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Obamacare – Where we’ve been, where we are, and where we are going

[The following is from a talk I gave this morning to a group of business leaders who wanted to get a better feel about the Affordable Care Act.  I used “Obamacare,” because I was clearly speaking to the 1%]

Healthcare in America has been on a roller coaster for a long time.  We know we’re doing something wrong.  Much of the debate in this country for the last four years has been about how wrong American healthcare is.  There’s just no agreement on what exactly is wrong.  

For some perspective, an article publised in HealthLeaders Media yesterday, had a study which showed that the government paid, single payor Canadian healthcare system spends billions less than what is spent by Medicare on comparable patients and illnesses, covers 80% of the healthcare expense (Medicare covers about 50%), and (here’s the kicker) produces better clinical outcomes.

A Brief History of Obamacare (a/k/a The Patient Protection and Affordable Care Act – “PPACA”)

First, Obamacare did not start with Obamacare. 

Healthcare reform has been debated in the U.S. for years.  In 1965, Medicare and Medicaid were passed under LBJ over bitter resistance from the AMA which dubbed the programs socialized medicine.

 More recently, under President Clinton, even though the healthcare reform plan promoted by his wife failed miserably, one of the most comprehensive statutory and regulatory programs did get enacted – the Health Insurance Portability and Accountability Act, or “HIPAA.”

 With George W. Bush, the Medicare Prescription Drug, Improvement, and Modernization Act was passed, which included a prescription drug plan for elderly and disabled Americans.  Both W. and John Kerry promoted healthcare reform proposals during the 2004 campaign.

 Healthcare reform under President Obama actually started with the American Recovery and Reinvestment Act of 2009, known as the Stimulus. 

The Stimulus was intended to stimulate the economy.

One part of the Stimulus was to support and incentivize physicians, hospitals, and other healthcare providers to use electronic health records (“EHRs”).

The goals of EHR: 

  • Increase quality, safety, and efficiency of health care
  • Train thousands of people for careers in health information technology
  • Assist states in creating health information exchanges for the exchange of patients’ EHRs among health care providers

In talking to my clients, I know that the switch to using EHRs has been difficult and expensive, but we are seeing many physicians and hospitals successfully utilizing EHRs. 

The expense has been softened by the Stimulus’s incentive payments to practitioners who meet so-called meaningful use standards for their EHRs.

So far, $7.7 Billion have been paid out in incentives.

And, in the government giveth and the government taketh away department, a new program has begun to audit health care practitioners who have received EHR incentives.

The actual Obamacare statute was passed in two parts in March 2010.   The consolidated Congressional print of the statute takes up 907 pages. 

The AHLA’s commentary and summary cover 718 pages.

In a nutshell, Obamacare’s core provisions were designed to ensure peace of mind for America’s families. Irrespective of new family circumstances — an unexpected illness, the loss of a job or a divorce — Obamacare promised that affordable, high-quality health coverage should always be available.  It seeks to do this with —

  • Emphasis is on primary care
  • Emphasis is on preventive care — Medicare now covers an annual wellness visit and personalized prevention plan without copayments or deductibles
  • Emphasis is on payment for quality

Even though the AMA supported Obamacare, the law received terrible criticism from the time it was proposed – being labeled a health care takeover, death panels and healthcare rationing, more bureaucracy and less freedom, replacing the world’s best healthcare system with socialized medicine. 

Numerous lawsuits contesting the constitutionality of the individual mandate and other provisions, and for nearly two years different courts were deciding the fate of Obamacare differently.

Finally, just 5 months ago the Supreme Court upheld the individual mandate, and the bulk of Obamacare.

In the meantime, a number of provisions enacted as part of Obamacare have already gone into effect:

  • Much harsher fraud and abuse and compliance provisions.
  • Temporary retiree reinsurance program for employers providing health insurance for retirees over 55 but not eligible for Medicare.  Over 2800 employers have been reimbursed close to $5 billion.
  • Temporary national high-risk pools to provide health coverage to individuals with pre-existing medical conditions who cannot get insurance.  So far more than 67,000 people have benefited from this program.
  • Coverage provided under parent’s group health insurance plans for adult children up to age 26.  Over 3.1 million “children” have taken advantage of this.
  • Pre-existing conditions prohibited for children under the age of 19.
  • Elimination of lifetime dollar limits and caps on annual limits on essential health benefits.

