The Battle for Health Care

The Battle for Health Care

The latest Republican effort to destroy the Affordable Care Act appears likely to reach the Supreme Court in the heat of the 2020 Presidential race.

One of the central questions of the 2020 Presidential campaign was posed last week before the Court of Appeals for the Fifth Circuit, in New Orleans, to a lawyer for the Trump Administration, who didn’t even pretend to have an answer. A three-judge panel was hearing the appeal of a ruling by Reed O’Connor, a Texas district-court judge, that the Affordable Care Act, or Obamacare, was unconstitutional in its entirety—an opinion that the Administration has endorsed. O’Connor had ordered that the government cease implementing or enforcing all aspects of the A.C.A., including its protections for people with preëxisting conditions, its ban on lifetime caps, its expansion of Medicaid and coverage for young adults on their parents’ plan, and its support for the treatment of addiction. The order could cost tens of millions of people all or much of their coverage, and throw the health-care system, which accounts for a fifth of the economy, into chaos. But O’Connor, in what Judge Jennifer Elrod, of the Fifth Circuit, described with no apparent irony as a “modest” act, had stayed his own order, pending appeals. Here, now, was the first appeal. So, if the stay is lifted, Elrod asked, “What’s the government planning to do?”

As the lawyer, August Flentje, struggled to answer (“This is a very complicated program—multifaceted, obviously”), it became clear that Republican opposition to the A.C.A. remains a project of blind destruction. One of President Trump’s few health-care initiatives, on drug prices, fell into disarray last week, with one measure defeated in court and another abandoned. Otherwise, he has mostly complained that Democrats want to extend care to, among others, undocumented people. His almost pathological need to undo President Obama’s legacy can be added to the mix; the restraint sometimes said to characterize conservatism can be subtracted. And there is a growing conviction among the A.C.A.’s opponents that the current Supreme Court, given the addition of Neil Gorsuch and Brett Kavanaugh, will back them up.

They may be right; the threat that this case, Texas et al. v. United States, presents to Obamacare should not be underestimated, especially as it is likely to reach the Court in the heat of the 2020 campaign. The case was brought by twenty states whose most distinct common quality is their redness. Maine and Wisconsin dropped out of the suit after the 2018 midterm elections, when their Republican governors were replaced by Democrats. When the Trump Administration declined to defend the law, a group of mostly blue states—currently twenty-one—got permission from the district court to do so. They were joined by a lawyer for the Democratic-controlled House of Representatives. When Kurt Engelhardt, another of the appeals judges, pointedly asked that lawyer why the Senate hadn’t sent someone to defend the law, he replied that the Senate “operates differently.” It is, after all, led by Mitch McConnell, not Nancy Pelosi.

The complaint concerns the so-called “individual mandate.” When the A.C.A. was enacted, in 2010, it directed every American to get insurance or face a penalty, which was calculated on a sliding scale (and dropped altogether for low-income people; other groups, such as prisoners, were exempt). The constitutionality of the mandate was the subject of an earlier challenge to the A.C.A., but Chief Justice John Roberts wrote an opinion classifying the penalty as a tax, which Congress has the power to levy. Trump’s 2017 tax package, however, reduced the penalty to zero. For the A.C.A.’s opponents, this led to a wild surmise: if the mandate had survived because the penalty was a tax, the absence of a tax might make the mandate unconstitutional. That point might seem academic—constitutional or not, the mandate is, for all practical purposes, already gone, now that there is no penalty for ignoring it. But Texas et al. makes a far more radical claim: The phantom mandate is not only unconstitutional but “inseverable” from the rest of the law. If it is invalid, then all nine hundred and six pages of Obamacare are also invalid.

This argument is as senseless as it is ruinous. It’s like saying that the 2017 tax bill was a stealth total repeal of the A.C.A., something that even leading Republicans denied at the time. And yet at least two of the judges, Elrod and Engelhardt, appeared inclined to accept it. The main issue for them seemed to be just how much of Obamacare to trash.

On that question, too, the Administration has been erratic. Initially, it argued that the court should invalidate only certain provisions, such as preëxisting-condition protections—a major feature that Trump has elsewhere claimed to like. Then, in March, the Administration said that it agreed with the Texas ruling: burn it all. Two months later, though, it argued that, while every word of the law was invalid, any relief that the lower court granted should be limited to damages suffered by Texas and the other states, without defining what those damages might be. This led to utter confusion in the oral arguments: Would there be different versions of the law for different states? Which provisions might the government want to keep? (“You would leave in place the calorie guides?” Judge Elrod asked.) Flentje, the Justice Department’s lawyer, told Elrod that, really, “things don’t need to get sorted out until there’s a final ruling”—that is, from the Supreme Court.

Obamacare has reduced the number of uninsured Americans by twenty million and, while the system is imperfect, premiums are more manageable than is often reported. But, as the Texas case suggests, it can still all be undone. And there is much more to do; the United States has not achieved universal coverage. All the Democratic Presidential front-runners share that goal, but they have what are sometimes sharply diverging proposals for getting there. Vice-President Joseph Biden, Mayor Pete Buttigieg, of South Bend, and former Representative Beto O’Rourke, of El Paso, want to build on the A.C.A. and make Medicare available to all as a public option, alongside private insurance. Senator Bernie Sanders, of Vermont, has a Medicare for All bill that aims to displace private insurance, and in most cases make it unlawful, leaving a public option as the only real option. Senators Elizabeth Warren and Kamala Harris have signed on to Sanders’s plan, although Harris has at times tried to downplay the impact on private insurance.

