Cover Story

9 Things Health Plans Must Do To Meet the ACA Challenge

Delayed deadlines don’t alter the reality that you need to be ready for the big changes

Timothy Kelley
Senior Contributing Editor

“The invasion will go forth as scheduled, but the paratroopers will be along in a month or so.” Luckily for history, this wasn’t what General Eisenhower said as D-Day loomed in 1944. But a not-too-dissimilar statement came from the Obama administration in July, when it announced a one-year delay in enforcement of the employer mandate in the Patient Protection and Affordable Care Act (ACA) — the provision that requires employers with 50 or more full-time workers to offer them health insurance coverage or pay a penalty.

The news followed an earlier announcement of a delay in implementation of the choice option for SHOP, the Small Business Health Options Program, intended to help small employers offer a choice of health insurance plans in the 33 states that plan to rely on the federal government to create — or help create — their new insurance exchanges under the law.

“The delay in enforcement of the employer mandate hasn’t changed our enrollment projections,” says Paul Wingle, MPA, head of exchange strategy and implementation for Aetna. “But there are elements of the rules for employers that are hard to assess or plan for if you relate them back to the postponement.” Employers, he explains, still have to provide their workers with information they’ll need in order to apply for the new health care exchanges — for instance, to demonstrate that they’re eligible for the exchanges because they’re not being offered minimum-value coverage through their employment.”

But the new law “changes everything,” says Tom Epstein, vice president for public affairs of the not-for-profit Blue Shield of California. “The entire marketplace we operate in is going to be different.”

Both federal and state regulation will require changes in the way health plans administer contracts, says Epstein, who regrets that because the bill was passed in a “reconciliation” maneuver there was no opportunity to address in a House–Senate conference committee some of the provisions, such as a multi-state plan and a co-op plan, that complicate the paperwork ACA creates for health insurers.

“It’s a big challenge, but we’re up for it,” says Epstein. “And we believe that in the end, having more people covered is a positive development.”

The ACA will bring changes in everything from benefit design to the way care is delivered. And although all its ramifications are not yet clear, experts say it suggests an ambitious agenda for health plans that wish to cope — and thrive — in the new world it’s ushering in.


Do more for less

Despite the ACA’s new sources of revenue support to help lower-income folks buy coverage, “there’s going to be less revenue per person than there was before,” warns the consultant Peter Boland, PhD, president of Boland Healthcare and a member of Managed Care’s Editorial Advisory Board. “If providers can’t make money at the level where Medicare payments are now, they may not have a very promising future. And the only way plans will make margins is to be a whole lot smarter and efficient about how they deliver care.”

Paul Sherman, MD, executive medical director of the Health Plan Division of Group Health Cooperative in Washington State, agrees that there will be a smaller pot of money per covered individual in the new world of the ACA. Despite the subsidies the law provides to help people buy coverage, he says, “total revenue will probably be somewhat less than Medicare. It will not be revenue that health plans are used to seeing from commercial populations.”

Paul Sherman, MD

Pushing doctors so hard they burn out isn’t a long-term recipe for success, says Paul Sherman, MD, of Group Health Cooperative. He attributes his company’s good readmission rates to better transition management.

One reason is that premium support will be pegged to the lowest-cost plans in the market, and “if you have Medicaid players like Molina Healthcare trying to go upmarket, they have financial models significantly below what mainline insurers have.”

This is a problem that Sherman’s not-for-profit HMO is tackling with aggressive cost-cutting. While Medicare national averages show that half of those readmitted to hospitals had no contact with the health care system between their discharge and their readmission, he says Group Health takes a different approach. And with increasing Medicare penalties for readmissions, it’s an approach that other plans may want to look at.

“We’ve always had somewhat better-than-average readmission rates,” says Sherman. “When we started our current reduction effort we were at about 16.5%, versus the national average of 20%. Now we’re down to 14%, with a HEDIS ranking better than the 90th percentile.”

He attributes the improvement to better transition management: “That means making sure people understand their illness, what their ‘well-day’ and ‘sick-day’ plans are, and what they should do when they aren’t feeling well, making sure that they know they can use secure e-mail to contact the care team when they have questions, making sure that they have the correct medications and that they understand those medications and doses and have a follow-up appointment.”

The health plan is shooting to cut the readmission rate to 10%. A revolutionary change? “It shouldn’t be, but it is,” says Sherman. “As one futurist put it, ‘The future is already here. It’s just not evenly distributed.’”


