In his State of the Union speech to Congress last month, President Obama spent scant time discussing the new healthcare law (PPACA).
One healthcare policy commentator, Robert Laszewski, wrote that the President didn’t know what to say. Citing recent polls from the January Kaiser Health tracking poll, Laszewski hypothesized, “Only 37% have a favorable view of the law and 67% don’t like the mandate. But 50% think the law should be kept as it is or even expanded. No wonder Obama and his political team can’t figure out how to play this.”
It is not surprising the country is confused. 2011 was full of twists and turns on the road to healthcare reform implementation.
Perhaps most notable was the U.S. Supreme Court’s decision to hear the federal government’s challenge to the Eleventh Circuit federal court’s ruling that the individual mandate is unconstitutional. If the Court rules the individual mandate is unconstitutional, implementation becomes extremely challenging. Expect the Court to begin to hear arguments toward the end of March after all briefs have been filed.
Despite the court challenges, the Department of Health and Human Services (HHS) moved forward with health reform implementation, laying out critical detail to numerous components of the law. Hard as it is to believe because of its size, the PPACA acted as a detailed outline. We see the HHS completing the canvas now.
Some interesting pictures emerged in 2011. On October 20th the CMMS issued its final rules for Medicare Accountable Care Organizations (ACOs). These organizations were to be one of the vehicles for transforming how we manage care by allowing different groups to partner together under different reimbursement rules. In the first draft for ACOs, the CMMS was criticized for proposing something incredibly complex, offering a micro-management approach to innovation. The dissenting feedback was loud.
Many viewed the final version released in October more positively in a consensus that the CMMS did in fact listen to criticism. Still healthcare providers are cautious as they try to translate federal regulations and incentives to operational plans.
In December came the Administration’s announcement to shift to states the decision about what treatments many insurance plans must cover under the health-care overhaul. The federal law requires that starting in 2014 most plans offer certain services including emergency, maternity, prescription drugs, rehab, lab tests, pediatric and preventive.
However other types of services will be left to the states to determine. States will be able to set their coverage standards to align with either the federal-employee plan, the most popular state public employee plan or the largest private plans offered. Kathleen Sebelius, Secretary of HHS, shared, “As we’ve acknowledged many times, coverage that works in Florida may not work in Nebraska.”
Based on these trends in 2011, you might conclude that the administration was adopting a more flexible open policy on developing regulations.
Jump two months later, and the Administration took a decidedly different route. On January 20th HHS released rules that stated most health insurance plans must cover contraceptives for women free of charge including those provided by religious organizations. Among the drugs and devices that must be covered under “preventive services” are emergency contraceptives, including the “morning after” pill. The rule also requires coverage of sterilization procedures for women without co-payments or deductibles.
The issue forced Mr. Obama to weigh competing claims of Catholic leaders and advocates for women’s rights. No issue to date has caused such passionate opposition to the law since passage and fueled so potently the criticism that PPACA represents a federal take-over of healthcare. The adminstration’s compromise of moving the burden of contraception coverage to the insurance companies most likely will not put the issue to rest.
All this is to show that the implementation of PPACA over the last year is not only hugely complicated but also fraught with political consequences. Indeed the politics did not end when the President signed the law. They just got started.
These decisions and rules have been primarily focused on how healthcare coverage will be implemented and regulated. The other key component of the healthcare reform equation is costs. Grappling with this issue represents an even greater challenge.
Why? Because according to most accounts, what we have today or even post reform is not sustainable. It becomes a mathematical problem. We are looking at scenarios that Medicare commitments could take up our entire government spending.
We are already seeing consequences of this crowding out of other services by growing healthcare costs.
My own state of Wisconsin made headlines in its budget battle last year. One of the main casualties in balancing the budget without raising taxes (other than collective bargaining) was significantly less funding from the state to local school districts, one of the largest education cuts in the country. While focus has been on these reductions, the Milwaukee Journal Sentinel pointed out in December that the money was needed elsewhere. Guess where? To fund one of the largest spending increases in the country in healthcare for the poor. Even tax increases cannot fix the equation.
Think of the cost part of the healthcare equation as the elephant in the room.
So how did Washington deal with the big ear fellow?
Let’s look: In 2011, the Republican House did offer a budget, called Path to Prosperity, with a proposal for a different payment model for Medicare and Medicaid. Not surprisingly, Democrats defeated it in the Senate and wasted little time initiating a successful public assault with the idea that Republicans were trying to end Medicare. TV ads aired across the nation with images of grandma being pushed off the cliff.
