THE HCC BLOG

Anything You Want From the Fast Food Menu

POSTED one day ago BY HEALTH CARE COMPACT

From now until 2016 the news about Obamacare threatens to be monotonously tedious.  Increases, increases, increases.  And not increases in benefits either, but increases in premiums, deductibles and other associated costs.

Not all insurance is alike.  One of the key problems in risk management is deciding on a rational amount of coverage against risk.  One of the key arguments against employer-provided health insurance is that encouraged wasteful overtreatment.  Overinsurance, defined as a “situation where an insured has bought so much coverage that it exceeds the actual cash value (or the replacement cost) of the risk or property insured,” is a poor use of resources.

Underinsurance is equally evil. Richard Eisenberg, writing in Forbes argues that while Obamacare may have reduced the numbers of uninsured Americans, it swelled the ranks of underinsured Americans.

Several recent studies suggest to me that due to a combination of Obamacare’s incentives to reduce premiums; the rise of so-called “consumer-driven” and high-deductible health plans and employers’ moves to combat the Affordable Care Act’s coming “Cadillac tax” on certain health plans, rising numbers of Americans are now not uninsured, but underinsured.

What’s underinsured? The Commonwealth Fund, a nonpartisan health research group, defines the underinsured as insured people whose out-of-pocket costs — excluding premiums — equal 10% or more of household income (5% or more for the low-income) or whose deductibles equal 5% or more of household income.) Commonwealth says 23% of insured people between age 19 and 64 are underinsured, double when it looked in 2003.

In other words, these people are finding themselves facing enormous out-of-pocket health expenses — sometimes leading them to deplete their savings and rack up serious medical debt.

The process through which this is taking place is pretty elementary.  Obamacare is redistributing benefits through  process of taxing and spending.  It is taking down the employer-provided insurance system and replacing it with Obamacare, inducting into it many of the people it regards as uninsured.  Consider what is happening in Ohio.  The grandfathered and generous employer provided plans are being phased out in favor of the “hollow” Obamacare insurance.  “Overinsurance” is giving way to what will be for many, “underinsurance”.

A Ohio Association of Health Underwriters survey shows that the end of transitional relief plans—often referred to as grandmothered health-insurance plans—will bring significant rate increases to small businesses when they renew in 2016. Their analysis found Obamacare-compliant plans will cost employers an additional $2,434.67 per employee per year.

The survey gathered data from 625 small businesses that are OAHU members, and the findings are staggering. A whopping 563—more than 90 percent—will see an average increase in premiums of 37.9 percent. In many cases, not only will the rates be shocking, but employees will find reduced benefits. Obamacare’s mandated metal tiers for benefits eliminate many options for small businesses, including some of the most popular options that were sold in Ohio. …

the small-group market already had all of the key protections of Obamacare. It had guaranteed issue. It had no pre-existing conditions, with the caveat that someone had prior insurance coverage. Plans provided coverage for many of the essential benefits required under Obamacare. While it didn’t limit the maximum out-of-pocket, according to Kaiser’s employee benefits surveys many of these plans carried an average of around $3,000 per person.

Compare that to Obamacare’s maximum of $6,850 per person for 2016, and it’s easy to argue that under the law employees of small businesses have lost significantly more than they have gained. It’s also a key reason why the Obama administration rushed through a rule to allow people to keep their current plans.

Some will call this “highway robbery”.  But the more polite term is “redistribution”.  Averaging is built into the design of Obamacare.  The whole idea is to take from what the Obamacare designers regarded as “overinsured” and give it over to the uninsured.  The result is a kind of mediocre product that fits a statistical profile envisioned by the Affordable Care Act.

Obamacare  was like Christmas in July for health insurance companies because it opened the way to fast-foodizing the medical industry.  Instead of having to deal with tens of thousands of individual medical practices the insurance industry could deal with giant providers churning out standard products for the “average” patient, a process euphemistically called value billing.

Wendell Potter wrote that the insurance companies actually wrote many of the briefs arguing in favor of Obamacare in King vs Burwell.  Without the tax-fueled subsidies to support the averaging process, the system would “death spiral”.

It is clear from both the first paragraph and closing comments in the Supreme Court’s decision upholding Obamacare subsidies that the justices listened more closely to the insurance industry than perhaps any other party.

In an amicus brief it filed with the court in King v. Burwell, America’s Health Insurance Plans, the industry’s main trade group, painted a dire picture of what would happen to the private health insurance market—and to people who cannot enroll in an employer-sponsored health plan—if the court ruled in favor of the plaintiffs.  According to AHIP, under that scenario, you could pretty much kiss the private health insurance industry goodbye in two-thirds of the states.  

The whole point of the exercise was to give government the power to take and give moneys to make insurance sausage from the constituent ingredients.  Unless people were forced into the grinder, the sausage would not emerge with the right consistency.

AHIP wrote in its brief that without the mandate to buy insurance, young and healthy people would once again opt to go uninsured, leaving the marketplace to sicker and older consumers. AHIP wasn’t just blowing smoke; the trade group noted what happened a few years back  when New York and several other states tried to force insurance companies to accept all applicants without a mandate to buy coverage. Premiums in every one of the states spiked dramatically and almost immediately. Most insurers quit selling policies in those states because of this developing  “death spiral.”  

Ironically, one of the destabilizing forces of a deliberately average insurance is innovation. Nasdaq cited sources who predicted that “personalized medicine could cause drug prices to skyrocket over the next decade. Personalized medicine involves targeting a person's unique genes to affect positive change against certain diseases and disorders. Although personalized medicine holds a lot of promise in terms of treatment efficacy and quality of life, focusing on certain genes reduces the potential patient pool that a drug could treat. Long story short, these therapies tend to be more expensive than your standard one-size-fits-all treatments. As they become more pervasive, medical cost inflation could prove unstoppable regardless of Obamacare and its transparent exchange pricing and built-in premium controls.”

Personalized and innovative medicine is bad for Obamacare.  Blogger Virginia Postrel, whose life was saved by cutting edge medicine argues that the Affordable Care Act’s average focus makes a travesty of what insurance is all about.  Referring to her extraordinary treatment, Postrel wrote: “This is exactly what health insurance is for: Unexpected medical catastrophes, especially treatable ones, not routine checkups and fully foreseeable contraception.”  What happens when you get sick of an un-average disease?  In that case, one needs an un-average treatment.

The American health-care system may be a crazy mess, but it is the prime mover in the global ecology of medical treatment, creating the world’s biggest market for new drugs and devices. Even as we argue about whether or how our health-care system should change, most Americans take for granted our access to the best available cancer treatments—including the one that arguably saved my life. …

The post-surgery pathology report wasn’t reassuring. Although the tumor was indeed tiny—just seven millimeters across—cancer cells were all over the place; they had invaded my lymphovascular system and extended beyond the margins of both areas of surgically removed tissue. All six of the excised lymph nodes were malignant, a bad sign. The cancer also tested positive for a genetic trait called HER2, found in 20 to 25 percent of breast-cancer patients, which marked the cancer as particularly aggressive. Given the details of my case, with more surgery, traditional chemotherapy, and radiation, I had only a 50 percent chance of surviving.

I was lucky, however. Those were no longer the only treatment options. Adding the biological drug Herceptin, approved by the FDA in 2006 for use in early-stage cancers like mine, could increase my survival odds from a coin flip to 95 percent.

On a statistical basis, one could make the argument that it would have been better if Herceptin had never been made available at all.  New Zealand, for example, has achieved good average cancer cure rates by making less effective medicines more widely available.

Not everyone in similarly rich countries is so lucky—something to remember the next time you hear a call to “tame runaway medical spending.” Consider New Zealand. There, a government agency called Pharmac evaluates the efficacy of new drugs, decides which drugs are cost-effective, and negotiates the prices to be paid by the national health-care system. These functions are separate in most countries, but thanks to this integrated approach, Pharmac has indeed tamed the national drug budget. New Zealand spent $303 per capita on drugs in 2006, compared with $843 in the United States. Unfortunately for patients, Pharmac gets those impressive results by saying no to new treatments. New Zealand “is a good tourist destination, but options for cancer treatment are not so attractive there right now,” Richard Isaacs, an oncologist in Palmerston North, on New Zealand’s North Island, told me in October.

But the average person is a statistical abstraction.  Statistical abstractions don’t die. Actual people do.  It is no comfort to a living patient to be restricted to average treatments.

A more centralized U.S. health-care system might reap some one-time administrative savings, but over the long term, cutting costs requires the kinds of controls that make Americans hate managed care. You have to deny patients some of the things they want, including cancer drugs that are promising but expensive. Policy wonks dream of objective technocrats (perhaps at the “independent institute to guide reviews and research on comparative effectiveness” proposed by Barack Obama) who will rationally “scrutinize new treatments for effectiveness,” as The New Republic’s Jonathan Cohn puts it. But neither science nor liberal democracy works quite so neatly.

Obamacare represents a homogenizing trend in medicine.  It is the equivalent of a limited menu restaurant. Less is cooked to order.  They are all package meals.  The design of Obamacare recalls the scene in the movie Five Easy Pieces, where the protagonist is trying to order something the restaurant can provide but cannot because the package is not on the menu.

Bobby: I’d like a plain omelet, no potatoes – tomatoes instead, a cup of coffee and toast.

Waitress: No substitutions.

Bobby: What do you mean, you don’t have any tomatoes?

Waitress: Only what’s on the menu. You can have a #2 – a plain omelet, comes with cottage fries and rolls.

Bobby: Yeah, I know what it comes with, but it’s not what I want.

Waitress: I’ll come back when you make up your mind.

Bobby: Wait a minute, I have made up my mind. I’d like a plain omelet, no potatoes on the plate, a cup of coffee and a side order of wheat toast.

Waitress: I’m sorry, we don’t have any side orders of toast. I can bring you an english muffin or a coffee roll.

Bobby: What do you mean you don’t make side orders of toast? You make sandwiches, don’t you?

Waitress: Would you like to talk to the manager?

Bobby: You’ve got bread and a toaster of some kind?

Waitress: I don’t make the rules.

Bobby: Okay, I’ll make it as easy for you as I can. I’d like an omelet, plain, and a chicken salad sandwich on wheat toast, no mayonnaise, no butter, no lettuce and a cup of coffee.

Waitress: A #2, chicken salad sand. Hold the butter, the lettuce, the mayonnaise, and a cup of coffee. Anything else?

Bobby: Yeah, now all you have to do is hold the chicken, bring me the toast, give me a check for the chicken salad sandwich, and you haven’t broken any rules.

Waitress: You want me to hold the chicken, huh?

Even if everything Bobby wants is produced by the kitchen, he cannot place the order. He will either be overserved or underserved.  But due to the structure of the market, he cannot be exactly served.  In the context of the American health care system, one can be uninsured, or underinsured or overinsured.  But the rigidities of the market make it hard for individuals to get exactly what they want.

But hey, you’ll have some sort of sandwich.

Those One-Time Costs

POSTED 2 days ago BY HEALTH CARE COMPACT

The search is on for a reason to keep believing. Robert Pear, writing in the New York Times, matter of factly documents the increase in Obamacare insurance premiums in his article, “Health Insurance Companies Seek Big Rate Increases for 2016”.  It’s up, up and away.

Health insurance companies around the country are seeking rate increases of 20 percent to 40 percent or more, saying their new customers under the Affordable Care Act turned out to be sicker than expected. Federal officials say they are determined to see that the requests are scaled back.

Blue Cross and Blue Shield plans — market leaders in many states — are seeking rate increases that average 23 percent in Illinois, 25 percent in North Carolina, 31 percent in Oklahoma, 36 percent in Tennessee and 54 percent in Minnesota, according to documents posted online by the federal government and state insurance commissioners and interviews with insurance executives.

The Oregon insurance commissioner, Laura N. Cali, has just approved 2016 rate increases for companies that cover more than 220,000 people. Moda Health Plan, which has the largest enrollment in the state, received a 25 percent increase, and the second-largest plan, LifeWise, received a 33 percent increase. …

Jesse Ellis O’Brien, a health advocate at the Oregon State Public Interest Research Group, said: “Rate increases will be bigger in 2016 than they have been for years and years and will have a profound effect on consumers here. Some may start wondering if insurance is affordable or if it’s worth the money.”

These premium increases tend to undermine the belief that Obamacare is success. Some of the readers of the New York Times article, whose demographic is liberal, have reacted to the increases by hoping the hikes are the result of a one time event, the expression of a pent-up demand among the uninsured who have only now been able to obtain treatment.  They reason that over the long run, Obamacre is cutting costs. Here is one typical responses.

People are sicker than the insurance companies anticipated because the majority of people enrolling in ACA plans have not had access to doctors and healthcare prior to now. That the companies are shocked by this reality shows how considerably out of touch with the problem they truly are.

Another wrote: “Does no one else see the obvious, yet ironically unmentioned cause of this spike in claims? Several million Americans acquired health insurance for the first time in a decade, in some cases, for the first time in their entire adult lives.”

But the problem with argument is that it ignores the fact that insurance premiums reflect the long run expectation of medical expenses, the discounted future value of the claims that they expect to face.  Insurance premiums are not climbing because of a one-time cost, but to reflect a stream of cash outlays that are expected to be met in the future.

A one time spike resulting from “pent up” demand would actually reduce the expected future costs of conditions by preventing conditions from worsening. One can liken it to fixing a hole in the roof, which is a one time expense, but will reduce the costs of water damage over time.  Satisfying a pent-up demand would have actuarially reduced the premiums.  

But that is not the case. The higher rates now being awarded to providers represent the incremental increase of caring fo the older, sicker insurance pool created by Obamacare’s rules. It represent the increased stream of costs. And there’s no doubt about it now, because the companies have actuarial data to back it up.  

It is far from certain how many of the rate increases will hold up on review, or how much they might change. But already the proposals, buttressed with reams of actuarial data, are fueling fierce debate about the effectiveness of the health law. …

Some say the marketplaces have not attracted enough healthy young people. “As a result, millions of people will face Obamacare sticker shock,” said Senator John Barrasso, Republican of Wyoming.

Sally Pipes wrote in Forbes, “Obamacare's True Costs Are Finally Coming To Light”. This is not a one-time jump, but the consequence of a new insurance pool and burden of regulations.

State regulators typically use their power to review health insurance premiums to limit rate hikes. But in Oregon, officials are ordering insurers to raise premiums — in many cases by double digits.

The regulators pointed out that insurers spent over $100 million more than they took in last year. Any more money-losing years like that, and some carriers would surely go bankrupt.

Oregon may be the only place where state leaders are ordering consumers to pay more for health insurance. But virtually everywhere else, insurance premiums are climbing — sometimes by as much as 50 percent.

And in every case, Obamacare’s benefit mandates, taxes, fees, and onerous regulations are to blame. Worse, thanks to the U.S. Supreme Court’s decision last week to deny the latest legal challenge to Obamacare, the law’s ever-higher premiums are here to stay.

President Obama sold his law as a means to spare people from “double-digit premium increases year after year.”

Instead, his “inartfully” named — and drafted — Patient Protection and Affordable Care Act has made the situation worse, with insurers asking for the double-digit premium increases the president promised to do away with.

The other way to look at increased premiums is from the point of view of insurance companies, to which they appear as increased revenues.  Real Clear Markets notes that the health care provider values have jumped in anticipation of an expected windfall.  Their revenues are the client’s costs.  The reason that the health companies have pennies from heaven is because the consumer is providing the rain.  Alex Azar writes:

Last year, 95 American hospitals merged or were acquired -- a 40 percent increase from 2010. Over roughly the same period, the percentage of physician practices owned by hospitals doubled -- from about 30 percent to nearly 60 percent.

This rapid consolidation among U.S. healthcare providers is dizzying to behold, even for those who have spent careers in healthcare. Its effects are only starting to be felt, but could be profound.

main reason for the trend is basic economics. Annual spending on healthcare has outpaced general inflation for many years now, but physician reimbursement has not kept pace, particularly from the public sector. Caught in the middle of this financial squeeze, healthcare providers have turned to mergers and acquisitions as a way to cut costs, eliminate waste, and generate new revenue.

Another explanation is the Affordable Care Act, which, although it did not cause the trend, has certainly accelerated it. The ACA brought millions more patients into doctors' offices by expanding insurance coverage

Obamacare has brought a sustained increase in costs -- costs which have to paid for by higher premiums and/or taxes.  Some will see this increase in costs as a good thing, because it “increases coverage”.  Others may see it as a bad thing because the funds are being spent inefficiently.

But nobody should deny that the costs are up and will continue to go up.  There’s nothing “one-time” about it.

Obamacare Prices: Up, Up and Away

POSTED 3 days ago BY HEALTH CARE COMPACT

The Left is gradually beginning to understand what Obamacare is all about.  The site Truthdig shrieks that it’s all a big giveaway to Corporate America.

Paul Y. Song is the executive chairman of the Courage Campaign, executive board member of Physicians for a National Health Program, and co-chair of Campaign for a Healthy California. He told me in an interview on Uprising that “this was really less about protecting patients and more about protecting the health insurance industry, hospitals and all of the medical corporations.” The subsidies at stake are our tax dollars filling the coffers of private corporations in exchange for profit-based “managed care.”

Less shrill, but more to the point was the observation by FiveThirtyEight that the market value of five of the largest publicly traded insurance companies rose companies rose on news of a government victory in King vs Burwell.

The five largest publicly traded health insurance companies (UnitedHealth, Anthem,1 Aetna, Humana and Cigna) — all of which were party to an amicus brief in support of the subsidies filed by America’s Health Insurance Plans, a trade group for insurance companies — rose an average of 1 percent over their opening prices by 11 a.m. Thursday. The bounce started at approximately 10:10 a.m., right when SCOTUSblog first announced the Supreme Court’s decision.

That rise amounted to a $3 billion increase in the combined market capitalization of the five companies.

Despite the overheated rhetoric the left is substantially correct. Andrew Ross Sorkin of the New York Times made the same case more soberly when he said that Obamacare was spurring mergers among insurers.

President Obama signed the Affordable Care Act more than five years ago. At the time, members of the health care industry — hospitals, doctors and insurers — were anxious about what it would do to the business. Everyone had an opinion, but nobody knew for sure.

We’re now beginning to see the answer: consolidation on a huge scale.

The trend seems to become clearer with each passing day.  Not more competition, but less. Michael Grunwald of Politico wrote an extensive article on president Obama’s attempts to confer an unprecedented monopoly advantage upon US pharmaceutical companies in the Trans-Pacific Partnership trade deal.

A recent draft of the Trans-Pacific Partnership free-trade deal would give U.S. pharmaceutical firms unprecedented protections against competition from cheaper generic drugs, possibly transcending the patent protections in U.S. law.

POLITICO has obtained a draft copy of TPP’s intellectual property chapter as it stood on May 11, at the start of the latest negotiating round in Guam. While U.S. trade officials would not confirm the authenticity of the document, they downplayed its importance, emphasizing that the terms of the deal are likely to change significantly as the talks enter their final stages. Those terms are still secret, but the public will get to see them once the twelve TPP nations reach a final agreement and President Obama seeks congressional approval.

The outcome of the administration’s unstinting efforts will be to make pharmaceuticals more expensive for everyone, both overseas and within the United States.  Grunwald’s article continues:

Still, the draft chapter will provide ammunition for critics who have warned that TPP’s protections for pharmaceutical companies could dump trillions of dollars of additional health care costs on patients, businesses and governments around the Pacific Rim. The highly technical 90-page document, cluttered with objections from other TPP nations, shows that U.S. negotiators have fought aggressively and, at least until Guam, successfully on behalf of Big Pharma.

The draft text includes provisions that could make it extremely tough for generics to challenge brand-name pharmaceuticals abroad.

Those provisions could also help block copycats from selling cheaper versions of the expensive cutting-edge drugs known as “biologics” inside the U.S., restricting treatment for American patients while jacking up Medicare and Medicaid costs for American taxpayers.

“There’s very little distance between what Pharma wants and what the U.S. is demanding,” said Rohit Malpini, director of policy for Doctors Without Borders.

It’s almost like a joke has been played on Obamacare’s supporters.  Take the voters of Oregon, a reliably “Blue” state and one of the most supportive of the Affordable Care Act.  As Louise Radnofsky notes in the Wall Street Journal, Obamacare insurance premiums are scheduled to jump in 2016.  Even those companies which didn’t ask for an increase are getting one.

Oregon’s insurance regulator has approved big premium increases sought by health plans for 2016 under the health law, and in some cases ordered higher raises than insurers requested, signaling that the cost of insurance for people who buy it on their own could jump after two years of relatively modest growth.

Around the U.S., the biggest insurers have proposed hefty premium increases for the year ahead, based on what they say they now know about the costs of covering people newly enrolled under the Affordable Care Act. Supporters of the health law have been counting on state regulators to rein in hefty premium increases for the law’s third year in full effect.

But in Oregon, the first state to announce final 2016 rates, Insurance Commissioner Laura Cali approved an average 25.6% increase for Moda Health Plan Inc., the biggest plan on the state’s health exchange. She also gave a green light to average increases of 30% or more for four smaller companies, in a decision released this week. And she required plans that hadn’t attempted to raise rates to do so anyway, including Kaiser Foundation Health Plan of the Northwest, by an average of 8.3%.

Ms. Cali said the changes were necessary for plans to stay afloat. State actuaries had reviewed claims incurred in 2014 and concluded they exceeded premiums collected that year by $127 million, or an average of $624 a person who signed up for insurance on their own, she said.

“We share the concerns expressed through public comment about the affordability of health insurance in Oregon, and these final rates were approved in order to protect consumers from extreme rate increases in the future. Inadequate rates could also result in companies going out of business in the middle of the plan year, or being unable to pay claims,” she said in a statement.

Nobody’s talking about “bending the cost curve down” any more.  If anything Democrats are flocking to Bernie Sanders to hear him proclaim the failure of Obamacare.  Trouble is, he wants to replace it with Single Payer, as if a government that can’t be trusted to regulate giant providers can be relied upon to turn the entire health care system into a colossal Veteran’s Affairs provisioning apparatus.

However the point remains: Obamacare is a bust.  It’s becoming harder and harder to describe it as anything but a catastrophe.



 

When Your Doctor Works for the Government

POSTED 4 days ago BY HEALTH CARE COMPACT

Those who thought King vs Burwell was about making Obamacare more affordable to the poor may wish to think again.  The biggest health providers in America, which are some of the largest firms in the world, were waiting with bated breath for a ruling in favor of the government so that they could corner the resulting federal business.

Stephen Gandel of Fortune wrote: Obamacare ruling greenlights Aetna-Humana dealmaking.  In his article it is obvious that Obamacare is setting off a contraction in the number of players in the healthcare industry.  Like the claim that “you can keep your insurance”, the promise that it would promote competition has proved sadly false.

Now that the Supreme Court has ruled, it’s time to deal.

Following the U.S. highest court’s ruling backing Obamacare, shares of Humana  rose more than 8% on Thursday, the most of any health insurance company. Investors appear to be betting that the Louisville, Kentucky company will be the first to be bought in what looks to be a coming wave of consolidation in the healthcare market.

Aetna, the nation’s second-largest health insurer by market value, appears to be the mostly likely buyer of Humana, in a deal that set to top $29 billion…

Here’s where the current state of healthcare insurance dealmaking gets dizzying. According to Bloomberg, Humana’s board favors the Aetna deal. That’s because a large part of Cigna’s motivation for wanting to buy Humana is warding off Anthem, which has made a hostile offer for Cigna. Humana’s board may fear that if it were to go with Cigna, that company’s shareholders might still vote down the deal in favor of being bought by Anthem.

Fortune’s sources proved prescient.  Today the Associated Press reported that Aetna has bought Humana not for $29 billion but for $37 billion.

Aetna will spend $37 billion to buy rival Humana and become the latest health insurer bulking up on government business as the industry adjusts to the federal health care overhaul.

The proposed cash-and-stock deal, announced early Friday, could make Aetna the nation's second-largest insurer and a sizeable player in the rapidly growing Medicare Advantage business, which offers privately run versions of the federally funded health care program for the elderly and some people with disabilities.

The prime customer is the government. King vs Burwell wasn’t about subsidies for the poor, but earnings for the big providers.  All that taxpayer money can now be counted on to flow into their pockets.

The federal health care overhaul is expanding Medicaid coverage in several states as it attempts to provide health coverage for millions of uninsured people. Meanwhile, Medicare Advantage has seen its total enrollment triple over the past decade to 16.8 million people.

"Government markets are the most rapidly growing aspect of the system," said Dan Mendelson CEO of the market research firm Avalere Health.

Chad Terhune of the Los Angeles Times spells it out.  “A gusher of Obamacare money is fueling a merger frenzy in U.S. healthcare.”

And more billion-dollar deals are in the works as health insurers, hospitals and drug companies bulk up in size so they can seize on government spending in Obamacare exchanges, state Medicaid programs and Medicare Advantage for the baby boomers.

Riding high on Wall Street and flush with cash, big health insurers in particular have been on the prowl for deals. Atop the shopping list are companies that boost their government business.

“The Affordable Care Act is really driving this merger mania,” said Gerald Kominski, director of the UCLA Center for Health Policy Research. “There are billions of dollars pouring into the system, and it's money to buy insurance.”

This is great news for some companies and their shareholders, but how will it affect the consumers?  Terhune’s article cites sources who say that consumers have nothing to look forward to but rising prices:

Despite all those gains, some regulators and consumer advocates expressed alarm about this increasing consolidation. They worry that this will create powerful new healthcare giants that will limit the negotiating power of government health programs and employers to hold down prices.

They fear that the nation's $3-trillion healthcare tab will keep growing uncontrollably, putting a squeeze on government budgets and the pocketbooks of everyday Americans.

“We cannot afford what we are paying now,” said Glenn Melnick, a healthcare economist and professor at USC. “Healthcare could eat up the federal budget.”

Workers' share of employer health premiums soared 93% in the last decade at a time of relatively little wage growth, according to the Commonwealth Fund, a New York think tank.

The healthcare system increasingly works for the federal government.  Your doctor isn’t “your doctor” any more, but is ultimately a federal employee.  Dr. Richard Amerling wrote “Obamacare and, more recently, the Medicare Access and CHIP Reauthorization Act (MACRA) solidify bureaucratic control over the practice of medicine.”

We have already seen the widespread closing of private practices, with now over two-thirds of physicians working under a hospital umbrella. Those who remain private are under immense pressure, both financial and regulatory, and many will fold their tents. In addition to rigid price controls on their fees, there are never-ending requirements for documentation via the electronic health record of personal clinical details to be used eventually to centrally direct care.

MACRA cements into place various payment schemes such as bundling, accountable care organizations (ACOs), and other forms of “payment-for-outcomes,” that will be applied to the Medicare program, and ultimately to private insurance.

All of these systems create financial disincentives to caring for truly sick patients, and will have a devastating effect. Patients will be increasingly subjected to one-size-fits-all care, dictated by algorithms inserted into the electronic health record. These will be created by professional groups, such as the American Medical Association, the American College of Physicians, and the American Board of Internal Medicine, and will be labeled as “evidence-based,” or “best practices.”

This will lead to even greater over-prescription of statins, anti-hypertensives, and diabetes medications, based on achieving certain numerical “targets.” Many individual patients will certainly be harmed by this approach.

To maximize revenue, physicians will dutifully click on boxes and comply with the central mandates. Thus will fade the Hippocratic ethic to render their best judgment on behalf of their patients. Over time, the medical profession will devolve from a science-based art into a trade requiring less training and less experience. Doctors are already being indoctrinated away from a commitment to individual patients and towards allegiance to the state, or to “society.” This should be of grave concern to all of us.

Who pays the piper calls the tune.  What Obamacare has done is divert the money to government coffers to provide healthcare on behalf of consumers.  That in turn is provided by an ever-decreasing number of megafirms who are, to all intents and purposes, government contractors.

What could go wrong?

Bernie Sanders and the Allure of Single Payer

POSTED 5 days ago BY HEALTH CARE COMPACT

Is there anyone out there with the temerity to claim that Obamacare isn’t here to stay, especially after the Supreme Court upheld federal subsidies in King vs Burwell?  Can any politician be so bold as to challenge the president’s flagship program now?

How about Bernie Sanders, the hottest Democratic presidential candidate out there today? Sanders wants Obamacare replaced -- with a “single payer” system.

Bernie Sanders isn't satisfied with the Supreme Court's affirmation last week of President Barack Obama's health care law.

Instead, the Democratic presidential hopeful said on Sunday he wants the United States to adopt a "Medicare-for-all" single-payer health care plan.

According to Brent Budowsky of the Hill, Sanders is packing Democratic voters into his rallies because they are tired of the empty promises of the administration. The reason the discontented are flocking to Sanders is because they believe the solutions to the problems caused by Obama lie to his left rather than to his right.

One of the reasons that Sen. Bernie Sanders (I-Vt.) is surging in the polls and beginning to receive the national press attention he deserves is that he has brought ideas of substance to the campaign. As CNN has recently reported, the latest Sanders initiative is that he is pushing a Medicare-for-all healthcare program, similar to programs in most developed democratic nations (often referred to as "single payer"). …

Many in the media and politics forget that, when healthcare was before Congress, a large majority of voters supported the public option in polls. Much of the public concern about ObamaCare was not that it went too far, but that it did not go far enough. Sanders wants to go further. There is polling from earlier this year that found that a majority of voters supports single-payer healthcare, which puts Sanders on very solid ground politically.

The argument by supporters that Obamacare is really popular is rejected and Sanders’ supporters think it should be changed.  But all these criticisms have a legitimacy that conservative opponents of Obamacare lack is because the alternative is in the preferred political direction.

Sanders and his supporters are definitely correct in one respect. Obamacare is a lousy health insurance system. As Nina Owcharenko of Heritage notes, it is expensive -- and as Sanders’ supporters note -- unpopular.

Even now, double digit rate increases are being submitted for 2016. These trends fuel the mounting budgetary pressures facing the law, as my colleagues Robert Moffit and Pat Knudsen have well documented.

With millions of Americans facing higher costs and personally affected by the law’s flawed design, it isn’t a surprise that Obamacare remains unpopular. According to the Real Clear Politics average from April 30 to May 31, 53 percent oppose the law while only 42.8 percent favor it—a 10.2 point difference. Moreover, an American Perceptions survey by The Heritage Foundation, found that 54 percent of those surveyed thought that the problems with Obamacare rollout were just the beginning.

But the real problem is that Obamacare is moving health insurance in the wrong direction, toward a kind of crony-capitalist single payer.  Although there will not be one provider, there will only be a few.  Preston Cooper at the Manhattan Institute discusses “Obamacare's Unnatural Monopoly”.

America may see a wave of consolidation in the health insurance industry as the largest health insurers consider merging into even larger mega-companies.

Anthem (the second-largest insurer in the country) is attempting a takeover of Cigna (the fifth largest), and rumors are sprouting up that UnitedHealth (the largest insurer) may try to acquire Aetna (the third largest). According to Fortune Magazine’s Shawn Tully, this do-si-do of high-profile mergers could send the combined UnitedHealth-Aetna institution to fifth place on the Fortune 500 list, with total revenues greater than those of Apple and Ford.

The rise of these mega-providers will increase prices even further. “A 2012 paper by economists Leemore Dafny (Northwestern University), Mark Duggan (University of Pennsylvania), and Subramaniam Ramanarayanan (University of California at Los Angeles) estimated that the consolidation of the health insurance industry from 1998 to 2006 increased premiums by an average of seven percentage points.” Competition cuts prices.  In most cases consolidation increases them.

In the case of health-insurance, the ACA has created several incentives for big insurers to combine. Regulations in the law mandate that insurance plans cover certain “essential health benefits” that really are not essential to everyone, such as maternity care and mental health coverage. While these mandates have the obvious effect of increasing premiums—more coverage means higher costs—they also create anticompetitive forces for insurance companies. Rather than allowing consumers to shop around for a plan that meets their specific health needs, the ACA mandates a standard set of features for everyone.

This requirement makes it more difficult for different insurance companies to compete, because they are locked into providing a certain level of coverage. With nothing different to offer their customers, it makes sense for large health insurance companies to merge, since they will not have the flexibility to offer new, innovative insurance plans to draw customers away from their competitors, and thus can only increase revenues by joining together. After all, why would people leave their insurers if the alternatives have nothing new to offer?

Another anticompetitive feature of the ACA is the requirement that insurers may spend no more than 20 percent of patient premiums on administrative expenses and other non-medical costs. While one would expect this provision to reduce wasteful spending, it has the unintended consequence of encouraging health insurers to merge in order to spread administrative costs over a larger customer pool. This strategy may benefit the companies’ balance sheets, but it makes the industry less competitive overall.

But the most important thing Obamacare has changed is something Bernie Sanders would like.  The entire healthcare industry is increasingly working for the government.

Under the ACA, the government must approve large premium increases on the exchanges before premiums can rise. This, in effect, makes insurers accountable to regulators rather than to their customers. To gain more sway with regulators, insurers will want to gain a larger share of the enrollee pool. In 2013, the most recent year for which data is available, the largest insurer in the median state controlled 55 percent of the individual insurance market. The two largest insurers combined controlled 78 percent, and the three largest 88 percent. Most states are only a few high-profile mergers away from a near-total monopoly in their insurance markets.

In a very real sense Obamacare is evolving toward a kind of single payer system with the federal government collecting payments through the tax system and dispensing medical care through contractors. Dr. Scott Atlas of the Hoover Institute explains how the process is already under way. “Despite the Supreme Court decision to uphold the subsidies for private insurance in King v. Burwell, the fundamental problems with the Affordable Care Act remain. Ironically, it is the growing government centralization of health insurance at the expense of private insurance that must be addressed.”

The 107 million people on Medicaid or Medicare in 2013 will increase to 135 million by 2018, a growth rate tripling that of private insurance, according to projections by the Centers for Medicare and Medicaid Services. At the same time, private health-care insurance premiums are expected to skyrocket in 2016, many by more than 30%.

Obamacare in canceling employer provided insurance and moving the uninsured to the exchanges and Medicaid is transferring Americans from private insurance into this pseudo-single payer system.

This will not improve American health care. Private insurance is superior for both access and quality of care. Reforms should therefore be focused on how to maximize the availability and affordability of private insurance for everyone, regardless of income or employment, rather than put more people into government insurance while causing private insurance to become unaffordable to all but the affluent.

David Frum, writing about “reforming” Obamacare in the Atlantic, observes this destructive process without fully understanding its effect.  He knows that this shift is somehow bad, but he fails to comprehend why.

Republicans should accept the Affordable Care Act as a permanent new fact of American society. They should accept universal healthcare coverage as a welcome aspect of any advanced democracy. Instead of fruitlessly seeking to repeal a law now that will in 2016 enter into its fourth year of operation, they should specify the law’s most obnoxious flaws and seek a mandate to reform them. ...

Fix the funding mechanism. The ACA purports to finance itself with two highly redistributive taxes, one on upper incomes, another on dividend income. These eye-catching taxes distract attention from the real working engine of the law, the internal redistribution within the insurance pools from young and healthy to middle-aged and less healthy. That internal redistribution renders ACA plans an unattractive proposition for the young and healthy. Meanwhile the people receiving the most benefit are 55-65 year olds who may or may not need it—those older cohorts after all are considerably more affluent than the young. …

End the employer mandate. Along with the famous individual mandate, the ACA imposes a mandate on employers of more than 50 people to purchase insurance for all employees who work more than 30 hours a week. The Obama administration has delayed full effect of this rule until 2016. Yet even delayed, the mandate has become a major disincentive to the employment of less-skilled workers.

The “internal redistribution” Frum talks about is just another word for the shift Scott Atlas identified.  Both are different ways of describing the process of moving people from one system into the other by taxing one group of people to pay for the rapidly growing system of government mega-contractors.  The joint effect is not simply the “provision” of insurance but a transformation of the healthcare industry itself, as Scott Atlas describes.

Why is private health insurance so important? Insurance without access to medical care is a sham. And that is where the country is heading. According to a 2014 Merritt Hawkins survey, 55% of doctors in major metropolitan areas refuse new Medicaid patients. The harsh reality awaiting low-income Americans is dwindling access to quality doctors, hospitals and health care.

Simultaneously, while the population ages into Medicare eligibility, a significant and growing proportion of doctors don’t accept Medicare patients. According to the nonpartisan Medicare Payment Advisory Commission, 29% of Medicare beneficiaries who were looking for a primary-care doctor in 2008 already had a problem finding one.

Numerous reports in the top medical journals like Cancer, American Journal of Cardiology, Journal of Heart and Lung Transplantation, and Annals of Surgery clearly show that patients with private insurance have better outcomes than similar patients on government insurance. It is highly likely that restrictions in access to important drugs, specialists and technology account for these differences.

Of the many negative effects of the Affordable Care Act, the increasing unaffordability of private insurance might be the most damaging. Thanks to its regulations on pricing and coverage, the law has already forced termination of private health insurance for more than five million Americans. The Congressional Budget Office is now projecting that as many as 10 million people will be forced off their chosen employer-based health insurance by 2021—a tenfold increase in the 2011 projections at the onset of the law.

Clearly, a kind of single payer system is being constructed under Obama in fact if not in name. Like every other kind of socialist single-payer system that Bernie Sanders admires, this health care system is looking like a two tier system.  One system for the masses and another system for a nomenklatura.  Middle class and low income Americans are being shunted into an inferior Obamacare system consisting of high deductible and limited private plans or Medicaid of limited acceptance and priced out of a shrinking, residual private medical system.  That system will continue to be used by wealthy Americans and of course, high government officials.

Scott Atlas argues this is totally wrongheaded. The goal should be to improve competition instead of monopoly and increase the access of the poor to the private system, rather than restrict it. “Improving access to private insurance for the most vulnerable—the Medicaid population—is critical to improving their access to quality care. … Reforming America’s health care rests on reducing costs while improving access to the best doctors and hospitals. That comes from private insurance, not government insurance.”

But that wouldn’t be “single payer”, and therefore, rule it out.

With Hopes of Quick Victory Dashed, Back to the Health Care Compact

POSTED one week ago BY HEALTH CARE COMPACT

According to Megan McArdle writing in the Atlantic, there is no evidence that insurance saves lives.  What it might is save money, or more precisely, the need to worry about money.  People didn’t live longer simply because they bought health insurance.  But they might feel less anxious about getting sick.

The possibility that no one risks death by going without health insurance may be startling, but some research supports it. Richard Kronick of the University of California at San Diego’s Department of Family and Preventive Medicine, an adviser to the Clinton administration, recently published the results of what may be the largest and most comprehensive analysis yet done of the effect of insurance on mortality. He used a sample of more than 600,000, and controlled not only for the standard factors, but for how long the subjects went without insurance, whether their disease was particularly amenable to early intervention, and even whether they lived in a mobile home. In test after test, he found no significantly elevated risk of death among the uninsured. …

If gaining insurance has a large effect on people’s health, we should see outcomes improve dramatically between one’s early and late 60s. Yet like the Kronick and Rand studies, analyses of the effect of Medicare, which becomes available to virtually everyone in America at the age of 65, show little benefit. In a recent review of the literature, Helen Levy of the University of Michigan and David Meltzer of the University of Chicago noted that the latest studies of this question “paint a surprisingly consistent picture: Medicare increases consumption of medical care and may modestly improve self-reported health but has no effect on mortality, at least in the short run.”

This strange assertion begins to make more sense when it is realized that health insurance is a financial product.  It is not medicine itself.  Obamacare is not a health program.  It’s an insurance program.  The argument it saves lives by providing access to treatments which would otherwise be denied to patients assumes the insurance promotes efficient allocation.  Because insurance costs money, it diverts resources that could likewise have been used for medical treatment.

Health insurance is not intrinsically good.  It is not always beneficial. When it misallocates resources it diverts resources to wasteful uses. Bad insurance is bad because it may reduce money for medical research, deprive people of disposable income, or prevent people from seeking better doctors when the ones provided by the network are of indifferent quality.  That’s why insurance models matter, as Obamacare argued about itself.  It’s about how a dollar is spent. So far however, McArdle writes in a new article “ the financial benefit [of insurance] is very clear, the health benefit much less so.”

Medical expenses really are different from other kinds of public policy programs, because they can be so wildly variable; 99 families out of 100 would be better off if you gave them cash instead of insurance, but the 100th will be hit by an expense that they could never realistically pay. …

The question, then, is "What program would you design if you wanted to give people the benefits that we know insurance confers?" …

She attempts to describe an efficient insurance model that maximizes access to beneficial medicine, not simply pushes money out the door.  What you will immediately notice is that it looks nothing like Obamacare.

You will call me immodest, but I'd suggest that the best model is exactly the one I suggested when health-care reform was being debated: Get rid of all of our government's existing health insurance programs and make the government the insurer of last resort for all medical expenses above 15-20 percent of adjusted gross income. Allow very generous tax-free savings in health savings accounts that can be passed on to heirs, but spent only on medical expenses. Make the deductible percentage lower, or provide some sort of subsidized gap insurance, for people with very low incomes.

It's absolutely progressive: Warren Buffet pays his full medical bills, while low-income families pay very little, and folks in between can choose to self-insure out of savings. It creates something like a normal market to exert pressure on health costs, because people are spending their own money on treatment, not someone else's. It obviates the need for a massive government price-setting apparatus, which means we can put our regulatory muscle into researching comparative effectiveness of treatments and transparency efforts to inform consumers about which providers and treatments offer better outcomes. And I think it might even be politically attractive because it's largely voluntary. No one's forced to get rid of their employer health benefit; it's just that there's now a more attractive option that will encourage employees to demand cash or health savings account contributions instead of insurance coverage. Insurers can continue to sell insurance, if anyone wants to buy, or insure the gaps, safe in the knowledge that their losses are limited. It will be expensive, of course. But the government already spends a fantastic amount providing health insurance and subsidizing employer policies; we've got a big pot of cash to move into a more rational, market-oriented system.

Michael Cannon described what, in his view, was the opportunity cost of Obamacare. In his view people would be better off if the funds were spent more efficiently. “The number of people who would benefit from a ruling for the challengers [in King vs Burwell] is therefore more than ten times  the number who would lose an illegal subsidy. And, as discussed below, the pool of people who need such subsidies may be as small as one-tenth  the number receiving them.” Most of the money, in the view of the critics, was simply being shoveled to the big insurance companies and pharmaceutical companies who disproportionately benefit from Obamacare.

With the decision of the Supreme Court in favor of the government in King vs Burwell that critique is moot and academic.  Those opportunity costs must now be absorbed by the consumers and taxpayers.  Paul Ryan argues that despite the court decision, the inefficiencies of Obamacare would precipitate a crisis by grabbing money away from programs like Medicare.  During its inception the proponents of the Affordable Care Act argued that diverting resources to it would be a good thing because Obamacare would “bend the cost curve” so taking money from Medicare would be tantamount to putting it to better use. In an article in The Hill Ryan said:

“This law’s going to collapse under its own weight” … Ryan said the law’s consequences, like squeezing Medicare, denying consumers choice and double-digit annual increases in premiums, will make it easier for Congress to repeal it.

Yevgeniy Feyman says “King v. Burwell is in the history books. Subsidies on federal exchanges will continue to flow and supporters of the ACA will (correctly) see this as a big win for the president. But to pretend that this means smooth sailing for Obamacare from here on out would be disingenuous at best.”  Echoing Ryan, Feyman argues that Obamacare is still going to die, smothered by its own inefficiencies.

Obamacare subsidies are just one important leg of a three-legged stool.  And two of them may start wobbling after 2016.

Federal backstops for insurers (risk corridors and reinsurance) will disappear after 2016, likely resulting in significantly higher premiums on the exchanges.  Additional changes to how subsidies for premiums are calculated in beginning in 2019 also threaten to push more premium costs onto consumers.  The exchanges have also largely failed to attract younger enrollees, and middle-class enrollees have been frozen out by (unsubsidized) Obamacare-sticker shock. …

None of these Obamacare issues will be simple to fix. The cap on subsidies, for instance, helps to protect the federal government from the potential of out-of-control health care costs. Meanwhile, though transparency is simple to demand, in practice it’s much more difficult to implement, with hospitals often unwilling to release true cost information, making cost estimators difficult to develop. Medicare itself has often bent to the will of providers, focusing on process metrics, and even withholding  safety information in some cases.

Interestingly, he places his hope on the states. The Republican party, having bet on lawsuits before the Supreme Court or Congressional maneuvers, has been driven back to the Health Care Compact idea as the best strategy for repealing Obamacare.  Perhaps they’ve realized that Washington is never going to repeal itself.  The health insurance lobby in the Capital is too powerful to give up its Obamacare pot of gold without a fight.

The next move for reformers should be to focus on unleashing the innovative capacity of states to implement their own “repeal-and-replace” plans by block granting subsidies under the law. Some states will opt to keep Obamacare, and others experiment with very different arrangements.  But a federalism-first approach to reform  will eliminate the need for conservatives to coalesce around a single, one-hit replace plan, and might even attract  support from moderates and liberals interested in trying broader reforms that improve health, rather than simply spending more on health insurance. …

Republicans need to focus on – and demonstrate – that they are sensitive to the needs of consumers by offering reforms that increase provider competition and lower the cost of care; improve the function of high deductible health plans and HSAs for patients with chronic illness; and enable more choice and competition on public exchanges, including lower cost plans.  They should also appeal to states’ self-interest in capping runaway health care costs for programs like Medicaid.

Most of this activity, in fact, can take place at the state level, as most health care licensing is regulated (or rather, over-regulated) by the states.  An ambitious governor – perhaps eyeing the White House – could embrace the challenge of making his or her state a laboratory for market-based innovation and pricing.

The best strategy, as we’ve explained in the past, isn’t to wait for a foolproof conservative bill or for a deus ex machina from the courts, as Republicans seems wont to do. There are waivers to be claimed (or at least argued for, i.e., the 1332 waivers in the ACA itself), and Republicans can champion expanding the waivers to empower states to embrace broad health care experimentation.  In short, block grant as much of the law as possible.

That’s a positive message that Obamacare critics should press much more aggressively.  We know what’s wrong with American health care. We know what’s wrong with Obamacare.  The biggest silver lining of the King v. Burwell decision is that Republicans will have a clean sheet in deciding what their real alternative is, and arguing for it to the American people.

Why should the state strategy succeed where it has failed in the past? There are two answers.  One is cost. Washington simply cannot ignore it.  The Federal Budget is coming under enormous pressure to come under control, if the middle class is not to be ruined.  Rising premiums will force action in one way or the other.

The other answer is politics. Jonathan Chait of New York Magazine has calculated to nicety just what sort of tactics the Democrats would have to employ to defeat a likely Republican majority and president in 2016.  The key to the defensive strategy is to write all sorts of regulations that would frustrate attempts to dismantle Obamacare.

Important elements of the Republican agenda could not be passed through reconciliation, because they involve regulations, not just taxes and spending. ...

Republicans could certainly hurt Obamacare by repealing its fiscal elements. Indeed, Senate Republicans reportedly developed a plan to repeal Obamacare that they were prepared to implement if Mitt Romney had won in 2012 …

If Republicans repeal the fiscal elements of Obamacare while leaving its regulatory elements in place, the health-care market would melt down. Insurers would still be prohibited from screening out sick customers, but healthy people would have no incentive to enroll, since Republicans would have taken away both the carrot (the tax subsidies that make insurance affordable) and the stick (the penalties on going uninsured). Republicans might be willing to melt down the health-insurance markets during Obama’s presidency, but they won’t do it on their own president’s watch. A crippled Obamacare is worse for a Republican administration than a well-functioning version.

The Democrats can do this because they dominate the federal bureaucracy.  Simply defunding Obamacare won’t work if the handouts are baked into the system.  Now if Washington is simply incapable of replacing any ruinously expensive health insurance program with a cheaper version of itself because the same lobbies have to be satisfied and fed, then the sole remaining alternative is the states.

The states have a real self-interest is diverting money away from the federal government to themselves.  Because they are diverse and frequently change political hands, trapping them in regulatory amber becomes much more difficult than with Washington.  If the battle shifts to the states, then Chait’s strategy cannot be implemented.

Thus, for a variety of reasons the Health Care Compact idea is, more than ever, the optimal way to go.  It’s too bad that it had to take a series of failed attempts in Washington to establish this.





 

Will Obamacare Die Anyway?  And When?

POSTED one week ago BY HEALTH CARE COMPACT

Sam Baker, writing in the National Journal thinks that Obamacare, though wounded, is still tough enough to slink into the Bush and live until 2017.  The Republicans aiming to bag it have missed two shots in the Supreme Court and one in the legislature. The judicial challenges barely missed.  The bullet fired at the program from Congress struck, but not fatally.

In 2010, the threat was that Republicans would kill Obamacare in Congress and it would never even become a law. In 2012, it was that the Supreme Court could throw out the entire thing. Or if not the whole thing, at least one of its core provisions. A Romney presidency wasn't nearly as clear a shot as the Supreme Court could have been, but it was something. And then there was King—which could have done real damage, but never put full repeal on the table.

Now, Obamacare is out from under the shadow of major harm at least until January 2017—by far the longest such stretch it has enjoyed.

In consequence Baker believes that Obamacare has time to cement itself into the framework of the federal government, to burrow itself in so deep that, whatever its faults, it becomes unassailable.

A more nuanced argument for Obamacare’s survival was put forward by David Leonhardt of the New York Times. He argues that an even more flawed and expensive program -- Medicare -- was eventually accepted by Ronald Reagan. Just as Medicare eventually wore down Reagan, the idea is that Obamacare will wear down its Republican challengers.  The logic behind this reasoning is that federal government has a tendency to expand.  Like a person on a diet who can ever get his weight down, every pound gained is a pound gained forever.  In similar fashion government programs one begun create interest groups which lobby for its perpetuation.

It is “socialized medicine,” and it forces “all citizens, regardless of need, into a compulsory government program.” From this program, “it’s a short step to all the rest of socialism.”

If you know your health care history, you know the person who leveled these charges was Ronald Reagan, and you know that he leveled them against Medicare. His opposition to the program – which he predicted would force Americans “to spend our sunset years telling our children and our children’s children what it once was like in America when men were free” – helped turn him from an actor into a conservative star in the early 1960s.

Of course this ignores the fact that Obamacare was proposed because Medicare was becoming unaffordable. Like Obamacare, Medicare relied upon subsidies to provide benefits to the target constituency.  Holman Jenkins in the Wall Street Journal that Washington’s definition of “success” is spending subsidies.

By one standard no government program can fail, and that’s the standard being applied to ObamaCare by its supporters: If a program exists and delivers benefits, the program is working. …

Of the eight million who have signed up, some 87% are receiving taxpayer subsidies. In other words, they are getting health care partly or wholly at someone else’s expense. The latest data reveal that the average monthly benefit amounts to $276 per person (up from $268 in February), allowing the typical HealthCare.gov user to buy a plan for $69 per month out of pocket.

To put it another way, the annual subsidy amounts to $3,312 per recipient. Which is excellent if you’re one of the recipients.

Steve Rattner, a Wall Street figure and President Obama’s former auto-bailout czar, insists in a recent New York Times op-ed that ObamaCare “is working,” by which he apparently means it’s in operation, which nobody denies. Mr. Rattner, like a lot of analysts, writes as if costs are benefits—as if millions of people lining up for something from the wallets of their fellow citizens, ipso facto, is proof of a worthwhile program.…

Now, if this were true, it would be the greatest validation of ObamaCare as public policy but there is no reason to believe it’s true. … without subsidies, ObamaCare is nothing. It fixes no problem in our health-care system, except to subsidize more people to consume health care at taxpayer expense. Not that subsidies are always undesirable …

ObamaCare, with its subsidies to those with low incomes, is not the worst thing in our health-care system by far. Medicare indiscriminately subsidizes everyone in Warren Buffett’s age group; and, more insidiously, trains Americans from an early age to expect somebody else to cover their medical costs in retirement. And the giant tax handout to employer-provided insurance perversely treats the richest taxpayers as the neediest.

Medicare was an inefficient use of subsidies that was gradually bankrupting the American government.  It was the Medicare train wreck that gave birth to Obamacare which only goes to prove that Leonhardt’s theory about the immortality of government programs is wrong. As Avik Roy pointed out Medicare was scheduled to go broke in 2016.  All Obamacare may have done is push the bankruptcy of the system out to 2024, by adding hundreds of billions of dollars in new taxes and “hollowing out” parts of Medicare.  Roy wrote:

The Trustees, by saying that Medicare will go bankrupt in 2024, instead of 2016, are simultaneously saying that the program will increase the deficit by several hundred billion dollars. This is precisely the insight that Charles Blahous, one of the Medicare Trustees, explained in his recent report on the program.

Think of it this way: if supporters of the Affordable Care Act came clean, they would say one of two things: (1) Medicare is going bankrupt in 2016, but the CBO scores the ACA as deficit neutral; or (2) Medicare is going bankrupt in 2024, and Blahous’ score of the ACA as increasing the deficit by $300-500 billion is accurate.

It will be worse in the end, but by kicking the can down the road past 2016, president Obama can avoid the political consequences of his fecklessness.  The lion will die in the bush, but not before everyone scores the Republican safari a failure.

No Place To Hide

POSTED one week ago BY HEALTH CARE COMPACT

Did the administration’s Supreme Court victory in King vs Burwell save Obamacare?  The president, for one, thinks so. “The Affordable Care Act still stands, it is working, and it is here to stay,” he said in a speech after the Supreme Court victory.

But not everyone is sure. Avik Roy wrote in Forbes:

Yesterday, the Supreme Court sided with the Obama administration in the King v. Burwell Obamacare case. In a statement after the decision, President Obama declared that his signature health law is “here to stay.” But in his remarks, the President knowingly ignored the key concept in the case: that if the challengers had won, not one word of the law called the “Affordable Care Act” would have been changed. On the other hand, if voters elect a Republican President and a Republican Congress in 2016, quite a bit will change.

And the odds of a Republican political victory, Roy thinks, have gone up because of the “rate shock” problem.

For the people that Obamacare claims to help—those who shop for coverage on their own—an analysis by the Manhattan Institute found that the law increased individual-market premiums by 49 percent in the average county, in its first year alone. Since, then many states are facing additional double-digit rate hikes. …

That’s why most people eligible for Obamacare’s exchange subsidies haven’t signed up. … as a percentage of those eligible for Obamacare’s subsidies, only those near poverty—with incomes between 100 and 150 percent of the Federal Poverty Level—are signing up in large proportion. That’s because for them, taxpayers are subsidizing nearly all of the cost of their coverage. As you go up the income scale, Obamacare’s subsidies aren’t large enough to make up for the law’s steep premium hikes. This is exactly what I and my Manhattan Institute colleagues were concerned about when we first started writing about Obamacare’s “rate shock” problem. …

Indeed, the vast bulk of Obamacare’s increase in health insurance “coverage” comes from its expansion of Medicaid. Medicaid is so dysfunctional that it has been shown to have “no significant effect” on health outcomes, relative to having no insurance at all. …

And if voters elect a Republican President in 16 months, it will be elected officials—not the Supreme Court—who will be rewriting the law.

Perhaps Roy is engaging in wishful thinking.  But the rate shock is real and it will probably get worse because the ironically named Affordable Care Act is driving mergers and consolidations among health care providers. Andrew Sorkin, writing in the New York Times says,

President Obama signed the Affordable Care Act more than five years ago. At the time, members of the health care industry — hospitals, doctors and insurers — were anxious about what it would do to the business. Everyone had an opinion, but nobody knew for sure.

We’re now beginning to see the answer: consolidation on a huge scale.

Just in the last couple of weeks, the nation’s five largest health insurers began a round robin of merger talks — some still semiprivate, others now out in the open — that could whittle their number to three. Anthem made a bid for Cigna; Aetna approached Humana; and the UnitedHealth Group made overtures to Aetna.

Those potential deals come on the heels of a spate of hospital mergers over the last couple of years — and speculation about another round of such deals.

