The Future of Health Reform - VI - Providers

Similar to the story of other health care players, providers have benefited from millions of more patients entering the system. At the same time, this patient influx has been difficult to handle. So have providers benefited, on the whole? Let's find out.

Positives

Business is better for providers as more patients are in the system. This means more consultations and procedures, and thus more revenue for hospitals.

In 2010, 60% of patients without health insurance didn't seek care due to cost. Now that the uninsured rate is lower, we would expect these individuals to seek more care.

For the most part, doctors can keep their patients (this issue is normally phrased as, "can patients keep their doctors?"). However, if a patient is on a plan that is no longer deemed suitable in Obamacare, then the patient must get a new plan which has a new network. That could result in some loss of patients for a doctor.

In addition, Medicaid payments have been brought to parity with Medicare payments in states that have expanded Medicaid. The increased Medicaid payments are funded by the federal government, and are intended to make it more attractive for providers to treat Medicaid patients.

Primary care doctors and general surgeons who practice in medically under-served areas will also receive a 10% bonus.

Negatives

Not all hospitals are setup to handle the influx of new patients, and that has resulted in lower quality of care for patients.

Also, as mentioned above, some patients might not be able to stay with their doctor if they have to change their plan.

However, most physician complaints relative to the new payment system that the PPACA institutes:

• While Medicaid payments have risen in states that expanded Medicaid, Medicare payments will be reduced in some situations as more payments are "bundled". Bundled payments are intended to create incentives for quality treatment at lower cost.
• A further action to control Medicare spending is the creation of the Independent Payment Advisory Board (IPAB), a 15 member board that looks to cut costs in the Medicare system without affecting coverage or quality.   
• In addition to the IPAB, the PPACA has facilitated the creation of the Relative Value Update Committee (RUC). This is a private group of 31 specialty physicians who can advise on how to value a physicians' work. 
• Both the IPAB and RUC could be perceived by physicians as excessive bureaucracy affecting their practices.  
• Physicians also complain that hospital payments have risen 35% over the last 10 years, while physician payments have only increased 3%. 
• Perhaps the most troublesome provision of PPACA is the need to provide care for patients even if they haven't paid their premiums. An estimated 20% of patients sign up for an Obamacare plan and don't pay their premium and lose their coverage after 90 days. In that 90 days, they often seek treatment, but it doesn't get paid for. The onus is placed on physicians to determine who has paid their premium. This aspect, or loophole, of the PPACA is the primary reason why 2/3 of doctors don't accept Obamacare plans. 
• Physicians also complain about the administrative burden placed on them with electronic health records. 
• Also, as PPACA removes a small portion of funding to hospitals that have higher re-admittance rates for Medicare patients, some providers will be negatively impacted as they treat more challenging patient populations. 

Net

Physicians largely support or oppose Obamacare based on their party affiliation. Clearly, more patients in the system is good for business. However, Obamacare care increases administrative burdens and changes the payment scheme to providers. However, overall, the net effect seems to be positive for most providers' businesses. Claims of 'death panels' seem exaggerated. Yes, the government is playing a bigger role in how physicians are paid, but as they are collecting taxes to fund Medicare and Medicaid, they have every right to rationalize the payment system.


Sources:

Do Doctors Loathe Obamacare?

Obamacare Doctors

The Future of Health Reform - V - Insurance

Insurance companies often said, in the early days of Obamacare, that the PPACA brought in a lot of patients into the insurance system, but it prevented them from making any money off of them. Is that accurate? Let's find out.

The individual mandate, employer mandate, subsidies on government run exchanges, and expansion of Medicaid drove millions of people to obtain insurance coverage. However, all of the provisions increasing the quality of insurance coverage have increased costs for insurance companies. From the first article in the series:

II. Increasing Quality of Insurance Coverage

A. Essential Health Benefits - all health insurance must provide essential health benefits to its covered members. https://en.wikipedia.org/wiki/Essential_health_benefits

B. Contraceptives & Women's Reproductive Health must be covered

C. Risk management for insurance companies - temporary reinsurance, temporary risk corridors and permanent risk adjustment.

D. Elimination of lifetime coverage caps on essential health benefits

E. Can't drop policy holders when they get sick

F. Out of pocket expenses must be capped

G. Same premium to members based on age, not gender or pre-existing conditions

H. Preventive care, vaccinations and medical screenings cannot be subject to co-payments, co-insurance or deductibles.

I. 4 tiers of insurance coverage: bronze, silver, gold, and platinum.

J. 80-85% of premium costs must go to health care coverage. Rebates must be issue if this is violated.

To understand how insurance companies have fared, let's start with a quick view of the stock prices of major carriers over the last 10 years.

Cigna:

Aetna:

United Health Group:

Pretty good, I'd say.

