U.S. Healthcare Reform Has Just Begun

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I wrote here last March 26 about the issues of the anticipated Supreme Court opinion on the Affordable Care Act (ACA). Around the time the decision was announced, it seemed redundant to comment when a barrage of words — first, predictive punditry, then, delight, outrage, and more punditry about the “real” future of U.S. Health care – poured from every news outlet and policy shop that exists to examine the health care industry and its regulation.

In August 2012, implementation is underway, complex and sometimes perplexing. And many problems are not addressed at all.

To recap: On June 28, 2012, the Supreme Court announced its rulings on the constitutionality of the ACA. Most provisions of the law, including the individual mandate, were upheld. One important provision, requiring states to adopt the Medicaid expansion, was struck down. States could refuse to expand their Medicaid benefits and still receive federal funds that` pay at least 50% of the cost of their existing health care program for the poor. Several states have refused the expansion, although the federal government provides 100% of costs until 2020. The objective justification is that such a federal “hook” is eventually reduced, other incremental expansion is likely to follow, and once states begin to accept the funds it is virtually impossible, politically and practically, to stop.

All the provisions that supported the financial structure of the mandate for coverage will in some form proceed. These include the end of insurer denial of coverage because of pre-existing conditions, and community rating so all beneficiaries pays the same premium for the same coverage, in contrast to raising premiums or cancelling coverage for the sick.

What is the effect? The provisions are important for unemployed disabled and near-retirement-age people who couldn’t buy coverage. They benefit well-established insurance companies that want to sell sound policies because they expect to sell more with a larger insurance risk pool at a sustainable premium. The health care industry anticipates that serving more patients with insurance or Medicaid will offset its uncompensated care. People are pleased to receive refunds of premiums from plans that have not spent 80% on benefits. The ACA burdens people who have never and will never become unhealthy, and insurance companies that offer policies with small risk pools for very small premiums. All this, of course, is about people who still can’t get coverage through their employment even if they pay the whole premium themselves. The ACA includes a mandate and subsidies for some smaller businesses to assist in providing coverage, but that is a sensitive issue for another time.

The implementation of the ACA provisions in the political realm is illustrated in the presidential race, with “Obamacare” on one side, which is similar to Massachusetts ”Romneycare”. Romney’s presidential campaign proposal would change the structure of Medicare by allocating to each beneficiary a fixed amount with which to buy traditional Medicare or a policy from the private sector, but details were scarce. Add to the mix Rep. and vice presidential contender Paul Ryan’s small government economics , and the result might be something that shifts government assistance from a benefit model to a fixed contribution model in which the government pays less and less of the cost of care in an effort to make Medicare costs more predictable and lower. Discussed Aug. 14 in the N.Y.Times, Ryan’s influence may be limited, however, because the Medicare overhaul can no longer be characterized as bipartisan. Senator Ron Wyden, a liberal Democrat from Oregon apparently saw a different potential in his endorsement of the plan and now is distancing himself from the campaign proposals.

The most significant work on health care reform involves building the structures to implement ACA provisions. Every state must have a Health Insurance Exchange (HIE), a state run entity that analyzes benefits and costs of policies so individuals and employers can compare them. The HIE doesn’t set prices but can exclude a plan that shows a pattern of “excessive or unjustified increases”. HIEs also identify people who qualify for assistance with premiums, a task that has been a source of confusion and uncompensated care for many years with Medicare/Medicaid “dual eligibles” and would increase with new ACA categories of Medicaid beneficiaries. Wisconsin already has a health insurance exchange, but was among the states with Republican governors, including Texas and New Jersey, that made no preparation in anticipation of ACA requirements.

The creation of team care as identified by the ACA is taking place in the private sector. Accountable Care Organizations (ACOs), for example, consist of providers that coordinate a range of services including hospital care, home care and hospice delivered through medical professionals, social workers, and aides in systems intended to deliver care in particular cost effective ways. ACOs must collect statistics on patients and outcomes for a government database. ACOs are essentially a new model of HMOs or the integrated delivery systems created by hospitals in the 1990s, but they are paid a set amount for all treatment according to a patient’s diagnosis, as hospitals have been since 1983. ACOs have the potential to deliver high quality care from the lowest cost provider appropriate to the patient’s need.

