Managed Care and Major Healthcare Payers

Transcription

1 Managed Care and Major Healthcare Payers The two major payers of healthcare in the United States are the government (federal and state) and employers. Both have participated extensively in managed care and have been affected by its successes and failures. This module examines the ways in which federal and state healthcare programs have adopted managed care strategies and the response of employers to increases in the cost of managed care. It also explores the impact of the Affordable Care Act of 2010 on public and private healthcare coverage. Objectives Upon completion of this module, you will achieve the following objectives. Test questions will reflect these objectives. 1. Identify the basic components of the Medicare Program. 2. Describe the managed care strategies that Medicare has adopted or enacted. 3. Describe the Medicaid program and the Children s Health Insurance Program (CHIP) and how they incorporate managed care. 4. Describe the influence of the Affordable Care Act (ACA) on public healthcare coverage. 5. Characterize the future of public health insurance programs. 6. Describe the role of the private sector in managed care and healthcare funding, and identify provisions of the ACA that impact private insurance. The Basic Components of Medicare Congress enacted Medicare in 1965 under the provisions of Title XVIII of the Social Security Act. Medicare is a health insurance program, administered by the Centers for Medicare and Medicaid Services (CMS) that provides healthcare coverage to Americans over age 65 and to those with certain disabilities. Before 1997, Medicare consisted of two parts: Medicare Part A, which helps pay for inpatient hospital care, skilled nursing facilities, home health services, and hospice care. Medicare Part B, which helps pay for physicians' services, outpatient hospital services, durable medical equipment, some drugs that are administered by injection during outpatient medical procedures, and a number of other medical services and supplies not covered under Medicare Part A. 55

2 Medicare recipients could (and can) also purchase Medigap products from private insurers. In exchange for a set premium, these policies provide coverage for costs that are not covered under the ordinary Medicare benefit most notably the co-insurance, copayments, and deductibles that Medicare requires of enrollees. Thus, a Medigap enrollee pays a premium to Medicare for Part A and B coverage, and an additional premium to a private insurer for the supplemental Medigap coverage. There is a variety of Medigap plans, including Medicare SELECT plans, which offer a PPO product to cover medical costs for which Medicare does not pay. Medicare SELECT enrollees pay reduced premiums in exchange for choosing providers from the PPO s network (eg, Medicare SELECT will pay the 20% co-insurance if a network provider is selected, but may pay no co-insurance or a reduced amount if a non-network provider is used for nonemergency services). Since 1997, additional Medicare plans and options have been added, most notably: Medicare Part C (Medicare+Choice) a managed care alternative added in 1997; now known as Medicare Advantage. Medicare Part D prescription drug coverage, which was added in These additions are discussed ahead in more detail. Medicare s Managed Care Strategies Initially, Medicare was simply a fee-for-service program. However, noting the popularity and success of managed healthcare plans and hoping to achieve greater solvency for the system, Medicare began in 1972 to contract with HMOs, where they existed, for the delivery of Medicare benefits. Several managed care strategies that Medicare has adopted (or enacted) are discussed below. Diagnosis-Related Groups (DRGs) One of the first managed care strategies adopted by Medicare to address rising costs was the concept of prospective payment agreeing to reimburse providers for future services according to set rates for defined groups of services. In 1983, Medicare implemented a prospective payment system that bundled hospital services into 468 diagnosis-related groups (DRGs). Each group defines specific services that it includes and the amount of reimbursement. The success of prospective payment and DRGs in reducing Medicare costs led the early managed care models to adopt similar methods of prospective payment for hospitals. 56

