EXECUTIVE INSIGHTS MARKETS
Decoding PPACA – Implications on Payers
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Contents 1. Overview of Patient Protection and Affordable Care Act .................................................................3 2. Health Reform Effects on Payers .....................................................................................................4 2.1 Timeline for Payers ....................................................................................................................... 4 2.2
First six months after enactment .................................................................................................. 4
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Other Key Provisions in the Act for Payers ................................................................................... 5
3. Key Initiatives Required by Payers ..................................................................................................7 4. References .....................................................................................................................................8
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1. Overview of Patient Protection and Affordable Care Act Healthcare Reform Act which is officially called the Patient Protection and Affordable Care Act (PPACA)—institutes sweeping changes across all healthcare stakeholders, including payers, providers, and plan members. In fact, the amount of change required by the PPACA is so extensive, distilling all the changes down and accounting for their impact is a serious challenge for the industry as a whole. PPACA which is informally also called as Obamacare significantly changes health care in the US, making insurance available to 32Mn more Americans who represent a total of 95% of the legal population. However, if we focus on the apparent macro changes that affect payers—an increase in competition for the group market, an increase in overall access, and new regulations on expense caps for medical costs—a rational set of assumptions becomes apparent for predicting the direct impact on stakeholders. Over the first 10 years, the program adds USD940 billion to the Federal budget. However, a study by the Congressional Budget Office stated that the Affordable Care Act will lower the budget deficit by USD143 billion over these same ten years by: •
Lowering payments to hospitals
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Increasing Medicare taxes on higher income households
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Assessing penalties on employers who don't offer, and individuals who don't take, health care insurance
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Assessing taxes on various health related activities
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Reducing overhead by consolidating the higher education loan program with the Pell Grant program
The Patient Protection and Affordable Care Act contains nine titles, each addressing an essential component of reform.
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2. Health Reform Effects on Payers The 2010 Reconciliation Act amends the healthcare reform legislation included in the Patient Protection and Affordable Care Act. Health insurance companies will feel the effects of these two major legislative changes more than any other industry. But they may also benefit by having more insured lives through coverage expansions in the insurance exchanges.
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Timeline for Payers
The Act is being phased over the years till 2018 to have a complete effect on Payers; they will have to react quickly to ensure they are compliant with the following new regulations that will become effective within the first six months after enactment.
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First six months after enactment
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Ban on Benefit Limits: Payers can no longer put a lifetime or annual dollar limit on essential benefits
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Ban on Pre-existing Condition Exclusions: Payers will be prevented from denying coverage based on underlying health status or restrict eligibility if a family member has or had any neither illness, nor will coverage be denied or watered down based on medical history
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Mandatory Coverage of Preventative Services: Payers must pay for immunizations as well as infant, child and adolescent preventative services without any cost-sharing/co-payment required from members. They must cover women’s preventative care and screenings and can no longer require
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prior authorization before emergency services are covered. Payers cannot rescind enrollee coverage because of a member’s health status nor bar them from renewing plans •
Rating Restrictions: Payers in the individual and small group markets may only vary premiums based on family structure, geography, tobacco use and the actuarial value of the benefit. They are also limited on differences in premiums based on age
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Limits on Executive Pay: Payer will be subject to limits on executive compensation. They will only be able to deduct $500,000 of compensation. This applies to companies that derive at least 25% for their gross income from plans that meet the coverage requirements established under the bill
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Medical Loss Ratios (MLRs): In 2011, payers will have to report how they spend the premium dollars they collect from their customers. If they spend too much (MLR of 80% for small insurance companies and 85% for large) on administrative costs and profits, they will have to give some of that money back to their customers
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Extension of Dependent Coverage: Payers must provide dependent coverage for children up to age 26
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Premium Review Process: The Secretary of the U.S. Department of Health and Human Services will institute a premium review process
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Navigation Assistance: Payers are required to develop a standard format to present coverage options to consumers. The government will post a website to help identify coverage options as well as prices
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Temporary High-Risk Pool: The government will establish a high-risk insurance pool for individuals who are uninsured of have pre-existing conditions. This is a stop-gap measure until exchanges open in 2014
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Primary Care/Emergency Services: Coverage of primary care and emergency services will be required
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Other Key Provisions in the Act for Payers
Medicare Advantage Cuts In 2011, payments to Medicare Advantage plans are frozen and cuts begin in 2012. This will be a four year phase-in based on average bids from those plans in each market. Overall, the Act cuts government payments to Medicare Advantage by $132 billion over 10 years. To offset the cuts, performance bonuses will be created for care coordination, care management and quality ratings. Administrative Simplification Between 2013 and 2016 the HHS will adopt uniform standards and operating rules for electronic transactions between providers and payers. These will include adopting a single set of operating rules for claims status and eligibility verification, electronic funds transfer for healthcare payment and remittance, health claims, enrollment, premium payments, referral certification and authorization. Payers that are not able to document compliance with these new standards and rules will face penalties.
