The Affordable Care Act (ACA) requires large employers (those with at least 50 full-time equivalent employees) to provide qualifying health care coverage to substantially all full-time employees and their dependent children or pay a monthly “Employer Shared Responsibility” penalty. The employer mandate was set to take effect in 2014 but was delayed until 2015. But, even without the threat of tax penalties in 2014, employers should practice complying with the mandate during the 2014 transition period.
Here is a blueprint for implementing a compliance strategy:
1. Amend health plans to comply with the ACA requirements that were NOT delayed. Required changes include eliminating annual dollar limits on essential health benefits; eliminating pre-existing condition exclusions for all enrollees; offering coverage to dependents to age 26 who are eligible for other employer coverage; and limiting benefit waiting periods to no more than 90 days. Non-grandfathered plans also must prohibit discrimination based on participation in a clinical trial; abide by cost-sharing limits; and prohibit discrimination against any health care provider acting within the scope of that provider's license or certification under applicable state law.
2. Determine whether the employer mandate applies. In general, the employer mandate applies to “large” employers that employed an average of at least 50 “full-time” equivalent employees on business days during the prior calendar year. A full-time employee is one that averages at least 30 “hours of service” per week (or 130 hours per month). All entities in a controlled group are treated as a single employer to determine large employer status.
3. If an employer is determined to be a large employer, assess financial risks under the employer mandate. A large employer that chooses not to offer minimum essential coverage (MEC) will be penalized $2,000 per full-time employee (minus the first 30) if one full-time employee receives a federal subsidy for Health Insurance Marketplace coverage. This is often called the “sledgehammer” penalty. If a large employer offers MEC, but the MEC fails to provide minimum value (60%+ of total allowed costs) or affordability (employee’s contribution toward the premium is ≤9.5% of household income), the employer will be penalized the lesser of $3,000 per full-time employee receiving a subsidy or $2,000 per full-time employee (minus the first 30). This is known as the “tack-hammer” penalty. Most employer-sponsored group health coverage is MEC, including, apparently, so-called “skinny” plans that cover only ACA-required preventive services with no cost-sharing and with no annual or lifetime dollar limits on benefits.
4. For a large employer that wants to avoid the sledgehammer and/or tack-hammer penalty in 2015, rehearse employer mandate compliance in 2014. Finalize plan designs and amend plans now to conform to MEC, minimum value and affordability requirements. Offer coverage to employees performing 30 hours of service or more per week during a month and, at a minimum, their dependent children to age 26. If large numbers of variable-hour or seasonal employees make it difficult to track and manage full-time status, establish ACA-compliant “measurement periods” to determine whether these employees actually work enough hours to be offered coverage. Maintain detailed records, because informational reporting about the coverage and to whom it is offered must be provided to the Internal Revenue Service beginning in 2016.
Details of each employer’s situation are unique. But all employers should accelerate and simplify this complex compliance project. Many independent, third-party administrators can be an invaluable resource for navigating the employer mandate rules and penalties and other complexities of health care reform.
President Obama’s announcement during a Nov. 14 press conference that he would like to see insurance carriers extend non-complying health coverage after Jan. 1 may be the event that unravels the Affordable Care Act (ACA). Carriers and health plans have worked hard for several years, have spent millions of dollars complying with ACA, have fought with insurance department regulators getting policies approved and, in many cases, have notified consumers of the need to terminate non-compliant policies. Now, carriers and health plans have a new wrinkle thrown their way. What is going to happen next?
Some of the key principles of ACA are:
- Clear definition of Essential Health Benefits (i.e., EHB)
- Clear definition of metallic or metal level plans based upon the actuarial value of the benefit plan
- Restrictions on premium format and methods to derive premium rates
- Rigorous rate review and approval process coordinated by a combination of state insurance departments and federal oversight
- Mandates for participation in some type of health coverage
- Large number of taxes and fees to help fund ACA
- Assumption that there would be a reasonable risk pool so carriers could appropriately price and predict future costs of care
Minimum loss ratio requirements to ensure that a reasonable portion of the premium rate goes toward the payment of claims
Carriers have worked hard to comply with the new regulations, which for many have involved significant shifts in the methods used to conduct business. The rate development process for a typical carrier follows this process:
- Review of prior claims experience and profitability
- Determination of what rate increase will be required to maintain a profitable product offering
- Development of proposed rate for various rate cohorts with competitive comparisons
- Potential benefit redesign to meet regulatory changes or competitive pressures in the marketplace
- Obtaining independent actuarial certification regarding proposed rates as a reasonableness test (e.g., Section 1163 required in California)
- Filing of rates with regulators for approval and follow-up with regulators until rates are formally approved
- Communication of rates to those insured, and implementation of the new rates
This process can require four to six months to complete. It is actuarially complex and requires careful analysis of many factors and variables.
