Tag Archives: Patient Protection

A Positive Comment (Finally) on Obamacare

Healthcare reform is certainly receiving its share of abuse. Whether the conversation is local or national, private or public, one is sure to hear how Obamacare is nothing but bad news — job destruction and the end of one’s ability to direct personal healthcare. Rarely do you hear a positive comment.

Until now, that is.

Read on to learn more about a market development that actually looks consistent with Obamacare’s objective of making healthcare delivery more efficient and less expensive.


One of the changes found in the voluminous law is the requirement for the government to begin considering the quality of care when making reimbursements under its insurance program, Medicare. A section of the law creates incentives for providers to pay more attention to the quality of their care, to receive a greater payment for their services. These incentives encourage what has become known as accountable care organizations, or ACOs. ACOs are not necessarily new legal entities, but rather are descriptions of healthcare delivery systems that place an emphasis on quality of care to reduce expense.

Seems like a reasonably good idea, but how do these same quality efforts work in the private commercial market? Not so well.

First, how can the initiatives be tracked when the patients are insured by third-party carriers? Who is rewarded when a provider does a good job, limiting readmissions and health costs? Who even knows when they do a good job? Second, how does community rating distinguish between those providers applying quality low-cost care and those running up the tab to enrich their bottom line?

Fast answer: Quality-care incentives being encouraged by Medicare are largely lost, and certainly not encouraged, when patients are covered by a fully insured or fixed-cost insurer.

What about high-deductible plans that match with the providers’ quality, efficiency and health efforts? No, these, too, are limited by rules imposed by Obamacare on the fixed-cost insurance market.

Community health plans

If the door is shut on providers trying to apply ACO strategies to the fixed-cost commercial market, what can be done? After all, if providers have reworked their businesses to focus on quality and efficiency, it seems illogical to apply these efforts in only the Medicare reimbursement market.

Fortunately, innovation is finding its way to provider systems, under the name of “community health plan.” A community health plan is a network, established by a regional medical provider, offering members of its community superior and affordable healthcare through a plan using only that provider or other like-minded regional providers. These new community health plans overcome the obstacles found in the fixed-cost insurer market and enable all the quality-care efficiencies to be applied in the commercial market.

Think about it: Community health plans were first developed because providers wanted traction with their local communities. They wanted local patients and buyers to call and buy from them first. That’s why many have already adopted a community health plan or at least looked into one years ago.

What providers found, however, was mountain-sized red tape, inconsistent application to their objectives and new rules related to Obamacare that made the idea of a community health plan a bad one.

Enter the stop loss group captive, or “medical captive.” A medical captive is a reinsurance vehicle that pools a layer of self-funded health benefit risk.  The medical captive solution enables providers to offer their community a health plan immediately. No regulatory red tape. Provider have a commercial market health plan where quality-care initiatives can be objectively monitored so cost savings and efficiency is not a guess or lost to a third-party insurer. Cost-saving rewards arising from quality and efficiency can be measured quarterly if not monthly under the medical captive approach. A provider’s cost-saving ideas receive real-time feedback.

The medical captive is built on a self-funded chassis that also delivers benefits over the traditional market. The post-Obamacare insurance environment includes community rating and restricted plan designs, but self–funded insurance programs avoid these potholes. Put another way, a self-funded insurance program fits nicely with the provider’s ACO efforts and allows most of the Medicare-inspired initiatives to be realized in the commercial market. So long as the medical captive is the financing vehicle being used by the provider’s community health plan, the disconnect between Obamacare’s quality initiatives and the commercial insurance market are resolved.


Hospitals are attracted to the medical captive as a form of community health plan for several reasons. First, the narrow network is gaining ground as a viable solution for keeping medical expenses under control. Employers and employees are now receptive to limiting choice to the local provider in exchange for a lower price. This is good news for the hospital without an existing health plan that is looking for traction with its local employers. The hospital-sponsored narrow network is an approach that is simple to implement with the medical captive. In addition, hospitals with existing community health plans of the fixed-cost variety now are looking to add the medical captive as another choice. Frequently, the hospital’s investment in claim paying services, network and, of course, ACO strategies seamlessly integrate into the medical captive.

