Obamacare Repeal & Replace 2.0: Where Do We Go From Here?

220px-Tom_PriceThe failed House Republican American Health Care Act (AHCA) was always a work in progress. The three-phased approach to reform health care called for passage of the AHCA to repeal the Affordable Care Act (ACA) taxes and mandates; and slow the growth in Medicaid (phase one). Phase two was the selective tweaking of Obamacare regulations by the Secretary of Health and Human Services. Phase three was to be a forthcoming health care bill to revamp onerous insurance regulations.

 Passage of the AHCA (the Obamacare repeal bill) would have resulted in numerous benefits – getting rid of the individual and employer mandates, stopping the open-ended exchange subsidies and the huge expansion of Medicaid that will bankrupt America over time, are but a few.

However, it had its shortfalls. One misguided provision was the Managers Amendment, which would not allow Americans to use any part of their tax credits to fund Health Savings Accounts (HSAs). This was a big mistake for a variety of reasons. Instead of being able to use a portion of their tax credit to pay for doctor visits, prescriptions, and OTC drugs, Americans would only be allowed to use their credits towards insurance. This would have also prevented Christian health sharing ministry members from using credit for fellow members’ medical care.

Tax credits were a sticking point for some conservative Members of Congress. A tax credit for those who lack employer coverage is the right thing to do politically, however. Higher-income workers get huge subsidies through the tax code for employer coverage, so it’s hard-hearted to tell moderate-income people who lack employer coverage they get nothing. A tax credit is also an opportunity to give millions more Americans an HSA. If the credits were automatically deposited into individuals’ HSAs, they could be used for health insurance premiums, copays, cost-sharing and to pay directly for care.

If allowed to do so, many Americans may even decide to forgo health insurance coverage and use the entire credit/HSA to pay directly for medical care. Provisions allowing this should be included in any future bill. For well over half the population, an HSA with $2,000 to $4,000 would be sufficient to fund their entire annual health care needs in cash.

Consider this: the goal of Obamacare was to get as many healthy people into the insurance market as possible to subsidize the money-losing enrollees with pre-existing health conditions. That’s why Obamacare is a bad deal for most Americans by design. As a result of the high Obamacare premiums, millions of Americans now have health insurance coverage with deductibles so high that their health plan pays little if any of their routine medical bills. Yet all plans are required have no annual limits or lifetime limits on benefits. Stated another way, people are required to buy expensive health coverage that is not expected to pay for their own care; rather it’s designed to pay for someone else’s catastrophic medical needs. Pooling risk is a great concept, but Obamacare goes far beyond pooling risk. Rather, the ACA coercively redistributes wealth from young to old; healthy to sick.

The key to reining in runaway health costs is not boosting coverage to more and more people as Obamacare tried to do. The key to slowing the growth in health care spending is to make more and more people care more about their medical spending. To this end, it would actually be better for the health care system if millions of Americans decided to forgo insurance, dropped coverage and used their tax credit/HSAs on direct primary care. That is something that most policy analysts fail to understand. Boosting the number of people with comprehensive health coverage does not reduce health care expenditures; it increases it. What reduces health spending is starving the beast. Another way to starve the beast is to redefine and narrow essential health benefits required in all plans. This cannot be done through budget reconciliation alone, but some experts believe that Secretary Price has the authority to tweak these provisions.

Secretary Price already has the power to drop the appeal of House vs. Price (formerly House vs. Burwell) that found the ACA’s cost-sharing reductions are illegal because they have not been appropriated by Congress. Dropping the appeal would stop the government from paying Obamacare’s illegal cost-sharing subsidies, which would likely cause insurers to pull out of the market. Perhaps that would put pressure on Congress to find a solution to the stalemate that exists on how to reforming insurance regulations. These are the regulations that make Obamacare premiums so expensive.

The Republicans in the House need to think strategically and act bold. It won’t be easy but Obamacare is already collapsing. All that will prevent a collapse is either: 1) Huge budget-busting taxpayer subsidies until the end of time; or 2) reforming the insurance markets and creating a risk pool for high-cost individuals.

Congress needs to get back to work on a new health reform proposal. While that is in progress Secretary Price should continue with Phase Two (tweaking regulations), which might spur Congress to pass sustainable health reform.

Comments (84)

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  1. lpm says:

    Can you explain how an individual who relies on an HSA to fund healthcare needs transitions into relying on insurance after they find out they have liver cancer?

    • Jimbino says:

      Can you explain why a risk-seeker sailing around the world or climbing Everest should be forced to provide insurance for himself in the USSA?

  2. Jimbino says:

    Rather, the ACA coercively redistributes wealth from young to old; healthy to sick. And from men to women, from risk-seekers to the risk-averse, from non-collectivists to socialists and communists.

    • Devon Herrick says:

      It’s a difficult concept to explain to many people how risk pooling works. People of similar risks band together to share risks. For a nominal fee that is not much higher than their regular cost of care are each protected against exceedingly rare but catastrophic events. That contrasts sharply with (as you point out) expecting low risk people to band together with high risk people (or sick people) and all share the cost.

  3. Lee Benham says:

    The people who rely on hsa funds to cover their medical care are going to be the individuals who don’t feel they have a need to spend money transferring their risk of contracting liver disease.

    People who have something to lose will use the funds to purchase insurance and transfer that risk to an insurance company.

    The ones who thought they had nothing to lose and did not purchase insurance who then become uninsurable will be forced to pay for higher premiums in the high risk pools.

    There is no need to have guaranteed issue and high risk pools. I can’t see an insurance company signing up to offer guaranteed issue but they will love high risk pools.

    Insurance companies will use rate increases and new policy forms to move the sickest individuals off of insurance coverage and into the high risk pools. It will be very similar to the way employer based insurance gets rid of the sickest individuals with eligibility clauses.

    Move the sickest out of the groups to keep costs down for the group.

    My wife asked me what was going to happen to her insurance now that she has cancer. Well she will have to go to a high risk pool until she is cancer free for 5 years. The whole family doesn’t have to go, just the one driving up the rates on the rest of the family.

    Fortunately she was covered with a life insurance policy with living benefits and we were able to cash in that policy and now have the funds to pay high insurance premiums until she qualifies for Medicare. Or whatever plan is available in 10 years.

