Healthcare Town Hall

How will the Patient Protection and Affordable Care Act (PPACA) affect employer-sponsored health insurance? Employers have to consider whether they want to preserve their existing coverage, self-insure, or pay fines for suspending coverage. That decision may hinge on an employer’s ability to maintain affordable costs while offering minimum coverage.

Paul Houchens recently discussed affordability and PPACA’s minimum benefits compliance with Healthcare Payer News. Here is an excerpt from the article:

Across industries, the main challenge will be having minimum coverage and keeping it as affordable as possible…

Wellness benefits across corporate and small firms vary from tobacco cessation programs to on-site fitness centers, free produce and commuting perks. For ACA minimum benefits compliance, though, it’s still not clear how exactly the affordability test will be measured against wellness incentives, said Paul Houchens, an Indianapolis-based consulting actuary with Milliman.

“Let’s say you have a plan that charges $2,000 for single coverage without wellness incentives, but $1,000 if you’re a non-smoker. Is that affordability going to be measured based on the $2,000 or that $1,000? Particularly for employers with large wellness incentives in their plans, it’s difficult to do a lot of planning without having that information.”

More broadly than wellness, Houchens sees employers probing the value of their current sponsored insurance and calculating the costs and benefits of different options, as federal agencies finalize rules for the individual and employer mandate, premium assistance and eligibility.

If all of an employer’s workers are above 400 percent of the federal poverty level (FPL), Houchens said, “None of them are going to qualify for premium subsidies and probably in a lot of cases are going to be paying a lot more for health insurance under exchanges than they would under (their) plan.” Or “if you have an employer with dominantly low-income employees, maybe some would actually be better off in the exchange versus your employer plan.”

While the level and relative affordability of coverage will probably vary by industry and income, Houchens and colleagues think that the cost of dropping coverage is likely to outweigh the savings.

“Even for some of the low-income employers, I think a key point to remember is that your health insurance is a tax-deductible expense, whereas the penalties are not,” Houchens said. “That’s a huge difference for the for-profit companies. And also, you’re being penalized on every full-time employee. You’re not just being penalized on the people that would participate on your plans.”

A company with 60 percent health plan participation is “really only paying for health insurance for 60 percent of employees,” he said. “But with the exception of the 30 employee exemption, you would be paying a penalty on 100 percent of the full-time employees; that’s non-tax deductible. We’ve run the calculations for a number of employers. The math of terminating coverage and trying to make them whole, it simply doesn’t add out. So employers are thinking prudently. They’re probably going to continue to offer coverage in 2014.”

Download Milliman’s Healthcare Reform Strategic Impact Study which helps answer important reform questions employers are dealing with.

Also, for more of Paul’s insights on healthcare reform, follow him on Twitter @PaulHouchens.

Affordability, Reform Affordability, Cost, employers, Healthcare Reform, Paul Houchens

The UnitedHealth Center for Health Reform & Modernization has published a new report offering modernized healthcare approaches aimed at reducing Medicare and Medicaid spending.

Here is an excerpt from the report’s introduction:

A consensus emerged during the recent debates on national health care reform that fee-for-service payment mechanisms are at the root of the U.S. health care system’s problems with quality and efficiency. Yet of the roughly $1 trillion spent today on Medicare and Medicaid by federal and state governments, about 75 percent is funded in that way – including over two-thirds of Medicaid’s spending and nearly 80 percent of Medicare’s spending.

The structural problems in these programs are well documented: disparate funding streams; an inability effectively to influence geographical and other inappropriate variation; and a one-size-fits-all approach to managing costs through the crude lever of administered price controls.

We have over the last several years sought to contribute to the debate on how to modernize those programs in a series of Working Papers. The approaches we discussed were potential “win-win” options which would benefit both their enrollees and the taxpayers who fund them.

This working paper updates and combines those approaches in a single volume. In some cases, we have updated our original estimates for new developments in the policy arena.
In designing these options, we have made use of our data and insights from serving one in five seniors nationwide and our overall experience serving more than 75 million Americans, many of whom work for large employers who have been at the forefront of efforts to modernize health care. We have therefore been able to contrast some of their care patterns and programs with those currently available to seniors while incorporating the external research evidence on effective cost-containing strategies and techniques. For Medicaid, the estimates also draw on the track record of some of the most innovative states, as well as our own experience as America’s largest Medicaid health plan. Some approaches presented in this paper would require beneficiary participation in new models of care while some alternative options are based on voluntary and incentive-based designs.

