Troubles Ahead, Troubles Behind

Now that the election is over, the prospect of “repeal and replace” of ObamaCare is virtually nil. But that was never the greatest threat to the law anyway. The real threat lies in implementation.

I said well before the law was enacted that is was so poorly conceived and so poorly written that it could never be implemented. That is even more evident today.

Sure, a few things were easy, like the slacker mandate, the elimination of benefit maximums, and the requirement to pay 100% for preventive services. But those were just a matter of telling the insurance companies what to do, and they did it.

But everything the government itself was supposed to do has failed. Everything.

These include:

  • The CLASS Act. This feeble attempt to create long-term care insurance was thrown overboard by the administration itself after it became apparent it would be impossible to do.
  • The 1099 provision. This requirement that businesses issue a 1099 to any vendor from whom they purchased $600 of goods and services in a year was repealed after business owners explained what an impossible burden it would impose.
  • Federal high risk pools. These pools were created and well-funded, but hardly anyone enrolled due to the complexity and cost.
  • Retiree health subsidies. This had the opposite problem. Large corporations and unions were more than happy to accept free money to do what they were doing anyway (provide health benefits to retirees), but all the money ran out in about a third of the time expected.
  • CO-OPs. Once again, Congress put so many restrictions on what was supposed to be a non-profit health plan in each state that none have come into being even though billions were spent.
  • Small employer tax credits. The complexity and confusion of these credits deterred all but a handful of companies from applying.
  • Medical Loss Ratios. The MLR requirements have had the very predictable effect of discouraging innovation and higher-deductible or “mini-med” health plans.
  • Medicaid expansions. The Supreme Court made these expansions voluntary for the states and it currently looks as though fewer than half will do it.
  • Health IT. The HITECH bill was enacted separately from ObamaCare, and many billions have been spent on it, but reports from the field indicate the top-down efforts result in lower quality and less efficiency.
  • Limits on FSA funding. It is cruelly ironic, but the families most disadvantaged by the new $2,500 limit on FSA funding are those with special needs children.
  • Limits on the Medical Expense Deduction. Beginning in 2013, a taxpayer will be able to deduct only those medical expenses that exceed 10% of income, up from the current 7.5%. Once again it is the sickest families that will be hurt.

This porridge of screw-ups resulted in thousands of waivers from compliance being issued to selected companies and unions. What were the qualifying standards for issuing these waivers? There were none. They were issued based solely on the whim of Kathleen Sebelius.

We have written extensively about most of these problems. John Goodman wrote about more of the upcoming problems including the lack of adequate funding here.

But this abysmal track record is only setting the stage for the big failures to come — the Health Insurance Exchanges and the Individual Mandate. We’ll discuss exchanges here and then come back to the individual mandate next time.

The Health Insurance Exchanges. These are supposed to be operational by October, 2013 — just eleven months from now, but virtually nothing has been done to create them. We have written before about how unlikely this is.

Back in August Robert Pear wrote in the New York Times that only 13 states had applied to create their own, leaving the rest for HHS to do. But as Pear wrote at the time, although the Feds require full transparency from the states, they are conducting all of their work in secret:

By contrast, federal officials have disclosed little about their plans, are vague about the financing of the federal exchanges and have refused even to divulge the “request for proposals” circulated to advertising agencies.

Michael Cannon and Jonathan Adler have discovered the ACA Law does not allow federal exchanges to provide subsidies to enrollees. Apparently this was done to coerce the states into creating their own exchanges. It never occurred to them that some (many) states would refuse. So now CMS has extended the deadline for states to state their intentions by one month — from November 16 to December 14.

But all of this only scratches the surface of the upcoming problems in creating the exchanges. As Sarah Kliff wrote for the Washington Post:

After people become aware of benefits, the health exchange faces its biggest challenge: Figuring out who is eligible for what. In many states those who earn less than 133 percent of the Federal Poverty Line are eligible for Medicaid — except if the state has already extended benefits to an even higher level, as 35 states have for children.

