Report Card on ObamaCare

Over the next 10 years health reform will impose upon us about $1 trillion in new taxes and it will take another $716 billion out of Medicare, imperiling access to care for the elderly and the disabled according to Medicare’s Office of the Actuaries. It will impose a mandate to buy health insurance on most people and fine us if we don’t comply. It will compel all but the smallest employers to provide insurance to their employees and fine them if they don’t. Since economic theory teaches that workers pay for health benefits with lower wages and fewer non-health benefits, the extra burden will fall hard on middle-income families. The federal government will regulate the kind of insurance we must have, tell us where we must get it and regulate how much we pay for it as well.

Many will ask, “what are we getting in return for all this?” I would like to turn that question around. After doing all these things, “What problems will be left unsolved?

Suicide is painless
It brings on many changes
And I can take or leave it if I please.

 Costs. Need I even discuss this? I really don’t know of anyone not on the White House payroll who today is seriously claiming that costs will be lower because of the Affordable Care Act. And even the White House is now backing away from the claim. As reported in last Saturday’s New York Times:

[T]his week the administration cautioned officials to be careful about suggesting that the law would drive down costs.

After extensive research, the administration said it was unwise to tell consumers that they could get “health insurance that fits your budget.” That message, it said, is “seen as highly motivational, but not as believable.”

Quality. On the very same day, the Times also delivered a stunning blow on the quality front as well. An Institute of Medicine study, requested by the Obama administration, debunked the administration’s notion that

Medicare should pay higher levels of reimbursement to areas of the country that deliver measurably good care at low cost and less to regions where costs are high and outcomes are poor…

[T]he authors of the interim report found that there was too much variation within a region to justify a payment policy aimed at all the hospitals and doctors within the area. Just as there were efficient providers in high-cost areas, there were inefficient ones in low-cost areas.

Yet there is no reason to be hopeful at the hospital (or Accountable Care Organization level) either. As reported here last week, the administration has been spending millions of dollars on pilot programs and demonstration projects for the purpose of discovering how low-cost, high-quality care can be delivered. Yet three Congressional Budget Office reports (see here, here and here) have found that these programs are not working.

Access to Care. Surely ObamaCare will deliver on this front, you might be thinking. That’s what Mitt Romney thought. Health reform in Massachusetts cut the number of uninsured in half. But nothing in the Massachusetts legislation created any new doctors, any new nurses or any new clinics. Although some academic studies have found a small, but measurable boost in utilization among the poor, my general impression is that most people in Massachusetts are not getting any more care than they did before health reform. Traffic to community health centers and hospital emergency rooms is as high or higher today than it was before the reform. In the meantime, the time price of care has increased almost everywhere. In fact, the wait to see a new doctor in Boston is now two months — the longest in the country.

Nationwide, we are about to greatly expand the demand for care and do next to nothing about supply. As the waiting times grow, health care will become less accessible for everybody — even rich people. The biggest access problems, however, will be faced by people in plans that pay below market. They will be pushed to the rear of the waiting lines. Who are they? The elderly and the disabled on Medicare, poor people on Medicaid, and (if the Massachusetts precedent is followed) people with subsidized insurance in the health insurance exchanges. These, of course, are the most vulnerable populations.

Transparency. Courtesy of Time Magazine and CNN, we reported on how hospital charges mounted to $447,000 for one family:

Nurses pricked the patient’s finger for a glucose test 190 times. At $39 a pop that totaled $7,410. A breathing ventilator generated 32 separate bills, totaling $65,600. There were separate charges for the IV tube and for asking for a urine bottle.

A box of tissues is a “mucus recovery system.” A teddy bear is a “cough suppression device” and can cost between $128 and $200.

Remember those little white cups fast food restaurants give you for free to put ketchup in? In fact there are restaurants giving them away for free in the lobby areas of many hospitals. In the hospital room, however, these are billed as “oral administration fees” and for one patient they totaled $5,000.

Here was the big surprise for CNN: none of this changes under ObamaCare! The 30 million or so people who will remain uninsured will still have no idea what they will be charged when they enter a hospital and when they leave they will be asked to pay list prices. There will be no transparency for the insured either, even though their total bill will be lower because they are insured.  Although patient cost sharing will be capped for those with insurance, those caps don’t apply to anyone who goes out of network (planning on taking a vacation?).

