Affordability Is in the Eye of the Beholder

Published January 14, 2013

Consumer Power Report #356

You might think the Affordable Care Act’s primary aim, as the name indicates, would be to make affordable health insurance available to every American. You’d be wrong: Its aim was actually to make health insurance available to every American and empower the federal government to manage the insurance marketplace from on high, regardless whether it made the insurance coverage unaffordable in the process. As Merrill Matthews and Mark Litow write:

Health-insurance premiums have been rising–and consumers will experience another series of price shocks later this year when some see their premiums skyrocket thanks to the Affordable Care Act, aka ObamaCare. The reason: The congressional Democrats who crafted the legislation ignored virtually every actuarial principle governing rational insurance pricing. Premiums will soon reflect that disregard–indeed, premiums are already reflecting it.

Central to ObamaCare are requirements that health insurers (1) accept everyone who applies (guaranteed issue), (2) cannot charge more based on serious medical conditions (modified community rating), and (3) include numerous coverage mandates that force insurance to pay for many often uncovered medical conditions.

Guaranteed issue incentivizes people to forgo buying a policy until they get sick and need coverage (and then drop the policy after they get well). While ObamaCare imposes a financial penalty–or is it a tax?–to discourage people from gaming the system, it is too low to be a real disincentive. The result will be insurance pools that are smaller and sicker, and therefore more expensive.

How do we know these requirements will have such a negative impact on premiums? Eight states–New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts–enacted guaranteed issue and community rating in the mid-1990s and wrecked their individual (i.e., non-group) health-insurance markets. Premiums increased so much that Kentucky largely repealed its law in 2000 and some of the other states eventually modified their community-rating provisions.

The hardest hit, as it turns out, will be Americans under the age of 30. Avik Roy on the latest analysis:

Obamacare’s insurance exchanges were originally designed to subsidize the purchase of regulated, private-sector insurance for those with incomes between 138 percent and 400 percent of the federal poverty level: based on 2012 guidelines, that amounts to between $31,809 to $92,200 for a family of four. But Giesa and Carlson estimate that 80 percent of Americans below the age of thirty in the individual market will face higher premiums, despite subsidies. “Our core finding is that young, single adults aged 21 to 29 and with incomes beginning at about 225 percent of the FPL, or roughly $25,000, can expect to see higher premiums than would be the case absent the ACA, even after accounting for the presence of the premium assistance.” Fully 80 percent of these twenty-somethings have income above $25,000. … These higher costs on young people are especially significant because about two-thirds of the uninsured population is under the age of 40. Overall, the authors found that “premiums for younger, healthier individuals could increase by more than 40 percent” in the non-group insurance market due to Obamacare’s community rating provision.

This means younger, healthier Americans are likeliest to see the biggest increase in premiums … and therefore likeliest to pay the individual mandate’s relatively lax penalty in lieu of buying insurance. So what will insurers do? Well, they’ll start crowing about the need for a tougher individual mandate.

Here’s the catch: The individual mandate penalties will be pretty weak as they are phased in over two years – only $95 when they start in 2014, much less than it costs to buy insurance. And yet, everyone with pre-existing conditions will have to be accepted for coverage right away.

That’s why insurance companies are telling the administration the mandate won’t be enough for the first two years. They want more incentives – such as a late enrollment fee – to get healthy people to sign up quickly. Without getting the healthy folks in, the fear is that everyone’s health insurance premiums could shoot through the roof when all those sick people get their coverage.

The idea is being called “mandate plus” – because some of the ideas were floated by health experts last year as replacements, in case the Supreme Court struck the mandate down. Now that the mandate is here to stay, insurance companies and some policy experts say the other ideas should go hand in hand with the coverage requirement to make the whole system work – and be affordable.

The health insurer push to make the individual mandate more costly will only increase as younger Americans discover the truth about this new marketplace, where the relative “affordability” of their health insurance coverage is only a reality if viewed through the lens of President Obama’s administration.

— Benjamin Domenech



More on the incoming cost hikes, no longer incoming.

If you work for a small business, your next health insurance premium may give you sticker shock.

Many of the small-business and individual insurance policies are working the health reform law’s 2014 fees into their 2013 bills, contributing to double-digit premium increases for some people.

