What Comes After Obamacare?

Published April 9, 2013

Consumer Power Report #368

This week, Ezra Klein of the Washington Post had a lengthy back and forth with me about the future of health care policy and Republican plans for replacing Obamacare. I encourage you to read the full post here, but I’ll excerpt just a portion of it for you.

Ezra’s accusation, in part, is that Republicans think we have too much insurance. He’s basically right – but there is a difference between saying “we have too much insurance” and saying “we have too many people insured.” Democrats see getting insured as an end; but for Republicans, more healthy people is the end.

What most of the conservative health policy experts on the Right want is greater access to quality, affordable care. They understand health insurance does not guarantee quality health care any more than car insurance guarantees you a mechanic who fixes what’s actually wrong with your car without overcharging you. They want people getting insured because insurance is more affordable, competing in a marketplace to provide people with what they want – and thus Republicans are focused on cost, while Democrats are focused on coverage.

Ezra argued recently that it’s okay that we’re seeing premium hikes, because people are paying for better insurance. But that’s a bait and switch. Obama didn’t promise that Obamacare would have people paying more for a better product – he promised premiums would go down $2500 and that most people would keep the same insurance and the same doctor they had before. Affordability was how he led with it – it’s right there in the title: the Affordable Care Act! Yeah, about that. And it’s an open question, I think, about whether these plans are really any better. For those getting regular email updates from their insurer about the subtle tightening of the reins on access to certain procedures, it looks more like insurance is getting more expensive while covering things Washington deems more important than what they covered before – which may or may not be what you need at an individual level.

Republicans are in this cost-focused position in part for populist reasons: cost is what most Americans care about. According to a March 2009 report released by Health and Human Services, a majority of Americans identified cost as their top concern with American health care – not coverage.

Unfortunately, today we have an insurance system that doesn’t work like an insurance system. Megan McArdle just had a great post on this the other day, following up on Kathleen Sebelius’s criticism of catastrophic coverage as “not real insurance”:


It’s why high deductibles are a good idea–for small expenses, it’s better to self insure. And it’s why “catastrophic” health plans, which only cover the sort of extremely expensive events that most people would have difficulty financing, are a much better deal than the soup-to-nuts plans that most people get through their employers. Those plans are expensive, both because they’re paying for a higher percentage of your expenses, and because they drive up utilization–which means that they drive up next year’s premiums even more. Imagine what your car insurance would cost if it covered gasoline, routine maintenance, and those little air freshener trees you hang from the rearview mirror. Then stop asking why health insurance costs so much. … Sebelius’ response is apparently that catastrophic insurance isn’t really insurance at all–which is exactly backwards. Catastrophic coverage is “true insurance.” Coverage of routine, predictable services is not insurance at all; it’s a spectacularly inefficient prepayment plan.

I typically use the example of your homeowner’s insurance policy being used every time a lightbulb busts. Imagine if you had to go to a housing clinic that was in your plan, wait for an advisor to tell you the proper lightbulb that you already know you need, go to another hardware store to pick up the lightbulb, pay a copay for the lightbulb, etc. Who would do that? And yet we do it all the time in the health care space. Most spending is on the broken lightbulb equivalent of chronic diseases.

The point is that insurance is one way to pay for health care services, but it is not the only way, and very often not the best way. It adds massive administrative costs to every transaction. These are costs not solely born by the insurance company (or the employer), but include costs on providers imposed by insurance companies. It is far more efficient to pay directly for a service received whenever it is possible to do so (and as consumer-driven coverage evolves and expands, the optimal cut-off line will become more apparent). The presence of third-party payment always leads to overutilization, mistrust, and lack of accountability. Who is your doctor working for, you or the payer? Who cares what something costs if someone else is paying for it?

— Benjamin Domenech



It’s an “escape hatch”:

Small-business owners across the U.S. are bracing for the health-care law that kicks in next year, fearing it will increase the cost of providing insurance to employees. But Rick Levi, a business owner in Des Moines, Iowa, is among those considering the government’s escape hatch: paying a penalty to avoid the law’s “employer mandate.”

Under the Affordable Care Act, employers with 50 or more full-time workers will be required to provide coverage for employees who work an average of 30 or more hours a week in a given month. An alternative to that mandate is for business owners to pay a $2,000 penalty for each full-time worker over a 30-employee threshold.

Mr. Levi currently spends about $140,000 a year on insurance premiums to cover 25 managerial staff at his business, Consolidated Management, which runs cafeterias at schools, offices and jails.

