ACA, the Exchanges and Healthcare After 2014
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Transcript of ACA, the Exchanges and Healthcare After 2014
experience ideas //
CPAs & ADVISORS
ACA, THE EXCHANGES AND HEALTHCARE AFTER 2014Tom W. Watson, CPA, FHFMAManaging Partner – Dallas/Waco
WHY ARE WE HERE?
The UninsuredMore than 47.9 million uninsured in the U.S.
90% of the uninsured are below 400% of the poverty level
More than ¾ of uninsured are in a working family
Uninsured individuals have less access to preventive care servicesThe assumption is this leads to higher costs
Health care costs have increased substantially, causing employers to drop coverage and individuals to not be able to afford itMany employers are tired of paying the hidden tax needed to subsidize today’s health care system
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EMPLOYERS PROVIDING HEALTH INSURANCESOURCE: KAISER FOUNDATION
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KEY PROVISIONS OF AFFORDABLE CARE ACT
Requirement to have insurance coverageEffective January 1, 2014Penalty for failure to obtain coverage starts that eventually is the greater of $695/year or 2.5% of household income ($2,085). The penalty amounts phase in through 2017, and are insignificant in 2014.
Employer requirement to offer coverage50 or more full-time employees (defined as 30 hours or more per week)Requirement to offer “affordable” coveragePenalty ranges from $2,000/employee if no coverage provided (excluding first 30 employees), or $3,000 per employee receiving premium assistance if coverage is provided but not deemed affordable
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KEY PROVISIONS OF ACCOUNTABLE CARE ACT
Medicaid ExpansionExpands Medicaid to cover all individuals with incomes up to 133% of the Federal Poverty Level States are paid 100% (declining to 90% by 2020) of the extra cost of this expansionSupreme Court ruling on ACA made this expansion optional, and 26 states have opted not to expand coverage
Premium Credits and Cost-sharing SupportPremium credits that limit out-of-pocket costs to between 2% and 9.5% of income for individuals with incomes from 100% to 400% of the FPL
Credits are based on the cost of the “second lowest cost silver plan”
Cost-sharing credits for families up to 400% of poverty level
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KEY PROVISIONS OF ACCOUNTABLE CARE ACT
Key New TaxesChanges to qualified expenses from HSAsIncrease Medicare Part A tax from 1.45% to 2.35% on wages over $250,000/$200,000 for married/single individuals3.8% tax on unearned (i.e., investment) incomeCadillac plan excise taxFees on pharmaceutical industryFees on medical device industry
Creation of Health Insurance ExchangesMany, many other provisions
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DELAYED PROVISIONS INCLUDE…..
Delay in cuts to Medicare Advantage PlansOne year delay in employer reportingIRS rule that allows subsidies to flow through federal exchangesDelay of Small Employer Health OptionEmployer Mandate delaySelf-attestation partially implementedDelay of individual mandate (only one month)Allowed insurance companies to continue to offer “canceled” nonqualified plansExemption of union plans from reinsurance fee
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PAYING FOR THE ACA – SPENDING CUTS ($ BILLIONS)
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PAYING FOR THE ACA – TAX INCREASES ($ BILLIONS)
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THE ACA INCOME STATEMENT
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(In billions $)
Revenues 515$ Less: Program Costs (1,128) Implementation Costs (40)
(1,168)
Operating Loss (653) Add: Cuts in Medicare and other programs 716
63$
Source: CBO, Dana Forgione
THE IMPACT ON DOCTORS AND HOSPITALS
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HOSPITALS – DID YOU KNOW??
The average margin for hospitals in 2013 was less than 2.5%?Hospitals on average collect:
2% of amounts billed to uninsured patients20% or less of amounts billed to Medicaid patients25 to 30% of amounts billed to Medicare patientsBetween 30% and 60% of amounts billed to insured patients
See the hidden tax here??
In Texas, hospitals average between 15% and 25% of their net revenue as bad debtsThe average payment increase for hospitals under Medicare and Medicaid has been less than 2% for the last several years, with some years of real reductions in payment rates
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THE ACA IMPACT ON HOSPITALS
In the opening round of the ACA discussions, the enemy was the Insurance CompaniesHospitals should be prepared to be the enemies in phase 2
$$$ - Hospitals are the deep pockets when it comes to Medicare cutsThe ACA included over $150 billion in cuts for hospitals
Implicit promise that coverage will be expanded
ACA requires tax exempt hospitals to conduct a Community Health Needs Assessment and to implement a Financial Assistance Policy (FAP)Limitation on “aggressive” collection efforts until proof that FAP does not apply
ACA prevents new physician owned hospitals from accepting Medicare/Medicaid patients
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TRANSITION OF HEALTH CARE PAYMENT METHODS OVER TIME
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BUNDLED PAYMENTS – NOT JUST MEDICARE!
