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Patient Protection reform could mean higher healthcare costs

Of the endlessly debated provisions in the Patient Protection and Affordable Care Act (PPACA), the requirements for Medical Loss Ratios (MLRs) stand out for insurance companies because the requirements are designed to dictate how those companies pay their bills.

Until now, it’s been mostly unclear how those requirements will affect consumers. But a new study from the U.S. Government Accountability Office released last week sheds some light. And experts are weighing in.

First, some background: For every dollar taken in by insurance companies for health plans, those companies will now be required this year under the PPACA to spend either 80 or 85 cents – depending on the size of the plan; smaller group plans are held to the lower number – on costs related to healthcare.

In the past, insurance companies have traditionally spent less than that on healthcare costs and as much as 30 or 40 percent on administrative costs. The ratio of healthcare costs to administrative costs is called – you guessed it – the Medical Loss Ratio.

If companies do not meet the new MLR requirements under the PPACA, they are required to send their customers a refund to make up for the difference. This year is the first year that insurers will be held to the MLR requirements; the first set of insurer data is due in June 2012.

The goal of the MLR requirements is to make health insurance companies more efficient, says Dr. Timothy S. Jost, a law professor at Washington and Lee University who is a co-author of a textbook on healthcare law and a consumer representatives to the National Association of Insurance Commissioners, which helped to develop the MLR requirements.

The MLR requirements will “eliminate administrative costs, control profits and hopefully force these companies to provide better care to people,” he says.

Can Ryan’s privatization plan cure what ails Medicare?

Can privatization cure what ails Medicare?

U.S. Representative Paul Ryan thinks so. The House Budget Chairman points often to the Medicare Part D prescription drug program as proof that competition among private insurers has saved billions for taxpayers. It’s a key line of defense in the Republicans’ controversial plan to replace traditional Medicare with a privatized voucher program.

“The prescription drug benefit came in 40 percent below cost projections because it harnessed the power of choice and competition,” Ryan said on NBC’s Meet the Press last month.

The Part D program does use a privatization model where insurance companies compete to provide prescription drug benefits to seniors, and government picks up part of the tab — with seniors paying the remainder out of pocket.

Government spending on Part D is running far below projections made by the Congressional Budget Office (CBO) when the drug plan was first created. Spending totaled $52 billion in 2010 net of beneficiary premiums and some other adjustments, compared with the original projection of $73 billion back in 2003 (a saving of about 29 percent).

But it’s not clear that the lower spending results from Part D’s privatization features, says Edwin Park, vice president for health policy at the Center on Budget and Policy Priorities. “There’s been a significant slowdown in prescription drug use over past 10 years compared with the late 1990s, when use was growing at double-digit rates,” he says. “So the primary driver of the lower Part D spending is that systemwide drug costs are well below what was driving the assumptions back then.” Other key factors for the spending slowdown include a diminished pipeline of blockbuster drugs with patents, which tend to be more expensive, along with increased usage of cheaper generic drugs.

Enrollment in Part D also has been lower than expected. The Congressional Budget Office’s initial projection assumed that 90 percent of enrollees in Medicare Part B (doctor’s visits and outpatient services) would enroll in Part D; the latest figures indicate that 77 percent are enrolled. Park thinks that reflects more seniors staying in other types of plans — such as those offered to retirees by former employers — and others who simply are going without coverage due to the cost of premium payments.

Obama moving to address flaws in public option for long-term care

Remember the public option?

Progressives fought for a government-sponsored insurance program in the healthcare reform law, and failed — with one exception. A little-noticed provision of the Affordable Care Act created a public option for long-term care insurance. The Community Living Assistance Services and Support plan (CLASS for short) aims to fill the country’s yawning gap in long-term care (LTC) protection by offering modestly-priced coverage that emphasizes more flexible, community-based care over nursing homes.

But the success of CLASS is by no means assured. The law mandates that the plan be self-funded through enrollee premiums, but critics charge it won’t be financially sustainable and will create a long-term drag on the federal deficit. President Obama’s deficit commission recommended reform or repeal of CLASS last December; Republicans in Congress are pushing for the latter option.

Now the Obama Administration is acknowledging the problems, and pledging to make adjustments. Health and Human Services Secretary Kathleen Sebelius told attendees at a recent Kaiser Family Foundation forum that her department is addressing financial sustainability issues as it writes the rules and regulations for CLASS ahead of its anticipated 2013 rollout.

But the key issue isn’t really CLASS or no CLASS. Expenditures for long-term care will explode in the next several decades as the country ages, so the question is how to foot the bill most efficiently?