The next Democratic debates, which will be held on July 30th and 31st, may sharpen the candidates’ positions or further polarize them. The Democrats need a plan to protect Americans’ health coverage. And they need a plan to win in 2020. Those might even be the same thing. ♦

Appeals Court Upholds Decision Barring Trump Birth-Control Exemptions

Ruling finds employers can’t withhold contraception coverage, in fresh blow to administration’s deregulatory push

A federal appeals court unanimously upheld a lower court decision blocking a revised set of Trump administration rules allowing employers with religious or moral objections to opt out of providing their workers with birth-control coverage.

The ruling late Friday by the Third Circuit Court of Appeals is a blow to the administration, which had prioritized weakening an Obama-era mandate requiring employers to offer free contraceptive health coverage to their employees—a top concern for Catholic and antiabortion groups. The court’s decision, which applies nationwide, makes it much less likely that the administration will be able to fashion an exemption acceptable to the courts.

A spokeswoman for the Department of Health and Human Services didn’t immediately return a request for comment. The agency is expected to appeal the ruling to the Supreme Court.

The Trump administration’s rules, issued in November by the DHHS, would have exempted a broad swath of employers from the mandate contained in the Affordable Care Act. Those rules represented a second attempt by Trump officials to create such an exemption, after a first set was blocked in 2017.

Judge Patty Schwartz, writing for the court, said the Affordable Care Act plainly states women must be provided preventive health services. “Nowhere in the enabling statute did Congress grant the agency the authority to exempt entities from providing insurance coverage for such services,” she wrote.

That makes birth control another realm in which courts have halted the Trump administration’s deregulatory agenda. The administration has lost more than 90% of lawsuits brought over its deregulation efforts, according to New York University School of Law’s Institute for Policy Integrity.

“Yet another court has stopped this administration from sanctioning discrimination under the guise of religion or morality,” said Louise Melling, deputy legal director at the American Civil Liberties Union.

The Obama administration issued the birth-control mandate in 2011 as part of its broader implementation of the Affordable Care Act.

In response to court challenges by some Catholic employers that object on religious grounds to most forms of birth control—along with other religious employers with specific objections to emergency contraception—Obama health officials created a workaround allowing female workers whose employers objected to covering contraception to obtain it directly from insurers.

Religiously affiliated employers, however, considered that insufficient because the insurance plans they sponsored were still being used as a vehicle for providing birth-control coverage.

The Trump administration’s changes sought to exempt them from the requirement completely. The administration also added moral objections to religious ones as grounds for an exemption.




Biden unveils health care plan: Affordable Care Act 2.0

Image result for aca 2.0

Democratic front-runner Joe Biden on Monday unveiled a health plan that’s intended to preserve the most popular parts of Obamacare — from Medicaid expansion to protections for patients with preexisting conditions — and build on them with a new government-run public insurance option.

Biden would also empower Medicare to directly negotiate drug prices, allow the importation of prescription drugs from abroad and extend tax credits to help tens of millions of Americans buy lower-priced health insurance.

The plan — which the campaign says will cost $750 billion over a decade, to be paid for by reversing some of the Trump administration’s tax cuts — is less transformative than the “Medicare for All” proposal advanced by Sen. Bernie Sanders (I-Vt.) and supported by some other Democrats, which would effectively do away with private insurance and shift all Americans to government-run health coverage.

“I understand the appeal of Medicare for All,” Biden said in a video posted Monday morning. “But folks supporting it should be clear that it means getting rid of Obamacare. And I’m not for that.”

Progressives have argued that Democratic candidates should aim for Medicare for All because it protects the party from starting with — and settling for — a more incremental compromise. Democrats and former President Barack Obama previously supported a public option that could compete with private health plans before dropping it as part of negotiations around the Affordable Care Act.

On a call with reporters on Sunday, campaign staff stressed that Biden wouldn’t settle for a watered-down compromise as president and that his plan would help 97 percent of Americans get health coverage. Nearly 5 million Americans in states that haven’t expanded Medicaid would get premium-free access to Biden’s new public option, for instance.

“We’re starting with the Affordable Care Act as the base and going to insist on the elements that we sought last time,” said a senior Biden campaign official. “And we’ll get them this time.”

Biden’s public option plan drew fire from Republicans and health care industry lobbyists who said that the proposal went too far.

The Biden administration also would allow all shoppers on the individual insurance market to qualify for premium tax credits, which are currently capped at four times the federal poverty level, or nearly $50,000 for an individual. Undocumented immigrants would be newly allowed to purchase coverage in the ACA marketplaces, although they wouldn’t be eligible for federal subsidies, a campaign official said.

Speaking with reporters, campaign staff slammed the Trump administration’s efforts to strike down the ACA in court and also addressed Biden’s differences with rival candidates. Biden on Friday suggested that there would be “a hiatus of six months, a year, two, three” that would put patients at risk if Democrats pursued Medicare for All — a claim that Sanders swiftly attacked as “misinformation.”

In response to POLITICO’s questions, Biden’s campaign said the former vice president was emphasizing the need for immediate action.

“We can’t afford the years it will take in order to write and maybe pass Medicare for All,” a spokesperson wrote in an email. “A stop in progress is unacceptable. That’s why the Biden Plan builds on Obamacare and works toward achieving universal coverage as soon as possible.”

Health policy experts said that Biden’s coverage plan appears to be more politically feasible than Sanders’ proposal.