The fortunes that insurance companies have made me go against the news you have recently been hearing about regarding rising insurance premiums, and insurance companies pulling out of government exchanges.

For many insurance companies, the plans they offer on the exchanges are money-losers. The individuals buying health care on the exchanges are often a higher risk than those receiving insurance through other means. However, due to the restrictions placed on the insurance companies in PPACA, insurance companies are pursuing their options:

1. Raise their premiums to offset the bills they are paying.
2. Leave the exchange altogether in certain states.

When the insurance company leaves the exchange in a certain state, it reduces competition and the remaining companies can increase their premiums as a result.

In 2016, an average of 5.4 insurance companies participated in the exchanges on healthcare.gov. In 2017, 3.9 companies on average are expected to participate in these exchanges.

Overall, health insurers don't want a full scale elimination of the PPACA. Net, it looks positive for these companies. Most importantly, they don't want the new administration to dismantle the wrong elements of the law - i.e. the individual mandate or employer mandate. However, they would be open to seeing a different implementation of the exchanges, which are not as profitable for the insurers as they would desire.



Sources:

Health insurers list demands if Obamacare is repealed

Exchanges three years in: Market variations and factors affecting performance

Why Some Obamacare Insurers Are Making Money, But Many Are Losing Big

No, Obamacare isn't killing the insurance industry

The Future of Health Reform - IV - Patients

From a coverage standpoint, patients (in select states) have been the big winner of the PPACA. Let's look at how.

First, and most importantly, the PPACA has delivered on its promise to get more people covered through health insurance.

This graph from Obamacarefacts (a pro-Obamacare website) shows the percentage of uninsured in the US by quarter from 2008 to 2015. The uninsured rate dropped from an average of ~16% before the PPACA went fully into action to ~11% with the insurance provisions in full effect.

The graph below shows the uninsured rate on a longer timescale, going back to 1963 when Medicare and Medicaid were introduced. Medicare and Medicaid brought the uninsured rate from 25% to ~15%, which has of course dropped down to 11% after PPACA.

Now, over the course of a middle class person's life, his insurance coverage will be as follows:

• As a student and up until age 26, he will be covered under his parent's insurance
• In his working years, he will be covered through insurance provided through work. If he is in a small company (less that 50 full-time employees), he will get insurance through an exchange.
• In his retirement years, he will receive Medicare after age 65. 

For a lower class person who has trouble gaining and keeping employment, he will be covered by Medicaid. Medicaid has expanded eligibility going up to 133% of the Federal Poverty Line.

According to a Forbes article, the newly insured come from various sources:

• 9.6 million from employer sponsored plans (42%)
• 6.5 million from an expansion in Medicaid  (28%)
• 4.1 million from individual plans on state exchanges (18%)
• 1.2 million from individual plans not on state exchanges (5%)
• 1.5 million from other insurance sources (7%)

The article suggests that the gains in the employer sponsored plans could simply be due to a recovering economy. In addition, the articles suggests that the individual mandate is haven't the desired effect.

With the state exchanges making health care insurance more affordable, the expansion of Medicaid eligibility, combined with the penalties imposed on businesses and individuals for not having insurance, I wonder why the insured rate hasn't dropped down further than 11%. I would expect that only those people who pay the penalty for not having insurance would not be covered. Let's examine the uninsured population in an Obamacare world.

According to a Kaiser Family Foundation article, the main reasons for lack of insurance are:

• High cost of insurance
• No job and therefore no insurance through work
• Poor adults in states that didn't expand Medicaid
• People who didn't know about the subsidies available to them 
• Undocumented immigrants aren't eligible for insurance

In a later article, we'll discuss the implementation of Obamacare, in particular which states expanded Medicaid and which set up their own health care exchanges.

Sources:

Obamacarefacts - Uninsured Rates

Forbes - has Obamacare reduced the insured by 16 million?

Kaiser Family Foundation - Who are the Uninsured?
  

The Future of Health Care Reform - III - Jobs

In my last article in the series, I wrote that PPACA is now expected to have a negative impact on the federal budget due to reduction in labor, and thus the reduction in taxes to the government. Let's dive deeper into how the PPACA will affect the labor market. There are two sides to this issue: Obamacare opponents make a more direct argument on the reduction of jobs and cutting of hours, while Obamacare proponents argue that the law will indirectly improve the labor market.

Negative Impact to Labor Market

Obamacare requires businesses with more than 50 full-time employees to subsidize health insurance for their employees. Full-time employees are defined as those who work more than 30 hours per week. 

Subsidizing health care for employees is large expense for companies. Companies on average pay:

• $5,179 for single employees (83% of the premium)

• $12,591 for employees with families (72% of the premium)

Costs Incurred by Companies to Provide Health Care to Employees

As a result of the law, in order to bring their costs down, many companies have resorted to tactics like:

• Not hiring employees to get under the 50 employee limit

• Cutting hours to less than 30 so as to have fewer full-time employees to provide insurance for

• Cutting other benefits

• Raising prices of their products

• Cutting back on raises

Small Business Health Care Survey
Companies that can't offset the costs of providing health insurance have to deal with lower profits and lower stock prices. These companies pay fewer taxes to the government, leading to the budget deficit we saw in the previous article.