3 Expanded Choices through Private Managed-Care Plans The Balanced Budget Act (BBA) of 1997 was enacted to control the growth of Medicare spending and to provide Medicare beneficiaries with additional choices for care through private health plans. The BBA created a new program, Medicare+Choice, which allowed private sector PPOs, provider-sponsored organizations (PSOs), private fee-for-service plans, and HMOs with a point-of-service (POS) option to offer coverage to Medicare recipients (including prescription drug coverage) in exchange for capitated (per member, per month) payments from the federal government. This became Medicare Part C (later, to be referred to as Medicare Advantage). In many areas, beneficiaries may now choose from multiple managed care plans. For example, in southern California alone, a number of managed care plans are available to Medicare seniors, including Health Net Seniority Plus (operated by Health Net), Kaiser Permanente Senior Advantage (operated by Kaiser Permanente), and Secure Horizons (operated by PacifiCare). Modifications to Reimbursement Under the original Medicare reimbursement method (before the BBA), Medicare paid HMOs a per capita rate equal to 95% of the estimated cost of fee-for-service care. Rates were set according to county of residence, and adjusted for other demographic factors, such as age, gender or sex, and institutional status (home living versus nursing home). Even though the payment rate was 95% of fee-for-service, studies in 1998 by the Department of Health and Human Services and the General Accounting Office found evidence that Medicare was often paying an average of 13.2% more for beneficiaries in managed care than it would have paid to fee-for-service contractors for those same beneficiaries (as noted below, this remains an ongoing concern). This may have been because the beneficiaries who chose managed care were generally healthier than those choosing fee-for-service care and they required less medical treatment than estimated. Initially, MCOs were eager to expand their markets by gaining access to the huge Medicare population. Participation by the elderly and disabled increased steadily during the 1990s because the managed care plans, though more restrictive in choice as compared to fee-for-service, offered more comprehensive benefits, including prescription drug coverage, lower out-of-pocket expenses, and an emphasis on preventive care. Limits on pay increases to MCOs: At the same time that it expanded the types of organizations that could offer Medicare programs, the BBA also changed Medicare s 57

4 original reimbursement method. The Act limited payment increases to MCOs to 2% a year. This was less than the annual increase in the cost of providing coverage, which is estimated at about 5% to 8%. Thus, beginning in late 1998, a number of MCOs decided not to renew their Medicare contracts, or to reduce the geographic area they served. These organizations cited increased administrative burdens and anticipated slow growth in payments as the reasons for their decision to exit the market, maintaining that they were unable to operate a Medicare program at a profit under the limited reimbursement levels. Reductions in payments to physicians: In 2002, when the government reduced Medicare payments to physicians by 5.4%, physicians claimed that it was no longer economically feasible to continue treating Medicare patients. Many physicians refused to take new patients covered by Medicare because reimbursements did not cover the cost of caring for elderly patients. From 1999 to early 2004, 2.4 million Medicare beneficiaries were dropped from their managed care plans. Members were faced with switching to another Medicare MCO or reverting to the standard Medicare fee-forservice coverage, which did not include prescription drug coverage. Refinements to Medicare Part C: Refinements to Medicare Part C (Medicare+Choice) were made to address providers issues with reimbursement rates and with Medicare subscribers complaints about the unavailability of MCO plans and regional inequities. These issues were further addressed in the Medicare Modernization Act of 2003, commonly referred to as the MMA. Portions of the MMA were aimed at revising the reimbursement structure of Medicare+Choice to pay healthcare providers and insurers based on their patients levels of health risks. The revised program was renamed Medicare Advantage and provides more health plan choices and better benefits. For example, Medicare Advantage plan choices have expanded to include regional PPOs, which give beneficiaries who live in areas not previously served by any MCO new options for health plan coverage. However, reimbursement for Medicare Advantage continues to be an issue of contention. The Obama administration noted with concern that, as of 2009, Medicare Advantage plans were costing Medicare an average of 14% more than what it spent for beneficiaries enrolled in the traditional fee-for-service program. Management of the Prescription Drug Benefit The most prominent outcome of the MMA was the creation of Medicare Part D, which added outpatient prescription drug coverage as an optional benefit to Medicare 58

5 subscribers. Beginning in 2004, the program was phased in through Medicare-approved drug discount cards that offered beneficiaries savings of 10% to 25%. Full coverage became available in Individuals may obtain their coverage through their Medicare Advantage program (if available) or through a prescription drug plan (PDP). As of 2010, more than 27 million Medicare beneficiaries were enrolled in drug plans 17.7 million in PDPs, and another 9.7 million in Medicare Advantage plans. The number of stand-alone PDPs from which to choose rose from 1,429 in 2006 to 1,824 in In 2010, the total number of PDPs was This decrease was due mainly to mergers between sponsoring organizations and consolidation of plan offerings by sponsors. Upon implementation of Medicare Part D, beneficiaries paid: A monthly premium of about $32.50, depending on the plan and geographic locations. An annual deductible of $ % of drug costs between $250 and $2, % of drug costs between $2,250 and $5,100 (commonly referred to as the "donut hole"). About 5% of the costs above $5,100. The act allowed for annual adjustments to this schedule of benefits, and the second year saw an increase in the deductible. Subscribers soon discovered the effects of the "donut hole" in the drug plan s coverage. If at any point in the calendar year the subscriber s drug expenditures exceeded $2,250, the subscriber was responsible for 100% of drug purchases until catastrophic coverage kicked in at $5,100 or a total of $3,600 in out-ofpocket expenditures. The Affordable Care Act of 2010 provided significant changes (described ahead) to address this coverage gap. The PDPs approved by the CMS incorporate some of the prescription drug costcontainment strategies discussed previously, including formularies. Many of these formularies are tiered and require different levels of copays. As of 2008, most PDPs had eliminated the deductible, instead relying on a tiered copayment system. A majority of the plans offer a 3-tier system (generics, preferred, and nonpreferred brand name drugs), with most also adding a specialty tier. The plans charge more for both brand name drug tiers than do employer plans, offering a stronger incentive for enrollees to rely on generic drugs. 59

