Don’t Go Exchanging

Published November 20, 2012

Consumer Power Report #350

So why is it that the governors of Alabama, Alaska, Georgia, Indiana, Iowa, Kansas, Louisiana, Maine, Missouri, Montana, Nebraska, New Hampshire, Ohio, Oklahoma, South Carolina, South Dakota, Texas, Virginia, Wisconsin and Wyoming have all said no to a state-implemented health insurance exchange? Scott Walker’s letter explaining why is here. Ohio’s lieutenant governor explains her rationale here. And James Capretta and Yuval Levin talk about the gubernatorial thought process here.

But a better explanation can be found in this piece about the Washington, DC exchange from the Washington Examiner‘s Phil Klein. Keep in mind that DC has a much smaller lift than most states: It has a tiny population, with a far more sizable chunk of people on large-group or government coverage, and it has no legislature or governor to muck things up. But here’s what they’re saying about the process of building their exchange:

  • “We have to set up the largest data system the District is ever going to have that’s going to determine eligibility.”
  • “I don’t know how well these things will work.”
  • “I don’t know how well the feds are going to do and the jury is out on how well the states are going to do. I could well imagine a situation in which the states screw up and the feds do the job well. And I could also imagine a situation that’s just the reverse.”
  • “I have always said when looking at this bill, that if I were a young person, I can see elements of this bill that I wouldn’t like in the short run.”
  • “Some companies are going to face higher premiums. … If I employ a bunch of 25-year-old programmers and I’m in a large pool that includes a large company that hires a bunch of 55-year-old plumbers as well, then things are going to average out in that pool and there will be shifts in premiums and some companies will pay higher premiums as long as they’re not grandfathered.”

One of the consequences of President Barack Obama winning re-election is that Obamacare now has to work, and with as little economic disruption as possible. With governors saying no to the state-implemented exchanges, that increases dramatically the burden on the federal government of implementing an exchange that must now serve almost half the country – and it could be more if Chris Christie listens to this advice.

There are about a half-dozen states outstanding, including governors Christie in New Jersey, Tom Corbett in Pennsylvania, Butch Otter in Idaho, Bill Haslam in Tennessee, and Rick Scott in Florida. Scott is the most critical one: He personally opposes the exchange but is under pressure from his legislature to implement, and he will soon meet with the feds to discuss how to proceed. You might want to reach out to let him hear your thoughts on the subject.

If HHS has to handle a federal exchange (or really, two federal exchanges – one for individuals, one for small businesses) in all these states, there are a number of problems likely to emerge in implementation that will make this a more difficult process. All along HHS has been clearly fairly nervous about this aspect of the process, an untested and significant lift even in states that are thoroughly on board with the concept. The implementation phase is likely to make for some interesting reactions in 2014, as this is the first point when most people will interact with Obamacare in their own lives. The public opinion reaction could be significant for the Democrats’ political prospects.

Considering that liberalism won the day in November, now it just has to work.

— Benjamin Domenech



Here are some thoughts on how to prepare yourself for the new reality:

Flex Spending Accounts and Health Savings Accounts: FSAs will now be capped in 2013 at $2500 (before they were limited only by employer). If you’re one of the thousands of people who have a special needs kid and had been using your FSA for their education payments, you’re out of luck. We already have the increased penalty for HSA withdrawal, so be aware of the other restrictions on your HSA, including no longer being able to purchase things over the counter without a prescription.

High Deductible Health Plans: HDHP+HSA or “consumer driven” plans are not long for this world, despite having rapidly growing popularity in the marketplace – the MLR and essential benefit regulations issued last year virtually guarantee that these will disappear from the market within the next few years, spelling the end of this approach as an option. They need the young and healthy people purchasing these plans to purchase more coverage to subsidize the rest of the marketplace.

Get a Younger Physician: Switch to a younger primary care doctor, particularly if you’re older or approaching retirement. Only half of doctors plan to continue practicing at the same level for the next three years – they instead plan to cut back on hours, see fewer patients, or retire altogether, according to the Physicians Foundation (this is partly due to Obamacare, partly due to the fact that a lot of doctors are Baby Boomers themselves). If you have enough money and have chronic issues, consider concierge medicine as an option, where a doctor is essentially [paid] an annual fee in order to be on call for you.

SOURCE: Heartland Institute


Get ready for new rules and more:

Medicaid: Most Republican governors are deciding not to set up their own exchanges, forcing the federal government to step up instead. The move will make life more difficult for the Health and Human Services Department, but some form of exchange will still be operating in every state. The governors’ real weapon is in rejecting the law’s now-optional Medicaid expansion.

Before the Supreme Court made it optional, the expansion was estimated to make up about half of the law’s coverage expansion – roughly 15 million people. The success of the Affordable Care Act will be judged largely by how many people gain coverage, and GOP governors in big states like Texas and Florida can chop billions of people out of that total by refusing to expand Medicaid.

Subsidies: The push to resist state exchanges is driven in part by the hope that a long-shot lawsuit will derail federal subsidies to help people pay for private insurance. Oklahoma filed the suit, which argues that subsidies can only flow through state-based exchanges, not a federally run fallback. If that argument succeeds in the courts, only a few states will have functional exchanges and the law’s coverage expansion will be eviscerated.

Subsidies are also at risk in upcoming talks to avoid the looming “fiscal cliff.” Republicans very much want to tap into the subsidy funding to pay for a debt agreement, and Democrats might be tempted by the giant pot of money that hasn’t been spent yet.

