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CPAs & ADVISORS

ACA, THE EXCHANGES AND HEALTHCARE AFTER 2014Tom W. Watson, CPA, FHFMAManaging Partner – Dallas/Waco

WHY ARE WE HERE?

The UninsuredMore than 47.9 million uninsured in the U.S.

90% of the uninsured are below 400% of the poverty level

More than ¾ of uninsured are in a working family

Uninsured individuals have less access to preventive care servicesThe assumption is this leads to higher costs

Health care costs have increased substantially, causing employers to drop coverage and individuals to not be able to afford itMany employers are tired of paying the hidden tax needed to subsidize today’s health care system

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EMPLOYERS PROVIDING HEALTH INSURANCESOURCE: KAISER FOUNDATION


KEY PROVISIONS OF AFFORDABLE CARE ACT

Requirement to have insurance coverageEffective January 1, 2014Penalty for failure to obtain coverage starts that eventually is the greater of $695/year or 2.5% of household income ($2,085). The penalty amounts phase in through 2017, and are insignificant in 2014.

Employer requirement to offer coverage50 or more full-time employees (defined as 30 hours or more per week)Requirement to offer “affordable” coveragePenalty ranges from $2,000/employee if no coverage provided (excluding first 30 employees), or $3,000 per employee receiving premium assistance if coverage is provided but not deemed affordable


KEY PROVISIONS OF ACCOUNTABLE CARE ACT

Medicaid ExpansionExpands Medicaid to cover all individuals with incomes up to 133% of the Federal Poverty Level States are paid 100% (declining to 90% by 2020) of the extra cost of this expansionSupreme Court ruling on ACA made this expansion optional, and 26 states have opted not to expand coverage

Premium Credits and Cost-sharing SupportPremium credits that limit out-of-pocket costs to between 2% and 9.5% of income for individuals with incomes from 100% to 400% of the FPL

Credits are based on the cost of the “second lowest cost silver plan”

Cost-sharing credits for families up to 400% of poverty level


KEY PROVISIONS OF ACCOUNTABLE CARE ACT

Key New TaxesChanges to qualified expenses from HSAsIncrease Medicare Part A tax from 1.45% to 2.35% on wages over $250,000/$200,000 for married/single individuals3.8% tax on unearned (i.e., investment) incomeCadillac plan excise taxFees on pharmaceutical industryFees on medical device industry

Creation of Health Insurance ExchangesMany, many other provisions


DELAYED PROVISIONS INCLUDE…..

Delay in cuts to Medicare Advantage PlansOne year delay in employer reportingIRS rule that allows subsidies to flow through federal exchangesDelay of Small Employer Health OptionEmployer Mandate delaySelf-attestation partially implementedDelay of individual mandate (only one month)Allowed insurance companies to continue to offer “canceled” nonqualified plansExemption of union plans from reinsurance fee


PAYING FOR THE ACA – SPENDING CUTS ($ BILLIONS)


PAYING FOR THE ACA – TAX INCREASES ($ BILLIONS)


THE ACA INCOME STATEMENT


(In billions $)

Revenues 515$ Less: Program Costs (1,128) Implementation Costs (40)

(1,168)

Operating Loss (653) Add: Cuts in Medicare and other programs 716

63$

Source: CBO, Dana Forgione

THE IMPACT ON DOCTORS AND HOSPITALS


HOSPITALS – DID YOU KNOW??

The average margin for hospitals in 2013 was less than 2.5%?Hospitals on average collect:

2% of amounts billed to uninsured patients20% or less of amounts billed to Medicaid patients25 to 30% of amounts billed to Medicare patientsBetween 30% and 60% of amounts billed to insured patients

See the hidden tax here??

In Texas, hospitals average between 15% and 25% of their net revenue as bad debtsThe average payment increase for hospitals under Medicare and Medicaid has been less than 2% for the last several years, with some years of real reductions in payment rates


THE ACA IMPACT ON HOSPITALS

In the opening round of the ACA discussions, the enemy was the Insurance CompaniesHospitals should be prepared to be the enemies in phase 2

$$$ - Hospitals are the deep pockets when it comes to Medicare cutsThe ACA included over $150 billion in cuts for hospitals

Implicit promise that coverage will be expanded

ACA requires tax exempt hospitals to conduct a Community Health Needs Assessment and to implement a Financial Assistance Policy (FAP)Limitation on “aggressive” collection efforts until proof that FAP does not apply

ACA prevents new physician owned hospitals from accepting Medicare/Medicaid patients


TRANSITION OF HEALTH CARE PAYMENT METHODS OVER TIME


BUNDLED PAYMENTS – NOT JUST MEDICARE!

