Data Update - Summer 2014 newsletter
UNINSURED AND UNDERINSURED
• 8 million people signed up for private coverage on the federal and state health exchanges during the open enrollment period that ended March 31, according to a report from the Department of Health and Human Services. Since as many as two-thirds of enrollees had prior coverage and 10-20 percent of people have yet to pay their first month’s premiums, the net impact of the ACA’s exchanges and federal subsidies on the number of uninsured won’t be clear for several months (Pear, “Late rush to sign up for insurance,” New York Times, 5/2/14).
In its most recent release, the Congressional Budget Office estimates that 42 million Americans will remain uninsured in 2014, 36 million in 2015, and 29-31 million between 2016 and 2024 (CBO, “Insurance Coverage Provisions of the Affordable Care Act,” April 2014).
• In 2012, 31.7 million Americans under age 65 were underinsured, according to a conservative estimate by The Commonwealth Fund. The estimate was based on new Census Bureau data on household medical expenditures. An additional 47.3 million Americans were uninsured that year. “Underinsurance” in the study was defined as spending 10 percent or more of household income for medical care or, if under 200 percent of the federal poverty line, greater than 5 percent of household income. The estimate didn’t include people who were insured but went without care due to cost, or were healthy but whose insurance was so skimpy they would have faced high costs in the event of illness (Schoen et al., “America’s Underinsured,” Commonwealth Fund, 3/14).
• Nearly 3.7 million low-income, uninsured people with a serious mental illness, serious psychological distress, or a substance use disorder will not receive coverage under the Affordable Care Act because they live in one of the 24 states that have refused to expand their Medicaid programs to people with incomes up to 138 percent of poverty. Three-quarters of these individuals (2.7 million) live in 11 Southern states, and over 1.1 million live in just two states – Texas (625,000) and Florida (535,000) (American Mental Health Counselors Association, 2/27/14).
Of an estimated 115,000 uninsured and low-income people with HIV/AIDS living in the U.S., over half (about 60,000 people) live in states that are not expanding Medicaid, according to an analysis of HIV surveillance data and data from the National Health Interview Survey (Snider et al., Health Affairs, March 2014).
• Many insurance plans - including both employer-based plans and those purchased through the health exchanges - include “source-of-injury” exclusions that preclude coverage of medical bills arising from suicide or attempted suicide, even when it stems from a mental illness. Despite the federal mental health parity law (2008), insurers still discriminate in the fine print, claiming that parity only requires them to cover mental health benefits, not medical bills arising from an intentional overdose or injury (Andrews, “Some plans refuse to cover medical costs related to suicide despite federal rules,” Kaiser Health News, 2/18/14).
• Women’s life expectancy in McDowell County, W.Va., where average household income is around $22,000, has fallen by two years since 1985, to 73 years. In contrast, women’s life expectancy in Fairfax County, Va., where average household income is $107,000, has risen over the same period by five years, to 85 (“Income Gap, Meet the Longevity Gap,” New York Times, 3/16/14).
• Income inequality is rising around the world, not just in the U.S. The rate of return to capital has historically been higher than the rate of economic growth and wages, according to a new analysis of centuries of data by Thomas Piketty of the Paris School of Economics. The first half of the 20th century was an aberration due to the destruction of a huge amount of capital in two world wars. In 1913, at the end of the Gilded Age, the stock of the world’s privately held capital amounted to about five years’ worth of global income. In 1950 it had fallen to three, by 2010 risen to four, and will rise to seven by the end of the century. Future inequality in the U.S. will be driven by two forces: a rising share of income going to corporate profits and the owners of capital, and of the remaining labor income, a rising share going to top executives (Porter, “A relentless widening of disparity in wealth,” New York Times, 3/12/14).
• The U.S. middle class is no longer the richest in the world, according to an analysis of data from the Luxembourg Income Study. After-tax median income in Canada is now higher than in the U.S., and Britain, the Netherlands, and Sweden are closing in. Also, poor U.S. families, at the 20th percentile of the income distribution, make significantly less than similar families in Canada, Sweden, Norway, Finland or the Netherlands. The findings are due to U.S. firms distributing a higher share of pay to top executives and lower top tax rates, and to Canadian and European government policies that redistribute income and subsidize health care, college, day care, paid maternity leave, and other benefits for their residents (Leonhardt, “U.S. middle class no longer world’s richest,” New York Times, 4/23/14).