These mergers are implicit in Obamacare’s design. The ostensible goal is to reduce costs.  However, it is highly unlikely that any such costs will be reflected in lower consumer prices.  They will more probably go into fattening the health provider’s profit margins.

All of this deal-making is largely the result of the Affordable Care Act, which in effect constrains the amount of profit hospitals and insurers can generate, leading both to seek additional scale in hopes of generating higher margins by squeezing additional savings out of a broader customer base. …

The question, of course, remains whether the savings that might come from consolidation will trickle down to the consumer or will simply wind up in the pocket of shareholders.

The prevailing view is not promising.

“Seldom does consolidation result in reduced costs for consumers. Bigger insurance companies mean increased leverage and unfair power over negotiating rates with hospitals and physicians,” the American Academy of Family Physicians wrote in a letter earlier this month to the Federal Trade Commission, urging that it block the latest series of deals. “More often than not, consolidation increases costs and reduces options for consumers, and we believe this would hold true in the health insurance market.”

This was reflected in a healthcare provider stock price surge following the victory of the government in King vs Burwell. “Health care stocks such as Tenet and Community Health Systems spiked more than 10 percent after the Supreme Court upheld the use of federal financial aid for more than 6 million people enrolled in Obamacare.”

Cleveland Clinic CEO Dr. Toby Cosgrove said that “Obamacare-driven consolidation among health insurers won't lead to higher costs” because most of the action is in Medicaid and Medicare which is in fixed prices.  But Scott Gottlieb noted that the shift would manifest itself, not in higher prices, but in “hollowed out” services.  It’s like paying the same price for hamburger in a restaurant, except that the hamburger gets progressively smaller.

But Dr. Scott Gottlieb, resident fellow at the right-leaning American Enterprise Institute, told CNBC it's only a matter of time before health insurance costs to consumers go higher.

"Health insurance costs [to consumers] haven't gone up because the plans are being hollowed out," he said—arguing people are getting less coverage than they used to before Obamacare.

"Eventually the rising costs because of the monopolization of the hospitals is going to catch up," said Gottlieb, who served as an advisor at the Centers for Medicare and Medicaid Services in 2004.

The consolidations are so intensive the New York Times that the providers are hedging against anti-trust suits. Andrew Sorkin in the New York Times writes:

Perhaps more striking, Cigna, in its rejection of Anthem’s $47 billion takeover bid, cited the risk of antitrust suits that have ensnared Anthem as the largest member of the Blue Cross Blue Shield Association. That association has been accused of cartel-like practices, deliberately preventing competition so as to increase prices for hospitals and patients.

Cigna’s rejection of Anthem and its highlighting of antitrust risks, just to be clear, was not aimed at ending merger talks. Oddly enough, people involved in the negotiations suggested it was simply a tactic to press Anthem to pay more, in part to compensate Cigna shareholders for the possibility that a deal could be blocked.

Of course, regulators will most likely look hard at any large deals among insurers. But it would be ironic if the administration, after helping to get the law passed with the support of the insurance industry, then prevented insurers from merging.

So far, regulators have looked favorably at big hospital mergers, persuaded by the efficiencies argument.

“The fear that mergers curtail competition, leading to higher prices for medical care, reflects an old way of thinking that doesn’t account for the introduction of population-health management,” Dr. Kenneth L. Davis, the chief executive of Mount Sinai Health System, wrote persuasively in The Wall Street Journal. “This line of thought ignores the fact that health care delivery has become more efficient. Health care has changed, too: Medical advances mean that people recover from serious illness and injury faster and live longer, healthier lives.”

Nonetheless, regulators would have good reason to consider ways to try to maintain competition among the largest insurers.

Suffice it to say that severe cost increases, either expressed in a premium hike or “hollow insurance”, is possible if not probable.  These costs are the real danger to Obamacare’s survival.  They effectively constitute a negative subsidy to insurance by canceling the effect of government provided assistance. Increasing costs can generate a “death spiral”.

Had the Supreme Court ruled in favor of King, then a death spiral could be blamed on the Supreme Court decision. Ironically, the government victory in King vs Burwell will give the administration no place to hide from a death spiral.  The Court gave the administration what it wanted.  Who can they blame for the price increases now?

Big Washington Government Votes For Itself

POSTED one week ago BY HEALTH CARE COMPACT

The Supreme Court voted 6-3 to uphold Obamacare subsidies even in states that had not established federal exchanges.  Reuters says

The U.S. Supreme Court on Thursday upheld the nationwide availability of tax subsidies that are crucial to the implementation of President Barack Obama's signature healthcare law, handing a major victory to the president.

The court ruled on a 6-3 vote that the 2010 Affordable Care Act, widely known as Obamacare, did not restrict the subsidies to states that establish their own online healthcare exchanges. It marked the second time in three years that the high court ruled against a major challenge to the law brought by conservatives seeking to gut it.

Chief Justice John Roberts was joined by fellow conservative Justice Anthony Kennedy and the court’s liberal members in the majority.

"Congress passed the Affordable Care Act to improve health insurance markets, not to destroy them," Roberts wrote, adding that nationwide availability of the credits is required to "avoid the type of calamitous result that Congress plainly meant to avoid."

Shares of hospital operators, health services providers and insurers rallied broadly following the court's decision to uphold the subsidies. Top gainers included hospital companies Tenet Healthcare Corp., up 8.8 percent, and Community Health Systems Inc., up 8.5 percent.

The decision means the subsidies will remain not just in the 13 states that have set up their own exchanges and the three states that have state-federal hybrid exchanges, but also in the 34 states that use the exchange run by the federal government.

The National Journal calls it a mixed blessing for the administration. “And, even though it's a pro-Obamacare ruling, the decision is also a relief for Republican governors, lawmakers, and presidential candidates.”

Many in the party feared that, if the Court had struck down Obamacare's subsidies, the GOP would have shouldered the blame for chaos in insurance markets—which would have fallen primarily in Republican-led states. Getting the party to coalesce around a fix—even temporarily restoring the biggest, most expensive piece of Obamacare—would have been difficult, to say the least.

Justice Scalia, who was among the dissenters, called it  a "defense of the indefensible."

The decision, Scalia wrote, "rewrites the law."

"We should start calling this law SCOTUScare," he wrote.

He continued: "Rather than rewriting the law under the pretense of interpreting it, the Court should have left it to Congress to decide what to do about the Act's limitation of tax credits to state exchanges," Scalia wrote.

Health care insurance stocks rose on the decision, but Catherine Ho of the Washington Post writes that “Health care lobbyists worry GOP will now focus on Obamacare repeal”.  This reflects the sentiment that politically, the decision has settled nothing.

The health care industry was hoping this would be the year it could move beyond the Obamacare fight in Washington and on to new priorities, such as improving drug development and patient care.

But the Supreme Court’s upcoming ruling in King v. Burwell threatened to derail those ambitions.

Industry advocates are concerned that no matter how the court rules on the legality of certain insurance subsidies provided under the law, the health care debate in Congress will once again become dominated by the political divisions over the Affordable Care Act (ACA).

“It has the potential for serious chaos and disruption,” said health care lobbyist Ilisa Halpern Paul, who represents hospital systems and health advocacy groups. …

Before the ruling, Republicans were scrambling to figure out whether they should find a way to keep the subsidies in place until after the 2016 election when they hope a Republican president and GOP-controlled Congress can repeal the law in its entirety.

Now, that concern is over. The legislative focus on the subsidies would mean all other health-related legislative initiatives that have gained traction recently are likely to come to a halt, at least temporarily.

Now it’s back to crafting a replacement for Obamacare again.  However it appeared to be an academic exercise for now. “Sen. Chuck Grassley (R-Iowa), who was the top Republican on the Senate Finance Committee while the Affordable Care Act was being written, said Wednesday ahead of the decision that if the court upholds subsidies, Republicans will have to be patient.”

Sen. Chuck Grassley (R-Iowa), who was the top Republican on the Senate Finance Committee while the Affordable Care Act was being written, said Wednesday ahead of the decision that if the court upholds subsidies, Republicans will have to be patient.

“There won’t be a next step,” Grassley said. “That doesn’t change our mind about the promise we had to repeal but as a practical matter we won’t get 60 votes to repeal.”

In other words, all political efforts to immediately stop Obamacare are at an end.  Congress can’t repeal it -- lacking the 60 votes in the Senate.  The Court has refused to.  This means two things. First, that Obamacare will have a clear legal run until the end of president Obama’s term to establish itself. Second, that it will become one of the major issues in the presidential campaign.

None of this means that Obamacare’s financial woes will go away.  It may in fact enter a death spiral on its own, but probably not before the 2016 elections.  Michael Shear of the New York Times wrote an encomium claiming that “Obama Gains Vindication and Secures Legacy With Health Care Ruling”.

Washington — The Supreme Court decision on Thursday to uphold most insurance subsidies in President Obama’s health care law virtually ensures that his top domestic policy achievement — assailed by his adversaries since the moment of its passage — will remain firmly in place after he leaves office in 2017.

The legal success for the administration’s lawyers is a major political victory for Mr. Obama, whose health care legacy has always depended on the Affordable Care Act becoming a permanent, indispensable part of the American social safety net.

Unable to halt the passage of the law in Congress, Republican lawmakers, governors and others turned to the courts, betting that successful legal challenges would prevent Mr. Obama from establishing the Affordable Care Act as an accepted companion to Medicare and Medicaid.

Instead, the two main legal challenges to the law have largely failed. In 2012, the Supreme Court slowed the law’s expansion of Medicaid, but let stand the individual mandate that requires people to purchase health insurance. And in Thursday’s ruling, the court said the federal government could provide subsidies to people purchasing coverage through a federal insurance marketplace.

In the near term it appears to be the case that Washington has voted to keep Obamacare.  It’s a hard fact, but apparently true all the same.

16 Gruber and the Political Deal

POSTED 2 weeks ago BY HEALTH CARE COMPACT

News that Jonathan Gruber played a key role in drafting Obamacare -- a fact which the White House tried to hide -- is less important for the “what” then for the “why”.  The Wall Street Journal’s Stephanie Armour, working off 20,000 pages of emails obtained from Gruber’s employer, MIT, wrote: “Jonathan Gruber, the Massachusetts Institute of Technology economist whose comments about the health-care law touched off a political furor, worked more closely than previously known with the White House and top federal officials to shape the law, previously unreleased emails show.”

The emails show frequent consultations between Mr. Gruber and top Obama administration staffers and advisers in the White House and the Department of Health and Human Services on the Affordable Care Act. They show he informed HHS about interviews with reporters and discussions with lawmakers, and he consulted with HHS about how to publicly describe his role.

The administration has sought to distance itself from the economist in the wake of his controversial statements in a 2013 video, where he said the health law passed because of the “huge political advantage” of the legislation’s lacking transparency. He also referred to the “stupidity of the American voter.”

Most news stories have focused on the administration’s deceptive attempt to hide the connection. One well-known journalist who credited the administration’s denials went so far as to apologize to the audience on the air for being the fool. “Mark Halperin, Bloomberg Politics managing editor, apologized to his “Republican sources” on the air Monday, saying he took the White House at its word when officials claimed Jonathan Gruber played only a minor role in the crafting of Obamacare. His apology came on the heels of the release of newly uncovered emails that show Gruber’s influence on the law was much greater than the White House admitted.”

“I owe all my Republican sources an apology because they kept telling me he was hugely involved, and the White House played it down.” Halperin said on “Morning Joe” Monday. “They were right. The Republicans were right.”

When asked if the White House “lied” about Gruber’s role in the creation of Obamacare, Halperin said, “I think they were not fully forthcoming.”

Everyone else on the panel refused to say the White House “lied,” but co-host Mika Brzezinski did admit it “certainly appears” that officials did not tell the truth.

But fewer articles are raising the issue of why the White House attempted to cover up the connection.  The reason is in the Gruber emails themselves.  His correspondence with senior administration officials -- in fact Gruber was in touch with the president himself -- show that Obamacare was about “winners and losers”, the winners being the president’s political allies.  It was spoils politics at its most cynical.

The emails show Mr. Gruber was in touch with key advisers such as Peter Orszag, who was director of the Office of Management and Budget, an arm of the White House that oversaw federal programs.

He was also in contact with Jason Furman, an economic adviser to the president, and Ezekiel Emanuel, who was then a special adviser for health policy at OMB.

One email indicates Mr. Gruber was invited to meet with Mr. Obama. In a July 2009 email, he wrote that Mr. Orszag had “invited me to meet with the head honcho to talk about cost control.”

The Gruber emails showed that officials wanted to know who would get what.  If you were not on the table, you would be on the menu. The WSJ article described how they divvied up the pie:

In a Jan. 14, 2010 email, Mr. Furman emailed that “we got a deal with labor. Keep that very close hold.” Unions had been opposing the health law but rallied to support it.

He also in April 2009 supplied HHS with information outlining “winners and losers” if employers responded to the law by moving workers into the exchanges.

In a May 2009 email, he said there would be 3.6 million “losers” who were forced into individual coverage after the health care overhaul. “As you might suspect, this group is largely young and healthy,” he wrote. In an August 2009 email, he said 4.2 million people with employer-sponsored insurance would be dropped from having coverage, a development that hasn’t materialized.

In a Sept. 23, 2009, email, Mr. Gruber emailed Ms. Lambrew saying “pharma is going to be a huge winner from this bill—maybe $15 billion/year in incremental revenue. Any way to go after them harder for financing?”

Not just the pharma companies stood to benefit.  The major health insurance players began gobbling up their competitors under Obamacare. "The five largest commercial health insurers in the U.S. have contracted merger fever, or maybe typhoid. UnitedHealth is chasing Cigna and even Aetna; Humana has put itself on the block; and Anthem is trying to pair off with Cigna, which is thinking about buying Humana. If the logic of ObamaCare prevails, this exercise will conclude with all five fusing into one monster conglomerate,” wrote the editorial board of the Wall Street Journal.

This multibillion-dollar M&A boom is notable even amid the current corporate-financial deal-making binge, yet insurance is only the latest health-care industry to be swept by consolidation. The danger is that ObamaCare is creating oligopolies, with the predictable results of higher costs, lower quality and less innovation. …

More important, the economics of ObamaCare reward scale over competition. Benefits are standardized and premiums are de facto price-controlled. With margins compressed to commodity levels, buying more consumers via mergers is simpler than appealing to them with better products, to the extent the latter is still legal. Synergies across insurer combinations to reduce administrative overhead and other expenses also look better for shareholders.

The mergers reflect the reality that government—Medicaid managed care, Medicare Advantage and the ObamaCare exchanges—is now the artery of insurance profits, not the private economy. The feds “happen to be, for most of us now, our largest customer,” Aetna CEO Mark Bertolini said this month at a Goldman Sachs conference.

The implication of the Gruber emails is that none of this is accidental.  The “losers” -- the young and healthy and people with employer insurance -- would be soaked to shovel money into the pockets of the winners.  The candystore nature of Obamacare is exemplified by the lavish compensation afforded the head of Covered California.  The exchange may be going under, but its director is doing very well.  The Investor’s Business Daily reports:

Enrollment in Covered California was flat this year, and consumers hate it. But the director still got a huge raise and a fat bonus. So much for ObamaCare rooting out health care waste.

The 1.4 million who signed up for an ObamaCare plan through Covered California, and who are paying a $13.95 fee every month for the privilege, might be interested to learn that Executive Director Peter Lee just got a 26.8% raise, plus a $65,000 bonus, which is bigger than the $53,000 bonus he received last year.

To put this in perspective, Lee's base salary of $333,120 is 49% higher than the average health insurance CEO in the country, and 69% higher than all the CEOs in California, according to Bureau of Labor Statistics data.

We don't begrudge people for being well compensated for their success. But in this case, Lee is being rewarded by Covered California for what looks like a rather astounding string of failures.

Enrollment in the state exchange climbed only about 1% this year, leaving it 300,000 below Lee's goal of 1.7 million. And because the exchange relies on enrollment fees to operate, low sign-ups put the exchange in financial jeopardy.

According to Covered California's proposed budget, released in May, it expects to run an operating deficit of $98 million next fiscal year, and $41 million the year after that. And those numbers assume the exchange can wring 21% out of its budget over the next two years while sharply increasing enrollment.

Underneath the altruistic veneer of Obamacare, behind all those nice inspiring words is something that looks like pure, unadulterated greed.  Now, with the gravy train in danger of derailment from bankruptcy and legal challenges, the president is openly turning up the heat on the Supreme Court, an action that some argue is almost unprecedented.

There’s too much riding on Obamacare for anything like mere illegality or bankruptcy to stand in the way.  Thomas Boyd actually thinks the president will try to strongarm the justices into seeing things the White House’s way.

We've seen this movie before — reruns of President Obama's rhetorical efforts to vilify the court whenever it threatens to disagree with him, as it did in Citizens United v. Federal Election Commission, the decision in 2010 that precluded the government from regulating political expenditures by nonprofit corporations.

Less than a week after the Citizens decision came down, with the justices sitting directly in front of him in the House of Representatives chamber, Obama addressed the nation in a State of the Union address and scolded the court for its decision.

He charged, inaccurately, that the decision would allow American elections to be "bankrolled by America's most powerful interests or, worse, by foreign entities."

This transparent effort to intimidate the court, and especially Chief Justice John Roberts, was repeated in the days leading up to the court's 2012 decision on the constitutionality of ObamaCare's individual mandate.

Accusing the Supreme Court of bowing to commercial interests is probably projection.  From Gruber’s emails it appears that bowing to commercial interests -- or at least having similar interests -- is the way Washington does business.  It certainly seemed the way the administration transacted theirs.

The saddest fate was reserved for those who had placed the greatest faith in their nation.  The New York Times reports that “one year after outrage about long waiting lists for health care shook the Department of Veterans Affairs, the agency is facing a new crisis: The number of veterans on waiting lists of one month or more is now 50 percent higher than it was during the height of last year’s problems, department officials say. The department is also facing a nearly $3 billion budget shortfall, which could affect care for many veterans.”

After all the talk about ‘free government money’ and ‘federal subsidies for the poorest’, the system still can’t provide medical care to its veterans, and is losing ground in fact,

Something has to give,” the department’s deputy secretary, Sloan D. Gibson, said in an interview. “We can’t leave this as the status quo. We are not meeting the needs of veterans, and veterans are signaling that to us by coming in for additional care, and we can’t deliver it as timely as we want to.”

Since the waiting-list scandal broke last year, the department has broadly expanded access to care. Its doctors and nurses have handled 2.7 million more appointments than in any previous year, while authorizing 900,000 additional patients to see outside physicians. In all, agency officials say, they have increased capacity by more than seven million patient visits per year — double what they originally thought they needed to fix shortcomings.

But what was not foreseen, department leaders say, was just how much physician workloads and demand from veterans would continue to soar — by one-fifth, in fact, at some major veterans hospitals over just the past year.

Whatever can’t continue forever won’t.  Rising insurance premiums, narrowing networks, runaway hospital consolidation, Christmas in July for Big Pharma, state exchanges that are losing money while their executives get raises: all of these are examples of things that just can’t go on, not even if the president twists the Supreme Court’s tail to force it to continue. Obamacare is broken in a fundamental way; the system itself is dysfunctional at bedrock and no technical workaround can remedy it.

But improvement can begin with honesty.  An administration that won’t even admit to the sordid goals of its own political agenda hasn’t a chance to save American healthcare.


 

Do You Dislike Obamacare Because You’re Biased?

POSTED 2 weeks ago BY HEALTH CARE COMPACT

A customer normally knows when he has obtained a superior product, but not always, according to marketers, citing studies in which 70% of blind taste respondents choose Pepsi while the majority of the population bought Coca Cola.

But when it came to the moment of truth, purchase, 70% of people didn’t choose Pepsi over Coke. In fact, Coke outsells Pepsi by a long margin. So, if it was a better product, why aren’t more people buying Pepsi than Coke?

The reason Coke outsells Pepsi, as author Seth Godin points out, is because “people drink the can, not the soda.”

People buy the brand and narrative, not the product or so the argument goes. Jonathan Cohn in the Huffington Post makes a similar argument to explain why Obamacare is still so unpopular, five years after it launched.

While the popularity of "Obamacare" has fluctuated a bit in the five-plus years since it became law, the amazing thing is how little public opinion has changed. Roughly speaking, a little more than 40 percent of Americans approve of the law, while around 50 percent disapprove -- though the precise numbers vary a bit from survey to survey. …

Most people don't have the time to think through historical counterfactuals -- to imagine what life would be like if the law had never passed, its protections did not exist and health care costs were rising as quickly as they did previously. In much the same way, few people stop to think what might happen if they got really sick and needed insurance to cover potentially catastrophic bills. Even people who care about security tend to undervalue it, until crisis actually strikes.

Obama and his supporters like to say the law is working -- that it is helping way more people than it is hurting and that the benefits justify the costs. They have plenty of evidence to cite in their defense. That doesn't mean the public will believe them.

The trouble with that argument is that a comparison between two objectively similar products separated by a subjective judgment is not the same as a mandated system or nothing. Obamacare is the law of the land, not Pepsi Cola.  And the question is not whether it is better than a “counterfactual” but whether it can survive at all.

John Tozzi, writing in the Insurance Journal says the government has announced that Obamacare has avoided a “death spiral”.  But tidings of survival hardly equals news of thriving.

Not so long ago, critics of Obamacare were warning of death spirals, the risk that too many sick people and not enough healthy ones would sign up for insurance, triggering a cycle of ever higher costs for insurers and steep premium hikes for consumers.

That didn’t happen. In fact, a $10 billion cushion that the Affordable Care Act created to protect insurance companies from high-cost patients turned out to be more than needed, the government announced yesterday.

The steep premium hikes that many insurance companies are seeking raised alarms that costs have grown far more rapidly than revenues.  The Heartland Institute says that it looks like a death spiral, and in advance of the time feared.

The Wall Street Journal reports major insurers in some states are proposing hefty rate boosts for plans sold under Obamacare, setting the stage for an intense debate this summer over the law’s impact.

Many health insurance experts predicted a coming death spiral, but it is remarkable the collapse of Obamacare is happening now. The situation must be worse than insurers are publicly disclosing to convince them to raise rates at such a high rate in such a short period.

Although there was some hope that the announced premium increases were going to be the exception rather than the rule, they now turn out to be general across the board.

Across all categories of ACA plans, though, the average proposed premiums in 2016 are 12 percent higher than in 2015, according to the health insurance plan comparison website HealthPocket. For its analysis, it examined plans available in the most populous cities in 45 states, coming to conclusions that starkly contrast Avalere's. Gold plan rates, it said, could rise 16 percent, followed by silver plans at 14 percent, bronze plans at 9 percent. Platinum plan rates are expected to drop 8 percent.

Despite the high projected increases, "premium rates for 2016 Obamacare plans may change between now and November due to the rate review process and increased competition from other insurers," the report cautions. This has been the case in past years, but 2016 also is unique because insurers now have data from the previous year to back up their rate proposals to state insurance regulators, FireceHealthPayer has reported.

If there is one thing everyone agrees with, it is that a government loss in King vs Burwell will break the camel’s back.  Hospital administrators believe it will spiral.

A top hospital executive believes a "death spiral" could occur if the Supreme Court rules against the health insurance subsidies in Obamacare.

In an interview with CNBC's "On The Money," Mount Sinai Health System President and CEO Kenneth Davis said about 80 percent of the patients who are on health-care exchanges get subsidies—an average of about $300 a month or $3,600 a year.

"If the subsidies are eliminated," Davis told CNBC those patients are "going to say, 'I can't afford this', so they're going to drop out."

Even HHS Secretary Sylvia Burwell predicts a death spiral if the court rules for King.  But the case may be a sideshow.  Two key elements of the ACA are in deep trouble.  The first is the affordability of its plans as reflected by the insurance premiums.  The second is any vestige of state insurance exchanges. Mike Adelberg of Modern Healthcare notes that most of the state exchanges are losing money.  If they charge full cost, exchange costs themselves may start a death spiral.

It appears that the Hawaii exchange has failed and Hawaii will probably default to the federal platform. Other states, including Nevada and Oregon, previously failed. In those states, the feds are now handling the hardest part of running an exchange—determining eligibility for financial assistance and processing enrollments. Officially, those states are “supported” state exchanges, but that is a marriage of convenience that allows the state and the feds (who provided generous start-up grants) to save face. Other state exchanges—Maryland and Massachusetts to name just two—are troubled. HHS' Office of Inspector General recently concluded that Maryland “misallocated” $28.4 million of its federal grant; the Justice Department recently subpoenaed records from the Massachusetts exchange.

Running a health insurance exchange, it turns out, is harder than anyone expected. In addition to building the information-technology system, the exchange must complete difficult annual negotiations with insurers, convince hard-to-reach populations to purchase insurance, and manage a complex set of enrollment and financial transactions. The much-maligned HealthCare.gov website lacks flexibility and needs various consumer-facing and back-office upgrades. But it works, and it is getting better.

The long-term problem of the state-run exchanges—particularly in small states—is lack of scale. There are high costs associated with running an exchange and many of those costs are fixed or largely fixed. The states that have attempted to build their own exchanges (and received federal grants totaling between $90 million and $1 billion) will soon be out of grant money. Only one state (Vermont) has committed state appropriations for ongoing exchange operations. Others are assessing health plans for the costs of ongoing exchange operations, and several states are raising initially low assessments. Rapidly rising assessments could lead to big rate hikes and chase away healthy purchasers, thus starting the death spiral. Even the most successful small-state exchanges, such as those in Connecticut and Kentucky, might not be insulated from this problem.

More importantly, they are pointless.  State exchanges under Obamacare are simply outlets for a commodity product designed in Washington with only minimal adaptation to local conditions.

There are a variety of reasons why consumers don’t like Obamacare. Cost.  Narrow networks. Complexity. Rigidity. It’s not simply a case of political brand preference getting in the way of a good product.  It’s a case of a lousy product struggling to survive.

Promises, Promises

POSTED 2 weeks ago BY HEALTH CARE COMPACT

One of the quickest ways a Obamacare can run out of money -- as if it were not running out of money fast enough -- is through regulatory capture. As 2016 approaches presidential candidate Hillary Clinton is realizing that a lot of voters hate the Affordable Care Act because it hasn’t provided them with hoped for benefits.  Clinton is promising to increase the benefits.  But the question is where the money is going to come from.  Chris Jacobs has been following her stump speeches:

In a recent interview with the Des Moines Register, Hillary Clinton outlined several elements of Obamacare that she said she would seek to change as president. …

Among the things Mrs. Clinton cited was “how to fix the family glitch.” In short, if an individual qualifies for “affordable” health insurance through an employer, that person’s family will not qualify for federal insurance subsidies–even if the employer does not offer family coverage or if family coverage is unaffordable for the household. 

When Congress considered the legislation in 2010, the bill needed to adhere to President Barack Obama’s September 2009 pledge that it would “cost around $900 billion over 10 years.” But to keep the total cost of insurance subsidies—the “gross cost of coverage provisions” in Table 4 here—under $1 trillion, lawmakers made numerous tough choices. For instance, Congress delayed the start of subsidized insurance from January 2013 to January 2014. Congress increased Medicaid payment rates to improve access—but let that increase expire after two years. To pay for higher levels of upfront spending on insurance subsidies, Congress included provisions that slow their growth after 2019—a back-dated reckoning that future Congresses, and families, will have to contend with. And Congress passed—whether lawmakers knew it or not—the “family glitch” provision.

As I wrote in January, undoing all these fiscal constraints will cost money.

Where’s the money going to come from? One time honored source is cutting back on waste, fraud and abuse. The Christian Science Monitor says the FBI may yet save Obamacare. “Federal authorities announced on Thursday the largest takedown of Medicare fraud in US history. The operation by the Medicare Fraud Strike Force resulted in the arrest of 243 people for allegedly submitting $712 million in false billings.”  A quoted source says:

Cleaning up an estimated $60 billion to $90 billion a year in Medicare fraud will be key to paying for President Barack Obama's proposed health care overhaul. Federal officials have promised more money and manpower to fight fraud, setting up strike forces in several cities.

Around the country, the schemes have morphed from the typical medical equipment scam in which clinic owners billed Medicare dozens of times for the same wheelchair, while never giving the medical equipment to patients. Now, officials say, the schemes involve a sophisticated network of doctors, clinic owners, patients and patient recruiters.

Violent criminals and mobsters are also tapping into the scams, seeing Medicare fraud as more lucrative than dealing drugs and having less severe criminal penalties, officials said.

For instance, agents bugged a medical center in Brooklyn, N.Y., where eight people are charged with running a $50 million scam that submitted bogus claims for physical therapy. Clinic owners paid patients, including undercover agents, in exchange for using their Medicare numbers and a bonus fee for recruiting new patients. Recording devices captured hundreds of kickback payments in a private room where a man sat at a table and did nothing but pay patients all day, authorities said.

But $712 million is a drop in the bucket in a program which runs to trillions. As a Wall Street Editorial board argued Obamacare is making it easier, not harder, to overprice services.  It describes ObamaCare’s Oligopoly Wave, in reference to a frenzy of mergers and acquisitions sweeping through the health care industry.

The five largest commercial health insurers in the U.S. have contracted merger fever, or maybe typhoid. UnitedHealth is chasing Cigna and even Aetna; Humana has put itself on the block; and Anthem is trying to pair off with Cigna, which is thinking about buying Humana. If the logic of ObamaCare prevails, this exercise will conclude with all five fusing into one monster conglomerate.

This multibillion-dollar M&A boom is notable even amid the current corporate-financial deal-making binge, yet insurance is only the latest health-care industry to be swept by consolidation. The danger is that ObamaCare is creating oligopolies, with the predictable results of higher costs, lower quality and less innovation.

The Affordable Care Act promised to lower prices.  It has not.  Nor has it expanded choice.  It has not.  It also vowed to expand competition. It has definitely not.  The WSJ article continues:

The business case for the insurance tie-ups among the big five commercial payers, which will likely leave merely three, is straightforward. Credit is historically cheap, and the insurers have built franchises in different areas that could be complementary. As for antitrust, selling coverage to employers doesn’t overlap with, say, managing Medicaid for states. (Expect some of the Blue CrossBlue Shield nonprofits to hang for-sale signs soon for the same reasons.)"

More important, the economics of ObamaCare reward scale over competition. Benefits are standardized and premiums are de facto price-controlled. With margins compressed to commodity levels, buying more consumers via mergers is simpler than appealing to them with better products, to the extent the latter is still legal. Synergies across insurer combinations to reduce administrative overhead and other expenses also look better for shareholders.

The mergers reflect the reality that government—Medicaid managed care, Medicare Advantage and the ObamaCare exchanges—is now the artery of insurance profits, not the private economy. The feds “happen to be, for most of us now, our largest customer,” Aetna CEO Mark Bertolini said this month at a Goldman Sachs conference.

This brings the topic back to Hillary Clinton’s promise to open a cornucopia of health benefits to the American public.  The reason the current version of Obamacare benefits is so unsatisfactory is that, while it collects a lot of taxes, it doesn’t have enough money left over to provide decent payouts.  In financial terms Obamacare is a bad deal.

But it is likely to be a worse deal by 2016.  Unless the trend is checked, healthcare provision will be largely dominated by the government.  And with the providers merging and consolidating, government will rely upon a single oligopoly to provide the bulk of the services.  The two factors together spell lousy overpriced service.

In the face of those economic facts Hillary’s promises will remain just that: promises.




 

The Biggest Tax Cut in History

POSTED 2 weeks ago BY HEALTH CARE COMPACT

Jonathan Cohn, writing in the Huffington Post, proclaims that “Obamacare Repeal Would Swell The Deficit Even Using GOP's New Math, Budget Office Says.”  The implication is since deficit reduction is a good thing, the CBO report which Cohn cites is an indictment of attempts to repeal the president’s signature healthcare law.

According to a report the CBO released Friday, repealing the Affordable Care Act wouldn't reduce the deficit, as Republicans have long claimed. It would increase the deficit, by at least $137 billion over 10 years and maybe a lot more than that -- with the effects getting bigger over time.

He goes on to say that despite efforts to alter “the math” the virtues of Obamacare come shining through.

To say Republicans were unhappy about this assessment would be a gross understatement. They talked (and still talk) of the health care law as a “budget buster,” refusing to acknowledge the CBO’s verdict or, at the very least, questioning the assumptions behind it. Although Republican leaders frequently praised Elmendorf -- U.S. Sen. John Cornyn (Texas) once said, “God bless Dr. Doug Elmendorf for his integrity and his commitment to telling the truth” -- this year they opted to replace him with Keith Hall, a more conservative economist who had served on the Council of Economic Advisers in the George W. Bush administration. At the same time, the House passed a rule requiring that the CBO use “dynamic scoring” -- a controversial method of projection that, conservatives say, better incorporates their thinking about how laws will affect the economy.

Hall’s appointment plus the directive to use dynamic scoring set off alarm bells in Washington, particularly among Democrats, although economists from both the left and center worried it would effectively rig the legislative process in favor of Republicans.

But the CBO report itself contains none of the value judgements suggested by Cohn. What it actually says is that a repeal of Obamacare would cut the taxes it imposed by more than the monies it pays out, thereby increasing the federal deficit.  Because repealing Obamacare is a tax cut, it reduces the income of the Federal Government.

Here is what the CBO report says verbatim.  First, repealing the subsidies would reduce the amount the government would have to pay out.

An end to the ACA’s subsidies for health insurance coverage would generate gross savings for the government of $1,658 billion over the 2016–2025 period, CBO and JCT estimate. Those savings would stem primarily from eliminating federal subsidies for insurance purchased through exchanges and from reducing outlays for Medicaid.

But repealing Obamacare would also reduce the amount of tax money the government rakes in.  For openers it would undo the Cadillac tax and revive employmer-provided insurance and make health benefits tax deductible again.

Those gross savings would be partially offset by the effects of eliminating several ACA provisions related to insurance coverage that are projected to reduce federal deficits—including the provisions that impose penalties on some employers and uninsured people and that impose an excise tax on certain high-premium insurance plans. In addition, increases in employment-based coverage stemming from a repeal would reduce revenues because most payments for that coverage are exempt from income and payroll taxes. In sum, those effects of repealing the ACA would increase federal deficits by $502 billion over the 2016–2025 period, CBO and JCT estimate, and the net savings from repealing the ACA’s coverage provisions would thus be $1,156 billion.

Next, it would undo the cuts to hospitals mandated under Obamacare. One of the things that it “achieved” was to slash payments to hospitals.

The ACA also includes many other provisions related to health care that are estimated to reduce net federal outlays, primarily for Medicare. The provisions with the largest effects reduced payments to hospitals, to other providers of care, and to private insurance plans delivering Medicare’s benefits, relative to what they would have been under prior law. Repealing all of those provisions would increase direct spending in the next decade by $879 billion, CBO estimates.

Many of those who think of Obamacare as a “health” bill will be surprised to realize that it was all about taxing and spending.  It raised revenues and cut other expenditures (like Medicare) to pay for its benefits.  None of of this should surprise anyone.  Some have called Obamacare the largest tax increase in US history.  Even those who contest that statement will admit it was “one of the largest” tax increases on record.  

Ira Stoll, who reviewed the debate for Reason Magazine notes the CBO “on page 36” of its estimates notes it would raise $525 billion worth of revenue which would make it the biggest increase.  Ezra Klein of the Washington Post takes exception and has a chart showing it is smaller than a number of other increases as a percentage of GDP.  But even he does not deny it is a tax increase.  The reason Obamacare “cut the deficit” was it was taking more money than it was dishing out.

The tax was in part a deliberate attempt to control the unsustainable rate of increase in American healthcare costs. As every economist knows, consumption can be reduced by taxing it.  Through a combination of taxation and redistributive subsidies, less total healthcare would be consumed but it would be distributed differently.

There is, however, one other effect of repealing Obamacare: it  will increase GDP and employment.  Jonathan Cohn of the Huffington Post argues this is a bad thing. “Repeal would have this effect while forcing people to work longer hours or find full-time jobs purely for the sake of getting health insurance. (Remember, that’s why the law reduces the labor supply.)”  

But the CBO report matter of factly says that repealing Obamacare will simply increase employment.  The federal government will increase its tax collection because of increased payroll taxes, unfortunately it will not compensate for the loss of other sources of revenue.

Repealing the ACA would increase GDP by about 0.7 percent in the 2021–2025 period, mostly because provisions of the law that are expected to reduce the supply of labor would be repealed. Over the next few years, however, repealing the ACA would have smaller estimated effects on output—partly because responses to a repeal would be expected to occur gradually and partly because the effects would be muted while the economy is operating below its potential (maximum sustainable) output. Over the 2016–2025 period, that macroeconomic feedback would reduce federal deficits by $216 billion, CBO and JCT estimate, largely because of the additional revenues attributable to the increases in the supply of labor (which would in turn increase employment and taxable income).

Those lost taxes include “the Hospital Insurance payroll tax rate for high-income taxpayers, added a surtax on those taxpayers’ net investment income, and imposed annual fees on health insurers. JCT estimates that repealing all of those provisions would reduce revenues by a $631 billion over the 2016–2025 period.”

The increase the federal deficit resulting from a repeal of Obamacare is not the simple “bad thing” that the Huffington Post article makes it out.  Rather it is the result of repealing the largest tax cut in history.  In order to lower the deficit it may be necessary to either cut spending or raise taxes in some other way.  But that is a choice the taxpayers must understand in order to make.  Obamacare was for too many, a case of “something for nothing”.  It was never that.

How Secure Will Obamacare EHRs Be?

POSTED 2 weeks ago BY HEALTH CARE COMPACT

Ars Technica’s article on the administration’s apparent incompetence in protecting highly confidential government information has once again called into question the security of its plan to store America’s electronic health records.  For background, the Daily Beast describes the severity of the theft, by Chinese personnel, of millions of records.

It's tough enough to be an undercover spy in the age of the Internet. China's hack of American personnel files just made it much, much harder.

The mega-hack of the Office of Personnel Management continues to get worse for Washington. Revelations of a second, even deeper intrusion into OPM servers bring distressing news that Pentagon employees, including intelligence personnel, are among the millions of Americans whose personal and security data have been compromised.

As The Daily Beast reported, this hack constitutes a disaster for Washington's counterintelligence operatives. Armed with very private information about the personal lives of millions of security clearance holders, foreign intelligence services can blackmail and coerce vulnerable officials. To make matters worse, foreign spies can use data purloined from OPM background investigations to head American mole-hunters off at the pass. For Beltway counterspies, the OPM breach will take decades to set right.

In fact the damage is so great the Washington Post reports that government employees may the the government for putting them in the crosshairs of foreign espionage. “As current and former federal workers try to figure out if their personal information was exposed in a recently disclosed breach at the Office of Personnel Management, experts say that there are protections built into the law that could enable the employees to take the government to court.”

Under the Privacy Act, individuals who have had their data disclosed by the government can sue for damages and reasonable attorney's fees. All U.S. citizens have a right to action under the law, including current federal employees, according to Nuala O'Connor, a former chief privacy officer at the Department of Homeland Security and current leader of the Center for Democracy & Technology.

Ars Technica summarized the questioning of Office of Personnel Management Director Katherine Archuleta before Congress.  In it she revealed the Chinese hackers would not have been stopped by encryption because they possessed valid passwords.  “Even if the systems had been encrypted, it likely wouldn't have mattered. Department of Homeland Security Assistant Secretary for Cybersecurity Dr. Andy Ozment testified that encryption would "not have helped in this case" because the attackers had gained valid user credentials to the systems that they attacked—likely through social engineering. And because of the lack of multifactor authentication on these systems, the attackers would have been able to use those credentials at will to access systems from within and potentially even from outside the network.”

OPM made the astonishing admission that one of its “root” system administrators was physically in China.  This revelation was part of what appeared to be a pattern of neglect of basic data security practices.

A consultant who did some work with a company contracted by OPM to manage personnel records for a number of agencies told Ars that he found the Unix systems administrator for the project "was in Argentina and his co-worker was physically located in the [People's Republic of China]. Both had direct access to every row of data in every database: they were root. Another team that worked with these databases had at its head two team members with PRC passports. I know that because I challenged them personally and revoked their privileges. From my perspective, OPM compromised this information more than three years ago and my take on the current breach is 'so what's new?'"

An Associated Press news reported cited perceived incompetence as one of the concerns surrounding a data depository being built to house all Obamacare patient records. “WASHINGTON (AP) — A government data warehouse that stores personal information on millions of HealthCare.gov customers is raising privacy concerns at a time when major breaches have become distressingly common.”  If the government couldn’t even keep its own classified data safe, so the argument went, how could it protect patient data?

The government’s reputation took another recent hit when the Department of Health and Human Services (HHS) Office of Inspector General (OIG) released an audit Tuesday finding that the agency did not have an internal system to ensure that nearly $3B subsidies went to the right persons.

"[The Centers for Medicare and Medicaid Services] CMS's internal controls did not effectively ensure the accuracy of nearly $2.8 billion in aggregate financial assistance payments made to insurance companies under the Affordable Care Act during the first four months that these payments were made," the OIG said.

"CMS's system of internal controls could not ensure that CMS made correct financial assistance payments," they said.

Danielle Wiener-Bronner at Fusion has a good survey of what is publicly known about the Obamacare “MIDAS” database.

The Associated Press reported on Monday that the Multidimensional Insurance Data Analytics System (MIDAS) used by the government to store patient information doesn’t follow best practices—which is, as one expert told the AP, to delete sensitive information once it’s no longer needed.

The U.S. Government Accountability Office (GAO) issued a report on healthcare.gov back in September 2014 looking at the “Actions Need to Address Weakness in Information Security and Privacy Controls.” That document notes some of MIDAS’s shortcomings, explaining that a review of MIDAS doesn’t look closely enough at the security of users’ private information. Because of that, said the report authors, “It will be difficult for [Centers for Medicare & Medicaid Services] to demonstrate that it has assessed the potential for [personally identifiable information] to be displayed to users, among other risks, and taken steps to ensure that the privacy of that data is protected.”

MIDAS has seen even harsher criticism from outside the Administration, notably from former Social Security Administration Commissioner Michael Astrue, who has written repeatedly about the privacy implications of the government healthcare site. He wrote in the Weekly Standard about how frustrating it’s been for him to talk to officials about the system:

There’s no reason to think MIDAS is any more, nor any reason to imagine it is any better than other government database applications.  “as Rusty Foster pointed out in the New Yorker last year, the government is generally terrible at the Internet—for example, the FBI spent hundreds of millions of dollars to upgrade a terrible computer system, but ultimately abandoned the project before it was ever used. In 2013, Reuters’ Scot J. Paltrow and Kelly Carr noted in detail the Pentagon’s ineffective bookkeeping tactics.”

Ultimately it’s a matter of trust.  But if faith can be based on hope, rational trust requires foundation on a track-record.  So far, the Obama administration doesn’t have much of one.

The Midas Touch

POSTED 3 weeks ago BY HEALTH CARE COMPACT

Is Obamacare turning your doctor into spies?  Spying is such an ugly word.  But it can hardly be denied that Obamacare has tasked doctors to record information about patients.  Jeffrey Singer, himself a physician, writes:

The debate over ObamaCare has obscured another important example of government meddling in medicine. Starting this year, physicians like myself who treat Medicare patients must adopt electronic health records, known as EHRs, which are digital versions of a patient’s paper charts. If doctors do not comply, our reimbursement rates will be cut by 1%, rising to a maximum of 5% by the end of the decade.

I am an unwilling participant in this program. In my experience, EHRs harm patients more than they help.

The program was inspired by the record-keeping models used by integrated health systems, especially those of the nonprofit consortium Kaiser Permanente and the Department of Veterans Affairs. The federal government mandated in the 2009 stimulus bill that all medical providers that accept Medicare adopt the records by 2015. Bureaucrats and politicians argued that EHRs would facilitate “evidence-based medicine,” thereby improving the quality of care for patients.

Singer complains that nobody does anything medical with the resulting records. And he’s probably correct. Ken Terry of Medical Econmics wrote: “Many physicians doubt that electronic health records (EHRs) improve the quality of care. But relatively few practices are mining their EHR data to see how well they’re doing or to update their care delivery processes. Most are collecting data mainly for external reporting purposes, usually with the help of automated EHR features.” They are not mining it for “evidence-based medicine”.  For now they are collecting it for compliance.

There are several possible reasons for the low interest in mining data for quality improvement. Most physicians believe they’re already doing a good job, and they may feel they’re too busy to devote time to running reports and looking at data. Especially if they’re working in small practices, they may feel intimidated by the technical requirements of data mining. It’s also difficult for providers to enter data consistently in the right EHR fields so that  they have enough data to yield solid information on individual patients or populations.

What exactly will happen to patient data is less clear than where it will be stored.  It will be stored in a vast repository being built by the government for the purpose called MIDAS.

WASHINGTON (AP) — A government data warehouse that stores personal information on millions of HealthCare.gov customers is raising privacy concerns at a time when major breaches have become distressingly common.

A government privacy assessment dated Jan. 15 says data "is maintained indefinitely at this time," but the administration said Monday no final time frame has been decided, and the National Archives has recommended a 10-year retention period.

Known as MIDAS, the system is described on a federal website as the "perpetual central repository" for information collected under President Barack Obama's health care law.

The information stored includes names, Social Security numbers, birthdates, addresses, phone numbers, passport numbers, employment status and financial accounts.

The plans are to keep the data there forever, a goal which has alarmed advocates of electronic privacy.

The vast scope of the information — and the lack of a final plan for destroying old records nearly four years after the system was commissioned — have raised concerns about privacy and the government's judgment on technology.

"A basic privacy principle is that you don't retain data any longer than you have to," said Lee Tien, a senior staff attorney with the Electronic Frontier Foundation.

"Even 10 years feels long to me," Tien said.

The Obama administration says MIDAS is essential to the smooth operation of the health care law's insurance markets and meets or exceeds federal security and privacy standards. "MIDAS is a critical piece of the marketplace ecosystem," said spokesman Aaron Albright.

One of the reasons for their concern is the poor track record of the government at securing its computer systems.  The theft of NSA data by Edward Snowden and the recent loss of millions of sensitive government personnel records to Chinese hackers has raised doubts over the ability of authorities to keep records that are to be kept in perpetuity, forever inviolate.  Michael Astrue of the Weekly Standard wrote in late 2014 that the manner in which the job was contracted did not provide much reassurance.

HHS established a system for storing Affordable Care Act data long before the launch of HealthCare.gov. In late 2011, HHS awarded a contract to a tiny company called IDL Solutions to provide data storage and analysis of data obtained from the public through the federal exchange. The six-year $59 million contract was huge—and probably overwhelming—for a company with less than $20 million in annual revenue, and, with that windfall in hand, IDL Solutions soon sold itself for “an undisclosed amount” to one of the largest Beltway contractors, CACI.

At least six subcontractors now help run MIDAS, and one of them, the American Institutes for Research (AIR), recently solicited Affordable Care Act data from states unconnected to HealthCare.gov so that it could do with those data whatever it is doing with the federal data. AIR’s requested data elements include: name, address, phone number, mailing address, citizenship status, age, gender, race, primary language, and a description of the health plan the person selected. What this solicitation means is that HHS and its contractors collect data on people who never contacted HHS and never gave permission for the federal government to access their data, much less share it widely among contractors and then store it permanently with one or more of those contractors.

The other concern is that government will be tempted to misuse the information it amasses in its warehouse.  The primary contractor, CACI, does a lot of classified work for the federal government and actually published a book entitled “Our Good Name” which exlains CACI’s role in Abu Ghraib.  Of course none of this should impugn the persons now involved without a basis in evidence.

Nevertheless it remains a fact that when data is stored in perpetuity, future custodians will come into the possession of the patient information who may or may not be as trustworthy as the current administration.  One thing seems certain, the data which doctors must tirelessly collect does not seem to be immediately destined for “evidence-based medicine”.

When Cures Break the Bank

POSTED 3 weeks ago BY HEALTH CARE COMPACT

The pharmaceutical industry has recently been auditioning for the role of villain.  The New York Times reported that big pharma was one of the secret beneficiaries of the recently scuppered trans-Pacific trade deal of the Obama administration.  “Public health professionals, generic-drug makers and activists opposed to the trade deal, which is still being negotiated, contend that it will empower big pharmaceutical firms to command higher reimbursement rates in the United States and abroad, at the expense of consumers.”

Hillary Clinton, ever on the alert for a political issue she could hitch her wagon to “said drug companies that would benefit from a Pacific trade pact should sell their products to the U.S. government at a discount. … She said that U.S. drug companies that stand to boost foreign sales from the deal should be required to give bulk discounts to government programs like the Medicare health plan for the elderly.”

Now, with Obamacare rates apparently skyrocketing across the country, politicians appear to have found the perfect fall-guy: big pharma.  Dan Mangan of CNBC reports that 10 drugs will cost government an additional $50B over next decade.

An eye-popping bill for just a handful of specialty medications is in the pipeline for the federal government—and therefore, taxpayers—in the next 10 years, the health insurance industry's lead trade group warned Monday.

"We are witnessing a return to dramatic increases of year-to-year drug spending," said Dan Durham, interim CEO of America's Health Insurance Plans.

The research, commissioned by AHIP and prepared by the Avalere Health consulting group, projects the federal government in the next decade will have to spend almost $50 billion on just 10 so-called breakthrough medications alone, with most of those drugs having yet to hit the market.

The increasing cost of pharmaceuticals hits everything, not just the individual Obamacare insurance market.  It affects Medicare, Medicaid and group policies.  Mangan continues:

Most of the projected spending will come from $31.3 billion in increased drug costs tied to Medicare, the federal health insurance program for senior citizens, according to the research.

Another $16 billion in costs will be paid by Medicaid, the government health coverage program for the poor. The remaining amount, more than $2 billion, will come from spending on subsidies for customers of government-run Obamacare health insurance exchanges.

Two things appear to be driving the trend.  The first is the maturation of technologies which in the past had merely been “promising”.  They have progressed beyond that to the level of practicality.  The second has been the streamlining of regulatory procedures in the FDA.  The two together have combined to produce a spate of new drugs, some of which are revolutionary in efficacy but also astronomical in cost.

A detailed analysis from Avalere says that pharmaceuticals amount to 13% of all healthcare spending.  Until recently innovation had manifested itself in stable or falling drug prices as manufacturing costs declined or the expiration of intellectual property rights made the prescription of cheaper generics practicable.

Costs began to spike suddenly in 2014. “Nearly half of this growth—6.1 percentage points—is attributable to new products entering the market over the past two years. In particular, specialty medications accounted for 78 percent of the $20.2 billion increase in new brand spending in 2014.”

Changes in drug prices continued to be a complex dance between protected brands pricing, patent expiry, generics and new brands.  But recently new brands have been predominating in effect.   This was in part because of regulatory reform. “To help innovative therapies reach patients sooner, Congress gave the FDA authority in the Food and Drug Administration Safety and Innovation Act (FDASIA)13 of 2012 to establish the breakthrough therapy designation to speed development and review of certain drugs to treat serious or life-threatening conditions.”

This cut the review process to 25% of their former duration. This had the same effect as unblocking a sewer pipe. The regulatory pipeline, so long congested with regulations, suddenly spewed out new pharmaceuticals in a spate.  Technological breakthroughs were not only putting more medicines in the pipe, they were also flowing through faster.  The Avalere report wrote:

Breakthrough therapies represent only a small subset of the overall pipeline of medications that will drive prescription drug spending over the next decade. The Analysis Group reports that there are more than 5,400 medications in the clinical development pipeline, with more than half in Phase II or Phase III clinical trials.  While many of these therapies may never reach the U.S. market, the value of the drug development pipeline grew by nearly 46 percent between 2013 and 2014, according to EvaluatePharma.

The availability of so much pharma has created a cash flow problem.  To be sure, the miraculous efficacy of many of the drugs might reduce health costs in the long run.  But in the short run they put a strain on funds.  And no one was worse hit than the Federal Government.  Avalare wrote:

The ACA and changing demographics create an increasing role for government payers in the coming years (see Figure 2). Specifically, the implementation of health insurance exchanges and the Medicaid expansion under the ACA will lead to significant shifts into government sponsored markets as well as a reduction in uninsured Americans. Meanwhile, the “baby boom” generation is expected to age into the Medicare program, accelerating enrollment.

This meant that pharmaceutical prices would hit government budgets exceptionally hard, hitting Medicare the hardest.  “Avalere assessed the potential impact of the 10 breakthrough therapies included in this analysis on three government payers—Medicaid,

Medicare, and exchanges—over a 10-year period between 2015 and 2024.” The conclusion was that government health spending of all types would rise by $50 billion.

Avalere finds the direct product-related spending on these 10 breakthrough therapies will cost three government payers $49.3 billion over a 10-year period, including: $31.3 billion in Medicare costs; $15.8 billion in state and federal Medicaid costs; and $2.1 billion as a result of subsidies provided through exchange plans.xi Overall, Medicare has the largest direct product-related cost exposure to the medications analyzed, accounting for approximately 63 percent of the total costs projected in the analysis; however, the impact to individual government payers will vary by medication.

The picture that emerges is more complex than Hillary Clinton’s soundbites suggest.  Rising pharma costs are not entirely due to greed.  Two major drivers are innovation and government reform.  Both are good in the main, but in the short run they will stress an already embattled treasury.

The Medicaid to the Rescue… But on Second Thought…

POSTED 3 weeks ago BY HEALTH CARE COMPACT

Obamacare is turning out to be like the Blob that ate the budget. Shikha Dalmia, writing in Reason summarized what is well-known. The program has increased the cost of delivering health care.

ObamaCare is indeed bending the cost curve—but up, not down. There is no better evidence of this than the recent rate filings by insurance companies….

In New Mexico, market leader Health Care Service Corp. is asking for an average jump of 51.6 percent in premiums for 2016. The biggest insurer in Tennessee, BlueCross BlueShield of Tennessee, has requested an average 36.3 percent increase. In Maryland, market leader CareFirst BlueCross BlueShield wants to raise rates 30.4 percent across its products. Moda Health, the largest insurer on the Oregon health exchange, seeks an average boost of around 25 percent.

Some states are even higher.

News article say things will only get worse if the Supreme Court rules against the government in King vs Burwell,  that an insurance death spiral will take place if it’s not happening already.  But paradoxically, some insurers don’t seem care which way the court rules because they are making their money off Medicaid expansion, not the individual Obamacare insurance market.

Bruce Japsen at Forbes explains: “Some analysts say health plans aren’t making much money on subsidized coverage under the exchanges and see better revenue opportunities and potentially higher margins as states expand Medicaid coverage for poor Americans. Centene’s business is largely in the Medicaid space, providing coverage to uninsured and underinsured Americans in contracts with states and the federal government.”

Medicaid’s the meal ticket for many insurers. Unfortunately the Medicaid program is way over budget also. The Reason article explains that “the expanded Medicaid program is no picture of robust health, either. It has produced no cost-saving decline in emergency room visits, nor has it contributed to hospital profitability, as was hoped.” The unexpectedly high enrollments in Medicaid expansion states are swallowing up state budgets to such an extent that they may force cutbacks in education, social services, police and infrastructure.

Medicaid expanion in Illinois, president Obama’s adoptive state,  threatens to “blow a hole” in its budget that could dwarf its pension liabilities. “How an economically struggling state will pay for the bigger tab is now a question for Gov. Bruce Rauner. The newly installed Republican governor declined to comment on the Tribune’s analysis. But in a meeting last year with the Tribune Editorial Board, he said he didn’t think the full federal funding for the expansion would ‘last’.”

Unfortunately, Medicaid expansion may be the only thing keeping the individual Obamacare market from spiraling downward.  As Jeffrey Clemens of the University of California, San Diego explains, Medicaid is one of the individual market’s defenses against adverse selection.  Without Medicaid, many more medically uninsurable people would wind up trying to buy Obamacare plans.  They would soon enough raise the costs of the plans and drive all the healthy people out of it.