Building on the ACA is the quickest way to get more people insured and improve affordability, while not taking on any powerful health industry group or disrupting coverage for those who already have it,” said Larry Levitt, executive vice president of health policy for the Kaiser Family Foundation. But incremental improvements to the ACA would leave “an inefficient and costly health care system in place,” Levitt added, preserving high prices and high deductibles for the roughly 160 million Americans with employer-based health coverage.

But even Democrats’ incrementalist approaches face deep opposition from a well-funded health industry opposed to expanding government-backed health insurance.

“Vice President Biden’s proposal for a new government insurance system through a ‘public option‘ would undermine the progress our nation has made and ultimately lead our nation down the path of a one-size-fits-all health care system run by Washington,” said Lauren Crawford Shaver, executive director of the Partnership for America’s Health Care Future, in a statement released Monday morning. Shaver— whose group includes dozens of major associations, including hospital lobbyists— pointed to studies that hospitals would lose revenue if Medicare was expanded.

Republicans also attacked Biden’s plan, resurrecting arguments used to bash the ACA. “Obamacare 2.0: Because it worked so great the first time,” tweeted RNC spokesperson Elizabeth Harrington, pointing to the troubled rollout of the online insurance marketplaces, government coverage mandates and other implementation challenges.

Meanwhile, some Wall Street analysts were skeptical of Biden’s public option proposal, arguing the policy was flawed.

“We suspect that provision is unlikely to be implemented, as it would allow employers to ‘dump’ the highest cost patients into exchanges,” wrote Raymond James in an investor’s note Monday morning.

Biden also announced new ideas to combat the nation’s high drug prices. Pointing to lessons learned from his signature cancer initiative — which announced on Monday it was suspending operations because of Biden’s campaign — the former vice president says he’ll have the Department of Health and Human Services establish an independent review board that will link the price of new specialty drugs to the average price in other countries. His plan also calls for capping most drug price increases at the rate of inflation.

Meanwhile, Biden would seek to expand access to abortion and contraception, reiterating his recent calls — like those of other Democratic candidates — to enshrine Roe v. Wade in federal law and restore federal funding for Planned Parenthood.

Biden’s plan also takes aim at health care providers, suggesting that he’ll try to tackle problems like unexpected large medical bills and health care market concentration, although the details released by the campaign are sparse. Biden also would double investment in community health centers, arguing that the centers help reach underserved populations.

Campaign staff said Biden would soon announce additional proposals to combat gun violence, improve rural health and address other health care initiatives.


The Fifth Circuit Court Hears Arguments on the Future of the ACA

columns at courthouse

The future of the Affordable Care Act (ACA), the millions of Americans who depend on it, and, frankly, the American health care system, every part of which is touched by the ACA, were on the line in a federal courthouse in New Orleans on Tuesday. The Fifth Circuit United States Court of Appeals heard 106 minutes of oral argument in the case of Texas v. U.S., in which a district court judge ruled that the entire ACA was invalid. The case is being pursued by 18 Republican states and two individuals, joined by the United States on the appeal. Twenty-one Democratic attorneys general (AGs) and the U.S. House of Representatives have intervened to defend the ACA.

The plaintiffs argue — in a decision accepted by district court Judge Reed O’Connor — that:

  • the Supreme Court in 2012 held that the ACA’s individual mandate was unconstitutional as a command, and constitutional only as a tax
  • Congress in 2017 zeroed out the tax, leaving the mandate entirely unconstitutional
  • the mandate is essential to the rest of the ACA, which must be invalidated once the mandate is struck down.

The defendants contest each of these claims and further argue that the plaintiffs lack standing to bring the case since they have not been injured by the mandate.

The case was heard by three judges: Carolyn Dineen King, appointed by President Jimmy Carter; Jennifer Walker Elrod, appointed by President George W. Bush; and Kurt D. Engelhardt, appointed by President Donald Trump. Judges Elrod and Engelhardt questioned the parties vigorously; Judge King did not speak during the proceeding.

Nearly half of the argument focused on the question of the plaintiffs’ standing to bring the action and of the Democratic AGs and House to appeal the judgment. Under the Constitution, federal courts can only hear a case challenging a law if at least one of the plaintiffs is actually injured by the law and can only hear an appeal if at least one of the appellants is affected by the judgment.

Judge Elrod seemed skeptical of the argument made by the appellant Democratic AGs that the zeroing out of the tax made compliance with the mandate optional and therefore incapable of harming the plaintiffs. Judges Elrod and Englehardt seemed to accept the plaintiffs’ argument that the mandate remains a legal command, and as such harms the individual plaintiffs by requiring them to buy insurance they do not want. Judge Elrod also suggested that the Republican states might have standing because they had to fill out tax forms related to the mandate.

All the parties agreed that the court had jurisdiction to hear the appeal and did not contest the fact that the invalidation of the ACA would cost the Democratic states a substantial amount of money, although Judge Elrod questioned whether the lower court’s order applied to the Democratic states.

Judges Elrod and Engelhardt also greeted skeptically the argument of the Democratic AGs and House that the 2017 tax bill did not affect the constitutionality of the mandate. The Democratic AGs and House argued that the Supreme Court held in 2012 that the ACA merely gave individuals subject to the mandate a choice between buying insurance or paying a tax. The tax bill did not change this; it simply made the tax optional. The plaintiff–appellees argued that with the tax zeroed out, the mandate was wholly unconstitutional. Judges Elrod and Englehardt seemed sympathetic to this argument, although Judge Elrod prodded the plaintiffs on their position.

