Consumer Power Report: Obamacare’s Days of Reckoning

Avik Roy responds to the Congressional Budget Office’s assumption that employer-dumping into the Obamacare exchanges will actually improve the deficit picture:

How could dumping more people onto the subsidized exchanges, in the case of Scenario 3, actually reduce the deficit? Because people who get insurance through the exchanges, rather than their employers, would no longer be able to take advantage of the tax deduction for employer-sponsored health insurance. So, for example, in Scenario 3, the CBO assumes that the government will spend $310 billion more on the exchanges, and $65 billion more on Medicaid and CHIP. On the other hand, the government will gain $351 billion in tax revenue because of a reduction in the size of the employer tax exclusion, and $45 billion in penalties from the employer mandate. Similar math, on a smaller scale, applies to the other scenarios.

If the CBO’s analysis is correct, it would be encouraging news for the fiscal soundness of our new health law. But is it correct?

It appears that the CBO has made a critical assumption in its calculations: that employers who dump health coverage will replace that coverage, on a dollar-for-dollar basis, with increased cash wages. So, for example, if your boss is paying you $50,000 a year, and spending $20,000 a year on your health insurance, under the ACA, he’ll drop your health coverage and give you $70,000 in wages. Since you’d be paying income taxes on that extra $20,000 of wages, whereas you weren’t paying taxes on your employer-sponsored health insurance, the CBO estimates that the subsidies you’d get from the exchange are offset by new income taxes on your extra wages.

However, it’s far from clear that it would work out this way in reality. Under the ACA exchanges, that $50,000 worker would get a premium subsidy of about $12,200, along with cost-sharing subsidies of up to about $3,600, for a total of over $15,000. So an employer could dump your coverage, give you a raise of only $7,000, and feel like he has given you a better deal. That smaller raise could lead to much lower tax revenues than the CBO is projecting.

Oklahoma demurs on reconsidering the issue of health insurance exchange creation:

The Oklahoma Legislature considered a proposal to partially comply with the law’s mandate but not connect individuals to the federal subsidies. Under pressure from conservatives in their own party, Republican legislative leaders announced earlier this month that they were dropping the plan until the high court rules.

The vast majority of state legislatures have rejected the idea of a state exchange, have put off a decision until after the high court makes its decision or have done nothing.

The Center on Budget and Policy Priorities tracks progress of states toward the federal exchange mandate.

Along with Oklahoma, Alabama, Alaska, Florida, Georgia, Indiana, Kansas, Maine, Michigan, Missouri, Nebraska, South Dakota, Texas, Virginia and Wisconsin reportedly have decided to put off any moves on the issue until after the Supreme Court rules, the center’s latest report shows.

Only 11 states have established authority for a state exchange, according to the center’s tally. Seven other states have legislation pending on the issue.

The latest on hospital merger pushback from regulators in the WSJ:

Hospitals say the government is sending mixed messages. The health-care overhaul encourages doctors to coordinate patient care, which is easier when they all work for the same institution. And the administration is encouraging the use of electronic health records, which is more economically feasible for big organizations.

“It doesn’t seem like the FTC understands where the field is going and the pressures it has to be more efficient, to be leaner,” says Melinda Hatton, general counsel for the American Hospital Association trade group.

Some recent studies support the FTC’s assertion that hospitals in markets with few competitors can charge higher prices. University of California, Berkeley, health-economics professor James Robinson recently examined prices for six major cardiac and orthopedic surgery procedures in hospitals in eight states. He found that private insurers paid 29% to 56% more for procedures in hospital markets with less competition. A knee replacement cost $8,000 more, while coronary angioplasty cost nearly $11,000 more. After adjusting for patient characteristics and other potential complicating factors, Mr. Robinson found prices were 13% to 25% higher in concentrated hospital markets.

Other studies, including one last year commissioned by the American Hospital Association, have reached different conclusions. They say the pricier hospitals tend to care for sicker patients, spend more on technology and have more teaching responsibilities.

