Ventura Community Presentation
In the United States public and private financing of the nation’s health care are split 50/50. In California in 2015, a total of $292 billion was spent on personal health care services. Of that total, $104 billion was spent on private insurance), $62 billion on Medicaid, $64 billion on Medicare and $61 billion comprised all other health spending (including a range of expenditures from the Veterans Administration, Prisons, personal out of pocket, Workers Compensation and Auto insurance). In California, we have a smaller percentage of residents with private coverage and a higher share with public coverage than most states in the Midwest and Northeast.
California has been a national leader in extending coverage under the ACA; the Republican "repeal and replace" efforts developed to date would halt our progress in its tracks and dismantle our health care financing. Today we'll look at the changes that are proposed and needed in these programs.
Medicare covers 5.6 million California seniors and long term disabled at a cost of $65 billion (2014). It consists of four parts:
· Part A (hospitals and other inpatient) financed by payroll taxes on employers and employees
· Part B (doctors and other outpatient) financed by general tax revenues plus subscriber premiums (1/4th of costs)
· Part D (Rx) – not financed, comes from general tax revenues and subscriber premiums.
· Part C – combines all of the above in private insurance plans, 35% of California Medicare subscribers chose Part C.
The ACA (Affordable Care Act) made a series of reforms to the Medicare program: payment reforms, financing reforms, coverage reforms and a per capita cap.
The payment reforms included: Part C premiums to insurers were reduced to reflect the cost of the traditional Medicare program, hospital rate calculations were reduced to reflect the rise in the cost of rest of the workforce, hospital DSH payments were cut to reflect the growth in the numbers of insured. Bundled payments, value based purchasing and ACO’s were introduced to make care and reimbursements more cost efficient; and restrictions on reimbursements for hospital acquired infections were put in place to improve the quality and safety of hospital care.
The financing reforms included: a tax surcharge on high income (above $250,000) earners’ working and unearned income.
The coverage reforms included: coverage of prescription drugs and the gradual closing of the doughnut hole in prescription drug coverage.
In addition, a per capita cap was imposed on Medicare so per person spending would slow down; it has not been triggered as yet because cost increases have moderated.
The ACA reforms extended financial viability of the Medicare program, but the Part A Trust Fund is projected to be depleted in 2029. Recently the Medicare trustees reported that Part A program spending on hospitals is projected to exceed program revenues due to baby boomer retirements and escalating rates of hospital care expenditures (6% over the last decade) that vastly exceed the rate of growth in wages (2% over the last decade).
The Republican House ideas include: 1) increase age of eligibility for Medicare to 67, 2) give new eligibles vouchers (that grow only with the rate of inflation) to purchase their Medicare coverage from private insurers on the Exchange, and 3) charge higher income seniors more for Part B coverage.
Democrats propose: 1) allow Medicare to negotiate prescription drug prices and 2) tax higher income individuals.
· Consider a VAT (value added tax) to finance health care as many European countries already do. Payroll taxes do not keep pace with the rates of baby boomer retirements, even if medical inflation can be tamed.
· Implement and expand the ACA payment reforms and transparency to improve quality and cost effectiveness. The keys to the future of Medicare lie in taming medical inflation; we need to challenge both the incentives of fee for service medicine and cost plus reimbursements.
· Use the California Exchange to purchase Medicare Part C in California.
· Retain the per capita cap.
Medi-Cal/Medicaid – Medi-Cal covers about 14 million poor and moderate income Californians and costs about $100 billion in 2017-18. It covers about a third of all Californians, pays for nearly 70% of all nursing home residents, and pays for over half of all births in California. About 5.5 million children depend on its coverage. Enrollment in the program has grown from just under 8 million at the end of 2013 to about 14 million today. In California’s rural communities, Medi-Cal is the most important payer, accounting for coverage for nearly half of area residents and key to the financial stability of local hospitals, clinics and doctor’s offices. Medi-Cal per capita costs are well below the national average.