6 Debate over price negotiations: A key restriction of the MMA should be noted in the context of cost-containment strategies. The act specifically prohibits Health and Human Services (HHS) from negotiating drug prices directly with drug manufacturers for Medicare Part D drug benefits. Negotiating can occur only between the individual PDPs and the drug manufacturers. It has been argued that removing this restriction could save considerable money since the government would be in a much stronger bargaining position than any single PDP. Use of Medication Therapy Management Services (MTMS) Another key provision of the MMA established funding for Medication Therapy Management Services (MTMS) for Medicare beneficiaries. This requires that plans offering the new Medicare drug benefit have in place a program to help recipients use prescription drugs appropriately. The intent is to improve outcomes and reduce drug interactions. This program pays pharmacists to counsel patients who: Have multiple chronic conditions (such as, asthma, diabetes, hypertension, etc). Are taking multiple medications. Are likely to have high medication expenses. Tighter Reimbursement for Atypical Medications in Nursing Homes In May of 2011, the Health and Human Services Office of the Inspector General (OIG) published a report stating recommendations for how Medicare should handle atypical antipsychotic drug claims for elderly patients in nursing homes. The OIG recommendations were: 1. Facilitate access to information necessary to ensure accurate coverage and reimbursement determinations. 2. Assess whether survey and certification processes offer adequate safeguards against unnecessary antipsychotic drug use in nursing homes. 3. Explore alternative methods beyond survey and certification processes to promote compliance with Federal standards regarding unnecessary drug use in nursing homes. 4. Take appropriate action regarding the claims associated with erroneous payments identified in our sample. The third recommendation causes concern for nursing homes. The OIG presented strategies to prevent Medicare payments for drugs for beneficiaries of the Part D program, when those drugs were administered in violation of Federal standards. One example the OIG presented was for CMS to consider making nursing homes responsible 60

7 for reimbursing the Part D program when claimed drugs violate the CMS standards regarding unnecessary drug use. This would mean that nursing homes would be held responsible financially for medications used in the nursing home that are prescribed offlabel (ie, outside the drug s FDA indication or compendium recommended uses), such as antipsychotic medications used for behavior management. Medicaid and the Children s Health Insurance Program (CHIP) Medicaid, which is a jointly-funded federal and state program, was enacted through Title XIX of the Social Security Amendment of It is a healthcare assistance program administered by individual states under federal oversight. It provides medical benefits to eligible low-income individuals. In addition to administering Medicare, CMS oversees the states' administration of Medicaid programs. Like Medicaid, the Children s Health Insurance Program (CHIP formerly known as the State Children s Health Insurance Program [SCHIP]) is administered by individual states. Established through the Balanced Budget Act (BBA) of 1997, it may be seen as an extension of Medicaid that uses additional (but capped) federal money to provide healthcare coverage to a larger number of uninsured children. The federal government establishes the regulations and guidelines for these programs, and sets the eligibility requirements and coverage limits. The states are then free to design and administer their own programs within these limits. The federal and state governments share the costs of the program. Medicaid/CHIP Fiscal Challenges The fortunes of Medicaid/CHIP are closely tied to a state s fiscal health and the health of the national economy. Not surprisingly, there is strong pressure at both the state and federal levels to restrict spending. Consequently, like the managed care organizations that provide care to Medicaid participants, Medicaid hopes to be able to lower costs but raise quality through quality initiatives and disease management programs. The recession that began in 2008 has placed additional pressure on the programs, as enrollments increase and state budgets tighten. CHIP Reauthorization On February 4, 2009, President Obama signed into Law the Children's Health Insurance Program Reauthorization Act of 2009 (CHIPRA), reauthorizing CHIP through The bill also expands CHIP eligibility (enabling states to enroll an additional 4.1 million 61

