Navigating the ObamaCare Rules

Okay, I admit it. I am completely baffled. Maybe one of you smart folks can help me out here.

I am reading a new Kaiser Family Foundation issue brief on “Implementing New Private Health Insurance Market Rules,” and scratching my head. Is it the summation from KFF that is the problem? The rules themselves? Or have I just grown a lot dumber in my dodderage? (I’m perfectly willing to fess up to the latter if that’s what it is.)

In either case, this doesn’t make any sense to me. Where to begin –

First, it seems the new rules effectively do away with association plans. Employers in such associations will now be subject to all the same regulations and choices as other independent employers. This is puzzling because I thought small business associations had worked to get a so-called “SHOP” provision in the law to encourage the efficiency such associations provide.

Next, while health plans are now guaranteed issue, individual coverage may be subject to an open enrollment period while employer coverage is not, and the minimum contribution and participation rules for small employers may still apply. It isn’t clear what, if any, limits will be placed on these provisions.

Carriers will have to have a single risk pool for all its individual market plans for rating purposes. So, if an insurer offers a plan that is highly efficient (say an HSA program or an HMO), the enrollees of that plan will not be allowed to benefit from their economizing behavior. This is puzzling because I thought one of the purposes of this law was to encourage cost containment. This does precisely the opposite.

Premiums will be “modified community rated,” which means no consideration of health status, gender, or occupation, but geography, age, and tobacco use are still allowed. Age rating may vary by 300%, but must be set at one-year bands from age 21 to 64 (unless a state bans age rating altogether.) This should be interesting for small employers like restaurants with very high turnover. Every month the age profile of their employees could vary substantially, and so would their premium payment. Annual budgeting for company expenses may become a thing of the past.

The tobacco adjustment gets even more interesting. The overall adjustment is limited to a factor of 1.5, but it may vary according to age. KFF writes −

…insurers could apply a lower tobacco premium surcharge for younger individuals and a higher one for older individuals. Using the example in the proposed rule, a younger smoker might pay a few dollars more each month while the older smoker could be charged hundreds of dollars more each month.

Now, the regulation does not define tobacco usage, or explain how a carrier is to find out about it.

But even more curiously, KFF comments that lower-income people are more likely to use tobacco, but the law says that, “people who would have to pay more than 8 percent of family income for coverage are excused from the requirement to have health insurance because the cost is deemed unaffordable.” It doesn’t explain 8% of what? Gross income? Net income? AGI? But 8% of $100,000 is only $8,000. Good luck finding a family policy for $8,000 under this law.

Plus, deductibles may not exceed $2,000 per individual and total out-of-pocket for in-network services is limited to $6,500 for an individual and $13,000 for a family, after which the plan must cover expenses at 100%.

But the real puzzlement kicks in in the discussion of “essential health benefits (EHBs).”

The law lays out 10 categories of services that must be covered –

  1. Ambulatory patient services
  2. Emergency services
  3. Hospitalization
  4. Maternity and newborn care
  5. Mental health and substance use disorder services including behavioral health treatment
  6. Prescription drugs
  7. Rehabilitative and habilitative services and devices
  8. Preventive and wellness services and chronic disease management
  9. Pediatric services, including vision and dental care

Never mind that individual (nongroup) coverage doesn’t typically cover some of these things today (such as Rx, dental, and maternity), so such an expansion will substantially raise costs. That isn’t a puzzle.

More enigmatic is how these things will be defined within these categories. The regulations require each state to identify a “benchmark” plan from its existing private health plans. KFF writes –

Once the benchmark is established, issuers in a state must offer benefits that are substantially equal to the EHB benchmark plan. However, issuers have some flexibility to modify the EHB benchmark plan benefits. Under the proposed rule, within a category of EHB, issuers could substitute benefits or sets of benefits that are actuarially equivalent to those being replaced. Issuers that make such substitutions would be required to submit evidence of actuarial equivalence to the substituted benefits, to the state.

Separate rules apply to coverage for prescription drugs. For each therapeutic category or class of prescription drugs (for example, as defined by the United States Pharmacopeia or USP), health plans must cover the greater of one drug per class or category, or the same number of drugs per class or category as covered by the benchmark plan. Drugs in a class or category must be therapeutically distinct (for example, different doses of the same drug are counted as one drug, as are brand drugs and their generic equivalents.)

Okay, got it? Well, not so fast. KFF continues –

Some areas of ambiguity remain regarding how essential benefit rules will work in practice. For example, the proposed rule does not specify how services in the benchmark plan should be assigned to categories, within which insurers can modify and substitute benefits on an actuarially equivalent basis. Certain categories ― such as “maternity and newborn care” ― are quite specific and self- explanatory. However, others ― such as ambulatory care ― are broad and not well defined, leaving questions about which services are included. For instance, would home health or durable medical equipment best be categorized as ambulatory services or rehabilitative services? What category would apply to organ transplants? Also, some plans today cover expensive injectable drugs (such as chemotherapy drugs) as a medical service, not under their drug benefit.

But the fun is just beginning. KFF goes on to explain, “plans must not design covered benefits in ways that discriminate against individuals based on age, health status or related factors.”

Hoo, boy! That opens up a whole lot of work for the trial bar. Any denial of anything could be seen as discriminatory.

Okay, I don’t want to belabor this. What we’ve written so far is just the beginning. We never even got to the section on “Wellness Benefits.” (Speaking of discriminatory ― spending money on health club memberships sounds like it is discriminating against people who are too feeble to make use of a gym.)

There is a more immediate observation I want to make.

What about Medicare?

