Update on the Affordable Care Act Kevin Shah, MD MBA · Update on the Affordable Care Act 2 Review major elements of the affordable care act Review implementation of the Individual

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KevinShah,MDMBA

Update on the Affordable Care Act

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Review major elements of the affordable care act

Review implementation of the Individual Exchange

Review the Medicaid expansion

Discuss current state of legislation to repeal the Affordable Care Act

Goals

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Overview of the ACA (i.e. “Obamacare”)

Insurance Reform

Individual Exchanges

Medicaid Expansion

Overview of ACA Repeal

Agenda

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I have no disclosures

Disclosures

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Priorto2014,UnitedStateshealthcarefinancedthroughseveralmajorsources

Established in 1960s

Funded by the Federal Government

Target population- People age >65- Disabled (after a

waiting period)- End Stage Renal

Disease (ESRD)

Insurance design- National standard

insurance product- Increasing role of

private insurance

MedicareEstablished in 1960s

Funded by federal AND state government

Target Population- Citizens in poverty- Eligibility can vary

by each state- Health care reform

expanded eligibility

Insurance design- Varies state by

state, based upon local policy and politics

Medicaid1940s: tax exemption for employer health insurance

Funded by employers

Target Population- Employees at

companies or in government

- Dependents / families of employees

Insurance design- Varies by employer

and by state

EmployerHealth costs paid for by the individual

Insured individuals:- Premiums for

employer coverage- Copays and

deductibles within insurance plans

- Purchasing of individual insurance

Uninsured individuals

Individual

Overview

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MostAmericansarecoveredthroughemployers,butgovernmentfinancesasubstantialportionofhealthcare

Insurance Coverage, by type2011

Cost outlays, by entity2011

Government spending on Medicare, Medicaid and newly created exchanges are growing, while employer based coverage is stagnating

Overview

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ThePPACAhadseveralmajorcomponents

Patient Protection and Affordable Care Act (PPACA)• Expanding coverage: public insurance exchange, Medicaid expansion• Financing: New taxes, reduced reimbursements to providers, individual

mandate• Insurance Reform: Ban on preexisting conditions and lifetime limits; children

covered to age 26; Essential health benefits; Individual mandate; employer mandate

• Payment reform: pay for value initiatives, penalties for poor care• Delivery system reform: new models of care

Implications• Increased focus on paying for quality and reducing cost• Fundamental shift in how individual patient care is delivered

Overview

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Financing- Medicare tax- DSH payments- Medical device Tax- Cadillac Tax- Reimbursement cuts

Exchanges- Small business exchange- State based exchanges vs. federal

exchanges- Catastrophic health plans

Payer Specific Topics- Medical Loss Ratio - Special enrollment periods- Risk adjustment / Reinsurance / Risk

corridors- Coverage of young adults to 26

Overview

Care Redesign and Payment Reform- Center for Medicare and Medicare

Innovation- Accountable Care Organizations- Pay for performance programs

legislated in the ACA

Other- Details of legal cases surround the

ACA- Specific insurer participation

decisions for 2017- Reproductive health coverage

MANY OTHERS

TherearemanytopicsintheACAwewillnotcoverindetailtoday

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Insurance Reform


Medicaid Expansion


Agenda

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ThePPACAimplemented“communityrating”forallpayersBan on Preexisting Conditions• Banned “individual rating” for health insurance• Gender parity: women and men charged equally• Ban on life time limits• Limits on out of pocket costs• Pricing adjustment can be made on 3 parameters:

– Age (up to 3x variation)– Tobacco use (50% variation)– Location (this can vary, ~ 4x based on 2017 plans)

Individual Mandate• In order to implement the ban on pre-existing conditions,

payers needed an adequate number of low risk enrollees to minimizer risk

• Penalty in 2017: – 2.5% of income OR – $695 per adult / $395 per child, whichever is

HIGHER• Numerous exemptions for low income, high cost burden

for insurance, individuals who don’t need to file taxes

InsuranceReforms

Community rating requires some version of an individual mandate.

Ban on lifetime limits and cap on out of pocket costs à higher premiums and deductibles

Lacking an effective mandate could lead to both adverse selection and moral hazard

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ThePPACAstandardizedcoverageparameterswithessentialhealthbenefits(EHB)

• Ambulatory patient services• Emergency services• Hospitalization • Pregnancy, maternity and newborn care• Mental health and Substance use

disorder services including behavioral health treatment

• Prescription drugs• Rehabilitative and habilitative services

and devices• Laboratory services• Preventive and wellness services and

chronic disease management• Pediatric services, including oral and

vision care (but adult dental and vision coverage aren’t essential health benefits)

InsuranceReforms

Implications for the insurance market• With few exceptions, no

“skinny” insurance plans àricher coverage with higher costs

• Mandatory coverage and cost sharing requirements à limited ability to use benefit design to weed out customers