The court seemed a bit more uncertain, however, on the consequences of holding the mandate unconstitutional on the rest of the ACA. The Republican AGs argued that the findings section of the ACA created an “inseverability clause” by declaring that the mandate was “essential” to — and thus not severable from — other sections of the ACA. The Democratic AGs and House disagreed, arguing that when Congress adopted the 2017 tax bill it clearly intended to affect no other provisions of the ACA.

The judges seemed unimpressed with the statements made by members of Congress to this effect, asking why Congress did not repeal the mandate or the findings if it meant to preserve the rest of the law. (In fact, Congress couldn’t have done so, since the tax bill was a budget reconciliation bill that could only address provisions with financial impact.) Judge Elrod suggested that some members of Congress might have seen the zeroing out of the mandate tax as a “silver bullet” to bring down the ACA, even though there is no evidence of this and it would impute to Congress the intent to create an unconstitutional law. Judge Engelhardt asked why the Senate was not involved in the case if their intent not to harm the law was so clear.

The position of the Department of Justice (DOJ) on severability was quite murky, frustrating the court. On one hand, the DOJ argued that the entire ACA was inseverable from the mandate and thus invalid. On the other, the DOJ contended that as a matter of remedy, the court (or the district court on remand) should only enjoin compliance of provisions that directly affected the plaintiffs; perhaps only in the states that had sued. Remanding to the district court would likely be a futile exercise. Judge O’Connor has already concluded that the entire statute is inseverable. At one point, as the court pressed the DOJ attorney to clarify his position, he responded, “A lot needs to get sorted out and it’s complicated.”

Judge Englehardt seemed to think the problem was essentially political and should be left to Congress to determine which provisions were invalidated and which survived. Accusing Congress of not taking responsibility to clean up the mess that would be caused by invalidation of the statute overlooks, however, the responsibility of the judiciary not to create the mess in the first place, as the district court has done in its sweeping decision. This is one of the reasons why existing law on severability directs courts to invalidate only so much of a law as is necessary when a provision is found to be unconstitutional.

Listening to the argument, one may conclude that judges Engelhardt and Elrod do not understand the scope of the ACA and the serious trouble that invalidating it in its entirety would cause for the American health care system. Suggesting that Congress could readily “fix” the problems caused by the lower court’s decision or that a supposed “fix” other than reversal is even needed — or possible — reveals a lack of understanding of the scope of the ACA and a frightening degree of irresponsibility.

There seems to be a real possibility, however, that the Fifth Circuit may affirm the lower court’s judgment. It will then again be up to the Supreme Court to sort things out. In the meantime, a Fifth Circuit decision invalidating the ACA will likely become a major issue in the 2020 election. We should see by the fall whether the questions pressed by the court today presage its conclusions.




Accountable Care Organizations: The case for “embracing” down-side risk

The picture above is not exactly on point, but who can resist a little boy “embracing” a bear.

Per the Centers for Medicare & Medicaid Services (CMS), Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve (and hopefully saves money in the process).

ACOs are a product of the Affordable Care Act of 2010 (ACA). The theory behind ACOs was based on the recognition that we have a fragmented healthcare system that contributes to poor quality and higher healthcare costs.

Hospital-based health systems aggressively jumped on the ACO bandwagon starting with the passage of the ACA and, in the process, established relationships with physicians, ancillary providers, long-term care organizations, etc. Many times these Health Systems acquired (especially physicians) rather than established collaborative agreements with these community providers.

As a result of these acquisitions and collaborations, the hospital-based ACO and, in turn, the parent health systems became an even greater force in their communities. They were also in a better position to negotiate with payers because of the increased leverage they had as a result of their enhanced local provider presence. 

This also had a negative impact on health systems, since it did increase their fixed costs and made them less flexible to respond to competitors of different forms, especially in the outpatient and home setting.

Have ACOs lived up to their promise?

There have been many articles and research studies on the value of ACOs to determine if they have lived up to their promise of increased quality and cost-efficiencies. The consensus of research seems to be that ACOs have had a positive impact on quality, especially with regard to continuity of care for individuals with chronic diseases.

The jury is still out on the cost savings side, especially for hospital-based ACOs. 

Recently CMS has required that hospital-based ACOs to take on both up-side and downside risk.

Historically, ACOs have had the ability to take on only upside risk (or rewards), but at a lower percentage of potential gain vs. what they would have received if they were also willing to take on downside risk.

As I have noted in prior blogs, I am believer in risk/value-based contracting with downside financial exposure for hospital systems. I support this approach, not in a vindictive way, but because I want hospitals to survive and prosper in this new world of healthcare.

I also believe that if we are to successfully evolve from a “sick-care” system to a true “health” system, hospitals need to enter into the appropriate payer contracts that reward them for keeping patients healthy, not just for providing additional services.

Breaking down the silos inside and outside the walls of the hospital

I have worked in the healthcare industry in a variety of sectors since the early 1980s and during that period of time, I constantly heard the refrain about the need to break down the silos of healthcare both inside and outside the walls of the hospital.

The fee-for-service payment methodologies that exist today “the more you do the more you make” creates no “real” incentives to break down these silos. ACOs that have downside risk exposure along with payment methodologies such at capitation and bundled payments have the real ability to break down these silos.

As long as the majority of payments from payers is based on the fee-for-service payment methodologies, hospitals will have no “real” incentives to break down the silos that prevent value-based care from being provided. It also does not provide any “real” incentives to keep people healthy.

