Health Reform

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Have States made any progress towards implementing Health Exchanges?

February 6, 2012 in CHIP, Health Reform, Medicaid | 2 comments

The answer depends on the state. Today, I examine an Urban Institute research paper that looks at this progress in more detail.

Dividing States into 3 Group

The most advance States fall into Group 1 (CA, CO, CT, DC, HI, IN, MA, MD, NV, OR, RI, UT, VT, WA, WV). These states have either enacted an exchange establishment law or in which the governor has established one by issuing an executive order. Massachusetts and Utah had already passed exchange laws before enactment of the ACA. All Group 1 states (except Colorado, Massachusetts and Utah) have received an exchange establishment grant.

Group 2 states (AL, AZ, DE, IA, ID, IL, KY, ME, MI, MN, MO, MS, NC, NE, NJ, NM, NY, PA, TN, VA, WI) have not yet established exchanges, but have demonstrated significant interest in doing so. Most notably, 17 of the 21 states have received level 1 federal establishment grants, which represent a second round of funding for state exchange development work beyond the initial state planning grants. Although Wisconsin has not received a level 1 federal establishment grant, Wisconsin is using federal funds to develop an IT system to fully integrate exchange eligibility determination and enrollment with state-based public insurance programs (i.e., Medicaid and CHIP). Recently, however, Wisconsin Governor Scott Walker has rejected all federal funding for implementation of the ACA. Of the remaining four states, Virginia and Wisconsin have passed legislation stating its intent to develop an exchange, although they have not yet passed exchange establishment legislation, New Jersey has establishment legislation pending in its legislature, and Pennsylvania’s governor has recently announced that his administration is taking steps to establish a state exchange.

Group 3 states (AK, AR, FL, GA, KA, LA, MT, ND, NH, OH, OK, SC, SD, TX, WY) do not meet any of the criteria for Groups 1 and 2 and are the furthest from successfully implementing the ACA provisions.

Correlation between Exchange Progress and Potential Increases in State Health Insurance Coverage

A research article from the Urban Institute finds that States with the ‘most to gain’ from the ACA are actually the most likely to fall into Group 3. States that currently have the least generous Medicaid programs and the largest share of uninsured workers are the least likely to have made significant progress in implementing the ACA provisions.

I can think of two reasons for this finding. The first is philosophical. These States began with less generous health insurance programs. Thus, the residents (or politicians) in these States may prefer to have less generous health insurance programs than other States. Hence the natural aversion to implementing the ACA provisions. The second reason is financial. Because these States have the largest share of uninsured individuals, they would also incur the largest percentage increase in cost to finance the ACA provisions. Although it is true that these States would likely receive the largest subsidies, these subsidies will not cover the full cost of the ACA implementation.

Questions States need to answer to implement an Exchanges

  • Should the exchange be run by an existing government agency, a new agency, a quasi-governmental entity or a not-for-profit private entity?
  • What should the composition of the governing board be?
  • How should the administrative costs of running an exchange be financed?
  • Should the exchange be able to actively negotiate with plans over premiums?
  • Can plans be excluded, or must all qualified plans be allowed to participate?
  • In computing premiums, should enrollees in the Small Business Health Options Program (SHOP) exchange and nongroup exchange markets be pooled together, or should their premiums be set separately?
  • What will be the role of agents and brokers in the exchange?
  • Should state insurance regulations be identical inside and outside the exchange?
  • How will Medicaid/CHIP eligibility and enrollment be integrated with the exchange?
  • Should the Basic Health Plan option be implemented?

Source: Blavin F, Buettgens M and Roth J “State Progress Toward Health Reform Implementation: Slower Moving States Have Much to Gain.” RWJF and Urban Institute Real Time Policy Analysis, January 2012.

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Does Obamacare Limit Profits for Health Insurance Companies in Your State?