Benefits consumers with underlying health care costs and conditions, especially those getting subsidies

More expensive for those who are healthier with limited costs (i.e. the young and healthy)

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TheACAneededtoaddressadverseselectionandmoralhazardconcernsintheinsurancemarket

InsuranceReforms

Adverse Selection• Applies to all types of insurance• In health insurance, phenomena where the

purchaser of insurance has information about when / how they may need insurance, OR only buy insurance when it’s needed

• With the ACA, insurers limited in preventing adverse selection

• Implication: sicker people buy coverage, healthier people don’t à Premiums rise or may not cover cost à “Death Spiral”

• ACA solution:– Mandates for coverage– Subsidize insurance cost– Limiting off cycle enrollment– Effective ban on catastrophic health

coverage plans

Moral Hazard• Applies to all types of insurance• In health insurance, phenomena where

insurance lowers the price of health services and thus consumption of those services increase

• With the ACA, mandatory benefits and limits on out of pocket costs / life time limits would drive more health care use

• Implication: insured patients consume more care, but the value of that care is unclear

• ACA solution:– Pay for performance / value programs– Incentivize new care delivery models

focused on controlling cost (i.e. accountable care organizations)

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Insurance Reform


Medicaid Expansion


Agenda

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IndividualExchangesEnrollment* has exceeded 12 Million of people for 2017

McKinsey 2017 Intel Brief on public exchanges

Enrollment Facts

• 2017: 12,216,003• 2016: 11,081,330• 2015: ~10,200,000

* Enrollment numbers vary between people who sign up and those who actually pay premiums

• There is substantial interstate variability in total and potential enrollment• There remains a large non-exchange individual enrollment from ACA compliant and

grandfathered plans

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IndividualExchangesMany insurers are leaving the market and limiting choice

Kaiser Family Foundation

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IndividualExchangesNumber of carriers varies by geography


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IndividualExchangesRemaining insurers are raising premiums

Kaiser Family Foundation, E-Healthinsurance report

• There is substantial interstate variation• Premiums are averages, and vary by age, location any smoking status• Premium changes for family plans show similar percentage increases

39.9%

42.2%

27.4%

44.4%

2014 2015 2016 2017 2014-2017

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IndividualExchangesExchanges sell 4 levels of plans based on actuarial value

Kaiser Family Foundation, Healthcare.gov

• Money direct to enrollee• Reduce monthly premiums• Pegged to the cost of a silver plan• Available to anyone with income up to

400% of the Federal poverty level

Premium Subsidies

Monthly Premium Patient Costs Plan Actuarial Value

• Money direct to health plan• Reduce out of pocket costs

(deductible, co-pay, co-insurance)• Available to anyone with income up

to 250% of the Federal poverty level• Under significant legal and political

uncertainty

Cost sharing subsidies

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IndividualExchangesDeductibles and co-pays are a substantial burden


• In 2017, 94% of enrollees choose Bronze or silver plans, thus were exposed to very high out of pocket costs

• Higher income patients not eligible for cost sharing subsidies are exposed to higher costs

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IndividualExchangesPremium subsidies defray some of the up front cost

McKinsey 2017 Intel Brief on public exhanges; Department of HHS, Center for Health and Economy

Premium subsidies are designed to cap an enrollees premium costbased on income

People with income <100% of FPL are NOT eligible for premium subsidies

Federal poverty levels do NOT adjust for locations

2016 estimated subsidy cost: $32.8 billion

Federal poverty level (FPL), by household size

Premium cap, by FPL

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IndividualExchangesIncome affects premium and premium increases

McKinsey 2017 Intel Brief on pulibc exhances

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IndividualExchangesCost sharing subsidies help defray consumer cost

Kaiser family foundation; Congressional budget office; US Dept of Health and Human Services

Key points• Caps out of pocket costs AFTER premium payments.• Adjustments made when enrollee purchases and payers get paid later

• If income <100% of FPL, no cost sharing subsidies are available

• Estimated costs in 2017: ~ $7 billion• Under significant scrutiny in federal court prior to the current administration

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IndividualExchangesThere is a notable shift towards managed care

McKinsey 2017 Exchange Market Report

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IndividualExchangesPlans have employed narrow networks to hold down cost

McKinsey 2017 Exchange Market Report, New York Times

Broad patient choice of hospitals and providers

Higher cost relative to narrow network plans

Limited choice of hospitals and providers

Variable out of network coverage

Lower cost and cost increases over time

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IndividualExchangesNotable conclusions


• 83% of exchange enrollees receive subsidies, and 58% receive cost sharing subsidies

• 94% choose either a “Silver” or “Bronze” plan

• Subsidies shield lower income consumers from premium increases and overall costs more than higher income enrollees

