National Health Care Reform and Michigan

December 4, 2012

Peter PrattPresident

www.pscinc.com

(Most) everyone will be required to have health insurance—public or private—DONE

People with public or private coverage can keep it—DONE Private insurers need more regulation (no denials for pre-existing

conditions, no annual or lifetime limits)—DONE Health care quality must improve, and the way we pay providers

must foster this improvement—MADE A START Health care costs are rising too rapidly and must be controlled—

NOT REALLY DONE

Generally, What ACA Does and Doesn’t Do

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Why Does the ACA Matter to Michigan?

Cover many of the now uninsured through private insurance/the exchange (MIHealth Marketplace) and Medicaid expansion (PERHAPS)

• Individual tax—or penalty—with exemptions • Employer mandate—or penalty—with exemptions (for firms with 50 or more FTEs)• Tax credits/subsidies for premiums, copays and deductibles• Medicaid expansion to 133% FPL—perhaps• Determination of essential benefits (Michigan Essential Benefits Benchmark Plan—Priority Health HMO)

Address increased demand for care• Many more insured—but who will care for them?• Increased Medicaid payment rates to PCPs to 100% of Medicare rates for 2013-14 only

Foster quality improvement • Cover proven preventive services and eliminate cost-sharing for them (Medicare)• Offer incentive payments to providers for primary care and coordinated care• Lower payments for avoidable rehospitalizations, hospital-acquired infections• Bundle payments for acute and post-acute care• Foster accountable care organizations, PCMHs

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Covering Everyone?

New 2011 data: 47.9 million uninsured, down by 1.3 million from 2010

ACA covers 32M (95% of population excluding unauthorized aliens), but may cover up to 40M if everyone eligible signs up

Michigan• Estimated 1M people will be eligible for subsidies

through the exchanges; 640,000 will actually enroll (includes insured and uninsured)

• Estimated 969,000 newly eligible for Medicaid; 400,000-600,000 will actually enroll

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Mandates for Individuals

Must have coverage that meets minimum standards Penalties: Higher of

• $95 (2014), $325 (2015), and $695 (2016)/yr/family member up to $2,085 or

• 2.5% of household income, if above filing threshold ($9,350/individual or $18,700/couple in 2009)

Exemptions: financial hardship (income below filing threshold or spend more than 8% of income on insurance), religion, American Indians

Individuals whose employers don’t offer health insurance are NOT exempt

Individuals who don’t take employer-offered coverage are NOT exempt

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Subsidies for Individuals

Two kinds: for premiums and for out-of-pocket costs (copays and deductibles)

Sliding scale premium tax credits up to 400% FPL ($88K for family of four)—if don’t get affordable coverage from employer

Subsidies set to limit premium contribution to 2% of income if total income 133% FPL to 9.5% of income if total income 300-400% FPL (133% FPL=$29,000 for family of four; subsidy covers all but $600)

Increases cost-sharing subsidies for <250% FPL

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Requirements for Employers

No employer mandate for employers < 50 employees Penalty for employers > 50 NOT offering HI is $2K/year/worker If employer does offer HI and has one or more employees

receiving premium tax credit, pay lesser of $3,000 for each employee receiving the credit or $2,000 for each FTE

First 30 employees exempt from calculation of penalty Employers > 200 must enroll employees automatically into

employer’s lowest cost plan if they don’t opt out 98% of businesses unaffected, either because already offer

coverage or they are exempt. This all takes effect in 2014

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Subsidies for Employers

Credits for small businesses (<25 employees, avg. annual wage of $25K): 35% from 2010-2013; 50% starting 2014. Credits phase out as firm size & average wage increase. As of 7/1/12, 7,000 Michigan businesses have used the tax credits

Credits may not be attractive enough to get smallest businesses to offer health insurance (and no penalty if they don’t)

No mandate, no credits for employers 26-50 employees

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Cost of Covering More People Two kinds of costs are competing for public’s attention: cost to

government and cost to individuals, families, and businesses Every dollar that defrays cost of health insurance for businesses,

families, and individuals will add to the government’s cost—and who pays for government?

