for Valentine's Day. The fanatics will have a field day with this one. Democrats will push back that no one anticipated 36 states revolting and forcing the Federally-Facilitated Exchange to pick up the slack, and predictably, every time the Administration asked for more money, Congress refused.
- Fraud. Republicans were already making hay of hacking and fraud concerns before the government even reopened. It's a simple enough question: "if the rest of ObamaCare's functionality is so third world, how can consumers know their sensitive personal health information is safe?"
- The Guys Who Farted and Are Pointing at the Dog. Lead healthcare.gov contractors like CGI Federal and QSSI are going to get Cruzified in the both hearings rooms and news stories in the weeks ahead.
So ObamaCare drama will intensify, just as Medicare and Medicaid temporarily ducked a bullet. A shutdown of over 30 days -- or worse, a debt-ceiling breach -- could have been big trouble for our favorite health programs. With CMS staffers back on the job, claims and payments will flow again, at least until January 15. But the deal included establishment of a budget conference committee that's supposed to look at the big picture of reining in entitlement programs, the biggest contributors to the national debt. The consensus in town is that panel is DOA, on a road to nowhere, just like the Super-Committee of the last budget debacle, given the worsening political rift in DC. And that means major reforms to Medicare and Medicaid are unlikely in the near future. Some relief as the dust clears here in Dysfunction Central.
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What ObamaCare's Glitches Mean for Health Plan Operations
It's been a rough couple weeks for the launch of ObamaCare. The only thing that's kept the Federal exchange's woes off Page 1 this week has been the continuing dysfunction on the Hill. Healthcare.gov traffic will wane, bugs can be recoded and dysfunctional processes redesigned pretty quickly, so we haven't seen anything fatal thus far, unless we're still having these problems a week away from the now-all-important effective date of January 1. But the sheer volume of Weeks 1 and 2, with CMS working on a shoestring with a night-shift staff in the middle of a government shutdown, and the hardest part of ObamaCare enrollment to come, has major implications for health plan operations in just a matter of weeks.
Here's what's keeping us up at night. All those back-end glitches in the Federal Exchange have yet to be identified, because the back end also includes the next phase of ObamaCare enrollment: subsidy eligibility verification. The key difference between ObamaCare and Medicare Advantage or Part D is the subsidy eligibility maze, and that there are several major steps to effectuate an enrollment that will hit plans in waves, not as a trickle.
ObamaCare is only open to American citizens and documented immigrants, so all applicants' status must be electronically verified with the Social Security Administration and the Department of Homeland Security. The exchanges also have to confirm that applicants are not already enrolled in another government health insurance program, like the Veterans Health Administration, the Department of Defense, the Office of Personnel Management, and the Peace Corps. Then the exchange has to check with the applicant's Medicaid/SCHIP program to see if they're already enrolled. Then the applicant has to apply for the subsidy based on their income, which has to be determined by IRS.
Finally, subsidy in hand, the applicant picks a plan. The exchange must then provide her information to the health plan she has chosen, which then has to reconcile all of that data with the exchange. In Medicare Advantage or Part D, the plan receives the application; in the exchanges, the plan flies blind and doesn't know who its members are until the exchange provides the members' coordinates. And then remember, applicants aren't official until they make their first premium payment, which could come in the form of a cashier's or personal check, cash, credit card or even a prepaid debit card. Only then is an enrollment effective, and all these steps mean big headaches for payers in the weeks ahead.
Think of it this way: 9 million-plus hit Healthcare.gov in its first week; most will return to apply for subsidies and have their eligibility confirmed and calculated; and then all of those folks will pick a plan. Those completed transactions ("834's") will hit the plans, in waves similar to those of the last two weeks. Things get really exciting starting the last week of January 2014, and then the last week of each month thereafter, as the plans must clean up all this data in the runup to the monthly payment. We have about 30 days before the waves start to hit — call it a "shopping lag" or a "glitch lag". We think those waves will look like this, as a function of enrollments and transaction volume for the plans over time:
Our conclusion: "crunch time" for the plans arrives in early December and goes through the end of February, and COOs and executive teams need to plan accordingly. And, oh, by the way: this crunch will happen as plans are trying to close their books for 2013 to make financial reporting deadlines, so grumpy CFOs will abound with their operations colleagues.
