More Than 500,000 Ineligible Individuals May Have Received ACA Subsidies

Under the Affordable Care Act, individuals earning between 100 and 400 percent of the federal poverty level are eligible to receive tax subsidies called Advance Premium Tax Credits to reduce the amount owed by the individual for the purchase of health insurance through an exchange. These subsidies are paid in advance by the federal government to the insurance company on the individual’s behalf. One qualification for eligibility of such a subsidy is that the individual be “a citizen or national of the United States or an alien lawfully present in the United States”.  If an individual cannot produce the necessary documents to verify their eligibility, the individual must still be permitted to enroll in coverage and has 95 days (or more) to provide sufficient documentation before coverage may be terminated.  The U.S. Senate Committee on Homeland Security and Governmental Affairs estimates that more than $765 million may have been paid on behalf of ineligible recipients between September 2014 and September 2015. These calculations are based on the number of terminations made and estimates of the length of time individuals received coverage prior to termination, the average number of enrollees receiving tax credits, and the amount of the average tax credit.

Federal Spending on Major Health Care Programs Will Surpass $2 Trillion in 2026

Last week, CBO released its latest Budget and Economic Outlook. In this report, CBO notes that the deficit in 2016 is expected to be $544 billion and federal outlays will rise by 6 percent, to $3.9 trillion, compared with 2015. Mandatory spending—such as that for entitlement programs like Social Security, Medicare, and Medicaid—will rise $168 billion this year. Federal spending on major health care programs will account for the largest portion of this rise as federal outlays for Medicare, Medicaid, exchange subsidies, and the Children’s Health Insurance Program (CHIP) will increase $104 billion (11 percent) in 2016. Last year was the first that federal spending on these programs surpassed $1 trillion and in 10 years federal expenditures for these programs will be more than $2 trillion. It is important to keep in mind this does not account for state spending on health care, which was nearly $200 billion in 2014 for Medicaid and $3.9 billion for CHIP. When state spending is added to these totals, spending on Medicare and Medicaid alone will reach $2 trillion in 2023. States have been spending roughly a quarter of their budgets on Medicaid for years now, and soon the federal government will be spending roughly a quarter of its budget on health care programs (as shown by the yellow line in the chart below).

The Regulatory Burden of the Affordable Care Act

The Affordable Care Act (ACA) was signed into law nearly six years ago. Since that time, 106 regulations have been finalized to implement the ACA. These regulations will cost businesses and individuals more than $45 billion and will require approximately 165 million hours of paperwork in order to comply. In addition to these regulations, hundreds of guidance documents regarding the ACA have been published by various federal agencies during this time as well. However, more regulations—and additional costs—are still to come. Regulations for one of the most expensive and burdensome provisions of the ACA—the “Cadillac Tax”—have yet to be written. Guidance documents were published last year, but a final rule may not be published for a few more years given that the implementation date of the tax was recently delayed until 2020. The cost of each ACA regulation published so far has averaged $426 million and required 1.6 million hours of paperwork.

High Prescription Drug Costs Affecting Very Few Patients

Medicare spends 15 percent of its total budget on prescription medications —mostly due to high utilization, rather than high drug costs. The top 80 drugs, by cost and volume, are used by 18.7 million Medicare Part B and Part D beneficiaries and cost Medicare and private plan sponsors nearly $50 billion in 2014.  This is according to data published by the Centers for Medicare and Medicaid Services (CMS). Using a weighted average to account for the low use of the most expensive drugs—shown in the chart below— reveals a different picture. For the top 40 Part B drugs, the weighted average total spending per user is $6,517. Given 20 percent cost share required of beneficiaries in Part B, the cost to the patient averages $1,292 annually. For Part D, the weighted average spending per user totals $2,424. Average cost-sharing for Part D beneficiaries for these drugs is 6.5 percent, costing beneficiaries, on average, $288 annually. Drugs with total annual spending over $10,000 per user (of which there are 38) are used by only 1 percent of all Medicare beneficiaries and account for only 3 percent of the total Medicare budget in 2014.

