The Affordable Care Act Four Years Later: Big Bets Remain, New Laws Likely

Four years ago yesterday, President Obama signed The Patient Protection and Affordable Care Act (PPACA)—the most significant overhaul of our health system since Medicare and Medicaid were launched as part of Lyndon Johnson’s Great Society campaign in 1965. The Affordable Care Act’s anniversary passed almost without notice, given intense media coverage of the fate of Malaysia Air flight 370 and Russia’s annexation of the Crimean peninsula in the Ukraine.

When the Supreme Court upheld its constitutionality June 28, 2012 (NFIB v. Sebellius), excepting its ruling that states be allowed to opt out of Medicaid expansion, the ACA became the law of the land. The impact of changes to the U.S. health system it requires is far-reaching and comprehensive. Its implementation spans a decade (2010-2019), five election cycles, and an untimely economic downturn and recovery.

Looking back

In his first speech to a joint session of Congress February 24, 2009, the President said the country could not afford to put health reform on hold due to its spiraling health costs. "This is a cost that now causes a bankruptcy in America every 30 seconds. By the end of the year, it could cause 1.5 million Americans to lose their homes.” He vigorously campaigned on its behalf espousing dual goals: increased access to health insurance and reduced costs. In his first major legislation, the American Recovery and Reinvestment Act of 2009 signed into law a week earlier, major health reforms were prominent-- $87 billion to states to expand their Medicaid enrollment, $22 billion to modernize the information technology infrastructure in health care and $10 billion to expand funding for the National Institutes of Health.

The Affordable Care Act followed with two aims: increased access to insurance coverage for those uninsured and reduced rate of growth of health costs (bend the cost curve):

  • To increase access to insurance, the ACA includes individual and employer mandates to purchase insurance with subsidies for lower income individuals and small businesses, expansion of Medicaid for those with incomes up to 138% of the federal poverty level, new regulations to create competition in the private health insurance industry including the creation of state and federally run health insurance exchanges, requirements that insurers cover al with new minimum standards  regardless of pre-existing conditions,, limitations on annual premium increases and more. Most of these changes to the insurance market were front-loaded in the first five years of the law’s enactment.
  • To bend the cost curve, the ACA makes fundamental changes to the delivery system: structural changes to increase access to primary and preventive health services, elimination of fee-for-service payment incentives that drive unnecessary volume, funding for demonstration and pilot programs to test ways to shift financial risk to providers via medical homes, bundled payments, accountable care organizations and others, expanded limits on physician self-referrals, a regulated ceiling on health expenditures (the Independent Payment Advisory Board) and a mechanism for determining what’s necessary and not in dealing with treatment options (Patient Centered Outcomes Research Institute).

Based on these provisions of the law, the Congressional Budget Office (CBO) projected these results:

  • 32 million would be newly insured as a result of the law, reducing the uninsured from 45 million in 2010 to 23 million in 2019. After the Supreme Court’s decision allowing states to opt out of Medicaid expansion in June, 2012, the CBO’s revised the uninsured upward by 3 million to 26 million.
  • $604 billion in spending  offset by $813 billion in revenues, resulting in a $210 billion net reduction in the deficit due primarily to slower growth in Medicare's payment rates, new taxes on insurance plans, medical devices and prescription drugs, and changes to the federal tax code. After the Supreme Court ruling, the  Joint Committee on Taxation updated their forecast estimating an additional $84 billion less in outlays since many states (24) chose not to expand their Medicaid programs. 

The Four Big Bets in the ACA: the jury’s still out

The success of the ACA is predicated on Four Big Bets:

1-Will the states be able to implement the law?  The ACA gives states wide latitude in its implementation. Medicaid expansion is optional. Health insurance exchanges may be run by the state or the federal government. Assuring a competitive insurance market, facilitating training of the new healthcare workforce, licensing of professionals, overseeing new insurance regulations and other responsibilities default to states to manage.   So far, most have not fared well. And when passed in 2010, the pension obligations in most states were under-funded and the states were operating in the red. To date, 24 states elected not to expand their Medicaid enrollment, and only 14 states elected to operate their own health insurance exchanges. The effectiveness and will of state legislatures and Governors remains highly variable. The law presumed a level of state conformity not realized yet.

