March 21, 2012
The so-called “individual mandate” – the provision under the Affordable Care Act (ACA) that requires most individuals to carry a minimum level of insurance coverage and is now being considered by the Supreme Court – has emerged as the
least popular element of the reform law and the prime target for its opponents. Yet in practice, the mandate may not be quite as far-reaching as the controversy over it suggests.
The vast majority of Americans already get insurance from their employers, Medicaid, Medicare, the individual market, or other sources of coverage, and will essentially automatically comply with the mandate once it goes into effect in 2014. The Congressional Budget Office (CBO)
projects that about 80% of the 272 million non-elderly people in 2014 would be insured even in the absence of the ACA and would therefore already fulfill the mandate’s requirement.
Also, although the ACA requires people to maintain health insurance or else pay a penalty, the law allows a series of exemptions and special considerations, meaning that millions of individuals could be exempt from the requirement to maintain coverage.
The mandate’s exemptions cover a variety of people, including: members of certain religious groups and Native American tribes; undocumented immigrants (who are not eligible for health insurance subsidies under the law); incarcerated individuals; people whose incomes are so low they don’t have to file taxes (currently $9,500 for individuals and $19,000 for married couples); and people for whom health insurance is considered unaffordable (where insurance premiums after employer contributions and federal subsidies exceed 8% of family income).
In
simulations prepared for Kaiser, Jonathan Gruber of the Massachusetts Institute of Technology estimates that about 40% of those who would be uninsured in the absence of the ACA would be exempt from the mandate. That means
almost 9 in 10 non-elderly people would either satisfy the mandate automatically or be exempt from it. In
Massachusetts – a state where an individual mandate was implemented in 2007 and has largely been effective with less controversy than greeted the ACA – about 1% of taxpayers paid a penalty in 2009, and 70% of people uninsured for any part of the year were exempt from it.
To illustrate who would be exempt from the ACA’s individual mandate, we constructed an example of a hypothetical family of four with two 40-year-old adults and two children, living in a region with average health care costs, and without access to employer coverage. This family would receive an affordability exemption from the requirement to maintain insurance if their income was below the tax filing threshold or if the cost of insurance would be more than 8% of their income. The following chart shows what percentage of income such a family would pay for health insurance at different income levels. It is based on the lower bound of CBO’s
estimate that a bronze plan (the minimum coverage people would be required to buy) would cost $12,000 to $12,500 per family in 2016, and our
calculator (which illustrates eligibility for subsidies to help with the cost of purchasing coverage through new health insurance exchanges).
As the chart shows, families would be exempt from the mandate at the lowest income levels because they are below the filing threshold for federal income taxes. Just above this level, the mandate would apply, but families would be eligible for substantial government assistance, either through Medicaid (paying essentially nothing for coverage) or through large premium subsidies in exchanges.
Starting at about $61,000 in annual income, however, this illustrative family would be exempt from the mandate. Even though they would be eligible for premium subsidies, they would have to pay more than 8% of income towards health insurance after taking those subsidies into account. If this family’s income rises above about $98,000 (estimated to be four times the poverty level in 2016, at which point they are no longer eligible for premium subsidies) they would also likely have to pay more than 8% of income for a bronze insurance plan and would therefore be exempt from the mandate. Indeed, for our hypothetical family, the exemption would apply up to about $150,000 in income, at which point the family’s resources would be high enough so that the cost of a bronze insurance policy in an average cost region drops below 8% of income.
Specific dollar amounts would vary based on age, family size, and the cost of health insurance in an area, but the basic story is similar.
Of course, even with these exemptions, the individual mandate is not without controversy. Reasonable people can disagree about the mandate as a matter of policy. Opponents argue it’s an inappropriate (and unconstitutional) exercise of federal governmental power. Proponents see it as necessary and proper to make reforms of the insurance market work. Some even suggest that the exemptions are too broad and the penalties too low for it to be effective.
The requirement has perhaps become the most powerful
political symbol associated with the ACA. Yet the reality of it may not be as sweeping as the symbolism.
—Cynthia Cox and Larry Levitt
March 8, 2012
In February, a
final rule was issued implementing the Affordable Care Act (ACA) requirement that all health plans provide a uniform summary of coverage for all enrollees and applicants. The idea of providing easy-to-understand summaries of coverage is, in fact, the most popular provision in the ACA, according to a recent
Kaiser tracking poll.
