State Implementation of National Health Reform: Harnessing Federal Resources to Meet State Policy Goals

by Stan Dorn Prepared for State Coverage Initiatives by the Urban Institute

July 2010 (Updated on September 3, 2010)

1 Table of Contents

Executive Summary ...... 3.

Overview of Report ...... 5.

Key Features of National Health Reform ...... 6.

Maximizing Residents’ Health Coverage and Access to Care ...... 11.

Fundamental Questions about Health Exchanges ...... 17.

Restructuring to Function More Like a Traditional Market ...... 18.

Holding Insurers Accountable to Consumers ...... 25.

Reforming Health Care Delivery and Financing to Slow Cost Growth and Improve Quality ...... 30.

Reducing State Budget Deficits ...... 38.

Conclusion ...... 42.

Notes ...... 42.

About the Author Timothy Waidmann . The author is also based information and assistance to state Stan Dorn, J .D ., is a senior fellow at the grateful for the good counsel of the State leaders in order to help them move health Urban Institute’s Health Policy Center . He Coverage Initiatives program staff as well care reform forward at the state level . SCI has worked on health care issues for more as Joel Ario, the Pennsylvania Insurance offers an integrated array of policy and than 25 years at the state and federal levels . Commissioner; Alice Burton, consultant technical assistance services and products Mr . Dorn is a leading national expert on for the Maryland Governor’s Health Care to help state leaders with coverage programs and issues affecting low-income Reform Coordinating Council; Allen expansion efforts as well as with broader people and other vulnerable populations, Feezor of North Carolina’s Department health care reform . Our team of policy including the Patient Protection and of Health and Human Services; Eugene experts tailors its approach to meeting , , the Gessow, the Director of the Arkansas state decision makers’ needs within SCI is Children’s Health Insurance Program Division of Medical Services within the a national program of the Robert Wood (CHIP), and subsidies for uninsured, laid- Department of Human Services; Jeanene Johnson Foundation administered by off workers . Before the Urban Institute, Smith, Administrator of the Office for AcademyHealth . For more information Mr . Dorn served as a senior policy analyst Oregon Health Policy and Research; Jackie about SCI, please visit our web site, at the Economic and Social Research Scott of the National Academy for State www .statecoverage .org . Institute; Health Division director for the Health Policy; and Stephen A . Somers About the Urban Institute Children’s Defense Fund; and managing of the Center for Health Care Strategies . The Urban Institute gathers data, attorney at the National Health Law Neither these individuals, the Urban conducts research, evaluates programs, Program’s Washington office . Institute, AcademyHealth, nor the Robert offers technical assistance, and educates Wood Johnson Foundation are responsible Acknowledgements Americans on social and economic issues for the opinions expressed in this report, The author thanks his Urban Institute — to foster sound public policy and which are the author’s sole responsibility . colleagues who provided assistance effective government . and advice, including Linda Blumberg, About SCI Kelly Devers, John Holahan, Ariel Klein, The State Coverage Initiatives (SCI) Juliana Macri, Brenda Spillman, and program provides timely, experience-

2 Executive Summary

The Patient Protection and Affordable afford . Insurers’ desire for market share slow cost growth while improving quality . Care Act (PPACA) gives states many new will drive innovation that meets customers’ The resulting plan could be offered in tools and resources with which to pursue needs, as occurs in smoothly functioning the exchange, increasing competition for longstanding health policy goals . markets . private insurers .

State officials seeking to maximize State officials who want to hold insurers coverage and access to care can take accountable for providing consumers Not all state officials advantage of PPACA’s new options to with high-quality, affordable health establish eligibility for Medicaid and coverage could: share the same health subsidies in the exchange . These options Dramatically increase their capacity to policy goals. But use highly streamlined methods to help the • detect insurance company misbehavior by uninsured receive coverage while lowering most state health care state administrative costs . States could carefully analyzing the new data that PPACA leaders will find that also implement the Basic Health Program requires insurers to provide; option for residents who are ineligible for they can use PPACA Medicaid (because of income or a recent • Permit only insurers that comply with to make significant grant of legal immigration status) but reasonable state requirements related to whose incomes do not exceed 200 percent cost and consumer protection to offer progress toward of the federal poverty level (FPL) . Such plans in the exchange; an option could make coverage and care meeting objectives much more affordable for low-income • Educate the public and health plans they have long viewed residents than under the standard subsidy about insurers’ potential liability for system established by PPACA, while the treble damages under the False Claims as important to the federal government would still pay all Act, empowering public agencies to residents of their state. subsidy costs . States could also consider pursue such claims and to use the supplementing PPACA’s subsidies to proceeds to fund further enforcement improve affordability of coverage and care efforts; State policymakers interested in to low- and moderate-income residents . • Use available federal grants to fund restructuring health care delivery and financing to slow cost growth States interested in reforming health independent consumer assistance while improving quality have a host of insurance to function more like a programs to help consumers vindicate opportunities under PPACA . States can: traditional market can give consumers their individual rights and to bring much improved information about the systemic problems to the attention of the • Implement Medicaid demonstration services offered by particular providers public and responsible state officials; projects to test new reimbursement methods as well as health coverage options . If • Use new federal grants to support rate that reward value, rather than volume; state officials decide to operate a health review as well as leverage the exchange to For public employee coverage, use new insurance exchange rather than to leave • supply administrative resources needed methods to base payment on that function to the federal government, for enforcement of PPACA’s insurance provider performance; state policymakers can structure the market reforms; and exchange to make a wide range of health • Incorporate Medicare, Medicaid, and plan choices available to as many state • Establish a publicly administered plan private coverage into multi-payor residents and employers as possible . In to compete in the exchange . Such a plan initiatives that implement reimbursement such a system, the consumer, not the would include, as its core membership, and delivery system reforms; employer, selects his or her own health Medicaid beneficiaries, enrollees in the plan, and those who want more expensive Children’s Health Insurance Program • Help high-cost, chronically-ill patients coverage must pay the resulting increase (CHIP), as well as public employees in Medicaid, public employees, and in premiums . Private health plans will and retirees . This critical mass could the privately insured participate in the thus have an incentive to offer consumers make it feasible for a state’s providers to “patient-centered medical home” model the services they want at a price they can implement delivery system reforms that of coordinated care;

3 • Implement initiatives to prevent costly States interested in reducing budget these adults’ coverage . Finally, Medicaid rehospitalization, improving health deficits could achieve savings on public cost growth could be slowed by taking status and saving money for public and employee health costs by participating advantage of PPACA’s new options to private payors alike; in federal reinsurance subsidies for early fully integrate Medicare and Medicaid retirees . Significant General Fund savings financing and services for dual eligibles . • Use the results of comparative could also be achieved, in many states, by Coordinated care that smoothly integrates effectiveness research to encourage substituting federal Medicaid dollars for the two funding streams, eliminating public employees to avoid costly current state and local spending on adults’ current incentives for cost-shifting and procedures and treatments that do indigent care, mental health services, provider gaming of multiple payors, offers not contribute to patient health, social services, and other state-funded the possibility of significant health status while permitting private employers to programs that, for the first time, will gains for beneficiaries and cost savings for give their covered employees similar potentially fit under Medicaid’s umbrella . states . incentives; and At the same time, states that now cover Not all state officials share the same health some adults with incomes above 138 • Apply for federal grants and participate policy goals . But most state health care percent FPL could shift such adults into in demonstration projects to combat leaders will find that they can use PPACA programs where the subsidies are funded obesity, smoking, and other risk factors to make significant progress toward entirely by the federal government, either among Medicaid beneficiaries, in low- meeting objectives they have long viewed in the exchange or through the Basic income communities, and with other as important to the residents of their state . residents . Health Program option . Such a shift could end the need for states to subsidize

4 Overview of Report

The enactment of the Patient Protection This report excludes a number of Limits on administrative resources will and Affordable Care Act (PPACA) gives important topics . For example, it does make it difficult for many states to go states new responsibilities and choices for not examine the potential for using beyond the minimum steps needed to reforming health care and health coverage . PPACA to facilitate reform of long-term comply with federal requirements . But in Even at this early date, scores of detailed care, which is a critically important issue states where more than basic compliance reports have already analyzed many that is a complex world unto itself .1 is possible, this report encourages officials aspects of the legislation . Rather than Also outside this report are PPACA’s to be proactive and selective in identifying itemize everything that PPACA requires workforce investments . This report cannot the additional policy priorities they or permits, this paper seeks to help state possibly do justice to these issues while seek to accomplish . A careful focus on officials by synthesizing the details of simultaneously exploring the themes the “big picture” policy goals that most federal reform into several broad themes: listed above . matter to a state can help decision-makers Maximizing residents’ health coverage sort through the mass of detail in the • This report primarily explores options and access to care; new federal law, focus on the elements that states can implement by 2014 . Left for that offer the greatest promise for Helping health insurance function more another day is a detailed examination of • accomplishing the state’s priorities, and like a traditional market; such issues as the implications for states chart a course forward that is coherent of federal allotments under the Children’s Holding insurers accountable for and effective . By showing how particular • Health Insurance Program (CHIP) that providing high-quality coverage at policy approaches would use PPACA to expire after federal fiscal year (FY) 2015, reasonable cost to the consumer; achieve specified state goals, this report unless Congress reauthorizes CHIP; states’ seeks to help state leaders take advantage option, beginning in 2017, to give large • Reforming the health care delivery of the new federal law to accomplish firms access to coverage sold through a system to slow cost growth while longstanding policy objectives, which vary health insurance exchange; and states’ improving quality; and from state to state . ability, starting in 2017, to obtain • Limiting state general fund spending on waivers that allow radically different health care . reform approaches than those embodied in PPACA .2

5 Key Features of National Health Reform

A comprehensive explanation of PPACA are available without further federal - Health insurance policies cannot be is beyond the scope of this paper and legislation . cancelled because consumers get sick is available elsewhere .3 However, to and use care, unless such policies were Other subsidies to facilitate coverage and place in context the key choices facing • obtained through fraud or deception . access to care states, this section of the paper begins by - Private insurers offering dependent describing the new law’s basic structure . - Until 2014, $5 billion is available for high- coverage must extend such offers to adult It then provides a detailed explanation risk pools that cover previously uninsured children through age 26 . of several parts of the new federal law individuals with preexisting conditions . that may be particularly important to - State offices that provide health consumer - Small firms with 25 or fewer workers states—namely, the federal rules governing assistance can qualify for federal grants to may qualify for tax credits helping them health insurance exchanges; the interaction help individuals and document systemic purchase coverage . between Medicaid and coverage subsidies problems . in the exchange; and a new Center for - Community health centers receive an - HHS and states will establish and begin Medicare and Medicaid Innovation that additional $11 billion in appropriated implementing a process for reviewing will be housed at the Centers for Medicare funding for program operations . and Medicaid Services (CMS) . insurance premiums, identifying - Federal grants are available for home unreasonable increases, and providing visitation, school-based health centers, public notice about the insurer’s A basic overview and other services . justification for such increases . Some provisions go into effect this calendar year: • Health care delivery system reforms - Applying a standard format for presenting information, HHS establishes • Medicaid and CHIP - To qualify for the above-described, a web portal that consumers may use to federally-funded reinsurance for compare their health coverage options . - States may expand Medicaid to cover early retirees, an employer plan must 4 childless adults up to 138 percent of the implement reforms that generate savings Between 2011and 2014, other provisions 5 federal poverty level (FPL), with income on care provided to the chronically ill and become effective. For example: determined based on federal income enrollees with high-cost conditions . tax rules . Before PPACA, such adults’ • As of January 1, 2011, the percentage of coverage required federal waivers, which - Grants and other new federal initiatives premium used to pay for health care— were subject to federal budget neutrality encourage a broad range of innovations the so-called “medical loss ratio”—must requirements . Now, an ordinary Medicaid that seek to slow growth in health care meet or exceed certain thresholds, which State Plan Amendment suffices to make costs while improving quality . Such vary based on the applicable market . these adults eligible . Standard Medicaid innovations include patient-centered Plans that violate these requirements matching percentages apply before 2014 . medical homes; reimbursement reforms must refund their excess administrative to incentivize safe, effective, high-quality costs to consumers . - As a general rule, states may not cut care; accountable care organizations; For calendar years 2013 and 2014, back prior eligibility for Medicaid until better integration of care for individuals • Medicaid reimbursement rates for certain exchanges become operational in 2014 . who receive both Medicaid and Medicare; primary care services rise to Medicare CHIP eligibility must be maintained efforts to increase prevention, promote levels, and the federal government pays all through 2019 . However, if a state’s federal wellness, and improve public health; etc . CHIP allotment is exhausted, eligible the resulting cost increase . Insurance market reforms children may be enrolled in subsidized • As of January 1, 2014, most of PPACA’s key coverage offered through the exchange . - Insurers may not discriminate against architecture becomes operational: children based on preexisting conditions . - PPACA continues CHIP funding through • Health insurance exchanges in each state 2015 . Beginning with federal fiscal year - Lifetime limits and unreasonable6 annual offer health plans to small firms and to 2016, federal matching rates under CHIP limits on coverage are prohibited . individuals, as explained in much more increase by 23 percentage points, but detail below . no additional federal CHIP allotments

6 Subsidized coverage Health insurance markets for individuals contract with a non-profit entity) if the • • 8 and for firms with 100 or fewer state requests that it do so or if the federal - Medicaid expands to cover all7 children employees are reformed in many ways . government determines that the state and non-elderly adults with incomes Although some of these reforms go into will be unable to adequately perform the at or below 138 percent FPL, defined effect earlier, all of the following are in necessary functions . in terms of “Modified Adjusted place by 2014: Gross Income” (MAGI), an eligibility Geographic scope . Based on the state’s methodology that is based on federal - Insurers are forbidden from choice, a single exchange can operate income tax law . The federal government discriminating against adults based statewide; different “subsidiary exchanges” pays 100 percent of the costs for newly on gender or health status, including can serve distinct geographic regions eligible adults from 2014 through 2016 . preexisting conditions . (As noted above, within the state; or several states can After that, the percentage of health care this ban applies to children as of 2010 ). jointly operate a multi-state exchange . costs paid by the federal government Premiums can vary with age, but by no Populations served . The exchange serves gradually declines to 90 percent in 2020 more than a 3 to 1 ratio . (a) individuals who are U .S . citizens and beyond . - Insurers are required to cover federally- or legally resident immigrants and (b) - To help consumers afford coverage in the specified minimum benefits, including employees of small firms and their exchange, fully refundable tax credits that preventive care services (which must be dependents, if such firms choose to use can be advanced directly to insurers when exempt from cost-sharing) . the exchange to provide their workers premiums are due provide sliding-scale with health coverage . Before 2016, states - Reinsurance and risk adjustment premium subsidies to households with decide whether companies using the mechanisms provide insurers incomes between 138 and 400 percent exchange may have a maximum of 50 or with additional resources if they FPL . Additional subsidies reduce out-of- 100 full-time employees . Beginning in disproportionately attract high-cost pocket costs for households with incomes 2016, all firms with 100 or fewer workers enrollees . up to 250 percent FPL . Both premium may use the exchange . Starting in 2017, and cost-sharing subsidies are unavailable states have the option of opening the to individuals who qualify for other A more detailed analysis exchange to larger companies . A state can forms of public coverage and to people of selected provisions either operate separate exchanges serving who are offered employer-sponsored Three specific issues are so important to individuals and firms—the exchange insurance (ESI) that they can afford states that they warrant a more detailed serving small employers is called a and that meets minimum standards of analysis . These issues involve health Small Business Health Options Program comprehensiveness . insurance exchanges; the interface between (SHOP)—or a single exchange for both Medicaid and the exchange in determining individual and small group markets . • Shared responsibility eligibility for Medicaid, CHIP, and the Although PPACA permits states to - As a general rule, individuals must new subsidies created by PPACA; and the combine their individual and small obtain health insurance or pay a tax new Center for Medicare and Medicaid group markets, such a combination is not penalty . Exempt from this mandate are Innovation that PPACA established within required to run a single exchange serving people with incomes below the tax filing CMS . both markets . Rather, a state using a single threshold, individuals who would be exchange to serve separate group and required to spend more than 8 percent PPACA’s rules for health individual markets would offer the same of income for coverage, others for whom insurance exchanges plans to all enrollees, individual and group . purchasing coverage would constitute a Basic structure hardship (under rules to be promulgated Funding . The federal government Responsible entity . An exchange can by the U S. . Department of Health and provides grants to cover start-up and be operated by a state agency or a state- Human Services, or HHS), people other administrative costs through established, non-profit entity . An exchange with religiously-based conscientious the end of 2014 . However, starting on can either carry out its responsibilities objections to the purchase of health January 1, 2015—the second year of directly or contract to have one or more insurance, and certain others . exchange operation—exchanges must functions performed by (a) private raise their own funds . This can be done - A firm with more than 50 full-time corporations that are not affiliated with through surcharging insurance premiums; employees must likewise pay penalties any health insurers or (b) the state’s assessing health plans, employers, or if it fails to offer ESI and one or more of Medicaid program . Alternatively, the individuals; appropriating state General such employees use tax credits to enroll federal government can administer the Fund dollars; or otherwise . Whether in coverage offered through the exchange . exchange (either directly or though

7 federal or state in origin, administrative - no ; and - an overall, individual out-of-pocket funds may not be used for “staff retreats, maximum of $3,500; - prescription drug co-pays of $10, $25, promotional giveaways, excessive executive and $45 for generics, preferred, and - a $75 co-pay for an emergency room compensation, or promotion of Federal non-preferred name-brand drugs, visit; and or State legislative and regulatory respectively .13 modifications ”. 9 - a $10 co-payment for generic medication Gold, with an AV of 80 percent . For and co-insurance of 25 and 30 percent Health plans • example, a typical employer-sponsored for preferred and non-preferred name- Qualified health plans. An exchange Preferred Provider Organization (PPO) brand drugs, respectively 15. may offer only “qualified health plans” would have an AV between 80 and 84 that it finds satisfy applicable federal Silver, with an AV of 70 percent . At this percent with: • requirements . Such requirements include level, a plan could have 20 percent co- state licensure, coverage of essential - an annual deductible of $400 per insurance, an out-of-pocket maximum benefits, offering packages in the exchange individual and $700 per family; of $2,975, and an individual deductible with (at a minimum) silver and gold of $1,900 16. actuarial values (explained below), - 20 percent co-insurance for in-network premium charges that do not vary based office visits, inpatient hospitalization, • Bronze, with an AV of 60 percent . One on whether coverage is offered inside lab, and x-ray services (and higher co- example of a plan with AV at this level exchanges, nondiscriminatory marketing insurance for out-of-network services); would have 20 percent co-insurance, an out-of-pocket maximum of $5,950, and and benefit design, provider participation, - an overall, out-of-pocket maximum of an individual deductible of $3,000 17. health care quality, enrollment procedures, $2,000 per individual and $3,500 per consumer information, and efforts to family; and For individual enrollees, the exchange may reduce racial and ethnic disparities . In also offer catastrophic-only plans to young - prescription drug co-pays of $10, $25, addition to state-specific plans, two adults under age 30 and to people without and $45 for generics, preferred, and nationwide plans arranged by the federal affordable access to coverage at the bronze 10 non-preferred name brand drugs, Office of Personnel Management (at least level or higher . Such catastrophic plans respectively .14 one of which must be non-profit) will be cover preventive services (free of cost- 11 offered in each state’s exchange . As another example, a PPO would have an sharing) and at least three primary care Actuarial value . For both small group 80 percent AV with: visits but otherwise allow cost-sharing up and individual enrollees, the exchange can to the out-of-pocket limit that applies to - an annual deductible of $500 per Health Savings Accounts (HSAs) .18 offer plans at four levels of actuarial value individual; (AV) . AV is determined by calculating, for In the small group market, in an average population, the percentage of - $20 co-pays for in-network office visits; 2014 may not exceed $2,000 for self-only health care costs that a plan is likely to pay . - 15 percent co-insurance for other in- coverage and $4,000 for coverage that Many different combinations of covered network services; includes spouses and child dependents . These benefits and cost-sharing requirements can amounts are indexed to rise in later years . yield the same actuarial value . AV provides a single number that indicates a general level of comprehensiveness while still Is there room in the exchange for high-deductible plans leaving room for considerable variation in that qualify for HSAs? the details of coverage . The four AV levels Some policymakers favor such plans as increasing consumer’s financial incentive in an exchange are as follows:12 to avoid unnecessary health care costs and giving consumers more control over health care decisions. Fortunately for these policymakers, most HSA-qualified, high- Platinum, with an AV of 90 percent . • deductible health plans (HDHP) have sufficient AV to be offered in the exchange. For The typical, employer-sponsored Health example, the average employer-sponsored, HSA-qualified HDHP has an AV of 76 Maintenance Organization (HMO) has percent with a $1,500 annual deductible, 20 percent co-insurance, and a $3,000 an AV of 93 percent, according to the overall out-of-pocket maximum.19 If HHS decides that HSA contributions count in Congressional Research Service . Such an determining such a plan’s actuarial value, then adding the typical HSA contribution HMO might offer coverage with— among employers who make such payments raises this high-deductible plan’s AV to - $20 office co-pays; 93 percent.20 Even in the much less generous individual market, the average HSA- qualified HDHP has an AV of 61 percent, without counting any HSA contributions.21 - a $250 co-payment for inpatient Put simply, not all high-deductible plans will qualify for the exchange, but many will. hospitalization;

8 Excluding qualified plans from the determine and inform individuals of to 1 percent of all the money that HHS exchange . An exchange may exclude a their eligibility for Medicaid and CHIP, owes to the state under all programs HHS qualified health plan if it finds that doing enroll eligible individuals in Medicaid and administers . so would be in the best interests of the CHIP, provide an electronic calculator Transparency . On the Internet, the state’s residents or employers who use the that consumers can use to determine plan exchange must publish the average cost exchange . In making this determination, costs (taking into account tax credits and of all payments required by the exchange the exchange can negotiate with insurers, cost-sharing subsidies), decide whether (including licensing and regulatory fees), take into account premiums, and exclude individuals meet the federal requirements the administrative costs incurred by the plans that, in the judgment of the exchange for exemption from the individual mandate, exchange, and an accounting of all funds administrators, charge too much . However, provide the Treasury Department with lost to waste, fraud and abuse . an exchange may not impose premium names and identifying information for price controls or exclude a plan based on its individuals who are exempt from the use of fee-for-service reimbursement . mandate or whose coverage or employment The interaction between status changes during the year, and inform Consumer choice . In the exchange, Medicaid, the exchange, employers when their workers stop receiving consumers purchasing individual coverage and external sources coverage in the exchange . may choose any participating plan . of data in determining However, when an employer provides Consumer assistance . In addition to eligibility group coverage through the exchange, the above functions, an exchange must HHS will need to flesh out a clear vision the employer selects an actuarial value operate a Navigator program through of Medicaid’s role in the determination level, and the workers are limited to plans which private entities provide culturally of eligibility for subsidies in the exchange . at that level . (It is not clear from the and linguistically appropriate public But from PPACA’s statutory language, the statutory language whether an employer education, facilitate enrollment in qualified following seems clear: may select more than one AV level at health plans, and refer consumers with A single application form will be used which its workers and dependents may complaints or questions to appropriate • for all three need-based health-coverage use the employer’s premium contributions agencies . Navigators must meet federal programs—Medicaid, CHIP, and subsidies to obtain coverage .22) Consumers may standards for competence, licensure, in the exchange .25 HHS will promulgate change plans during annual open seasons .23 the absence of conflicts of interest, and a national form, but a state can use its Consumers pay all of the increased the provision of accurate and impartial own version, if approved by HHS . A premiums when a more expensive plan information . In addition, a state may let consumer can file the form with an agency is selected, thus furnishing an incentive brokers and agents sell coverage offered in administering one of these programs either for cost-conscious choice of coverage . For the exchange, consistent with standards to in-person, on line, by phone, or by mail . example, premium subsidies are based on be promulgated by HHS . the second-lowest cost silver plan . When Depending on how HHS interprets Accountability • subsidy recipients choose a more expensive the statute, the exchange will probably Consultation and stakeholder plan, they pay the extra premium cost . determine eligibility for advance payment participation . Each exchange is required of tax credits subsidizing premiums and Administrative functions to consult with various stakeholders, for out-of-pocket cost-sharing subsidies Following are the minimum required including enrollees in qualified health in the exchange . IRS directly pays these functions of an exchange under PPACA . plans, individuals and entities experienced credits and subsidies to health plans when If a state so chooses, an exchange could in facilitating enrollment, representatives premiums are due . Plans bill individuals presumably undertake other activities as well . of small business and the self-employed, for their share of the premium, unless Medicaid offices, and advocates for General administrative functions. An the exchange arranges to collects such enrolling hard-to-reach populations .24 exchange must certify, recertify, and payments and forward them to insurers . decertify qualified health plans, operate a Accountability to the federal government . No matter how or where the application toll-free hotline, offer an internet website Exchanges must keep an accurate • form is filed, all the relevant agencies work with standardized comparative information accounting of all expenditures, submit together “behind the scenes” to ascertain the on participating health plans, rate qualified annual accounting reports to HHS, appropriate program for the applicant . As health plans in accordance with federal cooperate with HHS investigations, and a result, without completing any additional standards, present plan options in a standard submit to federal audits . If HHS finds forms, the applicant learns about each format (including a uniform description of serious misconduct in a state’s operation program for which members of his or her coverage consistent with federal standards), of the exchange, HHS may rescind up family qualify .

