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IMPACT Act, VBP, Care Coordination and the SNF Landscape

Now into February, its time to take stock of the Post-Acute/SNF landscape, particularly as the same pertains to the evolutionary policy initiatives in-play and moving forward.  To start, there is little evidence on the horizon of an all-out retreat on the policy changes begat by the ACA.  While some framework is building to “Repeal and Replace” the ACA/Obamacare, the same will leave fundamentally intact, the changes started and wrought by Bundled Payments, Value-Based Purchasing, and the IMPACT Act.  The Republican majority, a smattering of Democrats, and the incoming Secretary of HHS have signaled support for these initiatives.  Should a Repeal strategy move forward any time soon, these elements, skeletal perhaps or whole in-flesh, will likely remain.

Reviewing thematically, these policy initiatives are centered on an intentional focal shift from episodic, fee-for-service payments to payments based upon performance.  Performance in each element is tied to cost and quality.  The objective is to create better outcomes (quality) in a more efficient manner.  Because these things are government policy, they are clunky – less than simple.  In some cases such as with Value Based Purchasing and readmission measures, the methodology is so cumbersome and disjointed (some diagnoses are OK, some are not) that a layman, even one well-educated, could have a hard time qualifying and quantifying an appropriate readmission (by diagnoses, by risk, etc.).

Below is a quick review of the current policy initiatives and what they mean for 2017 for SNFs.

IMPACT Act: The purpose of the Act is to create standardized reporting of quality measures and cost measures across the post-acute domain (HHAs, SNFs, LTCaH, IRF).  The objectives are to reduce avoidable readmissions to acute care settings and to create standardized, comparable quality measures to identify federal policy improvements and payment consistencies.  CMS of course, uses more floral language regarding the objectives and intent.  Ultimately, the translation of the standardized data allows CMS to target regulatory changes and payment initiatives that reward provider performance and streamline (a bit oxymoronic for government) payment systems (rate equalization models).  Below are the pertinent domains under the IMPACT Act

Quality Measures

  • Skin integrity and changes in skin integrity
  • Functional status, cognitive function, and changes in function and cognitive function
  • Medication reconciliation
  • Incidence of major falls
  • Transfer of health information and care preferences when an individual transitions

Resource Use and Other Measures

  • Resource use measures, including total estimated Medicare spending per beneficiary
  • Discharge to community
  • All-condition risk-adjusted potentially preventable hospital readmissions rates

Assessments

  • Functional status
  • Cognitive function and mental status
  • Special services, treatments, and interventions
  • Medical conditions and co-morbidities
  • Impairments
  • Other categories required by the Secretary

As is common in current health policy, reimbursement policy and other policy interweaves with laws such as the IMPACT Act.  Value Based Purchasing and  Quality Reporting for SNFs, integrates quality measure reporting and results along with readmission performance with incentives or penalties imputed via Medicare reimbursement for 2018.  Beginning in October of 2016, SNFs began to submit QRP (Quality Reporting) data via the MDS.  The first data collection period concluded on 12/31/16.  The Quality Measures reported and applicable under the IMPACT Act (cross setting measures) are:

  • Part A stays with one or more falls with major injury (fracture, joint dislocation, concussion, etc.)
  • Percent of residents with new or worsened pressure injuries
  • Percent of Long-Term Care Hospital patients with an Admission and Discharge Functional Assessment and a Care Plan that addresses function

The Claims Measures are:

  • Discharge to community
  • Potential preventable, 30 day post SNF discharge, readmission to hospital events
  • SNF Medicare spending per beneficiary

The Quality Measures are the elements that impute, based on performance, a reimbursement penalty in 2018 up to 2% of Medicare payments via a reduction in the SNFs reimbursement (rate) update.

Value Based Purchasing (VBP): SNFs are a tad late to this party as other providers such as hospitals, physicians and home health agencies already have reporting and measurement elements impacting their reimbursement.  Hospitals for example, have DRG specific readmission penalties (penalties applicable to common admitting diagnoses).  For HHAs, a nine state demonstration project is under way linking a series of measures (process, outcomes, claims) from the OASIS with customer satisfaction from the HHCAHPS to reimbursement via an accumulation tied to a Total Performance Score.  The measurement years (data gathered) beget payment changes (plus or minus) in outlying years – 2016 data nets payment adjustments in 2018.  The payment graduation increases over time (2018 = 3%, 2022 = 8%).

For SNFs, the VBP measure is 30 day, all cause, unplanned readmissions to a hospital. The measurement reflects a 30 day window that begins at the point of SNF admission from a hospital.  The 30 day window of measurement spans place of care meaning that the patient need not reside in the SNF for this measurement to still have an impact.  For example, a patient admitted to an SNF, subsequently discharged after 14 days to a HHA and then  readmitted to the hospital on day 22 (post hospital discharge) is considered a “readmission” for SNF VBP purposes.  CMS has offered guidance here regarding diagnoses that are excluded from the readmission measure.  Readers that wish this additional information can contact me via my email (on the Author page of this site) or via a comment to this post.  In either case, please provide a valid email that I can use to forward the information.

To avoid getting too technical in this post, a quick summary of how VBP will work is below (readers with greater interest can contact me as provided above for a copy of a Client Alert our/my firm produced last fall on VBP).

  • A SNFs readmission rate is calculated in separate calendar year periods – 2015 and 2017.  The 30 day readmissions (rate) applicable to an SNF is subtracted from the number 1 to achieve the SNFRM (Skilled Nursing Facility Readmission Measure).
  • The 2015 rate is called the Improvement Score and the 2017 rate is called the Performance Score.  Both scores are compared against a benchmark for the period applicable.
  • The benchmark equals 100 points.  The difference between the two (Improvement and Achievement) correlate to points plotted on a range – the Achievement range and the Improvement range.  The higher of the two scores is used to calculate reimbursement incentives or withholds – performance score.
  • Performance scores in terms of points correlate to reimbursement incentives/ withhold.  The maximum reduction or withhold is 2%.  CMS has yet to identify the incentive amount but under law, the amount must be equal in total value to 50-70% of the total withheld.  In effect, we envision a system that imputes a floor of minus 2% with points up to the threshold limit equaling a net of zero (plus 2%) and then climbing above the threshold to the benchmark (national SNF best readmission (average) decile).  This maximum level (and above) is likely to equal 100% of the available incentive.

The 2015 data is already “baked” but 2017 is just beginning. SNFs need to be diligent on monitoring their readmissions as this window is the Improvement opportunity.  Reimbursement impact isn’t until 2019.

Care Coordination: This catch-all phrase is now in “vogue” thanks to the IMPACT Act and VBP, along with the recently released, new Conditions of Participation.  The implication or applicability for Care Coordination is found in the new COPs.  Care Coordination elements are located in 483.21 (a new section) titled Comprehensive Resident-Centered Care Plans.  Specifically, the references to  Discharge Planning (Care Coordination) in this section are implementation elements for the IMPACT Act requirements.  Below are the regulation elements for Care Coordination.

