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ACA, the Exchanges and Healthcare After 2014. Tom W. Watson, CPA, FHFMA Managing Partner – Dallas/Waco. Why are we here?. The Uninsured More 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
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ACA, the Exchanges and Healthcare After 2014 Tom W. Watson, CPA, FHFMA Managing Partner – Dallas/Waco
Why are we here? • The Uninsured • More 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 services • The 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 it • Many employers are tired of paying the hidden tax needed to subsidize today’s health care system
Employers Providing Health InsuranceSource: Kaiser Foundation
Key Provisions of Affordable Care Act • Requirement to have insurance coverage • Effective January 1, 2014 • Penalty 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 coverage • 50 or more full-time employees (defined as 30 hours or more per week) • Requirement to offer “affordable” coverage • Penalty 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 Expansion • Expands 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 expansion • Supreme Court ruling on ACA made this expansion optional, and 26 states have opted not to expand coverage • Premium Credits and Cost-sharing Support • Premium 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 Taxes • Changes to qualified expenses from HSAs • Increase Medicare Part A tax from 1.45% to 2.35% on wages over $250,000/$200,000 for married/single individuals • 3.8% tax on unearned (i.e., investment) income • Cadillac plan excise tax • Fees on pharmaceutical industry • Fees on medical device industry • Creation of Health Insurance Exchanges • Many, many other provisions
Delayed provisions include….. • Delay in cuts to Medicare Advantage Plans • One year delay in employer reporting • IRS rule that allows subsidies to flow through federal exchanges • Delay of Small Employer Health Option • Employer Mandate delay • Self-attestation partially implemented • Delay of individual mandate (only one month) • Allowed insurance companies to continue to offer “canceled” nonqualified plans • Exemption of union plans from reinsurance fee
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 patients • 20% or less of amounts billed to Medicaid patients • 25 to 30% of amounts billed to Medicare patients • Between 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 debts • The 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 Companies • Hospitals should be prepared to be the enemies in phase 2 • $$$ - Hospitals are the deep pockets when it comes to Medicare cuts • The 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
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 procedures • Knee and hip replacements • Coronary bypass graft • Bariatric surgery • Diagnostic cardiac catherizations • Cataract removal • Maternity 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 program • Potential 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 debts • Many are now concerned that the law will not reduce these to the level anticipated • Concerned with failure to expand Medicaid • Note 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 down • Continued shift to care in an outpatient setting • Focus of many hospital’s capital investments • Urgent care centers and “drug-store” clinics • How will the federal exchanges impact payer mix?
Cost Shifting– Current Example 100% 85% 150% 80% 25%
Feared Payer Mix 233%* 80%
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 environment • Hospitals and physicians must work together in an accountable care and medical home model – the same owner makes this easier • Squeeze on access to capital for smaller hospitals • Private equity view growth in segment with guaranteed cash flows and ability to create economies of scale • General fear of the unknown • Will it continue?
The ACA’s Impact on Physicians • No change in “doomsday” scenario of Sustainable Growth Rate reduction • SGR would reduce payments over 25% for Medicare • Continually “punted” to next year • Physician practice model is changing • The disappearance of independent doctors (nearly 70% employed by hospitals!) • Partly due to demographics and expanded regulatory actions • Partly due to fear of ACA • Physicians are being asked to provide more preventative care • Accountable Care Organizations • Medical Homes • Severe income squeeze in recent years • Growth in mid-level providers to prop up incomes (i.e., leverage)
Patient Access concerns • If the ACA works as intended, many people that previously didn’t have insurance will be covered • Social 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 stability • Balance sheets remain stable due to good investment return • Requires the ability to invest in stocks • The reappearance of expense growth outpacing revenue growth • Looking forward: • Anticipate weak financial performance • All rating categories will be affected • No overriding factors to drive up admissions in 2014/15 • Anticipate the transition to value based purchasing will be highly disruptive • Rate 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
The Accountable Care Act Impact on Businesses and individuals
Employer impact • The requirement to provide coverage is the most significant impact • Most 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 law • Structure of health plans to meet minimum coverage and enrollment standards • Reporting coverage to IRS
Private health Insurance Exchanges • There are several private health insurance exchanges • Allows employers to adopt a “defined contribution” approach to employee health insurance • Pros and cons • Takes the risk off of the employer, but are employees ready for this choice? • Will employees choose the right level of coverage • Enhances ability for employees to compare true compensation vs. the hidden compensation of health care • Generally more flexible than public exchanges • Ability 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 plans • State exchanges vs. federal exchanges • Four 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 choice • Anecdotal evidence says rates paid are slightly less than current rates, but not as low as some feared • Increasing 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: • Aetna • Cigna • Blue Cross • Molina • Several areas do not have “platinum” plans available • Narrow networks are very common
Federal poverty level for 2013 • Individual • 100% = $11,490 • 133% = $15,282 ($7.34/hour) • 200% = 22,980 ($11.04/hour) • 400% = $45,960 ($22.09/hour) • Family of 4 • 100% = $23,500 • 133% = $31,322 • 200% = $47,100 • 400% = $94,200 • A family of 4 at 200% of the poverty level would be responsible for $314/month in premium before a subsidy was received • A 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 Medicaid • Why it matters • Medicaid only covers specified categories of individuals • I.e., no coverage for childless adults in poverty • ACA assumed that all individuals under 138% of poverty would qualify for Medicaid • No 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 uninsured • Failure to expand Medicaid leaves about 1,000,000 individuals without coverage
Breaking the log jam • Would Texas consider the “Arkansas” option? • The Arkansas option: • Doesn’t technically expand Medicaid • Uses 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 enrollees • Enrollment would be in “silver” plans • State pays premiums directly to insurance companies • Must address the co-pay required by many insurance companies • Requires some cost sharing for beneficiaries over 100% of FPL • Potential 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 Basics • Uncompensated Care reimbursement • Delivery System Reform Improvement Program (DSRIP) payments • 5 year program with billions of dollars of revenue at stake • Replaces UPL program • We are now entering DY3 • Implementation has been somewhat rocky, with several payment delays • Cash is running, on average, six months behind schedule • Some providers have trouble finding IGT funds • The future of the program • Big winners are governmental hospitals, especially large districts • A 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 battles • Burden alleviation fatigue • Physician hospitals and working around the ACA • M&A Activity • Hospitals buying hospitals • Preparing for bundled payments • Private equity
The Accountable Care Act Predictions and key trends
Consumer Surveys Offer Insight • Nearly 57% of employees would like to customize their own health plan • 70% would like to see hospital and physician prices “on-line,” including what the insurance company will pay to these groups • 62% of employees would be willing to use self-monitoring devices to manage their health • Nearly two-thirds would like to use video conferencing or other non-personal means for follow-up visits • There 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”
Multiple examples of “management” in insured population • Narrow steerage of certain patients to “centers of excellence” • Cardiovascular care • Orthopedic and rehabilitative services • Exclusion of high-cost providers from networks on a service line basis • Incentives for employees to choose lower cost options in the marketplace • Medical 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?