As ACA emerged, carriers had to adjust benefits covered in prior products where they failed to meet the minimum EHB required. In some cases, products were terminated because they did not meet either the EHB or the minimum actuarial value of 60%. Carriers worked hard to develop replacement products, filed these with regulators and started to present these to their customers.
It was obvious that some customers would be concerned about the impact of rate changes associated with ACA-approved benefit programs. Rates would increase for a variety of reasons:
- Health care inflation continues
- Mandated benefits required broader coverage than previously purchased
- Elimination of gender rating generally increased rates for insured males
- Minimum Actuarial Values (i.e., > 60% AV) raised benefits for some insureds
- Assumed average risk score for the individual market was higher than in the past because medical underwriting is no longer appropriate, and, in some cases, carriers raised the average assumed health status built into the rates to reflect the enrollment of additional Medicaid- or Medicaid-like lives.
- Age rating was affected, requiring higher rates at younger ages to offset some of the reductions at the older ages (i.e., 3:1 limits on age rating curve).
The concerns expressed by the public on higher rates, the concerns expressed about policy cancellations, the delays caused by website challenges, the continued frustrations about ACA all combined into a situation where a large portion of public were frustrated with ACA. The president’s announcement was a response to many of these concerns and frustrations.
However, there are several complications facing the carrier community as a result of this suggestion or proposal to the insurance departments and affected carriers.
- Rates for terminated programs were not updated for 2014. Rates can’t be extended without adjustment because rates were established for a previous time period, and there has been inflation. Updating would require a minimum of 4 – 6 months. The software implemented by the federal government and used at the local insurance department level is built around the new ACA requirements and would likely reject restored versions of terminated policies.
- The risk pool for all of the ACA-approved rates will be changed significantly if individuals are able to continue their prior programs. Selection bias issues would be significant.
- The individual mandate for credible health coverage would be compromised if individuals continued their prior, non-compliant coverage. The anticipated tax base would be jeopardized with the continued offering of non-compliant coverage if penalties were forgiven.
- The disruption to the insurance industry involved in the exchanges would be significant and potentially would permanently damage the risk pool.
- More importantly, the public’s perception of the benefit of ACA to them will be affected as changes were required, then they weren’t, then they will be, etc.
Although there are many features of ACA that potentially provide value to the public, the flawed rollout, the delays in implementation and now radical changes to the structure of the ACA program very likely start to unravel the viability of the program. Only time will tell.
Historically, the “do more, bill more” fee-for-service model of healthcare measured success by increased billings. In the fee-for-value era, we need a new framework for assessing healthcare results. Quality indicators are logical, but they are mostly geared toward measuring actions taken. We can borrow a concept from the energy sector for an additional metric. We need a concept for removing waste and unnecessary care that could be inspired by a concept from the energy sector described in this blurb from Wikipedia for something called Negawatts.
Negawatt power is a theoretical unit of power representing an amount of energy (measured in watts) saved. The energy saved is a direct result of energy conservation or increased energy efficiency. The term was coined by the chief scientist of the Rocky Mountain Institute and environmentalist Amory Lovins in 1989, arguing that utility customers don’t want kilowatt-hours of electricity; they want energy services such as hot showers, cold beer, lit rooms, and spinning shafts, which can come more cheaply if electricity is used more efficiently. Lovins felt an international behavioral change was necessary in order to decrease countries’ dependence on excessive amounts of energy. The concept of a negawatt could influence a behavioral change in consumers by encouraging them to think about the energy that they spend.