  • Requires documentation in the care plan of the resident’s goals for admission, assessment of discharge potential and discharge plan as applicable
  • Requires the resident’s discharge summary to include medication reconciliation of discharge meds to admission meds (including OTC)
  • Discharge plan must incorporate  a summary of arrangements for post-discharge care including medical and non-medical services plus place of residence
  • All policies pertaining to admission, transfer, discharge, etc. must be uniform, regardless of payer source
  • Requires the facility to provide to resident/resident’s representative, data from IMPACT Act quality measures to assist in decision-making regarding selection of post-acute providers

The above elements are in Phase 1 meaning providers should be in-compliance by now (regulation took effect 11/28/16).

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February 15, 2017 Posted by | Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , , | 2 Comments

Webinar – Post-Election Healthcare Policy: What to Expect

Join me as I host a one-hour webinar and conference call regarding post-election healthcare policy.  The program/call is set for Wednesday, December 14 at 1:00 PM EST/noon CST.

With uncertainty looming, providers are wondering what will change as the Inauguration approaches and a new Congress settles in. We will review the ACA, Medicaid and Medicare, and related policy issues including;

  • Value Based Purchasing
  • CMS Center for Innovation/Alternative Delivery Models/Bundled Payments
  • Additional Quality Measures and Quality Reporting
  • Inter-Program and Payment Reform – Rate Equalization for Post-Acute Providers
  • IMPACT Act
  • ACO Expansion

The program is sponsored by HCPro and the registration link is below;

 http://www.longtermcarebillers.com/content/join-us-quarterly-biller%E2%80%99s-association-webcast

 

December 6, 2016 Posted by | Policy and Politics - Federal | , , , , , , , , , , , , , , | Leave a comment

The Election is Over….Now What?

We knew that sooner or later, the first Tuesday in November would arrive and with that, a new President and changes (many or few) to Congress. The outcome certain, we move to uncertainty again concerning “what next”?…or as applicable here, what next from a health policy perspective.

With Donald Trump the incoming President-Elect, only so much from a policy perspective is known.  Hillary Clinton’s path was easier to divine from a “what next” perspective as fundamentally, status quo was the overall direction. Trump’s likely direction and thus, changes to current policy, etc. are hazy at best.  Thematically, there are points offered throughout the campaign that give some guidance.  Unfortunately, much that drives current reality for providers is more regulatory begat by legislative policy than policy de novo.

Without divining too much from rhetoric, here’s what I think, from a health policy perspective, is what to expect from a Trump Administration.

  1. ObamaCare: Trump ran on a theme of “repeal and replace” ObamaCare aka the Affordable Care Act. This concept however, needs trimming.  Repealing in total, existing federal law the magnitude of the ACA is difficult if not nearly impossible, especially since implementation of various provisions is well down the road.  The ACA and its step-child regulations are tens of thousands of pages.  Additionally, even with a Republican White House and Republican-majority Congress, the Congressional numbers (seats held) are not enough to avoid Democratic Senate maneuvers including filibuster(s). This means that the real targets for “repeal and replace” are the insurance aspects namely the individual mandate, Medicaid expansion, certain insurance mandates, the insurance exchanges, a likely the current subsidy structure(s).  The other elements in the law, found in Title III – Improving the Quality and Efficiency of Health Care, will remain (my prediction) – too difficult to unwind and not really germane to the “campaign” promise.  This Section (though not exclusively) contains a slew of provisions to “modernize” Medicare (e.g., value-based purchasing, physician quality reporting, hospice, rehab hospital and LTACH quality reporting, various payment adjustments, etc.).  Similarly, I see little change made, if any to, large sections of Title II involving Medicaid and Title IV involving Chronic Disease.  Bottom line: The ACA is enormous today, nearly fully intertwined in the U.S. health care landscape and as such, too complex to “wholesale” eliminate and replace. For readers interested in exploring these sections (and others) of the ACA, a link to the ObamaCare website is here http://obamacarefacts.com/summary-of-provisions-patient-protection-and-affordable-care-act/
  2. Medicaid: The implications for Medicaid are a bit fuzzier as Trump’s goals or pledges span two distinct elements of the program.  First, Trump’s plan to re-shape ObamaCare (repeal, etc.) would eliminate Medicaid expansion.  As mentioned in number 1 prior, this is a small part of the ACA but a lipid test for Republican governors, especially in states that did not embrace expansion (e.g, Wisconsin, Kansas, etc.).  Second, Trump has said that he embraces Medicaid block-grant funding and greater state autonomy for Medicaid programmatic changes (less reliance on the need for states to gain waivers for coverage design, program expansion, etc.).  It is this element that is vague.  A series of questions arise pertaining to “policy” at the federal level versus funding as block grants are the latter.  The dominant concern is that in all scenarios, the amount of money “granted” to the states will be less than current allocations and won’t come with any matching incentives.  With elimination of the expansion elements, how a transition plan of coverage and care will occur is a mystery – federal assistance? state funding mostly?  What I do predict is that Medicaid will only suffer the setback of a restructure and replacement of the Medicaid expansion elements under the ACA.  I don’t see block grants happening any time soon as even Republican governors are opposed without a plan for wholesale Medicaid programmatic reform.  Regardless of the approach, some initial Medicaid changes are in the offing, separate from the Block Grant issue.  The Medicaid Expansion issue is no doubt, a target in the “repeal and replace Obama Care”.  The trick however is to account for the large number of individuals that gained coverage via expansion (via eligibility increases due to increased poverty limits) – approximately 8 million impacted.  This is less about “repeal” and more about “replace” to offset coverage lapse(s) for this group.
  3. Related Health Policy/ACA Issues: As I mentioned earlier, the ACA/ObamaCare is an enormous law with tentacles now woven throughout the health care industry.  The Repeal and Replace issues aren’t as “clean” as one would think.  The focus is the insurance mandate, the subsidies, the mandated coverage issues and to a lesser extent, Medicaid.  That leaves fully 80% of the ACA intact including a series of policy changes and initiatives that providers wrestle with daily. These issues are unlikely to change in any substantive form.  Republicans support alternative delivery projects, value based purchasing, etc. as much if not more than Democrats.  Additionally, to repeal is to open a Pandora’s Box of agency regulations that tie to reimbursement, tie to other regulations, etc.  For SNFs alone, there exists all sorts of overlap between Value Based Purchasing, Bundled Payments, new Quality Measures and quality reporting (see my post/presentation on this site regarding Post-Acute Regulatory Changes).  The list below is not exhaustive but representative.
    • Value Based Purchasing
    • CMS Center for Innovation/Alternative Delivery Models/Bundled Payments
    • Additional Quality Measures and Quality Reporting
    • Inter-Program and Payment Reform – Rate Equalization for Post-Acute Providers
    • IMPACT Act
    • ACO Expansion

As providers watch the inauguration approach and a new Congress settle in, the wonder is around change. Specifically, what will change.  My answer – bet on nothing substantive in the short-run.  While Mr. Trump ran partially on a platform that included regulatory reduction/simplification, the lack of overall specifics regarding “which or what” regulations on the health care front are targets leaves us guessing.  My guess is none, anytime soon.

