The Cost Implications of Private Exchanges

Private exchanges could encourage employees to select less-generous plans, according to a report by Rand. This could expose employees to higher out-of-pocket costs, but premium contributions would drop substantially, so net spending would decrease. On the other hand, employee spending may increase if employers decrease their health insurance contributions when moving to private exchanges. Most employers can avoid the ACA’s Cadillac tax by reducing the generosity of their plans, regardless of whether they move to a private exchange. There is not  enough evidence yet to determine whether private exchanges will become prominent and how they will affect employers and their employees.

Workers who choose less-generous plans could risk higher out-of-pocket costs. But their net spending would drop because premiums would drop substantially. Average employee spending could increase if employers lower their health insurance contributions when moving to private exchanges. Private exchanges are unlikely to significantly affect the ACA’s Small Business Health Options Program (SHOP) Marketplaces.

Californians With Mental Health Issues Face Discrimination

Californians With Mental Health Issues Face Discrimination
Many California residents with mental health issues report discrimination in personal relationships and in the workplace, according to a RAND Corp. study. Just 41% of those surveyed say that people are caring and sympathetic to those with mental illnesses while 81% say that people with mental illness face prejudice and discrimination. More than two-thirds of said they definitely or probably would hide a mental health problem from co-workers or classmates, and more than one-third said they would hide their condition from family or friends.

Nearly 90% who had a mental health problem faced discrimination. Most often, they faced discrimination in intimate personal relationships, but they also reported high levels of discrimination at school, in the workplace, and from health care providers and law enforcement officials. However, Californians who are facing psychological distress are showing signs of resiliency. More than 80% of those surveyed have a plan for staying or becoming well and say they can meet their personal goals. In addition, about 70% of those surveyed said that they are satisfied with life. The large majority of respondents say that recovery from mental illness is possible and say they would seek treatment for a mental health problem if needed.

Proposition 63, which imposed a special state tax on people with incomes over $1 million, funds the California Mental Health Services Authority (CalMHSA). Wayne Clark, executive director of CalMHSA said, “This new report…highlights the need to confront stigma, and the opportunity to promote mental health in our state with the statewide stigma reduction efforts offered by CalMHSA.” The survey found that the mental health education campaign mounted by CalMHSA is reaching people facing psychological distress. About one-third of the people surveyed had been reached during the previous 12 months by the early intervention efforts, such as viewing the campaign’s documentary on ending stigma about mental illness. In addition, other activities that could be related to the CalMHSA efforts reached nearly 90% of the group during the previous 12 months.

Millions Would Drop Coverage If Subsidies Were Eliminated

Eliminating government subsidies for low- and moderate-income people through federally run health insurance marketplaces would reduce enrollment in the individual market by more than 9.6 million, according to a new RAND study. If the Republican controlled Congress strikes down the subsidies, enrollment in the ACA-compliant individual market would drop to 4.1 million in 34 states. Individual market enrollment would drop 70% among people buying policies that comply with the Affordable Care Act.Christine Eibner, the study’s senior author and a senior economist at RAND said, “The disruption would cause significant instability and threaten the viability of the individual health insurance market in the states involved. Our analysis confirms just how much the subsidies are an essential component to the functioning of the ACA-compliant individual market.”

Premium costs for a 40-year-old nonsmoker purchasing a silver plan would rise from $3,450 annually to $5,060.  In addition, unsubsidized individual market premiums would rise 47% in those states. The hike would correspond to a $1,610 annual increase for a 40-year-old nonsmoker with a silver-level plan.

The Supreme Court has agreed to hear a court case (King v. Burwell) that challenges the use of government subsidies to help low- and moderate-income people buy health insurance in marketplaces operated by the federal government. Ending federal subsidies would have a bigger effect in states with federally run marketplaces than in states that run their own marketplaces. States with federally run marketplaces generally have more low-income participants who are more likely to drop insurance without subsidies. Those states also had higher uninsurance rates prior to adoption of the Affordable Care Act

Biosimilar Medications Could Save Billions

Over the next decade, the United States could save $44 billion by introducing competing biosimilar versions of complex biologic drugs, according to a report by the RAND Corporation. Biologics, which treat conditions, such as cancer and rheumatoid arthritis, are often effective, but expensive. Patient copays can be several thousand dollars a year. In 2011, eight of the 20 best selling drugs were biologics. Also, annual spending on the drugs has grown three times faster than spending for other prescription medications. Introducing biosimilar drugs into the U.S. marketplace is expected to increase competition and drive down prices, saving money for patients, health care payers, and taxpayers. However, savings are not expected to be as dramatic the as savings we have seen for an earlier generation of less-complex generic drugs.

