ACOs and the Bureaucratization of Care

In an interesting post at the Health Affairs blog Abdulrahman El-Sayed looks at the similarities of the No Child Left Behind attempt at education reform and CMS regulations concerning ACO scoring. While El-Sayed’s concern is with potential equity issues being exacerbated by the ACO rules, I’d like to focus on process effects.

The No Child Left Behind effort was criticized as incentivizing schools to teach to a standardized test. And, finally, fraud crept into the system as some schools were caught ‘adjusting’ test results.

Will something like that happen with ACOs. Given the amount of money involved – yes!

You can hear the consultant’s pitch now, “using our proven system, we can maximize your reimbursement” etc. While the reformer will argue that it is just a matter of designing the right measures, we all have seen how government programs work. Inevitably, protocols will be adjusted to maximize the score regardless of the underlying health status of the patient. That’s how bureaucracy works.

Free Contraceptives – Paid for by Thee and Me

The ‘compromise’ announced by the administration last week on the contraceptives issue is another example of the politicization of healthcare and health insurance driven by the ACA. The semantic dodge of making all health insurers provide coverage for contraceptives instead of employers needing to provide coverage does nothing to change the effect and actually broadens the expense that all policy holders will have to pay. Regardless of your personal needs or situation, you will now be paying for contraceptives through the premiums in your insurance policy.

The key here is the movement of contraceptives into the category of preventive care.

What will be the effect of this policy on the contraceptives market? As John Cochrane points out in his WSJ editorial,  the secondary effect of this move is that incentives for pharmaceutical companies to develop cheaper versions of birth control has vanished, as well the incentive for male centered non-prescription birth control. In short, the cost of contraceptives will never go down, they will probably go up. So much, for cost savings.

Other questions have been raised about whether or how this policy would be applied to self-funded employer plans, that technically don’t use insurance to cover their health benefit expenses. Since the majority of US employees covered through their employer are in these sort plans, that would put the onus of the expense on individual and small employers that cannot self-insure.

However, the real issue here is the use of the preventive care approach to legislate any number of favored benefits or tests into insurance plans. Every disease interest group will want their special pleading included as a preventive care measure (e.g. testing for autism, dementia, etc.). The cost of the preventive care portion of any insurance policy will necessarily go up.

Just another reason for any small to medium sized employer to get out of providing health insurance benefits to their employees.

CLASS Act – Zombie Legislation

The dysfunctional piece of legislation known as the CLASS Act has been recognized by the administration as being financially unsustainable and as such HHS Secretary Sibelius declared last October that it could not be implemented. As we have discussed earlier the intent of this portion of the ACA seemed more for biased budget scoring than for anything else.

The House of Representatives, in a rare move with some bipartisan support actually voted to repeal the CLASS Act on Wednesday, February 1. However, the Democratic controlled Senate and the President have stated that they will not support this repeal action. Why not? It seems that this will be used as another political example of the House of Representatives denying help to some needy portion of the population.

Is there a problem with a piece of legislation that cannot be implemented, but remains in force? As Avik Roy has pointed out there are dangers to this, pointing out that the Congressional Research Office sees the possibility of the courts ordering implementation even though it isn’t financially sustainable as written.

Undead legislation is always a horror movie waiting to happen.


Health Insurance, New Taxes for Small Employers

The NFIB (National Federation of Independent Business) has recently published a study, written by Michael J Chow, estimating the effects of the health insurance premium tax included in the ACA on small business employment, (h/t John Goodman). The crux of the argument in the study is that the premium tax will increase health care insurance premiums for employers 2% to 3% above the usual health care inflation driven premium increases. Using their model they contend that the cumulative increase from 2014 when the tax begins to 2020 will be almost $5k per family. This premium increase will fall hardest on small to medium size employers who purchase fully insured health plans, as opposed to larger employers who rely mostly on self insurance plans.