The Trump focus will be on campaign specific agenda first: ObamaCare, Immigration, Taxation, Foreign Trade, Energy, etc. – not health policy per se.  There is some flow-through gains providers can anticipate down-the-road that can be gleaned from the Trump campaign but these are a year or more off.  If Trump does deal with some simplification on drug and research regulation (faster, cheaper, quicker approvals), funding for disease management and tele-medicine and a fast-track of some Republican policy “likes” such as Medicare simplification, Medicaid reform at the program level, and corporate tax reduction (will help for-profit providers), then gains will occur or opportunities for gains will occur.

From a strategic and preparatory perspective, stay the course.  Providers should be working on improved quality outcomes, reducing avoidable care transitions/readmissions, looking at narrow networks and network contracting/development opportunities and finding ways to reduce cost and improve care outcomes.  Regardless of what a Trump Administration does first, the aforementioned work is necessary as payment for value, bundles/episodes of care, and focus on quality measures and outcomes is here to stay and to stay for the foreseeable future.

November 18, 2016 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , | Leave a comment

SNFs: A New Era in Post-Acute Care Begins

Over the years I have written about the changing landscape in post-acute care, principally due to the health policy ground swell resultant from the ACA (other reasons too but the ACA concretized them all, more or less). Boiled down, the fundamental driver of change is “pay for performance”; the notion that payment will migrate toward value based concepts, away from fee-for-service.  The ACA and ACOs, bundled payments, readmission penalties, etc. concretized this oft discussed concept into policy (good, bad, flawed in some regards, and other).  However, before the ACA, the notion that healthcare was just too darned expensive wasn’t new fangled.  The healthcare industry prior was moving toward pay-for-performance, incentive based models; privately and publicly.  Some reference posts on these concepts can be found on this site at http://wp.me/ptUlY-hq and http://wp.me/ptUlY-dw .

From an article this morning on the Modern Healthcare website, “Hospital Select Preferred SNFs to Improve Post Acute Outcomes”, the beginning of the new era for the post-acute industry has arrived.  Because of readmission penalties, bundled payments, ACOs and value-based purchasing/pay-for-performance, hospital systems have begun identifying and thus, partnering with only select SNFs.  Article link is here: http://www.modernhealthcare.com/article/20150509/MAGAZINE/305099987?utm_source=modernhealthcare&utm_medium=email&utm_content=externalURL&utm_campaign=am

What is interesting to note isn’t what is in the story but what is behind the movement and thus, the implications for SNFs.  First, given all that we have seen (and for readers, read about) regarding SNFs and Medicare fraud, the Modern Healthcare story is the antithetical strategy of current environment survival.  Hospitals are seeking to partner with SNFs that are efficient, lower cost, higher quality.  Essentially the mantra is: There is no survival for those that can’t shorten length of stay and improve quality.  Nothing about this trend relies on maximizing RUGs, providing unnecessary care, or delivering sub-standard care (the DOJ suits against HCR/Manor Care, RehabCare and Extendicare representative examples).

Second, the trend is all about quality and competence.  The SNFs that are referenced invested in quality and core competence some time ago.  They planned, made the staff investments to deliver the care (RNs, Therapists, etc.) and implemented strong programs of QI/QA (ala QAPI).  They didn’t rely purely on maximizing rehab but on building overall case-mix and thus with it, case-mix competency.  They excel at advanced care planning, care coordination, and med reconciliation.  They also have strong committed leadership, boards, and competent facility based management (I know because I have consulted with many and still do).  Moreover, they seek to add new programs and innovations to be better, more efficient and high quality providers and understand the relationships between care outcomes and patient satisfaction.

As the title of this post references, this is a period of “new beginning”.  This means that for many SNFs in many markets, there is still time to reform and get into this new era.  Below are my six stepping-stones to get into this new era and quickly; to become a valued and wanted partner in the ACO, bundled payment, pay-for-performance world.

  • QAPI: If you don’t have a program, build one now.  This site has lots of reference material.  This is a backbone, fundamental requirement for membership in this new era.
  • Align Your Internal Resources: What does your staffing levels look like?  How many contracted services do you provide?  Where are your contractors at with regard to these concepts (quality, improved care outcomes, commitment to education and development)?  Do you have sufficient staff resources to increase your acuity?  If not, what investments do you need?
  • How Integrated is Your IT Infrastructure?: Are you capable of connecting with your partners?  Can you share data seamlessly?  Are your physicians capable of accessing patient information remotely? Can you provide patient/families with access?  Are your contract services connected (lab, radiology, etc.)?
  • What are Your Key Competencies?: Do you reconcile medications on admission? Do you begin advanced careplanning discussions prior to and concurrent with admission?  Do you have specific staff expertise in wounds, neuro, behavior management, respiratory, pain, etc? What are your current quality indicators for falls, infections, wounds, hospitalizations? What do your partners want and need and do you provide it?
  • Who are Your Partners?: The SNF environment isn’t the last stop for transitional patients.  Home care, hospice, outpatient services are all part of the continuum and the equation.  SNFs need to have their distinct partners in the same vain and alignment as hospitals with the SNF.  Vet your partners and get understandings made.  Share information, build infrastructure, develop common understanding, meetings, etc.  Get on the same page.  Being able to rapidly discharge when ready is all about having key partner relationships.
  • Become Service Centered: Giving good care is one element.  Being good at caring is of equal importance.  Outcomes are great but satisfaction in health care is rarely about just good care.  Frankly, most patients don’t understand what the outcomes are all about rather, how do they feel and how were they “cared for” during their stay.  Service centered is about answering call lights timely, having staff with a smile and an element of concern, a presence by management on the floor, and a level of engagement that says we “care about you”.  Measure satisfaction, solicit input and hold focus groups.  Pay attention to the details!

As always, questions are welcome.  Feel free to drop me a note in the comment section or via e-mail. My e-mail contact is available on the Author’s page.  Remember, if you wish a personal reply, please provide a working e-mail address.

May 12, 2015 Posted by | Skilled Nursing | , , , , , , , , | 3 Comments

Doc Patch in the Works

Yesterday, the Speaker of the House (John Boehner) announced that a compromise is forthcoming to alleviate, for one year, the pending 24% payment reduction to the Physician Fee Schedule arising out of the current SGR formula. Ten days or so ago I wrote a post regarding a House bill that repealed the SGR but contained a “poison-pill” provision assuring its death in the Senate ( http://wp.me/ptUlY-gm ). As is the common methodology in Congress today, this initiative is a “patch”; another extension of the current status quo, delaying any SGR implications for one year.  Alas, while the SGR demands fixing, permanently, no traction is available among the parties to resolve the issue.

What the compromise does and doesn’t do is as much the center of debate as any efforts to replace the SGR with a more permanent formula.  In summary, the compromise;

  • Staves off the 24% cut but doesn’t restore any cuts related to sequestration.
  • It delays the implementation for hospitals of the 2 midnight rule for another six months.  The 2 midnight rule essentially reduces Medicare payments to hospitals for short in-patient stays.  It requires admitting physicians to have justification for the inpatient stay and if the same is lacking, the stay could be deemed (by RAC auditors) outpatient observation and thus, paid under Part B  at a lower rate.  The Bill would delay RAC auditors ability to review such stays until March of 2015 and give CMS authority in the interim and beyond, the ability to probe and educate but not re-classify stays.
  • It extends the implementation of ICD-10 for one more year.
  •  It extends certain programs that provide additional funding for rural hospitals.