9 26 • Data-matching systems must be respectively . By contrast, Medicaid • Establishing community-based health established that let all health agencies eligibility is generally based on income at teams to support small-practice medical exchange information from the the time the application is processed . This homes by assisting the primary care application form and determine issue is discussed in more detail below . practitioner in chronic care management, eligibility . These systems also gather including patient self-management information from a broad range of The Center for Medicare activities; external sources to establish and to and Medicaid Innovation Helping patients make informed health confirm eligibility, including the data • PPACA Section 3021 establishes this care choices by paying providers for using currently used to verify income eligibility new Center and appropriates $10 billion patient decision-support tools; for Medicaid, federal income tax data, through 2019 to fund demonstration and information from eligibility files of projects . Starting in 2011, the Center will • Letting states test and evaluate fully need-based public benefit programs . test innovative payment and delivery integrating care for dual eligible individuals in the state, including the Generally speaking, the same tax-based arrangements to improve quality and • management and oversight of Medicare definitions of income eligibility apply to slow cost growth in Medicaid, CHIP, and and Medicaid funds (see page 38); all programs, including Medicaid, CHIP, Medicare, without regard to normal budget and subsidies in the exchange—namely, neutrality requirements . HHS is authorized • Letting states test and evaluate systems of Modified to expand successful models to nationwide all-payer payment reform for the medical (MAGI), which is defined as Adjusted scale, after appropriate certification by the care of their residents; Gross Income under federal income tax CMS Actuary . law, plus tax-exempt interest and certain • Models that do not require a physician The Center is empowered to test any tax-exempt income earned while living to be involved in establishing the plan of promising model . However, among the abroad . However, there are potential care for the service, when such service is models specifically approved by PPACA are differences in the applicable time frame . furnished by another health professional the following: Eligibility for subsidies in the exchange authorized to do so under state law; and is based on prior-year federal income tax • Promoting broad payment and practice • Establishing comprehensive payments to data, unless the applicant comes forward reform in primary care, including the so- Healthcare Innovation Zones, consisting and shows a change in circumstances . If, called “Patient Centered Medical Home,” of a teaching hospital, physicians, at the end of the year, someone turns out discussed in much more detail below; and other clinical entities that deliver to have received the incorrect amount Policies that move away from fee-for- a full spectrum of integrated and of premium subsidies in the exchange, • service reimbursement and toward comprehensive health care services to any differences are reconciled on the comprehensive payment or salary-based Medicare and Medicaid beneficiaries person’s federal income tax return . payment; while providing innovative medical The reconciliation process has one training . “safe harbor” limitation, however . If a • Supporting care coordination for consumer with income below 400 percent chronically-ill individuals through Because of this Center, states can now FPL, as shown on the tax return, received methods that incorporate health propose to CMS policy approaches that excessive premium subsidies during the information technology (HIT), a chronic incorporate Medicare and Medicaid within year, the maximum amount that can disease registry, and home tele-health broader state initiatives that address health be required for repayment is $250 or technology; care transparency, quality, or value . $400, for individual and joint tax filers,

10 Maximizing Residents’ Health Coverage and Access to Care

PPACA gives states an opportunity to • Helping eligible individuals enroll in and (CBOs), which played a critically dramatically reduce the number of retain subsidized coverage; important role educating hard-to-reach uninsured, improving access to essential consumers about how to obtain coverage health care . As explained earlier: • Improving affordability and continuity of and which completed application forms coverage for low-income adults who are on behalf of consumers; and • Medicaid expands to 138 percent FPL ineligible for Medicaid; and for children and adults, with income • State policies forbidding uncompensated determined based on MAGI . • Increasing access to care within Medicaid . care payments to safety net providers unless application forms for health For 2014 through 2016, the Federal One preliminary caution is important . • coverage were completed by or on behalf Medical Assistance Percentage (FMAP) Many of the strategies discussed below will of the providers’ patients . This policy applicable to newly eligible adults pays depend on how HHS interprets applicable applies, among other things, to the state’s 100 percent of all costs . After that, statutory language . The analysis in this payments to Disproportionate Share the percentage gradually declines to section is based on a careful reading of Hospitals (DSH) . 90 percent in 2020 and later years . PPACA, but there is no guarantee that CMS For purposes of claiming this greatly will agree with the author on the meaning Using a single application form for enhanced FMAP, newly eligible adults of many admittedly unclear provisions . multiple programs (including for are defined as those who would have uncompensated care payments to safety been ineligible for their state’s Medicaid Helping eligible net providers), the state created an program on December 1, 2009 . Other individuals enroll in and on-line application portal for use by adults qualify for standard Medicaid retain subsidized health trained CBOs and provider staff . As an matching rates . coverage automatic part of the application process, consumers were invited to appoint these Tax credits subsidize premiums for Several state strategies will be important to • application assisters as their authorized individuals with incomes at or below maximizing eligible residents’ enrollment representatives throughout the eligibility 400 percent FPL who receive coverage and retention . determination process . As a result, the through the exchange, provided that Public education and facilitated application assisters received copies of such individuals lack affordable access enrollment state correspondence asking for additional to minimally comprehensive employer- The importance of public education and eligibility information . This let them work sponsored insurance (ESI) . These efforts to facilitate enrollment is illustrated with consumers to respond satisfactorily credits seek to make it affordable for an by Massachusetts’ experience expanding to the state’s requests . More than half of all individual to enroll in the second-lowest- coverage following its 2006 enactment of successful applications were completed, not cost “silver” plan . Additional subsidies reforms, which reduced the percentage of by consumers, but by CBOs or health care reduce out-of-pocket costs for those with uninsured to the lowest level ever recorded providers acting on the consumers’ behalf . incomes at or below 250 percent FPL . The in any state . The enactment of subsidies subsidies do this by raising the level of coupled with an individual mandate was Other states have used different models coverage to a higher actuarial value . not enough, by itself, to achieve that result . for facilitated enrollment . For example, 27 California’s certified application assisters In 2013 and 2014, Medicaid Additional important factors included: • (CAA) have received payments of $60 (at reimbursements rise to Medicare levels • A major public education campaign initial enrollment) and $50 (at annual for certain primary care services . The involving both earned and paid media, renewal) for each family whose children federal government pays 100 percent partnering with local foundations, successfully enroll in Medicaid or CHIP of the resulting increased costs for these the Boston Red Sox, and major local thanks to the CAA’s efforts;28 and New York two years . corporations; contracts with community agencies and safety net providers to act as Facilitated For these provisions to achieve their goals, Several years of “mini-grants” • Enrollers helping consumers enroll and retain state action in three areas described below (supplemented by foundation support) to coverage .29 Wisconsin has likewise developed may be particularly useful: trusted community-based organizations

11 a noteworthy system for helping consumers Application forms and procedures A second obstacle to limiting application complete the application process .30 However PPACA provides that a single application forms to questions relevant to eligibility36 a state establishes a system of facilitated form will be used for Medicaid, CHIP, and involves states’ interest in identifying enrollment and retention, it is critically subsidies in the exchange . As explained above, “newly eligible” adults to determine the important to maximizing eligible individuals’ federal authorities will develop a form, but a appropriate benefit package. Rather than receipt of coverage . state can create and use a substitute form that provide standard Medicaid benefits, meets federal standards . PPACA limits newly eligible adults to Under PPACA, the principal vehicle for “benchmark coverage described in public education and facilitated enrollment Depending on how HHS interprets the [Social Security Act] section 1937(b) is through the exchange . Perhaps the most relevant statutory provisions, following (1) or benchmark equivalent coverage important period for these functions are state strategies involving application described in section 1937(b)(2) ”. 37 On will be through the end of 2014—that is, procedures that could eliminate potential its face, this provision creates a need for during preparation for and the first year enrollment barriers: states to distinguish between newly eligible of full implementation . Fortunately, the Application forms could be limited to adults, who receive “benchmark” benefits, development and operation of exchanges will questions that are relevant to determining and other adults, who receive standard be supported by federal dollars until 2015 . eligibility, as provided in PPACA Section coverage . For potentially income-eligible States could use these federal resources, 1411(g)(1) 33. This seemingly straightforward parents, this may create a need to assess partnering with foundations and rule-of-thumb may encounter some factors like assets and deprivation of corporations, to conduct public education obstacles . The first involves states’ need to parental support, which will be irrelevant and to establish a program of enrollment identify “newly eligible” adults for whom to eligibility in 2014 and later years . facilitation . If a state implements the state can claim enhanced FMAP . For To avoid this problem, a state could furnish Massachusetts’ strategy of denying access to some beneficiaries, information irrelevant newly eligible adults with the same benefits DSH funds except with patients for whom to eligibility will be needed to see whether it provides to other adults . One category a hospital completes an application form, they would have been ineligible for Medicaid of benchmark coverage is “Secretary- it would be important to work closely with under the state’s 2009 rules and so can qualify approved coverage,” defined as “[a]ny other community advocates to ensure that such as “newly eligible ”. For example, parents health benefits coverage that the Secretary forms do not deter use of emergency hospital with incomes that may be34 low enough to determines, upon application by a State, care by immigrants and other consumers who qualify for Medicaid under 2009 rules could provides appropriate coverage for the will not qualify for or do not want subsidies . nevertheless be newly eligible in 2014 because population proposed to be provided such of assets that would have disqualified them A state could also encourage hospitals coverage ”. 38 Both before and after the passage in 2009 . If states asked such parents about to participate in PPACA’s presumptive of PPACA, states have received CMS approval assets as part of the application process in eligibility system . 31 However, to establish to provide full Medicaid benefits as “Secretary 2014 and later years, the process of enrollment ongoing eligibility, consumers must approved” benchmark coverage under Section would become substantially more difficult . complete the full application process, 1937 39. If states provide the same benefits to Many eligible consumers would not complete a step that many have failed to take all adults, they will not need to distinguish the application, and states would be forced under previous presumptive eligibility the newly eligible before deciding the benefits to spend limited administrative resources procedures . Hospital-based presumptive that particular adults receive . As a result, verifying applicants’ claims about assets . eligibility could be an important policy tool they will not need to gather and process that lets hospitals qualify their patients for States need not use application forms to information about assets and other facts that Medicaid coverage of emergency hospital request this information, which will be will ultimately be irrelevant to eligibility 40. care, but for ongoing access to care, irrelevant to eligibility . Instead, states could Consumers could apply by authorizing additional steps will be needed . claim enhanced federal match based on a disclosure of relevant data already statistically valid sample of the entire caseload Public education and facilitated enrollment in government hands, rather than by of potentially income-eligible parents, using efforts may help to fulfill states’ duty, completing application forms that, in procedures like those used to determine under PPACA, to conduct outreach and effect, tell the government what it already Medicaid error rates . The HHS Departmental enrollment for vulnerable populations, knows . PPACA Section 1413(c)(2)(B)(ii) Appeals Board has repeatedly approved state including racial and ethnic minorities, (II) provides that, for Medicaid, CHIP, claims for federal matching funds that were children, pregnant women, people with and subsidies in the exchange, eligibility based on such sampling .35 HIV/AIDS, etc .32 is determined based on data when an individual applies “by requesting a determination of eligibility and authorizing

12 disclosure of … information [described in Medicaid eligibility rules Basing eligibility on data . For subsidies Social Security Act Sections 1137, 453(i), Depending on how CMS interprets in the exchange, prior-year income tax and 1942(a)] … to applicable State health PPACA, two Medicaid eligibility policies records determine eligibility . For Medicaid, coverage subsidy programs for purposes of could substantially streamline eligibility by contrast, PPACA provides that the determining and establishing eligibility ”. determination and enrollment . requirement to use MAGI in calculating eligibility “shall not be construed as Such disclosure and data-based eligibility Basing eligibility on receipt of other affecting or limiting the application of the determination is quite wide-ranging: benefits . PPACA explicitly allows states requirement under [federal Medicaid law] to continue extending Express Lane Section 1137 describes information and under the State plan…to determine • Eligibility (ELE) to children .42 ELE permits accessible through the Income and an individual’s income as of the point in states to qualify children for Medicaid Eligibility Verification System, or IEVS, time at which an application for medical and CHIP based on the findings of other including information from the IRS, the assistance…is processed ”. 45 need-based programs or state income tax Social Security Administration, state records, notwithstanding methodological Clearly, this provision means that someone quarterly wage records and new hires differences in determining income . But who qualifies for Medicaid based on data, and immigration status information another PPACA provision appears to current economic circumstances must be available from the Department of give states an additional option to qualify granted eligibility . But does it also mean Homeland Security through the children and adults for Medicaid based on that, unless an applicant documents Systematic Alien Verification for the findings of other need-based programs . current income levels by presenting, for Entitlements (SAVE) Program . New Social Security Act Section 1902(e) example, pay stubs or unless the state • Section 453(i) describes the National accepts self-attestation of current income, Directory of New Hires . NDNH (13)(D)(i)(I)43 provides that MAGI is not Medicaid eligibility must be denied, even if combines quarterly wage records and new used to determine eligibility for: all available data show income eligibility? hires data from all states and the federal After all, income data, by definition, “[i]ndividuals who are eligible for government .41 describe household circumstances at some medical assistance … on a basis that point in the past . • Section 1942(a) describes eligibility files does not require a determination maintained by public benefit programs, of income by the State agency If this provision bars the establishment of state income tax records, state records about administering the State plan …, Medicaid eligibility based on data, state private insurance coverage maintained for including as a result of eligibility for, or administrative costs will rise, because purposes of Medicaid Third Party Liability receipt of, other Federal or State aid or manual procedures will be needed to enforcement, and vital records data about assistance, individuals who are eligible determine eligibility . This is a significant births in any state . on the basis of receiving (or being consideration given the enormous treated as if receiving) supplemental expansion in Medicaid eligibility that will Enrollment would be substantially security income benefits [SSI] … , and take place starting in 2014 . simplified if, rather than complete an individuals who are eligible as a result Such a statutory interpretation would also application form, a consumer could simply of being or being deemed to be a child mandate a more cumbersome process of identify all uninsured members of his or in foster care under the responsibility establishing eligibility for Medicaid than her household, provide social security of the State ”. (Emphasis added .) numbers to permit data matching, and sign for subsidies in the exchange . In effect, a form that requests information disclosure This language implies that a state can qualify while eligibility for exchange subsidies to establish eligibility for subsidized someone for Medicaid based on their receipt would be established on the proverbial coverage . Such a highly streamlined of federal or state benefits other than SSI . information superhighway, eligibility procedure would not end the need for CMS will need to rule on the meaning of this for the poorest uninsured would be more traditional application forms, since language, of course . But it would be logical, determined via the data equivalent of ox some people may be uncomfortable with in view of Medicaid’s increased eligibility to carts and horse-drawn carriages . the required disclosure or may need to 138 percent FPL, to permit states to provide Fortunately, CMS could interpret this statute provide information not available in Medicaid to residents who have already differently . A state could be allowed to government records . But it would provide qualified for benefits like the Supplemental qualify someone for Medicaid if eligibility an important route to subsidized coverage Nutrition Assistance Program (SNAP, the is established based on either the most that could increase participation rates by program formerly known as “Food Stamps”) recent available data (including prior year greatly simplifying the application process . or General Assistance, since recipients of the income tax data, quarterly earnings records, latter benefits almost certainly will be income- and new hires data) or the applicant’s eligible for Medicaid .44

13 demonstration of income at the time the Massachusetts’ approach by having state the adult to receive coverage that could have Medicaid application is processed . Under Medicaid agencies determine eligibility for office visit copays between $25 and $30 this approach, if the data-based methods tax credits and out-of-pocket cost-sharing and prescription drug copays between $10 used in the exchange establish that someone subsidies that apply in the exchange . and $40, depending on the prescription .52 meets Medicaid’s eligibility standards, the Many at this income level could have great To function effectively in the data-driven applicant receives Medicaid, without any difficulty paying such premiums . Others eligibility environment envisioned by need to take additional action . Only if such may scrape together the money to pay PPACA, most states will need a substantial methods fail to establish Medicaid eligibility premiums but then have difficulty with upgrade to the computer systems used to would an applicant need to come forward co-payments and deductibles, which could determine eligibility . Under regulations and demonstrate current income levels, lead them to delay seeking care until health dating back to the 1970s, enhanced with income verified by the state . Such an problems became severe . federal matching payments for “Medicaid approach would be consistent with PPACA’s Management Information Systems” are Another concern about coverage in the requirement, “to the maximum extent limited to computer systems that process exchange is that, as household income practicable, to determine … eligibility on provider claims; enhanced funding is not fluctuates, beneficiaries could be shifted the basis of reliable, third party data ”. 46 It available for information technology used between Medicaid and subsidies in the would also be consistent with states’ current to establish eligibility .50 For this reason, exchange . Households could be changed, flexibility to use “less restrictive eligibility eligibility systems are typically outdated . involuntarily, from one plan to another, methodologies,” which CMS has already and potentially from one doctor to another . found applicable to PPACA’s new Medicaid Fortunately, PPACA Section 1561 may category for childless adults .47 provide a source of funding for states Fortunately, states can take effective action to establish eligibility systems that fit a to address these two problems . Eligibility determination infrastructure data-driven eligibility model . This section As explained above, PPACA48 envisions Making coverage affordable for requires HHS, within 6 months of statutory an integrated eligibility determination residents with incomes too high for enactment, to promulgate standards and system . One application form is to be used Medicaid protocols that facilitate enrollment into to seek coverage through Medicaid, CHIP, PPACA gives states the option to Federal and State health and human services and subsidies in the exchange . Wherever implement the Basic Health Program programs . It also provides grants to states and the application is filed, all agencies work (BHP) for citizens and legally resident localities to upgrade their technology systems together “behind the scenes” to assign each immigrants with incomes at or below to implement those federally promulgated household member to the appropriate 200 percent FPL who are ineligible for standards and protocols . subsidy program, without any need Medicaid and CHIP . This includes adults for the applicant to provide additional It is not yet clear precisely what with incomes between 138 and 200 percent information . requirements and matching rates will FPL . It also includes legally resident apply to these state and local grants . HHS’ immigrants who are ineligible for Medicaid Such an approach has been an important implementation of this section will thus be because their legalization took place within factor in Massachusetts’ accomplishment critically important to track, particularly the past five years .53 of high participation rates in Medicaid given most states’ severe budget constraints . and other subsidy programs . That state’s A state implementing the BHP option Medicaid agency contracts with several contracts with health plans to provide other agencies to determine eligibility for Improving affordability consumers with coverage at least as affordable multiple programs, including the state’s “free and continuity of and comprehensive as subsidized coverage in care pool,” the state’s new “Commonwealth coverage for low-income the exchange . To fund these contracts, such Care” benefit, and a health coverage program adults who are ineligible a state receives 95 percent of what the federal for immigrant children .All programs use for Medicaid government would have spent in tax credits a common eligibility methodology and a Some observers have expressed concerns and other subsidies for BHP enrollees . single application form .A statewide Medicaid that the new system of subsidies in the This gives states the ability to provide office uses computer-driven logic, rather than exchange will not be sufficient to make Medicaid-style coverage to adults up to 200 traditional caseworker discretion, to establish coverage and access to care affordable . For percent FPL, with no more than nominal eligibility . Not only has this approach helped example, a single adult at 160 percent FPL premiums and out-of-pocket costs . In most raise participation rates to high levels, it earned $1,444 in monthly pre-tax income in states, per capita federal payments through allowed the state to more than double its 2009 . Under PPACA, such an adult would this option will equal or exceed the average caseload with less than a 10 percent increase be expected to pay 5 4. percent of income cost of Medicaid coverage for adults .54 in staff, even before the 2006 reforms .49 in premiums, or $64 a month .51 Out-of- PPACA expressly permits states to replicate pocket cost-sharing subsidies would allow