That finding suggests powerful consumer frustration over the complexity of health insurance and the difficulty people face evaluating health insurance choices and understanding how coverage works. Indeed, when asked, people say they would
prefer to go to the gym or work on their taxes than read through their health insurance policies. Other
Kaiser surveys find that too often, consumers don’t fully understand how coverage actually works until they get sick and try to use it, and then are surprised to learn their plan doesn’t pay as much, or at all, for care they thought would be covered. Economists document significant search costs to small businesses – $35 billion annually – arising from the limited ability of employers “to compare the price and quality of the bewildering variety of complex health insurance policies.” Such information barriers
hinder market competition and increase the cost of health insurance. Objective measures of a health plan’s cost and value are not routinely available today nor easy for consumers and business owners to find.
With so much attention devoted to the ACA’s controversial requirement that individuals be insured and debates at the state level of whether to set up health insurance exchanges, the variety of provisions that would promote health insurance transparency have perhaps been somewhat lost in the shuffle. Implementation of some of these provisions is underway, while others await action.
Uniform Summary of Coverage (Section 2715, Public Health Service Act) – Starting this fall as they are offered or renewed, health plans and health insurance policies will have to provide enrollees and applicants with a uniform summary of benefits and coverage (SBC). All individual health insurance policies and group health plans must provide this summary. It will give consumers consistent information about what health plans cover and what limits, exclusions, and cost-sharing apply. It must be written in plain language and contain no fine print. At the outset, the final rule requires two illustrations of typical patient out-of-pocket costs for common medical events (routine maternity care and management of diabetes). Other care scenarios illustrating how coverage works for a broader set of benefits (such as expensive outpatient medical therapies, surgery, and mental health care) will be required at some time in the future.
This summary begins to provide consumers with information they can use to understand the coverage they have today and to evaluate health plan choices in new insurance markets that will begin in 2014. The SBC helps consumers understand how their health plan works on paper. Additional transparency provisions in the ACA are intended to show how health plans work in practice, and to make such information easily accessible to the public.
Transparency in Coverage Disclosures (Section 2715A Public Health Service Act, Section 1311(e) of ACA) – Non-grandfathered health plans, whether offered through exchanges or outside, must also disclose other information that would help consumers understand how reliably the plan reimburses claims for covered services, whether the provider network is adequate to assure access to covered services, and other practical information. The law requires plans to disclose information, and for exchanges and the federal Department of Health and Human Services (HHS) to then make publicly-available accurate and timely disclosure of the following information:
• Claims payment policies and practices
• Periodic financial disclosures
• Data on enrollment
• Data on disenrollment
• Data on the number of claims that are denied
• Data on rating practices
• Information on cost-sharing and payments with respect to out-of-network coverage
• Information on enrollee and participant rights under this title
• Other information as determined appropriate by the Secretary
Information required shall be provided in plain language that the intended audience, including individuals with limited English proficiency, can readily understand and use.
This requirement was scheduled to take effect for non-grandfathered health plans outside of exchanges six months after the date of enactment of the ACA, and for exchange plans starting in 2014. No draft rules or guidance on these requirements have been published to date; HHS has
suggested a phased-in approach to implementation may be adopted.
Depending on the details of what HHS ultimately proposes, information disclosed pursuant to Section 2715A could give consumers insight into plan features and practices that affect how easily a patient might actually access care covered under a plan. For example, claims payment and denial practices are a
key concern for consumers, many of whom report problems claiming covered benefits today. Disclosures might also include information on the nature of external appeals programs that plans use. Under final appeals
rules and
guidance published last summer, many plans will have the option of contracting directly with review entities to consider cases when consumers appeal a claim denial, while other plans will submit external review cases to an entity that is chosen independently by a regulator. Consumers might consider such information as they evaluate their health plan choices.
Information disclosed under Section 2715A could also help consumers understand aspects of plan coverage that may not be fully described under the SBC. An
emerging trend in health plan design involves the use of tiered provider networks. Patients who seek care from network providers could end up paying more or less out-of-pocket depending on how their health plan ranks a particular hospital or doctor. Patients who seek care out of network could owe even more if they are subject to balance billing (which results when providers are not limited to charging the amount the health plan determines reasonable). This can
happen inadvertently when patients are hospitalized or undergo surgery in an in-network facility, and are cared for by providers (such as anesthesiologists) who work in that facility but do not participate in the health plan network. Instructions to insurers and health plans for filling out the SBC note that accurately capturing how a tiered network plan operates may be difficult to summarize in the SBC, so plans and insurers are required to use their “best efforts” to describe rules “as reasonably as possible.” If plans were to report to regulators how frequently consumers claim care from the most preferred provider tier, less preferred tiers, and out-of-network tiers (and what out-of-pocket cost liabilities result), consumers would have additional tools to evaluate the accessibility of health plan provider networks and tiers.
