“The Secretary Shall….:” The Challenge of Implementing Health Reform’s Affordability Provisions

After some collective breath-holding, health reform is now law. On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act. Action now shifts from developing the legislation to implementing the law’s provisions. Some provisions take effect immediately while others will be phased in over time. The phrase “the Secretary shall” appears regularly throughout the reform law, often followed by a directive to take immediate action, particularly with respect to developing regulations designed to ensure the affordability of health care coverage. Among such provisions, the new law states that:¹

The secretary shall…

• Promulgate regulations defining the young adults who can now remain under their parents’ insurance policies.²
• Develop standards for use by insurers in compiling and providing information for enrollees that accurately describes benefits and coverage.³
• Develop reporting requirements, in consultation with quality experts, for use by insurers with respect to benefits and provider reimbursement structures that improve health outcomes, prevent readmissions, improve patient safety, and implement wellness and health promotion activities.⁴
• Collect and make publicly available reports of insurers’ minimum loss ratios and adjust the ratios to avoid destabilization of the individual insurance market.⁵
• Establish a process for an annual review of unreasonable increases in premiums for health insurance coverage.⁶
• Establish a temporary high-risk insurance pool (through January 1, 2014) for eligible individuals; establish criteria for determining whether insurers and employment-based health plans have discouraged individuals from maintaining their enrollment in earlier coverage based on health status; and develop procedures for the transition of individuals from the high-risk pool to qualified plans offered through an exchange.⁷
• Establish, in consultation with the states, a mechanism, including a Web site, through which individuals may identify affordable health insurance options within their state; and develop a standardized format for the presentation of coverage option information to individuals.⁸

As the secretary undertakes the tasks outlined in the new law, she and her staff will need to rely on research-based evidence that has defined affordable coverage, analyzed the consequences of serious illness, and explored the impacts of premium increases. The speed at which information will be needed to implement various components of the new law is likely to increase as implementation deadlines approach. Moreover, policy priorities are likely to change as health reform provisions are implemented.

Guidance from HCFO-Funded Research

Studies funded by the Robert Wood Johnson Foundation’s Changes in Health Care Financing and Organization (HCFO) initiative offer lessons for policymakers working to implement the new health care provisions, develop clarifying regulations, and monitor whether the reforms designed to ensure affordability are adequate. For example:

• In the absence of a single answer to “what is affordable,” researchers Lisa Clemans-Cope, Ph.D., and Cynthia Perry, Ph.D., of the Urban Institute have estimated the financial burden associated with obtaining insurance coverage through various reform proposals. They have examined the tradeoffs between government costs and household affordability for families of varying income levels.⁹
• The financial stability associated with securing health care coverage cannot be underestimated, particularly for individuals who develop a serious illness. David Dranove, Ph.D., and colleagues at Northwestern University explored the financial impact of serious illness as individuals near retirement. They found that the uninsured, near-elderly who suffer a new, major illness lose between one-third and one-half of their assets to medical expenses while a comparable group of insured individuals experience no significant loss in assets.¹⁰
• Brad Herring, Ph.D., of Johns Hopkins University has examined the relative burden of premium increases borne by employees in the form of lower wages and borne by employers in the form of lower profits. Analyses suggest that changes in employer-paid health insurance premiums have significantly negative effects on worker wages. Over the short term, workers appear to bear about 70 percent of the increase in employer-paid health insurance premiums through relatively lower annual wage increases.¹¹
• In a study examining who actually pays for health care expenses and how costs are distributed across the nation’s mixed public/private financing system, Patricia Ketsche, Ph.D., of Georgia State University has developed preliminary results suggesting that, as a result of higher out-of-pocket and premium costs, many low-income families may either restrict utilization of health care regardless of need or cast bad debt onto providers if they are unable to pay for care. Given that high-income families have lower out-of-pocket spending, researchers are concerned with the possibility of over consumption of services, which also results in inefficiencies.¹²

Policymakers are likely to find valuable information in HCFO-funded studies addressing payment reform, administrative simplification, and Medicare policy, among other issues. Details on these studies and others are available at www.hcfo.org.

Title: The Effect of Public Insurance Coverage and Provider Reimbursement on Access to Dental Care: Evidence from the SCHIP Expansion
Grantee Institution: University of Michigan
Principal Investigator: Thomas C. Buchmueller, Ph.D.
Grant Period: April 1, 2009–March 31, 2011

Researchers will examine the role played by public health insurance in improving access to dental care for poor and near-poor children. Specifically, they will study low-income children in order to assess how Medicaid/SCHIP eligibility generosity affects dental care utilization. They will investigate how changes in program features and market conditions affect the supply of dental care to the publicly insured by addressing the following research questions: (1) What is the effect of public insurance on the probability that a child has an annual dental visit? What is the effect on the total number of visits per year? (2) How does the effect of public insurance on dental utilization vary with key program parameters? (3) How do changes in public dental insurance programs affect provider participation? (4) What was the public dental health insurance environment in the states before SCHIP, and how did it change as a result of SCHIP implementation? (5) How did states change dental provider reimbursement rates with the implementation of SCHIP? The purpose of the project is to develop a better understanding of the effects of public dental coverage in order to inform related Medicaid and SCHIP policymaking.

