It’s a wonder if anyone knows what to make of the upcoming Affordable Care Act, better known as Obamacare.

What the headlines say 

Obamacare will help drive down health care costs

How Obamacare Raises Healthcare Costs

Health Care Plans Under Obamacare Will Cost Even Less Than Expected

New Study Shows Higher Health Care Costs under Obamacare

Obamacare Should Make Health Care Cheaper – Just Not Right Away

No shortage of theories…

There is no shortage of theories about what will happen on January 1, 2014, when the Affordable Care Act (ACA) becomes law.

… But plenty of questions 

  • What will really happen on January 1, 2014?
  • How significant an event is The Affordable Care Act for healthcare?
  • What will be the impact on Medicare?

Bracing for The Affordable Care Act

One of the most bitterly debated acts before Congress in years, the Affordable Care Act will finally become law on January 1, 2014. Impacts of it will include: 

  • An estimated 14 million additional Americans will be eligible for health insurance.
  • Even before that date, on October 1, 2013, those same Americans will be eligible to sign up for the insurance plan provider that will cover them when the act goes into effect.
  • Some of the newly-insured will participate in corporate health insurance plans.
  • Others will elect to, or have to, obtain their insurance from the new Exchanges being established in each state.

What remains to be seen is the impact of the new Exchanges and the millions of newly-insured individuals on the overall cost of healthcare.

The Massachusetts model

One region of the country that is taking a wait-and-see approach is Massachusetts, which has the first-in-the-nation mandatory healthcare coverage legislation.

The healthcare “Hub”

  • Known for its concentration of top hospitals and healthcare facilities, Massachusetts was the model for the Affordable Care Act.
  • Massachusetts was the home state for late Senator Ted Kennedy, who was successful in getting a national healthcare reform commitment from President Obama during his presidential run.

How it works in the Bay State

Under the Massachusetts model, all corporations that meet minimum staffing sizes must provide healthcare coverage for their employees, or pay a penalty to the state. The penalty goes toward the funding of the state healthcare exchange established to provide coverage for those individuals that don’t have access to a corporate plan.

An eye toward Washington

“There are several features of the ACA designed to lower the healthcare cost trajectory,” said Tim Gens, executive vice president of the Massachusetts Hospital Association. “The MHA and hospitals have concerns about the financial impact and implementation process of some of these programs. But they are likely to result in reduced growth for the Medicare program.”

“Massachusetts reform has already greatly expanded coverage here. Looking at the ACA impact nationally, the insurance expansion should have a positive impact on reducing bad debt and uncompensated care experienced by hospitals; reduce financial exposure and burden for countless American families; and bring better healthcare management to the uninsured over the long-term.”

Immediate impacts of the ACA

Gens cites a number of impacts he expects to see when The Affordable Care Act becomes law:

  • “Payment cuts to providers in the form of reduction in annual updates for Medicare payment rates to hospitals, skilled nursing facilities, home health agencies, and hospices, as well as reductions in Medicare disproportionate share payments and payments to Medicare Advantage plans.”
  • “Readmissions reduction and hospital-acquired condition reduction programs for hospitals.”
  • “Pilot programs for Medicare to experiment with bundled payments.”
  • “Use of comparative-effectiveness research.”
  • “Encouraging healthcare providers to band together in accountable care organizations (ACOs) to better coordinate services.”
  • “Provisions to reduce waste, fraud and abuse such as expanding Recovery Audit Contractors (RACs).”

The “dual” approach

Another area of savings will be “The dual eligible demonstration we are pursuing here in Massachusetts, to provide integrated and coordinated care for those eligible for both Medicare and Medicaid,” Gens said.

“This population is currently managed separately. The ACA created a Center for Medicare & Medicaid Innovation (CMMI), which is helping to lead this initiative with states like Massachusetts.  This effort will bring savings through care management of a population with high medical and behavioral health needs,” according to Gens.

Early impacts in 2013

Initial impacts of The Affordable Care Act will be felt before the January 1, 2014 date.

