Consumer Power Report #439
One of the underestimated aspects of Obamacare’s impact on the economy is the effect it’s had in driving inequality. Health care costs in particular have contributed to rising economic inequality in recent years, as Mark Warshawsky of the Mercatus Center and Andrew Biggs of the American Enterprise Institute detail in this piece at The Wall Street Journal: “[T]he more we spend on health care the more unequal Americans’ incomes become.”
Most employers pay workers a combination of wages and benefits, the most important of which is health coverage. Economic theory says when employers’ costs for benefits like health coverage rise, they will hold back on salary increases to keep total compensation costs in check. That’s exactly what seems to have happened: Bureau of Labor Statistics data show that from June 2004 to June 2014 compensation increased by 28 percent while employer health-insurance costs rose by 51 percent. Consequently, average wages grew by just 24 percent.
But here’s what the news headlines miss: Rising health costs don’t affect every employee the same. An average family health policy today costs employers nearly $12,000 per year, up from only $4,200 in 1999. Had employer premiums not risen, average salaries today would be around $7,800 higher. For a lower-income worker who today makes $30,000, that could have meant a 26 percent salary increase. By contrast, a “one percenter” making $250,000 today would have seen his earnings rise only by 3.1 percent. Health costs are a bigger share of total compensation for lower-wage workers, and so rising health costs hit their salaries the most. The result is higher income inequality.
Data from the BLS National Compensation Survey show that is exactly what happened. For low-income workers, total pay and benefits rose by 41 percent from 1999 through 2006. But these workers’ wages increased by only 28 percent, barely outpacing inflation. The reason: Employer costs for their health care nearly doubled, from 6.5 percent to 12.2 percent of compensation, eating up money that could have gone toward salaries.
Surely Obamacare helps correct this problem, right? Not only does it not do so, it actually spends or requires the expenditure of a great deal more on health care, and in doing so, increases inequality between the genders, according to Casey Mulligan of Mercatus, because of its bias against part-time 30+ hour workers – overwhelmingly jobs filled by women.
As a result of its exclusive access to the law’s new health insurance assistance, part-time employment becomes comparatively more desirable to workers, or at least less undesirable, than it was in the past.
Both of these employment disincentives are worth thousands of dollars per year and, in some cases, more than a thousand dollars per month. Both will lead to less full-time work and even less productivity per hour of work that is performed. This is because some positions are vastly more efficient when worked full-time, and the new employment disincentives will not be enough to change that.
Nevertheless, a number of positions have traditionally been 30- to 39-hour jobs, and those who occupy these jobs typically will have less trouble adapting to a 29-hour schedule that avoids the employer penalty or allows the worker to get the ACA’s new assistance. Women are at least twice as likely as men to be in those positions, which means they are twice as likely to be 29ers once the new health law goes into full effect.
One of the problems with government policy is never fully grasping the ripple effect of policy changes, which can lead to all sorts of unexpected results. For Obamacare, those results are legion.
— Benjamin Domenech
IN THIS ISSUE:
Myth 2: The United States has a free-market health care system. This is a very pernicious myth and, again, it prospers because the Right grants the Left’s premise. “The United States has a free-market health care system – and look at the mess we’re in!” the Left crows. “The United States has a free-market health care system – and it is the best in the whole wide world! USA! USA!” the Right responds.
This could not be further from the truth: Look at Singapore, itself hardly a free-market utopia. But more facts should be noted. First, nearly half of health care spending in the United States comes from the government, a figure that is sure to rise as Obamacare implementation continues, and a figure that is much, much higher than that in putatively “socialized” systems like those of Germany, Japan, and Switzerland. And this does not take into account the biggest “tax expenditure” in the American tax code: the tax deduction for employer-provided health care insurance. Macroeconomically speaking, such tax breaks are government spending – spending directed by the government even if not actually undertaken by the government.
Second, the U.S. health care system is in fact highly regulated. Insurance companies must comply with countless mandates, depending on circumstances, such as “guaranteed issue” (granting insurance regardless of preexisting conditions) and “community rating” (a ratio between the lowest price charged and the highest price charged, which works out to a subsidy of the unhealthy by the healthy, who must pay more for their coverage). And this doesn’t get into issues like professional licensing.