“There may be different family members eligible for different programs,” says Sam Gibbs, vice president of sales at eHealthInsurance. “There needs to be a technology system that can support that activity, and look at multiple programs for multiple people.”

A state can’t figure out how much an individual earns on its own. For that, it needs to ping a federal data hub that does not yet exist.

Actually, it is far worse than that. The exchange subsidies will vary by income and family size, but there is no agency in existence that has the slightest idea what a family’s current income is. The closest is the IRS that must wait until April of the following year to know what the previous year’s income was.

People’s income can vary substantially from year to year. But here people will have to pay premiums based on what they earned over a year ago. Someone might have been unemployed last year but making good money today, or the inverse — someone with a great job last year might be unemployed this year. How will the exchange reconcile these situations?

The Republicans may have lost this election, but a year from now millions of people may be begging to be freed from the scourge of ObamaCare’s exchanges.

Comments (41)

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  1. Ken says:

    I think there are lots of troubles ahead.

  2. Harv Randecker/NAABC says:

    All of what you have pointed out just illustrates that no one with any degree of sense would want the federal government involved in something as important as their families’ health care. It’s the Tweedle Family, Dee, Dumb and Dumber syndrom!

  3. Devon Herrick says:

    Members of Congress must be charismatic fundraisers. They necessarily have to spend much of their time contacting donors and paying attention to the whims of lobbyists. This leaves much of the policy work to young, legislative assistants and senior legislative advisors. Each party has its constituencies — the favorites that are most likely to vote for a given party. The Democratic Party has blue collar and labor to placate. This made the Democratic Leadership in Congress susceptible to populist (and progressive) ideas of consumer protections. The MLR is one such idea. Proponents (who don’t understand economics) assumed they could merely tell insurance companies to spend more of your premium dollars on medical care and less on advertising, bonuses and risk rating. The problem is: you cannot repeal the principles of economics or remove incentives merely because you would prefer insurers were more benevolent.

  4. Rick Jackson says:

    Great blog! Everyone needs to be educated on the implementation details that others don’t understand. Just like the post office recently announced, the Government needs to re-look at its business model.

  5. Cindy says:

    Yikes. Are we going to re-address any of this at some point or would we prefer to just have a mish-mosh mess of unfunded mandates hanging around?

  6. Brian Williams. says:

    Brilliant, Greg. Thanks.

  7. Alieta Eck, MD says:

    Great post! If it weren’t true, ObamaCare would be laughable. It is so bureaucratically top-heavy that it will collapse under its own weight.

  8. Bill Radiar says:

    A good laugh is what America needs

  9. Kyle says:

    This was an excellent post Greg. It’s easy to get lost in all of the speculation over individual problem areas. The Cannon and Adler article was particularly interesting.

  10. Frank Timmins says:

    Amen Brother. It seems that we won’t have to “repeal” Obamacare, because it is surely going to collapse under its own weight. It is only a matter of time that all this sinks down to the awareness level of the Great Unwashed. Up until now the majority of citizens have said they do not want this law, but the decisions were instinctive (not definitive). Now when the detailed reality of the boondoggle hits everyone in the face, howls of protest will be heard.

    It happens that way with pipe dreams and flights of fancy sometimes.

  11. Patrick says:

    Another example of the Fed Gov’t trying to regulate something they don’t understand, and when the insustry tried to educate them on ‘how risk sharing works’ they shut the door saying we’re cramming this down Americans throats so we can stay in power!

    The ‘law of unintended consequences’ example is mandating no medical questions and no pre-x for under 19 and now no carriers will issue any coverage. What good is great coverage if you can’t afford or even find it?

    Add the Doctor Shortage and the Fed Gov’t really has no clue how badly they have screwed up US healthcare!

  12. Saul says:

    Interesting post. It’s difficult to understand how the politicians in Washington are going to justify Obamacare after it causes a bunch of problems.