Medicare is piloting bundled payment arrangements, but many private payers are moving full speed ahead
Includes facility fees, physician fees, implants, anesthesia, etc.Managing device costs are often the key to success
Common proceduresKnee and hip replacementsCoronary bypass graftBariatric surgeryDiagnostic cardiac catherizationsCataract removalMaternity care
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MEDICARE 2015 UPDATE AND ACA-DRIVEN IMPACT
Hospitals can expect a 1.3% increase in Medicare payments for FY 2015.4% ACA Productivity Adjustment.2% ACA required reduction.8% documentation and coding adjustment
$2 billion in net reduction for 2015 – will be $8 billion next year
Medicare DSH cuts mandated by ACA ($49.9 billion over time)Value Based Purchasing reduction will be 1.5% ($1.4 billion in incentives)
778 losers and 630 winners in 2014 (defined as greater than .2% impact)
Increase Hospital Readmission Penalty to 3%Increase utilization of hospital acquired condition programPotential changes in Medicare wage index, which will impact DRG payment computation
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HOW ARE HOSPITAL LEADERS REACTING TO ACA?
Generally support the expansion of coverage to reduce bad debtsMany are now concerned that the law will not reduce these to the level anticipated
Concerned with failure to expand MedicaidNote that many cuts in the original bill assumed that Medicaid would be expanded, offsetting these cuts
How will the exchanges really work? Will payment rates be sufficient?Over the long term, revenue is not going up, so costs must go downContinued shift to care in an outpatient setting
Focus of many hospital’s capital investmentsUrgent care centers and “drug-store” clinics
How will the federal exchanges impact payer mix?
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COST SHIFTING– CURRENT EXAMPLE
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20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
Medicare Medicaid Commercial Exchange Self Pay Total
Dol
lars
Example Health System
Cost Paid
Cost incurred Cost ShiftMedicare (7,500,000)Medicaid (2,000,000)Commercial 15,000,000 Exchange - Self Pay (5,500,000)
85%
80%
150%
25%
100%
FEARED PAYER MIX
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20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000
Medicare Medicaid Commercial Exchange Self Pay Total
Dol
lars
Example Health System
Cost Paid
Cost incurred85%
100%
25%
100%
Cost ShiftMedicare (7,500,000)Medicaid (3,000,000)Commercial 13,250,000 Exchange - Self Pay (2,750,000)
80%
233%*
WHY ALL THE CONSOLIDATION IN HEALTHCARE?
Significant wave of consolidation in health care industry has five primary drivers:
Perceived need for scale in order to survive uncertain environmentHospitals and physicians must work together in an accountable care and medical home model – the same owner makes this easierSqueeze on access to capital for smaller hospitalsPrivate equity view growth in segment with guaranteed cash flows and ability to create economies of scaleGeneral fear of the unknown
Will it continue?
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THE ACA’S IMPACT ON PHYSICIANSNo change in “doomsday” scenario of Sustainable Growth Rate reduction
SGR would reduce payments over 25% for MedicareContinually “punted” to next year
Physician practice model is changingThe disappearance of independent doctors (nearly 70% employed by hospitals!)Partly due to demographics and expanded regulatory actionsPartly due to fear of ACA
Physicians are being asked to provide more preventative careAccountable Care OrganizationsMedical Homes
Severe income squeeze in recent yearsGrowth in mid-level providers to prop up incomes (i.e., leverage)
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Source: www.medscape.com
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PATIENT ACCESS CONCERNS
If the ACA works as intended, many people that previously didn’t have insurance will be coveredSocial issues aside, there was a self-limiting aspect for access to care when an individual was fully responsible for their physician visit
In many cases, the emergency room was used as a primary care office because of this
Will our current health system be able to handle a large increase in volume when this restriction on care is removed?
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THOUGHTS FROM RATING AGENCIES - 2013
Overall weaker performance after three years of stabilityBalance sheets remain stable due to good investment return
Requires the ability to invest in stocks
The reappearance of expense growth outpacing revenue growthLooking forward:
Anticipate weak financial performanceAll rating categories will be affectedNo overriding factors to drive up admissions in 2014/15Anticipate the transition to value based purchasing will be highly disruptiveRate increases are under pressure (Medicare .7% in 2014!)Effective boards will aggressively attack expenses and CULTURAL change will be required. Benefits will have likely have delayed recognition
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VOLUME TRENDS PER MOODY'S
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IMPACT ON BUSINESSES AND INDIVIDUALS
The Accountable Care Act
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EMPLOYER IMPACT
The requirement to provide coverage is the most significant impactMost questions remain unanswered. There is anecdotal evidence for yes and no to each of the following questions:
Will employers drop coverage and elect to pay the penalty under ACA?How will ACA affect working hours?