Yes it's been a messy launch, but the real mess has yet to arrive.
Diagnosing the ObamaCare Glitches: Who Farted and Is Pointing at the Dog?
We're fast approaching the end of Week 2 of Obamacare, and like the dysfunction between the Congress and the President, there's still no end in sight. Healthcare.gov underwent major code fixes over the weekend, but is still rejecting logins, failing to load menus and hindering millions of uninsured Americans in 36 states from accessing the system. Cleaning up these issues for the 9 million-plus who've visited the exchanges thus far is going to cause several operational tsunamis for health plans in the weeks ahead.
The Obama Administration took down key portions of the website last weekend for some urgent fixes, which helped but didn't solve the problem. The Wall Street Journal led the week showing how Healthcare.gov's significant glitches stem from "design and software problems" which rendered it unable to handle a persistent and massive influx of traffic since October 1. What's maddening about Healthcare.gov's woes is that 14 states and Washington, D.C. operate their own portals and many of them, like CT and KY, have successfully handled enrollees, while others, like NY and MD, suffered glitches similar to the federal website. So what went so wrong in the CMS health reform shop in the runup to October 1, when the Administration insisted it was good to go?
Several hundred pro-ObamaCare developers (including a couple of my own geeks) and veteran Federal tech contractors are picking apart the code on Reddit and have found that Healthcare.gov's thorniest issues to come are most likely in the back-end code that handles the registration process, which no one can see. Slate, in an excellent piece this week, noted that "The site's front end (the actual Web pages and bits of script) doesn't look too bad, but it is not coping well with whatever scaling issues the back end (account storage, database lookups, etc.) is having." The collective conclusions were that there were several factors behind ObamaCare's messy launch:
- A patchwork quilt of vendors who started late, and apparently rarely communicated or collaborated.
- Lame project management, as evidenced by clear lack of testing of the end-to-end process, with vendors responsible for pieces of the workflow only testing their portion.
- A badly broken Federal procurement system that rewards vendors for contracting experience, not successful delivery of results.
- Code which buckled under predictable heavy traffic. If you have spelling errors in the consumer-facing pages (e.g., 'required Feild'), you can only imagine what a mess the behind-the-curtain code must look like.
The Wall Street Journal continued its terrific reporting on the exchange troubles today. The initial breakdown last week, they concluded, was due to a bad decision to require visitors to Healthcare.gov to establish an account before they could go window shopping for plans. An HHS spokeswoman said the agency wanted to ensure that users were aware of their eligibility for subsidies that could help pay for coverage, before they started seeing the prices of policies. I get that: help consumers avoid sticker shock in their first encounter with ObamaCare. But sticker shock might have beaten an error screen. It's estimated about 125,000 consumers have now successfully created an account on Healthcare.gov.
So who farted and is pointing at the dog? Front-end architect Development Seed and back-end developer CGI Federal, a Canadian company and one of CMS's biggest IT contractors who also screwed up the Vermont exchange website. Then there's Maryland-based Quality Software Services, a United Health Group subsidiary which built the data hub; Serco, the British firm tasked with eligibility determinations, whose contract wasn't even signed by CMS until July; and last but not least, Oracle, whose identity manager was fingered as the software component responsible for the bottleneck, and who sent a fix team to Baltimore Wednesday. Little if anything was heard from these companies all week. CMS officials will decide today whether to tear out the registration system this weekend.