January 31, 2012 in Health Insurance, Health Reform | 2 comments

One of the provisions in the Patient Protection and Affordable Care Act (a.k.a ACA, a.k.a. Health Reform, a.k.a. Obamacare) is that it limits the profits of health insurance companies.  The ACA imposes a minimum medical loss ratio (MLR) on all insurers.  The MLR is the amount of money spent on covered person medical care divided by the total revenue received through premiums.  There is some debate of what constitutes ‘medical care’ (e.g., do investments in electronic health records count as medical care?), but insurer profits certainly are non-medical.

The ACA requires health insurers in the individual and small group market to spend 80 percent of their premiums (after subtracting taxes and regulatory fees) on medical costs.  The corresponding figure for large groups is 85 percent.  According to a recent Kaiser tracking poll, 60 percent of the public views the MLR concept favorably, although only 38 percent was aware that the provision is in the ACA.  Insurance brokers may be getting squeezed for insurers to meet this amount.

Even though the MLR is a national law, it may not apply in your state.  Why?  Because many States are petitioning for a waiver.  HHS is currently reviewing applications from six states: Florida, Kansas, Michigan, Texas, Oklahoma and North Carolina.  According to The National Association of State Budget Officers, HHS has granted waivers to seven states: Maine, New Hampshire, Kentucky, Nevada, Iowa, Georgia and Wisconsin. The department has denied them to Delaware and North Dakota.

Why did these States receive waivers?  For a variety of reasons, but one of the reasons is due to the fact that some states have a less competitive medical market.  Maine, for instance, requested a MLR of 65%.  The reason was that State only has two large commercial insurers, Anthem Blue Cross Blue Shield (with 49% of the market) and MEGA Life and Health Insurance Company (with 33% of the market).  A public-private partnership, DirigoChoice, makes up most of the rest of the market.  Three HMO’s have less than 1% of the market combined between them.  To avoid the case where a large insurer would leave the market due to minimum MLR requirements and create a near monopoly, HHS decided to approve Maine’s request.

Notes:

  • Section 2718 of the Public Health Services Act implements the minimum medical loss ratio requirement.

The National Association of State Budget Officers

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How Health Reform will affect Hospital’s Business Strategy

January 19, 2012 in Health Reform, Hospitals, P4P | No comments

For many years, fee for service payment was the status quo. FFS model encourages hospitals to adopt the following strategies to maximize market share and profits:

  • Centered on short-term acute care
  • Focused on specialist alignment
  • Driven by a volume-based service-line strategy
  • Using expensive medical equipment purchases to encourage physician referrals
  • Attracting patients with new construction in support of market share growth
  • Short-term acute hospitals focus on profitable service lines such as oncology, cardiology, neurology, and orthopedics.

Specific examples of this growth are abundant.  In Indianapolis, all four of their hospital systems built coronary surgery centers at a combined cost of $210 million.  A community hospital 15 miles north of the city opened a smaller, open-heart surgery program.  In Cincinnati, nine hospitals performed open heart surgery. Eight Boston Hospitals Have da Vinci System, which may indicate that robotic surgery may be used for marketing purposes.

However,  health reform has started to change these trends.  Medicare is instituting more bundled payment (e.g., dialysis payments)  rather than pure fee-for-service.  Further, Medicare’s Shared Savings Program (MSSP)  aims to use Accountable Care Organizations (ACOs) to coordinate patient care improve quality and reduce the rate of growth in health care spending.

How will hospitals respond to the changing market landscape?  One way hospitals can improve their margins is to only treat healthier patients to improve their performance in the case where risk adjustment methods are imprecise.  Also, provider mergers may be a trend. Access larger populations will lessen risk providers must bear under new payment models.  Larger size also means that hospitals can negotiate better rates with suppliers.  Hospitals will likely sell redundant or non-core assets.

Hospitals will also adopt new technology to better manage care. For instance, Henry Ford Health System in Detroit uses an embedded specialized software called RadPort in its electronic physician order entry system that prompts physicians to enter specific information when ordering radiology tests.  The pilot, funded with a CMS grant, will see whether these prompts will reduce utilization levels.

