Monday, July 02, 2012

A look at what federal health reform means to individuals and employers

The way health care is delivered and how medical treatment expenses are financed has been in need of reform for a long time. However, the federal level reform (PPACA) signed into law in March 2010 focused mainly on ideas to get more people covered instead of taking steps to deal with the primary problem, which is the ever increasing medical treatment costs.

Now that we know the Supreme Court’s decision I want to share a couple points on the Judges thinking from an advisory written by the National Association of Health Underwriters’ retained counsel, Ernst & Young: I added the bold.

In a 5-4 decision, Chief Justice Roberts, joined by Justices Ginsberg, Breyer, Sotomayor and Kagan, concluded, “The Affordable Care Act’s requirement that certain individuals pay a financial penalty for not obtaining health insurance may reasonably be characterized as a tax. Because the Constitution permits such a tax, it is not our role to forbid it, or to pass upon its wisdom or fairness.”

In their dissent, Justices Kennedy, Scalia, Thomas and Alito wrote that the law should have been struck down in its entirety.

These points on the Court’s thinking were not emphasized, if even covered, in most media reports.

OK - now that we know PPACA is continuing lets review some things it does:

Expands welfare (MedicAID) coverage for adults, which is about 60% of the federal poverty level (FDL) here in Connecticut, up to 138%.

Creates the option, which may happen here in Conn, for a new special kind of MedicAID program called the Basic Health plan. It’s for people between 138% and 200% of FPL

Provides individuals whose income is from 138% or 200%, which ever Connecticut selects, up to 400% of FPL financial assistance to pay part of their premium if they buy a plan through what will called the Connecticut Health Insurance Exchange. The premium credit amount will be higher for someone just above 200% of FPL and fall off quickly as their income goes up to 400% of FPL.

There will be no “pooling of claims” for all the individuals enrolled in the Conn Exchange. PPACA indicates each company must pool claims between their Exchange and outside plans. Thus, the idea of many and often mention in media reports that costs will be lower since there will be a large group of people does not apply!

The premium for medical insurance purchased through the Conn Exchange, according to PPACA, must be the same as the premium for that plan purchased outside the Exchange. Thus, to cover the cost of running the Exchange, after federal start up funds stop 12/31/2014, an additional Exchange fee will be added. Based on the assumption over 100,000 individuals will enroll through the Conn Exchange the fee will be about 4%.

I believe it is very unrealistic to think 100k individuals in Connecticut will enroll through the Conn Exchange? Why? The cost, even considering the financial assistance, will be to high for many people. Individuals will also have to buy coverage with after tax dollars.

Note: The amount of the tax on people who do not enroll will be quite small. Some may pay it but most likely many will just ignore it!

Some points on factors driving medical insurance rates to be so high:

The rates we have today for medical insurance in Conn are some of the highest in the US.

Plans in Connecticut will be priced based on a standard called Essential Benefits. It looks like (based on recommendations of the group reviewing this) the Essential Benefits, which will be defined for Connecticut, will be based on the state employee benefit plan coverage. It has a much higher cost benefit design than most plans in Connecticut.

PPACA requires the Essential Benefits a state selects to also include certain pediatric dental treatment plus additional rehabilitation related coverage not available in most plans.

The Conn Exchange will offer four levels of coverage based on the Essential Benefits. A person who enrolls in the Platinum plan will have 90% of the Essential Benefits paid. They will thus be responsible for the other 10% through co-pays and deductibles. Those enrolled in the Gold plan will have 80% paid, the Silver plan will pay 70%, and the Bronze plan 60%. Within the four “metal” levels there will be different plan design options.

Want to also highlight, from the Ernst & Young report, some additional requirements and costs built into PPACA. These will be impacting individuals and employers here in Connecticut over the next year and one half and thus increases costs:


Medicare hospital value-based purchasing program
Increase in physician quality reporting requirements in Medicare
Additional Medicare pilot programs on alternative payment methodologies, e.g., accountable care organizations
Increased requirements for hospitals to maintain not-for-profit status
Fees from insured (including self-insured) plans transferred to the Patient-Centered Outcomes Research Trust Fund


Increase Medicare payroll tax by 0.9% on high-income earners
Impose a 3.8% tax on net investment income of high-income individuals
$500,000 cap on health insurers’ deduction for executive compensation
Eliminate employer deduction for Medicare Part D subsidy
FSA limitations
Excise tax on medical device manufacturers and importers
• Medical expense deduction floor increases to 10%
Nationwide bundled payment pilot begins in Medicare
Increased Medicaid reimbursement for primary care
Medicare physician comparison data available to the public
Reductions in Medicare payments for select hospital readmissions
Expanded coverage of preventive services by Medicaid


Employer mandate and individual mandate
<b>• Employer and insurer reporting requirements
• New health insurance market reforms take effect
State health insurance Exchanges established
Premium tax credits and cost-sharing subsidies available to certain individuals in Exchange insurance products
Medicaid expansion to new populations (100% federal match to states for newly-eligible populations through 2016)
Annual fee on health insurers
Medicare/Medicaid DSH payment cuts begin
Independent Payment Advisory Board (IPAB) issues first report to Congress if Medicare spending exceeds growth target


Excise tax on high-cost employer-sponsored coverage (2018)

Most likely the above requirements have not been brought out by media reports:

Medicare payment cuts are mentioned above. What does this mean for individuals on MediCARE? Lots of Washington DC based PR indicates MediCARE benefits have not changed. Yes PPACA did not change the benefit design but the funding for MediCARE will be cut by over 500 billion over the next few years. Thus, the question becomes – where will people be able to receive these benefits? Some MDs are not now taking new MediCARE patients because the reimbursement they currently receive for the treatment provided is to low. The projections are the 500 billion reduction means MediCARE’s reimbursement will be lower than MedicAID.

Think about this. In Conn today about 70% of primary care MDs are not taking new MedicAID patients. Thus, what will happen to the many many people on MediCARE. Where will they find a doctor?

© John C Parker, RHU, LTCP

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