The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.
Five years ago today, The Patient Protection and Affordable Care Act (PPACA), or Affordable Care Act (ACA) as it is more widely known, was passed by the 111thCongress and signed into law by President Obama. Together with the HealthCare and Education Reconciliation Act that included several amendments, it represents the most significant tipping point in the history of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965.
No law has been more widely debated and stoked emotions as passionately as the ACA. It remains a divisive issue in the political world, a challenging and ever-changing “new normal” in the healthcare world, and a source of confusion and mixed messages to employers and consumers.
What’s in the law?
The 906-page ACA (Public Law 111–148) contains nine titles, each addressing a component of reform; its intent was two-fold: to increase access to “affordable insurance coverage” for those without, and reduce healthcare costs by changing the way the delivery system operates and is compensated. The titles themselves illustrate its expansive scope:
- Title 1: Quality, affordable healthcare for all Americans
- Title 2: The role of public programs
- Title 3: Improving the quality and efficiency of healthcare
- Title 4: Prevention of chronic disease and improving public health
- Title 5: Healthcare workforce
- Title 6: Transparency and program integrity
- Title 7: Improving access to innovative medical therapies
- Title 8: Community living assistance services and supports
- Title 9: Revenue provisions
Goal One: To increase access to affordable insurance
The ACA uses four major mechanisms to increase access to insurance based on a goal of reducing the ranks of the uninsured from 16% of the population (48 million at the time of signing). The March 2010 CBO forecast estimated the laws expansion provisions would reduce the uninsured population by 32 million by 2019 leaving 23 still without.
- Insurance business practices: A number of changes to the insurance industry’s business practices were included…
- Elimination of pre-existing conditions as a limit to coverage
- Elimination of lifetime coverage limits
- Inclusion of young adults under 26 to a parent’s policy
- Requirements that insurance policies be understandable and their elements cover “essential health benefits” including mental and dental health, contraception and others
- Limits on premiums that disallow a differential between the youngest and healthiest and the oldest and sickest to no more than 3 to 1
- Requirements that at least 80% of premiums for individual policies and 85% in their small group plans be spent on medical costs
- And creation of the healthcare marketplaces in “established by the state” (Section 1321)—an online supermarket through which individuals and families between 100% and 400% of the Federal Poverty Level and small businesses with 25 or fewer employees can choose a health plan and qualify for subsidies to help pay their premium (individual/families are eligible for premium tax credits and cost sharing subsidies, small businesses are eligible for tax credits)
- Medicaid expansion: States were encouraged to increase coverage in their Medicaid programs for individuals up to 138% of the federal poverty level with the federal government funding 100% of the costs for the expanded population’s costs for 3 years and up to 90% thereafter.
- Employer coverage requirements: Employers are encouraged to maintain affordable coverage in their employees’ health benefits plans…
- Provisions that policies offered employees cost less than 9.5% of their adjusted gross income or face a $3,000 penalty if the employee opts for less expensive coverage in the marketplace
- Requirements that employers with more than 50 full-time employees provide coverage or face a $2,000 penalty per employee (delayed to 2016 by executive order)
- Employers are encouraged to maintain affordable coverage in their employees’ health benefits including “essential health benefits” including mental and dental health, contraception (unless a religious objection is filed) and others
- Individual mandate: The law also requires individuals and families to purchase insurance coverage or pay a penalty: in 2015, the penalty is $325/adult or $162.50/child up to $975/family or 2% of family income—whichever is greater (unless excluded as a religious objectors, member of an Indian tribe, undocumented immigrants, low income or currently pay more than 8% of household income for coverage).
Results to date:
- More than 25.3 million newly insured through either Medicaid expansion or enrollment through health exchanges: as of March, 2015, 28 states and the District of Columbia expanded their Medicaid enrollment by 11.2 million and “1 million adults gained health insurance coverage since the beginning of open enrollment in October, 2013 (including 3.4 million young adults aged 19-25) through March 4, 2015.”
- 3 million young adults (aged 19-25) gained coverage between 2010 and the start of open enrollment in October, 2013 due to the ACA provision allowing young adults to remain on a parent’s plan until age 26 (some of these might have purchased a policy on their own or through a college health insurance plan).
- Employer-sponsored coverage since passage has decreased and many employers have dropped coverage though most are passing through increased costs to their employees via higher deductibles and co-payments. Per Kaiser’s annual survey of employers, 57% of all firms provide coverage in 2013 vs. 68% in 2000 and 69% in 2010 (the Kaiser HRET data weights small firm coverage trends equally with larger companies so its data tends not to represent coverage of employed workers).