Per the dictionary, “Accountability refers to an obligation or willingness to accept responsibility for one’s actions. … When roles are clear and people are held accountable, work is accomplished efficiently and effectively. Furthermore, constructive change and learning is possible when accountability is the norm.”

While this definition was not met for ACOs, it really does apply and was ultimately the goal of the original drafters of the ACO concept. ACOs must be held accountable, and only through downside risk along with appropriate rewards will that occur.

If we want to achieve our goals of a value-base healthcare system as well as an overall healthier society, we need to create the proper incentives in our payment methodologies. As I have stated repeatedly in past healthcare blogs, “a healthcare system is shaped by what you pay for and how you pay for it.” The “how you pay for it” gets to the heart of the “risk” linkage with regard to hospital-based ACOs.

All of this is not to say that physician-led ACOs should not have risk but, given their size, these independent practices are much more financially vulnerable. Payment models for physician-led ACOs need to recognize the current value they are bringing to the ACO world, and consider ways to gradually add a risk component.

Hospital-based ACOs are looking to exit (or walk away from) Medicare Shared Savings Programs if required to take on downside risk

Per a recent article (April 26, 2019), “Just over half of accountable care organizations (ACOs) said they would consider leaving (or walking away from) the Medicare Shared Savings Program (MSSP) if required to take on more downside risk, revealed a study published in Health Affairs.

Thirty-two percent of ACOs said they are extremely or very likely to leave, and 19 percent believe they are moderately likely to leave.

The results also showed that there were significant differences in responses from physician-based ACOs and hospital-based ACOs.

“Approximately two-thirds of physician-based ACO respondents reported that they were likely to remain in the program if required to accept downside risk, compared with only about one-third of hospital-based ACOs,” the team said.

“This reflects the fact that physician-based ACOs have performed better, and a higher proportion of these ACOs have earned shared savings, than hospital-based ACOs. Physician-based ACOs have generated substantial savings by reducing spending for both inpatient and outpatient hospital services, which has not been true for hospital-based ACOs.”

Hospital based ACOs and well as hospital systems in general are doing themselves “no favors” by not accepting risk. 

By entering into “risk-based” contracts, hospital systems will create the appropriate incentives to address their supply-chain costs. Hospitals would also find it easier to engage physicians in addressing the cost side of the equation if physicians also understood and embraced the risk-based payment methodologies.

Under risk arrangements, hospitals would also have even more motivation to develop strategic relations with their vendors (medical device, etc.), such as what the auto industry does with their suppliers.

These risk arrangements will also allow hospital systems to be better prepared for the new world of healthcare. In this new world there will be winners and losers and different types of competitors, especially in the outpatient and home setting.

As we have also noted in prior blogs, hospital inpatient admissions are decreasing and patients have a higher acuity. Hospital inpatient care has been evolving to some form of a center of excellence. As hospitals look to find ways to expand their revenue opportunities they should be looking to bundle services for prospective patients and employers. These bundled services would and should have a risk-component tied to them.

Accepting risk-based contractual arrangements with payers is also better than competing in the retail marketplace where hospitals are much more vulnerable to lower priced regional and national competitors, especially as the result of the increased push for transparency.

Payers: Medicaid Managed Care, Medicare Advantage, Commercial Carriers, Self-insured employers should be pushing risk contracts. 

As noted in this article in Health Affairs, there are two ways employers should push ACO arrangements to evolve:

Financial Risk

“As experts jest, if ACO providers don’t take on the financial risk of caring for their population of patients (for example, only shared savings), it is like “vegan barbeque…or gin and tonic without the gin.” Payers’ ability to change provider behavior is likely to be negligible if they only reward providers with small bonuses for effective care a year after the fact. Greater financial accountability would encourage providers to promote preventive care and look for ways to cut waste.

In fact, without downside risk, health systems may take advantage of the ACO model. Experts argue that health systems may take on the practice of “ACO squatting” (that is, they form ACOs, take on patients, but avoid looking for ways to cut waste, reduce total cost of care, and improve quality) and that “a migration to two-sided risk for ACOs…after a certain number of years, so that there is a cost [downside financial risk]…would help to address this issue.”

Alignment of Patient Incentives

“Providers would be loath to assume financial risk for a patient population without the ability to manage their care. Commercial payers can modify patients’ out-of-pocket spending to encourage them to seek care only within the ACO. For example, by treating the ACO as a narrow network, the payer could pair it with a benefit design that offers lower premiums and minimal out-of-pocket spending for care from an ACO provider but little to no coverage for care sought outside of the ACO.

If the vast majority of patient visits occur within the ACO, it might be more likely to stay within budget because those providers can coordinate care and reduce redundancies. In addition, the ACO leadership can communicate with ACO providers about the cost and quality implications of their care decisions.”

If Medicare Advantage and Medicaid Managed Care Plans are not pushing for risk arrangements with Hospital-based ACOs or health systems, and these Plans continue to rely on some form of fee-for-service, then the true payers, Medicare and the individual states, should be reevaluating their own payment formulas with these entities. The payment formulas maybe too rich and do not provide enough incentives for these Plans to enter into risk arrangements with the above providers.


If you have been a reader of my blogs, you know I like sprinkling in health economic concepts into them. It is natural for individuals and other entities to make decisions based on their own self-interest.By not embracing risk in a manageable, but continuous fashion, hospital-based ACOs as well as hospital systems are sacrificing their long-term self-interest for immediate gain.