High among the ACA’s goals is to increase the affordability of insurance for the sick.  It seeks to do so through rules called community rating regulations, which prohibit insurers from adjusting premiums in response to pre-existing conditions.  These rules reduce the premiums faced by the sick, but do so by increasing the premiums of the healthy.  Consequently, they run the risk that the healthy will opt out of coverage, a phenomenon known as adverse selection.  Policy analysts take this concern quite seriously, as shown by the anxious monitoring of the age, gender, and health mix of those enrolling in exchange-based coverage.

The ACA contains several provisions designed to combat adverse selection.  … Medicaid expansions also combat adverse selection, although the channel through which they do so is more subtle.  Premiums depend on the average health of exchange-based purchasers.  If there are large numbers of unhealthy purchasers, premiums will be high, making plans a particularly bad deal for the young and healthy.  The key insight is that Medicaid expansions typically improve the health mix of those seeking private coverage.  Because health and income are strongly related, Medicaid-eligible individuals have higher average health expenses than most exchange-based purchasers.  By drawing high cost individuals out of the exchanges, Medicaid expansions can reduce the severity of the adverse selection problem.  Evidence from states’ experiences suggests that this link between Medicaid expansions and community rating regulations is quite important in practice. …

Imagine what would happen if current Medicaid beneficiaries were shifted onto the exchanges.  The MEPS data imply that the average healthcare costs of exchange-based purchasers would rise by more than $1,000.  This would significantly increase the premiums faced by the young and healthy, making them more likely to opt out of coverage.  This same line of logic reveals how Medicaid expansions can work to reduce adverse selection and improve exchange-based coverage.

Clemens concludes that Medicaid runs interference for Obamacare exchanges but notes that it does so at a high cost.

My findings highlight an important, under-appreciated link between Medicaid and the overall design of the ACA’s coverage expansion.  Historically, Medicaid beneficiaries have averaged much higher healthcare costs than the privately insured.  Covering such individuals through Medicaid can thus reduce the premiums prevailing on states’ exchanges.  This makes exchange-based plans more attractive to the young and healthy, whose participation is essential for the system to work.

That cost is the result of inefficiencies which allow companies, rather than patients, to benefit from the average Medicaid dollar. Michael Cannon of the Cato Institute, writing in Forbes says that patients derive only a few cents of benefit on the average dollar.

MIT’s Amy Finkelstein has won a slew of awards, including the prestigious John Bates Clark Medal, for her work in health economics. In “The Value of Medicaid: Interpreting Results from the Oregon Health Insurance Experiment,” Finkelstein, Nathaniel Hendren, and Erzo Luttmer, used various econometric methods to quantify the benefits that enrollees receive from Medicaid. They drew from the Oregon Health Insurance Experiment, on which Finkelstein was a lead investigator.

The trio found that Medicaid enrollees receive very little benefit from each dollar spent on Medicaid. The absolute minimum enrollees receive is 15 cents of benefit per dollar spent. The authors’ best guess is that enrollees receive somewhere around 20-40 cents of benefit per dollar spent. The maximum is 90 cents–that is, no matter how the authors sliced the data, Medicaid’s costs exceed the benefits to enrollees. If the government just gave enrollees the money, Medicaid is such a bad deal that enrollees would not buy Medicaid coverage with it.

Finkelstein et al. further estimate that for every dollar Medicaid spends, non-enrollees receive about 60 cents of benefit. The authors don’t identify who Medicaid’s real beneficiaries are, but they likely include those who receive Medicaid subsidies (hospitals, insurance companies, pharmaceutical companies, doctors, device manufacturers) and people who would otherwise make charitable contributions to provide medical care to enrollees. In other words, Medicaid’s actual beneficiaries are different from its intended beneficiaries.

These factors explain why Obamacare is headed for trouble no matter what the Supreme Court decides in King vs Burwell.  The individual insurance market is losing money and is only being held up by Medicaid, which is funding the insurers and keeping the exchanges from being overwhelmed by adverse selection.  

However Medicaid itself is so inefficient that it people -- given the choice -- would never buy it voluntarily.  Its costs are so high they are threatening to overwhelm state budgets and eventually, the federal budget.  In the end no matter how big a ship is, if the water keeps leaking in it will sink, like the Titanic.  Obamacare success was premised on “bending the cost curve”.  Instead it has managed to increase the costs, and that will hurt.

The Battle for Obamacare’s Epitaph

POSTED 3 weeks ago BY HEALTH CARE COMPACT

Dramatically high premium increases suggest that, no matter what the Supreme Court decides in King vs Burwell, Obamacare is doomed.  All an administration victory in King vs Burwell would do is delay the “death spiral”; it is mere playing for time.  But the problem with the law is not in the text of the statute, but with its economics.

Robert Laszewski, the president of Health Policy and Strategy Associates goes straight to the point. He has long argued that Obamacare was rolled out in such a way as to conceal its real cost until 2017, when presumably, the administration believed it would be too entrenched to root out.  But the spate of recent price increases shows that the costs are burning through the camouflage.  The mask has dropped more than year before schedule.

You might recall that I have said we wouldn’t see the real Obamacare rates until the 2017 prices are published in mid-2016. By then health plans will finally have had a couple of years of credible claim data and two of the three “3 Rs” reinsurance provisions subsidizing the insurance companies will have gone away.

I have also made the argument that after two years the Obamacare enrollment is coming up way short of what it needs for us to be assured that we have a sustainable risk pool—enough healthy people signed up to pay the costs for the sick.

Instead of moderate rate increases for one more year, the big rate increases have begun. They are particularly large among the health insurers with the most enrollment—the carriers with the most data.

Laszewski then analyzes the experience of major insurers in various states -- Texas, Maryland, Oregon, Tennessee, Georgia, Iowa, Kansas, Pennsylvania -- based on their actual filings. Each is asking for major increases based on the fact that expenses have far outrun receipts -- and too many healthy people are staying away from Obamacare.

Texas Blue Cross stands out. The health plan commented in its federal government rate filings that it covered 730,833 Obamacare individuals in 2014 with premium of $2.1 billion and claims totaling $2.5 billion––for a medical loss ratio of 119%. The plan further commented that, after the “3Rs” reinsurance adjustments, they lost 17% to 20% of premium in 2014–that would be about $400 million. And, they are only asking for a 20% rate increase.

In Oregon, where less than 35% of the eligible have signed up on the exchange, the biggest insurer with 52% of the market, Moda, has asked for a 25.6% increase. Lifewise, with a 19% market share, has asked for a 38.5% increase.

Blue Cross Blue Shield of Tennessee, with a 165,000 members making up 70% of the Obamacare exchange is asking for a 36.3% increase. The second biggest player, Humana, is asking for a 15.8% increase. Less than 40% of the eligible exchange market signed up in Tennessee.

Georgia is the second biggest Obamacare market for Humana, having enrolled 254,000 people out of a total market of 479,000, and Georgia “maybe its biggest misstep”. Its CEO has said about Georgia, “We can’t have one business being subsidized by another business.” Humana is asking for 2016 individual plan rate increases from 14.8% to 19.44%.

This is a perfect recipe for creating an insurance “death spiral”.  Research has shown that when adverse selection takes place even subsidies can only delay, but cannot prevent a death spiral from taking place.  Laszewski understands this implication immediately.  The trend is something that cannot simply be dismissed as an outlier or glitch.

Like last year, others will argue that these rate increases still have to be approved in some of the states. But unlike last year, the carriers now have hard data to show the insurance regulators. Some states will bring political pressure to bear on these increases. But a 35% increase is not suddenly going to become a 5% increase. There is obviously an overall claim cost problem here and regulation can sometimes push it off but it can’t make it go away.

Others will point out that people only have to switch plans to keep their costs in line since there are some carriers asking for a lot less. That’s right. But the fact that it is the big market share players that are often asking for the big increases says something important about where these cheaper plans will be next year. The big guys know something.

You just can’t look at this data and come away with a conclusion other than the big cost increases driven by too few people signing up has started. And it has started a year earlier than most of us expected. …

The number of people signing up for Obamacare has varied considerably by state and is far below the level of penetration the industry typically needs to create a sustainable risk pool

State sign-ups have varied with Vermont signing up 75% of the exchange eligible and Iowa only signing up 20%––insurers typically want to see 75% sign-up. Will the third open enrollment next year turn things around? This year’s results were not encouraging with the states having the best first year enrollment stalling out in 2015––California, Washington, and New York.

The administration privately understands this.  It may even be in their interest to “lose” King vs Burwell in order to have the Republicans to blame for a collapse that is bound to happen anyway.  Sylvia Burwell, the HHS secretary, warned of “death spiral” in case the Court upholds King.  But the chances are that the collapse will happen anyway.

The Supreme Court will prompt a "death spiral" if it strikes Obamacare subsidies in most states later this month, a top administration official said Thursday.

Health and Human Services Secretary Sylvia Mathews Burwell was referring to the possibility that healthier people who don't have a pressing need for health coverage might drop out of insurance pools, leaving behind sicker customers and causing premiums to skyrocket.

This is exactly what is happening already, as the actual filings of the insurers attest. One way or the other, Obamacare is doomed.  All that is being disputed now is what to put on the tombstone.  The administration would like it to read: “murdered by the GOP”. But it should really read, “died at birth”.

The Supremes Have a Reason to Hear King vs Burwell

POSTED 3 weeks ago BY HEALTH CARE COMPACT

The issue before the Supreme Court in King vs Burwell is by definition a legal one.  But politically the administration cast it as a moral problem when the president expressed dismay that the court would even review the question. He was speaking before the Catholic Health Association.  “The Catholic Health Association split with the U.S. Roman Catholic bishops to support the Obama administration in 2013 in shaping a compromise over the law's birth control coverage.”

President Barack Obama on Tuesday declared his health care law a firmly established "reality" of American life even as the legality of one of its key elements awaits a decision by the Supreme Court.

"This is now part of the fabric of how we care for one another," Obama said of the law, one of his most prized domestic policy accomplishments.

For the second day in a row, Obama mounted a stout defense of a law that remains unpopular with the public and under legal challenge but that has contributed to 14.75 million adults gaining coverage since its health care exchanges began signing up people in 2013.

The administration’s publicists are making the argument that the legal problems with Obamacare are typos which the Congress has a duty to fix or the Supreme Court has a moral obligation to ignore. The Washington Post cites a poll to write: “the Affordable Care Act hangs in the balance in the Supreme Court for the second time in three years, but the public has rendered a judgment ahead of the court's ruling. By a margin of 55 percent to 38 percent, more people say the court should not take action to block federal subsidies in states that didn't set up their own exchanges, according to a new Washington Post-ABC News poll.”

In a word, the law’s legal defects don’t matter because Obama meant well. Michael Cannon at Forbes calls it a form of “table pounding”

There is an old lawyers’ adage: “When the facts are on your side, argue the facts. When the law is on your side, argue the law. When neither are on your side, pound the table.” President Obama will deliver a speech today in which he pounds the table with the supposed successes of the Affordable Care Act. The address is part effort to influence the Supreme Court’s upcoming decision in King v. Burwell, part effort to spin a potential loss in that case.

The problem is, those supposed successes are not due to the ACA. They are the product, two federal courts have found, of billions of dollars of illegal taxes, borrowing, and spending imposed by the IRS at the behest of the president’s political appointees.

The president can pound the table all he wants about his theories of what Congress intended, or how, in his opinion, those illegal taxes have benefited America. No speech can change the fact that he signed into law a health care bill that makes it unmistakably clear that those taxes and subsidies are only available “through an Exchange established by the State.” If he didn’t like that part of the bill, he shouldn’t have signed it.

The president thinks it is “a contorted reading of the statute” to insist on the unmistakably clear distinction Congress drew between Exchanges established by “States” versus the federal government. The Congressional Research Service disagrees. So do the D.C. Circuit, and even the Fourth Circuit. Even Harvard law professor Noah Feldman says the president’s theories “seem forced.”

Two federal courts have found the law is clear, and the president is on the wrong side of it. The president would rather that you not focus on that small detail. But the Supreme Court’s job is to hold the president to the law he enacted. Let’s hope they do. Because if the Court instead allows the IRS to tax and spend without congressional authorization, the disruption will be much greater than any caused by ObamaCare.

Cannon refers to the fact that the federal subsidies to states that did not establish exchanges is based on an IRS rule. They couldn’t find a basis for extending subsidies under a close reading of the statute, so they made up an administrative rule.

The IRS’s draft rule originally included the statutory language restricting tax credits to Exchanges “established by the State,” but IRS officials deleted it and inserted broader language when political appointees approached them about it. Treasury and IRS officials permitted investigators for two congressional committees to interview officials involved in the formulation of the IRS’s tax-credit rule, and to review some (but not all) relevant documents. The investigators report that in early 2011, Deputy Assistant Treasury Secretary for Tax Policy Emily McMahon read a Bloomberg BNA article in which critics discussed how the Act offers tax credits only in states that establish Exchanges. McMahon raised the issue with her colleagues. According to one Treasury Department attorney, McMahon inquired whether this was “a glitch in the law we needed to worry about.” …

IRS officials recognized that what they wanted to find in the statute simply wasn’t there. In a March 25, 2011, e-mail, Treasury and IRS officials described the lack of authorization for subsidies in federal Exchanges as a “drafting oversight.” IRS officials also recognized the “apparently plain” language limiting tax credits to state-established Exchanges. Investigators found that a draft of the final rule contained a discussion of this issue that “stated that agencies have broad discretion to reasonably interpret a [law] if the ‘apparently plain statutory language’ is inconsistent with the purpose of the law.” Agency officials dropped that discussion from the final rule shortly before issuing it.

Whether or not one thinks the post-facto of the subsidies is relevant or not, it seems self-evident that it is not, as Eric Seagall of the Atlantic argues, much ado about an an “inaccurate soundbite”.  A number of lower courts and the Supreme Court itself, have concluded that the issues are serious enough merit consideration.  The question of whether the Supremes will find for or against Burwell has yet to be settled. But clearly the president is exaggerating when he thinks the issues are so clear cut that it is a wonder to him why the court ever agreed to hear it.

Is Obamacare Already in a Death Spiral?

POSTED 4 weeks ago BY HEALTH CARE COMPACT

When president Obama publicly faulted the Supreme Court’s decision to review ACA subsidies under King vs Burwell, he referred cryptically to certain difficulties to which there were “no easy solutions”.

"This should be an easy case. Frankly, it probably should not even have been taken up," Obama said during a press conference at the G-7 summit in Germany.

When asked whether the administration had a "plan B," in the event that the Supreme Court strikes down subsidies in states that do not run their own health insurance exchanges, Obama said there are no easy solutions.

"You have a model where all the pieces connect," he said. "And there are a whole bunch of scenarios -- not just with relation to health care but all kinds of stuff I do -- where if somebody does something that does not make any sense, it is hard to fix. This would be hard to fix."

The president called the legal challenge “bizarre” in light of the law’s successful implementation.

“What’s more the thing’s working,” Obama said.

Sylvia Matthews Burwell was more explicit about the nature of these difficulties. The HHS Secretary warned that the Obamacare insurance system would enter a “death spiral” if the Supreme Court struck down the ability of the Federal Government to provide subsidies policy holders.  A “death spiral” is a condition in which insurance becomes so expensive that the healthiest policy holders abandon it, leaving only the sickest behind, which in turn drives out anyone who can still hobble to the door.

Health and Human Services Secretary Sylvia Mathews Burwell was referring to the possibility that healthier people who don't have a pressing need for health coverage might drop out of insurance pools, leaving behind sicker customers and causing premiums to skyrocket.

That's what could happen if the justices uphold the King v. Burwell challenge. In that case, poor and middle-income Americans in the 37 states not running their own insurance marketplaces could lose Obamacare subsidies that make their health coverage affordable, causing them to drop out of insurance entirely.

Wendell Potter writes in Health Insurance Dot Org that when Obamacare required insurance companies to abandon strictly medically underwritten insurance, only two things would keep it from a death spiral.  The provision of subsidies and the individual mandate penalty.  He describes how a death spiral actually happened in 1994 Kentucky when something very much like Obamacare was launched.  Without subsidies and a compulsory mandated, the 1994 Kentucky scheme was doomed.  Potter describes what happened.

Another state I used to call home is Kentucky, where one of the country’s largest health insurers, Humana Inc., is based (and where I used to work). In 1994, Kentucky’s lawmaker decided it was time to make it illegal for an insurer to turn down any applicant because of health status. So they passed legislation that mandated what is known in the industry as “guaranteed issue” and “modified community rating.”

As a consequence, every one of the more than 40 health insurers that did business in the state had to offer coverage to every applicant, and they were restricted in how much they could vary premiums based on an individual’s age, gender, health status or occupation. They were not able to charge women more than men, for example, or to charge older people a lot more than younger people for the exact same policy.

Sounds fair, right? Well, the problem was that the lawmakers decided not to pass a bill insurers lobbied for that would have required residents of the state to buy coverage, as the Affordable Care Act does. The insurers warned of “adverse selection,” but they were ignored. In retrospect, the lawmakers should have listed to the insurers.

Without a requirement to purchase coverage, many of the youngest and healthiest Kentuckians decided not to enroll in a health plan. They knew that because of the guaranteed issue requirement, they could just wait until they got older and sicker before buying coverage.

What happened in short order was that the pool of customers in Kentucky willing to buy coverage became considerably older and less healthy. Adverse selection did indeed occur. When it happens, insurers have no choice but to raise rates on everyone in the risk pool in order to remain solvent. When they raise rates even more people choose to go uninsured. That eventually causes something that sounds (and is) even more ominous: a death spiral.  ...

Because of adverse selection and the resulting death spiral, Kentucky lawmakers had no choice but to repeal the guaranteed issue legislation. Even with the repeal of that law in 2000, the individual insurance market did not return to its former size, and many of the insurers continue to steer clear of Kentucky.

(To its credit, Kentucky was one of the few states to set up and run its own health insurance exchange. And it’s a good one. It has frequently been cited as one of the best in the country.)

Other states, including Washington and New York, experienced a similar dynamic. In New York, the individual market shrank from 1.2 million to just 31,000 between 1992, when the lawmakers passed a guaranteed issue bill, and 2010.

The trouble is, Obamacare appears to be entering into a “death spiral” even before the Supreme Court hears King vs Burwell.    In Kentucky, the very state that Wendell Potter uses as an example,  price increases are causing premiums to spiral upward.  “Hospitals in Kentucky are hemorrhaging money and laying off staff, all thanks to the KYNECT Affordable Care Act state health care exchange, according to a report from the Kentucky Hospital Association.” The additional costs are forcing increases in premiums.

Democratic Governor Steve Beshear established KYNECT as a state-run Obamacare health exchange via executive order in 2013, over the vigorous objections of Republicans in the state legislature.

Last month the Kentucky Hospital Association released a stinging indictment of the financial calamity KYNECT has imposed on them in a report titled “Code Blue,” which concluded in bold print: “The bottom line: Kentucky hospitals will have higher losses and lower operating margins due to the ACA [and KYNECT], with a projected net loss of $1 billion from 2014 to 2020.” That finding was based on “an independent analysis of the ACA’s impact on Kentucky hospitals” conducted by the Dobson/DaVanzo consulting firm.

The increases are hefty. According to Kentucky Health News: “For the individual market, the requested average rates from companies already participating in the Kynect exchange are:”

  • Anthem Health Plans, 14.6 percent increase;
  • CareSource Kentucky, 11.8 percent increase;
  • Humana Inc., 5.2 percent increase;
  • Kentucky Health Cooperative, 25.1 percent increase;
  • WellCare Health Plans, a 9.28 percent decrease.

Bear in mind these increases are hitting before King vs Burwell!  

Why are most rates going up?

For an insurance company to survive, its cost of providing benefits should be less than the premiumums paid for those benefits. Companies now have had more than a full year of claims data to inform pricing structures, and many insurers are finding that people who buy policies on exchanges are considerably older and sicker than anticipated, reports Megan McArdle of Bloomberg News.

As a result, insurers are incurring greater costs of providing benefits than expected. Initially, the U.S. Department of Health and Human Services said that about 40 percent of the exchange policies should be bought by people between 18 and 35, the most healthy age group, to keep the exchanges financially stable. However, according to HHS data, that group accounted for only 28 percent of the policies in 2014 and 2015.

Not only do older people have more complex and more costly health needs, rising premiums in some state-based exchanges are due in part to the uncertainty in the overall health-insurance marketplace. First, there is much uncertainly about the reform law's "risk corridor program," which was designed to have insurers share the financial risk of offering policies on Obamacare exchanges from 2014 through 2016.

The program creates a pool of money to reduce risk for insurers: Those that pay out less in benefits than they collect in premiums pay into the pool; those whose premiums don't cover the cost of providing benefits take money from the pool. However, a recent Standard & Poor's report says the risk corridor will probably not get enough money from insurers with profitable exchange plans, so many insurers must raise premiums to support themselves.

Although there is some hope that the premiums will plateau and settle down, that this is a one-time spike in prices, the other explanation is Obamacare costs.  Rising costs can be regarded as negative subsidy.  If Obamacare imposes more costs upon the system then it gives back through subsidy mechanisms, then it is as if there were no subsidy at all.  Moreover, the Individual Mandate does not completely lock down the insurance system against flight.  “Major tax-preparation firms say many customers are paying the penalty and not getting health insurance.”

Only 12% of uninsured people would buy policies if informed of the penalty, according to a survey of 3,000 adults polled through Feb. 24 by McKinsey & Co.’s Center for U.S. Health System Reform.

At H&R Block Inc., “our analysis indicates that a significant percentage of taxpayers whose household members were not covered for at least a portion of 2014 are opting” to pay the penalty, said Mark Ciaramitaro, a vice president of health-care enrollment services at the tax-preparation firm.

This suggests that an Obamacare death spiral can happen despite the penalty and the subsidies if the costs rise high enough to overwhelm them. David Hogberg of the National Center for Public Policy Research argues the death spiral is already happening because rising costs are making the insurance uneconomical.

Even if the King v. Burwell case fails at the U.S. Supreme Court next month, the future for the ObamaCare exchanges is still far from assured. Even if people on the 37 federal exchanges get to keep their subsidies, chances are these people will eventually be caught in the vortex of the "death spiral."

What Hogberg argues from theory appears to have empirical support in a study by Michael Smith of the University of California Santa Barbara.  He studied the “slow motion” death spiral of a California insurance program, Coordinated Health Insurance Plan (CHIP) that was very similar to Obamacare.  Like Obamacare it, it only tiered its pricing by sex and age, not medical condition.  Like Obamacare it tried to fend off a “death spiral” with subsidies and even insurance premium caps.  But it only slowed the process down.  It did not prevent it.

While most of the private market’s premiums rose by almost exactly the same amount as inflation in medical treatment, the CHIPs premiums went wild, rising from $526 per annum in 1980 to a staggering $117,361 in 2009.   “The rates increased by a factor of 223.2”.  By contrast, premiums in programs that could medically underwrite their policies rose over the same period from $476 in 1977 to $5,131 in 2010,  The difference, they concluded, was healthy people fleeing from CHIPs and leaving only the very infirm in it. The death spiral was only momentarily arrested by Obamacare-like controls, but it occurred anyway.

The problem Smith concluded, was that whenever anyone could flee a policy because they were being overcharged to pay others, then they would flee the and leave the sick stranded in the “closed block”.  The only way to keep an insurance pool healthy was to keep refreshing it with new blood.  And that could only be done by making it attractive to the young and healthy, and not by making promises to the infirm.

Even in the supplementary insurance market of Australia, Smith argues, the distortions in risk pools from social policy mandates caused a mild form of “death spiral” contractions until they were reversed by the regulators.  His study implies that “death spirals” are likely to be a part of any system in which the balance between actuarial reality and social policy goes too far.

The situation therefore is this.  Obamacare may already be in a death spiral from the costs imposed on it by regulation and social mandates.  But that possibility will rise to a considerable probability if the administration loses the King vs Burwell case.  If an actual death spiral occurs it will collapse the system, leaving everyone worse off than before.

Why is Obamacare so Expensive?

POSTED 4 weeks ago BY HEALTH CARE COMPACT

The question of whether -- and in that case why -- costs exceeded estimates in Obamacare should interest anyone concerned with improving the health care delivery system.  After a lot of denial the fact that costs are running perhaps even more wildly out of controlled seems no longer in doubt.

Insurance premiums are rising and nobody seems to have known with any certainty what the cost impact of Obamacare would be.  The prices charged by hospitals appears to be increasing.  The estimates of how many additional people would join Medicaid were wildly off, leading to blowouts in state budgets.  Pharmaceutical costs have shot up at a “crippling” rate.

In Hawaii, which the president claims as his birth state, HMSA “is seeking to raise its insurance premiums by 49.1% for new members enrolled under the Obamacare mandate.  The increase impacts about 21,000 HMSA customers who do not get their insurance through their employers. It's the largest rate increase it has ever asked for, and larger than many other insurers across the country are asking for the same group of customers, according to national media reports on other states.”

The state insurance commissioner put out a press release about the unusually large request saying, “the Insurance Division will actively seek reductions to the proposed request, where possible, to ensure fairness to all parties involved.”

In a letter to  members, HMSA said it understands their frustration, but defended the increase as being necessary and in line with other states, although an article it provided to back up that claim only identified one state, New Mexico, as having a higher rate increase request. Most others were in the range of 25-35%.

The extent to which costs have become a problem is exemplified by California’s attempts to recover Medicaid costs by selling the houses of deceased patients, a program which has come under political criticism.  “The state's Medi-Cal program has long looked to the estates and heirs of deceased Californians to recoup public money spent on their healthcare in the last years of life.”

But the practice — including suing survivors and filing liens against the homes of poor families — is coming under attack in Sacramento.  … If signed into law, Senate Bill 33 would limit the state's ability to go after homes "of modest value," allowing survivors hardship exemptions for homes with fair market value of 50% or less of the county average. It would also prohibit seeking money from the estates of surviving spouses.

And it’s not just California.  The Obama administration has lowered the “minimum loss ratio” for insurers participating in Medicaid.  This essentially passes on some of the costs to providers by forcing them to take it out of profits.

The Obama administration released a proposed rule Tuesday for the Medicaid managed care program, which enables Medicaid recipients to get a private health plan subsidized by the state they live in. Regulations governing Medicaid managed care have not been updated since 2003.

The program has skyrocketed in popularity with about 74 percent of the Medicaid population in some type of managed care, according to the Centers for Medicare and Medicaid Services.

The most controversial portion of the rule is the introduction of a medical loss ratio, which outlines how much of a payment to an insurer should be dedicated to providing care and to administrative costs.

The rule recommends that 85 percent of a payment from a state to an insurer must be used to cover a medical claim and 15 percent on administrative costs.

Loss ratios have long been a feature of insurance regulations, but formerly they were set at much lower levels, typically from 60-80%.

Prior to Obamacare, most states required insurers to pay a certain percent of premiums to hospitals, doctors, pharmacies, diagnostic centers, etc. Alternatively, others limited the amount that could be available for “Administrative Costs”.

The “required percentage” for health costs, is known as the “Minimum Loss Ratio”. For most states that number was between 60% – 80% (but often was higher for larger employers than for smaller employers and Individuals where some portion had to be set aside to pay outside brokers and agents for servicing individuals and small employers). This “minimum loss ratio” kept insurers from unreasonably charging premiums that were much beyond the actual costs of health care. The state regulators that enforced these ratios were familiar with the particular structure of the system in their states, and they helped guide the establishment of these requirements with care. This ratio is heavily impacted by the local factors such as the degree of Care Management in a particular market, the amount needed to effectively support broker and agent servicing for policyholders in a given market, the amount of state based premium taxes charged to the insurers, etc.

Under Obamacare, this “minimum loss ratio” was standardized and increased for all states to 85% for employers and 80% for individuals. Because of the increase, many insurers are not able to continue to pay for insurance agents and brokers, and the consumer and small business will suffer from the loss of ongoing service and support.

The new caps represent an attempt by the Obamacare system to hold back the tide of rising costs. Yet many of those costs were added by Obamacare itself.  It added $35 billion of paperwork costs to state bureaucracies, only a tiny fraction of total administrative costs imposed by the program.

Between 2014 and 2022, CMS projects $2.757 trillion in spending for private insurance overhead and administering government health programs (mostly Medicare and Medicaid), including $273.6 billion in new administrative costs attributable to the ACA. Nearly two-thirds of this new overhead—$172.2 billion—will go for increased private insurance overhead (data not shown in table).

Most of this soaring private insurance overhead is attributable to rising enrollment in private plans which carry high costs for administration and profits. The rest reflects the costs of running the exchanges, which serve as brokers for the new private coverage and will be funded (after initial startup costs) by surcharges on exchange plans’ premiums.

But even these gargantuan costs may not reflect the actual burden that Obamacare has added to the system.  Obamacare has pulled a large percentage of very sick people into the insurance system.  This took two forms.  First, the ACA abolished the high risk pools that states used to separately maintain and rolled them into Medicaid expansion.

Add Tennessee and Kansas to the list of states that have been warned by the Obama administration that failing to expand Medicaid under the Affordable Care Act could jeopardize special funding to pay hospitals and doctors for treating the poor.

The Centers for Medicare & Medicaid Services confirmed Tuesday that it gave officials in those states the same message delivered to Texas and Florida about the risk to funding for so-called “uncompensated care pools” — Medicaid money that helps pay the cost of care for the uninsured.

The letter to Florida officials last week drew the ire of Republican Gov. Rick Scott who said the federal government should not link the $1.3 billion in uncompensated care funding with the state’s decision not to expand Medicaid. He has threatened a lawsuit against the Obama administration if it cuts off the funding, which is set to expire June 30.

The high risk pools used to be where the American medical system put individuals who were deemed “uninsurable”.  Like hot water they were in a bucket by themselves.

After 1996, with the passage of the 1st phase of the Federal law authored by Kennedy (D) and Kassabaum (R), called HIPAA (Portability), all group and individual plans in the United states became GUARANTEED RENEWABLE. That meant that the insurer was banned from canceling any employer or individual because of health conditions that developed once they were insured. …

HIPAA Portability required the establishment of a HIGH RISK pool in each state that offered the two most popular plans sold in the Individual Market of that state, and by the insurers who offered Individual Plans in that state on a GUARANTEED ISSUE basis. This HIGH RISK plan was available to anyone who was declined enrollment in the individual market because they waited to enroll until they became sick. All insurers selling in the individual market were required to participate in the High Risk Pools and pricing was subsidized so that these very sick, uninsurable people were covered on the most popular plans at prices that were no more that about 25% higher than the general market. Some states used this as a transition step for a few years, and then required the insurance companies to “normalize” these high risk individuals by absorbing them into their generally priced plans in an organized way. A much more preferable solution to the current “All at once” structure of Obamacare.

There was a good reason why sick and ininsurable patients deserved special consideration. “Five percent of Medicaid patients account for half of program's costs.”

About 5 percent of Medicaid beneficiaries account for almost 50 percent of program spending, according to a new report from the nonpartisan Government Accountability Office.

The report says a small number of “super-utilizers” consume much of healthcare spending. The GAO found that from 2009 to 2011, 5 percent of enrollees in Medicaid, the government health insurance program for the poor, made up 48 percent of costs; the most expensive 1 percent made up 25 percent of costs. “Blue Cross Blue Shield of Texas last year took up to a $400 million loss on its individual, Obamacare-compliant plans, according to filings disclosed earlier this week by the federal government.

The dynamic is not unique to Medicaid. The Department of Health and Human Services found that in 2010, 5 percent of the overall population accounted for 50 percent of healthcare spending.

Clearly, adding this pool of individuals to the general Obamacare, as when one adds boiling water to room temperature liquid, will raise the temperature of the mixture.  In the case of insurance, “temperature” is analogous to premiums.  Adding the high insurance patients raises the necessary premium.  While everyone knew that would happen it was not perhaps so easily predicted what the disproportionate effect of adding these sick individuals to the pool would have.  Planners may have at first believed that most of those who would be added to the insurance pool would simply be the working poor, impecunious but not necessarily unhealthy.

Actually, the poor have had automatic comprehensive coverage under Medicaid since 1965. Three principal groups are represented among the “uninsured” in America:

1/3 are people temporarily uninsured (e.g, between jobs) and who would get insured within a few months;1/3 could afford insurance (average annual income > $70,000 but elected not to buy it;

1/3 could afford insurance (average annual income > $70,000 but elected not to buy it;

1/3 employed in low salary jobs, making too much to qualify for Medicaid but not enough to buy insurance.

This last group — “the working poor” — numbered about 15-20 million people, were the real “uninsured”, and were the real problem.

(Think of how much easier it would have been to develop a program subsidizing them to purchase private insurance).

But as Texas’ Blue Cross Blue Shield discovered, it had low-balled its estimates of what they new enrollees would claim. “Blue Cross Blue Shield of Texas last year took up to a $400 million loss on its individual, Obamacare-compliant plans, according to filings disclosed earlier this week by the federal government.  The loss stems from the difference between the $2.1 billion or so that BCBS took in from customers' premiums, and the $2.5 billion it paid out in health claims from those people.”

Obamacare’s last line of defense against runaway costs was the  Independent Payment Advisory Board, a body which Sarah Palin once called a “death panel” thereby making it a political hot potato.

The term "death panel" has been used in conjunction with IPAB. Sarah Palin wrote in the Wall Street Journal that the National Commission on Fiscal Responsibility and Reform "implicitly endorses the use of "death panel"-like rationing by way of the new Independent Payments [sic] Advisory Board."  The New York Times reported some Obama administration officials feared the Independent Payment Advisory Board could be "target for attacks of the 'death panel' sort".

The IPAB never lost its grim reputation. It has been abolished in a bill that will be submitted to the president, who may veto it.  Howevever the IPAB appears to be as popular as leprosy in Washington right now.

The IPAB, which was repealed by a vote of 31-8, was designed to be a 15-member independent body that would make recommendations on cuts to the Medicare budget; if Congress didn't agree with the IPAB's recommendations, it would have to devise its own plan to cut the Medicare budget by an equivalent amount. However, the idea was so controversial that no members were ever appointed to the board and it has never met.

IPAB as a cost control mechanism is never going to fly.

Taken together all these developments spell trouble and perhaps doom for Obamacare.  Its rising costs are threatening to turn it into a political white elephant.  Part of the problem appears to be a gross underestimate of what it would cost, mistakes which are now being corrected by insurance price increases.  The real danger to Obamacare is not King vs Burwell in the Supreme Court, but its high cost of implementation.

Anatomy of a Disaster

POSTED one month ago BY HEALTH CARE COMPACT

Sometimes defects in a system’s design become apparent only when an initial flaw cascades into a major catastrophe.  The Tacoma Narrows Bridge, which collapsed disastrously in 1940, was built on the theories of Leon Moisseiff, a New York bridge engineer who advocated deflection theory, “which held that the longer bridges were, the more flexible they could be”.  One of Moisseiff’s key assumptions was that the weight of the bridge hanging from its cables would provide sufficient stiffness against the winds. As everyone knows this assumption proved wrong.  The bridge destroyed itself as it built up an increasing oscillation in moderate winds.

The sudden and worrying rise in Obamacare premiums may be harbinger of a hidden design flaw, one which threatens to overtake the Affordable Care Act with disastrous effect.  The degree to which the unknowns in Obamacare’s design were ignored are reflected in Reed Abelson’s article in the New York Times about the spectacular spike in requested insurance premiums: “Seeking Rate Increases, Insurers Use Guesswork”.

Nobody knew for sure -- not even the insurers -- just how much the Obamacare provisions would raise premiums.  So they guessed -- and they are still guessing.

In a sign of the tumult in the health insurance industry under the Affordable Care Act, companies are seeking wildly differing rate increases in premiums for 2016, with some as high as 85 percent, according to information released on Monday by the federal government for the 37 states using HealthCare.gov as their exchange.

The data from the Centers for Medicare and Medicaid Services included only proposed rate increases of 10 percent or more, and federal officials emphasized that it would be months before final rates were set. Regulators in some states have the authority to overrule rate increases they deem to be too high. …

But many insurers, including those seeking relatively hefty increases below 10 percent, say they are asking for higher premiums because they remain unsure about the future and what their medical costs will be. …

In Delaware, the state’s insurance regulator said on Monday that two insurers asked for much higher rates in 2016: Highmark Blue Cross Blue Shield sought a 25 percent increase, while Aetna wanted an increase of 16 percent.

“Large rate increase requests like these are occurring in several states across the country,” said Karen Weldin Stewart, the Delaware insurance commissioner, who said she planned to try to reduce those rate requests.

It’s not just Obamacare exchange plans which have experienced a cost blow-out.  Medicaid expansion, which is a far larger component of the program far overshot its estimated ceilings: “Medicaid enrollment under ObamaCare soars, raising cost concerns”.

Several states that chose to expand Medicaid eligibility under ObamaCare now are facing deadline pressure to pay for it, the result of more signups than anticipated -- and, a looming reduction in how much of the bill the federal government will cover.

At least seven of the 29 states (and the District of Columbia) that expanded coverage have experienced significantly higher-than-expected enrollment. The expansion of Medicaid, the government health care program for low-income people, now allows most low-income adults making up to 138 percent of the federal poverty level to qualify. An estimated 1.4 million more people than expected have signed up in those seven states since enrollment opened in October 2013 -- with Illinois, Kentucky and Washington state more than doubling their projected numbers.

The experience is serving as a cautionary tale for states, including Florida, still debating whether to take the plunge and green-light the Medicaid expansion, which is optional.

The enrollment interest is definitely there -- but so is a ballooning taxpayer bill.

The Economist notes that employers are slashing wages to pay for the unexpectedly high costs of Obamacare.  Nobody saw this coming, at least not publicly.  “This week health insurers have begun revealing proposed rate increases to their health-care plans for 2016. These potential hikes, which in some cases exceed 30%, can be partly explained by the fact that insurers low-balled their prices in the early days of the Affordable Care Act in order to gain market share. But there is another reason: higher drug prices. Prescription drug spending increased 13.1% in 2015.”

In the face of rising drug prices, insurers have two options. They can either raise the cost of their insurance, as many would like to do this year. Or they can continue to limit the coverage of their plans, either by using co-pays on drugs or increasing the amount that patients must pay out of pocket before insurance kicks in (ie, high-deductible plans). Yet high-deductible plans tend to deter patients from seeking medical help. If high drug prices for a few speciality drugs drive more people onto high-deductible plans next year, then the needs of a select few may end up distorting the health outcomes of the masses. Examples also abound of patients who are brought to ruin by the costs of their drugs, and others who are forced to abandon life-saving therapies altogether.

Rising drug prices create other problems, too. Companies that are forced to pay higher health-insurance premiums for their workers are less inclined to raise salaries, says Steve Miller, the chief medical officer of Express Scripts, a company that manages drug benefits for insurers. Drugs for Hepatitis C alone will have $20 billion in sales this year, he says. Divided by 180m workers, this is a 5 cent-per-hour tax on every single paycheck.

What appears to be happening is that a series of effects, each perhaps minor in itself, are cascading to form a perfect storm.  The Obamacare individual mandate increased demand by penalizing people who didn’t buy insurance.  The Employer Mandate had the same effect.  But the Cadillac Tax levied duties on companies which provided health care, forcing them to pass it on to their employees in the form of high deductibles. Administration costs amount to one quarter of a trillion dollars were added to the health care system.

Perhaps unrecognized by nevertheless operative, is the fact that forcing people out of one insurance policy onto another induces a cost inflation in itself.  Medical inflation hit an 8 year high. Through it all, Obamacare’s advocates claimed: it’s only a blip, it’s only temporary. But with high premium increases being requested nationwide the question must be faced: did Obamacare break something?

Have all the costs -- a little here, a little there, a rise here, a medical device tax there -- fed in on each other to create a cascade?  This possibility can no longer be ignored. John Hayward writes in Breitbart: “The latest round of very bad news for ObamaCare involves insurance premiums blasting into orbit, with insurance companies preparing for price hikes of 20 to 30 percent. That’s nowhere near the ceiling you’re going to hit, you poor saps.”

The real nightmare is that there’s a fatal flaw in the system and like the Tacoma Narrows Bridge, it’s cascading through the structure.

The End of the Road if Insurance Premiums Spike

POSTED one month ago BY HEALTH CARE COMPACT

The signs are as ominous as portents in a horror movie.  First there was news a couple of weeks ago that health insurance premiums were on the rise, by up to 51%. “Major insurers in some states are proposing hefty rate boosts for plans sold under the federal health law, setting the stage for an intense debate this summer over the law’s impact,” the Wall Street Journal reported.

But Obamacare supporters assured the public that these were scare stories.  On the whole the premiums weren’t going to rise by that much, they said.  Salon wrote that the Republicans were trying to fuel hysteria. “Have you heard the scary and shocking news? In 2016, health insurers are looking to dramatically hike insurance premiums for plans sold through the Affordable Care Act’s federally facilitated marketplaces. That, at least, is the takeaway from stories published by Fox News, The Hill, and other outlets reporting on preliminary data on the ACA released by the White House recently.”

Conservative news outlets jumped on the news as proof that the Affordable Care Act is failing to live up to the promise of its name. John Boehner’s office rounded up literally every scary headline about Obamacare premium hikes to claim that the law “is set to deliver an even bigger blow to working families next year.” It’s a huge scandal! Obamacare is failing! The lies are finally being exposed! And so forth.

It advised its readers not to worry. Then more data was released. “WASHINGTON—The Obama administration published more information Monday about hefty premium increases for 2016 sought by large insurers selling plans under the health law.”  This time the increases were from the biggest insurance firms in the country.

Blue Cross and Blue Shield of Illinois is looking to raise rates by averages of 29% or more. In Pennsylvania, Highmark Health Insurance Co. is asking for 30%, according to proposals submitted by insurers for the year ahead. Around the country, some of the main market leaders are looking for double digit increases.

The administration took solace in bureaucracy, pointing out that the rate increase submissions had they to be approved.  But industry observers said this missed the point.  Health care costs were rising and this was driving the insurance providers into raising rates to make up the difference.

Greg Thompson, a spokesman for the Illinois insurer, said rate proposals reflected the health plan’s medical claims, and noted provisions in the health law that require insurers to spend the vast majority of premium income on claims or refund the difference to consumers.

Other insurers also have said their rates for the year ahead reflect the impact of the law’s sweeping changes to the way health insurance is sold and priced.

Under the health law, plans have to sell coverage to everyone, regardless of their medical history, and can’t charge people who are more seriously ill higher rates. Health-plan officials say that means they are bearing bigger medical claims than they had expected.

Moreover, insurers have said they face substantial pent-up demand for health-care services from the newly enrolled, including for expensive drugs. …

Some observers said the requests reflected other ominous signs.

The companies with the biggest market shares are raising rates, signaling they don’t care if that causes them to lose enrollment, said Bob Laszewski, at Health Policy and Strategy Associates LLC in Alexandria, Va.

“This is not a good sign,” he said. “These people are saying they don’t care if they keep the business. They don’t want it if it’s not profitable.”

Those with lower increases still above 10% also include smaller carriers, but the larger operators have more data, he said. “We have a trend of the big market share companies asking for 15% to 35%,” Mr. Laszewski said.

An increase in the range of some 15-35% would be politically devastating for the administration.  The horror movie hint was threatening to become a full blown scenario.  The monster, previously only fleetingly glimpsed, was coming into complete view. Dan Mangan of CNBC held out the possibility that price controls or rate refusals could keep the lid on the premium hikes.

"The Affordable Care Act requires that insurers planning to significantly increase plan premiums submit their rates to either the state or federal government for review," says the Rate Review page on HealthCare.gov. "The rate review process is designed to improve insurer accountability and transparency. It ensures that experts evaluate whether the proposed rate increases are based on reasonable cost assumptions and solid evidence and gives consumers the chance to comment on proposed increases."

But how long could price controls keep things back. Margot Sanger Katz and Katie Thomas at the New York Times that “Data Shows Large Rise in List Prices at Hospitals”, which suggests that the underlying costs are not under control.

The prices that hospitals ask customers to pay for a series of common procedures have increased by more than 10 percent between 2011 and 2013 — more than double the rate of inflation.

But the amounts paid by Medicare, the government health care program for seniors and the disabled, has stayed flat, according to data released Monday by the federal government. The hospitals’ rising list prices mainly affect the uninsured and people who use hospitals outside their insurance network. …

The American Hospital Association asserts that the rising prices reflect the costs of running a hospital. “Over all, health care costs tend to rise higher than inflation rates,” said Caroline Steinberg, a vice president of the association. She added that Medicare, which sets its own prices, pays less than what it costs many hospitals to provide care.

What might happen if costs continue to rise is the increases will overwhelm the subsidies, reproducing the doomsday scenario depicted by Obamacare even if the administration wins King vs Burwell.  Cost increases would have the effect of canceling the subsidies now offered whatever the Supreme Court decides.  The scenario depicted by Sylvia Burwell would play out even with the subsidies in place.

If the high court decides the subsidies are invalid, Burwell wrote, insurance would become unaffordable for millions of people, healthy people would be less likely to purchase insurance and Obamacare would no longer work in states with federal exchanges, driving up insurance costs.

The horror movie would move to its climax and mean the end of President Obama’s domestic legacy and it would mean back to square one for the Democrats.

The Challenge of Innovation and Expensive Drugs

POSTED one month ago BY HEALTH CARE COMPACT

One of the biggest threats to Obamacare is innovation.  The healthcare policy scene was rocked by news that insurers were going to ask for very hefty premium increases in 2016. "There are some eye-popping numbers in health plans’ proposals for 2016 insurance premiums in some states under the Affordable Care Act, also known as Obamacare."

As today’s Wall Street Journal reports, the biggest insurers in some of the states that have made the plans’ requests public are seeking average increases such as 51.6% in New Mexico, 36.3% in Tennessee and 30.4% in Maryland — enough to make a 14.5% proposed raise here, or an 8.4% boost there, look almost tame.

Some of those cost increases were due to the mandatory expansion of health insurance coverage to those with pre-existing conditions -- which shifted the cost to other policy holders. A further percentage can be traced to an explosion in bureaucratic overhead which has added a quarter of a trillion dollars in costs to the health care system.

But most of it -- believe it or not -- has been caused by the advent of new, highly effective, and expensive pharmaceuticals. Reuters, quoting Express Scripts, says the number of Americans using more than $100,000 in medications has tripled from last year.

The culprits are a new generation of cures, or near-cures that cost north $80,000 a course of treatment. The poster boy -- or villain, depending on your preference, is Sovaldi. The good news is that Sovaldi cures Heptatis C. The bad news is it costs $84,000 for a course of treatment.

Harry Hooks served in the Vietnam War for one year and is long retired from the military, but he is still paying a high price for his service. The 66-year-old veteran, who lives in Pennsville, New Jersey, was diagnosed with hepatitis C in 2004 and has struggled with painful symptoms ever since.

During the war, soldiers may have been infected with hepatitis C while getting vaccinations with rapid-fire tools known as jet injectors. If Hooks didn’t get the virus from those vaccinations, he says it probably was from the 40 units of blood he received in a transfusion after he was “blown up” on duty in 1969.

Decades later, the virus causes his hands and feet to throb in pain or go numb, a condition known as peripheral neuropathy. He often feels fatigued. When he heard about new hepatitis C drugs that were coming onto the market last year and promised a remarkable cure rate, he was eager for himself and fellow vets he had met through a support website called hcvets.com to receive treatment.

But he was also wary. Hooks started warning other veterans not to get their hopes up about receiving the drugs anytime soon -- it took but one look at the list price of these expensive new medicines for Hooks to suspect that the U.S. Department of Veterans Affairs would struggle to pay for them.

Today, Hooks has not yet received any of the new medications, but the Department of Veterans Affairs has stopped enrolling new hepatitis C patients for the drugs due to budget constraints. The VA initially reallocated $700 million to cover the costs for 20,000 veterans but asked Congress for another $400 million in a letter sent last week.

“They ran out of money,” Hooks says. “Anybody that was in line to get access will have to wait.”

Hooks is one of 3.2 million Americans who have hepatitis C, a viral infection that causes the liver to become inflamed. It is spread through contact with the blood of another infected person and over time, it can cause scarring of the liver known as cirrhosis or liver cancer, both of which can be fatal.

A drug named Sovaldi cures more than 90 percent of patients with hepatitis C who take a daily pill for just 12 weeks with minor side effects. Those results made it the obvious choice for patients such as Hooks, who had already tried multiple drugs, including ribavirin and interferon, which only promise a 50 percent cure rate.

The Food and Drug Administration approved Sovaldi in December 2013, but when manufacturer Gilead Sciences Inc. announced the price -- $84,000 for 12 weeks of treatment, or $1,000 per 400 mg pill – patients and their insurance companies balked.

One of the unavoidable problems is that innovation creates by it very nature an inequitable distribution, and therefore generates a political problem. New pharmaceuticals create a whole series of moral dilemmas that did not exist before. Before the availability of a cure one just died and everyone accepted that. Once a cure or near cure becomes available the problem suddenly becomes, "why is it so expensive?"

The current response to the high price of Sovaldi have been Congressional inquiries into actual marginal cost of its production. The reasoning goes along the lines: "if it only costs $10,000 to produce the pills then the company ought to be allowed to charge only $15,000". John La Mettina, writing in Forbes, says this is the wrong approach entirely, arguing that market pricing never had anything to do with the cost of production, but everything to do with value.

Dr. Jerry Avorn, of Harvard Medical School and a long-time critic of the pharmaceutical industry, has published an opinion piece in the New England Journal of Medicine, challenging the costs of drug R&D as elucidated by the Tufts Center for the Study of Drug Development. Last November, the Tufts group published an analysis showing that it costs pharmaceutical companies $2.6 billion to develop a new drug. It is Avorn’s belief that the $2.6 billion figure is being “used to justify the cost of several expensive medications and to support longer periods of exclusivity for new drug products.”...

Avorn and Angell are focused on the wrong issue. When it comes to the pricing of new drugs, R&D costs are not the major driver. Nor should they be. The driver should be the value the drug brings to the healthcare system....

When innovation leads to the discovery and development of an important new medicine, then its price, in turn, should be driven by the value that it brings.

Alexion sells one of the world’s most expensive drugs, Soliris. This drug treats two diseases: a rare form of anemia and a rare kidney ailment known as atypical hemolytic uremia syndrome. Soliris costs over $400,000 per patient per year, yet payers around the world reimburse the cost of this drug because, before it was available, each of these patients cost the healthcare system $1 million per year. Even at it high price tag, Soliris provides value – and greatly benefits patients.

Following the logic of La Mettina, the $84,000 Sovaldi drug should be considered a bargain because the alternative is either death of $1 million liver transplant. However liver transplants don't create a political problem because there aren't enough livers to go around at any price. By contrast society could cure nearly everyone of hepatitis C if we were willing to spend $400 billion.

Medically, it makes sense to treat as many people as possible for the virus, before severe damage has a chance to occur. Trouble is, curing every U.S. patient with Sovaldi and companion drugs could cost $400 billion, assuming some people need to be retreated, according to estimates from hepatitis C researcher Andrea Branch at the Icahn School of Medicine at Mount Sinai in New York. That is more than the $263 billion the U.S. spent on all prescription drugs in 2012, according to government figures.

Innovation creates the crisis because it creates a market for a product where one never existed. One could hasten the fall in price by amending patent law which creates government created monopolies to derive rents for great a length of time. Still the problem remains: there will be an irreducible period where people will be tantalized by a cure they cannot afford.

For some the political problem is simply too hard to solve. Perhaps the most eloquent defense of the preference of equality over innovation is the essay by Zeke Emmanuel, the architect of Obamacare, in the Atlantic titled "Why I Hope to Die at 75". His argument is essentially that it costs too much to keep you alive.

At 75 and beyond, I will need a good reason to even visit the doctor and take any medical test or treatment, no matter how routine and painless. And that good reason is not “It will prolong your life.” I will stop getting any regular preventive tests, screenings, or interventions. I will accept only palliative—not curative—treatments if I am suffering pain or other disability.

But not even Zeke can so easily stop innovation. The news has been full of accounts of the promising clinical trials of new immunotherapies which could reduce various cancers to chronic, instead of fatal diseases. It will stop being "good news" when we find that it initially costs too much for everyone who wants them.

Public policy might, by reducing unnecessary government regulation remove those artificial barriers that prevent the rapid decline in prices through competition. It might create a pathway to allow that what is innovative and expensive today will become cheap and commonplace tomorrow. But for as long as there is a frontier of discovery there will be first adopters and those that come following the wave.  We cannot reduce to zero the interval in which some will get the newest, expensive medicines while others do not.

California has responded to the dilemma of high drug costs by kicking the can down the road and introducing a form of discrimination in an attempt to manage the costs. “Tackling the high price of specialty drugs, California's Obamacare exchange capped what consumers will have to pay for expensive medications each month.”

The new limits, set to go into effect in January, mark a first for state exchanges nationwide, according to Covered California. The exchange's four-member board approved the changes unanimously Thursday.

Most consumers will have their specialty drug costs capped at $250 per month, per prescription. But the exchange resisted pleas from patient advocates to extend that same limit to Bronze health plans, the cheapest coverage available on the state-run marketplace.

The monthly cap on Bronze plans will be $500 a month -- after a $500 pharmacy deductible is met.

However the state of California, like the VA, will “run out of money” unless premiums or other costs are eventually raised, for what is granted in the deductibles must be recovered in some other way.

Peter Lee, executive director of Covered California, said the exchange was being mindful of not making changes in benefits that drive up premiums too much. Officials estimated that the new spending caps would increase rates by less than 1%.

“These new policies strike a balance between ensuring Covered California consumers can afford the medication they need to treat chronic and life-threatening conditions while keeping premiums affordable for all," Lee said.

Not driving up the premiums “too much” is the operative word.  But when the additional 1% is added on top of all the other premium increases that Obamacare holders have had to absorb, it is easy to see that Covered California is merely shifting the dirt around.  The pocketbook pain it spares some patients must be paid for by spreading the cost around to others.

The basic cost containment strategy of Obamacare was that redistribution would lower costs.  The idea was that by increasing coverage people would get “healthier”, use fewer intensive medical interventions and reduce prices dramatically.  In order to implement this strategy its architects were willing to use taxes, penalties and create a huge bureaucracy to change people’s behavior.

The crisis facing Obamacare is that this cost containment strategy has failed.  Somehow, by destroying the market, creating special deals and “risk corridors” for providers and pharma, it has increased the costs far more than it has lowered them.  The problems posed by innovation are an example of why the approach of  pure bureaucratic redistribution must continue to fail.

Will Bundled Payments Save Obamacare?

POSTED one month ago BY HEALTH CARE COMPACT

The high cost of health care is putting political pressure on the administration to find ways to reduce cost.  In the blue state of California, 44% of Covered California customers reported difficulty paying premiums, according to the Los Angeles Times.

And a similar percentage of uninsured Californians say the high cost of coverage is the main reason they go without health insurance.

The issue of just how much people can afford will loom large as the state exchange prepares to negotiate with health insurers over next year's rates.

Many analysts are predicting bigger premium increases for 2016 in California and across the country. Insurers have more details on the medical costs of enrollees, and some federal programs that help protect health plans from unpredictable claims will be winding down.

Obamacare added costs to the system by covering high risk patients and imposing a bureaucratic overhead.  To offset those increases and claw the price back, it needs to find more efficient ways for providers to deliver care.  One of the last major remaining hopes is bundled care.  Vox, which has consistently supported Obamacare, described how “bundled payments” had the potential to radically cut cost.

Medicare traditionally pays doctors for each service they provide. So during a patient's visit, doctors have a financial incentive to run up as many services as possible.

Bundled payments attempt to do away with the fee-for-service system by bundling what Medicare pays for an episode of care into one payment. If a patient, for example, stays at a hospital overnight, Medicare's bundled payment program reimburses the hospital for the entire stay, not each service provided.

The idea is the hospital and its doctors will no longer be encouraged to run as many tests as possible during the patient's stay, since they'll get the same bundled payment no matter how many tests and treatments they run.

This has been a concept for a long time in health care. But Obamacare pushed the model along with the Bundled Payments for Care Improvement Initiative.

