Employer Update

by Christoper E. Condeluci, Principal and sole shareholder of CC Law & Policy PLLC in Washington, D.C.

Get Ready to Discuss Things Like “Medicare for Everyone”

Regardless of what you think about a “single-payer” health care program, a debate on the issue will be coming, and coming soon. Due in large part to the political winds that are currently blowing in the direction of Democratic Congressional candidates. If the Democrats take the majority of the House and/or Senate in the upcoming midterm elections, well then, we can expect a hearty debate on a “single-payer” health care program, along with an examination of hybrid “public option”-like programs. Even if the Democrats do not take the majority in either the House or Senate, I believe Democrats will slowly turn-up the volume on the “single-payer” issue as we inch closer to the start of the Presidential campaign season (due in large part to the fact that the Democrats will have a wide-open “primary” season that will likely begin in January 2019). At this stage of the game, “single-payer” and “public option”-type programs are the top alternatives among Democrats when it comes to health care reform. And, with the failure of ACA “market stabilization,” a strong argument can be made that “single-payer” and “public option”-type programs are the ONLY alternatives among Democrats when it comes to improving the ACA.
- Analysis: Another reason we are talking about “single-payer” today is because Sen. Murphy (D-CT) and Sen. Merkley (D-OR) just introduced an interesting proposal that is NOT “single-payer,” but instead, is a hybrid “public”-like program called Medicare Part E. Under this proposal, employers can actually sponsor an employer plan that actually is this Medicare Part E program. In addition, uninsured and “un-subsidized” individuals seeking coverage in the individual market can “buy into” the Medicare Part E program. And, subsidized Exchange plan holders can use their premium subsidies to purchase the Medicare Part E plan (actually the proposal increases the eligibility for the premium subsidies to 600% of the Federal Poverty Level (instead of 400%)). The way that I understand the program is that Medicare Part E will cover the same benefits that Medicare covers. But, the program will cover other benefits that Medicare does not cover like maternity and pediatric care. It is also my understanding that – like the current Medicare program – Medicare Part E will NOT pay hospitals and other medical providers at the rates private insurance pays them today. Rather, payments to hospitals/medical providers will be lower. BUT – unlike the current Medicare program – the payments to hospitals/medical providers under Medicare Part E will actually be higher than existing Medicare rates. In essence, this Medicare Part E program will find a middle-ground between (1) what Medicare pays and (2) what private insurance pays. It is more-or-less a price control that proponents of the program hope will satisfy the provider community who always prefer private insurance rates because they are higher than any of our nation’s “public” programs. BTW, I am not sure it is going to convince the provider community to be supportive. But, there is merit to the idea of trying to level-the-playing-field when it comes to payment rates under private insurance and Medicare. But, the provider community still won’t like it because they will want the higher private insurance payment rates to help subsidize the even-lower-than-Medicare-payment-rates in Medicaid. Just sayin.’ Proponents of the Medicare Part E plan argue that employers and individuals should have a choice between (1) private insurance and (2) a Medicare-like plan. These proponents also argue that costs will be less due to Medicare’s low administrative costs (although proponents do not also admit that costs will be less because provider payments will be lower than private insurance). Opponents of this idea argue that this type of Medicare “buy-in” program will kill private insurance. I actually look at things differently. A strong argument can be made that it will be Medicare who could get killed. That is, the lower costing Medicare plan may result in employers dumping their older and less healthy employee populations into the Medicare Part E program. This could skew the Medicare Part E risk pool. Yes, the sheer size of the Medicare Part E risk pool may be so large that it can absorb this dumping. But maybe not. And who might be the loser in the end? Answer: The taxpayer. Because the taxpayer would be asked to pay more in taxes to fund a skewed risk pool, all-the-while the private employer market continues to chug-along unabated. I am not suggesting it will play out that way, but it does make you think. And, it leads me to say this: If the debate over “single-payer” and “public option” programs is going to make its way to the forefront – which I think it will – a counter-weight to this debate is a discussion of how private employers are adopting innovative and creative strategies to help control health costs and improve quality. Employers leading the charge here are primarily large self-insured employers who are adopting various value-based care strategies like employer-run ACOs, bundled payments programs (through, for example, a “Centers of Excellence” program), reference-based pricing, employer-direct-to-provider contracting, and utilizing transparency tools. Look, I recognize that value-based care strategies are not a “silver bullet.” But, paying for quality as opposed to volume will have a beneficial impact on the overall cost of our health care system. In addition, developing more shared risk-models will improve quality and health outcomes. How do I know? Because employers that have already put these value-based care strategies into practice have tangible data that shows tangible savings and positive health outcomes relative to fee-for-service. In my opinion, we need more of these value-based care strategies incorporated into Medicare and Medicaid. Not the other way around (i.e., not private individuals and employers “buying into” Medicare and Medicaid). Just sayin.’

JPMorgan, Amazon, Berkshire Hathaway: What Are They Up To?