Active purchasers of healthcare services will continue to demand value in the marketplace, and for hospital-based ACOs and hospital system to meet this demand they need to break down the silos which can only be done effectively by embracing risk-based contracting tied to appropriate rewards.

Finally, we, as a society, are recognizing the need to focus our attention on population health, not only because it is the right thing to do, but because it also represents the best uses of our resources. We will not be able to achieve our goal of population health unless hospitals fully embrace it. One true way to expedite the transition to population health is for hospitals and ACOs payment methodologies to incorporate in their reimbursement contracts the appropriate risk/rewards that incent them to keep people healthy both inside and outside the walls of the hospital.




There’s little chance appeals court will strike down ACA, legal experts say

Seven months after a federal judge struck down the Affordable Care Act, a coalition of 21 Democratic attorneys general will once again defend the landmark healthcare law in New Orleans on Tuesday. The challenge, if upheld, would have far-reaching consequences for millions of Americans and the healthcare companies that serve them.

Left-leaning and conservative legal experts alike say there’s little chance the three-judge panel in New Orleans agrees with the lower court and declare the ACA unconstitutional. The arguments used by the Republican states that sued to wipe out the ACA are “frivolous,” the experts say.

“This case is different from all of the previous Obamacare cases because there is a consensus among the Republican intellectual establishment that the legal arguments are frivolous,” said Yale University health law professor Abbe Gluck. “You’ve got a lot of prominent Republican legal experts siding against the Trump administration in this case, so I think that most people are hoping that this circuit will apply very settled law and reverse the lower-court decision.”

Even so, Democratic senators on Monday were worried that the ACA would ultimately be struck down, causing millions of Americans to lose their insurance and consumer protections overnight without any Trump administration plan to pick up the pieces.

“Make no mistake, this lawsuit has a good chance of succeeding,” Sen. Chris Murphy (D-Conn.) said during a conference call Monday with reporters. “I understand that there are some legal scholars that say that the theory of the petitioners is wacky, but it survived the district court and it now has the administration as a full and complete partner with the attorneys general. There is real muscle on the side of the plaintiffs in this case.”

The appellate court arguments largely mirror those in the district court. This time around, the U.S. Justice Department is urging the 5th U.S. Circuit Court of Appeals to uphold the lower-court ruling that the entire Affordable Care Act must fall because the 2017 Congress reduced the individual mandate penalty to zero. Previously, the Justice Department argued the individual mandate is unconstitutional, but could be “severed” from most of the ACA.

This question of whether the entire ACA must go is the crux of the case. Gluck explained that a non-controversial, settled legal doctrine called “severability” states that the decision to scrap a piece of a law or destroy the whole thing rests on what Congress would have wanted. That’s something courts usually have to guess, but in this case there’s no question what Congress would have wanted: it already zeroed-out the individual mandate penalty and left the rest of the ACA alone.

“It is an absolutely outrageous argument to say that the district court was doing what Congress wanted when Congress in 2017 reduced the penalty and left the entire statute standing,” Gluck said.

Nicholas Bagley, a law professor at the University of Michigan Law School, similarly said, “These are bad legal arguments.”

The odds of the Fifth Circuit declaring the entire ACA unconstitutional are low, he said, given the arguments in the case “are thin to the point of frivolousness, and I think the Fifth Circuit judges will know that, whatever their political disposition may happen to be. But I’d be lying if I said I knew that for sure.”

The panel announced last week includes Judges Jennifer Walker Elrod, Kurt Englehardt and Carolyn Dineen King. Two were appointed by Republican presidents; one is a Democratic appointee. U.S. District Judge Reed O’Connor, who struck down the healthcare law, was also appointed by a Republican president.

Legal experts said it is also likely that oral arguments will devote time to whether the Democratic states and the U.S. House of Representatives have standing to intervene in the case. The Fifth Circuit judges last week asked for supplemental briefs on that question. While the court’s request was seen by some as a sign that it is supportive of the Republican states, others viewed it as normal, given the high stakes and the fact that the Justice Department declined to defend the law.

Gluck said it’s unlikely the court will decide neither the blue states or the House have standing in the case. It would be hard to argue that the Democrat-led states would not be harmed by a ruling that invalidates the entire ACA, and the House has previously intervened to defend a statute when the executive branch chose not to, she said.

But if the Fifth Circuit does decide neither have standing, it would have to decide whether to let the lower-court decision stand or erase it, she said.

Should the appellate court uphold the lower-court ruling, the consequences would be sweeping. In a June analysis, the left-leaning Urban Institute found that the number of uninsured Americans would climb 65% to 50.3 million in 2020 if the ACA is ultimately struck down. The decision would affect not only people who buy coverage in the individual market but also those with coverage through Medicaid expansion, Medicare and from their employers.

That would also impact healthcare providers and insurers.

“No industry has been more directly impacted by the ACA than health insurance providers, which have invested vast amounts of resources to participate in the relevant markets, comply with the law’s myriad reforms, and organize their businesses to operate in a revamped healthcare system,” insurance industry lobbying group America’s Health Insurance Plans wrote in an amicus brief filed in April in support of reversing the lower-court decision.