Portability. Polls consistently show that the biggest problem most people have with the health care system is lack of portability. Because our health care system is mainly employer-based, people are forced to change insurance when they change jobs. ObamaCare does nothing to change this. In fact, through the employer mandate, the health reform law tries to expand the extent of non-portable insurance.

A number of companies today are finding an escape route: Health Reimbursements Arrangements (HRAs). By using these accounts, employers can make pre-tax dollars available to employees to acquire insurance that they individually own. But Greg Scandlen has discovered that the Obama administration plans to outlaw the use of HRAs for this purpose beginning in 2014!

Dysfunctionality in the Small Group Market. In the individual market, insurance is guaranteed renewable. Once you buy into a health insurance pool, your premiums can only increase with the costs of the entire pool, regardless of changes in your personal health status. The small group market is different. Effectively, employers can only buy insurance for 12 months at a time. At the end of the year, they are removed from the pool, rerated and charged a new premium (to re-enter the pool) based on the new health status of their employees. This means that small groups cannot buy reasonable protection against the cost of cancer, heart disease and other costly conditions.

Almost all regulation of small group insurance is designed to deal with the consequences of this dysfunctionality, instead of correcting the core problem that created it. The Affordable Care Act continues in this tradition by imposing community rating on small group insurance — charging everyone the same premium, regardless of expected health care costs. This means that healthy groups will be over-charged so that unhealthy groups can be under-charged.

Healthy groups will be able to opt out of this arrangement, however, by self-insuring. They will buy “stop loss” insurance to cover unexpected large expenses and pay small expenses directly, say, through Health Savings Accounts. Why this is attractive is that the premiums for stop loss insurance will not be community rated. Instead they will reflect the true market price for insuring the risk.

By self-insuring, every healthy small group will be able to leave the community rated pool and lower its health insurance costs. But as they leave, the premium charged to those who remain will rise. We could see a classic “death spiral.” Even if things don’t get quite that bad, we are likely to see small employers abandoning health insurance altogether.

Far from solving the problems of the small group market, ObamaCare will likely make them worse.

Irrational Insurance Design. The single worst feature of Medicare and of most private insurance is the tendency to provide coverage for inexpensive services that people can easily afford on their own, while leaving them exposed to tens of thousands of dollars of out of pocket costs if a true medical catastrophe occurs.

The reason for this practice in the private sector is economics. As I explained in my book Priceless, employers cannot legally discriminate against employees and potential employees based on health status. What they cannot do directly, however, they can do indirectly by offering health plans that appeal to the healthy and repel the sick.

The reason for the practice in Medicare is politics. Politicians all over the world face strong incentives to over-provide to the healthy (because there are so many of them) and under-provide to the sick (because they are few in number and, in any event, may not be able to vote).

Instead of correcting these tendencies, ObamaCare compounds them. As I wrote previously:

[Note] the millions of dollars the administration has spent on Andy Griffith TV commercials and on other propaganda, telling senior voters about their right to a “free annual checkup” and encouraging them to go get it!

Turns out what is being billed as a “free medical checkup” and a “physical” is actually a “wellness exam.”

…Yet where in all the medical literature is there any evidence whatsoever that “wellness exams” for otherwise healthy people are cost effective? There isn’t any.

Then there is a long list of preventive services that people will have covered, with no deductible or copayment. Again, from a previous post:

Health economists have known for a long time that preventive medicine does not save money, except in a few cases. The money that is saved, say, by early cancer detection in a patient who has cancer is overwhelmed by the costs of screening tens of thousands of people who don’t have cancer.

In celebration of the third anniversary of ObamaCare, HHS Secretary Kathleen Sebelius announced that,

The Affordable Care Act gave those who reached the donut hole in 2010 a one-time $250 check, then began phasing in discounts and coverage for brand-name and generic prescription drugs beginning in 2011.

One suspects that the elderly would gladly forgo the $250 and the minor discounts for genuine catastrophic care.