2-Will employers pay or play? The law imposed a $2000 per fulltime employee penalty for companies with more than 50 fulltime employees who did not provide affordable insurance with minimum coverage. Earlier this month, the administration delayed the employer mandate penalty from 2014 to 2016. The fact remains: it is cheaper for most companies that provide health insurance to pay the penalty and walk away, even after losing their tax deduction for their share of the costs. But it’s tricky: how do you recruit a workforce if health benefits are not a differentiator? How will employees manage their health related financial risks if left to their own devices? Will private exchanges fill the void? Will the state and federal exchanges work out their kinks and be functional? How will pending court challenge (including Hobby Lobby’s case this week in the Supreme Court) impact coverage? And so on. For employers, the jury on the ACA is still out.

3-Will individuals buy insurance or pay the penalty? Per the law, the penalty starting in 2014 is $199 for a single adult with $30,000 adjusted gross income, $297 for a married couple with two dependent children and $50,000 AGI, and $1297 for a married couple with 2 dependent children and $150,000 AGI (Tax Policy Center). But the costs for out of pocket payments, premiums, and over-the counter expenses exceed the penalties for many families. The administration says there will be no delay in the individual mandate, and enrollment in exchanges is falling short of goals. Is the penalty strong enough to encourage insurance market participation? And more importantly, will adequate numbers of healthy young invincibles buy coverage to spread insurance risk per the ACA’s design? It’s too soon to know.

4-Will the cost containment mechanisms in the law bend the health cost curve? There’s no guarantee that medical homes, bundled payments, accountable care et al will bend the cost curve. Historic increases of 6% per year are forecast to return in coming years as boomers age into Medicare and those newly insured hit the system with previously untreated medical needs. Total health costs slowed for the past 3 years to unprecedented levels below 4%, but economists point to the slow economic recovery as the primary reason. As the economy recovers and increased numbers of newly insured hit the system, demand will increase. Will the law’s mechanisms for shifting risk to providers and paying for value instead of volume reduce the spend-curve? It’s only speculation at this point.

These four big bets are still out there: there are no conclusive answers at this point though no shortage of partisan rhetoric about each.  

What’s ahead for the ACA?

Three things are clear at this point:

(1) The Affordable Care Act is the law, and likelihood of its repeal is low. It’s simply a matter of math in the make-up of Congress. The GOP would need a landslide win in both houses and a mechanism to overcome a likely Presidential veto.

(2 Health reform is on the public’s mind. The public is now engaged as never before in discussing the health reform and the law specifically. Polls show there’s popular support for many of its main ingredients—like administrative simplification, tighter regulation of the insurance industry, increased access to primary and preventive health, limits on physician self-referrals, transparency of outcomes and prices, stepped-up fraud detection and so on. But the bulkiness of the law is also problematic to many who believe it a federal government over-reach. The most recent Pew Research Center poll found 53% opposed to the law vs. 41% who are supportive—virtually unchanged since September, 2013, and akin to opinions in 2010 when passed when 44% opposed it and 41% were in favor. Opinions about health reform are divided, strongly held, and firmly entrenched.

(3) More laws pertinent to health reform will follow the ACA. The ACA did not address key issues that may be part of the next wave of health reform lawmaking:

The SGR fix: since 2002, Congress has disregarded guidance from Med PAC about Medicare payments to physicians resulting in overpayments approaching $140 billion. All recognize the sham: a permanent fix with a formula linked to medical inflation and payments based on outcomes instead of volume is on the horizon, provided Congress is willing to swallow the one-time hit to the deficit. Note: with a deadline of March 31 approaching, expect another temporary fix to the SGR. But legislation to create a permanent fix to the SGR will be an important element in next wave legislation.

Liability reform: the ACA is mute about medical malpractice reform, yet it substantially increases provider risk by increasing public access to sensitive information about clinical results and self-referrals. Lawmakers agree avoidable costs are the result of defensive medicine; there’s growing recognition a solution is needed paralleling laws in many states.

Employer flexibility: Employers play a huge role in our system: half provide employer-sponsored health insurance that covers 145 million in the U.S. They value insurance coverage for their employees and dependents and want to maintain their coverage, but cost is an issue. Adding to their frustration, they are not clear how the employer mandate will impact them, or when. In next wave legislation, increased flexibility for employers is likely since lawmakers want employers to maintain coverage.

Medical education reforms:  The ACA is also mute about academic medicine. It dictates that the workforce be trained using team-based models and modern information technologies (Section V, ACA). It adds residency slots in primary care and funds comparative effectiveness research. But sequester cuts to Medicare combined with eroding operating margins are undermining medical education. The President’s 2015 Proposed Budget includes $14.6 billion/10 year fund for new medical training efforts (13,000 new residencies) but proposed cuts to the NIH budget (-2.2%) and a flat funding for the FDA mean funding for teaching and research will be thinner. Legislation that defines the role and scope of medical education is needed as the nation’s 136 academic medical centers face an uncertain future.

