Tag Archives: Cadillac Tax

An Open Letter to the Trump Administration

As your transition team morphs into your operations group, I thought I would take a moment to give my thoughts on ACA as a seasoned consultant to this industry. While I hear the blustering about repeal and replace, it is my strong belief that any successful bi-partisan remake of healthcare will need to build from the success of President Obama’s signature legislation.

In building consensus, President-elect Trump may wish to throw a bone and acknowledge that reducing the ranks of the uninsured was a win, and it was not the only one. Here is my scorecard for the ACA:

High marks:

Facilitating the shift from fee-for-service to fee-for-value healthcare by supporting the Accountable Care model is important. Comparative effectiveness research, which creates national models for best practices in care delivery, has moved the cost of care, albeit too slowly, in the right direction. For example, a recent study in the Annals of Internal Medicine establishes that reimbursement penalties for hospital readmissions have reduced these by 77 out of 10,000 admissions.

Eliminating pre-existing conditions, benefit maximums and coverage rescissions is a critical change effected by ACA that must be retained. If coverage is purchased under the rules as developed, it is unconscionable that an insurance policy can simply no longer respond.

See also: What Trump Means for Health System  

Average grades:

Coverage for all children to age 26 added coverage for millions of our healthiest population. Uniform coverage for children who have yet to be established as adults is important. But to what extent? Should employers also have to cover the non-dependent adult children of their workers? The extended coverage is a generally good idea, but a small tweak would move it to the high marks section: require that the child be a tax-qualified dependent no older than 26.

We should have a coverage mandate; however, to make this effective it should have teeth. In Australia, the penalty for not having coverage is significant enough that younger adults wouldn’t consider the risk/reward tradeoff of “rolling the dice” to be a viable option. We should do the same and also provide age-banded rates that are not as punitive to the younger insured. Everyone has to be in the system because opting out has a backstop, too. Even prior to ACA, Americans had a coverage stopgap. If one was sick enough and needed care, pre-ACA, it would have been dispensed in the hospital.

Medicaid expansion is an excellent way to bring basic benefits to Americans who simply can’t afford healthcare. However, any new healthcare initiative has to find a way to mandate national standards for providing care for the indigent. Providing coverage for those with income at 18% of the federal poverty level or less is absurd, yet is a standard in two states for eligibility. Someone at that level can’t even afford food – there is no way they would pay into a healthcare system. Care should be basic and should have individual accountability built in – even the poor need to help control healthcare expenditures.

Employers should have to provide coverage meeting minimum standards, but the convoluted state-mandated benefits should be simplified and national standards should be established. This would also facilitate selling coverage across state lines and increase competition.

Failing grades:

Community rating makes sense in the small group marketplace. Standardized plans and rates simplify this market. But eligibility leakage such as association plans and PEOs (professional employer organizations), which are allowed to underwrite risk, “cherry-pick” the risk pool and ultimately create an insurance death-spiral.

The Cadillac Tax is a stupid way to finance healthcare change. Instead, the plans should have an actuarial value threshold that sets deductibility limits. If a business wishes to provide a higher level of benefits it should be able to, but the deduction would be disallowed. There is no reason an employer should be taxed for older demographics or a sicker work force that might increase premiums above the “Cadillac” premium limit.

The administrative complexity of ACA has to go. The exchanges are a bureaucratic nightmare. The reporting structure consumes needless resources for very little benefit. Policing the new system would be simple. The states would determine Medicaid eligibility, and the tax reporting system would capture those individuals without coverage.

See also: What Trump Means for Healthcare Reform

Other suggestions:

Establish price controls on brand name drugs that take into account financial incentives for inventiveness. A single drug available to treat a medical condition is like a monopoly, and it is against public policy for a monopoly to set rates (for example water or electric rates), so why should a drug company set an unconscionable price for a drug that cures hepatitis C or cancer? If one has that condition, he will pay anything to cure it. But it is the employer or the insurance carrier that bears the bigger financial burden. Perhaps there should be a separate award for that inventiveness not paid by the direct users — instead, a drug and medical innovation tax on insurance policies.

Drug price transparency should be immediately introduced. Drug rebates that obfuscate the true cost of medicine and either hide pharma profits or shift money back to the employer or plan administrator are ridiculous. Get rid of them.