Ever since JPMorgan, Amazon, and Berkshire Hathaway announced that the 3 companies were banding together for the purpose of “addressing healthcare for their U.S. employees, with the aim of improving employee satisfaction and reducing costs,” everyone has been trying to figure out what these 3 companies would actually be doing. For the most part, we still don’t know what they up are to.
- Analysis: As I explained in my update from January (see attached), we know that the JPMorgan, Amazon, and Berkshire Hathaway partnership is NOT an “association health plan” (AHP). We think, however, that this partnership is being formed so the 3 companies can aggregate the health claims data for the millions of employees employed by this trio, where the companies can then analyze the data to determine (1) health trends and (2) patterns of spending and the amount of spending in different parts of the country and at different health care providers. The goal would be to use this data to negotiate prices with health care providers in the areas where their employees are located. They can also negotiate their own prescription drug prices directly with drug makers as a kind of “purchasing cooperative,” essentially cutting out Pharmacy Benefit Managers (PBMs). I also speculated that these companies could use this data to develop “performance measures” and “specified outcomes” that they would like certain hospitals/health systems to meet, and they may choose to create a “Center of Excellence”-type program where the companies – through a newly created non-profit corporation – would negotiate bundled payments with those hospitals/health systems that met these performance standards. But what I really think this partnership comes down to is developing “technology” that can improve quality, with the aim of lowering health care costs (e.g., developing transparency apps and other education tools for employees, in addition to an electronic data warehouse that can help a provider develop state-of-the-art electronic medical records that can easily be shared throughout an integrated health system). With respect to consumer-facing tools like transparency apps and other electronic-based education tools, these companies will likely “test” their technology on their own employees, with the ultimate goal of going-to-market with this technology so other employers wanting to improve quality and lower costs can purchase it. With respect to technology that will help providers, the 3 companies will likely ask providers that they contract with to incorporate this technology into their day-to-day operations, with the goal of pushing out this technology to other providers on a retail basis at some point in the future. To add to the continued mystery of what these 3 companies may be up to, the CEO of JPMorgran recently explained to shareholders that the goals of the partnership include: “Aligning incentives among doctors, insurers, and patients; reducing fraud and waste; giving employees more access to telemedicine and better wellness programs, and figuring out why so much money is spent on end-of-life-care.” Huh?!? While these are all very important and laudable goals, we still don’t know HOW these 3 companies are going to accomplish these goals. Unrelated to the partnership among JPMorgan, Amazon, and Berkshire Hathaway, it is being reported that while Amazon planned to sell prescription drugs and other medical equipment to large hospitals, the on-line retailer is exiting the retail drug space because the company is not gaining any traction over legacy suppliers of drugs and medical equipment (like McKesson and Wagreens). This is not to say that Amazon won’t try to get into the medical supply and pharmaceutical space in the future. It just means that Amazon is tailoring its sales strategy to smaller hospitals, clinics, and doctor offices. Related to the partnership among JPMorgan, Amazon, and Berkshire Hathaway, it is also being reported that Amazon is still interested in selling prescription drugs direct-to-the-consumer. A strong argument can be made that Amazon may do just that to the millions of employees who will now be a part of the same large customer pool on account of this 3 company partnership. Practice-makes-perfect, so watch out PBMs and others in the PHRMA space.

Walmart Could “Disrupt” Health Care Too Through Prescription Drug Sales and Value-Based Care Strategies