• The cost of employer-sponsored health care among large employers (>1,000 employees) is expected to rise 4.4 percent, to $9,560 per employee, in 2014, despite another round of benefit cuts (without this year’s cuts the increase would have been 7 percent). Employees’ share of premiums will increase an estimated 7 percent, to $2,975. Employees will pay an estimated 37 percent of total health costs (premiums and out-of-pocket costs) in 2014, up from 34.4 percent in 2011. Nearly two-thirds of large (>1,000 employees) companies with employer-sponsored health coverage say they are likely to eliminate coverage in the next few years and steer their workers to public exchanges. They have already started with their under-age-65 retirees (Towers Watson, “Survey for the National Business Group on Health,” 3/6/14).
• Maryland has received a waiver from CMS to transition its “all payer” hospital payment system, under which all insurers pay the same fees, to a global budget system, effective January 1, 2014. The goal is to reduce overutilization of inpatient care and shift resources to more appropriate settings. Whether it will control costs or just, in the absence of a single payer that can slash bureaucracy, restrict access to care, is unclear. The effort, led by the Maryland Health Services Cost Review Commission, is just getting under way. Details may be found at www.hscrc.maryland.gov.
‘Medicare for all’ given to more victims of asbestos poisoning
Sen. Max Baucus, D-Mont., who as chair of the Senate Finance Committee relied heavily on staffer Liz Fowler, a former WellPoint VP, to craft the private-insurance-based ACA, created an exception from his own bill and gave Medicare and supplementary benefits to residents of all ages in Libby, Mont., with asbestos-related disease caused by the operations of the W.R. Grace mining company. Instead of being required to buy private insurance on the health exchange, affected Libby residents received lifelong Medicare coverage and access to a new, permanent “Libby Pilot Program,” which covers services “tailored to specific health needs resulting from asbestos exposure” not covered by Medicare, like long-term care, medications, and transportation. Now, affected residents of Libby who have moved to any of 18 other counties (including six counties in Idaho and seven in Washington state) will be able to access those services without charge under an expansion of the program approved by CMS (Gerstenecker, “Libby Montana program expands,” The Western News, 2/4/14).
• Even a small unpaid medical debt can damage a person’s credit rating, making it harder and more expensive to get a mortgage or other loan. Medical bills account for about half of all bills reported to collection agencies and affect the credit record of about 20 percent of the population, according to Richard Cordray, director of the federal Consumer Financial Protection Bureau. About 40 percent of a sample of 5,000 mortgage applicants to a Texas firm, Supreme Lending, had medical debt in collection, with the average around $400. Most people were unaware of their debt. The problem is worsening with increasing deductibles and the rise of large physician and hospital groups, making it impossible for patients to negotiate debt with their physician (Rosenthal, “When Health Costs Harm Your Credit,” New York Times, 3/8/14).
• Massachusetts’ 2006 health reforms, the model for the ACA, did not solve the problem of unaffordable health care costs. In 2012, more than one-third (38.7 percent) of insured Massachusetts adults reported problems with health care costs. The proportion of adults reporting problems with costs rose to 41.6 percent for people with incomes below 138 percent of poverty, and to 49.5 percent for people with incomes between 139 and 399 percent of poverty. Over 40 percent of insured, low-income people had problems with costs despite the fact that Massachusetts’ reform has stronger consumer protections against out-of-pocket costs (e.g. limited to $1,000 for people below 200 percent of poverty) than the ACA (Long, “Health insurance coverage is just the first step: Findings from Massachusetts,” Health Affairs blog, 3/26/14).
Congress boosts pay to private Medicare plans
In response to a multimillion-dollar lobbying campaign by the insurance industry, HHS reversed its plans for a 1.9 percent cut in payments (about $7 billion) to Medicare Advantage (MA) plans. Instead, the plans will receive a 0.4 percent raise in 2014. The plans were overpaid by 6 percent compared to the cost of taking care of similar enrollees in traditional Medicare in 2012, according to the Medicare Payment Advisory Committee. MA plan enrollment grew by 9 percent last year, to 14.4 million. According to a study by economists at the University of Pennsylvania, the excess payments to MA plans almost all go to marketing and profits, with only 17 percent going into benefits. Humana makes two-thirds of its total annual profit on MA plans (Hancock, “Decoding the high-stakes debate over Medicare Advantage cuts”, Kaiser Health News, 4/7/14).