The healthcare parallel would be a “Negaclaim™” — i.e., an unnecessary claim avoided. This isn’t about simply denying care. Just as consumers aren’t interested in kilowatt hours, patients aren’t interested in claims — they want health restored and diseases prevented, which can be done more efficiently and effectively. When individuals are fully educated on the trade-offs associated with interventions, they generally choose the less invasive approach. A nice byproduct is that the invasive approaches are frequently more costly and medically unnecessary. The following are a few of many examples of how unnecessary care can be eliminated while improving the patient experience:
- Day-to-day and chronic disease care: One of the key reasons Direct Primary Care (DPC) has proven itself to be the Triple Aim leader is that a proper primary care relationship involves time spent with patients to explain trade-offs of various medical options. Without incentives to push for “more,” DPC providers have demonstrated that they can reduce unnecessary utilization by 40-80%. By contrast, “hamster wheel” primary care has effectively turned primary care into 7-minute, drive-by appointments that leave little time to do anything but direct patients toward additional costly items, whether it’s ordering a prescription, test, hospitalization or specialist visit. In many cases, those could be avoided with a robust primary care relationship.
- High Cost Procedures: Leah Binder wrote about what major employers such as Walmart, Loews, Pepsico and others are doing to reduce risk to their employees while also saving money, in What We Can Learn From Walmart: How Our Healthcare System Can Save Lives and Dollars. Employees found that 40% of the transplants that were recommended by local hospitals were deemed medically unnecessary by top physicians at the Mayo Clinic and other nationally renowned facilities. Employees were thrilled to avoid risky (and expensive) procedures. It also sent a great message to employees that their employer valued them enough to send them to the best medical centers in the world for second opinions.
- End of Life: Quality of life is affected dramatically by the end-of-life decisions we make. This was outlined in How Not to Die. The system is oriented to do more even if it is at odds with quality of life. Doctors themselves recognize this when they are the patient, as described in Why Doctors Die Differently. While quality of life is the driving factor for patients and families, there is a second-order benefit that the procedures that reduce quality of life are typically very expensive.
The problem in healthcare has been that providers have incentives to do stuff because of the flawed reimbursement models that dominate our present healthcare system. Respected studies such as from the Institute of Medicine demonstrate that there is more than $750 billion in waste. PwC stated that more than half of healthcare spending is waste. Incentives have driven providers to encourage more interventions, and consumers have been led to believe that more is better even though, in many cases, less is more.
That has added a challenge for health insurers. The general perception is that health insurers reflexively deny claims (sometimes getting in trouble for that). This has resulted in health insurers having the lowest Net Promoter Score of any industry. Consumers have clearly decided that health insurers aren’t doing this for consumer benefit. Fair or not, they have concluded it’s simply for the financial health of the insurer. Clearly, health insurers need a different approach if they want to improve their image and the health of their customers while ensuring their financial viability.
One incentive that has changed revolves around the Medical Loss Ratio (see Aetna’s explanation here). In contrast to “customer service” reps focused on claims, an investment in patient engagement can have the same or greater effect on reducing claims while qualifying as a healthcare expense. Enter patient engagement.
Patient Engagement Is the Blockbuster Drug of the Century
Leonard Kish made the case that if patient engagement was a drug, it would eclipse all blockbuster drugs before it. Kish cited results of studies showing benefit when patients were successfully engaged in their health.
Compared to those not enrolled in the study, coordinated care “patients have an 88 percent reduced risk of dying of a cardiac-related cause when enrolled within 90 days of a heart attack, compared to those not in the program.” And, clinical care teams reduced overall mortality by 76 percent and cardiac mortality by 73 percent.
Rather than reflexively denying claims and building up a mountain of ill will, insurance companies should invest resources in helping their customers get engaged in their health. Their customers would, in effect, “self-deny” their own claims.
Note that when I describe patient engagement, I’m including family members and caregivers. Did you know that families provide care valued at more than $450 billion per year – more than our total spending on Medicare! Thus, much of what is outlined below speaks to caregivers (particularly with elderly patients), not just the patient. Having more resources/tools as a caregiver would be welcomed, as most of us have no clinical background and are thrown into a caregiving role virtually overnight.
[Disclosure: My patient relationship management company is one of the organizations providing patient engagement tools to healthcare providers, which is why I'm familiar with these examples.]