8 children), provides federal incentives for states to expand their coverage, and offers provisions for improving the quality of care, including introducing electronic medical records for children in the plan. The bill also permits states to provide Medicaid and CHIP coverage to legal immigrants, revoking a previous provision, and it allows states to cover pregnant women. The legislation increases spending by around $30 billion between 2009 and 2013, to be paid for by an increase in cigarette taxes. How Medicaid/CHIP Incorporate Managed Care Most states are already expanding or implementing managed care programs for Medicaid recipients, resulting in marked increases in both the number of Medicaid managed care plans and the number of Medicaid beneficiaries enrolled in these plans. Today, nearly all state Medicaid/CHIP programs use some form of managed care, and the others are planning to implement managed care in the very near future. While these programs vary considerably in both the scope of reform and the proportion of beneficiaries affected, virtually all make use of a number of classic managed care strategies. These include prospective provider pricing, enrollment in HMOs and other capitation-based plans, tightly controlled drug formularies, physician gatekeeping, and utilization-control programs. Enrolling Medicaid/CHIP recipients in managed care plans and reimbursing providers on a capitated basis appears to produce significant savings for states. However, there are also significant obstacles. For example, a lack of appropriate planning before start-up, forcing physicians to accept Medicaid patients, and imposing non-negotiable reimbursement policies have created hostilities among patients and providers. The real and/or perceived notion that HMOs are making large profits and providing substandard care increases the concerns voiced by many who oppose mandatory managed care. How Passage of the ACA Influenced Public Healthcare The Affordable Care Act (ACA) of 2010 influenced public healthcare coverage in several ways, including placing an emphasis on quality and efficiency, closing the gap in Medicare Part D, and expanding Medicaid coverage. Emphasis on Quality and Efficiency The ACA includes provisions intended specifically to: Improve the quality of care. 62

9 Reform the healthcare delivery system. Price services appropriately and modernize financing systems. Fight waste, fraud, and abuse. Key provisions that became effective immediately in 2010 were: Ending overpayment to Medicare Advantage plans. Improving productivity and making payment adjustments for cost of goods and services in provider settings (long term care facilities, rehabilitation hospitals, hospice, etc). Modifying payments for advanced imaging services. Expanding competitive bidding for Durable Medical Equipment. Expanding the use of Recovery Audit Contractors (RACs) to reduce waste, fraud, and abuse. Longer-term provisions include improving the quality of care through: Reducing the number of hospital readmissions. Reducing hospital acquired conditions. Bundling payments for end-stage renal disease (ESRD). Improving physician quality reporting. ACOs and the IPAB: System reforms under the ACA include promoting Accountable Care Organizations (ACOs) and establishing the Independent Payment Advisory Board (IPAB). Both of these are important to the goals of achieving higher quality and greater efficiencies. The IPAB begins work in 2012 and will submit annual reports to Congress on how to improve quality of care for Medicare beneficiaries while reducing the rate of growth in Medicare costs. Their proposals are binding when Medicare cost projections exceed certain targets, unless Congress acts to reduce expenditures in other ways. Closing the Gap in Medicare Part D The ACA includes provisions to gradually reduce the percent of cost sharing for Part D beneficiaries in the gap from 100% to 25% by These provisions included the following: Starting in 2011, pharmaceutical manufacturers began providing a 50% discount on covered brand name drugs for those who fall into the coverage gap. In 2013, federal subsidies for the brand-name drugs will be phased in and will reach 25% by 2020 (leaving beneficiaries with a 25% coinsurance instead of 100% of costs). 63

10 In 2011, the government began providing a 7% discount on generic drugs for those who fall into the coverage gap. An additional decrease of 7% will occur each year until 2020 when federal subsidies will reach 75% of the generic drug costs. Between 2014 and 2019, the out-of-pocket amount that qualifies an enrollee for catastrophic coverage will also be reduced. Expanding Medicaid Coverage The ACA broadens Medicaid coverage to all persons under the age of 65 in households with incomes less than 138% of the Federal Poverty Level. It is estimated that, by 2014, the expansion of Medicaid will cover an additional 17.1 million adults. The Future of Public Health Insurance Programs Despite efforts to contain costs, a serious problem still exists for state and federal health insurance programs, one greatly exacerbated by the current recession. As more people became affected by the recession, they also became eligible for public coverage. It is expected that the number of uninsured will increase, fewer people will have private health insurance coverage, and state and federal health spending will increase as Medicaid enrollment grows all at a time of a shrinking GDP. The faster growth projected for both Medicaid enrollment and expenditures will accelerate public spending growth on healthcare. Public payers are expected to become the largest source of funding for healthcare by 2016 and to pay for more than half of all national health spending by Medicare In 2008, Medicare expenditures were $466 billion. By 2010, Medicare spending increased to approximately $519 billion. An aging population, a decline in the number of workers per beneficiary, and increasing life expectancy will add to the spending pressures on Medicare. The 2009 Medicare Board of Trustees report projected that spending of Hospital Insurance trust fund assets would exceed income beginning in 2010 and that trust fund reserves would be exhausted by In 2010, Medicare costs accounted for 23% of national health spending and 12% of the federal budget. Medicare is projected to grow from 3.6% of GDP in 2010 to 3.9% in These projections take into account the provisions in the Affordable Care Act of 2010, which seek to extend the Medicare trust fund reserves to the year