    • Allan says:

      Lee, can you tell us in a little detail about the mechanics behind a life insurance policy with living benefits. I am not interested in a promo having more interest in the pitfalls and some of the unexplained benefits.,

      • Lee Benham says:

        Allan,
        Quality of life or living benefit life insurance is becoming more popular as health insurance premiums have gotten more out of control. The first one to market is underwritten by AGLA. Since then Travelers, Foresters, Assurity, Mutual of Omaha, Lincoln and several other carriers have all come out with variations over the last few years.
        Agla is the one we have on my wife. I bought the policy in 2006 It was a 30 year term policy for $500,000. Think of it as life insurance you don’t have to die to use or a built in viatical settlement.
        When she was diagnosed with Cancer we requested acceleration of $300,000 of the benefits. Based on my wife’s age and medical condition the policy was subject to an actuarial discount, administrative charge and payment of any unpaid but due policy premiums. The company offered $135,000. My wife’s prognosis is very good had it not been her offer would have been higher. (Kind of like that game show deal or no deal with the suitcases)
        We accepted the $135,000 and her death benefit face amount reduced to $200,000 still in force.
        We received the $135,000 and placed that into an account for her medical care. We have used it to pay off her deductibles and a couple of nice wigs. The rest is for her future health care needs and if she will end up in a high risk pool or who knows what.

        Chronic Illness
        To qualify for a chronic illness, you would need to be certified by a licensed health practitioner in the last 12 months with a qualifying illness or physical condition that would prevent you from performing at least two “Activities of Daily Living”, without substantial assistance or requires substantial supervision from another person to protect the Insured Person from threats to health and safety due to cognitive impairment.
        Critical Illness
        A critical illness is a sudden and severe illness or physical condition covered under the rider. Some examples of these types of ailments include, but are not limited to, major heart attack (heart attack in certain states), stroke, invasive cancer and paralysis.
        This rider allows the owner to accelerate some or all of the Insured Person’s base life insurance benefit in the event the Insured is diagnosed with a critical illness or condition. A critical illness or condition is defined as one ofthe following:
        • Heart Attack • Major Organ Transplant
        • Stroke • Invasive Cancer
        • Blindness • End Stage Renal Failure
        • Paralysis • Amyotrophic Lateral Sclerosis
        (ALS-or Lou Gehrig’s disease

        Terminal Illness
        A terminal illness is an illness or physical condition diagnosed and certified by a physician to be reasonably expected to result in your death within 24 months from the date of certification.

      • Lee Benham says:

        Allan,

        here is a link to the product I have on my wife.
        It will help you understand the product.
        I have never been worried about the medical care that costs less than $5,000 a year. I’m worried about the medical costs that cost more than $20,000 a year.
        https://estationsecure.americangeneral.com/SharedFilePile/AGLA/Products/QoLAEMfiles/8532_QOLSCHQualityofLifeInsuranceConsumerBrochure.pdf

        • Allan says:

          Thanks Lee I want to look at how one can be integrated. Intellectual curiosity only. At one time some of us (that hate HMO’s and think them dangerous) discussed that if one belonged to an HMO they should be able to take out a life insurance poliicy paid by the HMO. That would have limited the HMO’s incentives to deny care.

          I wonder how this would work for the young.

  4. Bob Hertz says:

    Thnnks Devon for a good post, but these sentences of yours baffle me:

    “Dropping the appeal would stop the government from paying Obamacare’s illegal cost-sharing subsidies, which would likely cause insurers to pull out of the market. Perhaps that would put pressure on Congress to find a solution to the stalemate that exists on how to reforming insurance regulations.”

    I live in a state (MN) where insurers privately threatened to pull out of the market in summer 2016. The response of the state government was a full court press to use subsidies, and reinsurance, and quotas and whatever it took to keep them writing policies. Same was true in Alaska and Arizona.

    You seem to imply that this crisis for up to 20 millon persons in the individual market will cause Congress to have a rational debate on essential benefits. Huh?

    I am not opposed to a good debate on essential benefits.
    But I doubt this will happen in crisis mode.

    • Devon Herrick says:

      Bob I agree that both parties are dug in and neither wants to yield. You are probably correct it will take more than insurers threatening to pull out to prompt both sides to negotiate and arrive at a compromise.

  5. Bart I says:

    I’m not looking forward to having yet another messed-up package deal shoved down my throat. Congress would do a much better job debating and passing individual components.

    I do agree that some sort of strategic plan is in order, but only so far as it allows all the requirements to be considered and prioritized. Actual execution should be done piecemeal.

  6. Bob Hertz says:

    This is a pretty fascinating suggestion……

    “If allowed to do so, many Americans may even decide to forgo health insurance coverage and use the entire credit/HSA to pay directly for medical care. Provisions allowing this should be included in any future bill. For well over half the population, an HSA with $2,000 to $4,000 would be sufficient to fund their entire annual health care needs in cash. ”

    This is an extension, maybe a little fanciful, of the conservative push to eliminate mandatory ‘essential benefits.’

    In this scenario, healthy persons would just take their chances that in the coming year they will not fall off a roof or get cancer.

    If they guess wrongly, what happens then? I see no evidence that Price or Ryan will fully fund the high risk pools that they would need to duck into when the cancer showed up.
    I would not be opposed to opening up Medicare to the uninsured, even if they were foolishly uninsured.

    Devon’s concept is like the polar opposite of the ACA. The ACA spends a lot of money and energy to guarantee that no one will be denied care for a grave illness due to lack of insurance funds.

    Devon’s concept says (implicitly) that if a majority of people are better off due to primary care being paid for, but a tiny number die of unforeseen cancer, well, that is a tradeoff we can live with. Ironically Canada and Britain are rather like that already.

    • Barry Carol says:

      It sounds to me that what conservatives are really asking for here is a chance to buy underwritten insurance with no mandates as to covered benefits, deductibles or out-of-pocket maximum amounts. So, if they want to buy a mini-med plan or no insurance at all, that should be OK. If we offer age-based tax, they want to be able to deposit the entire amount into an HSA and pay cash for the expected small amount of healthcare they might need. If the get unlucky and are diagnosed with cancer or are seriously hurt in an accident, they want access to a high risk pool.

      So how much do the insurance experts here think the average annual claims cost for all these high risk pool members who were able to just wait until they got sick to sign up for coverage would be and how much of that cost do they expect to be responsible for paying themselves in premiums? How much in taxes are they willing to pay to cover the claims costs and administrative costs in excess of what their premiums pay for? It all sounds good to healthy people and conservative free market types until the time comes to pay for the high risk pools. If it were that easy and cost-effective, we presumably would have done it that way a long time ago.

