By Rebecca Adams, CQ HealthBeat Associate Editor

July 28, 2011 -- National health care spending grew by 3.9 percent in 2010, a historic low, according to a new analysis by Centers for Medicare and Medicaid Services actuaries published Thursday. The study assumes that medical care spending will spike in 2014 because of the overhaul law, but will resume growing each year at rates expected if the measure had not been enacted.

As a result, CMS actuaries predict that the health share of the economy will grow from 17.6 percent of gross domestic product in 2009 to 19.8 percent in 2020. During that period, about 30 million more people will be insured because of the health care overhaul’s coverage expansion, according to the study published in the journal Health Affairs. The actuaries publish such findings each year. The report is considered to contain the most comprehensive and credible objective data available into past and projected national health care spending.

This latest report projects that the average annual growth in national health care spending is expected to be 5.8 percent from 2010 to 2020, 0.1 percentage point higher than it would have been had the health care law (PL 111-148, PL 111-152) not been enacted.

“The bottom line from the report is clear: More Americans will get coverage and save money, and health expenditure growth will remain virtually the same,” White House Deputy Chief of Staff Nancy-Ann DeParle wrote on the White House blog.

The movement of the baby boomers into government health programs as they age and the effects of the health care law will increase the share of medical services paid for by the government from 45 percent in 2010 to 49 percent in 2020.

The amount of spending on services financed by Medicare and private health insurance will not change significantly from 2010 to 2020. But Medicaid, the federal-state program for the poor, will pay a larger share, the actuaries project. By 2020, the amount of spending on health services financed by Medicare will be 20 percent, the same as it was in 2009. Private health insurance will pay for about 32 percent of expenses in 2010, and a decade later is still expected to be paying about 30 percent of costs. But the share of national health costs paid by Medicaid will grow from 16 percent in 2010 to 20 percent in 2020.

Overall, the share of all health spending that goes to specific services such as physician visits or prescription drugs will barely change from 2010 to 2020. For instance, the percentage that goes to prescription drugs will be 10 percent in 2010 and 11 percent in 2020, while the percentage that goes to hospital services will fall from 31 percent to 30 percent.

But in 2014, the year that most of the health care law’s coverage expansions take place, the total amount of spending is expected to be higher than it would have been without the health care law. That is especially true for prescription drugs and physician services, since many of the people who gain insurance will be younger and healthier than those already insured and will have less need for hospital care. Prescription drug spending will grow by an annual rate of about 10.7 percent in 2014, which is 5.1 percentage points higher than it would have been if the law had not been enacted. Spending for physician and clinical services will grow by 8.9 percent that year, or 3.1 percentage points higher than it otherwise would have been. Hospital spending will increase 7.2 percent, which is 1 percentage point higher than before the overhaul.

Overall spending growth in 2014 is expected to spike, rising to 8.3 percent.

But after that one-time jump, annual spending growth rates will settle back down to levels that would have been expected without the health care law. National health spending costs are projected to grow at an average annual rate of 6.2 percent per year from 2015 to 2020. For the entire 2010–20 period, health spending is projected to grow at an average rate of 5.8 percent per year, which is 1.1 percentage points higher than the expected rise in GDP.

White House officials say the analysis doesn’t take into consideration other savings that are difficult to estimate.

“The report doesn’t tell the whole story,” DeParle wrote in her blog post. “The Affordable Care Act creates changes to the health care system that typically don’t show up on an accounting table. We know these new provisions will save money for the health care system, even if today’s report doesn’t credit these strategies with reducing costs.”

Those provisions include plans to reduce hospital readmissions, encourage providers to coordinate more closely on patients’ care, and bundle payments for doctors and hospitals rather than bill for each individual procedure or test.

Looking back at spending in 2010, the recession had a significant impact on the spending slowdown. National health spending was estimated at $2.6 trillion last year. The 3.9 percent growth rate is slightly lower than the 4 percent growth seen the year before.

The low growth rate is due to two main factors, the study said. First, Medicare spending growth was lower than in previous years because Congress lowered the amount by which reimbursements for the Medicare Advantage plans would rise. Second, the recession took a toll. People lost their private health insurance, which meant they used fewer health services and spent less. And people paid less out of pocket for services because they had less money to spend.