11 Medicaid Medicaid spending grew 9% in 2009 to $373.9 billion, or 15% of the total national health expenditure costs. CMS projects that these costs will grow to a projected 17.4% by 2014 due to passage of the Affordable Care Act; recall that the ACA expands Medicaid coverage to more individuals. Implementation of this expanded coverage will require states to improve processes such as: Updating eligibility systems. Providing simple enrollment, renewal, and coverage transition processes. Transitioning to a standard eligibility methodology using Modified Adjusted Gross Income (MAGI). Reaching eligible adults effectively via broad and targeted outreach efforts. Connecting newly eligible diverse adult populations with medical homes and access to needed care. Federal leadership, guidance, and assistance will be needed to help develop eligibility prototypes, enrollment systems, and processes to help states handle the increase in Medicaid participation. The Private-Sector in Managed Care and Funding Healthcare The recession increased pressure on the private sector, and continued slow economic growth lead to reduced growth in spending for private health insurance benefits. In this setting of declining resources, private sector initiatives to control cost became more critical than ever, and many insurance companies and large corporate employers began to offer more managed care plans. This discussion of the private sector looks at: Private insurance companies. Corporate employers. The emergence of consumer-driven health plans (CDHPs). Increased emphasis on wellness. Private Insurance Companies Insurance companies have had to become involved in managed care as a matter of survival in an increasingly competitive marketplace; today, virtually every large insurer has a managed care division. At a minimum, these companies have had to adopt many of the same cost-control initiatives (prospective payment, pre-admission certification, and other measures) implemented by managed care organizations. However, many insurers have moved beyond this limited role, aggressively developing or purchasing their own managed care organizations. To gain entire beneficiary groups from 65

12 employers or unions, many of these insurers have also developed so-called triple-option programs that include an HMO, a PPO, and a managed indemnity option. The impact of the ACA: The Accountable Care Act (ACA) included several insurance market reforms, many of which took effect for benefit plans beginning in September of These included: First Dollar Coverage of Preventive Services. Prohibition on Lifetime Limits and Restrictions on Annual Limits. Prohibition of Preexisting Condition Exclusions for Children Under 19. Extension of Dependent Coverage to Age 26. Rescission Limitations. Premium Increase Review. Grandfathering Requirements. Starting in 2011, health plans must comply with specific medical loss-ratio requirements of 85% in the large-group market, and 80% in the small-group and individual market. Insurers must give rebates to enrollees when the percentage of premium dollars spent on clinical care and health quality programs falls below those requirements. In addition, when the ACA is fully implemented in 2014, individuals and small businesses will have access to affordable coverage through a competitive private health insurance market referred to as State-level health insurance exchanges. These exchanges will likely fuel the growth of private health insurance as a projected 16 million people are expected to sign up for state-level health insurance exchange plans. Health insurance exchanges will provide a place where small businesses and individuals can find and compare the quality and price of health insurance options a sort of onestop shop. Along with this increased transparency, there will be increased competition among insurance companies. Individuals and small businesses can join together to purchase insurance that seeks to increase the size of the insurance pool, thus spreading the risks to a larger group and lowering the cost for those being covered. In 2011, the Department of Health and Human Services (HHS) began providing grants to help states develop state-level health insurance exchange plans. It is anticipated that each state s plan will look different due to different needs and goals. Various plan options are being explored in preparation for the required implementation in Corporate Employers Large American corporations have also played a significant role in the transition to managed care. In the face of rapidly spiraling health insurance expenditures, these 66

