Can Post-Obamacare Reform Be Exchange-Based?

Published August 27, 2014

Consumer Power Report #434

Is it possible to co-opt Obamacare’s endorsement of exchanges to achieve free market reforms? Philip Klein is skeptical of Avik Roy’s approach:

Assessing Roy’s plan from a free market perspective requires first deciding what it should be compared against. The plan concedes a lot of ground to the left when it comes to emphasizing universal health insurance and maintaining key regulations, and it would spend more on subsidizing health insurance in the individual market than the system that existed prior to Obamacare. On the other hand, it would loosen the government’s grip on private health insurance relative to Obamacare, and it would inject market elements into Medicare and Medicaid, which are fully government-run systems.

So, whether or not free market advocates can get behind Roy’s approach will depend largely on how they view the status of the fight against the Obamacare. Those who view the battle as largely lost, can see in Roy’s proposal a way to make Obamacare less bad, while achieving long-term entitlement reforms that have eluded limited government supporters for decades.

Roy has shared an update to his plan based on reader feedback here:

Philip Klein of the Washington Examiner reviewed the plan for his blog, and later expressed his concern on Twitter that the reformed exchanges could be co-opted by the left. “I just think if you have more and more [people] moving to universal [exchanges, you] risk future Dems adding [a] public option” to the exchanges, thereby bringing us closer to a true single-payer system.

I think the likelihood of Philip’s scenario playing out is low. First of all, the Democrats tried to include a government-run “public option” insurer on the exchanges in 2009, and failed to do so, even with 60 Democratic senators. Secondly, the Universal Exchange Plan gradually moves nearly 100 million Americans off of single-payer health care–Medicaid, Medicare, and the VA–and so a concern that these individuals might return to single-payer health care, at a later date, seems a bit circular.

But a bigger challenge could be how the politically toxic nature of Obamacare could eliminate the ability to utilize steps like exchanges to solve the problem. This latest polling from The Morning Consult indicates as much:

A majority of people are worried about employers moving them on to insurance exchanges, with Republicans reporting the highest level of concern at 72 percent. But once they actually get insurance on the exchange, most Democrats and Independents, 43 percent and 39 percent respectively, think the shift would have “no impact” on their coverage. In contrast, most Republicans, 41 percent, think it would have a “very negative” impact. The majority of Republicans and Independents say they would consider looking for another job if they were shifted onto an exchange, at 62 percent and 52 percent respectively. Democrats reported that they would look for another job at a rate ten percentage points below Independents, at 42 percent.

This is another reminder that even talking about health care reform post-Obamacare is going to be difficult, given the level of political fractiousness surrounding the law. It remains to be seen whether political leaders are capable of navigating that new reality.

— Benjamin Domenech



So far, at least, more people seem to be getting health insurance from their jobs than did last year. A recent analysis of Gallup polling data, published in The New England Journal of Medicine, found that while most newly insured people got coverage through Medicaid or new state insurance marketplaces, about 2 percent of the increase was coming from other sources. The employer market is not the only possible source of that rise, but Dr. Benjamin Sommers, a professor at the Harvard School of Public Health who wrote the paper with colleagues, said it suggests movement in employer coverage. Recent surveys from the Urban Institute also show an increase in the number of people reporting employer-based coverage, Ms. Long said, though the change was small enough that it could be a result of sampling errors.

A pair of employer surveys from the Federal Reserve Bank of New York found that employers were expecting “a somewhat larger proportion of employees, on net, would be covered than in the past.”

Dave Ostendorf, a managing director at Towers Watson, a benefits consulting firm, said his customers were seeing small but real increases in the number of people they’re insuring through employer plans this year. It’s early to be sure, he said, but he’s seeing indications that employer coverage is growing.

“The individual mandate is new, and that’s something that people are aware of,” he said.