Health Affairs article (pdf)

Rebecca Adams can be reached at [email protected].

By John Reichard, CQ HealthBeat Editor

July 28, 2011 -- Witnesses at a House subcommittee hearing offered sharply differing views of the impact of the health care law on small businesses, with a Burger King franchisee saying it will force him to turn all his workers into part-time employees and a law professor challenging claims that the overhaul will lead many businesses to drop coverage.

Brian Vaughn, the owner of four Burger King franchises in Georgia, said, “There are going to be virtually no full-time jobs in my business. The bottom line is we can’t afford this thing.” He delivered testimony before the House Small Business Committee’s Subcommittee on Healthcare.

Vaughn said he has 182 jobs at his four locations. Fifty-nine are full time and 123 are positions with under 30 hours per week of work. “Fourteen of the full-time jobs are management jobs for which we currently cover 100 percent of the cost of the health care for the employee at an annual cost to us of nearly $56,000 per year. Other employees can get a “mini-med” plan for between $106 and $165 per month. Vaughn said 19 of his part-time workers have taken the mini-med coverage, which offers very modest benefits.

When employers such as Vaughn must offer coverage under the health care law (PL 111-148, PL 111-152) in 2014, he indicated he would rather pay penalties under the law than provide all his full-time workers unaffordable, “Washington-defined” coverage. Vaughn noted that part-time workers are not counted in calculating the penalty.

“Prior to the law’s enactment, my goal had always been to hire fewer people for more hours. It is easier to retain employees that work full time.” But with the law, it makes more sense “for me to hire more people for fewer hours. At a time when millions of Americans are out of work, is this really the right incentive?”

Vaughn added that under the law he would no longer be permitted to offer mini-med coverage. “It is important to acknowledge reality,” he said. “There is only so much money—both for my employees and for me. These plans offer less expensive coverage options that allow my team members to choose to take more of their wages home to pay for other expenses and use a small amount to pay for some coverage.”

Timothy Jost, a law professor at Washington and Lee University, said, “There is every reason to believe that the [health care law] will not dramatically change the scope of employer coverage in the United States.”

At the extremes, he said, American Action Forum President Douglas Holtz-Eakin estimates that employer-sponsored insurance will shrink by 22 percent, while the Rand Corp. estimates it will grow by 8.7 percent. The forum is a right-leaning advocacy group; Rand is a nonpartisan think tank. “Most studies, however, including those by Booz, Lewin, Urban, Mercer, and Towers-Watson, predict that coverage will remain largely unchanged.” Jost added that the Congressional Budget Office has projected that “employment-related insurance would grow from 150 million in 2010 to 159 million in 2019, three million fewer than would have been covered” had the health law not been adopted.

Jost also challenged the findings of a study sponsored by the National Federation of Independent Business (NFIB). That report projects that “26 percent of small employers are very likely and 31 percent somewhat likely to drop coverage after the ACA is fully implemented. This projection, however, is based on a fundamental misunderstanding.” The questions in the survey presumed that employees will be able to freely choose between coverage offered by the employer and receiving premium tax credits in the exchange. But “employees who have a coverage offer from their employer are not eligible for premium tax credits unless the coverage offered is seriously deficient.”

Jost noted another finding of the NFIB survey: that one in eight small businesses said their insurer had eliminated their specific health plan in the past year or said they would do so in the future. Jost indicated that the health care law isn’t to blame for that, because it is typical of the “churn” that occurs in the small-group market. He added that medical loss ratio (MLR) rules are helping to lower premiums, because health costs have started to shrink somewhat—and the MLR permits premiums in the small-group market to be no more than 20 percent higher than a plan’s health care and quality improvement outlays. Thus if health costs shrink, overall premiums have to come down too, he indicated.

John Reichard can be reached at [email protected].

By Rebecca Adams, CQ HealthBeat Associate Editor

July 27, 2011 -- Medicaid officials will soon issue a proposed rule that top agency official Cindy Mann said would outline the “rules of the road for eligibility and enrollment” for the program’s 2014 expansion under the health care overhaul law.