While no one wins under these compromises, the Patch is likely to pass both houses quickly, viewed as a better alternative than the SGR cuts.  For post-acute providers, this is good enough news as the therapy fee schedule was subject to the same 24% reduction.

Interesting to note is that while the Bill extends the implementation of the 2 midnight rule, it doesn’t address the backlog of Administrative Appeals that continues to mount due to the Medicare RAC initiative.  This backlog is enormous and growing and it is the sole source initially, for providers to appeal RAC decisions.  I know of multiple providers today in the appeal queue waiting for a review of what appears to be, many erroneous determinations and shabby reviews of claims.   More on this in another post – later.

March 27, 2014 Posted by | Policy and Politics - Federal | , , , , , , , , , , | Leave a comment

The ACA/Obamacare: Predictability and Practicality

With all the news and among the conjecture, punditry and analysis that fits any twenty-four hour news cycle, I wondered with a few colleagues the other day, how predictable the events current with Obamacare were.  Americans being who we are, our collective political memories and policy memories are short.  I too, often find even the recent past a bit muddled in memory though in my case, I attribute the “muddling” to age and a ton of issues always at-play. Nonetheless, my files are always organized and my memory good enough to recall a series of prior articles and posts that I wrote as Obamacare emerged.  For current and past readers, I’ve referenced each below.

http://wp.me/ptUlY-l

http://wp.me/ptUlY-p

http://wp.me/ptUlY-1u

http://wp.me/ptUlY-1K

http://wp.me/ptUlY-1P

http://wp.me/ptUlY-1W

http://wp.me/ptUlY-28

http://wp.me/ptUlY-2a

http://wp.me/ptUlY-2w

http://wp.me/ptUlY-2A

http://wp.me/ptUlY-2M

http://wp.me/ptUlY-2R

http://wp.me/ptUlY-2T

http://wp.me/ptUlY-2Z

http://wp.me/ptUlY-3c

http://wp.me/ptUlY-4w

When I go back through this list and my notes, etc., my first reaction is kind of an “I told you so”, smug feeling.  The same is quickly buffered by a feeling of how so many folks couldn’t see this coming or refused to view the forest for the trees.  The practical reality is that health care in this country is complicated.  It can’t be re-configured wholesale.  Additionally, experiments that rely heavily on failed math and distributive justice theories (or redistributive theories) are predestined for failure in a society where, like it or not, capitalism continues to reside.

I have colleagues that are small business men/women and self-employed (many consultants are).  They are successful, for the most part, and premiere capitalists.  They are the folks who rely purely on their own skills, intellect, etc. to forge a living for themselves and for the folks they employ. Virtually to a sole, each has had their small business insurance or personal insurance eviscerated by Obamacare.  Unfortunately, none qualify for Medicaid or public subsidy.  Their sole flaw?  They work for themselves or own a small business (or both in most cases).

Certain elitists will claim that their success has come as a result of some oppressive force that hurts a sector of folk less well-off.  The notion that it is about time these folks “paid their fair share”.  Strange logic indeed.  Truth told, these folks have always paid more into the system via taxation and their employment of others.  Likewise, they didn’t get to this stage, nor did I, without committing a single flawed act – worked longer, harder, and sacrificing more disproportionately than many.  Even in the U.S., one isn’t successful ultimately, without putting in a disproportionate share of effort and taking risks that many will simply, not.

The course of failure for Obamacare lies predictably, in its lack of practicality.  It sought to level an artificial playing field created by government via a Robin Hood like approach.  In as much as I love Robin Hood, the perversity in Obamacare is that no legislation can redefine the “haves from the have-nots” (recall, Robin Hood stole from an oppressive government, not from the people – a moral on taxation without representation). The problems of those who don’t “have” is fixable but not at the expense of those who already have and not through a Washington knows best recipe. The result is clear: Obamacare grew out of failed ideology that the “haves” were bad or disproportionately (more) rewarded than those who didn’t have.  Now we know.  Many of those supposed “haves” are nothing more than people who by definition, are middle class or the working class.  The jab isn’t just to my self-employed and small business colleagues but to mid-sized employer plans (non-union) when come 1/1/14, they get a gut kick and thus, so do the employees. Wait until next year when the stomping ramps-up exponentially.

This mess isn’t about failed websites or cancelled individual insurance plans.  It is about a systemic over-reach, destined to fail by design.  Yes, folks point out that Medicaid expansion is by comparison, running smooth.  Enrollment is one thing, access and payment for providers another.  How good of a system is it (Medicaid) when those who now have benefits, can’t find a doctor willing to care for them?  Or, as so much of the U.S. remains rural, can’t find access to a clinic, hospital, or other providers other than one that is hundreds of miles away?  Not my definition of practical or for that matter, smooth.

As I wrote back in 2009, the ACA/Obamacare wasn’t ever about health care reform.  Health care reform was and remains the practical target.  All fixes now going forward are political dynamite and as such, this is the tragedy of Obamacare.  Pragmatically, the flaws in the systems, Medicare and Medicaid, etc., remain and until addressed, finding another way to re-dress this pig with new earrings or a different ensemble will only change the pig’s outward appearance.  Economically, socially and away from the political milieu, answers of a practical nature remain.  We as a nation, need to demand these solutions be at a minimum, discussed and vetted.

November 26, 2013 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Obamacare/ACA: Implications for Consumers

Having jumped around just a bit in the last few weeks “topically”, this post may seem a bit disjointed.  It is meant as a continuation of a series I’ve compiled on the various implications providers, consumers, etc. can/will experience under the Affordable Care Act (a/k/a Obamacare).  Given the news cycle of late and the recent roll-out of the insurance exchanges under the ACA, many readers may think this post somewhat non-relevant.  Begging to differ, the implications for consumers under the ACA are expansive and the surface today is all that is visible.

Setting aside what we know of the exchange access problems and the individual enrollment glitches, the crux of the ACA implications for consumers is cost and ultimately access.  The ACA fundamentally resurfaces the consumer insurance landscape and changes the rules in terms of how individuals access insurance, how prices for insurance coverage are determined, and what coverage levels individuals can experience.  Promoted as simple, one-size premise approach to accessing coverage, the ACA for consumers doesn’t come anywhere close to its promised result.  In fact, consumers can expect a dizzying array of complex choices, cost levels and limited provider and carrier choices (depending on location) than ever before.

