Health Policy Report

August 15, 2016

The Week in Review

In the presidential race, nominees Hillary Clinton and Donald Trump delivered a pair of policy speeches intended to outline competing visions for the U.S. economy. The latter called for a freeze on all financial regulation, the renegotiation of major trade deals, and the implementation of a child care deduction in the tax code. In her speech later in the week, Clinton touted a plan that would make a significant government investment in infrastructure to create jobs, mandate universal pre-school and paid family leave programs, and tax the richest Americans at a higher rate. Despite the speeches, the week’s news cycle focused on controversies related to both candidates; pundits lampooned Trump over his latest inflammatory remarks – calling President Obama the “founder” of the Islamic State of Iraq and Syria (ISIS) – and questioned Clinton’s relationship with the family’s charitable organization, the Clinton Foundation, during her time as Secretary of State.  Polls at the end of the week showed Clinton maintaining a sizeable lead in most of the battleground states that will be key to November’s election.

The Week Ahead

Congress is set to remain in its August recess. Both chambers are expected to reconvene after Labor Day on Tuesday, September 6.

CMS Hints at New ACA Exchange Rule

The Centers for Medicare and Medicaid Services (CMS) hinted in a blog post Thursday that they are working on a new rule to help strengthen the Affordable Care Act (ACA) marketplace exchanges. Specifically, CEO of the health insurance marketplace, Kevin Counihan, noted that the agency is planning to modify the risk adjustment program in future rulemaking in order to absorb some of the cost for claims above a certain threshold – such as $2 million – which would be funded by a small payment from all insurers. He explained that this type of risk sharing would reduce uncertainty for issuers who are not yet able to reliably predict the prevalence and nature of high-cost cases in their marketplace business, while also protecting access to robust coverage options for people with very high-cost conditions. Under the current reinsurance program which expires this year, all insurers contribute funds, which are then distributed to plans with enrollees whose cost exceeds a certain threshold. This helps provide predictability to insurers and ensures that they don’t discourage high-cost consumers from enrolling.

Counihan’s post suggests that a new program similar to the current reinsurance program could be made permanent. However, the number of enrollees exceeding $2 million in claims is small, so the program would likely have a relatively minor effect on the marketplace as a whole. Notably, this is the first time CMS has discussed this specific idea, but agency officials have been publicly deliberating making changes to the ACA’s risk adjustment program. Moreover, the announcement follows the Obama Administration’s release of data on enrollees on exchanges during their first two years of operation. It found that per-enrollee costs remained stable between 2014 and 2015, while costs on the broader private health insurance market rose at least 3 percent.

Survey: Employers’ Health Benefit Increases Will be Far Lower than ACA Premiums

According to a survey report released Tuesday by the National Business Group on Health, a majority of large employers expects the cost of growth for their health care benefit to remain stable at 6 percent in 2017, but cites specialty drugs as the biggest driver of cost increases. The annual survey of the group’s members, which reflects the plan designs of 133 diverse and large employers, found that many employers expect to be able to hold cost growth at 5 percent by making changes to plan benefits. The survey also showed that there is a growing focus on streamlining delivery systems and tactics aimed at controlling drug costs.

For example, the study found that nearly one-third of employers attribute specialty pharmaceuticals as the highest driver of their own health costs, and 80 percent say it was one of the top three highest cost drivers. By contrast, only 6 percent of respondents cited drug costs as the highest cost driver in 2014. In response, employers say they are taking steps to curb drug costs and about two-thirds said pharmacy management techniques are among their most effective cost-control tactics. Respondents reported that in 2017, 74 percent of employers will use more aggressive utilization management tactics to try to control drug costs, and 69 percent will require medications to be obtained through specialty pharmacy. And, more than one-third of employers said their pharmacy plan design includes a specialty tier, which often requires higher cost-sharing for more expensive drugs.

Notably, the mild projected employer benefit increases are in stark contrast to the expected premium increases and out-of-pocket costs on the ACA exchanges next year. Employer-sponsored premium increases are expected to be only about half of what has been proposed on individual exchanges for next year, and net deductibles are expected to be – on average – about one-third of those on exchange plans. However, the difference could be explained in part by the relative age of the different marketplaces. While insurers are still adjusting to the relatively new ACA exchanges, the employer-based marketplace has many more years of experience to help keep costs stable. The employer market may also have a healthier risk pool, helping keep costs down, on average.

Meanwhile, the survey also revealed that employers have been responding to the increased use of opioids with efforts to curb painkiller abuse. Thirty percent of respondents said they will implement new restrictions on prescription opioids, such as creating a preference for abuse-deterrent formulations.

Furthermore, the report found that employer interest in private exchanges is declining. In 2014, the first year the exchanges were in operation, 2 percent of responding employers participated, but 35 percent said they were considering doing so in the future. In 2016, 4 percent were currently using a private exchange, but only 10 percent said they are thinking about doing so at a later date.

The survey also asked employers when they expected their own benefits to hit the cost threshold for the so-called Cadillac tax. The tax was originally scheduled to take effect in 2018, but Congress pushed the start date back to 2020 in December in response to strong criticism. If the tax goes into effect in 2020, 53 percent of employers said at that least one plan they offer would hit it, and 35 percent said their plan with the highest enrollment would be subject to it. However, both presidential candidates and the majority of lawmakers in Congress have voiced opposition to the tax in its current form.

New HHS Data Shows ACA Drew Healthier Customers

On Tuesday, the Department of Health and Human Services (HHS) revealed that the Affordable Care Act (ACA) exchanges attracted a healthier pool of customers in their second year of operation. The data is significant as it could counter industry concerns about the viability of the exchanges and suggests that premium increases for marketplace plans could also stabilize. Insurers have long expressed concern that that the marketplace consumers are sicker and costlier than those in other markets, an issue that has gained considerable attention this year. Medical costs and the strength of the risk pool are major factors in how insurance companies set their premiums, and this year, premium hikes into the double digits remain a chief concern for regulators and others hoping to make insurance products more affordable. The risk pool has also been a factor in some plans' decisions to leave the marketplaces in several states, including UnitedHealth, which will be exiting the exchanges in over 30 states next year.

Notably, the report showed that medical costs for individuals who purchased health insurance in the marketplaces stayed essentially unchanged between 2014 and 2015, even as medical costs in broader insurance markets rose by as much as 6 percent. This suggests that the risk pool improved between those years. The figures were calculated based on the claims data insurers submitted to participate in two premium stabilization programs of the health law, its reinsurance and risk corridor programs. Those figures are not yet available for 2016.

HHS emphasized last week that this data is the agency’s "most powerful evidence" to show that the trend was more pronounced in states that saw higher enrollment growth. In the 10 states with the highest enrollment growth in 2015, medical costs per enrollee per month actually fell by 5 percent, compared with a broader 0.1 percent decrease in medical costs across all states, the data showed. Furthermore, HHS highlighted that the improvements in the risk pool shown in the data predated several federal policy changes aimed at further improving the risk pool and addressing insurers' complaints. The agency tightened its rules around special enrollment periods earlier this year, improved data matching efforts, and changed the way it reaches out to Medicare-eligible enrollees.