13 employers have embraced managed care, responding to the changing market with a variety of health insurance strategies. These include, among others: Offering workers managed care options as alternatives to conventional indemnity insurance (as stipulated by the HMO Act of 1973) Forming or purchasing HMOs to meet the medical needs of their employees Creating on-site medical centers at company locations Choosing a corporate "self-insurance" option, whereby the employer serves as the insuring mechanism through contractual agreement with a management services organization (MSO) Another trend is for large corporations to form alliances to improve their negotiating position with managed care organizations. Local companies often band together to purchase healthcare services. The formation of the National HMO Purchasing Coalition marked the first attempt to create a national purchasing power. When combined, the 10 companies involved in the coalition had a sufficient number of employees and industry presence to ensure that the managed care organization selected would provide high quality healthcare at the most advantageous cost. The activity in the public sector is one important indicator of trends in employer healthcare benefits. Since public employers are among the largest purchasers in many markets and are often regarded as market leaders, changes in benefit design that cause employees to switch providers or plans can have a major impact on struggling healthcare systems. In addition, the benefit decisions that public employers make often affect the health plans and other employers in the same region. The Emergence of Consumer-Driven Health Plans (CDHPs) Probably the most significant trend in employer health benefits is the use of consumerdriven health plans (CDHPs). In a CDHP, the employer allocates a defined healthcare contribution that employees can choose to spend in whatever manner they wish. Details of CDHPs can vary but, in general, reimbursements are drawn from a pre-tax health reimbursement account (HRA) or a health savings account (HSA). HSAs were established under the Medicare Modernization Act (MMA). In both HRAs and HSAs, unused funds can roll over annually. HSAs (but not HRAs) allow individuals, rather than employers, to own the funds; also, both employers and employees can make contributions to an HSA account. High-deductible health plans (HDHPs): HSAs must be used in conjunction with a high-deductible health plan (HDHP). HDHPs may also be used in an HRA. In HDHPs, 67

14 consumers accept a high deductible and a larger share of risk in exchange for lower premiums and more control over how healthcare benefits are spent. For example, an individual pays all medical expenses until the deductible (eg, from $1,350 to $3,500) is met; at that point the plan assumes complete or partial responsibility for all subsequent medical costs. In this way, consumers minimize out-of-pocket expenditures but retain coverage for catastrophic healthcare costs. Consumer-driven health plans have achieved great popularity among employers in a relatively short time. For example, while only 1% of large employers (with more than 500 employees) offered CDHPs in 2003, 15% of firms offering health benefits offered an HDHP/HRA, an HSA-qualified HDHP, or both in Increases are even greater for very large employers and state government employees. The percentage of employees who actually select such plans is, of course, smaller: 13% percent of covered workers were enrolled in an HDHP with a savings option (HDHP/SOs) in 2010, up from 8% in The overall rates of growth of both employers offering and employees enrolling in HDHP/SOs have been somewhat slower than anticipated. Employer contributions to HSA accounts: Employers are attracted to CDHPs/HSAs because they pay less in annual premiums to insurers about $1000 less for a CDHP/HSA than for other plans, including HMOs, PPOs, POS plans, and traditional indemnity insurance. However, it should be noted that many employers also make contributions to their employees HSA accounts as well as to their premium payments. These contributions went up significantly in 2010: $858 for single coverage (up from $428 in 2007) and $1,546 for family coverage (up from $714 in 2007). The large increase may be due, in part, to a December 2006 change in legislation that increased the maximum allowable annual HSA contribution. Rate increases also tend to be lower for these plans. Employees save on monthly premiums (according to some studies, about $200 a month) and can accrue unused funds. In an HSA plan, the employee can retain these accrued funds even after leaving a job. Proponents and critics of CDHPs: Proponents of CDHPs have cited noneconomic as well as economic arguments. For example, by assuming responsibility for more of their healthcare decisions, consumers must educate themselves about their options. A greater level of engagement is usually associated with a greater level of satisfaction. Proponents argue that consumer choice will challenge healthcare providers to improve education and the quality of the products they offer. 68