• Individuals with incomes less than 100% of the federal poverty level are NOT eligible for subsidies on the exchanges

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Insurance Reform


Medicaid Expansion


Agenda

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MedicaidMedicaid is a complex federal / state partnership primarily focused on lower income workers

• Before the ACA, Medicaid has various roles in the American health care system

• Primary insurance (children, disabled, pregnant women, parents of dependent children)

• Long term care • Poor Medicare eligible patient (i.e. “duals”)• Notable gap: Childless poor adults

• Split funding between states and federal government

• States have substantial flexibility to design and implement a Medicaid program tailored to their needs

• Federal matching for eligible expenses is open ended

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• Inpatient and outpatient hospital care• Physician services• Lab / Xray• Family planning

• Screening services for individuals <21 (including dental, eye, hearing)

• Home Health• Nursing facility

** Not a complete list

Required Benefits**• Non-nursing facility / long term care

services• Personal care attendants• Adult day care• Care for intellectually disabled

• Optometry / Eyeglasses• Dental care / dentures• Physical therapy• PACE• Hospice

** Not a complete list

Optional Benefits

MedicaidMedicaid has federally specified mandated and optional coverage domains for states

- States have some flexibility to manage scope of coverage of benefits- With some exception, states must offer similar coverage to all residents

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MedicaidMedicaid expenditures cover a variety of services

CY16: $558B

Long term care costs represent a substantial portion of costs

Many states provide payments to managed care organizations to facilitate their costs

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MedicaidThe Affordable Care Act expanded Medicaid Eligibility and funding

• Income limits: broadened eligibility to nearly all adults up to 138% of the federal poverty level

• Some state have higher income limits for different populations

• No “Coverage Gap” – childless adults are now eligible for Medicaid coverage

• Increased Funding: Federal government subsidized 100% of cost of expansion for 3 years, 90% there after

• Standardized and simplified enrollment and outreach

• Still preserves state flexibility

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MedicaidMedicaid has increased insurance coverage, but has only been expanded in a subset of states

Incremental ~18M patients enrolled in Medicaid / CHIP relative to pre-ACA

In states that have expanded Medicaid, there has been ~38% increase in enrollment

There is substantial state by state variation in enrollment changes- KY: >100%

enrollment increase- 22 states with

>25% enrollment increase

- VT: 4% increaseCMS 2017 Enrollment data; Kaiser Family Foundation; MACPAC.gov

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MedicaidThe lack of expansion has created coverage gaps for low income workers

In states that have expanded Medicaid, all adults with income <400 of the federal poverty level are eligible for Medicaid or exchange subsidiesCMS 2017 Enrollment data; Kaiser Family Foundation

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MedicaidIn states that have not expanded, ineligible adults are the population most at risk of being in the coverage gap

In states that have not expanded Medicaid, childless adults with income <100 of the federal poverty level are ineligible for exchange subsidies

CMS 2017 Enrollment data; Kaiser Family Foundation

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MedicaidNotable conclusions


• Larger numbers of incrementally insured patients from Medicaid expansion than from Individual exchanges

• Large interstate variation in coverage gains between “expansion” and “non-expansion” states

• In non-expansion states, there is a coverage gap for adults making <100% of the federal poverty level

• Patient cost sharing (premiums, co pays, co-insurance total out of pocket) is limited

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Insurance Reform


Medicaid Expansion


Agenda

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ACARepeal

“No one ever knew that health care could be so complicated.”

- President Trump

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ACARepealThe data presented in this section are based upon:

• The “Better Care Reconcilliation Act” which is the proposed legislation currently under discussion in the Senate

• Major Conclusions:• Total savings of $321Bn• Increased uninsured population by 22 million

• Implementation of changes occurs over 10 years

• Slides were made July 2017, and content is likely to change

• Conclusions are representative only! The full CBO report is 46 pages, and the following slides summarize selected highlights

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ACARepealBroad contours of legislation

Patient Protection and Affordable Care Act (PPACA)• Expanding coverage: public insurance exchange, Medicaid expansion.

– Reduce subsidies for exchanges; Reverse the Medicaid expansion; limit future growth of Medicaid

• Financing: New taxes, reduced reimbursements to providers, individual mandate. – Reduce or eliminate taxes; Repeal the individual mandate tax

• Insurance Reform: Ban on preexisting conditions and lifetime limits; children covered to age 26; Essential health benefits; Individual mandate. – Grant states waiver for essential health benefits; change “individual

mandate” to a coninuous coverage requirement• Payment reform: pay for value initiatives, penalties for poor care.

– Not a major target• Delivery system reform: new models of care.