The open enrollment period

“The open enrollment process that will begin this fall for coverage effective in January will allow millions of people to enroll into affordable and comprehensive health insurance coverage,” Gens said.

Healthcare organizations weigh in

Some healthcare organizations are also taking a wait-and-see approach to The Affordable Care Act, while weighing on the side of optimism.

“The Affordable Care Act includes many provisions intended to improve quality, and some that are hoped to lower costs,” says Sarah Thomas, vice president of public policy at the National Committee for Quality Assurance (NCQA), a Washington D.C. non-profit agency dedicated to improving healthcare quality.

Lowering costs and raising quality

“A good example of the strategy to lower costs while maintaining and improving quality is the creation of the Center for Medicare and Medicaid innovation, which is focusing on delivery system reform,” Thomas said. “By promoting delivery system reforms like Patient-Centered Medical Homes and Accountable Care Organizations, the ACA is intended to improve incentives to provide better care at lower costs.”

Expanding coverage while reigning in costs

Other organizations see good things to come from The Affordable Care Act in terms of broader insurance coverage, but not necessarily much change in the cost of healthcare overall.

Jeff Goldsmith, president of Health Futures Inc., and an associate professor of public health services at the University of Virginia, has several thoughts:

  1. Health costs themselves are growing at 50 year low rates.
  2. Few, if any, of the prospective programs being tested by the CMM Innovation Center will have any measurable effects on health cost trends.
  3. There are a lot of good ideas being tested, but no one I know believes they are going to affect health cost trends meaningfully (either lowering them or raising them).

Driving down costs

There are three main drivers of the slowdown in costs, according to Goldsmith:

  • The lengthy process for new drugs and medical innovations generally.
  • The retirement of the baby boom generation of physicians.
  • The impact of the recent recession.

The “recovery” has been no Rx

“Though the recession has officially ended, it’s not clear that the “recovery” has created enough real consumer spending power to increase demand for health services, which remain very expensive,” Goldsmith said.

Certain of uncertainty

A major ACA uncertainty — Just how quickly the transition will be made for getting the millions of new eligible Americans onto insurance plans – whether through employers or state Exchanges.

“It is clear that the number of states electing not to expand their Medicaid programs and the confusion and troubles associated with getting the Exchanges up and operating, that nowhere near the estimated 15 million people CBO expected to receive coverage during 2014 will actually be covered,” Goldsmith said. “Lower numbers actually enrolled will mean lower federal outlays for insurance subsidies, and a smaller reduction in the uncompensated care burden for hospitals than expected.”

The impact on Medicare and Medicaid

“There are fractional adjustments downward in Medicare’s payments for hospital and home health services, as well as in payments to Medicare Advantage contractors. No one will notice their effects,” Goldsmith said. 

Medicare and Medicaid reform looms

With basic healthcare reform now set to take effect, the new battleground for 2014 is with Medicare and Medicaid reform.

Looking ahead, Sarah Thomas said:

  • Both Congress and Medicare are now working to revise Medicare’s physician payment system to reward efficient, high quality care, instead of merely the number of services doctors provide.
  • There is broad, bipartisan support for using this opportunity to have Medicare actively encourage physicians to be part of Patient-Centered Medical Homes, Patient-Centered Specialty Practices and Accountable Care Organizations in order to improve quality and control costs.

The mental health impact

Another critical area for reform is the reimbursement process for mental health professionals, according to Katherine Nordal, executive director of the American Psychological Association.

“While ACA may have some minor impact on Medicare rates, the sustainable growth rate (SGR) and reform will have the far greater impact,” Nordal said.

The mental health message

“We have been requested to provide information about these issues to House and Senate subcommittees, Nordal said. Main talking points have been:

(1)    That the payment formula is not working for psychology, whose work in primarily “cognitive” in nature.

(2)    That the SGR needs to be repealed with a long period of stable updates before moving payment systems away from fee-for-service (FFS).

(3)    That non-physicians need to be included in Medicare payment reform and future alternatives to FFS and treated equally to physician providers.

(4)    That quality measures are particularly challenging for mental health, substance abuse, and behavioral sciences.