Consumer Power Report: Lessons of the Year

Published December 19, 2011

Let’s pause from our normal breakneck pace of waivers and reviews, court challenges and approvals, to take a moment to assess three lessons from the year in health policy. These are by no means the only lessons, or even the most important lessons, but they seem significant to me.

The Feds run everything. Regardless of the outcome of the case pending before the Supreme Court, it’s clear the federal government now exercises such incredible control over the health care marketplace that the opportunity to create thriving models of coverage at the state level is essentially reduced to the pool of state employees. Coverage relies on the whims of whatever administration happens to be in power in Washington, DC, not on state officials who tend to know and understand better the unique needs of their population – rural or urban, diverse or monolithic, wealthy or poor. We see this particularly within the ghetto of Medicaid, already the largest line item for most states, which requires the blessing of the federal government for nearly every significant alteration to better meet the needs of the most sick and most poor. And even if plans are popular and successful, such as Indiana’s approach, the math matters less than the politics.

Social engineering doesn’t work. The unpopularity of Obamacare is astounding. The most recent polls on the subject have the law at below 30 percent approval – essentially indicating only the president’s most loyal supporters now believe it was the right way to fix things. It’s difficult enough to get half of Americans to believe about anything – but getting nearly 70 percent of Americans to oppose the individual mandate is about as clearcut as it gets. At a recent event in Washington, a Capitol Hill staffer posed a question to a panel of experts about why the individual mandate is so unpopular – he couldn’t understand why an idea that makes so much sense to him is viewed with such disgust outside the Beltway. The reason is clear: Americans still fundamentally reject government encroachment in areas they view as off-limits, especially when the primary rationale is an image of what the policymakers think society ought to look like, as opposed to what it is. No matter what happens in the upcoming Supreme Court ruling, I expect Congress to re-open Obamacare for major changes after the 2012 election. There is just too much opposition to too much of it for the law to survive without shifting more toward what people want.

Our course remains unsustainable. This lesson is one learned from Europe: Wealth redistribution on massive levels is sustainable all the way until it isn’t. In Maine, Gov. Paul LePage says his state has 453,000 welfare recipients, while 445,000 paid taxes. Medicaid now accounts for 21 percent of Maine’s spending, up from 12.4 percent in 1998. This is not an outlier – it is the rule. As unemployment remains high and Obamacare’s massive expansion of the Medicaid system approaches, it is now apparent that millions of Americans will soon be shifted onto a taxpayer-funded, government-run American health system with outcomes that range from the barely acceptable to the plainly awful. This system is not sustainable. But the political will to change it seems absent from leadership in Washington. It will take governors uniting together to demand a shift to force Washington to stop treating Medicaid reform like the ugly stepsister and embrace one of the few areas where Democrat and Republican governors alike agree more flexibility and freedom is mandatory.

These three lessons may seem depressing. But there’s one more that ought to give you hope – where freedom exists in the health care space, people are thriving. In a number of key states, governors with a mind toward innovation are rejecting the top-down statism and mandates the establishment has favored for decades, taking small but important steps toward empowering consumers. Just as welfare reform required state success to export to the national level, these small steps may, if protected from federal encroachment and social engineering, reverse our unsustainable course. And if this happens, it will be a time to rejoice in an America that has the health care system it deserves – where personal responsibility is renewed, and competition, transparency, and innovation thrive.

— Benjamin Domenech



Here it comes – mark your calendars!

The Supreme Court announced Monday that it will use an unprecedented week’s worth of argument time in late March to decide the constitutionality of President Barack Obama’s historic health care overhaul before the 2012 presidential elections.

The high court scheduled arguments for March 26th, 27th and 28th over the Patient Protection and Affordable Care Act, which aims to provide health insurance to more than 30 million previously uninsured Americans. The arguments fill the entire court calendar that week with nothing but debate over Obama’s signature domestic health care achievement.