      I’m starting to think that we are ultimately going to wind up with a single payer Medicare for all system that might look something like Australian Medicare. That system has a narrow network of public hospitals that everyone can access but there can be long waiting times for non-life threatening services, tests and procedures. Australia also has a parallel network of private hospitals that are only accessible to people who buy the supplemental plan to Australian Medicare and those who can pay out-of-pocket. The supplemental plan is not cheap and requires applicants to pass medical underwriting. About 20%-30% of the population buys it.

      The advantage of the single payer system, proponents say, is that you can’t be turned down if you have a pre-existing condition and you can’t lose it if you get laid off, get too sick to work or your employer goes out of business. The downside is rationing through wait times and a probable adverse impact on medical innovation. If reimbursement rates are grossly inadequate like Medicaid reimbursement rates are today, a much greater shortage of doctors than we have today could develop. I’m not sure if most Americans are prepared to accept those tradeoffs if they fully understand them.

      • John Fembup says:

        “you can’t be turned down if you have a pre-existing condition and you can’t lose it if you get laid off, get too sick to work or your employer goes out of business”

        Barry, I agree with you that this is what more and more people really want. And I think what they want – what this describes – is medical welfare, not medical insurance. I also think that if a majority of Americans decide we want a medical welfare system – that’s what we’ll have.

        Medicare’s benefits are really inadequate, which is why I resist calling any new medical welfare system “Medicare for all”. I think that would be confusing. But regardless of the name attached, it would still be medical welfare.

        Of course, that doesn’t touch the underlying problem. Whether insurance or welfare, any third-party payment scheme will not solve the problem of runaway medical cost.

      • Allan says:

        “It sounds to me that what conservatives are really asking for”

        It sounds to me like you are creating stories and scenarios again.

  7. Z Woof says:

    Devon, why is Ron Greiner banned again? I think he adds value to the NCPA blog and just the fact that he enrolled the 1st HSA in the USA in the government’s “Original Pilot Test” of the Nation’s BEST tax dodge is reason enough to stop banning him. What do you think?

    OKY Doak, Oklahoma Insurance Commissioner, is sweating bullets because Blue Cross, the evil ones, are the only insurance company on the Obamacare Exchange and they are throwing in the towel starting January 1, 2018.

    Tell Barry that Phoenix Schools are letting Blue Cross scam their teachers too. For a teacher to add a child on to her employer-based insurance they are charging $650 a month for a $3,000 Out-Of-Pocket. Then if they want to add a spouse Blue Cross jacks the cost to $1,100 a month. Senator Jeff Flake (R-AZ), running for reelection in 2018, says giving those teachers any age-based tax credits is just a sign of Socialism even though that politician NEVER pays taxes on his own health insurance. Flake says if those poor hardworking teachers get any tax relief, like he has always enjoyed, that is an entitlement he can’t live with.

    Bring Ron Greiner back and stop the censorship at the NCPA blog. I bet it was John who had Ron banned because he is a Canadian and doesn’t really understand FREEDOM like my Little Bitty DAR granddaughters.

  8. Bob Hertz says:

    Note to Barry:

    I happened to be listening to a podcast with Michael Tanner this morning. He was advocating for large HSA’s and a person not buying health insurance.

    He said that when you did need health insurance and had to have a high risk plan, we should have a ‘risk-pool’ plan like the national one that existed from 2010 to 2012 before the ACA went active.

    That was a horrible plan, hard to get into and underfunded.
    I think it closed after less than 300,000 enrollees.
    Not a promising sign for the future safety net.

    To be honest, I sense a little subterranean Darwinism in the work of some libertarians. When the left wing claims that “if we don’t have national health insurance, 43,000 people will die”, I think that some libertarians are saying to themselves, “Yep, that sounds about right, and those who die are frankly not too valuable to society.”

    • Lee Benham says:

      2.5 million people in the U.S. die every year. If we had a national health care plan 2.5 million would die every year. if we had no health care at all. After a brief climb in mortality rates they would again stabilize and people would still die every year.

      Obviously health care has had an impact on citizens living much longer. when Medicare was first implemented the average life expectancy was 73 years. The U.S. population was around 200 million. Today life expectancy has risen to 81 years and the population has grown to 320 million.

      We are dealing with programs that were designed over 50 years ago. they were design for a population that died sooner and was about half the size. Mike cannon and tanner were talking about the pending baby boomer crises 20 years ago. Now that its hear, people are shocked the programs of old are no longer finically feasible. 1/3 of our population is receiving benefits 8 years longer than expected. Medicare, Employer based Insurance, Insurance Exchange, Individual insurance, None of these payers of health care in there present forms are fixable. Anything the politicians do to fix a problem in one will have a devastating impact on the others. would it not make since to scrap all the programs that are no longer working and start over?

  9. Bob Hertz says:

    Good point about the death rates, Lee.

    In fact your point illustrates what I have been trying to say in several of the posts that I have written today.

    Which is that American health care is riddled with perfectionism, and perfectionism costs a lot.
    The FDA is perfectionist about drug side effects, the plaintiff’s bar is perfectionist about any malpractice, the ACA is perfectionist about having no lifetime limits on payouts, preemmie units are perfectionist about low weight babies, and so on.

    None of these perfectionist impulses are wicked. But they add greatly to costs. In the 1960’s it seemed like the GDP could grow forever and so perfectionism perhaps felt like the right approach.

    Now we should be living with fiscal limits, but health care seems to be “wired” otherwise.

  10. Bob Hertz says:

    Notes to Barry about high risk pools:

    a. We have noted before that the employer paid health system absorbs millions of high risk persons. That is a main reason that employer premiums are so high.

    Anyways, let’s assume for this discussion that the employer system stays intact.

    b. That leaves I would say about 30-35 million persons in the individual marketplace. This includes the uninsured, persons with coverage on the exchanges, off-exchange persons, et al.

    c. Assume that this market returns to tight underwriting, and that many persons decide not to buy health insurance at all.

    d. I am going to guess that about 2-4% of this group will develop a serious illness. I have seen some limited claim data from Minnesota Blue Cross but I am still guessing.

    e. Let us define a ‘serious illness’ as needing $50,000 in care expenses. For some, once in a lifetime, for others, every year.

    f. That leaves us with about 3% of 32.5 million in the high risk group needing a high risk pool. About a million persons at $50,000 each or $50 billion a year. (since the premiums that they pay will only be a fraction of the spending.)