Regardless of the merits of such regulations, a sector in which at least half of the spending is directed by the government and the rest is highly regulated is not a “free market” in any meaningful sense of the term. If anything, Obamacare has had the benefit of laying bare the mental model the Obama Administration employs when it thinks about health care insurance: as a regulated utility. Private companies provide the service, but they do so only at the prices set by the government, according to the government’s requirements, and with government subsidies. Again, a regulated utility system may or may not be a good idea for health care provision, but it is not a free market.
More than a dozen Senate Republicans today asked House Speaker John Boehner to stop the Obama administration from bailing out health insurance companies that participate in Obamacare.
In a letter to the top House Republican, 13 fellow Republicans joined Sen. Marco Rubio of Florida to preempt unlawful spending by the administration using a provision of the Affordable Care Act, popularly known as Obamacare.
“We write to you out of concern the administration is planning to spend appropriated and unauthorized funds through Obamacare’s risk corridor program,” wrote the senators – who include Pat Roberts of Kansas, facing a tough challenge Nov. 4 from independent candidate Greg Orman.
Because spending bills originate in the House, funds for a bailout of insurance companies would fall under the lower chamber’s jurisdiction. In December, Boehner will have the House consider another continuing resolution to fund the government.
The Obama administration designed the “risk corridor” initiative to address the potential risk to insurance companies of excess losses, or profits, as the providers price premiums amid uncertainties in implementation of Obamacare.
Under the law, the federal government would distribute money from insurance companies that earned excess profits to those that had excess losses. However, Rubio and his colleagues contend that more companies are likely to experience losses than gains – putting taxpayers on the hook for a bailout of companies that participate in Obamacare’s online exchanges or marketplaces.
“[T]he risk corridors subsidize and redistribute collections to health insurance companies that lose money,” the GOP senators wrote.
A report from the House Oversight and Government Reform Committee concluded that the majority of participating insurers companies expect to receive taxpayers’ money to compensate for losses – a receipt approaching $1 billion.
“Given the uncertainty that insurers faced in pricing the new coverage, combined with pressure on them from the administration to keep premiums low, the risk-corridor program is more likely to result in additional federal outlays than in additional federal receipts,” Ed Haislmaier, a health policy expert at The Heritage Foundation, told the House Energy and Commerce Committee in July. He continued:
“This is the source of the concern expressed in Congress and elsewhere that the risk-corridor program could become a taxpayer-funded bailout for insurers selling coverage in the exchange.”
Although the Obama administration contends that collections of excess profits are designated as “user fees,” the Government Accountability Office last month concluded the Department of Health and Human Services, which oversees Obamacare, would need additional appropriations from Congress. If the administration were to spend money covering insurance companies’ losses, it would be illegal, GAO said.
SOURCE: Melissa Quinn, Daily Signal
The new chief executive of HealthCare.gov, Kevin Counihan, is setting expectations really high for the website’s performance during its second year of open enrollment, set to begin in mid-November. In an interview with Alex Wayne of Bloomberg News, Mr. Counihan said his goal was to create a consumer experience so satisfying that it would result in “raving fans” for the insurance shopping site.
But here’s one big hurdle: The site still won’t have any tools to allow consumers to see which doctors and hospitals are covered by individual insurance plans. Mr. Counihan told Mr. Wayne that HealthCare.gov would not change to allow consumers to comparison shop on insurance plan networks.
Plans that limit patients’ choices of doctors and hospitals have turned out to be the signature product of the Affordable Care Act marketplaces. That may be a welcome development for cost-conscious consumers, but only if they know what they’re buying.
The proliferation of these plans is not a surprise. As we’ve written before, the combination of new regulations and insurers’ desire to keep prices low have made the plans, known as narrow networks, an attractive option for insurers seeking to offer affordable choices.
Peter Drier became the subject of a New York Times article after he had an operation for herniated disks and got an unexpected bill for $117,000 from an out-of-network surgeon he did not know was involved in his care.
And evidence shows that a narrow network does not necessarily mean a bad plan. A recent study of narrow plans offered to Massachusetts state employees found that people who chose the narrow plans spent less money and seemed to have equally good health care, compared with their counterparts in more traditional plans.
But the researchers behind that study said they thought a key to the program’s success was that the employees understood the trade-offs and knowingly chose a plan with a lower premium and fewer doctors.
That may not always be the case in the federal marketplaces, where there’s no easy way to compare the doctors and hospitals that are covered by plans without researching each one individually – by calling the companies or searching on their websites. Even the dedicated shopper willing to do that extra work may find it frustrating. Insurers may offer different networks for different products, which is not always clear. The lists of hospitals and doctors are also often out of date. Journalists at The Los Angeles Times recently constructed an interactive website to allow California consumers to see which plans cover their doctors. Shoppers in other states will not be so lucky.
