The “Average” Obamacare Rate Hike May Be Much Lower than Advertised — and That Indicates More Adverse Selection

 

Now that we are on the third day of open enrollment, it may be time to puncture the balloon of “tame” Obamacare premium hikes. There has been a drumbeat of positive news about premiums in the Obamacare exchanges. Here are some of the higher profile reports:

  • According to PricewaterhouseCoopers (PwC), seven states and DC (which had announced approved rates by November 4) have an average premium (across metal tiers and ages) of about $344, an increase from 2014 of 3.5 percent. By contrast, the average premium increase across all reporting states is 5.6 percent, and the average premium is $381;
  • According to the Robert Wood Johnson (RWJ) Foundation and the Urban Institute, which reviewed 17 states, six states will have average premium reductions across the carriers’ lowest cost silver plans, 10 will have small premium increases (defined as 5 percent or less) and two will have increases greater than 5 percent;
  • According to the Kaiser Family Foundation, which reviewed the lowest-cost bronze plan and the second-lowest-cost silver plans in 15 states, the average premium for a bronze plan will jump up 3.3 percent, and the average silver premium will drop 0.8 percent.

Good news? Well, not really. First, we have no idea what the “average” change in premium will be until after the dust settles on open enrollment next February 15. A simple average of rates announced prospectively does not tell us much until we see which plans Obamacare enrollees actually choose.

American Medical Association Backs Telemedicine Compact

 

Laptop and StethoscopeOur blog usually does not cheer the American Medical Association, because it is largely responsible for the Soviet-style centrally fixed prices that prevail in Medicare. Well, today we applaud the AMA for pledging its support to an important initiative that will increase the adoption of telehealth.

The Federation of State Medical Boards (FSMB) has developed an interstate compact to allow physicians licensed in one state to provide telemedicine services in other states which join the compact. It will greatly advance the effective adoption of telehealth nationwide. Yes, I am aware that the pure libertarian view is that licensing should be abolished and certification by private organizations govern the recognition of professions. Unfortunately, that is not on the radar screen. An interstate compact allowing physicians to practice telehealth across state lines is a very positive step that will pre-empt federal interference in professional licensing.

Why California Hospitals Can’t Cut Capital Costs

 

After two major earthquakes, California’s legislature passed SB 1953 in 1994. The law imposed a mandate requiring hospitals at risk of earthquake damage to retrofit or replace their buildings. Many chose replacement. The state provided no capital grants. Twenty years later, the mandate has caused an explosion of capital expenditure dollars that are coming home now. In the San Francisco Bay Area alone, at this date, the capital costs of just 12 projects amounting to almost $10 billion are being committed that will end up being reflected in hospital prices.

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Source: San Francisco Business Times, 10/31/14

Health Insurance without an Expiration Date

 

Hangsheng Liu and Soeren Mattke have written a useful short article at Health Affairs, promoting “health insurance without an expiration date,” criticizing the one-year term of most U.S. health insurance, which features open enrollment at the end of each calendar year:

Moreover, when consumers know they can change plans if their health worsens, they lose at least one incentive to adopt healthy lifestyles. Insurers, too, have few incentives to invest in their enrollees’ health through wellness and disease management programs because those investments, studies show, may not pay off for up to three years. By then, enrollees may have moved on to another insurer. Thus, a greater role for exchange plans and price competition might inadvertently counteract current efforts to shift the payment system toward one that rewards providers for providing long-term health care management for their patients.

HSA-Eligible Plans are Widely Available in Obamacare Exchanges

 

(Nota Bene! HSA plans are not necessarily consumer-driven!)

Paul Howard and Yevgeniy Feyman of the Manhattan Institute have conducted a thorough examination of plans available on Obamacare’s exchanges:

The report finds that, far from becoming obsolete under the ACA, high-deductible plans are widely available — 98 percent of uninsured Americans have access to at least one HSA-eligible plan. Moreover, these plans also make up about 25 percent of total offerings on Obamacare exchanges. We also found that they remain significantly less expensive than traditional plan designs, offering savings of about 14 percent, on average.

Nonetheless, our analysis indicates that it remains difficult for consumers to identify HSA-eligible plans and that much more could be done to simplify their administration and educate exchange consumers on their advantages and limitations.

“Peak Obamacare”: Will Exchanges End with a Bang or with a Whimper?

 

A version of this Health Alert appeared at Forbes.

The U.S. Supreme Court has agreed to hear King v. Burwell, an important case about Obamacare’s subsidies (tax credits) to health insurers. Plaintiffs argue that in the 36 states with federal Obamacare exchanges, subsidies cannot be paid legally. If no tax credits can be paid, neither the individual mandate to buy health insurance nor the employer mandate to offer insurance can be enforced.

Few people would voluntarily buy health insurance from an Obamacare exchange if the health insurers on the exchanges did not receive subsidies to enroll people. The premiums would be too high otherwise. Experts expect that the Supreme Court might decide on King v. Burwell in July, in which case Obamacare will end with a bang.