Under the new law, he will have to offer insurance to all of his 102 full-time employees starting in January. Assuming all of them take the coverage, Mr. Levi says the cost of premiums could exceed $500,000.

“I’ve never made a profit in any year of the company that has surpassed that amount,” says Mr. Levi, 62 years old. “I don’t make enough money.”

He says it makes more sense to drop insurance entirely and pay a penalty of about $144,000.

Gary Epstein, owner of Firstaff Nursing Services Inc. in Bala Cynwyd, Pa., has similar plans. He intends to stop offering health insurance benefits at his home health-care company.

Mr. Epstein, 52, employs about 250 workers and currently provides health insurance to his 20 office personnel. If he were to start covering the 100 or so nurses and nursing assistants that work full time, his annual health-insurance costs would jump to roughly $600,000 from the current $100,000, he says.

Even if he takes the penalty option, he estimates he would have to pay about $240,000–a cost he doesn’t think his business could absorb. To compensate, he plans to cut the number of hours his nurses and nursing assistants work so they will be considered part-time under the law. He says he will hire more part-timers to ensure patients receive the same level of care.

“We’re going to do everything we can in order to stay in business,” he says.

SOURCE: Wall Street Journal


Competitive advantage?

Regulators in some states are trying to prevent insurers from getting around the health law by extending potentially cheaper, but more limited policies for another year, but other states are giving the firms leeway.

At issue are rules that take effect Jan. 1, which require insurers to cover a set package of benefits, such as prescription drugs, maternity care and hospitalizations, and which limit or bar their ability to vary premiums on age, illness or gender. To avoid those rules – and possibly, rate increases that could occur because of them – some insurers are seeking to move up renewal dates for current policies to the end of December, so those policies could be extended through 2014.

How many insurers are pursuing the strategy is unknown. But if a significant number extend their old policies, it could affect the cost of health insurance and scope of benefits for millions of people who buy their own policies rather than getting them through their jobs. If enough relatively healthy people hold onto those policies, the practice also has the potential to drive up insurance costs for those buying coverage in new online insurance marketplaces beginning next year.

Those who support the renewal date changes, including some state officials, say they would protect beneficiaries, especially those who are younger and healthier, from potentially steep rate increases.

“People who don’t qualify for a [federal] subsidy would be better off staying with their current plan for as long as can and paying the lower premiums,” said Arkansas Deputy Insurance Commissioner Dan Honey.

The downside is that such consumers may have less generous benefits than if they were covered by the law, and they would also be ineligible for federal subsidies that will be available to those buying policies in the new marketplaces, if they earn up to 400 percent of the federal poverty level, or about $45,960 this year for an individual.

SOURCE: Kaiser Health News


This could prove harder than they initially thought:

When President Lyndon B. Johnson wanted to enroll seniors for the new Medicare program he had just signed into law, the story goes that his administration sent out workers on dog sleds to reach people in the remote Alaskan tundra.

“The Forest Service even had rangers looking for hermits in the woods,” recalled the late Robert Ball, Johnson’s Social Security commissioner, in a documentary on Medicare’s 40th anniversary.

The plan to insure as many as 27 million Americans under the federal health law beginning this fall will be the biggest expansion of health coverage since that launch. Millions will be eligible to shop for insurance in the new online marketplaces, which open for enrollment Oct. 1 with the coverage taking effect Jan. 1.

But six months before the process begins, questions are mounting about the scope and adequacy of efforts to reach out to consumers – especially in the 33 states that defaulted to the federal government to run their marketplaces, also called exchanges. The Obama administration has said little about outreach plans for those states, and neither the money nor the strategy is apparent.

“I’m getting very worried,” says Stan Dorn, a senior fellow at the nonpartisan Urban Institute, who studies outreach and enrollment for health programs. “Most health coverage expansions have not reached their target populations very quickly.”

In part, they do this because they aren’t sick:

Getting sufficient enrollment, especially from the young and healthy, is vital to holding down premium costs in those markets. The concern is that if all the sick people flood the exchanges and younger, healthier ones hang back, health care costs will spike, along with premiums.

Yet one of the biggest reasons for the anemic initial enrollment in the county program that began in 2006, called Vita Health, and similar programs is that many healthy people don’t believe they need insurance and are reluctant to spend even nominal amounts to purchase it, say organizers.

“A lot of people who are uninsured and can afford it, don’t buy it because they aren’t sick,” said Paul Gionfriddo, a consultant who formerly led an alliance in Palm Beach County to help the uninsured.

Veterans of past efforts to enroll the uninsured say that outreach often takes far longer than might be expected and it needs to happen not just through television and radio advertising, but through trusted individuals in the community.

