The Impact of Health Reform


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This presentation discusses the impact of health reform. It begins by defining the problem, then provides an overview of legislation and the impact on business. It provides a contrarian view of the subject and explains why health reform is really insurance reform. It also introduces the concept of consumer sovereignty,

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The Impact of Health Reform

  1. 1. Third Annual Economic Outlook Forum Maryland Bankers Association The Impact of Health Reform Don McDaniel January 8, 2010
  2. 2. Agenda <ul><li>What’s the problem? </li></ul><ul><li>Overview of legislation </li></ul><ul><li>Impact on business </li></ul><ul><li>A contrarian’s view </li></ul><ul><li>Questions </li></ul>
  3. 3. It’s the Economy, Stupid! <ul><li>United States $14.3 T </li></ul><ul><li>Japan $ 4.8 T </li></ul><ul><li>China $ 4.2 T </li></ul><ul><li>Germany $ 3.8 T </li></ul><ul><li>France $ 2.9 T </li></ul><ul><li>UK $ 2.8 T </li></ul><ul><li>US health economy $ 2.4 T </li></ul><ul><li>Italy $ 2.4 T </li></ul>Sources: International Monetary Fund and Centers for Medicare and Medicaid. Note: Figures represent projections GDP 2008 (USD)
  4. 4. Health Reform is Really Insurance Reform Source: US Census Bureau, Current Population Survey, 2008 Annual and Social Economic Supplement. Data released March 2008. Table HI05. Health Insurance Coverage Status and Type of Coverage by State and Age for All People: 2007. Link:
  5. 5. Problem #1 U.S. Health Expenditures as Percent of Gross Domestic Product, 2003-2018 Source: Centers for Medicare and Medicaid Services * 2008 – 2018 Projected
  6. 6. Problem #2 Average Percentage Increase in Health Insurance Premiums Compared to Other Indicators, 1988-2007 3.7%
  7. 7. Problem #3 Growth in Medicare Spending vs. Private Health Insurance Spending Source: American Hospital Association via the Centers for Medicare & Medicaid Services, Office of the Actuary. Data Released January 8, 2008
  8. 8. Aggregate Hospital Payment-to-Cost Ratios for Private Payers, Medicare, and Medicaid Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals. (1) Includes Medicaid Disproportionate Share payments.
  9. 9. Hospital Payment Shortfall Relative to Costs for Medicare, Medicaid, and Other Government Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals. (1) Costs reflect a cap of 1.0 on the cost-to-charge ratio.
  10. 10. A beacon of light, but…
  11. 11. Problem #4 Arrested Development: Consumer Sovereignty <ul><li>What do things really cost? </li></ul><ul><li>We don’t demand price transparency </li></ul><ul><li>We don’t demand better information to inform our purchase decisions </li></ul><ul><li>Consumer demand should drive supply-side reform </li></ul>Source: Centers for Medicare & Medicaid Services, Office of the Actuary, National Health Statistics Group
  12. 12. Problem #5 National Supply & Demand Projections for FTE RNs Source: National Center For Health Workforce Analysis, Bureau of Health Professions, Health Resources and Services Administration. (2004). What Is Behind HRSA’s Projected Supply, Demand, and Shortage of Registered Nurses? Link:
  13. 13. Problem #6 Number of Full-time and Part-time Hospital Employees Source: Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals.
  15. 15. Estimated Effect of the Patient Protection and Affordable Care Act of 2009 on Enrollment by Insurance Coverage, 2019 Source: CMS
  16. 16. Senate Bill – H.R. 3590 – Mandates <ul><li>Individual mandate </li></ul><ul><ul><li>Minimum essential coverage – defined by the Secretary </li></ul></ul><ul><ul><li>Penalties up to $750/yr in 2016 (3x for families) </li></ul></ul><ul><li>Employer mandate </li></ul><ul><ul><li>50 or more FTE (30hrs+) </li></ul></ul><ul><ul><li><9.8AGI </li></ul></ul><ul><ul><li>60% plan </li></ul></ul><ul><ul><li>Penalties - up to $750 per employee </li></ul></ul><ul><li>A word about benefit mandates </li></ul>
  17. 17. Senate Bill – H.R. 3590 – Insurance Reforms <ul><li>Immediate reforms </li></ul><ul><ul><li>No cost-sharing for preventative care </li></ul></ul><ul><ul><li>Rebates required if MLR < 80% </li></ul></ul><ul><li>Other reforms </li></ul><ul><ul><li>Pre-X eliminated </li></ul></ul><ul><ul><li>Guarantee issue/renewal </li></ul></ul><ul><ul><li>Limit rating bands (age, area, tobacco use) </li></ul></ul><ul><ul><li>Elimination of life time (2011) and annual (2014) limits </li></ul></ul><ul><ul><li>Caps on deductibles </li></ul></ul>