Deploy narrow provider networks

“The smart health plan will make sure it can offer an attractive benefit package at an affordable rate,” says Michael J. Goran, MD, senior vice president of the health care information and consulting company OptumInsight. “That means setting up narrow networks that put people into advanced delivery systems that actually know how to prevent illness, manage chronic conditions, offer advanced primary care, and do outreach to patients who need it, rather than just trying to contract with providers at discounted rates.”

Michael J. Goran, MD

Narrower provider networks will be the order of the day in the new world of Obamacare, says Michael J. Goran, MD, senior vice president at the health care information and consulting company OptumInsight.

Such networks need not necessarily be on a “lock-in” basis, says Goran, as long as the incentives are appropriate — for example, in tiered network arrangements that require cost-sharing at the higher tiers. “But, on the other hand, a high-performing, HMO-type lock-in network is probably the best way to ensure that premiums can be kept affordable instead of increasing each year.”

This narrowing, of course, implies that all may not be sweetness and light between payers and providers. In a tightly drawn network with a high performance bar for entry, some hospitals and physician groups won’t make the cut.

“But that puts pressure on them to make the cut,” says Goran. “And it’s not as if they don’t make the cut forever.” Based on his experience advising a number of hospitals and physician groups — and some of the pioneering accountable care organizations envisioned in the ACA — he detects a ready appetite for a shift from the old “transaction-based” mentality of fee for service to a “value-based” mindset. “Many of them are in the forefront of trying to become more value-based,” he says, “and the others understand that they may have to.”


Master new benefit designs

The ACA specifies levels of actuarial value to which insurers are invited to key coverage — “bronze” representing payment for roughly 60% of medical costs, based on average experience for a typical subscriber, “silver” signifying 70%, “gold” 80% and “platinum” 90%.

Aetna’s Wingle explains: “The law defines broad categories such as pediatric services or ambulatory services, and benchmark plans in the states further define the benefits under those categories. But it’s up to the carriers in most states — within certain limits, of course — to determine what the cost-sharing should be to hit the right actuarial values.”

In this process, there are traps for unwary plans — or those whose bench expertise is unequal to the complexity of the task. “In health care, administrative complexity equals cost,” says Wingle. “That’s cost to health plans, but it’s also cost to consumers.” Benefit-design questions can be tricky, he explains, recalling conferences at which people from other insurers have asked how they can suddenly offer dental coverage when that hasn’t been part of their business.

“The feds have allowed medical-only plans in their exchanges,” he says, “but some states have said they’ll require that dental coverage be embedded on the exchange. And if you want to offer a plan on that exchange, the federal law is very clear that you have to have the full benefit — including the embedded dental benefit. Some carriers slowly realize that participating could get them in the dental business, which is not something they’ve planned for or have the systems to pull off.”


Integrate data — and cooperate

Boland, the consultant, agrees that it’s good news for health plans that tens of millions of additional Americans will be ushered into the ranks of the covered. But the real challenge, he says, will come in the handling of information. “The sleeper is that the era of ‘big data’ is finally here,” says Boland. “You have to have a whole lot of data — administrative, demographic, financial, and clinical. Whoever has the most pieces of that, and can put them together in a way that can extract meaningful action to support better clinical care at less cost, will be a winner.”

At its best, such aggregation and sifting of data can improve both the insurance function and health care delivery itself, says Boland. “There’s going to have to be more cooperation between the larger providers and the larger payers to get those data sets pointed toward the same clinical and cost objectives. And that cooperation can create the trust to look at going into longer-term risk arrangements that really make sense. So what the new law is really going to force is a whole lot more cooperation among the various disciplines. That’s the real unspoken language of the ACA.”

To some extent, the data revolution the law will build upon is already under way. Says Epstein of California Blue Shield: “Just by sharing information better, relying on the best medical evidence and coordinating care more effectively, we’ve been able to reduce costs and improve quality, and we’ve saved a lot of money for customers like CalPERS and the city and county of San Francisco that have embraced our accountable care organizations. And the ACA is designed to encourage thousands of flowers like that to bloom.”


Learn to align with providers

Communicating efficiently with your contracting provider organizations can be a challenge, but in the world of the ACA it will be ever more imperative. “Just getting the contracts, before you even talk about improving health care delivery itself, is more complicated than anyone thinks,” says Barbara Walters, DO, MBA, executive medical director of accountable care for the Dartmouth-Hitchcock multispecialty group practice in New Hampshire.