This next round of health reform legislation is unlikely to include touchy issues like Medicare payment reform, insurance purchases across state lines, voucherizing Medicare and others. It’s an election year.

Closing thoughts

I was in the House chamber when the Democrats passed the Senate’s version of the law and watched media coverage of its signing by the President two days later. Vice President Biden whispered to the President that the signing of the ACA was “a f….in’ big deal.” Joe was right.

The U.S. health system is 17% of our GDP, 25% of our federal budget, 21% of the average state’s budget and 9% of discretionary spending in the average household. We spend 30-50% more than 35 developed systems of the world where modern technologies, life expectancy gains, and standards of care rival or exceed ours.

That the U.S. health system has been in the spotlight since the law’s passage is good. Though we are deeply divided in our view of its performance or needed improvements, all concede it’s expensive, fragmented and non-transparent. The Affordable Care Act, and the laws that follow, will no doubt raise public consciousness about its performance as never before. And the system’s reform will continue in sync with laws including the Affordable Care Act and others.

Endnotes:

“ACA at Age 4: More Disapproval than Approval But Most Opponents Want Politicians to Make Law Work”, Pew Research Center Survey February 27-March 16, 20

Other news of the week…

Full court press to enroll in exchanges: 10 states with a total of 30 million uninsured, 7 controlled by Republicans, hold the key to the administration’s goal of enrolling 6 million by March 31: CA, TX, FL, NY, GA, IL, NC, OH, PA, NJ. As is March 17, 5.2 million had enrolled including 28% between the ages of 18-34.

Fed rate hike guidance: Wednesday’s guidance by the Fed about its plans for monetary policy directly impact health care: the Fed said it would no longer hold to a 6.5% unemployment rate target as the baseline for allowing interest rate increases, and it said it would continue to trim its monthly bond purchases by another $10 billion to $55 billion—the 3rd time it announced a cut since December, 2013. Consensus: interest rate increases in 2015. Capital will be more costly to healthcare organizations, cutting margins where increased costs can’t be passed through.

New standards for medical home accreditation: Today marks the debut of new credentialing standards for Patient Centered Medical Homes.  In a scathing assessment of medical homes credentialed by the National Committee for Quality Assurance, RAND researchers found little evidence of savings or improved outcomes (JAMA) in practices credentialed by the oversight body. The new standards will focus more on results and less on processes—a frequent criticism of NCQA standards. 

Assessment: Governor’s report outlines trouble in Oregon exchange: Last week, Gov. John Kitzhaber today released an independent review of the state's botched enrollment Web site, Cover Oregon, that received $300 million in federal grants as one of first states to approve an exchange. Findings: the rollout lacked a formal structure with accountability to facilitate cross agency performance and collaboration, and an “ "unrealistically high sense of optimism." 

ACO guidance: CMS will hold a call for 2015 Medicare Shared Savings Program applicants Tuesday, April 8 from 1:30 - 3:00pm ET. The call will explain the program's governance and organizational structure requirements, as well as the application process. Note: In year one, 2012, 114 applicants were approved; 29 of these reported savings after their first year of operation.

Privacy and security in retail health: Walgreens is being investigated by the US Office for Civil Rights for possible breach of patient privacy and security as it rolls out its “well experience” stores where pharmacists consult with patients. The complaint is based on a challenge by Change to Win Retail Initiatives, a consumer activist group funded by labor unions. In 2009, CVS Caremark paid a $2.25 million penalty when patient records were discovered in dumpsters. Note: the new Walgreens design was approved by pharmacy boards in 30 states, and denied in 3 (MD, CT, HI).

Diagnostics and therapeutics: In last Tuesday’s Lancet, a study by London neurologists showed statins (i.e. simvastatin/Ex: Merck’s Zocor, Pfizer’s Lipitor) efficacious in treating multiple sclerosis.

Retail tobacco sales targeted: Following CVS’ lead, 24 state attorneys general have asked 5 major retailers—Wal-Mart, Walgreens, Rite Aid, Kroger, and Safeway—to stop selling tobacco products in their stores. Note” 85% of cigarettes sales are sold in gas stations, convenience stores, and specialty tobacco stores (Euromonitor).