Changing Dynamics of the U.S. Health Care System

Question 1

What is the basic assumption underlying the concept of a free market?

Answer 1

The assumption is that rational consumers will make informed decisions about value, quality and price, while producers meeting consumers’ demands will be
rewarded with market share and profit.

Question 2

Explain bounded rationality

Answer 2

The rational consumer is only functional up to a certain

point, because their choices are constrained or bound by their limited knowledge and understanding of available choices.

Question 3

What are the economic benefits of a free market?

Answer 3

People who do not like their provider or health plan should be able to “vote with their feet” and select other options. The theory is that choice empowers consumers, regulates producers and, under the right conditions, drives efficiency.

Question 4

Describe several ways in which the U.S. health care market does not function like a “normal” market

Answer 4

Moral hazard is a problem because the marginal cost of covered care is zero, causing some to over consume medical care.

Research also indicates that many consumers choose their doctors initially by convenience, accessibility or recommendation from a friend or relative.

Cost has also been shown to be lower on a priority scale for choosing a provider.

Question 5

List several recent initiatives in the U.S. that purport to use market forces to increase efficiency in the health care system.

Answer 5

(a) Employers are offering more high-deductible plans with some as high as $10,000. These plans, often paired with health savings accounts (HSAs) are coupled with the idea of transparency, or making more information available to the consumer on cost and quality. The idea is that consumers will have more
“skin in the game” and be more prudent purchasers of care with their own money.

(b) The Affordable Care Act (ACA) is creating marketplaces that employ a form of managed competition where standardized health plans compete on cost and quality.

(c) Public Medicaid and Medicare programs are moving toward requiring or making choices available for managed care products that structure care within
provider networks.

Question 6

Indicate, very roughly, the approximate percentages

of the population covered by the major programs.

Answer 6

48% receive health insurance through an
employer

16% through Medicaid

15% through Medicare,

6% purchase insurance on their own.

Question 7

How did ACA change Medicare?

Answer 7

ACA expanded Medicare’s wellness and prevention benefits

Improved prescription drug coverage

financed experiments to control health care costs by testing alternative payment methods and delivery systems.

Question 8

How did ACA change eligibility for Medicaid benefits, and how is this change affecting the number of people enrolled in this program?

Answer 8

ACA shifted program eligibility from a category-based (for example, single parents with dependents or people with disabilities eligible for cash assistance) to an income based standard.

Question 9

Explain the significance of the U.S. Supreme Court ruling in National Federation of Independent Business v. Sebelius in 2012.

Answer 9

ACA sought to expand Medicaid coverage to all individuals and families with incomes below 138% of the poverty level. The U.S., for the first time, would have had a solid safety net of insurance coverage for all lower income citizens. However, in the Sebelius case the U.S. Supreme Court ruled that the states could choose not to expand Medicaid programs. By January 2015, twenty-five states had chosen not to expand coverage.

Question 10

How has ACA affected the number of uninsured Americans?

Answer 10

Prior to ACA, 16.3%, or 49.9 million, Americans were uninsured. By 2014 this number had been reduced to 13%, and by the first quarter of 2016 to 8.6%.

Question 11

Describe private health insurance coverage with regard to (a) size of firm

Answer 11

A) In a recent study, 98% of employers with 200 or more employees offer health insurance, but fewer than 45% of firms with three to nine employees do so.
Larger employers offer more choice of health plans than smaller employers, and smaller firms tend to offer point-of-service (POS) plans that require higher
employee cost-sharing to go outside a designated network.

Question 12

Describe private health insurance coverage with regard to (b) high-deductible health plans (HDHPs) with medical savings accounts

Answer 12

In 2006, HDHPs with medical savings accounts accounted for 4% of the employer-sponsored market, but by 2012 they accounted for over 20% of the
health insurance market.

Question 13

Describe private health insurance coverage with regard to (c) variability of coverage by states.

Answer 13

The range of employer-based options and quality of the options available vary considerably by state. The percentage of the population covered by private
insurance varies greatly among the states, and the options for different types of coverage also varies

Question 14

The Bronze, Silver, Gold and Platinum plans all have the same actuarial value. However, they differ with regard to the amount of the deductibles, coinsurance, other out-of-pocket costs and, of course, premiums. Explain:

Answer 14

The Bronze plan has the lowest premium but the most out-of-pocket cost to the individual.

The Platinum plan has the lowest out-of-pocket cost to the individual but the highest premium.

Question 15

Explain why the Silver plan is the most popular choice among ACA plans.

