By John Reichard, CQ HealthBeat Editor

June 12, 2012 -- Depending on whom you talk to, the health care law is either a luxury the nation can't afford or a pretty good deal. Ten-year spending projections issued last week by government economists provide analysts on both sides of the debate with statistics they can cite to depict the overhaul the way they want.

Those who think the law costs too much are likely to note that over the next few years national health spending is going to grow at unusually low rates, according to the projections issued by the Office of the Actuary at the Centers for Medicare and Medicaid Services But when coverage expansion kicks in fully under the health law in 2014—assuming it takes effect—the growth rate will jump.

For example, in 2011 overall U.S. health spending will grow 3.9 percent. That's "slightly above the historically low growth rate of 3.8 percent in 2009," according to a presentation to reporters led by Sean P. Keehan, a CMS senior economist. Growth rates won't bump up much past that in 2012 and 2013; the overall yearly average growth rate for 2011-2013 will be about 4 percent.

But in 2014, national health spending will rise by 7.4 percent, the economists said in a summary of their presentation (They estimated it would rise 5.3 percent in 2014 without the law). "Expansions of Medicaid and private health insurance coverage are projected to increase demand for health care significantly, particularly for prescription drugs and physician and clinical services," the summary said.

Prescription drug spending will grow 8.8 percent in 2014 compared to 4.1 percent without the health law. Spending on doctor and clinical services will grow 8.5 percent compared to 5.3 percent in the absence of the overhaul.

Health care's share of the economy also will rise over the 10-year projection period, at least in part because of the health law (PL 111-148, PL 111-152). In 2010, health spending was 17.9 percent of gross domestic product; by 2021 it's projected to be 19.6 percent. And the coverage expansion will drive up the government's share of overall health spending. In 2021, government spending—federal, state, and local—will account for nearly 50 percent of health expenditures overall, up from about 46 percent in 2011.

Over the 10-year projection period, the overhaul will add $478 billion in spending to the nation's health tab.

On the other hand, the health law will reduce the number of uninsured people by 30 million by 2021, the economists projected in an analysis posted in the policy journal Health Affairs. Twenty-two million people will gain coverage in 2014 alone. And while the law accounts for a sharp jump in spending growth in 2014, it barely boosts the yearly growth rate in overall health spending when its impact is examined over 10 years. Absent the health law, overall health spending would grow at a yearly clip of 5.6 percent. With the law in place, spending would grow by 5.7 percent.

And in the second half of the 10-year period, the law would actually drive down national spending. In 2015-21 the law would reduce overall spending by 0.1 percent per year because of its Medicare cuts and the tax it imposes on high-cost insurance plans, the analysis said.

One of the questions that came up in the press briefing was whether the data demonstrated a "bending of the curve" in overall health spending. A questioner noted that health costs typically have grown at two percentage points above the increase in the inflation-adjusted Gross Domestic Product. The new projections show that the projected average annual growth rate of 5.7 percent would be only 0.9 percentage points faster than the expected annual increase in the inflation-adjusted GDP.

"I don't think we would use that term," Keehan said of the reference to bending the curve. He said "this really has to do with the lingering effects of the recession plus the modest economic growth after the recession." Those two factors "caused a number of things to occur, like consumers being cautious about their spending and then employers looking for ways to cut costs in health spending."

And so when the economy gets back to a more normal inflation-adjusted GDP growth rate of three percent, "it still remains to be seen whether health care spending will continue to grow" at a rate two percentage points higher or dip lower than that, he said.

The analysts repeatedly emphasized that the current spending slowdown reflects lower use of health care services because of the impact of the troubled economy on personal incomes. But another factor in the relatively low overall spending increase projected for 2012 and 2013 is slower growth in prescription drug spending because of expiring patents for costly blockbusters, such as Lipitor and Plavix. That allows a shift to use of less costly generic alternatives.

"Growth in prescription drug expenditures is expected to slow from 3.9 percent in 2011 to 2.9 percent in 2012 and then to 2.4 percent in 2013," the analysts said.

• Health Affairs article (pdf)

By Emily Ethridge, CQ Staff

June 14, 2012 -- No matter how the Supreme Court rules on the health care law, Medicare still must continue to move toward better payment models for physicians, a panel of private health insurance representatives recently told a group of senators.

Senate Finance Chairman Max Baucus, D-Mont., asked the witnesses, from private insurers and independent physician associations, if a court decision to strike down the health care law would disrupt progress. The law (PL 111-148, PL 111-152) contains several provisions meant to test new Medicare payment models to reduce costs while improving quality of care.

