A Health-reform Primer for Providers

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A buoyant tour of health-care reform greeted radiologists who gathered at the annual American Roentgen Ray Society meeting for the Caldwell Lecture, delivered by Benjamin K. Chu, MD, on May 3, 2010, in San Diego, California. If Chu seemed unusually upbeat, for a physician, about health-care reform, it might have been because the internist also is president of the Southern California region of Kaiser Permanente (Pasadena), a system that embodies many of the goals of the Patient Protection and Affordable Care Act.

imageBenjamin K. Chu, MD

During his talk, “Health Care Reform: Implications for the Health Care Delivery System,” Chu focused on three essential elements of reform: health-insurance market reform and coverage expansion, financing of reform, and payment/delivery reform and cost containment.

Characterizing the reform law as unprecedented in its potential to allow swift payment-policy changes without congressional action, Chu concluded his talk with a strong caveat for radiologists: If you prefer that the new Independent Payment Advisory Board (IPAB) not dictate rates, get involved now in devising new ideas for sharing the health-care dollar.

Insurance Reform Begins Now

Without cost containment, health care is on track to account for nearly 50% of the gross domestic product by 2082, Chu notes, underscoring the case for change with data from a 2007 Government Accountability Office report. In moving the insurance market toward guaranteed-issue policies, rating bands, and standard packages with ranges, reform aims to broaden the risk pool.

“A lot of these insurance-market reforms are actually contrived to level the playing field, to make sure that we get as many people in the pool as possible and then share the overall cost, as opposed to trying to risk-segment the population and target products toward certain people,” he says.

imageTable. Health-reform Taxes and Penalties Contribute $597 Billion in Revenue Through 20192

Health-insurance exchanges (debuting in 2014), the individual mandate to buy health insurance, and employer incentives in the form of tax credits are key tools that will be used to leverage participation, but Chu questions whether the penalties for nonparticipation are high enough. “With the typical family plan costing $12,000 or $13,000 a year, some employers might elect to drop coverage and pay the penalty to let their employees go through the exchange,” he notes, “but that hasn’t happened in Massachusetts. In fact, the percentage of employers covering employees in Massachusetts has actually risen.”

Further insurance regulatory changes, such as rate review and minimum loss ratios (the percentage of the insurance premium that goes to health care) are expected to provide a greater level of transparency in the insurance marketplace. Insurers in the large-group market will be required, in 2011, to use 85% of premium dollars for health care; in small markets, where the cost to market the products is greater, the minimum loss ratio will be 80%.

Insurers must publish their minimum loss ratios this year (Figure 1). “UnitedHealth just reported that its loss ratio was 79%,” Chu notes. “It’s a way to dampen health-premium rises, going forward.”

imageFigure 1. Major insurance reforms contained in the health-care law will be phased in through 2014.

Of the 32 million newly covered people, half will come from Medicaid expansion (to include everyone with an income of up to 133% of the federal poverty level), and the other half will come from individuals heeding the mandate, leaving approximately 16 to 18 million uninsured.

“It’s a complicated piece of legislation that phases in over a three-year period,” Chu says. “Some things happened almost immediately, like a lot of the insurance-market reform, but the big bang is going to happen in 2014.”

Transforming Care Delivery

The Congressional Budget Office estimates that the new law will cost $940 billion over 10 years. In addition to measures that will broaden coverage, the law includes significant funding for community wellness programs, preventive health care, and health-workforce development. The funding package includes a series of taxes and new fees (see table) and an equivalent amount of cuts to Medicare and Medicaid funding (Figure 2).

imageFigure 2. Health-reform Medicare and Medicaid cuts add up to $597 billion in savings through 2019. 2

Chu reports surprise at seeing specific care-delivery demonstration projects actually named in the legislation.