Health Affairs

New regulatory issuances and guidances are appearing on a daily basis from the federal agencies responsible for implementing the Affordable Care Act. In order to keep up, my posts are likely to appear even more frequently for the immediate future. This post addresses three issuances: an HHS proposed rule on Medicaid disproportionate share hospital payment reductions; an IRS notice of proposed rulemaking on medical loss ratios for Blue Cross and Blue Shield plans that receive certain tax preferences; and a set of frequently asked questions on the Utah SHOP exchange.

Medicaid DSH payments. The Department of Health and Human Services issued a proposed rule for cuts in disproportionate share hospital payments on May 13, 2013. The DSH program has since 1981 provided federal funding to state Medicaid programs to allow those programs to offer additional support to hospitals that serve a disproportionate share of low-income patients with special needs. The Medicaid DSH program, together with a similar Medicare program, has provided essential support to hospitals that have often borne the brunt of providing services to the uninsured.

With the Affordable Care Act’s expansion of coverage of the uninsured through the expanded Medicaid program and premium tax credits and cost-reduction payments, Congress concluded that DSH payments would be less necessary and cut both the Medicaid and Medicare programs. Since 1998, Medicaid DSH payments to each state have been limited to an annual allotment. The ACA requires reductions in these allotments, beginning with $500,000 for 2014 and increasing to $5.6 million for 2019, before dropping to $4 million of 2020. It also lists five factors that HHS must consider in reducing the state allotments. It does not specify, however, how those factors should be applied or weighted. The proposed rule addresses this question.

As Affordable Care Act implementation inexorably moves into place, guidance continues to issue forth from the implementing agencies — now almost on a daily basis — shoring up the edifice that is becoming the reality of health care reform. On May 8, the Department of Labor’s Employee Benefits Security Administration released a guidance detailing the notices that employers must give to their employees concerning the employee’s coverage options under the ACA, as well as an updated model election notice under the Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA). The ACA amends the Fair Labor Standards Act (FLSA) to require employers to give their employees notice of the coverage options that are available to them under the marketplace (formerly known as the exchange).

This provision requires employers to notify new employees, as well as current employees no later than March 1, 2013:
.

1. of the existence of the marketplace, the services it offers, and how employees can contact it;
2. that if the employer’s share of total allowed costs of benefit provided by the benefits plan is less that 60 percent of total costs (that is, it does not meet minimum value requirements), the employee may be eligible for a premium tax credit through the marketplace; and
3. that if the employee obtains coverage through the marketplace, the employee will lose the employer’s contribution and corresponding tax benefits.

States are beginning to release information on what health insurance premiums will be in 2014. That’s when the Affordable Care Act’s (ACA) market reform rules that apply to the individual and small group markets will go into effect. The natural temptation will be to simply compare the 2014 premiums to those in 2013 to determine how the ACA may have affected premiums beyond any usual changes due to rising medical spending. But such comparisons will mask not only the reasons for any premium changes, but also how premium changes will differ across states and individuals. Premiums will go up for some individuals and down for others.

When examining how premiums change beginning in 2014, it is important to understand the various factors underlying these changes. These factors include the effectiveness of the individual mandate and premium subsidies at attracting low-cost enrollees into the insurance market; the new benefit requirements that may lead to higher premiums but lower out-of-pocket costs; employer decisions regarding whether to continue offering insurance and the health status of those whose coverage is dropped; how each state’s current issue and rating rules compare to those beginning in 2014; and each individual’s demographic characteristics and health status (and income when determining premiums net of subsidies).

Following the third straight year in which the Centers for Medicare and Medicaid Services estimated the growth in national health expenditures to be a record-low 3.9 percent, considerable speculation on the causes of slower spending growth has come from a variety of sources. There seems to be a consensus among actuaries, academics, and other analysts that the recession and the associated increase in unemployment and decline in insurance coverage led individuals to cut back on their use of health care services. (See here, here, But, while the recession is clearly associated with the dramatic slowdown in spending growth from 2007-2009, there is also evidence that the slowdown in spending preceded the recent recession and seems to be continuing during the modest economic recovery.

Observers of this more general trend have begun to suggest that fundamental structural changes in the health system are playing a role in recent spending trends. The ability of some high profile providers and health systems to achieve high quality outcomes with greater efficiency has garnered a lot of attention and some suggest that more salaried employment of physicians could be altering the practice patterns that developed under a fee-for-service system. Others have pointed to patient-centered medical homes, accountable care organizations, and other payment and delivery system reforms as potential contributors to the slowdown in spending growth. The Obama administration has also argued that the Affordable Care Act has started to have a moderating effect on spending growth.