CORPORATE MONEY AND CARE
For-profit hospital chains breed fraud, again
• The Justice Department is investigating the giant hospital chain Health Management Associates (HMA) for Medicare and Medicaid fraud. HMA, which recently merged with Community Health Systems (CHS) in a $7.6 billion deal to create the nation’s second largest for-profit hospital chain with over 200 hospitals, is the target of eight separate whistle-blower (qui tam) lawsuits in six states and several investigations by states’ attorneys general for using “sophisticated software systems, financial incentives, and threats” to inflate hospital admissions. HMA administrators used a customized software program called Pro-Med to monitor its physicians and drive admissions. For example, the software gave emergency department physicians daily scorecards on their progress towards meeting the firm’s target of admitting 50 percent of all ER patients over age 65, regardless of clinical necessity. Physicians and administrators who questioned HMA’s policies and procedures were threatened and fired. Former HMA CEO Gary Newsome, who received $22 million in compensation in the three years before his departure last year, was a top executive at CHS prior to being hired by HMA; CHS faces similar accusations. In 2003, HCA (the biggest for-profit hospital chain) paid the then-largest health care fraud settlement in U.S. history, $1.7 billion, for Medicare fraud (Creswell and Abelson, “Hospital Chain Said to Scheme to Inflate Bills,” New York Times, 1/23/14).
CEOs at top insurers still getting outsize pay
CEO pay at the nation’s biggest for-profit health insurers generally held firm, but in one case increased sharply between 2012 and 2013: Aetna’s CEO, Mark Bertolini, saw his compensation more than double to $30.7 million from $13.3 million. UnitedHealth Group’s Stephen Hemsley received $12.1 million in 2013, WellPoint’s Joseph Swedish received $17 million, Humana’s Bruce Broussard took in $8.8 million, and Cigna’s David Cordani received $13.5 million. In the three years since the passage of the ACA, 32 executives of the nation’s five biggest for-profit health insurance firms have received a total of $548.4 million in cash and stock options (“The Irony of Obamacare,” UNITE HERE, March 2014, and SEC schedules 14A in 2011, 2012, 2013).
CEOs at the nation’s two largest Medicaid managed care insurers received huge pay raises. Centene CEO Michael Neidorff received $14.5 million in compensation in 2013, up 71 percent from 2012. Centene runs Medicaid programs in nearly 20 states, including Missouri and Illinois. On top of his salary of $1.2 million, Neidorff got a $3 million bonus, $10 million in stock, and $82,798 of personal flights on a company plane, financial adviser fees, event tickets and security services. If Neidorff leaves Centene after a takeover, his golden parachute will be worth $31.9 million. That includes $24.2 million for unvested stock and $7.7 million in severance, bonus and incentive payments. Molina Healthcare CEO Mario Molina’s pay more than doubled, rising to $12 million from $5 million. Molina runs Medicaid programs in 11 states (David Nicklaus, “Centene CEO’s pay jumps to $14.5 million,” St. Louis Post Dispatch, 2/25/14, and SEC filings).
• Two recent studies of Patient Centered Medical Homes (PCMH) found that most quality indicators did not improve and there were no significant cost savings compared with control practices. The first study, supported by The Commonwealth Fund, was a randomized controlled trial that compared 18 small adult primary care practices in New York that were randomly chosen to receive two years of support and financial incentives to redesign their practices into PCMHs (as recognized by the National Committee of Quality Assurance), with 14 control practices. Compared to controls, PCMH physicians performed better on just 2 of 11 quality indicators (blood pressure control and breast cancer screening) and 1 of 10 efficiency indicators (care visits leading to ED visits) but there were no significant cost savings. The second study, a large three-year RAND trial comparing performance on 11 quality measures, utilization, and costs at 32 PCMH’s to 29 comparison practices in southern Pennsylvania, found significant improvement on only one quality measure (nephropathy screening in diabetes). No significant differences in utilization or costs of care were found other than a one-year increase in ambulatory care sensitive admissions in PCMH practices. Pilot practices accumulated bonuses averaging $92,000 per physician over the three-year study (which were excluded from the cost calculations). The lack of savings from PCMH’s suggests that delivery system reform alone won’t control costs (Fifield et al., JGIM, 6/1/13, and Friedberg et al., JAMA, 2/26/14).
GALLOPING TOWARD OLIGOPOLY
• Just two health insurers controlled over 50 percent of the market for private health insurance in 45 states in 2011. In 15 states, a single insurer had more than 50 percent of the private insurance market, according to the AMA’s most recent study of the lack of competition in the commercial health insurance market (AMA, “AMA Analysis Lists States Where One Private Health Insurer Rules,” 11/7/13).
• Anthem, the giant for-profit Blues plan, is the only firm selling health insurance on the exchange in New Hampshire. Nationwide, in 515 mostly rural, low-income counties across 15 states, only a single insurer is offering coverage on the health exchange. Premiums in those counties can be hundreds of dollars more per month than in nearby metropolitan areas. Overall, monthly premiums for a silver plan for a 40-year-old individual range from $154 in Minneapolis to $461 in southwest Georgia and $483 in Colorado’s mountain resort region, where many permanent residents are low-paid service workers. Insurers are not supposed to deny coverage to patients with pre-existing conditions since the passage of the ACA, and risk adjustment for sicker patients is supposed to make “cherry-picking” obsolete, but for-profit insurers have found new methods to accomplish the same thing. Aetna’s CEO, for example, admitted they were targeting areas with high employment and incomes to attract desirable customers (Martin and Weaver, “For many, few health plan choices,” Wall Street Journal, 2/12/14, and Ehley, “Ten worst places to live for Obamacare,” Fiscal Times, 2/20/14).
