Healthcare Reform: How It Will Impact Your Bottom Line

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President Obama recently signed into law HR 3590, the “Patient Protection and Affordable Care Act,” ushering in dramatic changes to how healthcare coverage is paid for and dispensed in the United States. The Congressional Budget Office (CBO) predicts that it will extend healthcare coverage to nearly 32 million uninsured Americans. While the ink was still wet, Congress passed HR 4872, “The Health Care and Education Affordability Reconciliation Act of 2010.” This included changes to the new law, demanded by House Democrats in exchange for passing HR 3590. Congressional Democrats hailed the law as a good first step, whereas Republicans—who unanimously opposed the law—have promised to try to repeal it.

Public reaction has been no less volatile than last year’s discussions on healthcare reform, with the most vigorous opponents warning that the law puts the United States on the trajectory toward socialism, bankruptcy, and euthanasia. Some supporters of the final bill are pleased but not euphoric, lamenting that it falls far short of a desired singlepayer healthcare system (ie, “Medicare for all”) and rewards pharmaceutical companies and health insurers to the detriment of taxpayers.

Republican attorneys general in at least 14 states plan to challenge the law in federal court as unconstitutional, claiming it infringes on state powers. In addition, state legislatures in Idaho and Virginia preemptively adopted legislation to exclude their residents from being subject to various provisions of HR 3590, and other states are threatening to do the same. A group calling itself NJ Physicians has also filed suit.

Virtually everyone agrees the new law fixes some of the most egregious problems with private healthcare coverage. It prevents insurers from denying coverage to people with preexisting conditions, capping lifetime benefits, or dropping policyholders who become ill. It also includes tax breaks for businesses with fewer than 50 full-time employees that provide healthcare coverage to their employees and subsidizes insurance for people who cannot afford it.

The bill fails to fix the Medicare Sustainable Growth Rate (SGR), which mandates steep cuts in physician reimbursement every year; a 21% cut is scheduled for this year.

What’s in the law?

HR 3950 exceeded 2300 pages, and the Reconciliation Act added another 150 pages to healthcare reform legislation, so it may be a while before we figure out everything the law enacts. Several of the more widely discussed measures are highlighted in the table on the next page. As the table on page 21 shows, coverage for most uninsured adults aged >26 years is not likely to kick in until 2014, when insurance exchanges become operational. Prior to 2014, they have the option of buying an insurance policy from a high-risk pool in which premiums are limited to 4 times the rate of regular premiums, but the cost is likely to be prohibitive for many.

By 2014, each state will have to have an American Health Benefit Exchange and a Small Business Health Options Program Exchange in place. At these exchanges, individuals and businesses with fewer than 100 employers can choose from four different tiers of coverage, with coinsurance requirements ranging from 60% to 90%. Deductibles in the small group market are capped at $2000 per individual and $4000 per family. Out-of-pocket requirements cannot exceed Health Savings Account limits. The exchanges must also offer a catastrophic- only plan to people aged <30 years or those exempt from the mandate to secure coverage.

With an influx of 32 million “new” patients by 2014, a major concern is whether the shortage of primary care physicians in the United States and predicted deficits of surgeons, oncologists, and other medical professionals in the coming decades will lead to longer waiting periods to get needed care. Beginning with fiscal year 2010, HR 3590 designates $1.5 billion for training programs designed to increase the number of primary care physicians, nurses, and public health professionals. It also establishes a task force to examine ways to shore up the healthcare workforce.

States, already forced to make cuts to Medicaid programs, are worried that they cannot afford an influx of new enrollees. The federal government will fund 100% of costs for new subscribers through 2016, when it is hoped that states will be in better financial shape to bear additional expense. Governors from both parties have expressed concern that shifting Medicaid costs onto states in 2017 will require cuts to other important state programs and say federal assistance may be needed beyond 2016.

