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.

Drug Patent Litigation is Robust

 

You may have heard the stories about brand-name drug-makers and generic competitors quietly doing deals called “pay for delay” with each other. “Pay for delay” consists of a brand-name drug-makers which has a drug coming off patent paying a generic competitor not to challenge the patent and enter the market.

It sounds pretty bad, although it may actually be an efficient way to resolve a patent dispute. In fact, generic drug makers are attacking patents more aggressively than they have in years, according to research by Lex Machina. They file faster and more often. As a result, the patented medicines being challenged are younger – only five years old, versus ten in 2010.

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Breaking! Supreme Court Will Hear Subsidy Challenge

 

The Supreme Court has announced that it will take the case of King v. Burwell, a lawsuit challenging the Internal Revenue Service’s decision to grant health insurance premium subsidies to individuals enrolling on federally-run health care exchanges. This is significant: if the subsidies are struck down, insurance costs for many will skyrocket.

What’s so controversial about the subsidies? Currently, all Americans with incomes up to 400 percent of poverty are considered eligible for subsidies to cover the costs of their health insurance premiums. However, that is only because the administration unilaterally decided to grant subsidies to everyone — the Affordable Care Act does not, in fact, grant subsidies to all enrollees. The text of the law provides that tax credits are available only to the insured who sign up via a health exchange “established by the State” under Section 1311 of the Affordable Care Act.  A completely different section of Obamacare, Section 1321, discusses federally-established exchanges.

But only 14 states created their own exchanges; the federal government was forced to run the exchanges for the other 36 states. Under the text of the law, individuals in those 36 states are not subsidy-eligible. However, the subsidies are what make Obamacare-compliant insurance plans affordable for many, and the idea of offering unsubsidized insurance in the majority of U.S. states was less than appealing to the Obama administration. As a result, and contrary to the text of the ACA, the Internal Revenue Service (IRS) decided to interpret the provision to allow enrollees to receive subsidies in its federally-run exchanges.

Say It Ain’t So! The Medical Device Excise Tax Doesn’t Hurt?

 

The medical-device excise tax, part of Obamacare, is a universally reviled 2.3 percent levy on medical devices. Many people think that it will finally be repealed, with Republicans in charge of both chambers.

Now, along comes the Congressional Research Service to pour cold water on the idea that the tax is a job killer. The writers agree that the tax makes no economic sense:

Viewed from the perspective of traditional economic and tax theory, however, the tax is challenging to justify. In general, tax policy is more efficient when differential excise taxes are not imposed. It is generally more efficient to raise revenue from a broad tax base. Therefore excise taxes are usually based on specific objectives such as discouraging undesirable activities (e.g., tobacco taxes) or funding closely related government spending (e.g., gasoline taxes to finance highway construction). These justifications do not apply, other than weakly, to the medical device case. The tax also imposes administrative and compliance costs that may be disproportionate to revenue.