Whether that idea works in practice remains unclear. Many health-care experts caution that bundled payments, like the rest of Obamacare's cost-control programs, are still very much in the preliminary stage.

The bundled payments concept has actually been around a long time and the theory behind it seems deceptively simple, but it turns out to be damnably difficult to implement.  Peter Ubel, a physician and behavioral scientist at Duke University, explains why.  At first glance “bundled payments” look like a real winner.  But on further inspection its implementation requires the coordination of many disparate providers.

Paying someone to mow your lawn is a pretty straightforward affair. Ryan the lawn guy will look at the lawn size and maybe the hilliness of your yard and you’ll settle on a price for mowing and trimming it. When you decide to contract for Ryan’s services on a more regular basis, payment might get a little more complicated. If you pay Ryan every time he mows your lawn he might mow it more often than necessary. But that problem is easily addressed by paying him a fee to take care of your lawn for the entire growing season. ...

Enter bundled payments. In 2013, the Center for Medicare and Medicaid Services, henceforth CMS, launched its Bundled Payments for Care Improvement Initiatives, henceforth BPCI (in case your life needs more acronyms). In the BPCI, CMS identified 48 clinical conditions that qualify for bundled payments, meaning participating healthcare providers would receive payments designed to cover not only hospital care for the condition in question, but money to pay for all healthcare related services they receive for the next 30 days. Unsurprisingly, not all hospitals are eager to join this program. For starters, the hospitals have to be financially integrated with post hospital providers. If patients receiving stroke care at Our Lady of Acute Care Hospital receive post-acute care from a hodgepodge of rehabilitation facilities, many of which have no connection to the hospital, then coordinating payments will be a disaster.

More fundamentally the package of predictable services that go into a bundle, are except in a few cases, subject to great variation.  Ubel continues and concludes that bundled care is no magic bullet.

The researchers also discovered that many hospitals that joined the program later dropped out. And this brings us back to just how much more complicated it is to pay for hospital care versus lawn service.  Think for a moment about what a daunting task it is to define a “bundle” of care. Suppose a patient is admitted with a stroke. The onset of her condition is clear. But which of the following healthcare problems, all occurring in the next 30 days, should be included in the bundled payment? Suppose the patient falls and breaks her hip. That one is easy. Services to treat this problem should be covered by the bundled payment, because good healthcare would have prevented the fall. Here’s another easy one. Suppose the patient, 25 days after the stroke, develops acute leukemia requiring emergent chemotherapy. That diagnosis is unconnected to the stroke, and should be billed separately. But now for some potentially tougher diagnoses. Should the hospital receive extra money to treat the patient for pneumonia she’s contracted 12 days after her stroke? What about coverage of insulin therapy for the spike in blood sugar she experienced on day 17? What about consultation at day 21 from a psychiatrist because she has become depressed? What about treatment for a new rash, unconnected (as far as anyone can tell) from the patient’s stroke care?

There is nothing simple about paying for healthcare. Healthcare is by necessity a mess. Administratively, some systems are more messed up than others. But all systems are flawed because every way we choose to pay for healthcare potentially lures healthcare providers away from offering the best possible care.

When people say they know a simple way to fix any healthcare system – whether in the USA or elsewhere – I have simple advice for how to evaluate their solution. Dismiss it.

That doesn’t mean there’s no way to reduce health care cost. It may only mean that Obamcare’s chosen approach is not the way to do it.  Perhaps a better metaphor for health care than “mowing the lawn” is clothing.  Obamacare’s bundled payment system is trying to save money by turning medicine into something similar a ready-to-wear clothing business. Rather than paying for a button here and a stitch there, it would like to offer treatments in the most common “sizes” in an attempt to deliver it more cheaply.

But as Patricia Gabow, CEO and chief medical officer of a large safety net health system argued in an essay Health Affairs, even ready to wear clothing requires alterations.  We are all familiar with the tailoring shops attached to department stores who adjust length or waist size in clothing purchased off the rack to make them fit.  Without alterations, many ready to wear items of clothing would be useless.

As CEO and chief medical officer of a large safety net health system, Patricia Gabow, author of the powerful Narrative Matters essay in the May 2015 issue of Health Affairs, introduced evidence-based standard care pathways, computerized order entry and order sets, and Toyota’s “Lean” principles, which led to marked improvements in quality of care and health outcomes in patient populations for whom health disparities have been longstanding challenges. Such methods are now being adopted across the country and incentivized by the Affordable Care Act.

Then her mother, a nonagenarian with frailty and advanced dementia, injured herself in a fall. Gabow realized she didn’t want her mother to receive standard care. She successfully advocated for care better suited to their situation, and her mother was soon released from her surgeon’s care and lived the remaining two months of her life in relative comfort.

Gabow did not dispense with the pathways, procedures and order sets.  She varied them for her mother where appropriate.  But she realized that her position a health care CEO and MD gave her special powers to do this in a way that few other patients could hope to emulate.  She wrote that if it were good for her mother, surely it would be good for other patients.

To my mind, deviating from the standard approaches to care was clearly the best care for my mother. It gave her two more months of a calm and happy life and a peaceful death. I still believe in standards of care. For many patients, they provide protection from unwarranted and possibly deleterious variation. But my perspective has shifted a bit. Now I ask myself different questions. Could we adapt standards of care, particularly at the end of life, to be more flexible? Could there be branch points reflecting a patient’s age, overall condition, and most of all their desires and true best interest?

I also wonder, was it possible for me to deviate from the standards of care, opting for a less invasive approach, only because I had been the CEO of the health system? I was a physician who knew the caregivers, and none of the physicians at Denver Health were getting paid more to do more. Was it possible to avoid surgery in the last months of my mother’s life only because the director of orthopedics had had training that embraced more flexible standards? I suspect that had I not been a physician, I might not have challenged the standards. Similarly, if we had found ourselves in an unknown health system with providers who had been trained differently, choosing this path would have been more difficult, perhaps impossible. They might not have believed I was knowledgeable enough to weigh the options. They might have feared later accusations of malpractice.

I hope that I am wrong, but if I am right about the current state of health care, I hope that our health policies and our health care system will evolve to keep what is good about standards of care in reducing inappropriate variability, while learning to align them with patients’ goals and values, particularly at the end of life.

This is a far more fundamental objection to the bundled care model than the simple lack of administrative systems.  It argues that there is a point beyond which bundling and standardized care can actually harm the patient.  To use the clothing metaphor, it argues that no department store should be without its alterations counters -- and their attendant costs.

But perhaps the most radical argument against totally standardized care is that it represents medicine’s past.  According to some doctors the future of therapy -- and cost control -- lies in personalized medicine.  “Personalized medicine or PM is a medical model that proposes the customization of healthcare - with medical decisions, practices, and/or products being tailored to the individual patient. In this model, diagnostic testing is often employed for selecting appropriate and optimal therapies based on the context of a patient’s genetic content or other molecular or cellular analysis.”

To continue with the clothing metaphor, personalized medicine is equivalent to bespoke tailoring, “clothing made to an individual buyer's specification by a tailor”.  It is the diametrical opposite of ready-to-wear. It’s like having your own doctor again, but on technological steroids.

In any standardized system of medicine, the distribution curve only guarantees that the average treatment will be “close” to a large proportion of the patients.  But for any particular patient, unless he was exactly average, the services provided would overshoot or undershoot by a certain amount.  As with ready to wear, “medium” will only fit a very few perfectly.  For most it will be a little too small, or a little too big, the argument being that more most, it is passable.

But in personalized medicine the aim is to fit it as nearly exactly as possible.  Standardized medicine is an area weapon.  Personalized medicine is a sniper’s rifle.  Some studies argue that personalized medicine will consequently be cheaper than traditional approaches because of its potential efficiencies.  In particular it could help allocate expensive drugs and procedures to those who will benefit from them.

Genetic testing can help doctors choose the most effective and economical drugs to prevent blood clots in the half a million patients in the U.S. who receive coronary stents each year, according to a new study led by a UC San Francisco researcher.

The work, reported in the February 18, 2014 Annals of Internal Medicine, demonstrates that genetically guided personalized medicine, often perceived as pricier than traditional approaches, can both lower costs and increase the quality of health care.

“Our results counter the general perception that personalized medicine is expensive,” said Dhruv Kazi, MD, MSc, MS, assistant professor of medicine at UCSF and first author of the new study. “What we have shown is that individualizing care based on genotype may in fact be very cost-effective in some settings, because it allows us to target the use of newer, more expensive drugs to the patients who are most likely to benefit from them.”

A recent article by Reuters shows how big a deal this can potentially be.  A major pharmacy reported that the number of Americans using $100,000 in medicine has tripled over the last year.  Pharmaceutical costs are among the major reasons why Obamacare costs are blowing out.

More than a half-million U.S. patients had medication costs in excess of $50,000 in 2014, an increase of 63 percent from the prior year, as doctors prescribed more expensive specialty drugs for diseases such as cancer and hepatitis C, according to an Express Scripts report released on Wednesday.

Of the estimated 575,000 Americans who used at least $50,000 in prescription medicines last year, about 139,000 used at least $100,000 worth of medication, nearly triple the 47,000 who hit that mark in 2013, the report said.

The total cost to health plans for U.S. patients with prescription drug expenses in excess of $50,000 was $52 billion in 2014, Express Scripts said in its report: "Super Spending: Trends in High-Cost Medication Use."

"These patients are overwhelmingly taking specialty medications, and have multiple (health problems), prescriptions and prescribers," Glen Stettin, Express Scripts Holding Co's head of clinical, research and new solutions, said in a statement.

In an aging population many more people tend to suffer from multiple diseases. They are precisely the patients who would fit least well into “bundled payments”.

About 60 percent of patients in the super-spending report were taking at least 10 medicines from at least four different prescribers.

"Patients in these highest-spend categories are treating a complex condition along with other more common chronic conditions, such as diabetes or depression," Stettin said.

So will bundled payments save Obamacare?  It might have its role to play, but it is far from clear whether by itself it can win back the costs added to premiums by government regulation and bureaucracy.  At worst it might be taking American medicine down the wrong track.

Embracing Narrow Networks

POSTED one month ago BY HEALTH CARE COMPACT

In the latest sign that cost considerations are beginning to outweigh all others a number of newspaper articles are beginning to argue that less is more.  The  New Republic argues that “Maybe You Don't Need a Big Doctor Network to Get Good Care.”  The Washington Examiner writes “Broad healthcare networks do not equal high quality”. And the New York Times, the newspaper of record maintains that “Health Insurance Shoppers Look to Limited Networks to Save Money.”

Narrow networks became a political problem when it became obvious that Obamacare policies were much more limited than the ones that they replaced.

Anger over limited choice of doctors and hospitals in Obamacare plans is prompting some states to require broader networks — and boiling up as yet another election year headache for the health law.

Americans for Prosperity is hitting on these “narrow networks” against Democrats such as Sen. Jeanne Shaheen of New Hampshire, whose GOP opponent Scott Brown has made the health law a centerpiece of his campaign to unseat her. And Republicans have highlighted access challenges as another broken promise from a president who assured Americans they could keep their doctor.

Elisabeth Rosenthal of the New York Times made the question of narrow networks central to her famous accusation that Obamacare resulted in a population that was “insured, but not covered”.  In the example she gave in her article, a patient is forced to drive to another state for treatment.

Ms. Pineman, who is self-employed, accepted that she’d have to pay higher premiums for a plan with a narrower provider network and no out-of-network coverage. She accepted that she’d have to pay out of pocket to see her primary care physician, who didn’t participate. She even accepted having co-pays of nearly $1,800 to have a cast put on her ankle in an emergency room after she broke it while playing tennis.

But her frustration bubbled over when she tried to arrange a follow-up visit with an orthopedist in her Empire Blue Cross/Blue Shield network: The nearest doctor available who treated ankle problems was in Stamford, Conn. When she called to protest, her insurer said that Stamford was 14 miles from her home and 15 was considered a reasonable travel distance. “It was ridiculous — didn’t they notice it was in another state?” said Ms. Pineman, 46, who was on crutches.

The problem with the narrow network issue is that it ran smack up against the even bigger problem of high deductibles.  Obamacare had made medical treatments more expensive and in order to pay for those costs the insurance companies “shifted” the burden to the consumers.  The result was something the Commonwelath Fund called “underinsurance”, a  term used to describe people who couldn’t afford to go to the doctor, even when they had insurance, because it covered so little of the expenses that people either went without treatment or were ruined when they sought it.

Trapped between the Scylla of cheap and nasty insurance and the high cost of providing a better product, health analysts sought refuge in a poll. They seized upon studies showing that “costs are more important than other factors”.  The Kaiser Family Foundation, for example, found that among several possible healthcare attributes, affordability ranked highest.

Nearly four in ten (38 percent) cite the monthly premium costs as an extremely important factor in their plan choice, followed by the deductibles and copays (32 percent). Roughly a quarter say that the plan’s choice of doctors and hospitals was an extremely important factor (25 percent) along with the range of benefits covered (23 percent). Fewer say that recommendations from friends and family were a top factor (6 percent).

Given the cost crisis Obamacare was experiencing, it seemed a clear signal which way to go.   The logical outcome was to declare narrow networks not a bug, but a feature. Yevgeniy Feynman of the Washington Examiner wrote “despite outrage from hospitals and patient groups, a recent analysis in Health Affairs suggests that these narrow networks are unlikely to hurt quality, and perhaps won't hurt access, either.”

In the Health Affairs study, a group of researchers from the University of Wisconsin-Madison and University of California-Irvine ... looked at California's exchange, identifying the biggest insurers by market share and comparing similar plans offered both on and off the exchange [found that] quality isn't defined by the number of hospitals available to a patient. Low-value, high-cost hospitals arguably don't deliver much in the way of quality, so excluding them from networks shouldn't affect patient outcomes. And it turns out that on two quality measures — including mortality rates for six medical procedures and safety scores from Leapfrog's Survey Data — the on-exchange networks are no different than commercial networks, while on another they actually fare better.

The core of the argument is that quality counts more than pure quantity.  After all, who cares about narrow networks, if those networks consists of Johns Hopkins and the Mayo Clinic?  But of course that may be less likely to occur than networks which are narrow because they are intended to be cheap, which is the whole point.  Here Jonathan Cohn of the New Republic is forthright. There’s no wide-ranging study showing narrow networks are just as good as broad ones.

In theory, it could have meant that these people were getting worse medical care. But Gruber and McKnight detected no evidence of that. … The study comes with a ton of caveats, which Gruber and McKnight make very clear. It's still just a working paper, available through the National Bureau of Economic Research, which means it's yet to go through formal peer review. The people who opted for narrow network plans were slightly healthier, though not by a lot. The data on quality of care is all by implication—it’s judging whether hospitals have good records of following treatment protocls, for example, not whether patients are actually living longer. And it’s just one group of people, in one state. It’s not clear how applicable to other situations—where, for example, the networks might be smaller than they are in Massachusetts.

But even if narrow networks were worse, perhaps people would be willing to make the trade-off. Reed Abelson of the New York Times quotes a hospital administrator who asserts that they are:

In all the turmoil in health care, one surprising truth is emerging: Consumers seem increasingly comfortable trading a greater choice of hospitals or doctors for a health plan that costs significantly less money.

“Are they willing to trade choice and access for price? There’s no question about that,” said Mark Newton, the chief executive of Swedish Covenant Hospital, a Chicago hospital that recently teamed with an Illinois insurer, Land of Lincoln Health, to offer a health plan.

That would be unsurprising.  People adjust their requirements when the size of their wallets demand it.  We eat less expensive food, drive older cars, live in smaller homes, fly economy instead of first-class -- not because we don’t want the more pricey product.  We simply can’t afford it.

Obamacare is making a virtue of necessity. The hope is that it can skirt the Scylla of inferior treatment to avoid falling into the Charybdis of bankruptcy.  Of course Obamacare may in the end be unable to avoid both.  The greatest nightmare of the Affordable Care Act’s proponents is that it may wind up delivering expensive -- and lousy healthcare.

The Monster in the Dark

POSTED one month ago BY HEALTH CARE COMPACT

The plot is unfolding like a horror movie. At first the townsfolk note the emergence of a few problems.  They’re serious, but they can be handled.  First came the news that Obamacare insurers were going to ask for “eye-popping” premium increases, a phenomenon which is leading to what the Commonwealth called “underinsurance”.  

But Michael Hiltzik of the Los Angeles Times soothingly assured readers that “you can't blame Obamacare for the crisis in 'underinsurance'”, citing an exonerating economic study which acquitte the ACA of causing the rising premiums, high deductibles and narrow networks.

Thanks to a couple of timely surveys of medical consumers, the focus of the healthcare debate has shifted abruptly from helping the uninsured to how to help the "underinsured." These are the people who have insurance but still face co-pays and deductibles that could break them financially if they had a major medical need.

It shouldn't surprise anyone that anti-Obamacare conservatives have seized on the trend, declaring it another flaw in the Affordable Care Act and blaming the act for making it worse. They're wrong, and their own figures prove it.

Then half the state Obamacare insurance exchanges went bankrupt.  They could not charge enough to cover their costs.  No problem, said Governor Jerry Brown of California.  The solution was to circle the wagons and merge the surviving exchanges under the leadership of California.

With major insurers in some states proposing up to 51 percent Obamacare insurance premium increases, liberal Democrats are scrambling to avoid a political and financial disaster. One proposal is to merge California’s financially troubled “Covered California” exchange with the even more insolvent state exchanges, like “Cover Oregon,” which was forced to shut down last year. …

Oregon and Nevada have already shut down their exchanges, and Hawaii Health Connector, after blowing through $205 million in federal cash, is nearing a shutdown after the state legislature rejected an emergency $10 million funding request.

The costs for running Vermont’s Obamacare exchange for a population of only 626,562 is expected to rise to $200 million this year, while California, with 37 million residents, is running an $80 million deficit in just the first four months of the year. Both spectacularly overestimated expected enrollment and are trying to make major cutbacks for advertising, outreach budget and technology services.

There was still broad confidence that the problems were temporary or could be met with improvisation. Then came the bombshell finding administrative costs were blowing out. The HealthAffairs Blog wrote: “The roughly $6 billion in exchange start-up costs pale in comparison to the ongoing insurance overhead that the ACA has added to our health care system — more than a quarter of a trillion dollars through 2022.”  Since their findings were based on a data released by the Centers for Medicare and Medicaid Services (CMS)’ Office of the Actuary it raised eyebrows across the media.

The blowout was an order of magnitude greater than anything seen before.  It was ten times higher than it should have been. This time there was no easy dismissal of the problem.  The overhead costs would crush Obamacare.  The only way out was to go beyond Obamacare to a single-payer system.

Insuring 25 million additional Americans, as the CBO projects the ACA will do, is surely worthwhile. But the administrative cost of doing so seems awfully steep, particularly when much cheaper alternatives are available.

Traditional Medicare runs for 2 percent overhead, somewhat higher than insurance overhead in universal single payer systems like Taiwan’s or Canada’s. Yet traditional Medicare is a bargain compared to the ACA strategy of filtering most of the new dollars through private insurers and private HMOs that subcontract for much of the new Medicaid coverage. Indeed, dropping the overhead figure from 22.5 percent to traditional Medicare’s 2 percent would save $249.3 billion by 2022.

The ACA isn’t the first time we’ve seen bloated administrative costs from a federal program that subcontracts for coverage through private insurers. Medicare Advantage plans’ overhead averaged 13.7 percent in 2011, about $1,355 per enrollee. But rather than learn from that mistake, both Democrats and Republicans seem intent on tossing more federal dollars to private insurers. Indeed, the House Republican’s initial budget proposal would have voucherized Medicare, eventually diverting almost the entire Medicare budget to private insurers (the measure passed by the House on April 30 dropped the “premium support” voucher scheme).

In contrast, a universal single payer system would pare down both insurers’ and providers’ overhead, yielding huge administrative savings — $375 billion in 2012 according to one recent estimate.

In health care, public insurance gives much more bang for each buck.

Yes, single payer would save the system, a hope maintained notwithstanding the fact that Vermont -- the state with the overpriced, struggling exchange -- had rejected the single payer option because it would require a 160% tax increase.  That left very little room for confidence when the Bureau of Labor Statistics reported a whopping CPI increase in healthcare costs for April, 2015, double the average for the previous months.  It was a trend so strong it drove up core inflation for April.

Core prices were boosted by a wide variety of factors. Housing expenses continued to push higher, and medical care costs also increased. The index for household furnishings rose 0.5%, the largest gain since September 2008. The gain was higher than expected. Economists surveyed by MarketWatch had expected a 0.1% gain in core prices.

Like a horror movie plot, the singular event roused the curiosity of observers, one of them a former director of the Congressional Budget Office. CNBC reports:

Is this a blip or a bombshell?

An eyebrow-raising jump in the prices of medical care that helped boost the Consumer Price Index surprised economists and health-care experts, who can't figure out what's driving the large increase. It's also not clear whether the pace will be maintained beyond just one month.

"I find this maddening," said Douglas Holtz-Eakin, an economist and former director of the Congressional Budget Office who's now president of the American Action Forum policy institute.

"I'm now obsessed," he said.

Holtz-Eakin told CNBC he downloaded a decade's worth of data, and spoke to a half-dozen economists and health-care analysts, to try to figure out what drove medical care prices surprisingly higher in April. The increase was largely driven by reported hikes in the prices of hospital services.

There was something going on in the hospitals.  But what? Holtz-Eakin didn’t know.

Those experts said there was no regulatory change or any other obvious event during April that could have sparked the sharp price spike.

"We have no explanation for what's going on in hospital services," Holtz-Eakin said. "Why it's so big, and why in April, I can't explain it." …

The BLS report also revealed that the broad subset of medical care services grew by 0.9 percent. Medical care services, which is the largest component of the medical care index, includes the prices of professional services, hospital and related services and health insurance. Hospital services rose 1.9 percent for the month, the BLS said.

That number really caught Holtz-Eakin's eye. He said "blips," "anomalies" or other oddities in economic data happen at times, only to vanish when new numbers come out a month later. But a 1.9 percent monthly blip-which, if maintained, would equal a nearly 24 percent annual rate of hospital services inflation-is "pretty big."

"I don't remember seeing one [blip] this big," he said. "I've been concerned about hospital pricing for a while."

Holtz-Eakin wasn’t the only one mesmerized by the sudden rise. Marketwatch reports Laura Rosner of BNP Paribas was similarly intrigued.

Medical care service prices jumped in April, a gain that, if continued, could have enormous ramifications for the Federal Reserve and the federal budget. But economists said they didn’t think the gain last month was the start of a new trend.

Medical services prices jumped a huge 0.9% in April, the strongest pace since the summer of 1990, led by a 1.9% gain in hospital services.

The gain raised eyebrows as health care costs have been calm over the past two years even as Obamacare kicks into full gear

Economists scrambled to come up with a story behind the increase.

In the end, they said there was no compelling reason for the up-tick in medical costs and suggested that the gains were unlikely to continue.

“This is so far above the underlying trend - about 0.3% per month - that we have to regard it as a one-time event,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Laura Rosner, economist at BNP Paribas, said she was so struck by the upturn in medical care prices that she sought an explanation from the Labor Department analysts.

Like the fictional sheriff Brodie in the movie Jaws the economists were left wondering whether there was monster roaming around in the waters of Amity Island. While there was no definite proof, the disturbing pattern of price increases, blowout overhead costs, crashing exchanges and “underinsurance” were deeply suggestive of some strange, malignant economic force waiting to make an open appearance.

The real problem with Obamacare was never the legalities of the King vs Burwell case now before the Supreme Court.  The problem was with another law, the Law of Supply and Demand.  Government intervention in a system as complex as the United States economy can create unintended consequences.  

Obamacare changed many things at once. It was a tax on medical consumption.  It was a system of transfer payments.  It was a penalty on employer-provided insurance.  It was a tax on individuals to force them to purchase insurance.  It was system of Medicaid expansion.  It was a reallocation of funds from Medicare to Obamacare.  It was a vast expansion of Medicaid.  It was a giant jobs program for Democratic states which built exchanges.  It encouraged the consolidation of hospitals, discouraged the individual medical practice.  It attempted to create new modes of reimbursement for hospitals. It was, in the words Nancy Pelosi, something so complicated that you had to pass it to see what was in it.  And it involved a fifth of the US economy.

Given these circumstances, it would have been surprising if there were no unforeseen consequences.  Obamacare may have turned something loose, or maybe it has not.  Perhaps Hiltzik and the Obamacare supporters are right.  The shadows in the water are your imagination.

But if they are not, then Obamacare will unleash serious effects on the American economy which will affect the Democratic party in 2016.  Maybe they’ll be safe.  Or maybe they’ll need a bigger boat.

Single Payer Rises Like a Phoenix from the Ashes of Obamacare

POSTED one month ago BY HEALTH CARE COMPACT

The cost crisis that is strangling Obamacare is being turned into an opportunity to make the case for further ‘reform’. From the beginning there was an awareness among its supporters that it would make health care worse before it made it ‘better’. Byron York, writing in the Washington Examiner captures the idea in a phrase: “Obamacare advocates seek to fix problem they made worse”.

Back in 2009, when Congress was debating the Affordable Care Act, many liberal Democrats felt it did not go far enough — that it should be even more sweeping, even more expansive, even more costly.

Tom Harkin, D-Iowa, one of the Senate's most liberal Democrats and a veteran of many legislative battles, urged his colleagues on the Left to go ahead and pass the bill. "The key to this is that this modest home, we can put additions onto it in the future," Harkin told MSNBC's Rachel Maddow in December 2009. "But if we don't have the starter home, we're never going to be able to put those additions on."

Harkin's view prevailed, and many Democrats came to view Obamacare as a starter home. Now, even though the Affordable Care Act still faces an uncertain future in the courts, they want to start building the additions.

The first addition is the result of a problem Obamacare itself made worse.

"A different healthcare issue has emerged for Democrats, in sync with the party's pitch to workers and middle-class voters ahead of next year's elections," reported the Associated Press a few days ago. "It's not the uninsured, but rather the problem of high out-of-pocket costs for people already covered. Democrats call it 'underinsurance.' "

Mickey Kaus at the Kausfiles has an even more pithy summary of the argument. “Only Democrats Can Fix What They Have Done!”  This was a reference to a Clinton slogan of the last decade which suggests he was a kind of Moses who alone could lead them through the desert to the promised land.  Only Clinton the latter day “Moses” knew the path -- through the desert -- to the land flowing with milk and honey.

If I remember right, there was a pithy bumper sticker in the 1996 campaign needling Clinton for his promise to fix the (marginal) excesses of that year’s big welfare reform bill, which he had signed: “ONLY CLINTON CAN UNDO WHAT HE HAS DONE!” …

It’s annoying how the liberal message machine is cranking up to make a big issue of “underinsurance” — due to high deductibles — without ever admitting that Obamacare may have made the problem worse, as Byron York notes.

Obamacare’s advocates now admit we’re in the desert, but add that now that we’re here, if you want to live then you have to trust Clinton/Obamacare/Moses to the end.

Now comes news that its troubles are not confined to high premiums, narrow networks and rising deductibles.  It is also a an unaffordable bureaucratic monster.  Sarah Ferris at the Hill headlines: “overhead costs exploding under ObamaCare, study finds”, based on information that Centers for Medicare and Medicaid Services (CMS)’ Office of the Actuary provided.

Five years after the passage of ObamaCare, there is one expense that’s still causing sticker shock across the healthcare industry: overhead costs.

The administrative costs for healthcare plans are expected to explode by more than a quarter of a trillion dollars over the next decade, according to a new study published by the Health Affairs blog.

The $270 billion in new costs, for both private insurance companies and government programs, will be “over and above what would have been expected had the law not been enacted,” one of the authors, David Himmelstein, wrote Wednesday.

Those costs will be particularly high this year, when overhead is expected to make up 45 percent of all federal spending related to the Affordable Care Act. By 2022, that ratio will decrease to about 20 percent of federal spending related to the law.

The bulk of the analysis was performed by David Himmelstein and Steffie Woolhandler of HealthAffairs Blog.  Using data provided by the government itself they find that “the roughly $6 billion in exchange start-up costs pale in comparison to the ongoing insurance overhead that the ACA has added to our health care system — more than a quarter of a trillion dollars through 2022.”

We calculated these new overhead costs from the official National Health Expenditure Projections for 2012-2022 released by the Centers for Medicare and Medicaid Services (CMS)’ Office of the Actuary in July 2014. The projections included separate tables projecting costs with, and without, the effects of the ACA, allowing calculation of the incremental insurance overhead costs directly attributable to the reform.

Most of these costs, they argue, will be incurred by private companies selling and administering Obamacare plans and Medicaid. Not only are the costs themselves gigantic, but they are an obscene fraction of the total cost of Obamacare. “The $273.6 billion in added insurance overhead under the ACA averages out to $1,375 per newly insured person per year, or 22.5 percent of the total federal government expenditures for the program.”

This is the third cost-related nail in the coffin of Obamacare.  The first is the wholesale collapse of State exchanges.  The second is the “underinsurance” crisis that has been given so much play in the media.  This third is the administrative bloat which threatens to strangle the whole program.

The solution? Single payer!  Single payer is the promised land which will save us from the desert into which Obamacare has led the entire country.  “Only Obama can undo what he has done”.  It makes sense if you believe it.

Insuring 25 million additional Americans, as the CBO projects the ACA will do, is surely worthwhile. But the administrative cost of doing so seems awfully steep, particularly when much cheaper alternatives are available.

Traditional Medicare runs for 2 percent overhead, somewhat higher than insurance overhead in universal single payer systems like Taiwan’s or Canada’s. Yet traditional Medicare is a bargain compared to the ACA strategy of filtering most of the new dollars through private insurers and private HMOs that subcontract for much of the new Medicaid coverage. Indeed, dropping the overhead figure from 22.5 percent to traditional Medicare’s 2 percent would save $249.3 billion by 2022.

The ACA isn’t the first time we’ve seen bloated administrative costs from a federal program that subcontracts for coverage through private insurers. Medicare Advantage plans’ overhead averaged 13.7 percent in 2011, about $1,355 per enrollee. But rather than learn from that mistake, both Democrats and Republicans seem intent on tossing more federal dollars to private insurers. Indeed, the House Republican’s initial budget proposal would have voucherized Medicare, eventually diverting almost the entire Medicare budget to private insurers (the measure passed by the House on April 30 dropped the “premium support” voucher scheme).

In contrast, a universal single payer system would pare down both insurers’ and providers’ overhead, yielding huge administrative savings — $375 billion in 2012 according to one recent estimate.

In health care, public insurance gives much more bang for each buck.

The most interesting thing about this entire drama is that the greater the failure Obamacare is shown to be, the bigger a success it becomes.  No longer is it an end in itself -- in that role it is a dead end -- but merely a waystation on the path to Single Payer or price controls.  It’s sole justification is that it has taken America close to the final solution.  But as a policy in itself it is overpriced, slipshod, insupportable and bloated.  Long live Obamacare!

Killer Costs Bedevil Affordable Care

POSTED one month ago BY HEALTH CARE COMPACT

Dramatic premium hikes are about to hit the Obamacare program like an oncoming train.  The Wall Street Journal reports, “there are some eye-popping numbers in health plans’ proposals for 2016 insurance premiums in some states under the Affordable Care Act, also known as Obamacare.”

The biggest insurers in some of the states that have made the plans’ requests public are seeking average increases such as 51.6% in New Mexico, 36.3% in Tennessee and 30.4% in Maryland — enough to make a 14.5% proposed raise here, or an 8.4% boost there, look almost tame. …

Premiums are, of course, just one way of calculating individual health insurance costs. Plans often keep premiums in check by imposing deductibles and limiting the network of providers available. (A silver plan typically has a deductible of between $1,000 and $3,000.) But premiums are, for better or worse, one of the ways supporters and opponents judge the health law. …

You’ll see that some of the plans seeking the biggest increases had some of the lowest prices in the country in previous years. We’ll know in coming weeks whether that makes a difference as consumers and regulators debate the proposals. But we already know that it’s a factor that played a role in the insurers’ moves.

The results are of course, a potential bombshell for advocates of the “Affordable Care Act” who promised cheap -- some even believed ‘free’ -- health insurance. For months pundits have noted that not only were premiums climbing, but deductibles were also rising even while provider networks were narrowing.  Obamacare became the most expensive insurance you could buy without being able to afford actually being treated, if you could find a doctor.

Obamacare supporters have for some time been bracing public opinion for the shock, ascribing the high prices to insurance company greed and calling for price controls to rein in “greedy” insurance providers.  However the real reason for the climbing premiums is more worrisome.  It is embedded in the very design of Obamacare itself.

CBS News notes that “the reasons for the proposed rate hikes, which vary by state and insurer, come down to two issues: sicker patients and higher costs for pharmaceuticals, such as the expensive hepatitis C treatment Sovaldi.”  By  requiring that previously uninsured people were covered -- and choosing inefficient methods for doing so, Obamacare bought its gains at a catastrophically high price.

While the 2010 Affordable Care Act was designed to offer affordable health-care insurance through state and federally run marketplaces, much of the plan was based on getting a significant share of younger, healthier Americans signed up. That would help offset the expense of treating older or sicker patients.

Although slightly more than one-quarter of initial enrollees in the program were between 18 to 34, insurers were dealing with a largely unknown customer base.

“Sicker patients and higher costs for pharmaceuticals”.  Chriss Street put his finger on the core issue when he wrote in Breitbart News that “the Affordable Care Act was rushed into law and implemented with what now appears to have been grossly defective actuarial assumptions regarding costs. The same consumer groups that fought for Obamacare are already demanding federal and state officials put premiums under the microscope to curb some increases.”

Now to dig themselves out of the hole they’re in, Obamacare advocates argue the Federal Government needs extra powers.  Street writes, “the Obama Administration’s only legal power regarding healthcare premiums is the right to ask insurers seeking increases of 10% or more to explain themselves. There is no federal power to force rate cuts. State insurance regulators can force carriers to scale back requests they believe are not justified, but the carriers can drop coverage and cause a crisis.” A mass dropout of carriers would cause a political crisis.

My own insurer, Aetna, left the “individual market” rather than participate in the Covered California exchange. I was forced to purchase a 2014 Blue Shield policy on the state exchange. The premium for my wife and I, who have no major health issues, almost doubled from $740 per month with Aetna to $1,340 under Covered California.

Street says “Obamacare supposedly sought to fix two problems: coverage and cost. To extend coverage, the law made it compulsory for Americans to have health insurance, or pay a fine. It also offered subsidies for those who could not afford it and barred insurance firms from charging people more if they have ‘pre-existing conditions.’”   Now the high costs are effectively nullifying the coverage, thus effectively rendering Obamacare useless to many Americans.  Obamacare’s design has been particularly cruel to young people. Sean Parnell at Heartland says studies show that the ACA is driving away the very same people that it needs to attract:

Millennials in some states were hit with double-digit increases. In Alaska, young enrollees in Obamacare saw their premiums increase 28 percent, from $216.12 per month in 2014 to $235.57 in 2015. This is comparable with the 28 percent increase among 50-year-old Alaskans and the 24 percent increase for family rates.

Other states with insurance spikes for millennials are Kansas (17.8 percent), Louisiana (17.22 percent), Minnesota (19.2 percent), North Carolina (15.6 percent), Ohio (19 percent), Pennsylvania (18 percent), Tennessee (18 percent), and Virginia (15 percent).

Obamacare relies upon a Catch-22 to financially survive. It needs to charge the young and healthy more to pay for the treatment of the old or infirm.  At the same time this creates high premius which discourage the young people they hope to enrol.  The only way out of this dilemma is to impress members into the system.  Parnell continues:

Dr. Roger Stark, a health care policy analyst at the Washington Policy Center and a retired physician, says ACA has a mandate of community rating, which means the young and healthy pay more for insurance than they would in a free market.

“Premium prices for those aged 18–34 went up compared to pre-ACA pricing,” Stark said.

“The individual mandate theoretically forces young adults into the insurance pool [at higher prices], yet many young people are going without insurance and paying the fine or tax,” Stark said.

Merrill Matthews, a resident scholar with the Institute for Policy Innovation, says every pro-liberty health policy expert had tried to explain to the Democrats writing Obamacare “modified community rating”—in which the government prohibits insurers from pricing health insurance based on an applicant’s risk factors, allowing only some variation based on age and geography—would drive up the cost of health insurance for younger and healthier people.

“Democrats refused to listen—well, almost [completely],” Matthews said. …

Proponents of ACA claimed insuring younger people was one of the most important reasons to support the law, says Scandlen.

“Most of the uninsured have always been under age 30,” Scandlen says. “So there is a fundamental contradiction: Health plans are required to overcharge the very people they most want to attract.”

The policy wonks in Washington, DC tried to square this circle by punishing people who failed to enroll and providing subsidies to many who do enroll, but these carrots and sticks are extremely hard to administer, Scandlen says.

“Most of the people who received subsidies are now having to pay back some of the money they got, and the penalties apply only to those who get tax refunds,” Scandlen said.

This is politically worrisome for Democrats.  They know that high health care premiums are going to be a big issue in the 2016 elections. Some liberal legislators are looking for a way to get out of the fix.  “Democrats see skimpy insurance as the next health care issue,” writes Ricardo Alonzo-Zaldivar of the Associated Press.

A different health care issue has emerged for Democrats, in sync with the party's pitch to workers and middle-class voters ahead of next year's elections.

It's not the uninsured, but rather the problem of high out-of-pocket costs for people already covered.

Democrats call it "underinsurance."

After paying premiums, many low- and middle-income patients still face high costs when trying to use their coverage. There's growing concern that the value of a health insurance card is being eaten away by rising deductibles, the amount of actual medical costs that patients pay each year before coverage kicks in.

"I think it's going to be the next big problem," said Rep. Jim McDermott, D-Wash., a congressional leader on health care.

"We've got some 17 million more people covered ... but they can't access the care they seem to be entitled to," McDermott said. "It costs too much to use the care. That's the deceptive part about it." …

Democrats need an election-year health care narrative about how to improve Obama's law, said Robert Blendon, a professor at the Harvard T.H. Chan School of Public Health.

"The issue that has come up repeatedly is the impact that high deductibles are having on moderate income people," he said.

With money increasingly tight the Democrats are looking increasingly at some kind of price control regime. Apart from regulating the rates which insurers may charge efforts are also being made to force hospitals to charge less.  Austin Frakt at the New York Times writes: “Can hospitals provide better care for less money? The assumption that they can is baked into the Affordable Care Act.”

Historically, hospital productivity has grown much more slowly than the overall economy, if at all. That’s true of health care in general. Productivity — in this case the provision of care per dollar and the improvements in health to which it leads — has never grown as quickly as would be required for hospitals to keep pace with scheduled cuts to reimbursements from Medicare.

But to finance coverage expansion, the Affordable Care Act made a big bet that hospitals could provide better care for less money from Medicare. Hospitals that cannot become more productive quickly enough will be forced to cut back. If the past is any guide, they may do so in ways that harm patients.

The Obamacare gamble that hospitals can become much more productive conflicts with a famous theory of why health care costs rise. William Baumol, a New York University economist, called it the “cost disease.”

So far the government is losing the bet.  A study from Kentucky shows that you can increase coverage by spreading the services more thinly, but the system does not produce notably more resources by mandating “efficiencies” as a result.  

LEXINGTON, Ky. -- While Kentucky has gained national prominence as the only Southern state to fully embrace Obamacare, its hospitals say the law has left them facing billions of dollars in cuts and forced them to lay off staff, shut down services and worry for their financial health and, in some cases, survival.

The Kentucky Hospital Association outlined its concerns in a report released Friday called "Code Blue," saying payment cuts to hospitals are expected to reach nearly $7 billion through 2024. "Kentucky hospitals will lose more money under the Affordable Care Act than they gain in revenue from expanded coverage," it said, experiencing a net loss of $1 billion by 2020.

"This report provides the real picture of what our hospitals are facing," KHA President Mike Rust said during a press conference at the Lexington Convention Center, where the group was holding its annual convention. The Medicaid expansion has given many residents health coverage that has brought new money into hospitals, but "the rest of the story is the cuts."

In brief, the way events have unfolded is this:  Obamacare raised taxes to create subsidies.  It compelled individuals to buy its product on exchanges and companies to provide more benefits.  The result was  more coverage but at the cost of much higher premiums, narrower networks and higher deductibles.

This effect, called “underinsurance” has become a big problem for the Democratic Party.  It’s made a mockery of the president’s promise by selling people “insurance” that very partially pays for their bills. In order to fix the problem the advocates of Obamacare are exploring price controls and directing hospitals to save money.  But so far, there has been no success.

Obamacare has now become a major concern for the president’s party.  The billions of dollars spent on the Affordable Care Act system failed to produce the expected wave of gratitude.  Rather it may produce a tide of resentment.

Obamacare Has Failed, Now to Change the Subject

POSTED one month ago BY HEALTH CARE COMPACT

Ever since Families USA, an organization which received $1M to support the ACA began denouncing Obamacare policies as inadequate it was evident that  a new talking point was about to be launched.  That probability became a certainty when Vox quoted the Commonwealth Fund’s (also another supporter of Obamacare) decrying ACA insurance as “crummy”.

These Obamacare stalwarts could only be trashing the president’s flagship program for a reason.  Now that reason has become clear.  Call it Obamacare 2. Ricardo Alonso-Zaldivar of the Associated Press writes “Democrats see skimpy insurance as the next health care issue”.  The skimpy insurance being denounced by the Democrats is that sold on the Obamacare exchanges.

WASHINGTON (AP) — A different health care issue has emerged for Democrats, in sync with the party's pitch to workers and middle-class voters ahead of next year's elections.

It's not the uninsured, but rather the problem of high out-of-pocket costs for people already covered.

Democrats call it "underinsurance."

After paying premiums, many low- and middle-income patients still face high costs when trying to use their coverage. There's growing concern that the value of a health insurance card is being eaten away by rising deductibles, the amount of actual medical costs that patients pay each year before coverage kicks in.

"I think it's going to be the next big problem," said Rep. Jim McDermott, D-Wash., a congressional leader on health care.

The trial balloon solution being proposed by Families USA is price controls.  Wendell Potter of Newsweek writes that “among the fixes Families USA is proposing: a requirement that some of the silver plans insurers sell on the health insurance exchanges have lower upfront cost sharing for primary care, outpatient services and prescription drugs. That would mean, of course, that insurers would have to cover more of their enrollees’ medical claims than they are currently required to do. If they did, it would, of course, cut into profits.”

Requiring providers to “cut into profits” is also a form of taxation. Which is natural, since taxes will be needed to support “the next health care issue” fix: which we now know is some kind of relief from the high prices of the Affordable Care Act.

The Daily Kos, which also supported the president’s agenda has more details. “Obamacare got 12 million insured, now Congress has to fix the system for all the underinsured.” That involves going beyond Obamacare and establishing a single payer system.

Having health insurance is better than not having health insurance. But if you can't afford to actually use that insurance without risking financial disaster, then it's clearly not much of a safety net. These costs have to come down. The best way yet demonstrated for healthcare spending to be controlled is through single-payer systems. So healthcare reform in this country is going to have to take the next step and expand Medicare.

The administration has to move onto another health care issue because they cannot afford to stand still. Obamacare is financially imploding. Slate, another liberal publication raises yet another alarm, writing that “Obamacare May Force Some Insurers to Boost Their Premiums an Alarming Amount”.  

On Thursday, the Wall Street Journal reported an alarming development: Health insurers on many state exchanges are looking to boost their premiums a ridiculous amount in 2016. New Mexico's leading provider, for instance, is seeking a 51.6 percent hike, while Maryland's is seeking a 30.4 percent hike. (Insurers in other states, like Vermont and Indiana, are asking for minimal increases.)

The administration is selectively leaking the inside dope the looming fiasco to support the Families USA talking points.  The narrative is that unless Obamacare is “fixed”, policy holders will find themselves paying through the nose for policies that don’t even protect them from bankruptcy.  Slate says that if only local governments could implement price controls then the worst might be averted.  Wouldn’t it be good, it suggests, if the federal government could control prices nationally?

There's another huge footnote to the initially eye-popping premium boosts. These are all proposed hikes: In many states, insurance regulators can force insurers to justify their rate increases, and some can reject any increase they find to be unjustified. The federal government, too, can require insurers to explain any premium increase beyond 10 percent—though it lacks the power to reject a rate hike. Thus, some insurers may have initially overestimated their premium increases so they can comfortably negotiate downward.

The picture that is emerging is of a program in deep financial trouble.  Skyrocketing deductibles, rising premiums, narrow networks are but one part of the story.  The other part of the tale is the collapsing Obamcare state exchanges.  The Hill reports that many of the state exchanges which decided to participate in the ACA exchanges are bankrupt and are considering merging or closing down:

A number of states are quietly considering merging their healthcare exchanges under ObamaCare amid big questions about their cost and viability.

Many of the 13 state-run ObamaCare exchanges are worried about how they’ll survive once federal dollars supporting them run dry next year.

Others are contemplating creating multi-state exchanges as a contingency plan for a looming Supreme Court ruling expected next month that could prevent people from getting subsidies to buy ObamaCare on the federal exchange.

The idea is still only in the infancy stage. It’s unclear whether a California-Oregon or New York-Connecticut health exchange is on the horizon.

But a shared marketplace — an option buried in a little-known clause of the Affordable Care Act — has become an increasingly attractive option for states desperate to slash costs. If state exchanges are not financially self-sufficient by 2016, they will be forced to join the federal system, HealthCare.gov.

These difficulties probably explain why Andy Slavitt and his company QSSI have unceremoniously decamped from the Centers for Medicare and Medicaid Services (CMS).  The rats are fleeing the sinking ship, some of them with generous severance payments.

In more bad news for Obamacare exchanges, QSSI, the information technology firm that manages the federally run Healthcare.gov unexpectedly quit last Thursday. The IT firm, which is the third to manage Healthcare.gov in its brief two year history, has been marred by controversy over its relationship with administration officials.

While QSSI has been credited with saving the federal exchange following its disastrous 2013 rollout, its relationship with the Centers for Medicare and Medicaid Services (CMS) has come under scrutiny for possible conflicts of interest. Andy Slavitt, formerly an executive at QSSI’s parent groups United Healthcare Group and Optum, was later made a senior advisor at CMS.

Slavitt was strangely allowed to pocket at least $4.8 million in tax-free income by indefinitely deferring capital gains taxes on the sales of millions in stock upon joining CMS. Slavitt was also granted a rare federal ethics waiver which allowed him ignore the one-year mandatory cooling off period and simultaneously be involved in contracting issues for Optum and United Healthcare while working at CMS.

But the president and the professional political class do not have the option of resigning like Slavitt.  Their only defense against the growing evidence that Obamacare is unaffordable is to change the subject to its successor system: single payer or price controlled.  The Families USA piece was the first salvo in a barrage of smoke shells designed to conceal the truth: Obamacare is a failure.

The only way out is to make the failure bigger.

Why Choice Works

POSTED one month ago BY HEALTH CARE COMPACT

One of the most striking reminders of health care costs are the “death fee” recovery practices of California’s Medicaid program, Medi-cal.  It’s more formal name is the “Estate Recovery Program and under Obamacare, it just got bigger and its reach broader.”

How broad? Your family might face a posthumous bill even if you didn’t seek medical care while you were a Medi-Cal enrollee.

“You might never go to the doctor, it doesn’t matter,” says Patricia McGinnis, executive director of California Advocates for Nursing Home Reform. “The state will still try to collect” the premiums it paid to your health plan.

“The Medicaid Estate Recovery Program (MERP) is a process initiated by U.S. state governments for recovering payments they made under the Medicaid program to program beneficiaries. The government recovers the sum of payments from the estate at the time of death of the program beneficiary,” according to Wikipedia.  The government has to do it because funds are not limitless.

Every state in the Union will potentially face a Medicaid affordability crisis, with some having it worse than others.  The reason, Moody’s explains, is that the average American population is growing older.

New York, May 21, 2015 -- As the median age of the US population rises, states will face intensifying pressure to increase spending on Medicaid long-term care, Moody's Investor Service says in the new report, "Medicaid Long-Term Care Costs Will Challenge States as Population Ages."

Controlling long term care costs will be a challenge for all states. Those most at risk for higher costs owing to projected rapid growth in their geriatric population and highest per-capita spending are: Alaska (Aaa negative), Delaware (Aaa stable), Maine (Aa2 stable), Minnesota (Aa1 stable), New Hampshire (Aa1 stable), North Carolina (Aaa stable), and Oregon (Aa1 stable).

These states averaged $157 more per capita than the 50-state median of $335 in 2009, according to the Centers for Medicare & Medicaid Services data. As well, Census Bureau data estimates growth above the 33.6% median from 2014-24 in their 65 and older population.

The other reason, paradoxically, are medical breakthroughs.  Innovation, by its very nature, is often very expensive.  The first devices or drugs of any sort are typically astronomically costly because efficient manufacturing technologies and economies of scale have not yet broad the prices down.

Covered California recently had to decide whether or not to pay for an extremely expensive -- but effective -- hepatitis C medication.  It is so effective it actually cures the disease.  The bad news is that a course of treatment costs as much as a small house $140,000.  A recent article describe the dilemma of a patient named Lawrence.

When Lawrence heard last year that there was a new drug regimen that could cure his disease, he went straight to his insurance company.

“The first thing they did, of course, was deny it,” he says.

But the real problem, once he did get approval, was the price tag. Each pill costs $1,000.

Even with Obamamcare it was unaffordable for the retired schoolteacher.  His co-pay came to $14,000.  Eventually a charity came to the rescue to provide the co-payment, but this cannot be the solution in general.  The need to recover costs is what drives “death fees” and “estate recovery programs”.  The reality is that government doesn’t have enough money to pay for everything voters need.

The Daily Press says “the simple fact, which was never honestly discussed until after Obamacare was passed, is that the only way to offer taxpayer-funded health insurance without bankrupting the nation is to control — and, in some cases, limit — coverage.”  To many people “limiting coverage” is another word for rationing.  This is often the rationale given for limits and cut-offs.

Yet given resource limitations, the next best thing that can be done is to allow the consumer himself to make decisions about the trade-offs.  We “ration” ourselves all the time but don’t call it that when we save for retirement, or for a houseboat or a vacation.  Whenever we forgo certain expenses in other to afford other things we trade trade-offs.  Yet since the consumer is in charge of the tradeoffs it does not come off as government-mandated “rationing”.

Wendell Potter at Newsweek thinks people should not be allowed to underinsure themselves. He writes, “'Consumer-Driven' Health Plans Are Pushing Prices Up”.  One of the solutions he suggests is price controls.  Price controls under Obamacare are the logical alternative to rationing.  If you’re going to force people to buy insurance with all the mandated Obamacare bells and whistles then you might as well force insurers to sell it at a government-set price.

The strategy that emerged in the early 2000s was what the insurance industry called consumer-driven health plans (CDHPs). These plans are superficially appealing because the premiums are lower.  But that obscures a defining and central feature of CDHPs: a requirement that folks enrolled in them, regardless of income, pay a substantial sum from their wallets for medical care every year before their insurance coverage kicks in.  

n some ways, CDHPs are about less insurance. With every passing year, under the industry’s strategy, insurance companies would be paying a smaller percentage of medical claims while their customers would be paying more because of the high deductibles.

Fast-forward to 2015 and the effects of that strategy are playing out—but not to the benefit of consumers. Instead, ever-increasing numbers of Americans are finding themselves in the ranks of the underinsured. …

So it should come as no surprise that Families USA’s study found that lower- to middle-income adults were the most adversely affected by the steady growth of CDHPs, with almost 1 in 3 (32.3 percent) Americans reporting they skipped needed health care because they couldn’t afford it.

“Too many lower- and middle-income consumers face deductibles that are likely unaffordable relative to their incomes and that could create barriers to them getting the care they need,” the authors of the Families USA study noted. …

Among the fixes Families USA is proposing: a requirement that some of the silver plans insurers sell on the health insurance exchanges have lower upfront cost sharing for primary care, outpatient services and prescription drugs.

That would mean, of course, that insurers would have to cover more of their enrollees’ medical claims than they are currently required to do. If they did, it would, of course, cut into profits.

So while it’s a worthy idea, and one that would mean that fewer Americans would have to skip on needed care, it is not one that will likely gain the support of the small group of wealthy corporate insurance executives who gave us CDHPs in the first place.

Families USA, which Wikipedia describes as  having  been “given a $1 million grant by the Robert Wood Johnson Foundation for publicizing ObamaCare success stories. They are also closely tied to the Obama administration and the ACA enrollment group Enroll America” has recently placed a slew of stories claiming Obamacare hasn’t gone far enough.  It is “unaffordable” and as Potter notes, the solution is to force insurers to cover more medical claims than they otherwise wood.

The problem with price controls is they lead to shortages. “Although price controls are sometimes used by governments, economists usually agree that price controls don't accomplish what they are intended to do and are generally to be avoided.”  If the government follows the course advocated by Families USA providers will begin to exit the business, unless government pays them a subsidy, leading to the same problems of bankruptcy now being faced by the states.

The primary criticism leveled against price controls is that by keeping prices artificially low, demand is increased to the point where supply can not keep up, leading to shortages in the price-controlled product. …

A classic example of how price controls cause shortages was during the Arab oil embargo between October 19, 1973 and March 17, 1974. Long lines of cars and trucks quickly appeared at retail gas stations in the U.S. and some stations closed because of a shortage of fuel at the low price set by the U.S. Cost of Living Council. The fixed price was below what the market would otherwise bear and, as a result, the inventory disappeared. It made no difference whether prices were voluntarily or involuntarily posted below the market clearing price. Scarcity resulted in either case. Price controls fail to achieve their proximate aim, which is to reduce prices paid by retail consumers, but such controls do manage to reduce supply.

Nobel prize winner Milton Friedman said "We economists don't know much, but we do know how to create a shortage. If you want to create a shortage of tomatoes, for example, just pass a law that retailers can't sell tomatoes for more than two cents per pound. Instantly you'll have a tomato shortage. It's the same with oil or gas."

The interesting thing about high-deductible plans is that 37% of people actually liked them, as a Kaiser Family Foundation study showed.  Of course a lot of people -- 68% -- didn’t like them. But let us focus for a moment on those that did.

BN-IN560_deduct_G_20150520183406.jpg

Healthy and well-paid individuals may actually prefer high deductible plans because a) they are unlikely to get sick; b) they are easily able to afford to pay for minor procedures and preventive care.  What they actually do fear is the possibility of getting a dread, debilitating or ruinously expensive disease of which Mr. Lawrence, with his hepatitis C problem, would be a good example.  What they want is catastrophic health insurance.

Catastrophic insurance is a type of fee-for-service health insurance policy that is designed to give protection against, well, a catastrophe. It is sometimes referred to as a High Deductible Health Plan because low monthly premiums are traded for a significantly higher deductible. This means that with this plan, routine doctor's visits and prescription costs are more expensive, but monthly premiums are lower. So you take on more out-of-pocket expenses in exchange for lower premiums. If you're healthy, you save money. But if something catastrophic happens, you're covered.

Forcing well to do professionals to buy Obamacare plans with free contraception and primary health care added on is a waste of money.  These people can pay for the contraception and would rather have risk the high deductible if they could have a lower premium.  High deductible plans are only undesirable to people who don’t want them.  In a well functioning market 37% of the customers would get high deductible plans and 68% would get low deductible plans.

The difficulty is with those who have high deductible plans but don’t want them. And too many people -- as Families USA notes -- are stuck with high deductible Obamacare plans they don’t want.  The reason for this is conceptually simple.  Obamacare’s metal plans: Platinum, Gold, Silver and Bronze are to insurance what Xtra Large, Large, Medium and Small are to clothing.  They’ll fit most anybody, but not particularly well.

Some people will buy too much insurance in the same way that some people buy too loose a shirt, large being too big and medium being too small, but large will have to do.  This gives rise to waste, which gives rise to unnecessarily high costs.  One approach to reducing costs, besides rationing and price control, is freeing up the market.  The biggest benefit of consumer choice compared to the “one size fits all” approach of Obamacare is that it saves money.