The wrangling did not stop there. At the end of the summer the world watched the standoff in Washington around raising the debt ceiling, which stood at $14.3 trillion. Not able to come to an agreement, Washington handed over the work to yet another Super Committee and raised the debt ceiling to $15.2 trillion. Unfortunately as Thanksgiving approached the Super Committee reported they could not reach an agreement, including plans to address entitlement spending.
Not out of the woods yet, Congress faced another looming deadline. On December 1st, automatic cuts to physician Medicare payments amounting to 23% were to take place under the seriously flawed SGR (sustainable growth rate) payment system. Physicians were literally considering whether to drop Medicare patients as the year-end approached. In past years, Congress averted the cuts by postponing the decision, exacerbating the problem in the future. This time was no different and cuts were averted but no fix to the system was offered; deficits were negatively impacted.
This is not to say there are not significant efforts to address healthcare costs.
At the end of the year, HHS reported that U.S. healthcare spending grew by 3.9% in 2010 reaching 2.6 trillion. That’s an average of $8,402 a person. Yet 2010 and 2009 both showed the slowest growth for healthcare spending measured in decades. This is before PPACA. The recession affected most Americans and we managed our costs by delaying elective surgery or thinking twice about visiting the ER.
Corporations are feeling the impact of healthcare costs as well and taking action. David Moon in a recent Bloomberg View commentary writes, “Forget Washington and the political debate… The real battle for the future of health care is being fought in the world of business, where tens of thousands of companies have seen their financial well being under mined by skyrocketing employee health costs.” He points out that employee health costs have now become the third largest expenditure for US business today.
Expect to see many different fronts in managing expenses paid by employers: more companies managing employee health by bringing doctors offices into company locations, imposing insurance surcharges for habits like smoking, or offering incentives for healthy life styles.
Insurance companies are taking a more active roll as well in managing cost other than managing or denying claims. Starting this summer WellPoint Inc., which insures some 34 million Americans, will offer primary care doctors a fee increase amounting to about 10%. The company hopes this additional funding of primary care will lead to fewer costs downstream such as ER visits and hospital stays.
On the federal front, the ACO regulations are intended to be one of the drivers of cost containment by introducing incentives for cost savings versus the runaway fee for service system. It appears too early to make a call on its potential impact.
Perhaps even more powerful will be the Independent Payment Advisory Board, a fifteen-member board that could arbitrarily set rates lower if costs go too high. This unelected board is controversial and draws comparisons to the UK system in rationing by bureaucrats from opponents of PPACA.
As these actions take place, the big question remains: will all this make a difference in time to avoid financial crisis where we don’t have choices? If that seems like a far-off concern, Medicare is predicted to be insolvent by 2024, exacerbated by a bad economy and plain demographics. The number of Medicare beneficiaries is projected to rise from 46.6 million today to 78 million in 2030. (It was 40 million in the year 2000.)
There is a growing of number of experts who agree we need a game changer, one that reworks the financial component first and foremost to create a different system that ensures we can manage the cost side of the healthcare equation.
What are the chances of that happening? The Health Care Blog founder, Matthew Holt, is not hopeful, writing “no holistic system that delivers the reforms we need can emerge from our political process.” The PPACA is the best we can hope for.
But at a time when you might think someone would be crazy to raise their hand and offer more transformative ideas, two politicians from opposite parties did just that as the year closed.
House Budget Chair Paul Ryan (R-WI) and Senator Ron Wyden (D-OR) offered a proposal in December to restructure the federal Medicare program. The ideas are not new as pointed out by Princeton economist Uwe Reinhardt. What is new is the bipartisanship approach these two took. Lasweski characterizes their proposal as a hybrid plan that contains significant elements of both a Republican defined contribution (you identify federal outlays upfront) and a Democratic defined benefit approach (you guarantee certain benefits).
Many Democrats criticized Wyden for working with Ryan and thereby diminishing the potential political attack in the 2012 election that Ryan and the Republicans will dismantle Medicare. In turn Congressman Ryan will be seen retreating on his earlier Medicare plan contained in the House Budget from last year that garnered so much controversy and political fire.
But Ryan said in Politico, “If you wait and allow the political paralysis to stop us from fixing and saving this program then you are not going to be able to grandfather people. What Ron and I are trying to do is to prepare the ground for a consensus to be accomplished as soon as the politics allow it to happen.”
In 2012 we face myriad challenges on the rocky road to the elusive goal of sustainable healthcare. We can continue to be pessimistic, giving Congress and politicians abysmal ratings or we can support more people like Wyden and Ryan in pursuit of game changers. What is sure is the difficulty of recognizing the ultimate goal.
