CPAs & ADVISORS
experience ideas //
ACA, THE EXCHANGES AND HEALTHCARE AFTER 2014
Tom W. Watson, CPA, FHFMA
Managing Partner – Dallas/Waco
WHY ARE WE HERE?
The Uninsured
More than 47.9 million uninsured in the U.S.
90% of the uninsured are below 400% of the poverty level
More than ¾ of uninsured are in a working family
Uninsured individuals have less access to preventive care services
The assumption is this leads to higher costs
Health care costs have increased substantially, causing employers to drop
coverage and individuals to not be able to afford it
Many employers are tired of paying the hidden tax needed to subsidize
today’s health care system
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EMPLOYERS PROVIDING HEALTH INSURANCE
SOURCE: KAISER FOUNDATION
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KEY PROVISIONS OF AFFORDABLE CARE ACT
Requirement to have insurance coverage
Effective January 1, 2014
Penalty for failure to obtain coverage starts that eventually is the greater of
$695/year or 2.5% of household income ($2,085).
The penalty amounts phase in through 2017, and are insignificant in 2014.
Employer requirement to offer coverage
50 or more full-time employees (defined as 30 hours or more per week)
Requirement to offer “affordable” coverage
Penalty ranges from $2,000/employee if no coverage provided (excluding first
30 employees), or $3,000 per employee receiving premium assistance if
coverage is provided but not deemed affordable
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KEY PROVISIONS OF ACCOUNTABLE CARE ACT
Medicaid Expansion
Expands Medicaid to cover all individuals with incomes up to 133% of the
Federal Poverty Level
States are paid 100% (declining to 90% by 2020) of the extra cost of this
expansion
Supreme Court ruling on ACA made this expansion optional, and 26 states have
opted not to expand coverage
Premium Credits and Cost-sharing Support
Premium credits that limit out-of-pocket costs to between 2% and 9.5% of
income for individuals with incomes from 100% to 400% of the FPL
Credits are based on the cost of the “second lowest cost silver plan”
Cost-sharing credits for families up to 400% of poverty level
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KEY PROVISIONS OF ACCOUNTABLE CARE ACT
Key New Taxes
Changes to qualified expenses from HSAs
Increase Medicare Part A tax from 1.45% to 2.35% on wages over
$250,000/$200,000 for married/single individuals
3.8% tax on unearned (i.e., investment) income
Cadillac plan excise tax
Fees on pharmaceutical industry
Fees on medical device industry
Creation of Health Insurance Exchanges
Many, many other provisions
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DELAYED PROVISIONS INCLUDE…..
Delay in cuts to Medicare Advantage Plans
One year delay in employer reporting
IRS rule that allows subsidies to flow through federal exchanges
Delay of Small Employer Health Option
Employer Mandate delay
Self-attestation partially implemented
Delay of individual mandate (only one month)
Allowed insurance companies to continue to offer “canceled” nonqualified
plans
Exemption of union plans from reinsurance fee
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PAYING FOR THE ACA – SPENDING CUTS ($ BILLIONS)
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PAYING FOR THE ACA – TAX INCREASES ($ BILLIONS)
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THE ACA INCOME STATEMENT
(In billions $)
Revenues
Less:
Program Costs
Implementation Costs
$
515
(1,128)
(40)
(1,168)
Operating Loss
Add: Cuts in Medicare and other programs
(653)
716
$
Source: CBO, Dana Forgione
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THE IMPACT ON DOCTORS AND
HOSPITALS
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HOSPITALS – DID YOU KNOW??
The average margin for hospitals in 2013 was less than 2.5%?
Hospitals on average collect:
2% of amounts billed to uninsured patients
20% or less of amounts billed to Medicaid patients
25 to 30% of amounts billed to Medicare patients
Between 30% and 60% of amounts billed to insured patients
See the hidden tax here??
