Category: Health Alerts

The Obamacare Health Care Gold Rush is Bankrupting America

Our health care system is going to implode under its own weight. National Health Expenditures are approaching 20 percent of gross domestic product — a figure that is expected to about double over the next half century. Obamacare didn’t start the process, but it’s expediting the job started when Kaiser Shipyards requested permission during World War II to offer health coverage as a fringe benefit. This was further exacerbated in 1965 by the poorly-designed entitlement programs Medicare and Medicaid that are now draining the Treasury.

Health Reform Through Tax Credits

health-care-costs(A version of this Health Alert was published by RealClearPolicy.)

Lost in the blur of the presidential campaign, the evidence indicates the Republican Obamacare replacement plan will include refundable tax credits. In its purest form, this means each person with employer-sponsored benefits, an individual health plan, or dependent on a welfare program like Medicaid or the Children’s Health Insurance Plan (CHIP) will start with a clean slate and a fixed sum of taxpayer-funded money to choose health care of his choice. The Republican proposal will not likely go that far, but it will go a long way to introducing fairness in the tax treatment of health benefits, which is currently broken.

U.S. Health Spending Not An Economic Burden

HSA(A version of this Health Alert was published by Forbes.)

Health spending consumes a higher share of output in the United States than in other countries. In 2013, it accounted for 17 percent of Gross Domestic Product. The next highest country was France, where health spending accounted for 12 percent of GDP. Critics of U.S. health care claim this shows the system is too expensive and a burden on our economy, demanding even more government intervention. This conclusion is misleading and leads to poor policy recommendations, according to new research published by the National Center for Policy Analysis (U.S. Health Spending is Not A Burden on the Economy, NCPA Policy Report No. 383, April 2016).

Discussing health spending in dollars, rather than proportion of GDP, the report notes Americans spent $9,086 per capita on health care in 2013, versus only $6,325 in Switzerland, the runner-up. (These dollar figures are adjusted for purchasing power parity, which adjusts the exchange rates of currencies for differences in cost of living). This big difference certainly invites us to question whether we are getting our money’s worth. However, it is not clear that this spending is a burden on Americans, given our very high national income.

These Politicians Must be on Drugs (or Maybe They Should Be)

Rising drug prices and high-cost drugs have been in the news lately. Naturally, presidential candidates have weighed in on the issue in hopes of scoring some points with voters. Hillary Clinton would cap Americans share of the drug costs — which would do nothing about the actual cost except encourage price hikes. Bernie Sanders supports a single-payer system with strict price controls. Donald Trump has even proposed allowing the importation of cheaper drugs from abroad, many of which are cheap due to price controls in other countries.

Digital Health Funding Defies Expectations

Oscar(A version of this Health Alert was published by Forbes.)

Investors have not had their fill of digital health deals, according to new fundraising reports from Rock Health and Startup Health, two outfits which have led the digital health revolution and produce complementary reports on how much capital is flowing into the sector. While other sectors have wobbled recently, digital health (which was only defined as a market five or six years ago) continues to attract venture capital.

Digital health refers to businesses that apply new information technology, especially the cloud, to health care. That being said, there is no agreement about where the boundary is. San Francisco’s Rock Health and New York’s Startup Health do not quite agree on which deals are digital health deals.

Four Options for Saving Medicare from Collapsing under its Own Weight

The 50-year old Medicare program is showing its age. Medicare accounts for about one-fifth of medical spending, or about 3.5 percent of gross domestic product (GDP). Over the years Medicare spending per capita has exceeded income growth in the economy. Over the next 75 years the Medicare Trustees estimate Medicare spending as a percentage of GDP will rise anywhere from about 6 percent to just above 9 percent. The Congressional Budget Office baseline put the estimate even higher — about 12.5 percent.

CBOBaseline

Our Corporate Tax Code is Unhealthy for Medical Innovation

(A version of this Health Alert was published by Forbes.)

It would be fair to say markets were blindsided by the U.S. Treasury’s 300-page plus batch of regulations that blew up the merger between Pfizer and Allergan. The deal was widely described as a so-called “inversion,” a deal whereby a U.S. domiciled company reverses itself in to a foreign firm for the purpose of reducing its U.S. tax burden.