    As you say, Barry, get a conservative to agree to $50 billion in new taxes, and we can start talking seriously about national high risk pools.

    • Bart I says:

      The $50 billion is roughly what the Ryan plan would have spent on tax credits. With a return to underwriting, shifting this money out of tax credits and into the risk pool would allow it to serve the same purpose.

      Come to think of it, the conservative wing also objected to the tax credits.

  11. Barry Carol says:

    The history of high risk pools is abysmal because nobody wants to pay for them. Conservatives tout them conceptually but don’t want to pay what it would take for them to actually work for the people who need them in an underwritten health insurance world.

    If it were up to me, I would get rid of the employer tax preference and the health savings account tax preference and let people pay for health insurance with after tax dollars like they do for homeowner and car insurance. Pay for high risk pools with tax dollars that federal and / or state politicians would have to vote for to approve. Neither will happen because the votes just aren’t there.

    • Allan says:

      “don’t want to pay what it would take for them to actually work”

      We had high risk pools. They varied and could have been better, but they did a lot.
      Let’s destroy the health of the healthy and unknown sick to make sure we get perfection in the high risk sector. That makes no sense at all.

      • Barry Carol says:

        Fifteen states didn’t offer high risk pools at all. Most of the rest offered thin coverage to a very limited number of people so there were waiting lists for policies in many states. They were grossly inadequate pretty much everywhere no matter how you slice it. They never covered more than 200,000 people altogether at any given time when there were at least 4-5 million people who needed them. We need to do a heck of a lot better than that but we probably won’t because it would cost more than politicians will vote to pay for. Politicians won’t vote to pay for them because they perceive that most of their constituents don’t want to pay for them. That’s what it boils down to.

        • Bart I says:

          Part of the role of risk pools was taken by HIPAA continuation coverage, before ACA effectively killed it. Entry seemed to be guaranteed if coming off of COBRA, at least in California.

          As I recall there was some sort of wait list for access to the state-run risk pool. I don’t recall much else about it.

          • Barry Carol says:

            We had guaranteed issue when coming off COBRA here in NJ as well. In fact, any demonstration of continuous coverage with a gap of 63 days or less would make one eligible for guaranteed issue prior to the ACA.

      • Bob Hertz says:

        Your comment is perceptive. The search for perfection in health care and health insurance has indeed been costly.

        The state of MN used to have a high risk pool. (I was enrolled in it for a few years.) The cost of this pool was covered by assessments against all insurers, and some state taxes.

        This pool (like all the others) was dissolved when the ACA came along. The members of this pool were thus “mainstreamed” into the individual market.

        The large expenses of this group played some role in the explosion of premiums in this state. Only the actuaries know how much of a role, but no one denies that there was some impact. The word did get out that in MN, there are 5,000 persons whose average claim size is $121,000, and this accounts for 40% of the claims burden for the entire market of 200,000 persons.
        (the statistics from Alaska were similar)

        Instead of these costs being borne by all state taxpayers, the premium increase was slammed home on the other participants in the individual market.

        That is what happens when governments do not have the guts to just raise taxes, and instead use unfunded mandates.

  12. Bob Hertz says:

    In 2008, I was on COBRA. I had a heart attack, recovered just fine.
    When I came off COBRA, I had read the HIPAA law and thus applied for my guaranteed issue individual policy.

    Only no carrier in MN had such a policy to sell. Obviously this type of policy would be a money-loser, I mean who would struggle through the paperwork to buy it? Sick people!

    That might be a lesson when reading about proposed solutions to the pre-existing problem.

    • Barry Carol says:

      Estimating the cost of providing health insurance to a high risk population is a huge challenge for actuaries. The population is comparatively small and the potential claims costs are large both individually and in the aggregate. That means there are two challenges for government whether at the federal or state level. The first is determining the amount of premium any given individual should be responsible for. My own preference is a ceiling of 10% of modified adjusted gross income. The other is to provide adequate reinsurance for insurance companies to protect them against unduly large losses.

      Covering sick people is unlikely to ever be a profitable business for insurers just as flood insurance is not a profitable business in flood prone areas. Government / taxpayers have an important role to play in both markets.

  13. Allan says:

    Bob, take note how you had employer sponsored health insurance. Some still don’t believe it, but had you purchased your own insurance you would likely have been able to keep it. That is the fallacy of the group that doesn’t see anything wrong with employer sponsored health insurance and does not recognize that those costs are being shifted to the independently insured group, unfairly. Many purposely blind themselves to that belief because of ideology and their inability to argue the facts.

    I am interested in what you said above “5,000 persons whose average claim size is $121,000″ and wish we could get to the raw statistics. If I am correct in my assuption about the numbers you provided (we don’t have the raw data) then that $121,000 is somewhat misleading. It leaves the impression that those 5,000 people would have had to carry insurance with a minimum premium of $121,000 to just break even (excluding other costs and profit) Why is that so?

    When you became sick, assuming you were still working at the time, you were covered by insurance where the regular pool (not the high risk pool) paid for your illness with normal premiums paid by the insured in your group. You **weren’t** a known risk. For many people, excluding those born with defects or the genetics of rare disease, the year of the onset of their disease is all too frequently the highest cost year. In fact many die in that first year. Death is cheap, but the months leading to that death are expensive.

    To assume the average burden on the high risk pool would be $121,000 would be illegitimate since when you got sick a lot of that cost was paid for by the normal risk group. When a premium is calculated for the normal group it contains the unknown risks which are of a far higher number than the known risks. Unless that 5,000 was already limited to the high risk pool, it was actually representing many that were in the low risk pool.

    That is the problem with data that is abstracted. It creates assumptions that all too frequently aren’t legitimate.

  14. Allan says:

    “Covering sick people is unlikely to ever be a profitable business for insurers”

    Just to make my above statement clearer I will take Barry’s statement. Barry’s statement is illegitimate. In the individual market insurers covered sick people all the time. The majority of those extremely ill persons (excluding the rare diseases, those with terrible genetics) are actually in the low risk pool. Prior to the ACA an illness for the most part didn’t mean loss of insurance and those that were unknown high cost ill people were much greater in numbers than those known to be high cost ill.