Barbara A. Walters, DO, MBA

Providers must deal with two clashing systems of assigning Medicare patients to groups, says Barbara A. Walters, DO, MBA, executive medical director of accountable care at Dartmouth-Hitchcock.

Her group manages a “pioneer” model ACO for fee-for-service Medicare in New Hampshire and eastern Vermont. “We’re going to be held accountable for the quality and cost of care for a population, and we have to figure out what that population is.”

Moving from Medicare to the commercial world, the three main health plans Dartmouth-Hitchcock contracts with — Anthem, Cigna, and Harvard Pilgrim — each have to come up with an attribution methodology so they can calculate total cost of care and quality of care for that patient. “You could end up with six different ways patients are attributed to your delivery system,” she laments.

“We’re desperately trying to get everyone to agree to the same alignment methodology and the same quality benchmarks. So far, we haven’t been able to do it.” But she can see health plans’ point of view too. “Anthem is national,” she says. “They don’t want to do something just for us. They say, ‘We need to pick one strategy and stick with it across the country.’ And I say, ‘I need to pick one strategy and stick with it across my delivery system.’ We have to be able to see each other’s point of view, and to come to some resolution that meets both of our needs, if possible.”


Consider clinicians’ morale

There’s no clause in the ACA that says that doctors and nurses must be kept happy — or that it’s health plans’ job to do so. But given the projected shortage of primary care professionals, at least one plan that’s also a provider is making that a goal. “We try to create payment models, reimbursement models, and partnerships that make primary care satisfying and sustainable, so that until there are enough primary care clinicians to meet the nation’s needs, we’ll continue to have enough in our ecosystem,” says Group Health’s Sherman. (To some extent it’s in the local culture — the medical school at the University of Washington in Seattle is ranked second in the nation this year by U.S. News & World Report for training primary care doctors, with a Northwest neighbor, Oregon Health & Science University in Portland, at no. 3.)

“Many medical homes around the country have achieved results just on the backs of making the clinicians work harder,” Sherman observes darkly. “They’re all burning out, and that isn’t a long-term recipe for success.”


Embrace personalized medicine

Boland has a recommendation for plan execs’ bedside-table reading lists: the recently published book The Creative Destruction of American Medicine by Eric Topol, which explores the promise of the digital revolution for health care delivery. “One of his theses is about what you could call the democratization of data,” says Boland. “In the very near future, patients are going to own their data — it won’t be the docs and hospitals. And care will become far more personalized as a result.

“That means, in a very simplistic way, that while almost all drugs today are wide-spectrum drugs given to classes of conditions and classes of people, very soon the price of individual diagnoses based on genetic composition will come down, and many treatments will then be based on pinpointing what kind of prescription drugs will be most effective for you as an individual patient rather than for a group of patients.”

He says it will be so much more cost-effective than what we’re doing now that we won’t be able to afford not to do it.

“Health plans ought to be forming interdisciplinary teams to map strategy and to understand and selectively implement the potential for personalized medicine,” says Boland. “And we’re not just talking about a couple of wellness programs or health risk assessments, but the truly individualized, genetics-based application of medical science.”

Speeded in part by the ACA provisions that seek to make health care more cost-effective, the new personalized medicine is coming over the horizon fast, says Boland — and insurers need to figure out how to adapt to it. He says a single provider organization — El Camino Hospital in Mountain View, Calif., the nation’s “most wired” hospital — has so far embraced the trend.

“Health plans haven’t a clue as to how to staff up and look at the clinical impact of what Topol is talking about,” says Boland. “I ask them, ‘What are you doing on clinical excellence in terms of the personalization of medicine?’ The best they come up with is, ‘That’s certainly something that we need to think more about.’”


Create a culture of coverage

Health plans, says Epstein, will need to employ vigorous marketing to induce enough young, healthy people to sign up for insurance to make it possible to offer attractive premium rates.

The ACA will require everyone to have health insurance, but it will also set terms for that coverage. “The big concern right now is about people who have been in the individual market,” says Epstein.

“For the most part, they’ve been buying really low-premium products with high deductibles and low levels of coverage.”

Under the law, he points out, there will be a higher level of standard benefits as well as a 3:1 age-discrimination rating limit in place of today’s 5:1 limit, and an end to gender rating that has made coverage cheaper for men. Insurers face a new tax, and the law’s ban on the pre-existing conditions exclusion will bring sicker people into the pool who previously couldn’t meet underwriting requirements.