15 While CDHPs have become popular with employers, they are much less popular with CDHP enrollees. A 2006 survey found that only 37% of enrollees in CDHPs or HDHPs were extremely or very satisfied with their health plans, compared to 67% of individuals with comprehensive health insurance. The key to the success of such plans has been how well they educate participants in their use. Among employers offering HDHPs with a savings option (HDHP/SOs), 39% report that educating and communicating the change in benefit has been their biggest challenge. Critics of CDHPs are concerned that the structure encourages consumers to underuse healthcare resources. This concern was also supported by the 2006 survey: 38% of adults in CDHPs reported delaying or avoiding getting needed medical care because of cost, compared with only 19% in comprehensive plans. There are also doubts that consumers can or will achieve the desired level of knowledge about healthcare issues and options. In addition, critics note that tools to help consumers compare providers in terms of cost and quality are not yet available. Also, the benefit of CDHPs to consumers who use medical resources extensively has not been established. Increased Emphasis on Wellness While many employers are using consumer-driven health plans to shift some healthcare costs to their employees, they are also implementing wellness programs, which encourage healthier lifestyles and should help employees prevent many costly illnesses. Wellness programs might include: Seminars and information offered at no cost to employees. On-site health screenings. One-on-one health consultations. Coaching or support programs for employees with chronic conditions. Rebates from premiums to be applied to fitness center memberships. 24-hour health hotlines. Employers receive economic benefits from their investment in wellness programs. A University of Michigan study estimated a return on investment of $3 for every $1 spent the return usually taking the form of increased productivity and reduced absenteeism. A study by an MCO found that claims for CDHP participants increased at a much lower rate than for other patients an improvement it attributed to the CDHP participants increased awareness and sense of responsibility for their own health. Wellness programs are not limited to HDHP plans; 54% of employers offering health benefits include some wellness plan components. Bear in mind that MCOs, as well as 69

16 insurers, have also become active in developing and delivering wellness programs. The concept of wellness programs aligns easily with the common strategies of managed care, especially an emphasis on screening and prevention and disease management. Summary The following table summarizes information discussed in this module on how federal and state programs have adopted managed care strategies and how employers are responding to the rising costs of healthcare. 70

17 Managed Care and Major Healthcare Payers The two major payers of healthcare in the United States are the government (federal and state) and employers. Medicare is administered by the Centers for Medicare and Medicaid Services (CMS); it provides healthcare coverage to Americans over age 65 and to those with certain disabilities. It now consists of four parts: Part A helps pay for hospital and nursing home care, home health services, and hospice. Part B helps pay for physician and outpatient services. Part C was created as part of the BBA of 1997 and became Medicare Advantage as part of the MMA of 2003; it allows MCOs to deliver Medicare benefits. Part D was enacted under the MMA of 2003 and offers prescription drug service to Medicare enrollees; provisions of the ACA will gradually eliminate the coverage gap (donut hole). Medicaid/CHIP (formerly SCHIP) are healthcare assistance programs that provide medical benefits to eligible low-income individuals; they are administered by individual states under federal oversight. As of 2009, CHIP has been reauthorized through 2013 and its mandate to enroll uninsured children expanded. The 2010 ACA expanded Medicaid coverage to anyone under 65 years of age whose household income is below 138% of the federal poverty level. Both Medicare and Medicaid/CHIP incorporate many features of managed care in their delivery of benefits, from prospective payments to formularies and copays. In the private sector, insurance companies and the American business community have had to become involved in managed care as a matter of survival in an increasingly competitive marketplace. Today, virtually every large insurer has a managed care division, and many have developed so-called triple-option programs to gain entire beneficiary groups from employers or unions. Provisions of the ACA affect coverage of preventive care, coverage of individuals with preexisting conditions, and coverage of dependants up to age 26. Starting in 2011, health plans must comply with specific medical loss-ratio requirements. The ACA requires the establishment of State-level health insurance exchange plans by 2014 as a way to provide affordable healthcare to individuals and small businesses. Employers have responded to rising costs and a changing healthcare delivery market with a variety of strategies, including the use of CDHPs, which lower employer insurance costs and transfer more control and risk to employees. High-deductible health plans with a savings option (HDHP/SOs) are often a common element of CDHPs. 71

18 Review Questions 1. Which part of Medicare is currently referred to as Medicare Advantage? a. Medicare Part A b. Medicare Part B c. Medicare Part C d. Medicare Part D 2. What were the effects of the Balanced Budget Act of 1997 on Medicare? (Circle all that apply.) a. It created a program that allowed MCOs to offer coverage to Medicare enrollees on a capitated basis. b. It expanded Medicare benefits to include prescription drug coverage. c. It limited payment increases to MCOs at 2% annually. d. It permitted Medicare to contract with HMOs for the first time. 3. The Medicare Modernization Act of 2003 (MMA) established all of the following except: a. Funding for Medication Therapy Management Services (MTMS). b. Prescription drug coverage (Medicare Part D). c. Medicare Advantage (Medicare Part C), a revised and expanded version of Medicare+Choice. d. The Medigap program to help Medicare enrollees pay copayments, premiums and coinsurance. 72