The Supreme Court is expected to rule on the law's constitutionality this month.

"I think the changes that are under way are unstoppable, regardless of what the court decides," said Chet Burrell, president and CEO of CareFirst BlueCross BlueShield.

All five witnesses agreed that groups would continue progress away from the fee-for-service system and toward the new models. They said fee-for-service rewards physicians who perform more services and tests, even when those services are unnecessary, and not those who get the best patient outcomes.

A decision to strike down the entire health care law "will only affect pace, not direction," of new payment models, said Darryl Cardoza, president and CEO of the independent provider group Hill Physicians Medical Group.

He emphasized that the current fee-for-service reimbursement system is unsustainable. "We can't stay on this platform—it's on fire," Cardoza said.

Repealing SGR

Speaking at a committee round table on how to move away from the current way Medicare reimburses physicians who see beneficiaries, the witnesses shared their experiences with developing new physician payment models.

Lawmakers on both sides, including Baucus and ranking Republican Orrin G. Hatch of Utah, agree that they want to repeal the current payment system, based on a formula known as the sustainable growth rate (SGR).

Last week's meeting was the Finance panel's second round table with stakeholders to discuss what elements a new payment system should contain. So far, the committee has not discussed how to pay for the estimated $316 billion cost of repealing the SGR.

"We must repeal the flawed SGR system, in my opinion, an albatross around the Congress' neck that must be addressed at the end of every year," said Hatch.

For years, Congress has avoided the payment cuts for physicians called for under the SGR, instead enacting a series of temporary patches to keep payment rates steady or provide for small increases. Providers say that uncertainty can lead them to stop accepting new Medicare patients, or to drop out of the program.

Witnesses at the hearing said a new system should allow for providers to join in smaller groups, where they would get incentives based on the group's performance.

Currently, Medicare payment targets are set based on the population of physicians across the country, so an individual provider cannot do much to affect the payment rates.

"The individual actor has no real incentive around efficiency, quality, no real ability to control anything," said Dana Safran, senior vice president of Blue Cross Blue Shield of Massachusetts.

In a smaller group, physicians can work together but also influence the outcome and help reach certain cost and quality targets to help get the incentives, she added.

In addition, the witnesses said any financial incentives should be based on quality and outcomes, rather than on the number of services provided.

By Dena Bunis, CQ HealthBeat Managing Editor

July 11, 2012 -- Led by UnitedHealth Group Inc., three major U.S. insurers recently announced plans to preserve one of the most popular provisions of the health care law no matter how the Supreme Court rules this month.

United, Humana, and Aetna all said they would continue to allow young adults to remain on their parents' policies until they reach age 26, a provision that consistently has performed well in public opinion polls. They also promise to fully cover some preventive care provisions without requiring co-payments and to maintain easy-to-navigate appeals processes for policyholders dissatisfied with a claims determination.

"The protections we are voluntarily extending are good for people's health, promote broader access to quality care and contribute to helping control rising health care costs,'' Stephen J. Hemsley, president and CEO of UnitedHealth Group, said in a statement. "These provisions make sense for the people we serve, and it is important to ensure they know these provisions will continue."

In its statement, Humana said "health plan members should have the peace of mind of knowing the company embraces and will maintain these common-sense provisions that add stability and security to health care coverage."

But one major U.S. insurance company—Cigna—said it will wait to see what the high court does before committing to maintaining any of the consumer protections in the health overhaul law (PL 111-148, PL 111-152).

"Cigna believes in respecting the court's process,'' company officials said in a statement. "We remain focused on our global customer programs, and are prepared to proceed as appropriate on behalf of our customers when the court deliberations reach their conclusion."

However, United, Humana and Aetna said they would not maintain the overhaul's requirement that they insure children up to age 19 with pre-existing conditions. Nor did they say they would maintain the requirement that bans an annual limit on the amount of coverage a policyholder is eligible for, although they did say they don't have lifetime maximums on coverage. They also didn't address any other changes that will not take be required when the law fully takes effect in 2014, such as bans on refusing to insure adults with pre-existing illnesses.

"UnitedHealthcare recognizes the value of coverage for children up to age 19 with pre-existing conditions,'' the insurer said in a statement. "One company acting alone cannot take that step, so UnitedHealthcare is committed to working with all other participants in the health care system to sustain that coverage."

One independent health care industry analyst, who used to work in the business, said the announcement "is really smart politics on the part of UnitedHealthcare." Robert Laszewski added that "one of the criticisms I have long had is that the industry doesn't act proactively."

