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How Reform Could Affect Four Key Populations

A new article in Health Affairs by Joseph Newhouse, a professor of health policy at Harvard University, examines how the health care overhaul will affect four patient populations.

The article was based on a presentation given at UC-San Francisco, and the article and lecture received funding support from the California HealthCare Foundation, which is the publisher of California Healthline.

For his analysis, Newhouse split the U.S. population according to type of health coverage — or lack of coverage — noting that while younger Americans might benefit from reform, Medicare beneficiaries may experience new challenges.

The Uninsured and People Covered by Medicaid

According to Newhouse, roughly 90 million U.S. residents are covered by Medicaid, are presently eligible or will be eligible in 2014 to apply for the program. Beyond creating funding challenges for states, Newhouse notes that the impact of new Medicaid beneficiaries will vary by state and could force federal and state governments to square off on funding and even audit individuals covered by Medicaid to establish match rates.

The Medicaid expansion also could affect access to care for current and new beneficiaries. Although the overhaul in 2013 and 2014 creates incentives for primary care providers to treat Medicaid patients, there is no similar bulwark for specialist payment rates, Newhouse notes. With fewer specialists willing to treat Medicaid beneficiaries, many newly insured patients may continue to seek out care at safety-net providers, leading to a surge of demand and need for community health centers to add staff.

People Covered by Individual and Small-Group Insurance

Analogizing the health care overhaul to refurbishing a home, Newhouse posits that the “house would be totally gutted,” as new protections are instituted for individual and small-group insurance and as many as 20 million individuals gain coverage through that market.

Newhouse thinks that the individual mandate, as well as new insurance restrictions that nix exclusions and require a level of minimum benefits, will cure this market of “dysfunction” by creating a healthier pool of enrollees and reducing the “phenomenon of adverse selection,” which forces many individuals with chronic conditions to pay extremely high premiums or go without coverage altogether.

Another result of reform is that some individuals who suffered “job lock” — and were loath to switch employers out of fear of losing health coverage — may now change firms or strike out as independent contractors, Newhouse notes. Meanwhile, about 15 million U.S. residents who are currently uninsured will be required to obtain health coverage under the individual mandate, which takes effect in 2014.

The overhaul also may shake up the role of insurance agents, who have long acted as brokers for this market and take a commission on coverage sales, further driving up distribution costs. Already, some agents fear they will become an “endangered species,” and their industry’s future may be determined by the structure of the new insurance exchanges.

People Covered by Midsize and Large Employers

The 45% of U.S. residents who have health insurance through midsize and large employers will likely be the “least affected” by the reform law, according to Newhouse. Most larger firms currently offer health coverage and are expected to continue to do so. Many firms also self-insure and have a diverse patient population, eliminating fears about adverse selection.

However, a new tax on insurers to help fund the overhaul might be passed along to people covered by employer-based insurance in the form of higher premiums. The so-called “Cadillac tax” on high-premium plans, which would take effect in 2018, also may have implications for this population depending on how the measure is implemented.

People Covered by Medicare

Beneficiaries of Medicare, which covers about 45 million U.S. residents, can expect several positives to come from reform, Newhouse notes. For example, the overhaul essentially closes the so-called “doughnut hole” in the Medicare Part D prescription drug benefit and establishes a voluntary long-term care option.

More broadly, Newhouse acknowledges that — for the first time — funding will be shifted from Medicare to subsidize health insurance coverage and other programs for younger people. Taxes from younger workers historically supported Medicare and Social Security for older people since the programs’ beginnings. However, about 50% of the funding for health reform is slated to come from reducing Medicare payments to hospitals, insurers and other health care providers.

As a result, the reform law may have a significant negative effect for Medicare beneficiaries. Medicare Advantage rates are frozen for next year, and MA beneficiaries will likely see benefit cuts. Moreover, the pressure to curb overall Medicare spending is expected to rise across the coming years, particularly as government officials grow increasingly worried about the growing national deficit. The politically undesirable result could be reductions in Medicare payment rates that go beyond expected cuts, Newhouse writes, where Medicare reimbursements to providers fall significantly below payments from commercial insurers. Such changes could lead to a two-tiered delivery system — those covered by Medicare and Medicaid versus those covered by private insurance. Already, more well-off Medicare beneficiaries are turning to concierge medicine programs to secure access to physicians.