The Office of Management and Budget received the proposal on June 28 and is conducting a final review, according to a notation on its website.

Speaking at a conference sponsored by the Bipartisan Policy Center, Mann previewed four aspects of the proposed regulation, saying that the rule will be as flexible as possible in allowing states to shape the program. But, she said, state officials will need to make sure that Medicaid officials coordinate with the new exchange markets in checking applicants’ eligibility, align the rules for Medicaid and exchange plans as much as possible, and work toward simplifying enrollment procedures.

On the first point, Mann said that the philosophy will be similar to that in the health care law (PL 111-148, PL 111-152) exchange regulation Health and Human Services officials proposed two weeks ago. In the exchange rule, the federal government planned to defer to state officials on many of the details of how the markets would work.

“There’s no one way to set up a state system to make this work,” said Mann.

She said that the other principles are intended to make it as easy as possible for people to apply for coverage and to make the enrollment process seamless. This builds on the “no wrong door” approach that federal officials have envisioned. The idea is that if a person applies for Medicaid and realizes that he or she is not eligible for that program, federal officials want that person to be referred to the exchange, the Children’s Health Insurance Program or other coverage options.

“We shouldn’t expect them to have to figure out which is the right coverage option for them,” said Mann.

Government officials should guide applicants, she said, even if different members of the family end up in different programs.

Aligning the rules of the program as much as possible will help ensure that the process is not too cumbersome, she said. For instance, programs should create the same kind of income verification system.

At the conference, Director of the Center for Consumer Information and Insurance Oversight Steve Larsen also spoke.

He said that even though few states have passed laws creating an exchange, he expected more to act now that the federal proposed rule has been released and a final rule is expected this year. He predicted that most states would end up setting up a state exchange, rather than allow federal officials to operate one in their states. In his experience as a state official in Maryland, he said he “never met a governor that didn’t want to control their own destiny.”

Rebecca Adams can be reached at [email protected].

By Rebecca Adams, CQ HealthBeat Associate Editor

July 27, 2011 -- Rural physicians and consumers rate the quality of care in their towns lower than people in urban and suburban areas, and their impressions are validated by data in a new report released early Wednesday by UnitedHealth Group.

In the 84-page report, researchers found that in 70 percent of insurance markets, using a set of objective measurements, the quality of care scored lower in rural areas than in cities.

The report also found that there are only 65 primary care doctors per 100,000 rural Americans, as compared with 105 primary care physicians per 100,000 urban and suburban Americans. Rural areas have fewer than half the number of surgeons and other specialists per capita than are in urban and suburban areas.

As part of the report, Harris Interactive surveyed 2,000 patients and 1,006 primary physicians nationwide. The survey found that doctors in rural areas were more likely than their urban and suburban counterparts to say diabetes, hypertension, heart problems, cancer, drug abuse, and teen pregnancy are major health problems affecting their communities.

More than 30 percent of rural primary care physicians said in the survey that it is difficult to find specialists to serve their patients, compared with fewer than 10 percent of urban and suburban primary care physicians.

The survey was conducted in May and has a margin of error among the physicians of plus or minus 3.09 percentage points. For the total consumer population, the margin of error was plus or minus 2.19 percentage points.

The report also includes a new analysis by The Lewin Group, which projects an increase of around 8 million insured rural residents by 2019 due to the health care overhaul’s Medicaid expansion and state insurance exchanges. Since some rural residents will have other sources of insurance, the net rural coverage expansion is expected to be about 5 million people, the report said.


The study’s authors conclude that telemedicine may be a good way to prevent access problems, especially in rural areas, as people gain coverage as called for in the health care law (PL 111-148, PL 111-152).

UnitedHealth study (pdf)

Rebecca Adams can be reached at [email protected].

By Dena Bunis, CQ HealthBeat Managing Editor

July 26, 2011 -- Two Democratic lawmakers on Tuesday introduced bills in the House and Senate that would require Medigap plans to meet the same medical loss ratio standards (MLR) as private insurers.

The measures would require Medigap plans to use more of each premium dollar on medical care and less on administrative costs than they are required to do now.