“All of those things will work to increase premiums, making them higher than what’s been available previously to younger, healthier people, particularly men,” says Epstein. “There is concern that they won’t buy into the pool, especially when the penalty for not buying the required coverage begins at just $95.” (It does go up in subsequent years to $695.)

That initial penalty for noncompliance may seem to some people an acceptable wrist slap — despite the subsidies the law will also make available to help low-income people purchase coverage.

“If you’re a young, healthy person,” says Epstein, “are you going to spend two thousand bucks for health insurance — or pay the $95 and go take a ski trip somewhere with the rest of the money?”

How to persuade young people — many of them struggling in a tough economy — to embrace the kind of cost-benefit trade-off many executives probably wouldn’t touch?

Epstein says health insurers need to undertake “a very, very aggressive marketing outreach to get as many people as possible enrolled on Day One. Because if they don’t get in early, it’s going to become harder and harder to attract them, as rates will skyrocket.

“You’ve got to create a culture of coverage,” he says, noting that in California there will be not only advertising but also “a grass roots effort, almost in a political sense, to find people who are uninsured and explain to them why they should get coverage.”

He cites a 42-member industry coalition called Enroll America that is beating the drum to add to the ranks of the newly insured.

Group Health’s Sherman is less sanguine than Epstein about plans’ ability to overcome the economic incentive for young, healthy folk to violate the law and suffer the modest penalty. “That’s a problem I don’t think we can fix,” he says. “It’s going to require a legislative solution.”

But Epstein adds one bright spot: The ACA does include a lower-cost catastrophic plan for people under 29. “Hopefully,” he says, “some of the people who maybe won’t buy the main health care benefits, the standard benefits, will buy the catastrophic plan, so we’ll at least get them in the pool.”


Keep learning

Indeed, the next few years will be a time for cerebral catch-up in many areas, not least by government-relations pros with an ear cocked to Washington: The experts chorus that the ACA isn’t fully a done deal.

“Like any other landmark legislation, it will continue to need lots of fixes and tweaks,” says Sherman.

“It’s going to need to be modified,” agrees Goran. “Clearly we have to reform the reimbursement system and move delivery systems toward value. But fundamentally we still don’t quite know the right way to do that.

“So all of the experiments in the law are important — bundled payments, accountable care organizations, independent care at home, expansion of federally qualified community health centers, expanded payments to primary care. Hopefully we can learn from them, and they can lead to smart modifications of the act.”

Health plans may have to leap nimbly, as Boland suggests, just to stay around for that future day. But on the way to that day they’ll help make history. “The current fee-for-service system must go,” says Goran. “But what do we replace it with? When someone has an answer that is broadly accepted, we’ll have reached the next phase.”

He likens that prospective breakthrough to the widespread acceptance of diagnosis-related groups by hospitals in the 1980s, but it may require an even more seminal moment.

If plans keep abreast of change and stay alert to new opportunities — if they fully exploit, for example, such ACA-favored innovations as ACOs and patient-centered medical homes — they’ll be effective tinkerers in the laboratory that is the nation’s health care sector.

“What works best in this country,” says Goran, “is when you test something and learn how to do it in a local place, then measure it, study it and, if it’s successful, replicate it and try to turn it into something that’s done across the nation.”

A Managed Care senior contributing editor, the author was editor of the journal from 1995 to 1997.

3 responses to the Affordable Care Act

Calling all mid-level providers

Port Orchard, Wash.

This Puget Sound town with a population of fewer than 12,000 is one of the scenes of a major change in health care delivery, to hear the not-for-profit Group Health Cooperative tell it. Recent years’ investment in enhanced primary care through patient-centered medical homes paid off for the plan, says Paul Sherman, MD, executive medical director of its health plan division.

“What we saved with reduced hospital admission rates more than offset the cost of our expanded primary care. But then we looked at things and said, ‘This was a beautiful model for health-care economics pre-ACA.’” But in the environment created by the reform law, the plan decided, a leaner model was required.

So Group Health set about redesigning its patient-centered medical homes with a pilot program in three areas — a gritty urban neighborhood in Tacoma, the ritzy Seattle suburb of Bellevue, and the more rural town of Port Orchard. The goal was to appropriately heighten the use of nonphysician providers such as nurse-practitioners (NPS) and physician assistants (PAs) to the full extent of their licensure, and thus to make care more cost-effective.