Conservatives already have criticized the overhaul for redirecting Medicare funding toward covering younger U.S. residents. The new law “create[s] a new entitlement for a separate group of people rather than strengthening” Medicare, according to Stuart Butler, vice president of the Heritage Foundation. In addition, many elderly U.S. residents are angered by the impending cuts. Their resistance worries some Democrats because seniors typically vote in large numbers, especially during midterm elections. According to the Wall Street Journal, seniors represent “a political force that is disproportionate to their numbers.

Here’s a look at what else is happening in health reform.

Role of State Insurance Officials

  • The National Association of Insurance Commissioners, which includes each state’s top insurance regulator, will handle some of the most difficult decisions related to implementation of the national reform law. The law requires NAIC to draft recommendations or consult on 10 reforms or programs included in reform standard insurance benefits and enrollment forms and regulations for state insurance exchanges. NAIC has divided the responsibilities into different committees charged with developing and voting on specific recommendations (Haberkorn, Politico, 7/22).
  • The debate over the medical-loss ratio under the new health reform law has escalated as officials from NAIC prepare to release a final draft of their work. Under the overhaul, large health plans beginning on Jan. 1, 2011, will be required to spend at least 85% of premiums on medical services and quality improvement, rather than administrative costs or profits. A final draft of NAIC’s medical-loss ratio recommendations — which will be submitted to HHS Secretary Kathleen Sebelius — could be released as early as next month (Abelson, New York Times, 7/23).

Eye on the Insurance Industry

  • A majority of 10 not-for-profit BlueCross BlueShield insurance plans from across the country had more than triple the amount of surplus funds than regulators recommend to ensure plan solvency, according to a report published last week by Consumers Union. The report — which comes as states receive strengthened powers to review potential rate increases under the reform law — recommends that states cap not-for-profit insurers’ surpluses or consider large surpluses when deciding on potential rate increases (Lentz, Reuters, 7/22).
  • Last week, a 25-member bipartisan group of lawmakers sent a letter to Sebelius calling for the soon-to-be launched health insurance exchanges and federal health care website to include information on health insurance agents and brokers. They wrote that agents and brokers have a role “both inside and outside health insurance exchanges” and could serve as a consumer resource when the government’s Web portal — — is finalized on Oct. 1 (Haberkorn, Politico, 7/27).

Spotlight on Maryland

  • Maryland could save $829 million over the next 10 years as a result of the new health reform law, which is expected to halve the state’s uninsured population and supplant state funding for health care programs, according to an interim report issued Monday by Maryland’s Health Care Reform Coordinating Council. The 12-member council was created by Gov. Martin O’Malley (D) to help carry out provisions of the reform law (Walker, Baltimore Sun, 7/26). According to the report, the overhaul is expected to provide health coverage for nearly 400,000 uninsured Maryland residents and slash the state’s uninsured rate from 14% to 6.7% (Pecquet, “Healthwatch,” The Hill, 7/26).
  • Meanwhile, health care groups are urging Maryland state lawmakers to enact a 10-cent alcohol tax to expand Medicaid coverage under the federal health reform law. Groups ranging from AARP to the American Academy of Pediatrics have submitted a proposal to candidates seeking seats in the General Assembly to consider the tax. The groups contend that the tax will lower the state’s health care costs by $249 million and help provide additional health services for individuals with disabilities and those seeking alcohol and drug prevention and treatment programs (Mullin, Baltimore Business Journal, 7/19).

Administration Actions

  • Two weeks after being appointed to the position, CMS Administrator Donald Berwick still is attempting to temper criticism of the circumstances of his appointment and ease concerns regarding comments he made about the British health care system, which some observers have said could affect his ability to do his job. However, Berwick supporters said that he never had a chance to respond publicly to critics because he never had a confirmation hearing. Berwick supporters also are concerned that the anger over his recess appointment could compromise his authority because CMS employees and lobbying groups are aware his tenure could end in 18 months if he is not confirmed by the Senate (Pear, New York Times, 7/26).
  • After several months of trumpeting the success of the new health reform law — which included a large price tag that drew broad criticism from opponents — the Obama administration is scaling back its message before November’s midterm elections to promote the law’s smaller, less-costly provisions that promise quicker benefits. Democrats have demonstrated the approach by promoting certain consumer-friendly initiatives, such as preventive care coverage (Harwood, “The Caucus,” New York Times, 7/26).

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