Under the health care overhaul law (PL 111-148, PL 111-152), the Department of Health and Human Services issued regulations that require insurance plans in the group market to spend at least 85 percent of every premium dollar on medical care and that require insurers in the individual market to spend 80 percent for such services. The new requirements do not apply to Medigap policies, which have medical loss ratio standards of 75 percent in the group market and 65 percent for individual policies. Those percentages have been in effect since Medigap insurance standards were set in 1990.

The bill (HR 2645), introduced by Rep. Pete Stark, D-Calif., and a companion one (S 1416) in the Senate by John Kerry, D-Mass., would require Medigap insurance plans to meet the same MLR standards as other health insurers. The measure would make the new standards effective in 2014.

House Democrats Henry A. Waxman of California and Frank Pallone Jr. of New Jersey are original cosponsors of Stark’s measure. Staff members for both authors said that so far, no Republican lawmakers have signed on to the bills.

“Americans have long paid to line the pockets of insurance executives with their premium dollars. Health reform pushes back by ensuring that consumers get improved value for their premium dollars through strong medical loss ratio standards for private health insurers and Medicare Advantage plans,’’ Stark said in a written statement announcing the bill. “Our legislation builds on those reforms by extending the same standards to Medigap plans.”

Kerry said that “this common sense bill provides another layer of protection for our seniors.”

Robert Zirkelbach, spokesman for America’s Health Insurance Plans, said not only are Medigap plans “one of the most highly regulated coverage options in the marketplace today,’’ but that “policymakers and regulators have always recognized that supplemental coverage options are different than comprehensive and major medical.”

Medigap policies have a much lower premium base on which to spread the administrative costs, he said. “That’s why the levels are set where they are.”

Increasing the MLR requirement on Medigap policies, he said, “could disrupt the coverage that beneficiaries like and rely on today and could reduce their access to some of the services that are available in the current policies.’’ Zirkelbach said the administrative cost side of premiums pays for such consumer benefits as better health information technology, call centers and other customer supports.

AARP officials support Stark and Kerry’s measures.

“Seniors—especially those with fixed incomes—want to get the best value from their health insurance,’’ said AARP Executive Vice President Nancy LeaMond. “Insurance companies should be spending their customers’ hard-earned dollars on health care, not administrative costs. This bill will help seniors get better value for the care they need.”

Several plans to reduce federal spending have included other proposed changes to the Medigap plans—most recently, a package of $250 billion in cuts tentatively agreed to by President Obama and House Speaker John A. Boehner, R-Ohio, before their debt ceiling negotiations fell apart.

Under that plan, Medigap plans would no longer cover as many out-of-pocket Medicare costs, something that could save Medicare between $1.5 billion and $4.6 billion in one year, according to a recent Kaiser Family Foundation study.

Obama’s bipartisan debt commission made a similar recommendation last year. In addition, a recent debt plan from Sens. Joseph I. Lieberman, I-Conn., and Tom Coburn, R-Okla., would overhaul Medigap plans to establish minimal cost sharing on Medicare services to try to reduce unnecessary treatments.

Emily Ethridge contributed to this report.

Dena Bunis can be reached at [email protected].

By John Reichard, CQ HealthBeat Editor

July 29, 2011 -- The Centers for Medicare and Medicaid Services (CMS) posted an announcement Thursday that it’s offering $3.8 billion in loans under the health care overhaul to form consumer-run health care cooperatives.

CMS is making available $600 million in loans to help start the “consumer operated and oriented plans,” along with another $3.2 billion to help keep them solvent. The agency recently issued a proposed regulation on the creation of the entities, which are supposed to offer a more consumer-friendly alternative to for profit health plans.

CMS said in a notice to Capitol Hill staffers that applications for the first loans are due Oct. 17 and afterward are accepted quarterly until Dec. 31, 2012. The agency says it will award loans or otherwise respond within 75 days after the applicant is complete.

The health law (PL 111-148, PL 111-152) gives priority to applicants who want to establish statewide cooperatives.

The funding announcement says that “although it is not required, loan recipients are strongly encouraged to be operational by October 2013 so that on Jan. 1, 2014, they will be able to provide coverage to members enrolled through” state health insurance exchanges.

The agency tentatively plans to hold a teleconference Aug. 10 for those who want more information on the application process.