  15. Bart I says:

    It’s been noted that pre-ACA individual premiums tended to increase as healthy members were allowed to switch out while high-cost members remained.

    Question: are there any statistics on how long this process took on average, say for the premium to reach 150% of that of a new policy? Any anecdotal answers?

    • Allan says:

      Yes, that sometimes happened but took a good deal of time. Yet, the premiums weren’t as bad as what we see post ACA. Not only that, but the person still had insurance. He didn’t lose it and become what some call, uninsurable. That is a far better outcome and more desireable for society. There were other ways to protect against rate creep.

      Remember that a high risk pool doesn’t guarantee a low risk premium so what we are talking about could essentially mean the same premium.

    • Lee benham says:

      NO hard data to prove. Before the ACA I needed to move clients from one carrier to another about ever 3 to 4 years to keep premiums under control. The carriers would raise rates every quarter “quarterly trend factor” even though the new people enrolling had a 12 month rate guarantee the rates were going up quarterly.
      When the new rates would become non competitive with other carriers. The carriers would issue new policy forms. The new people communing in would all be healthy. the healthy people on the old policy forms would eventually switch to the new policy. Carriers create a death spiral on their own policies to force out the sickest. They have always done this and they always will.

      • Barry Carol says:

        Exactly. That’s a fundamental weakness of the individual insurance market. As some members inevitably get sick, insurers do their best to figure out ways to get rid of them just when they need the insurance the most. That doesn’t happen with ESI or Medicare or Medicaid.

        • Lee Benham says:

          That’s exactly what happens with ESI. They use eligibility clauses. I don’t see insurance companies signing up to offer guarantee issue . Why would they? They are pushing for high risk pools. You don’t need both high risk pools and guarantee issue.

          Using your logic why not force private companies to issue guarantee issue life insurance after people have been diagnosed with a terminal illness?
          After all why allow people to die with debt.

          • Barry Carol says:

            Large self-funded employers don’t change carriers every 3-4 years because all the carriers do is provide administrative services, mainly claims processing and a network of providers. Employers can’t ask about individual or family health status during the hiring process. Precious few employees get too sick to work in any given year and if a family member gets sick, the insurance plan pays for covered benefits. It’s a completely different world from the individual market in my opinion.

            • Allan says:

              “It’s a completely different world from the individual market in my opinion.”

              Yes it is for when the few that get sick end (from ESI) up in the much smaller private market, prices rise for those not even getting the tax deduction.

              The very large employer ESI market that self insures has significant differences from the rest of the ESI market, but all should be under the same basic rules which should be limited..

      • John Fembup says:

        Lee, I think that’s generally correct although I think this statement overlooks one of the key dynamics:

        “Carriers create a death spiral on their own policies to force out the sickest”

        insurance carriers raise medical premiums in response to rising medical costs. As premiums rise it’s natural for individuals to seek less-costly alternatives – often, as you point out, aided by their agents who are doing their job for their clients.

        Carriers of course have the option not to raise premiums, a choice that in an environment of rising medical cost would lead to insolvency. Carriers have no practical choice but to raise premiums (and/or cut benefits) as medical costs rise.

        So it has always seemed to me that the increasing cost of medical care that is the principal barrier to insurance access – and is the key element in producing insurance death spirals. From this perspective, everyone – individuals, agents, carriers, Medicare – even hospitals and physicians – each acting in their own interests, are being sucked into these adverse-selection spirals.

        Other observations that seem relevant:

        1. Medicare has historically responded to rising medical costs the same way as insurance carriers – by raising premiums, and by cutting benefits. Prior to Medicare Advantage / Part C, seniors effectively had zero alternatives to Medicare so Medicare was not vulnerable to a death spiral – at least, not in the past. It’s different, now.

        2. Premium is not the only factor when people change carriers – their health is also a factor. People who actually change plans tend to be, in aggregate, healthier than people who do not change plans. There are several reasons for this – e.g., need to keep a particular specialist; fear that a different carrier would deny their expenses. So there’s a certain logic to a carrier issuing new policy forms as a means to keep their healthier members who otherwise might be most likely to switch to a different carrier.

        • Allan says:

          “That doesn’t happen with ESI or Medicare”

          That is plain wrong but Barry is ignorant of the facts. No insurance is perfect and Barry has a tendency to kill the good in order to reach his ideologic perfection that doesn’t exist.

          John, I am glad you brought up that Medicare does the same thing as well. The denials of care by Medicare increase year by year and the unnoticed denials increased as well. When Medicare tells the doctor they won’t pay the doctor doesn’t offer a service even if he thinks it valuable or more valuable than other services presently being provided. Sometimes patients die out of the hospital because they didn’t meet a code number. That happens with all types of therapy, equipment, testing, procedures, etc. Obama told the truth when he said, “Maybe you’re better off, uhh, not having the surgery, but, uhh, taking the painkiller.” The response was to a woman that was old and on Medicare with the assumption that she was ready for death when she was spry and enjoying life. That type of information doesn’t seem to penetrates Barry’s thinking processes as he makes the same mistakes over and over again. [Take note that Obama had a point and that point was an essential element in the healthcare debate]

          Barry is wrong about ESI as well since the insurers raise rates to the employer if claims are high. This is especially noticeable in small businesses. Employers also change insurers to keep rates as low as possible even if the insurance isn’t a good match for his employees. The employer also is known to place more of the burden of insurance on his employees. I won’t go into the question of the family of the employee.

          There appears to be a correllation between those that are the sickest, and those that lose their jobs, and ESI at the same time. Barry conveniently forgets about that because he is a purveyor of redistributionist theory.

          The rates do go up in the private market, but insurance is still offered and I’ll bet the rates (pre ACA) never increased to the rates seen in the private market in NJ which Barry uses as his reference point. There is nothing wrong with sicker individuals paying more for their illnesses. Sicker patients want and need insurance more than healthy patients. That new refrigerator becomes less valuable compared to the costs of insurance. Many of those caught in these death spirals that take considerable time die while carrying insurance, many get disability and can end up on Medicare, many can afford the rates and those that can’t can be subsidized or go on Medicaid.

          What Barry likes is the ability for young families to pay excessive prices for the old and sick. Then he likes to take the old and sick in the employer market and place them in the private market. Finally, he likes to complain how the private market doesn’t work.

