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The McKinsey Healthcare Report and PPACA

July 6, 2011

This post is a summary of an interesting debate that we have been having on the Employee Benefit News LinkedIn Group among industry professionals.

It is a specific answer to a summary of the discussion done here by another member – Jack Towarnicky – a knowledgeable benefits lawyer with WIllis in Ohio.

The one thing that was abundantly clear from this fascinating discussion, and reiterated in every study that has been done, is that people are very confused about this unarguably imperfect law, be they employers or industry professionals. A good review to jog your memory is here. I would note here that there is a lot going on relative to Medicare and Medicaid costs that does not get the attention it should.

Background

PPACA was signed into law in April, 2010 after the most contentious debate in modern US history. In trying to get bi partisan support over 150 Republican supported and numerous other industry amendments were added to the final 907 (not 2700) page bill and still no Republicans supported the legislation.

Unable to get a straight up or down vote on the bill this forced the Democratic controlled Senate to use reconciliation rules to pass it. This process was not terribly unusual as it had been used for important measures in the past by the Republicans including the 2003 Bush tax cuts that required VP Cheney to break a 50-50 tie in the Senate.

In contrast to the unfunded Medicare Part D drug plan passed by Pres. Bush in 2003, which will add $1 Trillion to the Federal Deficit by 2020 ($15.5 Trillion over 50 years), the CBO estimates PPACA’s costs are funded with revenue increase and  will save the budget over $114B from 2014-2020 and over $1 Trillion between 2020 and 2030 while positively impacting nearly 25% of the country. Nearly 40 million uninsured Americans will get coverage and the estimated 30 million underinsured Americans who have limited or restrictive coverage currently will see their coverage improved.

The McKinsey Survey

The McKinsey study that “points to a radical restructuring of employer-sponsored health benefits” that started this thread made the bold prediction that 30% or more of employers would drop their ESI and that from 50 to 100 Million people would be dumped into the exchanges.

When challenged on their findings McKinsey, after 2 weeks and a letter from the Senate Finance Committee released their 29 pages of questions and methodologies and included this statement:

  • The survey …”was not intended as a predictive economic analysis of the impact of the Affordable Care Act.” . . . [T]he survey was more of a point-in-time reading of employer opinion. “As noted, the survey only captured current attitudes,”

Before, and even now after being shown to not be “predictive”, the survey’s results have continued to be used used as a cudgel against PPACA by every program on Fox News, and by political opponents like Karl Rove, Sens. Demint, Johnson and McConnell and many others., further muddying the discussion

Other Research

The survey’s headline grabbing results are a huge divergence from every other study done by CBO, SHADAC, Robert Wood Johnson Foundation, Avalere, Booz Allen, The Urban Institute, Mercer , Rand and others that showed just the opposite.

Three recent surveys done by benefits professionals who are in the trenches with clients in the mid-market everyday are also starkly at odds with the McKinsey study.

  • McGraw Wentworth, the largest independent benefits broker in MI and 8th largest independent in the nation, (500+ employers surveyed)
  • Corporate Synergies (156 financial execs interviewed) , a large NJ/Philadelphia broker, the third largest independent benefits consulting firm in the nation
  • United Benefit Advisors (12,000+ employers surveyed), an affiliate group of 140 mid market benefits brokers and the 5th largest benefit advisory group in the US.

They all reported little inclination by employers to drop coverage due to the law. This is also in keeping with the International Foundation of Employee Benefit Plans (IFEBP) found with <1% of employers planning to drop coverage.

Clearly time will tell what really will occur but in trying to read the tea leaves work done by folks who work daily with the employers who will make these decisions trumps any academic work by any consulting firm of any type.

Highlights to Date

Jack pointed out the High Risk Pool (poor use) and early retiree results (over subscribed) to date and how they have missed CBO projections to highlight the difficulty of predicting the future.

Some other Initial impacts of PPACA included that have become effective over the last year are:

1)      Children to age 26 – Over 1,000,000 have signed up to date and it is estimated that well over 1.5 million will do so before the end of 2011 compared to the original HHS estimate of 1.2 million

2)      $250 Donut hole credit for Med Part D – over 300,000 seniors have got checks in 2010.

3)      50% off Name-brand drugs through the donut hole – So far in 2011 478,000 seniors have saved $260 M with this new benefit.

4)      Free Preventive care for Seniors – over 150,000 seniors took advantage of this new program in the first quarter alone.

5)      Small business tax credits

6)      Tort Reform – $50 million is available for five-year demonstration grants to states to develop, implement, and evaluate alternatives to current tort litigations

The issue of medical bankruptcies will be addressed with the removal of annual plan maximums and lifetime limits on coverage that begin in 2014. This will benefit all Americans by removing the spectre of bankruptcy due to medical issues.

Massachusetts

MA was also referenced in Jack’s review and that state has seen a rise in ESI from 70-76% since Romneycare went into effect and the facts in MA on how popular it is, if wait times have really increased due to it are a source of great debate. A great overview of the MA program is here. MA had the highest healthcare costs per capita in the US before reform and the still do. Their annual cost increase have not turned downward or accelerated since the plan went into effect.

The MA program did not enact any minimum plan standards and any rules like the MLR to move insurers into more efficient operating models and partnerships with their payors. PPACA will help them clearly in these areas as they are grappling to bend the cost curve.

Exchanges

Finally the state based exchanges ( for individuals and groups <50) are in the early stages of getting going in a number of states, including some of the 28 suing to have PPACA overturned in the various lawsuits. They have gotten a late start but with focus still have 2 ½ years until going to work. The challenges here are not technological but political and I expect we will see both well though successes and some poorly implemented failures.

Former Republican WI Governor and HHS Secretary Tommy Thompson views the exchanges as critical to long term reform efforts in the “50 state laboratories”, even if SCOTUS does overturn the law:

Conclusions

I had 3 main takeaways from this discussion that really is a microcosm of the national debtate.

1) The main thing I have learned  is how confused and misinformed people of all backgrounds are. The studies all showed the same thing for employers. There is also an inherent assumption that the Government screws everything up and will here that seems to then color further opinions.

There is a lot in this imperfect law but the negative drumbeats of the long debate and the politicians and right wing media – “death panels”, “2700 page bill”, “Waivers for supporters”, “government takeover”, “Chicago style politics”, “Read it to find out what is in it” , “rammed down our throats”, have become the accepted norm for many, not digging in and learning what the facts are right or wrong.

Also after being critical people offer few, if any, practical solutions offered other than leave it to the “free market” and “consumers” to solve the problem.

2) As expert as folks on this thread are in the industry, the vast majority have wide experience sets in their discipline, few with real depth across the entire problem. We all know its complex and we know what our area and personal experiences but not much more.

3) There are a lot of “oxs being gored” in a change like this and , not surprisingly, that really colors the debate. Some more than others. Brokers/Agents are fearful of their role in the future is but one example. No one ever said things would always be the same and change is hard especially when it effects what you do or will do in the future in any role.

Change always brings opportunity and big change like PPACA, brings even bigger opportunities if one understands the law and adapts their business to take advantage of it and help employers and consumers.

The reality is that PPACA is the law whether you like it or not and we all need to get as educated as we can and I suspect many of us will see that the long term value from many areas in the law.

All this tells me is that we need to continue have substantive discussions in diverse groups like this that educate everyone and hopefully empower folks to get more knowledgeable and ready to deal with the future as well as generate ideas to make reform work.

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