I did not have the pleasure of witnessing the 90-plus years of Skiff’s history we have relived together during the past few months, as I did not arrive at Skiff until January 2010. Just a few months after my family’s arrival in Newton, what I believe to be a fundamental transformation of health care in America began with the signing of the Patient Protection and Affordable Care Act, or the “health care reform law” as it is now known. I don’t believe that this transformation began with health-care reform; rather, this law took many ideas and trends already in place in America, and vastly accelerated them.
Perhaps the best picture one can draw of just how fundamental the change may be comes from a story told by Dr. Donald Berwick, Director of the Centers for Medicare and Medicaid Services (CMS) for the federal government, during the initial years of health-care reform implementation. Dr. Berwick tells the story of a bridge over a river in Honduras that was built specifically to withstand hurricanes and floods. Following construction of the bridge, a brutal hurricane hit the area with devastating effects. Following the hurricane, the bridge was still standing strong, but the flooding caused by the hurricane had changed the course of the river and the bridge was now over dry land, next to one bank of the river!
Dr. Berwick used this example to draw a parallel to the American health-care system. While our system works very well, it was designed to take care of people after they become sick, but what is needed now is a health-care system whose focus is preventing people from becoming sick in the first place. Our health-care system is the equivalent of the bridge which no longer spans the river.
While Dr. Berwick has a more utopian outlook than others, there is no doubt that our health-care system nationally was, and still is, badly in need of change. In 1970, seven cents out of every dollar spent in America was for health care. By 2010, this had increased to nearly 18 cents out of every dollar. In 1987, the average family health insurance plan required 7 percent of the family budget. In 2012, it had increased to 17 percent. In 1999, the premium for an employer-provided health plan with family coverage averaged about $6,000 per year, with the employee responsible for about $1,500 of the total. In 2011, the average employer-based health plan premium had risen to a whopping $15,000 with the employee responsible for more than $4,000 of the cost! In the 10 years between 2002 and 2012, inflation had caused prices in our economy to increase by 27 percent. During that same time period, health care costs rose 45 percent.
In comparison to other western countries, Americans spend twice as much money per capita on health care each year. In the later years of life, Americans spend four to six times more than countries like Germany and Great Britain. Unfortunately, this huge outlay of money has not resulted in better health outcomes. America routinely ranks at the bottom of comparisons with other western countries in many measures of health. In addition, in 2011 there were 48 million Americans without health insurance and this number was expected to exceed 60 million in just 10 years.
Reform of the American health-care system was not a new idea. Various attempts at reform had been tried since the 1930s and had resulted in mostly incremental change. Why was this time any different? Though there were great differences of opinion in the political world regarding the “how” of reforming health care, everyone agreed on the “why.” With $2.7 trillion being spent every year on health care, costs rising rapidly, and retiring baby boomers set to begin dropping into the Medicare program, it was widely understood that the confluence of an aging population and a deteriorating lifestyle (mainly obesity) leading to huge increases in chronic diseases would bankrupt the government if no changes were made.
President Obama ran on a platform of social change with reform of the health-care system being his top priority. His election to an environment in which the Democratic Party also controlled the House of Representatives and the Senate created an opportunity to push through a law to reform the health-care industry. Unfortunately, the rancor associated with the process led to an outcome that was, and remains today, highly partisan and unwieldy. During the initial few years of implementation, the law was met with great resistance by many states and culminated in a lawsuit which made its way to the Supreme Court. On June 28, 2012, the court ruled to uphold the law with a few relatively minor changes.
The timeline for the implementation of health-care reform was to span more than six years. The early years were focused primarily on providing access to insurance for a broad section of people through a variety of mechanisms. These included allowing children up to age 26 to remain on their parents’ plans, prohibiting the denial of insurance coverage to individuals due to pre-existing conditions, prohibiting insurance companies from cancelling policies based on errors in the application process, and ending annual and lifetime coverage limits so insurance could not be cancelled due to high utilization. Other changes were aimed at providing expanded coverage, including requiring insurance companies to pay for preventive care without copays and deductibles applying, and the establishment of “Healthcare.gov” for the future implementation of the health insurance marketplace.
While these early changes were greeted with enthusiasm by many people, other changes laid the foundation for the underlying transformation of the system. In 2011, the Medicare Innovation Center was created to experiment with new ways to pay for and deliver health care to patients covered by government insurance programs, and the Independent Payment Advisory Board was created to implement those changes. Also in 2011, the total cost of employer-based health insurance programs was included on the W-2 (take a look at box 12 on your own W-2 – it’s really there). This reporting requirement not only provides government with access to data on the cost of employer based insurance, it also makes it just a bit easier to tax those contributions as income in the future.
In 2012, Medicare began experimenting with new payment mechanisms for hospitals and instituted the first “value-based” payment program. Essentially, Medicare removed 2 percent of the payment for all hospital inpatient care provided to Medicare patients and placed it in a pool. Hospitals are required to report quality data to the government and those hospitals which perform worse than average lose some (or all) of the money that was held back, while those that perform above average are paid more. In addition, Medicare instituted deadlines for implementing electronic health records and has begun to levy penalties against hospitals and doctors who do not meet the deadlines.