Will employers work to keep individuals below 30 hours?
How will the ACA affect job growth?Will the 50 employee limit stifle expansion?
The bigger issues evolve around reporting and compliance with the lawStructure of health plans to meet minimum coverage and enrollment standardsReporting coverage to IRS
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HIGHER TAXES FOR HIGH EARNERS
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Taxpayer A*
Net Investment Income 100,000$
Wages 300,000
Modified AGI 375,000
Tax on Investment Income (3.8%) 3,800
Tax on Income in Excess of $200,000 6,650
Lesser Amount 3,800$
Tax on earned income in excess of $200,000 (0.9%) 900$
Total Additional Medicare Tax 4,700$
* Taxpayer's filing status is single
PRIVATE HEALTH INSURANCE EXCHANGES
There are several private health insurance exchangesAllows employers to adopt a “defined contribution” approach to employee health insurancePros and cons
Takes the risk off of the employer, but are employees ready for this choice?Will employees choose the right level of coverageEnhances ability for employees to compare true compensation vs. the hidden compensation of health care
Generally more flexible than public exchangesAbility to offer various products (even non-insurance ones)
http://www.booz.com/media/file/BoozCo-Emergence-Private-Health-Insurance-Exchanges.pdf
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THE HEALTH INSURANCE PUBLIC EXCHANGES
Available to individuals not covered by employee health plansState exchanges vs. federal exchangesFour levels of coverage
Bronze (60% of average costs of care)Silver (70% of average costs of care)Gold (80% of average costs of care)Platinum (90% of average costs of care)The average individual market plan for some large carriers is currently 57% , so costs have to be higher, right?
The impact on the health care provider marketplace and individual choiceAnecdotal evidence says rates paid are slightly less than current rates, but not as low as some fearedIncreasing use of “narrow networks” to encourage lower rates
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TEXAS AND THE PUBLIC EXCHANGE
Most areas have multiple plans to chose from (38 family plans for Dallas County)Many big insurance players are in the plans:
AetnaCignaBlue CrossMolina
Several areas do not have “platinum” plans availableNarrow networks are very common
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EXAMPLE OF RATES AND COVERAGE FOR DALLAS COUNTY
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My Plan Bronze Plan Silver Plan Gold PlanIndividual/Family Deductible $600/$1,800 $6,100/$12,200 $3,000/$9,000 $0/$0Maximum Out-of-pocket $2,000/$6,000 $6,350/$12,700 $6,350/$12,700 $5,000/$10,000Cost of Primary Care Visit $20 $0 $35 $30Cost of Specialist Visit $35 $0 $55 $60
Payment for Inpatient Care 80% after deductible 100%
80% after $250 coinsurance and
deductible $1,000/dayCoverage of Name Brand Drugs $30 $0 $50 $45
Annual Premium before subsidy $9,312 $8,424 $9,048 $11,976Projected Cost of Normal Delivery $2,000 $6,130 $4,050 $2,990
Note: All amounts assume "in-network" care is provided.
EXCHANGE ENROLLMENT THROUGH MARCH 2014
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PREMIUM ASSISTANCE CREDIT
Household Income Relative to Federal Poverty Level*
Initial Premium Percentage (1)
Final Premium Percentage (1)
Up to 133% 2.00% 2.00%
133% up to 150% 3.00% 4.00%
150% up to 200% 4.00% 6.30%
200% up to 250% 6.30% 8.05%
250% up to 300% 8.05% 9.50%300% up to 400% 9.50% 9.50%
* Household incomes above 400% of poverty line not eligible for credit
(1) Maximum share of income enrollee will have to pay for coverage
FEDERAL POVERTY LEVEL FOR 2013Individual
100% = $11,490133% = $15,282 ($7.34/hour)200% = 22,980 ($11.04/hour)400% = $45,960 ($22.09/hour)
Family of 4100% = $23,500133% = $31,322200% = $47,100400% = $94,200
A family of 4 at 200% of the poverty level would be responsible for $314/month in premium before a subsidy was receivedA family o f 4 at 400% of the poverty level would have to pay up to $745/month in premium before a subsidy was received
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MEDICAID EXPANSION
26 states, including Texas, did not expand MedicaidWhy it matters
Medicaid only covers specified categories of individualsI.e., no coverage for childless adults in poverty
ACA assumed that all individuals under 138% of poverty would qualify for MedicaidNo subsidies are provided for individuals with less than 100% of FPL
Individuals between 100% and 138% can receive premium assistance that would require them to pay about $500/year toward health care coverage
Texas has about $6.1 million uninsuredFailure to expand Medicaid leaves about 1,000,000 individuals without coverage
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BREAKING THE LOG JAMWould Texas consider the “Arkansas” option?The Arkansas option:
Doesn’t technically expand MedicaidUses the additional funds from the ACA to buy private insurance for newly eligible individuals up to 138% of the poverty level
Those that would have qualified for Medicaid previously still use that program
No premium for enrolleesEnrollment would be in “silver” plansState pays premiums directly to insurance companiesMust address the co-pay required by many insurance companies
Requires some cost sharing for beneficiaries over 100% of FPLPotential hidden cost of the program most often targeted by critics
Cost is $188mm in CY 2014 for 200,000 enrollees (multiply by 6x to 8x for Texas?)