Larger physician practices find themselves in a place similar to that of many hospitals in their quest to retain and grow their customer base. Offering a health plan with a capitated physician service component (with a set fee per person, no matter what care they need) is easily accomplished with a medical captive. Physician practices can quickly distinguish their practices from the rush of hospitalists with a health plan that incorporates much of their treatment philosophies, including ACO solutions. The flexibility of the medical captive built on a self-funded platform enables creativity in plan design and buyer incentives that mesh nicely with efforts by physician practice efforts directed at reducing high-cost diseases. Hospital services can then be delivered to the buyers through the health plan on a contracted basis. Measuring the effectiveness of the physician practice efforts at cost control is readily verified by reference to the medical captive underwriting results. It’s not hard to understand why larger physician practices are quickly moving to the medical captive as part of the solution for reinventing healthcare delivery.

Shared objectives

Everyone agrees with the objective of lowering the cost of healthcare. Not everyone, however, agrees with or understands what goes into the cost of healthcare. The cost and purchase of healthcare is more complicated than buying a pair of shoes, unfortunately. Most consumers do not see what it actually costs to receive a medical procedure or purchase a medicine. This is because many do not directly pay or see the cost of the care, but rather the buyers pay a fixed cost or premium and then enter a buffet of healthcare providers. Cost efficiency is a low priority and only mentioned at renewal time or when the overall price trend for the fixed cost interferes with the buyer’s budget.

Looking at Obamacare, we should be encouraged that healthcare providers are growing closer to the financing of care. If the law is encouraging the formation of new healthcare financing mechanisms that offer objective and immediate feedback on quality, cost-saving solutions, we are starting to reach our shared objective.  When buyers and sellers take even one step closer to achieving the same goal, healthcare starts looking more like buying a new pair of shoes.

How to Prepare for ACA Transitional Reinsurance Costs

Employer and other plan sponsors should start working now with their insurers, administrators and advisors to understand the implications of and their options for addressing the “Transitional Reinsurance Program” and other new Patient Protection & Affordable Care Act (ACA)-associated cost and plan design changes  so that they are prepared to finalize and implement their health plan design, contracts and arrangements in time to meet the accelerated deadlines for notifying participants of plan changes and otherwise implement their plan changes for the upcoming plan year.

The impending imposition of  Transitional Reinsurance Program assessments are only one of a myriad of new and pre-existing federal health plan rules and associated market changes impacting the design of employer and union-sponsored health plans.  Since ACA now also requires 60 days advance written notice of material health plan changes, .  When making these decisions, employer and other health plan sponsors and their advisors, administrators and insurers  should not only focus on the technically new mandates but also the allocation of fiduciary and other responsibilities, liabilities and other plan and services agreements terms.  Plan sponsors and their fiduciaries historically have underappreciated the significance of these allocations or presumed that their vendor contracts allocate responsibility to the service providers and vendors to match the sales pitch.  Always rarely the case, the changes in the marketplace and the law make it even more likely that sponsoring employers and their leaders of even plans that carefully reviewed and negotiated these responsibilities in their past contracts need to carefully look at these plan and contractual terms carefully.

The Transitional Reinsurance Program is one of a series of new ACA-imposed assessments that can impact the plan design and costs.    Proper understanding of these rules is critical for plan sponsors and their fiduciaries to ensure that they don’t unintentionally assume significantly greater liability for their self-insured health plans in an attempt to design around a relatively small by comparison ACA assessment.

Section 1341 of the Patient Protection & Affordable Care Act (ACA) requires the establishment of the reinsurance program to provide for stabilization of funding for exchanges.  Funding for the costs of the program is accomplished through amounts assessed upon insurers and self-insured plan third party administrators.  ACA § 1341 accomplishes this by providing for:

  • The establishment for each State of a transitional reinsurance program stabilize premiums for coverage in the individual market from 2014 through 2016;
  • Requiring all health insurance issuers and third party administrators on behalf of self-insured group health plans, to pay contributions to support reinsurance payments that cover high-cost individuals in non-grandfathered plans in the individual market.

Registration is now open for a series of webinars that the Department of Health & Human Services will host on “The Transitional Reinsurance Program: Contributing Entities and Counting Methods” on July 14, July 18 and July 23, 2014 from 2:00 p.m. – 3:30 p.m. EST.  The upcoming HHS webinars will cover the same information.  They will focus on reinsurance contributions including who is a contributing entity and how a contributing entity can calculate its annual enrollment count to determine reinsurance contribution amounts. The intended audience for this webinar is health insurance issuers, self-insured group health plans, third party administrators (TPAs) and administrative services-only (ASO) contractors.  To register for the HHS webinar and to obtain additional information see here.