14 Medicaid can achieve this efficiency in lowest-income residents who are ineligible mental health, and specialty services . In part because of provider payment rates far for Medicaid . addition, states would find it costly to sustain below private levels . The disadvantage of PPACA’s reimbursement rate increases if Improving continuity of coverage the BHP option is thus that beneficiaries Congress fails to continue enhanced federal and care will not gain access to the broader provider matching rates beyond 2014 . Low-income households experience networks likely to characterize private plans frequent fluctuations in income, which To some degree, PPACA lessens the extent offered in the exchange . States can lessen could shift beneficiaries between Medicaid of this problem by increasing funding for this problem by setting BHP cost-sharing and subsidized coverage in the exchange . community health centers, school-based between Medicaid and private levels . In Such shifts could cause involuntary health centers, and other infrastructure this way, provider payments could be raised movement from plan to plan, which in that can potentially serve Medicaid above Medicaid rates while keeping net turn could require a change of providers, beneficiaries 55. But states could take per member per month costs at standard disrupting continuity of care . additional steps to improve access to care . Medicaid levels . If federal payments exceed per capita Medicaid costs, states could also Massachusetts avoided this problem by The most straightforward such step use the extra federal dollars to further raise using the same plans to serve Medicaid would increase Medicaid rates—a costly reimbursement rates for BHP enrollees . beneficiaries and recipients of the state’s proposition, if applied across-the-board . But at the end of the day, policymakers may new “Commonwealth Care” subsidies, Another strategy would encourage need to decide whether, for this particular available up to 300 percent FPL . A state provider participation by expediting low-income population, the access could take a similar approach under claims payment . Providers’ concerns about problems that result from commercial- PPACA, encouraging Medicaid plans to Medicaid’s delays and “hassles” may be style cost-sharing in the exchange are more participate in the exchange (and BHP, if less costly to address than the underlying severe than the access problems that result the state elects that option) . In that way, as fees . States could also increase the use from limited provider participation in a household income rises or falls, a family of tele-medicine to serve rural Medicaid Medicaid-style plan . could stay in the same plan and continue to beneficiaries, who often experience the see the same doctors, even as the applicable greatest difficulty finding providers . In As an alternative method of making premium payments and out-of-pocket addition, states could change their licensure coverage more affordable, states could cost-sharing rules change . Such plans need laws to increase the range of services that supplement federal subsidies in the not be the only option in the exchange, but non-physicians are allowed to provide exchange . Such supplements would as long as they are available, families have within Medicaid and potentially outside it lower premium costs, deductibles, and the ability to maintain continuous coverage as well . copayments for low-income adults throughout the full spectrum of subsidy ineligible for Medicaid . To limit the Finally, it is worth noting that PPACA eligibility . resulting cost, a state could focus its Section 2801 increases the purview of the resources on the very lowest-income Medicaid and CHIP Payment and Access exchange participants, rather than Increasing access to care Commission (MACPAC) and authorizes extend aid all the way to 400 percent within Medicaid FY 2010 funding . MACPAC’s charter now FPL . Compared to the BHP alternative, As noted previously, low provider includes an ongoing analysis of access to this strategy would have the advantage reimbursement rates often translate care by children and adults in Medicaid of offering access to greater provider into reduced provider participation and and CHIP . MACPAC could thus play an networks in the exchange . However, the diminished access to care for Medicaid important role in raising the visibility countervailing disadvantage is that, unlike beneficiaries . To address this problem, PPACA of Medicaid access issues nationally, as with the BHP option, state General Fund provides full federal funding, in 2013 and could the significant increase in Medicaid dollars would be needed . 2014, to increase Medicaid payments to enrollment resulting from PPACA . This Medicare levels for primary care providers may create a climate that facilitates a On balance, for most states, the BHP furnishing “evaluation and management” helpful federal response that gives states option may prove the most feasible strategy services .While a very helpful start, this additional resources to improve Medicaid to improve access to care for the very provision does not address access problems beneficiaries’ access to care .

outside primary care, including dentistry,

15 A Quick Recap How states can use PPACA to increase coverage and access to care

• Fund trusted community-based organizations to help low-income consumers apply for coverage and to provide effective public education. Federal dollars that support the establishment of health insurance exchanges can provide this assistance. States may also be able to leverage philanthropic contributions to supplement public dollars.

• Implement PPACA’s option for hospital-based presumptive eligibility, while establishing procedures to ensure the follow-through needed for ongoing coverage.

• Limit application forms to questions that are relevant to eligibility, which means that such forms do not gather information needed to distinguish newly eligible adults from other eligible adults. To claim the enhanced FMAP that is limited to newly eligible adults, states can sample a statistically representative group of beneficiaries. And, by giving all adults the same covered benefits, states can eliminate the need to identify “newly eligible” adults before they complete their enrollment.

• Give consumers the option to apply for Medicaid and other subsidies by authorizing disclosure of personal information, rather than by completing a traditional form.

• Automatically grant Medicaid eligibility when individuals have already been found eligible for other need-based benefits with income-eligibility standards that are below Medicaid’s new 138 percent FPL threshold.

• Automatically grant Medicaid eligibility whenever the income-determination method used in the exchange shows income at or below 138 percent FPL. If prior-year tax data (perhaps supplemented by recent quarterly earnings information) show Medicaid eligibility, a consumer would not be required to present pay stubs or other proof of current income.

• Take advantage of new federal resources to upgrade eligibility systems. Such systems will help Medicaid work with the exchange seamlessly, “behind the scenes,” to decide applicants’ eligibility for all subsidy programs, based on available data.

• Implement the Basic Health Program option to make coverage much more affordable for low- wage workers and their families with incomes below 200 percent FPL—without imposing costs on the state.

• Encourage Medicaid plans to offer coverage in the exchange, making it possible for low-income families to retain continuity of coverage and care when their incomes change and they shift between Medicaid and the exchange.

• Improve Medicaid beneficiaries’ access to care by streamlining processing of provider claims, using tele-medicine to improve access to care in rural locations, increasing the range of services that non-physicians are allowed to provide, and (if future state budget conditions permit) raising Medicaid reimbursement rates.

16 Fundamental Questions About Health Insurance Exchanges

The next three parts of this report include exchanges must be self-financing starting competition by contracting with a an exploration of how a state could in 2015 . The federal government will be select group of carriers and offering a structure its health insurance exchange defining the requirements exchanges must limited number of health plans . The to achieve various policy goals—namely, meet, without directly providing any of exchange solicits health plans based making health care and health insurance the necessary funding beyond the start-up on plan design parameters established more like consumer-driven markets, phase .56 Whoever administers the exchange by the administrators of the exchange . increasing health insurers’ accountability, may face a tension between demands However, the exchange does not and reforming health care delivery to to keep fees low and demands for high- necessarily negotiate premiums with slow cost growth while improving or quality customer service that meets federal the health carriers . . The Massachusetts maintaining quality . standards 57. Connector … uses a selective contracting approach for its commercial That analysis presumes, of course, that the Without doubt, states will resolve this issue offerings . ”. state operates the exchange . This section of differently . And even within states, officials the paper briefly discusses the advantages will have varying perspectives on how “Active purchaser: an exchange might also and disadvantages of a state running the to weigh the risks and benefits of taking play a more active role in the market by exchange, rather than letting the federal charge of an exchange . establishing plan designs and purchasing government play that role . It also analyzes health insurance much like a large Basic approaches to administering an several basic approaches that a state employer procures health benefits on exchange could take to running an exchange, basic behalf of its employees …Many. of the A critical feature of PPACA’s exchange approaches that play out in how a state health purchasing cooperatives that were provisions is that a state can either (a) permit seeks to accomplish its policy goals . established in the 1990s, such as California’s all qualified plans to offer coverage or (b) PacAdvantage … and the Texas Insurance Should a state run its own exchange or exclude qualified plans based on the state’s Purchasing Alliance (TIPA), are examples allow the federal government to do so? view of the best interests of individuals and of active purchaser models ”. Much depends on whether a state chooses firms using the exchange . This leaves room to operate the exchange that serves its for very different approaches . One useful Developed before the passage of PPACA, residents . The advantage of such a choice source58 uses three categories to describe how this typology still applies: is simple: the exchange can be a powerful exchanges can be run: An exchange that offered all qualified tool for accomplishing state objectives . • “Market organizer:59 under this model, plans would be a market organizer; By contrast, if the federal government the exchange acts as an impartial source performs this function, decisions about If qualified plans were required to meet of information on health plans that are • the structure of the exchange might not specified design parameters before they available in the market; [and] provides fit optimally with state policy priorities . could be offered in the exchange, the structure to the market to enable At the same time, a state operating its exchange would be a selective contracting consumers to compare health plans and own exchange may be better positioned to agent; and purchase coverage… Although not yet fully coordinate eligibility determination with developed, the Utah Exchange provides an Medicaid than if the exchange is federally • If the exchange went beyond a statement example of this kind of model ”. administered . of design parameters to negotiate with qualified plans seeking to offer coverage, “Selective contracting agent: this model On the other hand, running an exchange the exchange would be an active includes many of the same functions carries risks . These will be new institutions purchaser . noted above, but also attempts to charged with difficult tasks . Further, influence the market and enhance

17 Restructuring Health Insurance to Function More Like a Traditional Market

Basic perspective the resulting costs and benefits . With ESI, performance measures of quality and Some observers believe that a central flaw the employer chooses the health plan, but efficiency for plans and providers, to of the present system central is its failure it is the employee who reaps the benefits collect such data, and to make them to embody two characteristics of a healthy and, according to most labor economists, publicly available . market:60 buyers choose between goods pays the cost in the form of lower wages .62 Physicians . PPACA Sections 3002, and services with clearly understood Further, with health plans that have low • 10327, 10331, and 10332 strengthen costs and benefits; and the individual or deductibles and limited copayments, the current system for evaluating entity making the purchasing decision consumers obtain all the benefits of the quality and efficiency of physician experiences all of the resulting costs and services they choose but consumers pay performance under Medicare, giving benefits . With those two conditions in out of pocket only a small fraction of the physicians increased financial incentives place, sellers increase their market share resulting health care cost . to participate in that system, and making by giving purchasers the products they To address these fundamental flaws, information available to consumers on a want at a price they can afford . From PPACA provides new tools that help “Physician Compare” website operated by this perspective, nimble private innovation, state officials move toward a system that HHS . Information from other payors can rather than government fiat, meets empowers each consumer with accurate, be incorporated into this system, which consumers’ needs while holding useful information and the authority to HHS is authorized to extend to other down cost .61 make health care choices that reflect the providers . One reason why these conditions individual consumer’s preferred balance Hospitals . Section 3001 establishes a pay- rarely apply to American health care is between costs and benefits . • for-performance system for Medicare that consumers usually lack essential State policy options hospitals, through which quality and information . Most Americans receive State leaders interested in pursuing this efficiency are rewarded with higher insurance through their employers, with the basic approach can focus on (a) improving payment levels and the public learns firm covering a significant share of costs; information about price and quality, so about hospital performance on HHS’s many consumers don’t even know how individuals can more effectively make “Hospital Compare” website . Section much their employers pay . A consumer decisions about care and coverage; and (b) 3025 adds to this website information buying coverage on the individual market implementing health insurance exchanges about the rate at which patients served typically cannot obtain a copy of the in a fashion that increases the role played by particular hospitals are re-hospitalized insurance policy document before enrolling . by consumer choice . As noted in the soon after discharge . In addition, the When consumers seek care, they will Introduction, one additional strategy new Public Health Service Act §2718(e), eventually learn the copayment they are not discussed here involves the option, added by PPACA Section 10101(f), charged but almost never know the full cost beginning in 2016, for states to enter into requires hospitals to inform the public of the service paid by the insurer . And even interstate compacts permitting the sale of about their standard charges, as defined if a consumer enrolls in a high-deductible health insurance across state lines 63. by HHS . plan and so bears the full and direct expense of much care, it may be impossible to get • Health plans . PPACA Sections 2713(e)(3) advance price quotes from providers or to Public information about price and (added by Section 10104), 2715A (added reliably compare their past performance . performance by Section 10101), 2717, and 2718 require Put simply, much better information about PPACA’s provisions health plans (including self-insured the cost and benefits of potential options Following are examples of PPACA’s group plans) to provide a broad range is available when consumers choose a provisions that increase the public of public information . These provisions microwave oven than when they make much availability of reliable information about require disclosure, in plain language, more consequential decisions about a health the performance of insurers and providers: of claims payment policies, enrollment plan, a hospital, or a health care procedure . and disenrollment statistics, claim denial Performance measures for both providers • rates, rating practices, in-network and Further, the entity or individual deciding and plans . Sections 3013 through 3015 out-of-network cost-sharing, medical loss about health coverage rarely experiences of PPACA direct HHS to establish ratios, and initiatives to reform health

18 care delivery through care coordination, PPACA could make it easier for states to federal effort by collecting comparable management of chronic illness, provide consumers with good information data about quality and efficiency for prevention, and other measures that about performance and cost . The federal other payors, public and private, using improve health outcomes . Section 2715 legislation directs HHS to work with an All-Payer Claims Database .65 Such requires health plans to describe covered national stakeholder groups in tackling states would then work with HHS to benefits and out-of-pocket costs using tough methodological issues that could combine this additional information with an easily understood, readily compared otherwise obstruct state progress . One Medicare data and present the results format developed by HHS . such issue involves adjusting performance to consumers, providing a fuller picture data to compensate for patient risk, of provider and plan performance . A Medical Reimbursement Data Centers . • thereby avoiding unfair penalties when state could either: (a) adopt Medicare New Public Health Service Act Section providers furnish good care but serve information-gathering strategies; or (b) 2794(c)(1)(C) and Section 2794(d), patients with prior conditions that make seek approval from the CMS Center for added by PPACA Section 10101(i), an adverse outcome more likely . A similar Medicare and Medicaid innovation for provide for the establishment of Medical issue involves the need to avoid judging modifying Medicare policies to fit state Reimbursement Data Centers . Such individual physicians and other providers policy initiatives . Centers can be funded from PPACA’s based on outcomes with relatively small $250 million appropriation slated Even though a health plan has more patient caseloads, where a few random • for building state capacity to analyze leverage than consumers to obtain lower events can skew performance metrics . If insurance premiums . These new data prices from providers,66 a state may be HHS develops sound approaches, states centers are either academic or non-profit interested in arming consumers with could simply use them, avoiding the need institutions that collect, analyze, and information about provider charges in to reinvent these difficult wheels . report information about local payment particular localities so that, if they have rates, including information to help In addition to presenting information to high-deductible coverage, consumers consumers understand the amounts that consumers in a useful, integrated format, can negotiate with providers around health care providers in their area charge states could supplement the information price . If so, state officials could prioritize for particular services . made available through PPACA . For establishment of a local Medical example: Reimbursement Data Center, which Opportunities for state action furnishes information about typical In implementing PPACA, states can While PPACA creates new mechanisms • charges for particular services . To make leverage these national initiatives to for assessing and reporting physician such a Center most effective, a state could make major improvements in consumer performance, it does not couple those encourage or require insurers to furnish it information . Critically important will be mechanisms with information about the with provider payment data .67 combining information about performance cost of receiving services from a particular and price in one place—a consumer health office . A state could encourage physicians In providing the public with information information website, perhaps as part to furnish information about standard about results, quality, and efficiency, of the exchange web portal . This would charges for an office visit, along with states would build on an extensive track permit consumers selecting a health plan, information about the health plans in record of prior work in this area 68. For a hospital, a physician, or other health care which they participate . The state would example, the Pennsylvania Health Care provider to easily compare the potential then make that information available on Cost Containment Council publishes costs and benefits of each choice . Such a its health consumer information website . If annual reports for each region of the state comparison ideally includes information state officials feel strongly about providing showing individual hospital performance about results achieved (including health consumers with the information they with specific common diagnoses and outcomes as well as other measures), price need to make good decisions, physician procedures . As to each diagnosis and (that is, cost per service), and efficiency participation in such an information system procedure, the Council provides risk- (the number and nature of services could be a precondition for (a) having adjusted information about each hospital’s provided for a given condition) . In one malpractice liability capped; (b) gaining average charges, length of stay, mortality, approach proposed by Harvard Business preferred reimbursement rates from and likelihood of re-hospitalization 69. School professor Michael Porter, states health plans covering public employees; Along similar lines, Florida’s Agency for might eventually provide consumers with or (c) licensure . Health Care Administration provides information about competing provider comparative information about hospitals, Many of PPACA’s most far-reaching teams’ risk-adjusted outcomes and costs • health plans, and prescription drug prices policies for gathering and reporting over the entire cycle of caring for patients via its floridahealthfinder .gov website . information about performance involve with a particular diagnosis 64. Medicare . States could build on this

19 Several caveats are important . First, price Finally, as an empirical matter, it is not may also offer any other combination of data are not easy to interpret . The above- clear that presenting consumers with covered benefits and out-of-pocket cost- described states, for example, display information about quality or efficiency sharing that is consistent with state law . hospital charges, which far exceed what changes consumer choices appreciably 73. To participate, an employer decides how insurers typically pay . Health plans vary Making such information publicly much money it will contribute, and the in payment amounts as well as consumer available often improves provider behavior, firm’s workers pay the remainder of the cost-sharing obligations, so a hospital’s however, because of feared embarrassment, premium when they select a plan offered charges may not be a reliable guide to desired recognition, or concern about in the exchange . Consumers must thus what either a consumer or the consumer’s health plan, employer, or public agency compare the cost of each plan with its insurer will pay . At the same time, the responses 74. appealing product features, making distinction between a consumer’s cost- the kinds of choices and trade-offs that sharing amount and the full price paid by Health insurance exchanges typify other markets . If several different the insurer complicates the issue that price Potential impact on market structure firms employ a worker, each can make a information is intended to illustrate . While contribution to the worker’s premium costs . the individual consumer receiving the Health insurance exchanges offer the service directly pays only the cost-sharing potential to move health insurance The exchange began operating as a pilot in amount, the full service cost paid by the purchasing decisions toward a classic mid-2009 . Because of various problems, insurer is ultimately borne by all of the market structure . Because consumers such as a significant differential between insurer’s customers in the form of higher pay the increased cost of more generous premiums inside and outside the exchange, premiums (and in the case of ESI, the insurance, they must trade off price and fewer than 500 state residents had likelihood of lower wages) . comprehensiveness, much as when they obtained coverage by January 1, 2010 .77 buy other goods and services . In such a In response, the state legislature modified On a website listing common outpatient system, plans seek market share by giving the exchange during the 2010 legislative procedures as well as inpatient labor and consumers what they want at a price they session to ensure (as under PPACA) that delivery, the state of New Hampshire can afford . And it is the consumer, not common rules, premiums, and risk- addresses these problems by showing the the employer, who chooses the plan and adjustment mechanisms apply to small amounts paid by insurers, using an All- experiences the benefits while paying group plans, whether sold in the exchange Payer Claims database, as well as helping the marginal costs . For these reasons, or elsewhere 78. consumers understand what they will the health insurance exchange run by directly pay . The state’s website allows a While PPACA as a whole departs in the Federal Employees Health Benefits consumer to identify his or her health plan important ways from Utah’s approach—for Program (FEHBP)—the country’s and provide information about deductible example, the federal law requires all plans, largest and oldest such exchange—has and co-insurance levels, after which the whether sold within or outside the exchange, been described as involving “free market consumer receives an estimated cost that to meet certain minimum benefit standards, principles of real consumer choice,” he or she will pay for the procedure .70 and the federal law requires most individuals “genuine market competition,” and “a to obtain coverage—PPACA’s provisions More broadly, consumers often find serious consumer-driven market ”. 75 that specifically address health insurance information about health care price and Utah provides a second example of exchanges leave considerable room for state performance confusing 71. It can be very policymakers using exchanges to move policymakers to move insurance markets challenging to present these data in a toward a consumer-driven market for toward a consumer-directed approach, as way that is easy to assimilate by most health insurance . Although Massachusetts’ explained below . consumers, not to mention those who exchange has received more public face special communications challenges, Opportunities for state action attention and covers many more people, including general literacy problems or Offering a broad range of health Utah’s approach has been celebrated by limited English proficiency . Even common plan options some advocates of market-based reform difficulties understanding numbers and strategies who have concerns about percentages can prevent consumers from States interested in maximizing the Massachusetts’ general approach .76 processing simple information effectively .72 potential offered by exchanges to create a consumer-driven marketplace could take Put simply, state officials interested in In Utah, small firms can use the state’s several steps to broaden offerings in the giving consumers data they can use need exchange to provide their workers with exchange: to pay careful attention to the details of coverage . While state officials ensure the communication strategy . availability of high-deductible plans that 1 . Encourage insurers to offer plans at each qualify for health savings accounts, plans of the actuarial value levels outlined in