SOURCE: Margot Sanger-Katz, New York Times


The federal government issued sixty contracts from 2009 to 2014 in efforts to build, the federal insurance marketplace. According to a report issued today by the inspector general (OIG) of the Department of Health and Human Services (HHS), the government had already paid out just under half a billion dollars by February 2014, five months after the beginning of open enrollment. The government is already under obligation for another $300 million, and the estimated value of the sixty contracts totals $1.7 billion. The OIG provided a summary of its findings:

“The 60 contracts related to the development and operation of the Federal Marketplace started between January 2009 and January 2014. The purpose of the 60 contracts ranged from health benefit data collection and consumer research to cloud computing and Web site development. The original estimated values of these contracts totaled $1.7 billion; the contract values ranged from $69,195 to over $200 million. Across the 60 contracts, nearly $800 million has been obligated for the development of the Federal Marketplace as of February 2014. As of that date, CMS had paid nearly $500 million for the development of the Federal Marketplace to the contractors awarded these contracts.”

A few familiar names appear on the list of contracts, such as Northrop Grumman and Lockheed Martin. Also appearing are CGI Federal, widely blamed for the botched roll out of the site last October, and Accenture Federal Services, which has taken over for CGI in hopes that this year’s open enrollment will go better than 2013.

SOURCE: Jeryl Bier, Weekly Standard


The Wisconsin Legislative Fiscal Bureau analysis estimates the state is losing about $100 million a year by not expanding its Medicaid eligibility as much as allowed under the Patient Protection and Affordable Care Act (ACA). This mudslinging by Wisconsin Governor Scott Walker’s gubernatorial challenger is disingenuous and ignores the fact that Wisconsin made a better choice by allowing many of its low-income uninsured to access private coverage with federal subsidies.

Over the past several years state legislators have grappled with the pros and cons of Medicaid expansion under the ACA. The carrot dangled in front of state legislators is financial; states that agree to expand Medicaid eligibility to 138 percent of the federal poverty level (FPL) can expect the federal government to reimburse states for most of the cost for newly eligible enrollees. Critics of Medicaid expansion counter that the savings are front-loaded in the early years, whereas state costs begin to rise in later years when it’s too late for states to back out. Whereas the federal government will pay 100 percent of the costs through 2016, the feds begin ratcheting the matching rate down to 90% by 2019.

Wisconsin had already expanded its Medicaid eligibility well beyond levels advanced by the ACA prior to its passage. Most uninsured Wisconsin residents earning up to 200 percent FPL were already eligible for coverage under the state Medicaid program, known as BadgerCare. Uninsured children and pregnant mothers-to-be were eligible at even higher-income levels. However, when state funds began to run low, enrollment was capped – making many of those eligible unable to enroll.

In response to a Supreme Court ruling that allowed states more flexibility, Wisconsin made some innovative changes to its Medicaid program that serve as a model for other states. Rather than expand its Medicaid program to cover all legal residents earning up to 138 percent of poverty, Wisconsin took a different route. Wisconsin’s BadgerCare program was reformed to mostly cover those earning at or below the poverty level.

This strategy allowed many uninsured individuals who would otherwise have qualified for Medicaid to instead quality for subsidized private coverage. Provisions in the ACA allows uninsured individuals earning 100 percent to 400 percent of FPL to get subsidized, private coverage in the Health Insurance Exchange. For those earning just over the poverty level the subsidies are very generous – premiums capped at no more than 2 percent to 3 percent of income.

As part of the process Wisconsin scaled back eligibility for adults earning more than 100 percent of the FPL – removing an estimated 63,000 people from its Medicaid program. Wisconsin then uncapped enrollment for its Medicaid program to cover about childless adults earning up to 100 percent of FPL. About 97,500 individuals added to the Medicaid rolls. Most of these individual were previously eligible but unable to enroll due to the cap on enrollment. Wisconsin’s novel experiment resulted in roughly 35,000 addition Medicaid enrollees, rather than potentially 100,000 additional enrollees under full expansion. Not all of those dropped from the rolls have bothered to sign up for exchange coverage – which may explain the additional costs. But that’s certainly no reason to expand Medicaid further.

SOURCE: Devon Herrick, National Center for Policy Analysis


Supporters of President Obama’s health care law have been touting proposed insurance rates for 2015 – arguing that they aren’t as high as some of the dire warnings of the law’s critics. But it’s worth considering some additional context.

Data compiled by the Health Research Institute of PricewaterhouseCoopers from about 29 states plus the District of Columbia show that the average premium increase for insurance starting next year is currently 8.2 percent. But within that average, there’s a wide range.

