Alice came to a fork in the road and saw a Cheshire Cat sitting in a tree. Alice asked the Cat “Which road do I take?” “Where are you going?” asked the Cat. “I don’t know.” “It doesn’t matter then, does it?” —Lewis Carroll, Alice in Wonderland
In many ways, it feels like we are coming to a proverbial fork in the road of healthcare financing as the exchanges and all that come with them position to launch at the end of the year. The problem, I fear, is that it’s not at all clear where we are actually going.
The Escalating Cost of Coverage. A core objective of the legislative effort was to create an affordable and accessible basic healthcare plan option. Yet stories of the severe premium increases carriers are expecting come 2014 have dominated media attention of late. Why is this so? The Affordable Care Act dictates that any state coverage mandate that exceeds the national benchmark plan could be maintained only if the state paid the subsidy associated with any additional premium costs for that mandate. The expectation was that the benchmark plan the Department of Health & Human Services was required to create would be trimmed and that the state mandate premium subsidy obligation inevitably would lead to wide-scale state mandate reform.
Instead, HHS opted to delegate to the states its statutory obligation to create a single national basic benchmark plan. And, to be crystal clear, HHS issued a rule expressly stating that states could maintain any and all mandates that had been in place as of December 31, 2011, as part of their benchmark plans without absorbing any premium subsidy obligations for those mandates. In addition, states were charged with expanding their benchmark plans to ensure that they encompassed all of the statutorily required “essential health benefits.”
The net result has been more robust plans from a coverage standpoint. Those plans, of course, cost more than initially envisioned. And they will cost taxpayers more in terms of premium subsidies for lower-income families and plans that are going to be much less affordable for those families.
Self-Insured Plans. The promise repeatedly made during the legislative debates was that current employer-provided coverage would be left intact by the legislation. At some level this is true, as plans that maintain their grandfathered status by limiting changes under a very restrictive set of rules can be maintained largely (but not entirely) as they were.
At this point, however, the fate of non-grandfathered, self-insured plans appears to be in limbo. That’s because of a statement by the Internal Revenue Service that caused quite a stir. The IRS said it intends to issue rules that make clear that a self-insured plan will not fail to qualify as the “minimum essential coverage” required to satisfy Obamacare mandates “merely because it is a self-insured plan.” The statement raised concerns among a broad array of industry participants because the general expectation had been that self-insured group health plans to automatically satisfy the minimum coverage requirements.
As a statutory matter, it’s clear that the IRS does not have the authority to bar self-insured plans offered through captive arrangements from qualifying as minimum coverage. But for self-insured plans in which employers pay as they go, there may be more latitude for regulatory mischief.
But to what end? What benefit is there to any approach that would undermine the primary insurance mechanism for the almost 60% of all employees who receive healthcare coverage through self-insured group plans?
Reimbursement Arrangements, Indemnity Plans. In their zeal to ensure that coverage going forward is comprehensive, regulators have suggested stand-alone Health Reimbursement Accounts and indemnity plans be required to satisfy all of the group healthcare requirements beginning in 2014. This includes the obligation to offer free preventive services and the prohibition against annual or lifetime limits on any “essential benefits” covered by those plans. As a practical matter, neither the HRAs nor the indemnity plans can offer free preventive services and remain economically viable.
There may be work-arounds. An HRA, for example, could limit the use of its funds to the purchase of coverage that does satisfy the minimum coverage requirements. The broader question: What is accomplished through these restrictions? This is especially true given the Supreme Court’s ruling last summer that Obamacare mandates do not impose requirements on employers or individuals, but choices. Employers can choose to offer and individuals can choose to purchase qualified coverage or they can pay a fee for the privilege not to do so. If the mandates really are choices, then what is the regulatory rationale for barring the sale of health coverage products that do not satisfy the mandates?
The Changing Markets. The developments I find most interesting are the market responses to the changing healthcare regulatory landscape. Many of you are developing private exchange platforms that may incorporate more of a defined contribution approach. Medical homes and other arrangements that deviate from traditional fee-for-service payment models also are beginning to take hold.
The separation between payer and provider is under more stress today than it ever has been. Many of the major carriers have been buying hospitals, clinics and physician practices at unprecedented rates over the last few years. Some have interpreted these transactions as efforts to undermine the medical loss ratio statutory scheme. That may be so. It also may be that insurers themselves are preparing at some level for a single-payer system. Instead of being displaced in any such system, they could become the primary beneficiary as the government steps in to pay them for the services they used to finance but now, more and more, directly own.
Where are we going? It’s clear to me that no one, especially no one in Washington, where we inhabit Alice’s looking glass, really knows.