SOURCE: Kaiser Health News


The small business exchanges are about to find out:

The feds last month said the 33 exchanges it will run next year won’t allow employees whose companies use the exchanges to choose their own health plans until 2015. Instead, they’ll have to accept whatever plan their employer selects for them.

The new Small Business Health Option Program exchanges, known as SHOP exchanges, are hoping to draw in firms by offering greater health plan choices for employers and their workers, and the so-called employee choice model was seen as a major incentive for businesses to seek coverage on the SHOP exchanges.

But more than half the country won’t have that option right away.

The Obama administration said states running their own exchanges in 2014 can still offer employee choice though, and at least a few states aggressively implementing Obamacare — such as Minnesota and Oregon — say they’re moving ahead with those plans right away. They say it’s an essential draw to the SHOP exchange, though they acknowledge it won’t be easy to pull off.

Employee choice generally works like this: Workers whose employers decide to purchase coverage through the SHOP exchange get a defined contribution from the firm, and they then put the money toward an exchange health plan of their choosing. Without employee choice, the employer chooses the health plan for its workers, much like how the employer-sponsored insurance system works now.

Rocky King, executive director of Oregon’s exchange, said employee choice was key for generating bipartisan support for a state-run exchange two years ago.

“It became really clear to us in order to get the bipartisan support we needed that we need to put forth something more than what was just out there today for small employers,” King said.

But King also knew it wouldn’t be easy from an operational standpoint, so he said the exchange staff got to work right away on the technical infrastructure necessary to support employee choice. Under the program, the exchange takes the employer contribution directly and then sends it to the carrier the employee selected.

“We knew that was the most challenging and most difficult to implement,” King said.

The Obama administration announced a month ago that it would delay the employee choice option in federal-run exchanges, but recent news reports about the decision have sent state-based exchanges into damage control.

April Todd-Malmlov, executive director of the Minnesota exchange, said her office was bombarded with questions after reports of the federal delay grew.

“They really want this and wanted to make sure we were really doing it,” said Todd-Malmlov, adding that the Minnesota exchange, known as MNsure, has emphasized building the SHOP exchange.

“Having employee choice and doing defined contribution has been something that Minnesota employers have wanted to do for a long time,” she said.

Colorado is another state last week that reiterated plans to install employee choice right away, despite the federal delay.

“Colorado is on track to help small employers provide a range of health plan options to employees through our new online health insurance marketplace that will open in October,”Patty Fontneau, executive director of the Colorado exchange, said in a statement on Thursday.

SOURCE: Politico


Peter Orszag on why chained CPI isn’t a great deal:

To understand why the chained CPI would save less money than hoped, it helps to know some background about the federal retirement and disability program as well as the tax code. Once an American begins to claim Social Security benefits, his monthly checks increase each year in line with a consumer price index called the CPI-W (the “W” is there because the index was created to measure inflation for workers). The federal tax code, for its part, is indexed to a related measure, the CPI-U, which is the inflation measure that receives the most attention each month.

The Bureau of Labor Statistics, which calculates both indexes, also publishes the chained CPI, which is a more accurate measure of inflation because it better reflects how people change what they buy in response to price increases. When the price of apples rises relative to oranges, for instance, people eat more oranges, and the chained CPI accounts for this substitution, reducing the measured inflation rate.

The result is that the chained CPI rises more slowly than either the CPI-W or the CPI-U. Switching to the chained index would therefore cause Social Security checks to grow more slowly. And if the Internal Revenue Service switched to the chained CPI as well, the cutoff lines for tax brackets would rise more slowly, pushing more Americans into higher marginal tax brackets and thereby raising revenue.

Official budget estimates suggest that switching to the chained CPI would save the federal government about $125 billion on Social Security benefits and about $40 billion in other indexed benefits (such as federal civilian and military pension payments) over the next decade, and raise about $125 billion more in tax revenue. It would also save about $30 billion in health programs and nearly $20 billion in refundable tax credits. That adds up to total deficit reduction of about $340 billion. The Social Security actuaries suggest that it would also reduce the 75-year actuarial gap in the program by about 20 percent.

These official estimates all assume, however, that the chained index grows 25 to 30 basis points more slowly than the standard indexes do. That’s a reasonable assumption based on the average difference in how fast the indexes have risen over the past 13 years. From January 2000 to January 2013, the chained CPI rose 27 basis points more slowly each year, on average, than the CPI-U and 29 basis points more slowly than the CPI-W.

Charles Blahous has more.

SOURCE: Bloomberg View