- Private insurers increased their participation in health marketplaces in 2014-2015 versus year one.
- The uninsured population decreased from 20.3% in October, 2013 to 13.2% in March, 2015.
Goal Two: To reduce costs by fundamentally changing the structure and function of the delivery system
The provisions of the ACA related to delivery system reform address three aims:
- To re-organize the delivery system to better coordinate care for individuals
- To change the incentives for providers from volume (fee for service) to value
- To disallow business practices that are not beneficial to effective, appropriate care
These three build on the foundations of information technology-driven health and transparency: both are embedded in each of the ACA’s delivery system provisions explicitly or implicitly.
Essentially, the “new normal” delivery system is a pyramid: at the base, clinical, administrative and financial information that’s readily accessible across the system and shared with consumers; a “comparative effectiveness” initiative (Patient Centered Outcome Research Institute) that is focused evaluating the efficacy and effectiveness of diagnostic tools and treatment methods to rid the system of unnecessary care that’s not evidenced-based; expansion and strengthening of primary care services to accommodate the ACA’s provision for preventive health services with no out of pocket costs to consumers; and a more active role for consumers in their clinical decisions in concert with their providers.
At the heart of the ACA ‘s delivery system reform is a fundamental shift from incentives based on utilization and volume (aka “fee for service”) to performance-based incentives in the forms of penalties, shared savings or bonuses to providers. Implicitly, provider organizations become risk-bearing organizations requiring organization of clinically integrated networks of providers (physicians, acute, allied and post-acute, pharmacists) capable of coordinating care for discreet populations and mechanisms to assure that care that’s provided is evidence-based and necessary. Among the more prominent of these provisions are:
- Patient Centered Medical Homes
- Medicare Shared Savings Programs (Accountable Care Organizations)
- Bundled Payment Care Improvement Program (Bundled Payments)
- Value Based Purchasing Program
- Avoidable Re-admissions for Hospitals
- Added limitations on Physician Self Referrals
The “bet” is that Medicare payments will be the stimulus for the re-organization of the delivery system into these risk-bearing population health management enterprises. Thus, many of the programs included as “demonstrations” and “pilots” are directly linked to Medicare payments, with private insurers, employers and other payers likely to follow suit.
Results to date:
- January 26, 2015, CMS announced it was accelerating its efforts to pay for value in the Medicare program setting a goal that 50% of its payments to providers would be linked directly to their performance by 2018
- February 12, 2015, CMS announced it was expanding its bundled payment program to include a new Oncology Care Model that pays a capitated rate to providers for management of specified cancer populations
- March 10, 2015, CMS announced its Next Generation Accountable Care Organization program that raised the stakes for mature risk-capable provider organizations interested in accelerating their efforts
- March 20, 2015, a Bipartisan bill that would eliminate the Sustainable Growth Rate model used to pay physicians includes incentives for physicians who participate in accountable care, bundled payment and primary care medical home programs (See SGR Fix in GOVERNMENT PULSE)
- By 2013, 424 provider organizations were participating in the Medicare Shared Savings Programs covering 7.8 million Medicare enrollees and saving Medicare $417 million after two years
- Avoidable readmissions based on 30-day post discharge data from AHRQ are dropping
- CMS releasedthe Medicare Provider Utilization and Payment Data: Physician and Other Supplier Public Use File (Physician and Other Supplier PUF) in April disclosing business relationships between drug and device manufacturers
- The Office of the Inspector General has stepped up efforts to reduce Medicare Fraud and Abuse related to “Billing for services that were not medically necessary”
- Every major insurers including Aetna, United, Humana, Cigna, Anthem, and the majority of Blue Cross plans have initiated risk-based contracts with provider organizations
- And large employers (Loews, Walmart, CVS, Walgreens, and others) have adopted the volume to value strategy in their benefits strategies using via direct contracts with risk-bearing provider organizations
So is it working?
Has it increased access to coverage? Yes, at least for some, and at least for now.Those newly covered in state Medicaid programs aren’t likely to lose their coverage, but for 7.4 million who anticipate subsidized coverage as a result of enrolling through Healthcare.gov, the Supreme Court’s decision might negate affordable coverage for most. 55% of those who are newly covered via the marketplaces will have a premium of less than $100 for their insurance after their tax credit is applied. If the Court rules in favor of the plaintiffs in King vs. Burwell, the premiums for all who expected subsidies through Healthcare.gov would jump an average of $263/month. Then what?
