11 Observations on the Affordable Care Act So Far

Here are 11 thoughts on the Patient Protection and Affordable Care Act as it moves into 2014, what many call its biggest year yet.

1. The two biggest takeaways from the PPACA are the health insurance exchanges and the individual mandate. The two biggest direct pieces of the PPACA include the development of the healthcare exchanges and the individual mandate. Currently, the exchanges are a work in progress. It remains to be seen how well they will work, and how many people will be added to the insurance rolls via the individual mandate. Under the mandate, all people must have minimum essential coverage beginning January 1, 2014.

Over time, it seems inevitable that the health insurance exchanges will become robust as more employers send employees to them. However, if the exchanges do not start functioning rationally soon, employers will likely push hard to have their employees retain their insurance options.

There are also questions about whether the individual mandate could be postponed in light of the troubled rollout of healthcare.gov and President Barack Obama's recent request for insurance companies to reverse their cancellation of millions of individual and small business plans. The Congressional Budget Office has estimated that a one-year delay of the individual mandate would reduce the expected coverage gains under the PPACA by nearly 85 percent, according to a Fiscal Times report.

Initial challenges with enrollment led to some fascinating political observations, says Mr. Becker. "On the left, the mantra will likely become, 'We should have simply gone to a national healthcare plan, like Medicare. We know it works and it can be administratively handled." On the right, the mantra will likely be along the lines of, "We knew this wouldn't work well, and it will add a ton of costs to the economy, worsen the deficit and not improve care or access.'"

The actual outcome between those two positions remains to be seen.

2. So far, insurance enrollment under the PPACA is lower than expected. The Obama administration reported that, altogether, a little more than 106,000 people nationwide enrolled in health insurance during October, the first month of the state and federal insurance marketplaces. That's far lower than what the administration forecasted. The majority of those enrollments occurred under state exchanges, which did not involve the problematic healthcare.gov website. The 14 states operating their own marketplaces are slated to hit their target enrollment figures for 2014, primarily due to an uptick in sign-ups in November. 

3. There is a broad movement among employers to:  

  • Move to lower-cost plans, such as those offered by UnitedHealthcare, which carve out a niche as the cheapest for employers. They often include low reimbursement to providers and narrow networks, in which providers are forced to give a discount to payers in exchange for favorable status in these plans. For instance, this past spring, Dallas-based Tenet Healthcare signed three contracts for exchange plans involving narrow networks, granting discounts of less than 10 percent to the three insurers.
  • Move to high-deductible plans. An August study released by the National Business Group on Health, members of which include 65 Fortune 100 Companies, found more than 1 in 5 U.S. employers plan to offer only high-deductible health plans to their employees in 2014. 

4. More hospitals are scrutinizing labor costs. Many organizations are attributing their staff reductions to reduced reimbursements and lower patient volumes. Other hospitals are slowing down hiring or implementing freezes to prepare for reimbursement changes. For example, in April, Pittsburgh-based UPMC announced it would reduce its hiring this fiscal year — reducing its usual 2,000 hires to no more than 500 — to prepare for expected cuts in reimbursement.

5. Healthcare inflation has slowed. In May, the price index for medical care fell for the first time since 1975, countering many predictions that the PPACA would cause inflation to swell. PwC has forecasted that medical inflation in 2014 will dip even lower than 2013, largely due to more patients bearing more responsibility for their medical bills and or seeking it in lower-cost settings.

6. Reduced revenues should lead providers to be more aggressive regarding pricing and payment for devices and supplies. Downward pressure on reimbursement leaves healthcare providers desperate to find cost savings and, for many cases, implants and supplies represent the biggest opportunity. Orthopedic implant company Nanovis' CFO James Crines told the Indianapolis Business Journal that he routinely hears from healthcare providers that discounts on the company's implants are not enough, and they continue to negotiate the price down. Companies selling commoditized implants at wholesale prices also aim to decrease pricing on these devices.

7. It's unlikely the device tax will be pulled absent counter revenues. The 2.3 percent excise tax, implemented Jan. 1, 2013, is estimated to collect more than $30 billion in taxes. Device companies invest nearly $10 billion in research and development annually, but the new tax is expected to shrink this amount significantly, and some fear it will also stifle innovation. Large device companies such as Stryker have announced huge layoffs attributable to the excise tax. While both the U.S. Senate and House have passed repeal legislation with strong bipartisan majorities, the tax was designed to fund the health insurance expansion and, without abandoning healthcare reform, the tax is unlikely to go away.

8. The PPACA itself is very unlikely to be repealed. Repealing the law would add approximately $109 billion to the federal deficit, according to an estimate from analysts at the CBO and the Joint Committee on Taxation. Further, an October 2013 poll from the Kaiser Family Foundation (conducted after the exchanges launched, from Oct. 17-23), found 47 percent of Americans would like Congress to expand the law or keep it as is, while 35 percent would like Congress to either repeal and replace it with a Republican alternative or repeal it and replace it with nothing.

While the public opinion is still divided, particularly among party lines, it is relatively stable to the month prior. This is noteworthy given the heavy news coverage of healthcare.gov malfunctions and poor ratings for government implementation of the law at the time this latest Kaiser poll was conducted.

9. More hospitals and insurers are focused on consolidation, which ultimately leads to more centralized and lower-cost purchasing. Providers see one benefit of M&A as the ability to combine resources and reduce costs in certain activities, such as billing and supply chain. This may come at the expense to existing vendors, distributors and manufacturers, as they will have fewer points of entry in the market as hospitals merge faster and in greater numbers than years past.

10. There is also increasingly:

  • An increased focus and budget on enforcement. There seem to be many individuals and organizations responding to these issues and bolstering their compliance efforts. Healthcare law enforcement is not focused just on bad actors.
  • A competitive bidding process that continues to whittle down the number of durable medical equipment providers.
  • Potential growth of concierge, niche or shadow markets, in which providers and consumers no longer tolerate limited access to care or limitations imposed by the PPACA-approved plans and mandates.
  • Failure of about half the states to accept federal funds to expand their Medicaid programs, which puts pressure on safety-net providers, especially rural and DSH hospitals.   

11. The growth rate of accountable care organizations has taken some experts by surprise.  ACOs have grown to become much more visible within the past three years. As of August 2013, there were more than 488 ACOs — both Medicare and commercial — nationwide. ACOs participating in the Medicare Shared Savings Program accounted for 52 percent of those.

More Medicare ACOs will be announced in January 2014. This past summer, CMS said it would soon release the results of the first class of MSSP ACOs. Since that performance data has not yet been released, it's expected any day, and many are keeping a close eye. In July, CMS released first-year results from the Pioneer ACOs, finding all 32 improved quality but just 13 achieved enough savings to share in them with Medicare. Nine Pioneers left the program soon after, with seven joining the MSSP and two departing entirely.

Despite the rapid adoption rate, there is still much uncertainty around the model and how much effect it will have on healthcare costs and quality. Some recent studies and surveys have also shown a lack of acceptance or even awareness of ACOs. For instance, in Deloitte's 2013 physician survey, only one in three physicians reported familiarity with ACOs, episode-based payments and patient-centered medical homes. Others in academia, including Harvard Business School professor Clay Christensen, PhD, say the ACO is a flawed model, as it is based on unrealistic assumptions about human behavior and economic incentives, particularly in regards to physicians and patients.

More Articles on the Patient Protection and Affordable Care Act:
PPACA to Have Greater Long-Term Impact on Deficit Than Sequester
HHS: 106,185 People Have Enrolled, Selected Plans Through PPACA Exchanges
Poll: Botched Rollout Hasn't Changed Overall Opinions of PPACA

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