In Arizona, for instance, the average premium increase submitted was 11.2 percent, but rates ranged from a decrease of 23 percent to a spike of 27 percent. In Arkansas, where the average increase was 11.2 percent, some consumers could see their premiums soar by 50 percent.

Defenders of Obamacare argue that rates typically went up annually before the law went into effect.

However, it’s important to keep in mind that it was Obama himself who repeatedly promised that premiums would go down by an average of $2,500 per family. His promise wasn’t that he would overhaul the health care system so that premiums would continue to increase each year, just as they did in the system that existed before he was elected, which he argued was unacceptable.

Additionally, any increases in premiums in 2015 will be on top of the premium increases that occurred during 2014.

SOURCE: Philip Klein, Washington Examiner


The Oregon attorney general sued Oracle America Inc. on Friday, charging that the technology giant committed what “amounts to a pattern of racketeering activity” that cost the state hundreds of millions of dollars during the faulty rollout of its troubled health insurance exchange.

In a scathing, 126-page civil complaint, Oregon Atty. Gen. Ellen Rosenblum accused the company and several of its high-level executives of repeatedly lying to state officials, of failing to deliver on contracts and of filing an estimated $240 million in false claims after it was hired to build the Cover Oregon website.

“Today’s lawsuit clearly explains how egregiously Oracle has disserved Oregonians and our state agencies,” Rosenblum said in a written statement. “Over the course of our investigation, it became abundantly clear that Oracle repeatedly lied and defrauded the state. Through this legal action, we intend to make our state whole and make sure taxpayers aren’t left holding the bag.”

The Oregon suit comes just weeks after Oracle fired the first legal salvo, suing the state agency operating the exchange for breach of contract and accusing Gov. John Kitzhaber of attempting to “vilify the company in the media.”

In that suit, Oracle charged that state officials this year were engaged in a campaign of “constant public slander” against the company at the same time that they were privately asking Oracle to help them fix their system, which never worked. Oracle is a Delaware corporation headquartered in Redwood City, Calif.

SOURCE: Maria La Ganga, Los Angeles Times


In 2012, national health care spending in the United States reached $2.8 trillion, or more than 17 percent of the country’s gross domestic product – more than any other industrialized country. And yet overall our citizens aren’t healthier than those in other industrialized countries. Of course, there are a million complicated reasons for this: Generally speaking, prices in the United States are just higher than those in other countries. In addition, the payment system is fragmented and includes a mix of government funding and private third-party payers, which leads to huge variation in cost for the same medical procedures. Some economists also point to our high administrative costs and the fact that pharmaceutical companies and medical device manufacturers set their own prices, whereas in most other countries, these prices are negotiated by the government.

Another explanation, debated by experts in health policy circles but less known to the public, lies with a secretive committee run by the American Medical Association (AMA) which, with the assent of the government, has enormous power to determine Medicare prices by assessing the relative value of the services that physicians perform. For decades the committee has done so in a way that has skewed Medicare fees in favor of expensive specialists over ordinary general practitioners … , who are the nation’s first line of defense against serious illness. Because Medicare fees are the baseline for the rest of the pricing in the health care system, this has had a broad effect, contributing to a situation where primary care doctors are in general underpaid, underappreciated – and in critically short supply as medical students flock to where the money and opportunity are. Only 30 percent of practicing physicians in the United States today are primary care doctors, while in most other industrialized nations, 50 to 70 percent of doctors practice primary care. That, in turn, explains a good part of what’s costing Americans so much for their health care. Primary care doctors often treat patients before their conditions get so complicated that they need to seek specialty care, which of course drives up health costs enormously.

And yet even many doctors are not aware of the hidden hand of the AMA-run committee in perpetuating this costly crisis. The panel, with very little transparency or public discussion, continues to give recommendations to the government on how much Medicare should charge for physician services and procedures. The AMA even owns the copyright to the elaborate coding system by which those prices are set, earning huge licensing profits from it, even though the organization has dramatically declined in membership and has largely lost its stature as the primary mouthpiece of the medical profession. (The AMA declined to release specifics but according to the organization’s 2013 annual report, its Books and Products Unit, which includes the licensing of this coding system, brought in $80.4 million that year – more than double the $39.8 million generated from the AMA’s membership dues).

SOURCE: Katie Jennings, Politico