Jan
13

Friday catch-up

2017 is starting off to be the most interesting/bizarre/entertaining/terrifying year in memory.

As one who tracks the goings-on internationally and in DC with some diligence, it’s been impossible to keep up with the craziness. Here’s my attempt to summarize the week that was.

The one thing you missed – and why you shouldn’t have

Trying out a new mini-post on the most important thing may have missed this week. Today’s it’s UnitedHealthcare’s acquisition of a big outpatient surgical clinic company.

This is important because the giant ($175 billion) healthcare company is investing more in care delivery – likely to better control its “cost of goods sold”.  As vertically integrated healthcare systems (think Kaiser, UPMC) get better at insurance, insurers have to get better at care delivery.

ACA Deathwatch

The reports of ACA’s death appear to have been greatly exaggerated. 

Yes, the Senate passed a bill that is the first step in a repeal process.  But it is ONLY a first step. Without diving too deep into the nerdy details, the bill just instructs Senate Committees to begin drafting a repeal bill and lays out general principles.  But there’s no consensus on when the repeal would take effect, what a replacement would look like, or even how it would be funded.

Things are going to get pretty complicated, especially in the Senate. There’s a lot of concern among Republicans in key leadership positions that quick movement on a bill would lead to a considerable backlash – and major political damage.

For freemarketers and Libertarians, there’s this:

“We did have the government out of the individual market up until 2014 [when most of the ACA provisions went into effect], and we know exactly what happened: There were millions of people who couldn’t get coverage,” Field said.

The ACA created a market that did not exist before — one that insures sick people. Field says it’s a market failure that the industry on its own will not cover the highest-risk customers. “If you want to cover everyone, the government has to do something.”

Town said pushing the government out of the equation will leave many citizens without access to health care.

“If you want to live in that world, so be it,” he said. “But I think we as a society have made the joint decision that having a vast part of a population uninsured and having limited access to health care is not a route that we want to go. Getting rid of the ACA is not going to get rid of the government’s role in health care.” [emphasis added]

Here’s a good summary of some of the issues the Republicans face – and why they are treading carefully…key quote:

The real reason health care premiums and deductibles are so high is that medical care is very expensive in the United Statesfar more costly than it is anywhere else in the world. The United States pays very high prices to doctors and hospitals and drug and device makers, and Americans use a lot of that expensive medical care. [emphasis added]

And here’s why keeping only the popular parts of ACA won’t work.  Alas.

Work comp

The M&A activity level has dropped off considerably – if not precipitously. The WLDI sale – a relatively small transaction – is one of the very few recent deals. Don’t expect activity to ramp up as the industry is:

  • pretty consolidated already, so there are fewer companies available to buy;
  • work comp is a declining industry with negative growth – not very attractive to investors;
  • prices were really high for a long time, and company owners still expect to get paid a lot. Sellers still expect to get those high prices, but…
  • buyers are much more cautious due in large part to the “OneCall Effect” (financial returns haven’t met expectations).

Don’t miss the Rx Drug Abuse Summit – April 17-20 in Atlanta.  It’s the most comprehensive and focused event on the biggest issue in workers’ comp.

Nothing is more important to work comp than the overall economy.  Read this – when you have time – for a solid grounding on what to watch for in 2017.  Spoiler alert – economic growth, which has trended up significantly over 2016, is likely to moderate over the next two years. And watch out for inflation.

 

Finally, for management wonks, here’s a great piece on execution from Harvard Business Review.


Jan
11

ACA Deathwatch: What “repeal” means to you

Here are questions you may want to ask about what a “repeal” and “replacement” will do.