…Taking into account overlapping effects, we estimate a strategic combination of these initiatives could yield $542 billion in federal savings over the 2013 to 2022 period, helping to reduce Medicare and federal Medicaid spending by about 4.4 percent. Of that amount, $437 billion would represent reductions in Medicare spending. States would also see savings from reduced Medicaid spending of $69 billion over the decade.

While much of the recent debate on Medicare and Medicaid savings has centered on either cutting consumers’ benefits or providers’ payments, the options we assess favor a different approach: better care coordination and support for beneficiaries so as to unleash greater value from the health care system.

Read the entire report here.

Quality of Care, Reform Cost, Healthcare Reform, Medicaid, Medicare, UnitedHealth

This analysis published in the Journal of Occupational and Environmental Medicine (subscription required) by Ksenia Draaghtel and Jill Van Den Bos examines the total cost burden of autoimmune inflammatory diseases. The study takes an employee and employer’s perspective by using direct and available indirect costs from a national data source. The data includes total direct medical costs, number of absence days, and indirect costs related to work absences.

Read more about the study here.

Research autoimmune inflammatory disease, Cost, Jill Van Den Bos, Ksenia Draaghtel

Stephen Melek and Michael Halford’s research paper “Measuring the cost of undiagnosed depression” appeared in the July/August 2012 issue of Contingencies.

Despite the high cost and prevalence of depression, it is often either undiagnosed or not diagnosed in a timely manner, and diagnosis does not always lead to treatment. While the costs of depression after the diagnosis of the condition have been widely studied, literature on the healthcare costs and absence-from-work costs during the period between initial disease onset and subsequent diagnosis and treatment is not as robust.

New research estimates the excess healthcare costs and absence-from-work costs during the two-year period prior to the initial diagnosis of depression. This research indicates that the total excess healthcare costs and absence-from-work costs for persons with undiagnosed depression over the two-year period leading up to the depression diagnosis/treatment is approximately $3,386 per undiagnosed depressed individual (in 2009 dollars). The report includes a discussion of what these findings mean for employers and insurers.

Download and read the article here.

Cost Cost, depression, Michael Halford, Stephen Melek

The final post in our “Ten strategic considerations of the Supreme Court upholding PPACA” blog series looks at the perplexing question facing American healthcare: What do we do about increasing healthcare costs?

PPACA focuses on expanding coverage and insurance reform, and in some cases it shifts costs from one party to another, but it does not directly affect the unit costs and utilization that are among the major underlying drivers of healthcare costs.

Certain aspects of PPACA have the potential to affect costs. The option to implement an accountable care organization (ACO)13 reprises the managed care movement of the ’80s and ’90s, but with better technology and information, and by transferring the financial risk onto the provider to create an incentive for efficiency. With many potential ACOs already establishing the tools required to succeed,14 this reinvigorated movement is already in motion. The nuts and bolts of an ACO are still the parts needed for a more efficient system.

Most of PPACA’s explicit ACO efforts center on Medicare, and while the Medicare Shared Savings Program (MSSP) and Pioneer Programs will continue, the potential for commercial ACOs15 may prove just as significant.

Accountable care is not a solution to everything that ails the entire healthcare system, but it offers some hope and, to the extent it can meaningfully control unit costs and utilization, it just may work.

Rob Parke and Kate Fitch discuss accountable care organizations here. For more on ACOs, consider reading “ACOs Beyond Medicare” and “Nuts and Bolts of ACO Financial and Operational Success: Calculating and Managing to Actuarial Utilization Targets.” You may also be interested in the Milliman Medical Index.

Reform ACOs, Cathy Murphy-Barron, Cost, Kate Fitch, Rob Parke

Milliman today released analysis of the Supreme Court’s 5-4 decision upholding the Patient Protection and Affordable Care Act (PPACA). With the court effectively ruling the individual mandate and other elements of the law constitutional—with the notable and complex exception of certain aspects of Medicaid expansion—healthcare stakeholders can turn their attention to implementing healthcare reform.