To help reduce costs and compensate for the physician shortage, the bill provides $11 billion to fund staff increases and expand facilities at the nation’s 1500 nonprofit community health centers. The goal is to double the number of patients served at these clinics over the next 5 years. HR 3590 also includes several provisions related to patient-centered medical homes, such as grants to states that develop medical home models and authorization for health insurers to cover services at an eligible medical home. It also allows pharmacists and clinicians to provide some services using telehealth resources.

Reducing Medicare and Medicaid costs is also one of the legislation’s top priorities. It requires the new Center for Medicare and Medicaid Innovation (CMI) to be operational by January 1, 2011. CMI will examine payment and service delivery models designed to reduce program expenditures without compromising quality of care. A major focus is on models that move away from fee-for-service reimbursement.

Other provisions with an eye toward reducing costs include implementing a national program to prevent diabetes, an expensive and growing health problem in the United States. The bill also establishes the Patient-Centered Outcomes Research Institute, a nonprofit agency that is government funded but not government run. The board will consist of physicians, including at least one surgeon; patient advocates; a nurse; representatives from the pharmaceutical and health insurance industries; two government representatives; and the director of the National Institutes of Health (NIH). The Institute will look at the effectiveness of different medical treatments and practices, seek public commentary, and report its findings to the secretary of the Department of Health and Human Services (HHS). The law prohibits the data from being used to “mandate coverage, reimbursement, or other policies for any public or private payer,” however.

To lower the expense of prescriptions over time, Congress outlined a process for manufacturers of biosimilars (generic formulations of biologic drugs) to seek FDA approval. In a blow to manufacturers of generics, the law grants 12 years of marketing exclusivity to brand-name biopharmaceuticals, a provision critics charge was a giveaway to pharmaceutical companies in exchange for their support. The law also limits the amount makers of biosimilars can charge to 6% of the cost of the brand-name product.

How It Affects Everyone

In 90 Days

• Adults denied coverage because of a preexisting condition can get insurance through an interim high-risk pool until 2014 provided they have not had insurance for the previous 6 months.

• A 10% tax will be charged to consumers of indoor tanning services.

In 6 Months

• Lifetime benefit maximums are prohibited and annual maximums are curtailed.

• Plans can no longer exclude children for preexisting conditions.

• Dependent children can remain on their parent/guardian’s plan until 26 years of age.

• New private policies must cover 100% of preventive services and immunizations, which will not be subject to deductibles. (Preventive services are those recommended by USPSTF with a grade of A or B.) All plans must comply by 2018.

• New subscribers must have access to effective internal and external appeals processes.

• Subscribers cannot be dropped when they become sick.

• No prior approval will be required to see a gynecologist or go to the emergency room.

• Adoption credit is increased by $1000 per eligible child.

January 1, 2011

• Insurers must spend 80% to 85% of premiums on medical services or give subscribers premium rebates.

• Distributions from a health savings account that are not used for qualified medical expenses will be subject to a 20% tax.

• Through payroll deductions, employees can voluntarily contribute to a long-term care insurance program for adults who become functionally disabled.

• States can require insurance companies to justify requested premium increases; companies that have excessive rate hikes may be excluded from the health insurance exchanges.

January 1, 2013

• The health flexible spending account annual maximum cannot exceed $2500.

• The threshold for itemizing medical expenses increases from 7.5% of income to 10% for people aged <65 years.

• A 2.3% sales tax on medical devices goes into effect, excluding eyeglasses, contact lenses, hearing aids, and everyday items bought at the drugstore. .

January 1, 2014

• Self-employed and uninsured individuals can select a private plan from a state-based insurance exchange or a national private plan.

• Adults with preexisting conditions cannot be refused coverage or charged more.

• Policies cannot include annual limits.

• Subscribers cannot be dropped when they get sick nor can they be charged more.

• Premiums for older subscribers cannot exceed three times the premium rate for younger subscribers.

• Premiums can vary only by age, place of residence, family size, and tobacco use.