Medicare is piloting bundled payment arrangements, but many private payers are moving full speed ahead

Includes facility fees, physician fees, implants, anesthesia, etc.Managing device costs are often the key to success

Common proceduresKnee and hip replacementsCoronary bypass graftBariatric surgeryDiagnostic cardiac catherizationsCataract removalMaternity care


MEDICARE 2015 UPDATE AND ACA-DRIVEN IMPACT

Hospitals can expect a 1.3% increase in Medicare payments for FY 2015.4% ACA Productivity Adjustment.2% ACA required reduction.8% documentation and coding adjustment

$2 billion in net reduction for 2015 – will be $8 billion next year

Medicare DSH cuts mandated by ACA ($49.9 billion over time)Value Based Purchasing reduction will be 1.5% ($1.4 billion in incentives)

778 losers and 630 winners in 2014 (defined as greater than .2% impact)

Increase Hospital Readmission Penalty to 3%Increase utilization of hospital acquired condition programPotential changes in Medicare wage index, which will impact DRG payment computation


HOW ARE HOSPITAL LEADERS REACTING TO ACA?

Generally support the expansion of coverage to reduce bad debtsMany are now concerned that the law will not reduce these to the level anticipated

Concerned with failure to expand MedicaidNote that many cuts in the original bill assumed that Medicaid would be expanded, offsetting these cuts

How will the exchanges really work? Will payment rates be sufficient?Over the long term, revenue is not going up, so costs must go downContinued shift to care in an outpatient setting

Focus of many hospital’s capital investmentsUrgent care centers and “drug-store” clinics

How will the federal exchanges impact payer mix?


COST SHIFTING– CURRENT EXAMPLE

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

Medicare Medicaid Commercial Exchange Self Pay Total

Dol

lars

Example Health System

Cost Paid

Cost incurred Cost ShiftMedicare (7,500,000)Medicaid (2,000,000)Commercial 15,000,000 Exchange - Self Pay (5,500,000)

85%

80%

150%

25%

100%

FEARED PAYER MIX

-

20,000,000

40,000,000

60,000,000

80,000,000

100,000,000

120,000,000

Medicare Medicaid Commercial Exchange Self Pay Total

Dol

lars

Example Health System

Cost Paid

Cost incurred85%

100%

25%

100%

Cost ShiftMedicare (7,500,000)Medicaid (3,000,000)Commercial 13,250,000 Exchange - Self Pay (2,750,000)

80%

233%*

WHY ALL THE CONSOLIDATION IN HEALTHCARE?

Significant wave of consolidation in health care industry has five primary drivers:

Perceived need for scale in order to survive uncertain environmentHospitals and physicians must work together in an accountable care and medical home model – the same owner makes this easierSqueeze on access to capital for smaller hospitalsPrivate equity view growth in segment with guaranteed cash flows and ability to create economies of scaleGeneral fear of the unknown

Will it continue?


THE ACA’S IMPACT ON PHYSICIANSNo change in “doomsday” scenario of Sustainable Growth Rate reduction

SGR would reduce payments over 25% for MedicareContinually “punted” to next year

Physician practice model is changingThe disappearance of independent doctors (nearly 70% employed by hospitals!)Partly due to demographics and expanded regulatory actionsPartly due to fear of ACA

Physicians are being asked to provide more preventative careAccountable Care OrganizationsMedical Homes

Severe income squeeze in recent yearsGrowth in mid-level providers to prop up incomes (i.e., leverage)


Source: www.medscape.com


PATIENT ACCESS CONCERNS

If the ACA works as intended, many people that previously didn’t have insurance will be coveredSocial issues aside, there was a self-limiting aspect for access to care when an individual was fully responsible for their physician visit

In many cases, the emergency room was used as a primary care office because of this

Will our current health system be able to handle a large increase in volume when this restriction on care is removed?


THOUGHTS FROM RATING AGENCIES - 2013

Overall weaker performance after three years of stabilityBalance sheets remain stable due to good investment return

Requires the ability to invest in stocks

The reappearance of expense growth outpacing revenue growthLooking forward:

Anticipate weak financial performanceAll rating categories will be affectedNo overriding factors to drive up admissions in 2014/15Anticipate the transition to value based purchasing will be highly disruptiveRate increases are under pressure (Medicare .7% in 2014!)Effective boards will aggressively attack expenses and CULTURAL change will be required. Benefits will have likely have delayed recognition


VOLUME TRENDS PER MOODY'S


IMPACT ON BUSINESSES AND INDIVIDUALS

The Accountable Care Act


EMPLOYER IMPACT

The requirement to provide coverage is the most significant impactMost questions remain unanswered. There is anecdotal evidence for yes and no to each of the following questions:

Will employers drop coverage and elect to pay the penalty under ACA?How will ACA affect working hours?