Of the program’s costs of about $100 billion, state General Funds comprise about $19 billion; FFP (federal financial participation) is $67 billion. Special funds from hospitals, counties, tobacco and health plans make up the rest of the local match.
In California, the state and federal government pay a 50/50% match for the original program; in the poorest, lowest income states, the match can be up to 83/17. There are different matches for different populations that have been added to the program over the years as described next.
The aged and disabled have been covered since the inception of the program in 1967. Their eligibility is 138% of FPL – about $16,000 for an individual. The aged and disabled are the most costly eligibility categories on a per capita basis, and they include lots of long term care expenditures (both in the home and in the nursing home). The match is 50/50.
Medi-Cal covers children (up to 250% of FPL), and pregnant women up to 300% of FPL ($36,000 for an individual). The state federal match is 50/50 for the lowest income children, 2/1 for children of moderate income (CHIP – a child health program established under the leadership of Senators Kennedy, Hatch and Kassenbaum), and 87% for a time period ending in 2019 for moderate-income children (ACA). Over a million CHIP children were moved from the Healthy Families program into Medi-Cal. CHIP must be renewed by the end of this fiscal year, September 2017, and Congress has not acted.
Parents are covered up to 138% of FPL ($16,000 for an individual and $34,000 for a family of four). The federal match is 50/50 for low-income parents, and 100% phasing down to 90/10 for parents of moderate income between 100 and 138% of FPL (ACA).
The working poor, also called medically indigent adults or MIAs, are now eligible for Medi-Cal under the ACA; about 4 million Californians with incomes less than 138% of FPL (about $16,000 annually) have enrolled, a far larger number than projected. Their health care used to be a county responsibility; about 700,000 low income Californians shifted from county health programs into Medi-Cal. The program is supported initially for three years at 100% FFP then slowly declining to 90% by 2020 and thereafter when the state must pay 10% of the cost. (ACA)
Undocumented California adults can only be eligible for a limited scope of services, emergency care and maternity care only. There is a 50/50 match. Under California law, undocumented children are now eligible for full scope; 180,000 have enrolled, but federal funds are only available for their emergency and maternity care services.
Legal permanent resident immigrants are eligible for full scope services in California. There is a 50/50 match for immigrants with legal residency for at least five years. For those with legal residency under 5 years, FFP is only available for limited scope emergency and maternity services.
Medically needy persons are an eligibility category that helps some Californians with their catastrophic medical expenses. There is a 50/50 match.
Behavioral health refers to those individuals with severe and chronic mental illness or serious substance abuse. The county governments pay the 50/50 match and administer their own local programs. A federal 1115 waiver for California recently expanded the scope of services to offer a full continuum of care, as medically required for an individual. This new coverage is essential to addressing the raging opioid epidemic.
Managed care arrangements (HMOs) cover 80% of all Medi-Cal eligibles. There are only a few exceptions from the mandate to enroll in managed care: severely ill children, the aged and disabled with dual eligibility for Medicare and Medicaid, and those who are only eligible for a limited scope of care. Counties decide and negotiate with the state the type of managed care program they prefer. In Los Angeles, Kern, the Inland Empire and many other counties, there is a choice between two managed care plans, one of which is county-administered. In Ventura, Orange, Santa Barbara and many other counties, there is only a single county operated managed care and all Medi-Cal subscribers are enrolled in that one plan, called a county organized health system or COHS. In San Diego and Sacramento, eligible subscribers may choose from among multiple competing commercial HMOs; this is known as Geographic Managed Care (GMC).
Hospitals in California are paid at Medicare rates for their care to Medi-Cal patients; they pay a tax/fee to help finance the state match. This feature of the program adds $4 billion in federal match financing.
Republican ideas: Eliminate expansion funding for the ACA's expansion categories, reduce it to a traditional match (50/50 in California), or reduce it and block grant it to the states with no match required; eliminate provider taxes (costs California hospitals about $4 billion in federal financing); adopt a Medicaid per capita cap on the growth in federal spending per eligible (Medi-Cal per capita spending grew at 3.6% for the last decade while the CPI grew at about 2%).