Just about every myth has been debunked about how patients of all types supposedly won’t get engaged in their health, whether it’s low-income diabetes patients, native American populations or the elderly. However, providers are largely failing in their efforts at engaging patients as they haven’t had the incentives, tools or training. Provider-patient communications guru Stephen Wilkins points this out clearly in a few pieces.
Despite less than stellar results that Wilkins highlights, the initial attempts by providers at engaging patients are welcomed just as a muddy puddle of water in the Sahara Desert is welcomed. However, much more can be done.
Catalyzing Patient Engagement in Health Plans’ Best Interests
A wave of new requirements and challenges have crashed on top of providers. Insurers could help if they focus in the right areas and are mindful of the challenges. JAMA recently wrote a piece highlighting one facet of patient engagement — shared decision-making (SDM). Physicians aren’t going to magically take on this challenge without a change.
The brevity of visits constrains the opportunities to address these elements of SDM. Furthermore, clinicians are not adequately trained to facilitate SDM, especially eliciting patient values and preferences for treatment.
[Note: Resources to train clinicians on patient engagement are emerging. One would expect that a host of continuing education courses will emerge. One example is HIMSS (the professional association for healthIT), which released a seminal book on patient engagement.]
In the places where providers have successfully achieved the Triple Aim objectives with challenging patient populations, they have had payment aligned with outcomes. Teams were unleashed, led by doctors, to get creative about how to tackle the challenges. While doctors are vital, they use non-physicians for a substantial part of the interaction with patients. It turns out, for example, that doctors and even nurses can be less effective at effecting behavioral change in patients than non-typical care team members. Rather than being relegated to low-level tasks, medical assistants and health coaches play a vital role in the successful models. Once again, while the goal is an improved health outcome, there is a second-order benefit that being more effective lowers costs by avoiding complications, and the medical assistants and health coaches are generally paid less than doctors and nurses. Unfortunately, in a typical fee-for-service reimbursement model, these types of services typically aren’t compensated despite their impressive results.
Dr. Rob Lamberts described this problem in detail in Washington, We Have a Problem. He summarizes the conflict between people’s desires and healthcare’s flawed reimbursement framework.
This is why, I believe, any system that profits more from people with “problems” than those without is destined to collapse. Our system is opposed to the goal of every person I see: to stay healthy and stay on as few drugs, have as few procedures, and avoid as many doctors (and drug companies) as possible.
Health insurers have implicitly viewed their customers as adversaries by creating a claim-denying framework as the default. The smart health plans will figure out how to harness the consumer goals. This isn’t some fanciful dream as it has been demonstrated (profitably, I might add) by the physician-entrepreneur organizations outlined in The Hot Spotters Sequel: Population Health Heroes.
This isn’t about minor tweaks to a fundamentally flawed model. Rather, as one physician-entrepreneur put it, too many models are “putting wings on cars and calling them airplanes.” Rather, it’s supporting proven models where they have rethought care delivery – here’s how one physician-entrepreneur describes rethinking care delivery from the ground up (video).
While financial rewards are important, most physicians are not motivated primarily by money but by autonomy, mastery and purpose. In the successful models, the physician-entrepreneurs created their own autonomy and recognized that the focus of their mastery and purpose had to fundamentally shift. A nice byproduct was the growth of “Negaclaims” as the educated and empowered patients better understood the significant risks of overtreatment and errors.
Too frequently, health plans have tried to micromanage clinical processes. With proper financial incentives combined with a move toward enabling clinical teams to become masters at driving patient engagement, the health plan is much more likely to achieve the desired outcomes. As the Stephen Wilkins pieces referenced above illustrate, clinicians haven’t been trained or rewarded directly or indirectly for encouraging patient engagement. It should be no surprise that most haven’t achieved mastery in helping their patients achieve patient engagement. Instead, the language of medicine has been punitive and demeaning, talking about “non-compliant” patients as though they were petulant criminals. That doesn’t further the partnership between patients and their care teams, which is necessary for optimal outcomes.
Previously, I outlined the strong business case for patient engagement. Those who have understood that business case have moved on to practice the 7 habits of highly patient-centric providers. It’s clear that past efforts by health plans to reduce claims have fallen short and created ill will and sub-optimal health outcomes. Putting the patient/member at the center need not be a marketing gimmick. Rather, it’s central to the notion of “Negaclaims” and to a winning strategy in the fee-for-value era.