With the March dates set, it means a final decision on the massive health care overhaul will likely come before Independence Day in the middle of Obama’s re-election campaign. The new law has been vigorously opposed by all of Obama’s prospective GOP opponents. Republicans have branded the law unconstitutional since before Obama signed it in a March 2010 ceremony.

In an extraordinary move, the justices are hearing more than five hours of arguments over the health care overhaul. In the modern era, the last time the court increased that time anywhere near this much was in 2003 for consideration of the McCain-Feingold campaign finance overhaul. That case consumed four hours of argument.

SOURCE: Associated Press


Paul Ryan’s staff was kind enough to respond to my questions regarding his new plan. You can read the responses to all eight questions at Ricochet, but I’d draw your attention particularly to these two:

2. The biggest difference with your original plan is that seniors would have a choice between staying in traditional Medicare, or opting into new private plan alternatives purchased through a federally regulated exchange. You say this will “Ensure a sustainable future for Medicare.” Why do you have confidence that the conservative base will accept what is essentially doubling down on Medicare Part D? And given that this idea was also in Rivlin-Domenici, can you explain how this new plan is any better, or any more conservative, than that plan?

Your question makes a faulty assumption: an open-ended unsustainable system would not operate alongside an optional premium support framework. A traditional Medicare fee-for-service option would operate within a premium support framework. This Medicare fee-for-service plan would be forced to compete alongside private options within a fundamentally reformed program. Just like in the House-passed budget, seniors would receive a fixed amount and be allowed to choose from a select set of Medicare-approved plans. A difference with this bipartisan effort is that one of the Medicare-approved plans would be a Medicare fee-for-service option. The financing for all options is the core reform, maximizing the power of the senior and the benefits of choice and competition.

This is also fundamentally different from Medicare Part D in 2 ways: 1) This effort does not increase the deficit – in fact, it directly addresses the primary driver of the debt and makes possible a fiscally sustainable future, and 2) this effort does not create a new entitlement and add it to a broken system – in fact, the proposal reforms the existing program and puts it on a sustainable path for future generations.

3. One of the chief criticisms of the public option was that the anti-market administration/bureaucracy would inevitably game the system in order to favor the government option. In allowing the private sector to compete with traditional Medicare, won’t this happen again? Why not? The Breaux-Thomas plan involved an independent non-CMS entity to be in charge of this, but your plan puts CMS in charge of it all. Why should we not be concerned by this?

Under this effort, the way it would practically operate is: CMS would be responsible for managing the Medicare components (e.g., risk adjusting, actuarial value, bid approval) and OPM would be responsible for Exchange management (e.g., regulations, information distribution, compliance). As stated earlier, the Medicare fee-for-service option would operate inside the Exchange. The competitive bidding process that forces the Medicare fee-for-service option to compete against private plans is both what controls health care costs and prevents Medicare from gaming the system.

Also – this gives providers a measure of flexibility they have never had before. Rather than being forced to take provider rates as dictated by Medicare, they would now be free to accept contracts with private plans. The federal government would no longer be able to monopolize this market, and plans would now compete to attract consumers.

The fundamental shift is that the patient and the doctor would become the nucleus of the system. Insurers and providers would compete for the consumer’s business, as opposed to continuing to lobby Washington for a more favorable reimbursement rate.

I’ll have more on this, particularly in regards to regional bidding, in our next edition.

SOURCE: Ricochet


Now here’s an interesting response to MLR waiver rejection:

Louisiana Insurance Commissioner Jim Donelon recently forwarded a letter to the United States Department of Health and Human Services (HHS) requesting reconsideration of their denial of the Medical Loss Ratio (MLR) wavier which the state requested earlier this year. Medical Loss Ratio is a requirement of the Patient Protection and Affordable Care Act (PPACA) which requires that health insurance companies spend 80 to 85% of premiums on actual medical services and the balance on other costs. The waiver which sought to phase in the 80% target for individual policies (the only ones eligible for such a waiver under PPACA) over three years was denied on November 27, 2011.

