Tag Archives: patient protection and affordable care act of 2010

The Most Dangerous Place In The World

One Friday afternoon three years ago, Harvard Professor Ashish K. Jha found out his father had been taken to “one of the most dangerous places in the world.” Knowing as I do the energetic and courageous Professor Jha, I pictured a more senior version of him sky diving or climbing Mt. Katahdin. Unfortunately, the reality was far more banal, though still dangerous — Dr. Jha's father was taken to an American hospital.

The good news is Dr. Jha's father made a full recovery after only a few days in the hospital. The bad news: at least three potentially harmful errors occurred during those days. “On Saturday afternoon, he was given an infusion of a medicine intended for another patient — an infusion that was stopped only after I insisted that the nurse double-check the order,” recounts Dr. Jha. “After she realized the error, she tried to reassure me by saying, 'Don't worry, this happens all the time.'”

Indeed, Dr. Jha agrees this “happens all the time,” but it's not reassuring to him at all. In addition to being a concerned son, the professor is an expert in patient safety. He knew only too well the dangers his father faced — the legions of rampant errors, accidents and infections in hospitals throughout the United States.

The safety problem is an open secret among people in the health care industry. “When I tell this story, most of my colleagues shake their heads, but they are rarely surprised. We have come to expect such failures as a routine part of health care,” says Dr. Jha. The statistics are staggering. Each year, one in four people admitted to a hospital suffer some form of harm, and more than 500 patients per day die.

Dr. Jha has three recommendations. First, he calls for a better approach for tracking harm in the hospital. For a variety of reasons, this is not as easy as it should be.

Second, he says that hospitals need to feel the financial consequences of providing unsafe care. “A large proportion of hospitals have not adopted cheap and easy interventions that substantially reduce harm,” he points out.

Why is this? For one thing, the financial incentives aren't there. Most hospitals get paid for all the work they do, regardless of whether it helped or harmed the patient. The more they do, the more they make. There have been efforts to address this nonsensical financing system by paying hospitals for achieving the right outcomes for patients, including in the Affordable Care Act. But a recent study by Catalyst for Payment Reform found that only 11 percent of payments to hospitals or doctors are in any way dependent on good quality or safety.

Professor Jha's third recommendation is to create accountability for patient safety: “Senior health care leaders have to feel that their jobs depend on delivering safe care.” I would add another level of accountability implied but not stated in this recommendation: accountability to the American public. Hospital performance data should be publicly available to consumers, so we can choose doctors and hospitals with the best records. Hospitals that fail should lose market share. Last year, my organization, The Leapfrog Group, initiated one such effort, the Hospital Safety Score, a letter grade rating the safety of 2600 hospitals, which Dr. Jha advises us on. The Score is available to the public for free on our website or as an app, and it holds promise for driving a new market for safe care.

The Hospital Safety Score is useful to consult before you or your family members are admitted. But what should you do when you're already in the hospital and worried sick? Every hospital inpatient in America should navigate right now to this just-published AARP Magazine article and its virtual hospital room. The magazine noted features used in safer hospitals that all of us should look for in our own hospital. Among them:

  • readily available faucets with infrared lights that remind people entering the room to wash their hands when they see a patient;
  • IV poles, bed rails and faucets made with copper alloys, which prevents transmission of germs;
  • sensors that alert nurses when patients are attempting to get out of bed;
  • linen closets designed so staff can replenish supplies without having to enter the patient's room, which minimizes the spread of infection and disruption of the patient's rest.

The article also notes how safer hospitals use electronic systems for managing prescriptions — the best known way to prevent the kind of error Dr. Jha encountered during his father's hospital stay.

No doubt hospital leaders will read the AARP coverage without much surprise; all of this is well-known among clinicians and taught and studied throughout the health sciences. The premier textbook on patient safety advises most of what AARP found in its observations of excellent hospitals. Yet, too many hospitals still don't have the right precautions in place, and most consumers don't know to look for them. Until families make it clear to hospitals that safety matters to us, none of us, not even Harvard professors, can depend on safety when the ambulance arrives.

This article first appeared on Forbes.com.

