Consumer Power Report: The Emancipation from Health Care Costs Act

Published November 1, 2011

On CNBC Friday, Minority Leader Nancy Pelosi gave a glimpse into the glaringly incorrect mindset behind President Barack Obama’s health care law.

During an interview with Maria Bartiromo, Pelosi was asked about employers potentially dropping coverage and sending people to taxpayer-subsidized coverage in the health insurance exchanges. She said people are looking at the whole thing the wrong way:

I think you are seeing only one side of the picture. The way we see it is an innovative, prevention-orientated way for businesses to be emancipated from health care costs because they have a way out.

That “way out,” of course, is dropping coverage and sending the bill to the taxpayers. It’s not a bug, it’s a feature!

Pelosi also said the companies receiving waivers from the U.S. Department of Health and Human Services were “small.”

I couldn’t speak to all 1,800 of them, but some of the lists that I have seen have been very, very small companies. They will not have a big impact on the economy of our country.

Perhaps she’s confused between the size of the plans and the size of the companies. Is she arguing McDonald’s, one rather prominent waiver recipient, is a small company? Or is she confusing the waivers granted across the country with those she arranged for her favorite restaurants and eateries in San Francisco?

This is, when you consider it, the logical end point of “if you like your plan you can keep it.” The problem here isn’t that the government is incentivizing employers to eliminate your plan or make it unaffordable. It’s that you are wrong about ever liking it in the first place. It’s not them–it’s you.

— Benjamin Domenech



The 696 pages of regulations for Accountable Care Organizations that came out last week are a marked improvement from the draft regulations released earlier this year. HHS is open to shifting to partial capitation depending on what they learn through the demonstration projects–projects that may not even have existed had HHS refused to budge on a number of issues. In the broadest view, it’s clear the administration was trying to avoid yet another black eye on a failed Obamacare promise and thus moved enough toward expanded waivers, more rewards, and fewer risks to entice participants. These long-theoretical projects may begin to move forward–particularly after the American Medical Association shifted from opposition to support.

Michael Millenson has this analysis:

The problem is that the draft rules proposed by CMS for ACOs back in March looked like a sucker’s bet. Not only were the requirements complex and expensive, the rewards were meager and the odds of winning were unattractive, particularly considering the initial costs to set up an ACO. The big health care systems and physician organizations that had been clamoring for a seat at the table when ACOs were first proposed told CMS they didn’t like the “house rules” and weren’t going to play. Although the concept of ACOs has deep bipartisan roots, a group of Senate Republicans anxious to pounce on any administration shortcomings jumped in with “serious concerns” about one more possible ObamaCare failure.

But the final regulations released Oct. 20 simplify the rules, sweeten the pot and even pull up a few new chairs. They make it easier for would-be ACOs to get paid (sharing “first-dollar” savings), reduce bureaucratic hassles (no more micromanagement of marketing materials), simplify the measures of success (33 measures in 4 domains rather than 65 measures in 5 domains) and provide financing to allow new players, such as federally qualified health centers and rural health centers, to get into the game.

Of course, the final regs won’t depoliticize ACOs or, given the near-universal unhappiness with the draft rules, won’t entirely succeed in the equivalent of spinning straw into gold. But with CMS proclaiming its intention to be a valued partner rather than a green-eyeshade overseer (OK, they don’t actually use that last phrase), the ACO program should be attractive enough to entice some of the high-roller headline names in health care to belly up to the table.

For the sake of comparison, Millenson was very critical when the initial rules were proposed. My own view is that, regardless of the lessened barriers to entry, ACOs have been invested with too much promise in terms of what combination of cost-cutting and quality care they can actually deliver. And there are still plenty of critics of the ACO approach, particularly in the insurance industry, where groups like AHIP and the American Benefits Council view the antitrust regulations as overly weakened:

“The initial regulation created an antitrust screening mechanism that would have protected consumers with a mandatory up-front antitrust review and exclusion from the program for those ACOs facing a legal challenge,” America’s Health Insurance Plans said in a statement. “Doing away with the mandatory review process raises concerns that provider market power may not be scrutinized sufficiently, potentially increasing health care costs for consumers and employers.”

