Health Care Reform & Trends in Managing Health Care Expenditures. Overview

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1 Health Care Reform & Trends in Managing Health Care Expenditures Jared S. Pope Overview What are we going to discuss? Health Care Reform ( HCR ) Health Care Reform ( HCR ) Supreme Court Implication What s Next? s PPOs and HDHP VBP Concept Health Care Acco nts Health Care Accounts HSA, HRA & FSA Medical Homes (the solution?) 1

2 Initial Thought When trying to navigate health care.. It is always best to not. Health Care Reform Supreme Court Case Is it Constitutional? PPACA was signed into law on March 23, 2010, and the Health Care and Education Reconciliation Act of 2010 was signed into law on March 30, 2010 (collectively, "Health Care Reform," or "HCR") Opponents of HCR made constitutional challenges to the highest court in the land (US Supreme Court) Main issues the Court heard arguments over: Anti-Injunction Act Individual Mandate Severability (is the individual mandate the last leg?) Expansion of Medicaid Eligibility 2

3 Anti-Injunction Act Issue 19 th Century Federal Tax Law Generally, the Act prohibits pre-enforcement legal challenges to the assessment and collection of taxes (before the tax becomes effective) Penalty or Tax? Applicable: Yes or No? If it were to apply, then the federal courts are not permitted to hear constitutionality arguments regarding the individual mandate until the effectiveness of such mandate in 2014 If it does not apply, then ruling on the other issues can be given Interesting info independent attorney s role on the Act. Individual Mandate Idea is to require all individuals to purchase health insurance or pay a penalty (think of Texas car insurance aspect) Purpose is to fund elimination of pre-existing, as well as other aspects of HCR Obama Administration argued validity of mandate pursuant to: Congress s authority to regulate interstate commerce under the Commerce Clause, Constitution s General Welfare Clause (as a form of tax legislation) Constitution s Necessary and Proper clause (i.e., the mandate is necessary and proper to implement Congress s power to regulate the interstate health care market) 26 states challenging g the constitutionality argued the following: mandate exceeds the scope of Congress s authority under the Commerce Clause because the mandate requires individuals to actively engage in commerce when they might not otherwise choose to do so mandate and the associated penalties are not necessary and proper to regulate interstate commerce and are not tax provisions at all 3

4 Individual Mandate (continued) Observations from the hearings: the mandate will hinge on the Court s likely swing vote - Justice Kennedy. Justice Kennedy suggested that there is a "very heavy burden of justification" for the Obama Administration to show where the Constitution authorizes Congress to profoundly implicate individual liberty. Importantly, however, he also suggested that the health insurance market may be unique enough to justify upholding the constitutionality of the individual mandate (even with the government's heavy burden of proof) Typical attorney fashion, huh? Severability Assumes Individual Mandate is held unconstitutional Does anything else survive? Opponents to HCR HCR is interconnected so much to the Ind. Mandate, that everything would fall Obama Administration Only the guaranteed issue and community rating provisions are interconnected and, as such, would fall Remaining provisions of HCR would remain applicable to group health plans (i.e., adult dependent coverage, summary of benefits and coverage, as well as future HCR mandates). 4

5 Severability (continued) Observation Although the Court appeared to struggle with how much of HCR, if any, can survive if the individual mandate is ruled unconstitutional, it did appear that, after oral arguments, a majority of Justices agreed with the Obama Administration that if the individual mandate is ruled unconstitutional, then the guaranteed issue and community rating provisions should also be considered unconstitutional tional due to its interconnectedness. Medicaid Beginning in 2014, states must expand eligibility for Medicaid programs to cover individuals up to 133% of the Federal Poverty Level This expansion would be a pre-condition for a state to qualify to receive federal funds to help fund Medicaid Opponents Argued coercion and that the expansion threatened the states sovereignty and fiscal health Obama Administration pursuant to the Spending Clause, Congress can impose any requirements necessary for federal funding Observation The Justices seemed split down the middle due to their suggestive questions. While four Justices expressed concern that, at some point, federal government s onerous conditions would in effect cause coercion regarding Medicaid participation, others were skeptical that any coercion existed. 5

6 HCR: What s Next? What s Next? Justices voted on the issues on March 30, and then assigned writing responsibilities Ruling expected by end of June It s long been recognized that the individual mandate is the financial linchpin to HCR Question remains: if the individual mandate is unconstitutional, and if the individual mandate is deemed to be severable, then how will Congress fund Health Care Reform? Presidential Election how will that apply? How do we proceed? If severable, then get ready for continuing implementations W-2 reporting Summary of Benefit & Coverage (9/23/12) External Appeals Process MLR requirements Others? s With average increase cost in health equal to 10.5% per year, health care plans are becoming more and more costly to the employers In an effort to curtail the cost, several mechanisms are provided d to lower the cost of health care Idea is to provide mechanisms to produce engaged employees (financially and educationally) Opportunities for savings include: Health plan design strategies Consumerism Medical reimbursement accounts VBPD Ancillary Pharmacy Medical Homes 6