19 Specific Taxes Directly Related To Healthcare Reform

Introduction
As we approach April 15 and many of us are thinking about our taxes, we are starting to notice some tax changes and many of these are related to healthcare reform, i.e. the Patient Protection and Affordable Care Act of 2010 (PPACA). Whether or not you are “for” or “against” healthcare reform as currently legislated, you will definitely feel the impact of some new taxes.

This article attempts to identify and list the taxes that are directly related to the Patient Protection and Affordable Care Act. This article is intended to list and identify taxes associated with healthcare reform — it is not intended to take any formal position for or against healthcare reform. In fact, the author has strong opinions that the US healthcare system is desperately in need of serious healthcare reform and that many aspects of the current reform approach outlined in the Patient Protection and Affordable Care Act make serious attempt to address some of the key issues.

Background
Based upon the count of many experts, there appear to be 19 specific taxes or increased taxes directly related to healthcare reform, estimated by some experts to total $500 billion over 10 years. I have ranked the taxes from largest to smallest, with a description of the tax and when it was effective or will be effective for those not yet in effect.

Summary of PPACA Related Taxes

  1. Surtax on Investment Income ($123B): By far the largest tax and going into effect January 2013, this is a new 3.8% surtax on investment income for households with more than $250,000 income.1
  2. Increase in Medicare Payroll Tax ($87B): Beginning January 2013, this tax increases the Medicare employee and self-employed tax on wages in excess $200,000 for an individual/$250,000 for a family by 0.9%.2
  3. Mandate Tax ($65B): Beginning January 2014, any individual without a qualified health plan will be subject to an income surtax.3 In addition any employer not offering health coverage, and at least one employee qualifies for a health tax credit, will be subject to a tax. Any employer requiring a waiting will be subject to an additional tax.4
  4. Tax on Health Insurers ($60B): Beginning January 2014, all health insurance companies and health plans are subject to a federal premium tax, which phases in until 2018.5
  5. Excise Tax on Comprehensive Health Insurance Plans ($32B): Beginning in January 2018, there will be a 40% tax on “Cadillac” health insurance plans.6 Cadillac health insurance plans are those with very rich benefits and are determined by a comparison to an inflation adjusted premium level.
  6. “Black Liquor” Tax ($24B): This is a tax on a special type of bio-fuel.7 Tax in effect during 2007 – 2009, ended in January 2010 as part of healthcare reform bill.
  7. Tax on Innovator Drug Companies ($22B): $2.3 Billion annual tax on the industry imposed relative to sales made that year. Began in January 2010.8
  8. Tax on Medical Device Manufacturers ($20B): Beginning January 2013 there is a 2.3% excise tax on all items >$100.9
  9. High Medical Bills Tax ($15B): Beginning January 2013, the threshold for deducting high medical bills was increased to 10% of adjusted gross income.10
  10. Flexible Spending Account Cap ($13B): Beginning January 2013, the formerly unlimited FSA is now capped at $2,500. This tax has been called the “special needs kids tax” since this eliminates the option of families with special needs children to tax effectively pay for tuition for these children.11
  11. Medicine Cabinet Tax($5B): As of January 2011, Health Savings Accounts(i.e., HSA) are no longer able to purchase non-prescription, over-the-counter medicines other than insulin.12
  12. Elimination of Prescription Drug Subsidy($5B): As of January 2013, employers no longer able to deduct prescription drug subsidy for coordination with Medicare Part D drug program.13
  13. Codification of “economic substance doctrine” ($5B): Beginning January 2010, new provision permitting the IRS to disallow legal tax deductions when the IRS deems the action lacks “substance.”14
  14. Tax on Indoor Tanning Services ($3B): Beginning July 2010, new 10% excise tax on indoor tanning salons.15
  15. HSA Withdrawal Tax Increase ($1.4B): Beginning January 2011, taxes for withdrawals were increased from 10% to 20%.16
  16. Health Insurance Executive Compensation Limit ($0.6B): Beginning January 2013, PPACA establishes a $500,000 limit for annual executive compensation.17
  17. Blue Cross Blue Shield Tax Increase ($0.4B): Beginning January 2010 a special tax deduction is permitted only if loss ratio is greater than 85%.18
  18. Excise Tax on Charitable Hospitals (minimal): Beginning January 2010, new $50,000 tax on hospitals if they fail to meet specific rules established by CMS.19
  19. Employer Reporting of Health Insurance on W-2 (minimal): Requires employers to include additional information on W-2’s regarding health insurance plans.20