Quality reporting for private health insurance (Section 2717, Public Health Service Act) – The ACA also requires the Secretary of HHS to develop reporting requirements for group and individual health plans with respect to covered benefits and provider reimbursement structures that improve health outcomes, prevent hospital readmissions, improve patient safety and reduce medical errors, and implement wellness and health promotion activities. This provision takes effect two years after the date of enactment, though
federal guidance indicates that a phased-in approach to implementation of these requirements may be adopted.
As the health reform law restricts competition based on risk selection, insurers may increasingly have an incentive to compete based on the quality of care enrollees receive. Patients will benefit from information that helps them understand and recognize quality of care, and to compare alternative approaches insurers may adopt.
Quality reporting requirements will apply to non-grandfathered individual and group health plans and policies, offered both inside and outside of exchanges.
Healthcare.gov (Section 1103, Affordable Care Act) – Under the ACA, the Secretary of HHS must establish a website to help individuals, families, and small businesses in every state identify affordable health insurance coverage options. This website,
www.Healthcare.gov, was first launched in July 2010. It provides information about major medical health insurance policies offered by private insurers in the individual and small group markets. It also provides coverage, cost and eligibility information about the new Pre-Existing Condition Insurance Program (PCIP) and state high-risk pools, Medicaid, and the Children’s Health Insurance Program (CHIP).
Using the so-called Plan Finder, consumers can see a list of all individual health insurance policies sold in their community. (Some insurers do not yet submit data to healthcare.gov.) Consumers can narrow their search and sort plan information based on enrollment, name of carrier, premium, cost sharing levels, and other coverage features.
The site displays standard rate premium information (that is, prices insurers would offer people in perfect health) for each plan option based on an individual’s age, gender, smoking status, family size, and location. In addition, it provides information about how often applicants for medically underwritten policies are turned down or offered surcharged premiums based on health status. The Plan Finder also displays summary information about covered benefits and cost sharing for each policy. Later this year, benefits and cost sharing information is expected to follow the format of the SBC required for all private health plans.
In the future, the Plan Finder will
offer consumers other types of performance information about plans and insurers, based on data collected under Section 2715A authority, including the percent of individual policies that are rescinded; the percent of claims that are denied under each policy, and the number and disposition of appeals of denied claims. Elsewhere on the site, consumers can
search information about individual and small group market insurers relating to rate review actions and medical loss ratios.
For small employers, the Plan Finder provides similar information about small group policies offered in each community. Small employers can see generally descriptive standard rate information, reflecting an aggregate of all cost sharing options offered under a plan and the demographics of all small businesses that might purchase a plan. The site does not provide Information about how often insurers surcharge premiums based on a group’s health status.
For low-income individuals, the Plan Finder also provides information about Medicaid and CHIP.
Issues involving money and ideology have largely dominated the debate about the ACA during and following its passage, and that’s not necessarily surprising. But as a result, so far at least, less attention has been paid to other ACA changes that would promote greater transparency in health insurance. These provisions may well be less controversial (though surely their implementation has and will engender debate about regulatory burdens) and more popular overall to the extent that they help consumers and small businesses understand how coverage works, reduce their search costs in buying insurance, and foster competition among insurers.
Issues involving money and ideology have largely dominated the debate about the ACA during and following its passage, and that’s not necessarily surprising. But as a result, so far at least, less attention has been paid to other ACA changes that would promote greater transparency in health insurance. These provisions may well be less controversial (though surely their implementation has and will engender debate about regulatory burdens) and more popular overall to the extent that they help consumers and small businesses understand how coverage works, reduce their search costs in buying insurance, and foster competition among insurers.
—Karen Pollitz and Larry Levitt
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February 28, 2012
The Department of Health and Human Services (HHS) recently released guidance on the two key components that determine the level of protection that private insurance plans will provide to consumers under health reform. The first involves the services that insurance plans must cover, and the second involves how much patients must pay out-of-pocket for those services.