Democratic ideas: Protect the ACA expansion and enhanced Medicaid match funding formula; fold the program into Medicare for All.
· Clear consistent bright line delineating Medicaid and Exchange eligibility for all families; the whole family should be enrolled in same plan, same program, and with the same provider network.
· Behavioral health treatments, plans and providers should be integrated into the local Medi-Cal managed care plans
· The goal should be continuity of providers and continuity of treatment; Medi-Cal managed care plans should participate in state Exchanges and vice versa – i.e. the HMOs participating in Covered California should also participate in Medi-Cal.
· Expand per capita cap in Medicare to all highest per capita cost public programs
· Covered California should contract with health plans for both Medi-Cal and the Exchange (Covered California).
· Need to increase Medi-Cal payment rates for MDs, particularly for primary and preventive services, using the new tobacco tax revenues and negotiating through the local managed care plans.
Private individual coverage: About 5 to 8% of Californians under age 65 have private individual coverage; these include the self-employed, flex (gig) workers, disabled and unemployed. 1.4 million Californians participate in the CA Exchange (Covered California); there may be an equal number outside the Exchanges.
There was only a little public financing for individuals prior to the ACA through the feature of tax deductibility for the self-employed; this is not available for either the employed or the unemployed purchasing in the individual market. This tax subsidy is regressive – i.e. the more money you make, the higher your tax bracket, the bigger your deduction for your health insurance premiums. House Republicans and Candidate Trump wanted to expand tax deductibility to all purchasing individual insurance. Let’s see if that is in Republican tax reform measure being unveiled this week.
Prior to the ACA, individual coverage was unaffordable for low-income individuals and families. For a minimum wage worker, it would comprise half or more of his/her salary; while family coverage would have cost far more than his/her entire salary. The ACA made major improvements in affordability through premium assistance and cost sharing reductions.
Premium assistance helps people pay their premiums; it is highly progressive; individuals and families would at the low end pay not more than 2% of their income for premiums, increasing to 8% of income at 400% of FPL, (about $48,00 for an individual). Cost sharing reductions reduce copays and deductibles to a more affordable level. An individual with low income (e.g. just over $16,000) choosing an enhanced silver plan would have coverage paying 94% of their medical costs– equivalent to a 6% copayment. The cost sharing reductions phase down and out rather quickly at $30,000 for an individual. The criticisms are that the premium assistance does not reach enough people (1.2 million), and the cost sharing reductions phase out too quickly.
Prior to the ACA, availability and reliability of coverage were twin problems in the individual markets. Insurers could and did deny coverage to individuals with preexisting conditions. Some insurers also terminated (rescinded) coverage to individuals who may have omitted information on or miss-described their medical condition on their application.
The ACA solutions were as follows: guaranteed issue, guaranteed renewals, no pre-existing condition exclusions, no rescissions. Insurance premiums could continue to vary by age with in a rate band of 3:1 by age; no variations in premiums by illness or medical condition were permitted. Insurers must meet a minimum medical loss ratio of 80% -- in other words they must use at least 80% of premium dollars on medical care for their subscribers.
Each insurer must offer, and individuals must purchase 10 essential health benefits. Behavioral health, prescription drugs, and maternity services were often excluded in the pre-ACA individual market.
Geographic variations in premiums are permitted; California chose to group its counties into 19 separate regions. For example in the Bay Area, nearly every county has its own region. Los Angeles is divided in two regions.
Individuals may choose coverage from 5 different tiers (actuarial value). The most comprehensive is platinum which pays for 90% of expected medical costs – equivalent to a 10% copay; gold is 80%, silver is 70%, bronze is 60% and catastrophic plans cover 50% of expected medical costs.
Annual and lifetime caps are eliminated. Prior to the Affordable Care Act, carriers would limit their coverage with an annual maximum and a lifetime maximum, which left individuals with no financial protection once they hit the cap.