– Not a major target

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ACARepealThe current Senate will fund a substantial tax cut by cutting insurance premium support and Medicaid growth

Bridge payments to insurers to stabilize the market

Innovation funds for States

Elimination of many of the ACA’s taxes, including the Medicare tax on high income earners

Delay of the “Cadillac Tax” on high cost insurance

Elimination of the employer and individual mandate penalties

Medicaid and premium subsidy cuts are the bulk of the savings in the senate proposal

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Topic ACA – CurrentLaw BCRA– SenateProposal

INSURANCEREFORM

Banon “IndividualRating”

Insurers cannotusepriorhealthstatustodeterminepremium

Preserved. Thisbanstaysineffect.

“CommunityRating”rules

Gender parity;Tobaccouse1.5x;Age:maximum3xdifference

Changed.Ageratingincreasedto5xdifference

EssentialHealthBenefits(EHB)

Most plansrequiredtooffersetofessentialbenefits

Changed. States mayobtainwaiverstomodifyEHB

Individual Mandate Individuals musthaveinsuranceorpayatax(withsomeexception)

Eliminated. New requirementfor“Continuouscoverage”

Employer Mandate Employersof acertainsizemustprovideinsuranceorpayafine

Eliminated.

ACARepeal

- Insurers will not be allowed to discriminate on pre-existing conditions- Individual mandate repeal will potentially cause a large drop in insurance for younger

healthier patients- Continuous coverage: patient will be locked out of insurance for 6 months if they were

not continuously enrolled- Strong support in the Senate bill for states to develop and submit ACA waivers

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INDIVIDUAL EXCHANGESAmount ofpremiumsubsidy

Basedonincomeandcomparable“Silver”plan - 70%AV

Changed.Basedonincome andcomparableplanwith58%AV

Income eligibilityforsubsidy

Available for100%to400%oftheFPL

Changed.Availableforenrolleesupto350%oftheFPL

CostSharingSubsidies

Available forpatients100%to250%oftheFPL

Eliminated.

ACARepeal

- Reduced premium subsidies will yield $408Bn in savings- Reduced premium subsidies à more patients will enroll in plans with lower actuarial

value plans OR will face increased premium costs for equivalent “Silver” plans- Higher out of pocket costs for:

- Patients in plans with lower actuarial values- Patients with income <250% of the FPL who are no longer eligible for cost

sharing subsidies- Expanded subsidies for people <100% of the FPL, but absent cost sharing subsidies

and lower premium support model, likely will have little impact on coverage

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MEDICAIDMedicaid EligibilityExpansion

Expanded eligibilitytoalladultsupto138%oftheFPL

Largely preserved. Statesthathavepreviouslyexpandedeligibilitymaycontinue

Medicaidmatchingfundsfornewlyeligible

Federal govt.covers90%ofcostfornewlyeligibleMedicaidpopulation

Changed. Fedgovt. Medicaidmatchingfornewlyeligiblereducedtomatching rate forotherenrollees(~57%)

Federal govt.fundingmodelforMedicaid

Entitlement. Federalgovt paysmatchingfundsforeligibleservices

Changed. Stateswouldbereimbursedonapercapitabasis,

ACARepeal

- Increase costs for states for newly eligible à limit further expansion, potentially threaten viability of current expansion

- Reduce future Medicaid expenditures from the federal government by $772Bn- Index Medicaid to consumer inflation after 2025, which is substantially lower than

historical inflation

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ACARepealThe Senate proposal will phase in over time

Immediate: • Individual / Employer mandate• Medicare tax on high income earners• Changes to state based waiver

process

2018: • Health insurer funding for market

stabilization and growth

2019: • Continuous coverage requirement • State funding for innovation program• Age rating adjustment

2020• Premium subsidy adjustments• Elimination of cost sharing subsidies• Indexing future Medicaid growth on

per capita basis with varied inflation adjustments by Medicaid subpopulation

2021-2024: • Reductions in Medicaid matching

funding for the ACA expansion

2025: • Per capita Medicaid growth funding

adjusted to non-medical consumer price index (CPI-U) for all Medicaid beneficiaries

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ACARepealNotable conclusions


• Substantial reductions in both Medicaid and individual markets, with a significant impact on lower income populations

• Medicaid is converted from an entitlement to a fixed cost program

• Bulk of the ACA regulatory and administrative framework remains intact, but the relaxed rules for state waivers could change this over time

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Conclusions


• ACA has expanded coverage to millions of new consumers both through premium support and the Medicaid expansion

• Individual exchanges are plagued by increased premiums, but the current law limits financial impact of these costs to consumers eligible for subsidies

• Current proposals from the Senate and the House will• Reduce premium subsidies• Substantially curtail Medicaid growth• Cut many revenue streams that financed the ACA

• Current repeal proposals do not change the broader “volume to value” transition that was in part financed by the ACA and now embedded within MACRA

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Questions

Update on the Affordable Care Act Kevin Shah, MD MBA · Update on the Affordable Care Act 2 Review major elements of the affordable care act Review implementation of the Individual

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