  1. What will happen to your premiums?
    If more young people sign up, premiums for us older folks go down. If there is no mandate to buy insurance (and the continuous coverage requirement is far weaker than a mandate), insurance premiums for the 50+ crowd are going to go up – a lot. That’s because healthy seniors will decide the premiums are too high, so the only folks that will buy insurance will be the sick ones.  Insurers know this, so they will either a) exit the market; b) raise premiums to the moon; c) drastically limit coverage for specific medical conditions like heart disease or cancer; or d) go bankrupt.
  2. Is your medical condition still covered?
    ACA requires almost all insurance plans cover all physical and mental health conditions under the essential health benefits requirement. Replacement plans under consideration have no such requirements, allowing insurance companies to exclude specific types of treatment, specific conditions, types of providers, etc.
  3. Is addiction treatment covered?
    Currently mental health coverage is required for most employee and individual plans. Given the huge problems we face with opioid and crystal meth addiction, will a replacement plan require coverage for those seeking to end their addiction? Before ACA, about a third of individual insurance plans didn’t cover addiction treatment. And you can bet your house “replacement” insurance plans wouldn’t offer coverage…
  4. Can insurers limit coverage for medical diagnoses or conditions?
    Under ACA, there are NO lifetime or annual caps for specific medical conditions. The “replacement” plans allow insurers to set arbitrary caps for any diagnosis – cancer, heart disease, orthopedic injuries, or any other category they define.
  5. What happens if you lose your job and can’t afford to pay for individual health insurance while you are looking for work?
    Under the replacement plans, if you have a “gap in coverage” where you don’t have health insurance, when you apply for new coverage your insurer doesn’t have to cover your pre-existing medical conditions, and/or they can charge you higher rates.
  6. Who pays for emergency care for those without health insurance?
    Before ACA family insurance premiums included about $1000 for the additional cost of indigent care due to cost-shifting.  If the number of uninsureds grows – as it most certainly will – they will get care at hospital emergency rooms (hospitals are required to care for anyone presenting with emergent needs regardless of insurance status). So, this “hidden tax” will almost certainly increase your premiums.
  7. Will you be able to buy cheaper insurance from out-of-state health insurers?
    No.  There are three states that allow that today – and NO out-of-state insurers are selling across state lines.

 


Jan
9

ACA Deathwatch – The GOP repeal bill is out

Late Friday the Republican Study Committee released its ACA Repeal Bill.

No word on a replacement plan as of this writing.

Key points

  • A tax credit of $7,500 (individuals) or $20,500 (families) which will apply to income and payroll taxes, and will be indexed for inflation at the same rate as CPI-U. The credit does NOT vary by a person’s income level, so folks making $10,000 a year get the same amount as multi-millionnaires.
  • Fund high-risk pools at $2.5 billion a year for 10 years for those people who can’t get insurance on the open market (note high risk pools have historically not worked over the long term due to state budget limits and increasing costs due to adverse selection)
  • Requirement that individuals MUST stay continuously insured to avoid pre-existing condition limits. Lots of problems with this…
  • Allow sale of insurance across state lines – an initiative that is already in place in three states – and no insurer has EVER done this because it doesn’t work.

For several reasons outlined succinctly in a piece in Health Affairs last week, repeal without replace is problematic. Best guess is the final repeal legislation will call for a replacement within 3 years.

Finally, there is still no consensus among Republicans on a strategy re replacement, much less what a replacement bill would involve.

 


Jan
5

ACA Deathwatch UPDATE: Three problems for the GOP

Republicans have three problems with their promise to “repeal and replace” ACA.

The net – Republicans’ risk – and it is a very real one – is their efforts may blow up the entire healthcare system as it tries to address one narrow slice of the insurance market.

The first problem is internal division.  

Republican Representatives and Senators have committed to “repeal” ACA, but haven’t reached any consensus, agreement, or framework about what the “replacement” is going to be. And there is no indication they are making any progress.

As the Democrats found when constructing ACA six years ago, reaching consensus about healthcare is incredibly difficult as each “wing” in the party wants its own version to prevail. The GOP is learning once again it is MUCH easier to tear down than to build.

UPDATE – Politico reported this today...

disagreements spilled over Wednesday at a closed-door meeting with Vice President-elect Mike Pence that had been intended to unify the Senate GOP. Instead, multiple senators stood up to express concern that the party’s plans to repeal and replace the law could blow massive holes in the budget ... Newly ascendant Republicans are reckoning with the reality that dismantling a nearly seven-year-old law that reshaped a $3 trillion health sector and covers millions of Americans is more daunting than simply campaigning against it.” [emphasis added]

Especially when the “problem” the GOP publicly committed to fix – the individual insurance market – is a relatively small part of the healthcare market – and ACA itself.