Most of the dust has now settled around the State Exchanges. Last week the New York rates were finalized and with most of the other states, rates came in lower than anticipated. The Department of Health and Human Services (HHS) released an analysis1 suggesting that rates were 18% lower than anticipated. The national press has been in a frenzy as the public is trying to determine what all of this means. This article will discuss several of the issues and try to put them in perspective.
So What Are The Facts?
Are the rates actually lower? The HHS article demonstrates that yes, rates are coming in lower than previously projected rates even by the Congressional Budget Office (CBO). However, the situation is not quite the same as alluded to. For example, the study compared the “lowest rate” with the projected or forecasted rate. In the recently released rates for the State of New York, rates for the silver plan in New York City ranged from a low of about $350 to a high of nearly $700, a wide range. The HHS article compared the lowest rate in a plan type and compared that to the CBO projection. If the low in New York was $350 and the high $700, one might assume an average rate of $525 (i.e., (350 + 750)/2 = $525). Comparing $350 to the projection gets a different answer than comparing $525 to the projection. For example, if $350 is 18% lower than the projection, $525 is 123% of the projection, a much different story than presented.
Why Do The Rates Vary So Much?
Rates are based upon a large number of specific and sometimes hard to define actuarial assumptions. Some of the health plans used different assumptions than others resulting in different rate levels. Some of the key assumptions are:
- Health care provider discounts and also average cost of those providers in the network
- Care management approach and effectiveness
- Required expense and margin loads
- Assumed health status of population to be covered
- Assumed health care inflation and/or trend assumption
- Specific plan design
- Prior experience with individuals and small groups
There are other assumptions that are included, but the above list describes most of the important ones. If a particular health plan has better than average discounts with providers it is likely that their premium would be lower than a plan with lesser discounts. If the providers included in the network have a lower average cost than a competitor's network, the premium would likely be lower than the competitor. If a health plan had more effective care management practices than their competitor their rates might be lower. The list goes on. In addition to actual measured performance, some of these differences might be based upon perceived value and/or differences.
Although actuarial science is an objective science, different actuaries might have different opinions on the same issue and could apply different judgment when the data is incomplete or questionable. As a result, rate differences might occur as a result of different actuarial opinion.
The nature of a specific health plan can also lead to differences. One example of this is the rate development in one of the states our company was working on. One of the major players in the market attempted to negotiate more favorable contracts with its provider network. The best attempt at negotiating with a highly desirable health system resulted in a contract that paid that provider about 115% of Medicare payment rates, an improvement from their current contract. A competitive health plan in that same marketplace contracting with that same provider was able to negotiate a contract at close to Medicaid rates, considerably less than what the other carrier had achieved. A very surprising result that we had to investigate further to understand.
The first carrier was a major commercial health plan. The second was a health plan that served Medicaid beneficiaries. Their current contract paid close to Medicaid rates, and since the Exchange was going to attract Medicaid-like enrollees they were able to negotiate a rate close to their current rates, but a little higher. The large commercial carrier at the same time was not able to negotiate anywhere near that rate discount but was pleased to be able to get an improvement. This reimbursement difference alone would contribute to at least a 35% – 50% rate differential. Examples such as this have occurred through many of the exchanges and have led to many rate differences.
In addition, some plans have proposed “narrow networks” where providers agreeing to significant discounts and which have demonstrated performance advantage are included in the network. This has resulted in favorable rates in many situations. Some plans have used “broad networks” where almost any provider is included in the network. The exchange has no requirement about breadth of network. Individuals signing up for coverage in the exchange are going to have to carefully assess what providers are included in the networks. The lower premium rates might be the results of narrower networks with limited access.
In summary, the news has been more encouraging than expected, at least by many; however, there are many idiosyncrasies that need to be considered before making a final judgment regarding the Affordable Care Act and the exchanges. Rates will be available October 1, assuming no further delays, and then we will be able to make final assessments.
On a recent call with a large manufacturer, my company's team expected to describe how we develop primary care medical homes that become platforms for managing comprehensive health care clinical and financial risk. But the team on the other end of the phone beat us to it. Their remarks — that health care cost is a multi-headed monster that requires a broad array of simultaneously executed approaches — were a breath of fresh air.