19 4. Which of the following statements about Medicaid/CHIP are correct? (Circle all that apply.) a. It is funded solely by the federal government but administered by states. b. Both programs were enacted as part of Title XIX of the Social Security Amendment in c. Medicaid/CHIP incorporates elements of managed care and may use MCOs to deliver benefits. d. Quality initiatives and disease management may play a role in Medicaid/CHIP. 5. Provisions of the Affordable Care Act influence public healthcare in all of the following ways except: a. Fighting waste, fraud, and abuse. b. Closing the donut hole in Medicare Part D. c. Promoting Accountable Care Organizations. d. Reducing the number of Medicaid beneficiaries. 6. Which of the following best reflects the future expectations for public health insurance programs? a. Expenditures will decline as the ACA takes effect. b. Funding for public programs will stabilize as the recession recovers. c. Public spending will grow to over half of all national health spending. d. Spending on Medicare will grow while spending on Medicaid will shrink. 7. In a corporate context, the term "self-insurance" refers to: a. A corporation acting as its own insurance mechanism. b. A strategy used by large employers to share risk with employees. c. The use of consumer-driven health plans in which employees choose their own insurance option. d. Providing all outpatient care facilities on the business s premises. 73

20 8. All of the following statements about consumer-driven health plans are correct except: a. There are both economic and noneconomic arguments in favor of the use of CDHPs. b. CDHPs offer benefits to employees, but few significant benefits to employers. c. Employers can contribute to their employees HSA accounts, as well as to their premiums. d. CDHP/HSAs must be used with HDHPs. 9. Wellness programs are an aspect of or an interest of: (Circle all that apply.) a. MCOs. b. HDHPs. c. Insurers. d. Employees. 10. Which of the following insurance market reforms were put into place in 2010 as a result of the ACA? (Circle all that apply.) a. First dollar coverage of preventive services b. Prohibition on lifetime limits and restrictions on annual limits c. Prohibition of preexisting condition exclusions for children under 19 d. Extension of dependent coverage for students to age 26 74

21 Answers The answer to each question contains reinforcement of important information and provides the number(s) of the objective(s) to which the question relates. If your answer is incorrect, you can return to the material related to that objective for further review. 1. c: Medicare Part C (also known as Medicare+Choice) was a managed care alternative added in 1997; today, it is referred to as Medicare Advantage. (Objective 1) 2. a, c: Although Medicare began to use MCOs to deliver benefits in some areas of the country during the 1970s, the BBA created a program (Medicare+Choice) that allowed MCOs to offer coverage to Medicare enrollees on a capitated basis. The BBA also limited payment increases at that time to 2% annually. Prescription drug coverage was enacted through the MMA in 2003 and fully implemented in (Objective 2) 3. d: Medigap was available from the beginning of Medicare, along with coverage Parts A and B. Medicare Advantage (Medicare Part C) and prescription drug coverage (Part D) were established by the MMA, as was funding for Medication Therapy Management Services as part of the prescription drug coverage. (Objective 2) 4. c, d: Medicaid was enacted as part of Title XIX, but SCHIP was part of the BBA. It is jointly funded by the federal and state governments. Restraining cost increases is critical and, consequently, Medicaid/SCHIP programs use many elements of managed care, including MCOs, and focus on the same quality and disease management initiatives. (Objective 3) 5. d: The ACA expanded (rather than reduced) the number of Medicaid beneficiaries. (Objective 4) 6. c: Public payers are expected to become the largest source of funding for healthcare by 2016 and to pay for more than half of all national health spending by (Objective 5) 7. a: A self-insuring business acts as its own insurer, usually through a management services organization. (Objective 6) 8. b: CDHPs offer benefits to both employers and employees. Employers reduce expenditures on premiums and restrict growth in premiums. Employees reduce outof-pocket expenditures and can exert more control over healthcare product choices. (Objective 6) 9. a, b, c, d: Wellness programs are increasingly a common aspect of employer benefit programs and an element of HDHP plans. The concept aligns well with managed 75

22 care s emphasis on screening, prevention, and disease management; thus, MCOs and insurers are also active in developing and delivering wellness programs. (Objective 6) 10. a, b, c: The ACA provides for first dollar coverage for preventive services, no lifetime limits on insurance coverage, and no exclusion for coverage of children with preexisting medical conditions. It also extended coverage for dependants up to age 26; however, the dependants are not required to be students. (Objective 6) 76