Pfizer has been trying to invert itself for a long time. It has not been easy. In May 2014, Pfizer gave up its dance with AstraZeneca, a British-based global pharmaceutical company. The problem for a huge biopharmaceutical firm like Pfizer is that it cannot just collapse itself into a foreign shell.

As I discussed in an article published in the wake of the failed AstraZeneca deal, the newly consolidated company has to have a minimum 20 percent foreign ownership to qualify for tax inversion. That means the target has to have a market cap at least 25 percent that of the U.S. bidder – and that is only if the deal is fully financed by equity. Not that many companies are big enough to fit the bill for a company like Pfizer.

The deal with Irish-based Allergan was first disclosed provisionally on October 29, 2015, and confirmed on November 23.  Since then the return to an investor who arbitraged the merger by buying one share of Allergan to exchange for 11.3 shares of Pfizer (the terms of the all-equity deal) ranged between 15 percent and 21 percent until March 17 (assuming one year for the deal to close, and taking account Pfizer’s February 3 dividend of $0.30. See Chart I.)

20160406 Chart I

Not until after the middle of March did the spread widen to around 25 percent, suggesting something was indicating to investors they needed to demand a higher risk premium. Still there is nothing indicating Treasury’s regulations were leaked before being released on Monday and blowing up the deal.

Innovation and Self-Insured Employer Plans

About 175 million people are covered by an employee health plan through their job or the job of a loved one.  More than half of people in employee health plans work for an employer that is self-insured or partially self-insured.  Self-insured plans are ones that are subject to federal law rather than the patchwork of state regulations that insurers must follow.  When employers self-insure, they take on the risk of their employees medical needs and generally have stop loss coverage to guard against any one worker or dependent have exceptionally high medical bills. Whereas insurance is somewhat of a stodgy business, employers themselves are looking for solutions rather than premium hikes year-after-year.  Most of the innovation that occurs in health coverage are experiments being conducted by self-insured employers. These include decision-support tools to make enrollees more informed consumers of medical care. Employers are dumping a ton of money into employee Health & Wellness programs, health risk assessments and chronic disease management.  A few employer plans, like North Carolina-based like HSM Solutions, are outsourcing some medical care for high cost procedures to countries abroad.  CalPERS, the public employee union, has initiated experiments in reference pricing to provide beneficiaries an incentive to seek out lower-cost providers.  These are all examples of self-insured plans looking for solutions to the problem of high medical costs.

CBO: Obamacare’s Uninsured Up 5 Million, Medicaid Dependents Up 16 Million Since Initial Estimate

half full or half empty?

(A version of this Health Alert was published by Forbes.)

Last week’s Congressional Budget Office’s Updated Budget Projections: 2016 to 2026 significantly reduced estimates of Obamacare’s benefits, relative to CBO’s estimates published in 2010, when the law was signed:

  • In 2010, CBO estimated Obamacare would leave 22 million uninsured in 2016 through 2019. This month, CBO estimates Obamacare will leave 27 million uninsured through 2019 – an increase of almost one quarter.
  • In 2010, CBO estimated Obamacare would leave 163 million with employer-based health benefits in 2016 and 159 million in 2019. This month, CBO estimates Obamacare will leave only 155 million with employer-based plans. The number will decrease to 152 million in 2019.
  • In 2010, CBO estimated Obamacare exchanges would enroll 21 million people in 2016, increasing to 24 million in 2019. This month, CBO estimates Obamacare’s exchanges will enroll only 13 million people this year, and 20 million in 2019.
  • In 2010, CBO estimated Obamacare would result in 52 million Americans remaining or falling into dependency on Medicaid or the Children’s Health Insurance Program, the welfare programs jointly funded by state and federal governments that subsidizes low-income households’ health care, in 2016. CBO estimated that figure would drop slightly to 51 million in 2019. This month, CBO estimates 68 million will be dependent on the program this year through 2019 – an increase of almost one third in the welfare caseload.

The “Unaffordable” Care Act Turns Six

This week marks the sixth anniversary of the Patient Protection and Affordable Care Act (ACA). But it’s hardly anything to celebrate. The average bad marriage that ends in divorce lasts about eight years in the United States. So maybe there’s still time to end this ill-conceived union of bad health economics and income redistribution.