The study then posits that employers have a choice between ‘eating’ these costs or dropping health insurance coverage. The study assumes that employers will opt to retain their health insurance plans. The NFIB utilizes a model called the Business Size Impact Module, (BSIM), to estimate the effect of the tax driven cost increase under this assumption. Using their model, the cost increase will have the effect under various scenarios of reducing private sector employment by 125k to 249k by 2021.

While we don’t have any argument with the effects as modeled, we do disagree with the original assumption that most employers will simply ‘eat’ the extra cost. The increasing cost of offering health insurance for small employers will include not only the usual inflation components and these tax increases, they will also include the significant growing costs in regulatory compliance for employers offering health insurance whether the employer utilizes the exchanges or not. The question is whether employers will compete for employees by offering costly benefit packages or compete for business by remaining price competitive for the goods and services they offer. We believe that ultimately small employers will need stop offering health insurance in order to survive.



CLASS Act – Was it just a budgetary gimmick?

Friday (10/14/11) afternoon, the traditional government embarrassing news dump time, HHS Secretary Sebelius announced that the CLASS Act portion of the ACA would not be implemented because it could not be made to be financially self-sustaining. That this would happen should not have been surprising to anyone.

The program was originally proposed as a tribute to the late Senator Edward Kennedy who had championed a long term care program of sorts being incorporated into Medicare.

From the beginning, critics pointed out that a voluntary program, such as this, was actuarially unsound. The only people that would sign up for the program would be those that anticipated a need for it – the definition of anti-selection in insurance parlance. In order to get this portion of the legislation inserted into the ACA, the supporters of it agreed to a formulation where the HHS had to prove that it would be actuarially sound before implementation could begin. That is why Secretary Sebelius had to make her announcement.

Since the announcement, there has been minimal defense of the CLASS Act with the exception of those that stood to gain from implementation work. Republicans have floated the idea of formally repealing this part of the ACA and the White House has given a half hearted defense with a suggested veto. Considering that this was a major piece of the ACA it is curious the low level of attention this has received.

It appears that the major benefit of the CLASS Act to the entire ACA was its contribution to the budgetary scoring done by the CBO. CBO scoring is done over a 10 year period. The way the CLASS Act was written, it was to be implemented 5 years after the passage of the ACA, and was to collect premiums for 5 years prior to paying out any benefits, i.e. income only for the scoring period. This amounted to $86b of the scored $210b savings attributed to the ACA.

So the question remains, has the CLASS Act already done its work by inflating the savings claim to gain support for the ACA?



Medicaid Loophole for the Middle Class

Ricardo Alonso-Zaldivar of the AP is reporting today that a loophole in the ACA will allow early retirees with up to $64,000 in income to qualify fro Medicaid. Under a change passed in the new law, after 2014 most Social Security benefits for early retirees will not be counted as income when determining eligibility for Medicaid.

Given the requirement that everyone carry health insurance this will be a cheap alternative for early retirees until they qualify for Medicare. According to the AP, this could add an additional 3 million to the Medicaid program.

Will Employers Drop Health Insurance? McKinsey Part 1

McKinsey & Company has raised a lot of questions about decisions concerning employer sponsored health insurance post implementation of the ACA in 2014. The article appearing in the June 2010 issue of the McKinsey Quarterly was written by Shubham Singhai, Jeris Stueland, and Drew Ungerman and predicts that up to 30% of employers could drop employer sponsored health insurance when the full effects of the ACA start to kick in.

As the results of the survey became available, there was plenty of controversy about the results and questions about the methodology. Today (6/20) McKinsey released the survey questionnaire and results to quell the inevitable complaints of survey bias from ACA supporters. You can read the McKinsey post to understand how the panel selection was done by a third party and were not necessarily McKinsey clients as had been suggested by many people unhappy with the results of the survey. The key point as McKinsey points out was that they were surveying employer attitudes, not predicting behavior.