Once an individual is covered under an employer-sponsored group health plan, cannot lose coverage except in the case of fraud or intentional misrepresentation

  • Physician ownership in hospitals prohibited.
  • Medical Loss Ratio Rebates — insurance companies are require to spend a certain proportion of premium income (80-85%) on health care for their insured market, and if not met, they rebate a portion of the premium.
  • Accountable Care Organizations – this is potentially huge — providers organized as ACOs can share in cost savings achieved for the Medicare program.  A paradigm shift in the delivery of healthcare away from FFS to preventive care and paying to keep patients healthy.

As these provisions and others have become effective, the train of federal regulation has been speeding down the tracks.  Forbes estimates that already approximately 13,000 pages of new federal regulations relating to Obamacare have been issued and predicts an “avalanche” of new rules after the election.

During the same 2-year period when programs were going into effect and regulations were being adopted, the House of Representatives voted 33 times to repeal Obamacare.

Where are we now?

What was already beginning in healthcare delivery, Obamacare has accelerated.  The increased number of regulations and regulatory oversight, the new disclosure, and compliance requirements, and the continuing decrease in public and private reimbursement is impacting significantly on the way healthcare is being delivered and is pushing toward more and more mergers, consolidations, joint ventures, and overall integration:

  • Physician and Hospitals — Physicians are becoming employed by hospitals, and physicians and hospitals are entering into professional service and co-management agreements and joint ventures.
  • Physician practices – We are seeing multi- and single-specialty practice roll-ups, and sales and mergers of practices, even ventures with insurers
  • Looser forms of integration: ACOs, IPAs, and MSOs
  • Physicians’ dropping Medicare and Medicaid patients; setting up concierge practices
  • Perhaps, most troubling is that even though Obamacare brings the promise of having more people covered (perhaps an additional 32 million), there is a shortage of physicians which is expected to grow to more than 100,000 – all specialties – by the year 2025.

One cannot overemphasize the burdensome effect of healthcare regulations, and the longstanding vilification of healthcare providers that has been part of the so-called fight against fraud and abuse for years.  Obamacare has given regulators more tools to use against healthcare providers, which adversely affect the delivery of healthcare services. 

For example, there is the schizophrenic approach by the Medicare and Medicaid bureaucrats to use the Recovery Audit Contractor program – “RAC” audit – to go after hospitals, physicians, and other providers to investigate and recoup possible overpayments, which includes second guessing medical necessity of healthcare already given.  It’s one thing to go after fraud, but to take money back because an auditor doesn’t agree that the care was needed is something quite different.

Another example, Medicare and Medicaid providers are being disenrolled – i.e., they won’t be paid to see Medicare and Medicaid patients for inconsequential paperwork issues.  You would think that they would want to keep providers participating in Medicare and Medicaid. 

The amount of time and money that healthcare providers have to spend on lawyers, accountants, and billing consultants is really obscene.  But the economic repercussions of making an error can be crippling – up to $11,000 per false claim + treble damages + refunding of alleged overpayments + possible expulsion from Medicare and Medicaid programs + possible criminal penalties and fines and jail.  Whistleblowing is on the rise, which only exacerbates the prtoblem.

And, you know what, healthcare fraud in this state and in the Tampa Bay area is rampant.  Good providers have been scared into spending thousands of dollars to be compliant with very complicated rules and regulations.  Bad guys are not deterred.

What has happened since the election?

With the President’s re-election and the Democrat’s continuing Senate majority, the uncertainty of Obamacare is over, but the contentiousness about Obamacare is not over.  Much of the law still needs to be implemented, and that will not be easy.

  • “While Obamacare is the law of the land, it is costing us jobs and threatening our health care,” said Boehner’s communications director. “Speaker Boehner and House Republicans remain committed to repealing the law…”
  • In a Forbes survey, to the question, “Which of the following best describes your feelings about the ACA?” 55% of more than 3,000 doctors chose “repeal and replace” whereas only 40% said “implement and improve” it.
  • 2 states with Republican governors — Virginia and Kansas — announced they won’t build health care exchanges in their states to implement the law.
  • On the other hand, our own Gov. Rick Scott, a staunch opponent of Obamacare, appears to be softening.
  • A new Kaiser Family Foundation poll reports, the majority of Americans don’t support repealing Obamacare.  After the election, the number of Americans advocating for a full repeal of Obamacare dropped to an all‐time low of 33%.
  • Then, you have Zane Tankel, CEO of Applebee’s N.Y. franchise, said after the election that Obamacare will keep him from building more restaurants and hiring more people.

The point of all this is that Obamacare is here to stay but guerilla warfare against it is also here to stay. 

So, What’s Next?

As I mentioned, a lot of Obamacare was not schedulked to go into place until later.  But later is here.  The distractions of the lawsuits and the election have put in a bind many states and many employers who have serious obligations in front of them.  Florida is one of those.

