Unpopular Individual Mandate Fails to Make People Buy Insurance

 

doctor-mom-and-sonJust before Christmas, Congress voted to deficit fund Obamacare by imposing moratoria on a number of Obamacare taxes that are unpopular with interest groups. Left in place was the unpopular individual mandate to buy health insurance, which has no organized interest to lobby against it. Nevertheless, it is the most unpopular part of Obamacare.

The New York Times reports that a number of relatively high-income earners are choosing to remain uninsured, or even drop Obamacare coverage, and pay the fine instead:

Private Health Construction Leads Slow Building Market

 

New construction starts turned negative last November, slowing -0.4 percent from September. Health facilities construction shrank only -0.1 percent (Table 1).

20160104 Construction

To Control Drug Prices, Pursue Fraud, Not Manufacturers

 

prescription-bottle(A version of this Health Alert appeared in the Orange County Register.)

A Los Angeles-based nonprofit has gathered enough signatures to get two initiatives on the November statewide ballot. The one of greater interest to ordinary Californians would legislate that any prescription drug paid for with state money cost no more than the amount paid by the Veterans Administration. The California Drug Price Relief Act would have little, if any, short-term effect. There is a better way to control Medi-Cal’s escalating costs.

Patients are Becoming Price Sensitive; But Only Because Obamacare Destroyed their Insurance

 

A recent post for the Los Angeles Times blog, Economy Hub, discussed a government report that found the number of Americans having trouble paying medical bills fell since Obamacare was passed. LA Times business writer, Michael Hiltzik, reported how 44.5 million Americans had trouble paying bills in early 2015, compared to 56.5 million in 2011.

How do we know 44.5 million Americans had trouble paying bills in 2015 — or that 56.5 million had trouble in 2011? A sample of Americans were surveyed (basically interviewed) and the results extrapolated to the entire country.  Is this really accurate? And what does it even mean? Economists don’t generally put much faith in polls and surveys where people tell their opinions. The poll is referred to as a survey instrument (that’s a fancy name for a carefully-worded questionnaire). The way a poll is worded can easily bias the responses — sometimes intentionally. Economist prefer ex post facto data where subjects reveal their preferences through data that tracks their actions.

As an aside, I especially don’t trust polls that ask people if they’ve had trouble paying for something they don’t necessarily want to pay for in the first place. For example, there are people out there who would probably say they have trouble paying for cigarettes. Yet, these same people will continue to buy them. Their revealed preference is to buy cigarettes despite the cost. They may say they have trouble affording cigarettes because they can remember a time when a carton cost $17 and now that only buys two or three packs depending on where you live.  Smokers undoubtedly resent that fact that cigarettes are expensive due to taxes and would likely report the financial strain if surveyed.  By contrast, there are also people who will spend an exorbitant amount of their income on alcohol, but may never say they have trouble affording beer. Rather they may have trouble paying for beer, cigarettes and unexpected medical bills on the same budget.  If you ask them, they would probably report having trouble paying for the least popular items in their budgets rather than the luxuries they choose to afford.

Hiltzik assumes the ACA is working because 12 million fewer people indicate they have trouble paying medical bills. Yet medical bills can be a problem not just for the uninsured; and not just because medical care is expensive. Paying for health care when uninsured (and costs below the deductible) is a problem because our convoluted health care system does not compete on price. Because it doesn’t compete on price, it also doesn’t post prices or try to earn the patronage of price-sensitive shoppers.

There is one trend that is likely to cause many more people to have problems paying medical bills in the future; the growing prevalence of high-deductible plans. Health insurance deductibles are rising both under Obamacare and in the workplace. As premiums and deductibles rise, enrollees become increasingly apt to drop coverage if they can. Who wouldn’t question the value of paying, say, $6,000 per year for a plan with a $6,750 deductible you will never exceed. As healthy enrollees drop their insurance, enrollees who stay are likely to be sicker and more costly — resulting in premium hikes the following year. This will prompt yet another cycle of healthy enrollees dropping out.

If there is one silver lining in the dark cloud that is the Affordable Care Act, it is that the costly — and largely worthless — Obamacare exchange plans will encourage millions more people to ask about prices when receiving medical care. Millions of enrollees are essentially paying for all of their health care out of pocket because their deductibles are far higher than their annual medical needs. Hopefully that will boost the number of patients comparison shopping for medical services. People who pay all their medical bills out of pocket have an incentive to ask questions like “doc, do I really need an MRI right now?” “Can’t we wait to see if my knee gets better on its own?” “What’s that going to cost?” “Is there somewhere I can get it done cheaper?” You get the picture; when asking about prices become more common, maybe we can move beyond Omamacare and establish a consumer-directed health care system that serves more peoples’ needs.

