Consumer Power Report #219

Published April 30, 2010

I gave a keynote address at a conference put on by Benefits Selling Magazine last week. Great conference. About 600 people in attendance, mostly brokers. Unfortunately, I did not have any good news for them. You’ve already read most of what I had to say to the group. The talk was framed by my bottom line conclusion: This is the worst piece of legislation ever enacted in the United States. The magazine had a short write-up of the talk here.

— Greg Scandlen



In case you doubt this assessment be sure to take a look at John Goodman’s summary of Rick Foster’s (Medicare’s actuary) report on the impact. Of course, no one in any position of power in Washington is paying any attention to this report. They got their law passed, so who cares about the consequences? Any problems that develop will simply be used as excuses for yet more government intervention. The answer to a failing government program is always – always – more of the same.

SOURCE: Goodman’s blog

This more-of-the-same is already happening, just one month after the law was signed. The Wall Street Journal reports the Democrats are already “scrambling to pass a new bill that would impose price controls on insurance.” There is no question that the new law will raise premiums dramatically so Congress is getting ready to restrict those increases regardless of the underlying costs that drive those premiums.

SOURCE: Wall Street Journal

Of course, if health insurers can’t get the premiums they need to cover their costs they will go out of business. But that’s okay, because little-noticed in the final stories about the health care law is that the “public option” did not die after all. In fact Sen. Kent Conrad’s vision of health insurance co-ops is very much in the law. It appropriates $6 billion to set up such plans in all 50 states and the District of Columbia.

SOURCE: The Co-Op Program


There are all kinds of surprises under this Christmas tree (or perhaps I should say “Winter Festival Tree” to avoid offending the secularists who wrote the law).

One of the more peculiar is on drug rebates in the Medicaid program. Kaiser Health News reports, “the new health care law could shift billions of dollars from cash-strapped states to the federal government by changing the way Medicaid prescription drug rebates are treated.”

Drug companies currently “rebate” lots of money to state Medicaid programs when a name-brand drug is used within the program. The money is currently split between the Feds and the states based on the amount of federal support the Feds give the states for Medicaid. But the “new law will increase the minimum rebates that drug firms must offer Medicaid programs from 15.1 percent to 23.1 percent for most brand name medications.” And the new law “says that the federal government now will get 100 percent of the rebate funding ‘attributable’ to the increase from 15.1 to 23.1 percent.”

As it turns out the states are already getting rebates well in excess of 23.1 percent. “Based on 2009 Medicaid data, states received average rebates of 38.5 percent.” So the Feds are not increasing the rebates, they are just seizing 100 percent of the funds between 15.1 percent and 23.1 percent.

This is a big hit for cash-strapped states. “California, for instance, stands to lose $50 million next year alone because of the changes,” and Indiana expects “losses of $400 million over 10 years because the federal government plans to ‘confiscate’ a portion of its rebates.”

SOURCE: Kaiser Health News

It isn’t just that the Feds are stealing money from the states, they also expect the states to implement this monstrosity – at state expense. National Underwriter reports that HHS Secretary Kathleen Sebelius has said “Health Reform Is The States’ Responsibility.” She expects the states to set up high-risk pools according to federal standards, control premiums according to federal standards, and create insurance exchanges according to federal standards.

SOURCE: National Underwriter

By the way, it is very doubtful that the federal government can require the states to perform these functions. The Public Interest Institute published a short paper in 1998 laying out the case. It cites a Supreme Court decision in Printz v. US that overturned a required background check on gun purchasers to enforce the Brady Bill. The quote is:

We held in New York that Congress cannot compel the states to enact or enforce a federal regulatory program. Today we hold that Congress cannot circumvent that prohibition by conscripting the state’s officers directly. The federal government may neither issue directives requiring the states to address particular problems, nor command the states’ officers, or those of their political subdivisions, to administer or enforce a federal regulatory program. It matters not whether policy making is involved, and no case by case weighing of the burdens or benefits is necessary; such commands are fundamentally incompatible with our constitutional system of dual sovereignty. [Printz v. US, USC, 117 (1997)]

More typically, the federal government gets the state to enact its own laws by withholding federal money from states that don’t. There is no federal drinking age or federal speed limit, for instance, but the threat of withholding highway money “persuaded” every state to enact its own laws in accordance with the federal standards. It will be interesting to see how the states respond to these new responsibilities.

SOURCE: Public Interest Institute


Okay, so the states get hosed, and the insurers get hosed, but how’s ’bout the business community in general? Surely they must be doing better now that health care has been “reformed.” Well, not so much.

We’ve already discussed how larger unionized companies had to account for their new liabilities under FAS 106. Henry Waxman threatened to bring them all before his committee for their temerity in complying with SEC requirements. They were just trying to undermine all these wonderful reforms, dontcha know? Whatever happened to that show trial?

Well, by golly, it turns out the companies were just doing what they had to do, according to The New York Times. Robert Pear writes, “after investigating, House Democrats have concluded that the companies were right to tell investors and the government about the expected adverse effects of the law on their financial results.”

Even though “The White House suggested that companies were exaggerating the effects of the tax change [and] the commerce secretary, Gary F. Locke, said the companies were being ‘premature and irresponsible’ in taking such write-downs,” the Democratic staff of the committee said, ‘The companies acted properly and in accordance with accounting standards in submitting filings to the S.E.C. in March and April.'” So much for the show trial.

