Healthcare Reform: The Court Takes Us for a Wild Ride

Transcription

1 This document was created before Parthenon joined Ernst & Young LLP on August 29, 214, and has not been updated to reflect the combination. Healthcare Reform: The Court Takes Us for a Wild Ride Boston London Mumbai San Francisco June 29, 212

2 Overview How the Supreme Court ruled on the Affordable Care Act (ACA) Individual Mandate Related Can the Court rule on the ACA before 215? (Anti-Injunction Act) Is the Individual Mandate constitutional? Is the Individual Mandate severable from the rest of the Act? Is expansion unconstitutional coercion of States? N/A Anti-Injunction Act does not apply because the payment under the ACA is considered a penalty Court ruled that the Commerce Clause does not provide constitutional justification for the Individual Mandate Individual Mandate is ruled constitutional Federal government cannot impose sanctions on states that decline to accept expansion However, Individual Mandate UPHELD as within Congress s power to tax However, expansion is allowed to proceed Supports Reform Mixed Overturns Reform 2

3 % Change from Prior Year Implications Government influence over healthcare has steadily increased over the past 5 years; Reform will accelerate this trend U.S. National Health Expenditures GDP and National Health Expenditure (NHE), Y-o-Y Growth, % $75B $256B $724B $1,377B $2,594B $4,487B Out of Pocket Out-of- Pocket 8% Impact of Reform expansion on spending in Other Health Insurance Other Total 4 2 Nat'l Health Expenditures (NHE) NHE (absent ACA) GDP (nominal) 2 Medicare Total Public Source: Health Aff /hlthaff

4 Exchanges Implications Reform could add up to 32M newly insured lives through 1) Expansion and 2) Health Insurance Exchanges Health Insurance Status, U.S. Non-Elderly, F Includes Full Impact of Healthcare Reform Incremental Covered Lives Added Under Reform, Cumulative, F 3M 268M 286M 293M 296M 299M Uninsured Expansion 4M 35M 36M 36M 36M 36M 3 26M 2 Exchanges Non-Group/ Other 2 2M 1 1 Employer 1M 2M -2M -2M -4M -5M -5M -5M Employer -4M F 216F 218F 22F F 214F 215F 216F 217F 218F 219F 22F The Supreme Court decision affirmed the Individual Mandate which enables the exchanges, but allowed states to opt out of expansion 4

5 % Growth from 211 Enrollees Implications But the magnitude of expansion may be reduced if States opt out as allowed by the Supreme Court decision 8% Expected Increase in Enrollment by State, Bar Width = 211 Enrollees 6 Republican Legislature and Governor Democratic Legislature and Governor Split Party Legislature and Governor 4 2 Wtd Avg= 24% MS SC OK AR NJ NC NE TX OR GA OH WA MD CA TN IL MI FL MNAZ PA MA MO AL AK VA WY UT NH HI WI CO ME CT KY WV ID IN MT NV VT RI NM IA LA KS DE DC NY Decision to participate in the expansion may become a political issue 5

6 Implications The Massachusetts health exchange has been functioning since 27 and foreshadows what is to come for the rest of the country Massachusetts Population by Insurance Coverage Type, 26 vs. 21 Overview of Insurer Coverage in Massachusetts by Program Type 1% 8 6.4M Uninsured (MassHealth) Medicare 6.6M Uninsured Exchanges (MassHealth) Medicare Volume Change ('6-'1) -29K +245K +13K + 3K Plan Group (Commercial) Exchanges (Commonwealth Care/Choice) BCBS of MA (MassHealth) BMC HealthNet CeltiCare 6 Fallon Harvard Pilgrim Health New England 4 Group Group -6K MassHealth PCC Neighborhood Health Plan (Partners) 2 Network Health (Tufts) Tufts Health Plan Uninsured %, MA 11% 6% Commercial Light Enhanced Uninsured %, US Avg 17% 18% 6