The Affordable Care Act authorizes the FDA to develop a regulatory framework for approving biosimilar drugs. Draft materials released by the FDA suggest that not all biosimilars will be interchangeable with their original counterparts. In addition, nearly all biosimilars will require at least one head-to-head clinical trial to confirm similarity to the original biologic, which is a more-strenuous process than what is required for standard generics. A number of issues will determine the savings and who will benefit. One issue is how much the use of biologics grows as some patients switch to biosimilar drugs as they become more affordable. Patients will see some cost savings. But physicians and hospitals may also benefit because biologicals are often purchased by health providers and administered in clinics and other treatment settings. For more information, visit www.rand.org.

Federal Drug Discount Program Faces Challenges

A federal program that provides billions in drug discounts to safety net hospitals and other health care providers is expanding under health care reform. The 340B program faces a number of critical issues, such as whether to better define eligibility, strengthen compliance efforts, and provide greater transparency about the discounts provided, according to new analysis by the RAND Corporation. The federal Health Resources and Services Administration is developing new regulations to address these and other issues. “Policymakers need a clear, objective description of the 340B program and the challenges it faces on the road ahead. There are increasingly divergent views on the program’s purpose and the role it should play in supporting safety net providers,” said Andrew Mulcahy of RAND.

The federal 340B program began in 1992 to help health care providers extend services to the indigent and uninsured. The program allows some hospitals, clinics, and health centers to buy outpatient prescription drugs at discounted prices. The program covers more than 7,800 entities as a result of expanding eligibility rules. Hospitals that participate in the program account for more than one-third of all U.S. outpatient hospital visits.

Federal officials estimate that the 340B program accounts for $6 billion in outpatient drug spending, about 2% of all U.S. prescription drug spending in 2011. This translates into savings of $1.6 billion for eligible safety net providers. RAND researchers say that these savings are small compared to the disproportionate share hospital payments and primary health care grants that play a large role in financing care in the safety net. However, some estimates suggest that the size of the program could double under provisions in the federal Affordable Care Act. Formulas used to calculate drug prices are based partly on proprietary information, which can make it difficult for health care providers to know whether they can negotiate a lower price for drugs through another source. For more information, visit www.rand.org.

Bundled Payment Experiment Fails

bundled payments

California hospitals faced disappointing results in a recent experiment with bundled payments. Researchers at Rand evaluated a pilot program, coordinated by the Integrated Healthcare Association, to adopt bundled payments for orthopedic procedures among commercially insured people under 65. The three-year study began in 2010. Under bundled payments, doctors, hospitals, and other health providers share a fixed payment, which covers the average cost of a bundle of services, such as all aspects of caring for a person undergoing a hip replacement. At the outset, participants included six of the state’s largest health plans, eight hospitals, and an independent practice physicians’ association. Two insurers dropped out, saying that the bundled payment model would not lead to a redesign of care or lower costs. Another said that bundled payment was incompatible with its primary business – HMOs that use capitation payments. Just two hospitals signed contracts with health plans to use bundled payments. However, two ambulatory surgery centers signed contracts with one health plan. The project was hurt by delays in regulatory approval of contracts and a lack of consensus on the types of cases and services to include. Most stakeholders agreed that the bundle definitions were probably too narrow to capture enough procedures to make bundled payment viable. The project had such a low volume of cases that there was not enough information to draw conclusions about how bundled payments affect health care quality or costs, according to researchers. Susan Ridgely of Rand said, “Despite the many challenges, participants continue to be interested in making bundled payments work.” For more information, visit http://www.rand.org/newsletters.html.

Young Adults Have High Interest in Obamacare

In the past nine months, nearly 60% of the individual health insurance inquiries generated by Verticalize have come from 18-year old to 34-year old consumers. When the age segment was expanded to the 18 to 44 year-old range, the number of health plan inquiries from this group represented 80% of total volume. As much as 45% of Verticalize’s recent sales have come from the 18 to 34 demographic. “We’re finding a much greater interest level from young adults in Obamacare insurance than on-exchange enrollment numbers reflect. Part of our success may be due to our avoidance of the political dimensions of health insurance. We call it the, ‘saying yes to healthcare moment.’ You aren’t saying yes to Obamacare, the president, or supporting one political party. What we try to reinforce is that you are simply saying yes to a better quality of life through sound insurance coverage,” said Sean Sullivan, CEO of Verticalize. According to RAND research, the majority of exchange enrollees were previously insured, but only 9.75% of 40,000 of Verticalize’s recent health plan inquiries were from people who have health insurance or had it. Of those with past or present insurance coverage, the insurance companies that had most frequently provided the coverage were Aetna, Blue Cross Blue Shield, and United Healthcare. For more information, visit Verticalize.net.

