Healthcare Reform Alert

by Julie Wallace

June 5, 2009

Major changes that the President is advocating promise to aggressively control costs for government-paid medical care, while increasing medical expenditures for everyone else.  Some of the major changes President Obama went on record on June 2 as supporting include: 

1) A new government-sponsored health plan to compete with private health insurance.  Worst-case, such a plan would pay providers Medicare rates plus 10 percent, as Senator Kennedy has proposed.

2) Greatly increased executive control of costs for Medicare and Medicaid, whose fiscal policies and payment rates would be directed by an advisory committee, and would be adopted unless explicitly opposed by Congress.

3) Encouraging leading local integrated delivery systems, such as Mayo Clinic and Cleveland Clinic, to partner with government plans to radically reduce costs.  This idea has been heavily promoted by OMB Director Peter Orszag based on research on geographic variations in care conducted by the Dartmouth Atlas of Healthcare.

Provisions #1 and #2 above will impact medical costs for workers’ compensation payers as costs are shifted due to the following impacts on providers and private insurers:

• Conservatively estimating that the government plan will acquire even half of the current private insurance enrollment, the federal government will be in charge of setting the payment rates and reimbursement rules for an estimated 70% of healthcare services.  This will be a new era of the American public’s relation to the federal government.
• Payments to medical providers will be significantly and swiftly cut for government-funded care, and more procedures will be ruled to not be covered by government plans.
• Private health insurers will have to re-engineer their business models to provide value to employers vs. what the government-sponsored plan can provide.  More aggressive controls over prices and utilization are their major competitive tools.

The resulting implications for workers’ compensation payers of the above impacts are predictable:  (i) There will be significant increases in workers’ compensation medical charges and utilization as providers struggle to maintain income levels in the face of massive federal medical payment cuts; (ii) Workers’ compensation PPO discounts are likely to materially shrivel in the future.

Equally alarming, if not more so, provision #3 above will negatively impact access to quality medical care for workers’ compensation patients.  There will be limited access to better physicians in many markets within a few years, as higher quality and cost-efficient providers are drawn into the government plan and their practice schedules are overrun with government plan enrollees.  Timely access to top specialists will thus become increasingly difficult, leaving workers’ compensation patients under the care of providers on lower tiers in terms of quality and cost-effectiveness.  Lower quality care could cascade into slower returns to work and higher indemnity costs.

The proposed reforms that the President outlined in his June 2 letter to key senators will indeed have implications for workers’ compensation payers that are dramatic, unintended, and adverse.