Corporate ‘finance people’ closely monitor patient care – for profits
“The practice of medicine is moving more rapidly than ever from decision-making by individual doctors toward control by corporate interests. The transformation is being fueled by the emergence of large hospital systems that include groups of physicians employed by hospitals and others, and new technologies that closely monitor care. While the new medicine offers significant benefits, like better coordination of a patient’s treatment and measurements of quality, critics say the same technology, size and power can be used against physicians who do not meet the measures established by companies trying to maximize profits. ‘It’s not a doctor in there watching those statistics – it’s the finance people,’” said an attorney representing whistle-blowers (Creswell and Abelson, “Hospital Chain Said to Scheme to Inflate Bills,” New York Times, 1/23/14).
• The Cleveland Clinic is contracting directly with national employers like Lowe’s to perform cardiac and orthopedic surgery on their employees. Lowe’s pays the cost of travel and waives deductibles and co-pays for its workers to have their surgery at the clinic for a set fee. While the Cleveland Clinic claims to have a lower-than-average readmission rate for cardiac patients, patients who are able to travel for care are undoubtedly younger, healthier, and more stable than the average cardiac patient. The practice raises questions about the clinic “cream skimming” profitable patients, leaving more costly, sicker and less well-insured patients for local facilities (Daily Briefing, Advisory.com, “For Cleveland Clinic, employer deals have been a ‘win-win-win,’” 3/10/14).
• Gilead is marketing its new hepatitis C drug, sofosbuvir, in the U.S. for $84,000 for a three-month course ($168,000 for six months of treatment that some patients need) or about $1,000 per pill. Gilead’s first quarter sales of $2.3 billion of sofosbuvir are the highest ever for a new drug. During the same period, UnitedHealth Group, the nation’s largest insurer, spent over $100 million on sofosbuvir and other treatments for hepatitis C, some of which it attributed to pent-up demand for treatment by newly insured patients. Sofosbuvir, which costs less than $1.62 per pill to produce, is sold for about $350 per pill in the U.K. Gilead says it will sell the drug to low-income countries for $2,000 for a 12-week course, but Médecins Sans Frontières says, based on their experience treating HIV, that diagnosis and comprehensive treatment costs must be limited to $500 per patient in both middle- and low- income nations to be successful (Pollack, “Gilead revenue soars on hepatitis C drug” New York Times, 4/23/14, and “MSF responds to reports on Gilead pricing for hepatitis C drug sofosbuvir in developing countries,” Médecins Sans Frontières Access Campaign, 2/7/14).
As the price of specialty drugs soars, employers are shifting more of the cost onto patients. This year, 23 percent of employer-sponsored health plans and nearly all plans sold on the health exchanges have a separate tier with higher cost-sharing for specialty drugs, up from 5 percent of plans in 2006. Just 2.3 percent of prescriptions now account for 30 percent of all out-of-pocket costs. In 2012, U.S. regulators approved 39 drugs, the most since 1996. Of the 12 for cancer, 11 cost at least $100,000 a year (“Hard pills to swallow,” The Economist, 1/5/14, and Thomas, “Prices Soaring for Specialty Drugs, Researchers Find,” New York Times, 4/15/14).
• Questcor has raised the price of a 60-year-old immune system drug, Acthar, from $40 to more than $28,000 a vial since acquiring the rights to the drug for $100,000 in 2001. Acthar, made from the pituitary glands of pigs, was originally used to treat a rare disease in babies. Questcor has aggressively marketed the drug for more common conditions like multiple sclerosis and lupus, uses approved several decades ago when approval standards were low, and clinical trials were not needed. As a result, sales of Acthar topped $761 million last year, and the firm is being bought out by another drug maker, Mallinckrodt Pharmaceuticals, for $5.6 billion. Questcor’s promotional practices are under investigation by the Justice Department (Pollack, “Mallinckrodt pharmaceuticals to buy Questcor for $5.6 billion,” New York Times, 4/8/14).
• A federal jury in Louisiana awarded $6 billion in punitive damages against Takeda Pharmaceuticals, the manufacturer of the diabetes drug Actos, and $3 billion against Eli Lilly Inc., the U.S. distributor of Actos, for failing to disclose that the drug raises the risk of bladder cancer when used for more than one year. Regulators in France and Germany suspended sales of Actos over health concerns in 2009. (Li, Los Angeles Times, 4/8/14).