The Affordable Care Act (ACA) establishes new rules for what insurers must provide for both components starting in 2014. This requires balancing sometimes competing goals of standardizing plan design -- which provides certain guarantees to consumers no matter where they live or what plan they choose and facilitates comparisons across insurers – and permitting more diversity of choices in the marketplace. With recent guidance issued by the federal government on
benefits and patient
cost-sharing, how insurance options could vary by plan and by state has become quite a bit clearer.
Covered Services: The ACA requires HHS to identify essential health benefits for insurance plans offered in the individual and small group markets. The covered benefits must include at least 10 categories: ambulatory patient services; emergency services; hospitalization; maternity and newborn care; mental health and substance use disorder services, including behavioral health treatment; prescription drugs; rehabilitative and habilitative services and devices; laboratory services; preventive and wellness services and chronic disease management; and pediatric services, including oral and vision care.
While quite comprehensive, these 10 categories also leave some room for variation, including specifically what services within a category are covered and whether there are limits on those services (e.g., caps on the number of visits for physical therapy or home health care, both of which are quite common today). Rather than specify a complete standard benefit package, the federal guidance would let each state determine those specifics by choosing a benchmark plan. This is similar to the approach used for the Child Health Insurance Program. Options available to states for the benchmark include: one of the three largest small group products in the state, one of the three largest plans offered to state employees, one of the three largest national plans offered to federal employees, or the largest Health Maintenance Organization (HMO) in the state. States would need to augment the chosen benchmark if it does not provide coverage for one of the required categories (e.g., habilitative services). Benchmarks will certainly vary from state to state, but the covered benefits will likely look relatively similar.
The guidance also allows insurers within a state to vary what services they cover. The federal guidance uses the concept of “actuarial equivalence,” meaning that plans can trade one benefit for another so long as the coverage overall provides the same value on average for consumers. The guidance offers two options for plans to make these benefit trades. One would allow equivalent substitutions only within each of the 10 overall categories. The other would allow substitutions across categories as well, providing plans with greater flexibility. The HHS bulletin indicates that further guidelines will be issued so that insurer substitutions will not result in discrimination against enrollees or applicants with health conditions.
Insurers will also have flexibility in how they actually cover certain benefits. For example, all plans will have to include prescription drug coverage, but the formularies that specify which drugs are covered will vary. The federal guidance requires only that plans cover at least one drug in each class (e.g., antidepressants, drugs to lower cholesterol, protease inhibitors for HIV, etc.). This is somewhat different from federal standards for Medicare prescription drug plans. Medicare plans must cover at least two drugs in each class, and for six protected categories – antidepressants, antipsychotic drugs, anticonvulsant drugs, cancer drugs, immunosuppressant drugs used by transplant patients, and antiretroviral drugs used by patients with HIV – all or substantially all licensed drugs must be covered. Plans also will have different networks of providers and different ways of managing access to providers and covered services.
Cost-Sharing: How much patients must pay out-of-pocket for covered services is determined by a measure called “actuarial value” (AV), which is the percentage of health care expenses a plan would cover on average for a standard population. For example, a plan with an actuarial value of 70% would be expected to cover on average 70% of health care expenses, with enrollees paying the remaining 30% through some combination of deductibles, copays, and coinsurance.
Some amount of diversity in cost-sharing is built into the statute itself, with plans required to offer coverage in any of four standardized “metal tiers:” bronze (AV of 60%), silver (AV of 70%), gold (AV of 80%), and platinum (AV of 90%). (To put this in perspective,
current employer-based plans have an average actuarial value between gold and platinum, and current individually-purchased plans have an actuarial value between bronze and silver.)
Within each tier, insurers could design a wide range of options with varying deductibles, copays, and coinsurance to meet the specific actuarial value. The only cost-sharing element specified for all plans is a cap on total annual out-of-pocket costs, equal to the out-of-pocket limit in Health Savings Account qualified plans (currently $6,050 for an individual and $12,100 for a family).
Lower-income enrollees who buy coverage through a health insurance exchange would have lower out-of-pocket caps and be eligible to enroll in plans with lower cost-sharing levels. For example, enrollees with incomes between 150% and 200% of the poverty level ($34,575 to $46,100 for a family of four) would have an out-of-pocket maximum equal to one-third of the standard level (e.g., a little over $2,000 per person) and receive coverage with an actuarial value of 87%.