What's clear is that we had at least four development teams, isolated from each other, building pieces of a system that had to fit together seamlessly, which didn't because no one owned the end-to-end process. There were isolated tests on their respective pieces of the process, but likely little or no full capacity testing in the runup to October 1. One of the Redditors, who actually worked on Healthcare.gov, posted the following:
"Problems with setting up an account are the least of the website's worries. The site has to have interoperable channels of communications with the department of health, treasury, social security, state agencies, employers, health insurance companies, and consumers; and present accurate information in a timely enough manner so that consumers have an optimal experience. Unfortunately, each of those stakeholders or entities have their own legacy systems, their own technical architecture that supports their own bylaws and policies, their own suits who manage their own IT contractors, blah blah blah. It's like dominos. I can't test this critical component of the project without having 2 other deliverables precede: (both of which are) completely out of my control, and is under the jurisdiction of another agency."
Epic. Fail. And points to the bigger problems with ObamaCare functionality still ahead, like the next wave to hit: the subsidy eligibility maze.
The Shutdown Will Become the Siege of the ObamaCare Teahadists
If you're paying any attention to the worsening drama here in DC, dig in because the calendar is not our friend. With the stalemate over the government shutdown ossifying, the Congress just backed into the debt ceiling, which we'll hit in less than two weeks. Now we're going to need a big deal both reopening the government and raising the debt ceiling to get out of this mess, at the very moment postions are hardening. A few days ago, I thought a shutdown would go on for about a week...now I'm thinking it might be a month, or even longer. And that could have big implications for ObamaCare, Medicare and Medicaid.
The supreme irony of this week has been watching right-wing House Republicans shutdown the government over ObamaCare, on the very day ObamaCare launches and almost crashes because so many Americans want it. There is no clearer evidence of the lunacy of the anti-ObamaCare dead-enders. This shutdown and manufactured budget crisis never had a chance of stopping ObamaCare. It's doubly ironic because as the exchanges launch and stumble, its harshest critics are now trying to figure out what they want.
Compounding failures in stopping ObamaCare, resoundingly negative public opinion, and legislative charades like a string of piecemeal "reopen this favorite monument and federal agency that I voted to close" are strengthening the right's resolve, but for what? One of them, conservative Representative Marlin Stutzman (R-IN) summed it up today: "We're not going to be disrespected. We have to get something out of this. And I don't know what that even is." The fight has become a zero-sum game -- if the Democrats win, Republicans lose -- and it's taken on a life of its own. A moderate Republican, Rep. Michael Grimm (R-NY), said "This is not just about ObamaCare anymore."
Head. Banging.
As the extremists -- let's call them the ObamaCare Teahadists -- about 40 in the House and 15 in the Senate -- move the goalposts, we're backing into the Oct. 17 deadline to raise the $16.7 trillion national debt ceiling. Cold reality set in here in DC today that the shutdown and debt ceiling are now intertwined...and the President has been rock-solid that he will not negotiate on the latter. Preparations are being made to dig in for a long siege. And that has implications for our favorite government-sponsored health programs.
The launch of the ObamaCare exchanges this week were predictably messy. The big story has been the astounding level of interest -- over 7 million unique visitors nationally in three days, more than Southwest Airlines' website gets in a month, over 100,000 phone consultations. Several state-based exchanges like Maryland had to delay full openings. California overestimated its volume, literally, by 900%. New York and a handful of states had isolated reports of right-wing bloggers and commentators urging their followers to clog phone lines and ping exchange websites, literally waging electronic warfare against ObamaCare.
The Department of Health and Human Services furloughed over half its workforce this week but hundreds of CMS staffers are soldiering on, unpaid, trying to get this plane off the ground. Tech glitches with the CMS data hub and holes in healthcare.gov made raw by the volume prevented more than a few thousand applications from being accreted this week. Several former colleagues of mine in the agency acknowledged that eligibility and enrollment vendors signed just weeks ago weren't ready to go, but that there was no moving the start date. "It's going to be weeks of crises and workarounds trying to make this work by January 1, all while we're getting bombed by the Taliban on the Hill," one said.
