WITH DEEP THANKS TO HELEN LEVY UNIVERSITY OF MICHIGAN INSTITUTE FOR SOCIAL RESEARCH, FORD SCHOOL OF PUBLIC POLICY, AND SCHOOL OF PUBLIC HEALTH Lecture 24 – a The Affordable Care Act

HELEN LEVY UNIVERSITY OF MICHIGAN INSTITUTE FOR SOCIAL RESEARCH, FORD SCHOOL OF PUBLIC POLICY, AND SCHOOL OF PUBLIC HEALTH NOVEMBER 2013 An Overview of the Affordable Care Act

Setting the stage: Where were we in 2009? The majority of Americans (64%, or almost 200M people) have private health insurance  Most of that is employer-sponsored (risk pooling, favorable tax treatment)  Only about 27 million have policies directly purchased from an insurance company 50 million people (about 1 in 6) have no health insurance Long-run fiscal problem with health spending: “… if current laws do not change, federal spending on Medicare and Medicaid combined will grow from roughly 5 percent of GDP today to almost 10 percent by 2035 … and to more than 17 percent by 2080…That projection means that in 2080, without changes in policy, the federal government would be spending almost as much, as a share of the economy, on just its two major health care programs as it has spent on all of its programs and services in recent years.” Congressional Budget Office (CBO), The Long-Term Budget Outlook, June 2009

Setting the stage: Where were we in 2009? Businesses and households also squeezed by health care inflation Concern about the quality of care: overuse, underuse, misuse, errors, etc.  IOM report: “Crossing the Quality Chasm” (2001)  McGlynn et al., New England Journal of Medicine: “The Quality of Health Care Delivered to Adults in the United States” (2003)

Affordable Care Act, March 2010 Patient Protection and Affordable Care Act of 2010 (March 23) Health Care and Education Reconciliation Act of 2010 (March 30) Collectively, the “Affordable Care Act” 1. Coverage expansion 2. “Delivery system reform” (better quality and/or lower spending) 3. Other provisions (Prevention & Public Health Fund, CLASS Act, taxes, etc.)

I. Coverage Expansion: Overview Two main components: Medicaid expansions State health insurance Exchanges Congressional Budget Office (CBO) projection, May 2013:  25 million fewer uninsured  25 million covered by exchanges, 12 million more in Medicaid/SCHIP  30 million remain uninsured (1/3 of those illegal immigrants)

CBO coverage projections, 2019 Millions of non-elderly individuals Source: CBO, May 2013

Medicaid expansion Currently, Medicaid has different income thresholds for different groups of people (e.g. infants vs. children) These thresholds also vary by state What the ACA intended: beginning in 2014, anyone <65 years old in a family with income <138% of poverty will be eligible for Medicaid  Currently the cutoff would be $26,951 for a family of 3 The Supreme Court ruled in June 2012 that states do not have to do this  Congressional Budget Office projected that this would approximately cut in half the number of new Medicaid enrollees  Current estimate is that 4.9M poor uninsured adults will gain eligibility for Medicaid while 6.6M will not (Urban Institute)

Source: The Advisory Board Company

Health insurance exchanges (1) Each state will have an organized market where consumers without access to employer coverage will go to buy coverage  Think Orbitz  States may take a more active role if they choose (Utah vs. Mass.) Guaranteed issue (coverage cannot be denied) Premiums are community rated with some variation for age and smoking status Plans must cover a package of essential health benefits

Essential Health Benefits (EHB) EHB must include items and services within at least the following 10 categories: 1. Ambulatory patient services 2. Emergency services 3. Hospitalization 4. Maternity and newborn care 5. Mental health and substance use disorder services, including behavioral health treatment 6. Prescription drugs 7. Rehabilitative and habilitative services and devices 8. Laboratory services 9. Preventive and wellness services and chronic disease management 10. Pediatric services, including oral and vision care Habilitative services are really just making sure that a child can thrive in the world that they’re living in, so, for example, hearing aids are a habilitative service. So is speech therapy.

Health insurance exchanges (2) Premium subsidies are available for families with incomes up to 400% percent of poverty IF affordable employer coverage is not available  “Affordable”: employee payment is ≤9.5% family income Individual mandate: if you do not have coverage, penalty is the greater of $695/year or 2.5% of income  Exemptions for religious reasons, financial hardship Employer responsibility requirement: large employers (≥50 full-time workers) who do not offer affordable coverage must pay a penalty of about $2,000 per worker IF any of their workers received subsidized coverage  Currently, 95% of firms with workers offer coverage. Break-even at $27,800

Affordable Care Act, March 2010 Patient Protection and Affordable Care Act of 2010 (March 23) Health Care and Education Reconciliation Act of 2010 (March 30) Collectively, the “Affordable Care Act” Coverage expansion 2. “Delivery system reform” (better quality and/or lower spending) 3. Other provisions (Prevention & Public Health Fund, CLASS Act, taxes, etc.)