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Accountable Care Organizations: Update on Medicare Implementation

November 17, 2011 in Health Reform, Medicare | 1 comment

Health Reform’s Accountable Care Act (ACA) mandates the creation of Accountable Care Organizations (ACOs).  Dartmouth researcher Elliott Fisher stimulating much of the interest in ACOs by introducing the concept of an “extended hospital medical staff” at a 2006 meeting of the Medicare Payment Advisory Commission (MedPAC).

Today, I review an article by Berenson and Burton (2011) describing the latest ACO developments.

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Medicare to Hospitals: The Patient is Always Right

November 10, 2011 in Health Reform, Hospitals, Medicaid/Medicare, Medicare, P4P, Quality | 4 comments

Starting in fiscal year 2014, Medicare will start rewarding hospitals with high quality care and penalizing hospitals with low quality care.  The rewards and penalties will be financial in nature. High-quality hospitals will receive a bonus and low-quality hospitals will receive a financial penalty.  There is a lot of existing documentation on this hospital value-based purchasing (HVBP) program such as:

One component of the HVBP is patient satisfaction.  Some policy experts believe that patient satisfaction is of the utmost importance.  If Medicare evaluates hospitals based on patient satisfaction, then hospitals will compete to improve how well patients are satisfied. A New York Times article already mentions some of the efforts hospitals are undertaking to improve patient satisfaction.  For example,

  • Improving the quality of food
  • Renovating units
  • Creating more single units (compared to shared units)
  • Having nurses visit rooms hourly
  • Creating scripts for doctor-patient and nurse-patient interactions
  • Quicker response time ["Jefferson Regional Medical Center in Pittsburgh expects all employees, from maintenance workers to doctors, to respond to a patient’s call light or find someone to offer assistance."]
  • Building more elevators.

Elevators!?!?!  It turns out that “NYU found that long waits at its elevators drove down its scores, so now it is building a new bank of elevators.”

Hospitals complain, however, that they may only have a limited ability to influence ratings.  This is certainly true in some cases. For instance, patient expectations of the standard of care they receive may vary regionally.  For example,

“…some of the nation’s most prestigious hospitals, including Cedars-Sinai Medical Center in Los Angeles and the University of Chicago Medical Center, get lower marks from patients on most areas of patient experiences, according to the government’s Hospital Compare Web site.

So do many of New York City’s elite institutions…Some hospitals, like NYU, get bad patient reviews even as they score average or superior in measures of clinical care from the government and accreditation groups.

‘People in New York have very high expectations about what it means to be taken care of,’ said Dr. Katherine Hochman, an NYU physician. ‘When they don’t get their food on time and have to spend eight hours in the emergency department, well, that’s just not their image of what a world-class institution is.’”

Further, many providers believe that indigent patients give physicians lower quality scores even though these patients receive the same care as do richer patients.  Hospitals with more Medicaid-eligible patients could receive lower patient satisfaction scores due to case mix alone rather than due to actual quality.

To account for these confounding factors, Medicare can institute a risk adjustment mechanism.  By including patient income (or Medicaid) status in their model, however, Medicare would implicitly be allowing hospitals to provide a lower standard of care to the poor. Alternatively, if the poor do in fact give lower satisfaction scores, than hospitals may have an incentive to avoid these patients.

Similarly, including regional indicators in the risk adjustment model can also be problematic.  If New Yorkers have higher standards than individuals from Iowa, then one may want to normalize performance regional.  If CMS adopts this specifications, hospitals in essence would only be compared against their local peers.  Areas which have consistently below average care–in terms of patient satisfaction–may not be punished if they are the ‘best of the worst’ in their area.

Although patient satisfaction is not always correlated with high quality medical care, paying hospitals more for care that meets their patients’ needs does seem to be a sensible solution.

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The End of Health Reform Starts in Ohio?

November 9, 2011 in Health Reform | 2 comments

One of the key tenets of health reform is that insurers cannot charge different premiums to individuals based on their pre-existing conditions.  Under this type of system, the optimal strategy for many individuals is to not buy any health insurance until one gets sick.  Since insurers cannot charge these sicker people higher premiums based on these conditions, healthy individuals will end up heavily subsidizing the sick.  In fact, average premiums will increase for everyone.