All of these rules (and many more) apply to private health insurance. None of them, not one, apply to the government’s own program ― Medicare.

  • Medicare doesn’t cover dental and vision.
  • Medicare doesn’t have limits on out-of-pocket spending.
  • Medicare doesn’t limit its deductible to $2,000.
  • Medicare doesn’t vary premiums based on age and tobacco use.
  • Medicare has higher premiums for people who delay enrolling.

I find it more than a little curious that all the rules the federal government has established for the private sector do not apply to the federal government’s own favorite program.

Welcome to the world of Animal Farm, where the pigs are a little more equal than the rest of us.

Comments (15)

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  1. Ken says:

    This whole thing has been fairly bizarre from day one.

  2. Jeff says:

    Good post.

  3. Andrew O says:

    “All of these rules (and many more) apply to private health insurance. None of them, not one, apply to the government’s own program ― Medicare.”

    This surely merits more scrutiny.

  4. Tom H. says:

    What we need is a defined contribution approach. Let the government set the subsidy in dollar amounts and then let the private sector compete to see what benefits it can provide for those amounts.

  5. Kyle says:

    Enjoyed to orwellian snipe.

  6. Could someone who was over 65 and had delayed or not joined Medicare at all, choose to be covered by a private plan and have it subsidized by the government?

  7. john peterson says:

    This entire law is an Orwellian nightmare compounded by stupidity and arrogance. the arrogance being the concept that a handful of people can plan the lives and needs of 300 million.

    It is intolerable and it is creating a market need for physicians to leave the insured system behind and offer fee for service independently. It will certainly happen but slowly and only those who cannot afford it will be left behind on the govt. plan. Much like our schools.

  8. HD Carroll says:

    Animal Farm is a good description of the situation. I wrote a couple a months back about this in the form of “do as I say not as I do” in Hobservations #3 found at:

    http://myrighttoknow.org/blog/

    in case anyone is interested.
    Excellent post Greg. We eagerly await HHS to clarify the myriad gray areas and undefined interactions still contained within the law and/or regulations.

  9. Responsible_Development says:

    Try navigating the new healthcare.gov website, specifically finding insurance options. It’s a mess.

  10. Harv Randecker says:

    Anything the government gets their hands on becomes a mess very quickly. As I have always said, no intrelligent person would want the government involved in ANYTHING important. I have a friend who took an Amtrak from Chicago to San Francisco. I warned him! When he came home, I asked, “Well, will you take Amtrak again?” His response was “Hell no. Their washrooms were either broken or dirty.” Now look at what health care will be!

  11. Karl Stecher says:

    Thanks for trying to make some sense of this, Greg. Or, more accurately, pointing out the nonsense.
    As was noted, Medicare does not cover vision and dental (and hearing) (vision will cover cataracts and glaucoma). But those are two of the main needs of people on Medicare.
    Medicare payments are already so low (yes, that means Obama, and Congress are cheating the patients, and doctors) that 30% of doctors cannot afford to see ANY Medicare patients. Many more limit the number they see, as reimbursement is usually below the doctor’s overhead expense.
    Point one: The govt already cheats Medicare patients and their doctors.
    Point two: With these confusing rules, and most of the uninsured now going into Medicaid…which pays even less than Medicare…who will see all of these new patients? (I know you couldn’t cover everything in this one article).
    And another thing not covered, but for one of your future articles as you try to dissect the mess that is Abysmalcare: Limits for “Cadillac” plans…premium cutoffs, etc.
    And for another article: Who got all of these waivers/exemptions Obama handed out, and what rules will those people have to follow?

  12. Greg Scandlen says:

    Thanks for the comments.

    – Bob B. In a word, no.
    – John Peterson. You’re absolutely right. There will soon be an alternative cash system.
    – HD Carroll. Thanks. Good work.
    – Harv. I guess so, but I like Amtrak between DC and NYC a lot. Of course I read somewhere that Amtrak looses some $300 million a year on its food service alone. So I thank you for paying for my coffee and danish on the ride.
    – Karl. I understand that Medicare will soon be paying BELOW Medicaid. But the number of items for future articles is (unfortunately)endless.

  13. Steven Bassett says:

    Greg, I’ve been reading the regulations in the day and Altas Shrugged by night. The question is: How does one best “go Galt” with 6 mouths to feed?

  14. Kyle says:

    Bob Blandford says:
    January 17, 2013 at 9:19 am
    Could someone who was over 65 and had delayed or not joined Medicare at all, choose to be covered by a private plan and have it subsidized by the government

    Bob,

    The answer is No. The subsidies are designated for 19-64 year olds who purchase through either a state-run or federal exchange, whichever your state is planning for Jan 2014. Of course, there are eligibilty requirements for this group (income between 100-400% FPL).

  15. Bob Hertz says:

    If these rules survive long enough to be enforced, there will be spectacular anti-selection:

    1. Pregnant couples will buy health insurance after they are pregnant, and in some cases drop it afterwards.

    2. People with athsma, diabetes, etc will join the plans in large numbers, because after subsidies their cost will be far less than it is today.

    3. The people who are currnently on high-risk insurance in the states that offer it will be joining the new pools. These persons cost over $12,000 a year on average.

    4. Younger families with no health issues will still have to pay $4-$5K a year after subsidies, so they may not join at all until they are pregnant.

    5. Some insurers will drop out of the process altogether.

    6. The insurers that remain will have the government over a barrel. The govt will have to allow them to raise premiums just to break even.

    Obama’s promise about health reform lowering insurance premiums is going to sound awfully hollow.