Affordable Care Act: Negative Implications

AFFORDABLE CARE ACT: NEGATIVE IMPLICATIONS1

Affordable Care Act: Negative Implications

Roger Anderson, Leslie Burgy, Margie Pokorski, and Carolyn Sucaet

SienaHeightsUniversity

Contemporary Issues in Healthcare Administration

LDR-614

Dr. John Fick

August 13, 2013

AFFORDABLE CARE ACT: NEGATIVE IMPLICATIONS1

Abstract

The Affordable Care Act (ACA) is intended to transform healthcare by improving the patient experience in both quality and satisfaction whileadvancing the health of the community and at the same time reducing the overall cost of care. The ACA is scheduled for implementation in 2014, but the question remains:Does the ACA decrease cost or does it pass these issues on to the clinicians, institutions and taxpayers? Transforming healthcare will not improve these services for most Americans because the problems resulting from its implementation will outweigh the intended benefits. More people will have insurance benefits;however, the anticipated shortage of nurses and physicians,combined with higher insurance deductibles and taxes, willburdenthe current healthcare system and dramatically restrict its abilityto accommodate the sudden increase in volume.

Key Words: healthcare reform, quality, cost, access

Affordable Care Act: Negative implications

Almost all the presidents of the United States have addressed healthcare reform during their terms in one form or another; “except for war and taxes, healthcare reform may be the single most recurring major policy topic in the nation’s history” (Showalter, 2013, p. 66). Healthcare reform started in the early twentieth century when Theodore Roosevelt proposed what he called the “protection of home life against the hazards of sickness, irregular employment and old age through the adoption of a system of social insurance adopted to American use” (Gorrin, 2011, p. 83) or otherwise known as universal healthcare. Universal healthcare has faced opposition as early at the 1930’s by the American Medical Association during the Franklin D. Roosevelt’s presidency when he wanted to include healthcare insurance as part of the new social security legislation. Universal healthcare was denied at that time because it was seen as a form of socialized medicine. It was not until July 30, 1965, under President Lyndon Johnson, that Medicare was signed into the law. Lawmakers were able to obtain the passage of Medicare through the support of doctors, hospitals, and the public by “crafting a payment program for hospital and physician services, targeted to the elders, with terms generous to the providers” (Brock & Boutwell, 2012, p. 36). The Medicare Law gave the government no role in the delivery of care or how it was to be organized. Rather, the government could only define who qualified for payment and the regulation of safety and demonstration of competence by defining the conditions of participation (Showalter, 2013). Therefore, services were paid based on the providers’ compliance with the requirements and “every administration since the program’s creation has worried about managing Medicare’s cost and quality, resulting in reams of additional regulations”(p.36).

In November 2008, the Senate Finance Committee published “A Call to Action”. Part of the Senate’s “call to action” was the use of cooperative delivery systems such as the patient medical homes and Accountable Care Organizations. These concepts would start the current health care reform known as the Affordable Care Act (ACA) which was signed by President Obama in 2010 (Showalter, 2013).

Upon becoming law, the act faced an immediate challenge by a least 26 states that filed a joint lawsuit entertained in the Supreme Court. On June 28, 2012, the Supreme Court justices ruled that the “ACA is a valid exercise of Congress’ taxing power” (Showalter, 2013, p. 67). Undoubtedly the ACA will continue to be transformed but it’s current intent is a “triple-aim” approach of improving the patient experience in both quality and satisfaction, improving the health of populations, and the reduction of health care costs (Hacker & Walker, 2013, p. e1). Some of the current provisions in the ACA include:

-Elimination of annual and lifetime benefit limitation

-Prevention of policy rescission due to illness

-Coverage of children to age 26 on their parents’ plans

-Guaranteed coverage for children with preexisting conditions

-Preventative services at no cost to Medicare beneficiaries

-Phase out of the Medicare prescription “donut-hole”

-Incentives for the development of Accountable Care Organizations

-Reforms of underwriting losses

-Increased financing for antifraud enforcement

-A ban on physician-owned hospitals

-The individual mandate to buy insurance or pay a penalty tax

-Changes to the Stark physician self-referral law

-The state option to expand Medicaid eligibility and receive federal funds to cover cost

-The creation of state-based health insurance exchanges (Showalter, 2013, p. 67-68)

All of these provisions under the ACA have both positive and negative implications for the citizens of the United States. While intended to improve the delivery of care by offering better access without an increase in expenses, the reality remains that putting this plan into operation will likely result in significant cost inflations with very few quantifiable gains in quality. The case presented will focus on the negative implications of the ACA related to cost, quality, and access issues.

Cost Issues

The Affordable Care Act will expand healthcare coverage for 32 million uninsured Americans through three provisions; the expansion of Medicaid, the establishment of state level health insurance exchanges where the uninsured can purchase low cost health coverage, and a mandate for the uninsured to purchase coverage. (Price & Eibner, 2013, p. 1030). The ACA has outlined provisions for the payment of this health reform via a combination of reimbursement cuts and increased taxes. The costs of transforming health care will notimprove healthcare services for most Americans as the implementation and administrative costs will simply outweigh the intended benefits.