II. Delivery system reform Two related problems: Quality of care is not as good as it could be. We spend “too much” on health care. Additional considerations: The Democrats really needed CBO to score the bill as a deficit-reducer. The scope for Federal intervention into health care delivery is limited.

Delivery system reform What is the right way to increase the value we get from health care spending? It depends what you think the root of the problem is… 1. Patients and/or providers might need better information about quality/effectiveness. 2. Patients and/or provider may currently face the wrong incentives. 3. Maybe Medicare just pays too much to (some) providers. The Affordable Care Act moves on all three fronts.

1. More information about quality/effectiveness Patient-Centered Outcomes Research Institute  Goal: make better information about treatment effectiveness available for patients and providers  Builds on existing comparative effectiveness research (CER) program at AHRQ and additional $1.1B in funding from the Recovery Act Expanded quality reporting  Providers report more information to CMS  CMS reports more information to the public (e.g. staffing levels on Nursing Home Compare web site) Both of these initiatives build on existing activities Hard to predict what impact they will have.

2. Changing incentives PROVIDERS: New payment models in Medicare: Accountable Care Organizations, bundled payments Very uncertain what impact these will have. Value-based Medicare payments for hospitals and nursing homes Builds on existing Medicare programs Reduced Medicare payments for hospitals with high rates of readmission or hospital-acquired conditions PATIENTS: “Cadillac tax” on value of health insurance above a threshold: Starting in 2018, a 40% excise tax will be imposed on the portion of health coverage costs that exceed $10,200 for single coverage and $27,500 for family coverage An ACO is a network of doctors and hospitals that shares responsibility for providing coordinated care to patients in hopes of limiting unnecessary spending. At the heart of each patient's care is a primary care physician.

3. Reducing payments Reducing payments to providers and/or insurers  Home health (-$40B), Medicare Advantage (-$136B), hospitals (- $157B)  Disproportionate Share (DSH) payments to hospitals reduced (- $22B)  Independent Payment Advisory Board (hospitals off-limits until 2020) Sustainable Growth Rate (SGR) complicates physician reimbursement  Balanced Budget Act of 1997 required it, but Congress keeps delaying  Currently requires a cut of about 25% in Medicare Physician Fee Schedule in 2013  CBO scores a freeze (rather than cuts) at about $300B over 10 years  Simpson-Bowles deficit reduction commission and MedPAC both advise scrapping it

Affordable Care Act, March 2010 Patient Protection and Affordable Care Act of 2010 (March 23) Health Care and Education Reconciliation Act of 2010 (March 30) Collectively, the “Affordable Care Act” Coverage expansion “Delivery system reform” (better quality and/or lower spending) 2. Other provisions (Prevention & Public Health Fund, CLASS Act, taxes, etc.)

The ACA, title-by-title I. Quality, affordable health care for all Americans Health insurance exchanges, other market reforms, small biz tax credits, etc. II. Role of public programs Medicaid expansion, DSH III. Improving the quality and efficiency of health care Medicare payment changes, delivery system reforms IV. Prevention of chronic disease and improving public health Prevention and public health fund

The ACA, title-by-title V. Transparency and program integrity Anti-fraud, patient-centered outcomes research, physician payment sunshine law VI. Improving access to innovative medical therapies Simplified approval for follow-on biologics VII. CLASS act Home care services “insurance” program VIII. Revenue provisions

The Affordable Care Act: projected costs, 2010 – 2019 ($Billions) Adapted from McDonough (2011), Table 1 ExpenseRevenue/ savings I. Private coverage expansion50981 II. Medicaid/CHIP45953 III. Delivery system reform and Medicare54450 IV. Prevention181 V. Workforce180 VI. Transparency/fraud37 VII. Biological similars07 VIII. CLASS (not being implemented)070 IX. Revenues0438

Major revenue provisions in Title IX of Affordable Care Act Adapted from McDonough (2011), Table 8 10 year revenue ($B) 1Broaden Medicare hospital insurance tax base for high- income taxpayers 210 2Impose annual fee on health insurance providers60 3Impose 40% excise tax on high-cost health coverage (aka Cadillac tax) 32 4Annual fee on branded drugs27 5Exclude unprocessed fuels from cellulosic biofuel producer credit 24 6Excise tax on medical device makers20 7Information reporting on payments to corporations (repealed April 2011) 17 8Raise 7.5% medical-expense deduction floor to 10%15 9Limit health FSAs to $2, Change definition of medical expense for health savings accounts 5

Concluding thoughts The Affordable Care Act laid out a plan for changing the social safety net that is revolutionary and marginal at the same time.  Revolutionary because of the commitment to universal coverage  Marginal because it focuses on a small fraction of the existing market (individual policies) It also represents an attempt to address the structural deficits created by Medicare and Medicaid through delivery system reform.  These problems need to be addressed regardless of what happens to coverage.

National health expenditures by payer, 2009 Source: CMS Total = $2.5 trillion = $8,086 per person = 17.6% of GDP