To prevent this from happening, health reform instituting an individual mandate which requires every American to buy health insurance.  Without this requirement, health insurance prices could spiral out of control.

Ohio, however, has recently rejected the individual mandate.  The Cato institute that Ohioans came out against the individual mandate on a 2 to 1 basis.

Is this the beginning of the end of health reform?

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Industry Consolidation

October 31, 2011 in Health Insurance, Health Reform | 1 comment

Last year, I mentioned how ACO requirements will lead to more industry consolidation.  A recent article by the Economist is finding that my prediction is becoming a reality.

“Cigna, an insurer based in Connecticut, said it would pay $3.8 billion for HealthSpring, which offers services and insurance to the elderly. It is the latest deal to extend insurers’ tentacles into new areas of health care.”

State Health Exchanges will come into effect in 2014 and will extend health insurance to more people.  Individuals who cannot afford health insurance will receive subsidies.  The Economist cites a Boston Consulting Group study which estimates that firms’ revenues will more than double by 2019 to $1.2 trillion.  Profits margins, however, may fall due to a new taxes, minimum benefit standards, and more regulation of premiums appears.

What will plans do about it?

Many are diversifying.  They are moving into the Medicaid market where States outsource the health care provision of their enrollees to insurers or Medicare Advantage where the federal government is doing the same.  Insurers like Aetna are investing in health IT companies; UnitedHealth Group’s IT business (OptumInsight) makes up a large share of their revenues.

Industry consolidation can increase care coordination, but also reduces competition.  The effect on premiums and quality remains to be seen.

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Health Exchanges

October 17, 2011 in Health Insurance, Health Reform | No comments

The California Healthcare Foundation (CHCF) notes that States face a number of challenges when determining how to design their Health Exchanges mandated by health reform.  Today, I briefly highlight some of the requirements State Exchanges must fulfill.
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Health Reform in California: Expanding Care to Ex-Cons?

September 15, 2011 in Health Reform, Medicaid | No comments

One of the goals of health reform was to expand coverage to poor childless adults who previously did not qualify for Medicaid.  One unintended (or perhaps intended) consequence of this expansion is that a large number of individuals formerly convicted of crimes will be eligible for the this coverage.

Policymakers face a number of questions.  First, do these ex-offenders “deserve” coverage?  Many in the public may wonder why middle class individuals should be uninsured when the government is providing health care for ex-offenders.  On the other hand, those who served time have already paid their debt to society.  Should the be punished again by being disqualified for entitlement programs for which they are eligible?

Regardless of whether you think ex-offenders should be eligible for this Medicaid expansion, they without a doubt do have a number of medical problems which require treatment. NPR describes some of the challenges these individuals face.

According to Dr. George Pearson, “…a 45-year-old ex-convict will often have the ailments of someone 10 years older. Ex-convicts have higher rates of almost all chronic conditions, like high blood pressure, diabetes and asthma. It’s from living a hard life, to be sure, he says, but it’s also because they have common medical problems that go untreated.

‘So the hypertension becomes heart failure, the diabetes becomes diabetic neuropathy, amputation, blindness,’ Pearson says.”

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Estimates of Health Reform’s Effect on Employer-Sponsored Insurance (ESI)

August 23, 2011 in Health Insurance, Health Reform | 1 comment

Avalere Health provides a nice summary of some of the estimates of how health reform will affect the rate at which employers offer health insurance.  The provisions which may have an impact on health insurance offering include:

  • Free-rider penalties (+)
  • Exchanges (?)
  • Medicaid expansion (-)
  • Individual mandate (+)
  • Small business tax credit (+)
  • Insurance market reforms/grandfathering (-)
  • High-cost plan excise tax (-)

Using different methodologies and data files, a variety of reputable research firms have arrived at differing conclusions on the impact of health reform on ESI. Here are six estimates ordered from most negative to most positive impact:

  • Holz-Eakin: -22.3%
  • Booz Allen Hamilton: -4.5%
  • Congressional Budget Office (CBO): -1.9%
  • The Lewin Group: -1.8%
  • Urban Institute: Little net change
  • RAND: +8.7%

Sources:

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