• Nearly two-thirds (64.3 percent) of Maine physicians and medical students favor a single-payer approach to health system reform, up from 52.3 percent in 2008, according to a recent survey by the Maine Medical Association. The survey asked the following question both years: “When considering the topic of health care reform, would you prefer to make improvements to the current public/private system or a single-payer system such as a ‘Medicare for all’ approach?” Support for “improvements to the current public/private system” fell to 35.7 percent in 2014 from 47.4 percent in 2008. There was no significant difference in response to the question based upon age, geographic location, or MMA membership status. Primary care physicians and psychiatrists were more supportive of single payer than other physicians, as were physicians who did not own their own practices. More details of the survey are available on the association’s website at www.mainemed.com.
Vermont residents favor single payer 55 percent to 42 percent after being read a brief description and rationale for reform. An even greater majority, 70 percent, say they favor a system that would have the government pay medical bills directly instead of through insurance companies. The margin of support drops but remains a majority (51 percent in favor, 43 percent opposed) when told it would mean “the largest tax increase in Vermont history.” Women, younger adults, people with college or graduate degrees, and Democrats are more likely to be supportive. Three-fourths of Vermonters say they would either favor or remain neutral towards a candidate supporting single payer; only one-quarter of respondents said they would oppose such a candidate. The poll of 502 Vermonters in mid-January, at the height of problems with the rollout of the Vermont health exchange, was conducted by Boston-based Kiley and Co. with funding from the National Education Association (True, “Single-payer advocacy group gets boost from NEA, poll shows support for health reform,” Vtdigger.com, 2/21/2014).
• Despite a $27 billion investment by the federal government, nearly 70 percent of physicians think electronic health records have not been worth the effort, resources, and cost, according to a national survey of 1,000 physicians for Medical Economics. Sixty-nine percent of respondents said that coordination of care with hospitals has not improved, 67 percent dislike the functionality of their EHR system, and 66 percent of internists would not buy their current system. A qualitative study of 30 physician practices in six states by RAND found that a number of problems with EHR’s significantly worsened physician satisfaction. “Aspects of current EHRs that were particularly common sources of dissatisfaction included poor usability, time-consuming data entry, interference with face-to-face patient care, inefficient and less fulfilling work content, inability to exchange health information, and degradation of clinical documentation” (Verdon, “Physician outcry on EHR functionality, cost,” Medical Economics, 2/10/14, RAND 10/13).
• A survey of 20,045 adults in 11 industrialized countries, intended to form a baseline for the impact of the ACA on the U.S. health system in an international context, found that U.S. adults are far more likely than people in other nations to go without health care, have trouble paying medical bills, and encounter time-consuming health insurance paperwork or disputes, or claims unexpectedly not paid. The other nations studied were Australia, Canada, France, Germany, the Netherlands, Norway, Sweden, Switzerland and the U.K. Even insured U.S. adults were more likely than adults in other countries to forgo care because of costs and to struggle with medical bills. Forty-two percent of insured Americans reported paying $1,000 or more out-of-pocket for medical bills last year, compared to 2 percent of Swedes and 3 percent of people in the U.K.
Thirty-two percent of U.S. adults had to spend a lot of time on insurance paperwork or had an insurer deny a claim. Problems with insurers were also common in Switzerland (25 percent), the Netherlands (19 percent), and Germany (17 percent), the other three nations in the survey that use multiple payers (albeit highly regulated) for basic coverage in their systems. (Switzerland and the Netherlands use private insurance while Germany uses “sickness funds.”) There has been a steep increase in the proportion of people in the Netherlands forgoing care because of costs, rising from 8 percent in 2010 to 22 percent in 2013, a period in which the Netherlands implemented market-based reforms, along with austerity (Schoen et al., “Access, Affordability, And Insurance Complexity Are Often Worse In The United States Compared To Ten Other Countries,” Health Affairs, December 2013).
• Tom Scully, the former CMS chair who shepherded the Medicare drug bill – based on private, for-profit drug plans – through Congress in 2003, recently assured a group of hedge fund and private equity investment managers that “[Obamacare] is not a government takeover of medicine. It’s the privatization of health care” (Davidson, “The President wants you to get rich on Obamacare,” New York Times Magazine, 10/30/13).
