The Federal Stimulus Package: What’s in It for You?

If you are looking for direct aid, you are probably out of luck, but a goodly amount will help health insurers indirectly

John Carroll
Contributing Editor

The American Recovery and Reinvestment Act of 2009 is designed to inject $787 billion into the faltering U.S. economy, but it provides far more direct aid to providers and hospitals, and less for managed care.

There is some direct help for insurers by way of a hefty COBRA (Consolidated Omnibus Budget Reconciliation Act of 1986) subsidy — an offer to cover two thirds of the cost of coverage for laid off workers. Billions in new Medicaid subsidies were widely hailed as a major assist for Medicaid managed care plans, which were staring at big cuts in benefits and a probable tightening of eligibility requirements in many states. That new federal money forces states to back off on cuts — which will keep members in plans.

And there are billions more in indirect support that quickly drew a managed care cheer.

The federal government is injecting $19 billion to encourage providers to use electronic medical records, a key initiative for plans that have been pushing providers to improve operating efficiency and reduce costs. Health plans have already begun to identify group practices that are ready to invest in this technology.

When you are allotting hundreds of billions of dollars, a $1.1 billion budget item would normally be relegated to little more than a footnote, but it was enough to engender plenty of discussion about the future of comparative effectiveness — guidance on which therapies do the job and which don’t.

Don’t look for any kind of managed care bailout, though, in a bill that at least one key U.S. senator, Max Baucus from Montana, sees as the first big step toward sweeping health care reform. Stimulus money will help retain members in private plans and push the health care industry down the path to greater efficiency, but it’s no cure-all for everything that ails managed care organizations.

Taking the bite out of COBRA

Some market analysts, including Scott Keyes, a senior consultant at Watson Wyatt, have predicted that the Recovery Act’s COBRA subsidy could double or even triple the number of people who buy their own health insurance after losing a job and the employer-paid coverage that went with it. That will keep more people in health plans at a time when membership is eroding.

Under the new law, anyone who lost or will lose a job between last September 1 and the end of this year will have 65 percent of his COBRA bill paid by the government. For those who don’t qualify for Medicare or coverage under a spouse’s policy, federal insurance support would stretch for nine months, half of the 18-month window employers have to keep open for laid-off workers.

“People who are laid off will have continued access” to insurance, says Justine Handelman, executive director of legislation and policy at the Blue Cross & Blue Shield Association. “We don’t want to see the ranks of the uninsured rise.”

“Something like 40 percent to 50 percent of the people who are being laid off are potentially affected,” says John Sheils, senior vice president at the Lewin Group, a health care consultancy. “They could buy insurance with the COBRA subsidy. Most of the unemployment you see tends to be among people who never had coverage. Now, more and more people who did have coverage are being laid off, and it will be important for them to maintain their coverage.”

But it’s no panacea.

“It’s not going to be 100 percent take-up,” says Kathleen Stoll, director of health policy at Families USA. “It is going to leave some families behind.”

Here’s why: The subsidy may help, but insurance will still be hard to pay for. The member’s 35 percent share of COBRA is much more than most were paying out of pocket when they had jobs.

Before the subsidy, the average family that had $30,000 in gross income would qualify for $1,385 a month in unemployment benefits in Colorado and pay $1,078 a month for COBRA — which helps explain why only 12 percent to 15 percent of the people who qualified for the coverage in 2006 bought it, notes Kaiser Family Foundation senior policy analyst Karyn Schwartz in a new report. With the subsidy, she writes, the average monthly out-of-pocket cost drops to $377. But even that discounted price is 27 percent of a shrunken unemployment check — significantly more than the 11 percent of gross income that the same hypothetical family had been paying for health care. And that’s a hurdle some families won’t be able to clear.

Managed care companies, though, are likely to find that the people who do go the extra mile to keep coverage under COBRA are also, on average, sicker and more expensive to care for, says Keyes. And that could strike a sour financial note at a time that most MCOs are trying to beef up their margins.

Beefing up Medicaid subsidies

It didn’t take long for state officials to learn the new math on Medicaid that is laid out in the stimulus bill. And the bottom line is relief for Medicaid managed care plans.

For years, the federal government has used the Federal Medical Assistance Percentage formula to calculate how to share Medicaid costs with the states. Under the stimulus bill, the federal share gets significantly larger, with all states getting a big boost and areas afflicted with the biggest job cuts gaining even more. In recession-weary Nevada, for example, the federal government’s share of the Medicaid bill jumps from 50 percent to 64 percent.