The recent federal guidance indicates that actuarial values will be determined using a standard calculator developed by the federal government, rather than allowing insurers to use their own data and assumptions. This means that two plans from different insurers with the same plan design will have the same actuarial value. This approach could mitigate one potentially large source of variation across insurers in the cost-sharing they require of patients within a given tier. Last year, for example, Kaiser commissioned three consulting firms to estimate the cost-sharing that would be required in 2014 to meet the actuarial value thresholds in the ACA using their own data and some common assumptions. The
results varied tremendously. For a silver plan with 20% coinsurance, the estimated deductible for a single person ranged from $1,850 to $4,200.
The guidance notes, however, that the calculator may not be able to provide results for some complicated plan configurations, such as tiered networks or donut hole designs. Insurers may be able to adjust the way they use the calculator in these situations, introducing more subjective actuarial judgment into the calculation. States would also be given flexibility to customize the actuarial value calculator using local data, which could result in some variation across states in what cost-sharing is required.
There are still a number of outstanding questions about how the rules governing benefits and cost-sharing will work. For example, will plans be prevented from discriminating against very high-cost patients by imposing substantial cost-sharing or limiting coverage for specialty drugs and other services affecting a small number of people? Will consumers be able to readily recognize and understand variations in plan benefit and cost-sharing designs, and evaluate the differences in protection they offer?
But, the basic approach for how this will all work is now coming into view. Individual consumers and small businesses will be able to choose from a very wide range of options, from bronze plans offering essentially catastrophic coverage to platinum plans with much lower cost-sharing (and higher premiums). Deductibles and other cost-sharing features will vary somewhat from plan to plan and state to state, but a bronze, silver, gold, or platinum plan should provide approximately the same degree of protection everywhere. Benefits may vary somewhat across the country, depending on the benchmarks that states choose, and across insurers as well. That variation is likely to be more around limits on the number of days or visits that are covered rather than outright exclusions for entire categories of services, and coverage will certainly vary less than it does today.
Different people, of course, will come to different judgments about how this approach balances the goals of ensuring minimum protection for consumers, comparability, and diversity of choice.
—Larry Levitt, Gary Claxton, Karen Pollitz
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February 21, 2012
The last several weeks have been a roller coaster ride for those interested in insurance coverage of contraceptives. In this post, we answer some of the key questions about the new contraceptive coverage policy generally, and more specifically, how it will be applied to religious organizations.
Why is contraceptive coverage part of health reform?
When the Affordable Care Act was passed, it included considerable attention to preventive care, for the first time stipulating that new
private plans cover a wide range of recommended clinical preventive services to plan holders without cost-sharing. Specifically, this section of the law (2713) requires that private plans cover services that receive a strong recommendation from the U.S. Preventive Services Task Force (USPSTF); vaccines recommended by the Advisory Committee on Immunization Practices (ACIP); preventive services for children recommended by Bright Futures guidelines for pediatric preventive care; and “with respect to women,” new services that will be identified by the Health Resources and Services Administration (HRSA). In 2010, the Department of Health and Human Services (HHS) requested that the Institute of Medicine (IOM) convene a committee of experts in women’s health and prevention to identify gaps for women in the current preventive recommendations.
The
IOM committee identified
eight new preventive services for women, including screening for intimate partner violence, well woman visits, breastfeeding supports as well as the inclusion of contraceptive services and supplies, including all methods approved by the
Food and Drug Administration. These recommendations were adopted by
HHS in August 2011. Contraception is also recommended as a part of health care for women by the nation’s leading health care professional associations, including the American Medical Association, the American Congress of Obstetricians and Gynecologists, the American Academy of Pediatrics, and the American Public Health Association.
This new provision has significant implications for access to contraception and affordability for millions of women. It is estimated that half of pregnancies in the U.S. are
unintended, among the highest rate among developed nations. The vast
majority of women in the U.S. have used a contraceptive at some point in their lives to prevent unintended pregnancy, plan future pregnancies, or space childbearing. Cost-sharing requirements, such as co-payments and co-insurance, have been shown to
curtail utilization of preventive services.
How much do contraceptives cost and aren’t they already covered by insurance?
The costs of contraceptives can vary widely, depending on the type of contraceptive a woman uses. Condoms are generally inexpensive, but other forms that are more effective (such as implants and IUDs) can be quite costly and also require a visit to a health care provider for insertion or prescriptions.
