Health Care Reform: The Next Chapter
Exploring the hurdles and opportunities created by the Supreme Court’s health reform decision.
The Supreme Court’s June ruling upholding most—but not all—of the Affordable Care Act introduced new wrinkles into the United States’ beleaguered effort to extend health care access to a wider swathe of its citizens. In July Gazette associate editor Trey Popp spoke with two experts at Penn’s Leonard Davis Institute of Health Economics about the challenges and opportunities that lie ahead. David Grande GM’03, an assistant professor of medicine who specializes in health policy, talked about how the overturning of one of the ACA’s Medicaid-expansion provisions will impact low-income citizens and hospitals. Tom Baker, the William Maul Measly Professor of Law and Health Sciences in the Law School, addressed some of the finer points of the new state health-insurance exchanges: how they’ll vary from state to state, the promise and peril of privately run exchanges, and how the exchange model might create opportunities for new startups in the insurance marketplace.
What is the next hurdle for health care reform in the wake of the Supreme Court’s ruling?
The Supreme Court threw a major curveball. They upheld everything, except they did take out one piece. The way coverage was to be expanded was through two mechanisms: one is through a big expansion of Medicaid, for very-low-income people. And the other half is through subsidizing the purchase of private coverage. The piece on Medicaid had a very big carrot and a very big stick to get the states to go along. And the Supreme Court took away the stick. The stick was, if the states don’t expand their Medicaid programs as set forth in the law, they could potentially have all their Medicaid funding revoked. The Court took away that stick. The carrot is still there. The carrot is the federal government is going to pay 100 percent of the cost of the expansion for the first three years, and then after those three years it’ll gradually go down to 90 percent—which is still incredibly generous compared to the current Medicaid program.
What’s the formula for the current Medicaid program with regards to how much federal funds assist the state?
There’s a range depending on how affluent the state is. The poorer the state, the higher the match rate; the more affluent the state, the lower the match rate. As for the top and bottom, it’s 50 percent at the bottom, and up around 75 percent at the top.
What will happen in states that decide not to take that 90 percent deal?
When the law was written it was clearly assumed that everything would be implemented together. With the possibility that some states could decide against expanding their Medicaid program, it does leave this odd hole in the law—and in the coverage provisions—where the people who would be left out are potentially the most needy. If the state decides not to implement the health insurance exchange and the subsidized private insurance, there are provisions in the law that allow the federal government to come in and do that.
So who would get left out?
If you look at the coverage provisions, the cut point is 133 percent of the poverty level. If you’re below that, all the coverage was supposed to happen through Medicaid. And if you’re above that, up to 400 percent of poverty, all the coverage provisions work through private insurance. So in a state like Texas, if Rick Perry says, “We’re not going to implement anything,” the federal government could come in and set into motion a process to get people covered between 133 percent and 400 percent of poverty. But they wouldn’t really have any tools at their disposal to do anything about people who are uninsured below 133 percent of poverty.
And right now, to qualify for Medicaid they have to be below 100 percent of poverty?
In fact, Medicaid is actually a complex maze of eligibility rules. Just being under 100 percent of poverty does not qualify you for Medicaid. There are very specific programs with particular eligibility. So, for example, if you are a newborn child or a young child, your eligibility is different than a 10-year-old child or a 17-year-old child. If you are a pregnant woman, your income cut-off is very different than a non-pregnant woman. If you’re a parent of a child, it’s very different than if you’re an adult without kids. So there are many adults who are way below poverty who do not qualify for Medicaid in most states right now. The new Medicaid provisions [in the Affordable Care Act] actually provide uniform income eligibility, whereas right now, it’s a complete jigsaw puzzle.
How does the Supreme Court’s ruling impact the major stakeholders in the health care system?
The assumption that this law was going to be implemented in block meant that all the players in the health care system, when they were negotiating compromises in the bill, all assumed that all of these coverage provisions would happen. So, hospitals, for example, agreed that some payments they currently receive to cover uncompensated care will be ended—there are current federal funding streams to hospitals to help cover the cost of uncompensated care that will go away once health reform is fully implemented. So it’s ironic that if a state decides not to expand their Medicaid program, the residents of that state will still be contributing their federal tax dollars, but the state won’t be reaping any of the benefits of the Medicaid program. The hospitals will be potentially worse off than they were before health reform, because they agreed to have their uncompensated-care funding cut. So the healthcare industry, I suspect, will be some of the most vocal advocates within the states to move forward with expanding Medicaid.
Do you have any ideas about changes that might make the law more palatable to the people who seem to be driven so crazy by it?
At the end of the day, this is so politically contentious and charged right now I don’t even think you could have a policy discussion about health reform. I think that you need to let the law start to be implemented, and tweak it as it gets implemented. I think the fundamentals are all there. The basic premise and ideas and approach makes sense. There will clearly be hiccups along the way that need to be addressed. I think at this point the focus should be on implementing it well rather than revisiting the approach. Because implementing it well is a lot of hard work, and it could easily be implemented poorly if people don’t devote the time and resources to making sure it’s done well.