For more on the antitrust issues involved here, the Justice Department has a statement of policy here.

SOURCE: Centers for Medicare & Medicaid Services


The White House attempts to address the drug shortages we’ve discussed for months with an executive order–which smacks of too little, too late.

The order offers drug manufacturers and wholesalers both a helping hand and a gloved fist in efforts to prevent or resolve shortages that have worsened greatly in recent years, endangering thousands of lives. It instructs the F.D.A. to do three things: broaden reporting of potential shortages of certain prescription drugs; speed reviews of applications to begin or alter production of these drugs; and provide more information to the Justice Department about possible instances of collusion or price gouging. Such efforts are included in proposed legislation that has been pending in Congress since February despite bipartisan support for its provisions.

The order, the first since 1985 by a president to affect the functions of the Food and Drug Administration, is part of a series of recent executive orders involving such disparate issues as mortgage relief and jobs for veterans. They are intended to show that the president, plagued by low approval ratings, is working to resolve the nation’s problems despite a Congress largely paralyzed by partisan disagreements.

“The president’s action is a recognition of the fact that this is a serious problem, and we can and should do more to help solve it,” said an administration official who asked to remain anonymous to avoid upstaging the official announcement on Monday. “We can’t wait anymore.”

So far this year, at least 180 drugs that are crucial for treating childhood leukemia, breast and colon cancer, infections and other diseases have been declared in short supply – a record number. Prices for some have risen as much as eightyfold, and clinical trials for some experimental cures have been delayed because the studies must also offer older medicines that cannot be reliably provided. …

Still, Mr. Obama’s order and others he has issued recently reflect his belief in the power of government to improve people’s lives. By contrast, top Republican legislators and presidential candidates have almost uniformly argued that resolving the nation’s economic and other problems depends mostly on scaling back or ending government regulations to allow the free market to function more effectively. No regulatory agency touches people’s lives more thoroughly than the F.D.A., which regulates 25 cents of every dollar spent by consumers.

The full text of Obama’s executive order is here. At least the order doesn’t extend as far as it might into the realm of more government regulation. I am skeptical this will achieve anything – as Richard Epstein and others have noted before, merely requiring advance reporting of shortages does little to alter or mitigate them.

SOURCE: New York Times


Virginia Attorney General Ken Cuccinelli advances a fascinating argument on medical malpractice reform:

Like most of my fellow Virginians and, I presume, most Americans, I am concerned that our legal system encourages more lawsuits than are appropriate. I understand that this imposes costs across our society, including higher medical costs. And like my fellow Virginians, I want federal and state laws changed to allow the free markets to put downward pressure on health-care costs, rather than allowing the upward pressure that comes with excessive lawsuits.

The five senators in question obviously support tort reform, and they are willing to smother states to impose their policy preference. It is frustrating how “broadly” some senators interpret the powers of the federal government when they are pursuing a favored policy, and how “limited” those same powers are seen to be when it is the other guy’s proposal violating the Constitution.

Senate Bill 197 takes an approach that implies “Washington knows best” while trampling states’ authority and the 10th Amendment. The legislation is breathtakingly broad in its assumptions about federal power, particularly the same power to regulate commerce that lies at the heart of all the lawsuits (including Virginia’s) against the individual mandate of the 2010 federal health-care law. I have little doubt that the senators who brought us S. 197 oppose the use of the commerce clause to compel individuals to buy health insurance. Yet they have no qualms about dictating to state court judges how they are to conduct trials in state lawsuits. How does this sort of constitutional disconnect happen?

An example of one policy question the legislation would take from states is whether to cap medical malpractice awards. Virginia is among those states that utilize caps; others do not. But it is the right of the residents of each state to decide which system works best for them, rather than having a one-size-fits-all plan imposed unconstitutionally by the federal government.

If Congress really wants to help the health-care system, lawmakers could stop their incessant attempts to dictate every aspect of the system. Why is it that folks in Washington always think that more rules from Washington will make things better? Experience has shown that approach almost never works.

Heartland Institute Senior Fellow Maureen Martin did a podcast on this subject here.