As most people are aware, the US style of employer sponsored health insurance grew an unintended consequence of WWII wage controls. There is nothing that requires an employer to buy and offer health insurance to employees other than employee expectations, the need for employers to compete for employees, and the tax advantage that employers have over individuals in paying for health insurance. The implementation of the ACA will begin to erode these bases.

Similar to the growth of defined contribution (401k) over defined benefit pensions, the change in employers offering health insurance will probably take effect in newer, smaller employers and gradually work its way through the system to larger employers. As McKinsey points out, 85% of employees indicated that they would remain at their current employer if the employer stopped sponsoring health insurance, with the caveat that 60% would expect increased compensation. Gradually the expectation that the employer needs to offer health insurance as a benefit to attract a quality workforce, when it is available without problems in obtaining coverage through the exchanges, will lessen the need for employers to offer it in the first place.

The other fact that the McKinsey report calls out, is that for employers with a workforce of mostly low wage employees, that both the employer and the employee may be better off by the employer dropping health insurance. This is a function of the amount of the subsidy promised through the exchanges for low wage workers and the amount of the fine on the employer.

In short, there are plenty of reasons to believe that many employers will begin to drop their sponsorship of health insurance plans beginning in 2014.

Wave the Healthcare Waivers Goodbye

In the usual Friday afternoon announcement period saved for problematic news, the administration has announced that as of September 22 no more waivers will be granted to the maximum coverage requirement of the ACA. According to the The Hill the administration spokesman stated that as of September they assumed that everyone who needed a waiver would have applied for one. If that were the case, then they wouldn’t need to stop granting waivers because no one would need to ask for them and the problem would go away by itself. So what is the real answer?

  1. The monthly announcement of waivers was becoming a monthly public relations problem. With every announcement there was attention brought to who got the waivers, why did they get them, and was there any favoritism involved? While the recent GAO report on the waiver process showed that there were certain criteria used in granting the waivers, there still seemed to be exceptions.
  2. Contrary to the administration spokesman, as the maximum benefit hurdle gets raised every year there would be more plans being brought under the requirements of the law and the number of waiver requests would be increasing. And as this process got more publicity, there would be more sponsors looking at their plans and requesting a waiver.
  3. A small problem with the waivers is that there seems to be no particular authority in the legislation itself for the government to issue this sort of waiver.

As the GAO report showed many of the waivers were granted to plans that showed that their premiums would increase by more than 10% if they implemented the new benefit maximum requirement. The next public relations problem around this will come when the first health plans get terminated because they can’t afford the benefit increase on top of the usual medical inflation driven premium increase.

HealthCare Waivers and Transparency

Matthew Boyle at the has been following the story of the growing number of healthcare waivers being granted under the ACA. As others have followed this story there has been a number of questions about the transparency in the process of granting the waivers. CMS has replied that they are being very transparent in their process and have published a list of entities being granted waivers for everyone to see.

There are two types of waivers that have been given:

  1. Waivers to the maximum benefit payable rules. These rules have an escalating requirement for benefit maximums until a no maximum is established in 2014. Several of the entities sponsoring these plans have indicated that they cannot afford the higher plan limits and would as a result of the regulation actually terminate coverage. These were the plan waivers that made up the so called Nancy Pelosi waivers. However, this appears to be more the result of San Francisco city requirements requiring healthcare coverage for part time workers than anything to do with the former Speaker exerting undue influence. The unanswered question here is why they were allowed a waiver when they are required to carry the coverage by the city regardless of the limit.
  2. Waivers to the meeting of medical loss ratio (MLR) provisions in the ACA  – these waivers have been given to several sates based on the disruption that they would cause individual insurance markets. Several states have claimed that if insurers in their state have to meet the 80% MLR they will leave the state and the choice options for their citizens will be compromised.

It is actually the second type of waivers that should draw the most attention about waivers. What is the amount of disruption in the individual market that qualifies for a waiver. The fact that some states have received a waiver should indicate that there is a threshold of some sort that CMS has established. What is it? Declaring that would be transparency.