Study Questions the Effectiveness of Medical Homes

The medical home has become a new model to produce better and lower-cost primary health care. But a Rand study found that medical homes yielded few improvements in the quality of care and no reductions in hospitalizations, emergency department visits, or total costs of care.

Medical homes are primary care practices that are designed to provide comprehensive, personalized, team-based care using patient registries, electronic health records, and other advanced capabilities. Recent medical home initiatives have encouraged primary care practices to invest in these new capabilities, participate in learning collaboratives, and achieve medical home recognition. Health plans offer to pay more to the practices that achieve recognition.

Researchers evaluated the Southeastern Pennsylvania Chronic Care Initiative. Thirty-two primary care practices and six health plans participated in the pilot from 2008 to 2011. Pilot practices adopted medical home capabilities, such as creating lists of patients who are overdue for the services they need. The medical homes did see improved rates for monitoring for kidney disease in diabetes patients, and there were signs that quality improved for some other aspects of diabetes care.  However, there were no improvements in the quality measures for asthma care, cancer screening, and control of diabetes. Also, there was no reduction in the use of hospitals or emergency departments, or the total costs of medical care.

Researchers say there are several reasons that the medical home pilot did not show broader improvements in cost and quality. The pilot emphasized quality of care for diabetes and asthma. But practices did not have the financial incentives to contain costs. While most participating practices adopted new capabilities that targeted quality of care, fewer increased night and weekend hours, which could have reduced unnecessary visits to the emergency room. Because the pilot practices volunteered for the medical home experiment, they may have been more quality-conscious than other practices even before the pilot began, which would limit possible improvements. For more information, visithttp://www.rand.org/newsletters.html.

Individual Plans and the So-Called “Death Spiral”

Allowing people to keep individual health insurance policies that don’t meet ACA requirements is not likely to send new health insurance exchanges into a death spiral, according to a RAND study. In November, President Obama announced rules that allow current non-group enrollees to keep their existing health plans, provided their state’s health insurance commissioner permits such actions. This was after criticism that some consumers in the individual market were losing their health insurance plans.

The three options to help people keep their old plans would all cause some disruption to risk pools, but not enough to threaten their viability. An option adopted by President Obama to allow state insurance commissioners to decide whether to extend old insurance policies is the least disruptive of the three policies examined by the RAND report. The study predicts the president’s action will have only minimal effect on enrollment and premiums.

The most disruptive proposal would allow people to keep their old health plans and allow others to buy the policies. It would lead to moderate price hikes and sharply lower enrollment in the new marketplaces, substantially increasing federal spending on subsidies for enrollees.

Two alternative proposals have stalled in Congress. One would require insurance companies to continue offering non-compliant individual health plans indefinitely, but not take new enrollees. A second bill would allow non-compliant plans to continue and be offered to new enrollees.

Because each of the proposals would divert many young and healthy people from the new health insurance marketplaces, there has been concern the changes could lead to a self-reinforcing cycle of increasing premiums and enrollment drops that could lead to the implosion of the marketplaces.

All three proposals are likely to increase the number of people with health insurance because many non-compliant insurance policies are likely to be less expensive than those in exchanges. However, many of the non-compliant policies are likely to offer fewer benefits than policies offered in the exchanges.

Opening the non-conforming plans would be likely to raise premiums in the marketplaces by as much as 10% and decrease enrollment by 3.2 million nationally. It would also trigger an additional $5 billion in federal spending on subsidies and tax credits in the individual marketplace in 2015. The two other strategies would result in far smaller cost increases. For more information, visit www.rand.org.

Wellness Programs Can Cut Costs, but Only for Certain Workers

Workplace wellness programs can lower health care costs for those with chronic diseases, but some components of the programs may not reduce health costs or lead to lower net savings, according to a RAND Corporation study. The results are published in the January edition of the Journal Health Affairs.The study looks at PepsiCo’s Healthy Living wellness program over seven years. The program includes health risk assessments, on-site wellness events, lifestyle management, disease management, complex care management, and a nurse advice phone line.

Efforts to help employees manage chronic illnesses saved $3.78 in health care costs for every $1 invested. However, people who participated in the lifestyle management program reported a small reduction in absenteeism, but there was no significant effect on health care costs.

In contrast, the disease management program reduced costs among participants by $136 per member per month, or $1,632 annually. There was a 29% drop in hospital admissions. RAND researchers say that with any prevention effort, it is often easier to achieve cost savings in people with higher baseline spending, as found among those in the disease management program. Interestingly, disease management participants who also joined the lifestyle management program experienced much higher savings at $160 per month with a 66% drop in hospital admissions. This suggests that proper targeting can improve the financial performance of lifestyle management programs. For more information, visithttp://www.rand.org/newsletters.html

Last Updated 02/24/2021

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