  13. Harv Randecker says:

    Saul…….They’ll just blame it on George W. Bush like they do everything else.

  14. David Lemire says:

    With regard to family incomes, Medicare determines the level of Part B (physician services) premium by looking at AGI plus tax exempt interest from tax returns from two years prior. That is, for 2013, the returns from 2011.

  15. Rick in CT says:

    Great analysis, Greg! This is too easy. The eggheads are out of their ‘head in the clouds’ minds.

    But, maybe that is the Machiavelli in them.

    Make it impossible, make average people confused and hurt, know that there is not enough money, with the goal of collective cries of surrender – “Give us the NHS!

    Oh well I am old and in the way in so many ways these days.

    Sigh…..

    Rick

  16. Greg Scandlen says:

    For your reading pleasure, here are some articles on the same theme that came out after I wrote this piece —

    Forbes, “The Democrats’ Fallback Plan for when Obamacare inevitably fails.” http://www.forbes.com/sites/scottatlas/2012/11/25/the-democrats-fallback-plan-for-when-obamacare-inevitably-fails/
    \
    Politico, “Can the IRS handle Obamacare?” http://www.politico.com/news/stories/1112/84050.html

  17. Don Levit says:

    A well-respected attorney recently applied for a waiver on HRAs, as an “excepted benefit.”
    We are meeting with Milliman tomorrow to see if our increasing paid-up benefits plan could qualify for a waiver. It is similar to an HRA, except it is funded by the employee, he takes it with him, and it provides paid-up benefits, allowing him to increase his deductible substantially, and have the deductible paid for.
    High deductible plans hopefully will work, if it is comprised of 2 plans, not one.
    Don Levit

  18. seyyed says:

    maybe the law won’t be repealed/replaced, but its implementation may continue to be delayed as has been the case for many of the major provisions. it looks like the creation of exchanges is likely to also delayed because neither the federal or state governments are ready

  19. Joseph Gutierrez, MD says:

    Thanks for a great post, Greg !!
    PPACA does not protect patients, in fact it threatens the patient-doctor relationship;and it is not affordable ….so, better to call it Obamacare.

  20. Robert E. Moffit says:

    John:

    Greg Scandlen’s piece is terrific. Watching the implementation of Obamacare is like watching a train wreck in slow motion, with multiple railway cars crashing into each other in an ever widening disaster zone.

    Bob

  21. Bill Stuart says:

    I think that we’ll look back on Greg’s analysis 18 months from now and say, “Boy, he was Pollyannaish in underestimating the problem.” I’ll never, repeat: never, understand how the American people affirmed this law (and the philosophy of the political leaders who created it) at the ballot box. They are now emboldened. What sector of the economy do they attack next with an equally bad idea, while this one crumbles before us?

  22. Frank Timmins says:

    Greg, the Forbes piece is certainly scary and hard to make an argument against. Personally, I have never thought that the PPACA was intended to be anything more than a gateway drug for the real thing (single payer). It really falls in line with the “boiling frog” strategy. What didn’t occur to me is that these gangsters purposefully wrote the law as to be unworkable (leading to public frustration and acquiesce to single payer).

    Call me Pollyanna, but I can’t help but think that this whole process will emit a stench so bad that the majority of the public will not stand for it. Had the past election been solely a referendum on Obamacare, Obama would have lost. When this rotten reeking ACA carcass is left exposed out in the middle of Pennsylvania Avenue, and their obfuscation no longer works, maybe, just maybe the GU will rise up.

  23. Great job Greg: in California they look to have the exchange up by Oct 13.

    W are talking to employer and saying. Drop your your benefits effective 1/2014. Send all your employees to the exchange. Pay the $2000 and set up a premium only Health Reimbursement Arrangement (HRA) say $3000 per employee per year, save mass sums of dollars, save the time and headache of providing benefits, and define their future healthcare cost.

