Obamacare’s Premium Rate Shock

Published December 17, 2012

Consumer Power Report #354

Welcome to the Consumer Power Report – the final issue of 2012. It’s been a pleasure writing for you this year, and hearing from many of you. You have my sincerest wishes for a Merry Christmas and prosperous New Year!

We all know about President Barack Obama’s repeated promise that he would bring health insurance premium costs down by $2,500 for the average family by the end of his first term. Recent reports show the degree to which that promise is going to be broken – and it’s almost becoming laughable.

Consider the annual report of the Commonwealth Fund on insurance premiums as a starting point:

First, under Commonwealth’s “best-case” scenario, premiums would still total $21,754 by 2020 – that’s an increase of $6,732 from 2011 alone. But candidate Obama promised repeatedly that his health plan would cut premiums – not merely “slow the growth rate,” but CUT premiums in absolute terms – by an average of $2,500 per family within his first term. A projected increase of “only” $6,700 under Commonwealth’s best case scenario comes nowhere near close to meeting candidate Obama’s pledge to cut premiums by $2,500 – rather, it breaks that promise by nearly $10,000 per family.

The second issue is the way in which the Commonwealth Fund, just like candidate Obama himself, has consistently moved the goalposts in the wrong direction – admitting every year that the premium savings it promises are just around the corner have not materialized:

– In 2010, Commonwealth claimed that we could save $3,403 in premiums by 2020, and that under its best case scenario, premiums would total $19,938 per family in that year.

– Last year, Commonwealth claimed that we could save $3,173 in premiums by 2020, and that under its best case scenario, premiums would total $20,620 per family in that year.

– This year, Commonwealth claims that we could save $2,986 in premiums by 2020, and that under its best case scenario, premiums would total $21,754 per family in that year.

Notice a pattern here …?

These data were bolstered this past week with these jarring comments from the CEO of Aetna:

Health insurance premiums may as much as double for some small businesses and individual buyers in the U.S. when the Affordable Care Act’s major provisions start in 2014, Aetna Inc. (AET)’s chief executive officer said.

While subsidies in the law will shield some people, other consumers who make too much for assistance are in for “premium rate shock,” Mark Bertolini, who runs the third-biggest U.S. health-insurance company, told analysts yesterday at a conference in New York. The prospect has spurred discussion of having Congress delay or phase in parts of the law, he said.

“We’ve shared it all with the people in Washington and I think it’s a big concern,” the CEO said. “We’re going to see some markets go up as much as 100 percent.” …

Premiums are likely to increase 25 percent to 50 percent on average in the small-group and individual markets, he said, citing projections by his Hartford, Connecticut-based company.

While there’s rising talk among insurers of delaying Obamacare’s rollout, given the compressed timing on getting reactions to important regulations and the overall attitude of HHS, it appears clear that a messy implementation is better than a paused one from the administration’s perspective. Expect this to lead to even more “premium rate shock” in the months ahead.

Oh, and as if that’s not enough, Obamacare may hike your pet’s health care bills, too. It just keeps getting better and better.

— Benjamin Domenech



National Journal reports:

When individuals come to seek insurance, they will be interacting with brand-new systems. Aside from Massachusetts, no state has built the kind of regulated online insurance marketplace outlined in the health care law. The idea is for each state to have a website similar to what Kayak is for travel: People will go online, answer a series of standardized questions, and immediately find out what insurance plans they can purchase and what financial assistance they qualify for.

The back-end labor involved in building the necessary IT infrastructure has proven to be tremendous and full of unexpected complexity, say officials in the states that have been working most diligently to create their own exchanges. The exchanges must be able to communicate with a yet-to-be-built federal eligibility database; state-based, often antique, Medicaid computer systems; and the many insurance plans that wish to sell in the market. The vendors building the systems are starting from scratch, and regulations spelling out the precise specifications for data connections are still pending.

Connecticut’s exchange plan was conditionally approved by HHS this week, putting it near the head of the pack. Still, Kevin Counihan, CEO of the Connecticut Health Insurance Exchange, said getting to the finish line in time will be a scramble. “Do I think it’s going to be ugly getting there? You bet,” he said. “If everything works perfectly, we’re fine. But things don’t work perfectly in life, and they certainly don’t work perfectly in IT development.”

In the states that don’t want to help, additional challenges are coming. Some parts of the federal apparatus can be identical in every state where it’s operating. But the federal exchange will need to be tailored to meet the regulatory and eligibility standards in each state, an effort that could be complicated by recalcitrant state officials. Medicaid systems that cooperate only minimally could undermine the “no wrong door” approach behind the exchange design. Instead of a few clicks separating consumers and health insurance, Medicaid-eligible populations in some states may instead be forwarded to a separate eligibility and enrollment system managed by state officials.

