Healthcare Economics: Market, Policy, and Trends

Stethoscope siting on money symbolizing the economics of healthcare.

When you consider healthcare’s economic challenges, maintenance needs, and diverse population of doctors, patients, nurses, and support staff, running a hospital is equivalent to managing a small city. However, if all of that were not challenging enough, changing government regulations for prescriptions, healthcare policy, and insurance make the job of the hospital administrator seem like an endless roller-coaster ride.

During the 2018 Imaging Conference & Expo, held February 18 – 22 at the M Resort Hotel and Casino, Thomas Szostak, Director of Healthcare Economics, Canon Medical Systems USA, Inc., gave an insightful presentation on Healthcare Economics: Market, Policy, and Trends.

It has been eight years since the Affordable Care Act (ACA) was signed into law. For hospitals and doctors, the ACA became the new normal and a stabilizing factor with everyone knowing the rules of the game.

The ACA has resulted in the biggest expansion of the social safety net since the introduction of Medicare and Medicaid in 1965. The three-tier goal of the ACA was to provide:

  • Access – Since the institution of the Affordable Care Act (ACA), the uninsured population has dropped to 28.6 million and the fastest growing sector of insured, 71.2 million persons, have been added through Medicaid and Children’s Health Insurance Program (CHIP) as many states that have elected to expand their Medicaid programs.
  • Quality – holding medical providers accountable for services purchased on behalf of Medicare Beneficiaries.
  • Cost – Extending the solvency date of Medicare Health Insurance from 2018 when the trust was to be depleted, to 2029.

However, the single largest influencer in health policy is the federal government and the shape of health policies are determined by the White House and Congress. In 2017, a new team in DC, with a differing philosophy than the prior administration, came into power with the pledge of “Repeal and Replace,” wanting less federal government intervention and more states’ rights and private sector involvement.

This new team has a three-pronged approach in working to dismantle the Affordable Care Act.

  1. Budget reconciliation – The restriction of funding to different aspects of the ACA
  2. Administrative – Rulemaking process through the Dept. of Health and Human Services
  3. Legislative initiatives – That would require 60 votes in the Senate to move legislation forward.

After nine tries, the House and Senate could not agree on legislation, and the Affordable Care Act remains the law. However, there have been some modifications to the ACA:

  • Two-year suspension of the medical device tax
  • Cadillac Insurance Tax (a 40 percent excise tax on employer plans exceeding $10,200 in premiums per year for individuals and $27,500 for families) delayed until Jan. 1, 2022 (adding $87 Billion to the deficit)
  • CHIP funding extended for ten years
  • Health Insurance Tax suspended for 2019
  • Elimination of the insurance mandate

Despite the reduction in time for the open enrollment period (from three months to six weeks), and the cut in enrollment advertising, 12 million persons signed up in the Health Exchange marketplaces for 2018 and ACA enrollment remains stable.

Even though there is no “Repeal and Replace” legislation on the agenda for 2018, the Whitehouse, through the Department of Health and Human Services (HHS) is working to let the ACA “explode” and die. One way to accomplish this is through budget cuts and removing the $7 billon in federal subsidies to be paid out to those low-income individuals qualifying for “cost-sharing reductions” in the individual marketplace. These cost-sharing subsidies help those with incomes between the poverty line and 2.5 times the poverty line and have gone to help these lower income earners pay their deductibles and out of pocket costs for healthcare. The money is different than the federal subsidies that they would receive to purchase insurance in the marketplace. Analysists have projected that If this income group were unable to have health expenses subsidized, it would result in numerous policy defaults and burden the provider market with increased bad debt.

The individual market can also be destabilized further as HHS now allows patients to keep pre-ACA health plans. These are skeletal health plans that offer very little coverage in the event that a person is ill. Again, as more people move out from purchasing health plans within the marketplace limiting the pool of individuals, will most likely leave patients that require more medical care in the program. The net effect will be skyrocketing premiums as healthy people elect to either not purchase or purchase plans in the commercial market.

Kaiser Family Foundation estimates that premiums would increase by 25 – 30% if the individual mandate is not to be enforced and the subsidies for lower incomes to pay deductibles and health expenses is removed.

And while one of the bedrocks of the ACA was to provide coverage for persons with pre-existing conditions, the State of Idaho has decided to limit annual spending and charge higher premiums to people with those pre-existing conditions. HHS Secretary Azar has not committed to enforcement of the ACA rules. If successful, other states might follow.

Even as some ACA attributes become delayed, watered down, or eliminated, some positive things are happening. Payments for medical services are being based on the “Quality-of-care” rather than a simple “fee-for-service.” This includes Penalties for excessive readmissions, value-based purchasing, and hospital stay acquired conditions/infections.

One of the biggest changes comes in the form of the Bundled Payments for Care Improvement Initiative which is comprised of four broadly defined models of care, which link payments for multiple services that beneficiaries receive during an episode of care. Under the initiative, organizations enter into payment arrangements that include financial and performance accountability for episodes of care. These models may lead to higher quality and more coordinated care at a lower cost to Medicare.

Each year, the Congressional Budget Office (CBO) produces a report in January entitled the “The Budget and the Economic Outlook Report” which discusses the concerns regarding the budget deficit and federal spending programs required by statute that have an impact on the overall health of the U.S. economy.

Three concerns have dominated the report since 2011, aging population, federal funds for expansion of Medicaid under ACA, and federal subsidies to pay to purchase health insurance for those who qualify base on income tiers. A fourth concern is indirectly related to the top three which is the interest on the federal debt.

The report shows that the per capita cost of care in the US continues to escalate from $8,680 in 2011 to $10,348 in 2016, a jump from 17.3 percent of the GDP to 17.9 percent. It is anticipated that by 2018, healthcare will consume 20 percent of our economy.

What most people don’t realize is that the federal government is the largest purchaser of healthcare, spending $679 Billion on Medicare, $566 Billion on Medicaid, and $499 Billion on VA and Military. The commercial employers spend $1.135 Trillion on healthcare and the consumer out-of-pocket amounts to $350 Billion.

The United States continues to be the greatest purchaser and consumer of healthcare services in the world and outspends most developed countries by over 250 percent. And, as our population continues to age at a rapid pace, the cost continues to build. Interestingly, even though we spend the most on healthcare, we still manage to have the lowest life expectancies among developed countries with an average of 78.8 years when compared to other developed countries whose averages range from 83.4 down to 80.4.


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