In Texas, hospitals average between 15% and 25% of their net revenue as
bad debts
The average payment increase for hospitals under Medicare and Medicaid
has been less than 2% for the last several years, with some years of real
reductions in payment rates
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THE ACA IMPACT ON HOSPITALS
In the opening round of the ACA discussions, the enemy was the Insurance
Companies
Hospitals should be prepared to be the enemies in phase 2
$$$ - Hospitals are the deep pockets when it comes to Medicare cuts
The ACA included over $150 billion in cuts for hospitals
Implicit promise that coverage will be expanded
ACA requires tax exempt hospitals to conduct a Community Health Needs
Assessment and to implement a Financial Assistance Policy (FAP)
Limitation on “aggressive” collection efforts until proof that FAP does not apply
ACA prevents new physician owned hospitals from accepting
Medicare/Medicaid patients
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TRANSITION OF HEALTH CARE PAYMENT METHODS OVER TIME
Transition Period
(Current)
Prospective Payment
System
(Late
1990s to 2009)
Transition period to
Prospective Payment
System (1990s)
Cost
Reimbursement
(1960s – 1980s)
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•Payment Demonstration
•ACOs
•Bundled Payments
Value-Based Purchasing
System
BUNDLED PAYMENTS – NOT JUST MEDICARE!
Medicare is piloting bundled payment arrangements, but many private
payers are moving full speed ahead
Includes facility fees, physician fees, implants, anesthesia, etc.
Managing device costs are often the key to success
Common procedures
Knee and hip replacements
Coronary bypass graft
Bariatric surgery
Diagnostic cardiac catherizations
Cataract removal
Maternity care
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MEDICARE 2015 UPDATE AND ACA-DRIVEN IMPACT
Hospitals can expect a 1.3% increase in Medicare payments for FY 2015
.4% ACA Productivity Adjustment
.2% ACA required reduction
.8% documentation and coding adjustment
$2 billion in net reduction for 2015 – will be $8 billion next year
Medicare DSH cuts mandated by ACA ($49.9 billion over time)
Value Based Purchasing reduction will be 1.5% ($1.4 billion in incentives)
778 losers and 630 winners in 2014 (defined as greater than .2% impact)
Increase Hospital Readmission Penalty to 3%
Increase utilization of hospital acquired condition program
Potential changes in Medicare wage index, which will impact DRG payment
computation
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HOW ARE HOSPITAL LEADERS REACTING TO ACA?
Generally support the expansion of coverage to reduce bad debts
Many are now concerned that the law will not reduce these to the level
anticipated
Concerned with failure to expand Medicaid
Note that many cuts in the original bill assumed that Medicaid would be
expanded, offsetting these cuts
How will the exchanges really work? Will payment rates be sufficient?
Over the long term, revenue is not going up, so costs must go down
Continued shift to care in an outpatient setting
Focus of many hospital’s capital investments
Urgent care centers and “drug-store” clinics
How will the federal exchanges impact payer mix?
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COST SHIFTING– CURRENT EXAMPLE
Example Health System
120,000,000
100%
100,000,000
Dollars
80,000,000
Cost Paid
60,000,000
85%
Cost incurred
150%
Medicare
Medicaid
Commercial
Exchange
Self Pay
40,000,000
20,000,000
80%
25%
Medicare
Medicaid
Commercial
Exchange
Self Pay
Total
Cost Shift
(7,500,000)
(2,000,000)
15,000,000
(5,500,000)
FEARED PAYER MIX
Example Health System
120,000,000
100%
100,000,000
Dollars
80,000,000
Cost Paid
60,000,000
Cost incurred
85%
40,000,000
233%*
20,000,000
100%
80%
25%
Medicare
Medicaid
Commercial
Exchange
Self Pay
Total
Medicare
Medicaid
Commercial
Exchange
Self Pay
Cost Shift
(7,500,000)
(3,000,000)
13,250,000
(2,750,000)
WHY ALL THE CONSOLIDATION IN HEALTHCARE?