Gary Cohen, the head of insurance oversight at HHS, said this week that the federal government will be ready to do its part in time. It’s hard to know, however, because the final regulations and technical specifications for the federal exchange are still outstanding.

The skeptics are worried. Michael Cannon, the director of health policy studies at the libertarian Cato Institute, who has been advising state officials to fight the law through noncompliance, says he thinks HHS is behind schedule. “They have very little time to do this, and they really need the manpower,” he said. “An indication of how difficult this is for the federal government is that they aren’t telling anyone what kind of progress they’ve made.”

Oklahoma has sued the federal government, arguing that the health care law’s statutory language means that federal tax credits can’t be offered in a federally run exchange. Maine has argued that the Supreme Court ruling about the law’s Medicaid expansion throws other Medicaid provisions into question. Both suits are considered long shots, but they are evidence of the strong opposition that some states continue to express, even as the exchanges’ effective date draws near.

SOURCE: National Journal


Politico on implementation:

The reality is that the governors’ rebellion won’t deliver a knockout blow – but it can throw a pretty large amount of sand in the gears.

Supporters of the law and exchange experts say the Department of Health and Human Services has the capability to set up exchanges in as many states as it needs to. But the passive resistance of so many governors could gum up the works if the feds have to handle millions of enrollments, questions from confused customers and greater health plan oversight.

As of Friday – the final deadline for states to declare whether they’ll set up exchanges – more than 30 states had refused to set up the marketplaces, which had been expected to become the source of health coverage for as many as 25 million people by the end of the decade. To some of the law’s most vocal opponents, that’s a pretty good way to keep up the fight against Obamacare.

“The more states that opt out of the state-based exchanges, the harder it will be for the federal government to fully implement Obamacare and the more likely it will be that we can turn back the clock and reframe the health care debate,” Tea Party Patriots wrote to supporters ahead of Friday’s deadline.

And when Alabama Gov. Robert Bentley denounced a state-based exchange last month, he predicted other governors would take a similar stand in a unified front to sink Obamacare.

“That will send a clear signal to all of our elected leaders in Washington that the health care bill should be changed,” Bentley declared in a statement.

The strategy hinges on doubts that the federal government can handle setting up functioning exchanges all over the country. About two-thirds of the states will need the feds to run their exchanges – including a few states that will partner with the administration on some functions – and that number could grow higher if states that want to do their own aren’t ready in time for open enrollment next October. And opponents contend too many unknowns still exist about the federal exchange, casting doubt on how the administration could fill in the missing pieces in the next 10 months.

Sarah Kliff has more at the Washington Post on the “nine-month sprint” for supporters of Obamacare:

Most states have opted not to take full control of their insurance exchanges.The consulting firm Avalere Health estimates that 32 states will leave it to the federal government to run their marketplaces or work in partnership, taking on select responsibilities.

“From where we started, we have a lot fewer operating their own exchanges than we had anticipated or hoped for,” said Avalere Health director Caroline Pearson.

Most consider the health exchanges a crucial part of the health-care law, with Americans projected to spend $23 billion in federal subsidies through the exchanges in 2014. The Obama administration has distributed more than $2 billion in exchange-planning grants to states.

Officials in the states that received approval last week to run their own exchanges describe the effort as a huge undertaking, with much work still to be done.

“With all of the work we’ve already done, that clearly puts us on pace to execute,” said Jason Madrak, communications and marketing director for the Connecticut Health Insurance Exchange, which received its federal approval Monday. “Now it’s a massive, nine-month sprint to actually build the infrastructure.”

SOURCE: Politico


Wisdom from Peter Suderman at Reason:

The doc fix is just one relatively small part of the fiscal cliff. But in many ways it is the fiscal cliff in miniature. That’s because the doc fix is perhaps [the] ultimate example of a poorly conceived temporary budgeting measure that’s not really temporary. And its history suggests what’s in store for the federal budget – and the economy – in our post-fiscal-cliff future.

The “doc fix” is Washingtonese for a regularly updated policy patch for physician Medicare reimbursements. And by “regularly updated,” what I mean is: permanently temporary.

Every year – sometimes multiple times a year – Congress overrides cuts that are scheduled to hit doctors who take Medicare patients. And just about every year there’s talk of a permanent fix, one that will wipe out the need for doc fixes in the future. But every year, Congress can’t get it together to pass a permanent fix. So instead Congress passes a temporary override to the scheduled cuts, sometimes coupled with an increase.