        • Lee Benham says:

          I agree,

          Clients would get upset when I would switch them from say golden to golden rules new policy form and their premiums would drop. The worst company that I brokered for that abused this practice was BCBS of Iowa “wellmark” they were the only company that paid first year commissions to the agents for rolling clients from the old pool to the new. This incentivized the agents to move the healthy off the old policies quicker. Rates on the people who could not switch increased drastically .

        • Bart I says:

          John, medical cost inflation raises the cost of new policies as well as old. So that by itself can’t be the cause of policy churn.

          Is Medicare undergoing a death spiral with healthy people leaving for Medicare Advantage? Is there something about MA that attracts healthy people and repels the sick? I haven’t seen this before.

          “People who actually change plans tend to be, in aggregate, healthier than people who do not change plans.”

          Well, yeah, if you can’t pass underwriting, how can you shop for a plan?

          • Allan says:

            Look at the history of the initial Medicare HMO’s. A lot of bad things happened and money wasn’t saved. Medicare paid more. All the bad incentives that existed at that time exist today though they might not be as easy to recognize.

          • John Fembup says:

            “that by itself can’t be the cause”

            Didn’t say it is. Did say it’s an overlooked, important factor.

            “Is there something about MA that attracts healthy people and repels the sick?

            Didn’t say there is. Did say that people who change plans tend to be healthier on average than people who don’t change plans. (That’s true for the working population as well as for Medicare-eligibles). Did say that Medicare was not vulnerable to a death spiral in the past – it’s different now, (because MA is an option seniors never had before).

            “if you can’t pass underwriting, how can you shop for a plan?”

            Didn’t say anything about passing underwriting. Did say people who actually change plans tend to be, in aggregate, healthier than people who do not change plans – and gave a couple reasons. (Among individuals who can pass underwriting there is still a wide variety of health status).

            And don’t forget I did say Lee is generally correct, I just wanted to point out one of the key dynamics I felt he overlooked.

            • Lee benham says:

              It’s much worse than people realize. I was just stating basics. I hate to always pick on BCBS of Iowa but hey they did it. Their contract pre ACA stated that rates could only be increased based on the same policy form with in the same geographical area.
              That sounds good to most people. Until you realize the geographical area is determined by them. What is your geographical area?
              Do you live in the United States? Do you live in a state? How about a county, city, or zip code. What is your street address? All of those are geographical areas that would allow for a rate increase do to claims.
              Pre ACA I read every health insurance contract that insurance companies sold in the states I work in. It came down to picking the least of the evils. The bottom line if you get sick on any plan individual or group. Insurance companies are going to be looking for ways to minimize their costs.

              • John Fembup says:

                Lee, I agree. I’ve said for years the chief obstacle to obtaining medical care is its high cost. And medical insurance is expensive and becoming virtually unobtainable for the very same reason: the high cost of medical care.

                It’s worse than people realize because for 50 years most politicians and health policy leaders have assured the public that the problem is insurance; therefore there’s an insurance solution to the problem. Sadly, that’s false. If some insurance scheme could constrain the cost of medical care, wouldn’t we have noticed some improvement after FIFTY YEARS? Instead the cost problem has steadily grown worse.

                No one would continue seeing a physician who treated only symptoms and ignored the worsening disease. But that’s exactly what our politicians and health policy leaders have has done for 50 years. Yet we keep listening to them.

                Yes Lee, it’s much worse than people realize. Much, much worse.

      • Bart I says:

        Thanks, Lee. That’s the kind of information I was looking for. “3 to 4 years” at least puts a number on the process, even if anecdotal.

        I wonder how long the policy survives after this period.

        As for the ESI, I know that in Texas and California there is a limit to rate adjustment in small business plans. I think there’s only a 10-percent range in what carriers can charge (in addition to age-rating). For self-insured large companies I don’t see how this is even an issue.

        • Barry Carol says:

          It’s not an issue for large self-funded employers and those members account for over 60% of the largest health insurers’ commercial business these days. United, for example, has very few individual market members since it withdrew from 31 of the 34 states where it offered ACA exchange plans and it has fewer than 100,000 STM policies in force.

        • Allan says:

          “I needed to move clients from one carrier to another about ever 3 to 4 years to keep premiums under control.”

          Accepting Lee’s comment for what it is, that tells us that those sick people remaining in the pool saw their premiums increase at the same time those premiums became more valuable to those people.

          Some people decide to pay a higher price to ride on toll roads because those roads are more valuable to them. People pay for perceived value.

          • Barry Carol says:

            “People pay for perceived value.” After a point, they may no longer be able to afford to pay even if there is plenty of perceived value.

            People won’t die if they can’t afford to use the toll road. Being able to afford health insurance and access to healthcare is a different issue entirely.

            • Allan says:

              Even when people are subsidized, but paying a portion of the bill, they pay for perceived value, so I don’t know what you are talking about.

              Since people won’t die if they can’t afford the toll road, let’s close off a bunch of toll roads and see how important they really are. Let people vote with their own dollars so that we can hear directly how important every dollar of care spent really is.

              You will say that you believe in democracy in our Constitutional Republic up and until people are given a choice and don’t choose what you wish.

          • Bart I says:

            “Some people decide to pay a higher price to ride on toll roads because those roads are more valuable to them.”
            At least they are free to decide, which is not the case for people who have stayed with a carrier for a few years with the promise of “guaranteed renewal” only to have the rates hiked when they are no longer able to switch.

            • Allan says:

              Read the contract Bart. Some people do and they sign on the bottom line.

              It has been suggested that insurers sell an insurance policy to prevent the price hikes that you are talking about. Are you willing to buy such a policy?

            • Bart I says:

              I understand that’s what’s in the contract.

              But that just means statements like “you wouldn’t have needed a risk pool had you only purchased IM instead of ESI” are B.S. The only difference between STM, ESI, and IM in this regard is how much time between the onset of illness and applying for risk pool coverage (or Medicaid).

              Whether it’s 6 months, 18 months, or 36 months is important, I suppose, but it ends up the same. Some COBRA lasts 3 years.

              • Allan says:

                Good, then you will recognize that if you get sick your insurance premium might rise just like car insurance premiums rise as the car gets older.

                What you call BS, probably is, but it is the BS being fed to you by our government. ESI is a creation of government. Third party payer as we know it is a creation of government.

                The only bill that I can think of that had a sustained positive action towards cost is the HSA. What that did was transfer a portion of power from the government to the individual.

