Obamacare Squandered $1.2 Billion on Failed Exchanges

Premiums will go up, on average, across the board–premiums go up every year. But a range of factors could drive higher-than-average increases in certain places. States that fell short of their overall enrollment goals, and where the people who did enroll are mostly older and sicker, are more at risk for large premium hikes. So are states that don’t have much competition among insurers.

“If you lose on all of those, then you’re really looking bad,” Pearson said.

And West Virginia lost on all three fronts this year. It only got about 60 percent of the way to its total enrollment target, Pearson said. And it has the worst mix of young adults in the country–just 19 percent of people who picked a plan through the state’s exchange were young adults, who are presumed to be healthier and thus help keep premiums in check.

Completing the trifecta, there’s only one insurance carrier – Blue Cross Blue Shield – in West Virginia’s exchange.

Hawaii is another consensus pick, and some experts say the state might never be able to support its Obamacare exchange. Hawaii was near the bottom for total enrollment, signing up just 15 percent of its eligible population, and had the second-worst mix of young adults. The state’s exchange also suffers from the fact that Hawaii had a low uninsurance rate to begin with – meaning there’s a smaller pool of potential customers there, which makes the state less attractive to insurers.

“Hawaii looks problematic. They could have viability problems,” said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation.

Levitt added another factor that could drive up some states’ premiums: whether they went along with President Obama’s decision to let insurers un-cancel certain plans that don’t comply with the Affordable Care Act.

The consumers who are most likely to keep their once-canceled plans are people who got a good deal under the pre-Obamacare system – generally younger, healthier people who enjoyed low premiums and who make too much money to qualify for the health care law’s subsidies. Letting them renew their noncompliant plans keeps a healthy population out of the exchanges.

“That’s the one I hear most often from insurers, and I think that’s right. It certainly is a factor,” Levitt said.

Ohio and Arizona, both of which allowed plan extensions, are on Levitt’s list of states to watch for big premium hikes. He and Pearson mentioned Iowa, which allowed a two-year extension for canceled plans and was the second-worst state at enrolling its eligible population.

Health care analysts are also keeping an eye on premiums in Maryland, Mississippi, New Mexico, and South Dakota, where officials had to beg and plead just to get one carrier into the state’s private market.

It’s impossible, though, to say with any certainty whether a particular state will see an above-average price increase next year.

In the midst of all the turmoil in health care these days, one thing is becoming clear: No matter what kind of health plan consumers choose, they will find fewer doctors and hospitals in their network – or pay much more for the privilege of going to any provider they want.

These so-called narrow networks, featuring limited groups of providers, have made a big entrance on the newly created state insurance exchanges, where they are a common feature in many of the plans. While the sizes of the networks vary considerably, many plans now exclude at least some large hospitals or doctors’ groups. Smaller networks are also becoming more common in health care coverage offered by employers and in private Medicare Advantage plans.

Insurers, ranging from national behemoths like WellPoint, UnitedHealth and Aetna to much smaller local carriers, are fully embracing the idea, saying narrower networks are essential to controlling costs and managing care. Major players contend they can avoid the uproar that crippled a similar push in the 1990s.

“We have to break people away from the choice habit that everyone has,” said Marcus Merz, the chief executive of PreferredOne, an insurer in Golden Valley, Minn., that is owned by two health systems and a physician group. “We’re all trying to break away from this fixation on open access and broad networks.”

But while there is evidence that consumers are willing to sacrifice some choice in favor of lower prices, many critics, including political opponents of the new health care law, remain wary about narrowing networks. A concern is that insurers will limit access to specialists or certain hospitals. “Too often, Obamacare cancels the policy you wanted to keep and tells you what policy to buy,” Senator Lamar Alexander, a Tennessee Republican, said in a speech in April.

Employers have mixed feelings about these predictions. On the one hand, they have provided health coverage for their employees for decades, and health benefits are an important recruiting and retention tool. For many employers, it is part of their corporate identity. Furthermore, employers, or at least the more responsible ones, have a stake in keeping their employees healthy. The key employee who disappears at a crucial stretch because of a preventable health condition such as a heart attack or stroke is a much bigger hit to the bottom line than the cost of preventive care for that employee.

On the other hand, employers have long been subsidizing the rest of the health care system, spending $578.6 billion annually on health care. A recent American Health Policy Institute study showed that employers will be facing marginal ACA-related costs of $4,800 to $5,900 per employee over the next decade. And the new S&P Capital study says that S&P 500 employers as a whole could save $700 billion by 2025 if they begin dropping coverage and pay the employer mandate penalty instead.

Even so, dropping coverage will not be a costless proposition for employers. If employers all pull out, the employer mandate penalty could become a lever that politicians will use to milk employers. It’s hard to imagine that Congress would allow employers to keep all of that $700 billion in projected savings, particularly if the federal deficit explodes from providing exchange subsidies to millions more people.