The extent to which the economy versus broader systemic changes has been driving slower spending growth has enormous implications for forecasting future spending trends. If the economy has been the primary driver of recent trends, we should expect spending growth to return to historically high levels as the economy recovers. The Congressional Budget Office (CBO) and the CMS actuaries have revised their Medicare and Medicaid forecasts downward to reflect the latest trends, but both entities seem to suggest that spending growth over the long term will return to historical levels. If, however, more structural changes are at work, then perhaps there is reason to be hopeful that health care spending growth will continue at a rate much closer to the rate of growth in the economy.

The torrent of Affordable Care Act guidance that marked the end of April has continued into May, as the Centers for Medicare and Medicaid Services (CMS) released on May 1, 2013, a Health Insurance Marketplace Guidance on the role of agents, brokers, and web brokers in the health insurance marketplaces, formerly known—and still referred to here—as the exchanges.

Agents and brokers are the traditional channel through which most Americans and their employers have purchased health insurance coverage. The ACA and implementing guidance offer new forms of assistance to help consumers enroll in insurance coverage, including navigators, in-person assisters, enrollment counselors, and the exchange itself with its call center and web portal. Nevertheless, if the exchanges are to fulfill expectations by signing up millions of Americans for health insurance coverage, agents and brokers, including web-based brokers, will pay a vital role. They will play a particularly important role in assisting small employers in signing up for the SHOP exchanges. This guidance describes their role.

Although most of the major rules necessary to implement the 2014 Affordable Care Act reforms are now in proposed or final form, gaps still remain to be filled. On April 30, 2013, the Internal Revenue Service released a notice of proposed rulemaking intended to answer some of the questions that remained open in the wake of May 2012 final regulations implementing the premium tax credit program.

Premium tax credits are not normally available to individuals who are offered health insurance coverage by their employer. Such individuals may, however, be eligible for premium tax credits if the employer coverage does not provide “minimum value” (MV) or if the employer coverage is “unaffordable” An employer that offers a health plan that fails to provide MV or that is unaffordable may also be assessed a penalty if one or more of its employees turns to the exchange for premium tax credits.

The primary focus of the proposed rule is defining the concept of MV, although it addresses several other issues as well. The proposed regulation follows up on an earlier notice requesting comment on MV and complements Health and Human Services regulations published in February of 2013 that also address MV.

Three years after wellness was hailed as perhaps the only truly bipartisan component of the Affordable Care Act, both lay and trade commentators have begun observing that the assumptions behind it were incorrect while downsides were overlooked. As a predictable result, savings have proven elusive even in seemingly ideal baseline circumstances for health improvement. For example, a wellness program at BJC HealthCare in St. Louis reduced hospitalizations for wellness-sensitive medical events, but the savings were limited (and offset by other cost increases) by the fact that older employees there on average were hospitalized for a wellness-sensitive medical event only once every 12 years to begin with. (See Note 1.)

Consistent with that finding, commentators (including the authors) have noted that every vendor claiming savings from what the Affordable Care Act (ACA) terms “health contingent” wellness programs has employed obviously flawed study design (like comparing the results from active motivated participants to non-motivated non-participants, and crediting the program, rather than the obvious difference in motivation, for the savings) and/or has simply made up or misinterpreted their own outcomes .

One reason for the absence of savings is that the biometric screenings themselves on which wellness economics are based cost far more money than they can conceivably save, due to both the likelihood of overdiagnosis and the marginal benefit of taking frequent measurements in generally healthy adults. Routine screening lacks an evidence basis and is eschewed by the medical community. For example, the federal government recommends lipid screening only once every five years.

April 2013 has been a quiet month for new Affordable Care Act rules and guidance. Activity to implement the ACA, of course, is moving full speed ahead at the federal level as efforts continue to implement the federal exchange and to gear up for federal enforcement of the market reforms in a number of states. The Centers for Medicare and Medicaid Services (CMS) is in the process of holding stakeholder calls in every state where a federal exchange (now called a “marketplace”) will be established. It is also locating navigator programs, signing up insurers, and preparing for the October 1, 2013 beginning of open enrollment. The states have also been very active, either trying to implement their own state exchanges and the 2014 ACA market reforms or doing everything they can dream up to keep implementation from moving ahead.

Final rules have been issued governing the exchanges, the 2014 market reforms, the premium tax credits, and the premium stabilization programs, while guidance has been issued on the federal exchanges and the navigator program. Final rules on Medicaid eligibility and appeals are expected shortly. A public hearing was held on April 23, 2013 regarding the proposed employer responsibility regulations, while another will be held on May 29, 2013 reviewing proposed individual responsibility regulations. Final rules will follow in due course. In sum, implementation is progressing, although a lot of ground must be covered between now and 2014.

