Andrew Webber, President and CEO of the National Business Coaltion on Health (NBCH), and Karen Davis, President of the Commonwealth Fund, on the impact of health reform and what to expect next.
PHP: How are employers feeling in the wake of the Supreme Court's ruling to uphold the Affordable Care Act (ACA)?
AW: I think most employers were waiting for certainty and the court's ruling does remove a level of uncertainty. The ACA isn't going away. But there are still a lot of unanswered questions with respect to implementation. What benefits are employers going to be required to provide, and how much will they cost? How will the Cadillac tax on high-cost health plans work? How will a full-time employee be defined for purposes of the "pay-or-play" mandate, and things like the PCORI (Patient-Centered Outcomes Research Institute) fee? What will the federal fallback exchange look like? How will the affordability test work? There are a host of these questions that still need answers. Remember, a lot of employers were actually supporters of the ACA because of its promise to reorganize the delivery system and contain costs. There are lots of things in motion on those fronts, but nothing's been realized yet. I think the general sense is: let's get going. Hopefully the administration is feeling a lot of pressure in advance of the election to provide answers.
PHP: We're just 17 months away from the launch of the state health exchanges. Do you think they'll have an impact on the large-group market? If so, how?
AW: I think the employer community will be watching the exchanges closely. Everyone will. There are all kinds of questions about whether more transparent competition might effectively hold costs in check, whether consumers will have an easy time navigating the exchanges, if there will be any adverse selection, and so on. One thing we won't see is a lot of large employers dropping coverage altogether and forcing their employees into the exchanges. The employer community right now is pretty strongly committed to offering benefits to stay competitive in the marketplace. I think the really exciting development in terms of exchanges may be in the private sector. There is a fair amount of energy around private exchanges right now (see related article: Is There a Place in the Market for Private Exchanges?) that may be evolving in parallel or even in front of the public exchanges that launch in 2014. If they catch on, it's a real sea change for the industry. But the bottom line is that employers will be watching carefully to see if exchanges are successful, and if they are, what their competitor companies are doing in terms of rethinking how benefits are offered to employees.
KD: States are likely to expand eligibility for exchanges up to 100-employee firms in 2016, and larger firms in 2017 and beyond. If the exchanges are successful in increasing value for the premium dollar, more firms may find it attractive to buy their employees' coverage through the exchange.
In one Commonwealth Fund–supported article, based on interviews with large employers, benefits consultants, and policy experts on their potential use of the exchanges in the short term (2014–16) and over the longer term (2017 and beyond), William Kramer of the Pacific Business Group on Health found that many large employers are considering using the exchanges for pre-Medicare retirees and part-time workers. Factors that will continue to affect employers' decisions include the viability of the exchanges as marketplaces, the future of the Affordable Care Act, and the strength of the economy.
PHP: The Commonwealth Fund and the Kaiser Family Foundation estimate that health plans this year will pay roughly $1.3 billion in rebates to consumers based on the medical loss ratio rule, which requires plans to spend at least 80 percent to 85 percent of premium dollars on medical care. Will employees or employers get those rebate dollars?
KD: The medical loss ratio rule is designed to put downward pressure on health plan administrative costs and profits. Previous Commonwealth Fund research has found that administration accounts for between 20 percent and 40 percent of premiums in the individual and small-group markets.
Insurers who do not meet the medical loss ratio requirement must either send rebate checks to enrollees to compensate for the administrative overspend, or reduce next year's premiums by an equivalent amount. Businesses who receive rebates on behalf of their workers can choose to pass rebates directly on to employees, reduce the following year's premium costs, or use the rebate in another way that benefits enrollees.
In 2012, insurers who did not meet the medical loss ratio requirement paid out $1.1 billion in rebates to 12.8 million Americans. In the individual market, 38 percent of consumers (4.1 million enrollees) were covered by plans that did not meet the requirement; they received $394 million in rebates, an average per family of $152. In the small-group market, 17 percent of consumers (3.3 million enrollees) were covered by plans that did not meet the requirement; they received $321 million in rebates, an average of $174 per family. Rebates were slightly lower in the large-group market. Only 11 percent of consumers were covered by plans that did not meet the requirement; they received a total of $386.4 million in rebates, an average of $135 per family.
In 2014, administrative costs should decline further. New ACA insurance market rules will take hold: individual and small-group market insurers will not be permitted to vary premiums based on health or gender, a process that greatly increases administrative costs. In addition, structured competition among equivalent plans will reward plans with lower administrative overhead and lower premiums.