Annual open enrollment allows individuals to enroll during a three-month window each year; this coming year it will be one month. Individuals may not simply enroll when they get a bad diagnosis or otherwise game the system. Individuals facing discontinuities of coverage such as loss of a job or loss of Medicaid due to an increase in income may enroll mid year, but only if they do so within 60 days of the event.
Individuals must purchase coverage or pay a tax penalty $695 or 2.5% of income whichever is higher. The tax penalty is far less than the cost of individual coverage. Financial hardship and religious objection exemptions are available.
The ACA provided reinsurance for insurers who faced an inordinate burden of catastrophic medical costs due to the elimination of their pre-existing condition exclusions; Sen. Rubio led the effort to repeal this aspect of the ACA, which has led in large measure to the recent spate of premium increases. In any given year, 1% of subscribers account for 30% of an insurer’s medical claims. Alaska instituted a state operated and financed reinsurance fund and reduced individual insurance premiums by 20% and recently received a federal waiver to help fund its reinsurance pool. Oklahoma’s comparable waiver was denied earlier this week.
· Eliminate the mandate, charge the sick higher premiums, delay coverage or charge higher premiums for those who miss the annual open enrollment cut offs or fail to maintain coverage for any time period in excess of 60 days
· Expand the rate bands for age rating from 3/1 to 5/1. This means that insurers can charge a 64 year old five times as much as a 20 year old for the same coverage.
· Eliminate the 10 essential health benefits and allow insurers to eliminate maternity coverage, behavioral health and/or prescription drug coverage.
· Reduce or eliminate the subsidies for premium assistance and cost sharing reduction, or reduce and block grant these funds to the states.
· Reinstitute high-risk pools for those with pre-existing medical conditions. Funding might come from the federal government or the states. California (AB 60) and many other states have had very bad experiences with high-risk pools; their premiums are typically very regressive and affordable only to a very few and they are often poorly funded leading to long waiting time queues to enroll.
· Auto enrollment of the non-enrolled in the lowest cost catastrophic or bronze coverage plan. Increase the tax penalties to approximate the costs of Exchange coverage so that all individuals are paying for coverage.
· Reinsurance for catastrophic cases in the individual market; this will require financing and could be part of a bi-partisan Senate effort. Reinsurance is key to a well-functioning market because the individual market has a higher share of individuals with pre-existing conditions, and they are not evenly distributed.
· Fund cost sharing reductions; this costs $7 billion annually and is a key component of the Senate’s bi-partisan negotiations. In California, it is equal to a 12% reduction in silver plan premiums; other states it is much higher. President Trump is holding back the funding for cost sharing reductions as leverage to force Democrats to embrace the Republican "repeal and replace" proposals.
· Extend the premium assistance subsidies to higher income individual purchasers up to and over 600% of FPL. This was initially proposed by House Republicans as a flat $2000 subsidy and could be grafted onto the ACA subsidies to help middle income Americans with their insurance costs.
· Develop an enhanced bronze plan; this would be parallel to the enhanced silver at 10% less coverage (i.e. 84% actuarial value for the enhanced bronze as compared to 94% of actuarial value for the enhanced silver). This would allow the low and moderate income subscribers who can only afford bronze to get better access to health care.
· Link premium assistance subsidies to 2nd lowest cost gold instead of 2nd lowest cost silver. This would help people afford a tier of coverage that gives them better access to health care and put them on more equal footing with employment-based coverage. Most employer plans offer a gold tier level of coverage.
In small communities in rural California there is often only one hospital, one medical group, and thus no realistic way that competition among plans and providers can work as envisaged in the Affordable Care Act. The result is high priced coverage with too few providers in the plan networks; this condition prevailed before and after the ACA. Premiums are far higher than in urban areas, such as Los Angeles, where there is an infrastructure for robust competition resulting lower prices.
LW recommendations: Use the existing Medicare or Medicaid managed care plans and their networks and their prices in the high cost rural regions with no plan or provider competition.