The White House still insists that employers will remain the main source of health care for Americans, but it may be only a matter of time before that changes. As the costs to employers mount, many on the left may follow Emanuel and embrace the concept of employers leaving the health care marketplace. When that happens, no one should be surprised. Back in 2007, before there even was an Obama administration, one Ezekiel Emanuel and co-author Victor Fuchs argued in The Washington Post that we should “Get businesses out of health care.” The American people may not have wanted this outcome, but businesses may now be getting out of health care sooner than previously thought.

The Hospital Corporation of America, which has facilities in 20 states, reported a big gap in Medicaid and uninsured admissions between expansion and non-expansion states. In the four states it operates where Medicaid expanded under the ACA, the company saw a 22.3 percent growth in Medicaid admissions, compared to a 1.3 percent decline in non-expansion states. The company also had a 29 percent decline in uninsured admissions in the expansion states, while non-expansion states experienced 5.9 percent growth in uninsured admissions, chief financial officer William Rutherford said.

Community Health Systems, with facilities in 29 states, also noticed an expansion gap. In expansion states it serves, CHS said it saw self-pay admissions drop 28 percent while Medicaid admissions increased by 4 percent. Self-pay emergency room visits decreased 16 percent in expansion states, but they increased in non-expansion states, the company said in its earnings call last week.

Tenet Healthcare reported last week that it had a 17 percent increase in Medicaid inpatient visits while uninsured visits decreased 33 percent in the four expansion states where it operates. In non-expansion states, Medicaid admissions dropped 1 percent as uninsured care rose 2 percent. Tenet also said it’s seeing that emergency room visits are continuing to rise.

Of course, some Republican-led states have expanded their Medicaid programs. However, Republican governors run all but three of the 24 states that haven’t expanded Medicaid. Also, I’m looking at just the results from some of the largest for-profit hospital systems, which are required to report this information to investors.

This is generally the kind of trend, though, that hospitals expected to see under the ACA and why they’re lobbying hard for the Medicaid expansion. They’re getting more patients with Medicaid coverage, which reimburses at rates lower than private coverage, but still pays better than no insurance. And it suggests that patients with new coverage are seeking care, which backs last week’s finding from the Bureau of Economic Analysis that health-care expenditures climbed 9.9 percent last quarter as coverage expanded.

Generally speaking, the commercialization lag is minimized when drugs are approved based on “surrogate” (non-mortality based) endpoints. (The researchers note that all FDA-approved cancer prevention drugs, which would suffer from under-investment, were approved using surrogate endpoints or through publicly-financed trials.) Surrogate endpoints (this can include molecular changes like the level of the HIV virus in the blood to physical measures like tumor size) tend to shorten the FDA approval process significantly, reducing the cost of clinical trials. To expand the use of surrogate endpoints (especially beyond cancer and HIV), however, requires significant reform at the FDA.

In simple terms, this would mean expanding the agency’s “accelerated approval” designation, to most (if not all) drugs (or at least those drugs where there is a well-established link between surrogate markers and clinical results).

But here’s the catch – many surrogate endpoints aren’t well-vetted. And the value of surrogate endpoints is only relevant insofar as they can accurately predict positive clinical effects.

The other approach, noted by the researchers, would be targeted R&D subsidies. While we currently have a temporary R&D tax credit that helps spur pharmaceutical research, the tax credit has to be renewed each year (creating uncertainty) but it also isn’t targeted (that is, it doesn’t change the cost of developing a high-value medicine relative to the cost of a lower-value drug). The general idea would be to focus subsidies (perhaps through public financing of clinical trials) on drugs that may not have well-established surrogate endpoints, but may have promise in curing early stage diseases or preventing them altogether.

Merritt-Hawkins, a national health care search and consulting firm, recently released the results of a telephone survey that measures physicians’ ability or willingness to accept new Medicaid patients across five specialties in 15 metropolitan markets.

The survey’s key finding: The average rate of Medicaid acceptance by physicians in all five specialties and in all 15 markets surveyed was only 45.7 percent. This is lower than the acceptance rate found by the same survey in 2009 (55.4 percent) and in 2004 (49.9 percent).

The survey found that, in 2013, Boston had the highest rate of Medicaid acceptance by physicians in the 15 markets surveyed – 73 percent – while Dallas had the lowest, a mere 23 percent.

Why do Medicaid patients face such barriers to accessing care? As the survey’s authors explain:

“The rate at which physicians accept Medicaid can vary for a number of reasons. In some cases, reimbursement rates provided by Medicaid to particular specialists may be below their cost of providing services. If not actually below costs, Medicaid reimbursement often is relatively low compared to that offered by other payers, and therefore busy physicians may have no economic incentive to see Medicaid patients. In other cases, the process of billing for and receiving Medicaid payment can be problematic and some physicians choose to avoid it.”