On May 1, 2014 the U.S. Department of Health and Human Services (HHS) announced that over 8 million individuals had purchased a Qualified Health Plan (QHP) under the Affordable Care Act (ACA – a.k.a. Obamacare). Health plans are reporting that 80% or more of the enrollees have paid their premiums.
The same week the Bureau of Economic Analysis reported that healthcare spending is soaring.
Much has been made over what the new health insurance enrollees will mean to payers, physicians, hospitals and device makers. Will there be enough new customers to make up for the 2.3% medical device tax? Will there be enough physicians to serve the new enrollees? Will new enrollees pay up and what will happen to insurance premiums if enough young and healthy “Invincibles” don’t enroll to dilute the risk pool of older, less healthy enrollees? What will happen to utilization and pricing rates?
There is a lot of partisan political heat and smoke which clouds the information needed by those making decisions about how to respond and compete in this changing healthcare landscape. We looked to some non-partisan experts to shed a little light.
Will Enrollee’s Need Joint Replacements?
But first, let’s take a look at the numbers and demographic data about those enrolling in the federal and state healthcare exchanges.
Those under 34 years of age comprise about 34% of the enrollees. Enrollment skews towards women 54% to 46%. Think sports medicine.
Silver health plans comprised about 65% of total plan selections while bronze, gold, platinum and catastrophic plans made up 20%, 9%, 5%, and 2%, respectively. Approximately 85% of individuals who selected a QHP are scheduled to receive financial assistance. Over 4.8 million additional individuals were enrolled in Medicaid since the beginning of October 2013, bringing the total in Medicaid and CHIP to 64.6 million. The enrollment numbers understate total Medicaid and CHIP enrollment because not all states are reporting and the data are preliminary.
Florida enrolled nearly 1 million people, far more than any federal exchange state—and about 250,000 more people than Texas, which has a larger population and more uninsured residents. Both Florida and Texas were among a handful of states whose enrollment doubled since March 1. Baby boomers!
It cost the federal exchange, healthcare.gov, an average of $647 of federal tax dollars to sign up each enrollee. It cost an average of $1,503—well over twice as much—to sign up each person in the 15 exchanges run by individual states and Washington, D.C.
Musculoskeletal Hospital Discharges
The demographics, so far, seem to point to extremities, sports medicine and back pain customers.
In 2010, according to the Centers for Disease Control and Prevention’s Discharge Survey, there were 5.56 million musculoskeletal discharges from nonfederal hospitals. Of those, 2.26 million were from the pre-Medicare 45-64 age group.
Total hip replacements for that age group totaled 148,000, while total knee replacements totaled 317,000. Disc excision or destruction totaled 178,000.
That leaves the remaining 1.62 million discharges for the rest of orthopedics.
Orthopedic Bump
Needham & Company analyst Mike Matson told OTW he estimates that within the first 12 months there would be a 0.6-0.8% increase in hip replacements, a 0.5-0.7% increase in knee replacements, and a 0.8-1.1% increase in spine fusions.
Mike Matson, analyst for Needham & Company
He bases that on the assumption of 3-4 million new people gaining coverage, of which half are aged 45-64 years old and the prevalence of the procedure is the same as the broad population.
“In reality, the prevalence would probably be higher than the general population since there could be pent-up demand from formerly uninsured patients since many have probably deferred procedures for several years. If the prevalence was twice as high as the broader population, this would lead to twice the increase,” said Matson.
Matson would expect the numbers for sports medicine to be somewhat higher since the patient population is younger.
3 to 4 Million Newly Insured Patients
About half of ACA’s enrollees are people who were previously insured and half are not, says Bob Laszewski, a health insurance consultant and publisher of the Health Care Policy and Marketplace Review. He also pointed out that more conventional polls say that repeat buyers are closer to two-thirds of the exchange enrollees. That means approximately 3 to 4 million newly insured potential patients.
Bob Laszewski/Health Policy and Strategy Associates, LLC
When looking at the “Invincibles” Laszewski says the actuaries he talks to think this issue of average age is made to be far more important than it should be. “It is better to have a young group than an old group. But remember, the youngest people pay one-third of the premium that older people pay. The real issue is are we getting a large enough group to get the proper cross section of healthy and sick?”
He adds that many people likely signed up because having insurance is the right and responsible thing to do—especially if their plan was canceled. “Many who had insurance before could now get a subsidy and sometimes a better plan for their out-of-pocket premium. Many also feared the fine. Some have health problems and they can finally get insurance.”