20 PPACA . That would permit consumers plans offering identical benefits .81 With costs and benefits, thus inhibiting to choose between high-deductible and increasing market concentration of the market’s effective functioning .84 more comprehensive plans, trading off hospital systems and resulting upward Policymakers need to decide whether their the resulting cost differential against the pressure on hospital rates,82 similar efforts vision of an ideal health insurance market importance of the additional protection in other states could be important to includes the maximum possible number of offered by more generous coverage . presenting consumers with options that qualified choices or a smaller number with lower health insurance costs by narrowing fewer variables, which may be easier for 2 . Encourage plans at each AV level to networks of participating providers . many consumers to understand . innovate by offering a range of covered benefits and out-of-pocket cost-sharing 5 . Encourage or arrange the development One possible middle ground would limit rules . It remains to be seen how much of new insurers to increase competition options in the exchange to a manageable this range will be constrained by federal among carriers . One such insurer could number and variety while making clear, requirements that each plan must cover be a non-profit, consumer-owned as provided by PPACA, that other plans certain essential services . PPACA clearly health insurance “co-op,” providing are also available outside the exchange, permits plans to vary cost-sharing consumers with an additional choice of perhaps directing consumers to websites amounts that apply to essential benefits plan . Such a new insurance option could with information about the latter plans 85. (except on certain preventive care be particularly important in the many Another possible middle ground approach services) . HHS may also interpret the states where very few carriers dominate would classify a subset of participating statute to allow plans to differentiate the insurance markets 83. PPACA provides $6 plans as “recommended,” in the same way amount, duration, and scope of coverage billion in grant and loan funds to assist in that websites offering information about within mandatory service categories, the development of such insurance co- consumer products frequently indicate much as occurs today with FEHBP .79 ops . However, state officials should not be that certain products are among the under the illusion that it will be easy for “editor’s choices ”. Such an approach could 3 . Permit all qualified plans to offer coverage a new plan to get started, even with these help clarify consumers’ decisions without in the exchange, thus maximizing federal resources . Without numerous eliminating options from the exchange . consumer choices, rather than exclude covered lives, a new plan lacks the qualified plans based on state decisions leverage to recruit numerous providers on about the best interests of enrollees . Such Giving consumers useful information to favorable terms . As a result, the new plan an inclusive approach would leave it to guide health plan choices can be forced to charge high premiums the consumer (rather than the state) to for a limited provider network that many A state could go beyond PPACA’s decide, for example, whether premiums consumers find unappealing . Another minimum requirements to give consumers charged by a particular plan are too approach worth considering would have additional information about coverage high 80. A state taking this approach would the state sponsor a publicly-administered offered through the exchange . For use the exchange as a “market organizer,” health plan that begins with a large base example, an exchange’s website could rather than a “selective contractor” or of enrollment using Medicaid and CHIP provide information about the following “active purchaser,” under the typology beneficiaries, public employees, and features of each plan: described previously . public retirees . (see pages 26-27 for Whether a consumer’s preferred physician, 4 . Intervene to increase the range of health more detail) • nurse, or clinic is part of the plan’s network insurance options by encouraging one or One final comment in this area is and currently accepting new patients; more existing insurers to fill important important . Before pursuing policies gaps in local health plan offerings . For that maximize the number of health • The formulary and cost-sharing status of example, officials in Massachusetts’ insurance choices, policymakers may want particular prescription drugs; and exchange were initially concerned about to consider research findings showing premiums that were high because all • The risk-adjusted costs and results the plan that, both with health insurance and insurers felt the need to contract with achieves for consumers with particular other goods and services, presenting a small number of prestigious hospital medical diagnoses or conditions . consumers with a vast array of choices systems that used their leverage to extract can cause confusion . When consumers States could also empower private groups high reimbursement levels . To address feel overwhelmed by more options than to educate consumers about available this situation, the exchange encouraged they can easily process—particularly when options, as exemplified by FEHBP . insurers to offer plans that did not the differences between options involve Consumers Checkbook, an independent, include those hospitals in their networks . multiple variables—many consumers non-profit information source, furnishes Premiums for the resulting new plans become less responsive to each option’s federal employees and retirees with were significantly lower than for older information about available plans . The

21 Checkbook is so well-established that by both Utah and Massachusetts, where • Must employers make a minimum level many federal agencies subsidize access to brokers receive a fixed fee per enrollee, of contribution to premiums before they the guidebook for their employees and regardless of plan choice . This lessens can offer coverage through the exchange? retirees 86. States could consider taking conflicts of interest by avoiding incentives similar steps with the exchange, perhaps to steer consumers to particular plans . In • Are employers limited to a single contracting with a private organization to addition, states could lower fees below actuarial value of coverage for their present consumers with information about prior levels, since exchanges are likely to workers? Or can they give their workers available health plans . lower brokers’ average costs . a choice of AVs? (As noted previously, HHS may interpret PPACA to foreclose One final caution is that states may States could also consider maximizing the the latter option .) Giving workers access need to work very hard ensuring that number of firms allowed to buy coverage to more participating plans would, information presented to consumers is through the exchange by permitting among other things, increase families’ clear and simple . Massachusetts’ health firms with 100 or fewer workers to use ability to keep the same health plan exchange, for example, conducted the exchange, rather than limiting it to even if they move from job to job with extensive field research to determine the companies with 50 or fewer workers . As employers who provide varying levels data most important to consumers . Clear, noted above, beginning in 2017, states of support for ESI . On the other hand, consistent displays of information in could allow employers of any size to use Massachusetts required each firm using consumer-friendly ways proved critically the exchange . Such steps could increase the that state’s exchange to select a single important to shifting consumer purchases . number of consumers who receive coverage actuarial value that would apply to all Such displays, for the first time, allowed through a more consumer-driven health of the firm’s employees, thus avoiding consumers to compare “apples to apples” insurance market than exists for most potential income-based disparities in and identify premium costs that did not ESI today . Further, widespread employer coverage generosity92 and significant yield commensurate increased value . participation in the exchange increases the market distortions 93. As a result, consumers using the state’s likelihood that a worker can change jobs exchange are more likely than traditional while retaining his or her preferred health • May employers offer their workers health insurance purchasers to enroll plan . Such portability could yield important options both within and outside the in “generic,” lower cost coverage87—a benefits, including incentives for health exchange? If so, must a certain threshold consumer-driven cost savings that other plans to invest in the long-term wellness of percentage of employees agree to states could seek to facilitate . their members and an increased ability for coverage through the exchange before workers to change jobs without disrupting the firm is allowed to use the exchange? Increasing the number of consumers continuity of coverage 89. In the past, such a threshold percentage with access to the exchange has been important to preventing Structuring employer involvement One important strategy for increasing adverse selection . But this policy may the number of firms and residents using PPACA does not address many key not be needed under PPACA if risk the exchange involves insurance brokers questions about employers’ role in adjustments function as intended to and agents . Given the central role they exchanges . This apparently gives states encompass small group plans both currently play and the confidence they the flexibility to devise answers, subject within and outside the exchange . enjoy among many small firms and to eventual regulations or guidance from • When one worker has several jobs, how individuals, brokers and agents can be HHS . Here are some important issues (if at all) can the various employers critically important to achieving high that may be left up to the states, along make small premium contributions, if enrollment levels . Of course, states face a with some possible approaches and they wish to help their part-time and trade-off, as brokers must be paid a fee . accompanying trade-offs: contingent workers afford insurance? Nevertheless, previous purchasing pools How must employers structure their An exchange could (if permitted by have found that, without brokers and • premium contributions if they wish to HHS’ interpretation of PPACA) accept agents actively participating in (rather participate in the exchange? Do they pay contributions from multiple employers, than fighting against) a new purchasing a percentage of the premium or a flat as occurs with Utah’s exchange . arrangement, it can be very difficult for an dollar amount? In addressing this issue, exchange to gain traction 88. • To access the exchange, may employers states need to be aware of an important give their workers the option to use pre- If states incorporate brokers and agents, trade-off . The former approach may tax dollars to pay their premium share? it may be important to add rules ensuring lessen risk segmentation among health Must employers do so?94 that an agent receives the same fee, plans,90 but the latter would give workers regardless of the health plan in which a more of an incentive to select plans with consumer enrolls . Such a rule was adopted lower premiums .91

22 A state’s policymakers could seek to purchasing pools . Similar policies adopted purchaser, but as a market organizer—for resolve these questions by working closely in Massachusetts resulted in an exchange example, by permitting all qualified plans with the state’s employer community to that covers 157,000 subsidized consumers to offer their products in the exchange, develop rules and procedures that make plus 31,000 unsubsidized enrollees .98 maximizing the number of consumers it simple and convenient for employers to CBO likewise anticipates that 24 million who use the exchange, encouraging participate while safeguarding the sound individuals, or 9 percent of non-elderly the offering of diverse plan options, operation of the exchange according to Americans, will receive coverage through focusing state efforts on providing useful market principles . exchanges under PPACA .99 information to consumers, etc .

Final comments about exchanges Third, some observers have contrasted Of course, an exchange can also take Several final comments about exchanges the small health insurance exchange a more interventionist approach in are important . First, states will need that Utah began in 2009 with the much excluding qualified plans from the to structure an ongoing source of larger exchange that has operated in exchange . The administrator of the administrative funding that is stable and Massachusetts since 2006, suggesting exchange thus has a significant role sufficient . Exemplifying one possible that the Utah exchange involves a lighter determining the degree to which the public approach, the Massachusetts exchange public sector role than is present either in sector controls the insurance sold in the charges a fee to participating insurers Massachusetts or under PPACA .100 A clear exchange . equal to 3 percent of premiums .95 The analysis of this contrast, however, shows PPACA does impose regulatory constraints insurers then pass on this cost to the that PPACA gives states considerable that go beyond those present in Utah— purchasers of coverage .96 flexibility to pursue a market-oriented perhaps most important, the requirement approach to health insurance exchanges, Second, exchanges under PPACA are likely that all qualified plans must offer what the incorporating many of the key features of to be much more durable and highly federal government identifies as “essential Utah’s exchange . subscribed than has been the case for benefits ”. That said, the use of actuarial most health insurance purchasing pools in Some of the differences between value standards permits considerable the past 97. That is because PPACA limits Massachusetts and Utah involve policy variation and innovation by health the use of tax credits and other subsidies questions that PPACA has definitively insurers .101 Moreover, most responsibilities for low-income, individual consumers resolved . For example, PPACA includes that PPACA imposes on exchanges are to people who buy coverage through the an individual mandate and definition of intended to help meet the needs of exchange . Small employer tax credits minimum required benefits, roughly along consumers and firms choosing from will likewise be limited to exchange- Massachusetts lines—neither of which among competing, qualified, private plans . based coverage, beginning in 2014 . Also, directly concerns the operation of the Put simply, market-oriented state PPACA requires each individual to obtain exchange—and risk adjustments among policymakers can continue to pursue coverage, thus increasing the demand for health plans, roughly along Utah lines, to their policy goals to great effect as they health insurance . In addition, PPACA include small group plans both inside and implement this new federal legislation . enacts health insurance reforms that outside the exchange . But state policymakers who see exchanges prevent discrimination against consumers Other differences reflect choices that, in as a policy lever to more aggressively with health problems and that equalize important ways, remain in state hands transform health insurance and health care premiums for health insurance sold under PPACA . The federal law gives can pursue that goal as well, as described inside and outside the exchange, thus state the flexibility to run an exchange, in the next section of this report . addressing the adverse selection problems not as a selective contractor or active that have plagued some health insurance

23 A Quick Recap How states can use PPACA to make health insurance more like a smoothly functioning, consumer-driven market

• Combine federally-generated and state-generated information about price and performance in a single place that is easy for consumers to find.

• Present basic consumer information that is simple and user-friendly while making additional information easily available for those who want to dig deeper.

• In presenting price information, help consumers learn the cost they must pay under their health plan, not just providers’ generic charges.

• Consider organizing information to show risk-adjusted costs and outcomes for provider teams’ treatment of particular conditions, throughout the full cycle of care.

• For state transparency initiatives, consider applying methodologies that HHS develops to address challenging issues, such as how to risk-adjust performance data.

• In providing consumers with information about physicians, consider combining federally-generated performance data with state-generated cost information.

• Work with HHS to build an all-payer database with Medicare information about provider performance along with state-generated information about performance under private insurance.

• Consider establishing a Medical Reimbursement Data Center to educate consumers about typical charges in their geographic area.

• Encourage insurers to offer a broad variety of plans in the exchange, at each available actuarial value. • Permit all qualified plans to offer coverage in the exchange, potentially accompanied by a designation of which plans are recommended by the exchange.

• Encourage one or more insurers to offer plans with limited provider networks that allow lower premiums. • Provide consumers with useful information about their insurance options in the exchange, such as whether particular drugs are included in health plan formularies.

• Increase the number of residents using the exchange by (a) letting brokers and agents sell exchange plans and (b) giving medium-sized firms access to the exchange. These steps would increase the number of residents receiving coverage where consumers (not employers) select their own health plan and pay the incremental difference in premium. In such a system, purchasers balance cost against desirable product features, as in other consumer-driven markets.

• Collaborate with employers to design the exchange so that it works well for them. • Consider the creation of new carriers to operate in the exchange, particularly in states where a small number of insurers dominate existing markets. A new carrier could involve either (a) a member-owned “co-op” or (b) a state-administered plan that begins with a critical mass of covered lives consisting of Medicaid beneficiaries and public employees.

24 Holding Insurers Accountable to Consumers

Basic perspective before enrolling in a health plan . And in health insurance markets, including Some state policymakers believe that when information is provided—for through offering state-based public plans . vigorous, public action is needed for example, in technical “explanation of private insurers to furnish consumers benefit” boilerplate language that describes New tools to hold insurers with high-quality, affordable coverage, for why claims have been denied and how accountable reasons that include the following: consumers can appeal such denials—few PPACA creates several promising new consumers understand the information When enrollees use more care, a private accountability mechanisms . • offered by insurers . Put simply, consumers insurer pays more in claims, and profits and insurers do not engage on anything Data requirements immediately drop . Even non-profit like a level playing field . In the past, insurance commissioners have insurers have compelling financial not always found it easy to determine reasons to maximize the proportion of Regardless of the cause, health insurers • whether insurers were abiding by applicable premiums available to pay administrative have a troubling track record . Many years legal requirements . Often, access to hard costs, including executive salaries and the of premium increases that far outstrip data has proven essential to detecting development of reserves . This creates an inflation and serious discrimination violations . For example, year-end audits have inherent short-term conflict of interest against people with health problems have frequently been useful in assessing whether between insurer and consumer . engendered skepticism about health plan insurers were complying with state laws performance in the absence of strong In most states, insurance markets are regulating insurance premiums . According • regulatory intervention . dominated by a small number of carriers, to the National Association of Insurance weakening competitive pressures to To address these and other concerns, PPACA Commissioners (NAIC): improve customer service and slow extensively reforms health insurance markets, “[NAIC’s] uniform nationwide cost growth 102. In addition, recent years with many of the strongest measures reporting and auditing standards … have seen tremendous consolidation of going into effect on January 1, 2014 . State allow states to compare the information hospital and physician systems, making governments are likely to play a central role provided in rate filings by companies to it increasingly difficult for insurers to in determining the extent to which these the audited financial statement of those negotiate aggressively over payment reforms succeed or fail . companies . State insurance regulators rates 103. Much of PPACA imposes new legal duties have found that oversight, reporting • Insurers can realize enormous gains on insurers . Once a state has modified its and verification of compliance with by avoiding the small percentage of insurance statutes to fit federal law, these the law are critical to protecting the consumers who generate the vast majority requirements can be enforced by state consumer ”. 107 of health care costs 104. As a result, plans insurance commissioners, using current As noted earlier, PPACA now requires often compete by avoiding risk, rather mechanisms . Insurers’ new duties have insurers to provide substantial new than by providing superior service at an been discussed at length elsewhere,106 amounts of data concerning claims affordable price . To shed or steer clear of including in the above summary of payment and denial, enrollment, high-cost patients, insurers have engaged PPACA . And PPACA permits states to go disenrollment, provider participation, etc . in such actions as cancelling policies when beyond federal requirements in certain Such data could prove critically important members get sick; or raising premiums, areas—for example, by increasing the to spotting possible legal violations . For denying enrollment, or limiting covered percentage of premiums that must be example, a plan with unusually high denial services for people with preexisting spent on health care or by limiting the rates for certain claims could be targeted for conditions, sometimes inflicting serious permissible extent of premium variation investigation of potential failure to provide harm on the very consumers who most based on age . services included in the minimum benefits need health coverage 105. What has received much less discussion, package . If a plan has high disenrollment • Insurance policies are complex legal however, are the new tools PPACA rates involving consumers with high health instruments . Consumers are rarely provides to hold insurers accountable; care costs, that could signal potential informed about these policies’ details and states’ ability to increase competition discrimination based on health status .

25 A very low volume of paid claims in a The exchange disregard” of the facts can also give rise to particular geographic area and specialty A state can bar qualified plans from a claim .111 Put simply, liability may result if may flag a gap in a plan’s provider network . participating in the exchange based on an insurance company participated in the the best interests of the consumers and exchange but knew or clearly should have Not only are data more abundant businesses who use the exchange to obtain known that it was not qualified to do so . under PPACA, potential violations in coverage . Accordingly, access to the many charging premiums should be easier to For example, PPACA forbids qualified plans covered lives in the exchange can be a detect than in the past . Most states have from “employ[ing] marketing practices reward for good behavior by insurers . allowed premiums to vary based on many or benefit designs that have the effect of A state could thus limit the exchange individual factors, with permitted ranges discouraging the enrollment in such plan by to health plans whose performance for each factor . The resulting complexity individuals with significant health needs ”. 112 exceeds minimum requirements in has made it very difficult to determine If an insurer violated this requirement by terms of quality, consumer satisfaction, whether premiums are being charged developing a marketing plan or benefit or affordable premiums . A state that consistently with state law . By contrast, structure that was intended to attract low- articulated these requirements and allowed under PPACA, the only factors that will cost rather than high-cost members, the plans to meet them would be classified as affect premiums in the individual market insurer could be liable for three times the a “selective contracting agent,” under the are age, geography, and smoking, making amount of federal subsidies the plan collected typology described previously . it much easier to see whether premiums fit through the exchange, plus civil penalties . the rules . A state could be even more active by The False Claims Act Legal Center explains negotiating with insurers to arrange Of course, nothing limits a state to the as follows this law’s special provisions satisfactory terms . While Massachusetts information required by PPACA . A that allow private parties to share in the is a “selective contracting agent” in state could require additional data from government’s recovery when it is the the commercial market, it is an “active insurers, as a condition of licensure private parties who brought false claims to purchaser” when it comes to subsidized or access to the exchange .108 For the government’s attention: coverage in the exchange . Accordingly, that example, a state could require detailed state’s exchange saved an estimated $21 “The False Claims Act contains qui information about the number and million in premium bids for subsidized tam, or whistleblower, provisions . Qui nature of complaints and appeals filed coverage during state fiscal year 2011 tam is a unique mechanism in the law by consumers, if such information is not through its careful process of review and that allows citizens with evidence of already required by HHS . negotiation with carriers 109. fraud against government contracts In gathering health plan performance and programs to sue, on behalf of the Of course, state regulators need to strike information, whether mandated by federal government, in order to recover the a balance . If the requirements for gaining or state law, a state needs to carefully stolen funds . In compensation for the access to the exchange are unduly onerous, structure its requests . For the data to be risk and effort of filing a qui tam case, the exchange may have difficulty attracting usable, a state would be well-advised to the citizen whistleblower or ‘relator’ an adequate number of participating use the same, easy-to-compare forms for may be awarded a portion of the funds health plans . each health plan . Also, to lessen burdens recovered, typically between 15 and on both health plans and regulators, state The False Claims Act 25 percent . A qui tam suit initially data requests need to be carefully targeted, PPACA Section 1313(a)(6)(A) applies the remains under seal for at least 60 days seeking only relevant information . False Claims Act110 to health plans’ receipt during which the Department of Justice of federal funds through the exchange . If can investigate and decide whether to Finally, a state could make these data a plan was not qualified to participate in join the action ”. 113 publicly searchable and available (albeit the exchange but nevertheless did so, the in carefully redacted form that avoids any In recent years, the False Claims Act insurer may be liable for three times the disclosure of patient identity) .That would has become one of the country’s most amount it collected in federal tax credits allow nongovernmental organizations, important tools for addressing Medicare and subsidies for out-of-pocket costs, including consumer advocacy groups and and Medicaid fraud 114. In 2006, for example, plus thousands of dollars in civil penalties researchers, to supplement the efforts of the health care industry was responsible for each wrongful federal payment . Such state regulators in identifying potential for more than 70 percent of total False liability requires a showing that the insurer problems with health plan performance . It Claims Act recoveries .115 PPACA’s explicit “knowingly submit[ted], or cause[d] could also inform choice of health plan by invocation of this Civil-War era statute another person or entity to submit, employers and individuals . thus has strong precedent when it comes to false claims for payment of government publicly-funded health coverage . funds ”. “Deliberate ignorance” or “reckless

26 At a minimum, state officials can educate of administrators, state legislators, and the Third, the above-described funding for the public and health plans about the general public 117. health consumer assistance programs False Claims Act . Such an effort can could help meet some existing Additional administrative resources help deter insurers from violating legal responsibilities of state insurance Like most state agencies, insurance requirements for participating in the regulators, depending on the extent to departments are strapped for resources, exchange . In addition, a state agency, such which such state agencies currently furnish particularly in states facing serious budget as an insurance regulator, can bring False similar assistance . problems . It may not be realistic to expect Claims Act violations to the attention of most state officials to increase their Administrative appeals for consumers the U .S . Department of Justice, potentially enforcement activities without an increase Under Public Health Service Act Section qualifying for a qui tam award that could in administrative funding . 2719, added by PPACA Section 10101, help defray future enforcement costs .116 health plans must provide for internal Such a state agency may be in an excellent Fortunately, several mechanisms appeals of purported adverse actions taken position to spot health plan misbehavior are available to supplement current by health plans and, if such appeals are that gives rise to a False Claims Act cause enforcement dollars, including the role unsuccessful, external appeals decided by of action . potentially played by the exchange . A state independent entities . could structure the exchange to work Health consumer assistance programs closely with its insurance regulator to These administrative appeal rights are For federal fiscal year 2010, PPACA assist in monitoring and oversight of plans important for several reasons . First, they Section 1002 appropriates $30 million participating in the exchange, lifting some can help consumers obtain necessary for the establishment and operation burdens from the regulatory agency . services . Second, effective appeals of independent health consumer procedures make health plans less likely assistance programs that help consumers Depending on HHS interpretations of to arbitrarily deny covered services, file complaints and appeals, educate PPACA, an exchange might pay the state since such action may lead to public consumers about their rights and insurance regulator to certify plans as embarrassment and consequent loss of responsibilities, help consumers enroll in qualified, pursuant to an interagency market share . And third, appeals give health plans and qualify for tax credits, agreement . As explained above, resources regulators information about health and gather data documenting consumer for the administrative activities of insurers’ conduct . If a carrier reports a complaints and problems . Programs must exchanges do not require state General high appeal rate for a particular issue, that report these data to HHS, which shares Fund appropriations . Instead, they come may signal a problem warranting further them with other federal agencies and from federal grants until 2015, after which investigation . with state insurance regulators . After FY they may be raised through user fees, such 2010, funding is authorized but not yet as charges to participating insurers . appropriated . Introducing new public and private A second such mechanism involves federal competitors into existing health Both to help consumers obtain coverage grants to strengthen states’ capacity to insurance markets and care and to help policymakers learn monitor and analyze insurance premiums . One strategy for improving health about emerging problems, a state could PPACA Section 1003 appropriates $250 insurers’ performance is to sponsor a prioritize the establishment of a consumer million in funding from 2010 until 2014 new market entrant capable of winning assistance program . If a state authorizes its to help states review premium increases market share away from plans that consumer assistance program to pursue and to provide HHS with information and fail to meet consumers’ needs . Federal False Claims Act complaints, resulting recommendations, laying the groundwork legislation provides substantial funding qui tam recoveries could help provide for later annual recommendations to to help capitalize the initial development future funding for consumer assistance, as the exchange about whether particular of consumer-owned, cooperative explained above . plans have increased premiums so rapidly health plans, an effort that a state could that they should be excluded from the In structuring these efforts, states could encourage . exchange . These resources could be helpful learn from some of the best practices of in meeting states’ new responsibility, under existing consumer assistance programs . PPACA, to annually review unreasonable But even with federal resources for the For example, programs could partner with premium increases, along with HHS, start-up phase, it is not easy for a new community-based legal services programs as well as to help discharge any existing health insurer to gain a foothold in local that already provide consumer assistance responsibilities pertaining to insurance markets . A new plan faces a catch-22: and represent beneficiaries in appeals . rate review . to recruit providers without paying Likewise, states could authorize programs exorbitant reimbursement rates, the plan to bring systemic problems to the attention