7 PPO and HDHP As opposed to PPOs, HDHPs put more empowerment and financial responsibility on the employee/patient through the higher deductible/out of pocket cost A cost shifting approach Allows for a lower premium for employees, less cost for employers Health Care Spending Accounts Health Savings Account Health Reimbursement Account Flexible Spending Account HSA HRA FSA Control & Ownership (i.e., is it a personal account?) Employee Employer Employer Eligibility Must be enrolled in a high-deductible health plan and NOT enrolled in Medicare or any other health plan; Deductible Minimum: $1,200 single; $2,400 family Must work for an employer who offers an HRA Must work for an employer who offers an FSA OOP Maximum: $6,050 single; $12,100 family Contributions Employee or a Third-Party may contribute to an HSA Employer funded Employee contributes to an FSA Max Contribution $3,100 for single; $6,250 for family No limit No limit; set to what Employer determines (although limit is curtailed via HCR) Portability Yes, Employee owns the account No No 7

8 HSA HRA FSA Carryover Yes; it is employee s account No. Employer may allow carryover if desired. No, Employees forfeit unused balances Requires Pre-funding (i.e., does not allow full reimbursement of account, ONLY what is actually in their account) Yes Yes Health Care Account No Dependent Care Account Yes Tax Benefits Employer may deduct all qualified employer contributions as bus. expense. Amount contributed pre-tax through 125 plan with w/drawal penalty if for qualified medical expenses. Employer may deduct all qualified reimbursements. The employee does not have to claim the reimbursement as income so that t money is given to them tax free. Contributions to the FSA are tax free and so reduce annual ltaxable income. Qualified Medical Expenses As defined by IRC 213(d) COBRA Premiums Long-Term Care Insurance Retiree Health Insurance other than Medicare Supplemental Policies Yes. However, different ways to administer (i.e., the HRA plan can reimburse the last $1,000 of the group medical plan deductible, etc.) As defined by IRC 213(d) Dependent Care expenses eligible? Yes (but can limit if desired). Yes (but can limit if desired). Yes (via a separate dependent care spending account). Value Based Plan Design Addresses the disconnect between health care expenditures and health care outcomes The focus is on value, not volume The goals are attempted to be achieved by: Using financial incentives to change behavior and utilization, and Using wellness and disease management programs to enable individuals to better manage their health and avoid future events that are costly How? Reduce cost sharing for services where utilization should be increased Increase cost sharing for services where utilization should be decreased 8

9 Value Based Plan Design (cont d) Oregon Educators Benefit Board and Public Employees Benefit Board (collectively covering about 235,000 lives) com/doc/ /pebb Plan Cost-sharing was implemented on a tiered basis Low cost-sharing for preventative care, medication for treating chronic disease and emergency services Higher cost-sharing for services that are recognized nationally as overused and are driven by supply as opposed to need (e.g., emergency room visits for minor illnesses, back surgery for pain that physical therapy could treat) 2012 Design Changes Out-of-pocket costs increased for some employees ($25 surcharge for smokers Out-of-pocket expenses increased since certain procedures will not be covered (e.g., wart removal, breast reduction and varicose-vein surgery) Co-payments for doctor visits with chronic conditions were eliminated Deductibles eliminated for "value" drugs Free access for spouses to Weight Watchers Colorado Springs School District Cost-sharing regarding surgeries to keep more money & teachers in classrooms (no substitutes) Higher co-pays for open surgeries, but requires lower co-pays for similar procedures that are minimally invasive Idea is that minimally invasive procedures have lower costs and less recovery time Results? Lower absenteeism and less money spent on substitutes (i.e., more $ and teachers kept in classrooms) 21.7 fewer days missed for gall bladder surgery 18.9 days for colectomy 21.9 days for hernia 3.2 for appendectomy Medical Home (i.e., patient centered medical home) Generally, it s a team based health care delivery model led by a physician that provides comprehensive and continuous medical care to patients with the goal of obtaining maximized health outcomes Current conditions: Fragmented/broken health care supply chain Statistics show majority of cost of health care is preventable Are we using the right tools/incentives? How does a Medical Home work? Connectivity & Transparency Do you know how much a procedure cost before you get it? Right Incentive & Tools Physicians & Employers/employees Works with the proper plan designs (HRAs, biometrics, VBPD, etc.), which you should already have (if not, is it time for new broker/agent?) 9

10 Questions? Jared S. Pope