2015 Insurance Rate Increases
Laszewski says 2015 rate increases will be about 9.9% because any rate increase of more than 10% is subject to regulatory review under federal guidelines and carriers will have very little hard claim data with which to defend increases. He notes there will be some variation in rate actions because the Obamacare enrollment outcome varies considerably among states. “Also, some carriers’ rates turned out to be too high and others too low when compared to their competitors which will likely lead to some compression in the local markets as these outliers get closer to typical rates. This could produce a few significant increases or decreases for 2015.”
Health insurers, he adds, are also protected from most underwriting losses in 2015 because of a $20 billion reinsurance scheme. “Simply, the carriers are worried about the Obamacare risk pool, they have no hard data to credibly project or defend a challenge from a regulator, and 9.9% is the most they can generally get unchallenged.”
Elusive Hard Data
When will we have hard data?
“Years,” says Laszewski. “In a year we will have some pretty good data on the 2014 enrollments. But, then we will have just had the 2015 open-enrollment and there will be questions about the impact these new people will have on the overall program. In addition, the 2015 open-enrollment will again have millions of relatively healthier cancelled policyholders signing up for Obamacare because their one year extensions will be running out (don’t count on a lot of carriers extending these policies further).”
According to Laszewski, we won’t have a good handle on Obamacare’s costs until the program’s enrollment stabilizes so that the group’s final composition can be accurately measured, and we then get at least a year of claim data from that point. Also, at the end of 2016 “the training wheels will come off” as the $20 billion reinsurance scheme ends.
“This is going to take years to play out,” cautions Laszewski.
Soaring Spending
One thing we know for sure is that healthcare spending soared during the first quarter of 2014 as millions of people obtained coverage, according to the report by the Bureau of Economic Analysis.
Spending rose by 9.9%, the largest spike since 1980. The increase was largely driven by more use of health services, prescriptions for higher-priced drugs and elective surgeries.
“The sharp increase in estimated utilization appears to have been driven by greater use of healthcare services by people who gained insurance coverage during the first quarter because of the Affordable Care Act,” Jason Furman, chairman of the Council of Economic Advisers, wrote in a White House blog post.
Increased Utilization, Stable Pricing
“It’s still pretty early for most of those newly insured to access a whole lot of healthcare services, but some of them definitely are,” Ceci Connolly, managing director of PricewaterhouseCoopers Health Research Institute, told Bloomberg. “This is definitely an increase in utilization, it appears, more than pricing.”
Furman added that prices continued to increase exceptionally slowly, growing at an annual rate of just 0.5% (0.9% on a year-over-year basis), while utilization (real health care spending) rose at the 9.9% rate, following a 5.6% increase in the fourth quarter of 2014.
“The risk pool is fundamentally large and varied to support that kind of pricing…in every state,” said Mike Hash, director of the office of health reform for the Health and Human Services Department. “We believe premiums will be stable.”
Some analysts say other factors will continue to push up spending and costs. Faster job growth is leading to more health-related spending for many Americans who went without insurance or used few medical services while unemployed, said Dan Mendelson, CEO of the consulting firm Avalere Health LLC.
“The improved economy could result in individuals having the resources to spend on health care services,” the American Hospital Association’s spokeswoman told reporters.
Upward Cost Pressures
Also, Mendelson says upward pressures on healthcare costs, such as the growth of expensive high-tech treatments, are re-emerging after falling for several years. Costs had fallen because the ACA gave hospitals incentives to be more efficient, and insurance companies shifted more costs to patients, prompting many to visit doctors sparingly, he added.
Happy Days for Insurers
Insurance carriers are practically swooning over the new business. Humana Inc. reported that it expects revenue to grow this year as it adds hundreds of thousands of new customers to its Obamacare plans. The company expects government payments of $575 million to $775 million in 2014 to offset its outsized risk on the new clients who signed up under the healthcare law, many of whom were previously uninsured.
Humana reported it has received 700,000 applications for individual healthcare plans for 2014, putting it on track to be one of the largest players on the exchanges. Humana’s rival WellPoint Inc. reported similar sized exchange enrollment last week.
Let the Competition Begin
As Bob Laszewski warns us, it will be a long time before we have hard data to see how the ACA is impacting the healthcare system. For now we know that there are millions of newly insured healthcare customers, pricing remains stable and overall revenue for healthcare providers is rising. How the marketplace of providers, payers, device makers and hospitals compete for those customers remains an unfolding story.