Like HMOs, ACOs have the incentive to spend too little of the payment on a patients’ care. Similarly, “medical homes” create teams of providers to support primary care delivered by an interdisciplinary team to provide cost effective in-home care for elderly and chronically ill patients, like home health and hospice care. A number of payment methods are permitted; the Center for Medicare and Medicaid Services (CMS) decides who is approved based on proposals. The potential exists to avoid the common problem of overtreatment, especially with incompatible prescription drugs and keeping patients at home longer, while the risk is that the “home team” will seek to continue its services when other care should be provided. The ACA authorizes payments to several other delivery models for integrated, cost effective care. Health care deliver has become a team sport, and the team wins or loses.

Resistance from the private sector is not futile. In anticipation of payment reforms, insurers have already made a seldom-discussed but important move to change the basis on which they calculate the value for a health care service. As part of the terms of settlement of a New York case alleging that insurers set values too low, leaving beneficiaries responsible for a larger portion of doctor bills, insurers agreed to finance an objective database of doctors’s fees that was expected to substantially increase payments. Instead of using the data, however, insurers changed the basis of their value calculations from typical physician fees to Medicare payments, which set by a discounted fee schedule just like any negotiated by any insurer.

Other legislation, some of which is pending, will have to address anomalies in the U.S. health care system. Hospitals play an increasingly aggressive game of hardball with regard to unpaid bills. Although those bills are so complex that errors are common, patients must pay in full or risk having their accounts goes to collections. Those who do not or cannot pay are finding their credit ratings suffer. Those who do pay might be unable to pay other bills and file for bankruptcy. Medical bills, often aggravated by loss of income, contribute to more than half of U.S. personal bankruptcies. Under other health care systems in developed countries, such a result is impossible.

And, a bedrock issue – fees and the profitability of delivering health care remain. They are difficult to address because health care encompasses many services and some require costly research and infrastructure. Still, most providers don’t know the retail price of a service they propose, and the actual cost varies according to the contract negotiated by the insurer. People in large plans that can deliver many beneficiaries to a provider command lower rates, people with individual policies generally have a deal that’s not so favorable, and uninsured people are billed top dollar because no one has negotiated for them. So, an answer to those who object to the freeloading of those who refuse to buy coverage have an answer – make them personally responsible for the costs of the illness or accident that brings them through the health care door, rather than a moderate tax/penalty/fine. Come to think of it, that has been proposed.

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3 Responses to “U.S. Healthcare Reform Has Just Begun”

  1. Debra Moore Says:

    What happens to those whose state governors refuse to accept the Medicaid assistance as offered by the government? Are they then without insurance and are required to pay their own way? The governors seem to have a weak argument in their reasons for not accepting the assistance as you put forth here. Although I’ve been following the debate quite closely, there is quite a bit of it that simply does not make sense to me. A governor like Bobby Jindahl of my home state of Louisiana emphatically says NO, he will not implement it in his state, but has not put forth an explanation where the people can understand as to why he will not.

  2. Alison Barnes Says:

    Thanks for your knowledgeable and cogent question, Louisiana. The short answer is that the states are bound by the plans they proposed in order to get federal funds for the Medicaid program they already have. With the expansion, it gets more complicated and becomes political. What do citizens insist on? Who has the voice? What does the state’s elected government want?

    On the technical side: It’s possible for a state to expand its program to some or all of the new eligible people along the lines proposed in the ACA, but it would cost the state more to do less, since the federal government will pay 100%. All states receive at least 50% federal funds for Medicaid, and Louisiana gets at least 63% because the state has so many people with low incomes . You can read more about Medicaid match money at http://aspe.hhs.gov/health/fmap11.htm.

    It’s not clear whether a state government and the federal agency that approves state Medicaid plans (The Center for Medicare and Medicaid Services at http://www.cms.com) can or would negotiate something less than the whole ACA expansion. Or whether state governments refusing federal funds for the principle of limited federal government will find it politically affordable.

    On the side of a state’s refusal, federally mandated Medicaid expansions do become part of a state’s program, the special match rate does eventually go down (so far only to 90% beginning in 2020), and pretty much undone absent some radical shift in policy that throws out the whole system. Those proposals are out there, too, and if a state government believes any one of them will become law (before 2020, I guess — otherwise they should take the money and have more healthy citizens), that government should refuse the expansion on principle. In my years of observation, however, such radical change as ditching Medicaid (and returning all costs to the states) on an ideological basis alone does not materialize.

  3. Nkozi Knight Says:

    Thanks to the new healthcare initiative about to take effect, my company opted to remove all of our options for health except for two:

    1. Healthcare Savings Account (HSA)
    2. Healthcare Reimbursement Account (HRA)

    Both result in employees who already pay a lot for insurance having to pay thousands more a year. It also penalizes employees who have more than three children by limiting the amount of care that is covered each year.

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