This commentary is in response to the March 5, 2013 Health Affairs article, “Wellness Incentives in the Workplace: Cost Savings through Cost Shifting to Unhealthy Lifestyles.” In that article, Jill Horwitz and coauthors express concerns about new rules governing workplace health promotion (wellness) programs due to take effect in 2014 as part of the Patient Protection and Affordable Care Act of 2011, Public Law 111-148 (“ACA”). In addition to increasing access to health care services for all Americans, the ACA aims to place greater emphasis on health promotion and disease prevention and to encourage employer adoption of workplace wellness programs.

As I discuss below, some of the concerns raised by Horwitz et al. are legitimate points that I agree with. However, I believe that Horwitz and her colleagues go too far when they appear to question the basic idea that employees with modifiable health risks cost more than those without such risks, calling into question the entire concept of workplace wellness programs and indeed of prevention in general. In this post, I explain how well-designed wellness programs can benefit both employers and employees, and I offer some suggestions to ensure that such programs are both effective and fair.

A specific provision of the ACA (Section 2705), which is at the heart of the controversy addressed by Horwitz et al., will allow employers to design incentive-based wellness programs that reward not only participation in health promotion programs but also “outcomes” related to having healthy habits and managing biometric values within “normal” ranges. Under the new rules, financial incentives (e.g., different health plan designs, payment terms, premiums levels, deductibles, co-insurance or co-payments) could be offered to workers who are nonsmokers, are at a given weight or BMI, or are effectively controlling their blood pressure, total cholesterol, and blood glucose. Rewards or incentives would also be made available to employees who eat a healthy diet or are physically active.

Does the United States have at its disposal a method for predictably controlling the cost and improving the quality of our health care? Can we begin by budgeting or Indexing Health Care expenditures in the Medicare HMO program now called Medicare Advantage (MA) to grow at the same rate or more slowly than the gross domestic product (GPD)?

The Indexed Health Care proposal that I outline below builds on the success of MA, but it also calls for important reforms in that program. After indexing MA costs to GDP growth, the next steps should be to progressively convert Medicare from fee-for-service to prepaid capitated payments, and to index Medicare and all federal health care expenditures – including tax expenditures – to GDP growth. The private health care sector must be persuaded to move from FFS to capitated payments.

In the late 1990’s, smarting from the collapse of managed care, HCFA’s retreat from the public release of provider performance data, and continued large increases in health costs in the face of evidence of waste and variation in quality, a group of large employers established the so-called “value agenda” and committed to using purchasing leverage to achieve it. Value was defined by the simple equation of quality/cost.

Organizations like GE, where I worked at the time, realized that we needed to start with transparency, to make quality variations that mattered to consumers and patients visible. Thus, The Leapfrog Group was born. The announcement of its formation and the release of the Leapfrog Hospital Survey occurred between the publication of two seminal Institute of Medicine reports, “To Err is Human” and “Crossing the Quality Chasm,” and helped the value-purchasing agenda gain traction.

Transparency, however, while a necessary and important beginning, is not alone sufficient. To borrow from the Institute of Medicine’s tagline, taken from Goethe, “Knowing is not enough; we must apply. Willing is not enough; we must do.” A hard-working clinician in Cincinnati described how hard it was to “do” and made it clear that we need to tackle changing the payment system next. He was referring to the fact that in his fee-for-service practice, the better care he took of his patients with diabetes, the lower his income became. Those frequent phone calls to adjust insulin doses led to fewer complications and fewer office visits. He summed it up by saying that, “if I keep getting better, I’ll go right out of business.” It became obvious that if we don’t work to change our payment system, which at its worst punishes quality and efficiency and at its best is indifferent to them, it is disingenuous to expect better quality and efficiency.

On March 18, 2013, Gary Cohen, the Director of the Office of Consumer Information and Insurance Oversight, stated on a national stakeholder call that most of the final rules needed to implement the Affordable Care Act 2014 insurance reforms are now in place. HHS is now in the final stages of ACA implementation, and it is moving forward.

Cohen, joined by Cindy Mann, Director of the Center for Medicaid and CHIP Services, and Julie Bataille, Director of the Office of Communications, laid out the final steps that must be taken before the exchanges open their doors on October 1. They also introduced two new HHS websites that join HealthCare.gov, the HHS consumer information portal that has been in operation for nearly three years. These are Marketplace.cms.gov, where tools and resources are available to assist those who will help Americans apply, enroll, and get coverage through the exchanges, and the Open Door Forum Page, where the states and other stakeholders can engage with HHS with respect to health care reform. A call center will also go live in June to respond to questions about the 2014 reforms.