The Congressional Budget Office (CBO) projects that the ACA “would raise federal government spending by almost $1 trillion over the subsequent decade” (Gruber, 2011, p. 894). The cost of implementing the ACA will be funded through six sources including; a 14% reduction in reimbursement to private “Medicare Advantage programs”; a 33% reduction in Medicare reimbursements to hospitals; a 0.9% increase in the Medicare payroll tax including an extension of the tax beyond the current income level for those with higher incomes; 11% in revenues generated from new taxes for other related health sectors such as insurers, pharmaceuticals, etc.; 3% increased revenue as the result of the “Cadillac tax”, a 40 percent excise tax for high end insurance plans scheduled to be implemented in 2017; and 21% from other tax revenue expected such as penalty payments and taxes on the “higher wages that result from reduced employer spending on insurance” (pp. 896-897).

The insurance coverage expansion project in the State of Tennessee is an example where expansion resulted in significant cost increases not cost savings. In 1994, Tennessee instituted an expansion of their Medicaid program for an additional 500,000 residents. “A decade later, the state abandoned the experiment after costs more than tripled from $2.5 billion in 1995 to $8 billion in 2004, consuming one third of the state budget” (Holtz-Eakin & Ramlet, 2010, p. 1139). Massachusetts has also instituted an individual insurance mandate for its residents in 2006. Although their insurance board has made recommendations to the state’s legislation to control spending, “overall costs, which are growing 8 percent a year in Massachusetts, have not been slowed” (p. 1139).

The CBO’s cost projections do not include $274.6 billion to cover administration of the ACA such as “$7.5 billion for the IRS to enforce and $7.5 billion for the CMS to administer insurance coverage”. The shortage of implementation costs estimate also includes “$50 billion in explicitly authorized health care grant programs and $209.6 billion for the Medicare Physician Payment Reform Act” (Holtz-Eakin & Ramlet, 2010, p. 1131). The authors also question Congresses’ abilities to enforce the Cadillac tax as well as potentially not collecting $78 billion in additional tax revenue over the next ten years. Gruber (2011) concurs and states that the success of the ACA implementation is dependent on Congresses’ ability to “hold to the reimbursement reductions and tax increases” (p. 905). The feasibility of this occurring is doubtful “as Congress is likely to continue regularly to override scheduled reductions” (Holtz-Eakin & Ramlet, 2010, p. 1139) as they have done each year since 2002 when the “sustainable growth rate” formula intended to impose cuts in Medicare payments to physicians has been overridden. After removing unrealistic savings, adding full implementation costs, and acknowledging the inability to raise all the projected tax revenue, Holtz-Eakin and Ramlet (2010) conclude “the act generates additional deficits of $562 billion in the first ten years” (p. 1140).

The ACA mandates the establishment of state operated health insurance exchanges (HIE) which “create competitive markets for health insurance” (McBride, Barker, Pollack, Kemper, & Mueller, 2012, p. 1321). The CBO projects that 20-23 million will obtain coverage through the exchanges by 2016. (p. 1326). For individuals purchasing coverage through a HIE, a HHS study reports that 2014 premiums “will be 18% cheaper than rates for comparable plans this year” (Block, 2013). Translated into actual dollar savings, “the average 2014 individual market premium in the 11 states is $321 for the lowest-cost silver-tier plan, compared with the current $450 a month for comparable plans” (Block, 2013). Although a federal tax credit will be offered to individuals with an annual income up to $46,000, is it feasible to expect 20-23 million individuals to begin spending close to $4000 or 8.4% of their annual income for healthcare coverage versus paying an annual penalty of the larger of 2.5 percent of their income [$1,150] or $695 (Gruber, 2011, p. 896)?

The expansion of Medicaid coverage at the state level is another provision of the ACA. As of June 2013, 14 states have chosen to opt out of Medicaid expansion due to the anticipated cost burden to the state budget. These states simply cannot afford the expansion or have determined paying the federal penalties would actually be more cost effective for the state. (Price & Eibner, 2013, p. 1030). Alabama governor Robert Bentley, a physician, has refused to participate in the formation of HIE as he estimates “operating a state exchange for Alabamians could cost the state as much as $50 million annually” as it would have provided coverage for an additional 300,000 residents (Rawls, 2013).

