Accountable Care Organizations: Good in Theory, Slow to Catch On

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1 Accountable Care Organizations: Good in Theory, Slow to Catch On The phrase "accountable care organization" (ACO) was coined in But it didn't really start gaining currency until three years later when the concept was specifically addressed in the Affordable Care Act (ACA). ACOs are integrated health care provider systems that link provider reimbursements to established quality and efficiency goals. The theory is that, if the provider offers high-quality and well-coordinated care, patient outcomes will be good, costs will be controlled and the ACO will prosper. In other words, the incentives of providers, payers and patients (getting good care at an affordable price) are all supposed to align. But the opposite is also true: ACOs that fail to deliver on their quality promises will struggle with costs and patient satisfaction and, ultimately, fail. Like many organizations, yours may be exploring a variety of health care delivery models to both comply with the ACA and provide good benefits to your workforce. Although ACOs aren't without their downsides, they have some potential advantages worth considering. The ACA Connection The ACA promotes ACOs primarily through its Medicare program. For example, the Medicare Shared Savings Program will allow providers who voluntarily agree to work together to coordinate care for patients and, if they meet certain quality standards, to "become eligible to share savings with Medicare when they deliver that care," according to a U.S. Department of Health and Human Services press release. In addition, the ACA's Comprehensive Primary Care Initiative seeks to help primary care practices serving Medicare patients "deliver higher quality, more coordinated and patient-centered care" in several parts of the country. Under the program, some primary care physicians' Medicare income will be supplemented by a monthly fee. Twenty Million Strong Because of its inherent risks, the ACO model has been slow to catch on. But the movement is beginning to gain momentum. Health care consultancy Leavitt Partners has been monitoring some 626 ACOs. Of these: 210 have commercial contracts, 329 have government contracts (that is, Medicare and Medicaid), and 74 have both. The firm estimates that 20 million people now receive health benefits via an ACO.

2 Direct Contracting Model Huge companies such as Boeing and Intel have been testing out the ACO model for years. Because of their size, these large businesses are able to establish their own ACOs by contracting directly with health care systems. For example, Intel launched an ACO for its 5,400 employees near Rio Rancho, New Mexico, last year, partnering with Presbyterian Healthcare Services. Intel projected savings in the $8 million to $10 million range over a five-year period. That Intel plan, called "Connected Care," provides 100 percent coverage for preventive care. Also, medications for hypertension, cholesterol, diabetes and some other conditions are fully covered to incent patient compliance on chronic-condition care. Each patient works with a specific team of specialists to facilitate maximum coordination of care. A number of pioneering smaller employers also are giving ACOs a try. Typically, they're doing so as options in private exchanges under a defined-contribution-based health care plan. Similarities with HMOs ACOs share DNA with health maintenance organizations (HMOs), the delivery model thought to hold great promise when employers first began experimenting with a variety of managed care models back in the 1990s. With a few notable exceptions, such as Kaiser Permanente and Intermountain Healthcare, HMOs failed to take the market by storm. One distinction between today's ACOs and the non-staff-model HMOs (in other words, organizations that don't employ providers) is a greater emphasis on provider quality and coordination of care as a means of improving patient outcomes again, with an intended byproduct being lower costs. But critics are quick to point out that, when cutting costs is the primary purpose of a health care delivery model, the results will likely be disappointing. Nonetheless, advances in electronic medical records systems and data analytics since the 1990s give ACOs a greater shot at success. And, perhaps most significantly, employee resistance to HMOs generally centered on limited provider choice. ACOs operate with similar "narrow network" constraints but, according to advocates, this can be overcome with effective employee education. Employee Buy-In Employees can be hesitant to try new health care options such as ACOs especially if they've had negative experiences with HMOs. Employers and their ACOs will need to build trust with employees to enable participants to find a comfort level and confidence in both the plan itself and the provider network supporting it. Granted, one notable challenge to this process may be convincing employees that a narrower network can meet their needs as effectively as a larger one. To procure employee buy-in for an ACO, an employer and the plan provider will need to emphasize certain aspects of the health care benefits experience. For starters, pre-enrollment communication is paramount. Participants must be well informed on the ins and outs of the model. Once employees have bought into the concept, the orientation process must be methodical and comprehensive. And when the plan is up and running, customer service should be easily accessible, friendly and responsive. Risks and Rewards As with any health care delivery model, a good theory is only the starting point for assessing an ACO's potential for your organization. If you choose to become an early adopter, you'll need to be comfortable with the prospect of a period of trial and error before determining the model's suitability. Key variables will include the depth, quality and competitive landscape of the health care market in your community. You'll also need to weigh your willingness to provide strong plan design incentives to steer employees to the ACO, such as lower coinsurance, copays and deductibles. Work with your financial and benefits advisors to identify the risks and rewards of this model.