While most of the major rules are now out, there are still odds and ends to tidy up. On March 18, 2013, the implementing agencies (Labor, Treasury, and HHS) issued a proposed regulation that will implement ACA’s ninety-day waiting period limitation and make technical amendments to other regulations. The proposed regulation also fixes older regulations implementing the 1996 Health Insurance Portability and Accountability Act, which had limited the use of pre-existing conditions clauses. With a total ban on pre-existing condition clauses effective January 1, 2014, these regulations have become obsolete.

On Marcy 23, 2013, the United States will observe the third anniversary of the Affordable Care Act. On March 15, 2013, the Departments of Health and Human Services, Labor, and Treasury issued a joint technical release extending until January 1, 2106, the time states have to bring their external review procedures into compliance with the National Association of Insurance Commissioner’s External Review Model Act. While this release is not a major event in its own right, its history offers an excellent example of the course that the administration has taken over the past three years as it has implemented the ACA.

Section 2719 of the Affordable Care Act requires non-grandfathered insured health plans to comply with state external review processes that at a minimum conform to the NAIC Uniform External Model Review Act. Insurers in states that have not adopted the NAIC Model Act and self-insured employee health plans must, under section 2719, offer their enrollees an external review process that meets minimum standards established by HHS through Guidance.

The external review process is one of the ACA’s most important consumer protections. Group health plans deny the claims of almost two million plan members each year. Participants and beneficiaries of group health plans covered by the Employee Retirement Income Security Act (ERISA) can sue in federal court to challenge claim denials, while members of nongroup plans can sue in state court. But lawsuits are costly and time-consuming. External review by an independent review organization promises an inexpensive and expeditious alternatives means to obtaining an unbiased review of negative plan decisions.

The final days of February and the first day of March 2013 have seen a landslide of new Affordable Care Act implementation issuances. Perhaps the agencies decided to get all of their work done before sequester furloughs begin, or perhaps they have awakened to the sober realization that a lot of details need to be worked out before January 1, 2014. In any event, they have given us over 700 pages of regulatory and guidance material to dig through.

On March 1, 2013, the Department of Health and Human Services issued a final rule setting out the benefit and payment parameters that will be used for the risk-adjustment, reinsurance, and risk-corridor programs; cost-sharing reductions; user fees for the federal exchanges; advance premium tax credit payments; the federal exchange; and the medical-loss ratio program. HHS also issued an interim final rule adjusting final risk-corridor calculations and offering qualified health plans an alternative methodology for calculating cost-sharing reductions.

A third HHS issuance is a proposed rule amending existing Small Business Health Options Program (SHOP) regulations. Finally, on February 27, HHS published a Federal Marketplace Progress Fact Sheet offering a few more details about the federal exchange (now called the marketplace). A particularly useful feature of this fact sheet is a timeline for implementation of the federal exchange.

The time is quickly approaching when health insurers must file the rates and forms they will need to put in place for 2014. The Department of Health and Human Services is rapidly releasing the final rules that insurers will need to determine the coverage and price of those plans, and that the states and exchanges will need to approve or disapprove them. On February 22, 2013, HHS released the final market reform regulations, which establish the ground rules under which insurers will market their products in the reformed health insurance market. (The fact sheet is here.)

Whereas health insurance underwriting in the individual and small group market is currently based heavily on health status and gender, health insurers in the reformed market will only be able to consider age, tobacco use, geographic area, and family unit size in setting premiums. Insurers will also have to guarantee the availability and renewability of coverage. Proposed rules implementing these reforms were published on November 26, 2012 and were covered by this blog. This post discusses the final version of these rules.

On February 22, 2014, the Department of Labor also issued interim final regulations on procedures for addressing complaints by employees that they have suffered retaliation from their employers because they reported violations of the ACA’s consumer protections, or because they have received advance premium tax credits. (See the press release here.)

The march toward 2014 continues, as the Department of Health and Human Services issued on February 20, 2013 a final regulation covering the essential health benefits, actuarial value, and accreditation requirements of the Affordable Care Act. (See a fact sheet on the rule here.)