How the ACA’s Medical Loss Ratio Rule Protects Consumers and Insurers Against Ongoing Uncertainty

calculating bills for medical procedures


  • Issue: The Affordable Care Act’s rule on minimum medical loss ratios (MLRs) protects consumers by capping insurers’ profits and overhead. In the early years of the law, these caps were rarely used because most insurers in the individual health insurance market experienced substantial losses. More recently, however, insurers are earning substantial profits while the individual market is rattled by regulatory uncertainty and change.
  • Goal: To understand the ongoing role that the medical loss ratio rule plays in the individual health insurance market.
  • Methods: Analysis of insurers’ financial performance 2015–2017, as reported to the federal government.
  • Key Findings and Conclusion: Consumer rebates under the MLR rule increased noticeably in 2017 as insurers raised rates and regained profitability. At the same time, the rule’s calculation of MLRs based on a three-year rolling average allowed insurers in 2017 to recoup a portion of their losses from earlier years. As the individual market continues to experience cycles of profits and losses, the MLR rule dampens the severity of these cycles, thus protecting insurers as well as consumers.


Regulation of insurers’ medical loss ratios (MLRs, or loss ratios) is one of the most notable consumer protections in the Affordable Care Act (ACA). The loss ratio is the percentage of premium dollars that insurers spend on medical claims and quality improvement, rather than dollars retained for administrative overhead and profit.

Under the ACA, insurers that do not incur a loss ratio of at least 80 percent (based on a three-year rolling average) in the individual or small-group market must rebate the difference to consumers.1 Put another way, insurers with average overhead and profits during the past three years that exceed 20 percent must rebate the excess to members. Large-group insurers must do the same for loss ratios less than 85 percent, or when overhead and profits average more than 15 percent of premium dollars based on a three-year average.2

The ACA’s MLR rule took effect in 2011. In its first few years, this rule provided important consumer protection by requiring substantial consumer rebates and inducing insurers to reduce their administrative costs, which likely helped to keep premiums somewhat lower.3 These protections became less visible once insurers adjusted their rates to reflect their lower overhead.4 Following substantial rate increases for individual health insurance in 2017 and 2018, however, the ACA’s loss ratio limits have renewed relevance by helping stabilize a market that has been buffeted by cyclical underpricing and overpricing.

This issue brief explains how the ACA’s MLR rule serves an important buffering function in two ways. The rule protects consumers by limiting how much insurers can attempt to recoup previous losses through higher profits in any one year. At the same time, the rule allows insurers to replenish some of their reserves that deplete during lean times by calculating MLR limits based on a three-year rolling average.

The Changing Relevance of Loss Ratio Limits

As shown in Exhibit 1, rebates in the individual health insurance market declined from almost $400 million in 2011 to slightly more than $100 million annually in 2015 and 2016,5 accounting in those later years for only about 0.14 percent of insurers’ premiums. Rebates also declined in the group markets but less dramatically (in proportionate terms).

To fully understand this pattern, it helps to have a clearer picture of insurance pricing during this period. The individual market had a significant drop in rebates after 2014 because loss ratios in that market increased to an unprofitable level for most insurers in 2015 and 2016. Insurers underpriced those years because of the highly competitive conditions in the newly reformed individual market, coupled with actuarial uncertainty over the full extent of health care needs for the newly insured.6

But since 2017, the ACA’s MLR limits have once again become more relevant for consumers in the individual market.7 To help insurers regain profitability, state regulators allowed them to target the minimum allowable loss ratios, which meant that rates increased more than the anticipated increases in medical claims. As a result, rate increases averaged roughly 25 percent in 2017 and 30 percent in 2018.8

For the most part, these increases were caused by changes in federal rules, such as the planned phasing out of the ACA’s transitional reinsurance program, as well as the unplanned cessation of cost-sharing reduction payments to insurers.9 But these hefty increases were also driven by insurers’ aiming to substantially lower their previous loss ratios.

In fact, many insurers overshot their targeted loss ratios in 2017 and 2018, resulting in greater profitability than they may have anticipated. Accordingly, their rate increases were much more subdued in 2019, averaging only about 3 percent.10

This cyclical pattern of underpricing followed by overpricing (relative to actual medical claims) is driven in large part by insurers’ uncertainty about the ACA’s evolving market conditions. This uncertainty has two causes: actuarial and political.11

When the newly reformed individual market first opened in 2014, insurers lacked the actuarial experience needed to accurately estimate the newly insured’s use of medical services. This actuarial uncertainty carried over into 2016 because insurers must file their rates roughly 18 months prior to the end of the following rating year.12 Also, in 2015 and 2016, there was substantial turnover among insurers in the individual market, as some initial players learned that they were not able to compete effectively under the new market rules.13

The ACA’s drafters anticipated this uncertainty and included several risk-mitigating measures, known as the “three R’s:” reinsurance, risk-adjustment, and risk corridors.14 The first two measures were implemented, but risk corridors were not because of Republican opposition that characterized this market-stabilizing measure as a “bailout for insurers.15 Risk corridors would have substantially dampened the initial cycling between substantial losses and excessive profits in the ACA’s individual market.16

Despite the absence of the ACA’s full complement of stabilizing features, participating insurers began to gain their actuarial footing in 2017. At this point, however, the cause of insurers’ uncertainty shifted from typical actuarial factors to more political factors, including dramatic changes in administrative policies and market rules under the Trump administration. These changes are described in more detail elsewhere, but in brief they include abruptly ceasing cost-sharing reduction payments, repealing the individual mandate penalty, and drastically reducing funding for marketing and consumer navigation during open enrollment.17

This political and regulatory uncertainty continues. Regulators are greatly loosening rules that previously had limited the sale of non-ACA-compliant policies, and the full impact of these changes is still unknown.18 Moreover, the Justice Department has taken the position in court that the ACA should be struck down as unconstitutional, which could have a catastrophic impact on the individual market. However, the fate and timing of that litigation is highly uncertain.