Taxes: Several healthcare industries want desperately to get rid of newly imposed taxes, and they see the prospect of broader tax reform as an opening. Medical device manufacturers have lobbied hard for the repeal of the law’s device tax, and they have some measure of bipartisan support. Newly elected Sen. Elizabeth Warren (D-Mass.) has said the tax should be repealed, and it has never been popular with other Democrats in device-heavy states, such as Indiana and Minnesota.

Insurance rules: Big-ticket items like the policy forcing insurers to cover people with pre-existing conditions aren’t going anywhere. But insurance companies are pushing Congress and HHS to loosen up on more minor issues that they say could have a big impact on whether coverage is affordable, especially for the young and healthy people the law aims to bring into the system.

Officials at the Blue Cross Blue Shield Association said last week they think HHS can phase in new limits on age rating (charging older people a higher premium). The law only allows insurers to charge older customers three times more than younger ones, while most states let them charge five times more. Slow-walking or changing those restrictions could ease the burden on young people’s premiums, making them more likely to buy coverage and help offset the cost of covering sick patients.

SOURCE: The Hill


Thomas Miller suggests an unlikely alternative:

The less-likely option two might involve approving different versions of their own state-based “exchanges” that would operate under more market-friendly rules not likely to comply with the Obama administration’s regulatory guidance. They would serve more as market facilitators of new coverage options (for state residents seeking individual coverage and for small businesses looking for alternatives to traditional group coverage), rather than as administrators of an expanded quasi-public insurance program destined to resemble Medicaid. Flexibility, choice, and open competition would be more important tools than standardization, selective contracting, and compulsion. Such exchange-like mechanisms would involve willing consumers, private providers, and employer sponsors as partners rather than as subjects.

State-based alternatives to ACA exchanges would rely much more on developing and disseminating consumer-empowering, impartial information about coverage options, rather than on enacting and enforcing choice-limiting regulation. They would maintain the difference between providing a single shopping point for convenience and requiring an exclusive destination for political control.

Nevertheless, political suspicion remains widespread in many states that the temptation for regulatory overreach in exchange-like mechanisms cannot be kept in check. Hence, any government-supported vehicles to improve connections to coverage and taxpayer subsidies for individuals and small firms should be provided only as a “competitive” option within the larger insurance marketplace. They should not preempt further growth of nonexclusive private exchanges as either competitors or replacements for state-sponsored ones. If any new mechanisms can serve a useful role and provide competitive advantages, consumers will choose voluntarily to purchase insurance through them. Willing buyers, rather than political brokers, can redesign their local insurance markets by voting with their own money.

SOURCE: American Enterprise Institute


Several rules the administration is expected to announce shortly:

Medical Device Excise Tax. Last February, the Internal Revenue Service proposed a rule on how to apply this 2.3 percent tax, which kicks in at the start of January. The major unresolved issues concern which devices will be included and how the tax is applied and collected.

Among the questions: Should the tax apply to devices commonly used by veterinarians if the device is also used in human medicine? What about items sold in retail settings but also used in medical procedures such as dental instruments and latex gloves? Does the tax apply to kits – two or more medical tools packaged and sold together – even if the manufacturer of each component had already collected the tax when it was sold to the kit maker?

Brendan Benner, a spokesman for the Medical Device Manufacturers Association, said companies are making marketing and sales decisions based on what they expect will happen, but that presents problems. “When you don’t know what the answer to the question is, it’s hard to make a decision,” he said.

Hospital Payments. Between 2014 and 2019, the government will cut $36 billion out of the money that goes to hospitals that treat large numbers of poor patients. The cuts were included in the health law under the rationale that many currently uninsured patients would be covered either through the expansion of Medicaid or through subsidized insurance.

The administration has to figure out how it will allocate those cuts among hospitals – a task made more complicated by last summer’s Supreme Court ruling that allows states to opt out of expanding Medicaid. On the one hand, hospitals in states that don’t expand Medicaid will continue to serve a crush of uninsured patients, so they will want more federal support. On the other hand, experts note, the government doesn’t want its policy to reward those states for their parsimony by ponying up more money to soften the blow.

SOURCE: Washington Post


One more reason costs are going up.

Thomas Lewandowski, a Wisconsin heart doctor, was faced with a dilemma after his Medicare payments were cut and his overhead costs soared: Fire half his staff to keep his practice open, or sell it to a local hospital.

He decided to sell, becoming one of more than 6,000 employees at Thedacare, which runs five hospitals and numerous clinics in northeast Wisconsin. It’s a decision being made increasingly in the U.S., creating a new dynamic that threatens to raise the price of health care, even as the federal government and states strain to keep a lid on costs.

Under Medicare’s tangled payment system, hospitals get higher reimbursements than individual doctors for cardiology treatment, as they do for other specialty services, in some cases as much as three times more. At the same time, the added bargaining power gained by controlling more of the heart care in a geographic market has given large hospital systems added leverage in negotiating reimbursements from insurers, such as UnitedHealth Group Inc. (UNH) and WellPoint Inc. (WLP)

“Clearly, in the short run, it raises costs,” said Paul Ginsburg, president of the Center for Studying Health System Change, a Washington-based nonprofit research group. “We have a case where a physician becomes employed by a hospital and now a payer, like Medicare, has to start paying more.”

In Wisconsin, the number of heart doctors in private practice has declined to 11 percent from 62 percent of cardiologists in 2007, according to the American College of Cardiology, whose main offices are in Washington. The trend is similar nationwide. The number of heart doctors working for U.S. hospitals has more than tripled, while the number in private practice has fallen 23 percent over five years, the ACC said.

SOURCE: Bloomberg