Willis reports on its latest employer survey:

Compliance with health care reform is already driving up costs for some employers’ group health plans, and a majority of employers expect price increases to be passed on to employees, according to a health care reform survey released today by the Willis Human Capital Practice, a unit of Willis Group Holdings, the global insurance broker.

While only about a quarter of the responding employers have quantified the cost of compliance within their health plans, a majority (nearly 56 percent) of those employers said the cumulative cost amounted to an increase in cost; over 15 percent noted that the cost increase was between two and five percent, and over 15 percent said that the cost increase was more than five percent. Employers report that their most significant cost drivers are the provision of adult child coverage up to age 26 and the removal of the annual/lifetime limits for “essential health benefits.”

Interesting news from New York, which has a massive Medicaid fraud problem, and where Gov. Cuomo is replacing a Pataki-appointed IG:

The turnaround was startling. Within four years the state had recouped $1.5 billion in Medicaid overpayments, the highest recovery rate in the nation. Other states rushed to create inspectors general like New York’s.

But a backlash from the politically powerful health care industry has erased broad support for the crackdown. Last year, amid a crescendo of provider complaints of overzealous, nitpicking audits and unfair tactics, Gov. Andrew M. Cuomo quietly dismissed the state’s first Medicaid inspector general, James G. Sheehan, and directed Mr. Sheehan’s successor, James C. Cox, to collaborate with providers on changes to the agency’s policies and auditing methods.

In an interview, James Introne, Mr. Cuomo’s deputy secretary for health, expressed the state’s new view.

“An audit need not be an adversarial enterprise,” Mr. Introne said. “To the extent that an audit turns into an adversarial affair, it may not be conducted properly. An audit is successful when people agree.”

The Cuomo administration said that enforcement was as vigorous as ever, and that Mr. Cox was on target to avoid $1.1 billion in improper Medicaid spending this year, even more than his predecessor. But veterans of Medicaid policing pointed to important audits that were started by Mr. Sheehan but have not been released, and said the inspector general’s office was at a difficult crossroads, caught between the Legislature’s allegiances to campaign contributors from the health care field and the governor’s plans to cut Medicaid costs, which depend on the goodwill of nursing homes, hospitals and home health agencies.

Grace-Marie Turner on the administration’s walkback of their walkback:

In an admission that the original idea had failed, Friday’s notice lists several ways that health plans could get money to pay for the mandate without dipping directly into premiums: through rebates the plans get from prescription drug companies, service fees, savings from disease management programs, or private non-profit contributions. It also proposes having the Office of Personnel Management in Washington require health plans to provide the mandated services for free as a price for participating in ObamaCare’s coming multi-state health-insurance plans.

But the religious organizations would still be required to make sure all of their employees have access to the offending coverage. So nothing has changed.

Friday’s announcement falls apart in another key way. The administration’s notice repeatedly refers to the mandate as only covering contraceptives, not the full contingent of “All Food and Drug Administration-approved contraceptive methods, sterilization procedures, and patient education and counseling for all women with reproductive capacity” which are actually covered by the mandate, as defined by the Health Resources and Services Administration.

Friday’s notice refers only to contraceptives, which it repeatedly says save money: “Actuaries and experts have found that coverage of contraceptives is at least cost neutral, and may save money, when taking into account all costs and benefits for the issuer.” (It then proceeds to cite a study done Feb. 9, the day before the president’s original accommodation announcement, by two of his senior administration appointees.)

But the administration is, once again, completely out of touch with the reality of the cost of its mandate. It’s not just contraceptives, which can be obtained for as little as $9 a month.

Sterilization is expensive surgery. According to Planned Parenthood website, “Sterilization for Women at a Glance,” this “surgery that prevents pregnancy” is “safe and highly effective” and “costs between $1,500 and $6,000.”

There is simply no way that these costs can be hidden in fees and rebates. When this administration can’t tax or deficit spend, it has no idea where to get the money to carry out its directives.