Meanwhile, the most exciting developments in medical science are opening up the prospects of “personalized medicine.” Although the techniques can be expensive, this is the frontier where discoveries may save your life. Yet, former White House adviser Zeke Emanuel has declared personalized medicine “a myth,” and even if it’s not a myth, he says, we can’t afford it.

Pre-Existing Conditions. This is the only area I can identity where ObamaCare really solved a problem and it was done the right way — with federal risk pools. About 107,000 people have enrolled and enrollment has grown slowly, perhaps because the later enrollees dropped or avoided more expensive options that were open to them.

The administration has now closed enrollment. But why? Remember, pre-existing conditions was THE REASON virtually every Democrat spokesman gave for favoring the Affordable Care Act on the eve of its passage.

For $5 billion we are solving a problem the right way that is going to cost us 2 trillion dollars trying to solve it the wrong way.

Go figure.

Comments (22)

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  1. Jeff says:

    Great piece.

  2. Vicki says:

    ObamaCare is suicide? It didn’t seem to hurt the Democrats in the last election.

  3. Desai says:

    I think it should be obama careful. I don’t know how this landslide reform is going to affect the Nation over time.

  4. Patel says:

    Let’s not overreact. Surely we don’t know how this is going to affect the whole nation overtime. Certainly more people will have access to health insurance than before, and this is not a bad thing.

  5. Brian Williams. says:

    And now we find out that Obamacare only allows workers to receive exchange subsidies if their employer’s INDIVIDUAL plan exceeds 9.5 percent of household income – even though FAMILY coverage is more expensive. Families are going to be hit hard by Obamacare.

  6. John Seater says:

    Isn’t communism wonderful?

  7. Linda Gorman says:

    “More people will have access to health insurance than before, and that’s not a bad thing?”

    No one really wants health insurance except as a vehicle to assure access to medical care that may cost more than he can pay.

    The problem with ObamaCare is that it forces people to purchase bloated health insurance at high cost and then all but guarantees that their access to the medical care that they value will be restricted relative to the state that existed before ObamaCare.

    This is not good. It is not even progress towards good.

  8. Jack says:

    Agreed Linda.

  9. Jordan says:

    The democratic process encourages d.c. to be myopic. Who cares if it fails once they’re out of office. Obama established this great program, but if it tanks once he’s out of office they’ll probably just blame Bush.

  10. Greg Scandlen says:

    John and Linda,

    I picked up on the same statement — “Nationwide, we are about to greatly expand the demand for care and do next to nothing about supply.”

    I disagree. Demand will not be expanded, quite the opposite. There will be fewer people insured than before. I need to do a post on the reasons.

    One of them, Linda, is that ObamaCare does NOT “force people to purchase bloated health insurance at high cost.” The only enforcement mechanism available is seizing tax refunds. This applies only to people who both pay income taxes and who have too much withheld during the year. The former amounts to only half the country — the half least likely to be uninsured. And the latter can be easily fixed by adjusting withholding so that you don’t give the Feds an interest-free loan during the tax year.

  11. Blake Woodard says:

    John, the situation for small businesses is worse than you have stated. Small businesses can’t have a meaningful HSA anymore, because Obamacare limits the deductibles for small businesses (but not for large businesses) to $2,000 per person and $4,000 perfamily. Therefore, the $6,000 nested family deductible that does such a great job at holding down premiums and keeping employees in the game will no longer be possible for small employers, whether their plan is fully insured or self-funded.

  12. Rob Tenery, MD says:

    Definitely the single best overview on the Affordable Care Act (Obamacare) that I have read to date. A MUST read for everyone who is involved in or cares about this country’s health care system!

  13. Dan Kirsch PhD says:

    There is also a tax on the medical device industry that is already underway. I am the Chairman of a small medical device firm employing 22 people directly and many more through suppliers, distributors and consultants. The new tax is equal to about 3 full time employees who we could use. And of course, we already increased the price of our prescription medical devices to pass on the cost to the patients.

  14. Don Levit says:

    Brian:
    You are absolutely correct about the affordability of coverage extends only to the employee’s self-only coverage. Large employers must offer coverage to dependents, so regardless of how expensive dependent coverage is, they are not eligible for subsidies.
    One quirk in the law specifically states that dependents do not inclde spouses.
    So, I assume, if spouses are not offered emnployer-sponsored insurance, they are eligible for subsidies.