Bottom Line
Although there may be many well intended uses for these taxes, it is clear that healthcare reform has significantly increased tax revenues. The outstanding question remains, will the Patient Protection and Affordable Care Act reduce the cost of health care, increase the access to care, and improve the quality of care for everyone? These were and have been the primary objectives of any healthcare reform effort. As we as a country look forward to our financial futures, we need to carefully assess the impact of health care reform, make modifications where appropriate, and refocus on the key objectives to be sure we achieve what we all know to be the key issues at hand: reduce costs, improved access, and maximum quality of care.

1 Reconciliation Act, pages 87-93.

2 Reconciliation Act, pages, 87-93, 2000-2003.

3 PPACA, page 317-337.

4 PPACA, Pages 345-346.

5 PPACA, Pages 1986-1993.

6 PPACA, Pages 1941-1956.

7 Reconciliation Act: Page 105.

8 PPACA, Pages 1971-1980.

9 PPACA, Pages 1980-1986.

10 PPACA, Pages 1994-1995.

11 PPACA, Pages 2388-2389.

12 PPACA, Pages 1957-1959.

13 PPACA, Page 1994.

14 Reconciliation Act, Pages 108-113.

15 PPACA, Pages 2397-2399.

16 PPACA, Page 1959.

17 PPACA, Pages 1995-2000.

18 PPACA, Page 2004.

19 PPACA, Pages 1961-1971.

20 PPACA, Page 1957.

So What Is the Actuarial Value Of My Health Benefit Plan?

Introduction
Now that health care reform is gradually rolling out into the market, the concept of the “actuarial value” of a specific set of benefits is increasingly important. The Patient Protection and Affordable Care Act of 2010 defines four metallic categories of benefit plans ranging from Bronze to Platinum. The actuarial value of these categories range from 60% for Bronze increasing by 10% for Silver, Gold and capping out at Platinum at 90%. The benefit plans offered through the public exchanges will be required to offer benefit plans that are valued within ±2% of each of the metallic levels. This limitation is critical to benefit plan sponsors as they evaluate their current benefit plans.

Actuarial Value Defined
The actuarial value of a specific health plan is the ratio of net value of the actual benefits to the value of these same benefits without copays, deductibles, limits, and/or coinsurance or other items paid for by the individual covered under that plan. For example, in the case of a plan with an actuarial value of 70% (i.e., the Silver plan), this suggests that 30% of the cost is the responsibility of the individual and 70% is paid for by the health plan or carrier involved. Similarly a Gold plan (i.e., 80%) would cover 80% of the cost with the individual responsible for 20%.

As long as the plan has an actuarial value within 2% of the metallic target it would qualify for that metallic level. For example, a plan with an actuarial value in the range of 68% to 72% would qualify as a Silver Plan. A plan with a value outside of the 2% range would not quality as a specific metallic plan and could not be offered. As a result, it is critical to be sure you know the actuarial value of your plan and what metallic plan it qualifies for.

Actuarial Cost Model
The primary tool used to derive the actuarial value of a specific set of benefits is the actuarial cost model. This is a tool used by actuaries which presents detailed utilization, unit cost information, Per Member Per Month cost information, value of copays/ deductibles/ coinsurance, etc. The actuarial cost model typically includes assumptions for each of the major service types which could include as many as 50 or 60 categories of service. The standard definition used by our company includes the following categories:

Hospital Inpatient
  Medical Stays
Surgical Stays
Pediatric Stays
ICU/CCU
Neonatal ICU
Behavioral Health – Mental Health
Behavior Health – Substance Abuse Detox.
Behavioral Health – Rehabilitation
Maternity – Mother (Vaginal)
Maternity – Mother (C-Section)
Maternity – Well Newborn
Maternity – Other than delivery
Out-Of-Area
Skilled Nursing
Total – includes mat and snf
Hospital Outpatient
  Emergency Room
Outpatient Lab & Path Facility
Outpatient Surgery – Hospital Based
Outpatient Surgery – Free standing
Outpatient Surgery – Other
Home Health
Partial Day – Rapid Treatment Unit
Partial Day – < 24 Hour Observation Bed
Partial Day – Behavioral Health – Mental Health
Partial Day – Behavioral Health – Substance Abuse
Other Outpatient (PMPM)
Out-Of-Area (pmpm)
 