All those new consumer benefits packed into the health reform law – birth control without a co-pay, free preventive care and limits on when insurers can turn down a customer – had to be paid for somehow.

So the law’s drafters included a new tax on health insurers, starting at $8 billion in 2014 and increasing to $14 billion within four years, to help meet the new expenses. And insurers in 2014 will also have to pay a “reinsurance contribution” to cushion health plans that end up with a lot of sick customers under new rules requiring them to cover people with pre-existing conditions.

Some health insurance companies are getting a jump-start, passing on those 2014 fees to consumers in policies that start in 2013.

While insurance rates have been going up for years – and not all of the new increases can be pinned to the health law – the hikes will certainly give more fuel to Obamacare critics.

Insurers say they have no choice but to increase premiums to cover those costs. But it’s hitting pocketbooks sooner than some people expected, and that’s causing controversy.

Everyone, even many of the law’s supporters, admit premiums are going to go up under the health law – although many people will get subsidies to help pay for coverage. Many of the costs – and the priciest benefits – were pushed beyond the 2012 election to 2014. But if the public revolts when they see 10 percent,15 percent or 20 percent rate hikes, already shaky support for the health law could suffer.

That means there’s a lot at stake for insurance companies and the law’s supporters when consumers see their health insurance bills.

The law’s backers have a history of using steep rate increases to garner public support for health reform – and against insurers. One turning point that helped the law’s passage was when Democrats blasted a 39 percent rate increase requested by Anthem Blue Cross in California in early 2010.

Now, insurers are being proactive, arguing the health law is driving the increase in prices.

“There’s a massive new health insurance tax that starts in 2014,” said Robert Zirkelbach, a spokesman for industry group America’s Health Insurance Plans. “For policies that are sold in 2013 and extend into next year, there’s going to be taxes imposed. … As a result, like all taxes, they will be reflected in premiums charged.”

SOURCE: Politico


How’s Romneycare working out these days?

Robert Skenderian, a pharmacist and owner of Skenderian Apothecary in Cambridge, is feeling the pinch of high health insurance premiums.

He has a family plan with a $6,000 deductible and maintains a health savings account, but Skenderian says he’s still facing premiums that have been rising between 8 percent and 15 percent a year.

“You pay a lot more and get a lot less,” he said.

As a small businessman who provides health benefits for a dozen employees, Skenderian said health-care benefits account for a quarter of the cost of hiring a new person. “When I hire, I have to think not just salary but health-care costs,” he said.

Skenderian’s experience is not unusual.

A study released by the Commonwealth Fund in December reported Massachusetts has the highest health-insurance premiums in the nation for private, employer-sponsored plans.

The study found that the average Massachusetts family health plan had a premium of $16,953 in 2011, compared to a national average of $15,022. The average premium for a individual plan was $5,823, compared to $5,222 nationally.

These figures represent increases of 72 percent and 67 percent, respectively, since 2003 – far greater increases than the national average.

There are numerous reasons for Massachusetts’ high premiums, ranging from its high incomes to the large number of people who have health insurance. The figures have political ramifications since Massachusetts’ system of universal health care, implemented under former Gov. Mitt Romney, was the model for President Barack Obama’s national Affordable Care Act.

At the same time, lawmakers and advocates say the problem of high premiums is one the state is addressing, through legislation passed in 2012 that was aimed at curbing the growth in health-care costs.



Ah well, too bad.

The conversion to electronic health records has failed so far to produce the hoped-for savings in health care costs and has had mixed results, at best, in improving efficiency and patient care, according to a new analysis by the influential RAND Corporation.

Optimistic predictions by RAND in 2005 helped drive explosive growth in the electronic records industry and encouraged the federal government to give billions of dollars in financial incentives to hospitals and doctors that put the systems in place.

“We’ve not achieved the productivity and quality benefits that are unquestionably there for the taking,” said Dr. Arthur L. Kellermann, one of the authors of a reassessment by RAND that was published in this month’s edition of Health Affairs, an academic journal.

RAND’s 2005 report was paid for by a group of companies, including General Electric and Cerner Corporation, that have profited by developing and selling electronic records systems to hospitals and physician practices. Cerner’s revenue has nearly tripled since the report was released, to a projected $3 billion in 2013, from $1 billion in 2005.