Reducing Obesity Rate Could Save Billions Annually

The U.S. has seen a decrease in the rate of cardiovascular deaths of 38 percent per 100,000 people over the past 25 years. Unfortunately, this remarkable improvement has been simultaneously countered by a 42 percent increase in the number of obese adults. While fewer people are dying from cardiovascular disease, more people are living with multiple other chronic conditions associated with obesity, such as diabetes, high blood pressure, and cancer.  These chronic conditions are costly to treat and contribute to an increase in the nation’s health expenditures.

Medicare Beneficiaries Using More Appropriate Care Settings

As policymakers look for ways to “bend the health care cost curve,” proposals inevitably focus on various methods to increase use of more efficient/higher-value products and services. This may include the use of cheaper and/or more effective services, or the use of more appropriate care settings (i.e. not going to the emergency room for non-emergent care). While total spending per beneficiary has not declined, data shows that over the last decade or so, there has been a noticeable shift in where Medicare beneficiaries receive care, and it points in the right direction.  Spending on inpatient hospital services, as a percentage of total spending per Medicare beneficiary, decreased 26 percent between 1999-2012.  At the same time, spending on outpatient hospital services increased 71 percent and spending on home health care increased 12 percent. While spending on hospice care in 2012 was still only 4 percent of total spending per beneficiary, that is nearly triple the share of spending on hospice in 1999. With 10,000 baby boomers retiring each day and beneficiaries living longer, it is imperative that we continue to build upon this trend of treating individuals in the most appropriate setting.

National Health Expenditures in 2014 Grew at Fastest Pace Since 2007

National health expenditures surpassed $3 trillion for the first time in history last year, with the U.S. spending an average of $9,523 per person in 2014. Total expenditures grew 5.8 percent from 2013—the fastest rate of growth since 2007. An increase in the number of individuals with private insurance and large increases in the number of individuals enrolled in Medicaid contributed to the growth in spending, along with the use of new pharmaceutical treatments; prescription drug spending increased 12.2 percent. The net cost of health insurance increased 12.4 percent—the second time since 2009 that the net cost of insurance has grown by double digits in a single year. With the implementation of hundreds of new health care regulations, the cost of health insurance has grown 41 percent from 2009 to 2014. Spending on hospital care increased 4.1 percent last year and spending on physician and clinical services increased 4.6 percent. The chart below shows the growth in health care expenditures, by category, for each year since 2009. During this period, health expenditures per capita have grown 1.1 percent faster than gross domestic product (GDP) per capita.

Worldwide Spending on Medicines Will Reach $1.4 Trillion in 2020

Spending on medicine across the globe is expected to reach $1.4 trillion in 2020, according to a new report from the IMS Institute for Healthcare Informatics. The growth in spending over the next five years (29-32 percent) is expected to slow slightly from the five years prior to 2015 in which global spending on medicines increased 35 percent. The U.S. will account for 41 percent of spending on medicines worldwide. Specialty medicines will account for 28 percent of all drug spending in 2020, more than one-fourth of which will be for oncology medicines which will make up the majority of new medicines. However, most of the spending on specialty drugs will occur in developed markets, which will spend, on average, three times as much of their drug expenditures on specialty products compared with “pharmerging” markets.  In 2014, the U.S. spent $124.1 billion (33 percent) on specialty drugs, the biggest driver of which was for curing Hepatitis C.  More will be spent on treating non-communicable diseases in 2020 worldwide than will be spent treating communicable diseases, cancer, and diabetes combined.

Medicare Part B Premium Increases for 2016

The Centers for Medicare and Medicaid Services (CMS) just announced the new premium amounts Medicare beneficiaries will be required to pay to receive physician and hospital outpatient services under Part B in 2016.  These amounts are lower than they would have been had Congress not acted to prevent sharp increases for many due to a little known “hold harmless” provision. This provision prevents Medicare premiums from rising for certain individuals if there is no “Cost of Living Adjustment” for Social Security benefits in a given year—which there will not be for 2016—which consequently forces the beneficiaries not held harmless (approximately 15.6 million individuals) to pay a much larger share of the Part B cost increase. All beneficiaries not held harmless—those newly-eligible, dually-eligible for Medicare and Medicaid, late retirees, and higher-income beneficiaries—will face a 16 percent increase in their premiums from last year.  The Part B deductible for all beneficiaries will be $166, up 13 percent from $147 in 2015. The Part A deductible for inpatient hospital visits will also increase for all beneficiaries from $1,260 to $1,288.

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