Employer sponsored health insurance coverage plans have also contemplated paying the government penalties which may be more economic than complying with the ACA mandates of no-cost preventative care and the removal of lifetime coverage limits. “In July 2011, benefits consultant Mercer told Southwest [Airlines] that the [benefits] overhaul would force the company to pay an extra $414 million annually” (The Daily Briefing, 2012). Regardless of the degree of cost increases, these ACA mandates will result in higher costs to the employer. (Bergner & Thompson, 2013, p. 29). Employers will be evaluating their corporation’s high costs of health care benefits for their workers and asking why they spend so much on this benefit when it may not be key to the core of their business operations. Additionally, employers will weigh the benefits of “subsidizing employee coverage through the public exchanges … to provide for better coverage at a low cost to the company (even after paying the penalties)” (p. 31). It is also unclear to what extent corporations will actually save on their costs of employee healthcare benefits and as a result experience the increased revenues which will support the needed additional tax revenue the program is depending on.

The costs associated with the implementation of the ACA are estimated to be $940 billion by the year 2019 (Gruber, 2011) and rely on a combination of reimbursement reductions and increased tax revenue to fund the expansion. Evidence supports that Congress may have difficulty enacting the outlined cuts in reimbursement, that states are unable and unwilling to expand their Medicaid coverage due to unmanageable budget costs, and employers may face higher corporate costs as they continue to provide health coverage benefits for their employees. Additionally, Holtz-Eakin and Ramlet (2010) report that the proposed ACA implementation costs are not inclusive of the complete administrative expenses and ultimately will generate an additional deficit of $562 billion in the first ten years of the program. With these identified hurdles, the costs associated with the improvement of health services to the population of the United States simply do not support the gains.

Quality Issues

Despitethe fact that one of the Affordable Care Act’s primary stated intents revolves around increased quality and accountability throughout the healthcare industry, concerns exist regarding the act’s ability to ensure these improvements. The Values-Based Purchasing (VBP) provision is the primary mechanism of quality improvement by linking an organization’s performance to reimbursement (O'Brien, Kumar, & Metersky, 2013). In order to facilitate the structure and control necessary to accomplish these gains, different programs have seen an increase in market share such as managed-care models in areas such as Medicaid or palliative care programs from chronic disease management. Health insurance exchanges will provide a clearing-house for consumers to compare different plans based on outcomes and levels of coverage, and health information exchanges will control what information is available on a demographic or disease basis. All such efforts, however, are limited by the quality of data, participation level of both patients and providers, and integrity of the systems that are in place to make them usable tools.

Values-Based Purchasing

In the current model, ACOs have a slate of 33 approved quality measures to determine how well they meet minimum quality standards(Bao, Casalino, & Pincus, 2012). With this being a rather finite list, there are entire areas of focus that may receive cursory attention or get missed entirely. In addition to omissions or a shift in focus, there is also a lack of high-level evidence that the VBP model has proven to be an effective method of enhancing quality across the continuum of care (O'Brien, Kumar, & Metersky, 2013). For all of the rhetoric around the values-based model’s assertion that the focus is quality, some analysts have surmised that “The VBP program could be more correctly characterized as a program built on penalties….” (Shoemaker, 2011).

As noted, gaps in focus may result in a lack of quality focus or incentive for pro-active assessments of effectiveness. This is evidenced in the behavioral health arena where only one measure exists as a screening for depression – neglecting the entire myriad of other mental illnesses. Once the financial incentive diverts to other areas by virtue of this methodology, the concern is that funding for care and resources will severely diminish. This is not unlike the issue of program “carve-outs” as seen in Medicaidin the past where coverage for whole types of care (such as behavioral health and dental) have been eliminated entirely(Kaiser Commission on Medicaid and the Uninsured, 2012). In addition to the direct coverage losses that may occur as programs down-size or consolidate as a result of this system, there is also the issue of indirect increases in cost as care shifts to another setting. An example of this would be the patient who does not get ongoing behavioral health counseling and then becomes an emergency admission into an acute unit resulting from an unmanaged episode. Given the average cost per day in an acute care facility, this can easily outweigh the savings gained by eliminating coverage for bi-weekly therapy.

Resource Limitations

In attempting to draw the focus to key measures and outcomes, as well as use of data to improve the quality of information available to clinicians, the ACA has forced the allocation of resources to the areas necessary to support these initiatives. Besides diagnosis specific allocations related to the scorecards and the patient types they will promote, there is the larger issue of routine capital needs for support of technology related to the ongoing information management and reporting requirements.

As the industry has demonstrated even before the ACA was passed, financial resources are most heavily committed to those product lines with the greatest potential for return. In the fee-for-service model, this meant services with the highest margins such as cardiology, orthopedics, surgical services, and inpatient rehabilitation as common examples. With the shift toward management of the patient’s care in a medical home model where the focus is on wellness and care throughout the continuum, the focus has shifted to wellness and ongoing care management. With quality measures focusing on such things as readmission rates, resources that may have improved technology in one of the particular areas noted above is now dedicated to reducing the readmission of all acute cases. Over time, this can lead to a lag in technology for areas where research is developing new techniques and procedures if the organization does not adequately fund for such expenditures. Programs such as palliative care, which have demonstrated benefit in overall care management for those who have chronic diseases, may also suffer from a lack of focus due to their absence in measurement by the existing VBP slate of measures (Verret & Rohloff, 2013).