The biggest initial jolt for most consumers under the ACA is what will occur within employer sponsored health plans.  Employer plans represent the largest source of insurance for consumers, though the participation rate continues to decrease.  At present, 59% of individuals receive their health insurance coverage via employer sponsored plans. Given the provisions within the ACA that impact employer plans directly, the projected number of employers that will opt to drop health insurance as a benefit is actually minimal (less than 5%).  Where the ACA impact becomes onerous is cost pushed back to the individual.  Employer plans are subject to an ACA tax in 2014.  Additionally, with or without the employer mandate, fully insured plans via group insurance providers are expected to experience premium increases ranging from 10%  to 65%.  Why the big difference?  Regional differences account for some of the increase and the majority, plan design changes mandated by the ACA.  For example, plans formerly offered as high-deductible plans with Medical Savings Accounts can no longer qualify as compliant under the ACA.  The mandated plan changes such as full wellness coverage, affordability requirements, and eligibility expansion (must cover individuals working 30 hours or more) are the fundamental drivers to the added premium cost.

For most consumers covered today via an employer sponsored plan, their first reaction to premium levels in 2014 is akin to sticker shock.  Two things are certain to occur.  First, premiums paid by consumers via their employer plan will rise and in virtually all cases, by minimally 10%.  Second, their plans will change, some for the positive and some for the negative.  The positive will occur in a trade-off fashion: Richer benefits but at a higher premium.  The negative will occur as employers reduce plan benefits to the ACA minimum as a means of offsetting premium increases and where possible, increase employee cost share.  Across my client base, the vast majority of which fall in the large employer category under the ACA and presently offer health insurance to their employees, the projected premium increase in 2014 is 15% on average.  Eighty plus percent of this group plans on passing along, in the form of cost to the insured, 80 to 90% of the increase.

Certain for consumers, regardless of where they access insurance or how, save those who fit an expanded Medicaid eligibility definition and/or qualify for near full-subsidy in an exchange purchase, is that their health insurance will cost more and thus, their net expendable income will decrease.  It is this latter element that represents the biggest impact for consumers and the biggest impact for the economy current.  Wage inflation is negligible across virtually all industries.  Only certain regions and certain industries are clamoring for labor (oil and gas for example in North Dakota) and thus, scarcity produces rising wages to a modest extent.  Presuming a 10% increase in premium cost for an employee covered under an employer plan and an inflationary wage adjustment in 2014 of 2%, the net (simple) decrease to income is 8%.  Taking this just a step closer to reality, assume a 14% increase in premium and no wage adjustment or an adjustment of say, 1.5%.  The net (simple) decrease to income is 12.5% to 14%.  What occurs for a consumer when a change in incomes is so profound is behavioral change.  Consider the following as plausible;

  • Forestalled large-scale purchases such as homes, major appliances and automobiles.
  • Reduced savings and increased consumer debt.
  • A continued lag on employment (job) recovery.
  • A continued lag on GDP recovery and growth as consumer consumption accounts for approximately 65% of GDP.

For consumers not participating in employer sponsored plans, a similar sticker-shock will occur for all but those that achieve coverage via Medicaid expansion and/or full subsidy through an exchange.  What we are already seeing for this group is an evaporation of their current private options and/or premium increases routinely above 25%.  For those whose access to coverage is through an exchange, enrollment today is problematic.  More problematic is the cost, especially sans complete subsidy.  While premiums on their face seem somewhat reasonable, out-of-pocket costs plus premiums for the “bronze” or low-level options equate to 60% of total.  For example, a bronze premium for a 40-year-old in Illinois averages $180 per month or $2,160 per year.  A bronze plan leaves an out-of-pocket exposure of 40% of health costs save wellness benefits (an annual physical, certain wellness tests).  In North Dakota, the cost jumps to $215 per month.  This is for an individual only.

Breaking this down to include subsidies, here’s what a nationalized approach looks like using the Silver plan option (middle of the road, 70% of costs covered, average deductible of $2,500 and out-of-pocket maximums of $6,000) under the ACA.

  • At 200% of the Federal Poverty Limit, the cost of a Silver plan for an individual ($22,980 annual income) is $1,452 per year and for a family plan, the premium is $2,964 – rates include all subsidies.  This equals a total possible cost annually for an individual of $7,452 dollars (premium of $1,452 plus out-of-pocket maximum of $6,000).
  • At 300% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $3,276 (range is due to regional pricing differences among carrier options plus income levels and subsidies between 200% and 300%) and for a family, the premium is $6.078 – all subsidies included.  The 300% income threshold for an individual is $34,470. At this premium level, the cost exposure is approximately $9,000 per year (premium plus max out-of-pocket).
  • At 400% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $4,368 (regional differences and income plus subsidy levels between 300 and 400% of the FPL).  The premium for a family is $8,952 – rates include all subsidies.  The individual income limit is $45,960.

Per the Kaiser Family Foundation and separately, from a study completed by Deloitte, each of the above options is more expensive for an individual (total cost plus deductible including subsidized premiums) than a typical employer sponsored plan offering.  For example, one of my client companies with 300 employees, 225 participants presently offers a single premium, 80/20 plan for $85 per month. They are a very typical company (health care provider) in their industry (just to dispel any reader’s notion that the company is unique in demographics).  In comparison, a better plan costs a single employee $1,020 annually versus a subsidized plan for the lowest income group (200% of the FPL) at $1,452 per year.

The Consumer Conclusion?  My summary is more, unanticipated cost and fewer options than most expected.  The real implication for the consumer is the economic impact.  The U.S. labor trend is weak and wage inflation minimal.  In such an environment, insurance increases that can’t be offset by wage inflation, reduce consumer income.  Reductions in a consumer’s ability to consume via an increase in health insurance cost will create one of two reactions (three in some cases).  First, if the consumer stays insured or participating in an employer plan, a reduction in net income available will reduce consumption in all areas.  Second, the consumer opts to drop coverage or inclusion, instead paying the minimal penalty.  The third option for those presently privately insured, is that they either drop coverage or alter coverage to lower levels as a means of offsetting higher premium costs.  What is most disconcerting to me is that the exposure in terms of coverage gaps via out-of-pocket costs under all ACA scenarios is growing and this impact is undoubtedly, negative for economic growth and consumer economic health.

October 18, 2013 Posted by | Policy and Politics - Federal | , , , , , , , | Leave a comment

Debt Ceilings, Government Shutdowns and Health Policy

Most of my readers know by now that I am an economist by training and formal education.  My clients know this as well.  The net result is that I’ve been queried, almost to death as of late, as to what this current round of Washington folly is really all about.  Is it about the ACA?  Is it about the budget?  Spending? Is there really a debt ceiling, etc.?  Suffice to say, this post is intended as a concise answer (and no, economists are not known to be concise or clear on anything so I’m going out on a limb here).

While most Americans express concern over the amount of debt at the Federal level, the truth is that the amount is really not the issue.  The ratio of debt to GDP is the bigger issue plus the cost of servicing the debt as percentage of the revenue received by the government.  Today, the debt load is approximately $16 trillion (beginning of 2013).  Of this total, around $10 trillion arrived since 2002.  The $10 trillion is the result of the wars in Iraq and Afghanistan, entitlement growth, stimulus spending, tax cuts, and the recession.  Income flows into the government coffers reduce substantially during recessionary periods and periods of stagnant GDP growth.  As revenue evaporates faster than spending, and during recessions spending on behalf of the government normally increases (income support programs, entitlement growth, etc.), the deficit gap widens.  Deficits require funding (the bills must be paid) and thus, the source for the government is borrowing.  As of late (last few years), the government has borrowed more than $1 trillion annually to cover its cash outflow shortfalls.

