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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Healthy Outlook for Medicare Advantage and Part D from CMS in 2014
Last week amid all the ObamaCare drama on the Hill CMS released the 2014 data for Medicare Advantage (MA) and Prescription Drug Plan (PDP) bids. The numbers show a better-than-expected 2013 and a healthy 2014 ahead for Medicare health plans. The market will see new service areas, lower bids, more zero premium plans, and more mainstreaming of Medicare Advantage as it approaches one-third of the program. CMS noted significant gains on plan quality measures, pointing out that more plans are receiving a rank of four -plus on Star Ratings, the minimum threshold for quality bonuses in 2015 when the quality demonstration expires. Overall there is clear evidence that CMS quality incentives are working, and that MA will continue its steady ~10% growth in 2014.
For MA, there were 35,070 bids for 2014, down 18% from 2013, but when you extract Private Fee-for-Service (graciously in its death throes), HMO/PPO/Special Needs Plan bids were only down 5.7%, and those largely due to consolidation among plan sponsors this year. Medicare health plans continue to wind down PFFS plans 61% year over year, and PDP bids showed similar stability, and evidence of continuing consolidation.
Some of the major points and trends we observed:
Medicare Advantage
- CMS indicates that Medicare Advantage membership will close 2013 with 10% growth, with similar gains expected next year. Three years after passage of the Affordable Care Act, and on the verge of its deepest cuts to MA phasing in in 2014, it's clear plans are adapting and evolving — and that there's no exodus in sight.
- Beneficiaries will have an average of 28 MA plan choices. The average MA national benchmark was around $31, and premiums are expected to increase by $1.64, or 5.3%, over 2013, at $32.60. There are thousands of benefit design changes coming in 2014, like plans adding and eliminating copays and deductibles. So while relative premium stability would suggest less volatility this enrollment season, benefit design changes will force millions of beneficiaries to go shopping this winter.
- As a barometer of the industry's continued health, each of the major publicly-traded MA companies are offering new HMOs in new markets for 2014:
- Humana is expanding its HMOs in PA and OK.
- UnitedHealth is expanding in VA, ME, MA, and NH.
- Aetna/Coventry has new HMOs launching in LA, TX and WV.
- Cigna is expanding in GA, AR, IN, NC and SC.
- WellPoint is expanding in WA, NH, IN, ME and MO.
- WellCare expands its footprint with its recent acquisition of Windsor Health Plans.
Medicare Prescription Drug-only Plans
- A stunning finding in all the clutter, likely the result of the move to preferred pharmacy networks and the effect of increased buying power from consolidation: the cheapest PDP plans available in 2014 are a better buy than in 2013, and have 31% lower premiums than those available in 2010. Unbelievable.
- ObamaCare haters take note: seven years after its launch, Medicare Part D serves as a shining example of how the Federal government can create an insurance market from a green field, regulate the hell out of it, and achieve a tremendous public good at much lower-than-expected cost.
- Channel partnerships have come to define the top of the PDP food chain. Humana now offers the cheapest PDP plan across all 34 regions. The company's Walmart Rx Plan has a monthly premium of $12.60 across every region, and this will be the fourth consecutive year that Humana is eligible for auto-assigns nationwide. UnitedHealth continues to make big gains with its AARP MedicareRx Saver Plus plan.
- WellCare was "most improved bidder", and is now be eligible for auto-assigns in 32 regions, up from 19 this year. Aetna is losing auto-assignment in 5 regions, though none with significant enrollment. These were evidence of clear strategic shifts by new Medicare leadership in both companies: WellCare deeper into the low-income segment, Aetna shifting more upscale.
All in all the CMS bid data shows Medicare health plan vital signs in hale and hearty territory for 2014. It's one ray of light — and should be a beacon for bipartisanship — as ObamaCare anarchy rages on.
CBO Analysis of Two Premium Support Options
The Congressional Budget Office (CBO) issued a report on two premium support options for reforming Medicare entitled "A Premium Support System for Medicare: Analysis of Illustrative Options". The two options include a second-lowest-bid option and an average-bid option. The report assumes that they would go into effect in 2018. Medicare Advantage plans would participate in the bid submission process along with FFS, but Part D would continue a separate bidding process as under current law. Dual eligible beneficiaries would not participate in the premium support system.