Second, without a credible replacement, those individual insurance markets will implode as carriers leave the market. Cost shifting to privately insured patients from hospitals that a) agreed to lower Medicare payments and b) have more uncompensated care will increase dramatically.

Any major problems in the insurance or healthcare provider markets that come after a repeal are going to cost the GOP dearly.  There is no question those people who lose coverage – and there will be millions under ANY of the scenarios now under consideration – will be really, really angry. (Pre-ex is just one issue the GOP has no real solution for)

Third, a repeal and replacement is going to cost hundreds of billions of dollars.

Under the best case scenario, repealing ACA increases the deficit by $350 billion over ten years.  That’s causing major heartburn among GOP deficit hawks, and is a big reason there’s no consensus on what to do. (thanks Brandon Miller for correcting my mistake!)

What’s the net?

Republicans’ pledge to immediately repeal ACA was a winning campaign promise. It may well be a loser in the next election.

 


Jan
3

ACA Deathwatch – The Problem with Pre-Ex

Back in the bad-old pre-ACA days the 27% of us who have pre-existing medical conditions often found it hard if not impossible to get insurance coverage in the individual and small group insurance markets.

As a result;

  • people didn’t leave their job to try something new – aka job lock
  • small employers’ costs went up dramatically if workers got sick or had specific conditions

For those not deep into the health insurance world, think of pre-existing medical conditions as:

  • houses that just had a fire,
  • people with dogs that just bit neighbors,
  • businesses that just had someone slip and fall on their premises, or
  • cars that just hit pedestrians.

No way you’d insure that house/person/business/car.

That’s the problem with requiring health insurers to cover people with heart disease, high blood pressure, bad knees, obesity, or any other condition. You’re insuring the car just after it crashed.

When considering ACA replacements, there are three general approaches.

1. Require everyone have health insurance – the so-called “mandate”.  That way the healthy people help pay for those with pre-ex conditions. Yes, this is a “subsidy”, using money from some to pay for services for others.  It’s spreading the cost across a larger population, while ensuring the currently-healthy are protected from bankruptcy if they get hurt or sick.

The GOP seems averse to this requirement.

Issue – people may not like paying insurance costs when they are at lower risk – which is why there are “age bands” that keep younger folks’ premiums substantially lower than we old folks.

2.  Require insurers to cover anyone who has had “continuous coverage.” That is, the person switches from one insurer to another with NO gaps in coverage. The idea is people will keep their insurance up out fo fear they will need it one day.

Issues:

  • if you lose your job, you have to pay the entire cost of insurance for you and your family yourself.  This is typically more than $1000 a month for a family.  Many people just can’t afford to pay this while they are between jobs.
  • if your job doesn’t offer insurance, you have to buy it – and pay for it – on your own. With wage stagnation affecting many, it’s just not affordable. 

3.  High risk pools – a few states used to have high risk pools; these ended with ACA. These pools were intended to cover people with major diseases or conditions who could not get insurance elsewhere and weren’t eligible for Medicaid or Medicare.

While a good idea, in reality these pools were a financial disaster.  They were very expensive and had a really small political constituency. Legislators continuously cut funding or restricted coverage to ever-smaller groups of patients.

The issue is simple – 1% of the population accounts for almost a quarter of health care costs.  Put another way, about 3.3 million people spend $800 Billion annually.

What does this mean for you?

Pay attention to ACA replacement plans if you or a loved one has a pre-existing condition. Or, for that matter, if you may have one some day…

If you aren’t sure, here’s a list.


Dec
30

ACA Deathwatch; What to watch for when Congress convenes next week

News reports indicate Speaker Ryan will be moving quickly to pass ACA repeal legislation when Congress reconvenes next week.

While most elected Republicans are in agreement that ACA should be “repealed”, that’s about where the agreement ends.

And therein lies the problem.  Here’s a brief summary of where legislators stand.

First, the kill-it-dead camp.

Some budget hawks want a total repeal and defunding, much of which can be accomplished via reconciliation.  This prevents a possible Democratic filibuster in the Senate.

There are about 40 Representatives in the so-called Freedom Caucus that hew to this line with possibly a couple dozen more votes to repeal-and-be-done-with-it. Make no mistake, emboldened by the election results these people are in no mood to compromise. As these are the same people who refused to fund the government we should fully expect them to push very hard for total repeal and defunding.