PHP: U.S. health care spending grew slowly (just 3.9%) in the first year after the ACA was implemented. Do you think the slowdown is attributable to ACA reforms?
AW: The ACA probably had a little to do with the slowdown in spending growth, but the recession probably accounts for more of the dip. Health care utilization is down across the board. Unemployment is still relatively high and, as people lose health benefits, health care use goes down. Things get delayed. People have to pay more out of pocket so they just don't go to the doctor as often. It's interesting that as use has dropped, we've seen an across-the-board increase in prices for a lot of medical services. I think what we're seeing is the provider community making up the difference. I think that's wrong and it's just one more argument for price transparency. People need to know how much they're paying for health care or else the message to the provider community is "charge whatever you want."
KD: While the recession and tepid recovery are likely having an effect on current spending, I've also written that the tectonic plates underlying the health system seem to be shifting in anticipation of new incentives under health reform and in response to health care leaders' efforts to transform care over the past decade.
In the Medicare program, savings under several ACA initiatives are already being realized. Specific examples include changes in payment rates for Medicare Advantage plans, home health agencies, and other providers; fraud and abuse provisions; as well as requirements for prescription drug rebates for Medicare managed care plans. Looking out several years, Medicare spending in 2020 is now estimated to be $922 billion, which is $150 billion lower than the $1.07 trillion projected by CMS pre-reform. Over the next decade, total Medicare savings could reach $800 billion, while improving benefits and financial protection for beneficiaries.
I'm optimistic that we'll continue to build on this early progress and deploy all of the tools in the Affordable Care Act to lower costs and improve quality not only in Medicare, but across the entire U.S. health system. Of particular interest to those in the business community may be the new medical loss ratio requirements and health insurance exchanges. Our research suggests that taken together these initiatives could limit the amount of money health plans spend on administration and greatly improve the value we receive.
Other promising, systemwide changes already under way include new methods of organizing the delivery of health care services, adoption of electronic information systems, and provisions that will test and reward health care organizations that are accountable for achieving better outcomes, higher quality, and lower costs. It's a time of great potential for innovation that will benefit those who purchase, deliver, or receive health care in the United States.
PHP: A year ago there was some concern that employers might opt out of providing health coverage and simply give employees vouchers and direct them to buy coverage through their states' exchanges. Do you think this is a realistic possibility?
KD: I believe employers provide health insurance to workers for several reasons—the most important being that it gives them an advantage in the competition for the best workers. Highly qualified skilled workers expect to receive health benefits through their job. But there are other reasons as well: Good insurance coverage improves employee health, productivity, and morale—numerous studies over the past decade have proven that. It also enhances loyalty to the employer, and therefore employee retention. And it is a tax-preferred benefit for employees which, according to a recent Employee Benefit Research Institute survey, is valued by employees relatively more than a comparable amount in wages. So I wasn't surprised by a study I just saw from Towers Watson (a benefits consulting firm), that said zero of 512 large employers plan to drop coverage in the near future. It just doesn't make good business sense for them to do so.
But some of the benefits of the exchanges are more plan choices for employees, and reduced administrative burden for human resources departments. So, when it becomes possible, I do believe that some large employers may find it attractive to buy coverage for their employees through the exchanges.
PHP: What do you think are the best aspects of health reform for employers?
AW: There's a lot in the ACA that employers have strongly supported right from the outset. If I had to pick a single most significant thing it would probably be the message the ACA sent to the provider community that Medicare will be changing how it reimburses doctors and hospitals. Payment reform has been on the top of most employers' wish lists for years and now we've got a payer that no stakeholder can ignore leading the effort. That's a big deal for us. Payment reform starts us down a path to price transparency, long-term population health, quality-based payments, and eventually to things like bundled payment or global budgets that would hold teams of providers accountable for achieving good outcomes.
KD: As I've mentioned, the new medical loss ratio requirements and the creation of health insurance exchanges may be of particular interest to those in the business community. Several other provisions have the potential to improve the value of coverage employers are able to offer their workers, and to promote innovation, delivery system reform, and higher quality. Several new rules will be of great benefit to employers, including the requirement that qualified health plans in the exchanges report quality information, essential health benefit standards, market rules that limit the amount of money employees are required to spend in the event of a serious illness, and tax credits that reduce the cost of premiums for small businesses that offer health insurance to their employees.
PHP: Do you think the ACA, the health insurance exchanges, and the preexisting condition rules will have a substantial effect on the flexibility and mobility of the U.S. workforce?