The analysis finds that both premium support options would reduce federal spending for Medicare. The second-lowest-bid option would reduce Medicare spending by $45 billion in 2020 and the average-bid option would reduce federal spending by $15 billion. Beneficiary payments would increase 11 percent under the second-lowest—bid option but would be reduced by 6 percent under the average-bid option. When federal and beneficiary payments are combined, the second-lowest-bid option would reduce Medicare costs by 5 percent and the average-bid option would reduce Medicare costs by 4 percent.
CBO analyzed the impact of the premium support bids on Medicare Advantage bids and found that both options would lower MA bids by 4 percent on average compared to current bids, although the differences would vary regionally. Plans would only be able to submit two bids. CBO expects MA bids under a premium support system to be lower due to more competitive pressure. CBO assumes that MA enrollees in a premium support system would be healthier than under the current MA program and that this favorable selection would result from plan efforts to contain costs. Enrollment in private plans is expected to increase at the expense of FFS and would result in private plans paying higher rates to providers that would be closer to commercial rates than Medicare rates.
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New Conventional Wisdom: A Government Shutdown and New Debt Crisis are Gonna Happen
Health care politics here in Washington are getting curiouser and curiouser by the minute. The new conventional wisdom is that we are careening toward a government shutdown on October 1, and a newly-manufactured debt ceiling crisis a week later, with ObamaCare and every other government-sponsored health program hanging in the balance. Our long national nightmare that is the extreme right wing of the GOP continues.
Things got interesting earlier this week when House Speaker John Boehner capitulated to 30-40 right-wingers in the House and agreed to hold a vote on a bill with continued government funding (a continuing resolution or CR), but zeroing-out ObamaCare. This time Boehner has the votes for it, as the ObamaCare defunding language is part of the bill itself and not just a rider which drew such derision from the Tea Party. The vote will likely come this Friday, and it will pass. This is the easy vote for Boehner and House Republicans. It's an express elevator to political hell after that.
Once the CR goes over to the Senate, here's how the whole thing could play out. First, know this: the House CR is dead on arrival in the Senate. Dead. Stillborn. Democrats and a handful of rational Republicans have what is close to a filibuster-proof majority to stop the "defund ObamaCare" nonsense. The wingnut faction in the upper chamber, led by Senators Ted Cruz (R-TX) and Rand Paul (R-KY), has promised to filibuster, but that will only delay and not stop the train. The Senate will pass a version without the defunding language and send it back to the House. Even Cruz confirms this is the likely outcome. And there will only be days -- maybe hours -- left before a shutdown begins on October 1.
Boehner will then be forced to throw himself on the mercy of his extremists, saying he did everything he could to stop ObamaCare. But it won't be enough for the hardcore on the right...and they will let the shutdown happen. They will shake the economy again with their continuing irrationality and call a storm of holy friendly fire on their own party.
The question is how long Boehner can withstand the public outrage before he crumbles (my money is on a 5-7 day shutdown)...and is forced to form a coalition between moderate Republicans and Nancy Pelosi and the Democrats to reopen the government. This will cause a revolt from Boehner's right unless he agrees to the same tactics when the debt ceiling is breached a week later in mid-October, and we go through the same manufactured crisis all over again, this time with the nation's credit rating and capital markets hanging in the balance. Again. And there could be far worse consequences of a debt ceiling breach than a government shutdown, especially for Medicare and Medicaid.
As we've mentioned here before, a government shutdown is bad enough. What happens to Medicare and Medicaid when DC closes its doors depends on how long the shutdown lasts, but it ain't pretty no matter what. If it goes longer than 30 days, it's going to hurt, bad. A full-blown extended government shutdown hasn't happened since the winter of 1995-1996 — my last year as a Clinton appointee at HCFA, now CMS. The shutdown was a 2-part ordeal, lasting 5 days in November 1995 and another 21 in December 1995 and January 1996. Medicare continued to pay physicians and hospitals during the shutdown, and the ability to reimburse providers and plans was never in question, because claims are paid out of Medicare trust funds that are separate from Congressional appropriations.
However, payments to CMS's Medicare vendors for claims processing comes from the CMS operating budget, which — unlike the trust funds — is vulnerable to Congress turning off the spigot. Therefore, in 1995 and 1996, CMS's claims vendors processed and paid claims on a credit basis, with the expectation of being made whole later. An HHS official warned during a Congressional hearing on the 1995-1996 shutdown that Medicare claims vendors "would have to cease Medicare payments if their cash ran out due to a longer hiatus." So if the shutdown -- or worse, a debt ceiling crisis, where the government can only spend dollars as they are collected -- were to last for many months, Medicare fee-for-service benefits and payments to providers would stop. Health plans are paid on the 1st of the month, so as long as a shutdown or debt ceiling breach doesn't exceed 30 days, there should be minimal disruption to cash flow.