Implications: do NOT assume these folks will compromise.  They will fight tooth-and-nail to kill ACA and damn the consequences.

Second, the fiscally prudent

Related to this group are the fiscally-focused.  These Senators and Congresspeople are quite concerned that a repeal will also do away with about a trillion dollars in revenue and taxes over the next decade which will result in:

  • budget shortfalls
  • bankruptcy of the Medicare Hospital Trust Fund
  • elimination of premium support for about 75% of those buying insurance via the Exchanges

Add to that the reductions in Medicare and Medicaid reimbursement embedded in ACA, and you have another $879 million in additional spending if ACA is repealed.

Implication these folks are going to be cautious, and they will likely end up in the “repeal and replace” camp.

Repeal and replace camp

There are two different groups here – one calling for a repeal then construction of a replacement over time, and one that wants both bills passed simultaneously.

In either case the far-righters are going to come up against more pragmatic Representatives and Senators, notably Lamar Alexander, Chair of the Health Education Labor and Pensions Committee, the Senate Committee that will have significant influence on any legislation going thru that chamber. Alexander’s been quoted saying a GOP bill must “do no harm.”

Alexander and his allies are pushing hard for a much more measured approach that couples repeal with a replacement bill, thereby giving insurers and other stakeholders some confidence and predictability.  Essentially their approach leaves much of today’s ACA in place while sunsetting the bill in 3 or perhaps as many as 4 years.

Alexander, Olympia Snowe et al are of the mind that this gives them enough time to work thru the calculations, political and financial, necessary to replace ACA without blowing up the insurance and healthcare industries in the process.  Among the provisions that have been mentioned favorably by this group are:

  • guaranteeing coverage for pre-ex conditions if individuals maintain insurance coverage
  • maintaining some form of government tax subsidies to help different groups of Americans cover their premium costs and
  • funding for expanded Medicaid coverage for low-income adults and children.

Notably, Alexander et al’s position has been challenged by House Majority Leader Kevin McCarthy, who wants to repeal THEN replace.  McCarthy’s colleague, Speaker Ryan has also outlined a replacement plan that keeps many of the popular provisions of ACA. Notice the word “outlined”; there is NO replacement legislation that is ready to be introduced anytime soon.

Implication – the House and Senate leadership have different views, and the House is going to be pretty internally-conflicted. This is a LONG way from being resolved.

Back to the good old days camp

Finally, HHS Secretary designate Tom Price has his own ideas, which include repealing cuts to Medicare and ending much of the financial and practice controls and oversight put in place by ACA.  Price’s bill, while it has not been scored by CBO, will almost certainly result in higher costs.

Implication – I don’t see Price’s proposal going very far.

The wild card – Senate Democrats.

There are 48 Democrats in the Senate, and some will have to be co-opted to get a non-reconciliation repeal-and-replace bill thru.  Leader Chuck Schumer is pragmatic, a bunch of Dems are up for re-election in two years and will likely work hard to keep key provisions in any new bill.  However, there are many of his fellow Democrats who are in no mood to compromise.  Hell, the take-no-prisoners approach worked for McConnell…

And this means…what?

Notably, NONE of the GOP bills presently under consideration will address the fundamental, underlying issue – cost.  US health care costs average almost $10,000 per person. In fact the Alexander-Snowe approach and Price’s bill would increase health spending. 

Notably, there is another option.  Republicans could come up with whatever changes they want, and not bother to fund them or do anything about the increased deficit.  While that may seem heretical, one must remember that a Republican House, Senate, and President gave us Medicare Part D, a totally unfunded benefit that the Medicare Actuary calculates has added $16 trillion to the federal deficit.

Note – Paul Ryan was one of the “Yes” votes on that bill.

 


Dec
22

For the GOP, the problem with repealing ACA is not practical, legislative, or financial.

It’s psychological.

Humans are hard-wired to hate losing stuff, a principle known as loss aversion. We humans strongly prefer avoiding losses to acquiring gains: We get much more upset if we lose a five dollar bill than happy if we find $5.  

With over 20 million more Americans insured now due to ACA and record enrollment going on now, there are millions of voters who will be enormously upset if they lose their health insurance.

