Managed Care

 

Medical Utilization to Soar (Or Maybe Not)

MANAGED CARE February 2014. © MediMedia USA
Feature

Medical Utilization to Soar (Or Maybe Not)

Moody’s says that more people will get care, but hedges its prediction, while other experts think that the trend line will stay flat

Frank Diamond
Managing Editor

Give credit to anybody willing to make a prediction about health care these days, even to companies in the prediction-making business. Moody’s, the bond rating corporation, says that medical utilization could increase this year, but does so with plenty of qualifications. Stephen Zaharuk, a senior vice president, notes that the Affordable Care Act complicates everything.

“First, there are many more individuals who had previously been without insurance coverage who may require substantial medical care,” says Zaharuk. “The Obama administration released data indicating that the population enrolled in exchanges’ insurance plans is older than anticipated, which will also likely lead to increased utilization.

Expanding Medicaid rolls might not mean higher utilization

The rickety launch of the Affordable Care Act includes at least one positive development for poor Americans. There has been a huge surge in Medicaid rolls, with about 6.3 million more people deemed eligible as of mid-January. Adults at or below 138% of the federal poverty level (FPL) can now sign up; before the ACA’s passage, it was 106%.

Having more Medicaid enrollees will increase medical utilization somewhat because there are people who have forgone needed care in the past, says Ann O’Malley, MD, a senior fellow at Mathematica Policy Research. How much use increases will vary by state, as some states have decided to expand Medicaid eligibility while others have not.

The eligibility for parents and other adults in 21 of the nonparticipating states “will remain below 100% of the [federal poverty level, FPL], with eligibility levels below half of poverty in 14 states,” according to a study by the Kaiser Family Foundation (http://tinyurl.com/Medicaid-surge). “Overall, the medium eligibility level for parents in these states will be just 47% of the FPL....”

Median Medicaid income eligibility limits for adults as a percentage of the FPL, January 2013 and January 2014

FPL: Federal poverty level

Source: “Getting Into Gear for 2014: Shifting New Medicaid Eligibility and Enrollment Policies Into Drive,” Kaiser Commission on Medicaid and the Uninsured, November 2013

“The insurance companies may have anticipated higher costs as a result of expanded coverage as required by the law. However, as more people use the system, there will be more volume, and with that, more challenges to manage care effectively.”

Zaharuk points out that setting insurance premiums requires forecasting. “Most policies run on a calendar year basis. The health insurance companies made their assumptions for utilization and medical costs for 2014 several months ago and now have to manage toward them.”

Beyond the ACA, there are other reasons we may see increased medical utilization. “The trend for the last four years has been lower than in previous years,” Zaharuk notes. “While the administration credits the ACA for this trend, many economists say the lower cost results from a combination of a struggling economy and changes in the benefits structure, mostly in the employment sector. In particular, employees are seeing lower benefits in the form of higher deductibles and higher copayments.”

Reinhardt’s take

One of the economists watching medical utilization is Uwe E. Reinhardt, PhD, professor of economics and public affairs at Princeton University. He thinks utilization will remain flat.

“There could be a short-lived blip for some elective procedures — it was reported to have occurred [in December]; but I would not make anything of it,” says Reinhardt. “Some people on Wall Street argue that faster economic growth will drive up utilization again this year. I would doubt it. First, the growth won’t be that much faster. Second, other forces (e.g., high cost sharing) may continue to depress utilization. I think that utilization has not only been flat, but that in some sectors it has been down — even in Medicare.”

Zaharuk agrees that a lot hinges on how the economy does, but if it grows, “there is pent-up demand for medical services from people who have put off elective surgeries and who have put off starting families. Now, with a general sense that the economy is improving, they may feel a little more comfortable in changing their medical spending pattern.”

Ann O’Malley, MD, a senior fellow at Mathematica Policy Research, says that any uptick in utilization will come from the roughly 5% of the population in the individual market. “There’s a whole lot of transition in the individual market and there always has been.” She adds that “People in the individual market tend to be a younger, healthier population, or to be between jobs.”

Expect Medicare utilization to stay flat, says Ann O’Malley, MD, of Mathematica Policy Research. “There’s a lot more pressure on hospitals to make sure they do a really good job at the time of patient discharge” to ensure that the patient isn’t readmitted.

They are not the sort of people, in other words, who would get a hip replaced now because they’re worried about what it might cost a year from now.

In addition, she cites the uncertainty about just what insurers need to include in plans to meet federal standards for coverage. “Given all these moving parts, I think it’s premature to say that all of a sudden utilization is going up because people are worried about not getting coverage for certain things.”

Expansion of Medicaid under the ACA might increase utilization as people gain coverage and start to seek care. (See “Expanding Medicaid Rolls Might Not Mean Higher Utilization” on page 47.) But such use will vary a lot by state.

“So you’ve got states like Texas that has decided not to increase the income threshold for Medicaid eligibility to 138% of the federal poverty level that is allowed under the ACA,” says O’Malley. Texans who continue to lack insurance will probably postpone care until they can’t postpone it anymore.

“If they have a chronic condition like congestive heart failure, or diabetes, or obstructive lung disease, they tend to put off care until they have a horrible exacerbation and then they end up in the emergency room or they end up in the hospital. The literature strongly supports that if people are uncovered, and continue to be uncovered in states that don’t expand Medicaid, they’re just going to enter the system in a sicker state. The disease will be more advanced.”

Like Reinhardt, she wouldn’t be surprised to see utilization in Medicare fall rather than rise. “The acceleration of spending has leveled off in the last couple of years. There’s a lot more pressure on hospitals to make sure they do a really good job at the time of patient discharge to transition people back into the outpatient setting so that patient doesn’t wind up being readmitted. Providers are getting these types of signals and that partly accounts for the decline in Medicare spending.”

Outlook for Medicare

Zaharuk isn’t totally convinced. “The media have stoked up fears about more people coming into the system leading to a shortage of doctors,” he says. “That may get people who would normally put off an appointment to get an appointment now. In addition, the employer mandate starts in 2015, and people are hearing stories about the potential of losing their coverage.”

Even so, Zaharuk does not think there will be a sudden major shift in the utilization pattern. Noting that behavioral changes take time, he says, “Utilization will trend up gradually, but there will be pressure on insurers to manage this increase within reasonable limits to match their initial financial assumptions.”

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