But there is a catch. To qualify, states had to guarantee that they wouldn’t cut benefits and tighten eligibility requirements.

“We were looking at states cutting members,” says Stoll. “This gives states breathing room to get through the recession without doing drastic cuts.”

Hugely important

“The stimulus was a state bailout program and it was hugely important,” says Tom Kelly, the president and CEO of Schaller Anderson, the Medicaid managed care arm of Aetna. “It did protect Medicaid programs all around the country.”

With tax revenues plummeting from California to Maine, legislatures had been sharpening their budget axes, and Medicaid was one of the biggest programs on the chopping block. Kelly says that meant frozen or reduced payment rates for providers and MCOs, constrained eligibility requirements for low- income residents, and a loss of benefits covering nonmandated services such as durable medical equipment.

For now, those cuts are on hold.

The stimulus bill isn’t the only new federal help that Medicaid is getting. The Children’s Health Insurance Program reauthorization bill included a provision that allows beneficiaries to buy into commercial coverage when it is cheaper than CHIP, says Kelly. Employers can screen their workers to determine eligibility, streamlining what can be a very difficult process.

States, though, don’t see any quick end to their revenue woes; Kelly says that he has already seen alarm spread to the 2011 budget. That will get many of the states to scramble for more federal support.

“Everybody’s biting his lip,” says Kelly.

Anyone looking for a long list of shovel-ready projects — ones that are ready to begin as soon as the stimulus money arrives — in health care need look no further than information technology support for doctors.

Fully two thirds of doctors in group practices with four or more physicians don’t use electronic medical record (EMR) software, according to a survey released in April by the consulting group SK&A Information Services.

And the beefed up Medicare and Medicaid payments in the stimulus bill that will go to encourage its adoption — up to $44,000 per provider — can tilt the scales in favor of a tech upgrade.

“As we move forward, that’s going to affect the managed care industry,” says Stoll. “Most of the $19 billion that’s in this recovery package for health information technology was targeted more to providers. There was also a provision that requires the feds to develop interoperability standards, and that’s desperately needed before we move more forward in integrated IT delivery.”

Electronic records

Funds for electronic records will flow primarily to hospitals and physician groups, and advocates are even calling on managed care organizations to get into the loop and start matching the federal dollars for practices that qualify.

“Health plans could really take a proactive role, individually and together, to help states identify eligible providers,” says Nikki Highsmith, senior vice president at the Center for Health Care Strategies (CHCS). And that’s exactly what she already sees happening in Pennsylvania and Michigan, which are both taking part in a campaign to support providers serving a high-volume of Medicaid patients.

To qualify for the EMR money, says Highsmith, 30 percent of a group’s patients have to be covered by Medicaid. For pediatricians, the threshold is 20 percent. Physicians who accept Medicare patients are also eligible for federal IT subsidies.

“In the Pennsylvania marketplace, three health plans began working with the state to identify high-volume Medicaid practices” even before the new stimulus IT program was announced, says Highsmith. The plans are pooling funds to send staff members to practices to help the doctors’ groups use new technology and to work on registries — electronic databases that allow physicians to track people with chronic diseases like diabetes and help ensure the use of evidence-based medical standards in treating those ailments.

Health plans like AmeriChoice and Keystone Mercy Health Plan in Philadelphia aren’t just deploying people with expertise, Highsmith adds. They are putting money on the table. It is a simple step from there to roping in stimulus money to drive that process even more.

CHCS’s program began last fall, targeting small practices with large Medicaid patient loads. They are exactly the kind of providers that could benefit most from stimulus programs for health information technology.

“We’re very interested,” says Aetna’s Kelly. “Of the health information technology funds in the package, funds given to physicians are the single most important.” Hospitals probably have already made the move, he adds, but new federal funds offer a big chance to upgrade physician practices.

Simply put, if providers are stimulated to adopt electronic medical records, that will eventually help the health plans by reducing their clerical costs and improving the quality and timeliness of medical decision making, to everyone’s advantage. Aetna is already working closely with regional health information organizations (RHIOs) that have been fostering new technology. These RHIOs are probably the prime movers and shakers in creating new not-for-profit organizations that will help doctors get up to speed with new technology.