Significant wave of consolidation in health care industry has five primary
drivers:
Perceived need for scale in order to survive uncertain environment
Hospitals and physicians must work together in an accountable care and
medical home model – the same owner makes this easier
Squeeze on access to capital for smaller hospitals
Private equity view growth in segment with guaranteed cash flows and ability
to create economies of scale
General fear of the unknown
Will it continue?
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THE ACA’S IMPACT ON PHYSICIANS
No change in “doomsday” scenario of Sustainable Growth Rate reduction
SGR would reduce payments over 25% for Medicare
Continually “punted” to next year
Physician practice model is changing
The disappearance of independent doctors (nearly 70% employed by
hospitals!)
Partly due to demographics and expanded regulatory actions
Partly due to fear of ACA
Physicians are being asked to provide more preventative care
Accountable Care Organizations
Medical Homes
Severe income squeeze in recent years
Growth in mid-level providers to prop up incomes (i.e., leverage)
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Source: www.medscape.com
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PATIENT ACCESS CONCERNS
If the ACA works as intended, many people that previously didn’t have
insurance will be covered
Social issues aside, there was a self-limiting aspect for access to care when
an individual was fully responsible for their physician visit
In many cases, the emergency room was used as a primary care office because
of this
Will our current health system be able to handle a large increase in volume
when this restriction on care is removed?
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THOUGHTS FROM RATING AGENCIES - 2013
Overall weaker performance after three years of stability
Balance sheets remain stable due to good investment return
Requires the ability to invest in stocks
The reappearance of expense growth outpacing revenue growth
Looking forward:
Anticipate weak financial performance
All rating categories will be affected
No overriding factors to drive up admissions in 2014/15
Anticipate the transition to value based purchasing will be highly disruptive
Rate increases are under pressure (Medicare .7% in 2014!)
Effective boards will aggressively attack expenses and CULTURAL change will be
required. Benefits will have likely have delayed recognition
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VOLUME TRENDS PER MOODY'S
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The Accountable Care Act
IMPACT ON BUSINESSES AND
INDIVIDUALS
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EMPLOYER IMPACT
The requirement to provide coverage is the most significant impact
Most questions remain unanswered. There is anecdotal evidence for yes
and no to each of the following questions:
Will employers drop coverage and elect to pay the penalty under ACA?
How will ACA affect working hours?
Will employers work to keep individuals below 30 hours?
How will the ACA affect job growth?
Will the 50 employee limit stifle expansion?
The bigger issues evolve around reporting and compliance with the law
Structure of health plans to meet minimum coverage and enrollment
standards
Reporting coverage to IRS
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HIGHER TAXES FOR HIGH EARNERS
Taxpayer A*
Net Investment Income
$
100,000
Wages
300,000
Modified AGI
375,000
Tax on Investment Income (3.8%)
3,800
Tax on Income in Excess of $200,000
6,650
Lesser Amount
$
3,800
Tax on earned income in excess of $200,000 (0.9%)
$
900
Total Additional Medicare Tax
$
4,700
* Taxpayer's filing status is single
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PRIVATE HEALTH INSURANCE EXCHANGES
There are several private health insurance exchanges
Allows employers to adopt a “defined contribution” approach to employee
health insurance
Pros and cons
Takes the risk off of the employer, but are employees ready for this choice?
Will employees choose the right level of coverage
Enhances ability for employees to compare true compensation vs. the hidden
compensation of health care
Generally more flexible than public exchanges
Ability to offer various products (even non-insurance ones)
http://www.booz.com/media/file/BoozCo-Emergence-Private-Health-InsuranceExchanges.pdf
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THE HEALTH INSURANCE PUBLIC EXCHANGES
Available to individuals not covered by employee health plans
State exchanges vs. federal exchanges
Four levels of coverage
Bronze (60% of average costs of care)
Silver (70% of average costs of care)
Gold (80% of average costs of care)
Platinum (90% of average costs of care)
The average individual market plan for some large carriers is currently 57% , so
costs have to be higher, right?