7 Implications Scorecard: Healthcare Reform After Court Ruling Topic Description Maintained After Court Ruling? Individual Mandate Insurance Exchanges With few exemptions, all citizens and legal residents required to have qualifying health coverage or pay an annual penalty State-based exchanges where individuals and small businesses can purchase qualified coverage Expansion of Coverage Expansion* Most under 65 with income up to 138% of federal poverty line will qualify for ; expansion federally funded with gradual increase in payments from states Insurance Subsidies and Credits Sliding-scale insurance premium credits and cost-sharing subsidies to eligible individuals and families between under 4% of FPL Employer Requirements Employers with >5 employees that do not provide insurance may be fined up to $2, per employee Coverage Requirements With some exceptions, insurance companies prohibited from imposing lifetime limits; rescinding policies; denying coverage due to pre-existing conditions ( guaranteed issue and renewal ); charging patients for many preventative services; and refusing to enroll dependents under age 26 Benefits Requirements Establishment of Essential Benefits Package for individual and small group plans Insurance Industry Pricing and Practices Premium Requirements Profitability Requirements Tax on Cadillac Plans Medicare Advantage Funding Individual and small group carriers can only vary premiums based on a narrow set of factors such as age ( adjusted community rating ); need to justify large premium increases Insurers must report % of premiums spent on medical claims; offer rebate if Medical Loss Ratio (MLR) is under 85% (large group) or 8% (small group) Excise tax on insurers of employer-sponsored plans exceeding specified value Change in reimbursement rates; bonuses for 4+ star plans; requirement for MLR >85% *Supreme Court ruled that federal government cannot threaten to withdraw all funding to States if they refuse to comply with expansion 7

8 Implications Scorecard: Healthcare Reform After Court Ruling Topic Description Maintained After Court Ruling? Accountable Care Organizations (ACO) Allows Medicare funding for ACOs that manage overall care and share in associated cost savings Hospitals and Post-Acute Care Providers Manufacturers Other Reimbursement Levels Bundled PAC Payment Independence at Home Value Based Purchasing Pharma Fees and Discounts Biosimilars Medical Device Tax Workforce Expansion Wellness Programs Reduce Medicare annual market basket updates for post-acute care reimbursement; reduce payment to hospitals to account for preventable readmissions Pilot program to provide bundled payment for post-acute care services, with intent to scale nationally if effective Incentivize providers to offer primary care services in the home and share in associated cost savings Pay hospitals (and later Skilled Nursing Facilities and Home Health Agencies) based on performance quality measures Annual fees imposed on pharma; requirement to discount branded drugs by 5% for seniors who fall in the Part D Donut Hole Provides regulatory pathway for approval of generic versions of biologic drugs, with 12-year exclusivity for the branded product 2.3% industry-wide excise tax applied to revenues Various incentives to support growth in areas of general medicine with labor shortages (e.g. primary care physicians, nurses, nurse practitioners) Grants, support, and allowed premium discounts for employee wellness programs 8

9 Concluding Thoughts A significant portion of this country s ~45M uninsured will now have health insurance: However, there is more uncertainty about the magnitude of vs. Exchange growth following today s ruling Government influence over healthcare will accelerate: Government now represents 4% of all healthcare spending; reform will increase this trend The ACA does not address fundamental issues of cost: Our nation s healthcare cost problem will persist and potentially be exacerbated by newly insured populations Access-to-care issues loom: The U.S. healthcare system is structurally not well equipped to deal with the massive influx of newly insured starting in 214. This is both an issue and source of opportunity in the marketplace 9

10 Parthenon Background and Contact Information About The Parthenon Group The Parthenon Group is a leading advisory firm focused on strategy consulting with offices in Boston, London, Mumbai, and San Francisco. Since its inception in 1991, the firm has embraced a unique approach to strategic advisory services built on long-term client relationships, a willingness to share risk, an entrepreneurial spirit, and customized insights. This unique approach has established the firm as the strategic advisor of choice for CEOs and business leaders of Global 1 corporations, highpotential growth companies, private equity firms, educational institutions, and healthcare organizations. Learn more about us at Jeff Woods Partner, Head of U.S. Healthcare jeffw@parthenon.com Executive Assistant: Lisa Abbott labbott@parthenon.com Follow us on Twitter for regular updates on events, research, and 1