The high cost of US healthcare cannot be entirely addressed by spending more government money on it.  Government money is not infinite. Some reductions are necessary to make things affordable and the best way to obtain them is by allowing competition to produce more variety and more efficiency.  That won’t happen until the Affordable Care Act is replaced by a system which allows more choice.  

Obamacare hasn’t bent the cost-curve downward.  It probably never will.  Ultimately the only way expensive medicines like the heptatis C pill will become affordable is through innovation and competition.  Government action alone will never do it.

Underinsurance. The New Buzzword

POSTED one month ago BY HEALTH CARE COMPACT

“Uninsurance” -- the condition of not being insured -- is dead, killed by Obamacare, its supporters say.  However in its place is underinsurance.  “Underinsurance” is a term used to describe people who have insurance policy that falls way short of paying their medical bills so that they either forgo treatment or are financially ruined when they take it.

Vox’s Sarah Kliff, who has been a long time supporter of Obamacare calls the phenomenon ‘crummy insurance’. “If you ask any economist the main purpose of health insurance, the answer you'll probably get back is this: to protect against financial catastrophe.”  And many insurance policies aren’t doing that.

Yes, the free annual check-ups or discounted gym memberships that health plans sometimes offer are nice. But the real thing you're purchasing with your monthly premium is protection against financial ruin. You're paying for someone else to be on the hook for the big medical bills that can and will pile up in the case of serious illness or accident.’

Except, increasingly, insurance does not provide that type of protection. That's the main takeaway from a new Commonwealth Fund report on the "underinsured," or people who have health insurance that leaves them exposed to really big costs — and who appear to skip care due to the price.

Ever since Obamacare was rolled out pundits noticed that it wasn’t all it was cracked up to be.  Nancy Pelosi promised voters it would be something wonderful. But Elizabeth Rosenthal of the New York Times noticed that it left much to be desired.  She called it “insured but not covered”.  That was the first widespread mention of what Sarah Kliff calls ‘crummy insurance’ and what the Commonwealth Fund terms “underinsurance”.

Rosenthal described the travails of Karen Pineman of Manhattan whose insurance was canceled because it failed to meet Obamacare standards.  She bought an Obamacare policy with a higher premium, but that did not even begin to capture the full extent of its inferiority.  It was not only expensive, but the networks were narrow and the deductibles are high.

Ms. Pineman, who is self-employed, accepted that she’d have to pay higher premiums for a plan with a narrower provider network and no out-of-network coverage. She accepted that she’d have to pay out of pocket to see her primary care physician, who didn’t participate. She even accepted having co-pays of nearly $1,800 to have a cast put on her ankle in an emergency room after she broke it while playing tennis.

But her frustration bubbled over when she tried to arrange a follow-up visit with an orthopedist in her Empire Blue Cross/Blue Shield network: The nearest doctor available who treated ankle problems was in Stamford, Conn. When she called to protest, her insurer said that Stamford was 14 miles from her home and 15 was considered a reasonable travel distance. “It was ridiculous — didn’t they notice it was in another state?” said Ms. Pineman, 46, who was on crutches.

Another liberal site, the Huffington Post, chimes in: “It's Not Just You -- Those Health Insurance Deductibles Are Getting Scary”.  High deductibles according to the Commonwealth Fund in a widely quoted study, are the biggest factor in turning insurance into “underinsurance”. The number of underinsured has doubled since 2003.  The number of “continuously insured adults with high deductibles has tripled”.

New estimates from the Commonwealth Fund Biennial Health Insurance Survey, 2014, indicate that 23 percent of 19-to-64-year-old adults who were insured all year—or 31 million people—had such high out-of-pocket costs or deductibles relative to their incomes that they were underinsured. These estimates are statistically unchanged from 2010 and 2012, but nearly double those found in 2003 when the measure was first introduced in the survey. The share of continuously insured adults with high deductibles has tripled, rising from 3 percent in 2003 to 11 percent in 2014. Half (51%) of underinsured adults reported problems with medical bills or debt and more than two of five (44%) reported not getting needed care because of cost. Among adults who were paying off medical bills, half of underinsured adults and 41 percent of privately insured adults with high deductibles had debt loads of $4,000 or more.

The biggest driver of deductibles is the high underlying cost of medical treatment.  When costs rise insurers pass them on to policy holders in the form of deductibles. Because Obamacare has failed to lower the rate of health care cost inflation the deductibles are rising to match.

The Commonwealth study showed that while “underinsurance” has risen for everybody, the hardest hit are those without group employer insurance.  A whopping 37% of people within individual policies have crummy insurance, almost double the 20% among those with employer-provided coverage.  This is important because the employer mandate and the “Cadillac tax” are moving increasing numbers of people out of the employer provided coverage category into individual coverage.

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Bruce Japsen at Forbes writes, “as employers look at ways to reduce health expenses, some are considering giving retirees contributions and sending them to the public exchanges under the Affordable Care Act.”  In other words, people are being sent away to buy “underinsurance”.

A new survey of large employers by Aon Hewitt (AON) shows two-thirds of companies are considering changes to their “pre-65 retiree health strategies” and 28% of them are considering eliminating retiree health coverage altogether. This escalates a trend over the last decade by major companies to cut health benefits to workers who retire before age 65 when government-funded Medicare coverage for the elderly kicks in.

Using a kind of verbal sleight-of-hand, Obamacare advocates who began by promising to save Medicare and Medicaid from bankruptcy have redefined success as increasing coverage -- insuring everybody.  Hence the ACA never ceases to regale the public with stories of people “being insured for the first time”.  What they don’t say is that in they’ve replaced “uninsurance” with “underinsurance”.  If 25% of the those holding Obamacare policies can’t access treatment because of high deductibles then they are effectively without insurance.  They are insured only in name.  They have insurance but “crummy” insurance.  They are insured but not covered.  They’ve got a meal ticket but they can’t eat.

That’s defining success down.

Medicaid Expansion Costs Blow Out

POSTED one month ago BY HEALTH CARE COMPACT

The departure of Andy Slavitt and his company, QSSI from the Centers of Medicare and Medicaid Serves (CMS) continues to make news. “In more bad news for Obamacare exchanges, QSSI, the information technology firm that manages the federally run Healthcare.gov unexpectedly quit,”  according to the Americans for Tax Reform, claiming he’d been awarded a “golden parachute”.

While QSSI has been credited with saving the federal exchange following its disastrous 2013 rollout, its relationship with the Centers for Medicare and Medicaid Services (CMS) has come under scrutiny for possible conflicts of interest. Andy Slavitt, formerly an executive at QSSI’s parent groups United Healthcare Group and Optum, was later made a senior advisor at CMS.

Slavitt was strangely allowed to pocket at least $4.8 million in tax-free income by indefinitely deferring capital gains taxes on the sales of millions in stock upon joining CMS. Slavitt was also granted a rare federal ethics waiver which allowed him ignore the one-year mandatory cooling off period and simultaneously be involved in contracting issues for Optum and United Healthcare while working at CMS.

But perhaps the Slavitt is hitting the silk not in order to escape from some ethical controversy but to merely avoid the firestorm that may soon engulf the biggest part of Obamacare: Medicaid expansion. Politco reports a blow-out in Medicaid expansion costs.  The program is costing much more than estimated. “Medicaid enrollment under Obamacare is skyrocketing past expectations, giving some GOP governors who oppose the program’s expansion under the health law an ‘I told you so’ moment.”

More than 12 million people have signed up for Medicaid under the Affordable Care Act since January 2014, and in some states that embraced that piece of the law, enrollment is hundreds of thousands beyond initial projections. Seven states have seen particularly big surges, with their overruns totaling nearly 1.4 million low-income adults.

The federal government is picking up 100 percent of the expansion costs through 2016, and then will gradually cut back to 90 percent. But some conservatives say the costs that will fall on the states are just too big a burden, and they see vindication in the signup numbers, proof that costs will be more than projected as they have warned all along.

The defenders of the program contend that the overruns are worth it. “Supporters of Obamacare say the enrollment surge might lead to some budget bumps down the road, but that the historic decline in the uninsured is a major achievement. In addition, they say the expansion is providing significant health and economic benefits to states that more than offset costs.”

In other words, the economic benefits from better health health make it all worthwhile.  But none of this answers the question of where the money is going to come from.  When all is said and done medicines have to be paid for, as do doctors and hospital facilities.  Saying it was “worth it” evades the question of who is going to pay the bills.

“Can we afford not to do this?” asked Audrey Haynes, secretary of Kentucky’s Cabinet for Health and Family Services under Democratic Gov. Steve Beshear. Kentucky under Beshear has fully implemented Obamacare, and it’s seen the second largest decline in its uninsured rate, after Arkansas.

But the money remains a concern not just for foes of expansion like Scott, but for GOP governors like Utah’s Gary Herbert who are trying to come up with some way for their states to expand. Herbert met with HHS Secretary Sylvia Mathews Burwell in late April and later voiced worries that any form of expansion could mean Medicaid consumes an even bigger chunk of the state budget starting in 2017.

“We’re trying to cover as many people as we can afford,” said Herbert, a Republican who supports expansion but has not yet managed to find the right mix of ACA expansion and conservative variants to bring his legislature on board. “Is it 90,000 or 110,000 people? I don’t know what that’s going to work out to be right now.” …

“If you’re spending twice as much on this program than expected, that’s twice as much money that’s being added to the national debt,” said Nicholas Horton with the Foundation for Government Accountability, a conservative think tank that has sought to highlight how much expansion enrollment has gone beyond expectations. Even if the states don’t pay nearly as much as the federal government for Medicaid expansion, he said, “You’re still going to spend more money overall. That’s still taxpayer money.”

Perhaps more to the point, the Medicare blowout is draining away funds for other traditionally liberal causes, other public service union cash cows.  The competition for money is creating problems within the Democratic party.  The clearest example is the Medicaid blowout’s effect on public education.  The Edvocate writes:

According to a new study, there is correlation between the rising cost of Medicaid and declined spending on higher education. Created by Moody’s Analytics for The National Commission on Financing 21st Century Higher Education, the study suggests that state budgets will constrict spending on higher education because of the high cost of Medicaid.

Because money from the Affordable Care Act will start to slow by 2020, many states will have to allocate more funds for Medicaid, which in turn will cause a decrease in discretionary spending.

So, many states that are struggling with budget deficits or have deeply cut funding for higher education will likely face more financial issues.

One of the hard economic truths is that there isn’t enough money for everything.  While health is doubtless important so is education, public safety, roads and bridges.  State Medicaid budgets can only blow out so far before it forces school closures and cutbacks to police, fire and roadway maintenance.  Above all, it will cause irreconcilable problems for the Democratic Party.  Inside Higher Education has the story from Chicago, President Obama’s hometown.

CHICAGO -- State tax revenues are up. But the next decade is looking rough, thanks largely to rising Medicaid costs. And public higher education will bear the brunt of tighter state budgets.

That's the central finding of a new study from the National Commission on Financing 21st Century Higher Education. The University of Virginia's Miller Center created the nonpartisan commission last year with funding from Lumina Foundation.

“Huge growth” in Medicaid spending is leading to a “tipping point” for public colleges, said Ray Scheppach, an economic fellow at the center. Scheppach presented the study's findings here this week at a meeting of the Education Writers Association.

State spending nationwide on Medicaid was 15.6 percent of overall state budgets in 2013. That spending will increase to 17.9 percent by 2024, estimated the report, which is based on projections from Moody's Analytics.

The increase in Medicaid costs will siphon away $60 billion more from state budgets over the next decade, according to the center, with the bulk of that diversion coming after 2020.

“That $60 billion would have been available to all discretionary spending, including education,” said Scheppach.

Clearly no amount of insistence that the overspending is worth it can overcome the problem that it will crowd out all other expenditures if left unchecked. “By 2020 increased state spending on Medicaid will outpace tax revenues. Higher education will be “crowded out,” according to the study, and allocations for public colleges will grow by less than 4 percent per year.”

The situation was particularly toxic for states like Illinois who had large public sector unions. Most of Democratic states were facing problems meeting unfunded pension payments.  A Medicaid Pacman on the loose inside the budget would crush all hope of paying the public sector pensions.

The report did not include pension liabilities as a mandatory spending item in its calculations. As a result, states with big unfunded pension obligations could see further slowing in higher education spending. Those states include Illinois, which faces as much as a $100 billion pension shortfall over the next 30 years.

Illinois's new Republican governor, Bruce Rauner, has proposed deep cuts to cope with the state's current $6 billion budget hole.

Democrats have criticized his proposed slashing, which includes cuts to higher education, saying it will hurt the state's neediest citizens.

Rauner wasn't shy in defending his budget plan while speaking here on Monday.

“We're going to bring financial discipline to our system,” he told the group of journalists.

The costs -- and benefits -- of Medicaid expansion accrue to the individual state depending on its decision to expand or not. One persistent myth surrounding the expansion debate is the argument that states which refuse to expand “lose out” on their share of the money which is then used by other states.  But as a group of researchers writing at Forbes notes, the Congressional Research Service says this is simply not so.

A recent report from the Congressional Research Service (CRS) confirms what many policy experts have known for some time: states that reject Obamacare’s Medicaid expansion aren’t sending that Medicaid expansion money to other states. Instead, that money is simply never spent.

This revelation is important because numerous governors and state lawmakers from across the country have used this argument to justify their support for expanding Medicaid through Obamacare. …

The new CRS report explains that this claim is bogus:

If a state doesn’t implement the ACA Medicaid expansion, the federal funds that would have been used for that state’s expansion are not being sent to another state. There is not a set amount of federal funding for Medicaid. Each state gets the federal funding necessary for their Medicaid program.

This explanation is pretty straightforward: if a state rejects expansion, they don’t get any expansion money. If a state does expand, they get expansion money. But one state’s actions have no relation to how much another state receives from the federal government because there is no pot of funding that’s being divvied up in Washington.

This means that states will bear the consequences of Medicaid expansion if they climb to unsustainable levels. There is no magic pot of free money which can be squandered without consequences.  Even the “free” Federal money isn’t “free”.  It eventually comes from the taxpayers.

As the Congressional Budget Office has repeatedly pointed out, states that reject Obamacare expansion are reducing federal spending. The Obama administration confirmed that rejected Medicaid expansion saved federal taxpayers at least $26 billion in 2014. If those states continue to reject Obamacare, federal taxpayers will spend $368 billion less on Medicaid expansion through 2022.

Does this mean that Medicaid expansion is bad? No.  The benefits they bring are real if they are sustainable. The trick for each state is to expand Medicaid to the degree to which it can be maintained.  The worst thing that could happen is for states to bloat their rolls to numbers they cannot realistically afford only to be forced to throw people off the program when it becomes evident it cannot be sustained.

Lost in the debate over “increasing coverage” are the issues which prompted people to propose “health care reform” in the first place: lowering the cost. As Kimberly Leonard of US News and World Report writes “Nearly 50 years after the programs were created, former agency heads say Medicare and Medicaid could be crippled by rising costs.”

It has been nearly half a century since President Lyndon B. Johnson signed Medicare and Medicaid into law, and while both continue to drive contentious debate among lawmakers, there is one point of agreement: The method of spending on these programs needs to change.

In a summit at Sidney Harman Hall in Washington, District of Columbia, former chiefs of government agencies responsible for the programs reflected on the law's passage and its future. The event was hosted by the LBJ Library, the Aspen Institute and the Robert Wood Johnson Foundation.

A major theme rippled through the discussions: As much as the programs have accomplished, their rising costs are concerning. President Barack Obama's health care law, the Affordable Care Act, aims to make changes to both programs, which together offer health care coverage to about 110 million Americans.

Obamacare was originally proposed as a solution to the unsustainably high cost of Medicare and Medicaid.  The idea was that it would “bend the cost curve”.  Yet somewhere along the line the entire project became about “expanding coverage”, which for the most part meant Medicaid expansion.  Obamacare’s increased coverage is largely Medicaid expansion.

In an absurd result Obamacare is now justifying its existence by expanding the very unaffordable program it swore to replace.  It has come full circle: Obamacare will save Medicaid and Medicaid will save Obama.  But the fact is the US government is no closer to the very question now vexing the states.  Medical treatment is a good thing, but who is going to pay for it?

Unforeseen Cost Increases

POSTED one month ago BY HEALTH CARE COMPACT

Pundits are struggling to explain why insurance premiums are rising under Obamacare rather than falling.  After all, it is the “Affordable Care Act”.  One theory is that the spike is a one off brought about by the sudden influx of pent-up demand though it will still remain high thereafter Elizabeth Whitman of the International Business Times explains:

Holland said costs were likely to go up because a high percentage of those who had newly bought health insurance through the Affordable Care Act needed expensive medical care that, until they bought insurance, had been delayed. As a result, health insurers were finding they had to spend more to cover the expensive medical bills, and because fewer younger -- and presumably healthier -- people had signed up for coverage, companies had smaller pool of funding to draw on.

The fundamental change in the risk pool caused by the influx of older, sicker individuals and the shortage of younger people meant that insurance premiums, having gone up, would remain elevated.  The International Business Times article says that the price pain has only just begun:

Those who think their current health insurance plans are too expensive should brace themselves for 2016, at least based on the recent predictions of one healthcare executive. Health insurance companies are likely to demand even more money in the coming year from people seeking to buy healthcare ....

"You cannot have every doctor in your network, very low copays, broad benefits and lower costs. It just can't work that way," Holland said, calling such demands, including for insurance companies to charge lower premiums or monthly fees that people pay for to have insurance coverage, "unrealistic." ....

Even as premiums might be about to go up, a study published Thursday by the consumer healthcare nonprofit group Families USA showed that one out of four adults who bought health insurance through exchanges created under the Affordable Care Act skipped necessary medical treatment because the care was too expensive. These adults had paid monthly premiums, some of them subsidized by the government, for health insurance but were nevertheless unable to afford the very care it was supposed to provide.

Casey Mulligan at the City Journal suggests that a number of unpleasant policy surprises still remain buried in Obamacare because of the “law of unintended consequences”.  He argues for example, that the ACA is causing unforeseen tax effects.

The ACA also has significant potential to affect the allocation of labor—and thus wages—throughout the U.S. economy, through its penalties for employers that don’t provide health insurance for their workers as well as through its subsidies for individuals to purchase health insurance (the latter of which is the subject of the King case).

Mulligan maintains that Obamacare, through its employer mandate, will depress wages in certain non-exempt industries causing workers to shift to exempted industries.  This in turn will cause a glut of labor in the exempted industries, thereby driving wages down.  Because Obamacare is a tax it will tend to raise the price of health care -- including insurance premiums.  Because it is applied unevenly, it will first press down on one industry and cause a ripple of changes in other industries until it smooths out, but at a lower level.

Because exchange subsidies are available only to persons not eligible for affordable employer coverage, the ACA requires that large employers either provide affordable coverage or pay a penalty, computed according to how many full-time employees they have. The law defines a large employer as one with at least 50 full-time-equivalent employees in the calendar year prior to the one in which it failed to provide coverage. (Part-time employees count toward full-time equivalents in proportion to their hours worked.) Unlike employee wages, the penalty is not deductible for the purpose of determining the employer’s business-income tax—and this fact, together with the law’s procedure for indexing the penalty to health-cost inflation, means that the employer penalty in 2016 (the first year in which it will be fully enforced) would be as costly as $3,163 per employee on the full-time payroll beyond 30 employees.

Because the cost of the penalty to their employer could cause a reduction in wages or even the loss of their jobs, workers at penalized employers would appear, at first glance, to be losers here. However, as workers leave penalized employers and compete for jobs at employers that do offer coverage (hereafter “ESI employers,” for “employer-sponsored insurance”), they drive down wages at these employers and mitigate some of the penalty’s effect on wages at employers that don’t offer coverage (hereafter, “non-ESI employers”). It would work something like this: among groups of workers earning roughly the same amount, the ACA penalty takes part of the pay of the non-ESI (i.e., penalized) sector. Employees leave the penalized sector to take advantage of the higher ESI-sector pay. The more employees who seek work in the ESI sector, the less ESI employers need to pay for them. At the same time, the more employees who leave the penalized sector, the more the penalized employers are willing to pay the employees who remain. Non-ESI employees, then, will be partially compensated for the penalty-free opportunities existing outside their sector. The newly depressed pay among ESI employees amounts to a hidden tax on these workers: the employer penalty reduces their pay, even though their employers don’t pay it. In effect, penalized employees escape part of their penalty by passing it on to ESI employees.

Because of the complexity of Obamacare, its  actual effect on the price level of insurance and health care is difficult to determine.  The architects of the ACA may have reckoned that it would raise the costs of medicine by only so much.  But they are now finding it has increased the prices more than they bargained for.

The result is that the Affordable Care Act is becoming its opposite: the Unaffordable Care Act.  Government intervention in the health care system caused unforeseen effects.  It may have slightly lowered the rate of uninsurance in America, but at a price no one in the end is willing to pay.

Why is a Major Healthcare.gov Contractor Quitting?

POSTED one month ago BY HEALTH CARE COMPACT

The Daily Caller focused its attention on a curious development in the management of Healthcare.gov.  The company that the administration had bent rules to hire was suddenly quitting.  Reporter Richard Pollock wrote:

QSSI, the politically-connected information technology firm that rescued the problem-plagued HealthCare.gov website unexpectedly announced Thursday that it is stepping down as prime manager.

The surprise departure of QSSI, the Columbia, Md.-based subsidiary of the IT health firm Optum and the health insurance giant United Healthcare Group, will raise new doubts about the future viability of the website for President Obama’s signature program, Obamacare.

Three IT companies will have managed HealthCare.gov in its brief two-year history once QSSI is replaced.

The key personality behind QSSI is Andy Slavitt.  Slavitt was a major figure in the health care industry but also politically connected to the Obama administration.  His role in industry gave rise to concerns that his involvement in Obamacare would create conflict-of-interest issues.

Alexander Bolton of the Hill reported in 2012 that “the Obama administration is relying heavily on outside contractors to implement a core component of healthcare reform as it races to set up a federal health insurance marketplace before 2014.  The fast-approaching deadline gives the administration little time to scrutinize private-sector partners for conflicts of interest.” [Emphasis mine]

The purchase of one of these contractors, Quality Software Services, Inc. (QSSI), by UnitedHealth Group, a major healthcare conglomerate, has sparked concerns about a potentially uneven playing field.

QSSI, a Maryland-based contractor, in January won a large contract to build a federal data services hub to help run the complex federal health insurance exchange.

It will be working with several other contractors, including CGI Federal, Inc., to create the technological architecture for the exchange.

The quiet nature of the transaction, which was not disclosed to the Securities and Exchange Commission (SEC), has fueled suspicion among industry insiders that UnitedHealth Group may be gaining an advantage for its subsidiary, UnitedHealthcare.

Not only was QSSI chosen to help fix the struggling Obamacare site but Slavitt was chosen to head the Centers for Medicare & Medicaid Services.  The Daily Caller continues:

He received a rare waiver from federal ethics rules at the time, which allowed him to be involved in contracting issues involving Optum and the United Healthcare Group.

When Healthcare.gov failed to operate properly in 2014, QSSI was upgraded from a small hub manager to a “senior adviser,” effectively making the firm the web site’s prime integrator. The promotion was made while Slavitt was still at Optum.

When Slavitt joined CMS, a little known loophole in government hiring practices permitted him to pocket $4.8 million in tax-free money when he joined the government agency.

Slavitt’s interlocking connections are described in a Bloomberg Business profile.  He is:

  • Chairman of Quality Software Services, Inc.

  • Interim Chief of Centers for Medicare & Medicaid Services since January 2015.

  • Principal Deputy Administrator of Centers for Medicare & Medicaid Services

  • Chief Executive Officer of OptumInsight a subsidiary of UnitedHealth Group since November 2006 and also served as its Chief Operating Officer from January 2005 to November 2006

Having taken so much trouble to hire this extraordinary executive and his company, why is it suddenly quitting? Inside Health Policy says that the company is staying on for seven more months until a replacement is found. “HHS approved a $23 million, seven-month contract extension with Quality Software Services, Inc., or QSSI, to continue its role as Healthcare.gov adviser until a successor is found, according to federal acquisition and procurement documents signed March 26.”

Some websites have suggested that the conflict-of-interest optics are making the relationship too hot to handle but the official reason, as reported by the Wall Street Journal, is that QSSI believes it has accomplished its mission.

WASHINGTON—The contractor tapped to rescue the flailing HealthCare.gov in the fall of 2013 declared its work finished Thursday and said it doesn’t plan to continue overseeing the website that sells subsidized insurance to millions of Americans as part of the federal health law.

“Having achieved the goal of making HealthCare.gov a stable and reliable platform for people seeking coverage, Optum will not rebid to continue the role of senior adviser,” said Matt Stearns, a spokesman for the company, the technology unit of insurer UnitedHealth Group. “Our job has been completed.”

The company believes that relinquishing its HealthCare.gov role will have give it more freedom to pursue other contracts, said Mr. Stearns. “By no longer acting as senior adviser to HealthCare.gov, Optum can seek to assist in other projects and leverage our ability to develop and operate large transactional systems that advance health care.”

However, the WSJ suggests this is not quite true.  Many major parts of Healthcare.gov remain unfinished, especially the all-important backend.

Many of the remaining technological challenges for the federal government are with the broader infrastructure supporting HealthCare.gov, and, in particular, back-end systems for transmitting sign-up information to insurers and state Medicaid programs. Consumers don’t see those parts, but the states and insurers that do say they’re still grappling with problems resulting from incomplete parts of the system.

Enrollment workers who have been using HealthCare.gov say their biggest challenges now come from the intricacies of its various rules for eligibility, not the performance of the site itself.

“You still have to understand how the law works,” said Elizabeth Colvin, director of Insure Central Texas.

Optum was “confident that HealthCare.gov will remain a stable and reliable platform” without its oversight, Mr. Stearns said. The company would continue to operate the site’s data services hub and identity management systems, as well as to work with states that had their own sites, he added.

One possible reason for QSSI’s departure could be the realization that Healthcare.gov will have to deal with collapse of the state Obamacare exchanges, half of whom are bankrupt.  The other complicating factor is a possible decision by the Supreme Court to disallow many of the subsidies currently being paid as King vs Burwell is heard by the justices.

All in all, Healthcare.gov may prove an unhealthy place to be in 2016 and Slavitt may have decided to quit while he was ahead.

TheRise of Deductibles

POSTED one month ago BY HEALTH CARE COMPACT

A nonprofit organization called Families USA, which received money to tout Obamacare, is engaged in a new and puzzling media campaign to label the president’s flagship program as inadequate. Lydia Mitts and Cheryl Fish-Parcham explain that one fourth of those insured under Obamacare still can’t afford medical treatment because the deductibles are too high.

The Affordable Care Act has increased access to health insurance and financial assistance for millions of Americans. But even with the new assistance that helps consumers pay their premiums and out-of-pocket health care costs, one-quarter of consumers who buy insurance on their own still have problems being able to afford needed care.

A separate study authored by Families USA says “simply having health insurance is no guarantee that consumers can afford to pay for health care. Health insurance involves different types of costs that consumers must pay out of pocket—ranging from a health plan’s deductible to copayments at a doctor’s office. These expenses add up, and research has shown that even nominal cost-sharing can deter people from getting needed care.  Unfortunately—as our study shows—for many Americans with non-group coverage, deductibles and other out-of-pocket costs are prohibitively high and are associated with many of these insured consumers forgoing needed health care.”

Their suggested solution is to compel or persuade insurers to “exempt” low income holders of Silver Plans from deductibles.

Insurers are choosing to design silver plans with upfront cost-sharing that is too high for lower- and middle-income consumers to afford. As we noted earlier, many insurers are offering silver plans that have high deductibles. In addition, many of these plans don’t help pay for even basic primary care and medications before the consumer pays the full cost of his or her deductible. This can make high deductible plans particularly problematic for lower and middle-income consumers.

Due to federal requirements that govern the way silver plans are designed, these plans must have higher cost-sharing for more extensive or complex medical care. However, insurers do have the flexibility to design silver plans that charge low cost-sharing for basic outpatient care like primary care visits, some prescription drugs, blood work, diagnostic testing, and secondary preventive services (services that help manage chronic conditions like diabetes or asthma).

The main ways insurers can do this is by exempting these types of services from the deductible (meaning that the health plan helps pay for these services even before the deductible is fully paid) and by charging low copayments for this type of care. Insurers also can design silver plans with low or no deductible.

Unfortunately, not enough insurers are taking advantage of that flexibility. This means that many lower- and middle-income consumers with silver plans may still struggle to get the basic care they need because they are not able to afford to pay the full cost of a doctor visit or medication out of pocket.

Families USA is clearly advancing the newest Obamacare narrative: it is failing because the insurers are too greedy.  With 25% of policy holders paying for mandatory insurance but getting no treatment despite that, it is perilously close to simply being a scam preying on lower income individuals.  Were it not for the compulsory nature of Obamacare it is doubtful that these “insured but not covered” individuals would waste their money on a policy from which they derived no benefit.

Ironically, this study bemoaning the lack of subsidies or other aids to ameliorate unaffordability comes as it emerges that tax credits were often carelessly disbursed to the wrong people. “The Senate's top investigative committee has launched an inquiry into the system that's supposed to ensure ObamaCare tax credits go to the right customers for the right amounts -- amid concerns that many Americans are getting inflated or improper subsidies.”

Sen. Rob Portman, R-Ohio, who is leading the investigation, says because of the confusion with the system, millions of Americans are learning after the fact they inadvertently got too much money and now owe the IRS hundreds.

"I'm concerned that the subsidy eligibility process is so complicated that many consumers believed they were receiving cheaper insurance coverage than they ultimately got," Portman said in a statement.  …

Portman also cited two investigations into the government's income-verification systems. The Government Accountability Office said in 2014 its investigators secured subsidies using false identities in 11 out of 12 undercover attempts. Also last year, an HHS inspector general report found the department "did not have procedures or did not follow procedures to ensure" against government overpayments.

Committee investigators also point to an analysis by H&R Block that found almost two-thirds of its filers receiving an ObamaCare tax credit owed the government at the end of the year. On average, those filers were required to repay more than $700 of their ObamaCare subsidies. The study found most customers claiming the credits were confused about the requirements.

The scale of the refunds is convincing proof that Obamacare’s subsidies are inaccurately targeted. That is because they are calculated on what a taxpayer believes his income will be for the coming year.  While a salaried middle class employee might be able to predict that amount with some accuracy, salaries being largely fixed or varying only within a narrow band, lower income people who rely on casual or part time or even seasonal employment will be hard pressed to name a correct figure.

Even as lower income Americans are hit with high deductibles the federal government continues to send subsidies to the wrong people, then spends even more money and effort to retrieve what they had mistakenly disbursed. The sheer waste that Obamacare represents is underscored by a report from the Hill that businesses -- the “group insurance” market which Families USA praises for having low deductibles -- are following suit in passing on the costs to their employees!

Nearly two-thirds of companies facing a new ObamaCare tax say they are changing their coverage to avoid the extra costs, according to a new survey.

The so-called Cadillac tax, which applies to healthcare plans above a certain expense threshold, is one of the most pressing changes still to come under ObamaCare, according to a survey of about 600 members of the International Foundation of Employee Benefit Plans.

Only 2.5 percent of companies that would be hit by the Cadillac tax starting in 2018 said they plan to pay the tax. A total of 62 percent of companies said they have already taken action or plan to take action to avoid it.

Most say they are shifting toward higher deductible plans, while others said they are reducing benefits, shifting more costs to employees or dropping high-cost plans altogether.

The one thing that Obamacare is undeniably achieving is raising deductibles for all, in both group and individual markets.

Bureaucratic Medicine

POSTED one month ago BY HEALTH CARE COMPACT

The government, having gained an unprecedented amount of authority over healthcare, is making increasingly detailed decisions about specific medical services.  Robert Pear of the New York Times describes how the White House has warned insurers to provide free contraception in all its forms to women under Obamacare.

The Obama administration on Monday put health insurance companies on notice that they must cover all forms of female contraception, including the patch and intrauterine devices, without imposing co-payments or other charges.

In the last month, the National Women’s Law Center and the Kaiser Family Foundation issued separate reports finding that insurers had often flouted a federal requirement to provide free coverage of birth control for women under the Affordable Care Act.

And contraception means “preventative services” for transgender individuals. “The new guidance was provided in a series of questions and answers issued jointly by the Departments of Health and Human Services, Labor and the Treasury.”  You may wonder what Treasury has to do with medical procedures, but that’s how it goes.

David C. Stacy, the government affairs director at the Human Rights Campaign, a gay rights group, welcomed the statement requiring coverage of preventive services for transgender people.

“A transgender man who has a need for breast cancer screening would be assured of getting that screening,” Mr. Stacy said. “A person who has transitioned from female to male may still have a high risk of breast cancer.”

No sooner had the government spoken on contraception than it was pronouncing on mammograms.  The Hill reports that the Department of Health and Human Service is considering issuing a regulation that “insurance companies will no longer have to cover biennial mammograms for women under age 50.”

As many as 17 million women under age 50 may no longer be covered for mammograms under potential new guidance from a federal advisory panel, according to a new study.

The Department of Health and Human Services is considering new guidance from an independent panel of medical experts that advises against regular mammograms for younger women if they are not at acute risk of the disease. …

A change in coverage would impact at least 17 million women between ages 40 to 49, according to an analysis by Avalere Health. A majority of those women are covered by employer plans, with about 1.2 million covered through ObamaCare exchanges and 1.1 million by Medicaid expansion.

The government has always been in the business of issuing guidelines.  What’s changed is that Obamacare has now changed the nature of guidelines to orders.  Chris Jacobs in the Wall Street Journal traces the rise of something called the Preventative Services Task Force and its involvement in the determination of mammogram treatment.

A draft recommendation from the U.S. Preventive Services Task Force last month echoes a similar recommendation made in the fall of 2009. Namely, the task force recommends mammogram screening every two years for women ages 50 to 74 but does not recommend universal screening before age 50: “The decision to start regular, biennial screening mammography before the age of 50 years should be an individual one and take patient context into account.”

That contradicts guidelines issued by the American Cancer Society and other groups for women in their 40s and is part of a long-standing debate about whether the benefits of early detection and treatment offset the costs, including false positives and additional radiation exposure.

Obamacare moved that debate from the clinical realm into the policy world by giving the task force jurisdiction over which preventive services insurers must cover. The law references the task force more than a dozen times. Any preventive service the task force grades “A” or “B” must be covered by private insurers, Medicare, and Medicaid without cost-sharing such as co-pays or deductibles. Because the draft recommendations give a “B” grade only to biennial screening between ages 50 to 74, insurers would not be required to cover mammograms for women younger than 50 or screenings more frequent than the every-two-years regimen recommended by the task force.

The mammogram controversy became so heated that it motivated Congress to do something even more absurd: legislate treatment.  Chris Jacobs continues: “In the end, the law explicitly instructed the Department of Health and Human Services to disregard the controversial 2009 guidelines, reverting instead to a prior series of recommendations that allowed for annual coverage of mammograms for all women 40 and older.”  But Obamacare left the power of the task force intact.

If, however, the task force re-issues the same recommendations later this year—as its April draft suggested–that would supersede all its prior reports, again raising questions about coverage of annual mammograms.

The mischief had been done.  The precedent had now been established for the bureaucratic practice of medicine. Those who wish to celebrate the power  of the administration to order free contraceptive coverage cannot now deny its authority to cancel mammograms.  The two-edged nature of bureaucratic medicine recall’s Gerald Ford’s famous observation in a speech before Congress. “A government big enough to give you everything you want is a government big enough to take from you everything you have.”

And bureaucracy is most responsive to public opinion.  One of the major op-ed pieces written in support of the decision to stop mammograms appeared in the Washington Post authored by Karuna Jagger. “Stop routine breast-cancer screenings. Science has shown they don’t save lives.”

Jaggar, the executive director of Breast Cancer Action, has no medical or scientific background to speak of. Her background is in nonprofits. Her education was in economic geography with a special emphasis on women, gender and sexuality. The fact that the debate over specific treatments is now debated in the Washington Post, when it is not otherwise being resolved by a law in Congress can only be regarded as bizarre.

Perhaps Sarah Palin was onto something when she observed that bureaucratic medicine would ultimately result in “death panels”. Ben Cosman of the Wire wrote disparagingly of Palin’s idea.

A "death panel," if you'll recall, is the idea that the Affordable Care Act, aka Obamacare, includes provisions that allows federal officials to evaluate and decide whether an individual is "worthy of health care." If these officials decide that someone is not worthy of care, the thinking goes, then they are essentially condemning the person to death. None of that's really true, of course.

Unless of course your death could have been prevented by a mammogram, now no longer available under Task Force guidelines.

The State Exchange Crash

POSTED one month ago BY HEALTH CARE COMPACT

The demise of Hawaii’s Obamacare exchange is a reminder that many of the state ACA markets are in trouble. Given that state exchanges are mere outlets for a standardized insurance, the role of these exchanges must surely come into question.

The Honolulu Star-Advertiser reports that the Hawaii Health Connector will immediately set in motion a contingency plan to shut down operations. The Health Connector will cease new enrollments this Friday, discontinue outreach services May 31, transfer its technology to the state by Sept. 30 and completely eliminate its workforce by Feb. 28.

Residents of Hawaii will have to re-enroll in the federal healthcare.gov exchange to ensure coverage next year. Migrating to healthcare.gov is estimated to cost $30 million.

Nearly $205 million in federal grants were awarded to build and operate the Hawaii Health Connector online marketplace.

The Aloha state follows Oregon into oblivion. As Investor’s Business Daily points out, the state exchanges have been plagued with disasters.

State-run exchanges were supposed to form the beating heart of ObamaCare. And the Obama administration dumped almost $5 billion in an effort to make it a reality.

The results have been a disaster.

Of the 37 states that received $2.1 billion in grants to establish an exchange, only 17 did so, and they got an additional $2.7 billion from the feds.

Of those 17, two went bankrupt in the first year. One of them, Oregon, had received a $60 million "early innovator grant." Residents of those states now use the federal Healthcare.gov site.

A memo from Health and Human Services' Inspector General Daniel Levinson warns that some of the remaining may be violating federal law in an effort to stay afloat.

At least Hawaii is only bankrupt -- for now.  By contrast, the Massachusetts Connector, the Bay State’s Obamacare exchange, is a crime scene. Michael Astrue of the Boston Herald writes that it now under investigation:

On Thursday Gov. Charlie Baker’s office confirmed that the U.S. attorney in Boston had issued subpoenas last January for documents from the Massachusetts Health Connector, the problem-plagued agency responsible for most of the state’s Obamacare implementation. Nearly a year ago on these pages I called for such action and questioned why federal investigations were already underway based on similar facts in Oregon and Maryland, but not in Massachusetts.

Even California’s mighty Obamacare exchange is broke. The Los Angeles Times writes, “after using most of $1 billion in federal start-up money, California's Obamacare exchange is preparing to go on a diet”. It had planned on charging a fee on every enrollee, but far fewer than expected showed up and its financial future is in serious doubt.

The recalibration comes after tepid enrollment growth for California during the second year of the Affordable Care Act. The state ended open enrollment in February with 1.4 million people signed up, far short of its goal of 1.7 million.

A number of factors contributed to the shortfall, but health policy experts said that some uninsured folks still find health insurance unaffordable despite the health law's premium subsidies.

Those pocketbook issues make holding the line on costs an imperative for state officials. Covered California can't draw on the state general funds, and its primary source of revenue is a $13.95 monthly fee tacked onto every individual policy sold.

For political reasons California has decided not to increase its fees.  The same can’t be said for Colorado.  The Denver Post writes that “the Connect for Health Colorado staff has recommended more than doubling the fee that insurers pay on each policy purchased on the exchange — a charge that is passed on to consumers.”

The state marketplace would increase the carrier fee from 1.4 percent to at least 3.5 percent of the premium charged on exchange health plans — the same rate charged through the federal exchange, under the recommendation made Monday.

For a consumer holding a $4,000-a-year health plan, the increase would be $84 a year. The estimated increase in revenue for the exchange would be about $5.8 million.

The staff also recommended Monday that the board increase the monthly assessment the exchange charges for each private insurance policy purchased on or off the exchange, from the current $1.25 to $1.80.

Taken together, it’s clear that one of the major pillars of Obamacare, the state exchanges, is very shaky.  Edmund Haislmaier argued that without real market liberalization, they were pointless. “Under the exchange regulations, states do not gain any meaningful flexibility or advantage by operating their own exchange, as opposed to leaving the exchange up to the federal government. States simply become the vendors of HHS for taxpayer-subsidized, government-controlled health plans.”

The real outcome of King vs Burwell shouldn’t be to force states to set up exchanges in order to access Federal subsidies but to call into question their whole purpose. Unless they are more than mere outlets for a commodity product, the state exchanges are probably best abolished.  Nina Owcharenko and Edmund Haislmaier of Heritage write,

On March 4, the Supreme Court will hear oral arguments in King v. Burwell—a case challenging the Obama Administration’s IRS ruling granting premium support subsidies to those enrolled in federal exchanges under the Affordable Care Act (ACA). While a ruling against the Administration would preclude paying those subsidies to individuals who obtain coverage through the federally run exchange, that would merely add one more effect to the ongoing complexity and cascade of adverse effects produced by the law’s complex and flawed design.

Congress and the states should therefore seize the opportunity and clear the way for patient-centered, market-based reforms to take root in the states. To start, Congress should devolve the regulatory authority over insurance back to the states. In anticipation of such an exemption, states should use their authority now to put in place their own policies governing insurance.

The states are either part of a decentralized, market-oriented solution or they are bankrupt.  In a way Obamacare will repeal itself.  Economics has already rolled back the state exchange component of the program.  Economics will roll back the rest of it eventually.  If something can’t go on -- it won’t.

It’s the Cover-up that Hurts

POSTED one month ago BY HEALTH CARE COMPACT

Senator Vitter is being painted as a villain for uncovering an alleged payoff to Republican staffers in the form of subsidies to their healthcare.  “The Louisiana senator's quest to deny his colleagues benefits wins him no friends on Capitol Hill,” writes Manu Raju of Politico.  He’s not going along to get along.

Within the chummy confines of the U.S. Senate, Vitter has emerged as one of the most disliked members. The second-term senator’s effort to kill the federal health care contribution, worth several thousand dollars to lawmakers and their staffers, is a big part of it. But the two-year drive, his critics say, symbolizes an operating style that Vitter’s critics complain is consumed with public relations, even for an ambitious member of Congress: speeding in and out of meetings, railing about issues on the Senate floor but doing little to execute behind the scenes, firing off news releases left and right. In an institution in which the inside game is critical, Vitter doesn’t even pretend to bother with it. …

A number of off-committee Republicans gripe that Vitter’s accusation that lawmakers are getting a sweetheart deal is unfair and misleading. If he succeeds, some of them say, more of their high-level aides will bolt Capitol Hill for lucrative jobs in the private sector.

Several GOP senators said privately that Vitter’s effort appears to be rooted in his campaign for governor.

“We all know why David’s doing this,” said a senior Republican senator who asked not to be named to speak frankly.

But the real question must be whether Vitter is telling the truth when he alleges that legislators and their staffers improperly accepted subsidies from the administration.  The basic facts do not seem to be in question.  Congress retained its subsidy by representing itself as a “small business”.

Before 2014, lawmakers and staff received federally subsidized health insurance, but an Obamacare provision proposed by Sen.

Chuck Grassley (R-Iowa) to force Hill employees onto the exchanges changed that. The White House responded by issuing a rule that allowed members and aides to keep their subsidy by enrolling in a D.C. small-business health care exchange — a move Vitter and critics blasted as an end run around the law.

Killing the subsidy could cost many lawmakers and staffers $5,000 or more annually. Federal coverage typically pays about 70 percent of premiums for employees, including lawmakers and staff, which is in line with what many large employers cover.

That Congress is a “small business” is clearly slightly disingenuous.  Whether it is actually dishonest is at issue.  Brendan Bordelon of the National Review notes that the storm is around Vitter’s  subpoena for the actual documentation of the application.

The rumors began trickling in about a week before the scheduled vote on April 23: Republican leadership was quietly pushing senators to pull support for subpoenaing Congress’s fraudulent application to the District of Columbia’s health exchange — the document that facilitated Congress’s “exemption” from Obamacare by allowing lawmakers and staffers to keep their employer subsidies.

The application said Congress employed just 45 people. Names were faked; one employee was listed as “First Last,” another simply as “Congress.” To Small Business Committee chairman David Vitter, who has fought for years against the Obamacare exemption, it was clear that someone in Congress had falsified the document in order to make lawmakers and their staff eligible for taxpayer subsidies provided under the exchange for small-business employees.

Clearly Vitter was playing with dynamite. To complicate matters, Vitter’s request for a subpoena put presidential candidate Rand Paul between a rock and a hard place.

With nine Democrats on the committee lined up against the proposal, the chairman needed the support of all ten Republicans to issue the subpoena. But, though it seems an issue tailor-made for the tea-party star and Republican presidential candidate, Senator Rand Paul (R., Ky.) refused to lend his support. And when the Louisiana senator set a public vote for April 23, Majority Leader Mitch McConnell and his allies got involved.

“For whatever reason, leadership decided they wanted that vote to be 5–5, all Republicans, to give Senator Paul cover,” one high-ranking committee staffer tells National Review. “So they worked at a member level to change the votes of otherwise supportive senators.” Four Republicans — senators Mike Enzi, James Risch, Kelly Ayotte, and Deb Fischer — had promised to support Vitter, but that would soon change.

Whatever the truth to Manju’s allegation of Vitter’s unpopularity with his colleagues, the Senator’s stand hit a sympathetic chord with conservative Republican voters, who are deeply suspicious of establishment Republicans.  A number of conservative groups are reportedly supporting Vitter.

A coalition of conservative groups want to make sure Congressional Republicans don't let up on the fight to eliminate what they call D.C.’s exemption from ObamaCare.

Heritage Action for America and Club for Growth are among a half-dozen groups that have joined a campaign called the “No D.C. Exemption,” according to a release shared first with The Hill. The effort is spearheaded by the right-leaning organization, the U.S. Health Freedom Caucus.

The groups are looking to drive up support for a two-year-long investigation into how members of Congress pay for ObamaCare, which has been led almost single-handedly by Sen. David Vitter (R-La.). …

“Our goal is to educate the public about the ObamaCare exemption and rally them in whatever is the best way to put pressure on members of Congress to support Vitter,” said Nachama Soloveichik, a spokeswoman for the group.   

The group was formed two weeks after Vitter’s panel — the Senate's Small Business Committee — denied his request to subpoena documents related to the investigation. …

“The group is launching the website on their own, but we’ve been working with a number of organizations explaining the Obamacare Exemption for Congress and how the fraudulent application was approved,” a spokeswoman for Vitter’s office wrote in an email.

The influential conservative columnist Mark Levin took Rand Paul directly to task for not helping Vitter, even suggesting the “blackmail” was somehow involved.  Because Paul is a declared presidential candidate the controversy has now gone mainstream. US News and World Report’s Peter Roff writes:

Paul does not have an explanation for his vote. Instead, according to an aide to the Kentucky junior senator, he wants it known that he "opposes allowing Congress to exempt themselves from any legislation. To that end, this month, he reintroduced his proposed Constitutional amendment to prohibit Congress from passing any law that exempts themselves. Sen. Paul prefers this option over a partisan cross-examination of Congressional staff."

It's a nice piece of political camouflage that cleverly evades the point. Congress is not exempting itself from the law; rather it has made a false declaration about the number of people who work there in order to obtain a subsidy to which the members and their staffs are not entitled.

In the end Obamacare may negatively affect Rand Paul’s presidential bid, not so much for what he did, but for obscuring what he did; proving Richard Nixon’s adage that “it’s the cover-up that hurts.”

The Big Dig of Insurance Projects

POSTED one month ago BY HEALTH CARE COMPACT

In the 1990s the term “Big Dig” -- a reference to vast highway tunnel project in Massachusetts begun in the late 1990s -- became synonymous with overpriced political corruption.  It was to public projects what the Titanic was to ocean liners.  Whenever one says “the Big Dig of” something, it communicates a fiasco of the highest order.

The Wall Street Journal reports that the Obamacare state exchange of Massachusetts is now being called the Big Dig of insurance projects.  It’s a catastrophe so bad that it is under investigation and may result in criminal charges for some, though as we will see, not for all.

The catastrophic ObamaCare rollout merely two years ago has disappeared into the distant political past, forgotten, with zero accountability for the taxpayer waste and disruption to individuals and business. Massachusetts may prove to be an exception.

Late last week the administration of Republican Governor Charlie Baker confirmed that the FBI and U.S. Attorney for Boston have subpoenaed records related to the commonwealth’s “connector” dating to 2010. This insurance clearinghouse was Mitt Romney’s 2006 beta version for ObamaCare’s exchanges, but updating the connector to comply with the far more complex federal law became a fiasco rivaling any of the other federal and state ObamaCare failures.

The target of the investigation hasn’t been disclosed. But the best autopsy of the connector mess is being published Monday by Boston’s Pioneer Institute think tank, where Josh Archambault reviews internal audits and whistleblower testimony he obtained. The evidence is damaging to both Massachusetts’s exchange contractor, CGI Corp., and the administration of former Democratic Governor Deval Patrick.

The story was broken by a think tank called the Pioneer Institute.  It alleges that Deval Patrick, some aids and the contractor performed incompetent, overpriced work in the development of the Obamacare state exchange of such poor quality that it never had any prospect of working.  Despite this fact, the Patrick administration appears to have concealed the lack of progress and shabby work in order to mislead the Federal government into continuing to fund the doomed project.

Mr. Archambault reveals years of third-rate technological work, disregarded deadlines, pervasive mismanagement, little outcome measurement and general bureaucratic incompetence. An outside auditor noted as early as 2012 that the “quantity and/or skills/experience level of project resources may be impacting the ability to complete project tasks within planned timeframes” and questioned if staff were “sufficiently knowledgable.”

A test before going public showed a 90% failure rate, and the new connector detonated on the launch pad. Some 320,000 residents attempting to gain coverage had to be dumped into a temporary “free” Medicaid program without any income eligibility determination. Pioneer pegs the total cost of the mess at around $1 billion.

CGI almost certainly broke its contractual obligations to Massachusetts, though Mr. Archambault notes that the project routinely attempted to conceal problems rather than fix them. High-level political appointees repeatedly misrepresented their progress to Health and Human Services officials, whether out of ignorance or perhaps to keep the federal ObamaCare-funding spigot flowing.

A number of heads rolled as a consequence of the debacle. “Earlier this year Governor Baker requested and received the resignations of four of the 11 members of the connector board, including MIT professor Jonathan Gruber, the ObamaCare architect who earned fame for mocking ‘the stupidity of the American voter.’”  

But one of the persons closely associated with the connector was promoted, possibly because he was familiar with what happened at the state level.

Kevin Counihan is the new Obamacare CEO, with the mission of making “sure that the federal insurance exchange, which suffered from crippling management failures last year, runs more effectively in the second year of Obamacare coverage expansion.”  He was also intimately connected with the Massachusetts Connector.  According to his profile in CMS (Centers for Medicaid and Medicaid Services):

Kevin Counihan joined the Department after most recently serving as the CEO of AccessCT, the state of Connecticut’s health insurance exchange.  As the AccessCT CEO, Kevin led the successful implementation of the state’s marketplace where enrollment exceeded expectations. Additionally, he was the Director of Marketing for the Massachusetts Connector during Massachusetts’ implementation of their health reform initiative.

In his role as Marketplace CEO, Kevin is responsible and accountable for leading the federal Marketplace, managing relationships with state marketplaces, and running the Center for Consumer Information and Insurance Oversight (CCIIO), which regulates health insurance at the federal level. Kevin has over 25 years of experience in the commercial health insurance industry. He is an experienced senior executive with more than three decades of success in business, marketing, operations, product development and strategic planning for health care organizations.

Boston.com writes that “Counihan, who consulted on insurance exchanges for 40 states before accepting a post as chief executive of Connecticut’s Health Insurance Exchange, is among more than a dozen former Massachusetts health officials cashing in on the need for their expertise.”

In one way or another, all were pioneers of the expanded coverage at the heart of the health care overhaul championed by former governor Mitt Romney. …

“The fingerprints of the Massachusetts Connector are clearly visible in the work going on everywhere,” said Jon Kingsdale, former executive director of the Connector Authority. Kingsdale has worked with 15 states in the past two years as managing partner in the Boston office of Florida-based Wakely Consulting Group. This week, he flew to Oregon to talk with representatives of 10 states about their exchanges.

In that capacity he would have become familiar with the whole gamut of state efforts. While Counhihan himself went on to manage the relatively trouble-free Connecticut website, one of the survivors of the massacre of state exchanges, the program has become a kind of national health insurance Big Dig.  Investors.com summarizes the state of play:

After spending billions on state-run ObamaCare exchanges, the federal government is only now writing clear rules on how that money can be spent, while half of the exchanges head toward bankruptcy. State-run exchanges were supposed to form the beating heart of ObamaCare. And the Obama administration dumped almost $5 billion in an effort to make it a reality.

The results have been a disaster.

Of the 37 states that received $2.1 billion in grants to establish an exchange, only 17 did so, and they got an additional $2.7 billion from the feds.

Of those 17, two went bankrupt in the first year. One of them, Oregon, had received a $60 million "early innovator grant." Residents of those states now use the federal Healthcare.gov site.

A memo from Health and Human Services' Inspector General Daniel Levinson warns that some of the remaining may be violating federal law in an effort to stay afloat.

ObamaCare told the states that they'd get plenty of federal money to help them set up their exchanges — but not run them. And starting this year, the state exchanges had to be self-financing — they had to pay their own way out of exchange fees or other funding sources.

The public has been told that the federal exchange, unlike those of the states, is now working well.  But it still remains to be seen whether the claimed success will hold up.  Deval Patrick told his constituents that the Connector was coming along well also.  However the truth when it emerged was the opposite of the claim.

Come Back insurance, Come Back

POSTED about 2 months ago BY HEALTH CARE COMPACT

The exit of Assurant Inc from the Obamacare market was yet another sign that something was wrong with its insurance model.  The reason given by Assurant for leaving the business was instructive: the ACA market wasn’t insurance.

After expanding to do business on the Affordable Care Act’s exchanges last year, a Wisconsin-based health insurance company founded in 1892 has announced it will close its doors.

Assurant Inc. announced last week one of its subsidiaries, Assurant Health, an insurance company, will either be sold or shuttered after losing tens of millions of dollars this year. The decision comes 18 months after the implementation of the Affordable Care Act, and industry watchers argue Assurant Health’s end can be attributed to the new health care law.

“The health and employee benefits business segments possess differentiated capabilities in their respective markets, but we do not believe they can meet our return targets at the pace we require,” Alan Colberg, president of Assurant Inc., said in a statement. “While this is a difficult decision, we believe they would be strong assets for new owners that are focused more exclusively on health care and employee benefits.

In plain English, Ed Haislmaier, health policy expert at The Heritage Foundation, explained that selling on the Obamacare market is like being a Medicaid provider.

With respect to the Affordable Care Act, the skill set that an insurer needs to thrive in the Obamacare exchange market is different than the skill sets needed to thrive prior to the Affordable Care Act or in markets outside the exchange.  Most of the insurers offering coverage in the exchanges are used to operating in the individual and employer group markets. However, the exchange coverage design is a lot closer to Medicaid managed care than to traditional employer group coverage.

In a competitive insurance market providers can offer different products.  But in on an Obamacare market the products are pretty much standardized.  Haislmaier explains: “when the government standardizes any product, you’re going to end up with fewer producers. That’s because the effect of government standardization is to turn the product into commodity, which leaves little room for the supplier to show how its version is better than those of its competitors.”