• Subscribers who want an abortion coverage rider must pay for it out-of- pocket (except in cases of rape, incest, or the life of the mother).

• Penalties go into effect for individuals who do not have coverage or fail to provide coverage for their dependents, unless they meet specified criteria.

How It Affects High-Income Adults

January 1, 2013

• The Medicare payroll tax for couples earning >$250,000 and individuals earning >$200,000 will increase on wages above those thresholds from the current 1.45% to 2.35%.

• These same earners are subject to a 3.8% tax on income from investments.

How It Affects Businesses

Immediately

• Small businesses (<50 employees* and average annual wages ≤$40,000) that provide group insurance will receive tax credits of up to 35% of premiums as of January 1, 2010.

January 1, 2011

• A temporary reinsurance program is established to offset costs for companies that provide health benefits to early retirees aged 55 years to 64 years.

• Employers must include the value of health benefits on employees’ W2s.

January 1, 2013

• Employers will no longer receive a tax deduction for subsidizing prescription drug plans for Medicare Part D—eligible retirees.

January 1, 2014

• Small business tax credits will cover up to 50% of premiums.

• Small businesses can pick a private plan from a state-based insurance exchange.

• Large employers (≥50 employees*) who do not offer coverage or who offer unaffordable coverage will pay a penalty if any full-time employee purchases insurance through a state exchange or receives a subsidy.

• Large employers (≥200 employees*) must automatically enroll new employees in the health insurance plan but give them notice and an opportunity to opt out.

• Large employers (≥50 employees*) will be assessed a penalty for imposing waiting periods >30 days for insurance to become effective.

*Contracted employees, 2% shareholders, and 5% owners are not included in this total.

How It Affects Seniors on Medicare

Immediately

• Subscribers subject to the Medicare Part D donut hole will receive a $250 rebate.

January 1, 2011

• Medicare Part D subscribers will receive a 50% discount on brand-name drugs in the donut hole.

• Medicare will no longer charge copayments for preventive services and they will no longer be subject to deductibles. (Preventive services are those recommended by USPSTF with grade A or B.).

January 1, 2016

• The threshold for itemizing medical expenses increases from 7.5% of income to 10%.

January 1, 2020

• Donut hole will be closed but seniors will be responsible for 25% of prescription costs until catastrophic coverage kicks in.

How It Affects Low-Income Adults Not Eligible for Medicare

In 6 Months

• States will have the option of offering disabled Medicaid recipients home- and community-based care instead of institutional care.

January 1, 2011

• Covers 100% of comprehensive tobacco cessation services for pregnant women enrolled in Medicaid.

January 1, 2014

• Childless adults earning 133% of Federal Poverty Line can apply for Medicaid.

• Premiums will be capped at 4% of income (9.5% for those earning 300% to 400% of Federal Poverty Line).

• Out-of-pocket spending on healthcare will be capped at just under 15% of income.

What About Physicians?

For the most part, physicians were largely ignored in the healthcare legislation. It fails to fix the Medicare Sustainable Growth Rate (SGR), which mandates steep cuts in physician reimbursement every year; a 21% cut is scheduled for this year. Congress always passes stopgap measures to nullify the reductions but has never fixed the overarching problem.

Congress also failed to include medical malpractice reforms in the bill, which means some specialists will continue paying triple-digit rates for malpractice insurance. While the bill does provide funds to states that want to experiment with new programs designed to reduce medical malpractice—such as having cases tried by medical experts rather than juries—it restricts the states from limiting damages for pain and suffering. This all but ensures that the practice of defensive medicine will continue.

Hospital administrators are looking for ways to save money to make up for the reimbursement cuts they agreed to, and some are considering asking physicians to “bundle” their expenses into a single bill. The law encourages but does not require this practice. It is not clear what effect bundling would have on physician’s salaries.