SOURCE: Washington Post


Christopher Conover makes the case that it is:

Readers may also be aware that until 1994, the 2.9 percent payroll tax levied for Part A was only applied to wage and salary income below a certain capped amount (the same maximum taxable earnings amount to which Social Security payroll taxes apply today: $106,800 in 2011). Today, there is no upper limit on the amount of earnings to which the Medicare payroll tax applies.

Moreover, under the Patient Protection and Affordable Care Act (PPACA), beginning in 2013, the 2.9 percent hospital insurance tax will continue to apply to the first $200,000 of income for individuals or $250,000 for couples filing jointly, but will rise to 3.8 percent on income in excess of these amounts.

However, none of these changes to “very high income” workers affects the figures on the chart. Why? For the purposes of the chart, “high wage” is defined as 160 percent of the average wage–$69,600 in 2011. That is well below the Social Security maximum earnings cap in 2011. Since even couples that include such high income workers are drawing twice as much in Medicare benefits as they are paying into the system (see bar farthest to the right), it’s clear that only very high income workers are actually able to self-finance their benefits through their payroll tax contributions.

Of greater concern, even accounting for the reductions in Medicare spending programmed into the PPACA, is that the ratio of lifetime benefits to lifetime payroll taxes will be nearly identical for 65-year-olds qualifying in 2030 as for those who began getting Medicare benefits in 2010. Thus, for most beneficiaries, the PPACA will help the country tread water, but has not significantly shrunk the fiscal imbalance.

So today and for the foreseeable future, the only group that self-finances their Medicare benefits are those who earned roughly three times the average wage–about $130,000 a year in 2011–throughout their working careers. This implies lifetime earnings over a 42-year career in excess of $5 million–a figure applicable only to a tiny fraction of the U.S. workforce.

SOURCE: The American


Lawsuit time in Maine:

A lawsuit challenging Maine’s authority over health insurers’ profit margins is drawing national attention from state regulators worried about the impact on their power to hold down rate increases.

The state’s highest court has scheduled oral arguments Nov. 10 on a case brought by a Maine unit of WellPoint – one of the nation’s largest health plans. Anthem Health Plans of Maine argues that regulators violated state law and the U.S. Constitution when they reduced requested premium increases in each of the past three years, depriving the company of “a fair and reasonable return.”

At issue is whether the rates approved by Maine regulators were “inadequate,” according to Anthem, which saw its built-in profit margin of 3 percent stripped to zero in 2009, 0.5 percent in 2010 and 1 percent this year.

On Monday, the National Association of Insurance Commissioners filed a brief with Maine’s top court, saying that many states have laws giving regulators similar authority to that in Maine. If the court sides with Anthem, the decision “has the potential to destabilize a key aspect of insurance regulation and will have far reaching effects impacting all states.”

Even though the case is in state court in Maine, if Anthem loses it could embolden regulators in other states, says Philadelphia–based health care attorney John Reiss, who is not involved in the case. But if the company wins, regulators elsewhere might not want to risk a similar lawsuit.

SOURCE: Kaiser Health News


Rock and a hard place:

Medicaid’s historical growth is not a result of inefficient management, but a reflection of rising costs in the health care system overall, the increasing burden of disability and age-related illness, and decades of cost shifting from the private sector.

While cost containment is always at the forefront of our agenda, we have entered perhaps the most challenging year in the program’s history. In part because of the expiration of the federal stimulus, state Medicaid expenses are projected to increase 29% from the previous year. At the same time, states are facing a collective budget shortfall of $175 billion for 2012–13. Because of state balanced budget requirements, and the reduction in state tax base in the wake of the financial crisis of 2008, it is clear that a significant percentage of this shortfall must be met with cuts.

Yet states have few practical tools to control spending in Medicaid. The program is already infamous for paying providers less for practically every service. Further reductions would likely produce only marginal savings, and federal law currently prohibits any state action that might reduce the number of people covered. However, it is not enough to simply provide less care, cover fewer people, or pay less for the same care. Doing so would continue to shift costs to other parts of the health system.

As long as we’re on this subject, here’s an interesting paper from Kaiser on Medicaid’s long term care funding issues.