Individual and employer mandates—even with subsidies and limits, will people decide to buy HI or pay penalties?

Equity: How much should people and employers w/HI pay for those without it? ($1,000 a year now)

Firms with 3-9 employees offering HI (50%, down from 59% in 2010) Equity: How much should employer and employee pay for employer-

sponsored HI? Family coverage in 2012: $15,745. Employer share: 72% Employee share: 28% (largely unchanged since 2000)

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Expansion of Public Programs Expand Medicaid to all individuals (133% FPL)—Michigan covers

childless adults now up to 35% FPL Feds fund

• 100% of expansion population from 2014-16• 95% for 2017• 94% for 2018• 93% for 2019• 90% after that

State will save $1.3B over 10 years from expansion (mental health) Increase Medicaid payment rates to PCPs to 100% of Medicare

rates for 2013-14 only Increase payments to community health centers for new eligibles Why does this matter? For businesses, fewer uninsured. For

providers, better (but not great) payment; pent-up demand

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Health Insurance Exchanges

State-based exchanges starting in 2014 called American Health Benefits Exchange & Small Business Health Options Programs, administered by government or non-profit organization.

Goal: Sustainable, financially viable, and transparent options that offer meaningful coverage

Michigan submitted short declaration of intent on November 16, 2012 for state-federal partnership (HHS approval by 1/1/13)

State-based exchange still a possibility, but blueprint must be submitted by 12/14/12

Applications to qualified health plans (early 2013) Certification of QHP rates (Summer 2013) Open enrollment on exchange begins (10/1/13) Exchange in full operation (1/1/14)

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Health Insurance Regulation Guaranteed issue and renewability No pre-existing condition exclusions—for children, went

into effect 9/23/10 for group, but not individual, plans No lifetime limits or rescissions Limit rating variation to family size, geography, age,

tobacco use (not allowed for health status, gender, occupation); for example, rate for 63-year-old can’t be more than 3x rate for 21-year-old.

Tighter oversight of health plans:• HHS secretary can require plans to lower rates• More requirements for existing plans: med loss ratios,

cover <26 years old, preexisting condition exclusion prohibition (2014), cover preventive services

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Cost Containment

Encourage adoption and use of health IT Reduce fraud, waste, and abuse Simplify HI administration through standardization Reduce payments to Medicare Advantage plans; after

2014, MA plans can earn 5% quality bonuses Add $9.9B in reductions for IP hospitals, SNF, home

health, and others from expected productivity gains Reduce Medicaid and Medicare DSH allotments Increase Medicaid drug rebates Create Independent Payment Advisory Board—to

rationalize and de-politicize cost control efforts

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Paying for Reform

HC reform can’t add to deficit, so must tax and/or cut spending Net cost is $940B, cuts deficit by $138B over 10 years Higher taxes for high-income individuals/households (2013):

Medicare Part A payroll tax rate rises from 1.45% to 2.35% for high-income taxpayers

3.8% assessment on unearned income for high-income taxpayers Taxes on policies with benefits over a certain threshold

40% tax on plan >$10.2K indiv/$27.5K family (2018) Vision and dental plans excluded from calculation

Penalties for individuals & large employers who don’t get/offer HI Cuts in plan and provider payments Insurers, medical device makers, Rx mfgers pay fees of more than

$100B over 10 years, but with later start dates

The Fiscal Cliff/Budget Deficit

Budget sequester has 2% cut to Medicare (plus 27% cut to physicians)

Medicare and Medicaid on the block if we’re to address deficit ($769B in 2011, 21% of federal budget)• Simpson-Bowles: Cut hospitals before 2020• Raise eligibility age to 67• Raise Medicare Part B premiums• Give seniors vouchers (Ryan), but tie amount to HC cost

inflation not GDP

Limit Medicaid expansion? Limit subsidies to less than 400% FPL?

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