Medicare covers only a tiny portion of LTC needs. About one-third of Americans turning 65 this year will need at least three months of nursing home care sometime during their lives, according to the Center for Retirement Research at Boston College (CRR); the cost of a semi-private room averages $79,000 per year. CRR calculates that the mean lifetime exposure to long-term care costs for a 65-year-old couple is $260,000, with a five percent risk of a $570,000 expense.

Currently, 40 percent of all care currently is funded through Medicaid, which in most cases requires beneficiaries to spend down assets to poverty levels in order to qualify. Meanwhile, privately-offered LTC insurance remains a mass-affluent product with low market penetration. And many consumers who can afford private LTCI are scared off by the lack of premium predictability, as demonstrated by recent news about double-digit premium hikes. Some key insurance underwriters have had trouble making LTC products work and have exited the market.

Health reform: The politics of pre-existing conditions

Public opinion on healthcare reform is divided — Gallup says 46 percent of Americans back Republican efforts to repeal the law, 40 percent want it to stand and 14 percent have no opinion.

Some Americans oppose the law on ideological grounds. But the poll numbers also reflect an enthusiasm gap stemming from the simple fact that the most important provisions of the Affordable Care Act (ACA) won’t kick in for another three years — an eternity in our hyperactive political culture.

Pre-existing conditions offer an instructive example. In the current health insurance marketplace, it’s very difficult for people with pre-existing conditions to buy a quality policy at an affordable price. The problem disproportionately affects people over age 50, since so many of them have chronic conditions that lead health insurance companies to turn them down.

A recent report by the Commonwealth Fund found that 15 percent of all Americans age 50 to 64 were uninsured in 2009; their ranks grew by 1.1 million that year, to 8.6 million. Meanwhile, another 9.7 million in this age group had coverage with such high deductibles that they were considered “effectively underinsured.” Starting in 2014, the ACA will get these folks covered through expansion of Medicaid and the creation of new private insurance exchanges.

In the meantime, the ACA put a Band-Aid on the problem by setting aside $5 billion to fund a pre-existing insurance program (PCIP) that operates until the end of 2013, when enrollees will shift to coverage via the new exchanges.

The PCIP gave states the option of using federal dollars to administer their own programs, or to allow the federal government to offer coverage. Twenty-seven states are offering their own plans.

But the PCIP plans barely made a dent last year. Around 8,000 people enrolled nationwide, and most of those were in a handful of big states with very active plans — Pennsylvania, California, Illinois and Ohio.

Why boomers will lose big if healthcare reform dies

Republicans are trying to strangle healthcare reform in its crib, but it won’t be infants who suffer most if they succeed.

Baby boomers have an enormous stake in healthcare reform. They’re old enough to have chronic conditions, too young for Medicare — and they’re losing their insurance at an alarming rate.

The number of Americans without health insurance age 50 to 64 grew by 1.1 million in 2009, according to a report by The Commonwealth Fund, a foundation focused on healthcare affordability and access issues. The report found that 8.6 million Americans in that age group were uninsured last year—15 percent of the total. Meanwhile, another 9.7 million in this age group had coverage with such high deductibles that they were considered “effectively underinsured,” according to the study.

While data isn’t available yet for 2010, “the trends suggest it got worse this year,” according to Sara Collins, Commonwealth’s vice president for affordable health insurance.

The main culprit is unemployment, and the subsequent loss of employer-sponsored coverage. About 2.2 million Americans over age 55 were jobless in November. And nearly two-thirds of older Americans have at least one chronic health condition, which means unemployment also poses serious problems with healthcare.

That financial stress is reflected in recent data on the rising rate of bankruptcy filings due to medical issues, with filings by people over age 55 rising much faster than younger age groups.

How to fight a denied health claim — and win

When I consulted a nutritionist about a nagging cholesterol problem earlier this year, I knew my health insurer might not pay for the $363 visit. My plan, provided by Empire BlueCross BlueShield, includes nutritionists in its provider network, but when I called one, her receptionist warned me the HMO would probably not pay my claim.

I took a chance. And as predicted, my claim was denied. A BlueCross customer-service agent explained that under the terms of my policy, nutritional counseling is only reimbursable for patients who have a complicating medical condition, such as diabetes.

I have no such illness, but rather suffer from unfortunate genetics that have forced everyone else in my family to go on statins. So I did what all patients should do–I appealed. I faxed in a letter stating my case, along with two years worth of blood tests showing my cholesterol stubbornly hovering at an unhealthy 214.