It is an incredible time to be in healthcare!

Federal Health Rule Hits Firms for Millions

America’s Health Insurance Plans (AHIP) gather for their big meeting in Nashville this week, with many significant issues on the agenda, some of them headline news. For instance, industry insiders are watching closely the Supreme Court’s pending decision this month on King v. Burwell—which could remove health insurance subsidies in states that opted out of Obamacare’s Medicaid expansion.

There’s a less well-known but extremely important issue many business leaders want AHIP to tackle this week: “embedded MOOP.” That sounds like perhaps a form of fertilizer that could be used in a garden but actually refers to a, well, variant of fertilizer that Washington is known for producing: Embedded MOOP is a brand new regulation threatening to cost employers and other purchasers hundreds of millions of dollars this year alone.

MOOP stands for “Maximum Out of Pocket,” and it refers to the maximum amount your health plan will require you to pay for your health services in a given year—over and above what you contribute to your premiums. After you’ve paid out your deductible and copays and reached the MOOP, your health plan pays 100% of your subsequent bills for the rest of the year.

“Embedded MOOP” focuses on the out of pocket maximums applied to family plans. Typically, the MOOP for a family plan is two or three times higher than the MOOP for an individual plan. So, say your plan has a MOOP of $6,000 for individuals and $12,000 for families. You have a hospital stay that costs $50,000, for which your plan pays 80%, so you are responsible for the remaining 20%, or $10,000. If you have an individual plan, you won’t have to pay the full $10,000, because you would hit the maximum out of pocket cap at $6,000. But if you are part of a family plan, you would, because you haven’t hit the family plan maximum of $12,000.

That’s how things worked until a couple months ago, according to government directive. But now, for certain kinds of high-deductible health plans, the federal government just issued an ironically named “clarification,” which confusingly reverses those earlier requirements, effective immediately, or maybe effective in 2016–the lawyers watching this say the regulation can be read either way. The “clarification” to federal health rules says that MOOP applies separately to each individual “embedded” in a family plan, so each person covered under a plan has the individual cap.

Back to you in your hospital bed with the $50,000 bill: In this new interpretation of federal health rules, you won’t pay more than the $6,000 individual MOOP regardless of whether you are covered under a family plan or an individual plan.

Admittedly, a $4,000-plus windfall sounds like good news. Who cares if health plans don’t like it? But here’s the problem: The plan doesn’t pay the $4,000; your employer does–and so do you.

AHIP estimates 17.5 million Americans are enrolled in the kind of plans subject to this federal health rule on embedded MOOP. We might reasonably estimate that 3% of them, or about 500,000 people, will encounter a major hospital bill this year. If employers lose thousands of dollars on half of them, or even a quarter of them, there’s not enough room on my calculator for the zeroes in the dollar-figure estimate of loss. The bottom line: Employers will be out hundreds of millions of dollars because federal officials changed the rules mid-game.

Employers have to cover this loss right now, so many are hastily redrafting their HR budgets as you read this. The money will come from employee premiums, lower wage increases, reduced benefits or creating fewer jobs. And even though the new regulation sounds friendly to families on its face, in fact it makes already expensive family coverage even less affordable, because family premiums are likely to skyrocket with this new rule in place.

This is not the first time lawmakers cavalierly forced business to shoulder a major new healthcare cost. In fact, it’s a tradition. Commercially insured patients pay orders of magnitude more for each individual service than taxpayer-funded payers like Medicare and Medicaid do. That amounts to a subsidy to the tune of hundreds of billions of dollars transferred wholesale to the healthcare system from the workers in America’s economy.

Policymakers don’t need to send certificates of appreciation to purchasers for their willingness to pay for the U.S. healthcare system. But, at the very least, government could stop scolding and punishing business for that investment. Alas, in 2018, employers will be hit with the so-called Cadillac tax, an excise tax on purchasers that have the audacity to spend too much on healthcare. And last year, purchasers were admonished by a federal agency for investing in employee wellness programs that they designed explicitly in line with Obamacare. Now, we have the embedded MOOP pummeling of 2015.

In the short term, the administration needs to revisit this regulation pronto, and we hope to see AHIP make the case this week. In the long run, it’s time lawmakers treated purchasers’ role in healthcare with less disregard and more common cause.