What happens now?
Answers to your questions about the Supreme Court ruling on healthcare reform
Now that the Supreme Court has upheld healthcare reform, the real work begins. HealthLeaders-InterStudy asked numerous clients what their most pressing questions are around the lead-up to full implementation of the law. Below are their questions and our responses. We will continue to update this briefing throughout the year, so please send your questions to email@example.com
What elements related to healthcare reform have been implemented to date versus what will happen in the future, and is there variability based on upcoming presidential elections?
Numerous elements of the law are already in place:
- The Medicaid drug rebate for most brand-name drugs was increased to 23.1 percent and was extended to Medicaid managed care plans (leading to some states carving this benefit back into MCOs).
- A nonprofit Patient-Centered Outcomes Research Institute was established to undertake comparative effectiveness research.
- Effective in 2010, adults with existing conditions became eligible to join a temporary high-risk pool (provided they had been uninsured for at least six months); these will be replaced by the health care exchanges in 2014. As of April 2012, only 67,482 were enrolled in these (National Conference of State Legislatures).
- Insurers are not allowed to impose lifetime dollar limits on essential benefits in new policies.
- Dependents can remain on their parents’ insurance plan until they are age 26, and insurers are prohibited from excluding pre-existing medical conditions for children under the age of 19.
- Members of Medicare Part D plans who reach the coverage gap receive a 50 percent discount on branded drugs while in the gap, which will be eliminated entirely by 2020. The discounts are funded by pharma companies.
- Health insurers must spend at least 85 percent of the premium dollar for medical expenses for large groups and 80 percent for small groups; those failing to do so must issue rebates to policy holders. In August, the insurance industry will mail out roughly $1 billion in ACA-required rebate checks to insurance purchasers.
- Effective Aug. 1, all new plans must cover certain preventive services such as mammograms and colonoscopies without charging a deductible, copay or coinsurance.
The biggest change to occur under healthcare reform will be in 2014, when Americans will have guaranteed access to healthcare coverage regardless of their preexisting conditions, and will have to pay a tax if they opt not to carry coverage. The penalty is initially $95, or up to 1 percent of income for an individual, whichever is greater, and rises to a minimum of $695, or 2.5 percent of income, by 2016. Employers with more than 50 employees who do not offer health insurance to their full-time workers face a $2,000-per-employee tax penalty. Also beginning in 2014, states must set up insurance exchanges that enable consumers to choose and purchase plans (see details below). Medicaid eligibility will expand to 133 percent of the federal poverty level, but states may opt out of expansion (see details below).
Of course all of this could change if Mitt Romney wins the White House and/or Republicans gain control of the Senate. Republican wins could prompt a dismantling of the mandate to purchase insurance and the benefits exchanges, but experts put long odds on those outcomes. Republicans may put more focus on controlling costs, rather than expanding coverage. Romney’s campaign says he would allow states to opt out of the Affordable Care Act and create their own solutions for healthcare access. He would also allow individuals to purchase health insurance across state lines.
Who’s funding healthcare reform?
Much of the tab is set to be picked up by the health plan industry and pharmaceutical companies – two industries that stand to benefit from increased numbers of members and insured prescription drug users. The ACA calls for $47.5 billion in fees to be paid by health plans and $16.7 billion by pharmaceutical companies by 2019. (For nonprofit health plans, only one-half of the net premiums will be taken into account for the fee payments).
In addition, reform will be funded by an excise tax of 2.3 percent on the sale of taxable medical devices; through an increase in the Medicare Part A tax rate paid by income-tax filers making more than $200,000 a year for individuals and $250,000 for married couples; and through the elimination of the tax deduction for employers who receive Medicare Part D drug subsidy payments. Indoor tanning salon users already are paying a 10 percent tax on those services.
Another source of revenue will be the tax (recently named by the Supreme Court) for Americans who meet the criteria and do not purchase health insurance. That tax would be $695 per income tax filer up to a maximum of three times that amount, or 2.5 percent of household income. The phase-in begins in 2013.
Given that states can opt out of expanding their Medicaid programs, what does that mean for projected Medicaid growth? Previously, the estimate was that 16 million to 20 million new Medicaid beneficiaries would enroll in these programs. What now?
So far, 15 governors have said their states will opt out of expansion (Healthwatch, The Hill’s healthcare blog). Gov. Rick Scott of Florida has been the most vitriolic in opposing expansion; losing Florida alone would shave more than 1 million on the projected numbers. Other states that have said they will not pursue expansion include Iowa, Kansas, Louisiana, Nebraska, South Carolina and Wisconsin.