    This is the perfect time to get out of the business of providing benefits. Hope that does not sound like I am giving up! Just conviction for the employer to get free now!

  24. Greg Scandlen says:

    James, Absolutely! Stay tuned for my next posting (which I’ve already written) not only will employers drop coverage in droves, but employees will not be much inclined to buy it either. I predict we will end up with MORE uninsured, not fewer.

    Frank, Yep. Obama has said for many years what he really wants is single payer but it will take a while to get there.

  25. Jonathan Huie says:

    Please remember that “ObamaCare” is not what President Obama and we Progressives really wanted, but rather it was and is a cobbled-together compromise between the progressive and the reactionary elements in congress.

    The real humane and highly practical answer is, of course, Universal Health Care – as Finland, the UK, and Germany have had for many years.

  26. Karl Stecher says:

    Nice column, Greg, in that it readily shows how 1) there was lack of common sense (I really don’t like to use that because this modifier “common sense” has been used by Democrats for four years when describing anything they proposed, hare-brained or not)in so may parts of the law. The 1099 was just an early discovery, and 2) that there has been no central planning committee of the Obama administration to define exactly now these edicts of Obamacare may be reasonably implemented.
    Medicare and Medicaid already pay doctors so little that it often doesn’t even cover overhead for seeing the patient, leaving the US with 30% of doctors who will not see any Medicare patient. Obama took the $716 billion from Medicare (from “providers,” i. e., those who would provide the care), making the situation worse. I presume that doctors will be paid so little under the new plans (what will state or govt exchanges pay doctors/hospitals?)that many people will be without doctors, or in long lines (see Canada), which is essentially rationing. I know you can’t cover everything in this article…but wait until the (as yet unselected) Independent Payment Review Board has to decide where the inadequate money is spent. Or won’t be spent.
    Another very important destroyer of care in the bill is the medical device tax, which is on gross, not net, income to companies, forcing some out of business, raising cost of devices needed by consumers, and stifling innovation.
    There are many parts of the bill which cause many to call it “Obamatax.” Your focus was on medicine, directly. But Medicare monthly premiums are scheduled to go up from about $120 a month now to $247 a month in 2014…a huge bite from seniors.
    Etcetera. Lots more.

  27. Karl Stecher says:

    For Mr. Huie: Beggin’ your pardon, sir, but Obamacare was EXACTLY what Democrats wanted, crafted, and voted for. There was no substantive input into any aspect of the bill by Republicans, Nancy Pelosi told us all we’d have to pass the bill to see what was in it, and Obama had a “who’s who” TV photo-op appearance which produced no input whatsoever (remember the nasty “The election’s over, John.” (McCain)). Not one single Republican in the House or Senate voted in favor of the bill, and the bill was opposed by 60-67% of Americans, who had this unneeded monstrosity rammed down our throats.
    Please let us know what you are calling a “reactionary” element in Congress, and what they changed in the bill.
    That universal health care you tout in the UK has led to rationing, a two-tiered system where those who can afford it seek the alternative, private care, rationing (no kidney transplants 55 and older, etc.), and abysmal survival rates compared to the US for such problems as breast, lung, and prostate cancer.
    And the Canadian universal health care system has produced such long waiting lines that an Ontario judge in 2006 opined to a patient who was waiting for years for care (82 page decision, I have it): The Canadian health care system does not guarantee care; it only guarantees a place in line.
    And how can you Progressives push for universal health care when you are already failing to adequately reimburse the people who provide the care…hospitals, doctors, etc….so little that it is like paying a gas station 85 cents a gallon and claiming that that is the “usual and customary” reimbursement?

  28. Bob Hertz says:

    Excellent posts all around.

    I would take issue with the Scott Atlas article in Forbes, with its suggestion that the collapse of Obamacare will lead to a single payer system.

    I agree that the collapse will lead to more discussion of single payer — but I strongly disagree that implementation of single payer will follow.