What will be the signposts to tell us if things are being implemented well or poorly?
Right out of the gate, it’ll be the process of people navigating new choices in health insurance and how overwhelmed people are or how user-friendly it is—so that for people who qualify for help, it’s easy for them to get help. The mere process of getting people signed up for coverage in a way that is painless is really the most immediate signpost in terms of the first stages of implementation. There will be more complex questions about making sure that participation is high. Within individual health insurance exchanges, to make sure that both low-risk and high-risk people are participating in health insurance exchanges, because at the end of the day that will help keep health insurance premiums from spiking. If these programs are set up in a way that low-risk people are not buying in, then premiums will go up. So I think some monitoring of premiums and participation, and risk of those that are buying in, is important. And then there’s a longer-term issue, which is how does the ACA relate to fundamental changes in the delivery of care and reining in costs? And there are certainly major changes that are set in motion by the Affordable Care Act in terms of trying to pay doctors and hospitals in different ways, and trying to have doctors and hospitals organize care differently. But, you know, that is a project that’s really indefinite in nature.
You’re on a working group focusing on the new state exchanges for health insurance. What should the goals be for making these exchanges effective?
One major goal is just having people sign up. So one simple outcome measure we’ll be looking at is: out of the people who go to the website to sign up, how many do? There’s a health exchange operating in the Netherlands, and in the fall of 2010 they changed how they presented their choices. They used to just present all the choices on the initial screen—just a massive number of choices. But then they changed, so that they asked people a couple questions and then gave them their top few recommendations. And that dramatically increased the percentage of people who signed up. So from a behavioral-economics research perspective, this is an incredible opportunity.
Is there anything within the Supreme Court’s decision that will limit or complicate the ways these exchanges will be run?
If a state rejects the Medicaid—which by the way would be insane, but we all know there are people out there who put ideology before practicality—there’s an open question in the statutory language about what will happen to someone who’s poor enough that they would qualify for Medicaid under the extension, but they don’t meet the categories that the state had already agreed was on Medicaid. The Affordable Care Act treats all those people as if they’re going to get Medicaid, so it doesn’t discuss them in relation to the exchange. Actually, the statue doesn’t even have a provision for giving them subsidies [for purchasing insurance through an exchange]. In any kind of rational approach, I think that will be regarded as an aspect of the law that Congress has delegated to the Department of Health and Human Services, and the IRS, and the Department of Labor—which are the three agencies responsible for writing rules. So as long as Obama’s running the show, they’re going to write regulations that will make those people get the subsidies. But if you don’t have any money, you know, you can’t pay even 10 dollars!
Right now two states have exchanges up and running: Massachusetts and Utah. How are they different?
They’re really different. Massachusetts is signing up tens of thousands of people, and it’s directed at individuals. Utah is directed at small businesses, and so far it hasn’t signed up very many people. The Utah exchange will become what’s known as a shop exchange. It wouldn’t qualify as an individual exchange, though the Utah agency could expand to run an individual exchange.
What sorts of differences are likely to emerge as more states create exchanges?
So Massachusetts is a more active purchaser [than Utah]. They have standard plans, and they limit the number of plans to make it easier for people to choose, and to exercise quality control. Utah takes more of an all-comers approach. That’ll be a difference among states. Another difference is that states will be more or less friendly to the idea of there being privately run exchanges that will be able get the data from the public exchange and add bells and whistles and sign people up that way.
What are the benefits and drawbacks of private exchanges?
In the long run, it strikes me that there are real advantages to having intermediaries that are able to offer more than just health insurance. Because the basic technology for choosing between complicated financial products is similar. So if an exchange were to get really good at that, it would be a shame for them only to be able to use that technology for health insurance. Of course you’d want the exchange to be compensated based on you buying anything, not differently based on what you buy. So, appropriately done, a private exchange could be really awesome. But there’s risk of the intermediaries taking advantage of consumers. I think a public exchange would be less likely to do that. A public exchange might not do a good job, but if it didn’t do a good job, it wouldn’t be because it was trying to steer people in ways that would make money for the public exchange.
From the perspective of existing health insurance companies, how might these exchanges change the marketplace?
I think this will encourage them to standardize what they’re doing across markets, so that they can more easily interface with the exchanges. Depending on how states do it, it could reduce startup costs for new entrants to the market, because you don’t need a sales force—you can just go through the exchange. On the other hand, there also could be consolidation. One of the things we’re going to look at is how much people are willing to pay for a brand. For example, Blue Cross is on the whole a more expensive product than certain other companies. And a lean network startup Preferred Provider Organization could definitely undercut Blue Cross’s price. So then the question is going to be, what’s people’s preference in that regard?
Sept|Oct 2012 Contents
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