County health programs for the uninsured: uninsured rates in CA have fallen dramatically from over 17% to about 7%; the numbers of uninsured Californians has fallen from about 7 million to 2.5 to 3 million people as a result of the ACA. Participation in county indigent health programs for the uninsured has dwindled. Participation in Healthy San Francisco, the state’s most expansive county program for the uninsured declined from 70,000 to 14,000 persons. Enrollment in the Orange County and San Diego county programs for the uninsured is now infinitesimal.
Prior to the ACA, county indigent health financing consisted of realignment, tobacco litigation settlement, DSH and federal waiver funding. Half of state realignment was shifted from county health to beef up county social services. The Federal waiver funding ended. Federal DSH funding is on the chopping block (ACA) but delayed due to the failure of Southern states to adopt the Medicaid expansion. In most but not all California counties, there are very little if any truly discretionary county tax dollars committed to indigent health.
Of California’s 2.5 to 3 million remaining uninsured, the estimates are: ½ are undocumented, 30% Covered CA eligible and 20% Medi-Cal eligible but not enrolled. County health programs offer patchwork quilt: different rules on eligibility, different delivery systems -- at least 24 different eligibility and delivery systems. For example, there is no county coverage for undocumented individuals in either Orange County or San Diego. In counties with county hospitals and clinics like San Francisco and Ventura, county facilities are available to the uninsured, regardless of an individual’s immigration status. In counties with public facilities like Los Angeles and Alameda, care is delivered and reimbursed in county facilities and community clinics regardless of immigration status. In counties with county clinics and private hospitals like Santa Barbara, care is delivered in the public facilities regardless of one’s immigration status.
The major challenges facing public facilities is system transformation from emergency room and hospital based care to beefing up primary care, preventive and outpatient services. Not all county facilities are well designed for this kind of transformation, for example the excellent new County/USC facility in East Los Angeles may have been better designed for the now outmoded delivery system. The recent federal waiver is important to facilitate this transition, but an attitudinal shift is essential throughout the county health workforce to embrace choice, quality and efficiency improvements and competition.
Private employment based insurance Under 50% of California’s under 65 population has private employment based insurance. Typically the employer pays 3/4ths to 80% of the premium, and coverage is usually at least the gold tier. Private insurance accounts for less than 30% of the state’s total health spending. It is 1/3rd publicly financed through the mechanism of pre-tax dollar purchasing. This public financing feature is highly regressive, the maximum benefits go to those employers whose employees are in the highest income tax brackets, think for example how this would work for Google employees vs. farm workers or McDonald’s employees. The other big challenge is in covering full time, full year employees (usually covered) vs. flex workers, such as part time, part year, seasonal, temporary or contract workers (typically not covered).
The ACA did not seek to solve the very real challenges associated with covering the low wage and flex workforces through their workplace although it does give flex workers the ability to access coverage in the Exchanges where there are significant subsidies. The ACA sought to prevent employers from dropping coverage for their employees and shifting them into the Exchanges with a mandate for medium and large employers to continue to cover their employees. It set a very low bar; the employer need only offer to pay 60% of the premium for lowest priced bronze plans (ACA).
There is a perception that the best compensated employees (like Wall St. banking or law firms) get the best coverage, most extensive coverage money can buy due to the tax advantage; therefore the ACA includes a “Cadillac benefits tax” of 40% on very high priced coverage which largely negates the big federal tax advantages. This tax has a built in inflator (like a per capita cap) that does not keep pace with the rise in the costs of employment-based health coverage so that over time more and more employment-based coverage would be impacted. There are exceptions for firefighters and police and others whose high priced coverage is due to the high-risk nature of their jobs. Both large employers and big unions want to repeal the Cadillac benefits tax in the ACA. The ACA did little else to control the growth in employment-based insurance premiums, which are going up faster than Medicare or Medicaid.
Republican proposals – end the mandates, retain the Cadillac benefits tax, but delay its implementation and/or increase mandate threshold from 30 to 40 hours per week.