Some observers, like insurance expert Robert Laszeswki, believe that a legal victory would be like shooting the puck into your own team’s net. States which lose subsidies because they do not have their own exchanges would quickly try to establish them. Republican governors would be forced to cave in to Obamacare. Indeed, the risk of starving the federal exchanges of subsidies has led to some interesting fantasizing among Obamacare supporters about how states with operating exchanges, like California, could enroll people from other states, and hang on to subsidies that way.

It is not really politically tolerable for people in 14 states (plus DC) to receive significant subsidies to purchase health insurance while people in 36 states do not. Although there will be a battle of wills between the President and the anti-Obamacare governors over solving the dilemma that the Supremes might bring about, the results of the mid-term election significantly reduce the risk that Republican governors will stampede into state exchanges. Rather, a Supreme Court defeat of federal exchanges would likely force the President to return to Congress to re-open Obamacare.

U.S. Property Rights Maintain Global Rank

 

The 2014 International Property Rights Index (IPRI), published by the Property Rights Alliance, ranks the United States 17th place overall in the world (from 17th in 2013 and 18th in 2011 and 2012). The IPRI is an annual comparative study that quantifies the strength of physical and intellectual property rights and ranks countries accordingly. The U.S. improved its legal and political environment from 2013 to 2014 via marginal improvements in control of corruption, judicial independence, and political stability. Its physical property rights score improved due to increases in the country’s access to loans and real estate. Likewise, the U.S. intellectual property rights score increased due to improvements in the country’s copyright piracy score.

The NCPA has emphasized the importance of intellectual property protection in health care and this blog has written about how pharmaceutical innovation in today’s regulatory environment could not be financed without patent protection. According to the IPRI, such dynamics exist globally between many macro indicators: with each annual edition of the index, statistical strength between economic production and protection of property rights has grown.

Hiring in Outpatient Clinics Froze Last Month

 

Hiring in health care continued its moderate pace in October. As noted in September, the rapid hiring in the health sector, especially in outpatient services, has slowed dramatically. Health care hired about 25,000 workers in October, increasing employment by 0.17 percent. Non-farm payrolls, excluding health care increased 0.15 percent. So, job growth in health care has settled down to a rate similar to the overall economy.

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Obamacare’s Most Popular “Patient Protection” is Why Patients Can’t Get Paid for Saving the System Money

 

Last Monday, I posed the rhetorical question “Why Can’t Patients Get Paid for Saving the System Money?” and gave some examples, such as Medicare’s competitive bidding for durable medical equipment and incentives offered by Medicare Advantage plans, demonstrating how rules inhibit patients’ ability to participate more fully in forming prices and controlling costs. The primary reason for such rules is to compensate for Obamacare’s most popular provision: Prohibition against medical underwriting, so that sick and healthy patients of the same age pay the same premiums.

Health Savings Accounts, Flexible Spending Arrangements and Health Reimbursement Arrangements are powerful tools to engage patients in managing healthcare costs. However, as structured today, they are very blunt. Once a patient hits his deductible, he becomes immune to further costs. This is the primary reason why hospitals’ costs and prices are so hard to control.

The California Employees Retirement System (CALPERS), in collaboration with WellPoint, Inc., introduced reference pricing for knee and hip replacement surgery. This meant that the employer would pay a fixed fee — and no more — to have the operations done at high-quality, low-priced facilities. Employees who wanted to go to higher-priced facilities paid the difference. As a result, high-priced facilities cut their rates by one third.

This started back in 2008. So, you would think that, by now, WellPoint would have introduced reference pricing for hip and knee replacements to all its corporate clients across the United States. No such luck. As a result of Obamacare, the U.S. Department of Labor (DOL) is threatening to regulate this practice:

Reference pricing aims to encourage plans to negotiate cost effective treatments with high quality providers at reduced costs. At the same time, the Departments are concerned that such a pricing structure may be a subterfuge for the imposition of otherwise prohibited limitations on coverage, without ensuring access to quality care and an adequate network of providers.

Real Health Spending Remains Moderate; Inflation Increasing

 

For a while now, I’ve been surprised at how optimistic investors are about healthcare companies. Obamacare, the stock market tells us, is good for business. However, data on health spending does not support that story without qualification.

It looks like the discrepancy is between real versus nominal data. A survey reported in nominal dollars indicated a big hospital spending boom. On the other hand, the Gross Domestic Product (GDP) estimates indicate that real spending growth on health care is moderate.

This blog did not discuss September’s 3rd estimate of 2nd quarter GDP, which contained a significant upward revision to health spending. The Altarum Institute’s October briefing clarified that real health spending has been growing significantly faster than real GDP since the December 2007 recession. However, this is mostly because GDP dropped dramatically through the first half of 2009, while health spending did not. In absolute terms, health spending remained moderate.