While the question of long-term sustainability begs and the debate wages on about fiscal balance, the truth is that while this process (escalating borrowing) is on its face unsustainable, it is likely more temporary in nature than permanent.  At the very least, the policy drivers and economic factors will shift, altering the present course of borrowing.  For example, across the last two fiscal years, borrowing has reduced as budget deficits recede naturally.  Spending priorities in Washington have shifted and taxes increased.  The 2013 deficit will not exceed the trillion-dollar mark, coming in at $700 billion or so. As wars conclude and the economy recovers, even if slightly more than present, the deficit shrinks and the need to borrow is lessened.

What is central to the issues referenced in the title is the budgetary math and how the dollars are received and spent.  Within a budget of $3.8 trillion, two-thirds is allocated toward “fixed” or “mandated” spending.  That leaves $1.2 trillion in the variable or discretionary bucket.  Interesting to note, the budget proportion as a percent of GDP hasn’t changed all that much – up only 2% compared to the most recent forty-year average.  What has changed is the allocation percentages with more dollars spent today on entitlement programs.  For example, Medicare spending is nearly three times greater as a percent of GDP compared the forty-year average. Health spending is more than double and Social Security is one and a third times more.  Because the percentage of GDP spent is roughly the same, the offsets are found in defense spending, science and technology, general government and interest (yes, even with a rising debt level, lower rates have kept the interest cost lower than the historical average).

The government via taxes, will take in approximately $3 trillion.  The gap thus is $800 billion, give or take a billion or so.  This gap is the driver of borrowing limits and debt ceilings.  In effect, the debt ceiling is a self-imposed number and one that is totally arbitrary.  Congress established the debt ceiling back in 1917 with the passage of the Liberty Bond Act.  In the 70s, via passage of the Budget Control and Impoundment Act, the debt ceiling became less relevant.  Effectively, the debt ceiling issue was tied to the budget and a parliamentarian procedure known as the Gephardt Rule (after Congressman Dick Gephardt) allow the ceiling to automatically adjust incident to budget passage.  The problem to a certain extent of late is that the government hasn’t operated with a budget for at least three years and spending bills (appropriations) have stalled in the Senate.  Essentially, a debt ceiling discussion thus becomes separate from other fiscal operation activities.

So where are we now and what does this mean?  In cold hard reality, the issue of the debt ceiling is less about default on credit but about the ripple effect economically that will occur.  The U.S. really can’t default on its debt and does operate with enough cash flow to keep interest payments current.  The President does have unique authority via executive privilege and orders to adjust the U.S. borrowing limit.  The Treasury also has other temporary powers.  Using these powers is a last resort as doing so will certainly cause economic havoc world-wide via the real signal that the U.S. government is in chaos.  Remember, the stability of much of our economy is based on the stability of our systems of banking, credit and government – the full faith and credit stuff – nothing more.  If this system isn’t credible and stable, the erosion is tsunamic.

History and an updated view of the economic reality we live in, paints the true picture.  Today, our debt driver and our economic structural flaws within the government budget (such as it is) are entitlements as presently configured.  There simply is not enough room on the discretionary side or the variable side to right size the budget, offsetting the entitlement growth.  The demographic shift that is occurring in the U.S. and all first world countries (aging) is the catalyst. By 2033, 20% of our population will be 65 and older, eligible as presently configured, for Social Security and Medicare.  Moreover, the expenditure to income ratio per each under Medicare produces a significant outflow deficit.  For example, a 65-year-old couple in 2020, assuming average wages earned during their work years will contribute $110 thousand (with employer share) into Medicare.  Across their remaining life, Medicare will spend in present dollars, almost 4 times more ($430,000).  By 2022, Medicare spending is projected (under current law) to consumer 4.5% of GDP (3% today) and rise of 6.7% by 2035.  This net change equates to a spend rate of more than $1 trillion in current dollars on Medicare alone.

To the point: Health policy is the shutdown, budget and debt ceiling debate.  The good news is that it is fixable but the bad news is that it must be fixed by government.  There is no other course of action that can and will adjust the debt trajectory.  Now, hope is also muddled within the mix.  The healthcare industry has gotten smarter and evidence suggests that recent reductions in healthcare spending increases are as much due to more efficiencies in healthcare delivery (generic drugs, better insurance bargaining, smarter consumption habits of patients) as due to a weak economy.  A public-private initiative could create a paradigm shift, favorably changing the entitlement spending outlook.  Congress and the President will need to get creative and utilize a different legislative approach to resolve the present dilemma.

Is the sky falling because of too much debt?  Not really.  Governments and especially ours, don’t really need to be too concerned about the debt load in the short-run.  The concern is about changing or adjusting the factors that drive debt.  As long as the increase in new debt is less proportionately, than the increase in GDP, debt load as percentage of economic activity reduces.  For example, between 1945 and 1980, the government only encountered 8 years with surplus revenue.  Fully all other years involved deficit spending. In 1945, at the end of World War II, debt as percent of GDP weighed in at 120%. By 1981, the level subsided to 30%.  The reason?  GDP growth accelerated during these years and the deficits were relatively small.  The economic truth is that government policy needs to focus-in on all things fundamentally favorable to GDP growth while constraining with simple austerity, the deficit levels.  The debt problem thus resolves itself.  There is no need to “pay it back” and fundamentally, no reason to do so.  The best approach is to minimize its impact on the economy by fixing the root cause.  In this case, adjusting entitlement spending by relatively modest means (currently structural changes to reduce about $500 billion) is all that is needed.

October 10, 2013 Posted by | Policy and Politics - Federal, Uncategorized | , , , , , , | Leave a comment

The ACA, Funding Resolutions and the Shut Down

For readers approximating my age, a commercial slogan ties to the title of this post: “Is it real or is it Memorex”.  In this current round of Washington political maneuvering and on display dysfunction lies the question;  is the ACA issue real or is it a tool for political posturing?  Is this a real “red line” issue and an issue of such magnitude that a simple continuing resolution for government funding now resides in limbo? Maybe yes and maybe not.

Setting aside the news cycle rhetoric and the political ideologies at-play, merit exists to slow down ACA implementation and re-calibrate.  The problem is that neither party can find a way to address the process and thus, the economic and policy issues operative, without wading hip-deep into political muck.  Truthfully, the ACA issue is worthy of scrutiny and thus, legislative remedy but the timing and the mechanism is not during a budget procedural process.

Dissecting the debate further, removing the fringe and getting at the core, there is logic to explore and facts to review. Non-funding the ACA is a bogus proposition and one that is all but impossible to do.  It is not a stand-alone, singular expenditure like funding another aircraft carrier or a NASA mission.  It is already woven throughout the health care industry.  The issues that remain are whether certain elements need re-thought and arguably, many do.  This isn’t a political point but one shared by most economists (non-partisan), most health policy experts, and even the party leaders on both sides of the aisle.   No matter what the president’s rhetoric is at the moment, his administration delayed the employer mandate and for sound reasons.  The individual mandate deserves the same fate and for the same reasons.