Radiology & Chemotherapy (Non-IP)
  CT/MRI/Nucl/Angio – Professional
CT/MRI/Nucl/Angio – Technical
Mammography
Radiation Therapy
Other Radiology – Professional
Other Radiology – Technical
Chemotherapy Services – Facility
Chemotherapy Services – Other
Out-Of-Area (pmpm)
Total
Physician Services – Primary Care
  Primary Care Surgery
IP Visits – Primary Care
Office Visits – Primary Care
Emergency Room Visits – Primary Care
Lab & Path – Primary Care Office
Consults – Primary Care
Immunization & Injection – Admin
Preventive Services
Cardiology – Primary Care
Pulmonology – Primary Care
Allergy – Primary Care
Behavior Health – Primary Care
Primary Care Management Fee
Total
Physician Services – Specialist
  Inpatient Surgery
Outpatient Facility Surgery
Office Surgery
Anesthesia Services
Inpatient Visits – Specialist
Inpatient Visits – Behavioral Health (Psych/Sub Abuse)
Inpatient Visits – Newborn
Office Visits – Specialist
ER Physician Visits
Radiology – Inpatient Professional
Lab & Path – Specialist Office
Lab & Path – Inpatient Professional
Lab & Path – Outpatient Professional
Consults – Specialist
Immunization & Injections – Serum
Physical Therapy
Speech Therapy
Occupational Therapy
Obstetrics – Delivery (Vaginal)
Obstetrics – Delivery (C-Section)
Obstetrics – Other
Well Woman Exams
Cardiology – Specialist Services
Pulmonology – Specialist Services
Allergy – Specialist Services
Neurology
Dialysis
Outpatient Behavioral Health – Specialist Services
Other Medicine
Out-Of-Area (pmpm)
Total
Prescription Drugs
  Generic
Formulary – Brand Name
Non-Formulary – Brand Name
Mail Order Drugs
Total
Other Services
  Ambulance
Appliances & Prosthetics
Chiropractic Services
Podiatry Services
Vision Services – Exam
Visions Services – lenses, frames, etc.
Total

Categories are often modified based upon the needs of the actual situation. However, for each of the specific categories of service, the critical assumptions are presented. These assumptions are for a specific population, managed in a specific way, with specific demographics, assumed charge levels, assumed health status, and assumed benefits.

An example of a specific set of utilization and cost assumptions is shown in the following table:

Illustrative Cost Model For Hospital Patient Services

Hospital Inpatient Annual Admits Per 1000 Length Of Stay Annual Bed-Days Per 1000 Average Cost Per Day N/A Average Cost Per Stay PMPM Claim Cost
  Medical Stays 21.20 3.90 82.68 $4,522.82 N/A $17,639.01 $31.16
Surgical Stays 14.50 4.45 64.53 $8,308.59 N/A $36,973.24 $44.68
Pediatric Stays 7.50 4.20 31.50 $5,628.40 N/A $23,639.29 $14.77
ICU/CCU 4.50 4.30 19.35 $9,045.65 N/A $38,896.28 $14.59
Neonatal ICU 2.20 5.50 12.10 $4,116.77 N/A $22,642.26 $4.15
Behavioral Health – Mental Health 2.50 6.50 16.25 $3,483.58 N/A $22,643.26 $4.72
Behavioral Health – Substance Abuse Detoxification 1.10 5.40 5.94 $1,809.13 N/A $9,769.30 $0.90
Behavioral Health – Rehabilitation 0.30 10.50 3.15 $1,340.10 N/A $14,071.00 $0.35
Maternity – Mother (Vaginal) 11.60 2.35 27.26 $5,156.02 N/A $12,116.64 $11.71
Maternity – Mother (C-Section) 3.90 3.95 15.41 $6,030.43 N/A $23,820.20 $7.74
Maternity – Well Newborn 15.50 2.20 34.10 $1,356.85 N/A $2,985.06 $3.86
Maternity – Other than delivery 0.91 2.10 1.91 $6,017.03 N/A $12,635.76 $0.96
Out-Of-Area 4.30 3.50 15.07 $7,236.52 N/A $25,327.81 $9.08
Skilled Nursing 1.80 11.45 20.61 $1,742.12 N/A $19,947.32 $2.99
Total – includes mat and snf 91.81 3.81 349.85 $5,202.06 N/A $19.821.75 $151.66