    Blake: You are correct about the deductibles being limited to $2,000 for individuals and $4,000 for families.
    That would be for one plan of health insurance.
    The law specifically provides for integrated HRAs, 2 plans of insurance, which together would constitute one major medical policy. Their amoumts are not limited to $4,000.
    As expressed before , their amounts could actually be 5 times the coverage in the account.
    This should allow the individual to increase his deductible to begin whee the HRA coverage ends.
    My attorney recently submitted a comment to Marilyn Tavener of CMS, which addresses this very issue of pricing insurance as if the deductible was higher (even though, technically, the person would have first dollar coverage).
    Don Levit

  15. Blake Woodard says:

    Don –

    The HRA combination plan you cite would not qualify for an HSA. An HSA cannot have deductibles below the statutory amounts, either directly or indirectly, such as with a companion HSA, a prescription drug card, etc. The only permitted coverage below the minimum-required deductibles is preventive care. Notwithstanding the minimum deductible requirement, many small employers don’t want first-dollar coverage. They want as high a deductible as they can get, and Obamacare forbids plans from having deductibles above $2,000 per person and $4,000 per family.

  16. Al Baun says:

    Correction

    @ Brian Williams, “Obamacare only allows workers to receive exchange subsidies if their employer’s INDIVIDUAL plan exceeds 9.5 percent of household income.”

    I believe your mixing or misconstruing aspects of Obamacare.

    1) Employees that do not have health care afforded to them by their employers can participate (provided their income does not exceed 4 times poverty level) in the exchanges. The amount of subsidies depends on their income (the lower the income the more the subsidy), but the employee’s share of the premium will never exceed 9.5% of their income.

    2) Small employers (fewer than 26 employees) can qualify for tax credits if they provide insurance for their employees. Employers up to 100 employees will be able to purchase less expensive group policies in the exchanges. There is no 9.5% minimum contribution criterion on small employers to receive credits.

    http://www.irs.gov/uac/Small-Business-Health-Care-Tax-Credit-for-Small-Employers

  17. Don Levit says:

    Blake:
    I am not interested in the integrated HRA becoming an HSA.
    I am interested in using the integrated plans approach as a springboard to using 2 plans – one a paid-up monthly benefit plan and two, a comprehensive health plan whose deductible increases monthly to match the balance of the paid-up monthly plan.
    The CMS is considering the use of 2 plans in making up one comprehensive package. I see that as a positive.
    On another note, our plan is not an HSA for it does not accrue a cash balance for the employee. Rather, it accrues a paid-up monthly insurance balance, which grows faster than what cash could do – especially in our low interest environment.
    This paid-up balance accrues through the reserves of the insurer, and ultimately are owned by the insurer. If the insured terminates his plan, the insurer’s reserves are still intact, for the portion of paid-up benefits which is not used.
    This provides accelerated increases of the paid-up portion, higher paid-up balances, higher deductibles, and lower premiums.
    Don Levit

  18. Linda Gorman says:

    Greg–a small point of disagreement. Before OCare, not all businesses offered employees full-blown corporate plans. Even those that did didn’t cover all of the things that ObamaCare requires, things like expanded non-medical services with unlimited lifetime benefits.

    To the extent that my only choice is the ObamaCare policy (with the wage reduction it implies) or the fine, I’m forced into a bloated policy. It’s an even bigger bloat if I’d prefer the policies that used to be available on the individual market, and satisfied my needs perfectly well, but that have now been ruled to be insufficient to comply with the mandate.

    And in my world, a fine that is calibrated by percentages of my income up to the cost of a cheap OCare plan is a big fine that increases the cost of having health insurance even if I choose to cover myself by buying a noncompliant policy, assuming they are available.

    Finally, given that the mandate exists, I very much doubt that Chief Justice Roberts will protect me when Congress goes back and changes the statute so that it can collect the fine/penalty/tax any way it wants.

  19. Greg Scandlen says:

    Linda, please look again at my comment. The fine is unenforceable.