Early enrollment figures
• A net of about 9.3 million uninsured adults between the ages of 18 and 64 gained coverage during the first quarter of 2014, according to a mid-March survey of 2,425 adults by RAND. An expansion of employer-based coverage (to 8.2 million people, of whom 7.1 million were uninsured) and Medicaid (to 5.9 million people, of whom 3.6 million were uninsured), not enrollment through the exchanges, accounted for most of the new coverage among the uninsured, the survey found. RAND estimated that two-thirds of the people who enrolled via the health exchanges had prior coverage, along with all but about 500,000 of the 7.8 million people who enrolled in individual plans directly through insurers. Overall, RAND found that the uninsured rate among 18-64 year olds dropped to 15.8 percent in 2014 from 20.5 percent in 2013. Because the data did not include the final two weeks of open enrollment, the actual uninsured rate for this group is likely to be slightly lower (Carman and Eibner, “Survey estimates net gain of 9.3 million American adults with health insurance,” RAND, April 2014).
A similar survey by the Urban Institute in early March estimated that 15.2 percent of adults aged 18-64 were uninsured. In states that are expanding their Medicaid programs, 12.4 percent of non-elderly adults were uninsured, compared with a rate of 18.1 percent in states not expanding Medicaid (Long, Urban Institute, 4/3/14).
• Nearly 83 percent of those signing up for private coverage through exchanges received a federal subsidy, but overall, only about 21 percent of people eligible for a subsidy actually enrolled, according to an early estimate by the Kaiser Family Foundation. A higher proportion – up to 40 percent – of those eligible enrolled in Washington, California, Connecticut and Rhode Island. Tragically, the ACA made no provisions for subsidies to people earning less than 100 percent of the federal poverty line because the authors assumed that all states would expand their Medicaid programs (Levitt, “How much financial assistance are people receiving under the Affordable Care Act,” Kaiser Family Foundation, 3/27/14).
The average federal subsidy for private health insurance premiums on the exchanges will be about $4,250 per enrollee in 2014, rising to $7,170 per enrollee in 2024, according to the Congressional Budget Office’s latest estimates. The CBO estimates that about 25 million people each year will purchase private insurance with federal subsidies between 2016 and 2024. Factoring in subsidized cost-sharing ($167 billion), federal subsidies to the private insurance industry over the 10-year period 2015-2024 will total $1.03 trillion (CBO, “Insurance Coverage Provisions of the Affordable Care Act,” April 2014).
• Several of the 14 state-based exchanges experienced major problems. Maryland, Massachusetts, Oregon, Nevada and Vermont replaced top officials, cancelled contracts with software companies and spent tens of millions of dollars on new contractors and fixes. Only about 63,000 people were able to sign up for private coverage in Maryland, far short of the state’s goal of 250,000 people. Maryland officials have decided to drop their exchange and start over with Connecticut’s exchange software. The software is free, but they’ll have to invest another $50 million to adapt it for Maryland. Oregon officials are dumping their $248 million exchange and switching to the federal exchange HealthCare.gov next year. The switch will cost about $35 million to complete. The Massachusetts Connector, which received $180 million in federal grant money to prepare for the transition to the ACA, was unable to sign people up for federally subsidized coverage. The state signed up about 30,000 people for unsubsidized coverage, and 138,000 people for “temporary coverage,” with many of the sign-ups occurring via paper applications. The state also asked HHS to allow 114,000 Massachusetts residents to stay in their current plans through September (“extended coverage”) due to their technical problems. Xerox and the Nevada health exchange are being sued for not passing on premiums and applications to insurers, leading to disputes among hospitals, patients, and insurers over medical bills (Chereb, “Bungling mars health care deadline in some states,” AP, 3/25/14; Walker, “MD votes to adopt health exchange software used in Connecticut,” Baltimore Sun, 4/2/14; Cassidy, “$180 million Fed connector tab eyed,” Boston Herald, 4/1/14; and Chereb, “Xerox, Nevada health exchange subject of class-action filing,” Las Vegas Sun, 4/2/14).
• Several states are concerned that their exchanges aren’t financially sustainable. The Hawaii Health Connector, which cost $54 million to build, only signed up 7,788 people, for a cost of $6,934 per enrollee; it is expected to cost $15 million annually to operate, but only bring in $1 million in revenues from a 2 percent fee on the plans it sells. The Hawaii exchange would have needed to sign up 150,000 people to be sustainable; officials now admit this was an “unrealistic” expectation in a state with 100,000 people who are uninsured, half of them eligible for Medicaid (Consillo, “Hawaii health connector won’t be sustainable after 2014,” Honolulu Star-Advertiser, 2/26/14).
Low actuarial value, ultra-narrow networks, high administrative costs
• As of April 1, 20 percent of policies purchased through the exchanges were bronze, 65 percent were silver, 9 percent were gold, and 5 percent were platinum. Bronze plans have lower premiums but are not eligible for federal subsidies for cost-sharing (available to those with incomes below 250 percent of poverty), so most people enrolled in silver plans that are eligible for these additional subsidies (Summary enrollment report, HHS, 5/1/14).