The utilization is shown on a “Per 1,000” basis and the claims cost is shown on a PMPM basis. PMPM stands for per member per month. The total shown above for Hospital Inpatient suggests that the overall inpatient hospital cost per covered life would be $151.66 per month prior to any offsets for deductibles, copays, coinsurance, provider discounts, medical management, demographic adjustments, etc. Similar assumptions are available for the rest of the categories previously shown. This information was developed for a typical commercially insured under age 65 population.

Developing Actuarial Values
Once the benefit design is determined, the information from the actuarial cost model is adjusted for variation in benefit design with the overall value of the benefits determined. The ratio of the value of the benefits to the overall value of covered services is the actuarial value of the benefit plan.

This is a fairly complex process. The government has developed their version of this process and has published a Federal AV Calculator. The final version of this was released on February 20, 2013. Most consulting firms have developed their own calculator to help their clients understand the process prior to the release of the Federal AV Calculator. Since the final calculator was released, there continues to be some serious concern by health actuaries as to the reasonableness of the federal calculator. We continue to use our own AV Calculator in addition to the Federal AV Calculator to better help our clients understand what variations in benefits lead to various AV values. This is a dynamic process with varying opinions depending upon the various plan designs and resulting AVs.

The following chart shows an illustrative result using our firm's AV calculator. This was prepared for a specific plan design in a specific geographic region. It is illustrative only to show the various components of cost variation.

View Chart

The above table shows each of the key variables affecting the actuarial value. Each is important to appropriately incorporate into the calculation. The starting Claim Cost in the first column is determined from the actuarial cost model previously discussed and will be adjusted for:

  • Geographic region
  • Health status
  • Smoking/non-smoking
  • Medical management
  • Utilization and cost inflation trend
  • Demographics

The first adjustment reflects the overall nature of the health benefit plan. A richer plan is associated with higher utilization, a lesser benefit plan is associated with lower utilization. The copay/deductible adjustment either raises or lowers the starting claims cost. The next step eliminates any costs that are excluded from the eligible expenses.

This particular example excluded brand drugs.

The next step evaluates the value of various copays (i.e., office visit copays, pharmacy copays, etc.). These are deleted from the value of the benefit costs since they are paid by the individual. Next coinsurance and deductible values are deducted. This example was developed for a $1,750 deductible 80% coinsurance plan. The last two adjustments are for the value of a family deductible limit and the out-of-pocket limit yielding the final cost. In this situation the final cost was $218.30. This was compared to the net value of benefits after excluded benefits (i.e., $309.85) with a ratio of 70.45% or a “silver” plan per our model.

Assuming this was consistent with the “authorized AV calculator” this plan could become a qualified plan under the Patient Protection and Affordable Care Act.

Complications
As you can see there are many different steps in the process to determine the actuarial value of a benefit plan. There are even more assumptions that have to be made to obtain these estimates of value. Armed with this information the plan sponsor can make informed decisions as to what benefit plan is appropriate and what they want to offer, if any.

These calculations are frequently based upon considerable amounts of professional judgment. Not all actuaries think alike so there oftentimes can be professional differences of opinion. It is critical that the plan sponsor obtain professional input they can trust and rely upon.

The American Academy of Actuaries is the primary organization granting credentials that are relied upon in the industry. One approach to obtaining relevant and reliable input is to insist that your advisor is a qualified health actuary with credentials from the Academy. In most situations, this individual would have both an FSA and MAAA credential and be a recognized member of the Society of Actuaries Health Section. Others are qualified to provide this type of input but valid actuarial credentials provide increased assurance that good input is being offered.