Those appearing to be leaning against it are Alabama, Georgia, Indiana, Mississippi, Missouri, Nevada, Texas, and Virginia. Together, those states would reduce Medicaid expansion by at least 6.6 million members. However, expect heavy lobbying from hospitals, health insurers and others against states opting out of Medicaid expansion. Hospitals are gradually losing Disproportionate Share Hospital adjustment payments that offset the cost of indigent patients, and see Medicaid expansion as a way to increase the number of insured patients. Health insurers see state Medicaid programs as a growth opportunity, both for the newly eligible population and the chance to offer “look alike” plans in the state exchanges, for when people transition out of Medicaid into the commercial market. Our bet is that nearly all states will ultimately choose to participate in Medicaid expansion – maybe even Florida.
When you have Medicaid plans in two neighboring states, with one that chooses to be fully funded and the second that does not take the funding for expansion, how will the population migration issues be mitigated?
Since the Affordable Care Act was passed with the notion that all states would expand Medicaid, it’s unclear how states would deal with population migration issues, and it will be months before we know for sure which states are opting out of expansion. However, as noted above, we expect most states will decide to participate. They can take a cautionary note from Tennessee, which substantially expanded its Medicaid program in the 1990s and subsequently experienced numerous issues, one being the inability to track the number and cost of Medicaid beneficiaries who moved into the state to have coverage under Tennessee’s more-generous eligibility requirements.
The Managed Medicaid plans had a nice price run up immediately after the announcement yesterday – they have pulled back slightly today. What is their future? Will they see more of the big plans enter into their space and cause there to be hyper competition? Are they well positioned because of the disciplines they have developed to date in the segment?
Yes, the managed Medicaid plans, including Amerigroup, Centene, Molina Healthcare, and Wellcare, are well positioned to grow under Medicaid expansion, but they do face real competition from multi-sector insurers such as UnitedHeatlh Group that have sizeable Medicaid membership. More than half of Medicaid enrollees in the country are already in Medicaid managed care plans, and numerous states are either expanding their Medicaid managed care programs or initiating managed care. These Medicaid plans have been effective in managing the Medicaid population and keeping shareholders happy. We expect them to seek acquisitions among the provider-owned plans throughout the country. The move by several states to better coordinate care for dual-eligibles creates additional opportunities for managed care plans.
Will there need to be a Medicaid “bailout” in 2-3 years, just like there was a bailout for banks and auto manufacturers during the last recession?
If you mean will the publicly held Medicaid plans that contract with states have to be bailed out, no. They will simply pull out of markets where they are unable to make money. There was a time in the 1990s when a number of Medicaid plans failed, but these were smaller, regional plans owned by entities that had little managed care experience. The large, publicly held Medicaid plans such as Amerigroup and Molina are savvy about risk and have years of experience with this population. If you mean will the government have to put more money into the Medicaid program as a whole – more than the $931 billion it is currently funding from 2014 to 2022 – that will depend on the rate of uninsured and how successful states are in controlling costs in these programs.
What kind of pharma benefits will states offer to the Medicaid expansion population?
Expect less-generous pharma benefits than Medicaid programs have offered their traditional Temporary Assistance for Needy Families (TANF) population. States will likely enact prescription limits, emphasize generics, and require prior authorization for certain drugs. As noted in HLI’s Medicaid Analyzer, historically federal Medicaid officials have tried to protect Medicaid enrollees from restrictions that might create barriers to care. But federal officials are receptive to limits and copays for expansion populations of nondisabled and nonpregnant adults, as long as cost-sharing is tied to income and coverage is still relatively comprehensive. The states that operate Medicaid expansion programs currently include various copay approaches that are likely to be applied to, and expanded upon, in the larger 2014 expansion population:
- In Delaware, copay costs vary based on the cost of the drug.
- In Maryland’s Primary Adult Coverage, drug copayments range from $2.50 to $7.50 per drug, depending on the plan.
- In Massachusetts, prescription drug copays in Commonwealth Care are subject to annual out-of-pocket maximums that vary by income.
- In New Mexico, drug copays are subject to a $12 monthly maximum.
- In Tennessee, copays for generics vary based on plan, and there is no coverage for brand-name drugs except insulin and diabetic test strips.
Just what exactly are health insurance exchanges and how will they work?
Healthcare reform calls for each state to set up a competitive health insurance exchange for individuals and small businesses that helps them choose coverage, calculate costs, compare options, purchase health insurance, and learn about public programs, much as the Massachusetts Health Connector does (see mahealthconnector.org). These exchanges may be run by states or the federal government, and are scheduled to start no later than 2014 (although, as discussed below, many states have yet to organize their programs). The Obama administration has said it will not define a single uniform set of health benefits, but instead will give states the freedom to craft their requirements, much as they do for Medicaid and the Children’s Health Insurance Program. However, there are 10 broad categories of “essential health benefits” that exchange plans must cover, including preventive care, emergency services, maternity care, hospital and doctors’ services and prescription drugs.
How will the pharma benefit fit into the exchanges?