Donelon cites the lack of competition in Louisiana’s health market due to the fact that there is one dominant company in the state as the primary reason for reconsideration of the denial. “While that company services its insureds in an exemplary fashion, and employs over 1900 Louisiana citizens statewide, preserving competition is essential in order to afford consumers protection through competition. I truly believe that the best way to control health insurance costs is through competition in the private sector,” says Donelon.

An integral part of competition in the private sector is provided by life and health insurance agents who have the ability to do comparison shopping for their policy holders at a cost of under 5% of the premium. If a waiver is not granted to companies competing with the dominant carrier, Donelon fears those companies will be forced to squeeze the agents out of the process and as a result lead to a single-payer system, which he believes is not in America’s best interest.

We’ll see if Florida responds with something similar.

SOURCE: Louisiana Department of Insurance


This looks like a longshot bet:

With many states unwilling or unable to get insurance exchanges operational by the health law deadline of Jan. 1, 2014, pressure is growing on the federal government to do the job for them.

But health care experts are starting to ask whether the fallback federal exchange called for in the 2010 health law will be operational by the deadline in states that will not have their own exchanges ready.

“It will be an enormous uphill battle to get this thing launched on time,” says Robert Laszewski, a consultant and former insurance executive who is watching the effort closely. “They have a Herculean task, even if everyone was cooperating.”

The federal exchange – like the state models – would be a one-stop website where individuals and small businesses could compare insurance policy offerings on price, coverage and quality.

The exchanges also will help applicants determine whether they are eligible for Medicaid or for federal subsidies or tax credits to help offset premium costs. Thus, the exchanges will need to incorporate a host of state and federal data on income, employment and residency. Enrollment through the state and federal exchanges is scheduled to begin in the fall of 2013.

So how far along are the feds?

It’s hard to assess, because the Obama administration has “been very reluctant to provide any updates on progress,” says Daniel Schuyler, a director at consulting firm Leavitt Partners in Salt Lake City, which is advising states on the establishment of exchanges.

The federal Department of Health and Human Services did not respond to requests for comment.

Add Virginia to the list of states deciding to hold off on an exchange.

SOURCE: Kaiser Health News


An important point regarding tax structure, which has done much to create the imbalance that causes technocrats to turn to mandates in the first place:

Should all Americans be required to have health insurance? ObamaCare said yes, and the issue is now central to the Republican presidential primary. Mitt Romney championed an individual mandate as governor of Massachusetts. Newt Gingrich once backed the idea too, egged on by several conservative think tanks, though he’s now opposed. Its constitutionality aside (that’ll be decided soon by the Supreme Court), is a mandate a good idea?

The short answer is no. There is nothing that can be achieved with a mandate that can’t be better achieved by a carefully designed system of tax subsidies.

The most common case for an individual mandate is the free-rider argument. Imagine a community in which everyone dutifully pays monthly health-insurance premiums, except Joe. Then one day Joe gets sick and finds he cannot pay the full costs of his medical care. So the rest of us chip in and pay for the remainder of Joe’s care. The upshot: When he was healthy, Joe got to consume all his income instead of paying premiums, and after he got sick he managed to “free ride” on everyone else’s generosity.

Ethically, Joe is getting an undeserved benefit paid for by others, who bear an undeserved cost. Economically, he is imposing an external cost on others. If we let him get away with this, others might emulate his example and the cost for the rest of us could grow.

So is the solution to mandate that everyone have health insurance? On average, people without health insurance consume only about half as much health care as everyone else. Of the amount of care they consume, they pay for about half. Thus the “free ride” for the average uninsured person is about one-fourth of what everyone else spends on health care.

Forcing Joe to buy insurance that pays for the same amount of care everyone else gets would be neither fair nor equitable. To get Joe to pay his own way, we need to take from him an amount of money equal to about one-fourth of the average health-care spending of insured people and either distribute it to everyone else or put it in a fund to pay for the care eventually required by Joe and others like him.

SOURCE: Wall Street Journal