The way the doc fix developed is somewhat convoluted. In 1989, Congress set up a fee schedule governing how Medicare pays physicians. In 1997, Congress made those fees subject to something called the “sustainable growth rate” (SGR), which was a formula designed to restrain spending growth in Medicare’s physician reimbursements. The formula tied total spending on physician payments to inflation, in hopes of keeping physician spending from growing faster than the economy as a whole.

No one worried much about tying doctor payments to the economy because at the time the formula was passed, the economy was humming along nicely. But when the economy entered a recession in the early 2000s, something unexpected happened: The SGR’s reimbursement formula suddenly called for physicians to get less than they were expecting. So in 2002, Congress did nothing as the formula cut doctor reimbursements by 5 percent. That never happened again.

The next year, when the formula called for another reimbursement cut, Congress passed an override. And each year since, Congress has followed the same pattern. The SGR calls for a reimbursement cut. Congress either freezes payments or gives physicians a small increase for a short period of time. Sometimes the overrides last for a few months. More often they last for about a year. But a permanent fix never arrives. And each time the formula calls for a bigger cut – because with each override, Medicare’s physician payment levels grow further and further from the trendline called for by the formula. If the doc fix is allowed to occur this year, physicians face a 26.5 percent cut in Medicare fees. At the same time, the long-term cost of a permanent fix grows each year. Last year’s one-year fix cost $18.5 billion. This year’s is expected to cost about $25 billion. Estimates put the cost between $244 and $370 billion over a decade. The ever-rising cost means that with each override the chances of a permanent fix grow even harder.

The short version, then, goes something like this: Congress passed a law intended to help restrain spending. But when it came time to actually make the cuts, Congress balked. Instead, legislators passed a temporary patch with the intention of dealing with the problem later. They never did. And over time, the problem got worse rather than better.

SOURCE: Reason


The AP reports:

The founder of Domino’s Pizza is suing the federal government over mandatory contraception coverage in the health care law.

Tom Monaghan, a devout Roman Catholic, says contraception isn’t health care but a “gravely immoral” practice.

He filed a lawsuit Friday in federal court. It also lists as a plaintiff Domino’s Farms, a Michigan office park complex that Monaghan owns.

Monaghan offers health insurance that excludes contraception and abortion for employees. The new federal law requires employers to offer insurance including contraception coverage or risk fines.

Monaghan says the law violates his rights, and is asking a judge to strike down the mandate. There are similar lawsuits pending nationwide.

SOURCE: Associated Press


From the Manhattan Institute:

This paper focuses on the Medicaid population, excluding the elderly and disabled in institutional care, with or at risk for chronic diseases. It details how incentives to practice healthy behavior and reasonable requirements that patients seek early preventive care in appropriate settings can lead to better health outcomes and lower costs in Medicaid.

Simply moving patients into a managed care system will not be enough to achieve meaningful savings or better outcomes, however. To cross that line, the patients themselves must take a leading role by assuming greater responsibility for their health. That means changing certain habits and behavior that can cause or aggravate illness, notably through smoking, poor diets, obesity and lack of exercise. At the same time, the patients must agree to respect the health care process itself, by following treatment plans, taking prescribed medications, keeping doctor appointments and seeking early preventive care.

Incentives and requirements can fall into a number of categories including:

  • conditional cash transfers or non-cash rewards such as vouchers for health products, gift cards and cell phones for hard-to-reach patients;
  • enhanced health benefits, including wellness classes for those who practice healthy behaviors and comply with assigned health-care direction;
  • insurance ownership programs like the Healthy Indiana Plan (HIP) with a health savings account (HSA) component; and
  • education and personal support provided by peer counselors, health navigators, facilitated enrollers and nurses who make home visits, all working to help patients understand the system and seek early care to avoid diseases like obesity and diabetes.

Different incentives are likely to work with different demographic and medical groups, so flexibility in design as well as a mix-and-match approach will likely be needed in any menu of options.

While changing behavior is notoriously hard, conditional cash transfer incentive programs designed specifically for that purpose already exist in a number of states, including Florida, Idaho, Indiana and West Virginia, and among private employers and insurance plans. In return for taking certain steps to improve their care, patients can receive outright payments or enhanced coverage. Sometimes, they are asked to pay small premiums, which are reimbursed if follow-up steps are taken. And patients can sometimes face reduced coverage if steps are not taken. The amount of cash incentives per patient is nominal, often $200 or less a year, but the potential savings are huge. Keeping just one patient from becoming diabetic could save hundreds of thousands of dollars in treatment costs over his or her lifespan.

But which of these incentive programs is more effective than others, and how the better ones might be improved, is not fully understood, since many of them are relatively new. The need for further research about the efficacy of incentives is clear.

SOURCE: Manhattan Institute