“It isn’t finalized yet,” says Sherman, “but while currently we’re at about five physicians for every one nurse practitioner or PA, we’re looking to use nonphysician providers differently — and to have a ratio more like three physicians to every two NPs or PAs.”

Some of those mid-level providers, he explains, will take on panel management chores now handled by doctors. The pilot program will be assessed by patient-satisfaction scores and HEDIS quality measures as well as research by the plan’s own unbiased Group Health Research Institute, and success could signal a dramatic reshaping of the patient-centered medical home for all of Group Health’s territory.

Shunning the ‘trap doors’

Hartford, Conn.

This New England city, writer Mark Twain’s chosen hometown, is the capital of both the insurance industry and the state of Connecticut. The two met fortuitously as the Nutmeg State benefited from volunteer expertise from giants like Aetna in developing the public health insurance exchange called for by the ACA.

“Our actuaries have provided technical assistance to help the Connecticut exchange work through issues around meeting specified actuarial values using particular plan designs,” says Paul Wingle, MPA, Aetna’s head of exchange strategy and implementation. “We’re trying to help the exchange avoid the land mines and trap doors and understand that a decision that looks simple from a distance could be difficult to administer from the standpoint of claims processing, or billing, or member services.”

Surely Twain would have agreed that if you’re going to play a game, it helps to be present when the rules are written.

(The humorist was at least a tongue-in-cheek fan of the industry, once writing that since he’d become a director in an accident-insurance company, “accidents have assumed a kindlier aspect.”)

But shortly before Managed Care went to press it was announced that Aetna won’t be playing the game after all — at least not right away. “The Connecticut Insurance Department was asking for a rate 10% below what was comfortable for us,” says Wingle, “so we’ve decided to take a pass for the first year.”

The two languages of Medicare risk

Lebanon, N.H.

Among the headaches faced by the Dartmouth-Hitchcock multispecialty group practice in upper New England is the fact that there are two different ways of assigning Medicare patients to groups to take charge of the quality and cost of their care.

“The pioneer ACO looks back at all members who’ve seen pioneer primary care providers in the last three years and weights them,” explains Barbara A. Walters, DO, MBA, executive medical director of accountable care. “And they include nurse practitioners and physician assistants. If patients haven’t seen anyone for primary care, there are six medical specialties they count in the second go-round.”

Just to make it interesting, Medicare’s Shared Savings Program (SSP) has a different way of assigning patients to delivery systems. “They do the primary care thing first too, but don’t count nurse practitioners,” says Walters. “And then they look at visits to any doctor. So you could be assigned the total cost and quality of care for a patient in an SSP based on one visit, say, to an allergist.”

9 ACA provisions to keep in mind

By 2022, says the Congressional Budget Office, health insurance will have been extended to an estimated 33 million Americans who otherwise would not have coverage, thanks to the Affordable Care Act, known both fondly and derisively as Obamacare. The law has many provisions; here are a few with special pertinence to health plans:

  • Insurers must provide members with an easy-to-understand summary of benefits and coverage.
  • Insurers may not deny coverage to an individual because of a pre-existing health condition.
  • Insurers must spend 80% to 85% of every premium dollar on medical care, not on administration or marketing, and must give rebates to customers if this standard isn’t met.
  • Premium rates may not vary among adults by more than 3:1 based on age, or by more than 3:2 based on smoking status.
  • Insurance exchanges must be created in all 50 states to facilitate comparison of plan options., the Web site of the Department of Health and Human Services, explains: “Historically, the individual and small group insurance markets have suffered from adverse selection and high administrative costs, resulting in low value for consumers.” At press time, 17 states and the District of Columbia were creating their own exchanges, while 33 states were relying on the federal government to establish exchanges for them or assist in their establishment.
  • A menu of free preventive services will be provided for Medicare patients.
  • Medicare may contract with accountable care organizations (ACOs) — groups of physicians, hospitals, and health care providers that voluntarily accept responsibility for the quality and cost of care for a defined group of fee-for-service beneficiaries. The law also encourages the development of ACO-like entities for non-Medicare populations, but these are not formal ACOs.
  • Starting in 2015, the quartile of hospitals with the highest rates of “health care-associated” infections will forfeit 1% of their Medicare payment.
  • States receive support to improve and expand patient-centered medical home demonstration projects.

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