Has it reduced costs? It’s too soon to know. Since passage, the Congressional Budget Office has issued 10 forecasts of its financial impact. Much of the difference is due to changing economic conditions: the initial implementation of the ACA was coincident with the slower than expected economic recovery resulting in lower utilization than projected, and lower medical inflation. (See CBO Forecasts of the Financial Impact of the ACA March 2010-March 2015 in FACT FILE). The effectiveness of the volume to value payment transition, though conceptually promising, is undocumented. The costs of expanded coverage–$81 billion in 2015 and $1,993 trillion for FY2016-FY2025 (Joint Committee on Taxation, CBO) are staggering. The status quo in healthcare spending was not sustainable, exceeding the country’s GDP by more than 2% annually for decades, so something had to change. The combination of expanded coverage in tandem with a “new normal” delivery system may or may not bend the health spending curve. Time will tell.
Has it improved the public’s understanding of the U.S. health system? Regrettably no. Polls suggest opinions about the ACA are strongly held, but ill-informed on most elements. Those favoring the law favor its provisions about expanded coverage and insurance industry regulation. Those opposed are concerned about its costs and its disruptive impact on relationships between physicians and their patients.
To date, at least 47 changes have been made by executive order, administrative action, or simple disregard, and 12 laws have been passed that modified or nullified elements of the ACA. More changes are likely. A number of hanging chads resulting from the law remain. The big ones array around the intended and unintended consequences of the law itself:
The stakes in the states are higher. The intent of the law was to give states discretion around a number of key provisions—oversight of insurers and licensing of providers, Medicaid expansion, insurance marketplaces and the healthcare workforce. But with subsidies in limbo and lack of Medicaid expansion driving bad debt up and access to providers down in 22 states, it is clear state legislators and Governors face tough decisions about the solvency and sustainability of their delivery systems, and the long-term roles they’ll play in coverage via marketplaces and regulatory oversight of insurers.
The winners and losers are shaking out. Industry’s big players are faring well: profits since passage of the ACA have been strong for investor owned hospitals, investor owned and large NFP health insurers including many Blue Cross Plans, Big Pharma (especially those in specialty pharma) and others. By contrast, the not-for-profit acute and post-acute sectors, physician incomes, and the out of pocket costs to consumers for their healthcare has not kept pace. But the question of long-term profitability is different: uncertainty around subsidies for the newly insured is likely to make the individual insurance market for plan less attractive than it is already. Hospitals and physicians are increasingly co-dependent to access patients through payer-sponsored risk contracts that require integration and reward scale. Drug and device manufacturers must dramatically change their business models: the days of selling volume at a discount are gone replaced by contractual obligations in accountable care and bundled payment programs where they share risk. The new normal is likely to reward scale build around solid value propositions that offer better clinical results at a lower cost.
Innovators with value-driven solutions are disrupting the status quo. CVS changed its name to ‘CVS Health’ with services for employers and individuals. Microsoft is advertising its prowess in cloud computing solutions that facilitate cancer research. Walmart is selling health insurance. Walgreens is offering lab tests in its stores. And Castlight completed its $3 billion IPO with only $13 million in revenues at the time (March, 2014)—a momentum play for investors believing price transparency in healthcare a promising investment. And who noticed the burgeoning “health and well-being” industry’s growth to $267 billion as consumers vote their wallets for alternative health services. The ecosystem of healthcare once dominated by doctors and hospitals is fast giving way to outside entities that see its flaws and are opportunistic and optimistic about its potential.
The ACA will be a spotlight issue in Campaign 2016: Regardless of the candidate’s color, Blue or Red, his or her position on the ACA will be pivotal in their campaigning. The GOP led House passed 35 bills in the 111th, 112th and 113th Congress seeking to repeal all or part of the ACA, and on July 30, 2014, filed a lawsuit against the White House claiming funding for the cost sharing subsidies had not been authorized and the delay of the employer mandate was an abuse of executive power. The politics of the ACA will remain sticky, especially in Red states that elected or tried to expand their Medicaid programs.
The Patient Protection and Affordable Care Act has something in it for everyone—good and bad. It’s a mammoth piece of legislation that carries a huge price tag. Is it worth it? Is upsetting the status quo in healthcare a necessary journey? I think yes.