Coverage for prescription contraceptives is generally widespread, but not universal, in the private and public sectors. Most women in the U.S. receive coverage through private plans, and the
2010 Kaiser/HRET survey of employers reports that 85% of large firms cover prescription contraceptives in their largest health plans, although they may charge cost-sharing which can vary greatly by employer and type of plan. Currently,
28 states require insurance plans sold in the state to cover contraceptives, with a wide range of specific requirements and exemptions among these mandates. These laws, however, do not affect self-insured employer plans, which are regulated by the federal Employee Retirement Income Security Act (ERISA) and are exempt from state rules. These are plans that are funded directly by the employers and
60% of covered workers are in these plans. In 2000, a
ruling by the Employment Equal Opportunity Commission found that employers that cover preventive prescription drugs and services, but do not cover prescription contraceptives are in violation of the Civil Rights Act. Contraceptive coverage is also typically included in
most major government programs, including the Federal Employees Health Benefits Plan (FEHBP), Medicaid, the Indian Health Service, and TRICARE (which covers military families).
How will the final federal rule on contraceptive coverage affect insurance coverage of contraceptives?
The new federal rule will be effective August 1, 2012 and states that the full cost of all prescribed FDA-approved contraceptives and related services must be covered in new private plans, including individual, small group, large group, and self-insured employer plans. This new rule applies to all new plans,
except for plans sponsored by certain non-profit religious employers who object to the use of birth control. Existing plans that have “
grandfathered” status are not required to provide this coverage regardless of the employers’ religious affiliation. Originally, the exemption was limited to religious employers that included only houses of worship. Some religious leaders called for a broader definition of religious employers to include religiously-affiliated institutions, such as faith-based hospitals and universities, even if they employ and serve people with a wide range of religious tenets. Others disagreed, saying that the type of insurance coverage that women have should not be defined by their employers’ religious beliefs. This exemption has been the focus of much of the current debate.
Who will be required to cover contraceptives and who is exempt?
The Administration issued a
Final Rule on February 10, 2012 addressing the religious exemption. In essence, the exemption has two levels: One that exempts churches, synagogues, and other houses of worship from the coverage requirement completely. It also grants other nonprofit employers who hold religious objections to contraceptives a one-year grace period (until August 2013), during which they do not have to comply with the regulation. By the end of this one-year period, HHS will issue rules requiring the insurance companies that sell plans to these religiously-affiliated employers to offer contraceptive coverage without cost-sharing directly to any employees and their dependents who desire it. Therefore, religiously-affiliated
employers that oppose birth control will not have to spend their funds on contraceptive coverage, but their employees and their dependents will still be able to obtain full coverage for contraceptives directly from the
insurer. During the transition year, the Administration plans to put forth more details on this portion of the regulation and to specify requirements for self-insured plans, where the employer and the insurer are the same entity. It is currently unknown how many religiously-affiliated insurers are self-insured.
The Administration put forth this rule with the intention of relieving employers with religiously-based objections with the obligations of using their funds toward contraceptive coverage, which may violate their religious tenets, while still assuring that women have access to contraceptive coverage without cost-sharing.
This final policy is based on the contraceptive coverage mandate and exemption in
Hawaii. In Hawaii, an employer that invokes a religious exemption to the mandate is required to provide enrollees, in writing, a list of the contraceptive services that the employer refuses to cover as well as information on how to access the services. It is the insurer who must then to provide this coverage to the workers. The Hawaii statute also recognizes that women may use contraceptives for many health conditions, and states that coverage must include “prescription contraception that is necessary to preserve the life or health of the enrollee.” Under the federal rules it is not yet clear how employees will be notified of the policy, whether there will be a similar protection for the other medical uses of contraceptives, and how the new rule will affect self-funded employer plans that have been exempted from state laws. This could be clarified over the next year.
What is the cost impact of this provision?
The specific short- and long-term costs and savings for plans of this new policy are not known. The
National Business Group on Health recommends that employers include coverage of contraceptives in their plans, finding that the short-term costs may be modest and will likely be offset rapidly by long-term saving in preventing costs associated with pregnancy. An HHS
brief on cost implications of prior expansions of contraceptive coverage concluded: “Evidence from well-documented prior expansions of contraceptive coverage indicates that the cost to issuers of including coverage for all FDA-approved contraceptive methods in insurance offered to an employed population is zero.” When coverage of contraceptives was added to FEHBP in 1999, it
did not increase premium costs. Finally, a key difference between prior research and the current policy is that the ACA provision eliminates cost-sharing, and it is not clear how much this would affect plan costs as this expense is currently borne by workers and their families.