3 IRS Proposes Changes to Play-or-Pay Measurement Periods Under the ACA, large employers (as defined under the act) risk a penalty if they don't offer affordable, "minimum essential" health care coverage to their full-time employees. This is the concept popularly known as "play or pay." In September, the IRS released Notice to propose approaches for identifying those full-time employees in situations where the measurement period applicable to an employee changes. Available Methods Under the final play-or-pay regulations, applicable large employers may identify full-time employees using either of two methods: 1. The look-back method. Here, hours are tracked during a measurement period of up to 12 months starting on a date selected by the employer. The hours are counted during an optional administrative period immediately after the measurement period, and they're used to "lock in" full-time or part-time status during a "stability period" of up to 12 calendar months. 2. The monthly method. Under this approach, employers identify full-time employees each calendar month by counting hours only during that month. The employer can choose different measurement periods and different methods for specified categories of employees (such as salaried and hourly). Notice looks at changes in the duration or start date of measurement periods under the look-back method, and it addresses an employer's election to change from the look-back method to the monthly method (or vice versa). The Notice also provides examples to illustrate the rules. Measurement period changes: The proposed rules apply when the measurement period changes because an individual employee transfers positions within the same applicable large employer. Also, employer-initiated changes to the measurement period for a category of employees will be treated as if those employees had transferred to new positions as of the effective date of the change. Notice categorizes employee transfers under two circumstances: 1. The employee is in a stability period. Employees in a stability period at the time of transfer will retain their full-time or parttime status for the remainder of that stability period. At the end of that period, the employees' status will be based on hours during the measurement period for their second position and will be locked in for the associated stability period. To the extent the measurement period for the second position overlaps the measurement period for the first position, the employer would count all hours during the second position's measurement period including those overlapping hours that were credited during the first position's measurement period. If an employee's status in the second position cannot be determined under the measurement period applicable to that position (as could happen for a new variable-hour employee not yet employed for a full initial measurement period applicable to the second position), the rules for an employee who isn't in a stability period apply. 2. The employee isn't in a stability period. At the time of transfer, if an employee isn't in a stability period for the first position, the employee's status will be determined solely under the second position's measurement period. The employer will take into account all hours credited during the second position's measurement period, including hours that overlap with the first position's measurement period. The Notice emphasizes this special rule doesn't override general principles under the look-back method. For instance, still applicable is the requirement that new employees who are reasonably expected, as of their start dates, to work full-time hours generally will have full-time status determined under the monthly method until they complete one full standard measurement period. Notice explains the application of the rules when new full-timers transfer to positions for which they've completed a standard measurement period. Generally, the ACA's rules for method changes, which are included in the final regulations, require a transition period intended to protect employees who have earned full-time status. But the final regulations don't address whether, or under what conditions, an employer can initiate a switch between the look-back and monthly methods.