The costs of the system were not sustainable. The incentives to do more, whether necessary or not, was a major culprit. The gap in care between those with insurance and those without was widening, and employer attrition from employee health insurance coverage was accelerating.
Is this law the best route to fixing the system? It could have been better: its hanging chads are many, and its complexity almost non-manageable. At the time, it was the best Democratic lawmakers in charge of both houses could do, and Republicans had no viable alternatives. Ironically, Dem’s called attention to the individual mandate’s inclusion in the conservative Heritage Foundation’s health reform proposal in 1989 and in GOP Presidential nominee Mitt Romney’s Massachusetts health reform in 2006 as evidence of its bipartisan flavor.
The ACA is likely here to stay as both a constant force of change in the healthcare industry and as a new normal for employers and consumers who are its customers. Repeal seems unlikely before 2016 or shortly after regardless of the side of the aisle one prefers since the White House will veto a law to repeal it or substantially undermine it. That would only be overridden with a two-thirds majority vote in each house. To healthcare industry incumbents, its implications are straightforward:
- Transparency: Business practices, conflicts of interest, pricing, quality, user experiences, and deals will be subject to increased regulatory scrutiny and public opinion.
- Value: The incentives for every stakeholders in the industry—drugs and devices, doctors and hospitals, and others—are now directly related to the clinical outcomes produced and their costs. The pass-through business model of the past will give way to shared risk arrangements between stakeholders who compete on the basis of value.
- Consumers: They’re neither patients who sit idly nor enrollees who wait for explanations of benefits: they are consumers who will have increasingly louder voices in how the health system performs. Increasingly, healthcare is becoming a retail marketplace.
- Risk: Reputation risk is at stake for all; performance risk is intensifying as shared savings programs and as providers share risk with payers, and compliance risk around medical necessity, fraud and business practices gets more scrutiny.
I was in the House of Representatives March 21, 2010 when by a vote of 219-212, the Senate version of the ACA passed with 34 Democrats and all 178 Republicans voting no. I was at the Supreme Court when it was upheld June 28, 2012 amidst a flurry of speculation it might be thrown out as unconstitutional. Both were historic moments not only for the healthcare industry but for the entire country.
The PPACA is five-years old today. Its implementation will continue for another five years and beyond. Stay tuned as the history of the U.S. health system continues to unfold.
Sources: Public opinion about the ACA: Swanson, Emily, “Health Care Plan: Favor/Oppose,“ Huffington Post,Pollster.com, July 30, 2009; Blendon RJ, Benson JM, “Public opinion at the time of the vote on health care reform,” New England Journal of Medicine, 362 (16): e55 doi:10.1056/NEJMp1003844, April 22, 2010; “RAND Health Reform Opinion Study,” RAND Health, May 1, 2014; Ricardo Alonso-Zaldivar, Dennis Junius, “Poll: Obama’s health law fails to gain support,” Associated Press, March 28, 2014; Costs: “Updated Budget Projections: 2015 to 2025,” Congressional Budget Office, March 9, 2015; “Cost Estimate,” Congressional Budget Office, March 20, 2010; Implementation: “Major Health Care Players Unite to Accelerate Transformation of U.S. Health Care System: Leaders Forming New Health Care Transformation Task Force Commit to Putting 75% of Their Businesses in Value-based Arrangements by 2020,” Health Care Transformation Task Force, January 28, 2015; “Fact sheets: Better Care. Smarter Spending. Healthier People: Paying Providers for Value, Not Volume,” US Department of Health and Human Services, Centers for Medicare & Medicaid Services, January 26, 2015; “Health Reform Implementation Timeline,” Kaiser Family Foundation; David Nather, Susan Levine, “A brief history of Obamacare delays,” Politico, March 25, 2014; Amy Goldstein, “Timeline of Major Changes to the Affordable Care Act,” The Washington Post, March 8, 2014; C. Stephen Redhead, Janet Kinzer, “Legislative Actions to Repeal, Defund, or Delay the Affordable Care Act,” Congressional Research Service, March 2, 2015; “Read the Affordable Care Act,” Healthcare.gov; “Linking quality to payment,” Medicare.gov; Anne Elixhauser, Claudia Steiner, “Readmissions to U.S. Hospitals by