To attract medical students to primary care and surgery, general practitioners and surgeons working in underserved areas will receive a 10% Medicare bonus. The “frontier provision” increases the Medicare reimbursement formula for outpatient services at hospitals in Wyoming, Montana, North Dakota, South Dakota, and Utah beginning in October 2010 to help them compete with more populated areas for physicians. The reimbursement increases will be extended to include hospital inpatient services and physicians’ services in these states in 2011. The law also authorizes higher Medicare reimbursements for services provided by specialists at hospitals, with the goal of driving specialists to take salaried positions and away from fee-for-service.

Congress also failed to include medical malpractice reforms in the bill, which means some specialists will continue paying triple-digit rates for malpractice insurance.

Healthcare Reform and Cancer Care

In addition to provisions likely to affect patients with cancer directly—namely, no denials for preexisting conditions, no benefit caps, and provision of subsidies—the law addresses other aspects of cancer care, with an emphasis on prevention and early detection. For example, it calls for a “national evidence-based campaign” to increase awareness of breast health and breast cancer in younger women. The Centers for Disease Control and Prevention (CDC) will oversee the program, which has been allocated $9 million annually for fiscal years 2010 through 2014. The CDC will give grants to organizations and institutions that provide health information and assistance to young women with breast cancer and pre-neoplastic breast disease. As part of the program, the law charges NIH with conducting studies on the psychosocial effects of breast cancer on young women. The CDC will also direct a 5-year awareness campaign on preventing oral diseases, including oral cancer.

Beginning in 2010, facilities such as hospitals, community health centers, comprehensive cancer centers, and nonprofit groups are eligible for grants to conduct screening programs for individuals at risk for environmental health conditions. The 10-year program covers screening for diseases such as asbestosis, mesothelioma, and malignancies of the lung, colon, rectum, larynx, stomach, esophagus, pharynx, or ovary. In addition, HHS will fund a 5-year pilot Wellness Program from 2010 through 2014 that covers public programs to screen people aged 55 to 64 years for cancer, stroke, and diabetes; assists the uninsured in finding coverage; and provides referrals for tobacco cessation and other programs.

In an effort to improve care for Medicare patients and reduce expenditures, CMI will consider models for using payment incentives to encourage physicians to provide treatment and follow-up care for cancer patients in alignment with national evidence- based guidelines. The HHS secretary will also draw up plans for the Medicare Hospice Concurrent Care demonstration program, which will run for 3 years, at no more than 15 hospice programs across the country. The study is designed to see whether the program improves care and quality of life and is cost-effective.

Additional provisions include increased reimbursement for some cancer hospitals that demonstrate higher costs than regular hospitals, mandated coverage for routine items and services supplied to patients with cancer or life-threatening illnesses who are in a clinical trial, and tax-free grants to independent researchers or small institutions working on promising cancer treatments or diagnostic tools.

Other Medicare savings come from reduced reimbursement for radiology services provided in private offices or at an imaging facility. This does not include radiation oncology.

Who Pays

With the nonpartisan Congressional Budget Office (CBO) putting a 10-year price tag of $938 billion on the healthcare package, many people fear that the nation—already deep in debt—cannot afford it. When arguing for the bill earlier this past year, President Obama argued that the country could not afford not to adopt it, saying the reforms would pay for themselves over time. The CBO estimated that the reforms would reduce the deficit by $130 billion in the first decade and another $1.2 trillion in the following decade. But any number of unforeseeable circumstances could render this estimate moot. While the bill was passed under a “pay as you go” system, it is partly funded by assumed savings that may never be realized.

The bulk of the reforms are expected to be covered by the new fines, taxes, and fees assessed in the bill. In the next 10 years, pharmaceutical companies will shoulder $85 billion in fees and reduced drug prices for subscribers to Medicare and Medicaid, and hospitals will receive $100 billion less in Medicare and Medicaid payments and $40 billion less for treating uninsured patients. In addition, insurers with premiums exceeding $25 million will be assessed an annual fee based on their market share. All these groups are banking on increased revenue from the 32 million newly insured Americans to offset these costs. Another $20 billion is expected to come from a 2.9% tax on device manufacturers for revenue from US sales of medical equipment and devices, such as bedpans and surgical instruments. It is not clear whether the tax applies to diagnostic tools. Taxes paid can be deducted against other corporate taxes, but device manufacturers nevertheless feel it cuts too deeply into revenue and will stifle innovation.