Still, promises of increased efficiency and paybacks have never been compelling enough to win over the skeptical majority of doctors worried about the time and money it will take to reengineer their practices as the technology continues to evolve.

“I don’t see it saving anybody a lot of money,” says Sheils of the Lewin Group. “You could see an improvement in quality and perhaps a reduction in the number of people working in physicians’ offices. But I don’t believe we know the best system. Should it be Web-based or should we have a server in every office? I would say we’re still probably not ready to make a lot of investment decisions in health information technology.”

America’s Health Insurance Plans was pleased that the stimulus plan includes the COBRA subsidy, the IT subsidy, and the $1.1 billion for comparative effectiveness research.

Reflective of needs

“Patients and providers will be able to assess drugs, technologies, and treatment options and make decisions that best reflect the patients’ needs and preferences,” says Karen Ignagni, the association’s chief executive officer.

“It is not a lot of money, but it’s been a hot topic,” says Stoll of Families USA. “We’re really just talking about pulling together information about what is good treatment and better treatment and not linking it to payment reform. We really don’t have the body of science to do that right now. It’s been a very controversial area, and one that managed care would watch.

“We want doctors and insurers to have the most accurate information possible about what constitutes the best treatment and the best time for that treatment. Whether we’re ready to decide on how payments are made, to guide practice, we’re not there yet.”

Ineffective or redundant

“It is a longer-term investment,” offers Handelman, but one that the Blue Cross group has been cheering, citing studies showing that 30 percent of the health care provided today is either ineffective or redundant.

Eliminating wasteful spending has been a big issue for managed care organizations, but there is still no mandate in the stimulus bill to compare costs of treatments. For Pharmaceutical Research and Manufacturers of America and some other organizations, cost comparisons represent a shortcut to limitations on care, and that’s an issue the manufacturers won’t back down on.

Head start

Add it all up, some observers say, and you’ll see that Congress used the stimulus package to get a head start on the reform policies being pushed by the Obama administration.

“It is almost a down payment on health care reform,” says Handelman.

And at least one prominent lawmaker agreed wholeheartedly.

“There are going to be certain costs of health care reform — upfront costs,” Montana Sen. Max Baucus told reporters in the lead-up to the stimulus vote. “If I can put some of those upfront costs in the so-called stimulus bill, I’d rather put them there.”

For managed care organizations, that amounts to both a promise and a threat.

The government giveth… and taketh away

When William Todd, a health care lawyer, took a look at the fine print in the American Recovery and Re- investment Act of 2009, one part in particular caused him to do a double-take. Legislators included a provision that allows the states’ attorneys general to go after anyone breaching HIPAA regulations.

“In all candor, there have been no enforcement actions under HIPAA,” says Todd, a lawyer at Benesch, a law firm with offices in several states. Complaints “had to go from Health and Human Services to the Justice Department and Justice would [have the responsibility of bringing] enforcement litigation, and it just wasn’t there.”

For managed care organizations, hospitals, and doctors, bringing the AGs into the enforcement mix is likely to lead to a crazy quilt of responses, with some AGs doing little and others diving in head-first.

But the law does more than just open up a new avenue for AGs. It also gives them more to go after.

In particular, Todd notes, is a new provision that makes it more difficult for payers to use member data in marketing. The intent of the law seems clear, says the lawyer: Legislators wanted to shut the gate on a brewing controversy that arose around pharmaceutical benefit managers that comb through membership data to market branded drugs for pharmaceutical sponsors. The law may have shut the gate to a broad range of activities.

But the law also raises questions on the legality of using member information to urge members to convert from a branded drug to a generic — a cost-saving campaign that has captured the attention of virtually every payer in the country in recent years. And it might theoretically be extended to disease management programs, which mine member data to identify and contact members with chronic diseases who need supervision.

And with 50 state AGs ready to get into the game, Todd says, there is no telling how it will all pan out.

“You may wind up with multiple sets of different rulings about what you can and can’t do in areas that are still a little gray,” says Todd.

People who take advantage of the federal government’s 65% COBRA subsidy are likely to be sicker and more expensive to care for than people in commercial populations.

“I would say we’re still probably not ready to make a lot of investment decisions in health information technology,” says John Sheils of the Lewin Group.

“The stimulus package gives states breathing room to get through the recession without doing drastic cuts,” says Tom Kelly of Aetna’s Schaller Anderson subsidiary.

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