The Patient Protection and Accountable Care Act (PPACA or health reform) turns two today and we couldn’t help but reflect on the activities of the last 24 months. With the Supreme Court on the verge of beginning arguments on the law as a whole and the mandate and Medicaid expansion specifically, we wanted to share some thoughts on where we have been and what might be ahead.
90% is here to stay
Whatever the outcome of the health mandate and Medicaid expansion, we think 90% of PPACA is here to stay. Here is why: many of the elements that add up to hundreds of billions in savings over the next few years were consensus items, long vetted by Democrats and Republicans alike for years before health reform’s passage. Go back and review bills and comments by Senate Finance partners Baucus and Grassley and you will see that Medicare reform, Medicaid reform, and accountability were all set to be national priorities in some form. It was simply a matter of getting Congress to move on them. More important, given the state of America’s deficit and debt, the savings generated by parts of PPACA are essential. Even the latest budget proposal from House Republicans includes the savings anticipated in Medicaid, Medicare and other areas from PPACA.
Tackling the major uninsured problem too is a consensus item, even if the parties approach it from different ways. With as many as 40 million people uninsured, the parties seem to agree that driving insurance affordability and reform is key. It is an economic and moral necessity. Experiments to pool risk, expanded subsidies, and a Medicaid expansion will likely emerge even if PPACA’s mandate and other features are struck down.
And behind the scenes, while Republicans would never admit it, all of this points to a growing role of the national government in health care and a drive toward consistency across commercial, Medicaid and Medicare lines of business. The federal government is pushing minimum medical loss ratio requirements across all lines of business, whether in PPACA’s state Exchanges, Medicare Advantage, or through aggressive regulation of Medicaid waivers. Long frustrated with a lack of quality in Medicare and Medicaid, congressional Democrats and Republicans and CMS have been pushing quality accountability. Medicare Advantage and Medicaid plans, ACOs, and FFS providers are all being forced to meet quality outcomes or face penalties or termination. High-performing plans will be rewarded with additional revenue and membership. PPACA envisions the same for state Exchanges and it is hard to imagine this would not be the case even if the PPACA Exchanges morph into different but similar entities.
Will PPACA really mean more insureds and better access?
Let’s assume PPACA’s mandates and Medicaid expansion are deemed constitutional. Would the approach really work? Here are the concerns.
First, PPACA relies heavily on the Medicaid and SCHIP expansion to cover about half of the uninsured. We wonder if all those targeted would indeed enroll. As well, PPACA does not fundamentally alter what many view as a system that provides second-rate care. Medicaid’s low reimbursement creates access and quality issues that are hard to overcome. While PCPs may be better reimbursed for a period of time, little else changes. And even the emerging quality mandates may be hard to enforce if providers have little to incent them on the reimbursement side.
Second, for the other half of the uninsured, PPACA relies on individual coverage in the state Exchanges. While the federal government has softened its overall approach, PPACA envisions a set of robust essential benefits and community rating in return for the mandate and subsidies. In many states, the new required coverage could amount to a major actuarial value increase compared with existing individual coverage. For example, numerous states do not require mental health, substance abuse, or maternity coverage: the rationale of these states is that some coverage is better than no coverage. Further, while those just above Medicaid eligibility will get very generous subsidies, as family income increases, subsidies drop considerably. In some instances, a family will have to contribute almost 10% of income before any amount is subsidized. And families are forced to choose upgraded Silver coverage in order to receive the subsidy in the first place.
How all of this will work for a family of four making $88,000 or so is anyone’s guess. Paying almost $9,000 toward health care is not realistic and community rating and essential benefit mandates might very well shoot up total health care costs for them. It may not be an issue just for those at the high end of the subsidy schedule, either.
So the question remains: Will PPACA’s model really work? Will those at certain income levels who now hold grandfathered individual policies find it is a net money loser to migrate to the non-grandfathered policy world of PPACA even if they are eligible for subsidies? Could the anticipated higher actuarial values and community rating make health care too expensive for many families to afford even if they are subsidy eligible? Could they lose coverage they have now due to the 2014 mandates because costs actually increase? Will many decide to pay the penalty because they can’t afford to pay 10 percent of income for what could be a more expensive plan in 2014? If PPACA survives, the state Exchange launches in 2014 (or later if delayed) will be the real test of success or failure. There are real implications for Americans – both insured and uninsured.