The ACA was intended to make health coverage affordable using an age-old strategy — other peoples’ money. For instance, ACA regulations require insurers to accept all applicants — including unprofitable ones — at rates not adjusted for their health risk. Premiums can vary somewhat based on age, but not health status. A plethora of new taxes — mostly on medical care and health insurance — are supposed to somehow make coverage more affordable. For those who don’t understand economics, taxing something raises its cost, not lowers it. Other funding mechanisms include draconian cuts to Medicare and higher deficits to expand Medicaid.

In an attempt to transfer wealth from medical low-spenders to big-spenders, Obamacare has purposely undermined affordable coverage. In the process it also removed the incentives health plans use to encourage healthier lifestyles. Healthy Middle-class folks, who don’t qualify for subsidies, have largely shunned Obamacare Marketplace plans. The inevitable result is that the exchange has become an expensive high-risk pool for people who are poorer or sicker than average. Obamacare is a bad deal for all but the most costly enrollees or those receiving lavish subsidies. Indeed, 83 percent of exchange enrollees are ones who receive subsidies. A report from the University of Pennsylvania’s Wharton School found all but the most heavily subsidized Obamacare enrollees would still be better off financially if they skipped coverage and pay for their own medical care out of pocket.

People often make the mistake of assuming that everyone needs comprehensive coverage that protects them from medical problems that are exceptionally rare. But most people covered by health insurance actually experience very low claims in any given year. About half the population spends less than $500 annually on medical care. Thus, health plans with benefits less generous than Obamacare would be both affordable and meet the typical medical needs of most Americans. But to accomplish the goal of making generous health coverage affordable to people with health concerns, the ACA had to force Americans to purchase health coverage and limit their choice of health plans. Health insurance that does not cover a plethora of preventive care, plans that cap benefits at predetermined levels and plans that reward Americans for having led healthy lifestyles are no longer allowed.

Prior to ACA, health plans with limited benefits (or high deductibles) were less expensive than coverage with onerous mandates and costly regulations. Those who could not afford comprehensive coverage could choose to either self-insure for day-to-day medical needs (now illegal), enroll in a limited benefit plan (now banned under Obamacare) or enroll in a high-deductible plan. Of those three options the only option left are high-deductible plans. Prior to the ACA, high-deductible plans were very affordable. Premiums were low enough to have money left over to fund Health Savings Accounts to cover a portion of the costs below the deductible. Since Obamacare high-deductible plans have become costly even though they cover almost none of Americans’ day-to-day medical needs.

Consider this: according to the comparison website, HealthPocket.com, a family who receives no subsidies pays nearly $1,000 per month for a bronze plan with a high deductible. I priced Bronze plans for my own family and premiums would run $12,000 per year and require deductibles of $6,750 apiece. A family deductible of $13,500 means that despite sending $12,000 to a health insurer, all of our health care needs must be paid out of pocket. That akin to throwing money down a rat hole to most sensible Americans.

I’ve talked to people who say they’ve made the conscious decision to forgo health coverage and just pay the penalty and pay cash for medical care. A few even think they can get out of the penalty. One lady I talked to suggested she’d be far better off just taking the money she would have spent on largely worthless insurance coverage and using it to pay for actual medical care. She will pay out of pocket for her physician visits. She will use a discount pharmacy card for her prescription drugs. She will pay for laboratory testing out of pocket.

Many enrollees remain uninsured despite the mandate — only signing up for coverage if they become sick or need expensive medical services. Eager to grow exchange plans as much as possible, the Obama Administration foolishly created multiple special enrollment categories that allows just about anyone to sign up long after the open enrollment deadline has passed. Individuals signing up using special enrollments aren’t just slackers who lost track of time during open enrollment. Late enrollees use more medical care than those enrolling during open enrollment. They are also more likely to drop coverage soon after receiving expensive medical care.
Many of those enrolled in Obamacare are gaming the system, cheating insurers and driving up the costs for honest folks who just want affordable coverage. It’s rather sad when you realize the Affordable Care Act made health care unaffordable for millions of middle-class families and left many formerly-insured better off with no coverage. Obamacare is hardly a legacy to celebrate. It’s time for Congress to go back to the drawing board and work together to find a solution that creates the appropriate incentives for all stakeholders.