  18. 18. Senate Bill – H.R. 3590 – Coverage Expansion <ul><li>Medicaid expansion - 133% of FPL ($29,327) </li></ul><ul><li>Premium subsidies - 400% of FPL ($88,200) </li></ul><ul><li>Individual subsidies - 2014 </li></ul><ul><ul><li>No offer of employer coverage </li></ul></ul><ul><ul><li>Offer, but FTE cost is >9.8% AGI or >60% of global benefits costs </li></ul></ul><ul><li>Small employer subsidies – 2011 </li></ul><ul><ul><li>For employers <26 FTEs – average wage <$50,000 </li></ul></ul><ul><ul><li>Minimum contribution - 50% </li></ul></ul><ul><ul><li>Maximum subsidy – 35% of employer costs to escalate to 50% starting in 2014 </li></ul></ul>
  19. 19. Senate Bill – H.R. 3590 - Insurance Exchanges <ul><li>“ American Health Benefit Exchanges” and “Small Business Health Options Program” (SHOP) Exchanges, starting in 2014 </li></ul><ul><li>Domain of the States, administered by government or NP </li></ul><ul><li>Will offer “qualified health plans” – OPM will help secure insurers </li></ul><ul><li>4 benefit tiers (tied to TCO) plus “catastrophic” plan </li></ul>
  20. 20. Beyond $460B from Medicare… Source: PSA Financial Category Value New Taxes <ul><li>40% excise tax on Cadillac plans (Insurers) </li></ul><ul><li>Additional 0.5% Medicare tax on earnings over $200,000(I)/$250,000(F) </li></ul><ul><li>5% tax on cosmetic surgery </li></ul><ul><li>Individual and employer mandates </li></ul>New Fees <ul><li>$1/participant per year for insured and self-funded plans for </li></ul><ul><li>Patient Centered Outcomes Research Program </li></ul><ul><li>up to $15B per year on HC industries – HI, Pharma, Med Device (2010) </li></ul>Individual Tax Law Changes <ul><li>HSA withdrawal penalty upped to 20% </li></ul><ul><li>FSA limited to $2,500 </li></ul><ul><li>Medical expense deduction floor raised to 10% AGI </li></ul>Corporate Tax Law Changes <ul><li>Deductibility of health insurer executive comp limited to </li></ul><ul><li>$500,000 </li></ul><ul><li>Reduce deduction for retiree Rx costs by amount of subsidy </li></ul>
  21. 21. In the Crosshairs <ul><li>Consumer directed plans with HSAs </li></ul><ul><ul><li>8 million Americans currently participating </li></ul></ul><ul><li>Medicare Advantage plans </li></ul><ul><ul><li>10.2 million (22% of total Medicare book) currently participating </li></ul></ul><ul><ul><li>40% of African-Americans and 54% of Latino seniors participate in MA – mimics Medigap without the added cost </li></ul></ul>
  22. 22. Impact on Business <ul><li>Small business already gets the shaft </li></ul><ul><ul><li>Highly regulated markets </li></ul></ul><ul><ul><li>Very concentrated insurance markets </li></ul></ul><ul><ul><li>Highest growth in premium YOY </li></ul></ul><ul><ul><li>Higher cost per benefit – most cost-shifted market </li></ul></ul><ul><li>New mandates, new taxes and expansion of entitlement programs – all good for business? </li></ul><ul><li>Industry taxes on medical devices, pharmaceuticals and health insurers will likely be passed on </li></ul>
  23. 23. Impact on Business <ul><li>Incentives point to “Pay vs. Play” for employers, especially small employers </li></ul><ul><li>Signals seem to favor push of new insured's to public programs or State Health Exchanges </li></ul><ul><li>PWC study states 10-year premium growth in commercial premiums will be 40% higher than without reform legislation* </li></ul><ul><li>Where’s the innovation in plan design, benefits and financing? </li></ul>*Source: PWC, “Potential Impact of Health Reform on the Cost of Private Health Insurance Coverage”, 10/09
  24. 24. Not Addressed? - The Mackey Eight <ul><li>Fuel growth in CDHC vehicles (HSAs) </li></ul><ul><li>Equalize tax laws with respect to employer-sponsored vs. individual market health insurance </li></ul><ul><li>Allow interstate commerce for health insurance </li></ul><ul><li>Repeal all coverage mandates </li></ul><ul><li>Enact tort reform </li></ul><ul><li>Make costs transparent </li></ul><ul><li>Deal with pending Medicare bankruptcy head-on </li></ul><ul><li>Allow individuals to make tax-deductible donations to fund for uninsured </li></ul>Source: WSJ, August 12, 2009
  25. 25. One Scenario – Health Care Death Spiral <ul><li>Medicare in crisis fueled by cuts to fund reform, </li></ul><ul><li>Public payors further reduce reimbursement, </li></ul><ul><li>Private insurance market “crowd-out” - public programs a bigger “slice” of providers business, </li></ul><ul><li>Untold pressure on “physician entrepreneur” - further widening of physician shortage (especially PCPs), </li></ul><ul><li>Extreme costs and workforce pressures compel explicit rationing of health services </li></ul><ul><ul><li>no “innovation” premium, </li></ul></ul><ul><ul><li>Migration of entrepreneurs and capital to other industries </li></ul></ul>
  26. 26. Thanks <ul><li>Contact information: </li></ul><ul><li>Don McDaniel </li></ul><ul><li>[email_address] </li></ul><ul><li>(o) 410.534.1161 </li></ul><ul><li>(m) 443.904.2882 </li></ul>