“Since 2009, Milliman has been working with its clients to prepare for and implement the healthcare reform law,” said Clark Slipher, Milliman Health Practice Director. “With the law’s constitutionality bound up in court, it’s been an uncertain time for our clients, which include insurers, employers, providers, and state and federal governments. This ruling clarifies the road ahead for American healthcare, and while it is reassuring to know where we are going, healthcare stakeholders face many strategic challenges that will require innovation and sound financial planning in the years ahead.” 

Strategic considerations facing healthcare stakeholders include:

1. Adverse selection may still be a challenge. Even with the individual mandate in place, the success of many insurers under PPACA will depend on their ability to minimize adverse selection.
2. Medicaid expansion just became a far more complex and variable proposition. The court’s decision to allow states to opt out of Medicaid expansion creates dynamic changes across the healthcare system.
3. Employers grapple with new options and plan requirements. While reports of the demise of employer-sponsored insurance coverage are premature, these plans still face many potential changes.
4. What is the effect on early retirees? The role of the employer in covering those between 55 and 65 may change under PPACA.
5. Rate review scrutiny and no risk selection: Something’s got to give. Keeping rate increases under 10% may become more challenging with many of the traditional cost-control mechanisms no longer available to insurers.
6. Which states will get on the exchange bandwagon? With the Court decision minimizing uncertainty, there may be increased incentive for states to fast-track exchange planning.
7. Minimum loss ratios (MLR) pose an ongoing challenge for insurers. Insurers have struggled to comply with the MLR requirements, and increased volatility in medical costs potentially brought on by adverse selection may compound the difficulty for insurers.
8. Risk adjustment is essential. A new reform calculus is required with traditional risk selection techniques such as medical underwriting no longer allowed.
9. Will cost shifting hold steady, increase, or decrease? Subsidies, rating restrictions, and an effort to achieve universal coverage all introduce new cost dynamics for insurers, providers, and policyholders.
10. The cost problem persists. What can be done about it? Certain aspects of PPACA have the potential to affect costs, but this potential needs to be actualized in order to moderate annual cost increases that regularly exceed other consumer spending.

 
For more detail on each of these strategic considerations, see the full article. To receive regular updates on Milliman’s healthcare perspective, visit our healthcare reform library or follow us on Twitter.

Reform ACOs, adverse selection, Clark Slipher, Cost, cost shifting, early retirees, employers, Medicaid, Minimum loss ratios, rate review, risk adjustment, state exchanges, Supreme Court

Adrian Clark and Jim O’Connor assessed the three risk mitigation programs—risk adjustment, reinsurance, and risk corridors—established by drafters of the Patient Protection and Affordable Care Act (PPACA). Here is an excerpt courtesy of LifeHealthPro.com:

“Risk mitigation programs appear to reduce financial risks to health plans,” the actuaries write. “At the same time, overly restrictive premium rate limitations can lead to high federal risk corridor payments.”

If plans do not charge premiums that are high enough to meet claims and expenses, “federal payments under the risk corridor programs will be high to compensate partially for the inadequate premiums,” the actuaries say.

“The impact of inadequate rates on a health plan’s financial viability should also be considered. This result stresses the need for the rate review process to not only guard against unduly high premiums, but also to ensure that premiums are not set too low. This is especially important in 2017 and beyond, after the expiration of the risk corridor program.”

Plans in states with fewer coverage rules today might need bigger increases than plans in other states, the actuaries say.”

The study, commissioned by the Society of Actuaries (SOA), can be found here.

Reform Adrian Clark, Cost, Jim O'Connor, reinsurance, risk adjustment, risk corridors

The BBC reports that an upcoming UK initiative will encourage physicians to prescribe mobile apps:

At an event showcasing the best ideas for new and existing health smartphone apps, the Health Secretary Andrew Lansley said: “So many people use apps every day to keep up with their friends, with the news, find out when the next bus will turn up or which train to catch…

…Innovation and technology can revolutionise the health service, and we are looking at how the NHS can use these apps for the benefit of patients, including how GPs could offer them for free.”

