WITH DEEP THANKS TO

HELEN LEVY

UNIVERSITY OF MICHIGANINSTITUTE FOR SOCIAL RESEARCH, FORD SCHOOL OF PUBLIC POLICY,AND SCHOOL OF PUBLIC HEALTH

Lecture 24 – aThe Affordable Care Act

HELEN LEVY

UNIVERSITY OF MICHIGANINSTITUTE FOR SOCIAL RESEARCH, FORD SCHOOL OF PUBLIC POLICY,AND SCHOOL OF PUBLIC HEALTH

NOVEMBER 2013

An Overview of the Affordable Care Act

Setting the stage: Where were we in 2009?

The majority of Americans (64%, or almost 200M people) have private health insurance Most of that is employer-sponsored (risk pooling, favorable tax

treatment) Only about 27 million have policies directly purchased from an

insurance company50 million people (about 1 in 6) have no health

insuranceLong-run fiscal problem with health spending:

“…if current laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035 … and to more than 17 percent by 2080…That projection means that in 2080, without changes in policy, the federal government would be spending almost as much, as a share of the economy, on just its two major health care programs as it has spent on all of its programs and services in recent years.”

Congressional Budget Office (CBO), The Long-Term Budget Outlook, June 2009

Setting the stage: Where were we in 2009?

Businesses and households also squeezed by health care inflation

Concern about the quality of care: overuse, underuse, misuse, errors, etc. IOM report: “Crossing the Quality Chasm” (2001) McGlynn et al., New England Journal of Medicine: “The

Quality of Health Care Delivered to Adults in the United States” (2003)

Affordable Care Act, March 2010

Patient Protection and Affordable Care Act of 2010 (March 23)

Health Care and Education Reconciliation Act of 2010 (March 30)

Collectively, the “Affordable Care Act”1. Coverage expansion 2. “Delivery system reform” (better quality and/or

lower spending)3. Other provisions (Prevention & Public Health Fund,

CLASS Act, taxes, etc.)

I. Coverage Expansion: Overview

Two main components:Medicaid expansionsState health insurance Exchanges

Congressional Budget Office (CBO) projection, May 2013: 25 million fewer uninsured 25 million covered by exchanges, 12 million more in

Medicaid/SCHIP 30 million remain uninsured (1/3 of those illegal

immigrants)

CBO coverage projections, 2019Millions of non-elderly individuals

Source: CBO, May 2013

Medicaid expansion

Currently, Medicaid has different income thresholds for different groups of people (e.g. infants vs. children)

These thresholds also vary by stateWhat the ACA intended: beginning in 2014, anyone

<65 years old in a family with income <138% of poverty will be eligible for Medicaid Currently the cutoff would be $26,951 for a family of 3

The Supreme Court ruled in June 2012 that states do not have to do this Congressional Budget Office projected that this would

approximately cut in half the number of new Medicaid enrollees

Current estimate is that 4.9M poor uninsured adults will gain eligibility for Medicaid while 6.6M will not (Urban Institute)

Source: The Advisory Board Company

Health insurance exchanges (1)

Each state will have an organized market where consumers without access to employer coverage will go to buy coverage Think Orbitz States may take a more active role if they choose

(Utah vs. Mass.)Guaranteed issue (coverage cannot be

denied)Premiums are community rated with some

variation for age and smoking statusPlans must cover a package of essential

health benefits

Essential Health Benefits (EHB)

EHB must include items and services within at least the following 10 categories:

1. Ambulatory patient services2. Emergency services3. Hospitalization4. Maternity and newborn care5. Mental health and substance use disorder services,

including behavioral health treatment6. Prescription drugs7. Rehabilitative and habilitative services and devices8. Laboratory services9. Preventive and wellness services and chronic

disease management10. Pediatric services, including oral and vision care

Habilitative services are really just making sure that a child can thrive in the world that they’re living in, so, for example, hearing aids are a habilitative service. So is speech therapy.

Health insurance exchanges (2)

Premium subsidies are available for families with incomes up to 400% percent of poverty IF affordable employer coverage is not available “Affordable”: employee payment is ≤9.5% family income

Individual mandate: if you do not have coverage, penalty is the greater of $695/year or 2.5% of income Exemptions for religious reasons, financial hardship

Employer responsibility requirement: large employers (≥50 full-time workers) who do not offer affordable coverage must pay a penalty of about $2,000 per worker IF any of their workers received subsidized coverage Currently, 95% of firms with 50-99 workers offer coverage.

Break-even at $27,800

Break-even at $27,800

Affordable Care Act, March 2010

Patient Protection and Affordable Care Act of 2010 (March 23)

Health Care and Education Reconciliation Act of 2010 (March 30)

Collectively, the “Affordable Care Act” Coverage expansion 2. “Delivery system reform” (better quality and/or

lower spending)3. Other provisions (Prevention & Public Health Fund,

CLASS Act, taxes, etc.)

II. Delivery system reform

Two related problems:Quality of care is not as good as it could be.We spend “too much” on health care.

Additional considerations:The Democrats really needed CBO to score

the bill as a deficit-reducer.The scope for Federal intervention into health

care delivery is limited.