Two months and a few phone calls later, Empire paid the entire claim, minus my $20 co-pay. The moral of this story is clear: Don’t take your insurer’s “no” as the final word. Even the CEO of Empire BlueCross, Mark Wagar, agrees. “If you think a denial is wrong, ask questions,” Wagar advises. “There’s a process in place to help you appeal.”

Under health reform, that process is about to be nationalized. Right now, 44 states have laws requiring health insurers not just to review appeals internally, but to turn over the most complicated appeals to independent physicians for review. The new law will require insurers in all 50 states to implement such external reviews.

What these laws won’t save you from, however, is the legwork you’ll need to do to boost your odds of winning. So first, educate yourself about your insurer’s procedures. Some claims are denied because doctors list the wrong codes–a problem you should be able to solve with a single call to your doctor.

When it comes to ancillary services, like nutritional counseling, many insurers will bend the rules if you get your doctor to provide a “pre-determination”–essentially a note on your record suggesting that what you’re requesting is medically necessary.

Is a high-deductible health plan right for you?

During this benefits-enrollment season, you may find a brand new choice in your menu of health plans. A growing number of employers are now offering high-deductible policies, or as they like to call them, “consumer-directed health plans.”

About 20 percent of large employers offered such plans last year, and 24 percent said they were “very likely” to offer them this year, according to data from Mercer Consulting. High-deductible plans carry premiums that are far lower than those of traditional HMOs, and they may offer a host of other benefits, too. But deciding whether to make the switch from your familiar HMO to one of these newfangled plans can be overwhelming.

First, some definitions. The two flavors of high-deductible plans are health savings accounts (HSAs) and health reimbursement accounts (HRAs). Some employers offer only one, while others may offer a choice.

An HSA is a a tax-exempt savings account that’s funded by you with money that you can use later to pay for health costs. Many employers also kick in contributions to HSAs, and they allow employees to invest the money in mutual funds and other traditional investment vehicles. Any funds you don’t use can be rolled over in perpetuity — meaning you can use your HSA anytime during your life to pay your medical bills — and you can take it with you when you leave your company.

HRAs can also be rolled over year-to-year, but that’s often where their similarity to HSAs ends. Employers have a lot of flexibility in designing HRAs, to the point where some plans may look exactly like traditional HMOs, with co-pays, preferred provider networks, and the like. Unlike an HSA, the HRA doesn’t have to be portable — it’s up to the individual employer to decide whether you can keep the money when you leave. “It’s really the company’s money,” explains Steve Wojcik, vice president of public policy for the National Business Group on Health. “It’s not an actual account. It’s just a promise that they’ll pay your medical expenses.”

If the alphabet soup of consumer-directed health care gives you a headache, you may not be the best candidate for one of these plans. That’s because participants in high-deductible plans have to be willing to shop around to figure out how to get the highest quality care at the lowest price. And you have to be comfortable with the idea of paying full-price for many of those services until you meet the deductible.

“So often people say ‘Wow, that deductible is huge,’” says Ingrid Lindberg, customer experience officer for Cigna. “But remember, what’s coming out of your paycheck is significantly lower, and your employer might be giving you seed money for your account.” In other words, you may save money in the long run.

Tax rule change causes big small-business ruckus

In the big tax fights of this year, the coming changes to who must get 1099 forms would hardly seem to rate. But for the vast majority of small businesses, these new rules will hit far harder than the estate tax, despite political posturing on that front.

The new rules on 1099 forms, which were attached to the health care bill and are set to go into effect in 2012, call for all businesses, no matter how small, to file 1099 forms for goods as well as services, if those goods cost over $600 (the current threshold). It also gets rid of the distinction between corporations, which previously did not need to receive 1099s, and unincorporated entities, which did.

As someone who is considered a small business for tax purposes (as are all sole proprietors, consultants and self-employed people), I can’t help but think what this might mean for me. If I buy a new laptop, I’d better get the taxpayer ID number for Apple or Lenovo (depending on if I go Mac or not) and send that form off to wherever their tax department is located. And if I think I might spend more than $600 on pens, notepads, paper and the like at Staples over the course of the year, well, I’d better get their taxpayer ID number, too, and send them a form.

The 1099 form isn’t so bad if you’ve got the data, but the recordkeeping quagmire seems pretty clear. Will businesses that occasionally offer their employees pizza in a conference room need to get the local pizza place’s taxpayer identification number, then track the cost of all those pies to see if they amount to $600? Will truckers be required to send 1099s to the service stations where they fuel up? What about a company’s payments to the electric company to keep the lights on in the office? “It is a tremendous new administrative burden, and it is so senseless,” says Steve Henley, a national tax practice leader at CBIZ MHM, an accounting and financial consultancy.