In short, these roller-coaster conditions would probably have leveled out by 2017 if ongoing changes to market rules had not intensified the uncertainty. Against this backdrop, we now consider the role that the ACA’s loss ratio rule might play in stabilizing the market by protecting both consumers and insurers through continuing cycles of losses and excessive profits that result from ongoing market uncertainty.

The following sections examine two key stabilizing features in the ACA’s loss ratio rule. Using a three-year rolling average to calculate excess overhead and profits protects insurers by allowing them to recoup at least a portion of their recent losses through somewhat larger rate increases in a current year. At the same time, requiring insurers to rebate excess overhead and profits protects consumers from unjustified price increases.

In effect, the ACA’s loss ratio rule serendipitously serves a function similar to the ACA’s risk corridor provisions that were undermined by Republican opposition: the MLR rule partially shelters insurers in bad times and keeps them from unduly profiteering in good times.

Protection of Insurers

Viewing the individual market as a whole, Exhibit 2 shows that in 2015 and 2016 (averaged together), insurers had poor financial results. Their collective loss of –7.4 percent was because of a high medical loss ratio — 95 percent. Some insurers were more successful and were required to pay a rebate; however, across the entire market, these rebates averaged only $6 per person per year (50 cents a month), equal to just 0.01 percent of the premium.

Insurers’ financial performance improved dramatically in 2017. By increasing premiums by 11 percent more than the increase in claims (14% vs. 3%),19 insurers reduced their medical loss ratios by nine percentage points overall, from 95 percent to 86 percent. And, by holding steady their administrative costs, their profit margins improved by 11 points, from –7.4 percent to 3.3 percent.

Because of this financial improvement, rebates increased by almost 50 percent in 2017. But rebates still remained much lower than in the ACA’s early years, averaging only $9 a person for 2017 ($0.73 a month) marketwide.

Rebates remained low for two reasons. First, although insurers’ MLRs dropped quite a bit, they remained above the regulatory minimum on average. Second, for insurers with 2017 loss ratios below 80 percent, their earlier losses in 2015–2016 decreased the rebate amount they owed because the rebate is calculated using a three-year rolling average.

This effect can be seen by examining insurers that were in the individual market all three years, 2015–2017. Out of 303 such insurers with at least 1,000 members, there were 74 insurers with loss ratios below the required 80 percent in 2017. Without the three-year rolling average, these more profitable insurers would have owed rebates averaging $258 per member in 2017. Instead, the ACA’s three-year look-back rule required insurers that were in the market that long to pay a rebate of only $21.55 per member for the year. This reduction allowed these insurers to recoup $919 million of prior 2015–2016 losses overall.

Protection of Consumers

At the same time the ACA’s MLR rule helps cushion the extent of insurers’ losses over time, it also continues to protect consumers against overpriced health plans. Although most insurers in 2017 owed no rebates, 29 insurers paid a rebate of $140 per member, amounting to $132 million, or 3.3 percent of their premiums. Not counting these rebates, these insurers had a handsome overall profit margin of 12.6 percent in 2017. As shown in Exhibit 3, these rebates reduced their profit margins by slightly more than 25 percent.

This backstop against excessive profits is expected to have even more importance once full financial reporting is complete for 2018, which included a second round of substantial rate increases.20 Despite owing rebates for 2017, insurers continued to increase rates for 2018 in part because they had to file their 2018 rates in mid-2017 without their complete 2017 financial performance data in hand. Also, insurers had to anticipate possible disruptions to the market caused by changes to the ACA’s market rules.

By building in more cushion than they needed, insurers are expecting substantially lower loss ratios in 2018, which will generate much higher rebates. One recent analysis projects that loss ratios in the individual market will drop to 70 percent for 2018, resulting in close to $1 billion in rebates.21

These consumer protections could have substantially more impact in some states than in others, depending on how much insurers were permitted to increase rates in each state. Across 50 states and the District of Columbia, insurers in 26 jurisdictions had no rebates for 2017 in the individual market, and rebates were less than $5 a person in 11 states. However, in seven states (Arizona, Massachusetts, Minnesota, Mississippi, Missouri, New Hampshire, and New Mexico), rebates exceeded $50 per person in the 2017 individual market.22 Notably, in four of these seven states (Minnesota, Missouri, New Hampshire, and New Mexico), a single insurer with profit margins of 15 percent or greater was solely responsible for the rebate (Exhibit 4).


When the ACA’s medical loss ratio rule first took effect in 2011, its protections were more visible to consumers, who received significant rebates while insurers substantially reduced overhead costs. In subsequent years, these protections became less noticeable, as insurers in the individual market struggled with substantial losses.

Now that the individual market appears to have regained profitability, however, the ACA’s MLR rule has renewed relevance, both for consumers and insurers. The rule has resumed its important role of paying rebates to consumers whose health plans enjoy substantial profits. Additionally, the MLR rule affords insurers that suffer substantial losses an opportunity to recoup some of those losses by averaging a low loss ratio against two prior years of high loss ratios.

By smoothing out oscillations in profits and losses, the ACA’s MLR rebate rule holds the prospect of not only continuing to protect consumers, but also of helping to counter some of the destabilizing effects of ongoing changes in regulatory policy in the individual market.