The simplest of all reasons is neither at present, is in workable fashion and likely won’t be anytime soon.  The implementation and enforcement provisions for the requirements exist in only pieces.  Further, the complexity of the mandates (individual and employer) create so many unintended consequences that each deserves a time-out and re-think to address the possible consequences.  For example, the employer mandate created the real consequences of lost work hours and lost jobs – untenable outcomes in a job less recovery.  With this looming outcome and a loss of or reduction in, employer-sponsored health plans the participation goals of the ACA can’t be met and worse, the numbers break ugly quick on additional government resources required to pick-up the slack via Medicaid and subsidies through the exchanges.

A similar course is visible with the individual mandate.  The process is confusing and individuals simply don’t get it.  While the rates look at first glance palatable the reality is, rates plus out-of-pocket costs on the affordable plans don’t equal affordable coverage.  Similarly, rate subsidies are tied to tax credits not direct to income support for most (cash flow timing is markedly different with tax credits).  When viewed against employer coverage options existing, the choice for most is clear – the exchanges lose.  Additionally, Medicaid is full and overflowing.  In a number of states that have recently moved to a Managed Medicaid platform, the transition has created problems yet unresolved in terms of payment, claims adjudication, enrollment and provider access.  Adding to this mess is a certain nightmare, particularly in rural areas or inner-city areas where participating Medicaid providers (especially physicians) are limited and declining.  Worse, the numbers of participants that qualify for the exchanges and ultimately participating appears by estimate, to be far below projections.  If, as I believe and a number of health care economists similarly, the initial participants are folks with immediate health needs and chronic diseases, the costs via premium in year 2 will explode (too many sick people, not enough healthy people in ratio, paying premiums).  Recall, anyone qualifying to purchase insurance on an exchange can do so at any time and not be denied coverage.  There is no penalty to lapse in and lapse out effectively and initially, the “tax” penalty is meager – assuming some methodology of enforcement is available (one isn’t today).  Reality suggests that most who are healthy and presently under or uninsured, will not jump to lower their income via purchasing insurance until doing so is proximal to an immediate need.

If the above reasons aren’t compelling enough to re-think and re-craft the key ACA components, the state of the economy is.  Politics aside, the ACA is anathema to a rebuilding economy that is trying to shift to a different plane.  Large, overarching legislation that is ripe with new entitlements, new taxes, new mandates, and crosses traditional state boundaries with federal intercession creates temporary economic impacts – socially and politically in the immediate, financial beyond.  It is the social and political shifts that are creating a pull opposite to an economy seeking equilibrium.  The fundamental drag or tug is opposite or oppositional to labor, wages, income and consumer spending.  All of these elements succeeding or byproduct of industrial and business growth, capital investment, and production/service expansion.  Point in fact, the ACA addresses more issues in a past or former economy than it does in the shifting current economy.  Hence the flaws in the employer mandate so troubling to many employers.

What we know today of the economy is that its labor norms (employment) are fundamentally different and thus, income and consumption patterns have shifted.  For example, workforce participation rates are significantly down with retirement up and at least for a decade or more, likely to remain at this trend level.  The number of people working at fragmented jobs, temporary jobs and jobs below their former pay and grade has significantly increased and the increase again, is permanent not temporary.  Many of the jobs lost over the course of the last five to seven years are gone permanently.  Government employment is waning and will continue to do so.  This labor shift combined with a wage shift can’t be resolved by government policy.  The shift likewise, in employment and income status and thus, health insurance coverage isn’t adjusted by the ACA – only magnified.  Again, regardless of subsidies and Medicaid expansion, the number of permanently covered individuals won’t shift dramatically and in many regions and states, will shift negatively – more uninsured and underinsured.  Why?  The folks fundamentally “shifted” in the current economy are working, can’t qualify for Medicaid, and regardless of access to an exchange with some or limited subsidy, can’t or won’t afford the “total” cost of coverage (premium plus out-of-pockets costs).  The jobs they lost included benefits and the replacement jobs, without or at a higher cost.  This is the new economic norm and the ACA, unless adjusted, is an adverse factor in the labor market recovery.  Without a labor recovery, the overall recovery will languish.  This is an undeniable fact and one that no political fight or government policy can alter.

October 1, 2013 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Obamacare/ACA: Implications for Providers

This is the second post of a four-part series on the status and implications of the continuing roll-forward/roll-out of the Affordable Care Act (aka Obamacare).  In this post, the context is the implications for providers, given the evolving state of the ACA and some of the current uncertainty of its future.

Important to note: Affirmatively, the ACA has fundamentally changed the health care landscape for providers, regardless of its ultimate fate.  Unraveling the Act in its entirety is virtually impossible.  The ACA as drafted and passed, is a singular layer of law that provides the framework for an incredibly deep-set of regulatory/administrative law provisions.  Illustratively, the ACA is like an onion; broad layers on the outside leading to more intricate, narrow layers on the inside.  It is essentially, an enabling piece of legislation rather than a single or for that matter, bifurcated or trifurcated law focused on enabling, funding and enforcement.  The ACA is written to cause other agencies and entities to exist, to promulgate rules and to cause Congress to fund via a prescriptive mechanism, the evolution of what the ACA was passed to create.  Complex, I know – hence the thousand plus page bill.

Because the ACA ties providers, insurers, employers and individuals ultimately together, the implication for providers is a function of the elements of the law directed at providers (really quite minimal) and all other elements that pertain directly to insurers, employers, individuals and to another extent, government itself.  The latter is where the ACA creates another level of entitlement within the government, primarily through Medicaid expansion and the insurance exchanges.  In short, logically separating the pieces, providers vs. all other groups impacted, clears the picture for providers.

Because the ACA doesn’t structurally change healthcare or for that matter, the major regulatory or payment components, provider implications at the core, are truly minimal.  Arguably, without the ACA, providers would still see a similar level of regulatory activity and reimbursement changes.  These issues are truly separate from the ACA as remember, the ACA doesn’t touch Medicare, Medicaid (other than to expand it) or reform or modify, any other federal conditions of participation.  It didn’t even address the physician payment formula (known as the SGR).  Regardless of the political rhetoric, the ACA only served to create a methodology for spending reductions to offset its associated implementation costs, greater output to states for Medicaid spending, and a series of provider taxes (DME) as a method for internal funding transfers.

What providers experience today in terms of increased fraud vigilance, RACs, rate rebasing, pay for performance (quality measures), changes in HIPAA, Medicare reimbursement cuts, etc. are events non-organic to the ACA.  True, the ACA codified some additional elements such as Accountable Care Organizations and bundled payment demonstrations, etc. but not in any great detail.  The reality is that the ACA didn’t need to exist for these events to occur as the administrative levels within government (Department of Health, CMS, etc.) can create, and has, this level of regulation and activity via agency fiat or other legislative (normative) functions within Congress (budget appropriations, etc.).  These issues and events are all or were all, in motion prior to ACA passage.  Providers would have seen them with or without and perhaps, in quicker time increments as the ACA has muddied the picture rather than made it clearer.