Answer 15

A majority of those who enroll through the marketplace are eligible for federal tax credit subsidies tied to a Silver level plan. People may still select a higher cost Gold or Platinum plan but will have to pay the difference in cost. Cost-sharing subsidies to lower out-of-pocket costs, however, are available only to people selecting Silver plans.

Question 16

Do users of ACA marketplace exchanges have many choices and does the evidence indicate that they choose the most cost-effective plans?

Answer 16

Those who use ACA marketplaces are faced with a large number of choices and options. For example, in Texas, at one point 15 carriers offered an average of 31 plans per county. Even comparing two plans can be daunting. A consumer comparing plans may see different premiums, coinsurance and deductibles, but the plans also may differ on every measure of out-of-pocket cost including physician copayment,
copayment for hospital stay and emergency room payment.

Preliminary studies have found that despite the wide range of choices, people are not choosing the most cost-effective plans. One study found that people on average chose a plan 10% more expensive than what would be optimal. Other studies suggest that limiting the variation in plan designs would make choices more comprehensible.

Question 17

What is the provision in the Part D Medicare law that gives a significant benefit to pharmaceutical companies?

Answer 17

The Part D Medicare law prohibits the government from using its purchasing power to negotiate widespread discounts with drug plans.

Question 18

Do Medicare Part D beneficiaries have many choices and does the evidence indicate that they choose the most cost-effective plans?

Answer 18

Medicare Part D provides numerous choices to beneficiaries. For example, Massachusetts has provided 27 Part D standalone choices, and Texas has provided 32 choices. Despite considerable variation on costs and benefits, most people do not select the optimal plan or take advantage of open enrollment periods to a obtain a more cost-effective plan. Few people switch plans even when it would be to their advantage to do so.

Question 19

What is Medicare Part C and why do some people select it?

Answer 19

Medicare Part C or Medicare Advantage gives recipients the option to enroll in a health plan with a narrowed network of hospitals and providers that covers Part A and Part B but with lower out-of-pocket costs. These plans often include their own prescription drug coverage. Unlike Medicare Part D, this is a voluntary choice and beneficiaries always have the option of going back to the traditional program.
It is a choice to restrict options and consolidate the different elements of Medicare including cost-sharing. People select these plans because of lower costs and greater care coordination. However, like Medicare Part D, Medicare Part C has significant state variation.

Question 20

What have researchers found with regard to consumer benefits and efficiency of Medicare Part C?

Answer 20

In a literature review of 45 studies, researchers found, in general, that Medicare Advantage’s health maintenance organization (HMO) and preferred provider organization (PPO) programs have a better record than traditional fee-for-service plans in the provision of preventive services and the more efficient use of resources.

However, despite the high performance of Medicare Advantage, a sub-group of very sick beneficiaries in traditional Medicare tends to rate their care more favorably than beneficiaries in the Medicare Advantage program. This is ascribed to easier access to specialists. Compared to Part D, which provides a separate, uncoordinated prescription drug benefit, choice here is far less complex and could lead to greater consumer benefits and efficiency.

Question 21

Discuss consumer choices for physicians and hospitals in the Medicaid program.

Answer 21

The federal government mandates that Medicaid recipients have open choice to physicians and hospitals. However, in the 1990s states could obtain waivers from this provision and require Medicaid recipients to enroll in limited-network managed care plans and most took advantage. Surveys indicate a continued steady ovement to Medicaid Managed Care Organizations (MMCOs) with comprehensive coverage paid on a risk basis. MMCOs generally receive a per-member, per-person payment to provide the defined set of benefits for all enrollees.

Traditionally, the Medicaid program pays physicians considerably less than private insurance or Medicare. This limits the number of physicians that take Medicaid and thereby limits choice.

Question 22

Summarize ACA with regard to its (a) pay-or-play mandate

Answer 22

The employer pay-or-play mandate generally allows employers—with 50 or more employees who work at least 30 hours per week on average—a choice to
“pay” or “play” with respect to sponsoring employee health benefits. Employers who fail to offer qualified health benefits to employees must pay a penalty per employee, per year. The employees who are cut loose by employers who pay the penalty must obtain coverage elsewhere because of the individual mandate, or pay an individual penalty. These individuals may purchase a plan on a state or the federal public exchange, with tax subsidies available for many low- to middle-income individuals. If an employee chooses to play, he or she must follow all of the rules under ACA.

Question 23

Summarize ACA with regard to its (b) minimum level

of benefits.