· Extend the mandate to smaller employers as Hawaii does,
· Modify it to help low wage workers affordability by tieing the employees’ contributions to a percentage of wages like Hawaii, rather than a percentage of premiums as the ACA does,
· Require pro rata contributions for coverage of flex workers into Exchanges as Healthy San Francisco does,
· Permit and encourage medium sized employers to purchase through the Exchange,
· Retain but flip the tax subsidies 180 degrees from regressive to progressive to help low wage employers afford coverage.
My favorite solution: At a state level, this would be the Insurance Commissioner John Garamendi’s plan of the early 90’s or at the national level, the Senator Ron Wyden – Senator Robert Bennett plan of the 2000’s.
The framework is as follows: All Americans (or Californians) are covered for basic benefits. You choose your health plan from the Exchange; you pay extra above the basic reference plan for more benefits or for a more costly delivery system.
There are many unanswered questions. For example, are we offering narrow network plans like Kaiser? Are we also offering broad networks like Medicare fee for service? Are regional centers of excellence like Children’s Hospitals or Cancer Specialty hospitals in all networks or only some? How do we address the need to develop more integrated delivery networks that would compete with Kaiser?
For today's purposes, I assume that basic coverage would be equivalent to a gold tier plan, which is what Medicare and many private employer plans already offer. I think that the silver plans have too many copays and too high deductibles for the average income American/Californian to afford. That still leaves the questions of "do you permit insurers to sell bronze, or silver plans to customers who want to pay less for less coverage"? I assume that platinum level of coverage would be offered but with no tax subsidies for the incremental cost difference. The ACA model of an enhanced plan with lower copays and deductibles for low and moderate income citizens and residents should be retained and built upon because otherwise the health plan copays and deductibles are too steep for low and moderate individuals to afford access care.
All pay and all covered! Your coverage would be financed by a graduated health surcharge on your taxes, not more than costs of coverage. Financing for the subsidies needed to assure coverage for low and moderate-income individuals would be financed through a VAT (Value Added Tax), if enacted at the national level, or by applying the California sales tax to services, if enacted at the local level. This would move California or the nation completely away from employer financing and make American employers and employees more globally competitive. However it makes this plan far more expensive than the ACA, which was built on retaining the framework of existing financing through its employer and individual mandates. It could be nearly impossible to persuade employees who now pay only a fraction of the costs of employer coverage to agree to a surcharge for the full costs of coverage. If you wished instead to retain employment-based coverage, it needs to be accompanied by a Hawaii style employer mandate and to require participation and purchase through the Exchange(s).
It’s far more dynamic, accountable, innovative and responsive to operate through contracts under an Exchange. Making needed changes through statutory and regulatory changes, as Medicare for All would do, is far less nimble in adapting to the fast changing worlds of medical innovation and health care finance.
It’s based on a competitive model among plans and providers, which gives strong incentives for excellence in care and increased cost efficiency. Where there are poor quality plans and poor quality providers or over-pricing, consumers vote with their feet during the annual open enrollment and/or the Exchange culls those with poor quality scores.
The system would need to remove some barriers to entry to permit more robust competition among plans. We may need to build from nimble locally responsive plans like Sharp, Chinese Community, Western Health Advantage or IEHP rather than the large unresponsive national behemoths.
We would need an “active purchaser” exchange to assure fair competition, transparent pricing and strong information to consumers on outcomes. We would need a regulated pricing system in those regions with a natural monopoly or oligopoly provider networks where competition does not work.
The same model would offer optional dental, and vision coverage for those individuals and families who wish to purchase them, but without tax subsidies. Dental and vision for children would need to be part of the basic package.
Does it offer long-term care? Does it fold in Medicare? That would depend entirely on resolving those essential political and financing issues at the state and federal level.
Let's not just sit here and wait for the next Trump effort to destroy California's health care progress, let's design, decide and build our own solutions.
Prepared by: Lucien Wulsin