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THE TEXAS MEDICAID WAIVER
Waiver BasicsUncompensated Care reimbursementDelivery System Reform Improvement Program (DSRIP) payments5 year program with billions of dollars of revenue at stakeReplaces UPL program
We are now entering DY3Implementation has been somewhat rocky, with several payment delaysCash is running, on average, six months behind scheduleSome providers have trouble finding IGT funds
The future of the programBig winners are governmental hospitals, especially large districtsA statewide fight is brewing on how future Waiver and DSH funds should be allocated
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OTHER TEXAS TRENDS AND DEVELOPMENTS
Provider taxes and assessments?Medicaid DSH battlesBurden alleviation fatigue
Physician hospitals and working around the ACAM&A Activity
Hospitals buying hospitalsPreparing for bundled paymentsPrivate equity
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PREDICTIONS AND KEY TRENDSThe Accountable Care Act
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EMPLOYERS ROLE IN HEALTH CARE
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PATIENTS AS CONSUMERS
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CONSUMER SURVEYS OFFER INSIGHT
Nearly 57% of employees would like to customize their own health plan70% would like to see hospital and physician prices “on-line,” including what the insurance company will pay to these groups62% of employees would be willing to use self-monitoring devices to manage their healthNearly two-thirds would like to use video conferencing or other non-personal means for follow-up visitsThere is a growing willingness for technology to replace direct physician access
Look for presentations by Eric Topol on-line or read his book the “The Creative Destruction of Medicine”
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CONCIERGE MEDICINE
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POPULATION HEALTH MANAGEMENT
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MULTIPLE EXAMPLES OF “MANAGEMENT” IN INSURED POPULATION
Narrow steerage of certain patients to “centers of excellence”Cardiovascular careOrthopedic and rehabilitative services
Exclusion of high-cost providers from networks on a service line basisIncentives for employees to choose lower cost options in the marketplaceMedical tourism
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WE HAVE SEEN THIS BEFORE…THEN
- Balanced Budget
- HMOs (Health Maintenance Organizations)
- Capitation
- Sustainable Growth Rates (SGR)
NOW
- Healthcare Reform
- ACOs (Accountable Care Organizations)
- Bundling
- SGR?
MEDICAL HOMES
In general, a Medical Home is a group of providers that coordinate care for individual patients
Comprehensive CarePatient-centered careCoordinated CareAccessible ServicesQuality and Safety
Growth from 0 to 29,000 providers and 6,000 sites since 2008Impact on costs and quality has been debatable
Several examples of better outcomes and lower costs for patients with chronic health conditionsPatient cooperation has been a key concern
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ACCOUNTABLE CARE ORGANIZATIONS
What is an ACO?Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients.
What is goal of an ACO?The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.
What happens if an ACO works?When an ACO succeeds both in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program
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GEISINGER HEALTH SYSTEMACUTE ADMISSIONS DECLINED (MEASURED AS ACUTE ADMITS/1,000, ACUITY ADJUSTED)
Source: Ronald A. Paulus, MD, EVP, Clinical Operations, Geisinger Health
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INDEPENDENT PAYMENT ADVISORY BOARD
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FINANCIAL EFFECT OF AGING US POPULATION ON HEALTHCARE COSTS
Source: Fischbeck, Paul. “US-Europe Comparisons of Health Risk for Specific Gender-Age Groups.” Carnegie Mellon University; September, 2009.
U.S. is spending much more for older ages
Healthcare Costs by Age
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