The driving element for providers isn’t the ACA but the changing structural nature of our society, our economy and the federal mechanism for funding and paying for, entitlements.  The ACA doesn’t change these issues or even address them indirectly.  Providers face cuts, regulatory oversight, other regulatory initiatives to make healthcare more “efficient” and outcome driven because of the federal funding issues, growth in entitlements and budget allocation for entitlement spending.  In federal parlance, the cost of and growth of entitlements are too large and too “ineffective” to continue (the last point arguable of course).  Too much money is spent for too little care or ineffectively so and too many people are ending-up in the entitlement pool for government to remain solvent or achieve equilibrium.  Taking away the ACA, the issues remain.  Keeping the ACA, the issues remain.  The ACA didn’t address them nor changed the entitlement window or programmatic elements driving the fiscal course one iota (other again, than to expand certain elements such as Medicaid).

The real implications for providers arise when insurers and consumers fully integrate into the picture.  Today, this is the government’s dilemma.  In the desire of the drafters to create more insureds, improve access, and redistribute the health care pie, the ACA became the poster for “unintended consequences”.  For example, look at the shift in union/labor support for the ACA.  Because the ACA includes a “tax” on benefit rich insurance plans (Cadillac plans) and sets a definitional limit on employee eligibility for firms to provide mandate coverage at 30 hours per work week, the law is directly oppositional to union positions (full-time employment at 40 hours and “privately’ negotiated benefit plans).  The ACA does not exempt collective bargaining plans from tax imposition if the same plans meet the “Cadillac” definition.  Similarly, businesses that wish to avoid the ACA’s employer mandate on insurance benefit plan structure, can do so by reducing their employee work week to under 30 hours.

Why this is the crux of the ACA implication for providers is simple.  Pushing aside current Medicare and Medicaid demand, the remaining demand is “all other”.  This ” all other” category is dominated by privately insured individuals.  The ACA exists to morph this category via mandates on employer plans, mandates on private insurance offerings, and mandates (via taxes or penalties) on individuals to purchase/access insurance.  Assuming, as is presently the case, that nothing more changes in the ACA as written, providers are certain to face the following;

  • Companies that formerly offered insurance benefits to their employees, dropping their plans and opting to pay the ACA penalty.  This will shift more individuals into the expensive private market place purchasing, if they can, higher cost insurance with lower benefit levels.
  • Companies will reduce their work-week hour requirement below to the 30 hour threshold and thus, limit their insurance benefit plan requirements under the ACA. Again, employees formerly insured will now enter the private marketplace, the exchange or Medicaid.
  • Medicaid will expand and the numbers of participants will swell.  The payments from Medicaid will not increase proportionately and thus, while providers may experience less bad debt (although not total elimination), the trade-off is patients with an inadequate payment source.  I know few provider types, perhaps other than hospitals via default, who willingly want to see more patients with Medicaid as their primary payer.
  • Exchange plans, when available, will not come cheap (although subsidies exist for income qualified participants) and in some states, may involve only one plan offering.  We don’t know much about the Federal exchange participants yet.  What we do know is that the elements within the ACA that mandated benefits for private insurance plans, upped the dependent coverage age for adult children, removed pre-existing condition limits and lifetime benefit limits, raises the cost of insurance to levels where affordability is questionable.  The trade for affordability is coverage levels (higher copayments, deductibles, etc.).

When these issues arise, and they are or have to a certain extent already, providers see different consumer behavior.  Lacking insurance or facing reduced benefit levels, individuals will alter their consumption behavior; including the consumption of health care services.  Simply having access to insurance isn’t going to mean for the most directly impacted middle-class/working class, that one can afford it.  While the ACA expands benefits and access via Medicaid and subsidies to the “working poor” (125% or under the Federal poverty limit), it doesn’t protect the cost for anyone else.  Further, its provisions shift financial burdens and incentives among private, non-union benefit plans so much so that many employers will significantly alter their insurance offerings, negatively impacting their employee insureds.  Negative impacts of this type mean individuals behave differently, purchase differently, and access care differently so as to minimize personal financial exposure.  Providers will see demand slack.

The expansion of Medicaid presents a completely different picture for providers.  Picture a group that has previously had minimal to no access to care.  This group is awarded a rich benefit plan typical of any government entitlement program.  Having likely delayed or refrained from using or accessing care other than in a circumstance of urgency, they now have immediate benefits and immediate (perceived) access.  The analogy best suited is a person wins the lottery; sudden wealth and a former lifestyle of delayed or no consumptive gratification.  The likely demand from this new group of Medicaid recipients, once they become aware of their purchasing power via the government, is for care.  The question is, what care and how infirmed and debilitated is this group?  Will providers accept this group?  Can they afford to accept this group?

In answer to the above, we’ll see.  What I know is that as of today, given the present payment mechanisms and levels under Medicaid, few providers will willingly open their doors.  This is particularly true for physicians – the portal to all other care.  Hospitals who have somewhat embraced the Medicaid expansion in general, are today just realizing the somewhat perverse implication that may arise if physicians abdicate Medicaid further – a growing flux in emergency care visits, already a problem for Medicaid and the under/non-insured market.  The ACA doesn’t address this complication and in all cases, makes it worse by expanding a program that is viewed by  providers as a poor payer.

What providers can expect in terms of ACA implications is a fundamental shift in consumer behavior toward health care.  Its not the governmental implication of what the ACA does directly to providers; it is what the ACA does to insurers, employers and consumers.  As the impacts for insurers are employers are shifts in the cost of benefits paradigm (negatively), both will react to reduce exposure and to insulate against financial erosion.  This means providers need to understand that insurance plans will offer less coverage at higher prices, the same coverage with higher cost-share, and employers will reduce employee coverage either directly or indirectly via higher premium levels/cost share.  These elements when applied in an economic element, shift behavior away from consumption, reducing demand for non-essential health care services or toward cheaper alternatives.  Medicaid expands but within the same framework, pouring newly benefit rich consumers into the marketplace.  The problem is that these new consumers, full of pent-up demand, only bring payment at fractional levels of costs.  Plenty of consumption possibilities but at a loss to most if not all providers.

Moving one step forward, socially and economically the picture for providers can be truly unsettling.  The picture for society perhaps even more concerning.  More people, less covered plus more people better covered but via a poor payer (Medicaid) equals less care, not more.  For the Medicaid folks, what good does it do to have a great benefit plan but access to limited providers?  For the insured group, what good does it do to have insurance but at a price and cost-share point that constrains access or places the insured at-risk for accessing the system(s) from a financial perspective?  Providers will see the end result of this social/economic shift and the end result is less core demand and patient flow, demand for services with a less than adequate payment, the risk of more bad debt from those insureds with higher cost-share levels, and a greater reliance on urgent/emergent access for those whose only access is via this portal.

September 6, 2013 Posted by | Policy and Politics - Federal | , , , , , , , , , | Leave a comment