Prescription drug coverage is one of the 10 basic benefits that the ACA says must be provided to enrollees of health benefits exchanges. However, the federal law did not get much more specific. The federal government will leave it up to states to determine the essential health benefits, or EHBs, that must be provided through the exchanges for both medical and drug coverage. That means drug coverage will be more generous in states that have a large number of coverage mandates and less generous in states where there are fewer mandates.
Non-grandfathered plans both in and out of exchanges will have to comply with EHBs in 2014 and beyond. States can select an existing health plan to set the benchmark for services in the EHB, as long as all 10 categories are included.
Benchmark plans could be any of the three largest small-group insurance products in a state; any of the largest state employee health benefit plans by enrollment; or any of the largest three Federal Employee Health Benefits Plan options by enrollment.
Like the non-exchange market, pharma should expect to see enrollees choose high-deductible plans that will not include first-dollar coverage for drugs.
Will pharmacy benefits in the exchange plans be similar to those in the Medicare program or more aligned to the Medicaid model? Also, what kind of involvement will the Department of Health and Hospitals or Medicaid and Medicare Services of each state have on the exchanges? Will they be extensively involved and regulate, or will they allow for the health plans to provide guidance?
Because the enrollees are expected to transition in and out of Medicaid, the benefits and formulary in the exchange plans will more closely resemble those of Medicaid than Medicare programs. As for the level of regulation, it will depend entirely on the state. California and Rhode Island will have a more intense level of regulation than other states. In all states, however, there will be a high level of coordination needed between state and federal agencies.
How should pharma prepare for exchanges?
Unfortunately, it’s going to be about as complicated preparing for exchanges as it is dealing with all 50 Medicaid programs. Each state will have its own set of parameters for benefits, meaning some will have richer pharma options than others. It will be important to follow the legislative developments in each state, determine their timeline for exchanges, and partner with the health plans participating in these programs.
Will the health plans in the exchanges continue to shift costs to consumers as we have seen in recent years?
Exchanges will be more tightly regulated by federal and state governments than the insurance market outside exchanges. Offerings will have the 10 essential elements, which include prescription drug coverage, and be benchmarked on a popular local option. Changes to benefit designs will have to be approved before they can be sold on the exchange; many insurance departments across the country already do this to some degree.
That said, however, it’s quite likely the high-deductible movement will continue to grow, largely because health premium cost increases have exceeded inflation for other goods and services. Most experts believe that the recent slowdown in medical spending is partly because consumers have been spending more out of pocket on medical care and drugs; however, that rate of increase could pick back up within two to three years.
Which states are farthest along forming their exchanges?
The states likely to have exchanges ready to go in January 2014 are Maryland, California, Utah, Connecticut, Hawaii, Minnesota, New York, Oregon, Washington and Vermont. Massachusetts, of course, has had its exchange in operation since 2006. Utah already has a portal that allows employers or individuals to purchase insurance on a web-based exchange, but it does not yet offer subsidized insurance. States that have done little or nothing include all of the southern states, Florida, Texas, Kansas, Pennsylvania, North Carolina, Ohio, and Wisconsin.
According to the Kaiser Family Foundation, as of June 18, 2012, 15 states had established exchanges, 18 were studying options and 14 had taken no significant action. Three states had announced they would not create an exchange: Louisiana, Maine, and New Hampshire.
What happens in those states whose governors are resisting exchanges for political reasons and not moving ahead with the necessary plans?
States that do not have exchanges fully operational by Jan. 1, 2014, must default to a federal exchange. The Department of Health and Human Services has admitted it doesn’t have the resources and time to create exchanges for all the laggard states, so we expect some extension to be granted, perhaps creating exchanges operating in a barebones way under conditional approval. A number of Republican-led states delayed setting up exchanges in hopes that healthcare reform would be overturned by the Supreme Court. It’s unclear how many will be able to meet the most immediate deadline of November 2012, for being able to demonstrate that their exchanges will be functional the following year.
There has been so much hype around ACOS and the Medicare pilot program – will these succeed?
It will be market by market, with the most likely to succeed being those that are furthest along in care coordination, data analysis, and network building, and that are already taking on risk contracts. The Pioneer ACOs, which have greater experience, have an edge over the Shared Savings models. Among the Shared Savings ACOs, those led by physician groups with experience in delegated risk, such as Brown & Toland in San Francisco and Monarch IPA in Orange County, are more likely to survive. However, all of these face the challenges of having to invest millions of dollars upfront to put systems in place, and then managing a fee-for-service Medicare population in which members can seek care outside of the ACO, limiting the ACO’s ability to control costs.
How do pharmacy benefits fit in with Medicare Star ratings?