    Right now, American employers pay about $800 billion voluntarily for their employees and early retirees.

    Any single payer plan would have to collect at least that much in new income taxes to replace the employer system.

    This is most unlikely to happen in a country where, even now, a majority of the House of Representatives opposes raising even $100 billion in new taxes much less $800 billion.

    No, what will happen under Obamacare could be less sinister but even more chaotic.

    If the exchanges do get up and running, many corporations will stop providing coverage, and with a great sigh of relief they will never go back to doing it.

    Their employees can go to the exchanges, but the premiums in the exchanges will not be cheap and the subsidies will be skimpier than is now projected.
    More people will just be uninsured, as predicted above.

  29. Paul Nelson says:

    No matter how you detail the problems, the overall issue is that our nation can’t afford ACA 2010. If its intent, fractured at best, was to provide health insurance to 30 million citizens, our nation’s federal debt level could not withstand the additional burden. The healthcare cost per citizen in 2010 was estimated at $8,400. Even if you assume that the uninsured would cost $3,000, it would still be increase the federal government at least $100 billion a year. The fundamental issue for healthcare reform is the unacceptable over-all cost of our nation’s healthcare. In effect, we receive very inefficient healthcare in this country. Until its fixed, universal health insurance should only be a MYTH. My position is that the requirements for true healthcare reform are known. We just don’t have the national resolve to actually make it happen. A “Mission to the Moon” commitment will be required. This is not about $, its about creating the social capital necessary to realign the priorities within the healthcare system, institution by institution and community by community. One dollar per citizen per year would do it. The ideals of Senator Robert Kennedy and Dr. Martin Luther King, Jr. along with the principles of Professor Elinor Ostrom would apply.

    The first step would involve fixing our nation’s maternal mortality rate. To have a maternal mortality rate among the best 10 nation’s of the world, we would need to reduce our nation’s maternal mortality rate by 75%. Four states already have a maternal mortality rate at this level. Maine, Vermont, Indiana and ALASKA already have a maternal mortality rate that ranks the among the 10 best countries of the world. Priorities, priorities, priorities.

  30. Frank Timmins says:

    The only possible solution to a “cost” problem of a centrally controlled commodity is “rationing”. It is absolutely and unquestionably inevitable. Obama has even hinted as much with his (off the teleprompter) remarks about “pain medicine replacing treatment”.

    Mr. Huie, do you recognize this “fact” and accept it as a “necessary evil”? If not, please explain why this is not the case. I suggest that neither Mr. Huie nor any other proponents of government run healthcare can provide an answer that passes the public smell test.

    The failure of the Romney campaign to exploit this is an example of the continuing political mistakes of the GOP to define the issues that are straight forward enough to get the attention of the public.

  31. Rick in CT says:

    Frank is so right as is Greg. But others have stated things that should be addressed. Mr. Huie, is of the mind that if only the reactionaries would just get along, nirvana here on earth would appear. Hah! Dreams are just that. Humans are messy. And it dismays me that our polyglot country of 305 million is compared to lower population, essentially homogenous ‘nations’. Give me a break, puhleeze. These countries abdicate their national defense expenditures, the US is the de facto policeman of the world and our budget shows it, then can transfer that cost to their single payer world and still don’t get it right. The UK’s NHS fails in almost every measure, hence there is a parallel market for those who work and can pay for it. Canadians in need of urgent or innovative care come to the US. No, facts are that there are those in the US who need to be taken care of. This is an actuarially available number. Taxpayers must gulp hard and factor their cost in, in exchange for true freedom to choose. The result of making the whole ‘system’ work under increasingly stringent rules and new costs, just wastes money and results in heart-rending stories of want. The US economy can handle the costs of the people who need help, if only the workers who will pay for them are allowed to be free. I know that this hurts the sensibilities of the progressive, but reality gets in the way of theory more often than not. I applaud Don Levit’s initiative! His and others like it will help to create the US parallel market.