Will employers work to keep individuals below 30 hours?

How will the ACA affect job growth?Will the 50 employee limit stifle expansion?

The bigger issues evolve around reporting and compliance with the lawStructure of health plans to meet minimum coverage and enrollment standardsReporting coverage to IRS


HIGHER TAXES FOR HIGH EARNERS


Taxpayer A*

Net Investment Income 100,000$

Wages 300,000

Modified AGI 375,000

Tax on Investment Income (3.8%) 3,800

Tax on Income in Excess of $200,000 6,650

Lesser Amount 3,800$

Tax on earned income in excess of $200,000 (0.9%) 900$

Total Additional Medicare Tax 4,700$

* Taxpayer's filing status is single

PRIVATE HEALTH INSURANCE EXCHANGES

There are several private health insurance exchangesAllows employers to adopt a “defined contribution” approach to employee health insurancePros and cons

Takes the risk off of the employer, but are employees ready for this choice?Will employees choose the right level of coverageEnhances ability for employees to compare true compensation vs. the hidden compensation of health care

Generally more flexible than public exchangesAbility to offer various products (even non-insurance ones)

http://www.booz.com/media/file/BoozCo-Emergence-Private-Health-Insurance-Exchanges.pdf


THE HEALTH INSURANCE PUBLIC EXCHANGES

Available to individuals not covered by employee health plansState exchanges vs. federal exchangesFour levels of coverage

Bronze (60% of average costs of care)Silver (70% of average costs of care)Gold (80% of average costs of care)Platinum (90% of average costs of care)The average individual market plan for some large carriers is currently 57% , so costs have to be higher, right?

The impact on the health care provider marketplace and individual choiceAnecdotal evidence says rates paid are slightly less than current rates, but not as low as some fearedIncreasing use of “narrow networks” to encourage lower rates


TEXAS AND THE PUBLIC EXCHANGE

Most areas have multiple plans to chose from (38 family plans for Dallas County)Many big insurance players are in the plans:

AetnaCignaBlue CrossMolina

Several areas do not have “platinum” plans availableNarrow networks are very common


EXAMPLE OF RATES AND COVERAGE FOR DALLAS COUNTY


My Plan Bronze Plan Silver Plan Gold PlanIndividual/Family Deductible $600/$1,800 $6,100/$12,200 $3,000/$9,000 $0/$0Maximum Out-of-pocket $2,000/$6,000 $6,350/$12,700 $6,350/$12,700 $5,000/$10,000Cost of Primary Care Visit $20 $0 $35 $30Cost of Specialist Visit $35 $0 $55 $60

Payment for Inpatient Care 80% after deductible 100%

80% after $250 coinsurance and

deductible $1,000/dayCoverage of Name Brand Drugs $30 $0 $50 $45

Annual Premium before subsidy $9,312 $8,424 $9,048 $11,976Projected Cost of Normal Delivery $2,000 $6,130 $4,050 $2,990

Note: All amounts assume "in-network" care is provided.

EXCHANGE ENROLLMENT THROUGH MARCH 2014


PREMIUM ASSISTANCE CREDIT

Household Income Relative to Federal Poverty Level*

Initial Premium Percentage (1)

Final Premium Percentage (1)

Up to 133% 2.00% 2.00%

133% up to 150% 3.00% 4.00%

150% up to 200% 4.00% 6.30%

200% up to 250% 6.30% 8.05%

250% up to 300% 8.05% 9.50%300% up to 400% 9.50% 9.50%

* Household incomes above 400% of poverty line not eligible for credit

(1) Maximum share of income enrollee will have to pay for coverage

FEDERAL POVERTY LEVEL FOR 2013Individual

100% = $11,490133% = $15,282 ($7.34/hour)200% = 22,980 ($11.04/hour)400% = $45,960 ($22.09/hour)

Family of 4100% = $23,500133% = $31,322200% = $47,100400% = $94,200

A family of 4 at 200% of the poverty level would be responsible for $314/month in premium before a subsidy was receivedA family o f 4 at 400% of the poverty level would have to pay up to $745/month in premium before a subsidy was received


MEDICAID EXPANSION

26 states, including Texas, did not expand MedicaidWhy it matters

Medicaid only covers specified categories of individualsI.e., no coverage for childless adults in poverty

ACA assumed that all individuals under 138% of poverty would qualify for MedicaidNo subsidies are provided for individuals with less than 100% of FPL