The impact on the health care provider marketplace and individual choice
Anecdotal evidence says rates paid are slightly less than current rates, but not
as low as some feared
Increasing use of “narrow networks” to encourage lower rates
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TEXAS AND THE PUBLIC EXCHANGE
Most areas have multiple plans to chose from (38 family plans for Dallas
County)
Many big insurance players are in the plans:
Aetna
Cigna
Blue Cross
Molina
Several areas do not have “platinum” plans available
Narrow networks are very common
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EXAMPLE OF RATES AND COVERAGE FOR DALLAS COUNTY
Individual/Family Deductible
Maximum Out-of-pocket
Cost of Primary Care Visit
Cost of Specialist Visit
Payment for Inpatient Care
Coverage of Name Brand Drugs
Annual Premium before subsidy
Projected Cost of Normal Delivery
My Plan
$600/$1,800
$2,000/$6,000
$20
$35
Bronze Plan
Silver Plan
Gold Plan
$6,100/$12,200 $3,000/$9,000
$0/$0
$6,350/$12,700 $6,350/$12,700 $5,000/$10,000
$0
$35
$30
$0
$55
$60
80% after $250
coinsurance and
80% after deductible
100%
deductible
$1,000/day
$30
$0
$50
$45
$9,312
$2,000
Note: All amounts assume "in-network" care is provided.
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$8,424
$6,130
$9,048
$4,050
$11,976
$2,990
EXCHANGE ENROLLMENT THROUGH MARCH 2014
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PREMIUM ASSISTANCE CREDIT
Household Income Relative to
Federal Poverty Level*
Initial Premium
Percentage (1)
Final Premium
Percentage (1)
Up to 133%
133% up to 150%
150% up to 200%
200% up to 250%
250% up to 300%
300% up to 400%
2.00%
3.00%
4.00%
6.30%
8.05%
9.50%
2.00%
4.00%
6.30%
8.05%
9.50%
9.50%
* Household incomes above 400% of poverty line not eligible for credit
(1) Maximum share of income enrollee will have to pay for coverage
FEDERAL POVERTY LEVEL FOR 2013
Individual
100% = $11,490
133% = $15,282 ($7.34/hour)
200% = 22,980 ($11.04/hour)
400% = $45,960 ($22.09/hour)
Family of 4
100% = $23,500
133% = $31,322
200% = $47,100
400% = $94,200
A family of 4 at 200% of the poverty level would be responsible for
$314/month in premium before a subsidy was received
A family o f 4 at 400% of the poverty level would have to pay up to
$745/month in premium before a subsidy was received
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MEDICAID EXPANSION
26 states, including Texas, did not expand Medicaid
Why it matters
Medicaid only covers specified categories of individuals
I.e., no coverage for childless adults in poverty
ACA assumed that all individuals under 138% of poverty would qualify for
Medicaid
No subsidies are provided for individuals with less than 100% of FPL
Individuals between 100% and 138% can receive premium assistance that would
require them to pay about $500/year toward health care coverage
Texas has about $6.1 million uninsured
Failure to expand Medicaid leaves about 1,000,000 individuals without
coverage
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BREAKING THE LOG JAM
Would Texas consider the “Arkansas” option?
The Arkansas option:
Doesn’t technically expand Medicaid
Uses the additional funds from the ACA to buy private insurance for newly
eligible individuals up to 138% of the poverty level
Those that would have qualified for Medicaid previously still use that program
No premium for enrollees
Enrollment would be in “silver” plans
State pays premiums directly to insurance companies
Must address the co-pay required by many insurance companies
Requires some cost sharing for beneficiaries over 100% of FPL
Potential hidden cost of the program most often targeted by critics
Cost is $188mm in CY 2014 for 200,000 enrollees (multiply by 6x to 8x for
Texas?)
