Healthcare reform enacted last week is the most sweeping change Orange County’s modern healthcare industry has seen, with carrots and sticks for just about every sector.
For the county’s hospitals, medical device makers, drug companies and others, reform is expected to boost the number of insured patients using their products and services.
The downside: The law also brings taxes and more regulation for some.
For employers, new mandates on insurers could drive up their cost of providing healthcare to employees. But they also get the option to shift workers to government-backed programs.
On the whole, reform seems to be a mix of gains here and hits there with the full effect still several years out.
“It will take years before it can be determined whether healthcare reform will be as momentous as Medicare,” said Paul Feldstein, a professor of healthcare economics with the University of California, Irvine’s Paul Merage School of Business.
Here’s how the reform looks for the county’s major healthcare sectors:
Hospitals
The reform keeps a $155 billion, 10-year deal to lower reimbursements to hospitals from the federal Medicare and Medicaid health programs. That’s a tradeoff for a projected boost in insured patients that’s expected to reduce hospitals’ cost of treating the uninsured.
“The good news is this bill endeavors to reduce the uninsured,” said Barry Arbuckle, chief executive of MemorialCare Health System, a Fountain Valley nonprofit with three local hospitals. “It’s the right idea.”
Arbuckle called the law insurance reform that doesn’t change how healthcare is delivered.
He said he’s cautious about how it will look in practice.
“The implementation, as is sometimes the case, is not ideal because politics and whatnot get in the way,” Arbuckle said.
Insurers
Health insurers appear to bear the brunt of changes in how they do business, including bans on denying coverage for pre-existing conditions and ending lifetime coverage limits.
They’ll also have to pay about $70 billion in added taxes on premiums starting in 2014.
“The health insurers are a little concerned,” Feldstein said. “They’re probably a loser.”
The county isn’t home to any big insurers, but most of the major providers operate here, including Aetna Inc., Cigna Corp. and WellPoint Inc.
Minnesota’s UnitedHealth Group Inc., which employs around 3,800 people here and has about 220,000 enrollees in the county, declined to specifically address how reform will affect its operations.
Reform also holds the prospect of more business for insurers with a mandate for everyone to carry a healthcare policy.
But penalties for people who don’t buy health insurance are “kind of low,” Feldstein said.
Starting in 2014, a person without healthcare coverage would pay a $95 penalty that would increase in following years.
In the near term, young, healthy people could opt for the tax instead of paying $200 to $400 in monthly premiums for an individual healthcare policy.
That could drive premiums up for others as insurers end up with more older, sicker people on their rolls, Feldstein said.
Device Makers
The county’s medical device makers are among those being hit with a reform tax: The industry is set to pay a $20 billion, 10-year levy on sales. That’s down from an originally proposed $40 million tax.
The tax starts in 2013, versus earlier proposals to start it this year.
Medical device makers are likely to pass the tax on to hospitals and insurers, running counter to the reform law’s efforts to check costs.
AdvaMed, a Washington, D.C.-based trade group that has deep ties with local device makers, fought to scrap the tax and was able to get it reduced.
James Mazzo, president of Abbott Medical Optics, a Santa Ana maker of eye surgery devices and contact lens products that’s part of the Chicago area’s Abbott Laboratories, is AdvaMed’s chairman.
Other local members include Irvine-based heart valve maker Edwards Lifesciences Corp. and Brea’s Beckman Coulter Inc., a maker of medical testing and research products.
An AdvaMed spokesman said the group likes the reform law’s expanded insurance coverage but is “concerned about the effects of the medical technology tax.”
Employers
Companies with 50 or more employees are required to provide health insurance to their workers or pay into a government-backed pool, a “pay to play” system that’s set to start in 2014.
Employers that don’t provide insurance face a fine of $750 a year per full-time worker.
The mandate doesn’t mean much to the majority of OC employers that already offer healthcare for workers.
But they could see health insurance rates rise even faster than they have been, as insurers deal with the mandates placed on them.
Businesses will have to deal with changes being placed on insurers they contract with, something that could marginally expand the coverage they offer, said Michael Fox, a managing consultant who works for consultancy Towers Watson in Los Angeles.
Changes include an extension of the age of dependents from 23 to 26, a ban on excluding children with existing conditions and the end of lifetime benefit limits.
Small businesses won’t be forced to provide healthcare but can pool together with similarly-sized companies to collectively buy insurance.
Some companies under the coverage mandate could reach a point where fines for not providing insurance become cheaper than offering healthcare, according to Fox.
Employers in that case could shift workers into a government-backed pool.
That may not be an option for employers in competitive markets where healthcare is key to attracting and retaining workers, he said.
Drug Makers
Drug makers kept an $80 billion deal to provide savings and rebates and are expected to have those offset by getting more potential customers from wider insurance coverage.
They also beat back deeper price cuts in Medicare’s drug benefit in exchange for discounts for those who fall under a coverage gap known as the “doughnut hole.”
The bulk of reform’s impact stands to be felt by Big Pharma.
“They were for the plan because they see a lot of people buying more drugs,” UC Irvine’s Feldstein said. “They’re going to give something up, but they knew that, and they figured they’re going to end up much better.”
Healthcare Technology
Providers of electronic medical records and other information technology might be the only unqualified winners in the reform.
Quality Systems Inc., an Irvine maker of software that doctors and dentists use to manage their practices, expects to benefit from reform, Chief Executive Steven Plochocki said.
Electronic medical records are expected to spur savings as doctors and hospitals share information, according to Plochocki.
“We knew there was a healthcare reform coming, but having some form passed right now just gives us another stamp of approval,” Plochocki said.
Quality Systems and others already were feeling a boost from 2009’s Health Information Technology for Economic and Clinical Health Act. It provided up to $50 billion in incentives to move the healthcare industry to electronic records.
Doctors
Reform could be a gray area for local doctors. Industry watchers expect more insured patients to come into doctors’ offices.
But many of those patients could be covered by Medi-Cal, a state and federal program that covers poorer Californians and pays doctors less than private insurers.
“Underpaid government programs like Medi-Cal do not provide access to a broad base (of doctors), period, because they can’t afford to take patients at those payment rates,” said J. Brennan Cassidy, a Newport Beach doctor who’s president of the California Medical Association.