In 2013 Haislmaier predicted that the state Obamacare exchanges would fail because they were pointless.  They were like different storefronts selling the same product.  “Under the exchange regulations, states do not gain any meaningful flexibility or advantage by operating their own exchange, as opposed to leaving the exchange up to the federal government. States simply become the vendors of HHS for taxpayer-subsidized, government-controlled health plans.”

Furthermore, there are huge costs for states that agree to set up an exchange. ObamaCare requires in 2015 that states setting up an exchange develop their own revenue source to fund the exchange operations. That could translate into state budgets devoting more stretched resources to the ObamaCare exchange, crowding out other vital programs like transportation and education, or creating new taxes for residents and businesses.

States that decide to forgo an exchange still face costs from Washington. HHS announced late last year that it would levy a 3.5 percent administrative fee on coverage sold through federally run exchanges. But when compared with the costs of running an exchange, estimates for opting out appear to be the cheaper option.

Meanwhile, choosing not to set up an exchange gets states off the hook for the exchange’s operational results. States that elect to operate an ObamaCare exchange signal they will take on responsibility for how well the exchange performs. And this comes as HHS is delaying the rollout of much-needed details on how the entire exchange program will operate. Each day without a roll-out ups the probability that the Obama administration will fail to get the exchanges open to the public by October.

Rather than rely on the federal government to succeed, states should hold back. If they aren’t satisfied with a federally run exchange, the law allows for states to come back and set up their own. So there is no rush to commit. Right now, it’s more practical for states to hold off on the exchange mania.

The 2013 prediction proved to be prescient.  By 2015 half the state exchanges were headed for bankruptcy. Lena Sun and Niraj Chokshi of the Washington Post reported that “nearly half of the 17 insurance marketplaces set up by the states and the District under President Obama’s health law are struggling financially, presenting state officials with an unexpected and serious challenge five years after the passage of the landmark Affordable Care Act.”  It was serious to be sure, but it should have not have been unexpected given the artificial nature of the exchanges.  

Perhaps one of the most nonpartisan critiques of Obamacare was by the Committee For Economic Development’s (CED).  The CED consisted of senior executives or recently retired CEOs of universities, pharmaceutical companies, insurers and think tanks, such as Bruce McLaury, the president emeritus of the Brookings Institution. The CED accounted itself one of the earliest supporters of health care reform.  But it had concluded that Obamacare, as written had become a caricature of the original ideas.

It has been clear for several decades that the cost of health care in the United States—for families, for businesses, and for government—has been spiraling out of control. At the same time, the nation has not received fair value for the sums that it has paid—and many Americans have not had insurance coverage at all. These failures of affordability, quality, and access led CED to develop our own ideas for market-based universal health insurance, using competition among private insurance plans driven by cost-conscious consumer choice to motivate improvements in quality at lower cost. Our most recent policy statement, released in 2007, provided highly detailed policy prescriptions.

In 2010, the US Congress and the president responded to this slow-moving health care crisis by enacting the ACA. The new law sought to address the same concerns that CED recognized in our policy statement of 2007. However, relative to our vision, we believe that the ACA does both too little and too much. It leaves the deficient core of the health care system—based on fee-for-service medicine, with all of its long-recognized perverse incentives—substantially intact and increases government involvement in the delivery of health care, injecting remote, one-size-fits-all rules into what we believe should be the individualized physician–patient relationship. We believe that this combination will not deliver all of the innovation and process improvement that the nation needs to achieve higher-quality, more affordable care. We recommend a different approach, more in line with a market-driven system, but with an appropriate, though smaller, role for the federal government to ensure healthy private-sector competition as fertile ground for quality and efficiency to grow.

The biggest problem with Obamacare’s policies were those identified by Haislmaier. Because the product was government standardized, the fact that it was sold in different places made no difference, for the benefit of the program came from the product, not from the way it was sold.  Moreover, the amount of subsidy a person would receive was obscured by a complex formula that often resulted in the necessity to refund the government at tax-filing time.  This made price information opaque, and without knowing the actual relative price of insurance, CED argued, no market would operate efficiently.

What CED recommended was “a system of universal refundable income tax credits, financed with broadly based taxes and usable

only for health insurance.”  A voucher, in other words. This voucher could be used to pay for any minimum standard insurance anywhere -- not just in a limited exchange.  In that way consumers would have known sum they could spend on healthcare anywhere.  And because insurance companies would be free to innovate, the consumers would have a variety of plans to choose from.

Companies could sell real insurance again. Maybe companies like Assurant could be induced to re-enter the market and not just a glorified type of Medicaid managed care.

The Curse of Obamacare

POSTED about 2 months ago BY HEALTH CARE COMPACT

The sordid saga of the White House bribing a Republican legislature began with the desire to be exempt from Obamacare -- and ended with the legislature accepting.  It is a snapshot of all the worst things about Big Government.  As soon as the ACA was passed, high government officials began casting around for ways to avoid it.  The problem was optics.  It looked ugly for politicians to avoid eating the very dish they were forcing on ordinary Americans.

During the passage of the ACA, Sen. Chuck Grassley (R-Iowa) proposed an amendment forcing all members of Congress and their staffs to enter the exchanges.  The Democrats went along, probably because they could not be seen to be opposing it.  This created a problem, as the Heritage Foundation explains.

A provision in Obamacare stipulates that on January 1, 2014, Members of Congress and their staff will lose their current employer-sponsored health insurance provided through the Federal Employees Health Benefits Program (FEHBP). There is a deepening concern among Members of Congress that they will be forced to pay more for their health care than they do today—precisely the concern that animates millions of their constituents. Many in Congress are hoping that the Obama Administration will at least find a way for them to continue using their large, tax-free FEHBP employer subsidies to defray the cost of their new coverage. However, the Administration lacks statutory authority to pay those subsidies to plans outside FEHBP. Of course, Congress could keep its current health coverage by repealing Section 1312(d)(3)(D) of Obamacare. Yet, the political price for doing so is that Members of Congress must repeal the rest of Obamacare as well—so that their constituents are allowed to keep their health plans, too.

The loophole, or rather noose, which the Congressman were offered was an invitation to submit a fraudulent application under one of Obamacare’s 1,200 exemptions, one of which was for small business.  Brendan Bordelon of the National Review picks up the story.  The administration offered Congress a bribe, at least morally speaking.

The White House scrambled to find a way to allow congressional employees to keep those subsidies. In Washington, D.C., only the small-business exchange allowed them to do so. After secret meetings with House speaker John Boehner in 2013, President Obama instructed the Office of Personnel Management to allow Congress to file for classification as a small business, despite the fact that the law defines a small business as having no more than 50 employees and the House and Senate together employ tens of thousands.

Unfortunately, not everyone got the word. “To Small Business Committee chairman David Vitter, who has fought for years against the Obamacare exemption, it was clear that someone in Congress had falsified the document in order to make lawmakers and their staff eligible for taxpayer subsidies provided under the exchange for small-business employees.”

Vitter tried to get his committee to subpoena the application, certain he would find proof of dishonesty.  That should have been straightforward, since Republicans were in the majority.  But to their everlasting shame the Republican members closed ranks with their Democratic colleagues and refused to issue a subpoena.

When Vitter asked Republicans on his committee to approve the subpoena, however, he was unexpectedly stonewalled.  

With nine Democrats on the committee lined up against the proposal, the chairman needed the support of all ten Republicans to issue the subpoena. But, though it seems an issue tailor-made for the tea-party star and Republican presidential candidate, Senator Rand Paul (R., Ky.) refused to lend his support. And when the Louisiana senator set a public vote for April 23, Majority Leader Mitch McConnell and his allies got involved. “For whatever reason, leadership decided they wanted that vote to be 5–5, all Republicans, to give Senator Paul cover,” one high-ranking committee staffer tells National Review. “So they worked at a member level to change the votes of otherwise supportive senators.” Four Republicans — senators Mike Enzi, James Risch, Kelly Ayotte, and Deb Fischer — had promised to support Vitter, but that would soon change.

Senate staffers, according to a top committee aide, reported seeing Missouri senator Roy Blunt make calls to at least two Republican committee members, lobbying them, at McConnell’s behest, to vote no on subpoenaing the exchange. By the time the committee was called to quorum, Enzi, Risch, Ayotte, and Fischer voted no. …

“We deserve to know who signed that application, because they are robbing taxpayers,” says Michael Cannon, director of health-policy studies at the libertarian Cato Institute. The staffers who signed the fraudulent application, he says, “know who was directing them to do this. And so we have to follow the trail of breadcrumbs. This is the next breadcrumb, and whoever is farther up the trail wants to stop Vitter right here.”

That the criticism comes from the National Review and Cato is particularly telling. Other influential conservative publications like Powerline and Hotair have picked it up. The effects on the Paul candidacy will likely be not long in coming.  But the blowback will not be confined to him.  The conservative wing of the Republican Party is beginning to regard it as the Party of Betrayal, and if that impression persists, it will depress conservative voter turnout in 2016.  Radio spots are already being aired in Iowa hammering Paul on the issue.

The radio spot created by the conservative nonprofit American Encore will begin running in Iowa on Thursday. The 60-second ad pushes the state’s caucus-goers to “ask Rand why” he voted against subpoenaing a fraudulent congressional application to D.C.’s health exchange during an April 23 Small Business Committee meeting.

“Senator Rand Paul says Congress is a ‘small business’ and should get a special exemption from Obamacare,” the ad intones. “That’s crazy.” “Rand Paul actually voted to stop Joni Ernst and other Senate Republicans from finding out who in Congress signed off on this illegal and fraudulent Obamacare scheme,” it continues, urging listeners to tweet at the senator, call his congressional office, “or just ask him about it the next time he passes through Iowa.”

In the 2014 election cycle Obamacare claimed many victims among the Democratic incumbents.  It would be ironic if the last victims of the program should the Republican candidates for the presidency.

The Transformation of Primary Care

POSTED about 2 months ago BY HEALTH CARE COMPACT

One of the inherent contradictions of the Affordable Care Act is the way it emphasizes primary care while creating problems for primary care physicians.  Medical News Today says Obamacare is changing the emphasis of American medicine from away from curing patients to preventing diseases.

Obamacare will result in wider public health benefits because of a greater emphasis on preventive medicine, according to research by the Centers for Disease Control and Prevention.

The Patient Protection and Affordable Care Act, which was brought into force by President Obama in 2010, will advance health not only by greater emphasis on prevention, but also by "reversing the historic division between public health and private health care services," according to the authors publishing in The Lancet.

That’s theory. But the Associated Press says there are indications that Obamacare is disincentivizing entry into primary care. It begins with an anecdote describing the travails of one patient who tried to see “her” primary care doctor -- a random strangercan be called that.

MIAMI (AP) — When Olivia Papa signed up for a new health plan last year, her insurance company assigned her to a primary care doctor. The relatively healthy 61-year-old didn't try to see the doctor until last month, when she and her husband both needed authorization to see separate specialists.

She called the doctor's office several times without luck.

"They told me that they were not on the plan, they were never on the plan and they'd been trying to get their name off the plan all year," said Papa, who recently bought a plan from a different insurance company. …

The Papas were among the 6.7 million people who gained insurance through the Affordable Care Act last year, flooding a primary care system that is struggling to keep up with demand.

The apparent reason for the shortfall is that primary care doctors are leaving the business.

A survey this year by The Physicians Foundation found that 81 percent of doctors describe themselves as either over-extended or at full capacity, and 44 percent said they planned to cut back on the number of patients they see, retire, work part-time or close their practice to new patients.

At the same time, insurance companies have routinely limited the number of doctors and providers on their plans as a way to cut costs. The result has further restricted some patients' ability to get appointments quickly. …

The Association of American Medical Colleges projects the shortage will grow to about 66,000 in little more than a decade as fewer residency slots are available and as more medical students choose higher-paying specialty areas.

For now, experts say most patients are receiving the care they need, even if they have to drive farther, wait longer or see a nurse practitioner or physician assistant rather than a doctor.

But eventually, unless things change, America will have fewer primary care doctors to go around.  To prepare for that eventuality nurse practitioners and other personnel are being groomed to take the place of doctors in certain roles. Healthline’s David Mills says that in five years the “doctor’s office” will have fewer doctors.

Driven by high healthcare costs, new technology, and an impending doctor shortage, the country’s medical industry may see its biggest changes since Medicare and Medicaid were approved in 1965.

“Doctors’ offices will still be around, but they are going to change dramatically,” said Kurt Mosley, vice president of strategic alliances for the Merritt Hawkins physician search and consulting firm. …

He said the Affordable Care Act is pushing some of these changes, but they also started before Obamacare was signed into law.

“We’re going to see an increasingly different landscape in the healthcare field,” Vance said. “It’s the continuation of a trend.” ...

At these centers, a nurse practitioner deals with issues for which people now go to their doctor or perhaps even the emergency room. The ailments range from a hacking cough to strep throat to a swollen wrist or an ear infection.

Margalit Gur-Arie writing at Kevin MD has perhaps the clearest explanation of why doctors are deserting the very field that Obamacare plans to put at the forefront of its efforts.  She explains that in the process of making primary care more efficient, it has been routinized to the point where the American medical profession no longer considers it “real” doctoring.  From a peer prestige point of view, all the ‘real’ doctors are in hospitals curing people, leaving all the second raters to man clinics taking blood pressure, jabbing needles and doing things no real elite physician should be doing.

As Obamacare is winding its way through a hellish bureaucratic labyrinth of its own creation, accompanied by cheers and boos from the blood thirsty spectator crowds, confusion, fear, trepidation, despair and exhilaration, are gripping America’s doctors all at once, because whatever else is accomplished in the next decade, medicine will never be the same. …

Dying in a hospital is now considered a failure of sorts, a preventable and costly mistake.  … So where does all this leave primary care? Primary care is now considered routine care; routine, like changing oil on an automobile. Sticking a needle in your arm so you never, ever die from a plague is no longer a miracle, just like switching the lights on, or flushing the toilet is no longer deserving of thought. Miracles only happen in hospitals now, and not very often either. Primary care doctors are increasingly banned from hospitals, and asked to stick with routine care and leave the complex stuff to their betters.

Handing over primary care duties to nurse practitioners has only emphasized the image of primary care as something ‘real’ doctors shouldn’t do.  By attempting to turn primary care into a form-filling, value-paid, industrial and efficient process, Obamacare has unwittingly turned this type of activity into the medical equivalent of working for the DMV.

Welcome to Lake Wobegon primary care where all patients come in correctly diagnosed and ready to be tracked. These things can be automated with the right technology and properly trained teams of workers, supervised by medical professionals providing spot checks and quality assurance. High tech and high deductibles will combine forces to turn routine primary care into the first medical service to become a retail product, with its Med Emporium, Osler 5th Avenue, and eventually, Hello Kitty Diabetes toolkits sold at Amazon.com. The question is no longer how to stop the train; the question is where primary care goes from here.

Gur-Arie argues that primary care can re-invent itself to regain its mojo. One way is to create a medical specialty out of being a generalist. “Grab the fluctuating 25% or so of patients that are most complex and be their comprehensivist.  Hospitals are routinely inventing specialties, from hospitalists to intensivists to nocturnists, to further fragment continuity of care and increase profits. It’s time to learn from the experts.”

Instead of waiting for the system’s other shoe to drop (on your head), proclaim yourself a specialist in the absolutely last remaining piece of what was once primary care. Instead of waiting for the system’s other shoe to drop (on your head), proclaim yourself a specialist in the absolutely last remaining piece of what was once primary care.

Fortunately, she argues, Obamacare makes word games easy to play. “With proper planning, you can collect the customary and usual fees for your greatly expanded panel, plus the special fees for comprehensive care, plus any shared savings you can generate from keeping these select folks out of hospitals and emergency rooms. You’ll have to do a bit of marketing and engage in some creative contract negotiations (get a lawyer), but the sky may very well be the limit.”

It’s not necessary to accept Gur-Arie’s cynical view to see the truth in much of what she says.  Perhaps Obamacare may be killing primary care by lavishing bureaucratic attention on it.  Or perhaps Obamacare is putting out of its misery something that hsould have long ago been turned into unapologetic “Med Emporium”.  Either way  the doctors are going away from primary care.  Only time will tell whether this is good or bad.

Can Accountable Care Organizations Save Obamacare?

POSTED 2 months ago BY HEALTH CARE COMPACT

One of the great cost-savings hopes of Obamacare is the idea of changing the payment for medical services away from fee-for-service, “where services are unbundled and paid for separately” to some kind of bundled payment, in which providers are paid on the basis of some measurable result.

Faced with mounting evidence that health care costs continued to mount, in spite of Obamacare, it’s advocates had hoped that managed care experiments, featuring a form of bundled payment, would make a breakthrough in terms of “bending the cost curve”.  Ezra Klein of Vox believes that the waiting has paid off and that Obamacare’s much hoped for cost savings might actually be at hand.

Obamacare took what an economist once described to me as the "spaghetti approach" to reducing health-care costs: throwing a bunch of different experiments at the wall and seeing what stuck.

Today, the law arguably had its first success: Medicare's independent actuary has certified that an Obamacare program has saved money — $384 million over the past two years, to be exact. And the Obama administration is now eying how to make this program bigger — and, ideally, generate even more savings.

The program is called the “Pioneer Accountable Care Organization” and Klein explains how it works.

The American health-care system by and large runs on what experts describe as a "fee-for-service" system. For every service a doctor provides — whether that's a primary care physician conducting an annual physical or an orthopedic surgeon replacing a knee — the doctor typically gets a lump sum of money.

American doctors aren't paid on whether they deliver that improved health. Their income largely just depends on whether they performed the surgery, regardless of patient outcomes. Their patient's knee could be good as new or busted as before at the end — but in most cases, that doesn't factor into the surgeon's ultimate pay.

These savings were supposedly made possible through the magic of bundled payments. The idea was simple. Baselines were devised for how much the treatment of a particular condition should cost.  If patients could be cured (as measured by accepted clinical criteria) for less than the baseline cost, then a provider participating in the Pioneer Accountable Care Organization could keep the difference.

In 2012, the Obama administration launched a plan to change that. The Pioneer Accountable Care Organization, or Pioneer ACO, rewards hospitals that deliver high-quality care at lower-than-expected costs — and punishes high spenders.

If hospitals in the Pioneer ACO program covered Medicare patients at lower-than-expected costs, they kept 70 percent of the savings in 2014 (the other 30 percent went back to the federal government). But if they spent more than expected, they would have to pay the feds back the difference.

Thirty-two hospital systems signed up to become Pioneer ACOs in 2012 (13 have since dropped out; you can read more about that, and what it means, here). And two papers reviewing the program's performance — published today here and here — are largely positive in their findings.

But the problems with this magic bullet are that it’s not magic.  “Accountable care organizations” have been around for a long time and their biggest weakness is what is called “adverse selection”.  If an accountable care organization can somehow select patients who can easily be cured (the so called “low-hanging fruit”) then it it can always earn a bonus.  On the other hand, organizations which are stuck with hard clinical cases will not be able to cure them for the baseline amount and will find themselves losing money.

The American Academy of Actuaries explains the problem succinctly. “The Affordable Care Act (ACA) and recent proposed regulations incorporate a concept that some health reform proponents have advocated for several years … Attribution, or the assignment of patients to a particular ACO, should be considered carefully. Risk is closely connected to various population characteristics. There is potential for adverse selection resulting from how populations are enrolled in these programs.”

The Pioneer ACO program compared the costs and outcomes of for-fee Medicare beneficiaries with those of the ACOs, as Susan London of Medscape reports.

David J. Nyweide, PhD, from CMS and the Center for Medicare and Medicaid Innovation, both in Baltimore, Maryland, and colleagues studied fee-for-service Medicare beneficiaries, comparing those who were aligned with the 32 Pioneer ACOs (675,712 in 2012 and 806,258 in 2013) with those in the same markets who were eligible but not aligned (13.2 million in 2012 and 12.1 million in 2013). As previously reported by Medscape Medical News, a separate analysis of year 1 data from the Pioneer ACOs also showed a modest reduction in spending.

In the current study, Dr Nyweide and colleagues compared the groups on the change in expenditures between a baseline period (2010-2011) and a performance period (2012-2013) and found that the ACO-aligned beneficiaries had smaller increases in total spending, determined from claims data, than the eligible beneficiaries.

But a closer inspection provided by Jeff Goldsmith of Health Affairs Blog shows much less rosy picture.  To begin with, only 40% of the providers participating in the Pioneer experiment earned bonuses.  Almost a third dropped out.  The biggest factor determining whether a provider earned a bonus or not appears to be -- you guessed it -- adverse selection.

On July 16, the CMS Innovation Center reported the first-year results for the Pioneer Accountable Care Organization program:  13 Pioneers, or about 40 percent of the participants, earned bonuses. The program saved Medicare a gross $87.6 million before bonus distributions, cutting the rate of growth in Medicare spending by 0.5 percent, from 0.8 percent to 0.3 percent annually.

However, nine of the 32 members dropped out and press reports hinted at a contentious relationship between the Pioneers and a well meaning but green and overtaxed CMS staff.  It was not an auspicious beginning for a program whose advocates believed would eventually replace regular Medicare’s present payment model. There immediately followed a blizzard of spin control from ACO “movement” advocates stressing the need for patience and highlighting first year achievements.

What was irritating about the Pioneer spin is it treated the ACO as if it were a brand new idea with growing pains. This studiously ignores a burned out Conestoga wagon pushed to the side of the trail: the Physician Group Practice demonstration CMS conducted from 2005-2010. The PGP demo tested essentially the same idea — provider bonuses for meeting spending reduction and quality improvement targets for attributed Medicare patients. …

the PGP results were extremely disappointing; only two of the ten participants were able to generate bonuses in each of the program’s five years, and one, Marshfield Clinic, earned half the total bonuses.  Managed care veterans like Geisinger Clinic and Park Nicollet earned bonuses in only three of their ten program years. Two other high-quality multi-specialty clinics had even rougher sledding, with Everett Clinic getting one year of bonus ($126,000) and Billings Clinic completely shut out.

The pattern in the first Pioneer year is remarkably similar.   While thirteen of the Pioneers earned bonuses, it appears from press reports that four of them generated 2/3 of the savings.   It is likely not coincidental that three of those four participants (Massachusetts General, Beth Israel Deaconess’ physician organization, and New York’s Montefiore) either run or practice at some of the most expensive hospitals in the country, in two of the country’s highest per capita Medicare spending markets.  Orchards full of low hanging fruit (e.g. very high levels of previously unexamined Medicare spending) appear to be an essential precondition of ACO success.

One of the oddest effects of the ACO model is that the hardest working providers are cursed to be sought by the sickest patients.  The better a hospital is, the more difficult are the cases brought to it. Better information about patient history too, plays a perverse role.  The more a hospital knows about a patient, the better it can predict whether he is “low hanging fruit” likely to provide a bonus.  Goldsmith writes:

Adverse selection combined with an inadequate risk adjustment methodology may have hurt these managed-care savvy Pioneers.  Organizations with great reputations for helping high-risk Medicare patients will differentially attract them.  One of the unfortunate learnings of the PGP was the vital importance of aggressive coding of patient acuity to offset selection effects.

And because they cannot proactively identify patients, particularly physician-centric Pioneer organizations will have trouble diverting them from hospitalization, or reducing the use of expensive out-of-network services.  It’s really tough to practice managed care without the patient’s knowledge or consent, or sharing some of savings with them — the fundamental flaw in ACO program design.

Does this prove ACO’s don’t work or that they are a bad idea. It does not.  But neither does the Pioneer ACO experiment demonstrate that it is the silver bullet Obamacare advocates claim that it is.

How Obamacare Cut ER Use?

POSTED 2 months ago BY HEALTH CARE COMPACT

News outlets carried partial results of a poll by the American College of Emergency Physicians (ACEP) showing that Emergency Room visits have increased despite the implementation of Obamacare. ER use was supposed to decline, not increase with the rollout of the Affordable Care Act. Data that showed ER use was increasing was noticed in late 2014.  A worried Olga Khazan at the Atlantic concluded that the phenomenon was real, but temporary.

The paper, from UCLA’s Center for Health Policy Research, found that ER use was higher among new enrollees in California’s Low Income Health Program, the state's Medicaid-like program.

However, it also found that the spike was temporary.

At first, the newly insured Californians used ERs at the relatively high rate of 600 visits per 1,000 people.

But between 2011 and 2013, their ER usage declined by nearly 70 percent, to 183 visits per 1,000 people. Their hospital admissions also declined by 79 percent.

But ER spike turns out not to be temporary.  The ACEP study itself contains a wealth of detail not reported in the papers.  First, it was based on a sample of 2,099 responses from all over the country.  The picture it paints if fascinating and complex.

To the question: Since January 1, 2014, when the requirement to have health coverage took effect in the Affordable Care Act, the volume of emergency patients in my emergency department has [trended]?” the clear trend is up.

Greatly increased

28%

Increased slightly

47%

Remained the same

17%

Decreased slightly

5%

Decreased greatly

0%

Not sure

3%

The first reaction of an Obamacare advocate would be to hypothesize that the rise in ER use is driven by states that did not expand Medicaid.  But this turns out not to be the case.   The question: “Since January 1, 2014, the volume of Medicaid emergency patients in my emergency department has [trended]:” in a way that suggests Medicaid patients are using the ER more!

Greatly increased

24%

Increased slightly

32%

Remained the same

19%

Decreased slightly

1%

Decreased greatly

0%

Not sure

24%

One factor throwing doubt on this result is the large number of  ER doctors who are not sure whether the patient is enrolled in Medicaid or not.  However, there is a strong signal in the poll which suggests that ER usage is genuinely climbing.  Why could this be?

One possibility is that the rise in ER use is highly correlated, and perhaps even caused by the increase in Obamacare premiums, the high deductibles and the narrow networks.  Faced with high out of pocket costs and inconveniently narrow networks, people turn to the ER.  The higher the out of pocket expenses, the narrower the networks, the greater the tendency to use the ER.

Another related item of information comes from this survey question: “Since January 1, 2014, the acuity of emergency patients’ injuries/illness in my emergency department has?”: suggests a more positive Obamacare effect.  People are coming coming with more “true emergencies” than routine problems because the severity of injuries observed appears to be slightly higher, though the effect is only suggested and not pronounced.

Significantly increased

14%

Increased slightly

30%

Remained the same

42%

Decreased slightly

10%

Significantly decreased

2%

Not sure

3%

One of the problems with crediting Obamacare with increasing the proportion of true emergency cases is that the effect may be due in part to other factors.  The survey looks at the effect of:

  • urgent care centers

  • retail clinics

  • telephone triage lines

  • primary care options

In the estimation of the doctors.  The factors most credited with reducing non-emergency patients are urgent care centers and primary care options in that order.  This suggests that insuring people has an effect on ER use, but not nearly as big as Obamacare supporters had hoped.

urgent care centers

23%

retail clinics

11%

telephone triage lines

15%

primary care options

21%

If Obamacare advocates are looking for a silver lining, they will find it in this survey result. “If federal subsidies for health insurance coverage were to be eliminated in your state, how do you think that would affect emergency department visits? (NOTE: the Supreme Court heard arguments in March 2015 and expects to announce its ruling in June — King v. Burwell — on whether low-income patients enrolled in a federal exchange are eligible for subsidies)”

emergency visits will increase

42%

emergency visits will stay the same

31%

emergency visits will decrease

10%

my emergency department will be at risk of closing

2%

not sure

16%

But this also confirms the hypothesis that the lack of money is the main driver of non-emergency ER use. Cutting the subsidy will have the same effect as raising the premium, or upping the co-pay or narrowing the network.

A RAND corporation study measuring the price elasticity of out-of-pocket expenses provides compelling evidence that mere coverage is insufficient when out of pocket costs are high. Abe Dunn in his paper Health Insurance and the Demand for Medical Care: Instrumental Variable Estimates Using Health Insurer Claims Data writes in his conclusion that people consume less health care when out-of-pocket costs are higher.

This paper focuses on a fundamental empirical problem in the health literature: measuring consumer responsiveness to out-of-pocket price … the demand estimates reveal that the consumerís response to out-of-pocket price is negative, significant and inelastic … Moreover, the movements in negotiated service prices are shown to be closely correlated with out-of-pocket prices, demonstrating a clear mechanism for how changes in negotiated prices ultimately affect consumers and medical care utilization

Significantly high chargemaster costs, even if not directly borne by the patient, ultimately affect his out-of-pocket expenses.  This has great implications for anyone who wonders what the effect of hospital and insurance consolidation under Obamacare will be.  As hospitals consolidate they create local monopolies and tend to increase the “negotiated service prices” which ultimately increase out of pocket costs.

Faced with those costs, patients go back to the ER.

Obamacare advocates have ceaselessly touted the “increase in the numbers of people insured”.  But it turns out to be much less significant than it seems, if the insurance high-deductible or expensive.  Ultimately what drives medical care access is price.  And Obamacare has been a champion at raising price.  The fact that this is partly borne by the taxpayer is ultimately immaterial.  In the aggregate, people will consume less health care under the ACA.

How to Cut Costs

POSTED 2 months ago BY HEALTH CARE COMPACT

Women’s advocacy groups have discovered that their access to “free” contraception is limited despite Obamacare’s guarantees.  The reason for the limitations is simple: cost. Sarah Ferris of the Hill writes:

Insurance companies are widely ignoring an ObamaCare rule that requires them to provide free or low-cost birth control, according to a report by the National Women’s Law Center.

Some insurance companies are still charging women out-of-pocket costs for birth control and limiting their coverage to only certain methods of birth control, both violations of the Affordable Care Act, according to the 22-page report to be released Wednesday.

But insurance companies will argue that unless there is some “skin in the game” resources will be overused.  And all resources are limited.  Thus, even while Obamacare advocates push states to expand Medicaid there is also a keen awareness than one can’t write a blank check. Jason Hart of the Ohio Watchdog writes that Ohio has burned through the money faster than expected.  “After Kasich expanded Medicaid unilaterally, a state panel approved $2.56 billion in Obamacare spending for the expansion’s first 18 months. The money was meant to last until July, but it ran out in February.”

Kasich’s Obamacare expansion cost $323 million in March — 84 percent greater than estimates revised just six months earlier.

Using monthly figures released by the Ohio Department of Medicaid, the Republican governor’s Obamacare expansion cost slightly more than $3 billion from January 2014 through March 2015.

Sally Pipes of Pacific Research quotes White House economist Jason Furman’s rueful summation of Obamacare’s costs.  “It could have been worse” referring to the program’s weakest point, the rise in deductibles. “According to the online insurance marketplace HealthPocket, deductibles shot up 42 percent during the health law’s first year, compared to those for plans available pre-Obamacare. Today, almost one in seven Americans spends 10 percent or more of his or her income on out-of-pocket costs like deductibles”.

Plans with high deductibles already dominate in many states. In Indiana, which uses the federally operated HealthCare.gov exchange, 24 of the 29 plans available have high deductibles — defined as at least $1,300 for individuals and $2,600 for families. In South Dakota, 31 of 38 plans do.

Next year will bring more of the same. A recent report from Modern Healthcare concluded that 60 to 80 percent of the plans sold in a given exchange market could have high deductibles.

In defense of Obamacare, Furman pointed out that deductibles were rising even before Obamacare was launched.  But that’s because costs were rising and -- to return to the example of the “free” but not free contraceptives -- cost considerations overrule legal promises.  When there’s not enough money to carry out a law, the law goes unenforced.  When the contraceptives promised by Obamacare are unfunded, well too bad.  Pipes continues:

These deductibles are squeezing ordinary Americans. According to a recent survey from the Commonwealth Fund, nearly half of all adults with annual incomes ranging from 100 to 399 percent of the poverty line — or about $12,000 to $48,000 — described their deductibles as “difficult or impossible to afford.” …

The benefit of a high deductible is usually a lower premium. But thanks to the many regulations and mandates under Obamacare’s Essential Benefit Plan, even premiums have skyrocketed.

Consider Florida. In 2013, a 30-year-old non-smoker could buy a mid-priced plan with a $2,600 deductible for $142 a month. This year, the cheapest “Bronze” plan — the least comprehensive coverage offered on the exchanges — will cost $198 a month and comes with a $6,500 deductible. That’s almost a 40 percent spike in the premium and a 250 percent uptick in the deductible since Obamacare became law in March 2010.

A “Silver” plan — the most popular on the exchanges — with a comparable deductible will run $263 a month in Florida. That’s nearly twice as much as before Obamacare.

Indiana is experiencing similar jumps in costs. A Bronze plan sold by Anthem Blue Cross and Blue Shield costs a 40-year-old non-smoker with a $35,000 salary nearly $200 a month in premiums after tax credits — despite an annual deductible of $6,300. That person would have to pay about 25 percent of his or her annual income in premiums and deductibles before the insurance kicked in.

These figures suggest that Obamacare’s touted increase in coverage is completely meaningless unless the cost problem is fixed, both in insurance policies or Medicaid expansion, What are the prospects for controlling costs? One of Obamacare’s initial hopes was that sheer expansion would lower costs.  Once everyone was insured, it was argued, people would seek medical care early and avoid the costs of late intervention.  But it didn’t work out that way.

Three in four emergency room doctors said patient visits have increased since the Affordable Care Act's requirement to have health insurance went into effect, in an email survey released Monday by the American College of Emergency Physicians.

That's not the news some healthcare advocates had hoped for. The thought was that by expanding health coverage to more people, they would get their ailments treated earlier by primary care doctors and could avoid visiting emergency rooms, which already struggle with an overload of patients.

"I think a lot of people shared our hope that when you gave people access to Medicaid, they would go to the doctor, get preventive care and not need to go to the emergency department," said Katherine Baicker, a health economics professor at Harvard. "That's a reasonable hope."

The reason for the rise in ER visits is probably cost. If people can’t afford the deductibles mandated by insurance they go to the emergency room instead.  Raise the cost of using insurance and people won’t use it.  The quest for cost reduction has driven planners back to that old standby: rationing.  Atul Gawande, a physician writes in The New Yorker that the problem with American medicine is that Americans use too much of it.

It was lunchtime before my afternoon surgery clinic, which meant that I was at my desk, eating a ham-and-cheese sandwich and clicking through medical articles. Among those which caught my eye: a British case report on the first 3-D-printed hip implanted in a human being, a Canadian analysis of the rising volume of emergency-room visits by children who have ingested magnets, and a Colorado study finding that the percentage of fatal motor-vehicle accidents involving marijuana had doubled since its commercial distribution became legal. The one that got me thinking, however, was a study of more than a million Medicare patients. It suggested that a huge proportion had received care that was simply a waste.

The researchers called it “low-value care.” But, really, it was no-value care.

Defense medicine has created an atmosphere in which everything must be treated, he argues, even when it might best be left alone.

Right now, we’re so wildly over the boundary line in the other direction that it’s hard to see how we could accept leaving health care the way it is. Waste is not just consuming a third of health-care spending; it’s costing people’s lives. As long as a more thoughtful, more measured style of medicine keeps improving outcomes, change should be easy to cheer for. Still, when it’s your turn to sit across from a doctor, in the white glare of a clinic, with your back aching, or your head throbbing, or a scan showing some small possible abnormality, what are you going to fear more—the prospect of doing too little or of doing too much?

Mrs. E., my patient with a five-millimetre thyroid nodule that I recommended leaving alone, feared doing too little. So one morning I took her to the operating room, opened her neck, and, in the course of an hour, removed her thyroid gland from its delicate nest of arteries and veins and critical nerves. Given that the surgery posed a greater likelihood of harm than of benefit, some people would argue that I shouldn’t have done it. I took her thyroid out because the idea of tracking a cancer over time filled her with dread, as it does many people. A decade from now, that may change. The idea that we are overdiagnosing and overtreating many diseases, including cancer, will surely become less contentious. That will make it easier to calm people’s worries. But the worries cannot be dismissed. Right now, even doctors are still coming to terms with the evidence.

Other people of a more consumerist bent will be troubled not that I gave her the choice but that she paid virtually none of the expenses incurred by it. The nature of her insurance coverage guaranteed that. Her employer had offered her two options. One was a plan with a high deductible and a medical savings account that would have made her pay a substantial portion of the many-thousand-dollar operation. And this might have made her think harder about proceeding (or, at least, encouraged her to find someone cheaper). But, like many people, she didn’t want to be in that situation. So she chose the second option, which provided full coverage for cases like this one. She found it difficult enough to weigh her fears of the cancer against her fears of the operation—with its risks of life-threatening bleeding and voice damage—without having to put finances into the equation.

Yet ultimately it was Mrs. E’s life to try to save or to try to waste, and she weighed the costs of her choice whatever its actual wisdom, by putting “finances in the equation”.  Ultimately rationing has to be part of the cost reduction approach, but when rationing is performed by the consumer himself the process ceases to be rationing and becomes choice.

Rising cancer rates have been an unfortunate byproduct of China’s growing industrialization and economic growth, and its incidence has outstripped the ability of the state to pay for it, especially in the rural areas.  Although 95% of the population was “covered” out of pocket expenses run from 20-70% of the cost of treatment.  This means that as a practical matter, a diagnosis of cancer means financial ruin. But fortunately for China, it’s system of fast and loose regulation has left room for improvisation. CNN featured a wonderful article on China’s “cancer hotels”.  These are shabby establishments which house the pitiable sufferers.

A shabby row of two-story buildings in west Beijing, a few hundred meters from one of China's top cancer treatment and research hospitals, they house untold misery.

Known locally as "cancer hotels," they provide a cheap, temporary accommodation for hundreds of patients in a country where a cancer diagnosis can be financially, as well as physically, devastating.

At night, sobs of agony can be heard as patients pace the hallways wracked with pain. Far from home, they come to seek treatment that they believe is unavailable in China's rural hinterland and smaller cities.

"I thought I was going to collapse when I heard the news," said Liu Dajiang, who cares for his wife.

They have used one of the modest guesthouses as a place to wait for chemotherapy, surgery and radiotherapy at the nearby hospital since her diagnosis with cervical cancer in September 2014.

Yet the good news is that many of the inmates of these “cancer hotels” are cured.  Their very cheapness makes it possible for rural cancer patients to travel to the best hospitals available.  Although they must often still sell their homes to pay for treatment, the shabbiness of the hostel and the loss of a home is a trade of they are willing to make to be cured.

Even though most county hospitals have cancer diagnosis and treatment capacity, some people believe the quality of care is better in cities, he said.

But their decision to head to prestigious hospitals was not always the best course of action, he added. …

Meng, the owner of the hotel, said he has met many patients who sold houses to fund their medical treatment.

"Most of them get cured, but others never come back (from the hospital)," said Meng, who declined to give his full name.

In 2010, Meng rented the building and renovated it into a 70-room hotel, with 10 communal bathrooms.

"The patients need nutritional supplements," he said. "They can make whatever they'd like to eat here. They can't do that at regular hotels."

The “cancer hotels” have effectively allowed Chinese medicine to deliver treatment at a much lower cost because it left part of the cost package to the market.  By contrast, an Western European system might have insisted on local treatment with the patient staying in a better hostel -- but with worse treatment.  The Chinese approach allowed the system to concentrate the relevant dollars on the parts that mattered: the medicine itself.

There are no perfect solutions.  But it is becoming abundantly clear that Obamacare as designed, will struggle to be sufficiently affordable.  It will never be cheap, until it makes medical service delivery and not power politics, the ultimate design goal.

The Rise of insurance Giants

POSTED 2 months ago BY HEALTH CARE COMPACT

Tom Murphy of the Associated press notes some insurance companies plan to turn a profit on Obamacare after gaining a better understanding of the market. “Several of the nation’s biggest health insurers have hiked earnings expectations for 2015 after blowing past first-quarter forecasts and heading into a much more stable future than they faced this time last year.”

The key to profitability was cutting costs, which companies believe to have done, though they worry that the new Obamacare customers might be holding back on treatment as they worked through their high deductibles plans, meaning the profits may drop at the end of the year.

Insurers also have a better understanding of how the law’s costs, which include fees and medical claims, affect their income statements. …

In addition to booking business gains, insurers also are keeping medical costs under control. That’s their biggest expense, and it continues to grow moderately, about as companies expected. Insurer profitability gets squeezed when medical costs grow faster than expected after they’ve set coverage prices.

That moderate cost growth could change by fall. People with high-deductible health plans tend to save bigger medical expenses for later in the year, after they’ve paid their deductibles and will have more of the bill covered by the insurer.

The big new business item for insurance companies however is Medicaid expansion. The Aetna company is one such example. “Though new membership from government run, so-called ‘public,’ exchanges under  the health law is just 2 percent of company business, Aetna is seeing a boom in Americans signing up to the expanded Medicaid program for the poor, which is another key part of the Affordable Care Act.”

During a 70-minute conference call with analysts and investors, Aetna chairman and chief executive Mark Bertolini said 45,000 of the company’s 79,000 new Medicaid health plan members in the quarter were related to “ACA expansion.” …

Revenues soared more than 25 percent to $14.5 billion compared to $11.5 billion in the year-ago on across-the-board gains in newly insured customers under the health law via exchanges, expanded Medicaid health programs for the poor and its Medicare Advantage business, which provides health benefits to seniors in contracts with the federal government. …

Aetna is already a big player on the government-run exchanges, offering health plans in 16 states and the District of Columbia. Aetna or its Coventry subsidiary are offering health plans on public exchanges operating in the District of Columbia, Oklahoma, Pennsylvania, Delaware, Iowa, Illinois, Kansas, Missouri, Nebraska, Utah and certain areas of Arizona, Florida, Texas, Virginia, North Carolina, Ohio and South Carolina, the company said.

The shift in business strategy was not without its cost.  Aetna abandoned the small business market to concentrate on the lucrative Medicaid expansion business, as Wendell Pott of the Huffington Post reports.

Several million previously uninsured Americans now have coverage because of Obamacare, but it could be argued that the people who have benefited most from the law -- at least financially -- are the top executives and shareholders of the country's health insurance companies.

Among those who apparently have not yet benefited much at all, at least so far, are owners of small businesses who would like to keep offering coverage to their employees but can no longer afford it. They can't afford it because insurers keep jacking their rates up so high every year that more and more of them are dropping employee health benefits altogether. …

Aetna at one point was especially aggressive in dumping unprofitable accounts. The Wall Street Journal reported in 2004 that as part of an effort to boost the bottom line, Aetna spent more than $20 million to install new technology that enabled it to "identify and dump unprofitable corporate accounts."

A financial analyst at Citigroup last month noted that the decline in small business accounts -- or group risk, as this book of business is known in the industry -- was especially notable at the country's nonprofit Blue Cross and Blue Shield plans. Citigroup's Carl McDonald noted that membership in the Blues' group risk business fell almost 1 million in 2014, a 6 percent decline. He suggested the possibility that "small group dumping has been more pronounced at the Blues than has been the case at most publicly traded plans."

It should be noted that the destruction of employer insurance is intentional.  One of the major goals of Obamacare is tear down employer-provided insurance and to replace it with insurance bought on exchanges, or Medicaid expansion. This conveniently coincides with the interests of insurance companies, and mostly the large ones.

The Washington Examiner’s Richard Pollock notes that “insurance companies with a small share of the health insurance market have virtually disappeared from Obamacare state health care exchanges, replaced by big-foot carriers that have traditionally dominated the market, according to a congressional watchdog study.”

The U.S. Government Accountability Office found in a study made public earlier this week that in 40 states the largest insurers either maintained or boosted their market share through the health exchanges established by the Affordable Care Act. The GAO analysis is the first federal study published focusing on how competition within the health insurance market has been affected by Obamacare.

The study also found that small-insurer offerings nearly vanished from the exchanges. In 2012, consumers in the individual insurance market on average could choose among 36 small-market company carriers in their state, each holding a market share of five percent of or less.

But by 2014 those consumers could on average choose from only three insurers in their state exchanges, a decline of more than 90 percent.

As noted elsewhere, the effect of Obamacare has been to create consolidations; mergers among hospitals for example and making it difficult for a private practice to survive.  It is also having the same effect in insurance. Sen. Tom Coburn, R-Okla., who requested the GAO study, told the Washington Examiner that ‘the GAO report provides evidence that the health care law’s burdensome requirements may be giving an unfair advantage to big insurers over smaller ones.’”

The GAO study according to the Hill “are a blow to the Obama administration, which has touted lower costs and more options for millions across the country under the healthcare law.”

The Tide of Red Ink

POSTED 2 months ago BY HEALTH CARE COMPACT

The most serious challenge facing the Affordable Care Act is it’s a money loss.  But that’s a feature, not a bug. One of Obamacare’s main objectives was to provide insurance to people who are too poor or perhaps too sick and old to afford it.  That meant from the very beginning it’s viability was premised, not on the possibility of self-sustainment by profit, but on the availability of taxpayer support.

Losing money isn’t the problem. Losing more money than its planners had reckoned with is.

As the Lena Sun and Niraj Chokshi of the Washington Post point out, almost half of all Obamacare state exchanges are about to go under.  Having run through their initial grants of taxpayer startup money, they are bleeding red ink and can’t on any further.  They are now contemplating the politically unthinkable, but economically inevitable: raise prices.

Nearly half of the 17 insurance marketplaces set up by the states and the District under President Obama’s health law are struggling financially, presenting state officials with an unexpected and serious challenge five years after the passage of the landmark Affordable Care Act.

Many of the online exchanges are wrestling with surging costs, especially for balky technology and expensive customer call centers — and tepid enrollment numbers. To ease the fiscal distress, officials are considering raising fees on insurers, sharing costs with other states and pressing state lawmakers for cash infusions. Some are weighing turning over part or all of their troubled marketplaces to the federal exchange, HealthCare.gov, which now works smoothly.

The fundamental problem of the state exchanges is that enrollment -- relative to design expectations -- has been disappointing.  Not enough customers have come through the front door.  With too little business volume to break even, the state exchanges are bleeding money.

But for the recently completed open enrollment period, sign-ups for the state marketplaces rose a disappointing 12 percent, to 2.8 million people. That compared with a 61 percent increase for the federal exchange, to 8.8 million people, according to Avalere Health, a consulting firm. States with the smallest enrollment growth are among those facing the greatest financial problems.

The irony of King vs Burwell is that it is about the 37 states that refused to join this financial massacre.  Somehow, in the political calculus of Washington, it would have been better if everyone had booked passage on this monetary Titanic.  Tom Wolf, the Democratic Pennsylvania governor, having escaped financial death once, hopes to meet it the second time around.

Pennsylvania Gov. Tom Wolf told the Obama administration Friday his state would move to establish its own Obamacare marketplace if the Supreme Court invalidates vital subsidies in states that rely on the federal insurance exchange.

Mr. Wolf, a Democrat, said a contingency plan is needed because hundreds of thousands of Pennsylvanians rely on the exchange subsidies to afford health care under the Affordable Care Act.

“My letter does not mean that Pennsylvania must set up a state-based marketplace,” Mr. Wolf said. “However, it would be irresponsible not to have a plan in place to protect 382,000 people. I look forward to working with members of the legislature to advance this plan if necessary.”

But it’s not just the states who are losing money on their exchanges.  The insurance companies that sold policies through them are going to the cleaners too.   The Obamacare risk corridor program which was supposed to protect companies against possible losses for participating in a not-for-profit endeavor doesn’t have enough money to cover the damage.  It was always known that there would have to be some public support to make the scheme work.  But Obamacare’s architects underestimated how much money it would really lose.

There may be just $1 in the piggy bank to cover every $10 in claims at an Obamacare program designed to spread risk among insurers, Standard & Poor’s said.

The “risk corridor” program was designed to bolster plans that suffered losses on health-care insurance exchanges, in part by taking funds from those that turned a profit. It was one of three risk-sharing initiatives that help companies adjust to the Affordable Care Act.

Yet companies mostly did poorly in state marketplaces, leaving the amount insurers expect to pay into the program at less than 10 percent of what others expect to get out, S&P found. And a bill passed last year doesn’t let the government use its own funds to make up the difference.

“The only money they can use to pay the insurers who are on the downside is money coming in from insurers who are profitable,” S&P analyst Deep Banerjee said. Most insurers “ended up being on the loss side of the corridor. That’s why we are here.”

Just as with the states that are now contemplating increasing charges to make up for their “unanticipated” cost blowout, the insurance companies are contemplating similar rate increases.  Having set the rates low to make Obamacare a success the insurers want to raise the rates to make their money back.

April 26–The Obama administration promised it would cover financial losses for health insurance companies that were taking a risk by selling plans on the Affordable Care Act’s untested insurance marketplaces.

Policyholders could be the ones on the hook for losses in coming years, though.

Concern is growing among insurers, analysts and industry observers that the so-called Risk Corridor program set up under the 2010 health law to make selling Obamacare plans less risky for insurers — and entice carriers to keep their premium prices low — could backfire because it might run out of money.

Consumers would pay the difference in higher premiums because insurers will raise prices in later years if they have to cover earlier losses, experts said.

“There is a likelihood that premiums will go up” if insurance companies can’t recoup the money, said Deep Banerjee, an analyst with Standard Poor’s.

The need to save the state exchanges as well as the insurance companies, added to the effect of the Employer insurance tax will be a devastating flurry of punches to the chin of the American consumer.  The Obamacare planners got their sums wrong and created a system too expensive to be supported by any reasonable tax regime.

The Obama administration created a monster that it couldn’t afford.  It was fortunate in many ways that so many Republicans refused to go along.  Had they done so, the tide of ride ink would be even more devastating than it is. Whatever the Supreme Court decides in King vs Burwell, the final arbiter of Obamacare is economics. And it looks like it’s rendered its verdict.

The 2016 Repeal Budget

POSTED 2 months ago BY HEALTH CARE COMPACT

News that Congress has passed a budget mandating $5 trillion in spending cuts and repealing Obamacare at one and the same time proves less than impressive on closer inspection.  The clearest summary of what it actually does is provided by Romina Boccia, a fellow at the Heritage Foundation.

The 2016 more accurately cuts “$5.3 trillion from current Congressional Budget Office spending projections”.  In other words, it reduces the estimated spending but only by maintaining certain assumptions.  First of all, it keeps all of the huge tax increases of Obamacare so that the revenue flows remain the same. Plus it assumes optimistic economic growth will support the tax revenues.

The savings are achieved by mandating that the money will be saved without precisely spelling out how.  “The Senate does not endorse specific Medicare reform. Instead, the budget agreement asks the appropriate committees to develop the reforms needed to meet the savings target.” But it does provide general indications about how this may be achieved.

This might be achieved by transforming Medicare into a “premium support” program -- in other words, one which will provide credits to enable people to buy insurance on some market -- and increasing the age at which people become eligible for benefits.

In order to achieve the savings target, [Medicare] should be transformed into a premium support program that uses a defined-contribution model of financing within five years of the budget’s enactment. This would move Medicare in a fiscally responsible and patient-centered direction, benefiting both taxpayers and seniors.

In preparation for premium support implementation, [Congress should] increase the age of Medicare eligibility, modernize the Medicare benefit and means-test Parts B and D premiums for higher-income enrollees.

Other savings can be achieved through what Boccia called “budget gimmicks” which change the estimate of spending, but which will not likely change things in actuality.  As for the repealing Obamacare, it is just that, a repeal of the ACA, through a process called budget reconciliation.  Since Obama is almost certain to veto the bill, the budget does virtually nothing to change the mounting deficits or reduce health care costs.  As Boccia writes:

While full Obamacare repeal is an essential first step towards controlling growing health care entitlement spending and would pave the way for market-based and patient-centered health care reform that empowers individuals, it alone cannot balance the budget.

This budget agreement is a blueprint that includes several important reforms to balance the budget, but it also falls short in several areas.

Unless Congress enacts laws that implement its savings instructions, the budget won’t actually balance in 2024. Congress’s budget blueprint is an important start, but the country needs real legislative action from Congress to control growing spending and debt.

The defects in American health care delivery are largely of political creation.  From the World War 2 era price controls which created the employer-based healthcare insurance system, to “Certificate of Need” legislation that restricts the construction of hospitals, to artificial limits on physician education, to mandated uncompensated care in emergency rooms, to the political add-ons of Obamacare,  the American health care system resembles nothing so much as a Frankenstein monster made up of scavenged body parts.

The result is a system full of contradictions, being simultaneously the highest cost medical system in the Western world and its most innovative, producing 90% of all new medical developments. “Since 1966, Americans have received more Nobel Prizes in Medicine than the rest of the world combined. From 1989 to 2002, four times more money was invested in private biotechnology companies in America than in Europe.”

The challenge which Obamacare has so far failed to address -- and which the 2016 Congressional budget has not faced -- is how to preserve the best aspects of the American system while reforming the worst.  Kaiser Permanente, a $56 billion health insurance company that is morphing into an advance preview of Obamacare’s vision, emphasizes cost control through standardization. Erika Fry of Fortune writes:

Not only is it a hospital, it’s also an insurance company, a pharmacy system, and a doctor’s office with some 20,000 physicians. As FORTUNE wrote last summer, “that unusual structure looks a lot like an accountable-care organization as envisioned in the Affordable Care Act.”

It is also deeply suspicious -- for cost reasons -- of untrammeled innovation.  As CEO Bernard Tyson told Fry: what could stand in the way of progress is new drugs.

While technological innovation is leading to better patient outcomes in a number of medical conditions, there’s one area where Tyson says “progress” is part of the problem. That’s the new crop of “specialty drugs” that can run as much as $100,000 or more for a course of treatment. In some cases, these drugs are veritable godsends for patients with intractable ailments. (Take, for instance, Sovaldi, an $84,000 drug that can cure Hepatitis C—Tyson himself couldn’t bring himself to believe the claims until he’d seen the data.) Even so, when such wonder drugs are priced in the stratosphere, they can make the entire healthcare delivery system unsustainable. The prices aren’t just high, he says, they’re irrational. “Irrational pricing,” he explains, “is one in which a given price point has no rational explanation other than ‘Because we can.'”

And its instructive to realize that many of the changes espoused by Kaiser are similar to the kinds of changes that are envisioned for Medicare, where the emphasis is on the lower-cost delivery of standardized treatments to the consuming public.  The danger of course, is that it can go too far.  Any health care system based on bureaucratically mandated targets runs the risk of imposing both rationing and stagnation.  The much admired health care systems of Europe deal with rationing by increasing budgets each year.  And they avoid technological stagnation by free-riding on the reviled American system, which produces 90% of the innovation.

When money runs short, both shortages and stagnation overtake the system almost immediately as is happening to Venezuela.  The mismanagement of its oil industry has starved its socialistic health care system of cash.  As a result, everyone gets his ration of medicine on paper, but in actuality the pharmacies are bare.  USA Today reports that “the health minister unveiled a new national system that requires all patients to register their fingerprints at pharmacies. They will then be allowed to buy just a limited amount of medicines.” “Limited” means not enough.

Freddy Ceballos, who heads the Venezuelan Pharmaceutical Federation, blamed the shortages on the "Bolivarian" socialist government running national production — by private companies — into the ground, while also lacking the foreign currency to import medicines.

Innovation stops also.  Venezuela has now joined the ranks of Cuba as a country where all cars progressively grow older.  Car manufacturers have closed down their plants.  While there are enough vehicles for now, over time Venezuela, unable to import or build new stock will find itself resembling Havana, where all the models are from the 1950s.

The problem facing American health care reformers is to find some way to lower the cost of ordinary treatments for the majority of patients while still retaining a price unlimited market segment that will support innovation.

The Bridge From Obamacare

POSTED 2 months ago BY HEALTH CARE COMPACT

Greg Sargent of the Washington Post, who once believed that the Supreme Court would laugh any challenge to Obamacare subsidies out room now claims that a the Republicans would be ruined by a “big victory”. He reasons that consumers are now so dependent on subsidies that taking them away would be like amputating a leg.

The idea of trying to pass something before any Court ruling seems very far-fetched. But, while it is obviously true that a Court ruling would be a terrible outcome for Democrats, the mere existence of that possibility neatly captures the situation Republicans find themselves in: They openly rooted for a Court decision gutting subsidies. But now they don’t want to sustain political damage from millions losing insurance. So they are floating all manner of contingency plans that would require spending federal money to temporarily cover those millions. But it will anger conservatives if they spend federal money to expand health coverage, because they oppose that in principle and — perhaps worse — it could keep Obamacare going.