Also in 2012, Medicare began experimenting with payment concepts that went beyond placing hospitals and doctors at risk for the quality of their services and began placing them at risk for the amount (and therefore cost) of the health-care services patients used. These pilot projects included “bundling” payments for hospitals and doctors for episodes of care. For example, if a patient is hospitalized for congestive heart failure, instead of the doctor and hospital sending multiple bills for the clinic, hospital outpatient and hospital inpatient services provided, Medicare would pay one amount for everything that was done for a patient during that entire episode of care. The idea being that bundling everything together would cause the doctors and hospitals to be more judicious in their use of resources.
The bigger experiment, and one that has been embraced here in central Iowa, was called the Medicare Shared Savings Program and created “Accountable Care Organizations” (ACO). The idea behind an ACO is that Medicare would contract with a group of hospitals, doctors and other health-care providers to take care of a pool of patients (usually more than 5,000 in a pool). Medicare would analyze the past amount it paid for individuals in this pool and would provide incentives for the group to reduce that cost. Essentially, the health-care providers would be placed at risk for ensuring the population became healthier, thus lowering the amount of care provided, or moving that care from expensive inpatient environments to more efficient outpatient environments. If this sounds like the “health maintenance organization” (HMO) concept from the 1990s, that’s because it is, with a few big exceptions. The current model comes along with targets for quality and for patient satisfaction, and is also supported by much better information systems to help identify individuals with high utilization rates for whom interventions will result in better outcomes and lower costs. In addition, technology in the way of mobile devices has been developed and is easing the transition of many diagnostics and treatments to non-hospital environments.
In 2013, additional funding was provided to experiment with these new structures, and the tax increases required to pay for health-care reform were becoming clear. These included a new tax on companies that manufacture medical devices and a reduction in the amount of money that can be placed in flexible spending plans (essentially making more of your income taxable). High-income Americans now pay more for their Medicare contribution. Other taxes apply to high-cost employer-provided health insurance plans (the “Cadillac” tax), an excise tax on indoor tanning services, and fees that insurance providers must pay to the federal government.
Perhaps the most well-known tax is called the “individual mandate.” This penalty/tax was the primary driver behind the Supreme Court case in 2012. Many states insisted that the requirement that a person obtain insurance coverage or pay money to the federal government was a “fine” and the government had no right to implement this “penalty.” The Supreme Court ultimately held that this was not a fine, but rather a tax, since it was to be implemented by the IRS.
The individual mandate went into effect on Jan. 1, 2014, with the tax for this year set at $95 per person or 1 percent of a family’s income, whichever is greater. This amount increases dramatically in 2016 to $695 per person ($2,085 for a family) or 2.5 percent of the family income, whichever is greater.
To satisfy the individual mandate, you must show evidence of insurance coverage either through your employer, through a government program or through a plan you purchase privately. To provide access to insurance, the health-care reform law mandated an expansion of Medicaid programs for individuals up to 138 percent of the federal poverty level. The Supreme Court did not uphold this requirement in the law, stating that it amounted to extortion of the states by the federal government since the federal government could remove its contribution to a state’s Medicaid program if the state did not agree to the expansion. Because of this finding, many states elected not to expand their Medicaid programs, thus leaving lower income residents of their states subject to paying the individual mandate tax.
In Iowa, a novel approach to expanding Medicaid was developed that takes advantage of the health insurance marketplace by paying the full cost of all health care costs of a plan chosen by the person/family via the Healthcare.gov website for those earning between 100 percent and 138 percent of the federal poverty level In addition to expanding Medicaid, the health-care reform law provides for federal subsidies to help families earning more than 138 percent, but less than 400 percent of the federal poverty level ($94,000 for a family of four) by providing subsidies to help offset the cost of health insurance premiums. Additional support of other out-of-pocket costs (co-pays, deductibles, etc.) is available for families earning less than 250 percent of the federal poverty level. Of importance, these subsidies and additional financial support are only available if the insurance plan is purchased via the government’s online health insurance marketplace (Healthcare.gov).
Finally, the health-care reform law requires employers with more than 50 employees to provide health insurance or pay a fine of $2,000 per employee. This requirement was to be enforced in 2014 but it was delayed until 2015 for businesses with more than 100 employees and until 2016 for those with 50 to 100 employees. The employer mandate will be the last piece of the puzzle for ensuring broad-based access to health insurance. In the future, Americans will either be covered by their employer, will be able to purchase their own policy on the open market, or will be eligible for government-sponsored insurance. If they do not gain access to coverage in one of these three ways, they will pay the tax.
There are many more details that I could provide on what was in the health-care reform law and how it impacts individuals, families, employers and health-care providers. From a hospital point of view, what is certain is: 1) More people will have insurance in the future, but those plans will tend to have very high deductibles or will be government plans that pay hospitals the least. 2) Payments to health-care providers, including hospitals, will be increasingly tied to the quality of the care provided and less tied to the volume of services provided. 3) The health-care system is moving toward a future that is focused on preventing illness rather than curing it, via payments tied to the health of the population of patients served, rather than the amount of services provided to the population. 4) Health care will be increasingly provided in primary care physician offices and in patients’ homes and less will be provided in a hospital or a specialist’s office. 5) Integration of information from doctors’ offices, hospitals, long-term care providers, pharmacies and mobile devices in our homes will be required to achieve all this.
These changes are already happening in health care nationally, and even right here in central Iowa. The health-care reform law has impacted our own hospital in a variety of ways in the three years since it was passed. In fact, one element of health-care reform is directly responsible for our doors remaining open. But it is not the only government program that affects us. Another program is responsible for some of the incredible improvements we have made. But there is one other program, the result of our bickering congress, which may result in the demise of many small hospitals in America …