Diagnosis, 2010,” Agency for Healthcare Research and Quality, Healthcare Cost and Utilization Project; Results: Office of the Assistant Secretary for Planning and Evaluation, “Profile of Affordable Care Act Coverage Expansion Enrollment for Medicaid/CHIP and the Health Insurance Marketplace 10-1-2013 to 3-31-2014,” US Department of Health and Human Services, May 1, 2014; Office of the Assistant Secretary for Planning and Evaluation, “Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report,” US Department of Health and Human Services, March 10, 2015; “Updated Budget Projections: 2015 to 2025,” Congressional Budget Office, March 9, 2015; “Appropriations and Fund Transfers in the Affordable Care Act (ACA),” CRS, March 2015; HHS Press Office, “Nationwide nearly 11.7 million consumers are enrolled in 2015 Health Insurance Marketplace coverage,” U.S. Department of Health & Human Services, March 10, 2015; “Employer Health Benefits Annual Survey,” Henry J. Kaiser Family Foundation, September 10, 2014; “Linking quality to payment,” Medicare.gov; “Major Health Care Players Unite to Accelerate Transformation of U.S. Health Care System: Leaders Forming New Health Care Transformation Task Force Commit to Putting 75% of Their Businesses in Value-based Arrangements by 2020,” Health Care Transformation Task Force Press Release, January 28, 2015; Centers for Medicare & Medicaid Services, “Fact sheets: Better Care. Smarter Spending. Healthier People: Paying Providers for Value, Not Volume,” US Department of Health and Human Services, January 26, 2015; Office of the Assistant Secretary for Planning and Evaluation, “Health Insurance Marketplaces 2015 Open Enrollment Period: March Enrollment Report,” US Department of Health and Human Services, March 10, 2015; D.H., R.L.W., “The Big Mac Index,” The Economist, January 22, 2015; Office of the Assistant Secretary for Planning and Evaluation, “Health Insurance Coverage and The Affordable Care Act,” US Department of Health and Human Services, March 16, 2015; Aaron Pressman, “Castlight Health: Most overpriced IPO of the century,” Yahoo Finance, March 14, 2014; Vikki Wachino, “Approximately 11.2 Million Additional Individuals Enrolled in Medicaid as of January 2015,” U.S. Department of Health & Human Services, March 20, 2015; Kaiser Family Foundation and Health Research & Educational Trust, “Employer Health Benefits: 2014 Annual Survey,” September 2014; Gary Claxton, Matthew Rae, Nirmita Panchal, Heidi Whitmore, Anthony Damico, Kevin Kenward, “Health Benefits in 2014: Stability in Premiums and Coverage for Employer-Sponsored Plans,” Health Affairs, 33(10), October 2014; HHS Press Office, “Better, Smarter, Healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value,” U.S. Department of Health & Human Services, January 26, 2015; HHS Press Office, “New Affordable Care Act initiative to encourage better oncology care,” , February 12, 2015; Next Generation Accountable Care Organization (ACO) Model Fact Sheet Committee on Ways and Means, “House Leaders Release Working Summary Outlining Bipartisan SGR Agreement,” March 20, 2015; HHS Press Office, “Better Care, Smarter Spending, Healthier People: Improving our Health Care Delivery System,” U.S. Department of Health and Human Services, January 26, 2015; Centers for Medicare & Medicaid Services, “Medicare Provider Utilization and Payment Data: Physician and Other Supplier,” April 23, 2014; Office of Inspector General, “Medicare Fraud Strike Force,” U.S. Department of Health & Human Services, December 31, 2014; AHRQ, “Some transitional care interventions reduce 30-day readmissions and emergency department visits,” U.S. Department of Health & Human Services, September 2013; Virgil Dickson, “State Exchange enrollment hits 854,000 as King v Burwell looms,” Modern Healthcare, January 8, 2015; Forty-seven Changes to ObamaCare…So FarCVS Health, “CVS Caremark Announces Corporate Name Change to CVS Health to Reflect Broader Health Care Commitment,” September 3, 2014; Pradeep, “Microsoft Cloud is Accelerating Cancer Research, Radically Reduces the Time it Takes to Sequence a Genome,” Microsoft Press Release, February 2, 2015; Jeff Reeves, “Walmart is now Selling Health Insurance,” Investor Place, October 6, 2014; Michael Johnsen, “Walgreens folds convenient in-store lab testing into stores in partnership with Theranos,” Drug Store News, September 9, 2013; Antoine Gera, “Castlight Health IPO Illuminates Bubble Discussion,” The Street, March 20, 2014; Health Research Institute, “New Health Economy,” PwC, April 2014
The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.
©2015 Navigant Consulting, Inc.