27 needs numerous enrollees; but to recruit will have different covered benefits, Other states could take a similar approach . enrollees, a plan needs a large provider out-of-pocket cost-sharing rules, and Using public employees and publicly network and the kind of low premiums provider payment rates . The purpose of subsidized consumers to establish critical that are impossible if providers are being this difference is to ensure that the shift mass not only surmounts the “catch-22” paid exorbitant reimbursement rates . to SustiNet will not reduce benefits or problem described above, it offers the increase costs for any members . The latter potential to galvanize a change in a state’s The Massachusetts exchange managed objective also means that state employees health care delivery system, implementing to recruit a new private insurer to serve and retirees will remain in a separate risk many of the reforms described in the next Massachusetts residents—the first new pool, so that the costs of new enrollees section of this paper . With a substantial entrant to the state’s insurance market in do not affect premiums charged for state percentage of the state population enrolled two decades .118 However, this new insurer workers . in the publicly administered plan that has enrolled very few consumers to date, implements delivery system reforms, it reaching only 1 percent of subsidized By July 2012, SustiNet will be offered for • would become more economically feasible participants in the exchange 119. purchase by small firms, municipalities, for physicians, hospitals, nurses, and and non-profits, consistent with the state’s To escape this catch-22, existing state- other providers to change how they do small group market rules . To compete sponsored populations could form the business . Further, the state could work effectively for business, SustiNet can offer nucleus of a new, publicly-administered with private insurers to implement multi- coverage with benefits and out-of-pocket health plan that competes with private payor innovations that include but go cost-sharing typical of small group ESI, insurers . Such an approach is being beyond the public plan, such as reforms using brokers, agents, and other existing pursued in , following that implement HIT and patient-centered channels of sale . that state’s enactment of health reform medical homes . If a public plan competing legislation in 2009 . Although the final • Once a major Medicaid expansion in the exchange implements reforms that details of implementation await further becomes effective, along with other slow cost growth, private insurers may action in the state’s 2011 legislative session, subsidies and new mechanisms for highly need to adopt similar reforms to preserve following are some of the key features of expedited, automatic enrollment, insurers market share . And if one large plan makes the state’s approach:120 will be forbidden from discriminating changes in how its members receive health in the individual market based on health care, other plans may find it easier to do State employees and retirees, along with • status, and SustiNet will be available for the same . Medicaid and CHIP enrollees, will receive purchase by individuals . coverage through a new plan, dubbed Put simply, not only could a state- “SustiNet ”. Administered by a public entity, In the wake of PPACA’s enactment, sponsored public plan give private insurers SustiNet will seek to slow health care officials are considering qualifying competition that many state markets cost growth while improving quality by SustiNet as a plan offered in the exchange currently lack, it could help bring about implementing health care delivery system starting in 2014 121. This will require a transformation in the state’s overall reforms that represent best practices, SustiNet to be a state-licensed plan . If health care delivery system that makes an including interoperable health information Connecticut moves in this direction, it important contribution to slowing cost technology (HIT), patient-centered will need to decide whether to amend growth while maintaining or improving medical homes (at a minimum for patients its existing insurance statutes to make it quality and safety . Such a state policy would with chronic illness), and incentives for easier for a new, publicly-administered seek to pull together the diverse strands evidence-based care . plan to become licensed . In addition, state of delivery system reforms supported by policymakers may need to administer PPACA into an integrated strategy for Although all of the plan’s enrollees • SustiNet through a quasi-governmental improving how health care is organized, will share a common platform for agency or independent state authority, reimbursed, and delivered, along the lines implementing delivery system reforms, to avoid a conflict of interest with state explored in the next section . state employees and Medicaid beneficiaries agencies that administer the exchange .

28 A Quick Recap How states can use PPACA to hold insurers accountable to consumers

• Analyze PPACA’s new data sources to improve detection of insurance company violations. • Consider supplementing PPACA’s data requirements if additional information would strengthen the state’s capacity to monitor insurer behavior.

• Carefully structure and limit data requests, targeting only relevant information and using similar forms for all plans, thus simplifying the process of comparison and analysis.

• Make insurer performance data publicly available and searchable, after careful redacting of information that could potentially identify individual consumers.

• Consider using access to the exchange as an incentive for strong performance. • Educate the public and insurers about the potential application of the False Claims Act to insurers that knowingly offering unqualified plans in the exchange.

• Authorize state agencies to bring False Claim Act claims, potentially using the resulting “whistleblower” awards to fund future enforcement efforts.

• Prioritize implementation of federally-funded health consumer assistance programs, partnering with community-based legal services offices that already furnish similar services, and authorizing such programs to inform the public and policymakers about emerging problems.

• Leverage additional resources for state insurance departments by contracting with the exchange to certify plans as qualified, using federal grants to build capacity for rate review, and working with health consumer assistance programs.

• Ensure satisfactory implementation of consumer appeal procedures to help consumers obtain promised services, to give plans additional incentives to follow the law, and to flag the potential emergence of systemic problems.

• Introduce new competitors to the health insurance market by sponsoring a publicly-administered health plan that begins with a critical mass of enrollees consisting of Medicaid beneficiaries and public employees and retirees. Offered in the exchange to individuals and small firms, such a plan could implement best practices for reforming health care delivery to slow cost growth while improving or maintaining quality.

29 Reforming Health Care Delivery and Financing to Slow Cost Growth and Improve Quality

One of the most widely shared complaints identify the reform strategies that address to prevent costly re-hospitalization .123 about the country’s health care system important issues within the state and Bundled payments are also justified as is the unsustainable, ongoing growth have the support needed for successful encouraging providers to work together, in spending . A remarkable variety of implementation . reducing fragmentation and increasing solutions have been proposed to slow cost care coordination, ultimately improving To help with that process, this section of increases while maintaining or improving quality and reducing cost 124. the paper analyzes PPACA’s provisions and quality . state policy options under several general • So-called “Accountable Care This variety found its way into federal headings: Organizations,” or ACOs, can allow teams health reform legislation . As Jonathan of physicians (and potentially other Reimbursement reforms; Gruber of M I. T. . observed, “It’s really hard • providers, including hospitals) to share to figure out how to bend the cost curve, • Delivery system reforms; and in the cost savings that result when these but I can’t think of a thing to try that providers’ patients incur fewer health care [the legislation] didn’t try… Everything • Encouraging healthy behaviors, wellness, costs than is typical for similar patients 125. is in here ”. 122 PPACA thus includes new and prevention . The analysis of cost savings takes into methods for provider payment, new One preliminary comment is important . account all services, not just those methods of organizing health care delivery, Outside the four corners of PPACA, ARRA’s furnished by the ACO . Among the goals efforts to shift consumer behavior in investments in HIT may prove critically of this effort are to encourage provider healthier directions, increased provision of important for many PPACA efforts to change collaboration, reducing fragmentation, preventive health care services, initiatives the country’s health care delivery system . A increasing care coordination, and to measure and improve quality, increased smoothly functioning information system, ultimately improving quality while funding for comparative effectiveness carefully tailored to help accomplish the goals lowering cost . ACOs are among the care research, and more . PPACA also follows of reimbursement or delivery system reform, innovations that are strengthened when on the heels of the American Recovery and can greatly facilitate the effectiveness of those HIT is carefully structured to support Reinvestment Act of 2009 (ARRA), which efforts, whether they involve increased care reforms in health care delivery and made major investments in HIT . coordination, management of patient care reimbursement, as noted above . Not only do PPACA’s strands embody many over time, or provider accountability . • Hospital do not receive payment for different substantive approaches, the policy so-called “never events”—that is, care tools employed are remarkably varied . Reimbursement reforms so substandard that it should never take National policy changes and demonstration General approach place 126. Payment can also be denied projects with Medicaid and Medicare, Current fee-for-service payment methods for treatment of infections or other demonstration projects that operate outside reward providers for volume and for high- preventable health problems that begin Medicare and Medicaid, grants to states, cost procedures, rather than for improving during a hospital stay . Along similar lines, grants to other entities, rules for insurance health outcomes or adding value by reimbursement penalties can apply to companies, and new public health initiatives enhancing quality relative to cost . To fix hospitals with high rates of preventable overseen by HHS all play a role . this problem, a range of strategies have readmissions soon after discharge . This gives state policymakers much been suggested, including the following: • More broadly, “pay-for-performance” to work with—perhaps too much . • Using “bundled payments” when a patient initiatives seek to increase or lower Selectivity and focus are likely to be is hospitalized, so that a single payment payment based on the achievement of especially important features of successful covers all costs (whether charged by identified metrics for providing safe, high- state PPACA implementation in this physicians, hospitals, or others) both quality, efficient care; and “global payment” area . A careful analysis of the health during hospitalization and for a limited strategies cover multiple services within a care delivery system within the state period afterwards . Because a flat fee would single payment, thus avoiding incentives to and intensive consultation with local cover post-discharge care, providers would furnish excess care . academic experts, employers, providers, lose money if patients are readmitted Many aspects of PPACA embody this insurers, and other stakeholders could be shortly after discharge . As a result, bundled approach to reform . helpful . Such preliminary work can help payments would furnish an incentive

30 PPACA Provisions phased in during calendar years 2015 and • Demonstration projects Medicare . By far PPACA’s most ambitious 2016 . Results are modified to take into effort in this area involves Medicare: account patient risk as well as geographic - Section 2704 directs HHS to establish factors that affect costs . Medicaid demonstration projects in up • Hospitals to eight states to test the application of - Section 3003 precedes the application - Section 3001 establishes a hospital value- bundled payment methodologies . This of value-based modifiers with based purchasing program, starting in FY effort runs from calendar years 2012 confidential feedback to physicians 2013 . Under this program, a percentage through 2016 . The demonstration will and physician groups about their of hospital payment is tied to hospital focus on health conditions that offer performance, including (beginning in performance on quality measures related the possibility of improving care while 2012) information about their resource to common and high-cost conditions, slowing cost growth . utilization compared to other physicians . such as cardiac, surgical, and pneumonia - During fiscal years 2010 through 2012, care, but re-hospitalization rates are - Section 3022 rewards ACOs that meet Section 2705 of PPACA128 directs HHS not included . Hospital performance is quality-of-care standards and reduce the to operate, in up to five states, Medicaid summarized into a single number . The costs of their patients’ care relative to a demonstration projects that pay large highest ranking hospitals receive higher spending benchmark . Such ACOs receive safety net hospitals or networks on a payments, which are funded by reducing a share of the savings they achieve for the global or capitated basis, rather than fee- payments to other hospitals 127. Hospital Medicare program . Alternatively, HHS for-service .129 results are adjusted to take into account can use other methods, including partial patient risk . capitation for highly integrated ACOs - Section 2706 lets states establish capable of bearing risk . HHS can give demonstration projects for pediatric - Section 3008 imposes financial penalties, preference to ACOs that establish similar ACOs from calendar year 2012 through starting in FY 2015, on hospitals that arrangements with private insurers . This 2016, along the same general lines are in the top 25 percent nationally in new initiative begins in January 2012 and described above for Medicare . their rate of infections or other health takes into account patient risk levels . problems that the patient acquired while - Payment ban . As of July 1, 2011, section in the hospital . Rates are adjusted to take • Bundling. Section 3023 establishes a pilot 2702 forbids federal Medicaid dollars into account patient risk . The identity of program on payment bundling through from being used to pay for hospital these hospitals is disclosed publicly . which all hospitals, doctors, and post-acute treatment of infections or other health care providers participating in an episode problems that a patient acquired while in - Section 3025 lowers hospital payments of care join together to receive a single the hospital . based on the dollar value of each payment for that episode, from 3 days hospital’s percentage of potentially before hospitalization through 30 days preventable Medicare readmissions, State policy options after discharge . The program begins on starting in FY 2012 . Readmission rates Medicaid-specific approaches. State January 1, 2013, and can be expanded if it are adjusted to take into account patient policymakers interested in pursuing this improves quality and reduces costs . risk . The section also creates a quality approach can implement the Medicaid assistance program to help poor- • Patient-centered incentives. Section demonstration provisions described above performing hospitals address problematic 10331(h) authorizes HHS to implement a and vigorously implement the ban on readmission rates . HHS is directed to demonstration project giving beneficiaries using Medicaid dollars to pay for health- publish information about hospital financial incentives to select physicians care-acquired conditions . The latter ban readmission rates for both Medicare and who furnish efficient, high-quality care . applies, not just to Medicaid fee-for- for all payers . Such incentives may not increase costs service payments, but also to managed above or reduce benefits below what care . State Medicaid programs accordingly Physicians • Medicare would otherwise provide . Put could include in their contracts with - Section 3007 creates a value-based differently, beneficiaries who select high- Organizations provisions modifier for physician payment . Doctors value providers would either experience requiring health plans to track health who furnish above-average care, defined lower costs or receive additional benefits . care-acquired conditions, to report such based on quality and cost, receive extra conditions to state and federal authorities, Medicaid. PPACA includes both options Medicare reimbursement, which is and to deny payment . and requirements for state Medicaid funded by lowering Medicare payments programs to move forward with Building on Medicare’s reimbursement for other doctors . This new modifier is reimbursement reforms: innovations . As Medicare implements

31 reimbursement reforms, a state could apply are used to determine payment levels, Delivery system reforms those same reforms to public employee and unfairly disadvantaging hospitals General approach coverage, Medicaid, and commercial coverage in low-income communities .130 State Many analysts describe most of American in the exchange .Alternatively, rather than policymakers accordingly may wish to see health care as fragmented and inconsistent, follow Medicare’s lead, some states in the how Medicare and other payment reforms lacking the kinds of care coordination, vanguard on this issue may seek to include work in practice before committing evidentiary basis, and accountability Medicare within state multi-payor efforts wholeheartedly to bring state residents that characterize high-performing already under way . Such inclusion could be more broadly within these efforts . Officials health systems .132 To remedy this state proposed to the Center on Medicare and could also consider seeing phasing-in of affairs, numerous interventions have Medicaid Innovation, described previously these initiatives gradually, perhaps starting been proposed . Some of the largest scale on page 9 . with particular geographic areas rather approaches include the following: than moving to immediate statewide Whether a state follows the federal lead or Interoperable HIT could allow the implementation . • incorporates Medicare within state efforts, development of electronic health records giving providers the same targets and As one would expect, multi-payer (EHR) that a health care provider can incentives through multiple payors would initiatives can be challenging to manage . access while seeing a patient . Health drive behavior more powerfully than with Each payor has its own priorities and information exchange systems (HIE) a single program, even one as large as management structure . Further, enrollees would allow providers with diverse Medicare . Such coordination could also may have different characteristic profiles software to access and supplement simplify providers’ lives since they would in Medicaid, Medicare, and private plans . a patient’s EHR housed elsewhere . have one set of incentives rather than An intervention that fits one setting may Implemented to support other delivery multiple incentive schemes to incorporate not fit another . A careful focus on these system reforms, HIT could stop the into their practice patterns . To further issues may help states devise effective plans provision of redundant services and increase the number of covered lives to overcome the challenges inherent in furnish decision support that prevents affected by a single set of reimbursement using the leverage of multiple payors to medical errors, improves adherence reforms, a state could encourage self- transform reimbursement methods and to clinical care recommendations, and insured large employers and other private provider incentives . potentially reduces health care costs .133 plans that operate outside the exchange to ACOs. PPACA’s preference for Medicare Patient-centered medical homes (PCMH) participate . In addition to strengthening • ACOs that establish similar relationships add to primary care a combination of and coordinating incentives for strong with private insurers gives states an patient education, care coordination performance, an aggregated approach that important opening . Using its regulatory (including management of transitions bases incentive payments on all-payor powers and its role as a selective purchaser from hospital to home), 24-7 availability performance would encourage hospitals in the exchange, a state could develop for patient consultation, and a clear locus and physicians to furnish high-quality, ACO-type arrangements with both of accountability and patient contact 134. efficient care to all patients, regardless of public employee coverage and exchange- Some applications of the PCMH model their source of coverage . based coverage . In addition, state have resulted in cost savings with On the other hand, states considering officials could encourage private insurers chronically ill patients, particularly when movement towards Medicare-style “pay for operating outside the exchange and self- coupled with a robust HIT system .135 performance” methods need to understand insured group plans to develop similar Comparative effectiveness (CE) research some of the challenges experienced to arrangements, on a voluntary basis . A • could rigorously assess the strengths and date with this approach . Some researchers strong degree of state involvement may weaknesses of possible treatments for question whether these payment methods be necessary to prevent ACO-provider particular health conditions . This would have caused significant shifts in provider groups from developing leverage that lets allow patients, providers, and health behavior; key design features, such as the them extract excessive payment levels from plans to make wiser choices between, for measures used to assess performance and private insurers .131 But with that caveat, example, prescription drugs and surgery the nature of the incentive payment, can the ACO provisions of PPACA give states or between brand-name and generic drugs have a large impact on how reforms work an opportunity to encourage the growth that seek to treat the same condition . While out in practice; and some observers have of integrated provider systems that take research alone is unlikely to change practice expressed concerns about unanticipated overall responsibility for the care of their patterns,136 incorporating the results of CE consequences, including worsening patients on an ongoing basis, regardless research into health plan decisions about racial and ethnic disparities, narrowing of changes to the patients’ sources of cost-sharing, covered services, and provider providers’ focus to the measures that coverage . reimbursement methods could, according

32 to the Congressional Budget Office, slow normally apply to Medicaid . Beginning management, care coordination, chronic cost growth without harming health in January 2011, HHS is directed to give disease management, medication and care outcomes .137 states up to $25 million in planning grants . compliance initiatives, and the use of the During the first eight quarters of a state’s medical home model; Other strategies include providing services implementation of this option, the federal at home, immediately following hospital Preventing hospital readmissions, government pays 90 percent of the cost • discharge, to prevent rehospitalization whenever possible, through a of PCMH services . This new option is among patients at high risk of returning comprehensive program for hospital available to states beginning in January to the hospital if care goes unmanaged;138 discharge; 2011 . using pharmacists to manage multiple Improving patient safety and reducing medications received by a single patient;139 Section 3502 authorizes HHS grants to • • medical errors through best clinical shared decision-making through which states to develop community health teams practices, evidence-based medicine, and patients and their caretakers assume an to support the PCMH model . Such teams HIT; and active role deciding between possible support primary care physicians who, courses of treatment;140 and reforms that by themselves, may not be equipped to • Wellness and health promotion lessen the need to engage in defensive perform the full set of PCMH functions . (discussed below) . medicine to avoid malpractice liability .141 • Section 5405 authorizes $120 million in In addition, beginning in 2015, a qualified To summarize, many of these strategies annual funding, during 2011 and 2012, to health plan is barred from contracting seek improved care coordination and establish a system of educating primary with a hospital that has more than 50 beds proactive management of patient care care providers about new models of unless the hospital implements programs throughout the full continuum of practice, including the patient-centered to promote patient safety and to prevent settings and conditions . While such medical home . This section creates a hospital readmissions soon after discharge . reforms frequently improve quality of “Primary Care Extension” program that care, achieving cost savings may depend will operate through state and regional Medicare . Several Medicare provisions on focusing innovations on high-cost, hubs, with local “extension agents ”. 142 implement delivery system reforms: chronically ill patients and coupling Comparative effectiveness research . • Section 3026 appropriate $500 delivery system changes with targeted Sections 6301 and 10602 establish a million for a Community-Based Care information support, through either Patient-Centered Outcomes Research Transitions Program through which electronic health records (perhaps Institute to conduct comparative clinical hospitals and community-based entities supported by resources made available effectiveness research . Such research can furnish evidence-based care transition under ARRA) or disease registries . include information obtained through services, including active post-discharge PPACA Provisions accessing electronic health records for engagement, to Medicare beneficiaries at PPACA approaches health care delivery Medicare, Medicaid, and other coverage high risk for hospital readmission . The system reform from many vantage systems to analyze the effectiveness program is funded during calendar years points, in addition to the CMS Center of various services with particular 2011 through 2015, but the program for Medicare and Medicaid Innovation, populations . This research is supported may be extended and expanded if HHS described on page 9 . by an ongoing funding stream with fees determines that such steps would lessen from private insurers and the Medicare Medicare spending without reducing Patient-centered medical home. program, which are projected to equal quality of care . Provisions that promote patient-centered $1 .26 billion over 10 years . The findings medical homes include the following: • Section 3024 appropriates $30 million announced by this Institute may not for FY 2010 through 2015 for an • Section 2703 creates a new Medicaid “include mandates for practice guidelines, “Independence at Home” demonstration option to provide certain chronically ill coverage recommendations, payment, or program for chronically ill Medicare 143 beneficiaries with PCMH services . Such policy recommendations ”. beneficiaries . This program uses physician services can include comprehensive care The exchange . To be a “qualified plan” and nurse practitioners: (a) to provide—as management, care coordination and health capable of being offered in the exchange, part of a team that also includes physician promotion, comprehensive transitional a plan must implement a “quality assistants, pharmacists, and other health care, patient and family support, referral improvement strategy,” which includes144 a and social services staff—comprehensive, to community and social support payment structure that encourages: coordinated, continuous, and accessible services, and use of HIT . The section care to high-need populations at home; Improving health outcomes through authorizes waivers of the statewideness • and (b) to coordinate health care across quality reporting, effective case and comparability requirements that all treatment settings . The demonstration