                I won’t comment about that ill defined statement of yours that went nowhere.

                • Lee Benham says:

                  Funny, in 1993 Hillary said she didn’t like HSA’s because they put to much mone in the private sector.

                • Barry Carol says:

                  Cars lose value as they age so insurance costs decline, especially for collision and comprehensive coverage. An article in the NYT today is about how newer cars with lots of collision avoidance technology are more expensive to insure because they are MUCH more expensive to repair after an accident.

                  • Allan says:

                    They also have systems that are proprietary so that at least initially the cars need to be brought to the dealership.

                    If one is willing to think a bit about your comment one could make an analogy with healthcare. The complexities government has added to the system have created a great deal of the cost problem. Unfortunately, that cost factor his hidden from the casual eye.

              • Bart I says:

                Actually my car premiums have always dropped as the car gets older.

                Insurance that jacks up the premium when you get sick is by definition Short Term Medical. It seems that “guaranteed renewal” is a fiction created by government.

  16. Bob Hertz says:

    Again anecdotally, I was told by a Blue Cross executive that many of his large claimants are making huge claims every year, due often to the drug regimen they are on.

    The insurers had to take them with no questions asked, and with no premiums collected in prior years.

    The only solution then is to raise the average premium of everyone in the pool. A 60 year old in MN now pays about $850 a month for even a lousy bronze plan.

    I appreciate your careful look at the data. I am only running on an intuition that absorbing the high-costs-every-year group has been a big factor.

    • Barry Carol says:

      There is a reason why guaranteed issue health insurance costs roughly twice as much as underwritten insurance other things equal. Lots of people who fail underwriting have minimal healthcare costs TODAY but have some issues in their medical history that make insurers wary of covering them now. One could have mild asthma and rarely need more than an over the counter inhaler or diabetes well controlled by a cheap drug like metformin and still flunk underwriting.

      So what becomes of people who insurers don’t want to cover at any price? They need heavily subsidized high risk pools with generous reinsurance to protect insurers from excessively high losses. That will cost a lot of money that nobody seems to want to pay for. Conservatives just don’t want to face up to that fact.

      Separately, prior to the ACA, the big publicly traded health insurers pegged their average annual revenue from individual market coverage at about $3,000 ($250 per month) in 2009 and the median age of their insured pool was approximately 40 years. It’s not hard to envision high risk pool coverage costing five times that amount.

      • Allan says:

        There is another reason guaranteed issue costs more. It creates inefficiencies and market distortions. NJ where you are most familiar had some of the highest premiums nationally for the privately insured.

        Barry, you act as if no one with any disease was insured prior to the ACA. I wonder how my asthmatics that were privately insured were ever able to survive with what we had before especially since some of them had asthma since childhood.

        Insurers aren’t as wary of illness when they are able to charge for risk. Guaranteed issue makes the job of insuring more risky (outside of the actual health risks) for the insurer and therefore increases costs. Therefore, the insurers have to charge more. NJ officials have had a difficult time understanding economics and that is why they rank almost at the bottom of the states (#48) in fiscal solvency (GMU).

        Redistribution seems to be your core desire and your arguments that follow are nothing more than rationalizations.

        “So what becomes of people who insurers don’t want to cover at any price?”

        I’ll give you an answer that is simple rather than the better answer that takes too much discussion. Allow those people to pay a premium for Medicaid. You didn’t mind when the ACA caused people to lose good insurance and jobs that paid for insurance so that they were forced onto Medicaid. Therefore, you shouldn’t mind it when these people are put on Medicaid because of their high risk.

        It is not the conservative that isn’t facing up to the financial problem. It is you for you are the one trying to impose higher individual costs and higher global costs.

        • Barry Carol says:

          You make it sound like putting high risk people on Medicaid is a cost-free solution for those who are uninsurable. The cost of the Medicaid program would go up significantly if large numbers of high risk people were suddenly added to the Medicaid rolls. Those costs are shared by both the federal and state governments. It will take higher taxes or, in the case of federal spending, larger deficits to finance those costs. States, by contrast, have to balance their budgets and would need to raise taxes or cut other programs. 19 of them didn’t even want to expand Medicaid under the ACA even though the feds are paying most of the costs.

          What makes you think the states will be so willing to take on expensive high risk people even if they can charge them an income based premium that won’t come close to offsetting the cost of providing them with health insurance? It only sounds good if you say it quickly and don’t think about the incremental cost to federal and state taxpayers and how they would be paid for.

          • Allan says:

            Barry, see my April 3 answers several postings above and below. Then do the math. Finally, the next time you argue in favor of the ACA take note of how it managed to place ?14 million into Medicaid and tell me how that was financed. You conveniently forget too many details.

  17. Allan says:

    “The cost of the Medicaid program would go up significantly”

    You want these high risk patients insured and I am providing one means of many without causing the tremendous harm to the vast majority of the population that includes the unknown high risks.

    Today many of these patients you talk about are getting substantial care with or without insurance and Medicaid is certainly less expensive than your beloved ACA. Medicaid is one of the lowest paying providers so this way of managing the high risk is likely one of the least expensive. Additionally if private non-Medicaid insurers offer insurance these individuals will have a chance to buy the higher level health insurance.

    “What makes you think the states will be so willing to take on expensive high risk people”

    That is part of our democratic Constitutional Republic. You prefer a totalitarian solution which ultimately results in despotism along with a poor economy and inferior healthcare. That is your alternative program in a nutshell.

  18. Barry Carol says:

    With more people on Medicaid, especially the sickest, federal and state taxes will have to increase and, to the extent that Medicaid pays significantly less than costs, providers will just shift more of their costs to the commercially insured sector further increasing premiums. In the end, I don’t think handling high risk pools through Medicaid would be any cheaper than handling them through Blue Cross with explicit taxpayer funded subsidies to help pay for them.

    If you want to preserve the underwritten individual insurance market so healthy people can buy cheap coverage that reflects their own low individual actuarial risk, let them step up and pay the higher taxes that it will take to finance high risk pools for the people who need them. The bottom line is that most of these healthy folks just don’t want to help pay to cover sick people either directly through health insurance premiums or indirectly through higher taxes. That’s unfortunate.

    • Allan says:

      Barry you look at Medicaid differently than I do. You see it as a catch all for those people that lose insurance under the ACA, those people that don’t work, etc. It is a lousy program.