Large employers, classified as those with more than 50 full-time employees, will bear some of the burden of these reforms. Beginning in 2014, those that elect not to offer group coverage or that have an employee who obtains insurance through an exchange will be fined $2000 per employee for all but 30 of their employees (Example: An employer with 50 employees would pay 20 x $2000 or $40,000). When workers at a large company receive a subsidy to afford the employer’s healthcare plan, the employer has to pay a $3000 fine per subsidized employee or $750 for each employee at the company (whichever is less). Some economists have predicted many employers will opt for the fines rather than pay for employee healthcare coverage. In contrast, the CBO projects the number of people covered under employee-sponsored health insurance plans will increase steadily until 2015.

Medicare Cuts

The law includes $400 billion in Medicare cuts in the coming years. In addition to the cuts in reimbursements to hospitals, which some predict will lead to reduced services, an estimated $132 billion will come from cuts to Medicare Advantage over the next 10 years. The Medicare Advantage program pays 14% more to insurers to cover enrollees than traditional Medicare spends on the average subscriber. Tax credits for subsidies to insurers will be frozen in 2011 and start to decline in 2012, likely increasing rates for Medicare Advantage plans. Those that cannot afford the increases will be driven back into the traditional Medicare pool, contradicting the president’s promise that if you like your current plan, you can keep it. Insurers participating in Medicare Advantage and providing high-quality plans will continue to receive bonus payments.

Other Medicare savings come from reduced reimbursement for radiology services provided in private offices or at an imaging facility. This does not include radiation oncology. Reimbursement is currently calculated based on an assumption that imaging equipment is used 50% of the time the office is open. Effective 2011, the new calculation assumes the utilization rate to be 75% for all diagnostic imaging equipment costing more than $1 million—which applies to most MRI and CT machines. According to the American College of Radiology (ACR), which opposed the revision, providers will receive less per scan the further they are from meeting the 75% utilization rate. ACR predicts this will severely hamper rural providers and decrease access to services, leading patients to seek care at hospitals even for non-emergency situations. Despite these cuts, the American Society for Radiation Oncology (ASTRO) expressed support for the new law. “It is ASTRO’s opinion that the legislation is overall good for cancer patients,” said Laura Thevenot, CEO of ASTRO. Board chairman Tim R. Williams, MD, agreed, and he praised measures that “will lead to earlier diagnosis and treatment that will save lives.”

The Excise Tax

Some of the financing for the healthcare reforms is expected to come from an excise tax that will be levied on high-cost, employer-provided insurance plans—so-called “Cadillac” plans. Approximately 19% of today’s workers have these high-end plans, which typically have no copayments, coinsurance, or deductibles. The goal is to discourage insurers from offering plans that include no cost-sharing measures, as required to participate in the exchanges.

The law requires insurers to pay a 40% surtax on individual insurance plans costing >$10,200 annually or family plans costing >$27,500 annually. The tax is assessed only on the portion of the plan that exceeds these limits. In other words, for a plan costing $11,000, the insurer would pay a 40% penalty on the $800 excess. For individuals in specified “highrisk” professions, the excise tax thresholds increase to $11,850 per individual and $30,950 per family. The legislation also builds in a formula to factor in considerations for the age of the employer’s workforce, which can affect premium rates. Insurers say this fee will be passed along to the employer, who will likely pass it along to the employee in some form.

Winners and Losers

The most obvious winners appear to be the uninsured, many of whom are in the 18- to 26-year-old bracket; people with preexisting conditions; people with expensive or chronic conditions; and small business owners. While physicians did not benefit significantly from direct measures in the legislation, American Medical Association president James Rohack, MD, said of the law’s passage, “Physicians see firsthand the pain and heartbreak that being uninsured causes in the lives of America’s patients. Today, we move forward to start to ease that pain.”

