Has Obamacare Poisoned the Well for All Health Policy Reforms?

The [Affordable Care Act] will play out in two phases. The first will take place between now and 2016. During that time, the price of health care plans will increase. We already saw this happen last year and will likely see the same again this summer and fall. Another event will also likely repeat itself. This is one the law’s opponents may prefer to ignore. The number of uninsured will decrease as people sign up for Medicaid or the Affordable Care Act’s health exchanges.

But this trend will come to a sudden end in 2017. That year, health insurance companies will lose their ability to artificially depress health care costs using taxpayer money. (Two ACA provisions, both of which expire in 2017, currently let insurers tap federal taxpayer funds for various reasons.)

This will send shock waves through the health care world.

We estimate that average annual costs for the cheapest individual plans – the “bronze” plans – may increase by 96 percent, from roughly $2,100 to nearly $4,200. Bronze family plans prices, meanwhile, may increase by nearly 50 percent. The average plan in this category could come close to $13,000 a year in total premiums. Almost every plan will see a price increase of some kind.

Consumers will learn these unpleasant truths in the fall of 2016 when they attempt to extend their policies.

No matter where you live, the effects will ripple across the entire industry. The dramatically higher prices will almost surely drive some consumers out of the exchanges. But they won’t have many places to turn. Many – perhaps most – won’t be eligible for Medicaid, while others won’t have jobs that offer replacement health insurance. People in this position will thus choose between health insurance they can’t afford and becoming uninsured. Not even the IRS penalty will convince everyone to bite the bullet.

In 2017, we estimate that the number of uninsured Americans may increase by nearly 20 percent, undoing the gains of the previous two years. In subsequent years, that number may continue to grow – some years by 1 percent, other years by a bit more. Within a decade, some 40 million Americans will once again lack health insurance.

When Congress passed the Affordable Care Act, it required health insurers, hospitals, device makers and pharmaceutical companies to share in the cost because they would get a windfall of new, paying customers. But with an $8 billion tax on insurers due Sept. 30 – the first time the new tax is being collected – the industry is getting help from an unlikely source: taxpayers.

States and the federal government will spend at least $700 million this year to pay the tax for their Medicaid health plans. The three dozen states that use Medicaid managed-care plans will give those insurers more money to cover the new expense. Many of those states – such as Florida, Louisiana and Tennessee – did not expand Medicaid as the law allows, and in the process turned down billions in new federal dollars.

Other insurers are getting some help paying the tax as well. Private insurers are passing the tax onto policyholders in the form of higher premiums. Medicare health plans are getting the tax covered by the federal government via higher reimbursement.

State Medicaid agencies say they have little choice but to pay the tax for health plans they hire to insure their poorest residents. That’s because the tax is part of the health plans’ costs of doing business. Federal law requires states to pay the companies adequate rates.

“This situation results in the federal government taxing itself and taxing state governments to fund the higher Medicaid managed care payments required to fund the ACA health insurer fee,” said a report by Medicaid Health Plans of America, a trade group.

In the 27 states that have accepted the Medicaid expansion, hospitals’ profits are climbing while more patients are getting access to care. Some large hospital chains say the Medicaid expansion alone has already added tens of millions of dollars to their bottom lines, and they’re expecting to make even more money as enrollment continues.

But in states that haven’t signed on to the expansion, hospitals are in a bind – they’re getting the bad parts of Obamacare without the good. All hospitals agreed to take payment cuts as part of the law, on the theory that an influx of new patients would make up for those losses. In states that haven’t expanded Medicaid, that influx isn’t happening.

The discrepancy between expansion and non-expansion states, outlined in a new report from PricewaterhouseCoopers, helps explain why hospitals are at the front lines of the debate over Medicaid. While states’ decisions about whether to expand are largely political, millions of dollars are also at stake for the health care industry.

Together, the states that haven’t accepted the Medicaid expansion are foregoing more than $420 billion in federal funding between now and 2014, according to PwC, while leaving more than 6 million people uninsured.

At the same time, hospital chains in those states will lose out not just on newly insured customers, but also on nearly $170 billion in enhanced Medicaid payments tied to the expansion.

Hospitals always knew they stood to make money as the Affordable Care Act expanded health insurance coverage, particularly through Medicaid. The fundamental reasons are simple enough: Hospitals have to care for everyone who comes in the door, so if fewer of those people are uninsured, hospitals get reimbursed for more of the care they provide.