33 project is not intended to serve more than • The state would also implement PCMH • At some point in the future, HIT systems 10,000 beneficiaries, nationwide . services with public employees and retirees . could incorporate decision support that Additional specific reformssupported It could encourage (or even require) informs physicians when they are about to by PPACA include the following, each of private insurers to do likewise in areas of order a service that is more costly than an which has funding authorized (but not yet the state that have a particularly strong alternative that, according to CE research, appropriated): provider infrastructure capable of moving is equally effective . Physicians could forward quickly with this model of care . proceed with the more costly service, but • Sec . 3503 provides grants for medication that choice would need to be conscious Once the exchange becomes operational treatment management (MTM) programs • and explicit, with the rationale recorded in 2014, the state could require, as part operated by pharmacists who serve the in the electronic health record . Such of health plans’ quality improvement chronically ill, beginning in May 2010 . choices would be taken into account by strategies, that insurers wishing to sell systems of provider feedback and quality Section 3506 establishes a program at coverage in the exchange must fulfill • improvement . HHS to facilitate shared decisionmaking, PCMH functions . (Such an approach developing educational tools to help has the exchange function as a “selective • Public employee coverage could patients, caregivers, and authorized contracting agent ”). incorporate the results of CE research representatives understand their treatment by paying only for the least costly service The state would seek early funding options . This section authorizes grants to • that provides known medical benefits . To from the CMS Center for Medicare and Shared Decisionmaking Resource Centers, address consumer concerns, states may Medicaid Innovations to support the which will provide technical assistance and need to include two safeguards . The first PCMH model with community health training to physicians, who can also qualify is a method for reimbursing more costly teams, HIT implementation plans tailored for grants . services based on a physician’s showing to meet the needs of the PCMH model, that, given the particular patient, a more Sec . 10607 funds state demonstration and primary care extension centers (or • costly service is more likely to achieve its programs to evaluate alternatives to other mechanisms to help providers therapeutic goals or to avoid harmful side current medical tort litigation . transition to new models of practice) . Such effects . Appeal rights would need to apply . funding would be needed if, as some fear, State policy options And as a second safeguard, if the patient the authorized grants described above do Creative state policymakers can use these wants a more expensive service, he or she not become appropriated .145 This funding tools to pursue a number of promising could obtain it by paying the extra cost . could also support an intensive evaluation options . Following are some approaches of effects on quality, clinical outcomes, State law could authorize private health that illustrate a much broader range of • cost, and patient and provider satisfaction . plans to implement policies in the possible strategies . Given the need to slow health care cost commercial market like those described Patient-centered medical homes growth by rapidly scaling up successful above for public employee coverage . could be implemented with a focus on initiatives, such an evaluation could Until this new policy has had several years high-cost, chronically ill consumers, include early publication of interim results . • in which to establish a track record, it accompanied by the meaningful use of Other delivery system innovations, would probably be unwise to apply it to HIT to support medical homes and related such as a home-based program to subsidized coverage in the exchange, since efforts to improve quality and efficiency . prevent hospital readmissions of high- low- and moderate-income consumers Such a focused implementation of care risk patients, could likewise apply in have less ability than others to pay for reorganization supported by information Medicaid, to public employee coverage, costly services out of pocket . This concern technology increases the likelihood of cost and with health plans in the exchange . applies with even more force to Medicaid savings through reduced hospitalization Such an effort could seek support from the consumers . For these consumers, one of as well as improvements in quality of care CMS Center for Medicare and Medicaid the two above-described safeguards would that have an impact on patient morbidity Innovations, along the lines explained not exist . and mortality . A comprehensive effort earlier, in connection with the PCMH aimed at implementing PCMH could All-payer payment systems . This model . include the following elements: promising reform is on the list of practices Comparative effectiveness research could specifically authorized for testing by A state would implement the new • be applied to encourage the provision of the Center for Medicare and Medicaid Medicaid option for PCMH services, less costly care that is no less effective than Innovation . Under an all-payer system, fees starting with a planning grant in 2011, and more expensive alternatives . For example: can vary by hospital, but a facility must benefiting from eight quarters of enhanced charge the same amount for a particular federal matching funds .

34 service whether the patient is uninsured or is to allow prompt diagnosis and early campaign includes development of a covered by Medicare, Medicaid, or private treatment that prevents the development website allowing individuals to create insurance . For many years, Maryland of serious illness 148. personalized wellness plans . has operated such an all-payer system, PPACA Provisions Section 2953 appropriates $75 million which has slowed hospital cost growth, • PPACA’s approach to prevention has many a year, during fiscal years 2010 through stabilized the state’s hospital infrastructure dimensions . 2014, for “Personal Responsibility by reducing the variability in hospital Education ”. These grants to states (or margins, and facilitated the provision of HHS’ fully funded health promotion to local or community-based groups, uncompensated care .146 PPACA now opens initiatives outside Medicaid include the if a state chooses not to apply) fund the door for other states to replicate this following provisions: evidence-supported methods to teach successful approach, which can potentially adolescents about both abstinence and benefit public and private payors alike . • Section 4001 establishes a National Prevention, Health Promotion and Public contraception, with the goal of lowering Applying Medicare innovations to dual Health Council to develop a national teen pregnancy rates . The grants are also eligibles . A state could seek to apply to strategy for prevention and health used to teach adolescents about subjects dual Medicare-Medicaid eligibles the promotion . that prepare them for adulthood, such above-described Medicare innovations as healthy relationships, parent-child involving Community-Based Care • Section 4002 creates a Prevention communication, adolescent development, Transitions and the “Independence at and Public Health Investment Fund financial literacy, etc . Home” demonstration project . Dual (Prevention Fund) to support initiatives New Public Health Service Act Section eligibles are among the most costly to implement the national strategy for • 2705, added by PPACA Sec . 1201, requires and fragile of Medicare beneficiaries, prevention and health promotion . PPACA HHS, by July 2014, to establish a 10-state so applying these innovations to this appropriates ongoing resources to the demonstration project testing wellness particular population could yield fund, starting at $500 million in FY 2010 initiatives in the individual insurance important gains, both financially and in and gradually rising to $2 billion a year market . Such initiatives can cut premiums terms of health status . A state pursuing this in 2015 and later years . HHS has broad 149 by up to 30 percent when members option would contribute its proportionate discretion in the use of these funds . participate in certain health promotion share of Medicaid resources, which • Section 4201 creates a program of and disease prevention programs . would pay patient cost-sharing and cover Community Transformation Grants, Medicaid services outside the Medicare which can be supported through the Medicaid health promotion provisions benefit package . Prevention Fund . These grants, which can include the following: go to state or local government as well as community-based organizations, support • Section 4108 appropriates $100 million, Prevention and wellness policy, environmental, programmatic, and for use beginning in January 2011, by General approach infrastructure changes needed to promote states in giving Medicaid beneficiaries Several dimensions of prevention are healthy living and reduce racial and ethnic incentives to participate in programs that the subject of reform efforts . The first, disparities . Among the potential uses of have demonstrated success in helping sometimes called “primary prevention,” these grants are community-wide plans low-income people make improvements involves population-based efforts to prevent to reduce tobacco use, mental illness, or in their weight, cholesterol, blood the development of health problems . Such obesity . For example, such a grant could be pressure, smoking, diabetes, and (at efforts may seek to eliminate environmental used to build paths and restructure streets state option) associated co-morbidities, toxins, improve nutrition, increase exercise, to make neighborhoods more walkable; such as depression . If a state chooses to reduce the use of tobacco and other to fund tax incentives and other initiatives participate in this effort, ordinary Medicaid addictive substances, alleviate stress, and to bring affordable, healthy food to low- statewideness requirements are waived as otherwise encourage healthier behaviors . In income communities; to create afterschool needed . particular, many observers now recommend programs that permit children and youth vigorous efforts to address epidemic levels to exercise safely; etc . Section 4107 requires Medicaid to cover of obesity, which cause significant health • Section 4004 allocates up to $500 million tobacco cessation services for pregnant care spending 147. • for a national public education and women, beginning on October 1, 2010 . A second dimension, often termed outreach campaign aimed at promoting Section 4004’s above-described “secondary prevention,” involves providing healthy behaviors and encouraging • public education campaign includes a screenings and tests to spot potential the use of available screenings and requirement that states must educate health problems . The goal of such tests other preventive care services . This

35 beneficiaries about preventive and • Section 4106 gives Medicaid programs access to and levels of participation obesity-related services that are available the option, beginning in January 2013, in wellness programs based on their to Medicaid enrollees, including obesity to provide adults with (a) any clinical education, income level, and race or 150 screening and counseling for children preventive service receiving an A or B ethnicity . and adults . grade from the U S. . Preventive Services More generally, state policymakers need to Health promotion initiatives that are Task Force and (b) immunizations understand that, while primary prevention authorized without appropriations recommended by the Advisory Committee yields many important benefits, not all include the following: on Immunization Practices . States that such efforts save money . Positive results, cover such services without copayments both in terms of cost and health status, Section 4202 authorizes grants to states • receive an extra percentage point in the may be most likely if policymakers do and localities to conduct pilot programs federal matching rate for this care . two things: focus their efforts on the reducing chronic illness among 55-to-64 highest-risk populations and communities, year olds . State policy options Primary prevention . State policymakers among whom low-income people are • Section 4206 authorizes a demonstration interested in promoting healthy behaviors disproportionately represented; and track project to furnish clients of community and wellness could seek federal grants and the evolving science documenting the health centers with comprehensive risk- try to participate in the demonstration strategies that have the greatest impact, factor assessments and individualized projects described above, including modifying interventions as necessary . wellness plans . Community Transformation Grants; Secondary prevention . State public Medicaid grants to address obesity; Section 10408 authorizes $200 million health officials could take advantage • smoking, and other risk factors; and any in grants, from FY 2011 through 2014, of discounted costs to purchase adult additional authorized grants that receive to provide employees of small businesses vaccines, including vaccines aimed at the funding . States will also need to ensure with access to comprehensive workplace flu and the human papillomavirus . State that their Medicaid programs comply wellness programs . To qualify, a firm must Medicaid programs could also consider with federal Medicaid requirements for have fewer than 100 full-time employees . covering, free of cost-sharing, preventive pregnant women’s tobacco cessation services that qualify for a small increase in Initiatives focused on preventive health services and public education about the applicable federal matching percentage . care services include the following: obesity screening and counseling . While tests and screens for illnesses like • Under Sections 2713, 4104 and 4105, Several of these initiatives may be cancer and high blood pressure may preventive services, without cost-sharing, controversial in particular states, including or may not save money, recommended are required of new health plans and teen pregnancy prevention grants and screenings can improve health status by guaranteed to Medicare beneficiaries . demonstration projects involving wellness allowing the more rapid detection of programs and premium discounts in the illness and commencement of care . Section 4204 authorizes states to purchase • individual market . Some observers worry adult vaccines at reduced rates under that the latter policies could discriminate contracts between manufacturers and against consumers with health problems the Centers for Disease Control and and that employees may have differing Prevention .

36 A Quick Recap How states can use PPACA to slow health care cost growth while improving quality

• Implement Medicaid demonstration projects that test reimbursement reforms.

• Consider applying the same reimbursement reforms to Medicare, Medicaid, public employee coverage, insurance sold in the exchange, state-licensed private insurance, and (on a voluntary basis) self-insured group plans. A multi-payor initiative can include Medicare either by applying Medicare reimbursement reforms to other payors or by applying state payment innovations to Medicare. The latter approach can be proposed as a demonstration project to the CMS Center for Medicare and Medicaid Innovation.

• Consider incorporating Accountable Care Organizations into private coverage, including public employee insurance, health plans offered in the exchange, and other private insurers. This approach may require active intervention to prevent ACOs from acquiring so much leverage with insurers that they can raise charges to unsustainable levels.

• Implement patient-centered medical homes (PCMH), supported by HIT investment, with an intensive focus on high-cost, chronically ill patients. A state could adopt the new Medicaid option for PCMH coverage, include PCMHs in public employee insurance, require plans in the exchange to cover PCMH functions, and encourage other private plans to do likewise. A state could seek funding from the CMS Center for Medicare and Medicaid Innovations for (a) community health teams that help one- and two-physician offices serve as a medical home and (b) evaluation, including rapid reporting of interim results.

• Implement other promising delivery system reforms. As with PCMH, such reforms can be included in Medicaid, public employee coverage, insurance offered in the exchange, and other private plans. One promising example is home-based monitoring and coaching for high-risk patients after hospital discharge, to prevent costly rehospitalization.

• Apply the results of comparative effectiveness research by furnishing HIT decision support that (a) tracks physicians’ choices of high-cost care that furnishes no known clinical benefit and (b) asks physicians to justify those choices. States could also change public employee coverage to pay for the lowest-cost care that provides maximum clinical value, requiring consumers to pay the extra cost if they want alternative services that yield no additional clinical benefit. State statutes could permit private insurers to implement similar policies.

• Consider shifting hospital reimbursement to an all-payer system where a hospital’s charges do not vary according to the patient’s source of coverage.

• Apply promising Medicare innovations to dual eligibles. With duals as a target population, states could join Medicare demonstrations of delivery system reforms. These include community-based efforts to prevent rehospitalization of recently discharged patients; and home-based services for high-cost beneficiaries.

• Participate in federal grant programs and demonstration projects that promote healthy behaviors and wellness, including Community Transformation Grants and Medicaid grants to incentivize participation in programs that address obesity and smoking.

• Take advantage of new discounts for purchasing adult vaccines. • For Medicaid adults, consider covering preventive services without co-pays.

37 Reducing State Budget Deficits

Many state officials have expressed Third, state officials can help local potentially along with other social services . concerns about the burdens PPACA will governments benefit from these strategies State mental health services are another impose on state budgets . Receiving much to limit health care costs . In addition, candidate for federal Medicaid funding, less public attention is the potential many localities may be small enough to with the exception of health services PPACA offers to reduce state general offer their employees and retirees coverage provided to adults age 21 to 64 who are funding spending on health care and in the exchange, which could result in patients of an institution for mental health coverage . Such reductions can result modest administrative savings . (As noted disease (IMD), which is defined as an from savings on health coverage for public above, even large employers can begin “institution of more than 16 beds, that is employees and retirees; substituting federal participating in the exchange in 2017, at primarily engaged in providing diagnosis, Medicaid dollars for current state or local state option .) Cutting local health care treatment, or care of persons with mental spending; moving Medicaid beneficiaries costs can benefit a state financially by diseases ”. 153 Even IMD services might into coverage with subsidies that are lessening the need for local aid . qualify for federal matching funds in funded entirely by the federal government; a state that participates in a PPACA- Substituting federal Medicaid dollars and slowing health care cost growth within authorized demonstration of Medicaid for state and local dollars Medicaid . In addition, the Congressional coverage for IMD services that stabilize an Under current law, much state and local Budget Office (CBO) anticipates that ESI emergency psychiatric condition .154 spending provides physical or mental enrollment will drop by 2 percent 151. Based health care to adults with incomes at or When these state programs serve childless on labor economics research, employers below 138 percent FPL . Such residents will adults who previously were ineligible for will pass on much of their resulting savings qualify for Medicaid under PPACA . Even federal Medicaid dollars, this substitution in the form of higher wages, which will undocumented immigrants will qualify for of federal for state dollars can begin increase state revenue . Medicaid coverage of emergency services, without delay . That is because coverage The amount that specific strategies will save so long as their incomes fall below the of childless adults is now permitted varies considerably by state . Accordingly, threshold and they meet state residency through State Plan Amendment, with the goal of this section of the report is requirements (which can be shown, e .g ., by states receiving their normal Medicaid simply to flag potentially useful approaches presence in the state with intent to remain match . For example, Connecticut has for further, state-specific analysis . indefinitely) .152 already received approval for a State Plan Amendment to provide federally- Savings on health coverage for public This means that significant state and matched Medicaid to childless adults who employees and retirees local spending in these areas can now be previously would have qualified for the States can achieve savings through several replaced by federal Medicaid funds . In the state-funded General Assistance Medical approaches . First, PPACA provides $5 most straightforward example, programs Care program 155. billion in federally-funded reinsurance to compensate hospitals for serving the to cover claims incurred by early retirees, uninsured can now be replaced, in whole However, these strategies will become provided that the employer furnishing or in part, by Medicaid, including federal particularly promising beginning in 2014 . coverage implements measures to reduce matching funds . Medicaid can likewise At that point, adults who would have been spending on the chronically ill . The statute substitute for health coverage programs ineligible for Medicaid under 2009 rules— specifically authorizes state and local serving childless adults at the state or local that is, the “newly eligible”—will qualify government to claim these funds . level, often provided in connection with for an unusually high federal matching General Assistance or General Relief cash percentage, starting at 100 percent in Second, integrating several strategies to assistance . 2014-2016, as explained previously . A state help the chronically ill offers the potential does not reduce its access to such highly to slow cost growth, as noted above . The More broadly, states can examine their enhanced match if, like Connecticut, combination of medical home services, health and human services spending on it implements an interim expansion of HIT, and interventions to prevent behalf of low-income adults to see which Medicaid for childless adults . rehospitalization can potentially achieve services might qualify for federal Medicaid net savings, provided that these efforts are funds . For example, counseling provided carefully focused on high-cost employees to parents to prevent or stop child abuse and retirees . may qualify for Medicaid reimbursement,

38 Moving Medicaid beneficiaries into Medicaid-level benefits and cost-sharing Slowing health care cost growth subsidized coverage that is fully to pregnant women along with other within Medicaid federally funded adults up to 200 percent FPL, with the As noted above, PPACA’s delivery system Most states have some adults who receive federal government paying all costs . reforms can be applied to Medicaid; and Medicaid even though their income potential cost savings may result if the - For pregnant women at higher income exceeds 138 percent FPL (calculated medical home model’s care management levels who would have qualified for based on MAGI) . Eligibility for pregnant innovations are coupled with HIT Medicaid under prior law, the state could women typically exceeds that threshold, investments and focused tightly on high- supplement subsidies in the exchange to in some states by considerable margins . cost, chronically ill beneficiaries . Along eliminate out-of-pocket cost-sharing for The medically needy can also qualify similar lines, PPACA’s opportunities to pregnancy-related services . State costs for with incomes above 138 percent FPL by encourage healthy behaviors could prove such supplements would be significantly incurring, within a state-defined period useful in slowing Medicaid cost growth . less than what the state would have spent between one and six months in length, under current law for Medicaid-eligible But the most promising strategy to slow medical bills that reduce their disposable pregnant women . Medicaid cost growth may involve PPACA’s income below medically needy income new options to integrate Medicaid and levels . (The required level of health care A state might be able to greatly reduce • Medicare dollars and services in covering costs before a consumer qualifies as its spending on medically needy dual eligibles (people who qualify for medically needy is sometimes termed a beneficiaries above 138 percent FPL both Medicare and full Medicaid) . These “share of cost” or “spend-down amount ”). while improving their access to care . seniors and people with disabilities are In a few states, parents currently qualify HHS and the U .S . Department of the some of the country’s frailest, highest- with incomes above 138 percent FPL . Treasury may conclude that tax credit cost consumers . Currently, a single dual eligibility can extend to medically needy Without Medicaid, these adults would receive eligible may be covered by three different adults as long as they have not yet either subsidized coverage in the exchange or systems—Medicare Parts A and B for most fulfilled their spend-down requirements Basic Health Program (BHP) coverage in a physician and hospital care, a Medicare Part and become fully eligible for Medicaid . If state electing that option (described above) . D prescription drug plan, and Medicaid so, states can encourage their medically In either case, the federal government would for long-term care, Medicare cost-sharing, needy beneficiaries to apply for the BHP pay all subsidy costs, lifting from states the and Medicaid services outside the Medicare or tax credits in the exchange . By shifting burden of paying for Medicaid . benefits package . Each of these coverage their coverage, many such beneficiaries systems has an incentive to shift costs PPACA’s maintenance of effort would improve their access to care, to the others . Under these programs as requirements for adults end once since they would receive ongoing health traditionally run, care is rarely coordinated exchanges come on line in 2014 . At that insurance rather than episodic coverage among these funding streams, creating point, a state could, at least in theory, that becomes available during each dangers of redundant or even dangerously terminate Medicaid for some or all adults spend-down period only after they have inconsistent care . And some providers have with incomes above 138 percent FPL, incurred the required amount of health an incentive to maximize their revenues by shifting them into federally-subsidized care costs . And beneficiaries could still “gaming” these various coverage systems, exchange coverage and reducing state qualify for Medicaid coverage of long- even if those strategies increase total General Fund costs . term care by paying for nursing home taxpayer-funded costs .156 services or home-based care not covered This general strategy needs to be by BHP or health plans in the exchange . To address this situation, PPACA, for the pursued carefully . Mishandled, it could But because insurance in BHP or the first time, allows the complete integration create serious access problems for some exchange will delay the start of these of both dollars and care for dual eligibles . beneficiaries, including pregnant women beneficiaries’ spend-down, state long- Section 2081 creates a new Coordinated and long-term care recipients . To avoid term care costs will decline . Health Care Office within CMS to such problems, a state could consider the encourage the integration of Medicare following approaches: Fortunately, states do not need to decide and Medicaid for dual eligibles . In some these complex issues in the next year or two . To eliminate Medicaid coverage for ways more important, one of the models • Federal authorities have time to provide pregnant women above 138 percent FPL that PPACA approves for testing by the guidance that will help state Medicaid without reducing access to care, a state CMS Center for Medicare and Medicaid programs reduce their spending on adults could implement two policies . Innovation involves “[a]llowing States above 138 percent FPL without harming to test and evaluate fully integrating care vulnerable residents’ access to care . - As explained previously on page 13, a for dual eligible individuals in the State, state could use the BHP option to provide including the management and oversight

39 of all funds under the applicable titles integration by providing higher capitated approach, starting with a small, local area . with respect to such individuals ”. 157 The payment levels when SNPs combine In the past, states have tried to integrate precise parameters of this model are not all Medicare and Medicaid dollars and dual eligibles’ care, but such integration defined, leaving room for states to propose take full responsibility for furnishing all was severely constrained by federal law . creative initiatives that incorporate social covered services . As a result of PPACA, states now have services, intensive care coordination, Using the SNP model, a state could, in significant new opportunities to test nimble management of service provision effect, pay a health plan to develop and strategies that offer the hope of controlling in response to individual consumer need operate an integrated system of coverage costs with dual eligibles while maintaining and the evolving scientific literature, and and care for dual eligibles . This would or improving their access to high-quality the use of home- and community-based allow the state to guarantee a level of care . Whether public agencies or private alternatives to nursing home care . savings by, for example, making a 5 insurers administer systems of care that Given the fragile condition of many dual percent reduction (relative to projected fully integrate all Medicare and Medicaid eligibles, implementing such a major levels under the status quo) in Medicaid’s dollars and services, careful and deliberate change needs to proceed slowly and contribution to the SNP capitated implementation will be essential to both carefully . State policymakers could thus payment .158 safeguard beneficiary health and assure consider pilot-testing this reform in part the long-term sustainability of these new Such an approach would carry risks . of the state, gradually expanding it to other systems . Private plans may have an incentive to state residents if careful evaluation of early provide too little care . Intensive quality Revenue effects of reduced ESI experience shows positive results for both measurement, using electronic health One final point about revenue is taxpayers and beneficiaries . records and other methods, would be important to make in the context of state Another approach would use insurers essential to detect and address emerging budget deficits . If CBO projections prove rather than state officials to coordinate problems, along with the proactive accurate, PPACA will result in a net 2 care in fully integrated system of coverage involvement of independent patient percent reduction in employer-sponsored for dual eligibles . Medicare Advantage, advocates . insurance (ESI), as coverage becomes the private health insurance option for slightly less common among small firms A second danger is that a small number Medicare, allows Special Needs Plans, or and companies with mostly low-wage of high-cost outliers could significantly SNPs, to specialize in meeting the needs workers who qualify for subsidies in the affect total costs . To address this concern, of particular populations . SNPs that exchange .159 Labor economists teach that it may be important for plans to purchase focus on dual eligibles must coordinate employers will share much of the resulting reinsurance and to have a large number services with Medicaid, but they are not cost savings with workers in the form of of enrollees in each SNP . On the other required to include both Medicaid and higher wages 160. If this takes place, states hand, such a large enrollment level Medicare dollars within a single, integrated can expect increased revenue from income involves a trade-off of making it difficult system that covers the full continuum of taxes and (to a lesser extent) sales taxes . or impossible to slowly phase in this new care . PPACA gives an incentive for such

40 A Quick Recap How states can use PPACA to reduce state budget deficits

• For public employee coverage, claim federal reinsurance funds for early retirees. • Apply PPACA’s strategies for slowing cost growth through delivery system and reimbursement reforms to public employee coverage. High-cost enrollees and their employers can benefit from integrated reforms that include strong HIT support for proactive care management systems like patient-centered medical homes.

