Health Reform Consequence: Increased Operating Expense

In nature there are neither rewards or punishments – there are consequences.

Robert Ingersoll (1833-1899), Some Reasons Why

Health reform, like elections, has consequences. Perhaps the major unforeseen consequence of the health reform law, now over a year old, is the jump in operating expenses it imposes on all participants in the U.S. health system.

Consider the news of the day, as reported in Kaiser Health News.

• The New York Times: Nursing homes seek exemptions from health law. It is an oddity of American health care: Many nursing homes and home care agencies do not provide health insurance to their workers. These new expenses fall heavily on Medicaid, which pays for 2/3’s of nursing home expenses. Medicaid cannot afford to pay more to nursing homes to cover health benefits of workers. The new law increases cost of providing these benefits.

• The Hill: The Health and Human Services Department will let two more states — Nevada and New Hampshire — phase in health care reform rules that govern insurers' spending. The new health care law requires health plans in the individual market — people who buy coverage on their own, rather than getting it through an employer — to spend 80 percent of their premium revenues on medical costs. But states can request an adjustment if they determine that immediately implementing the new limits would drive insurers out of the state and disrupt consumers' access to care.

• Politico Pro: HHS approved 221 new annual limit waivers In April. The Obama administration in April granted 221 new temporary waivers to organizations for health care reform's annual benefit limit requirements, according to an update posted on the HHS website late Friday. With the new approvals, 1,372 businesses, unions, insurers and other organizations won't have to comply with this year's requirement to provide at least $750,000 in annual benefits.

• Modern Healthcare: ACO start-up costs higher than estimated, AHA study says Accountable care organizations will likely face start-up and first-year costs six to 14 times higher than HHS has estimated, according to a study released by the American Hospital Association. The study concluded the various elements required to successfully manage the care of a specific population will cost between $11.6 million and $26.1 million — depending on the size of the hospital or hospital system involved in the ACO—and far more than the $1.8 million estimated by the CMS in its proposed rule.

• The New York Times: Health Insurers Making Record Profits As Many Postpone Care' The nation’s major health insurers are barreling into a third year of record profits, enriched in recent months by a lingering recessionary mind-set among Americans who are postponing or forgoing medical care. The UnitedHealth Group, one of the largest commercial insurers, told analysts that so far this year, insured hospital stays actually decreased in some instances. In reporting its earnings last week, Cigna, another insurer, talked about the “low level” of medical use. Health plans anticipate increased costs of doing business because of federal rules requiring them to cover children, young people under parents’ plans, those with pre-existing illnesses, and new rules requiring them to spend 80% on medical care and less on marketing and administrative expenses.


• The Wall Street Journal: The latest Milliman Medical Index, which measures the total cost of health care for a typical family of four covered by a preferred provider plan (PPO), rose 7.3% to $19,393 in 2011. The per-employee cost more than doubled between 2002 and 2011. And the employee’s share of that cost now stands at 39.7%. Outpatient care had the biggest cost hike, at 10%, followed by inpatient care (8.6%), pharmacy costs (8%) and physician care (4.4%). And that health-care overhaul law? It isn’t yet significantly driving or curbing costs, the Milliman report says.

Many of these consequences reflect increased costs of operating a business offering health benefits. It is now more expensive to meet rules and regulations of the new federal health reform law, which, paradoxically, was intended to decrease costs. Increased operating expenses especially concern medical practices, whose expenses for doing business are mounting while Medicare, Medicaid, and health plan reimbursements are either stagnant or failing.