This is not small potatoes. The article says, “A tabulation by the United States Chamber of Commerce shows that at least 40 companies have taken charges against earnings that total $3.4 billion since the law was signed.” Man, $3.4 billion in ONE MONTH!

Now several of the companies are beginning to realize they would be better off just dropping coverage altogether. The article notes Verizon “said, ‘To avoid additional costs and regulations, employers may consider exiting the employer health market and send employees’ to state-run insurance exchanges, where people can buy insurance.’ And Caterpillar found that the tax changes could, ‘drive many employers to just drop coverage for retirees altogether, and let the government foot the whole bill.'”

SOURCE: New York Times

On the other hand, writing in Business Insurance Jerry Geisel reports many employers will be saddled with new costs because, “A provision in the new health care reform law requiring employers to give low-paid employees vouchers to purchase coverage in state health insurance exchanges could sock employers with even bigger health insurance cost increases.”

He adds, “The provision, which has gotten little attention, would have its biggest impact on employers with large numbers of low-paid workers who are required to pay a high percentage of the premium.” The voucher would apply to workers with family income of up to 400 percent of the poverty level, which adds a curious twist. My employer knows how much he pays me, but he has no idea how much money I make on the side, or how much my wife earns. Are we now supposed to file our tax returns with our employer as well as with the government?

The article goes on, “the provision says the voucher contribution would be equal to the amount the employer would have paid if the employee had been ‘covered under the plan with respect to which the employer pays the largest portion of the cost of the plan.'” The article quotes a number of consultants who are paid to advise employers on compliance, and they are all puzzled by this provision. One says “it is as clear as mud.”

SOURCE: Business Insurance

But that is only the beginning of the fun for business. Chris Edwards of the Cato Institute reports provisions were slipped into the bill that “will force millions of businesses to issue hundreds of millions, perhaps billions, of additional IRS Form 1099s every year. It appears to be a costly, anti-business nightmare.”

He explains, “businesses will have to issue 1099s whenever they do more than $600 of business with another entity in a year. For the $14 trillion U.S. economy, that’s a hell of a lot of 1099s.”

SOURCE: Cato Institute


It seems hospitals are getting hosed, too. Or at least they are “Scared to Death,” according to the Health Data Management blog. The quote comes from the CEO of the biggest hospital chain in Illinois during a conference of health care journalists in Chicago.

Blog author Greg Gillespie writes, “What’s frightening to Skogsbergh and his peers is the uncertainty surrounding so much of the legislation, and the one certainty: providers are going to be paid less, whichever way you slice it.” The huge expansion of Medicaid means hospitals will get paid an average of 50 percent of their costs, plus they will not be paid at all for “readmissions,” which happens to 22 percent of all Medicare patients, according to the hospital administrators. But most of all, one analyst estimates there will be 10 pages of regulations for every page of the law itself, so no one can anticipate what they are expected to do.

Perhaps the CEOs should have a word or two with their lobbyists at the AHA who helped bring us this mess.

SOURCE: Health Data Management blog


But no one gets hit as bad as consumers. CNN collected a bunch of folks who have no intention of complying with the mandate. One says, “I will not buy health care, nor will I pay a penalty. Just because the government assesses a fine, it doesn’t mean they’ll be able to collect it.”

Another, an insurance broker, says, “I currently pay about $700 per month for health insurance for me and my wife, for an annual cost of $8,400. Under the new law, if I choose not to carry health insurance I would pay a penalty of 2.5 percent of my income – that’s only $3,750. It will save me $4,650 a year to go without health insurance.” And another – “I don’t plan on purchasing insurance at this time, and I feel like this bill violates my rights. I should have the right to choose whether I want a policy.” And another – “I used to live in Massachusetts, and they passed a similar bill at the state level in 2006. That’s part of why I left; I don’t appreciate being forced into anything.”

You get the drift. Americans don’t like being told what to do and never have. That is why they opposed this law. Too bad Congress didn’t listen.


In fact, CBO estimates some 4 million of us will be fined for not complying with the mandate. But that is just the tip of the iceberg of 21 million who will not comply. Most of these will not be fined because they don’t have any money or don’t file taxes. My guess is this is a drastic under-estimate. There are already some 15 million people who are eligible for free Medicaid but haven’t bothered enrolling. Why should they when Medicaid pays doctors so little they can’t find one that will see them? They will just roll down to the ER like they always have.

SOURCE: Business Insurance

Robert Goldberg came across a speech given on the 60th anniversary of Britain’s National Health Service by CMS Administrator-nominee Don Berwick. It’s a pretty sobering assessment of what consumers can expect if he is confirmed as the hands-on administrator of most of the new health care law.

He writes, “In 2008, at a 60th anniversary celebration of the creation NHS, (Berwick) told a UK crowd, ‘I am romantic about the NHS; I love it. All I need to do to rediscover the romance is to look at health care in my own country.'” Goldberg goes on:

Berwick complained the American health system runs in the “darkness of private enterprise,” unlike Britain’s “politically accountable system. “The NHS is ‘universal, accessible, excellent, and free at the point of care — a health system that is, at its core, like the world we wish we had: generous, hopeful, confident, joyous, and just’; America’s health system is ‘toxic,’ ‘fragmented,’ because of its dependence on consumer choice. He told his UK audience: ‘I cannot believe that the individual health care consumer can enforce through choice the proper configurations of a system as massive and complex as health care. That is for leaders to do.'”

Yikes! We are in bigger trouble than I realized.

SOURCE: American Spectator