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THE TEXAS MEDICAID WAIVER
Waiver Basics
Uncompensated Care reimbursement
Delivery System Reform Improvement Program (DSRIP) payments
5 year program with billions of dollars of revenue at stake
Replaces UPL program
We are now entering DY3
Implementation has been somewhat rocky, with several payment delays
Cash is running, on average, six months behind schedule
Some providers have trouble finding IGT funds
The future of the program
Big winners are governmental hospitals, especially large districts
A statewide fight is brewing on how future Waiver and DSH funds should be
allocated
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OTHER TEXAS TRENDS AND DEVELOPMENTS
Provider taxes and assessments?
Medicaid DSH battles
Burden alleviation fatigue
Physician hospitals and working around the ACA
M&A Activity
Hospitals buying hospitals
Preparing for bundled payments
Private equity
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The Accountable Care Act
PREDICTIONS AND KEY TRENDS
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EMPLOYERS ROLE IN HEALTH CARE
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PATIENTS AS CONSUMERS
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CONSUMER SURVEYS OFFER INSIGHT
Nearly 57% of employees would like to customize their own health plan
70% would like to see hospital and physician prices “on-line,” including
what the insurance company will pay to these groups
62% of employees would be willing to use self-monitoring devices to
manage their health
Nearly two-thirds would like to use video conferencing or other nonpersonal means for follow-up visits
There is a growing willingness for technology to replace direct physician
access
Look for presentations by Eric Topol on-line or read his book the “The Creative
Destruction of Medicine”
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CONCIERGE MEDICINE
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POPULATION HEALTH MANAGEMENT
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MULTIPLE EXAMPLES OF “MANAGEMENT” IN INSURED POPULATION
Narrow steerage of certain patients to “centers of excellence”
Cardiovascular care
Orthopedic and rehabilitative services
Exclusion of high-cost providers from networks on a service line basis
Incentives for employees to choose lower cost options in the marketplace
Medical tourism
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WE HAVE SEEN THIS BEFORE…
THEN
NOW
- Balanced Budget
- Healthcare Reform
- HMOs (Health Maintenance
Organizations)
- ACOs (Accountable Care
Organizations)
- Capitation
- Bundling
- Sustainable Growth Rates (SGR)
- SGR?
MEDICAL HOMES
In general, a Medical Home is a group of providers that coordinate care for
individual patients
Comprehensive Care
Patient-centered care
Coordinated Care
Accessible Services
Quality and Safety
Growth from 0 to 29,000 providers and 6,000 sites since 2008
Impact on costs and quality has been debatable
Several examples of better outcomes and lower costs for patients with chronic
health conditions
Patient cooperation has been a key concern
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ACCOUNTABLE CARE ORGANIZATIONS
What is an ACO?
Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and
other health care providers, who come together voluntarily to give coordinated
high quality care to their Medicare patients.
What is goal of an ACO?
The goal of coordinated care is to ensure that patients, especially the
chronically ill, get the right care at the right time, while avoiding unnecessary
duplication of services and preventing medical errors.
What happens if an ACO works?
When an ACO succeeds both in both delivering high-quality care and spending
health care dollars more wisely, it will share in the savings it achieves for the
Medicare program
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GEISINGER HEALTH SYSTEM
ACUTE ADMISSIONS DECLINED (MEASURED AS ACUTE ADMITS/1,000, ACUITY
ADJUSTED)
Source: Ronald A. Paulus, MD, EVP, Clinical Operations, Geisinger Health
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INDEPENDENT PAYMENT ADVISORY BOARD
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FINANCIAL EFFECT OF AGING US POPULATION ON HEALTHCARE COSTS
Healthcare Costs by Age
Source: Fischbeck, Paul. “US-Europe Comparisons of Health
Risk for Specific Gender-Age Groups.” Carnegie Mellon
University; September, 2009.
U.S. is spending much
more for older ages
THANK YOU
FOR MORE INFORMATION // For a complete list of our offices
and subsidiaries, visit bkd.com or contact:
Tom W. Watson, CPA, FHFMA// Managing Partner
twatson@bkd.com // 972.392.7400