The star rating system uses 53 quality measures to determine bonuses and extra payments added to Medicare Advantage plans’ capitated, or per member, revenue. The ratings are based on clinical quality, patient experience, and customer service. The measures that specifically relate to drugs and patient safety for 2012 are:
- High risk medication – determining whether plan members 65 and older received prescriptions for certain drugs with a high risk of side effects, when there may be safer drug choices
- Diabetes treatment – making sure the correct blood pressure medication is recommended for people with diabetes
- Part D medication adherence for oral diabetes medications – making certain patients are taking oral diabetes medication as directed
- Part D medication adherence for hypertension – making sure patients are taking blood pressure medication (ACEI or ARB) as directed
- Part D medication adherence for cholesterol – making sure patients are taking cholesterol medication (statins) as directed
All of these are weighted with a score of 3, compared to 1 or 1.5 for the other 12 drug-plan related measures that focus on customer service, member complaints, and drug pricing.
For 2013, plans receive a bonus of 3 percent for a 3-star ranking, 3.5 percent for a 3.5-star ranking, 4 percent for a star ranking of 4 or 4.5, and 5 percent for a 5-star quality assessment. Low-enrollment plans and plans too new to be rated will be assigned 3 stars for quality bonus payment purposes.
Although CMS has threatened to boot out plans that consistently score less than 3 stars, it has not done so. For 2013, it is merely notifying members of underperforming plans of their ability to switch to a higher-quality plan during a special enrollment period. And CMS will continue to allow Medicare beneficiaries to join a 5-star MA or Part D plan at any time during the year.
The proposed addition of medication therapy management as a star quality measure for Part D plans was expected to push plans to perform comprehensive medication reviews for a greater number of those members with multiple conditions and taking multiple drugs. But in its 2013 call letter, CMS announced that the MTM measure would be displayed in a CMS file download but not counted toward the bonus. However, it could become a star rating metric in 2014.
Theoretically, the inclusion means that beneficiaries can see (if they look it up) the plan’s rating on the percent of MTM-eligible beneficiaries receiving direct (telephonic or face-to-face) interactive comprehensive medication review, but in reality the site is not easy to navigate. MTM company PharmMD estimates that the industry average is about 5 percent.
In the same letter, CMS writes of its disappointment that plans consider only 10 percent to 13 percent of Medicare beneficiaries as eligible to receive MTM. CMS believes at least 25 percent should be eligible for those services, and it has broadened the criteria to make sure more members qualify.
There is evidence that Medicare Advantage plans are gearing up to deliver MTM services to more of those members considered to be most at risk of hospitalization or hospital readmission, or those who juggle numerous prescriptions from multiple physicians. Under CMS’s definition of a comprehensive medication review, the analysis includes all medications, including over-the-counter medicines and dietary supplements.
But Part D plans, which have no exposure to hospital costs, have far less financial incentive to provide a thorough review of their members’ drug utilization.
Are we really moving away from fee-for-service reimbursement for providers, or is this just a replay of the 1990s, when everyone said the system was moving toward capitation, but most providers back off?
Absolutely, we are moving away from fee-for-service. A shift was already under way, fueled by employers’ and CMS’ frustration with rising costs and a system that rewards volume over quality and outcomes. But now that the Affordable Care Act has been upheld, it’s official that insurers must take people with preexisting conditions and learn how to manage that risk, and in order to do so, they are initiating reimbursement plans that incent physicians and hospitals to provide cost-effective care. UnitedHealth Group set the tone with its announcement this year that it plans to bring half of its contracted providers under incentive-based contracts by 2015.
The Affordable Care Act created the Patient-Centered Outcomes Research Institute to undertake comparative effectiveness research, with the goal of determining the relative outcomes and appropriateness of different medical treatments. It will share its findings with Medicare, which can take the Institute’s research into account when deciding what procedures to cover. In addition, the Centers for Medicare & Medicaid Services has created incentives for providers to bundle services rather than charge by individual procedure, and has numerous Medicare pilot programs under way.
What does this decision mean for the U.S. economy, as well as how will it impact the pending elections?
Healthcare reform is good news for insurance companies, pharmaceutical companies, and hospitals, because it provides millions more paying customers. However, health plans do take a huge hit on the premium taxes so you can’t say that it’s a boon altogether for MCOs because they are paying much of the cost.
As far as the economy as a whole, a lot depends on how quickly health plans and providers move to more efficient reimbursement models and eliminate waste in the system. Certainly other industrialized countries provide healthcare at far lower costs per capita than the United States (with better health outcomes). It is conceivable that we could end up with a more sustainable healthcare model, but it will take years for the system to evolve. Healthcare reform will be a mixed bag for the pending elections; certainly it gives Republicans fodder to criticize government; on the other hand, many of their supporters in the business world stand to benefit from reform.
Are the people who were promised coverage actually going to receive it?
Yes, except in states that opt out of Medicaid expansion. But as noted above, we expect most states to opt in.
How could the decision impact ACOs?
ACOs are already underway, and the passage of healthcare reform doesn’t change that.