By next week media attention will turn from high interest to insufficient results of open enrollment, and HHS Secretary Kathleen Sebelius will be forced to play a shell game with her department's budget to reinforce the exchange staff in the middle of a shutdown. One casualty already: the Centers for Disease Control's annual flu vaccination campaign got iced, right on the brink of flu season, with direct implications for Medicare and Medicaid plans. All of this will put more fire in the Teahadists' bellies, entrenching positions further: longer shutdown, longer debt crisis. To whit, as House Speaker John Boehner (R-OH) just said: "With Obamacare proving to be a train wreck, the president's insistence on steamrolling ahead with this flawed program is irresponsible. It's time for the President and Senate Democrats to come to the negotiating table and drop their my-way-or-the-highway approach that gave us this shutdown."
Wooooo-sahhhhh.
This doesn't start to get too ugly for Medicare Advantage, Part D, or Medicaid plans unless this nonsense stretches longer than 30 days. But if we're still at impasse heading into Thanksgiving -- and that is very much a possibility now -- we could be looking at the winter of our discontent in government-sponsored health programs. With a side of Tea.
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Wall Street Consensus: 2014 Will Be a Big Growth Year for Payers
Since returning from summer vacation I've been making the rounds with friends and spies on Wall Street to see what the nation's checkbook is thinking about the seismic changes coming to our health system starting on October 1. Usually these guys are like long-tailed cats in a roomful of rocking chairs about disruptive events like ObamaCare. But a consensus emerged: 2014 is going to be a big year for health insurers.
Generally speaking, Wall Street analysts and investor types see ObamaCare's health insurance exchanges and the 8 million uninsured expected to enroll next year as having relatively little influence on payer financial performance in 2014. Even with most red states resisting Medicaid expansion (especially those with the highest rates of uninsurance, like Texas), the money guys see Medicaid and the transition of Dual Eligibles to health plans being the real driver of coverage and margins. They see a tough reimbursement environment in Medicare Advantage, but not enough to derail growth in 2014, and covering an outsize portion of SG&A. So, overall, a big year is coming, and driven by government-sponsored programs.
Analysts agreed there are some clear signals that coordinated care is actually working to reduce utilization, especially in high-profile cohorts like readmissions. They point out medical loss ratio (MLR) trends for all product lines came in below expectations and consistent with continued volume weakness reported by hospitals, with most publicly-traded plans now guiding to a decrease in costs for 2013. No publicly-traded health insurer missed their estimates for Q2 2013, and all beat expectations by at least 20%.
Expecting further weakness in government securities due to another budget crack-up in Congress, some analysts anticipate plans will actually deploy capital in 2014 to achieve longer-term strategic goals more quickly, like acquisitions and investing in ACOs and medical homes. There was complete agreement on a continued long-term trend of payer consolidation, with WellCare's purchase of Windsor Health Plan last week the latest omen.
Our friends noted that in second quarter the average publicly-traded plan Medicare Advantage MLR was 85.5%, up slightly year over year. Medicaid health plan MLRs actually decreased slightly to 87.5%, and revenue, membership, MLR and earnings all came in better than expected.
At least in our little informal focus group, Wall Street was unanimous: 2014 is going to be a big year for health insurers, with Medicare Advantage covering an outsize amount of plan operating costs, and ObamaCare's Medicaid expansion and duals transition driving the growth.
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Another Pound of Flesh for Government Health Programs This Fall?
With summer drawing to a spectacular close here in Washington, it's abundantly clear that the "train wreck" everyone's expecting won't involve the launch of ObamaCare, but rather an epic legislative pile-up in Congress. With the collision of the debate on Syria, the immigration bill tearing the GOP apart, and now a near-concurrent exhaustion of government funding and the debt ceiling at the end of September/early October, the President and Speaker Boehner will be picking up the pieces of their agendas come Halloween. The question is whether government-sponsored health programs will have to give up another pound of flesh in the process.
Congress returns from summer recess Monday, and it'll be all about Syria, and that will crowd out other Congressional priorities like immigration, continued government funding for the new fiscal year, and the positive bipartisan progress made on the long-awaited "doc fix" for Medicare fee-for-service physician payment rates.