The five states with the most people enrolling for coverage on Healthcare.gov through Monday were ones Trump won: Florida – 1.3 million plan selections, Texas (776,000), North Carolina (369,000), Georgia (352,000) and Pennsylvania (291,000). (thanks to NYT).

The GOP has boxed itself in, and has an impossible task ahead – how to

Not surprisingly, many Trump backers who gained health insurance under ACA are now scared he’s going to deliver on his promise to kill ACA. And not nervous scared – really, really scared.

This adds a whole new dimension to loss aversion – this isn’t a five dollar bill, this is a new liver, diabetes medications, knee replacement surgery.

There’s no way any ACA “replacement” that doesn’t require coverage of pre-existing conditions, have significant subsidies for the poor and near-poor, and mandate insurance is going to prevent these people from losing coverage. Oh, and do that while reducing medical costs and not increasing the national debt.

That’s why the GOP isn’t going to repeal ACA.

For a very thorough discussion of just how many – and who – stand to lose coverage if the GOP does repeal ACA, there’s no better source than Charles Gaba.


Dec
21

ACA Deathwatch: Hospitals, bankruptcy, and chicken-killing dogs

For those wondering why the GOP appears to be walking back its promise to “rip out Obamacare root and branch”, here’s why this is a whole lot harder than one might think.

And why the political realities make this picture far too real for the incoming Congress.

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The GOP has long prided itself as the party of fiscal responsibility; Speaker Ryan and Majority Leader McConnell have assailed ACA as unaffordable and a budget-breaker. However, among the myriad issues inherent in healthcare reform is this – repealing ACA would bankrupt Medicare’s hospital insurance fund next year.

(It would also alienate many who voted for Trump...but that’s another story.)

When ACA was passed, there were financial trade-offs put in place to address winners and loses in an attempt to make the law as budget neutral as possible.

Insurance companies, drug companies, device manufacturers, and hospitals paid higher taxes or got lower reimbursement because they were going to get a whole lot more business as millions more people got insurance. Specifically, hospitals’ Medicare reimbursement has been changed – in part to eliminate payment for medical mistakes and re-admissions, and in part by altering reimbursement mechanisms and formulas.

ACA also included a 0.9 percent payroll tax on the wealthy individuals earning more than $200k or couples making more than $250k.  This raised $63 billion, which went to fund Medicare’s Hospital Trust Fund.

The combination of lower total reimbursement and more revenue extended Medicare’s solvency by 11 years. Without ACA, the Trust Fund is bankrupt next year.

If the GOP repeals the ACA or eliminates the 0.9 percent tax on the very wealthy, Medicare Part A is technically bankrupt.

The incoming President, Congress, and HHS Secretary are facing the very same tradeoffs and complexities their predecessors faced in 2010 – health care is horrendously complex and inter-related.  There are no simple, easy answers.

What does the GOP do?

From here, it looks like they have a couple options.

  1. Repeal it, pass their own health care reform legislation that makes major changes, and claim success.  
    As noted above, and as we’ve seen over the last five years, changing the US healthcare system is brutally hard, there are way more unintended consequences than anyone could predict, and there are no simple answers. There is just no way they can cobble together legislation anytime soon that will address ACA’s issues and not result in a gigantic clustermess.
  2. Repeal ACA in two or three years, with the promise they’ll come up with a replacement in a year or two.
    Without a credible replacement, insurers and healthcare providers are going to panic. Expect insurers to exit the individual and small group health insurance markets in droves. Democrats will use Medicare’s pending insolvency to bludgeon Republicans in the mid-term elections.
  3. Rebrand ACA as TrumpCare, make a couple tweaks around the edges, declare victory, and go home.
    This gets my vote as most likely, primarily for the reasons noted above. Now that the GOP owns health reform and Medicare solvency, Democrats are going to tie the issue around their necks like a dead chicken.

For a more detailed discussion of the issue, here’s a good synopsis from Politico.

Later – Hospitals and Medicaid – it’s pretty scary. 

What does this mean for you?

Don’t be lazy. Healthcare reform is hugely complicated, and for those of us – that means you – invested in the industry, what’s about to happen is far too important for you to ignore it or pay it little heed.