  • Health Insurance Exchanges — These are new organizations that will be set up starting in 2014 to create a more organized and competitive market for buying health insurance. They will offer a choice of different health plans, certifying plans that participate, and providing information to help consumers better understand their options. 
    • Florida, like a number of other states had refused to set up a health insurance exchange. For those states, the federal government would set up an exchanges, but residents in those states would not be eligible for certain federal subsidies.
    • States have until today to submit their letter of intent about setting up their health insurance exchanges. 
    • However, the deadline for submitting the blueprint of the exchange has been extended to December 14 at the request of the Republican Governors Association.
  • Essential Health Benefits – These are the minimum benefits in 10 broad categories of care, including inpatient and outpatient care, preventive and wellness services, pediatric and maternity care, emergency care, prescription drugs, mental health services, and others.
    • All plans offered in an Exchanges must include these essential health benefits.
    • The Dept. of Health and Human Services was supposed to define these essential services.  Unfortunately they found it too hard, and kicked it back to the states. 
  • Employer-Sponsored Plans – Beginning in 2014, employers with 50 or more “full-time equivalent employees” must provide minimum essential coverage to all full-time employees (those working 30 or more hours per week) and their dependents. (There are 18 pages of proposed regiulations defining what a full-time employee is)
    • If employer fails to offer minimum coverage to all full-time employees, and at least one employee receives coverage through the state-based exchanges, the employer must pay an assessment of $2,000 per full-time employee (which goes up in leter years).
    • Employers must cover at least 60% of the cost of “minimum essential coverage” for employees and the total employee cost for health care coverage should not exceed 9.5% of any employee’s household income.
    • There are complicated rules about grandfathered employer plans.
  • The individual mandate also kicks in – 2014
  • Eligibility for Medicaid Expansion – 2014

What are some of the Tax Effects of Obamacare?

Obamacare contains 20 new or higher taxes (at least, that is how the Republicans describe them).  I’ll mention a few:

  • Surtax on Investment Income — A new 3.8% surtax on investment income earned in households making at least $250,000.  With fiscal cliff, this would raise capital gains rates from 15% to 23.8%, and the tax on certain dividends from 15% to 43.4% (begins on 1/1/13 and applies to individuals earning more than $200K or couples earning more than $250K).
  • Hike in Medicare Payroll Tax – The employed individual’s portion goes from 1.45% to 2.35% (self-employed goes from 2.9% to 3.8%) (begins on 1/1/13 and applies to individuals earning more than $200K or couples earning more than $250K).
  • Individual Mandate Excise Tax and Employer Mandate Tax – 2014
  • Tax on Health Insurers on Premium Income – 2014
  • Excise Tax on Comprehensive Health Insurance Plans — Starting in 2018, new 40 % excise tax on “Cadillac” health insurance plans (premium benefits exceeding $10,200 single/$27,500 family)
  • Tax on Medical Device Manufacturers – 2013 – 2.3% excise tax
  • High Medical Bills Tax  — 2013 – Those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 % of adjusted gross income, will go up[ to 10%.
  • Medicine Cabinet Tax – 2011 — HSA and FSA can no longer be used for nonprescription drugs.
  • Tax on Indoor Tanning Services

Independent Payment Advisory Board

According to the AMA, this is “One of the most controversial provisions” of the [ACA] is the establishment of the IPAB.  — AMA

  • A 15-member Board to extend Medicare solvency and reduce spending growth through use of a spending target system and fast track legislative approval process.
  • By April 30 of each year, beginning in 2013, CMS Actuary’s Office will project whether Medicare’s per-capita spending growth rate in the following 2 years will exceed a targeted rate.
  • Initially, the targeted rate of spending growth will be based on the projected 5-year average percentage increase in the CPI for all urban consumers and the CPI for all urban consumers for medical care.
  • In 2019, the target will be set at the GDP per capita + 1%.
  • If future Medicare spending is expected to exceed the targets, IPAB will propose recommendations to Congress (starting in 2014).
  • Spending rate reductions will be established at: 0.5% 2015; 1% 2016; 1.25% 2017; 1.5% 2018; and thereafter.
  • If Congress fails to pass legislation by August 15 each year to achieve the required savings through other policy changes, IPAB’s recommendations will automatically take effect.
  • By 2015 and at least annually thereafter, IPAB will submit recommendations to slow the growth in national health care expenditures while preserving or enhancing quality of care.
  • The recommendations could be those that: (1) HHS and other federal agencies could implement administratively; (2) may require federal legislation to be implemented; (3) may require state or local government legislation to be implemented; or (4) private entities can voluntarily implement.
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