  20. Wanda J. Jones says:

    John and Friends:

    Has anyone written about the law’s provisions for increasing the core numbers and limits as the economy grows? How long will $2,000 and 4,))) remain in force?

    Also interested in the tension between an insurer’s indigestion from stupid rules and mandates and their willingness to have a basis for setting higher premiums…
    Somehow I feel that there will be a fairly rapid waltz to rate regulation by states who are being eaten alive by Medicaid increases, as is California. The costs, even now, are taking large chunks out of education, for example.

    I’m fairly old now, so have decided not to have a stroke over this incredibly cynical law, but I will support those who are still fighting. We all need to put it to the Republicans in Congress to correct it before it goes into effect. Signs of land–Democrats in the Senate who are getting worried about its costs.

    The other thing that is needed is a tracking system that totals the number of employers dropping the size of their workforce, hours worked, and their health plans. We need a big lighted sign to reside in both the Senate and the House, being updated hourly.

    To me, the worst problem in our society right now is the obsolescent governing structure of the country and the combined ignorance of the elected bodies that make the laws. What can we do about that?

    Wanda J. Jones, President
    New Century Healthcare Institute
    San Francisco

  21. Sean Parnell says:

    Greg: I definitely want to see a blog post explaining how the number of uninsured rises after full ACA implementation. I see how it could, but am not ready to say it will.

    There’s another aspect of the unenforceable nature of the tax/penalty – large numbers of Americans are going to be flat-out exempt because the bronze premiums will exceed 8% of income. I’m wrapping up my paper for Rhode Island, essentially all singles and all 4-person families except those over thirty will be exempt between 401% of poverty and, depending on age (because premiums are tied to age) 440% – 1007% of the federal poverty guidelines will be exempt because the premiums exceed 8% of income. For a married couple no kids, depending on age they’re exempt at all age groups from 401% to 479% – 1290% of FPG.

    Curious whether anyone knows anything about how open-enrollment periods will work in the exchanges? I keep hearing that the ‘Navigators’ will need to enroll x number of people each month to meet enrollment goals, but after the Oct-Dec initial enrollment period, are people still going to be able to sign up? Will the online exchange be essentially dormant 11 months of the year except for the much smaller number of ‘life events’ that allow new enrollment outside of the open enrollment period? Also, if I understand correctly and there is a limited open enrollment period (let’s say December of each year), does that mean that someone who missed the boat in December will then try again in January, be denied because they’re outside the open enrollment period, and will then have to pay the fine (to the extent it’s enforceable) for the rest of the year even though they want to buy insurance but can’t?

  22. Karl Stecher says:

    Nice clear post, John. Some comments:

    Quality: The govt does not know HOW to measure quality. Their “good results” idea, which the Inst of Medicine debunked, failed to account for geographic variation and patient variation.
    Further, Obama/Democrats who passed this garbage, pay, as Medicaid patients and their pay scale are expanded, the equivalent of paying a gas station owner 80 cents a gallon for gasoline. Their wonderful reward for good behavior (oops, good results) would pay the doctor 81 cents. Wow.
    Access: Romney plan in Massachusetts noted. Lines are longer. Canada, here we are. Further, by stealing the $716 billion from Medicare (to be taken from “providers”, somehow meaning doctors), payments from the already low Medicare to doctors (like a comparable 85 cents a gallon for gas)will be further decreased. Obama and Congress already pay doctors so little under Medicare that this underreimbursement is one of the reasons fewer and fewer of the best and brightest are choosing medicine as a career.
    And one really negative factor of this Obamacare/Abysmalcare/Democratcare: Perverse Incentives. If I am a doctor taking care of patients in my office, am I doing the best I can for the patient with the knowledge from medical school and further training plus my experience, or am I spending some of my time playing the government game, either so I will receive the additional pittance from the government, or be considered a good doctor according to the rules, which may not even apply to my best care of the patient?
    And for the hospital, and its money conscious, but not patient conscious nor doctor conscious administrators: Do I let it be known that the hospital does not want a readmission in under thirty days, to increase our administrative corporate profits, or do I let the doctors have free rein to do what is medically correct for their patients?