What’s next?
While the rule issued by HHS is final, this issue is likely to remain in play. Over the coming year, HHS has indicated that it will further clarify how this exemption will be structured. In the meanwhile, some legislators in Congress who are not satisfied with the present religious exemption have introduced
legislation to change this rule and other organizations have filed
legal challenges. These bills and lawsuits aim to either broaden the exemptions from the mandate to a wider group of employers with objections to contraceptives and other elements of the health reform law, or repeal the contraceptive coverage provision from the law.
—Alina Salganicoff and Usha Ranji
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January 19, 2012
Just-released
estimates of national health spending in 2010 by the Centers for Medicare and Medicaid Services (CMS) show that 45% of our health care spending is financed by the federal and state governments, primarily through the Medicare and Medicaid programs. This share has grown temporarily in recent years because of the economic downturn, as private insurance has declined and Medicaid has grown. It has also increased due to our demographic destiny: the growing cohort of baby boomers who are retiring and shifting from employer-sponsored health insurance to Medicare.
As Kaiser Family Foundation President and CEO Drew Altman has
written, this is hardly evidence of an “imminent danger of a government takeover” of the health system. In fact, if one slices the pie in a slightly different way – looking at how health benefits are managed, rather than how they are financed – it becomes clear that in some ways quite the opposite is true: we are increasingly relying on the private insurance industry to provide health coverage. And, even when coverage is publicly-managed, health care services are primarily purchased from private providers.
Take the 255.3 million Americans who were
insured in 2010:
• 149.9 million were covered through employer-sponsored coverage, either through a privately-insured plan or a self-funded plan managed by a private third-party administrator (almost always an insurance company).
• 14.9 million bought coverage on their own from an insurer.
• 38.1 million were covered through Medicare, a government social insurance program. But, as of the end of 2010,
11.4 million of those beneficiaries were enrolled in private Medicare Advantage plans. (Many Medicare beneficiaries also receive their prescription drug coverage through private insurers in Medicare Part D, or get supplemental insurance through Medigap or employer retiree plans, but let’s leave those aside since part of their coverage is still arranged by a government program.)
• 48.4 million were covered through Medicaid, but about
11.2 million received coverage through a private managed care organization. (An additional 15.5 million beneficiaries received coverage through Medicaid-only managed care plans, which are a mix of private insurers and publicly-sponsored plans. As a result we don’t categorize them as being managed by private insurers, but a meaningful number are private insurers, so our figures underestimate the influence of private plans.)
So, out of the 255.3 million people with health coverage in 2010, at least 73% were in private insurance arrangements. This share is likely to grow starting in 2014, when major elements of the Affordable Care Act (ACA) kick in. Many of those currently uninsured will buy private insurance through new state-based exchanges, and others will be covered through expanded eligibility in Medicaid, likely more often than not in a managed care plan. (The Congressional Budget Office
projects that Medicare Advantage enrollment will decline as a result of the ACA, but that effect is small relative to the newly-insured.)
There's no doubt that the expansion of private insurance for managed care in public programs in recent years has been important for the insurance industry. A recent
Bloomberg Government study examined the financial performance of the nation’s private insurers, concluding that the “biggest contributor” to recent revenue and enrollment growth “has been a substantial expansion in the companies’ Medicare Advantage and Medicaid managed-care businesses.” Across the health system, we pay a price for this reliance on private insurance in terms of higher administrative costs. The McKinsey Global Institute
estimates that the U.S. spends nearly five times as much as the average for all OECD countries on administrative costs on a per capita basis.
The question is, will our bet on private insurance help to control costs over time? Recently, private insurance premiums – like the rest of the health care system – have been growing quite slowly. In 2010 premiums increased by 2.4%, according to the CMS estimates. This is largely the result of slow growth in the use of services, likely
driven by the recession and increases in patient cost-sharing. Whether, and by how much, utilization will pick back up when the economy recovers is an open question. If premiums once again start to accelerate, insurers may come under growing pressure to demonstrate their value to the system.
—Larry Levitt and Gary Claxton
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