Individuals between 100% and 138% can receive premium assistance that would require them to pay about $500/year toward health care coverage

Texas has about $6.1 million uninsuredFailure to expand Medicaid leaves about 1,000,000 individuals without coverage


BREAKING THE LOG JAMWould Texas consider the “Arkansas” option?The Arkansas option:

Doesn’t technically expand MedicaidUses the additional funds from the ACA to buy private insurance for newly eligible individuals up to 138% of the poverty level

Those that would have qualified for Medicaid previously still use that program

No premium for enrolleesEnrollment would be in “silver” plansState pays premiums directly to insurance companiesMust address the co-pay required by many insurance companies

Requires some cost sharing for beneficiaries over 100% of FPLPotential hidden cost of the program most often targeted by critics

Cost is $188mm in CY 2014 for 200,000 enrollees (multiply by 6x to 8x for Texas?)


THE TEXAS MEDICAID WAIVER

Waiver BasicsUncompensated Care reimbursementDelivery System Reform Improvement Program (DSRIP) payments5 year program with billions of dollars of revenue at stakeReplaces UPL program

We are now entering DY3Implementation has been somewhat rocky, with several payment delaysCash is running, on average, six months behind scheduleSome providers have trouble finding IGT funds

The future of the programBig winners are governmental hospitals, especially large districtsA statewide fight is brewing on how future Waiver and DSH funds should be allocated


OTHER TEXAS TRENDS AND DEVELOPMENTS

Provider taxes and assessments?Medicaid DSH battlesBurden alleviation fatigue

Physician hospitals and working around the ACAM&A Activity

Hospitals buying hospitalsPreparing for bundled paymentsPrivate equity


PREDICTIONS AND KEY TRENDSThe Accountable Care Act


EMPLOYERS ROLE IN HEALTH CARE


PATIENTS AS CONSUMERS


CONSUMER SURVEYS OFFER INSIGHT

Nearly 57% of employees would like to customize their own health plan70% would like to see hospital and physician prices “on-line,” including what the insurance company will pay to these groups62% of employees would be willing to use self-monitoring devices to manage their healthNearly two-thirds would like to use video conferencing or other non-personal means for follow-up visitsThere is a growing willingness for technology to replace direct physician access

Look for presentations by Eric Topol on-line or read his book the “The Creative Destruction of Medicine”


CONCIERGE MEDICINE


POPULATION HEALTH MANAGEMENT


MULTIPLE EXAMPLES OF “MANAGEMENT” IN INSURED POPULATION

Narrow steerage of certain patients to “centers of excellence”Cardiovascular careOrthopedic and rehabilitative services

Exclusion of high-cost providers from networks on a service line basisIncentives for employees to choose lower cost options in the marketplaceMedical tourism


WE HAVE SEEN THIS BEFORE…THEN

- Balanced Budget

- HMOs (Health Maintenance Organizations)

- Capitation

- Sustainable Growth Rates (SGR)

NOW

- Healthcare Reform

- ACOs (Accountable Care Organizations)

- Bundling

- SGR?

MEDICAL HOMES

In general, a Medical Home is a group of providers that coordinate care for individual patients

Comprehensive CarePatient-centered careCoordinated CareAccessible ServicesQuality and Safety

Growth from 0 to 29,000 providers and 6,000 sites since 2008Impact on costs and quality has been debatable

Several examples of better outcomes and lower costs for patients with chronic health conditionsPatient cooperation has been a key concern


ACCOUNTABLE CARE ORGANIZATIONS

What is an ACO?Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients.

What is goal of an ACO?The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors.

What happens if an ACO works?When an ACO succeeds both in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program


GEISINGER HEALTH SYSTEMACUTE ADMISSIONS DECLINED (MEASURED AS ACUTE ADMITS/1,000, ACUITY ADJUSTED)

Source: Ronald A. Paulus, MD, EVP, Clinical Operations, Geisinger Health


INDEPENDENT PAYMENT ADVISORY BOARD


FINANCIAL EFFECT OF AGING US POPULATION ON HEALTHCARE COSTS

Source: Fischbeck, Paul. “US-Europe Comparisons of Health Risk for Specific Gender-Age Groups.” Carnegie Mellon University; September, 2009.

U.S. is spending much more for older ages

Healthcare Costs by Age

THANK YOU

FOR MORE INFORMATION // For a complete list of our offices and subsidiaries, visit bkd.com or contact:

Tom W. Watson, CPA, FHFMA// Managing [email protected] // 972.392.7400

experience ideas // cpas & advisors aca, the exchanges and healthcare after 2014 tom w. watson,...

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