The theory, of course, is simple: All that paperwork should help close the “tax gap,” the chasm between what Americans owe in taxes and what they actually pay. And  this provision is expected to bring in $17 billion over ten years, which would help offset the costs of the health care bill.

No surprise, the National Federation of Independent Business and a slew of other small-business groups have called for the provision’s repeal. During the debate over the recently enacted small-business lending bill, efforts to get the 1099 reporting requirements repealed failed, though it seems likely that they’ll be modified in some way before 2012.

Already, Internal Revenue Service Commissioner Douglas Shulman has said that the agency will exempt transactions done with credit or debit cards. (A separate law that goes into effect in 2011 requires card processors to file reports to the IRS.)

Medicare shopping season meets healthcare reform

The mailboxes of senior citizens fill up this time of year with an avalanche of direct mail pitches for Medicare D prescription drug plans and Advantage managed care networks.

With dozens of plans available in most parts of the country, the fall annual enrollment period can be a complex chore for Medicare beneficiaries — and sometimes for adult children helping out elderly parents with money matters. Annual enrollment runs from November 15 to December 31, which often leads to an end-of-year rush that collides with the holidays.

It’s not mandatory for seniors to buy either a Medicare D or Advantage plan. Only 25 percent of Medicare beneficiaries opt for Advantage; the rest use traditional Medicare’s fee-for-service system. But prescription drug coverage makes sense for anyone with significant expenses.

And this much is clear: enrollees in either Medicare D or Advantage need to shop the market every year. Insurance companies often change their offerings from year to year in ways that can boost premiums by thousands of dollars, or make it difficult to get certain drugs. And, the health needs of patients change from year to year.

Shopping around is even more important this year, as the new health care reform law and other policy changes begin to reshape certain parts of the Medicare marketplace. Here’s a run-down of the new and noteworthy trends for 2011, along with tips on how to shop smart.

Medicare D. Some prescription drug plans will be eliminated as new federal policy pushes insurers to offer only plans that are clearly differentiated from one another. “We’ve been saying for a while that there are too many plans, and that it’s too hard to choose, says Vicki Gottlich, senior policy attorney at the Center for Medicare Advocacy. “The consolidation this year will make it easier, since the plan choices really will have meaningful differences.”

Premiums are expected to rise an average of 10 percent among the top plans, according to Avalere Health, a research company specializing in health care. “Many people don’t shop around, and they should,” says Dan Mendelson, Avalere’s CEO. “Prices are rising because people are using more drugs, and the drugs are getting more expensive.

3 ways to make the most of your FSA

Mindy Nemoff is thinking about having surgery on her torn ankle tendons next year. So with benefits-enrollment season in full swing, she’ll have to make sure she can put enough money into her family’s health care flexible spending account (FSA) to cover the 10 percent of the surgical fees that she’ll have to pay out-of-pocket.

Companies that offer FSAs allow employees and their families to sock away pre-tax money to use on co-payments, drugs and other health expenses. Nemoff’s husband works at a software company in the Cincinnati area that offers an FSA with a $5,000 a year contribution limit.

Nemoff (pictured left with her family) says using those pre-tax dollars to pay for her physical therapy along with orthodontia for her two daughters saved the family $3,010 last year alone.

Under health reform, that’s all going to change. Starting in 2013, your annual FSA contributions won’t be able to exceed $2,500. And as of next year, you can’t use FSA funds to buy over-the-counter drugs, unless you have a doctor’s prescription. Those changes were designed to save the government billions of dollars per year. But it leaves consumers with precious little time to take advantage of today’s much less restrictive FSAs. “For a family of four,” Nemoff says, “$2,500 won’t go far.”

If you’ve never contributed to your FSA, you should consider jumping in now. About 85 percent of large companies offer FSAs, but only 22 percent of employees enroll in them, according to a 2009 survey by New York-based benefits consulting firm Mercer Inc. One big deterrent is the “use it or lose it” provision, which requires that FSA enrollees spend all the money they put into the accounts by the end of the plan year.

But with a little advanced planning — and some calculations based on your medical history — you can easily anticipate what your medical expenses will be, and put just the right amount in your FSA to cover them.

Use your FSA for planned expenses. Are you coveting fashionable new eyeglasses? Have you been putting off replacing that worn-out crown on your tooth? Or does your teenager need braces? Estimate your out-of-pocket outlay on those items and put that amount in your FSA for next year.