AW: I don't think anybody has a good handle on how many Americans are currently in a "job lock" situation—meaning they can't change jobs because they're worried about losing health coverage. But it's certainly true that most people won't need to be worried about this in the near future. That's a good thing, but for large employers it's probably not that relevant. Underwriting rules have never been applied to them anyway because they are governed by Employee Retirement Income Security Act (ERISA) rather than by state regulations. I think a lot of small employers are really going to benefit from this change. They're never going to find themselves in a position where someone can't accept a job offer just because he or she has a preexisting condition. That's a nice burden to have lifted. But remember that the extent to which "job lock" really decreases will be related to how well the exchanges are run. If employees don't have confidence in a given state's exchange, that benefit evaporates. So there's actually a lot of pressure for the federal fallback exchange to shape up, since at least a handful of states look like they're going to defer to the fed in 2014. But as of right now, we don't have much guidance on what the federal exchange is going to look like or how it'll work.
KD: Yes, I think the exchanges and the preexisting condition rules in the ACA will have a very positive effect on the ability of workers to change jobs without having to worry about being able to obtain new health insurance coverage. In 2014, people who don't have insurance coverage through their employers will be able to purchase it in state insurance exchanges, with subsidies available to ensure that coverage is affordable for those with low or moderate incomes. And for the first time, insurers won't be able to deny coverage to anyone due to a health problem or charge them more because of a health condition or exclude a condition from their coverage. Through the exchanges, all Americans will have access to affordable, comprehensive coverage that can't be denied or cancelled because of a health problem.
PHP: There are still a lot of unanswered questions about aspects of the law related to the essential benefit package. What will it include? Who will the Cadillac tax apply to? How large can we make incentives for healthy behaviors? What questions are the most pressing and what can employers do to help push for answers?
KD: To me, one of the biggest challenges is avoiding adverse risk selection in the exchanges. There is a danger that if a large number of employers with generally healthy workers don't participate, the exchanges may attract a less healthy and therefore more expensive population, driving up the cost of premiums in the exchanges. Employers should help try and make the exchanges work by supporting the inclusion of integrated delivery systems like Kaiser Permanente and Geisinger among plan choices. They can also help by educating employees on plan choices, as well as treatment options, and most important, continue to provide workers with the economic support for coverage that is essential for their families' physical and financial health.
PHP: The Supreme Court ruling allows states to opt out of the Medicaid expansion slated for 2014. Do you think it's likely that any states actually will opt out?
KD: The federal government will provide the majority of financing to states for the Medicaid expansion, covering 100 percent of the costs in most states through 2016 before gradually reducing its contribution to 90 percent for all states by 2020. This translates into an infusion of federal dollars into states on the order of $668 billion over 2014–20, and will substantially reduce each state's number of uninsured residents and total uncompensated health care costs.
If all states choose to participate in the expansion, the Congressional Budget Office estimates that 17 million people could gain new coverage under the program by 2020.
It does not seem likely that states will turn down this opportunity to help their residents gain coverage and gain new financial support for hospitals and safety-net providers in communities.
Not every state participated in the Medicaid program when it was first enacted in 1965, but eventually all states did join in the program. I would expect that all states will eventually participate in the ACA Medicaid expansion as well.
AW: Karen's answer is right on target, but even so, there are some states that are still threatening not to play. Iowa says it can't afford the Medicaid it has now, so no matter how generous the fed is with respect to paying for the expansion, it still can't afford it. And I know that some other states are balking on principle: they're concerned that a significant expansion of Medicaid may reposition it not as the state's health care program for the poor, but as the state's health care program for pretty much anybody. If that happens, a given state's Medicaid program really could expand to an unsustainable extent rather quickly. There is also a political concern that taking the expansion threatens the existence of the Medicaid program as a state–federal partnership. Governors who accept the money and do the expansion will have to answer to constituents who may think they have just been made pawns of the federal government.
PHP: Whether or not the noncompliance penalty is truly a tax or a penalty, the Supreme Court has made its views clear by calling it a tax. What are the long-term implications of this ruling?
AW: There's something wrong with the political system if the only viable path for establishing a new social welfare program runs through the tax code. But that's the message the court is sending: "you can't penalize, but you can tax." That really raises the stakes for future efforts to shape behavior in ways that would be positive for all of us. Taxes aren't popular and if every new effort to nudge people and corporations in a healthier direction becomes a tax, then there won't be a lot of innovation in an area where we still need lots of innovation. The ruling puts us at risk of losing a really potent lever.