Grace Marie Turner, writing in Forbes, counters that Obamacare advocates didn’t mind canceling millions of people’s insurance on the way to making it “better”.  She compares Obamacare to a defective prosthesis that its creators installed in place of what they hacked off.  Of course it’s going to hurt to remove the prosthesis, but -- echoing the Obamacare advocates’ earlier arguments -- it’s gotta be done.  If Obamacare’s creators didn’t care about trashing the previous system, why should Obamacare’s repealers?

First, at least five million people were forced out of health insurance policies that they mostly liked and could afford because those policies no longer complied with the battery of mandates and regulations required by the “Affordable” Care Act.

Second, people are required by law to buy replacement policies. Those who didn’t comply with the individual mandate paid penalties averaging $1,130 this year, according to former CBO director Douglas Holtz-Eakin, now president of the American Action Forum.

Third, the new ObamaCare-compliant policies must provide a long list of health benefits deemed “essential” by the federal government – including free preventive care, maternity coverage, and habilative care. If an insurance carrier participates in the ObamaCare exchanges, policies they offer on the outside must mirror the ObamaCare policies, leaving consumers with few choices.

Everybody’s got a plan for spending the taxpayer’s money because nobody believes he smart enough to spend it for himself.  But the Republicans could actually score lasting political points if it replaced Obamacare with a system that allowed the consumer a little more choice.  Turner writes:

If King prevails before the Supreme Court, the Republican leadership in Congress needs to pass legislation to begin to clean up the mess that ObamaCare has made. To protect the coverage that people are receiving, leaders in the House and Senate have promised to pass legislation that would allow the subsidies to legally continue for an as-yet-undetermined period of time until new options could be available. Then they would free people in the 37 states from ObamaCare’s burdensome mandates and regulation and allow them to purchase more flexible health insurance policies of their choice approved by their states.

This is exactly what Senator Ron Johnson (R-WI) wants to achieve with his Preserving Freedom and Choice in Health Care bill, which has 29 co-sponsors. Johnson’s plan may not emerge as the plan ultimately adopted by the Republicans in Congress.  But it does indicate that a significant number of legislators have thought the problem through and have a distinct improvement over Obamacare in the works.

Other Congressional Republicans have proposed bills. However, Senator Johnson has moved the ball forward in the Senate by gathering 29 co-sponsors. Senator Johnson’s bill does not repeal and replace Obamacare, nor does he claim that it does. It is a bridge, or transition, to a post-Obamacare health reform. This is also necessary because the bill Congress passes in the wake of the Supreme Court stopping tax credits to millions of people must be one the president will sign without too much complaint.

The bill would restore the Obamacare tax credits in the 36 states, but only through August 2017, and only to people who are already enrolled. People who have not yet enrolled would be frozen out of Obamacare (unless they moved to a state with a state-based exchange).

It also repeals the individual and employer mandates to maintain coverage. Further, it eliminates the federal government’s power to define essential health benefits. It also specifies that people with employer-based benefits can maintain those benefits through December 2017.

The bill embraces both individual choice and political reality. Whether President Obama would sign it, under pressure, I cannot say. Nevertheless, a few things would improve the bill without necessarily making it less acceptable to the president.

First, Senator Johnson is right to restore insurance regulation to the states. However, “essential benefits” are not really what is driving up the cost of health insurance in exchanges. The single biggest factor is the age band of 3:1. This means an insurer cannot charge a 64-year old more than three times as much as a 19-year old. A more accurate age band would be about 5:1. Before Obamacare, this regulation was also within states’ power. Section 1201 of Obamacare gives this power to the U.S. Secretary of Health & Human Services, who dictated that it be 3:1. This power should be returned to the states.

Second, the confusion about exchanges is at stake in King vs. Burwell derives from the very existence of government-run exchanges. The government should no more run a health-insurance exchange than the Department of Transportation should run a car dealership. People should be able to buy health insurance from any broker or agent they prefer, in person or online, and claim their tax credit directly from the IRS.

These two items are easy lifts because they simply make the federal government stop what it is doing.

The most significant aspects of Obamacare replacement or bridge plans is that they provide immediate relief for the policy holders. By repealing the mandates and relaxing the requirements and by allowing actuarial realities to operate they will allow more rational products to be created.

But most important, they will return power to the states.  The unstated issue behind King vs Burwell, is the federal power grab that the ACA represents.  It is clearly not impossible, in fact is quite easy to draft an improvement to Obamacare.  That is what the ACA’s supporters fear the most.  Once they claimed the Supreme Court would never hear the challenge.  Now they claim Obamacare cannot be improved without disrupting insurance coverage for millions.  The former proved false.  So too may the latter.

Has Obamacare Empowered Smart Shoppers?

POSTED 2 months ago BY HEALTH CARE COMPACT

One of Obamacare’s benefits, according to its supporters, is that it has enabled “smart choices” among its users.  The Daily Kos, for example, lauds the fact that 29% of returning customers avoided the automatic re-enrolment process in favor of making a manual choice.  They call it “shopping for the best insurance deal”.

But as Jason Millman of the Washington Post pointed out, that is making a virtue out of a necessity because anyone who merely lets the program re-enrol will probably face a dramatic premium hike.  People must ‘smart shop’ not to get the ‘best insurance deal’ but to avoid being ruined by premium hikes. Millman writes:

So, here's why shopping around for health insurance becomes especially important. Looking at just the proposed rates for 2015 health plans in nine states, six of those states could see health plans lose their benchmark status in 2015. That means if people stay in those plans, their premium subsidy won't go as far. Of course, these are just proposed rates in just a few states that could still change — but this underscores how the exchange landscape could shift pretty dramatically year-to-year.

What the 29% statistic of the Daily Kos really describes is the percentage of people who dodged the bullet.  It means that 71% of the returning customers probably got a price hike.  John Goodman believed that Obamacare comparison shopping was a feature without a meaning. Writing in late 2014 he said “ideally, people should comparison shop – considering the differences in premiums, subsidies, and networks of the different plans. There’s only one problem. Intelligent comparison shopping is virtually impossible.”

Only two parameters really mattered Goodman argued. A low price and a broad network.  What Obamacare does is present the consumer with a choice of high priced plans and relatively narrow networks.  In that situation “smart shopping” has about as much meaning as gourmet dining in restaurant which only offers mediocre food.

Choosing among health insurance plans would be a herculean task, even for the IBM computer Watson. In addition to considering every illness that might afflict you, Watson, of course, would want to know the probability of you getting each one. It might base that judgment on a computer analysis of your genes. But even with that, Watson would need some metric for comparing doctors. That is, knowing that one doctor is better than another is not enough. We need to know how much better in order to make comparisons over thousands of doctors and thousands of diseases. Unfortunately, no such metric exists.

So instead of doing the kind of analysis that would stump even Watson, what are real world people actually doing? They are making choices based on one or two simple parameters and then they are sticking with that choice – come hell or high water. For example, healthy people are looking only at price. People with a serious health problem are trying to find a network that has a doctor they already trust. And that’s about it.

A recent study by the Kaiser Family Foundation studying consumer healthcare choice patterns appears to confirm Goodman’s surmise. It show that by and large, people find it too difficult to choose health plans on a technical level.  Instead they choose proxy indicators, just as Goodman deduced.  The study, titled “Few Consumers Use Information on Health Provider Quality or Price” said almost nobody looked at “data”, relying instead on “reputation” and “location”.

As the chart above [in the source article] shows, very small percentages of Americans say that they saw quality information comparing hospitals (13%) or doctors (10%) over the past 12 months. Of those who saw such data, the shares who said they used it were tiny: 4% for hospitals and 6% for doctors. Only 6% said they saw comparative price information for hospitals or doctors in the past year and only half as many say they used it.

There are many reasons consumers might not use comparative quality or price information. About eight in 10 people see a health professional each year, but not everyone goes to the hospital in a given year. Reputation and location may still dominate choice of providers. People may have established relationships with doctors and hospitals and may be less or uninterested in quality and price information, especially when a medical crisis calls for urgent decision-making. Some people are not online or are too busy working to compare data. Language barriers may impede some consumers. And pretty much everyone in the health-care sector agrees that the  ”state of the art” in the development of rigorous and reliable quality and price information has a long way to go.

So far, the growth of consumerism in health–with patients going online for medical information and empowering themselves to ask more from their medical providers–has not translated into widespread use of the provider quality and cost information available today. This suggests that employers and insurers may be the primary consumers of quality and cost information for the immediate future. But as cost-sharing grows so will the need for more useful information for consumers on provider quality and prices.

One area in which comparison shopping may be effectively used is in shopping around for specific services, especially when these must be shouldered as a co-payment. Zina Moukheiber of Forbes notes studies show that comparison shopping for laboratory tests and imaging held great potential for savings. Finding a cheap doctor, on the other hand, was much more difficult than finding a cheap x-ray.

Castlight analyzed the medical claims of 502,949 employees at 18 companies between 2010 and 2013. It focused specifically on laboratory tests (such as cholesterol), imaging (MRI, CT scans) and office visits to primary care doctors and specialists. Those who compared prices before receiving care had lower claim payments than those who didn’t: 14% less for lab tests, 13% lower for imaging, and 1% lower for doctor visits. Neeraj Sood, an author of the study, said savings were lower for office visits because price variations were smaller.

The Castlight company is marketing a cloud-based “transparency tool” designed to help people shop for various kinds of services within the parameters of their existing plans, including Obamacare plans.  The benefits of comparison shopping do not come from Obamacare itself -- Goodman seems to be right about that -- but in the context of a given plan. “The fact that employers are willing to pay for information provided by Castlight when their own health plans could provide it for free, is “the most damning indictment of the healthcare market’s opacity,” an article says.

Castlight describes itself as a “cloud-based platform for enterprises to manage their healthcare costs” that integrates many healthcare applications. Among them is its online transparency tool.  Employers can use it to help their employees shop for quality health services and value. The transparency tool is customized to each client employer’s health plan by using the claims data from that employer. ...

The fact that employers are willing to pay for information provided by Castlight when their own health plans could provide it for free, is “the most damning indictment of the healthcare market’s opacity,” stated a report published by Modern Healthcare. “It’s also a measure of the thirst for solutions that lift the veil over what is otherwise known to buyers in other industries–the price of services and products.”

The Covered California Debacle

POSTED 2 months ago BY HEALTH CARE COMPACT

The troubles of Covered California have focused attention on the practical aspects of Obamacare delivery.  The questions asked are how honesty and efficiently are health care policies delivered? Not very well in California, it seems. The danger signs, as usual, were red ink. The Orange County Register noted that California’s Obamacare exchange has blown through more than a billion dollars in federal grants and cannot continue to operate at a loss.

After two previous extensions, the open enrollment period for Covered California ends April 30. That deadline just might prove to be the tipping point for the state’s two-year-old health insurance exchange.

That’s because this is the year Covered California is supposed to become completely self-sustaining.

Indeed, there’s no more money coming from Washington after the state exhausts the $1.1 billion it received from the federal government to get the Obamacare exchange up and running. And state law prohibits Sacramento from spending any money to keep the exchange afloat.

That presents an existential crisis for Covered California, which is facing a nearly $80 million budget deficit for its 2015-16 fiscal year. Although the exchange is setting aside $200 million to cover its near-term deficit, Covered California Executive Director Peter Lee acknowledged in December that there are questions about the “long-term sustainability of the organization.”

Part of the problem, as a whistleblower explained, was that many things in Covered California were overpriced -- and the fact kept secret. It is alleged that no-bid contracts went to associates of Peter Lee.

An Associated Press report in 2013 found that millions in no-bid Covered California contracts went to firms with professional ties to agency Executive Director Peter Lee. At the time, a spokesman told AP that Covered California “was under pressure to move fast” to meet tight federal deadlines and “needed specialized skills.” Covered California would not answer our questions about potential conflicts of interest.

AP also found Covered California uniquely positioned to keep its spending details secret—“the most restrictive” among the 16 state exchanges with “authority to conceal spending on contractors performing most of its functions … potentially shielding the public from seeing how hundreds of millions of dollars are spent.”

People working for the organization were told to omit any mention of sensitive subjects from email or anything else that might leave a trail.

Aiden Hill’s introduction to the secretive culture at Covered California came in his first days on the job. He had just been hired to head up the agency’s $120 million call center effort when he emailed a superior April 18, 2013, and got a text message in reply:

Please refrain from writing a lot of draft contract language in government email … And don’t clarify via email … No email.

Later, concerned about contractor performance, Hill conducted an Internet search for “best practices” information to forward a superior. Afterward he got this text:

Aiden—Please stop using government email for your searches.

Efficiencies didn’t matter because after all, they were spending “government” money.  What mattered were enrollment numbers, since Covered California operated like a ‘marketing’ organization that was paid by enrollment volume. That number was increased to the extent possible so that when the federal funds were spent, the organization could pass on the costs of their inefficiencies to the policy holders.

[Whistleblower] Knauss’ once-cheerful blog has turned into a consumer chronicle of Covered California’s tribulations. He says the agency is masking its shortfalls because it is, in essence, a sales organization.

“I know their enrollment numbers aren’t right. They’re marketing themselves [to] generate fees.”

To some degree, state health insurance exchanges are forced to market themselves. After starting up using over a billion federal tax dollars, the law requires them to be self-supporting this year. To do so, Covered California collects commissions.

The agency wouldn’t answer questions on this topic, but previously indicated it planned to charge a 3 percent fee on premiums in 2014 and later hoped to reduce that to 2 percent. Because too few people enrolled, published reports say Covered California could not reduce its 2015 fee, and maintained it at $13.95 per person each month. …

More rate increases are ahead. A recent study found the vast majority of Covered California customers—84 percent—face premium hikes this year.

Covered California never broke even but its losses were concealed by the federal grant.  Only when that money was depleted did the actual situation become apparent.  The only way it can go forward is to charge its members more money.  Ironically, Peter Lee was hired after leading an effort that started with low prices to entice applicants but died when the economics wouldn’t work.

He was CEO at the Pacific Business Group on Health when the coalition pulled the plug on a different attempt six years ago.

Pacific Health Advantage — commonly known at PacAdvantage — cut employer costs in the early years, but was inadequately marketed and failed to enroll more than 5 percent of the small businesses eligible for the program. It died in 2006 after the three remaining health plans pulled out because the numbers weren’t big enough to share risk without higher rates.

One of the problems with Obamacare certain aspects of it are made artificially profitable by the government provision of subsidy. But on the whole it may not be sustainable. Like a flash in the pan it may burn brilliantly for a while have no staying power.  In the case of the recently closed Corinthian Colleges.  It was a for-profit-educational system.  “An Education Department inquiry revealed that Corinthian’s finances were in disastrous disarray. The company, which like other for-profits has seen a decline in enrollment since the end of the recession, had become almost entirely dependent on regular cash infusions from the government’s financial aid programs—$1.4 billion last year, or more than 80 percent of the company’s revenue—to keep the doors open at its 107 campuses.”

Like Obamacare, Corinthian’s educational product was pitched at low-income Americans.  According to California Atty. Gen. Kamala Harris,

The firm goes after "isolated," "impatient" individuals with "low-self-esteem," and who have "few people in their lives who care about them."

Then, according to her lawsuit, it plies these victims with bogus placement statistics and rosters of educational programs it doesn't actually offer. And it charges them premium tuition and fees to boot, often leading to their taking on student debt they can't possibly pay off with the lousy jobs they end up with.

Students were made to get loans, from which Corinthian’s fees were paid and sent off into the world deeply in debt but without any real education to speak of.  The New Republic noted that Corinthian had been saved by the intervention of Governor Jerry Brown, but that eventually it was dragged down by economics.

According to Senate investigators, two-thirds of students who enroll in Corinthian’s associate degree programs each year end up dropping out, as do more than half of all its students at its Everest, Heald, and Wyotech campuses. The median stay for students who withdraw is only three months. These students are typically left in debt without the training they need to get a job in the field in which they sought training.

So it shouldn’t come as a surprise that a large proportion of Corinthian’s students fail to repay their federal loans and end up in default.  … One admissions director told the AG’s office that this was the standard operating procedure at her campus, where, according to Reiter, the typical “admissions representative downplayed or concealed the significance of the employment disclosure by including it in a large stack of documents and saying, ‘just go ahead and sign this.’”

The lesson of Covered California is that a health care program cannot operate at a loss forever.  When those inefficiencies are caused by political networks and covered up by federal handouts the problem can grow to an incredible size before the disaster ultimately brings the system down.  Is Obamacare throwing patients a lifeline? Or is it asking them to stick their heads into a noose?

Bribes, Deals, Coercion and Still No Sale

POSTED 2 months ago BY HEALTH CARE COMPACT

Penalties, bribery, backroom deals and coercion are all methods used by the administration to establish Obamacare.  Take penalties. One of the most controversial instruments used by the administration to expand the adoption of the Affordable Care Act is the Individual Mandate, in which Americans have to buy a Obamacare policy to avoid being fined. This threat has driven millions of Americans to participate in the president’s flagship program.

But the stagnation of enrollments has convinced some analysts that this lash does not sting enough.  If Obamacare is to reach its enrollment targets, it has to increase the existing penalties substantially. “A new analysis from Avalere finds that the penalties associated with the individual mandate, which grow in 2015, might be too low to attract enrollment, particularly among middle-income, healthy individuals.”  A consumer who earns enough to exercise choice often simply passes it up.

The more a person earned the greater was the tendency to pay the fine and tell Obamacare to go away.  Caroline Pearson, the Vice President of Avalere notes that “individuals earning more than double the poverty” treat Obamacare like a nuisance:

Monthly health insurance premium costs are significantly greater than the individual mandate penalty for many potential exchange consumers in both 2014 and 2015, even after accounting for tax credit subsidies. However, individuals with incomes at or around the federal poverty level (FPL), $11,670 in 2015, will save money by purchasing insurance as opposed to paying the fine. Some individuals earning up to 200 percent of poverty will also save if they buy insurance, depending on their age and where they live.

“Insurance through exchanges is a good deal for individuals who are heavily subsidized, especially as the individual mandate penalty increases,” said Caroline Pearson, senior vice president at Avalere. “While the incremental cost of insurance becomes less significant as the mandate penalty grows, individuals earning more than double the poverty level may continue to forego coverage since paying the fine is still much more affordable than purchasing insurance.” …

Data released previously by Avalere found exchanges using HealthCare.gov had enrolled 76 percent of eligible individuals in 2015 with incomes between 100 and 150 percent of FPL or $11,770 to $17,655. However, participation rates declined dramatically as incomes increase and subsidies decrease. For instance, only 16 percent of those earning 301 to 400 percent FPL picked coverage through an exchange, even though they may be eligible for premium subsidies.

When penalties don’t work the administration tries bribes.  Michael Cannon at Forbes says the executive branch is openly bribing Congress by offering it artificially cheap and generous insurance that is unavailable to the general public.

The U.S. Constitution vests the legislative, executive, and judicial powers in separate branches of the government that are supposed to police each other. But what if one of those branches violates the law in a manner that personally benefits the members of another branch? That’s what has been happening since the day ObamaCare became law in 2010. For more than five years, the executive branch has been issuing illegal subsidies that personally benefit the most powerful interest group in the nation’s capital: members of Congress and their staffs. A decision today by the Senate Small Business & Entrepreneurship Committee not to investigate those illegal subsidies shows just how difficult it can be to prevent one branch of the government from corrupting members of another branch.

It’s a temptation that some Republicans have been unable to resist. And having succumbed, they don’t want to admit having done so. “The Senate's Small Business Committee on Thursday denied its chairman’s request to subpoena documents from the D.C. insurance marketplace, which he said would prove that some in Congress evaded ObamaCare rules.”

Sen. David Vitter (R-La.), the head of the committee, was demanding unredacted copies of health insurance applications used by members of Congress to enroll in the small-business exchange. Vitter has claimed that congressional staff falsified documents in order to allow members of Congress and their staff to receive subsidized insurance.

In a surprising vote, five Republicans joined the committee's nine Democrats to oppose the subpoena. That GOP group includes Sen. Mike Enzi (Wyo.), who had previously co-sponsored a bill with Vitter on the issue. Republican Sens. Jim Risch (Idaho), Deb Fischer (Neb.), Rand Paul (Ky.) and Kelly Ayotte (N.H.) also voted against the subpoena.

The biggest “incentive” offered by Obamacare is Medicaid expansion.  Governors which co-operate with the president are handed a large amount of federal money.  The temptation to take it has led some states into adopting contortions.  Governor John Kasich of Ohio, for example, has agreed to take the money provided that he can rebrand the Obamacare Medicaid program, in order to avoid appearing like he is cooperating with the administration.

He is one of the still-rare Republican governors who accepted the Medicaid expansion offered by the Affordable Care Act, after the Supreme Court allowed states to skip it. …

Kasich launched into a comparison between preventative health care and drug treatment. "Look, if we treat the drug addicted, like we do in our prisons, and we get in contact with them outside the prison, we don't think they're gonna be back in prison again," he said. "If you ignore them, the drug dealer's outside the prison waiting for them." This was his way of explaining that shunting money to Ohio was perfectly conservative. "Running our health care system from the top down is not working. We have programs in Ohio called value-based payments, where we say we ought to be working to keep people healthy. There ought to be total transparency in terms of what everything costs. We've done this with Medicaid."

The money might be enough for Kasich, but even the offer of billions of dollars cannot persuade other governors adopt it.  This is where good old fashioned political coercion comes in.  The liberal Vox media outlet looks on in approval as president Obama threatens to cancel other federal programs in Florida without an undertaking that the state will implement Obamacare.  Currently Florida has a targeted program to pay for the care of destitute and very sick patients.  However the president has announced he will suspend it unless they adopt his flagship program.

The White House is playing hardball with Florida: expand health-care coverage under Obamacare, or risk losing billions in federal dollars.

Florida currently receives just over $1.3 billion in federal Medicaid funds to help hospitals that rack up big unpaid bills by treating uninsured patients. Those funds run out on June 30.

For months, Florida and the White House have negotiated the possibility of an extension. But the Obama administration is now threatening to cut off those funds unless the state takes up a key provision of Obamacare that could expand coverage to hundreds of thousands of people in the state.

If the strong-arm tactic works, the White House may have found a model to use again and again to overcome one of the most significant remaining hurdles to Obamacare's goal of universal health-care coverage. That could mean millions more Americans could get covered.

The sheer variety of coercive tactics employed by the administration is a testament to how mediocre the product is. Obamacare has so far failed to win over a majority of consumers despite 5 years of nonstop promotion and or threats of punishment. The press keeps saying that ‘Americans love Obamacare’, but the reality is that the president has left no stone unturned to force people into it.

Bridge Repeal Via Section 1332

POSTED 2 months ago BY HEALTH CARE COMPACT

The uncertainty over how the Supreme Court may rule in King vs Burwell has forced many actors in the health insurance industry to consider backup plans.  The administration has made a big show out of publicly announcing they have no ready alternatives in case the Supreme Court strikes down the federal subsidies in states without exchanges. The latest “take it or leave it” signal was sent by IRS Commissioner John Koskinen, who told the Senate  that his agency does “not spend any time thinking” about the issue.

Republican lawmakers, who fear they are being set up as scapegoats if the insurance markets are disrupted by a court ruling are ironically the most active in crafting soft landings. One proposal would simply amend the laws to continue any current subsidies until 2017.

Yet another fallback position is being requested by the insurance industry itself. The American Academy of Actuaries petitioned HHS Secretary Sylvia Burwell to let companies file two sets of rates, one of which would assume the Supreme Court ruled against the subsidies.

When suggesting the secretary consider flexibility in rate filings, one option we initially outlined was that insurers could submit two sets of rates—one that reflects continued availability of premium subsidies in FFM states, and one that assumes subsidies are struck down. While that option was viable in February, it may be too late to implement such an approach because of rate filing deadlines if it has not already been done. Alternatively, we also suggested that insurers could refile rates in FFM states after the court’s ruling, if it strikes the subsidy provision. The secretary could still allow for this approach. As actuaries, our concern was and is driven by the threat of insurer insolvency, since 2016 filings for premium rate approvals have to be filed prior to the court’s ruling, and they may not be adequate to cover claims if their assumptions about subsidies don’t square with the post-ruling reality.

But the biggest danger that the administration’s “take it or leave it” policy invites is from the direction of a little known provision in Obamacare called Section 1332.  Starting in 2017, states will be allowed to modify Obamacare under “including alternatives that would represent a significant departure from the ACA's standards and requirements.”

The Origins of 1332 Waiver Authority. Federal authority allowing states to vary from the requirements of federal health coverage programs isn't new. Many states, for example, are using or have used waiver authority under section 1115 of the Social Security Act to carry out demonstration projects in Medicaid. States have used waivers to expand the use of managed care, cover individuals not otherwise eligible for Medicaid, and obtain federal matching funds for services and activities that Medicaid typically doesn't cover. …

The ACA's 1332 waivers are based on a provision in the Healthy Americans Act, health reform legislation that Senator Ron Wyden, a Democrat, introduced in 2007 and 2009 with then-Senator Robert Bennett, a Republican. Under the final version of section 1332, the HHS Secretary may waive certain ACA provisions dealing with the health insurance marketplaces, the subsidies available through the marketplaces, the requirement for individuals to have coverage or pay a penalty, and the "shared responsibility" requirement for employers with 50 or more full-time-equivalent workers.

This provision allows the States to change Obamacare in ways that the administration is now fighting to keep within the federal prerogatiave. Arkansas’ Governor Asa Hutchinson is planning to use Section 1332 in ways that change Obamacare substantially.  In a manner of speaking, the Section anticipates the desire of states to refuse federal subsidies, or use Medicaid expansion money for other uses, or even use Federal government funds to craft their own programs.  Obamacare is not the sacrosanct program which must be tightly controlled.  It’s own provisions provide for variation on the state level.

Arkansas’ new Surgeon General, Dr. Greg Bledsoe, says the legislative health care task force that begins its work in earnest this next week will be looking at a much wider swath of reform than just the private option. …

Gov. Hutchinson pushed state lawmakers to fund the private option through the end of 2016. The innovative and controversial program has led 230,000 enrollees into health insurance coverage, according to the latest statistics.

Hutchinson also convinced legislators to form a task force to recommend changes by the end of this year for ending the private option program by next year and to design a new marketplace for health care and insurance by the start of 2017.

Bledsoe sits on the 16-member legislative task force that meets Monday to begin that challenge. As a non-voting member, he’ll still be representing the Governor’s interests to the panel.

“I think this is a once in a generational opportunity to do this,” said Bledsoe, who added that a potential special session is “on the table” to ultimately address the task force’s recommendations.

A key reform driver that will quickly come up in discussion for the task force involves a federal waiver known as a 1332 waiver. It allows great flexibility within the Affordable Care Act, also known as Obamacare. In short, 1332 waivers allow states to:

  • Modify or eliminate the Individual Mandate component of the ACA

  • Modify or eliminate the Employer Mandate component of the ACA

  • Modify Benefits or Subsidies

  • Modify or eliminate Marketplaces and Health Plans

Paul Howard of the Manhattan Institute notes that King vs Burwell may actually act as a starting gun for wholesale Section 1332 state initiatives. He writes, “After King v. Burwell, Republicans’ Goal Should Be Federalism on Steroids”.  He suggests that Congress, rather than simply extending the old Obamacare subsidy regime, should create a framework for implementing Section 1332.  That would enable something like the Health Care Compact, or its conceptual equivalent, to sail through a provision in Obamacare itself.

Simple political realities make immediate goals of repeal-replace bills impossible. Instead, Republicans need a “bridge”: A solution to get them through a potential win in King that doesn’t leave Republican governors out to dry, but still allows serious health care reform.

One such bridge could come in the form of the so-called “State Innovation Waivers,” under section 1332 of the law, slated to begin in 2017. This little known element of Obamacare allows states to waive various parts of the law’s requirements including “essential health benefit” standards, requirements for exchanges, premium tax credits, and even the employer and individual mandates. In return, states receive a block grant of funding that would otherwise flow through Obamacare’s mechanisms.

States could combine these waivers and existing Medicaid waivers (so-called “section 1115 waivers”) to receive a block grant of funding that would encompass an even larger population, allowing bigger reforms. (Standardizing the combination of these waivers could appeal to both red and blue states.)

The catch is the administration’s bait-and-switch approach to the Medicaid expansion. While HHS has promised flexibility, very little has been offered so far, making governors hesitant to propose ambitious reforms.

The solution is simple: Congress should write flexibility directly into new legislation. Allow states to experiment with the flexibility of 1332 waivers, requiring “auto-approval” so long as reforms attain similar coverage and remain deficit neutral.

Of course such a framework would not constitute an Interstate Compact itself. But the slow crumbling of Obamacare, despite the administration’s determination not to yield an inch, is slowly producing its nemesis.

The Old Versus Obamacare

POSTED 2 months ago BY HEALTH CARE COMPACT

Thomas Edsall of the New York Times has an eye-opening explanation for why Obamacare is failing to gain decisive acceptance, in spite of the billions of dollars being spent to promote it.  He writes that for historical reasons, the elderly were the first recipients of welfare in the United States, through Social Security and Medicare.  By contrast, welfare was paid to people of all ages in Europe.

This historical artifact automatically has automatically put the elderly on a collision course with Obamacare.  Edsall writes that “in the zero-sum competition for federal dollars, the cost of major spending programs like the Affordable Care Act has to be made up by spending cuts elsewhere.”  As pointed out elsewhere, much of the funding for Obamacare comes from cuts to Medicare.

The Obama administration has reported that the Affordable Care Act will be financed in part by $716 billion in Medicare cuts over 10 years. Somewhat improbably, the administration also contends that cuts of this magnitude will not reduce services to Medicare beneficiaries.

The decline in support among the elderly in the United States for redistributive social spending stands in contrast to Britain, Germany, Sweden and Australia where Ashok, Kuziemko and Washington found that older people were more supportive of redistribution than those of working age. In most European countries, health care is guaranteed regardless of age, while in the United States, before the enactment of the Affordable Care Act in 2010, only the elderly were guaranteed health coverage through Medicare.

Obamacare has led, Edsall explains, to the surprising decline in support for redistribution.  He writes, “seniors, a group unique in having guaranteed health insurance during our sample period, may increasingly feel that expansions of redistributive programs could come at their expense.”

Despite its attempts at humor, Brian Beutler at the New Republic only manages to confirm Edsall’s conclusion.  He writes that only old people hate Obamacare and quotes a Kaiser Foundation poll to prove it.

According to the Kaiser Family Foundation, whose tracking poll is a touchstone for measuring public sentiment about Obamacare, the law is under water—barely. Forty one percent of respondents hold favorable views of the ACA, while 43 percent hold unfavorable views. But if you break it out by age cohort, you find that that two percent margin is entirely attributable to people who have aged out of the program.

Among 18- to 64-year-olds—the people who pay for the law, or are eligible for the law’s benefits, or might become eligible for the law’s benefits at some point in the future—Obamacare is breakeven. Forty two percent favorable, versus 42 percent unfavorable. Among those whose opinions we should generally ignore on this issue—old people—it’s a bloodbath. Only 36 percent view the law favorably, while 46 percent view it unfavorably.

Unfortunately for Beutler, everyone who votes -- not just the people who pay taxes -- gets a say in public policy.  And as Thomas Edsall shows, the population is aging at increasing rate.  This means that “those whose opinions we should generally ignore on this issue—old people” are going to become comparatively more numerous as time goes by.

The reason, as Edsall explains, is what Karen Eggleston and Victor Fuchs of Stanford University called the new demographic transition. During the 20th century, improvements in medicine, sanitation and food drastically reduced infant mortality and reduced premature deaths.  But in the 21st century preventable death rates among the young are as low as they can go.  The result is that gains in years of life added are concentrated among the old.  People are living longer. And that means people who hate Obamacare will become ever more numerous.

At the beginning of the twentieth century, in the United States and other countries at comparable stages of development, most of the additional years of life were realized in youth and working ages; and less than 20 percent was realized after age 65. Now, more than  75 percent of the gains in life expectancy are realized after 65—and that share is approaching 100 percent asymptotically. The choice of age 65 to illustrate this new demographic transition is somewhat arbitrary, but if we used 60 or 70 instead, the results would be qualitatively similar. ...

When the gains in life expectancy occur mainly towards the end of life, they contribute more to the age bracket that is traditionally mostly retired rather than to the age bracket in prime working years. Retirees are highly dependent on transfers from the working population for living expenses, including large consumption of medical care.

This is already affecting Democratic strategy.  They have been forced to restore funding to Medicare, through the massive “doc fix” which raises the pay of doctors serving that program.  Fighting the old is politically very expensive.  Edsall writes:

Eighty-two percent of voters support maintaining Social Security payments even if it means raising taxes, according to the National Academy of Social Insurance. More than two-thirds of poll respondents favor raising the $118,500 cap on income subject to Social Security taxation.

According to The New England Journal of Medicine, if a candidate were to call for cutting Medicare benefits, 58 percent of voters would most likely vote against him while only 12 percent would be more likely to vote for him.

On March 27, 46 Democratic senators voted for an amendment to increase and expand the scope of Social Security.

In the zero-sum game of public dollars increases for Medicare and Social Security mean cuts to Obamacare.  Dr. Ezekiel Emmanuel, one of the architects of the ACA is well aware of the fact that increasing American lifespans will doom Obamacare in the long run.  In an October, 2014 edition of the Atlantic, Emmanuel wrote an article entitled, “Why I Hope to Die at 75: An argument that society and families—and you—will be better off if nature takes its course swiftly and promptly”.

Americans seem to be obsessed with exercising, doing mental puzzles, consuming various juice and protein concoctions, sticking to strict diets, and popping vitamins and supplements, all in a valiant effort to cheat death and prolong life as long as possible. This has become so pervasive that it now defines a cultural type: what I call the American immortal.

I reject this aspiration. I think this manic desperation to endlessly extend life is misguided and potentially destructive. For many reasons, 75 is a pretty good age to aim to stop. …

What are those reasons? Let’s begin with demography. We are growing old, and our older years are not of high quality.  … But as life has gotten longer, has it gotten healthier? Is 70 the new 50?

Emmanuel invokes what is probably the most dangerous argument in civilization. He draws a chart showing that the old are useless. “Moreover, we need to ask how much of what “Old Thinkers,” as Harvey C. Lehman called them in his 1953 Age and Achievement, produce is novel rather than reiterative and repetitive of previous ideas. The age-creativity curve—especially the decline—endures across cultures and throughout history, suggesting some deep underlying biological determinism probably related to brain plasticity.”

Yes, and Soylent Green is people. At heart Emmanuel’s objections  are economic.  In a world without resource limits society will try to solve the aging process -- and the age-creativity “problem”.  Only because tax dollars are limited should we aim to live to 75.  If the population keeps aging, then Obamacare must compete with Medicare for those dollars -- and lose.

Taxes, Innovation and Prices

POSTED 2 months ago BY HEALTH CARE COMPACT

Behind every Obamacare tax credit is a tax.  That is unavoidable, because the money must come from somewhere. The biggest of its many taxes, the one on employer insurance, is now being phased in. It’s designed to kill company provided health care.  As Robert Wood writes in Forbes, the claim that you could “keep your insurance” was always a lie.

In 2010, House Speaker Nancy Pelosi urged passage of Obamacare so we could find out what’s in it. We found many new taxes, but in 2010, few worried about the Cadillac tax that was delayed until 2018. Besides, it would apply only to truly rich plans for the most elite. The numbers no longer seem so elite.

The tax applies to individual health plans worth more than $10,200 and family plans worth more than $27,500. They are hit with a whopping 40% excise tax. Former Obamacare adviser Jonathan Gruber gloated that rising medical costs would ensure that the Cadillac tax would all but eliminate tax deductible company provided health insurance. Mr. Gruber even said President Obama was in the room when the Cadillac tax lie was created.

Obamacare supporters might argue it was a lie in a good cause because after all, isn’t the “Cadillac” tax and impost on the rich to give to the poor?  Wouldn’t Robin Hood approve?  But the problem as many analysts have noted, is that since the tax applies to plans costing more than a fixed amount ($10,200 for individuals and $27,500 for families) inflation will ensure that in a few years, every employer plan will pass the Cadillac threshold.

Even plans that are not hit by the 40% tax in 2018 soon could be. After all, the Cadillac tax is linked to the consumer price index plus 1%. Medical and insurance costs are growing far faster, so more and more plans will be hit with the 40% each year. A survey by Mercer anticipates that one-third of employers will be hit by the tax in 2018, growing to 60% by 2022. It could be worse still.

And this is just want we know so far. It could be far worse. The IRS has already showcased how incredibly complex this tax will be, setting out approaches to the excise tax. Of all the taxes in the ironically named Affordable Care Act, none is more onerous, a whopping 40% on top of all other federal taxes. It is an excise tax, one of the most dreaded taxes there is. It sounds as if it taxes overly generous employer-provided health care plans for executives. …

In a very few years, the “Cadillac tax” will be a tax on all employer provided health benefits. The net effect, as Wood writes, is to reduce the total American consumption of health care.  Consumers use less of anything that is taxed because it costs more.

A reasonable response to the Cadillac tax is likely to be cutting of health insurance. Less generous coverage will presumably be provided. In large part, the result is likely to higher costs for employees, higher deductibles, and other add-ons that will harm employees. Doesn’t that go directly contrary to what proponents of the Affordable Care Act–including the President–represented? Like your plan, keep your plan?

But Obamacare advocates have an answer to that criticism too.  By giving consumers high deductibles and widening the gap between what the skimpy Obamacare policies cover and what treatment costs, it forces patients to make ‘smarter choices’.   Teresa Wang of Rock Health makes a virtue out of a necessity.

Being insured comes at a price—and it looks like individual consumers will be paying it. In 2013, out-of-pocket expenses grew 3.2% to account for 12% of national health spending, and this number is only expected to continue to rise with the abundance of high deductible health plans (HDHPs). Eighty-five percent of enrollees from the individual marketplace selected a HDHP. Individual plans with a deductible of at least $1,250 or a family policy with a deductible of at least $2,500 are considered HDHPs. This means an individual consumer is responsible for paying $1,250 out-of-pocket before insurance coverage kicks in. Given this cost sharing, there has been a significant change in purchasing behavior. Over 50% of the individuals who purchased insurance on Healthcare.gov this past year “shopped” around before purchasing their health insurance plan. Individuals are no longer passively receiving treatment and information from the healthcare system, and instead are incentivized to become actively engaged in decision-making processes. This may be a scary change for many patients, but the shift creates much needed tailwind to push healthcare up with the rest of the consumer-facing industries.

As individuals become accustomed to being responsible for out-of-pocket healthcare expenses, digital health companies can take advantage of the trend towards consumerism to educate and empower patients to make smarter purchasing decisions.

Wang’s argument may sound perverse, but it is entirely logical. “Being insured comes at a price” because Obamacare leaves the patient short of the actual amount needed to pay the bill.  What it does, says Wang, is create business opportunities for those who offer comparison shopping services.  For all of its socialistic architecture, Obamacare leaves one window partially open to market forces.  The market for gap services that Obamacare won’t pay for. The LA Times describes how lucky patients are now that they have to shop for bargains.

When Vicki Burns was told she needed total hip replacement surgery in 2012 she asked her local hospital for a cash price. She got a $79,000 estimate for the surgery.

A doctor advised her to research the fee that the hospital accepts from Medicare and use that as a starting point. Her husband gathered the data and tried to negotiate.

"They wouldn't even talk to him about it," she recalls.

Desperate for an alternative, the New Mexico couple took to the Internet and found a Tennessee website they liked called MediBid. For $4.95 a month or $25 for a year of unlimited requests, patients can post the medical services they need, and doctors bid for their business.

"I felt a little like I had been put on EBay or Craigslist," Burns says. "Within two days, I had two quotes." …

With rising out-of-pocket expenses, patients are increasingly demanding information about price and quality that historically has been unavailable.

Entrepreneurs, states and employers now offer such tools. A number of newly formed coalitions made up of insurers, pharmaceutical companies and other industry insiders are also vowing to push for the release of price information long held as trade secrets.

The whole purpose of Obamacare was always twofold. First, it was to make medicine more expensive for those with insurance thereby reducing demand; and second to tax people with employer insurance and transfer it to those who purchased it from Obamacare exchanges or received it through Medicaid expansion.  That met the income redistribution goals of the administration.

In a perverse way they believed it would also make the system more efficient. By increasing out of pocket expenses, Obamacare forces people who already have insurance to shop for gap services their plans won’t pay for.

Obamacare creates a two tier system.  On the one hand it fosters the rise of monopolies, as Marty Makary writes in the Wall Street Journal.  This part of the Obamacare reduces competition, which raises the “charge-master” costs.  That in turn “this translates into higher health-insurance deductibles and copays for insured Americans, and in the case of Medicare and Medicaid, higher taxes” which leaves everyone with less money, forcing them to make “smarter purchasing decisions”. What’s not to like?

During the 2008 financial crisis, “too big to fail” became a familiar phrase in the U.S. financial system. Now the U.S. health-care system is heading down the same path with a record number of hospital mergers and acquisitions—95 last year—some creating regional monopolies that, as in all monopolies, will likely result in higher prices from decreased competition.

Hospital consolidation, done properly in a competitive marketplace, can have positive effects. Multi-hospital conglomerates can quickly disseminate best practices and quality initiatives, for example. But competition and the choices it provides can also disappear.

Health-care conglomeration aligns with the Affordable Care Act, which created incentives for physicians and hospitals to work together in “accountable care organizations.” But an important and often forgotten prerequisite for this model is hospital competition.

Some see the dangers. In a rare move, Massachusetts Superior Court Judge Janet Sanders recently blocked Partners HealthCare—Harvard’s affiliated 10-hospital conglomerate and Massachusetts’ largest private employer—from acquiring three competitor hospitals. Judge Sanders argued that the expansion “would cement Partners’ already strong position in the health-care market and give it the ability, because of this market muscle, to exact higher prices.” This threat is even greater in rural areas where one hospital is often the only provider.

Today’s frenzy of hospital mergers and physician practice acquisitions is giving hospital systems even greater leverage to inflate opaque “charge-master” medical bills that even hospitals are sometimes unable to itemize sensibly. With no mechanism to allow free-market forces to keep prices in check, this translates into higher health-insurance deductibles and copays for insured Americans, and in the case of Medicare and Medicaid, higher taxes.

Viewed in this context, the competition “fostered” by leaving patients with no money has a significant downside.  While it may promote innovation at the margins it may stifle creativity at the core of health care delivery. Makary notes that consolidation is turning oncology into a chain-store franchise.

The Affordable Care Act did not repeal antitrust laws. The Federal Trade Commission prevailed in three litigated hospital mergers in the last three years, and in 2014 it won its first-ever litigated case challenging a health-system acquisition of a physician group. But these victories are few. The great majority of mergers occur with little if any public debate about how they will affect prices or patients.

U.S. Oncology, for example, boasts more than 1,000 oncologists in its network and serves nearly 20% of all U.S. cancer patients. In 2010 it was acquired by McKesson Corp., one of the largest U.S. drug distributors, in what some called a savvy move to get cancer doctors and the drugs they prescribe under the same roof. Specialty hospitals are also sprouting around the country, even franchising, exemplified by the rapid spread of the MD Anderson Cancer Center, which aims to have a center within three hours of every American. But is it wise to have one corporation in charge of cancer care for an entire state or region?

Advocates say such expansion brings standardized care and clinical trials to more of the population, but it also results in an undeniable homogenization that may limit options for patients. If management decides that its doctors can only use one chemo drug for a particular cancer, or if the central leadership elects to not adopt a new surgical technology system-wide, will patients be told about the other options?

The “standardized care” and “evidence based medicine” favored by Obamacare are close synonyms for formulaic medicine which are at the heart of value-based payments.  While this sort of of Tumors-R-Us approach can make delivering medicine to the public more economical, it also has a downside.  

The worst of all possible worlds, as Megan McArdle says in Bloomberg, is that Obamacare might create high cost standardized medicine, like fast food at Michelin 3 star prices. The high prices are already there. McArdle sees no evidence that Obamacare has made health care the slightest bit cheaper.

It was a sure bet that if health-care costs fell after the Affordable Care Act was passed, we’d see people writing articles about how the law had finally gotten health-care costs under control. And so it has come to pass, and so a number of readers have written me to ask whether this is actually true.

The short answer is that I’m far from convinced. For one thing, people seem to be awfully light on probable mechanisms, other than some changes to Medicare, some of which are still in the future, and none of which seems big enough to account for the decrease in cost growth. For another, when you look at the recent history of U.S. health-care spending, you see that the rate of growth started to moderate more than a decade ago.

But if the high costs are spent delivering standardized and “proven treatments” then innovation will not necessarily be encouraged. Unless there’s a selective demand for leading edge treatments is preserved standardized treatments will tend to purchase more of the same.  McArdle gives an actual example of innovation that probably relies upon initially high prices.

It might mean fewer health-improving, life-extending innovations, which is great for the bean counters but not so great for us fragile humans who would like to live longer, healthier lives. Even for the bean counters, it also presents a risk: that technological innovation will start to speed up again.

Here’s a good example of what I mean:

The 49-year-old woman had had three melanoma growths removed from her skin, but now the disease was spreading further. A several-centimeter-sized growth under her left breast went deep into her chest wall. Some of the tissue in the tumor was dying because of lack of blood flow.

Doctors at Memorial Sloan Kettering Cancer Center offered her an experimental combination of two drugs: Opdivo and Yervoy, both manufactured by Bristol-Myers Squibb, both among a vanguard of new medicines that boost the immune system to attack tumors. Three weeks later she came back for her second dose.

“She didn’t say anything and when I examined her, I said, ‘Wait a minute!’” says Paul Chapman, the doctor who was treating her. “She said,  ‘Yeah, it kind of just dissolved.’”

Bristol-Myers Squibb just announced that it was stopping a trial for Opdivo against non-squamous non-small-cell lung cancer -- because the drug was working so well that it was unethical to keep it from the control group. These are about the happiest words an oncologist ever hears. The drug does have some nasty side effects, but then so does advanced metastatic cancer; most patients will be willing to make the trade for these sorts of spectacular results.

Obamacare may reward pharmaceutical companies through volume purchases and yet stifle the pathways of innovation. The Wall Street Journal portrays the deal between big pharma and Obamacare as support for Obamacare in exchange for an undertaking not to interfere with drug development, trademarks, intellectual property and pricing.

Wow, the breakup between President Obama and his former corporate health-care partners must have been bad. The deal he cut with the pharmaceutical industry to pass ObamaCare didn’t even last as long as his Presidency. We can’t wait for the memoir.

The news is that Mr. Obama’s new budget proposal for 2016 reneges on the quid pro quo that some of the dumber drug makers cut in return for supporting ObamaCare in 2009. That transaction was supposed to buy political protection against the left-wing wish list of price controls, weakened patents and other extortion that Mr. Obama now endorses in his budget.

The White House wants to cut intellectual-property shelters for biologic therapies to seven years from 12, and to slash payment rates for hospital-administered medicines. Mandatory Medicaid “rebates”—which require drug makers to offer governments discounts from average drug prices—would be exported into the Medicare prescription benefit.

In 2009 Big Pharma agreed to contribute $80 billion towards ObamaCare, largely by expanding the Medicaid discount to 23.1% from 15.1%. They also agreed to mark down prescriptions for seniors by 50% above a certain level. Mr. Obama wants to raise that to 75%.

In return the White House agreed to spare the drug companies from central planning such as allowing the Health and Human Services Department to “negotiate” lower drug prices. But that was then. The budget now claims to be “deeply concerned with the rapidly growing prices of specialty and brand name drugs” and, sure enough, it rescinds the price-fixing reprieve.

Big pharma was double-crossed, something which it probably had coming.  The WSJ writes, with considerable schadenfreude that there is honor among thieves.

The crack political geniuses who should have seen all this coming—as their critics predicted—are Billy Tauzin, the Louisiana Democrat turned Republican turned chief pharma lobbyist, and Jeff Kindler,Pfizer’s then CEO. Both were ousted from their jobs in 2010 by the remaining capitalists on their corporate boards, though not before Mr. Tauzin that year banked $11.6 million in compensation that made him the highest-paid K Street man in the health debate. Four of the other five major pharma CEOs who participated in the White House negotiations have since resigned or retired.

In this double-cross lies a warning for the next CEOs and lobbyists who are deluded enough to trust Washington liberals. The mistake was letting the White House divide business by pitting one industry against another. Everyone still got devoured eventually. Business does better when it unites to fight destructive legislation.

It’s tempting to say the drug makers deserve their fate, except that the ultimate costs of their folly will be born by Americans who won’t enjoy the longer lives, fewer hospitalizations and less suffering that new therapies can bring.

But the ultimate victims are not the K Street lobbyists but the average worker.  In a few short years the American worker has seen his employer provided benefits taxed (“Cadillac”) and the premiums simultaneously rise.  He is now being insultingly exhorted to engage  “smart purchasing” decisions to eke out his remaining funds.  This, while hospital monopolies have grown to the point where anti-trust suits are being filed against the most egregious violators.  The population faces a slowdown in innovation as “proven” treatments are emphasized.

And the consumer is ironically being encouraged to thank Obamacare.  There’s a joke in it somewhere, but it is probably on the consumer as well.

As Far As It Goes

POSTED 2 months ago BY HEALTH CARE COMPACT

Underneath the outward triumphalism of Obamacare is a deep worry.  The signup campaign has hit a hard wall.   Six million eligible customers who have been threatened with penalties for not signing up sooner are staying away.  Newsmax reports that only “68,000 people have signed up for Obamacare during an extra enrollment period tacked on two months ago – a tiny fraction of the estimated 6 million who face a higher fine for going without coverage, The Hill reports.”

When the special period began in February, Jason Millman at the Washington Post wrote “millions more will now have extra time to sign up for Obamacare”.  Millions turned out to be 68,000.  Even then the administration must have sensed they were scraping the bottom of the barrel.

Administration officials said they didn't have any projections for how many people will sign up during this special enrollment period. "Our intention in doing this is not to increase numbers for numbers' sake," said Andy Slavitt, principal deputy administrator for the Centers for Medicare and Medicaid Services, the agency overseeing HealthCare.gov. "If there were people who were unaware of the fee, this is the way they become aware.

If Covered California can be regarded a microcosm of Obamacare, the reasons for the reluctance to sign up may be more easily understood.  Covered California has increased its enrolment by “a scant 1 percent increase over last year”.

“It’s a tiny fraction of the growth they were expecting,” says an official who helped implement the Affordable Care Act and examined California’s numbers.

As recently as last fall, the official says, California hoped to increase enrollment by 500,000 this year. But only an additional 7,098 have “selected a plan” for 2015.

“Their total enrollment is a step in the right direction but nowhere near what anyone thought it would be for the largest state in the country.” …

Another telling statistic is Covered California’s poor retention rate. Even though people are required by law to have health insurance, only 65 percent of Covered California’s 2014 customers reenrolled in 2015. The rest dropped off.

As Sally Pipes, President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute, points out Obamacare has admitted it is hitting a wall, in contrast to private insurance exchanges which are booming because the offering is better.

In March, Starwood Hotels said it would shift its 26,500 employees to a private exchange run by Towers Watson. IBM and Time Warner have done the same for their retirees. Employees at Walgreens, Sears, and Darden Restaurants also shop for their coverage in private exchanges.

Private exchange enrollment has reached 6 million customers — twice last year’s figure. Consulting firm Accenture expects it to double again in 2016 and reach 40 million by 2018.

By contrast, the Congressional Budget Office has repeatedly reduced its enrollment projections for Obamacare.

In March 2011, the agency forecast that the law would enroll 34 million people by 2021. This January, the CBO updated that estimate to 27 million people by 2025. Two months later, it revised that number to 25 million.”  

The general fate of Obamacare is beginning to parallel that of Covered California.  Avalere, which has studied Obamacare re-enrolments found that “Federally-facilitated exchange states reenrolled 78 percent of their 2014 enrollees in 2015, on average. In state-run exchange states , that percentage drops to 69 percent of 2014 enrollees. California, the state with the highest enrollment in 2014, only retained 65 percent of their 2014 enrollees”.  The slowdown has been noted by analysts, but few explanations have been convincingly offered.

"This is cause for concern," said Dan Mendelson, CEO of the Avalere Health Consultancy. "It marks a slowing of enrollment, although one we had anticipated in our modeling and expectations. States and the federal government need to invest significant resources to get the next tranche of exchange enrollment, and it isn't happening fast enough."

Chris Jacobs of the Wall Street Journal thinks he knows what Obamacare’s problem is: cost. “Has the effort peaked to sign up uninsured Americans for coverage? The announcement that the nonprofit organization Enroll America is laying off staff and redirecting its focus in the face of funding cuts comes amid inconsistent sign-ups during the second Affordable Care Act open-enrollment period and concerns about affordability.”

A recent New York Times analysis compared Kaiser Family Foundation estimates of potential enrollees with sign-up data from the Department of Health and Human Services. While some states that signed up few people in 2014 recovered during the 2015 open enrollment, other states lagged: “California, the state with the most enrollments in 2014, increased them by only one percentage point this year, despite a big investment in outreach. New York improved by only two percentage points. Washington’s rates are unchanged.”

Most states could not post consistent gains in both open-enrollment periods. An official from Avalere Health, a consulting firm, told the Times that she was “starting to wonder if we’ve overestimated the whole thing.”

A recent analysis from Avalere Health demonstrates why the enrollment push may have peaked. The percentage of eligible Americans signing up drops off significantly as income rises and federal subsidies phase out, suggesting that absent subsidies Americans find the exchange insurance products unaffordable or of little value. And if the carrot of federal subsidies has not resulted in expected enrollment, the stick—the mandate to purchase insurance—seems even less effective: The special open-enrollment period to accompany this year’s tax-filing season has resulted in 36,000 sign-ups in the 37 states using HealthCare.gov. But 4 million to 6 million people are expected to pay the mandate tax.

One possible reason Obamacare signups drop off as income rises is that when people can spend their own money (as opposed to buying a designated subsidized product) they choose something else. As Sally Pipes pointed out, consumers appear to prefer products offered on private insurance exchanges when they have a choice.  Jacobs writes:

The Congressional Budget Office (CBO) estimates that ACA enrollment will average 11 million individuals, with 8 million receiving subsidies. So far, enrollees reporting incomes above the threshold for subsidies are only 2% of uninsured individuals who have signed up, making it hard to see how the administration can reach CBO’s estimate of 6 million unsubsidized exchange enrollees in 2016. The fact that California, New York, and Washington state achieved only marginal enrollment improvements from 2014 to 2015 does not bode well for achieving CBO’s target of 15 million subsidized enrollees next year—a more than 50% increase from the 9.9 million individuals who qualified for subsidies in 2015.

The slowdown suggests that Obamacare has saturated the market which can be satisfied with its product.  The enormous amounts it has spent on promoting ACA policies are now at the point of diminishing returns.  It either improves the product (by offering cheaper insurance with wider networks) or accepts that this is as far as it goes.

Where Has All The Money Gone?

POSTED 2 months ago BY HEALTH CARE COMPACT

Thomas Edsall, a veteran journalist and academic at Columbia University, describes an interesting study published by two economists.  Obamacare has disillusioned the public on government-provided health care.  “With the advent of the Affordable Care Act, the share of Americans convinced that health care is a right shrank from a majority to a minority.”

Emmanuel Saez, an economics professor at Berkeley and one of the nation’s premier experts on inequality, is a co-author of a study that confirms this trend, which has been developing over the last four decades. A separate study, “The Structure of Inequality and Americans’ Attitudes Toward Redistribution,” found that as inequality increases, so does ideological conservatism in the electorate.