• Patients are responsible for up to 50 percent of the cost of specialty drugs in plans sold on the exchanges, a burden that will hit people with chronic illness especially hard, according to reviews by Milliman Inc. and Avalere Health. Milliman reported, in a study of plans in California, New York, Florida and Texas, that the latter two states have especially high drug coinsurance, of 40 percent to 50 percent. An analysis of plans in 19 states by Avalere found that 60 percent of bronze plans and 23 percent of silver plans had drug coinsurance rates of 30 percent or more (“Chronically ill facing high drug costs under U.S. health law,” Reuters, 2/28/14).
• Every insurer offering plans on the health exchanges restricts patients to its own network of doctors and hospitals. Even more expensive plans in the same market from the same insurer don’t necessarily grant access to a wider choice of providers, and out-of-network care can be costly. Federal subsidies for cost-sharing don’t apply for out-of-network care, and out-of-network care costs may not count toward the out-of-pocket maximums ($6,350 for an individual, and $12,700 for a family, excluding premiums), leaving patients on the hook for the entire cost. A McKinsey & Co. analysis of 120 silver-level exchange plans found that 70 percent were narrow network, with at least 30 percent of the area’s largest hospitals excluded, or ultra-narrow, excluding at least 70 percent. While insurers can’t charge more for out-of-network emergency department care, patients placed on observation status or admitted to an out-of-network hospital are no longer shielded from uncovered costs (Andrews, “Warning, Opting Out of Your Insurance Plan’s Provider Network is Risky,” Kaiser Health News, 3/18/14).
• For the most part, patients were unable to verify if their doctors were covered by a particular plan on the exchange in advance of purchasing it. According to ZocDoc, an online appointment booking firm which tried to verify the accuracy of insurers’ directories, about half of the listings for in-network providers were wrong. The California exchange took down its directory in early February due to errors (Tozzi, “Obamacare limits choices under some plans,” Bloomberg Businessweek, 3/20/14).
• Individuals can keep coverage that doesn’t meet the minimum benefits standards of the ACA for another year, and in some cases until 2016, according to new rules from HHS. Insurance commissioners in 21 states and the District of Columbia have blocked the extension on the grounds that they need these people in the exchange risk pools to avoid premium increases (“Keeping Your Insurance Policy,” New York Times, 3/6/14).
Insurers will be allowed to spend more than the ACA’s limit of 20 percent of their premiums on overhead because of the rocky rollout of the exchanges. Insurers complain that it required them to hire more call-center staff, process applications manually, and, in some states, like Maryland, where the exchange hasn’t functioned at all, pay broker fees (Hancock and Appleby, “Insurers may get cost break thanks to rocky ACA rollout,” Kaiser Health News, 3/13/14).
• Insurers are also receiving more federal help in the form of new, lower, reinsurance rates. In 2014, reinsurance for high-cost cases will kick in at $45,000 in claims for one individual, down from $60,000, and extending to a cap of $250,000. While reinsurance is a temporary $10 billion program that, like the risk corridors (which limit gains or losses by insurers over 3 percent of premiums) is only in effect until 2016, risk adjustment is a permanent feature of the new law. Plans that can show they have enrolled a sicker population are supposed to receive payments from plans that have enrolled healthier people. But risk adjustment is easy to game (as repeatedly demonstrated in the Medicare Advantage program) by labeling patients with more diagnoses, known as “upcoding.” Insurers are already scrambling to find out about enrollees’ health conditions, which they say they need to know in order reduce the cost of caring for those patients. Cigna is calling enrollees to ask about health conditions, medications, and other medical needs, while Florida Blue is encouraging enrollees to fill out health risk forms and get tests for cholesterol and blood sugar (Mathews, “Health plans rush to size up new clients,” Wall Street Journal, 2/27/14).
• The penalty for not having health insurance by March 1, 2014, will “almost always” be more than the $95 figure often cited in news reports. The penalty is $95 or 1 percent of adjusted gross income, whichever is greater, minus some adjustments, up to the cost of the premium of a bronze plan. The penalty will rise to 2 percent of income or a minimum of $325 in 2015, and 2.5 percent of income but at least $695 in 2016. A “tax penalty calculator” is online at the Tax Policy Center (McKinnon, Wall Street Journal, 3/6/14).
• Insurers are required to keep people on their rolls for three months if payments are missed, but are only required to pay their medical bills for the first month, leaving providers on the hook for the other two months if payments are not forthcoming. (“Commenters say ACA grace period rule puts unfair burden on hospitals, providers,” Bloomberg BNA, 8/21/13).