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Insurance Exchanges By 2014, the Act requires states to establish American Health Benefit Exchanges that assist with the purchase of health plans. The uninsured and self-employed would be able to purchase insurance through state-based exchanges with subsidies available to individuals and families with income between the 133 percent and 400 percent of poverty level. Separate exchanges would be created for small businesses to purchase coverage in 2014. This is expected to increase enrollment by 21 million. Coverage Mandates Individual and employer mandates will also introduce new consumers to the insurance market. In 2014, individuals must maintain health insurance for at least 9 months or face a penalty. There are some exceptions for low-income people. Employers with more than 50 full-time employees will face penalties if they do not provide health insurance that covers essential benefits and is affordable to the lowest paid employees. Industry Fees & Taxes Payers will face new fees, based on their market share, beginning in 2014. The fees won’t apply to companies with net premiums written of $25 million or less and provides a limited exemption for nonprofit health insurance companies with overall MLRs of at least 92%. In 2018, payers will also be assessed a 40% excise tax on high cost self-insured and group market plans. These are defined as plans above the threshold of $10,200 for individual coverage and $27,500 for family coverage. The tax would apply to the amount of the premium in excess of the threshold. Other Provisions Other provisions of the Act include temporary reinsurance for retirees, tax credits for small employers, filling Medicare Part D “doughnut hole�, establishment of a national/voluntary insurance program for purchasing community living assistance services, HHS review for new policies, and the disqualification of over-the-counter drugs as medical expenses. The numbers of provisions included in this health reform bill are extensive and complex. Payers will see an increase in covered lives and many of the newly insured will be younger individuals with fewer health issues who may not have previously elected health insurance due to cost. Insurance companies will need to scale their IT capabilities to prepare for a larger volume of members and to maintain trust with their current customers. Progressive payer organizations will leverage these compliance changes to reassess the way they do business, upgrade their IT infrastructure and drive operational changes that create competitive advantage and achieve greater ROIs.
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3. Key Initiatives Required by Payers The implementation of the changes required by PPACA will cause payers to: Develop new products and provider networks that are aligned based on the benefit structure and the needs of the covered population; these tailored, personalized products and provider networks will enable payers to more effectively serve their customers’ needs Design new provider-reimbursement models that shift methodology from paying for individual services to reimbursing for improved member health and wellness, the latter being driven by provider performance, quality measurement, and member outcomes Create new provider- and member-engagement strategies that enable greater information sharing and transparency for improved decision support Implement/redesign internal payer processes to further drive down administrative costs Although some reform requirements have enactment dates as far as 2018, we consider reform a complete overhaul of the healthcare system, necessitating a phased approach to ensure success. Payers, providers, and plan members need to begin preparing for these changes, because the changes will affect the traditional stakeholder relationships we take part in today. Greater Differentiation for Payer Products The needs of plan members vary across the spectrum of benefit designs—some need only preventive health benefits, whereas others require preventive and catastrophic coverage levels. The PPACA will drive approximately 32 million more members into the healthcare system. some of these new members will fall into traditional lines of business for a payer; however, estimates by the Congressional Budget Office predict that these members will drive expansion in the individual market. The government-mandated healthcare exchanges, stipulated by the PPACA, are poised to be the principal avenue for competition within the individual market. The benefit structures will be defined by the government, so the area for differentiation from the payer’s perspective will be on price, the member’s experience, and compatibility of the network with the plan member’s needs. Continued emphasis on differentiation by product and network, furthered by benefit designs that align with a group’s individual healthcare needs, will drive success in this area of the payer market.
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4. References •
National Association of Insurance Commissioners
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American Health & Drug Benefits
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www.idexcel.com
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www.cbo.gov
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