Stephen Zuckerman has a nice summary of the key provisions in the Health Reform law (i.e., PPACA). There are six broad changes: i) the creation of health insurance exchanges, ii) an excise tax on high-cost health plans, iii) creating the Independent Payment Advisory Board (IPAB), iv) Medicare policy changes v) additional emphasis on prevention and wellness, and vi) increased efforts to reduce waste fraud and abuse. The following sections will discuss each of these changes in more detail.
Health Insurance Exchanges
The creation of health insurance exchanges is intended to provide individuals and small employers to access to more affordable plans. Because of the pooling of these individuals, administrative costs should decline. Further, adverse selection should decrease since plans will not be able to select favorable risks through medical underwriting. What this means is that if you are healthy, premiums may increase due to the absence of medical underwriting (but could decrease because of economies of scale), but if you are sick prices will most likely decrease. The exchanges will standardize the benefit structure. The benefit of the standardization is that it will be easier for consumers to compare plans. These regulations, however, will make it difficult plans to create innovative health insurance products.
Excise Tax on High-Cost Health Plans
According to Zuckerman, PPACA will create a “40 percent excise tax on health plans with individual premiums above $10,200 and family premiums above $27,500.” The goal of this tax is to contain costs. However, taxing who choose to purchase expensive health insurance does not seem to make much sense to me. This tax, however, will not go into effect in 2018. As the excise tax threshold will be indexed to the general inflation rate, if health spending continues to outpace inflation, a larger and larger share of health plans will be subject to the tax in the coming decades.
Independent Payment Advisory Board (IPAB)
Beginning in 2014, “in any year in which the Medicare per capita growth rate exceeded the average of growth in the consumer price index (CPI) and the Medical Care CPI, the IPAB would be required to recommend Medicare spending reductions.” The IPAB recommendations will become law unless Congress passes alternative legislation that achieve equivalent cost savings. IPAB can basically control provider reimbursement rates. However, hospitals are exempted from IPAB supervision until 2015. The IPAB can also make recommendations to private health plans, although these recommendations are not binding.
Medicare Policy Changes
Health reform will reduce Medicare spending, mostly through decreased payments to Medicare Advantage managed care plans. Additionally, PPACA aims to decrease spending by reducing unnecessary hospital readmissions and hospital-acquired conditions. “Starting in 2013, Medicare payments will be reduced for hospitals with high rates of potentially preventable readmissions, initially for three conditions: acute myocardial infarction, heart failure, and pneumonia…In addition, the law would continue the policy of denying Medicare payment for treatments associated with hospital-acquired conditions and extend this policy from Medicare to Medicaid.” The law will also encourage providers to form Accountable Care Organizations (ACOs). Additionally, Medicare must implement a pilot value-based purchasing program. The pilot would pay for all services provided during an episode of care rather than for individual services. The Center for Medicare and Medicaid Innovation would run many of the above-described initiatives.
Prevention and Wellness Programs
Medicare will provide more generous benefits to cover prevention services and wellness programs. For instance, Medicare will guarantee an annual wellness visit as part of its benefit package. Also, Medicare will remove copyaments from all preventive care services. Defining what care is deemed preventive, however, could be problematic in practice. “Similar to the Medicare provisions, private qualified health plans would also have to eliminate cost-sharing for recommended preventive services. States would receive an enhanced federal matching payment for Medicaid spending for these preventive services and immunizations.” Although preventive care and wellness programs can improve health, CBO estimates that the potential cost saving of these measures is fairly minor.
Reducing Waste, Fraud and Abuse
“Health reform included new resources and penalties to fight fraud in the Medicare and Medicaid programs. The CBO acknowledges that each $1 invested in uncovering fraud generates $1.75 in budget savings.”
- Stephen Zuckerman “What Are the Provisions in the New Law for Containing Costs and How Effective Will They Be?” Timely Analysis of Immediate Health Policy Issues, Urban Institute and RWJ Foundation, August 2010.