• As of March 28, 21 states have decided to opt out of the Medicaid expansion and three are still debating their participation (Missouri, Pennsylvania and Utah). Most of the states opting out require parents to make less than 50 percent of the federal poverty level to be eligible for Medicaid. The Commonwealth Fund estimated that states opting out of the Medicaid expansion will forgo an estimated $34.7 billion in federal funds between 2014 and 2022 (Advisory.com and Glied et al., Commonwealth Fund, December 2013).
States privatize, shrink Medicaid benefits
Arkansas, which was allowed by HHS to use its federal Medicaid funds to buy private insurance for 94,000 Medicaid-eligible residents this year, diverted anyone thought to be medically frail (about 10 percent of new enrollees) to traditional Medicaid, thereby selectively enrolling the healthy in four for-profit, “private option” plans, which receive $476 per person, per month. Now Arkansas is seeking waivers to shift more costs onto patients by (1) expanding the use of co-pays to people with incomes as low as 50 percent of poverty (only enrollees with incomes between 100 and 138 percent of poverty are currently charged co-pays), (2) curtailing non-emergency transportation assistance, and (3) setting up health savings accounts for beneficiaries (without necessarily putting funds in them). The state’s Republican Party has threatened to end the expansion unless CMS approves these changes (DeMillo, “Arkansas officials eye changes to Medicaid plan,” AP, 3/5/14, and Goodnough, “In Arkansas, private option Medicaid plan could be derailed,” New York Times, 2/11/14).
Several other states are appealing to HHS to institute premiums or co-pays for Medicaid enrollees, including Arizona, Iowa, Michigan, Indiana, New Hampshire, Pennsylvania and Tennessee. Iowa wants to charge Medicaid enrollees premiums of $30 a month that beneficiaries can “earn back” by quitting smoking or losing weight. Premiums discourage uninsured poor people from enrolling in Medicaid while raising little in new health funds. Similarly, co-pays penalize the sick, particularly those with chronic illness (Saloner et al., “Pinching the Poor,” NEJM, 3/27/14, and Vestal, “‘Private Option’ for Medicaid Expansion Would Cut Some Benefits,” KHN, 3/27/14).
• The number of long-term care residents enrolled in mandatory Medicaid managed care is projected to double this year to 1.2 million. Florida, New Jersey, Ohio, California, and Virginia are implementing statewide mandates this year, while some other states, including New York, Texas, and Rhode Island, are expanding the approach to additional counties. “The mandatory transition of large numbers of consumers who use long-term care … is unprecedented,” according to Laura Summer at Georgetown (Galewitz, “States accelerate shift of nursing home residents into Medicaid managed care,” 2/11/14).
Employer mandate delayed, cap on deductibles for employees of small business eliminated
• The employer mandate in the ACA was slated to begin January 1, 2014. Now, the large employer mandate (>100 employees) has been postponed for one year, and will be phased in, so that in 2015 employers only need to cover 70 percent of employees working 30 or more hours per week to avoid a penalty, rising to 95 percent of workers in 2016. The deadline for employers with 51-99 workers to provide coverage for their workers or pay a fine was also extended for an additional year, to 2016. Seasonal employees who work six months or less are not considered full-time employees.
• Businesses with 50 workers or less are not required to provide or report coverage, but the federal government and 16 states and the District of Columbia have set up separate exchanges for small businesses and their employees under a program called the Small Business Health Insurance Options Project (SHOP). In 14 states and D.C., SHOP exchanges are facilitating small business owners’ ability to shift costs onto their workers through defined contributions. Instead of covering a uniform set of benefits for every employee, employers are permitted to contribute a set percentage (typically 50 percent) of the cost of an index plan towards the cost of the policy of the employee’s choice, making the worker responsible for the difference. While the ACA required plans sold through SHOP to limit deductibles to $4,000 for family policies and $2,000 for individual coverage, the cap on deductibles was removed in the “doc fix” legislation passed in March (Dash, Commonwealth Fund, 3/14, and Lieberman, “Repeal on deductible caps marks another step in The Great Cost Shift,” Columbia Journalism Review, 4/11/14).
Labor issues under the ACA
• Union-management-run health insurance plans (Taft-Hartley plans) are not eligible for subsidies under the ACA; subsidies are restricted to the private plans sold on the exchanges. As a result, firms hiring nonunion workers with access to subsidized plans have a competitive advantage over unionized firms. In addition, firms with employees working less than 30 hours per week are not required to provide coverage, so there is a strong incentive for employers to cut workers’ hours. Labor unions warn that the ACA will lead to cuts in wages and benefits for the middle class (Mark Dudzic, “Ten things unions need to look out for when bargaining under Obamacare,” www.laborforsinglepayer.org).