4 Notice states that employers may switch between methods provided that they adhere to the same transition rules that apply when individual employees have a method change due to a change in employment status. Comments requested: Until further guidance is issued, and at least through December 31, 2016, employers can rely on Notice The IRS has, however, requested comments on the proposed approaches particularly as they might apply to mergers and acquisitions where the parties to the transaction use different measurement periods or methods. Until then, employers involved in a corporate transaction may rely on the approaches described in the Notice. Comments can be submitted until December 29, With the first stability periods under the look-back method slated to start Jan. 1, 2015, Notice fills some important gaps in the existing guidance. Correctly identifying full-time employees is of utmost importance because, as mentioned, a full-time employee's receipt of subsidized coverage on a Health Insurance Marketplace may trigger an employer penalty. Furthermore, large employers will soon become subject to an ACA-mandated reporting requirement regarding information about the coverage offered to full-time employees Offer a Cafeteria Plan? New Election Changes Now Allowed If your organization offers a cafeteria plan, take note: The IRS has expanded the permitted election change rules. Now allowed are midyear election changes for two additional situations in which employees may want to drop their employer-sponsored health care coverage. Beginning September 18, 2014, cafeteria plans may allow employees in these two situations to prospectively revoke an election for coverage under a group health plan that: Isn't a health care Flexible Spending Account, and Provides minimum essential coverage when specific conditions are met. These changes were announced in IRS Notice Reduction of Hours The first situation involves an employee whose hours of service have been reduced to less than 30 hours per week without a corresponding loss of eligibility for the employer's group health plan for example, because the plan's eligibility provisions have been drafted to avoid penalties under the ACA's "play or pay" provisions. Such an employee may drop group health plan coverage midyear, but the change must correspond to the employee's intended enrollment (and the intended enrollment of any related individuals whose coverage is being dropped) in other minimum essential coverage. The new coverage must be effective no later than the first day of the second month following the month in which the original coverage is dropped. Cafeteria plans may rely on an employee's reasonable representation about the intended enrollment. This particular election change would accommodate an employee who wishes, for example, to enroll in the plan of a spouse's employer after the reduction of hours. Note: Election changes under this provision aren't limited to situations involving the playor-pay rules. Marketplace Coverage The second situation involves an employee who'd like to change from the employer's group health plan to Health Insurance Marketplace coverage without a period of duplicate coverage or no coverage. Such an employee may drop group health plan coverage midyear but only if the change corresponds to the employee's intended enrollment (and the intended enrollment of

5 any related individuals whose coverage is being dropped) in the Health Insurance Marketplace coverage that's effective no later than the day after the last day of the original coverage. Cafeteria plans may rely on an employee's reasonable representation about the intended enrollment. This additional election was intended, at least in part, to allow employees participating in non-calendar-year plans to elect Health Insurance Marketplace coverage during a Marketplace's open enrollment period and drop their employer-provided coverage when the Marketplace's coverage takes effect. Additional Information The IRS intends to amend the permitted election change regulations under Internal Revenue Code Section 125 to reflect the new guidance. But taxpayers can rely on the guidance immediately. Also, allowing the additional election changes is optional and will require a plan amendment. The amendment generally must be adopted on or before the last day of the plan year in which the additional changes are allowed. The changes can be effective retroactively to the first day of that plan year, provided that the plan operates in accordance with the guidance and that participants are informed of the amendment. Under a special rule, employers that begin allowing the changes during the 2014 plan year have until the last day of the 2015 plan year to adopt an amendment. Although plan amendments may be adopted retroactively, election changes to revoke coverage retroactively aren't permitted. Increased Flexibility The additional permitted election changes provide increased flexibility and resolve questions about the interaction between the ACA and the permitted election change rules, which were drafted long before the act was signed into law. If your organization intends to allow the additional changes, you'll likely appreciate having some extra time to amend your plan. Should you need time to think about it, however, remember to keep the deadline in mind. Also don't forget that, if you'll be allowing the additional changes, you must communicate such plan revisions to employees while properly coordinating them with third-party administrators or other service providers.

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