The ACA requires non-grandfathered health plans in the individual and small group market to cover ten categories of essential health benefits (EHBs). The EHB requirement is intended both to ensure that consumers in these markets have adequate coverage and to improve competition among health plans by standardizing coverage choices. Most of the EHBs are services already covered by most health plans, such as hospitalization or pharmaceuticals, but some, such as habilitative services or pediatric oral and dental care, are not commonly covered and thus represent a coverage expansion. The EHB requirement will also improve mental health coverage in the individual and small group market, as noted in a separate issue brief released with the final rule.

The proposed regulation now finalized was published on November 26, 2012, and was discussed in an earlier post.

One of the most contentious, and certainly most litigated, questions that has arisen in the course of the implementation of the Affordable Care Act is the validity of the regulatory requirement that employers cover contraceptive services for their employees as a preventive women’s health service. On February 1, 2013, the Departments of Health and Human Services, Labor, and Treasury issued a joint notice of proposed rulemaking and fact sheet describing how they intend to implement this provision as it affects religious organizations. This post discusses the proposed rule and its context.

As discussed in earlier posts, the ACA requires that insurers and group health plans cover designated preventive services without cost sharing. The provision specifies that the Health Resources and Services Administration must determine the women’s preventive services that must be covered. Based on recommendations from the Institute of Medicine, HRSA designated all FDA-approved contraceptives for required coverage. This requirement was effective for the first plan year following August 1, 2012.

Some religious groups, however, most notably the Catholic Church, believe that the use of contraceptives is sinful. Other religious groups do not object to all contraceptives, but do object to specific contraceptives that they believe to be abortifacients. When HHS issued initial rules adopting the HRSA determination, therefore, it excluded religious employers, defined as churches, religious orders, and similar groups, from the contraceptive coverage requirement.

On January 30, 2013, the Departments of Treasury and Health and Human Services issued what I believe may be the last major set of proposed rules necessary to implement that 2014 Affordable Care Act reforms. The proposed rules define who is exempt from the ACA’s shared responsibility (individual mandate) tax, how eligibility for an exemption will be determined, and how the amount of the tax will be calculated and collected.

Treasury (the IRS) and HHS each play a role in defining exemptions and determining eligibility, so both are publishing distinct proposed rules simultaneously. The agencies also published a fact sheet and a question and answer sheet covering the proposed rules.

The Implications Of Unaffordable Family Coverage

Perhaps more importantly, Treasury also published on January 30 a final rule on what had been an unresolved issue involving premium tax credits. The final rule addresses the question of eligibility for premium tax credits when an employee has an offer of employment-based coverage. The ACA provides that an employee is not eligible for a premium tax credit if the employee is offered adequate and “affordable” employee coverage. “Affordable” employer coverage is defined by the ACA as coverage for which the employee is not required to pay more than 9.5 percent of modified adjusted gross household income.

This commentary is in response to a January 16, 2013 Health Affairs Blog post entitled “Is It Time to Re-Examine Workplace Wellness ‘Get Well Quick’ Schemes?” by Al Lewis and Vik Khanna. After the initial blog appeared, my email box was filled with messages asking for a rebuttal to the initial posting, which, to many, seemed like a condemnation of the worksite health promotion (wellness) field and its lack of credibility and honesty in reporting program savings. Instead of just immediately posting a response, I called Al Lewis to discuss the value of worksite health promotion in order to “set the record straight.” It turns out that we agree on many issues but there are also differences.

We agree that there are unscrupulous wellness vendors who claim very large and often implausible savings from worksite health promotion programs. The return-on-investment (ROI) figures bantered about, sometimes as high as 10:1, are not credible. At the same time, I believe it would be wrong to “throw out the baby with the bath water.” In this case, the “baby” refers to well-designed, evidence-based, comprehensive, appropriately resourced, non-gimmick, and well-executed worksite health promotion programs.

Stated positively, good worksite programs deserve credit and should be supported by the business community, not condemned. This is because there is good and growing evidence, reported in a rigorous scientific literature, that “best-practice” worksite health promotion programs improve population health and save money for businesses. Savings are realized from lower health care cost trends, reduced absenteeism, and heightened worker productivity.

The months of November and December of 2012 and January of 2013 have been a very busy season in the implementation of the Affordable Care Act. The Departments of Health and Human Services, Treasury, and Labor have released a series of proposed rules dealing with the market reforms, essential health benefits, actuarial value, employer responsibility, Medicaid eligibility, the exchanges, and other topics. Another proposed rule on the individual mandate requirement is under review at the Office of Management and Budget and should be released momentarily.


eleventh series of frequently asked questions addressing some seemingly small but important questions that have arisen concerning the ACA. Perhaps the most important, to my mind, involve the status post-2013 of stand-alone health reimbursement arrangements.