To read Nathan's entire transcript, download it here.
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Today he answers the question:
It’s clear that dual eligibles initiatives bring a new level of complexity to the government programs marketplace. From your perspective, what makes now such a critical time for these issues? Looking ahead, what impact do you think the Medicaid expansion that you’ve talked about will have on health plans?
Well, now is the time partially because of demographics. We talked about the boomers aging. Keep in mind when the economy hit the skids as it has since the crash in 2008. You’ve got a lot of new beneficiaries that might not think of themselves as being Medicaid eligible but who may be finding under the provisions of health reform that they are. They never expected to be in this place. Nevertheless, they are. So, you’ve got the demographic reality of the boomers aging in.
Keep in mind, we’re going from 45 million Medicare beneficiaries to 80 million beneficiaries in a blink of an eye. That’s profound. We’ve seen what has happened in Japan and other industrialized nations who have been a little out in front of us in terms of that boom. It puts enormous strains on the economy and, no doubt, our listeners are aware of the challenges that it puts the federal and the state treasuries through with the entitlement programs.
And that’s worth mentioning for a second. There is a lot of reform talk here in Washington about the entitlement programs. Everyone knows that earmarks don’t actually increase spending. Actually, not everyone knows that. Earmarks don’t actually increase spending. There are designations within budget priorities that have already been made. There is really not a lot of foreign aid. When people look for things to cut, it always comes back to the entitlement programs. That means social security, Medicare and Medicaid. Well, two thirds of that Medicaid spending has been on everything but these types of beneficiaries. We are not about to cut spending to moms and kids. Frankly on a Medicaid standpoint, probably not going to cut funding to seniors, either. Typically not a good idea to do in an election year. Wouldn’t you know it, it always seems to be an election year (especially these days).
So, you’ve got this demographic issue that’s staring us down in the face. Then you’ve got health reform essentially saying: ‘You know what? We’re going to increase eligibility for this program, not decrease it because it’s the way we’re going to try to get the lower, lower middle class (which some call the working poor) with some coverage here, particularly as so many more of themare finding themselves in a position of need that they maybe didn’t expect to be five years ago.’ They weren’t going to be living high on the hog in retirement, but they had savings. Well, those savings are wiped out now. If they had a little 401K, it’s probably hurting. Most Americans don’t have the benefit of those retirement vehicles.
So, you’ve got a number of forces here conspiring to make us confront this issue. The issue we’re confronting is how we finance care for everyone in a way that doesn’t bankrupt either the federal government or the traditional provider of coverage, which is the employer. Something that is lost in this debate too often is that the cost of care increases as the rate of medical inflation increases. All the payers are in the same boat. Whether it’s Medicare or the employer Boeing, they are paying more and more money every year to provide coverage for those people. Whether it’s the State of California or Medicare Fee-for-Service. We are all in the same boat as payers here. So, while in the short term it’s pretty incredible to think about adding 30 million more people into managed care through the exchanges and millions more through these dual eligibles programs (just a million more this year alone), we’re going to find ourselves in a position where we’ve got a significantly larger amount of people with coverage in this country and we will be forced by the cost of that coverage to reform how we purchase services. Coverage will be something different. Benefits will look something different. We are ending up with this patchwork of coverage here and we are going to be compelled to fix the way that we finance underneath that coverage. There’s no way we can continue on the path we’re on and just add more people to the federal government’s tab. And that’s really what’s happening here.
So, the challenge with the duals, again, everything that’s hard about health care, even harder and with even higher stakes because these are beneficiaries who are tremendously vulnerable. A $2 co-pay or a $5 co-pay is out of reach to these beneficiaries, which is why they receive such heavy subsidies now. They are on the most fixed incomes. They sometimes lack family or community support. We know sociologically speaking how isolating it is to be elderly in this country. So, we need to be cognizant that as we do this reform, we have to hold the beneficiaries harmless. We have to protect them from feeling what is, quite frankly, a great deal of volatility in the structure and the financing of care. They should never feel it. They should never feel the difference. They should instead feel higher levels of service. Our work on the dual eligibles through the Special Needs Program tells us that it is absolutely possible.
It may sound like an impossible issue when you begin to describe the demographic factors and the challenge in providing a good model of care and the challenge of finance, but it can work. There are plans out there that are doing exceptional work in this space. But, every single one of them has something in common, which is that they knew they had to approach their business fundamentally different in order to make this dual eligibles program work. My counsel to the listeners of this podcast is that it is absolutely worth going into this program and serving this population. In fact, it’s a strategic imperative for most plans. But, you’ve got to go in with eyes wide open, as I said earlier, or you will find yourself upside down from a financial standpoint very, very quickly. Again, these members are $30,000 a year or more to care for. Think about that number. It’s extraordinary. It’s as high as an entry-level salary into this economy; $30,000 a year to care for these beneficiaries under the current system. That payment from the federal government is risk adjusted and plans have shown that they are incredibly unsophisticated over the years in managing that risk adjustment score. So, they’ve got to get that right or they will be in a world of hurt a couple of years into the benefit when they start seeing some volume of members being attracted to the plan.
The other interesting thing where at least the Dual Eligibles SNPs are concerned is that they are voluntary enrollments traditionally into these programs and under some of the projects that are being contemplated by CMS now, there may be the auto-assignment of beneficiaries into qualifying plans in those states on a state-by-state basis. Plans obviously will be applying to be qualified here. It’s not going to be random. But, it will be a specific number of plans and they will get these beneficiaries auto-assigned, just as they did with Part D. And that voluntary assignment is, again, a movement of an entire industry towards a retail sales model that is, frankly, alien to most health plans who are operating in this space today. But, one place where they’ve had significant experience in the retail model is Medicare Advantage. So, very interesting times for our payers. Extraordinary opportunities to improve care for these beneficiaries.