 

GDP: Health Services Growing Faster Than Personal Consumption Expenditures

 

BEAReleased on December 22, the third estimate of Gross Domestic Product for the third quarter indicates growth in health services spending is maintaining a disproportionate share of still slow GDP growth.

Spending on health services grew faster (4.8 percent, annualized, in current dollars) than spending on non-health services (3.9 percent) or non-health personal consumption expenditure (4.2 percent) from the second quarter (Table I). The growth in health services spending ($24.8 billion, annualized) accounted for 17 percent of all GDP growth ($146.5 billion), just under one fifth of personal consumption expenditure ($130.6 billion), and 29 percent of all services spending ($84.7 billion).

Bleak Future for Obamacare’s “Beneficiaries”

 

woman-with-child(A version of this Health Alert was published by the Daily Caller.)

One might be forgiven for thinking health insurers are cracking under the strain of Obamacare’s broken insurance exchanges. But don’t be fooled: it is the 10 million Obamacare enrollees who are in trouble, not the insurers.

To be sure, new nonprofit cooperative insurers, set up with special subsidies to compete in the exchanges, have had a terrible run. They deliberately underpriced their premiums to gain market share, expecting the federal government to bail out their losses. Once the Republicans took over the House of Representatives, then the Senate, this became unlikely. As a result, the administration announced in November that 12 of 23 nonprofit cooperative insurers were shutting down.

However, these nonprofit cooperative insurers, which did not exist before Obamacare, are not important overall. That is why UnitedHealth Group’s November 19 announcement that it is losing $500 million on the Obamacare exchanges and might withdraw from Obamacare in 2017 is a big deal. Just a few weeks earlier, UnitedHealth Group had announced it would expand into 11 new states’ Obamacare markets.

Happy Holidays

 

We’ll be taking the week off; and hope you will have a Merry Christmas, too!

We’ll be back blogging the week of December 28.

What is Driving Health Prices Up?

 

The recent arrest of Martin Shkreli, former CEO of Turing Pharmaceuticals, for securities fraud, reminds us that high prescription drug prices are today’s whipping boy for the costs of health care. Hillary Clinton and other politicians have promised to impose federal controls on pharmaceutical prices.

However, prescription drugs have not been the fastest growing item in health care since the economy started to enter the Great Recession in 2007. That distinction belongs to health insurance (specifically, medical and hospital insurance, not workers’ compensation, income replacement, or long-term care). Table I shows price indices for various components of personal consumption expenditures, indexed such that 2007 equals 100.

PCE

Congress Set To Deficit Fund Obamacare Almost $40 Billion

 

iStock_000007047153XSmallI had always feared that Congress’ alternative to Obamacare was deficit funded Obamacare, and it looks like that is coming to pass. This is being done through the so-called “taxibus”, a legislative package that combines popular “tax extenders” (items like research and development tax credits that are legally temporary but practically permanent) with funding the federal government through September 2016.

The bill proposes a couple of years delay in three Obamacare taxes: The medical-device excise tax, he health insurance fee, and the excise tax on high-cost employer benefit plans. All three taxes are bad. However, the bill just delays them without cutting any Obamacare spending.

Understanding Why Employer Benefit Costs Are Rising Slowly

 

Aon Hewitt, a leading actuarial consulting firm, has reported extremely good news about the cost of employee benefits:

2015 Records Lowest U.S. Health Care Cost Increases in Nearly 20 years

– Rate of increase was 3.2%

– Average health care cost per employee topped $11,000

– Employees’ share of health care costs have increased more than 134% since 2005

After plan design changes and vendor negotiations, a recent analysis by Aon (NYSE: AON) shows the average health care rate increase for mid-size and large companies was 3.2 percent in 2015, marking the lowest rate increase since Aon began tracking the data in 1996. Aon projects average premium increases will jump to 4.1 percent in 2016.

Aon Hewitt’s 3.2 percent rate of growth includes only premium. When employees’ out-of-pocket costs are included, the reason for the slow growth becomes apparent.