But Medicaid has turned out to be even more profitable than most hospitals and health industry experts predicted, according to the PwC report.

Community Health Systems, which operates hospitals in 12 states that have accepted the Medicaid expansion, said the Affordable Care Act added $40 million to its earnings in the first half of this year. The company expects another $40 million in the second half, according to PwC.

LifePoint, which operates in 20 states, credits Obamacare with roughly $13 million in increased earnings.

The new revenues come from a drop in the number of uninsured patients.

The country’s three largest hospital chains have seen a nearly 50 percent drop in the number of patients who don’t have insurance, along with increases of as much as 32 percent in their Medicaid admissions, according to PwC.

On Nov. 15, the health-law marketplaces will reopen for business, selling coverage to millions of Americans. Last October’s debut of the online exchanges was widely seen as disastrous, with technical malfunctions early on preventing many consumers from buying plans or freezing them in confusing limbo.

Eventually, fixes and workarounds enabled about eight million people to select plans through the government marketplaces. But the delays meant many people didn’t sign up until late in the enrollment period, which wound down in April, leaving insurers little time to assess their new enrollees and figure out rates for next year.

Now, insurers are bracing for the sequel. So far, industry officials say, they are expecting hiccups, but likely not a crippling meltdown. Deborah Rice-Johnson, president of Highmark Inc.’s health plan, says she is more comfortable than she was at the same point a year ago. Still, “will there be a glitch here or there? Absolutely,” she says.

Insurers are hoping for even more consumers this time around, and an influx of healthy, younger enrollees, prodded by the rising penalty that some will face for lack of coverage next year. The Congressional Budget Office has projected enrollment for 2015 at 13 million. (Graphic: Faces of the Affordable Care Act)

Rates will be a mixed bag – based on figures for 31 states and the District of Columbia, the average premium increase would be 8%, according to PwC’s Health Research Institute. But the individual moves ranged from proposed 23% cuts for two plans to increases of more than 30% for a few other plans.

While patients today are undoubtedly paying more for medical care, less of that money is actually going to the people who provide the care. According to a 2002 article in the journal Academic Medicine, the return on educational investment for primary-care physicians, adjusted for differences in number of hours worked, is just under $6 per hour, as compared with $11 for lawyers. Some doctors are limiting their practices to patients who can pay out of pocket without insurance company discounting.

Other factors in our profession’s woes include a labyrinthine payer bureaucracy. U.S. doctors spend almost an hour on average each day, and $83,000 a year – four times their Canadian counterparts – dealing with the paperwork of insurance companies. Their office staffs spend more than seven hours a day. And don’t forget the fear of lawsuits; runaway malpractice-liability premiums; and finally the loss of professional autonomy that has led many physicians to view themselves as pawns in a battle between insurers and the government.

The growing discontent has serious consequences for patients. One is a looming shortage of doctors, especially in primary care, which has the lowest reimbursement of all the medical specialties and probably has the most dissatisfied practitioners. Try getting a timely appointment with your family doctor; in some parts of the country, it is next to impossible. Aging baby boomers are starting to require more care just as aging baby boomer physicians are getting ready to retire. The country is going to need new doctors, especially geriatricians and other primary care physicians, to care for these patients. But interest in primary care is at an all-time low.

Insurance plans with multiple cost tiers have become more prevalent in recent years, as prescription drug costs have increased over all. In 2000, nearly half of workers with private insurance had two price categories – typically, one for generics, the other for name-brand drugs, according to a survey by the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust. An additional 22 percent of covered workers paid the same price for all drugs.

By 2013, though, more than eight in 10 workers had private insurance plans with three or more tiers of drug prices.

But my co-payments may not be the same as yours. Each insurance company – and employer – sets its own list of approved drugs and out-of-pocket costs. Some are fixed amounts and others are percentages of a drug’s cost, sometimes called coinsurance. Medicare prescription drug plans also have their own rules.

Another change is that generic drugs aren’t as cheap as they used to be. An article in The New York Times in July detailed how the cost of some generic drugs had doubled recently, as suppliers left the market and reduced competition. Other reports have found similar problems.

Some insurance companies, including mine, have increased the share that consumers pay for more expensive generic drugs, placing them on tiers once reserved for name-brand drugs. Your health plan should have a list on its website.