As you may know, Walmart has also been in the news recently, with speculation that Walmart may merge with Humana. One of the key features to the Walmart-Humana “newco” would be retail health clinics in Walmart stores. It would appear that such a move is being driven by the potential merger of CVS-Aetna, where CVS intends to continue to build out their “minute clinics” (retail, walk-in health clinics that provide routine medical services for things ranging from flu shots and treatment for strep throat to physicals and certain screenings). Walmart is also eyeing up low-cost prescription drug sales through its pharmacies. Walmart already offers low-cost prescription drugs to employees and customers. And, there is speculation that Walmart could ramp up its pharmacy-related offerings through on-line purchasing and increased distribution to employees and customers who are covered by private insurance or Medicaid.
- Analysis: I don’t play in the prescription drug/PHRMA space that much, but I do know enough to say this: With 2.3 million employees – and millions upon millions more customers walking through Walmart’s door – if Walmart does indeed move into the retail prescription drug space, I would argue that such a move would be transformative. As reports indicate, Walmart’s workforce – as well as its customer base – tend to be lower-income. Soooo, in my simple mind, the “affordability” factor for low-income individuals who may be covered by a high-deductible employer plan or a Medicaid managed care plan will be attractive to a significant population of consumers (again, millions upon millions). Could Walmart get into the Pharmacy Benefit Manager (PBM) game, and serve as a low-cost intermediary between drug companies and other employers sponsoring health plans for their employees? Again, I don’t know enough about the prescription drug and PBM space to know for sure, but I think I know enough to say this: A PBM is becoming a “dirty word” on Capitol Hill and among Federal regulators, and the notion that PBMs are not sharing any savings from discounted drugs with consumers – or charging high fees as a middleman – is troubling from the perspective that drug prices are just way too high. BUT, I would argue that it is NOT entirely on the PBMs. The drug makers are arbitrarily keeping costs high too. And I am not sure if Walmart – as a “disruptor” – can change that fact. To me, Congress and/or the Administration has to step in. As a benefits guy, I do know that Walmart – as a self-insured employer – is doing some innovative things when it comes to providing health benefits to Walmart employees. For example, Walmart has been on the cutting-edge of various benefit-offerings, ranging from using HSAs and HDHPs as a way of making their employees better consumers of health care to participating in “Centers of Excellence” programs that identify high-quality medical providers and negotiate bundled payments for specific medical episodes. As an example, it was just reported that Walmart recently partnered with Emory Healthcare to create an employer-run ACO, where about 10,000 Walmart employees will have access to an integrated provider network offered through Emory’s health system (with over 2,000 physicians, 7 hospitals, and 200 facilities). Walmart has also negotiated bundled payments with Emory – as part of a “Centers of Excellence” program – for spine surgery and joint replacement that will cover the costs of services from the beginning of the episode to the end or the episode, with some follow-up to cut down on readmissions and costly rehabilitation. As I have mentioned above, Walmart is not the only self-insured employer doing innovative things like establishing employer-run ACOs, participating in “Centers of Excellence” programs, and employer-direct-to-provider contracting. However, not all employers can participate in many of these innovative programs. It really comes down to size. That is, health systems and other medical providers typically do not find it worthwhile to partner with smaller employers. Instead, health systems and medical providers look for a large population of employees located in a particular area, and if the employee population is large enough, the health system/medical provider will be open to contracting with an employer, where (1) the employer can benefit through lower negotiated/discounted prices and (2) the health system/medical provider can benefit by ensuring that thousands of lives are walking through their doors. You know who may also be able partner with health systems and medical providers in a similar manner? Answer: Association health plans (AHP). In this case, those small employers who typically cannot get any traction with health systems/medical providers may be able to convince health systems and medical providers to contract with them and offer negotiated/discounted prices due to the large number of lives participating in the AHP. In my opinion, opportunities like these for AHPs are getting overlooked by the continued negativity around how these arrangements will be formed and operated. I think there are some very cool things that AHPs could do if they are given the flexibility to cover as many lives as possible. As we know, it’s all about the risk pool and the negotiating power. Look, I recognize that AHPs are NOT a “silver bullet.” But without AHPs, small employers won’t be able to do what Walmart and other self-insured employers are doing. But with AHPs, small employers may have opportunities that would not otherwise be available to them.

State Activity / Association Health Plan Update

New Jersey Passes Legislation to Re-Instate the Individual Mandate Penalty Tax for New Jerseyans

Speaking of AHPs, it was brought to my attention that New Jersey did a creative, yet sneaky thing in the guts of the language of the legislation creating its State-based individual mandate penalty tax.
- Analysis: In short, the language says that people can still be covered by an AHP. BUT, if the AHP does NOT meet, among other things, New Jersey’s “small group” insurance requirements (which include the ACA’s small group market reforms), the AHP coverage will NOT be considered “minimum essential coverage” for purposes of the penalty tax, meaning a person covered by an AHP that does NOT meet New Jersey’s small group insurance requirements WILL be subject to a penalty tax. A question can be raised as to whether New Jersey’s treatment of an AHP – as it relates to whether an AHP participant is required to pay a penalty tax or not – is pre-empted by ERISA. My quick reaction is that this requirement is NOT pre-empted by ERISA. As a result, I feel that this is a creative, yet sneaky way to ensure that AHP coverage – which would otherwise be exempt from New Jersey’s (and the ACA’s) small group market insurance requirements – would STILL be subject to these small group rules (because no person is going to want to be covered by a health plan – here an AHP – that exposes them to a penalty tax). As I have explained in prior updates, if a State passes a law that “re-characterizes” a fully-insured “large group” AHP as a small group plan, I DO believe that this “re-characterization” law would likely be pre-empted by ERISA. But, by treating an AHP that does not meet the State’s small group market rules as a plan that does NOT count as coverage for purposes of the penalty tax is an indirect way of “re-characterizing” a fully-insured “large group” AHP – and also a self-insured AHP – as a small group plan, which likely would NOT be pre-empted by ERISA. Will other States follow New Jersey in their attempt to prohibit fully-insured “large group” and self-insured AHPs from being offered within their State? They probably could. BUT, a State would have to enact a State-based individual mandate penalty tax, and it is NOT likely that most States can get a penalty tax through their State Legislature. Maybe States like California and Maryland can pull it off. But, that is probably it. Stay tuned though.