Forbes - Obamacare Killing Jobs

Positive Impact to Labor Market

According to Obamacarefacts, a pro Obamacare website, PPACA "creating new jobs in healthcare and government, increasing operating costs for some larger businesses, eliminating 'job-lock', and saving money for small businesses via the SHOP marketplace."

The website also cites that there have been 58 months of consecutive job growth, so allegations of 'job killing' are exaggerated. 
In addition, PPACA allows for "tax credits for up to 50% of employee premiums to smaller firms with less than 25 full-time equivalents, so they are be able to attract more workers due to their ability to provide them with better benefits at cheaper rates."

The main argument from the pro-Obamacare side is that employees no longer need to stay at jobs they don't like simply to get insurance. Because of the insurance exchanges, they can change jobs to one they like more and still get insurance. Thus, PPACA increases job mobility, which ultimately spurs the economy.

Finally, the strongest argument for Obamacare's positive impact on the economy is the same one that progressives use to justify most of their government spending initiatives: if people are healthier, they will be happier, more productive members of society. In economic terms, they will work harder and generate more revenues for their businesses, thus spurring the overall economy. This is a strong argument, even if it is highly indirect.

Obamacare Facts

Summary

Both sides of the argument have their merits. The negative argument makes a more direct connection between the law's effects and the impact to companies. In addition, we have been in a bull market for the last few years. So, we can't give PPACA the credit for the job growth or say that it hasn't hurt jobs as the effects may have been masked by general economic growth.

The real test of Obamacare and the job market would come if the economy falters. What will employers do then?

Until then, I believe the negative side has the stronger arguments and assert that the direct effects of PPACA aren't good for the economy. 

Eli Lilly's Alzheimmer Drug Fails in Pivotal Trial

Taking a break from PPACA analysis, I'm going to examine an Alzheimmer's drug that failed its pivotal trial last week. That drug is solanezumab from Eli Lilly. Upon announcement of the failed trial, Eli Lilly's stock dropped 11%.

Solanezumab is a monoclonal antibody which aims to prevent or reduce amyloid plaque in the braid. Amyloid plaque is thought to be a cause or effect of Alzheimmer's disease. The drug attaches to free amyloid protein to prevent it from joining together with other protein to form plaque.

I didn't follow this drug carefully, but it appears that it had failed two previous trials, so expectations may have already been tempered and priced into the stock. Those two trials suggested that Solanezumab may have a positive effect in patients with mild dementia. These results were the design of Eli Lilly's Phase III trial for solanezumab.

Unfortunately, patients treated with the drug did not experience a statistically significant decrease in cognitive impairment, the primary endpoint for the clinical trial.

But, even in this failure there are important learnings for alzheimmer's treatment. The clinical experience of Solanezumab suggests that by the time amyloid shows up on brain scans, it may be too late for amyloid plaque reduction to improve a patient's cognitive abilities. Thus, the effects of the disease and the resulting dementia may have set in much earlier.

If that's true, then Alzheimmer's research could go into two directions:

1) Earlier detection. If the plaque is found in its very early stages and removed, can dementia be avoided? --> Can we use liquid biopsy and genomic testing to identify early stage Alzheimmer's disease?

2) Regeneration of brain cells involved in cognitive abilities. The amyloid plaque may just be an effect of Alzheimmer's disease. --> Can we use stem cell therapy to regenerate the appropriate places in the brain?

Of course, a variety of other approaches are being studied:

• Gantenerumab (Roche): amyloid plaque reducer for people who haven't shown symptoms yet
• BACE inhibitors: block an enzyme required for amyloid plaque production
• Crenezumab (Genentech): passive immunity monoclonal antibodies for alpha beta peptides

Amyloid Beta Peptide

Source: Eli Lilly Alzheimmer's Drug Fails in Trials

The Future of Health Care Reform - II - PPACA Budget

The PPACA was expected to increase federal spending by $2T. However, it was also expected to reduce the budget deficit through revenues to the government. Now, that appears not to be true. 

First, looking at the provisions of PPACA, we can identify the ones that expand government. These are the ones that must be paid for. These are: 

Government Spending

• Expanded Medicaid eligibility to 133% of Federal Poverty Line
• Simplified enrollment in CHIP (Children's Health Insurance Program)
• Setting up government run health care exchanges to allow people not covered through other means to purchase health care. 
• Tax credits for individuals and families who make less than 400% of the Federal Poverty Level who buy their health care through a state exchange.
• Cost sharing subsidies for individuals and families who make less than 400% of the Federal Poverty Level who buy their health care on an exchange. 
• High risk insurance pool of $5B as a stop gap measure to insure individuals with pre-existing conditions until PPACA takes full effect.