Read more…

Electronic Health Records Cost, mHealth, pharma

We’ve been discussing the results of our poll on alternatives to the PPACA individual mandate. The second-most popular idea on the poll was “enforce a penalty that escalates the longer people wait to buy health coverage.” In the Government Accountability Office (GAO) report on mandate alternatives, a range of possible financial penalties are mentioned in conjunction with limiting enrollment windows (which was itself the most popular idea from the poll):

Late enrollees could enroll during subsequent open enrollment periods, or possibly between open enrollment periods, but incur financial penalties. Such penalties could take the form of requiring retroactive payments of missed premiums from the date of the last open enrollment period, or a flat or gradually escalating premium penalty depending upon the length of time without coverage. To encourage individuals to maintain their coverage once enrolled, the premium penalties could decline after a period of continued coverage, until they are eventually eliminated. Other financial penalties could include higher cost sharing for the individual, such as copayments, coinsurance, or deductibles. Another financial penalty could be to reduce or deny subsidies for otherwise eligible late enrollees. Another variation would be to provide a premium discount to all individuals who enroll when first eligible, but withhold the discount from late enrollees.

Of course, as the report goes on to point out, financial penalties might tend to further discourage younger, healthier, but less-wealthy individuals from purchasing coverage, which runs counter to the goals of broadening coverage and reducing costs.

The notion of of using financial incentives and penalties to change behavior is something that has been discussed quite a bit in recent years. For example, we recently looked at how the PPACA raises the level of financial incentives that employers can use to encourage employees to meet wellness targets.

Reform Cost, Healthcare Reform, individual mandate, polls, Wellness

In the ongoing debate about the quality and cost of U.S. healthcare, it’s easy to forget that these are actually international problems. While the disparity between cost and quality may be most glaring in the U.S., other countries also face significant issues. At the same time, healthcare practices in other nations can be models for change in one’s own country. The Office of Economic Cooperation and Development (OECD) has undertaken a substantial project to analyze member countries’ healthcare practices:

OECD Healthcare Quality Reviews seek to highlight and support the development of better policies to improve quality in health care, to help ensure that the substantial resources devoted to health are being used effectively in supporting people to live healthier lives.

Their first report, from February of this year, covers healthcare in South Korea. It comes to some interesting conclusions. First of all, it points out that South Korea faces a significant cost inflation problem:

Since 2002, health spending in Korea has grown at nearly 8% each year, more than double the OECD annual average of 3.6%.  That’s in large part due to an over-reliance on hospitals. Korea has 55 hospitals per million people with 8.3 beds per 1000 people, many more than most OECD countries relative to the size of its population.

And yet:

Despite a rapid increase in investment, hospitals and new technologies, the OECD’s Health Care Quality Review finds that the Korean health system is not delivering proportionately higher quality care and suggests that better care in the community could both improve health outcomes and reduce the number of hospital visits.

Cost inflation out of whack with quality is a familiar issue to anyone who follows healthcare in the U.S.  The report goes on to make a number of interesting recommendations:

To help the Korean government and health sector focus on keeping people healthy and out of hospital, the report recommends:

• Building a stronger primary care system by increasing  financial support for preventive healthcare and patient counselling in community-based clinics, and reducing doctors’ reliance on minor surgical procedures and diagnostic tests to support their incomes.
• Financially rewarding hospitals according to the appropriatness of their services rather than the number of services they deliver, by adopting Diagnostic-Related-Group based financing across the entire Korean hospitals sector.
• Making the most of its world-class health information infrastructure to identify and reward those health services that deliver high quality of care and target services to patients who need them most.
• Expanding current quality of care strategies beyond select institutions to the entire health system including accreditation for all hospitals, upgrading the skills of health professionals and encouraging the use of clinical practice guidelines.

The full report on South Korea is at this link. A report on Israel will be released later this year. PBS Newshour conducted an in-depth interview with Matthias Rumpf of the OECD on these issues back in November of 2011, and you can read the OECD 2011 Health At A Glance report here.

Cost, Quality of Care Cost, quality