Although more provisions of the Affordable Care Act have taken effect over the past year, more Americans still say the law has hurt rather than helped them. Compared with early 2014, fewer Americans say it has had no effect, although this group is still in the majority, at 54 percent.
Americans overall are both more positive and more negative about the law’s effect on themselves and their families. Since the start of this year, the percentage saying the law has helped them has increased from 10 percent to 16 percent, while the percentage saying it has hurt them has also gone up, and by a similar amount, from 19 percent to 27 percent.
At the same time, overall attitudes about the law have stayed constant over the past year. Currently, 41 percent of Americans approve of the Affordable Care Act, commonly referred to as “Obamacare,” while 53 percent disapprove.
Attitudes toward the Affordable Care Act remain sharply divided along party lines. Democrats are much more likely than Republicans and independents to say the law has helped them, and Republicans are much more likely to say it has hurt them. Similar percentages of Americans from all three partisan groups say the law has had no effect.
The 15 percent of Democrats who say the law has hurt them is up from 6 percent in May. At the same time, the percentage of Democrats who say the law has helped them has also increased slightly, from 23 percent to 27 percent. Republicans’ views now are essentially the same as they were in May.
The doc fix problem gets bigger as time goes on because every time Congress delays the cuts, next year’s cuts get bigger. Doctor payments would have to be cut by up to 25 percent without the next doc fix, which will inevitably come. Senior lobbies will continue to mobilize, as will the entire medical provider establishment. And the shell game will continue.
You would never know this from listening to the Obama administration’s happy talk about Medicare, boasting about the success of health reform in getting health spending under control. Officials used the recent annual report from the Medicare program’s Boards of Trustees as a hook. The report “brings good news about the program’s financial future: Its Trust Fund will last four more years, to 2030,” the White House proclaimed on a blog post last summer.
The Medicare Trustees charged with overseeing Medicare are required each year to provide an estimate of the program’s fiscal health, and they have been bound in their projections to follow what the law says. And the law says that every year, physician payments must be cut.
But the recent Trustees’ report acknowledged that Congress never has allowed the cuts to go into effect and is unlikely to do so in the future.
They wrote “it is a virtual certainty that lawmakers will override” the cuts “as they have done every year beginning in 2003.” That was the first time ever that the Medicare actuaries admitted that the “Sustainable Growth Rate”(SGR) problem – the official name for the doc fix – was a sham. It disserves taxpayers and Medicare beneficiaries to say that the cuts will take place.
The reality is that U.S. health care spending, including Medicare spending, has slowed in recent years, partially due to the recent recession and weak recovery and partially due to other more fundamental spending changes (such as higher deductible health plans requiring more out-of-pocket spending by consumers).
But the reality also is that Medicare is on an unsustainable fiscal path and real reform is vital. We need a real, not a fake, solution.
SOURCE: Grace-Marie Turner, Forbes
Consumers keep price top of mind when they purchase prescription drugs and they’re unafraid to buy against the big labels, a new Morning Consult poll found.
Nearly three-quarters of respondents said if given the choice between a brand name drug and a generic version, they’d be more willing to choose the generic version. What’s more, 65 percent of respondents disagreed that brand name drugs were more effective than generic drugs.
But there are several factors that determined where and how voters buy their drugs.
Thirty-five percent of voters said price is the most important thing to them when it comes to their prescription drugs, while 29 percent said location. Twelve percent said customer service was a key factor for them. Only eight percent of respondents said their doctors’ recommendation was the most important factor in their choice of prescription drugs.
In terms of where they go to buy drugs, many consumers aren’t using pharmacies at their provider’s offices. The poll found 47 percent of voters prefer to go to a Walgreens, Rite Aid or CVS or other retail store for their prescription drugs. Fourteen percent said they like to go to Target, Wal-Mart or another department store for their drugs. Ten percent of voters said they use community pharmacies and others said they use mail order services or go online. Only 9 percent of respondents said they go to their provider to fill their prescription while two percent said they go to a hospital.
Geography also plays a role in how people feel about their prescription drugs. Among urban area responses, 32 percent said location was the most important factor for where they get their prescription drugs. But among suburban and rural dwellers, 39 percent and 38 percent respectively said price was the most important factor for them.