• Help localities save money on health coverage through those same approaches as well as through providing access to group coverage in the exchange. Local savings may reduce the need for state-funded local aid.

• Shift state- and locally-funded services into federally-funded Medicaid. This includes mental health and social services for low-income adults, payments to hospitals for uncompensated care, and “General Assistance” health care programs for childless adults.

• Consider shifting Medicaid adults with incomes above 138 percent FPL into the exchange or the Basic Health Program, both of which have subsidies that are funded entirely by the federal government.

• Slow cost growth within Medicaid by applying, to high-cost beneficiaries, PPACA’s strategies for delivery system and reimbursement reforms, described above.

• Achieve savings while improving patient care for dual eligibles by combining Medicare and Medicaid dollars and services into either a state-administered care management program or a private health plan receiving a single capitated payment covering all care. To avoid problems in serving this very fragile population, it may be important to begin with local pilot projects and gradually scale up.

41 Insurance Commissioners & The Center for healthreform/upload/8061 .pdf . Conclusion Insurance Policy and Research, Special Section: As this report goes to press, public Patient Protection and Affordable Care Act & 19 Peterson, op cit . State Insurance Regulation, Accessed June 17, discussion of health reform remains hotly 20 Peterson, op cit . 2010, www .naic .org/index_health_reform_ contested . Some defend the new federal section .htm; National Governors Association, 21 Ronald McDevitt, Jon Gabel, Ryan Lore, Jeremy legislation with fierce ardor, while others Health Reform Implementation Resource Center, Pickreign, Heidi Whitmore, and Tina Brust, advocate its rapid repeal . Accessed June 17, 2010, www .nga .org/portalsiteng “Group Insurance: A Better Deal for Most amenuitem .751b186f65e10b568a278110501010a0 People Than Individual Plans,” Health Affairs, Whether state officials oppose the new /?vgnextoid=7f8844ce25208210VgnVCM1000005 January 2010, 29(1):156-164 . federal law, support it, or remain neutral, e00100aRCRD&vgnextchannel=92ebc7df618a201 0VgnVCM1000001a01010aRCRD . 22 See PPACA Section1312(a)(2) . they now face the daunting task of rolling up their sleeves and implementing the 4 Nominally, coverage extends to 133 percent FPL . 23 In addition, plans must accept new enrollees in However, in determining income for Medicaid response to certain life events such as birth of a legislation as effectively as possible to purposes, 5 percentage points are subtracted new child, death, divorce, marriage, etc . benefit the people of their state . from MAGI . As a result, the effective eligibility 24 The extent of required consultation is not threshold is 138 percent FPL . This report’s goal is to help state officials specified in statute and presumably will be made 5 In 2009, the federal poverty level was $10,830 a clear by HHS through regulations or other understand options for implementing year for a single individual, $14,570 for a 2-person guidance . See PPACA Section 1311(d)(6) . PPACA to achieve important state policy household, $18,310 for a 3-person family, etc . 25 Separate application forms can still be used for goals . For decades, state officials have 6 The meaning of these “unreasonable limits” is to categories of Medicaid coverage that do not base sought to improve access to coverage be defined in regulation . eligibility on MAGI, such as medically needy and care, slow cost growth, and improve eligibility, eligibility for certain adopted and 7 PPACA does not modify previous federal law foster-care children, etc . quality . The new federal law provides concerning citizenship and immigration status powerful new tools for making progress requirements for eligibility . 26 These amounts are indexed after 2014 . towards these longstanding state goals . 8 The statute leaves it to HHS to define the time and 27 Stan Dorn, Ian Hill, and Sara Hogan, The Secrets of Massachusetts’ Success: Why 97 Percent of Without doubt, the challenges of manner through which a state notifies HHS that it does not plan to run an exchange . State Residents Have Health Coverage, November implementation are immense . But the 2009, www .urban .org/UploadedPDF/411987_ policy rewards could be even more 9 PPACA Section 1311(d)(5)(B) . massachusetts_success .pdf . significant . As they have so many times 10 OPM is the federal government’s “HR” office . in the past, officials in states across the Among its other duties, it offers health coverage to federal workers and retirees . 28 Mireille Jacobson and Thomas C . Buchmueller, country will surely take full advantage “Can Private Companies Contribute to Public of this new federal legislation, exercising 11 Over time, these national plans gradually phase Programs’ Outreach Efforts? Evidence from creativity and diligence to secure major up to participating in all exchanges . In 2014 and California,” Health Affairs, March/April 2007, the first few years thereafter, many state exchanges 26(2):538-548; Ian Hill, Corinna Hawkes, Mary gains for their states’ residents . are likely to lack access to national plans . Harrington, Ruchika Bajaj, William Black, Nancy Fasciano, Embry Howell, Heidi Kapustka, and 12 In addition to meeting AV standards, plans at each Amy Westpfahl Lutzky, “Chapter III: Outreach” level may not exceed specified annual limits on in Congressionally Mandated Evaluation of the members’ out-of-pocket costs . Endnotes State Children’s Health Insurance Program: Final 1 Long-term care reforms include new options for Cross-Cutting Report on the Findings from Ten states to provide home- and community-based 13 Chris L . Peterson, Setting and Valuing Health State Site Visits,” prepared by Mathematica care, new spousal impoverishment protections, Insurance Benefits,Congressional Research Policy Research and the Urban Institute for efforts to prevent elder abuse, transparency Service, April 6, 2009 . the U .S . Department of Health and Human initiatives, a new “CLASS Act” to promote 14 Peterson, op cit . Services, Revised June 2004, www .urban .org/ enrollment in long-term care insurance, and UploadedPDF/1001343_schip .pdf . other measures . See, e .g ., National Senior Citizens 15 Thomas D . Snook and Ronald G . Harris, Law Center, The Medicaid Long-Term Services “Understanding Healthcare Plan Costs and 29 Ian Hill, et al ., 2004, op cit . and Supports Provisions in the Health Care Complexities,” Milliman Healthcare Reform Reform Law, April 2010; Carol V . O’Shaughnessy, Briefing Paper, June 2009 . 30 Donna Friedsam, Lindsey Leininger, Alison The Community Living Assistance Services and Bergum, et al ., Wisconsin’s BadgerCare Plus Supports (CLASS) Act: Major Legislative Provisions . 16 Lynn Quincy, What will an “Actuarial Value” Coverage Expansion and Simplification: Early National Health Policy Forum, June 9, 2010 . Standard Mean for Consumers? Consumers Union Data on Program Impact, prepared by the (citing findings of Watson Wyatt Worldwide), University of Wisconsin School of Medicine 2 For example, this section could permit states to December 2009 . & Public Health, Population Health Institute, operate a single-payer health care system . for the State Health Access Reform Evaluation 17 Quincy, op cit . program of the Robert Wood Johnson 3 See Kaiser Family Foundation, Kaiser Health Foundation, October 2009 . Reform Gateway: Health Care Reform and 18 The limit is $5,950 for Health Insurance Reform Analysis, Data and individuals and $11,900 for families in 2010 . 31 PPACA Section 2202 . Information, Accessed June 17, 2010, http:// See Kaiser Family Foundation, Summary of New healthreform .kff .org/; National Association of Health Reform Law, April 21, 2010, www .kff .org/ 32 Social Security Act Section 1943(f), added by

42 PPACA Section 2201 . adult (that is, when someone is a parent who on such an adult could thus be slightly higher . may have been income-eligible under the 33 In a related provision, Section 1413(b)(1)(A) state’s 2009 rules), the state could gather such 53 Under CHIPRA, states have the option to cover (iv) requires forms to be as simple as possible, additional information after eligibility has been children during their first five years of legal “structured to maximize an applicant’s ability to established, thus keeping the application process residence in the U .S . complete the form satisfactorily ”. simple and streamlined . 54 Average annual per capita costs for non-disabled 34 Because of differences between MAGI and 41 Among other benefits, the National Directory Medicaid adults under age 65 were $2,142 in FY traditional Medicaid income eligibility of New Hires provides access to information 2006 . Kaiser Commission on Medicaid and the methodologies, a state may not always know about earnings from multistate employers, Uninsured and the Urban Institute, “Medicaid whether a particular parent would have been which report wages and new hires to one Payments per Enrollee, FY2006,” statehealthfacts. income-eligible under the state’s 2009 rules . state, including for workers employed in other org, 2009 . This is the equivalent of $3,263 in locations . However, PPACA’s cross-reference to 2015, or just 63 percent of the $5,200 that the 35 New York State Dept. of Social Services, DAB No . this provision may or may not provide states Congressional Budget Office (CBO) projects 1134 (1990), cited with approval in Connecticut with access to this data base . That is because as the average subsidy in the exchange . CBO, Department of Social Services, DAB No . 1982 Section 453(l)(1) forbids disclosure except Preliminary Estimate of the Direct Spending and (2005) . See also Illinois Department of Public where expressly permitted by Section 453 . It is Revenue Effects of an Amendment in the Nature Aid, DAB No . 1320 (1992); New York State not clear how HHS and the courts will reconcile of a Substitute to H.R. 4872, March 18, 2010 . Department of Social Services, DAB No . 1216 these provisions . For the lowest-income adults in the exchange, (1991); Ohio Department of Human Services, subsidies will be higher—and it is the higher DAB No . 900 (1987) . 42 Social Security Act Section 1902(e)(14)(D)(ii), amount that will be paid to states for the Basic added by PPACA Section 2202(a) . Health Program . (Note: the translation of 36 A third obstacle, not discussed in the text, FY 2006 costs into 2015 dollars is based on involves child support enforcement . States 43 Added by PPACA Section 2202(a) . projected per capita national health expenditures routinely use Medicaid application forms in CMS Office of the Actuary, National Health to collect information that is used for such 44 Such a policy may already be permitted as a “less Expenditure Projections 2009-2019, released in enforcement rather than to determine eligibility restrictive” eligibility methodology under Social January 2010 .) for health coverage . Depending on how HHS Security Act Section 1931(b)(2)(c) . That is, a interprets the applicable statutes, states may be state could define income as the lesser of (a) 55 In addition, PPACA Section 10333 authorizes— able to (or may be required to) eliminate such income as ordinary determined and (b) income but does not appropriate—funds for questions from Medicaid application forms, in as found by another, specified need-based community-based collaborative care networks which case states could gather this information program . Such a methodology would be “less that provide comprehensive coordinated and after granting eligibility . While such an approach restrictive” since it would not deny eligibility to integrated health care services . would expedite the application process and anyone . See Social Security Act Section 1902(r) raise Medicaid participation levels, some may (2)(B) . It would pass muster under CMS’ object on the grounds that fewer parents would interpretation of “comparability” required cooperate with child support enforcement of eligibility standards, so long as any state 56 As indicated earlier, if administrative costs are procedures if states could not use health resident could apply for the specified need-based incorporated into insurance premiums, federal coverage as leverage to force cooperation . program . See Social Security Act Section 1902(a) tax credits may help pay those costs, along (17) . with other premium payments on behalf of 37 Social Security Act Section 1902(k)(1), added by consumers obtaining coverage through the PPACA Section 2201(a)(2) . 45 Social Security Act Section 1902(e)(14)(H)(i), exchange . added by PPACA Section 2202(a) . 38 Social Security Act Section 1937(b)(1)(D) . 57 On the other hand, if state officials run the 46 PPACA Section 1413(c)(3)(A)(ii) . exchange, they may gain credit for the federally- 39 See undated CMS posting of the State plans financed subsidies that are used to purchase approved by the Secretary under Section 1937 47 Dear State Medicaid Director Letter SMDL# exchange coverage . authority, www .cms .gov/DeficitReductionAct/ 10-005, PPACA # 1, New Option for Coverage Downloads/070607benchmarkssection19 of Individuals under Medicaid, April 9, 2010 . 58 Robert Carey, Preparing for Health Reform: 37 .pdf . The very first state receiving HHS Social Security Act Section 1902(e)(14)(H)(i) is The Role of the Health Insurance Exchange, approval to cover childless adults under PPACA, framed as continuing current Medicaid policies, State Coverage Initiatives, January 2010, www . Connecticut, is providing such adults with which include the option to use less restrictive statecoverage .org/node/2147 . standard Medicaid benefits . HHS Press Office, methodologies . Connecticut First in Nation to Expand Medicaid 59 In the original, this category was termed, Coverage to New Groups Under the Affordable 48 See PPACA Section 1413 . “Market organizer and distribution channel ”. Care Act, June 21, 2010, www .hhs .gov/news/ 49 Dorn, Hill, and Hogan, op cit . 60 Edmund F . Haislmaier, Health Care Reform: press/2010pres/06/20100621a .html . Design Principles for a Patient-Centered, 50 42 CFR 433 .112(c) and 42 CFR 433 111(b)(3). . 40 If a state instead decides to provide newly Consumer-Based Market, Heritage Foundation, April 23, 2008 . eligible adults with benchmark coverage that 51 Kaiser Family Foundation, Health Reform differs from standard Medicaid adult benefits, Subsidy Calculator -- Premium Assistance for 61 Haislmaier, op cit . it could take two steps to prevent this decision Coverage in Exchanges/Gateways, Updated from obstructing the application process: first, 3/26/10, http://healthreform kff. org/. 62 See, e .g ., Katherine Baicker and Amitabh adults who would have clearly been ineligible SubsidyCalculator .aspx . Chandra, “The Labor Market Effects of Rising for Medicaid under 2009 rules because of excess Health Insurance Premiums,” Journal of Labor income or status as a childless adult can be 52 Such an individual would receive cost-sharing Economics, July 2006, 24(3):609-634 . enrolled in benchmark coverage without any subsidies sufficient to raise actuarial value to 87 need to request additional information; second, percent . The cost-sharing amounts in the text 63 See PPACA Section 1333 . when additional information is required to are taken from the above example of an HMO 64 Michael E . Porter and Elizabeth Olmsted determine whether someone is a newly eligible with AV of 89 percent . The actual costs imposed Teisberg, Redefining Health Care: Creating

43 Value-Based Competition on Results, May 2006, Steven Woloshin, and John D Birkmeyer, “How 84 For example, one study found that, in areas of Boston: Harvard Business Press . do elderly patients decide where to go for Switzerland with more health plan options major surgery? Telephone interview survey,” and more complex choices, consumers were 65 Patrick B . Miller, Denise Love, Emily Sullivan, Jo British Medical Journal, October 8, 2005, less willing to change health plans, even when Porter, and Amy Costello, All-Payer Claims 331(7520):821-827 . significant savings could have been achieved by such changes . Richard G . Frank and Karine Databases: An Overview for Policymakers, 74 Judith H . Hibbard, Jean Stockard, and Martin Lamiraud,, “Choice, price competition and Prepared for State Coverage Initiatives by Tusler, “Does Publicizing Hospital Performance complexity in markets for health insurance,” the National Association of Health Data Stimulate Quality Improvement Efforts?” Journal of Economic Behavior & Organization, Organizations and the Regional All-Payer Health Affairs, March/April 2003, 22(2):84–94; August 2009, 71(2)550-562 . Another study Healthcare Information Council, May 2010, Martin N . Marshall, Paul G . Shekelle, Sheila found that, as the number of retirement savings www .statecoverage .org/node/2380 . Leatherman, and Robert H . Brook, “The Public options increased (either in a laboratory setting Release of Performance Data: What Do We 66 In a different model, plans, rather than or in real-world choices among 401(k) plans), Expect to Gain? A Review of the Evidence,” consumers, negotiate prices with providers . participants were more likely to select the Journal of the American Medical Association, That shifts the locus of consumer involvement simplest, easiest-to-understand option, even April 12, 2000, 283(14):1866–74 . from choice of provider to choice of plan, if other, less simple options would have been more advantageous . Sheena S . Iyengar and Emir with incentives to select plans that pass on 75 Andrew Grossman and Robert Moffit, Health Kamenica, “Choice proliferation, simplicity lower provider prices in the form of reduced Savings Accounts and the FEHBP: Perfect seeking, and asset allocation,” Journal of Public premiums . Together, Heritage Foundation, September Economics (2010): 530-539 . Another study 21, 2004, www .heritage org/Research/. 67 Insurers may be reluctant to disclose, as found that, facing an average of 40 choices, Reports/2004/09/Health-Savings-Accounts-and- proprietary trade secrets, payment rates to Medicare prescription drug beneficiaries rarely the-FEHBP-Perfect-Together . providers . That concern could perhaps be select the options that provide maximum addressed by requiring the Centers to keep the 76 Edmund Haislmaier, State Health Care protection at lowest premium cost, and that identity of each insurer confidential, providing Reform: An Update on Utah’s Reform, Heritage if the number of choices were substantially the public and researchers with redacted data Foundation Special Backgrounder, April 9, 2010, reduced, beneficiaries would be much more and syntheses that shield information about www .heritage .org/Research/Reports/2010/04/ likely to make choices that optimize their particular insurers’ payments rates . State-Health-Care-Reform-An-Update-on- welfare . Jason Abaluck and Jonathan Gruber, Utahs-Reform . Choice Inconsistencies Among the Elderly: 68 For a list of state initiatives, see National Evidence from Plan Choice in the Medicare Part Conference of State Legislatures, State Legislation 77 Utah Health Exchange, Health Exchange Update, D Program, February 2009, National Bureau of Relating to Transparency and Disclosure of Health January 12, 2010, www .exchange utah. gov/. Economic Research Working Paper w14759 (Last and Hospital Charges, Updated: April 6, 2009; report1 .html . revised: April 19, 2010) . It thus is not surprising additions reposted January 2010, www .ncsl .org/ that Medicare beneficiaries, including those with default .aspx?tabid=14512 . 78 Haislmaier, 2010, op cit . the most education, express a preference for 69 For an example, see Pennsylvania Health 79 The FEHBP statute lists required benefits using fewer rather than more health plan options for Care Cost Containment Council, Hospital general categories, but plans vary in the precise prescription drug coverage . Thomas Rice, Yaniv Performance Report, 31 Common Medical details of the coverage they offer within those Hanocha, and Janet Cummings, “What factors Procedures and Treatments, FFY 2008: Western categories . influence seniors’ desire for choice among Pennsylvania, September 2009, www .phc4 .org/ health insurance options? Survey results on the reports/hpr/08/docs/hpr2008west .pdf . 80 As a practical matter, premiums are likely to be Medicare prescription drug benefit,” Health lower if the exchange retains the flexibility to Economics, Policy and Law, October 2009 . 70 New Hampshire Insurance Department, “Health exclude qualified plans, thus furnishing it with Costs by Procedure,” NH Health Cost (based leverage to negotiate with plans for reduced 85 One example of a website that currently provides on actual patient experiences between July premiums . information about options available in the 2008 and September 2009, and increased to individual market is ehealthinsurance .com . Post- recognize price inflation) www .nhhealthcost . 81 Amy M . Lischko, Sara S . Bachman, and Alyssa PPACA, a similar website could be even more org/costByProcedure .aspx . Vangeli, The Massachusetts Commonwealth useful, as plans outside the exchange will be Health Insurance Connector: Structure and subject to federal requirements for information 71 See, e .g ., John M . Colmers, Public Reporting Functions, Prepared by Tufts University School disclosure and presentation of plan information and Transparency, The Commonwealth Fund, of Medicine for The Commonwealth Fund, using consistent formats . January 2007; Deloitte Center for Health May 2009, www .commonwealthfund .org/ Solutions, Health Care Price Transparency: Content/Publications/Issue-Briefs/2009/May/ 86 See Consumers Checkbook, Agency and A Strategic Perspective for State Government The-Massachusetts-Commonwealth-Health- Association Access to CHECKBOOK’s 2010 Guide Leaders, 2007 . Insurance-Connector .aspx . to Health Plans for Federal Employees, May 2010, www .checkbook .org/newhig2/more .cfm . 72 Ellen Peters, Judith Hibbard, Paul Slovic, and 82 Cory Capps and David Dranove, “Hospital Nathan Dieckmann, “Numeracy Skill And The Consolidation and Negotiated PPO Prices,” 87 Jon Kingsdale, “Health Insurance Exchanges Communication, Health Affairs, March/April 2004, 23(2):175-181; – Key Link in a Better Value Chain,” New Leemore Dafny, Estimation and Identification England Journal of Medicine, June 10, 2010, Comprehension, And Use Of Risk-Benefit of Merger Effects: An Application to Hospital 362(23):2147-2150 . Information,” Health Affairs, May/June 2007, Mergers . Mimeo, Northwestern University, 26(3): 741–748 . 88 Ann Volpel, Asher Mikow, and Todd Eberly, September 2005 . Marketing State Insurance Coverage Programs: 73 Arnold Epstein and Eric C . Schneider, “Use 83 James C . Robinson, “Consolidation and the Experiences from Four States, State Coverage of public performance reports: a survey of Transformation of Competition in Health Initiatives, November 2007, www .statecoverage . patients undergoing cardiac surgery,” Journal Insurance,” Health Affairs, November/December org/node/164 . of the American Medical Association, May 2004, 23(6):11–24 . 27, 1998, 279(20):1638-42; Lisa M Schwartz, 89 As explained by a researcher at the Heritage