The PPACA has one way in which it reduces government spending:

Government Spending Cuts

• Medicare payments to providers would be bundled and would be reduced

Finally, the PPACA creates multiple sources of revenue to support the increase in government spending:

Revenue to the Government

• .9% increase in Medicare tax rate and 3.8% new tax on unearned income for people making more than $200,000 / year (as individuals) or $250,000 / year (as joint filers) --> $210B
• Annual fee on health insurance providers --> $60B
• 40% tax on "cadillac" insurance policies that cost more than $10,200 for an individual and $27,500 for a family --> $32B
• Fee on manufacturers and importers of branded drugs --> $27B
• Medical device tax of 2.3% --> $20B
• When filing taxes, medical expenses can only be deducted if they exceed 10% of an individual's adjusted gross income (up 2.5% from 7.5% prior to PPACA) --> $15B
• Limit of $2,500 to Flexible Spending Accounts, which are deducted from income subject to payroll tax --> $13B
• Other sources (i.e 10% tax on individuals who utilize tanning salons) --> $14B

Impact to Federal Budget

The PPACA was not intended to raise the federal deficit. However, estimates have changed over the years on its impact to the deficit. Initially, based on a 2012 estimate from the Congressional Budget Office, PPACA was expected to reduce the deficit by $109B from 2013-2022, and $180B from 2015-2024. 

However, Senate Budget Committee (SBC) estimates from 2014 show that PPACA will increase the federal deficit by $131B, largely due to reduced revenue to the government from reduced labor. In other words, the SBC believes that by 2024 the PPACA will result in 2.5M workers leaving the work force, a reduction in hours by 1.5 - 2%, and a reduction in wages of 1%. This reduction in labor will reduce the amount of taxes (including Medicare taxes) paid to the government. 

Of course, the budget impact is highly sensitive to the impact on the job market, as that creates the tax base for the government. If labor force participation increases, so too will the taxes paid to the government, and PPACA will again show a surplus. 

The next article will examine the impact of the PPACA to the jobs market. 

Sources:

• http://www.budget.senate.gov/newsroom/budget-background/analysis-of-cbo-data-shows-that-obamacare-will-increase-deficit-over-next-decade
• http://kff.org/medicare/fact-sheet/medicare-spending-and-financing-fact-sheet/
• http://www.weeklystandard.com/cbo-projections-indicate-obamacare-will-raise-deficits-by-131-billion/article/816288
• http://www.alignamerica.com/node/62 

The Future of Health Care Reform - I - Obamacare Defined

Now that the dust of the 2016 election has settled, we can expect the health care landscape to change, probably dramatically. In the first part of this series, I'll cover the main components of the Patient Protection and Affordable Care Act (PPACA):

1. Expansion of coverage to more citizens

2. Increasing the quality of that coverage

3. Increasing the quality and reducing the cost of care


I. Expansion of Insurance Coverage

A. Insurance companies can't deny coverage based on pre-existing conditions

B. Expanded Medicaid eligibility to 133% of Federal Poverty Line

C. Simplified enrollment in CHIP (Children's Health Insurance Program)

D. Children could remain on parent's insurance until age 26

E. Individual Mandate - all citizens must have health insurance

• E1. Government run health care exchanges were setup to allow people not covered through other means to purchase health care.


F. Employer Mandate - businesses with over 50 employees must offer health insurance or pay a fine

II. Increasing Quality of Insurance Coverage

A. Essential Health Benefits - all health insurance must provide essential health benefits to its covered members. https://en.wikipedia.org/wiki/Essential_health_benefits

B. Contraceptives & Women's Reproductive Health must be covered

C. Risk management for insurance companies - temporary reinsurance, temporary risk corridors and permanent risk adjustment.

D. Elimination of lifetime coverage caps on essential health benefits

E. Can't drop policy holders when they get sick

F. Out of pocket expenses must be capped

G. Same premium to members based on age, not gender or pre-existing conditions

H. Preventive care, vaccinations and medical screenings cannot be subject to co-payments, co-insurance or deductibles.

I. 4 tiers of insurance coverage: bronze, silver, gold, and platinum.

J. 80-85% of premium costs must go to health care coverage. Rebates must be issue if this is violated.

III. Increasing the Quality and Reducing the Cost of Care

A. Creation of ACOs (Accountable Care Organizations). ACOs are groups of health care providers that come together to provide high quality, cost effective care to Medicare patients. If successful, the ACO will share in the savings it has generated.

The PPACA is one of the most complex and sweeping pieces of legislation that has been passed by the US government. In the next series, we'll cover how this legislation is being funded.