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/PieChartSourcesExpenditures2011.pdf

http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/NationalHealthExpendData/Downloads/PieChartSourcesExpenditures2011.pdf

Delivery system reform

What is the right way to increase the value we get from health care spending? It depends what you think the root of the problem is…

1.Patients and/or providers might need better information about quality/effectiveness.

2.Patients and/or provider may currently face the wrong incentives.

3.Maybe Medicare just pays too much to (some) providers.

The Affordable Care Act moves on all three fronts.

1. More information about quality/effectiveness

Patient-Centered Outcomes Research Institute Goal: make better information about treatment effectiveness available for

patients and providers Builds on existing comparative effectiveness research (CER) program at AHRQ

and additional $1.1B in funding from the Recovery Act

Expanded quality reporting Providers report more information to CMS CMS reports more information to the public (e.g. staffing levels on Nursing

Home Compare web site)

Both of these initiatives build on existing activities Hard to predict what impact they will have.

2. Changing incentives

PROVIDERS:• New payment models in Medicare: Accountable Care

Organizations, bundled payments• Very uncertain what impact these will have.

• Value-based Medicare payments for hospitals and nursing homes• Builds on existing Medicare programs

• Reduced Medicare payments for hospitals with high rates of readmission or hospital-acquired conditions

PATIENTS:• “Cadillac tax” on value of health insurance above a

threshold: Starting in 2018, a 40% excise tax will be imposed on the portion of health coverage costs that exceed $10,200 for single coverage and $27,500 for family coverage

An ACO is a network of doctors and hospitals

that shares responsibility for

providing coordinated care to patients in hopes of limiting unnecessary

spending. At the heart of each patient's care is a primary care physician.

3. Reducing payments

Reducing payments to providers and/or insurers Home health (-$40B), Medicare Advantage (-$136B), hospitals (-

$157B) Disproportionate Share (DSH) payments to hospitals reduced (-

$22B) Independent Payment Advisory Board (hospitals off-limits until

2020)Sustainable Growth Rate (SGR) complicates physician

reimbursement Balanced Budget Act of 1997 required it, but Congress keeps

delaying Currently requires a cut of about 25% in Medicare Physician Fee

Schedule in 2013 CBO scores a freeze (rather than cuts) at about $300B over 10 years Simpson-Bowles deficit reduction commission and MedPAC both

advise scrapping it

Affordable Care Act, March 2010

Patient Protection and Affordable Care Act of 2010 (March 23)

Health Care and Education Reconciliation Act of 2010 (March 30)

Collectively, the “Affordable Care Act” Coverage expansion “Delivery system reform” (better quality and/or

lower spending)2. Other provisions (Prevention & Public Health Fund,

CLASS Act, taxes, etc.)

The ACA, title-by-title

I. Quality, affordable health care for all Americans

Health insurance exchanges, other market reforms, small biz tax credits, etc.

II. Role of public programsMedicaid expansion, DSH

III. Improving the quality and efficiency of health care

Medicare payment changes, delivery system reformsIV. Prevention of chronic disease and improving

public healthPrevention and public health fund

The ACA, title-by-title

V. Transparency and program integrityAnti-fraud, patient-centered outcomes research,

physician payment sunshine lawVI. Improving access to innovative medical

therapiesSimplified approval for follow-on biologics

VII.CLASS actHome care services “insurance” program

VIII.Revenue provisions

The Affordable Care Act: projected costs, 2010 – 2019 ($Billions)

Adapted from McDonough (2011), Table 1

Expense

Revenue/savings

I. Private coverage expansion 509 81

II. Medicaid/CHIP 459 53

III. Delivery system reform and Medicare 54 450

IV. Prevention 18 1

V. Workforce 18 0

VI. Transparency/fraud 3 7

VII. Biological similars 0 7

VIII. CLASS (not being implemented) 0 70

IX. Revenues 0 438

Major revenue provisions in Title IX of Affordable Care Act

Adapted from McDonough (2011), Table 8

10 year revenue ($B)

1 Broaden Medicare hospital insurance tax base for high-income taxpayers

210

2 Impose annual fee on health insurance providers 60

3 Impose 40% excise tax on high-cost health coverage (aka Cadillac tax)

32

4 Annual fee on branded drugs 27

5 Exclude unprocessed fuels from cellulosic biofuel producer credit

24

6 Excise tax on medical device makers 20

7 Information reporting on payments to corporations (repealed April 2011)

17

8 Raise 7.5% medical-expense deduction floor to 10%

15

9 Limit health FSAs to $2,500 13

10 Change definition of medical expense for health savings accounts

5

Concluding thoughts

The Affordable Care Act laid out a plan for changing the social safety net that is revolutionary and marginal at the same time. Revolutionary because of the commitment to universal

coverage Marginal because it focuses on a small fraction of the

existing market (individual policies)It also represents an attempt to address the

structural deficits created by Medicare and Medicaid through delivery system reform. These problems need to be addressed regardless of

what happens to coverage.

National health expenditures by payer, 2009Source: CMS

Total = $2.5 trillion= $8,086 per person= 17.6% of GDP