They wanted to avoid approaches that don't work or are designed to accrue to a vendor's disproportionate financial advantage and focus instead on mechanisms that measurably improve health and reduce cost. Their conventional current clinic vendor wasn't onboard, philosophically or in terms of capabilities, and so wasn't getting results. They were looking for a replacement vendor that could help them drive more appropriate care, with clear rules for patients and providers.
Often we have to cajole clients into more aggressive actions: restructuring their benefits or their PBM formularies, redirecting care to high performing doctors or hospitals, direct contracting for advanced images or ambulatory surgeries, creating stronger incentives for approaches that are most likely to produce better results. But now we're finding more employers exhausted and eager to pursue out-of-the-box approaches that can drive more appropriate care and cost.
Since the end of World War II, when employers began offering health benefits to recruit and retain better employees, a tug-of-war has been waged over the rules of engagement. Employers want competitively healthy and productive work forces, but see health care as an unpredictable significant cost that must be managed. Employees may bristle at participating in risk assessments, or seeing certain doctors or working toward a healthier lifestyle. These may be seen as brazen invasions of privacy, as work overflowing into personal life, as constraints on patients' abilities to obtain quality care.
Until now, most employers have been reluctant to be too dictatorial. But the financial threats of relentlessly surging cost — 4.5 times general inflation for more than a decade — and overwhelming evidence of industry excess have been impossible to ignore, fueling a focus on using strong carrots and sticks to steer behaviors that follow what works.
This is no small task, because a profiteering health care industry has developed scores of ways to extract more money than it is entitled to. Low primary care reimbursements have translated into rushed visits, driving up specialty referrals, diagnostics, procedures and costs for complicated patients. Egregious unit pricing on drugs, devices and specialty procedures — think stents, advanced images and complex spinal surgeries — encourage delivering more unnecessary products and services. Yellow-pages provider networks give patients “choice” to unwittingly see lousy doctors who consistently produce poorer outcomes at higher episodic cost, or get care in hospitals where there are higher opportunities to experience an error or acquire an infection. Leaving all this to health plans that have, for decades, been unwilling or unable to manage these vectors or control costs is repeating a behavior while hoping for a different result.
Last year, Walmart contracted for heart, spine and transplant surgeries with six Center of Excellence health systems around the country. These organizations use salaried specialists who are more likely to diagnose and treat correctly the first time for lower overall utilization and cost. They use and share evidence-based protocols, share data and coordinate care with local providers. Walmart employees who visit these Centers pay nothing. Many large and mid-sized firms are now pursuing this design.
Jerry Reeves MD, a medical management innovator, structured an alternative health plan design for one of his clients. His plan used rules that strongly encouraged approaches that work. Employees who adhered to the rules paid about one-third less for their coverage. But the program required a commitment. Participants who signed up had to use one of eight primary care medical homes that had been established. They needed to visit within 90 days for an exam, including a biometric profile. If the medical home called to recommend visiting a nurse coach, the patient needed to do that. Patients seeing specialists needed to make sure that the specialist information came to the primary care doctor. The medical homes were structured to accommodate walk-ins, so urgent care visits in Emergency Departments were not covered until after hours. There were other rules as well.
There are rules for doctors and hospitals too. To participate in good standing, they had to develop and sign documented care plans for patients, so patients and physicians could know what to expect. They had to be able to exchange clinical information so care could be better coordinated.
Patients failing to follow any of these rules would receive “strikes,” and three strikes would land the patient in health care timeout for a year, back to the original health plan, with more choice but 35 percent more cost.
Dr. Reeves' numbers were striking. 97 percent of the group signed up for the plan, and only one person struck out. Hospital days dropped 55 percent. Advanced images dropped 35 percent. Health improved and costs plummeted.
Employers are waking up, and are tying stronger incentives to approaches that get results. On the hook for exorbitant health care costs, employers and employees are game to know who delivers value and what works. They want good care for their families without financial peril. And they want help orchestrating that process without financial conflict.
More employers are making this shift. Broad-spectrum medical management organizations see this as an opportunity to succeed by bringing health care back into balance.
This article first appeared on Care and Cost.