      I see Medicaid differently. I see it as a program that is temporary for those that suddenly fell through the cracks and can’t make it without help or totally needy people through no fault of their own. I see it as an extension of the private market. I don’t believe like you do that dumping ?14 million into Medicare as the ACA did is actually insuring more people. It is actually diluting care to those that need it the most. Whether Medicaid should be a state or a federal issue is a different story and can be discussed at a different time.

      The Oregon study demonstrated how badly Medicaid functions. (A totally random study which demonstrated no benefit from Medicaid ven though they came randomly from the same study pool as those not provided Medicaid.)

      Medicaid needs to be completely changed and it needs to be more in the mainstream. But, that means that the redistributionist purveyors can’t dump all sorts of people into Medicaid to satisfy their ideological desires. Medicaid should not be an all or none phenomenon and its finances need to be corrected.

      “let them step up and pay the higher taxes that it will take to finance high risk pools”

      I’m not going to advocate that the federal government force such an issue. I will leave it up to you to call first for fines and penalties, then arrest and jail with the end point being that the totalitarian leader kills all those that do not agree with him. I leave that option to you.

  19. John Fembup says:

    “their own low individual actuarial risk”

    Barry, a small, but important detail to keep in mind: “individual actuarial risk” is both unknown, and unknowable.

    Risk is determined based on the experience of large numbers of people, who are grouped by characteristics the insurer chooses – commonly by gender and age, and others, too. The risk determined for those groups is then assigned to – not calculated for – each member of the group,

    [True story: in the 1700s, the British life insurer Equitable flourished using the Northampton Life Table, while during that period of time the British government lost handsomely by basing its retirement annuities on the same Life Table. The fault was not in the actuarial method – the Northampton Life Table was later found to be grossly defective.]

  20. Bob Hertz says:

    Allan, I agree halfway with you that high risk people might best be placed onto government insurance. It is always best to face a social problem on-budget with clear new taxes as needed.

    The ACA told insurers to solve the problem of high risk people, and then tucked in some money for them. The money was pulled back by Republicans in 2015 and that is a big reason for our problems today.

    I would consider adding high risk persons to Medicare instead of Medicaid. I would also raise the payroll tax for Medicare. Because the tax is broad based with almost 100% compliance, it will only take a per cent or so to raise $75 billion if that is what is needed.

    Medicare has a fee schedule and a payment structure ready to go. Unlike Medicaid we would not have to beg, cajole, threaten, or harass the 20 or so states that resisted Medicaid in the 1960’s, and resisted it again during the ACA expansion.

    • Allan says:

      Bob, the ACA was passed before those in power were able to get all their ducks in a row. Had they gone ahead and done the things you are talking about the bill would have never passed. Thus the fault lies with those that passed the bill.That is the only logical decision one can make.

      [You can have a ball team. Its owners draw up a contract to play a game at a certain time. You cannot obligate those players to play at that time unless it is in their contract with you. Therefore, the fault is the ball team’s owner, not the players when the team defaults on a game.]

      “I would consider adding high risk persons to Medicare”

      What you are saying is that you want single payer, but then first you have to get Medicare, a generous insurer, in order. We have had over 50 years to do so and have only made Medicare worse. Doing what you want to do is already failed policy. Medicaid is the place for those with need.

      Medicare should never have been constructed the way it was. There were alternatives at the time. Don’t make a bad situation worse.

  21. Bart I says:

    Turning Medicaid into the national high-risk pool would certainly change the character of Medicaid, from what was once a way to cover mostly-healthy poor children and families, into one that is primarily a risk pool for high-cost non-poor adults.

    I don’t know whether it’s good or bad to combine these two functions.

    • Barry Carol says:

      Actually, 70% of Medicaid spending is on the aged, blind and disabled, much of it for long term custodial care in nursing homes and home healthcare. Half of Medicaid beneficiaries are children who are relatively cheap to cover though Medicaid also pays for more than 40% of all births which is a significant cost, especially when you include the low birth weight preemies who need lots of expensive care in the short term.

  22. Bob Hertz says:

    I realize that we are dealing with very approximate numbers, but let me make my pitch for higher taxes as opposed to higher premiums in the individual market.

    Assume that high risk pools require $75 billion a year in federal spending.

    That could be an increase of between 1% and 1.5% in the general income tax, or in the payroll tax.
    Everyone who makes a decent income will pay the tax. The high earners will pay more.

    Now compare this to what the ACA actually did. The $75 billion was loaded into individual market premiums. The 7 million or persons who do not get subsidies have seen their insurance premiums double or worse. Some of them are paying $5,000 more for worse health insurance than they had before the ACA.

    So, in my world, we nick everyone a small amount, or we really slam about 7 million persons, not all of whom are rich.

    (Incidentally I feel the same about certain medical services like ambulances and emergency rooms. We can pay for them collectively for a few hundred dollars a year per person, or we can slam the poor souls who actually use the service.)

    I know that Grover Norquist-ideology would oppose any tax increase for any reason. The hatred of new taxes on anyone was a big part of the anger about Obamacare.

    So I do not expect a rush to my position.

    • Barry Carol says:

      Most economists agree that income and payroll taxes do more economic harm than consumption taxes. So, if we have to raise taxes, I would prefer a consumption tax like a VAT. The broad based VAT’s in Europe raise roughly 0.4% of GDP for each one percentage point of tax rate. so a similarly structured 5% VAT in the U.S. could raise 2% of GDP or about $360 billion per year. We could protect the poor with an offsetting tax credit or tinkering with the EITC.

      That would be enough to provide subsidized health insurance to the high risk people and federalize Medicaid relieving the states of a huge tax burden. They could use the freed up money to fully fund their unfunded retiree pension and health insurance obligations and use any money left over to reduce state and local taxes. There would probably be enough left over for the feds to invest in data analytics to reduce fraud in both the Medicare and Medicaid programs.

  23. Z Woof says:

    To solve Lee’s problem with BCBS of Iowa rolling their customers into a new pool just pass a regulation where they can’t roll their clients. Problem solved. The client would have to leave BCBS of Iowa with a different company then they could come back.

    NOW that still leaves creepy brokers rolling their clients to a new company every 13th month to keep 1st year commissions coming in. This is a real problem. I never did it because TIME was the only company I used because everybody else was a local yocal or United Health Care and they always sucked.

    The way I would do it is just have a captive field force and then again, problem solved.

    Stop the ban on Ron Greiner.

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