Laszewski said in an interview before Humana and Aetna announced their decisions, that the numbers work when it comes to the elements United decided to do.

"Here finally is an example of an insurance company sitting down and saying it only cost 3 percent [of premiums] to do these things," he said. "We've already priced it into the product."

And he agreed with the insurer's decision not to unilaterally maintain the coverage for children who have pre-existing conditions unless their competitors do.

"If United were to cover kids with pre-existing conditions and none of the other insurers followed, you'd have a line of parents with sick kids wanting to sign up."

If Laszewski had favorable words for United, he called Cigna's refusal to follow suit "really dumb. I'll bet you any money you want that in one year Cigna goes along with UnitedHealthcare."

Smart politics

Laszewski said this move is smart politics because Republicans and Democrats have already supported keeping such preventive provisions.

Last week, at least one Republican lawmaker predicted this would happen.

"I've talked to insurance companies who say that 'oh yeah that you're right, kids on until 26 is pretty popular and we may just do that on our own.' That may be a marketing strategy—which I think is the way it should be," Rep. Michael C. Burgess, R-Texas, said June 8 during a brief interview.

United made it clear in its statement that the protections are effective immediately and said they "will remain available to current and future customers and members. The company is not establishing any sunset provisions." United spokesman Matt Stearns said there are too many variables involved to say whether keeping these provisions would results in higher premiums.

This decision will affect about 9 million UnitedHealthcare customers in the individual and small-group markets. As for the 27 million self-insured customers for whom United administers their plans, Stearns said these provisions will be offered to those customers and it will be up to the individual companies to decide whether to take them.

Under the health care law, all plans have to include the provisions United, Aetna and Humana have agreed to extend.

Dallas Salisbury, president of the Employee Benefit Research Institute, said if the Supreme Court strikes them down, employers will have to decide whether continuing them fits into their benefit options.

Many employers, he said, are already moving toward high deductible plans, health reimbursement accounts and other vehicles under which employees pay a higher proportion of their health costs.

"If suddenly employers didn't have to provide this benefit that raises costs to everybody but only benefits a small number of employees, an employer may say we'll offer this as an optional benefit fully paid by the employee." Then, Salisbury said, fewer employees would probably take it and that could ultimately affect insurance company pricing.

Along with the fact that these protections are required by the health care law comes favorable tax treatment for the benefit.

For example, because the law mandated that parents could add children up to 26 years old on to their policies, that meant the health benefit was not taxed as income.

While it's not clear what the IRS would do if the benefit were no longer mandated but still offered by insurers, Salisbury said the IRS could go back to historical practice and regard coverage of children who are no longer dependents as extra income and coverage for those children could then be taxed.

By CQ Staff

July 13, 2012 -- Consumers enrolled in a high-deductible health plan—with or without a health savings or reimbursement account—are more likely to have delayed or avoided getting health care or skipped medicine doses than those with traditional insurance, according to a report recently released by the Employee Benefit Research Institute (EBRI).

This new EBRI study found that in 2011, among people with traditional health insurance, 31 percent reported either not filling a prescription because of the cost or skipping doses to make the medicine last longer. That compares with 42 percent of people who had a deductible of at least $1,000 but did not also have either an health savings account (HSA) or a health reimbursement account (HRA). Among those who had at least a $1,000 deductible but also an HSA or HRA, 36 percent reported such access issues.

The survey also indicates that the longer someone has a high-deductible plan with one of the accounts, the less likely they are to skimp on their medical care.

Among individuals who had such consumer-driven health plans for less than one year, 42 percent reported access issues. But among those who had such plans for one-to-two years, 33 percent reported problems and among those with such plans for three or more years 32 percent had access problems.

Two variables that cut across the kind of health plan someone has is household income and health problems.

"Regardless of health plan type, individuals with health problems and those in households with less than $50,000 a year were more likely than their counterparts to report access issues," said Paul Fronstin, director of EBRI's Health Research and Education Program.

By CQ Staff

June 12, 2012 -- State spending on Medicaid continues to outpace other state expenditures while the federal contribution to the program has markedly decreased, according to a fiscal survey of the states the National Governors Association and the National Association of State Budget Officers released last week. The report also lays out some cost-containment strategies state officials plan to put in place.

State spending on Medicaid increased 20 percent in fiscal 2012, the report said, after a 23 percent increase in 2011. But federal spending on the health program for the poor dropped by 8 percent. Proposed state budgets for fiscal 2013 project a 4 percent growth rate in state Medicaid spending, still more than the increases projected for other state programs.