The report predicted that widespread use of electronic records could save the United States health care system at least $81 billion a year, a figure RAND now says was overstated. The study was widely praised within the technology industry and helped persuade Congress and the Obama administration to authorize billions of dollars in federal stimulus money in 2009 to help hospitals and doctors pay for the installation of electronic records systems.

“RAND got a lot of attention and a lot of buzz with the original analysis,” said Dr. Kellermann, who was not involved in the 2005 study. “The industry quickly embraced it.”

But evidence of significant savings is scant, and there is increasing concern that electronic records have actually added to costs by making it easier to bill more for some services.

Health care spending has risen $800 billion since the first report was issued, according to federal figures. The reasons are many, from the aging of the baby boomer population, to the cost of medical advances, to higher usage of medical services over all.

SOURCE: New York Times


The IRS crackdown is coming:

The Internal Revenue Service warned employers in a new regulatory proposal not to come up with clever schemes to avoid Obamacare’s employer health insurance mandate.

The IRS said it would soon issue “anti-abuse rules” to discourage employers from taking advantage of any regulatory loopholes.

“The Treasury Department and the IRS are aware of various structures being considered under which employers might use temporary staffing agencies (or other staffing agencies) … to evade application of section 4980H [the employer insurance mandate],” the IRS said in a proposed regulatory announcement issued December 28.

The IRS said it would issue a so-called “anti-abuse rule” in an attempt to prevent employers from using temp agencies to circumvent the mandate, essentially writing into law that even though an employer hires temporary workers and therefore is not technically under the mandate’s jurisdiction, the IRS would fine them anyway for not providing health insurance.

“It is anticipated that the final regulations will contain an anti-abuse rule,” the agency said. “Under that anticipated rule, if an individual performs services as an employee of an employer, and also performs the same or similar services for that employer in the individual’s purported employment at a temporary staffing agency or other staffing agency of which the employer is a client, then all the hours of service are attributed to the employer for purposes of applying section 4980H.”

In other words, if an employer hires someone part-time, then uses an employment agency to bring the same person on for a second part-time shift, the IRS will still hold the employer liable under the ObamaCare mandate.



The regime of Mayor Michael Bloomberg, not your doctor, will control access to drugs in the ER:

Some of the most common and most powerful prescription painkillers on the market will be restricted sharply in the emergency rooms at New York City’s 11 public hospitals, Mayor Michael R. Bloomberg said Thursday in an effort to crack down on what he called a citywide and national epidemic of prescription drug abuse.

Under the new city policy, most public hospital patients will no longer be able to get more than three days’ worth of narcotic painkillers like Vicodin and Percocet. Long-acting painkillers, including OxyContin, a familiar remedy for chronic backache and arthritis, as well as Fentanyl patches and methadone, will not be dispensed at all. And lost, stolen or destroyed prescriptions will not be refilled.

City officials said the policy was aimed at reducing the growing dependency on painkillers and preventing excess amounts of drugs from being taken out of medicine chests and sold on the street or abused by teenagers and others who want to get high.

“Abuse of prescription painkillers in our city has increased alarmingly,” Mr. Bloomberg said in announcing the new policy at Elmhurst Hospital Center, a public hospital in Queens. Over 250,000 New Yorkers over age 12 are abusing prescription painkillers, he said, leading to rising hospital admissions for overdoses and deaths, Medicare fraud by doctors who write false prescriptions and violent crime like “holdups at neighborhood pharmacies.”

But some critics said that poor and uninsured patients sometimes used the emergency room as their primary source of medical care. The restrictions, they said, could deprive doctors in the public hospital system – whose mission it is to treat poor people – of the flexibility that they need to respond to patients.

“Here is my problem with legislative medicine,” said Dr. Alex Rosenau, president-elect of the American College of Emergency Physicians and senior vice chairman of emergency medicine at Lehigh Valley Health Network in Eastern Pennsylvania. “It prevents me from being a professional and using my judgment.”

Something tells me if Bloomberg himself needs a painkiller, he’ll get it.

SOURCE: New York Times