Funding for the government expires on September 30, 2013. You'll recall that earlier this summer, a right-wing cabal led by Senator Ted Cruz (R-TX) threatened to use continued government funding as leverage to defund ObamaCare. While they don't have nearly enough votes in either House or Senate, they made enough noise for Speaker Boehner to try to mollify them. The GOP leadership pitch was "don't shut down the government over ObamaCare, that'll kill us in public opinion. Let's use the debt ceiling as leverage at year-end instead." But now the government is expected to hit the debt limit by mid-October, two months earlier than expected, so the calendar just called Boehner's bluff with his right wing.
All of this will erupt in late September and Boehner will have to punt. We expect a 6-12 week extension of government funding to the latter part of the year, and certainly no "grand bargain" with the President. In the meantime, capital markets will be a panic for months given uncertainty over continuing government operations and US credit ratings. So this whole noisy mess will drag on toward the holidays, right while ObamaCare's exchanges are launching.
While this is happening, the basic outlines of the last budget meltdown, the loathed across-the-board spending cuts called "sequestration," will remain in place. Syria raises the potential that sequestration is eased for the Pentagon so we have plenty of bombs and missiles on hand. Sequestration's cuts to domestic programs, and therefore the impact to Medicare and Medicaid, are likely to remain in place. But the Pentagon will need its pound of flesh, and Medicare and Medicaid are always at risk as the biggest contributors to the deficit. If this happens, we suspect Congress will get it in the form of higher beneficiary out-of-pocket costs like deductibles and physician copays.
The biggest casualty of this legislative train wreck may be the doc pay fix. Congress made significant bipartisan progress on the Medicare physician payment fix of the flawed "sustainable growth rate" formula which will cut 30% in 2014 unless offset. While the cost of a long-term fix was recently reduced (~$150B vs. $300B) and raised hopes for a deal, it will now get thrown into this latest manufactured budget disaster. This is significant for Medicare Advantage because a long-term doc fix means MA rates go up about 6-7%; no fix, no boost. So, ironically, physicians and beneficiaries could end up helping pay for bombs and missiles aimed at Syria, and plans may not get the very positive ripple effect of a doc pay fix. Sigh.
So, our prediction: punts on continued government funding and the debt ceiling until the holidays; a noisy, messy launch of ObamaCare exchanges; panicked global markets as this budgetary kabuki theatre act drags out; and physicians and beneficiaries extorted.
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What a Difference a Year Makes
Since the passage of the Medicare Modernization Act, Gorman Health Group has been discussing the value that Medicare Advantage (MA) and Prescription Drug Plans (PDP) offer to both public sector and private sector employers for their Medicare eligible retirees. The value proposition includes FASB/GASB benefits as well as more affordable coverage. A number of employers have moved their retirees to these plans over the last seven years. Some employers contract directly with a MA plan or PDP plan while other employers offer their retirees a choice of plans through a private exchange such as Extend Health. This has been a gradual movement. However, during the last year, the shift has been very dramatic. CMS enrollment data for August 2013 show that employer group enrollment in PDPs was 4.4 million which is more than double the 2 million employer group enrollment in August 2012. Employer group enrollment in MA plans increased to 2.6 million in August 2013 compared to 2.4 million enrollment in August 2012.
One of the drivers of the PDP enrollment has been the repeal of the Retiree Drug Subsidy tax benefits in 2013. The repeal provided an opportunity for private sector employers to review their coverage of retiree drug benefits and many concluded that the PDP was the best choice for both the employer and the retirees. We expect this shift to MA and PDP plans to continue as more employers are moving their retirees to private exchanges. The Wall Street Journal reported on September 9 that Time Warner has joined IBM in shifting retirees to Extend Health which is owned by Towers Watson & Co. to choose a Medicare plan. Extend Health offers MA plans, PDPs and Medigap supplemental plans. According to the Journal, Extend Health has 300 companies that use their private exchange and that one third of these employers joined this year.