Answer 23

ACA requires minimum health benefits whereby the employer covers at least 60% of covered expenses, expressed as an actuarial value of 60%. These
minimum requirements of affordability, coverage and actuarial value can be considered a floor because they represent the bottom or minimum level of benefit that can be offered to employees without triggering potential penalties.

Question 24

Briefly describe the Cadillac tax in ACA.

Answer 24

The Cadillac tax in ACA is a 40% tax that will be levied on the value of all affected health care programs a participant elects that exceed certain dollar thresholds in 2020 (the 2018 date reported in the reading has been extended) and beyond. This nondeductible excise tax must be paid by the employer. While the minimum
requirements constitute the floor, the Cadillac tax is thought of as a ceiling, or the top value, for health benefits. Employers will need to manage their benefits within the health reform house between the floor and ceiling. Despite continuing efforts to rein in rising health care costs, roughly half of large U.S. employers will begin to hit the excise tax threshold in 2020, and the percentage is expected to rise significantly in subsequent years.

Question 25

What is a private exchange for health benefits?

Answer 25

Private exchanges are built and administered by benefit consulting and administration firms as well as carriers and firms that specialize primarily in only private exchange administration. Private exchanges are marketplaces of health insurance and related products, where employees may pick from a preselected variety of plans offered by one or more insurance companies. Employers who utilize private exchanges will remain plan sponsors. The private exchange will typically
manage communications, enrollment, plan pricing, compliance and other responsibilities. Insurance carriers and pharmacy benefit managers (PBMs) pay claims, issue insurance cards and perform the traditional carrier and PBM functions.

Question 26

What is the big attraction of private exchanges for employers?

Answer 26

One big attraction of private exchanges for employers is the opportunity to change from a traditional premium contribution model, where the employer typically pays
75-80% of the premium, or premium equivalent rate, to a defined contribution model.

Question 27

What is value-based care?

Answer 27

Transformational change designed to shift from a
predominantly FFS reimbursement environment, wrought with problems of waste and access, where providers work independently from one another to care for individuals, to compensation models that align incentives for teams of care providers to take ownership of managing the health, cost and outcomes of specific populations.

Question 28

Identify two key components of the shift away from FFS to value-based care.

Answer 28

a) Eliminating waste

b) Improving access to appropriate medical care at the right time, right place and right cost and with the
right result. This includes the availability of facilities and technologies during evenings, weekends and other off-peak times, as well as the growing use of connected technology where patients can speak directly with clinicians in a live video chat on their smartphones, tablets or personal computers.

Question 29

Employee health benefit plans that are built on value-based accountable care organizations (ACOs) can be called employee ACOs or eACOs. Describe the essential elements of eACOs.

Answer 29

(a) Commitment by employer to build robust culture of health that focuses on well-being of employees through workplace food options, vending machines, economics and leadership values
(b) Health and pharmacy benefit plan design that encourages the use of high-value care and discourages low-value care, provides incentives to participants to use providers in high-performance integrated networks, encourages smart decisions at the point of care and encourages conservation of dollars through account based plans

(c) Powerful data management and measurement warehouse, with stratification, analytical and work-rules technology that connects high-risk, chronically ill and
complex-case patients with a physician-led care team that will develop evidence based care plans for patients.

(d) A high-performance network of health system facilities and providers paid through value-based care models to deliver coordinated care, including primary care providers (PCPs) and specialists and facilities

(e) An integrated clinical prescription drug management model with effective clinical programs, low net-cost purchasing power and aligned formularies with
appropriate clinical protocols

(f) Well-designed and well-managed health promotion, or workplace wellness strategy that aligns incentives for participants to engage in decision-support
structures such as health assessments, biometric screenings and a broad spectrum of tailored and targeted health improvement and management programs, including evidence-based clinical programs.

Question 30

Describe the transactional components that must take place for the transformation to value-based care to work.

Answer 30

(a) Health systems with multi-specialty practices and sufficient primary care resources build high-performance networks with population health
management infrastructure. These health systems need to manage the balance between traditional FFS reimbursement and compensation structures aligned
with managing the cost and quality of populations.

(b) Payers enter into partnerships with the high-performance networks that execute a service contract to manage the health, cost and outcomes of contracted
populations, often called attributed lives or downloaded risk, on a fixed-fee, shared-savings, shared-risk or financial model other than FFS reimbursement.

(c) Employers implement the six components of eACOs described previously and enter into contracts either directly with the health systems or with payers who
have provider partnerships to deliver value-based care.