The American Society of Clinical Oncology (ASCO), which represents 28,000 oncologists, released a statement largely supportive of the reforms. “While ASCO recognizes that there are strong feelings on both sides of this issue, we are very pleased that the newly passed Patient Protection and Affordable Care Act signed into law this week includes a number of things that will benefit cancer patients in the short term and the long term,” the statement said. ASCO criticized Congress for failing to address the SGR and expressed concern that the law does not guarantee “sufficient coverage” for all uninsured patients with cancer, who “cannot afford to wait.”

Some say the real winners are the pharmaceutical companies and the health insurers, who stand to gain 32 million more paying customers. Others say the economy is the winner, because more focus on prevention, early diagnosis, and treatment will reduce the burden of illness in this country and the percentage of the gross domestic product that goes toward healthcare costs.

The losers are harder to predict. Critics of the law say the American people lose on several fronts. They say the shortage of physicians and need to hold down costs will lead to rationing of services. Other arguments are that the mandates and fees will stifle job growth and hamper innovation and that the law’s requirements will lead to more deficit spending. High-wage earners will have to pay more in taxes but they may ultimately benefit from some of the law’s other provisions.

We are unlikely to know at least until the mid-term elections which political party will suffer the most fallout from passage of these sweeping healthcare reforms. Early polling has been mixed, with some polls showing majority support and others showing majority opposition. One poll found 12% of people opposed to the legislation said it “did not go far enough.” Most people will not feel the impact of the reforms until 2014, and their views may evolve over time as the law’s effects become more apparent. Social Security and Medicare also had their share of critics when enacted; yet few people today want to see them eliminated.

Comments on Healthcare Reform from Members of the OBTN Editorial Advisory Board

Too bad it didn’t go far enough and provide a public option. However, with appropriate policing, should be better than what we have now.

—Anthony Elias, MD

Denver, Colorado

While I support the legislation in general, what neither of the polarized parties has owned up to is the core problem of rationing. We currently ration care by insurance denial with the motivation being to enhance corporate earnings. Hospitals and physicians are motivated to provide the most expensive care possible. Hopefully, this legislation is the first step to a more logical analysis of what works and what we can afford as a society, which clearly is not new agents or new procedures with limited efficacy during our last 24 months of life on earth. Supporting the research that leads to these small advancements is fine, but their application at large should remain in a research environment for those patients/physicians who wish to continue studying their application.

—L. Michael Glodé, MD, FACP

Denver, Colorado

Expanded coverage, dependent extensions, routine costs of care for cancer coverage, elimination of preexistings, and elimination of lifetime maximums are the main positive points.

—Ron Walters, MD

Houston, Texas

I think that the Health Reform is going to be good for the so-called uninsured or underinsured portion of the population. However, as a doctor and healthcare provider, I have misgivings about the portions that deal with “rationing” or limitation of services or funding. I really have to read the whole reform to be better informed about it.

—Reuben C. Guerrero, MD, FACP

Honolulu, Hawaii

While far from perfect, the Health Reform Legislation that was just passed paves the way for resolving many of the long overdue problems experienced by millions of Americans each year including the lack of any insurance or inadequate insurance, denial for pre-existing conditions, loss of coverage when unemployed, among others. Having said that, there are persistent and misguided efforts to reverse this legislation that may still derail many of the needed healthcare reforms promised in the bill. If implemented, the healthcare reform legislation should be considered only the first step to assuring that all Americans have access to good healthcare regardless of age, medical history, employment status or income.

—Gary H. Lyman, MD, MPH, FRCP(Edin)

Durham, North Carolina

I’m happy overall about this new legislation. Extending healthcare coverage to 31 million uninsured people seems like a good idea.

—Habib Doss, MD

Springfield, Tennessee