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The Market is Working in Part D (Just Like it Will in ObamaCare)
We've always maintained that Medicare Part D is one of the most successful market-based experiments this country has ever attempted, and that it provides the playbook for ObamaCare's health insurance exchanges. There's further evidence out today of the FACT that the government is capable of creating an insurance market from a green field, regulating the hell out of it, and achieving an enormously popular social good.
WaPo reported today that the average monthly premium for Medicare prescription drug plans will creep up by $1 next year, to $31. Average Part D premiums have held steady at around $30 a month for the past 3 years. We'd agree with CMS's assessment that the negligible increase means competition among drug plans is holding down costs, even as benefits have improved for seniors with high prescription bills. It's a dynamic that will become familiar in the exchanges in a few years.
But there's more: last year 7 out of the top 10 plans raised their 2013 premiums by double-digit percentages -- which means that by aggressively shopping, and by some 5,000-6,000 Baby Boomers aging into Medicare daily with low drug utilization, seniors helped keep the average premium from going up more than a buck. That speaks to the growing maturity of the Part D market now 7 years in operation (such as the shift coming in 2014 to "preferred" pharmacy networks), the availability of real consumer information to make good choices, and the improving sophistication of beneficiaries in making them.
Seniors have learned in these seven years some important but subtle tenets of plan selection, many of which are transferable to the exchanges. First is, the monthly premium isn't the whole story. Many seniors, especially those who take several drugs for chronic conditions, have learned that the best values for them often aren't the low-premium plans but rather those with drug formularies and benefit designs that don't penalize them for their health status in out-of-pocket costs.
Example:
- XYZ Health Plan offers a $20/month Part D program, but with a very tight "Tier 1" formulary with few drugs at lowest cost sharing (say, a $5 copay here) and the most common drugs for seniors on Tier 2 with a $25 copay.
- ABC Health Plan charges $40/month for its drug plan, but its Tier 1 covers most oral insulins, statins and cardiac therapies for a $5 copay.
- Therefore, the typical Medicare beneficiary taking one or more of those drugs gets a much better deal from ABC when total out-of-pocket costs are considered.
- Sure, XYZ plan's monthly premium is a fraction of ABC's ($240/year vs. $480/year), but that "savings" is wiped out by higher copays: three drugs on XYZ's Tier 2 gets you copays of $75/month or $900/year. At ABC, those same three drugs are $15/month or $180/year. So, interestingly, the 3-drug senior saves $480/year by joining the higher-premium plan.
I'm willing to bet that we're seeing mid-60's Boomers skew toward the low-premium plans as many aren't yet using multiple drug therapies and are unconcerned by tighter pharmacy networks; and older, sicker beneficiaries beginning to look to higher-premium plans with more generous formularies and cost-sharing. This kind of consumer sophistication takes a few years to take hold in a new insurance market. But it's exactly the kind of purchasing behavior we'll be seeing in the exchanges in 2014 and beyond.
The Part D experience shows how important it will be to bring the "bro's" and the "young invincibles" into the exchanges early to spread risk and help suppress premium growth, and how tight provider networks of high performers impact pricing. It also shows how wildly popular ObamaCare will be after what promises to be a rough first year of implementation and consumers finding their way through the confusion and white noise from the opposition.
Resources
In 2013, GHG Forum attendees went on a detailed walk-through of Part D rejected claims including frequency, sampling, data validation and documentation.
GHG Founder and Executive Chairman John Gorman addressed the critical issues issuers must address before the launch of the Exchanges at the 2013 GHG Forum. Click here to download the recording.
Join us on August 13 and hear GHG's Chief Development Officer, Aaron Eaton, and Independence Blue Cross' Senior Vice President of Health Care Reform Implementation, John Janney, walk through an operational readiness checklist to help make sure your health plan is ready to go live on October. 1.
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Resources:
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Simplfiy sales agent oversight with Gorman Health Group's software solution designed for health care organizations operating in regulated government markets. View a short video of the software tool available now.
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