Health Care Reform Update: Anticipated Cost Implications

Yesterday brought a couple of potentially substantial changes to Health Care Reform that have not been discussed in the media. First, the Federal Appeals Court in Virginia reversed a lower court ruling that the Health Care Reform law is unconstitutional. The reasoning behind it being declared unconstitutional is what makes this interesting. It has been the general assumption that the U.S. Supreme Court would eventually have to make the final decision on the constitutionality of Health Care Reform and that it would decide sometime in 2012. However, if the Supreme Court follows the logic of yesterday’s ruling the decision could not be made until 2014–after the law is scheduled to become effective.

Second, in his speech last night, the President made job proposals that would cost about $450 billion. He then said that he would look for the Super Committee, already created by the debt limit compromise to find $1.5 trillion of budget reductions, to come up with this $450 billion on top of the $1.5 trillion. It was expected that a large portion of the original $1.5 trillion would come from money budgeted for Health Care Reform. Those original dollars of cut would have certainly cut into the impact and effectiveness of Health Care Reform. Now that another 30% of cuts will be necessary, implementing Health Care Reform will be even more difficult.

On a related note, the hospitals have begun lobbying to make part of the $1.5 trillion of cuts come from raising the eligibility date for Medicare from 65 to 67 or higher. In addition to cutting the budget and deficit this move would actually increase revenues to the hospitals because they get reimbursed about 30% more for non-Medicare patients than they do for patients who have Medicare. Hospitals are facing very substantial reductions in reimbursement as the result of Health Care Reform and looking to find ways to get an increased share of their reimbursements from employer sponsored group employee benefit plans. Keep in mind that if this type of change occurs, the cost of employer sponsored health care plans will rise even more than normal.

The second most powerful person involved with the implementation of Health Care Reform, Donald Berwick who heads up Medicare, recently described Health Care Reform as “an expedition of discovery”. One has to wonder how that “expedition” is going to be affected by drastic reductions in funding levels that were probably already inadequate when the law was passed. It appears that Health Care Reform as it stands is going to get more and more difficult to implement.

These developments should tell plan sponsors to plan for the future on two tracks:

The first is to assume that Health Care Reform will go into place in 2014 and plan accordingly.

The second track is to plan to do what makes the most sense for your organization assuming that Health Care Reform will not ever become effective. Reality will probably lie somewhere in the middle.

Posted by Jim Farley

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