Understanding how the Transitional Reinsurance Program assessments will be calculated is one of many critical steps in making plan design changes.  When considering whether to take advantage of options for minimizing these assessments, however, employer, union and other plan sponsors need to consider whether the liability and other consequences of meeting requirements for avoidance of the assessments is warranted by the anticipated savings.  With superficially it might seem desirable to avoid the payment of a few dollars per covered lives associated with the assessment, employers and other sponsoring organizations and the officers or other leadership employees involved in plan design or administration should critically review the effect of meeting these requirements specifically, as well as their proposed vendor contracts and associated plan documents and communications on their personal and organizations’ fiduciary and other liabilities.  To the extent that existing or expanded fiduciary liability cannot be avoided, it will be critical that the sponsor and its leadership ensure that proper steps are taken to select, credential, bond, and appoint the persons who will be or help carry out fiduciary or other plan-related responsibilities.  Additionally, most plan sponsors will want to consider exploring the availability of fiduciary liability insurance coverage to help mitigate the potential liability risks associated with plan sponsorship.

Healthcare Underwriting And Rating Under the Affordable Care Act

The health care reform act, known as the Patient Protection and Affordable Care Act (PPACA), was quickly passed and unfortunately includes many inconsistent and incomplete provisions. Major fix-ups are being incorporated to make it possible to actually enforce (e.g., loss ratio definitions, loss ratio oversight, integration with insurance departments, etc.). Some new provisions are being included, for example, the August 2011 addition of copay free contraceptives. Although the country is politically polarized regarding the Patient Protection and Affordable Care Act, it actually does include some significant improvements and benefits over what we have today.

The Patient Protection and Affordable Care Act introduced several benefit changes including:

  • No copays, deductibles or limits on preventive services
  • Basic definitions of benefit levels (i.e., bronze, silver, gold, platinum)
  • New benefit requirements (i.e., maximum child age, contraceptives, etc.)

The Patient Protection and Affordable Care Act also formally introduced comparative effectiveness and value based benefits to improve the cost of care. As time passes, we anticipate other additions. Most of the changes increased near term costs.

The Patient Protection and Affordable Care Act introduced restrictions on several aspects of underwriting and rating:

  • Medical underwriting for the purpose of setting rates (i.e., no more medical questionnaires)
  • Use of ancillary information to set rates (i.e., prior pharmacy use)
  • Rejecting coverage for prior medical reasons
  • Gender-specific premium rates or premium rating factors, even though females generally have greater costs than males.
  • Breadth of rate differences (i.e., ratio between high and low)

For at least the near term, the Patient Protection and Affordable Care Act permits other rating practices that are in place:

  • Age rating (i.e., use of age based rate differences)
  • Group experience rating (i.e., use of prior creditable experience to set rates as long as they aren’t based upon specific experience of individuals)
  • Standardized rate tables for use in exchanges
  • Use of 2-tier rating structure (i.e., single vs Family coverage). The regulation appears to outlaw the very typical 3-tier rates (i.e., single, 2Party, Family).

On the horizon we expect additional market movement to Value Based Benefit design. These have been used to somewhat of a limited extent to date, but the Patient Protection and Affordable Care Act encourages the use of these as an attempt to reduce health care costs and to “bend the trend downward. There is limited evidence these programs accomplish this, but there is great hope that it will. Groups continue to explore whether or not there are advantages by
paying the penalty and terminating their benefit programs. Many have concluded that in this economy they have no choice. Exchanges are increasing in popularity and the use of private exchanges to compete with the public ones is emerging in more markets. Many experts believe that the individual mandate to purchase health insurance will be tossed out, although this is still up in the air.

One of the big items impacting the health care system for the older and less fortunate individuals in the country is the Medicare professional payment levels. Medicare regulations provide the government with an opportunity to reduce payments (i.e., currently estimated at more than 30%). This adjustment has been deferred for several years, primarily from political fallout reasons and a desire to not disrupt the system. The fiscal challenges facing the government right now likely increase the probability that some adjustment such as this will occur. This will have a significant impact on the health care system with the likely result of increasing charge levels for everyone else. In addition to the financial impact of raised fees, it will likely impact the ability to access providers.

The Patient Protection and Affordable Care Act has significantly changed the way health plans do business and will do business. This creates considerable uncertainty and risk for the health plans. Since health plan costs have increased far more rapidly than anyone wishes, any further influence to increase health care costs is unwanted by most. Very recent reports suggest that US health care will exceed 20% of GDP in the very near future. How much more
can we absorb? No one really knows, but we are so close to that point that other changes are needed to help stop the rise.