44 Foundation, “[E]mployee turnover and difficulties make this a difficult task that must 99 Reflecting the same basic pattern that emerged employers switching coverage in search of lower be approached carefully to avoid market in Massachusetts, most participants in exchanges rates makes it difficult in traditional group distortions ”. (19 out of 24 million) are projected to be coverage to maintain the continuity needed subsidy recipients . CBO, Preliminary Estimate to successfully implement wellness or disease “If the group is rated as a whole, there is a of the Direct Spending and Revenue Effects of management programs that take more than one potential for adverse selection as the individual an Amendment in the Nature of a Substitute to year to show results . However, when workers, employees select coverage from multiple H.R. 4872, letter to the Honorable Nancy Pelosi, not employers, choose their coverage, they are insurers and become members of separate risk March 18, 2010 . more likely to renew coverage that satisfies their pools . Higher-risk employees would tend to needs and expectations . This gives insurers gravitate toward more comprehensive coverage 100 E .g ., Utah Office of Economic Development, an opportunity to experiment with offering but would only carry with them a premium Office of Consumer Health Services, The long-term incentives, such as premium rebates based upon the average risk of the group . Utah Health Exchange: A Utah Solution for for customers who stay with their plans over a Lower-risk employees, on the other hand, would Utah Businesses, May 19, 2010, www .le .state . number of years and successfully participate in tend toward less comprehensive coverage and ut .us/interim/2010/pdf/SpecialBriefing/ wellness or disease management programs with would carry with them premiums that are UtahHealthExchange .pdf . measurable, personal outcome goals ”. Haislmaier higher than their individual risk would suggest . 101 Mark McClellan, Rising to the Challenge 2010, op cit . Furthermore, for an individual whose risk is average for a given group, the premium may not of Real Health Care Reform, Brookings 90 One study of FEHBP coverage found that, be sufficient to cover costs, even when selecting Institution, October 2008, www .brookings .edu/ in areas of the country where the federal an identical plan from a different insurer if the opinions/2008/10_health_reform_mcclellan . government paid a percentage of premiums risk pools of the two carriers are different ”. Josh aspx . for many plans, age (and the corresponding Goldberg and Brian Webb, Health Insurance 102 Robinson, op cit . associated need for health care) did not affect Reforms (Discussion Draft), National Governors employees’ choice of health plan . Both young Association (NGA) Working Paper, updated 103 John Holahan and Linda J . Blumberg, Is the and old workers selected comprehensive March 5, 2010, prepared by the NAIC for the Public Plan Option a Necessary Part of Health benefits . By contrast, in areas of the country NGA, www .nga .org/Files/pdf/1003HEALTHSU Reform? prepared by the Urban Institute for the where, in effect, the federal government made MMITINSURANCEREFORMS .PDF . Robert Wood Johnson Foundation, June 2009, a fixed dollar premium contribution, older www .urban .org/UploadedPDF/411915_public_ 94 The advantage of using pre-tax dollars, as is and younger workers were much more likely plan_option .pdf . to select different plans, with the older workers required of employers using exchanges in choosing more and younger tending to select both Utah and Massachusetts, is that coverage 104 Blumberg and Pollitz, op cit . less comprehensive coverage . Bradley M . Gray, becomes more affordable to the worker . On Thomas M . Selden, “Adverse Selection and the other hand, consumers are less sensitive 105 Karen Pollitz, Richard Sorian, and Kathy the Capped Premium Subsidy in the Federal to premium differences if they pay their costs Thomas, How Accessible Is Individual Health Employees Health Benefits Program,” Journal of with pre-tax dollars . Walton Francis, Putting Insurance for Consumers in Less-Than-Perfect Risk & Insurance, June 2002, 69(2): 209-224 . Medicare Consumers in Charge: Lessons from the Health? prepared by the Georgetown University FEHBP, presentation at American Enterprise Institute for Health Care Research and Policy 91 Linda J . Blumberg and Karen Pollitz, Health Institute, December 16, 2009 . As noted above, a and K . A . Thomas and Associates for the Henry Insurance Exchanges: Organizing Health heightened sensitivity to premium differences J . Kaiser Family Foundation, June 2001, www . Insurance Marketplaces to Promote Health Reform has the advantage of slowing cost growth but the kff .org/insurance/upload/How-Accessible-is- Goals, prepared by the Urban Institute and the disadvantage of worsening risk segmentation Individual-Health-Insurance-for-Consumer-in- Georgetown University Health Policy Institute among health plans . Less-Than-Perfect-Health-Report .pdf . for the Robert Wood Johnson Foundation, April 2009, www .urban .org/UploadedPDF/411875_ 95 Kingsdale, op cit . 106 For a good summary, see National Association health_insurance_marketplaces .pdf . of Insurance Commissioners (NAIC), Patient 96 If such charges are ultimately reflected in Protection and Affordable Care Act of 2009: 92 If an employer offered its workers multiple premiums, federal subsidies may wind up paying Health Insurance Market Reforms, (undated) actuarial values and a single, uniform premium most of these costs . http://naic .org/documents/committees_b_ contribution, only the more affluent employees Market_Reforms .pdf; and NAIC, Patient 97 Elliot K . Wicks, Building a National Insurance might have the income needed to buy the most Protection and Affordable Care Act: Selected Exchange: Lessons from California, California comprehensive plans . Massachusetts’ rule thus Health Insurance Provisions, (undated) http:// HealthCare Foundation, July 2009, www .chcf . means that, if the most highly-compensated naic .org/documents/index_health_reform_ org/publications/2009/07/building-a-national- workers at a company want generous coverage general_ppaca_selected_health_ins_provisions . insurance-exchange-lessons-from-california; while still gaining the labor market advantages pdf . Elliot K . Wicks, “The Insurance Exchange In of furnishing health coverage to other Health Reform: Essential Characteristics,” employees, everyone at the company must 107 NAIC, NAIC Response to Request for Information Health Affairs Blog, October 14, 2009, http:// be offered that same coverage with employer Regarding Section 2794 of the Public Health healthaffairs .org/blog/2009/10/14/the- subsidies that make the cost affordable . Service Act, May 12, 2010 . insurance-exchange-in-health-reform-essential- 93 Staff from the National Association of Insurance characteristics/ . 108 ERISA may forbid the application of such a Commissioners (NAIC) explained this risk as requirement to self-insured group plans . 98 Massachusetts Connector, Health Reform follows: Facts and Figures, May 2010, www . 109 Massachusetts Health Connector, Commonwealth “Some exchange proposals have suggested mahealthconnector .org/portal/binary/com . Care FY 2011 MCO Procurement Results, giving individual employees of small businesses epicentric .contentmanagement .servlet . Board of Directors Meeting April 8, 2010, receiving coverage through the exchange their ContentDeliveryServlet/About%2520Us/ www .mahealthconnector .org/portal/binary/ choice of any plan offered in the exchange . News%2520and%2520Updates/Current/Week% com .epicentric .contentmanagement .servlet . While the portability of such coverage is 2520Beginning%2520March%25209%252C%25 ContentDeliveryServlet/About%2520Us/Publica extremely attractive, a number of technical 202008/Facts%2520and%2520Figures%25203% tions%2520and%2520Reports/Current/Connec 252008 do. c . tor%2520Board%2520Meeting%2520April%25

45 208%252C%25202010/BOD%2520FY11%2520 121 The SustiNet Health Partnership Board of 131 Robert A Berenson, Paul B . Ginsburg, and Procurement%2520Results%2520V3%25204-7- Directors, Implementing SustiNet Following Nicole Kemper, “Unchecked Provider Clout in 10%2520%25282%2529 .ppt#571,1 . Federal Enactment of the Patient Protection California Foreshadows Challenges to Health and Affordable Care Act of 2010: A Preliminary Reform,” Health Affairs, April 2010, 29(4):699- 110 31 U .S .C . §§ 3729-3733 . Report to the Connecticut General Assembly, 705 . May 30, 2010, www .ct .gov/sustinet/lib/sustinet/ 111 Larry D . Lahman, “Bad Mules: A Primer on board_of_directors_files/reports/sustinet_60_ 132 See, e .g . Stuart Guterman and Heather Drake, the Federal False Claims Act,” Oklahoma Bar day_report_05272010 .pdf . Developing Innovative Payment Approaches: Journal, Vol 76:501 (2005), www .okbar .org/obj/ Finding the Path to High Performance, articles_05/040905lahman .htm . 122 Ronald Brownstein, “A Milestone in the Health Commission on a High Performance Issue Brief, Care Journey,” The Atlantic, November 21, 2009, The Commonwealth Fund, June 2010, www . 112 PPACA Section 1311(c)(1)(A) . www .theatlantic .com/politics/archive/2009/11/a- commonwealthfund .org/Content/Publications/ 113 False Claims Act Legal Center, Why the False milestone-in-the-health-care-journey/30619/ . Issue-Briefs/2010/Jun/Developing-Innovative- Claims Act? [undated] www .taf .org/whyfca .htm . Payment-Approaches asp. x . 123 RAND Health COMPARE, Overview of Bundled 114 Andy Schneider, The Role of the False Claims Payment, Accessed June 20, 2010, www . 133 Aziz Jamal, Kirsten McKenzie and Michele Act in Combating Medicare and Medicaid Fraud randcompare .org/policy-options/bundled- Clark, “The impact of health information by Drug Manufacturers: An Update, Feb . 2007, payment . technology on the quality of medical and health prepared for Taxpayers Against Fraud Education care: a systematic review,” Health Information 124 RAND Health COMPARE, op cit . Fund by Medicaid Policy, LLC, www .taf .org/ Management Journal, 2009 38(3):26-37; Basit Chaudhry, Jerome Wang, Shinyi Wu, Margaret schneider07drugreport .pdf . 125 Kelly Devers and Robert Berenson, Can Maglione, Walter Mojica, Elizabeth Roth, Sally Accountable Care Organizations Improve the 115 Nathan Sturycz, “The King and I?: An C . Morton, and Paul G . Shekelle, “Systematic Value of Health Care by Solving the Cost and Examination of the Interest Qui Tam Relators Review: Impact of Health Information Quality Quandaries? prepared by the Urban Represent and the Implications for Future Technology on Quality, Efficiency, and Costs of Institute for the Robert Wood Johnson False Claims Act Litigation,” St. Louis University Medical Care,” Annals of Internal Medicine, May Foundation, October 2009, www .urban .org/ Public Law Review, Vol . 28, No . 459, 2009, http:// 16, 2006, 144(10):742-752; Richard Hillestad, UploadedPDF/411975_acountable_care_orgs . papers ssrn. .com/sol3/Delivery .cfm/SSRN_ James Bigelow, Anthony Bower, Federico Girosi, pdf . ID1538393_code1241177 .pdf?abstractid=15377 Robin Meili, Richard Scoville and Roger Taylor, 49&mirid=1 . 126 Arnold Milstein, “Ending Extra Payment for “Can Electronic Medical Record Systems ‘Never Events’—Stronger Incentives for Patients’ Transform Health Care? Potential Health 116 The courts have not addressed the question of Safety,” Health Care Reform Center, New Benefits, Savings, and Costs ”. Health Affairs, whether a state agency can recover in a qui tam England Journal of Medicine, June 4, 2009, http:// September/October 2005, 24(5):1103–1117 . action . healthcarereform .nejm org/?p=455. . 134 Many states have enacted medical home 117 Lee Thompson, Consumer Health Assistance 127 Other provisions establish similar programs for initiatives . Connecticut’s Medicaid program, Programs: Bridging Gaps in the Health Care skilled nursing facilities, ambulatory surgical for example, is promoting medical home System, Health Assistance Partnership, Families centers, psychiatric hospitals, long-term care principles by developing a primary care case USA, January 2005, www .familiesusa .org/assets/ hospitals, rehabilitation hospitals, certain cancer management program to serve enrollees . The pdfs/pages-from-hap/survey_report25c1 .pdf; hospitals, and hospice care and move towards program will require primary care providers to Shelley Rouillard, From Concept to Operation: value-based purchasing of home care . hire case managers and will provide feedback to A Guide to Developing Assistance Programs for primary care providers on utilization patterns . Health Care Consumers, prepared by the Health 128 This is a different section than new Section 2705 National Academy for State Health Policy, Rights Hotline for the Kaiser Family Foundation, of the Public Health Service Act, which is created “Connecticut,” Accessed June 21, 2010, www . January 2003, www .kff .org/insurance/upload/A- by PPACA Sec . 1201 . nashp .org/med-home-states/1259 . North Guide-to-Developing-Assistance-Programs-for- Carolina’s implementation of community-based Health-Care-Consumers-Report .pdf; 129 Both this and the following section authorize PCMHs has attracted considerable attention, necessary appropriations, but it is not clear 118 Kingsdale, op cit . with reports of significant net cost savings . See, that any appropriations are required for HHS e g. ., Testimony of L. Allen Dobson, Chairman, implementation . 119 Massachusetts Health Connector, North Carolina Community Care Networks, Commonwealth Care Quarterly Update, 130 Kathleen J . Mullen, Richard G . Frank, and Inc ., “State Initiatives that Improve Health and Board of Directors Meeting, April 8, 2010, Meredith B . Rosenthal ., “Can you get what Control Costs,” U .S . Senate Committee on www .mahealthconnector .org/portal/binary/ you pay for? Pay-for-performance and the Health, Education, Labor, and Pensions, January com epicentric. contentmanagement. .servlet . quality of healthcare providers,” RAND Journal 22, 2009; Mercer Government Human Services ContentDeliveryServlet/About%2520Us/ of Economics, January 20, 2010, 41(1):64-91; Consulting, ACCESS Cost Savings: State Fiscal Publications%2520and%2520Reports/ Meredith B . Rosenthal and R . Adams Dudley, Year 2003 Analysis, June 25, 2004 (letter report Current/Connector%2520Board%2520M “Pay-for-Performance: Will the latest payment to Mr . Jeffrey Sims, Manager, North Carolina eeting%2520April%25208%252C%2520 trend improve care?” Journal of the American Managed Care); Mercer Government Human 2010/April2010CommCareQtrlyupdate_ Medical Association, February 21, 2007, Services Consulting, ACCESS Cost Savings: State DRAFT%252010-0407%2520248 .ppt#384,1 . 297(7):740-744; Lawrence P . Casalino, Arthur Fiscal Year 2004 Analysis, March 24, 2005 (letter Elster, Andy Eisenberg, Evelyn Lewis, John report to Mr . Jeffrey Sims, Manager, North 120 Stan Dorn, SustiNet by the Numbers: Projections Montgomery, and Diana Ramos, “Will Pay- Carolina Managed Care) . For a broader overview of Cost, Coverage, and Economic Impact, prepared For-Performance And Quality Reporting Affect of the patient-centered medical home, see by the Urban Institute for the Universal Health Health Care Disparities?” Health Affairs, April Patient Centered Primary Care Collaborative, Care Foundation of Connecticut, January 2010, 10, 2007, 26(3):w405-w414 . Joint Principles of the Patient Centered Medical www .universalhealthct .org/admin/uploads/1000 Home, February 2007, www .pcpcc .net/node/14 . 0225514b4786d2a059b7 .59056284 .pdf .

46 135 See, e .g . Ronald A . Paulus, Karen Davis, and 145 Where PPACA merely authorizes rather 152 CMS, “Medicaid and CHIP Coverage of Glenn D . Steele, “Continuous Innovation in than appropriates funding, it is left to the ‘Lawfully Residing’ Children and Pregnant Health Care: Implications of the Geisinger Congressional appropriations process to Women,” State Health Official Letter 10-006 Experience,” Health Affairs, September/October determine whether the authorized funding in (CHIPRA # 17), July 1, 2010 . 2008, 27(5):1235–1245 . fact becomes available . With federal budget pressures mounting, it may be difficult to secure 153 42 U .S .C . §1369d(i) . See generally Farley, R . 136 Elizabeth Docteur and Robert Berenson, How appropriations for the new programs established Medicaid Reimbursement for Health Services Will Comparative Effectiveness Research Affect by PPACA . in Institutions for Mental Disease, the Alliance the Quality of Health Care? prepared by the for Children and Families and United Center for Studying Change 146 Maryland Health Care Commission, Overview of Neighborhood Centers of America, May 14, and the Urban Institute for the Robert Wood Maryland Regulatory System for Hospital Oversight, 2009, http://www .alliance1 .org/Public_Policy/ February 21, 2010, see also http://mhcc .maryland . Health/IMD_Exclusion .pdf . Johnson Foundation, February 2010, www . gov/consumerinfo/hospitalguide/patients/other_ urban org/UploadedPDF/412040_comparative_. information/overview_of_maryland_regulatory_ 154 Section 2707 of PPACA authorizes three-year effectiveness pd. f . system_for_hospital_oversight .html; Murray, R . demonstration projects in up to eight states, beginning on October 1, 2010 . As an important 137 Congressional Budget Office, Research on the “Setting Hospital Rates To Control Costs And Boost limitation, these demonstrations cannot involve Comparative Effectiveness of Medical Treatments, Quality: The Maryland Experience,” Health Affairs, September/October 2009, 28(5): 1395-1405 . publicly owned or operated facilities . If a state December 2007, www .cbo .gov/ftpdocs/88xx/ mental health system currently uses publicly- doc8891/12-18-ComparativeEffectiveness .pdf . 147 Engelhard, C . et al, Reducing Obesity: Policy owned facilities, a demonstration project under Strategies from the Tobacco Wars, prepared by the Section 2707 might involve a new set of contracts 138 Karen Davis, “A Patient-Centered Health System,” University of Virginia and the Urban Institute with private facilities, which would care for some American Hospital Association Robert Larson for the WellPoint Foundation, July 2009, see also of the patients formerly seen in publicly owned Memorial Lecture, Washington, D .C ., May 2, 2006 . http://www .urban .org/UploadedPDF/411926_ or operated mental hospitals . reducing_obesity .pdf; Finkelstein, E A. . et al, 139 See, e .g ., Suzan N . Kucukarslan, Michael Peters, 155 U .S . Department of Health and Human Services, Mark Mlynarek, Daniel A . Nafziger, “Pharmacists “Annual Medical Spending Attributable To Obesity: Payer-And Service-Specific Estimates,” Connecticut First in Nation to Expand Medicaid on Rounding Teams Reduce Preventable Adverse Health Affairs, July 27, 2009, 28(5):w822–w831 . Coverage to New Groups Under the Affordable Drug Events in Hospital General Medicine Units,” Care Act, June 21, 2010, http://www .hhs .gov/ Archives of Internal Medicine, September 22, 2003, 148 A third category of preventive services, called news/press/2010pres/06/20100621a .html . 163(17):2014-2018 . “tertiary prevention,” involves patients who have already been diagnosed with chronic conditions . 156 Tucker, A .M . and K . E . Johnson, Cross-Payer 140 Bev Johnson, Marie Abraham, Jim Conway, These services seek to prevent such conditions Effects on Medicare Resource Use: Lessons for Laurel Simmons, Susan Edgman-Levitan, Pat from worsening . Medicaid Administrators, prepared by the Sodomka, Juliette Schlucter, and Dan Ford, Hilltop Institute, University of Maryland, Partnering with Patients and Families to Design 149 For information about an upcoming, scheduled Baltimore County, for the Robert Wood Johnson a Patient- and Family-Centered Health Care allotment for 2010, which includes funding Foundation . May 2010 . System: Recommendations and Promising for states, see http://www .hhs .gov/news/ Practices, prepared by the Institute for Family- press/2010pres/06/20100618g .html . 157 PPACA Section 3021(b)(2)(B)(x) . Centered Care and the Institute for Healthcare 150 Kopicki, A ., Healthy at Work? Unequal Access 158 Note that under this strategy, Medicare dollars Improvement for the California HealthCare to Employer Wellness Programs, prepared by would remain fixed . The state would thus reap Foundation, April 2008, www .ihi .org/NR/ the John J . Heldrich Center for Workforce all the financial gains (if CMS did not object) . A rdonlyres/C810CCBB-2DEB-4678-994A- Development at Rutgers University, May similar approach could apply if the state, rather 57D9B703F98D/0/ 2009, see also http://www .heldrich .rutgers . than a private plan, managed dual eligibles’ care . edu/uploadedFiles/Publications/Heldrich_ 141 See generally Bovbjerg R . R . and R . A . Berenson, 159 CBO, March 20, 2010, op cit . In addition, some Center_WT18 pdf;. Thompson, S . et al . “Factors Surmounting Myths and Mindsets in Medical workers offered ESI would qualify to obtain Influencing Participation in Worksite Wellness Malpractice, Urban Institute, October 2005 . subsidized coverage in the exchange because Programs Among Minority and Underserved ESI would be unaffordable or insufficiently 142 With both this and the previously mentioned Populations,” Family & Community Health, comprehensive to meet PPACA’s requirements . PPACA section, funding is authorized but not July/August 2005, 28(3):267-273; Pearson, S .D . On the other hand, some individuals would gain appropriated . and S . R . Lieber, “Financial Penalties For The ESI under PPACA, because of the individual Unhealthy? Ethical Guidelines For Holding mandate, among other reasons . The net result 143 See subsection (d)(8)(A)(iv) of new Social Employees Responsible For Their Health,” Health of these multiple effects is that CBO projects a 2 Security Act Section 1181, as amended by Affairs, May/June 2009, 28(3):845–852 . PPACA Section 10602 . percent decline in ESI . 151 Author’s calculations, CBO, Estimate of the direct 160 Baicker and Chandra, op cit . 144 See PPACA Section 1311(g)(1) . spending and revenue effects of an amendment in the nature of a substitute to H.R. 4872, the Reconciliation Act of 2010, March 20, 2010 .

47 48 49