Most in Washington expect Medicaid's core functions to continue unimpeded during a shutdown — as long as it's fairly short. "According to the House Committee on Energy and Commerce, because Medicaid allotments are paid to states in advance on a quarterly basis, it is likely states will not see an immediate impact from a temporary government shutdown," Rep. James Renacci (R-OH) said in last year's shutdown bulletin on his website. That means physicians and other healthcare providers should continue to be paid as usual as they serve the Medicaid and SCHIP (State Children's Health Insurance Program) populations. If Congress runs up to the midnight deadline with no plan to fund the government, federal agencies including CMS must designate which workers are performing essential work. Those people would be asked to stay on the job, while nonessential workers would be furloughed. It's unclear if furloughs might have ripple effects for some Medicaid services, such as enrolling new beneficiaries for coverage.
So, short answer: both entitlements are likely to continue to operate and administer benefits and payments during a government shutdown — but only if it's brief. If a political impasse occurs and a shutdown or debt ceiling breach stretches into weeks or even months, it's anybody's guess what happens to Medicare and Medicaid. And if there's disruption to payments, for even a few weeks, the economic and healthcare consequences will be severe.
And as we've said before, 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 end up at the short end of Washington dysfunction again.
In this next 4 weeks I think we're going to see the beginning of the end of Boehner's speakership, and the rift down the middle of the GOP break wide open. All because of blind, insane opposition to ObamaCare. But at least the loyal opposition is "sticking to its principles."
The utter irrationality of the Republican party is evident when u consider that neither a government shutdown nor a debt ceiling breach will stop the Obomacare train. In a recent article, the Congressional Resource Service revealed that if the government were shut down, "funding for Obamacare would still continue."
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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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More House Anarchy = Likelihood of Government Shutdown
So a week ago the conventional wisdom was that the prospects of an extremist-induced government shutdown on October 1 were infinitesimal. Not anymore. Must. Stop. Underestimating. Wingnuts.
The House was scheduled to vote Wednesday on a bill to fund the government after September 30. Right-wing extremists have been demanding that the House refuse to continue funding the government unless Senate Democrats and President Obama agree to defund Obamacare. Rational Republicans in both House and Senate have pleaded that this approach is doomed and would damage the GOP brand to force a shutdown. To mollify the wingnuts, Speaker Boehner instead hatched this whopper: let's pass continued government funding -- attached to a separate bill defunding Obamacare, which of course can be surgically excised in the Senate.
But some extremists are still saying defund-Obamcare-or-else, and it takes less than 20 of them to defect to cause Boehner serious problems. This is what gives this tiny, noisy cabal big leverage.
The vote delay means several things:
- A government shutdown is much more likely now. With funding expired on September 30, the calendar is not our friend. One Republican aide privately raged to the New Yorker of the extremists, "They're screwing us."
- Boehner's plan would continue government funding, but would lock in sequestration across-the-board cuts to domestic programs, while likely easing cuts on the Pentagon in light of the Syria mess. This approach virtually ensures Boehner won't get a single Democratic vote, and therefore, Boehner needs every last wingnut out there.
- Debt ceiling hostage-taking now appears more likely, too. The big "bait and switch" of the year has been Boehner trying to dissuade the extremists on their government shutdown strategy on one hand, while offering another go at defunding ObamaCare with the debt ceiling. The problem is we're now going to hit the ceiling in mid-October, two months earlier than expected, and the calendar just effectively called Boehner's bluff. Hence, the new approach of punting ObamaCare defunding to the Senate. Another default on the debt would be disastrous for the economy, but that didn't stop the wingnuts two years ago. House leaders don't seem to have a clue how they'll handle the debt ceiling now.
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.
Resources
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Gorman Health Group Senior Vice President of Public Policy Jean LeMasurier, summarizes the final rule from CMS regarding exchange functions, eligibility for exemptions, and miscellaneous minimum essential coverage provisions.
Join us on Oct. 1 and hear Gorman Health Group's Chief Sales and Marketing Officer, RaeAnn Grossman, outline the components of a successful risk-adjustment program.