Title: The Dynamics of Health Insurance Coverage: 1996–2000
Grantee Institution: The Urban Institute
Principal Investigator: Linda Blumberg, Ph.D.
Grant Period: September 1, 2003–October 31, 2005

What are the effects of certain insurance market reforms that were designed to expand coverage? Researchers at the Urban Institute examined the dynamics of health insurance for children and adults under age 65 from 1996 to 2000, a dynamic period characterized by an economic boom and the implementation of national welfare reform and SCHIP. They documented the patterns of insurance coverage and public program eligibility, estimated the impact of the implementation of SCHIP on insurance coverage for eligible children and previously Medicaid-eligible children, and assessed the extent to which the economic expansion affected the insurance coverage of previously uninsured adults. The objective of the research was to inform the design of more effective strategies to maintain or increase insurance coverage and to understand more fully the determinants of participation and crowd-out that need to be addressed when considering coverage expansions. The findings will help predict the implications of (1) coverage reductions resulting from states’ efforts to balance their budgets, and (2) the impacts of economic recession.

Title: The Safety Net and Employer-Provided Health Insurance
Grantee Institution: Northwestern University
Principal Investigator: Anthony T. LoSasso, Ph.D.
Grant Period: October 1, 2001–March 31, 2004

How does the health care safety net affect the private insurance market? Researchers examined how the structure and characteristics of the safety net (i.e., hospitals and federally qualified health centers (FQHC) affect employees’ decisions to accept coverage for themselves and their dependents and employers’ decisions to offer coverage. The researchers posited that a stronger safety net may lead employees to accept jobs without health insurance or refuse coverage if offered. At the same time, they suggested, a stronger safety net may prompt employers not to offer coverage, especially smaller employers with many low-wage, low-skill workers. The researchers used Current Population Survey (CPS) data from 1988 to 1999 and Medical Expenditure Panel Survey (MEPS) data from 1996 to 1999. The objective of the study was to inform policymakers about the decision of employees to accept and employers to offer health insurance coverage and how the safety net influences those decisions.

Title: Methods to Present Quality Information to Assist Consumers to Make Health Plan Decisions
Grantee Institution: University of Oregon
Principal Investigator: Judith Hibbard, Dr.P.H.
Grant Period: January 1, 1999–March 31, 2000

How can information on health plan quality be most effectively presented to consumers? Researchers at the University of Oregon used laboratory studies to examine how consumers process and integrate information in making choices about health plans. While many health plan “report cards” are available to consumers, little is known about how consumers use the information when making decisions. Consumers in a cognitive laboratory situation were presented with different types of information on health plan quality, in different formats, and asked about how they use the information in their decision-making process. The researchers assessed how consumers used and weighted specific pieces of information. The objective of the study was to help determine how best to present information on health plan quality so that consumers value and understand it and thus make maximum use of information on quality when choosing a health plan.

1 See http://democrats.senate.gov/reform/patient-protection-affordable-care-act-as-passed.pdf.
2 Ibid at Sub A, Sec. 2714.
3 Ibid at Sub A, Sec. 2715.
4 Ibid at Sub A, Sec. 2717.
5 Ibid at Sub A, Sec. 2718.
6 Ibid at Sub A, Sec. 2794.
7 Ibid at Sub B, Sec. 1101.
8 Ibid at Sub B, Sec. 1103.
9 www.hcfo.org/grants/defining-affordability-uninsured-and-people-chronic-conditions; see also The Urban Institute, “Premium and Cost-Sharing Subsidies under Health Reform: Implications for Coverage, Costs and Affordability,” Policy Brief, December 2009, www.hcfo.org/files/hcfo/December%202009%20Brief.pdf.
10 www.hcfo.org/grants/economic-impact-adverse-health-events-uninsured-near-elderly; see also Cook, K. et al., “Does Major Illness Cause Financial Catastrophe?” Health Services Research, Vol. 45, No. 2, April 2010;  “Major Illness and Financial Disaster: How Close Is the Connection?” HCFO Findings Brief, Vol. XIII, No. 3, April 2010. www.hcfo.org/publications/major-illness-and-financial-disaster-how-close-connection.
11 www.hcfo.org/grants/how-do-rising-healthcare-costs-affect-worker-compensation; see Herring, B. and M. Pauly, “‘Pay-or-Play’ Insurance Reforms for Employers–Confusion and Inequity,” New England Journal of Medicine, Vol. 362, No. 2, December 30, 2009, pp. 93-105.
12 www.hcfo.org/grants/incidence-financing-national-health-spending.