  32. LAURENCE BRODY says:

    Hey!! This was just a taxation scheme from the beginning anyway, and it was confirmed by the Supreme Court.

    So a government takeover of healthcare with laws that won’t work will lead to a single payer government controlled health care system.

    They will raise taxation and eventually confiscation of assets, then re-distribute to the preferred public. The proletariat will have equality at last.

  33. MD says:

    Those who think the system will collapse are wishful thinkers. The central planners are drunk with power and will steal the wealth and the health of the citizens to keep Obamacare alive. Just like the Castro brothers who are billionaires. The only way this happens is to steal from the produces.

  34. steven says:

    i think that i would have preferred a single payer health bill thawt works like medicare…medicare has served the country well so far…and i’ve seen no better bill yet.

  35. steven says:

    i think that i would have preferred a single payer health bill that works like medicare…medicare has served the country well so far…and i’ve seen no better bill yet.

  36. Greg Scandlen says:

    Steven —
    Ya’ think? Really? Medicare is great if you ignore the trillions in unfunded liabilities, the fact that there is no limit to the 20% Part B expenses on the beneficiary, the baffling dual deductibles for Parts A and B, the fact that Bennies have to buy additional policies for Medigap and drug coverage, the fact that it underpays providers with payment going down in the future, and the massive fraud. Other than that, it works great.

  37. Bob Hertz says:

    Note to Paul Nelson — The ACA has many problems, but if the real cost was only $100 billion, I think you are wrong to say that the nation cannot afford it.

    $100 billion is about 1.6 per cent of payroll.

    An honest liberal would go to the nation and say, we can cover the uninsured if everyone pays an additional 1.6 per cent. On a $50000 salary, that comes to $800 a year or $66 a month.

    In America, that would probably fail. In France and Germany and Sweden and Israel and many other wealthy nations, it has been completely successful. These nations have strong labor parties.

    I am not saying that America is evil for not doing this. I am only saying that it is completely affordable.

    To Greg Scandlen:

    I have a small quibble with the phrase about trillions in unfunded liablities.

    The Medicare benefit package as it exists today will in fact result in trillions of dollars in future spending.
    Our Defense budget as it exists today with many foreign commitments will also result in a few less trillions of dollars of future spending.

    But neither Medicare nor Defense is fixed by the Constitution in what they provide.

    Medicare could cancel Plan B, and let seniors pay their own bills for office visits and diagnostic procedures. The Defense department could remove all bases in foreign lands.

    These are totally within the power of future Congresses. Therefore, it is not correct to use the term ‘liabilities’ in my view.

    With Medicare, I think it is more useful to say that
    “if the current benefit package is unchanged, then
    the taxpayers of 2020 will be on the hook for about $1 trillion a year in annual spending.”

    That is frightening enough!

  38. mike marcus says:

    Hmmm, Ask yourself, 1 year from now will this article prove to have been
    a. mostly true
    b. mostly false?
    In other words, dos Greg really expect the whole health care law will collapse of it’s own ambition, like he says? My take…Coming from a partisan think tank, this all Sounds like sour grapes. With all due respect, this sounds like the politics of “The sky is falling.”

  39. Bob Hertz says:

    The designers of the ACA assumed that the exchanges and their subsidies would only be used by persons who now buy health insurance in the individual market, i.e. about 15 million persons a year.

    The assumption was that group insurance for 120 million other Americans would continue as is, without new federal dollars.

    Douglas Holtz-Eakin and others have raised the possibility that the exchanges could completely erode the group insurance markets. We could see 50 million persons in the exchanges rather than 15 million.

    If this happens, the health care law could in fact collapse.

  40. Greg Scandlen says:

    Mike Marcus,

    I do indeed expect that it will collapse under its own weight. I could be wrong, but you have not shown that I am. Since I presented an analysis and citations and you preferred ad hominems, I fear the partisanship here is your own.

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