Governors are planning to shift the emphasis of some of their cost-containment methods. For example, 30 states reduced payments to providers in 2012. Such cuts are included in 2013 budget proposals in just 15 states. States plan in 2013 to focus more on long-term strategies, such as moving more beneficiaries into managed care plans (20 states) and concentrating on improving program integrity, which governors in 25 states have put in their 2013 spending plans.

Also in fiscal 2013 budget proposals, governors in 10 states want to freeze provider rates and in 19 they want to overhaul the delivery system. Eighteen governors want to reduce costs and impose limits for prescription drugs, 18 want to limit benefits and governors in seven states want to institute new or higher copays.

According to the report, "Medicaid is the single largest portion of total state spending, estimated to account for 24 percent in fiscal 2011, the last year for which data is available. State funds directed towards Medicaid increased dramatically in fiscal 2012, while federal spending rapidly declined because of the expiration of the enhanced federal matching rates temporarily authorized by American Recovery and Reinvestment Act of 2009 (ARRA)."

By Rebecca Adams, CQ HealthBeat Associate Editor

June 15, 2012 -- Medicare beneficiaries would get a cap on out-of-pocket spending and supplemental insurance plans would face an additional charge under recommendations included in the June report to Congress by the Medicare Payment Advisory Commission (MedPAC).

About 90 percent of seniors currently buy supplemental plans such as Medigap but would be less likely to do so if Congress adopted the proposal. The recommendation also suggests that Congress should replace the current coinsurance—which is a percentage of a beneficiary's medical costs—with fixed-dollar copayments.

The commission did not recommend a specific dollar amount for the new fixed copayments. But under an illustrative example, an additional 20 percent charge would be added to supplemental plans and seniors' costs would be capped at $5,000. The net savings to Medicare would be roughly 0.5 percent of the program's costs, or about $2.7 billion under the current $550 billion entitlement program, according to the report.

The effects on seniors would depend on whether or not they adjusted their supplemental insurance coverage. Dropping the Medigap plans would save most people money. If most beneficiaries kept their Medigap plans, about 70 percent of them would face higher costs of more than $250 a year. But if all beneficiaries dropped their supplemental coverage, about 32 percent of them would still face higher costs of $250 or more because they would have to pay for some medical costs that the gap insurance covered; 31 percent would see little change in their costs; and 37 percent would see a decrease in their bills of $250 or more.

Congress does not have to accept MedPAC's recommendations, but in the current budget climate, lawmakers are looking for proposals that could reduce costs.

The report said that the value of beneficiary's benefit package should not decline if the cap on their out of pocket costs is added.

"At the same time, in recommending an additional charge on supplemental insurance, we maintain that it is reasonable to ask beneficiaries to pay more when their decision to get supplemental coverage imposes additional costs on the program that are not fully reflected in their supplemental premiums," said the report. "Those costs are currently paid for by all Medicare beneficiaries through higher Part B (outpatient) premiums and taxpayers."

America's Health Insurance Plans released a survey just before the MedPAC report was unveiled, showing that 79 of beneficiaries say their policy provides excellent or good value, and that 91 percent would recommend Medigap.

The MedPAC report also includes recommendations affecting care coordination for people in fee-for-service Medicare and those who are dually eligible for both Medicare and Medicaid, the federal-state program for the low-income. It also includes information about risk adjustment in the Medicare Advantage private plans, rural medical providers and home infusion therapy.

The chapter on rural beneficiaries' care shows that there are major costs differences between different regions of the country but that costs within a certain region do not vary much between rural and urban settings.

The MedPAC report was released the same day that the Medicaid and CHIP Payment and Access Commission (MACPAC) provided its own report to Congress. The study analyzed data from the National Health Interview Survey and the Medical Expenditure Panel Survey. The findings show that adults in Medicaid said that they have better access to care than similar uninsured adults. When compared to people with employer-provided insurance, Medicaid beneficiaries tended to use the emergency room more often and have delayed care because of other reasons besides the medical costs, such as a lack of transportation to get to a medical provider. They were about as likely as people with employer-sponsored insurance to have had an outpatient visit and to have a regular provider.

"Assuring appropriate access to care and prudent payment policies that promote access to high quality and effective care for Medicaid and CHIP beneficiaries are MACPAC priorities," said Diane Rowland, chair of the commission. "Understanding whether access to necessary care needs to be improved – by how much, for which populations, for what services, in which delivery arrangements and under what payment approaches – helps to shape purchasing strategies and attain better health outcomes for beneficiaries and better value for the programs."

The report also includes new statistics about the Medicaid program.