The erosion of the belief in health care as a government-protected right is perhaps the most dramatic reflection of these trends. In 2006, by a margin of more than two to one, 69-28, those surveyed by Gallup said that the federal government should guarantee health care coverage for all citizens of the United States. By late 2014, however, Gallup found that this percentage had fallen 24 points to 45 percent, while the percentage of respondents who said health care is not a federal responsibility nearly doubled to 52 percent.

This is counterintuitive, as Edsall himself points out.  Why should increasing income inequality sour the electorate on liberal policies?  Yet that is what the surveys show.

The author of the paper, Matthew Luttig, a Ph.D. candidate in political science at the University of Minnesota, found that while “numerous political theorists suggest that rising inequality and the shift in the distribution of income to those at the top should lead to increasing support for liberal policies,” in practice, “rising inequality in the United States has largely promoted ideological conservatism.”

One possible explanation is that the less money the voters have in their pockets, the less willing they are to support social programs which must be paid for by taxes.  What Obamacare has done is force people to buy insurance, through the individual mandate.  Moreover, this insurance has been rising in cost, reducing disposable income.  Obamacare has made Americans financially poorer just as it has made health care providers financially richer.  The effect has been to reduce enthusiasm for Obamacare, which the Gallup poll has measured.

CNN Money noted in late March that “Americans just aren't spending”. “The government reported Monday that personal consumption expenditures -- aka consumer spending -- rose just 0.1% in February. That follows two months of declines of 0.2%.”  The article conjectured that Americans must be saving, trying to replenish their bank accounts.

The problem was that Americans weren’t saving either.  Another CNN Money article of the same date reported, “roughly half of Americans are saving 5% or less of their incomes, including 18% that are not saving anything, according to a survey from Bankrate. Only about a quarter of people are saving more than 10% of their earnings.”

In mid-April, A. Gary Shilling, a New Jersey consultant writing in Bloomberg was asking “Where Have All the Consumers Gone?”  What was soaking up all the money?

Retail sales rose less than expected in March after declining for three consecutive months. Since the U.S. began collecting data in 1967, only twice has it seen three-month stretches of waning retail sales in non-recessionary times.

This is puzzling. Why would consumers spend less as the economy picks up steam? And why haven't consumers gone shopping with the one percent extra income that collapsing oil prices have handed them?

Shillings theory is that many more people had been pushed into low wage jobs and part time employment than had been heretofore realized.  One of the reasons for the shift to part time employment might have been Obamacare.  The smaller paychecks would reflect the shifting of health costs from employer health plans to employees.

What’s holding consumers back? Many economists blame severe winter weather, the usual scapegoat for disappointing retail sales. Yet according to the U.S. Commerce Department, people stuck at home didn't order heavily online, either.  

One explanation for consumer hesitancy came in March’s payrolls report, which showed that employers created an anemic 126,000 jobs. The preceding 11-month average had been a much higher 284,000 new jobs. Most of them, however, are in low-paying sectors such as retail trade and leisure & hospitality, rather than high-paying manufacturing, utilities and information technology. Also, recent layoffs in the energy sector are of mostly well-compensated workers.

Another reason consumers aren't opening their pocketbooks is that U.S. businesses are still cutting costs, and ultimately most costs are for labor compensation. With slow economic growth and almost no inflation, revenue growth has been limited. The robust dollar has made it hard for U.S. multinational companies to generate profits now that overseas corporate earnings translate into fewer greenbacks.

What's more, many employers are opting to hire part-time workers who can be paid less than full-timers and don't have to receive benefits. The net effect of these forces is essentially flat real wages and median incomes.

One tantalizing study by Deloitte in late 2014 suggested that the government economists had grossly underestimated what consumers spent on out-of-pocket health care costs by about $672 billion in 2012.  Insurance wasn’t picking up anywhere near the full cost of getting sick.  The study noted that “OOP expenses for health care account for almost twice as much as spending on new motor vehicles.”

Even though more consumers are gaining health insurance coverage, they are by no means insulated from the burden of health care costs. Consumers are paying more of their health plan premiums and experiencing higher out-of-pocket (OOP) cost-sharing for all types of health care services. Moreover, government estimates of health care spending do not take into account discretionary consumer spending on a number of products and services; Deloitte’s Hidden Costs Analysis shows these purchases add considerably to the total.

Government data shows rising OOP spending for consumers, but excludes some types of health-related items and services that can add significantly to the total amount and consumer share of spending.  … these “hidden costs” … account for almost one-fifth of total health care spending. …

About 65 percent of people obtaining coverage through marketplaces chose a Silver plan, which has actuarial value of 70 percent, meaning these members will have to pay the remaining 30 percent OOP in the form of co-insurance, deductibles, and co-payments. According to  a May 2014 Milliman report, members with a Silver plan will have 38 percent higher OOP costs compared with people who have employer coverage. The average deductible amount for a Silver plan is $2,907 for an individual enrollee and $6,078 for a family. This compares with  average deductibles of $1,135 for an individual and $4,079 for families with employer coverage in 2013.

Many people obtaining coverage through marketplaces are low income, so they are likely to be challenged by high health care costs at the point of service. Overall, eight in 10 enrollees will likely seek federal financial assistance in premium payments, which raises the question of whether they will be able to pay the OOP requirements for expensive health care when they need it. If not, they may forgo care; get care but not pay for the cost-sharing (leaving providers to try to collect the difference); or use other strategies from when they didn’t have coverage.

The under-measured out of pocket costs could be where the money has gone. The reason why consumer spending is flat is because there’s no money left over after paying for Obamacare, the individual mandate, the tax repayment  and above all, the out-of-pocket costs.

It would also explain why Obamacare remains so unpopular.  The government thinks it’s a steal, and it is.  But its the taxpayers who are getting robbed.

Florida vs HHS

POSTED 2 months ago BY HEALTH CARE COMPACT

The dispute between Florida Gov. Rick Scott and the White House over its reluctance to expand Medicaid in that state took a dramatic turn when the governor announced “he is suing the Obama administration as part of an escalating dispute over whether the state will expand Medicaid under ObamaCare”.  Scott accuses the administration of withholding money in order to force it to adopt Medicaid expansion under Obamacare, which he refuses to do.

Scott is objecting to the Obama administration linking the extension of separate federal money to help hospitals in the state care for the uninsured, known as the Low Income Pool (LIP), to the state’s decision on whether to expand Medicaid under the Affordable Care Act.

The Obama administration says the LIP funding will not be renewed in its current form after June. It says that the future of the program is "linked" to the decision to expand Medicaid, though it stops short of saying it is entirely dependent on it. Scott, on the other hand, wants the LIP funding but does not want to expand Medicaid.

In other words, unless Florida bows to the president’s will, it will not receive federal money promised it earlier. Scott is not only accusing the administration of coercion, but is also suggesting the administration is interfering with the legitimate prerogative of the states to chart their own course, citing a Supreme Court decision saying that states are free to choose.

Scott argues that the Obama administration’s linkage of the LIP funding to the Medicaid decision violates the U.S. Supreme Court’s ObamaCare ruling in 2012. In that case, NFIB v. Sebelius, the court gave states a choice on whether to expand Medicaid, arguing the federal government could not coerce states into it.

“The Court ruled that the President could not use ‘gun to the head’ approaches in pushing for Medicaid expansion,” Scott said.

The Obama administration made explicit the linkage of the LIP funding to the Medicaid decision in a Tuesday letter from the Centers for Medicare and Medicaid Services (CMS).

“Medicaid expansion would reduce uncompensated care in the state, and therefore have an impact on the LIP, which is why the state’s expansion status is an important consideration in our approach regarding extending the LIP beyond June,” Vikki Wachino, a CMS official, wrote in the letter to Florida.

The governor of Florida’s citation of NFIB vs Sebelius may be particularly significant, because that decision is now being cited in connection with the critical King vs Burwell case pending before the US Supreme Court.  Only last month, Scott Pruitt, the attorney general of Oklahoma, argued that withholding tax credits from insurance buyers in states which did not establish insurance exchanges was far less coercive than mandating Medicaid expansion.

In the hours since oral arguments, much of the talk has centered around Justice Anthony Kennedy’s suggestion that “from the standpoint of the dynamics of Federalism . . . there is something very powerful to the point that if [the challenger’s] argument is accepted, the States are being told either create your own Exchange, or we’ll send your insurance market into a death spiral.”

In other words, Justice Kennedy was asking, if Congress did in fact condition ObamaCare’s tax credits on a state having set up an exchange, does that amount to an unconstitutional coercion of the states? In short: no.

First, in the last ObamaCare case, NFIB v. Sebelius (2012), the Supreme Court said a statute is coercive only if it amounts to “a gun to the head” that “leaves the States with no real option but to acquiesce.” Here, we know that states had an option not to acquiesce in establishing health-care exchanges because they did not, as a matter of fact, acquiesce. Compare and contrast this with the Medicaid expansion at issue in NFIB v. Sebelius, where no state had refused the expansion, precisely because it was so coercive.

There is no merit to the argument that the states were unaware of the consequences of refusing to establish an exchange. Oklahoma, for example, where I am attorney general, sued the Internal Revenue Service months before making its decision to decline to set up an exchange, arguing that the ObamaCare tax credits and subsidies could not be given in Oklahoma. Oklahoma knew the consequences of its decision but was not coerced into cooperating with implementation of the Affordable Care Act.

Pruitt argues that the states knew up front that they might have to forgo tax credits and chose to do so with open eyes.  By contrast, Scott is asserting that Obama was rewriting rules after the fact to achieve a desired political outcome.  There was something of the same approach even in the state exchanges, according to the Competitive Enterprise Institute.

HHS moved quickly after the law was passed to help state governments develop the tax credit calculators needed to make tax credits available through state-based exchanges. Meanwhile, for nearly two years, it developed its own HealthCare.gov website without any effort to offer tax credits on the federal exchange or to develop a tax credit calculator for its site.

It was only after many states appeared to be leaning against setting up exchanges that the Obama administration changed course and began claiming that the Affordable Care Act allows tax credits for both state and federally facilitated exchanges. Only then did HHS begin developing a tax credit calculator for HealthCare.gov.

But as the deadline for states to set up their own exchanges drew near, they still needed a determination as to whether their residents would receive tax credits through federally facilitated exchanges if the states did not set up their own exchanges. This led to a standoff, as states did not want to decide whether to set up exchanges until they knew HHS’ decision, while HHS did not want to decide the federal exchange subsidy issue until it knew the states’ decisions. It was against this background that in January 2012 the seven states wrote to HHS, requesting a formal opinion on federal exchange tax credits.

What seems incontrovertible is that the administration is willing to use every tool at its disposal to pressure the states into adopting Obamacare, whether this takes the form of offering tax credits or withholding Low Income Pool funds.  Obamacare has relied on coercion for most of its successes: the individual mandate, the employer mandate, the insurance exchange subsidies and now, in Florida, by conditioning the release of some funds on the adoption of Medicaid expansion.

Closing The Gap

POSTED 2 months ago BY HEALTH CARE COMPACT

Despite the apparent confidence shown by the administration’s press releases on Obamacare, the program has never been in greater danger of collapse.  Greg Sargent of the Washington Post, who has consistently supported Obamacare describes the effort to get Florida to accept Medicaid expansion, a fight so desperate that it underscores the seriousness of the administration’s position.

You really should be paying attention to the ongoing battle over the Medicaid expansion in Florida. If supporters of Obamacare get their way, it could help weaken the blockade of opposition that conservatives have successfully used to stall the expansion in multiple states this year, after it seemed to be progressing last year.

Now there’s been a new development in the Florida battle: The Obama administration appears to be playing hardball with Florida governor Rick Scott, who opposes expanding Medicaid, sending him a new letter increasing the budgetary pressure on him to take the Medicaid expansion money.

The president himself is pressuring governor Rick Scott and has double-crossed him to do it.  Scott had negotiated with the administration to accept federal dollars to expand the high risk pool program to pay for the treatment of indigent Floridians.  But Obama, who needs to move Florida into the Obamacare medicaid expansion column, has reneged on the deal.

To catch you up, Florida had been in talks with the administration over expanding Mecicaid to 800,000 or more Floridians. But Scott recently reversed his previous support for the expansion. Scott did this because the federal government is close to nixing some of the billions in Medicaid funding for another program — the Low-Income Pool, or LIP — which funnels money to hospitals for low-income patients. Scott says this shows the feds can’t be trusted to honor their commitment under the Medicaid expansion. …

Now the Obama administration has sent a letter to the Scott administration, saying, in essence, that its position isn’t changing:  The best way to cover poor Floridians is through the Medicaid expansion, and the administration may phase out the LIP money. “Coverage rather than uncompensated care pools is the best way to secure funding for low-income individuals,” reads the letter, which reiterates all the fiscal arguments in favor of the expansion. The obvious suggestion is that the LIP money may not materialize, and accepting the expansion money is the best way to cover poor people and resolve the state’s broader budget battle.

The Scott administration fired back today, accusing the administration of trying to coerce the state into accepting the Medicaid expansion by linking it to the possibility of losing the LIP money. But the administration maintains that the LIP program was always intended to be time-limited, and its letter lists a number of long-running substantive objections it has had to the program.

It’s total war.  Marco Rubio, the most recent Republican to throw his hat into the ring for the 2016 presidential elections has made the repeal and replacement of Obamacare a central plank of his candidacy. “On Monday evening, in front of a cheering crowd, Florida Sen. Marco Rubio (R.) announced his candidacy for President of the United States. At times stirring, at times nervous, Rubio declared that one of the core planks of his policy platform would be to ‘repeal and replace Obamacare.’” Rubio’s replacement plan is very similar to Ted Cruz’s, another presidential hopeful who has vowed to repeal “every word” of Obamacare.  Here is a summary of its main points.

Three weeks ago, Rubio published an op-ed on FoxNews.com with his “three part plan for the post-Obamacare era.” The plan falls firmly within the conservative health wonk repeal-and-replace consensus. Obamacare offers tax credits—subsidies through the tax code—to buy costly, highly-regulated insurance products. The Rubio replacement, like many others, would offer such tax credits to purchase a broader selection of insurance plans and health savings accounts, across state lines.

These features are being touted by Republican candidates because they promise to provide better insurance at lower costs than Obamacare customers currently.  Although Obamacare has touted its expansion of insurance coverage, there is widespread dissatisfaction at the price and quality of what is provided. A recent article by Cliff Asness in the Wall Street Journal summarizes the perceived defects of the program: it expanded insurance but only through coercion and second, it costs too much.

The law’s cheerleaders tend to cite two main accomplishments. Both of them are irrelevant. … The first is to note triumphantly how health-care coverage has increased in five years. … The second trick is to trumpet that health-care costs are coming in lower than expected.

That more people would be insured was never in dispute. If you mandate that people buy something, penalize them if they don’t and give it away to some, more people will end up with it. The proper response to this is: Duh. …

The law’s supporters often note something like “while we can’t directly link the law to the cost savings . . . ” before immediately launching into an ode to ObamaCare.

There is no such link. Health-care inflation was falling well before ObamaCare and it seems to be a global phenomenon, though it is more pronounced in the U.S. than in other countries. This is not well understood, but ObamaCare’s link to it is based on proximity, not evidence.

Just how expensive health care is was the subject of an article in the Business Insider by Ed Yardeni.  He claimed that health care cost increases have basically soaked up all the additional cash in the economy.

The weakness in retail sales from December through February didn’t jibe with the strength in employment and consumer confidence. …  an inflation-adjusted basis, core retail sales (excluding autos, gasoline, and building materials) fell 1.3% saar during Q1.

What’s the problem?

It might be our health. American consumers now spend a record $8,066 per capita annually on health care. Thanks to Obamacare, we are all paying more to the piper. The out-of-pocket costs of health care have increased significantly, with higher premiums and co-pays and bigger deductibles.

Having insurance does little good if the coverage only partly compensates for price increases leaving a difference that can be called “the gap”.  A 'gap' is the amount is what a customer would actually have to pay for either for medical or hospital charges, over and above what he gets back from coverage.  Avik Roy notes that the Republican presidential candidates are talking up the promise of really affordable health care, one which will leave consumers with a smaller “gap”, but they will have to be careful not to repeat the mistakes of Obamacare.

On the whole, Rubio’s framework goes in the right direction. But there are a few things he’d need to tighten up in order to achieve real entitlement reform.

Per-capita caps have become popular in certain Republican circles as an alternative to block-granting Medicaid, because “block grant” has become a toxic phrase on the left, whereas per-capita caps were first proposed by a Democratic President. But per-capita caps could badly backfire on conservatives. They create a huge incentive for states to entrap more people into Medicaid, because states would receive more federal funding if more people sign up.

As John Goodman has pointed out, high-risk pools—another popular idea in certain GOP camps—creates as many market distortions as does Obamacare-style guaranteed issue for pre-existing conditions. “Price setting errors that government makes in the market for risk,” notes Goodman, “will invariably be worse than in just about any other market.” As with public-sector pensions, politicians will have a perverse incentive to expand high-risk pools, knowing that their successors will be stuck with the bill. And insurers will have a perverse incentive to deny even more people coverage, safe in the knowledge that the high-risk pools will pick up those denied customers.

The underlying dilemma is that the public demands efficient markets to reduce cost but also demands a safety net to provide coverage for all.  Rubio’s plan attempts to solve the problem by creating efficient markets for most, while providing high risk pools for some.  Obamacare has approached the problem by rolling high risk groups into the general pool making insurance more expensive for most, while making it cheaper for some. The evidence suggests that the Obamacare approach has traded too much cost for too little benefit.

Roy suggests that a means tested tax credit, coupled with a less regulated market might do the trick.

A key aspect of the Rubio plan is what it left out. The most important debate going on right now in conservative health policy circles is the question of how health insurance tax credits should be structured.

Obamacare’s tax credits are means-tested; i.e., the tax credits gradually recede in value as you go up the income scale. The Burr-Hatch-Upton replacement plan for Obamacare employs a similar approach, as does Transcending Obamacare. The difference between Obamacare and these replacement plans is that the replacement plans don’t force you to buy insurance using an individual mandate; also, the replacement plans liberalize the insurance market such that you can buy a very broad range of products, in contrast to the ACA.

Ultimately the Republicans will get a chance to try their alternative because Obamacare is killing itself under the weight of its high costs.  These pressures can be temporarily staved off with more subsidies, but ultimately the program will fail because its benefits aren’t worth the added cost and loss of personal liberty it entails.

The High Cost of Coverage

POSTED 2 months ago BY HEALTH CARE COMPACT

Two rival narratives, one pro and the other contra Obamacare, are being put forth by the opposite camps.  The advocates of the Affordable Care Act are emphasizing the reduction in the percentage of uninsured Americans.   Typical of these stories is one by CNN: “Nearly 90 percent of Americans have health coverage”.

Nearly nine out of 10 Americans now have health insurance, a sharp improvement from two years ago before Obamacare was put in place.

A poll by Gallup found that the uninsured rate among U.S adults declined to 11.9% in the first quarter, down one percentage point from the end of last year and an improvement from the 18% without insurance in the fall of 2013, when the Americans were first were able to sign up for coverage at state and federal exchanges.

This is the lowest percentage of Americans without coverage since Gallup started tracking the figure in 2008. Those without coverage was just under 15% at that time, then remained in the range of 15% to 18% before it started declining sharply two years ago. The law requiring most Americans to have coverage or pay a penalty took effect at the start of 2014.

The countervailing narrative emphasizes the fact that this increase has been paid for by taxes, levied under compulsion.  Typical of this narrative is a story written by Dan Mangan of CNBC.  It emphasizes the coercive aspect of the program.  To the claim “everyone has insurance”, it answers: everyone was forced to pay for insurance.

After years of hearing they will face a fine for failing to have health coverage, that bill is finally coming due for millions of Americans this tax season.

The Obamacare penalty, which relates to lacking coverage in 2014, is spurring some of those people to sign up for insurance this year to avoid paying an even bigger fine next year. But not nearly every one of the estimated 6 million people subject to the penalty this season is taking advantage of that second chance.

"The penalty next year is ridiculous," said Shelby Robertson, a 24-year-old massage therapist, who was motivated to finally sign up for a health plan after having her taxes done recently by H&R Block.

Robertson knew about the fine for not having insurance last year when she had her taxes done. But she hadn't realized that for the 2014 tax season—the first ever for the Obamacare penalty—it would be the higher of $95 or 1 percent of her taxable household income.

When her return was completed, Robertson learned she'd have to pay $190 in Obamacare fines—quite a bit more than she had expected.

Millions -- people who did not obey the injunction to buy Obamacare -- are going to face a tax penalty. Another edition of CNN Money says “some 3 million to 6 million Americans will have to pay an Obamacare tax penalty for not having health insurance last year, Treasury officials said Wednesday. It's the first time they have given estimates for how many people will be subject to a fine.”

Many more millions have simply been exempted from the penalty. “Another 15 million to 30 million people will request and be granted an exemption to the mandate by filing Form 8965. Those who aren't subject to the insurance requirement include undocumented immigrants, low-income Americans and those for whom insurance premiums were more than 8% of their household income.”  That’s the cost.  The benefit is that “between 4.5 million and 7.5 million taxpayers received subsidies for insurance premiums when they signed up for coverage on Obamacare exchanges.”  It’s a clear illustration that there’s no free lunch.

Natalie Villacorta and Erin Mershon of Politico says that the real story is why more people aren’t angry. “Obamacare’s first tax season includes all the elements needed to ignite a political firestorm. Yet with only days to go until the filing deadline, nothing’s burning.”

Americans are reckoning for the first time with the most unpopular part of the law — the individual mandate — and having to prove they’ve had health insurance or to cough up a penalty. As they’ve done their taxes, many people have learned they owe money because they underestimated income when buying subsidized coverage in 2014. Some have had to delay their returns because the government in February sent an inaccurate form on their subsidy total.

There’s been no real uproar, though. Beyond a short-lived flare of criticism after HHS acknowledged those inaccurate subsidy forms, conservatives who might have been expected to keep piling on have stayed relatively silent. Press releases protesting the mandate penalty have been few. …

“I’ve been surprised how quiet it’s been in the political realm,” said Larry Levitt, senior vice president for special initiatives at the Kaiser Family Foundation. Although advocates feared a reprise of the anger that followed cancellation of many pre-Obamacare policies in fall 2013, “that really hasn’t happened.”

Perhaps one reason for the lack of overt anger is the constant messaging by the administration that resistance is futile.  The word is that Obamacare is a done deal.  It cannot be repealed or even struck down by the Supreme Court.  The Hill carried President Obama’s confident assertion that the court would uphold his law.  

President Obama said Monday expressed confidence that the Supreme Court will uphold a key portion of his healthcare law this summer.

“I’m confident in the Supreme Court applying its own rules of interpreting laws [and] will uphold the law,” Obama said in an interview with Portland, Maine, NBC affiliate WCSH. “It’s pretty clear cut.”

The high court is expected to rule on whether insurance subsidies can legally be distributed to people in states served by the federal insurance exchange, HealthCare.gov.

Faced with this message  of inevitability many taxpayers are probably just biting the bullet and sullenly paying up.  Still the lack of crowds in the street carrying pitchforks is no proof that Americans like paying penalties or filling out complicated tax forms.  The National Taxpayers Union Foundation measured how much grief millions of taxpayers are going through to give fewer millions a subsidy.  They calculated the cost of additional complexity caused by Obamacare.

This year’s new analysis of tax complexity from National Taxpayers Union Foundation (NTUF) found some startling lead figures: a $234 billion cost to the economy due to 6.1 billion lost hours of productivity and $32 billion spent out-of-pocket to comply with America’s insanely complicated tax system.

As always, there is much more to the story.

Since 2010, tax complexity costs have remained sky-high, at well over $200 billion each year. From fiscal year 2005 to 2013, the Treasury's paperwork burden rose from 6.4 billion hours to 7 billion hours never making up less than 74 percent of the burden imposed by all government agencies combined.

While last year’s (covering 2013) totals actually trended downward compared to the previous year (2012), there was little reason to believe that was the beginning of a trend toward continued relief. …

What does that mean for the future?

Looking deeper at NTUF’s research, there is one big reason to think this could be the beginning of a trend in the wrong direction: 3,322 pages of legal guidance for Obamacare (or the ACA) added to IRS.gov (1,077 pages of regulations, 1,377 pages of Treasury decisions, 669 notices, 100 revenue procedures, and 12 revenue rulings).

Essentially, Obamacare is coming home to roost.

So far, while it certainly contributed to rising complexity over the last tax year, Obamacare has not drastically increased costs under NTUF’s metrics.

Yet, it is inflicting new burdens on taxpayers, and this is bound to increase the burdens of tax complexity more than what has already been observed.

The evidence suggests that the benefits of increasing the number of persons “covered” by insurance by forcing them to pay, raising taxes on millions of Americans and obliging them to spend billions of man hours filling out complex forms is of dubious wisdom.  A pencil is a good thing; just as a hamburger is, but not if costs a thousand dollars.  Then you are not getting your money’s worth.  Obamacare remains a contentious issue because people are not getting their money’s worth.

The Case For Obamacare Repeal and Replace

POSTED about 3 months ago BY HEALTH CARE COMPACT

Many of the problems that the ACA plans to fix were caused by government itself.  They arise from “solutions” contrived in an earlier whose distortions are now insupportable.  Employment based health insurance, which Obamacare is now trying to dismantle, had its origins in Franklin D. Roosevelt’s wartime policies.

During World War 2, the federal government introduced wages and price controls. In an effort to continue attracting and retaining employees without violating those controls, employers offered and sponsored health insurance to employees in lieu of gross pay. This was a beginning of the third-party paying system that began to replace direct out-of-pocket payments.

Bruce Bartlett, who was an economic adviser to Ronald Reagan explains how it happened. “On the eve of World War II, just 1.3 million people had hospital insurance in a population of 130 million people. During the war, the federal government established wage and price controls to contain inflation. But the demand for war materiel and the military draft created a labor shortage, and businesses looked for ways to compete for the limited supply of workers without being able to raise wages.”

President Franklin D. Roosevelt’s Oct. 3, 1942, executive order freezing wages provided an exception for insurance and pension benefits. Employers began offering such benefits as a de facto way of paying higher wages without violating the controls. In 1943, the Internal Revenue Service ruled that employer-provided health insurance was not taxable to the employee.

Employers took advantage of a provision in the existing tax code to get around the price controls. “The current tax treatment of health insurance is a byproduct of wage and price controls imposed by the Roosevelt Administration during the World War II era.”  Many conservative and liberal economists agree that it led to no end of mischief. In that sense Obamacare is Obama trying to undo Roosevelt. As the Heritage Foundation explains

The federal tax code currently excludes, without limit, the value of employer-sponsored health insurance from an individual's income for the purposes of both income and payroll taxes. This tax exclusion for employer-sponsored insurance is a huge, but hidden, tax subsidy.  The Joint Committee on Taxation estimated that value of the tax exclusion in 2007 was $246.1 billion in foregone income and payroll taxes. The exclusion represents the largest federal tax expenditure as well as the third largest health care expenditure, following only Medicare and Medicaid, the nation's two largest entitlement programs.

Health economists generally agree that this Roosevelt-era policy is poorly designed and has many perverse incentives. The employee exclusion is inherently unfair, inefficient, and inequitable.

It is unfair because only individuals with employer-sponsored insurance are able to receive tax relief, while individuals without access to such coverage typically pay for health insurance with after-tax dollars and, in effect, face a sizeable tax penalty. It is inefficient and inequitable because the largest tax benefits go to those who need them least; given the progressive structure of the tax code, the exclusion is regressive since it is worth less to taxpayers in lower marginal tax rates and more to those in higher marginal tax rates.

Therefore, if the goal is to extend coverage to the uninsured, the tax break is poorly targeted because it provides little or no tax relief to those with low incomes, who are least able to afford health insurance.

The tax treatment of health insurance also has the perverse effect of increasing health care spending and driving up costs by essentially lowering the effective price of employer-sponsored health insurance. The exclusion does encourage individuals to obtain insurance. But it also encourages many individuals to have more generous insurance than they typically need, because the higher the cost of the insurance and the higher the person's income, the bigger the tax benefit for the individual. …

Economists contended that overbuying health insurance fueled medical cost inflation, which raised health insurance premiums, which drove up the cost of employee compensation while pushing down cash wages.

In 1985, the Reagan administration proposed requiring workers to pay taxes on some health insurance benefits as part of tax reform. But the idea went nowhere in Congress.

In 2008, the Republican presidential nominee, Senator John McCain of Arizona, put forward an intriguing proposal to abolish the exclusion for health insurance and use the revenue to finance a $5,000 tax credit for families to buy their own health insurance.

In order to avoid the political problems of trying to start from a clean slate, the Obamacare solution was to lie about what is now called the “Cadillac Tax”. Economist Jonathan Gruber, who was instrumental in designing Obamacare was candid about the administration’s intention to tell a falsehood.  As CNN reported it was a tax on individual health insurance all along which was deliberately disguised as a tax on insurance companies.

Gruber said the only way those pushing for Obamacare could get rid of the tax subsidy for employer provider health insurance was to tax the more generous, or Cadillac, plans -- "mislabeling it, calling it a tax on insurance plans rather than a tax on people when we all know it's a tax on people who hold those insurance plans."

The second way was have the tax kick in "late, starting in 2018" and have its rate of growth tied to the consumer price index instead of to the much higher rate of medical inflation. Eventually, the 40% tax on the more expensive plans would impact every employer-provided insurance plan.

"What that means is the tax that starts out hitting only 8% of the insurance plans essentially amounts over the next 20 years essentially getting rid of the exclusion for employer sponsored plans," Gruber said. "This was the only political way we were ever going to take on one of the worst public policies in America."

By 2018, Gruber said, those who object to the tax will be obligated to figure out how to come up with the trillion dollars that repealing the tax will take from the U.S. Treasury, or risk significantly adding to the national debt.

This is obviously exactly what Obama told voters in 2009 he had "taken off the table." It is exactly a process to "eliminate the tax deduction that employers get for providing you with health insurance" that five years ago Obama noted would result in "a lot of employers then would stop providing health care, and we'd probably see more people lose their health insurance than currently have it."

As noted many times before, one of the goals of Obamacare is to raise the cost of health insurance to cut down on overconsumption.  This was done by by taxing the health care insurance thereby reducing demand. Unfortunately those falsehoods are now having consequences that may rival those caused by the original fix  Many people thought Obamacare meant “cheaper” insurance or even “free insurance”.  Little did they know it was the opposite.  Obamacare was a tax..  

One direct consequence of the Obamacare approach has been to complicate the tax process through a mixture of handouts, grab backs, breaks and tax increases.  The IRS is kept busy handing out money and taking it back in a kind of round robin of cash.  Tony Nitti, a tax policy expert, describes how hugely complicated tax filing has become.

Individuals who acquire insurance on an exchange, whether established by the state or the federal government (at least for the time being, but the Supreme Court will have the final say), are eligible to receive a tax credit – basically, a federal subsidiary of their insurance premiums — provided  their household income falls between 100% and 400% of the federal poverty line.

Seems simple enough. But as nearly one million taxpayers have learned, the administration of the premium tax credit by the federal government has caused one headache after another.

Allow me to explain.

In order to claim the premium tax credit, you need certain information from the exchange from which you purchased the insurance: i.e., your annual premiums, a hypothetical annual premium upon which the credit calculation is based (the second lowest cost silver plan premiums), and any advance credit you received. (The reconciling of the advance credit with the actual credit is an entirely different disaster posed by the premium tax credit, as discussed here.)

This information was required to be disseminated by the insurance exchange to the insured individual on a Form 1095-A, to be sent to customers no later than January 31, 2015. For the 14 states that set up their own exchange, the state exchange would produce the form. For the remaining 36 states, the federal government would prepare and send out Forms 1095-A to customers.

The states, by and large, have been successful in their reporting efforts. The federal government? Not so much.

First, on February 20, 2015, the Centers for Medicare and Medicaid Services announced that 800,000 individuals who purchased insurance from a federally-established exchange received incorrect Forms 1095-A. The primary problem was that the forms used hypothetical premium amounts (the second lowest cost silver plan) for 2015 rather than 2014, which would result in an improperly large credit for 2014.

By the time the mistakes were caught, 50,000 taxpayers had already filed their returns. As their first mea culpa, the IRS announced that those taxpayers would not be required to amend the returns, despite the fact that the premium tax credit was likely overstated. In addition, the IRS would not pursue any increase in tax caused by the overstated credit.

The remaining 750,000 taxpayers were instructed not to file their returns until they received corrected Forms 1095-A, which were promised to be delivered by early March.

Early March came and went, however, and it was soon discovered that there were additional problems with some of the ”corrected” Forms 1095-A, some “corrected” forms were never sent out at all, and some of the Forms 1095-A that were not part of the originally identified 800,000 incorrect forms contained errors.  As a result, the IRS announced that it was expanding its prior relief to any taxpayers who filed a return — or would file by April 15th — that computed a premium tax credit based on an incorrect Form 1095-A. These taxpayers would not be required to amend the return in the event they were subsequently notified of the incorrect Form 1095-A, and the IRS would not pursue the taxpayer for any excess deficiency resulting from the overstated credit.

Now we find ourselves in mid-April, with tax returns or six-month extensions due in a mere five days.

One extension after the other has been announced to give filers time to correct, but it has failed to satisfactorily correct things because new problems and complications are created in attempting to fix the old ones.  Now the biggest problem is that the Cadillac tax increase, so artfully delayed by Gruber’s advice is now upon the public. As Yevgeniy Feynman observes in Forbes, the tax burden is already making itself felt as employers anticipate it.

Forget King v. Burwell. In just three short years, one of the ACA’s only real cost control mechanisms takes effect – a 40 percent excise tax on high-value insurance coverage, dubbed the Cadillac Tax. Individual plans that cost more than $10,200, and family plans over $27,500 pay the 40 percent tax on benefits over those amounts. There’s a strong likelihood that without changes to current benefits, some of the burden will fall on state and local taxpayers.  And that’s a good thing.

The Cadillac Tax isn’t very popular – though it’s perhaps the most important reform plank in the ACA.  While conservatives hate Obamacare, the Cadillac Tax is a crude version of something they have long called for – a cap on the tax exclusion for employer-provided health insurance. Decried as a tax by liberals just a few years ago the Senate glommed onto the provision in 2009 as one of the few real revenue offsets in the legislation.

The promise of “if you like your plan you can keep your plan” was profoundly dishonest because the Obamacare strategy from the beginning was to abolish the employer-based health insurance via the Cadillac Tax.  The whole point of the Affordable Care Act was both to abolish the old employer-based system and to make health insurance more expensive.  Only thus could the demand for health care be reduced.

Private companies, Feynman notes, can only cope with the tax increase by slashing benefits or increasing pre-tax wages to restore some of lost value. Ironically public sector unions will be the most burdened by the Cadillac tax because gold-plated health benefits have long been a feature of union contracts. The pressure is now mounting on the administration to grant exemptions to unions to offset the effects of the Cadillac tax.

Unionized employers, especially those in the public sector, will have a much more difficult time avoiding the tax. For both private and public unionized employers, unions aren’t likely to back down easily, and will do what they can to avoid a significant reduction in benefits. Falling unionization rates in the private sector make this less of an issue for private employers however. Public employers, on the other hand – states and localities primarily – are still heavily unionized. This means that when contract negotiations happen, getting the benefit reductions necessary to remain below the Cadillac Tax threshold is much more difficult. …

The Cadillac Tax is rightfully designed to make plans that take advantage of an unlimited tax deduction prohibitively expensive. Without changes to benefits, state taxpayers and/or public-sector workers will bear the added costs.  Changes are necessary, and have been a long-time coming. Unions should see the coming sea-change as an opportunity to right-size benefits, and raise cash-wages for their members.

Unions cannot adapt as easily as private companies. The probable solution in many cases is that public sector will simply to conceal the benefits in order to push them below the threshold of the Cadillac tax.

The simple way, then, for states to push the cost of their plans below the threshold of the tax is to reduce plan generosity. Given the state of politics and rhetoric, this is, of course, easier said than done. But there are ways of making this transition a bit more palatable.

Generally speaking, it will have to involve making the tradeoff between wages and health care benefits more salient for public sector employees. In New York City, Mayor De Blasio’s deal with the city unions emphasizes this tradeoff, making contractual raises contingent on health care savings (though it’s turning out that some of these aren’t “savings” in the true sense of the word).

Nicole Gelinas describes how New York City public sector employees are “saving” on health care benefits and linking it to wage increases. They are creating “savings” by playing games with definitions.

Not to worry: The mayor and unions agreed to cut $3.4 billion in worker health-care costs over four years, starting with $400 million this year.

How’s that going? City Hall labor chief Bob Linn told the council last week the results are “great news.” Good thing he’s a labor chief, not a doctor.

It turns out that 65 percent of the “savings” from this year’s rounds aren’t really savings in the sense of controlling health-care costs.

More than a quarter — $108 million — comes from auditors rooting out people (ex-spouses, for example) who weren’t legally supposed to be on the city’s health plan in the first place (maybe you got a divorce, but didn’t tell the city). ....

When most of us think of cutting costs, we think: I spent $400 too much this month and I can’t afford it, so next month I’ll try not to spend that.

We don’t think: I spent $400 too much this month and I can’t afford it, so next month I’ll plan to spend $450 too much, and then “only” spend $425 too much instead.

But that’s what the city is doing.

Even with its planned savings, health-care costs for workers are still going up — they’re just going up by less than originally planned.

According to a presentation Comptroller Scott Stringer made in February, worker and retiree health-care costs will rise 31.6 percent over the next five years — from $5.2 billion this year to $6.8 billion in 2019.

Employee and retiree health insurance is still growing faster than anything else in the budget — twice as fast as salaries and wages. It’s just growing . . . less fast than it was supposed to.

And the unions have made sure: Heads they win, tails we lose.

The only best way out of this mess is to use a clean slate.  And this is exactly what the major Republican repeal and replace proposals do. John Goodman writes, “on the eve of the Supreme Court hearing of King v. Burwell, three House Republican leaders—Paul Ryan (WI), John Kline (MN), and Fred Upton (MI)—unveiled an important new alternative to Obamacare.”

The plan would do two important things: The proposal would abolish the individual and employer mandates to purchase health insurance, and it would give everyone purchasing insurance in the individual market a fixed-sum, refundable tax credit to buy health insurance of their own choosing.

This is of supreme importance.  The tax breaks that are now delivered through the Roosevelt-era legacy loophole will be replaced by a tax credit to every American.  It levels the playing field in principle and is far simpler than the Rube Goldberg apparatus now being run by Obamacare. According to Avik Roy, several of the Republican proposals, including the plan being pushed by Paul Ryan are means-tested, which means that bigger subsidies are provided to the poor. Most significantly the dizzying transfers of money that now characterize Obamacare will be replaced by a single tax credit.

Of almost equal importance is an idea proposed by Senator Ted Cruz. Cruz argues that with a tax credit in hand, consumers ought to be allowed to shop for insurance anywhere -- across state lines and without being restricted by numerous Obamacare requirements.  It would be portable (not tied to employment) and protected from cancellation.

Texas Sen. Ted Cruz suggested Wednesday that Americans should be allowed to buy health insurance across state lines in order to increase choices and drive down costs as a solution to the Affordable Care Act.  …

“All of these band-aid fixes that the President is pushing, that the Congressional Democrats are pushing won’t fix the problem,” Cruz said, and finally suggest something besides a “full repeal” as a solution to the health care problem.

“You know, the single best thing we can do is expand competition,” Cruz said, “What Obamacare does is decreases choices and drives up costs. It doesn”t make sense, and it isn’t working.”

A truly national market place, as Cruz puts it, would lower barriers to competition among entrants rather than restricting them, as is no the case with Obamacare.  This marketplace, combined with the single tax credit of Paul Ryan, would actually make sense.  It would put the American healthcare system on the sound path from which it deviated during the Roosevelt era.  Perhaps of equal importance, it would attempt to save money not by imposing a tax, which is what Obamacare is, but by fostering competition which can lead to efficiencies.

Obamacare is not the best of all possible words, but a horrible patch on a broken system.  It deserves replacement.

Deficit and Spend

POSTED about 3 months ago BY HEALTH CARE COMPACT

Jake Novak of CNBC points out what is probably a painful truth.  The inner logic of Obamacare is to simultaneously expand insurance coverage while making health care itself more expensive.  At one and the same it provides theoretical access to health care while reducing the expenditure on medical treatment.

According to a new report from the Robert Johnson Foundation the U.S. will spend $2.5 trillion less on health care from 2014 until 2019 than had been originally estimated at the time the Affordable Care Act became law in 2010. The report isn't sure how much of a role Obamacare is playing in lowering these spending projections, yet it does believe it is doing something here along with the still weak economy and lower number of Americans currently employed.

By raising prices Obamacare lowers demand and less health care is supplied.  The Affordable Care Act achieves this by imposing a number of taxes, some $800 billion worth.  And as with all items that are taxed, demand is reduced.

It is a tax and like all taxes it's shrinking the revenues of the service or good it's taxing. In this case that service is health care and they call it "spending" to make it sound like it's good that it's going down. But notice how none of these studies discuss how the prices for health care are going down. That's because, they're generally not. If spending were going down because the cost of health care was going down, that would be good news. But that's the kind of good news only the free market can bring and sustain. Obamacare is still a tax that's reducing the amount of health care Americans are receiving. …

Think about it, the very high deductibles for many of the Obamacare plans are enough to keep away lots of people who should visit the doctor. The struggle millions of Americans are facing to find new doctors who accept the ACA plans they're now on is another great way to keep spending down.

As the chart from Heritage Foundation below shows, the big hits on the taxpayer wallet com begin in 2015 and rise steadily after that. Novak writes, “But if you think the Obamacare tax is effective at killing things now, you ain't seen nothing yet.” He adds:

 

obamacare-tax-hikes-680.jpg

 

That's because the mother of all Obamacare taxes hasn't even kicked in yet. That would be the so-called 40% excise "Cadillac tax" that goes into effect in 2018. That's the tax that's so high and affects more than just the best plans so severely that ACA guru Jonathan Gruber boasted it would just about kill off the whole tradition of employer-provided health insurance in this country.

In anticipation of the tax many companies are already passing on the costs to their employees. Bloomberg Business’ Zachary Tracer writes about how employers are sending their employees to look for their own insurance in anticipation of the Cadillac Tax.

While private exchanges help employers limit what they pay for health benefits, it’s not yet clear whether they help keep health-care costs under control, said Rich Birhanzel, managing director for Accenture Health Administration Services. If they don’t, workers could be responsible for an increasing share of their health-care costs over time.

So far, midsized companies have been the main users of private exchanges, Birhanzel said. He said he expects larger employers to increasingly use the portals as well, especially in preparation for a federal levy on high-cost health plans, dubbed the Cadillac Tax.

That 40 percent tax on costly health benefits, part of the Affordable Care Act, starts in 2018. It’ll initially hit family plans where premiums exceed $27,500 and individual plans costing at least $10,200.

Premiums for family coverage averaged $16,834 in 2014, up 3 percent from a year earlier and compared with $5,791 in 1999, according to the Kaiser Family Foundation. Workers picked up about $4,823 of the tab. A single person paid $1,081 of the $6,025 premium on average last year.

This price hike was intentional. As Michael Tennant of the New American writes, employer-subsidized healthcare (ultimately taxpayer subsidized from tax breaks) is blamed for encouraging overconsumption of care.  It is the root cause of America’s soaring health costs. The solution therefore, was to tax it.

Up to now, health insurance offered by employers has been exempt from income and payroll taxes, with the result that, until recent years, employers have offered increasingly generous policies. Since this has the effect of insulating employees from the cost of their healthcare, they tend to use more medical services than they otherwise would, driving up costs.

The solution to this problem under ObamaCare was not to slash income and payroll taxes to make wages more attractive than benefits. Instead, the ACA piled on yet another levy: an excise tax on employer-sponsored plans deemed too generous by the folks inside the Beltway. …

The tax was sold to the public under the pretext of socking it to corporate executives who were getting elite health benefits — hence the moniker “Cadillac tax” — without paying taxes on them. It was also called an excise tax, meaning it taxed insurance plans, not individual beneficiaries. But as the now-infamous ObamaCare architect Jonathan Gruber admitted in 2011, this was a deliberate deception: “It turns out politically, [the tax is] really hard to get rid of. And the only way we could get rid of it was first by mislabeling it, calling it a tax on insurance plans rather than a tax on people, when we all know it’s a tax on people who hold those insurance plans.” That “mislabeling,” Gruber later said, was concocted at Obama’s behest.

One might wonder why an Obamcare that will tax health benefits will also extend subsidies to other consumers.  The answer is simple: Obamacare aims to shift health consumption from the middle class, who in their view overconsume and subsidize insurance for the poor, who they believe underconsume.  It reduces the demand by some and increases the demand by others.  And it uses the IRS to do it.

But in the process government suffers frictional losses.  The transfer of income between groups is not lossless.  The overhead of an administering bureaucracy is required.  Thus, despite the fact that Obamacare is a huge tax it has actually increased the deficit because the rise in expenses has outrun the rise in revenue. Pete Kasperowicz of the Blaze writes:

The Congressional Budget Office reported Wednesday that the federal government saw a higher budget deficit in the first half of fiscal year 2015 compared to 2014, and said higher spending due to Obamacare is part of the reason.

CBO said the budget deficit was $430 billion in the first half of fiscal year 2015, a $17 billion increase. While there were several contributing factors to that increase, CBO said spending on Obamacare was a significant change from 2014 to 2015. … But because spending was higher than receipts, spending grew faster and led to a $17 billion increase in the budget deficit.

At it’s heart Obamacare is meant to be a tax-and-spend program.  It taxes the health care of higher income groups to reduce their health care consumption and subsidizes the health care of lower income Americans to increase their consumption.  That is the theory, anyway. But in reality it is a deficit-and-spend program.  Frictional losses and economic inefficiency mean that prices rise for everyone.  Health care premiums go up for the poor as well as the rich in ways that subsidies cannot offset.  In the end it makes everyone worse off.  Not just the upper income population, but the lower income individuals as well.

The Unaffordable Care Act

POSTED about 3 months ago BY HEALTH CARE COMPACT

Obamacare’s next big political issue will be premiums. Although the program’s supporters have long emphasized “coverage” they have largely de-emphasized “affordability”.  This is ironic inasmuch as Obamacare is actually called The Patient Protection and Affordable Care Act.

However, as a study by the Heritage Foundation shows Obamacare premiums have been rising faster than the rate of inflation for two years running.  Most of the 2015 premium increases have been concentrated in the cheaper plans, making the price effect doubly painful.  Persons 27 years and younger have borne a disproportionate share of the hikes.  As Insurance Business America’s Caitlin Bronson writes:

In general, health insurance carriers have had to make up for lost ground after setting rates that were too optimistic—perhaps a consequence of the ACA’s directive that insurance actuaries use age slopes of 3:1, as opposed to the 5:1, 6:1 or 7:1 slopes insurers generally employ.

Stanley Sieniawski, president of InsureOne Benefits in Litchfield, Ohio, also believes allowing individuals to stay on their parents’ health insurance plans until the age of 26 has had “unintended consequences” on health insurance affordability for young people.

“The majority of individuals under the age of 26 are staying out of the individual market, and they’re the very people carriers want to offset the risk of older people buying coverage,” said Sieniawski, who works solely with the individual market in his practices.

“You’ve got a perfect storm whereby the insurance companies are not attracting risk either because they’re staying on mom and dad’s policy, they don’t believe the need insurance or even with subsidies, they are not able to afford it because of these rate increases.”

But driving away younger customers with high prices creates the risk that older customers will see their rates hiked also, without a sufficient base of healthier customers to absorb the risk.

The next group of people destined to feel the bite will be those currently have employer-provided group insurance.  Brian Faler at Politico writes that the coming tax on employer tax benefits will effectively raise the cost of insurance for millions of Americans.  Known as the ‘Cadillac tax’ “it’s one of the last big parts of the Affordable Care Act to go into effect — lawmakers delayed the levy until 2018 in part because it is so controversial — but companies are wrestling with it now as they plan employee benefits. Some are already negotiating with unions over benefits that could spill into 2018.”  Despite its luxurious sounding name the tax will affect middle-class Americans.

“This is going to have a life of its own as the clock ticks closer to 2018,” said Rep. Joe Courtney (D-Conn.), a critic of the tax.

Though the nickname suggests it will apply to a select few, experts say a majority of employers could eventually face the prospect of imposing what will be the first-ever tax on health care benefits.

The IRS began last month spelling out the nitty-gritty of how exactly the tax will work, though it left out many of the details employers say they need.

At issue is a 40 percent excise tax on the health benefits companies provide their workers above a certain threshold. In 2018, the tax will hit insurance and related perks valued at more than $10,200 for singles and $27,500 for families. So for family benefits worth $30,000, the tax would apply to the $2,500 that’s above the limit.

Taxing those benefits represents a major shift in generations-old tax policy.

Among the hardest hit will be organized labor and groups like teacher’s unions, sectors which are traditionally supporters of president Obama’s political party.  This the tax on health benefits is already roiling Democratic party ranks.

“Employers are coming to the table asking for cuts in benefits based on their preliminary projections around the tax,” said Shaun O’Brien, assistant policy director for health and retirement at the AFL-CIO, which backs repeal.

The National Education Association, which is also demanding the tax be rescinded, issued a report Thursday complaining it would disproportionately hit women and older workers.

“We continue to support the Affordable Care Act,” said Kim Anderson, senior director of the group’s Center for Advocacy and Outreach. But “the excise tax on high-cost plans can randomly and unfairly cause hardship to American workers and their families” and “Congress must repeal the excise tax.”

The failure of Obamacare to control costs is now beginning to sink in among its liberal supporters, who now understand that it consists of mandatory, expensive and mediocre insurance. Marcia Angell, writing in the New York Review of Books, now thinks Obamacare was a mistake. It should have been “single payer”, all along she says.  Referring to Obamacare Angell writes:

In 2006, my state of Massachusetts enacted legislation that closely resembles the new federal law and indeed served as its template. The Massachusetts law was originally promoted as a way to contain costs as well as expand coverage; the theory was that as people became insured, they would seek care from primary care physicians instead of in more expensive emergency rooms. But as costs continued to grow rapidly, the rationale changed. The new story is that the intention all along was just to get everyone insured and deal with costs later. Almost all Massachusetts residents now have health insurance, but premiums, deductibles, and copayments have increased, and some people have found they cannot afford to use their insurance. Massachusetts now spends more per capita on health care than any other state, and health spending consumes over half the current state budget, at the expense of nearly every other state function—including education, public safety, human services, and infrastructure. Clearly, while it’s possible to expand access to health insurance by pouring money into a wasteful system, eventually the costs are shifted to patients in one way or another, and other important social goods are neglected. …

The fundamental issue in the US health system is costs. After all, if money were no object, everyone could have all the health care he or she could possibly need or want. But money is an object, and sadly, the Affordable Care Act is a misnomer, because it’s not really affordable except in the short run. Yes, it has expanded access, but the costs will not be sustainable—unless deductibles and copayments are greatly increased and benefits cut. That is happening now, particularly in the private sector, where employers are also capping their contributions to health insurance. …

When Obama was a state senator in Illinois, he was on record as favoring a single-payer health system—that is, one in which the government ensures health care for all residents of the country and regulates the distribution of resources in a predominantly nonprofit system. That’s the sort of system every other advanced country has. Even after he became president, Obama acknowledged in a press conference on July 22, 2009, that a single-payer system was the only way to achieve universal health care.

It is quite clear that Obamacare is doomed.  What will finish it off isn’t the Republican Party but cost. The only question is whether it will be buried in the single-payer cemetery where rationed care will reign supreme or replaced by a more competitive market system.  But either way it won’t last.  No one will be able to afford it in the long run.

Obamacare and Taxes

POSTED about 3 months ago BY HEALTH CARE COMPACT

The Daily Caller points out that Obamacare, apart from being a health insurance payment scheme, is also one of the biggest tax increases in recent American history, levying a total of $800 billion betweeen 2013-2022.   This is a reflection of arithmetical reality. The “free” federal money that goes into Medicaid expansion, or in grants to support exchanges and/or subsidies comes from taxes.

As the National Public Radio pointed out, “52 percent of people who enrolled in health insurance plans on the exchanges had to repay part of the subsidy they'd received to offset premiums. That's according to an analysis by H&R Block of the first six weeks of returns filed through the tax preparer.”  As the chart from Heritage Foundation below shows, the big hits on the taxpayer wallet com begin in 2015 and rise steadily after that.

 

obamacare-tax-hikes-680.jpg


 

One of the taxes due to kick in after the “low price introductory period” is the so-called Cadillac Tax.  Politico writes, “experts say a majority of employers could eventually face the tax on health care benefits.”  Obamacare was deliberately phased to “hook” people on subsidies and then present them with the bill for that “free money” in the end.

It’s one of the last big parts of the Affordable Care Act to go into effect — lawmakers delayed the levy until 2018 in part because it is so controversial — but companies are wrestling with it now as they plan employee benefits. Some are already negotiating with unions over benefits that could spill into 2018.

“This is going to have a life of its own as the clock ticks closer to 2018,” said Rep. Joe Courtney (D-Conn.), a critic of the tax.

Though the nickname suggests it will apply to a select few, experts say a majority of employers could eventually face the prospect of imposing what will be the first-ever tax on health care benefits.

The IRS began last month spelling out the nitty-gritty of how exactly the tax will work, though it left out many of the details employers say they need.

At issue is a 40 percent excise tax on the health benefits companies provide their workers above a certain threshold. In 2018, the tax will hit insurance and related perks valued at more than $10,200 for singles and $27,500 for families. So for family benefits worth $30,000, the tax would apply to the $2,500 that’s above the limit.

Taxing those benefits represents a major shift in generations-old tax policy.

It’s not just the rich who will be slugged with increases.  The poor and middle class will experience substantial tax increases, as the graphic below shows.  

impact-payroll-tax-680.jpg

 

However, much of those taxes will be redistributed to persons earning less than $50,000 per year making Obamacare the classic tax and spend program, but presented as health care.

tax-burden-income-680.jpg

 

The money will go not just to low income Americans but also to major corporations. The National Center for Policy Analysis notes for example, that insurance companies will despite denials likely be bailed out. Altogether, the CBO estimates that the ACA may add $300 billion to the deficit over the next decade.  The 800 billion dollar increase won’t be enough.

The eventual numbers depend on whether or the tax revenue projections of the program pan out.  Examining the effect on company bailouts only, the National Center for Policy Analysis showed that if the enrollment and demographic targets were not met the Treasury would be on the hook for Obamacare commitments. Any fall in expected revenues or any unforeseen increase in costs will lead to a deficit.  The NCPA wrote to say that the shape of things to come was already visible.

Indeed, the evidence suggests the exchanges are attracting older and sicker applicants than originally anticipated. For example, Express Scripts, the country’s largest provider of pharmacy benefits, analyzed medication utilization in the exchanges, finding:

“Approximately 1.1% of total prescriptions in Exchange plans were for specialty medications, compared to 0.75% in commercial health plans, a 47% difference.…Specialty medications now account for more than a quarter of the country’s total pharmacy spend.

“In total spend, six of the top 10 costliest medications used by Exchange enrollees have been specialty drugs. In commercial health plans, only four of the top 10 costliest medications were specialty.”

Specialty drug use is higher, says Express Scripts. For example, “more than six in every 1,000 prescriptions in the Exchange plans were for a medication to treat HIV. This proportion is nearly four times higher in Exchange plans than in commercial health plans.”

Further increasing claims costs, the 18- to 34-year-old “young invincibles” needed in the exchanges comprise only 28 percent of enrollees, almost one-third fewer than the 40 percent previously expected.

In addition, the reinsurance fund is financed primarily by a tax of $63 per insured person. However, HHS calculations assumed there would be approximately 191 million insured individuals, for revenue of $25 billion over three years.If there are significantly fewer insurees in 2014, revenues will fall short.

If the reinsurance fund raises less revenue than expected and 2014 medical claims in the exchanges are higher than HHS anticipates, the fund will fall short of satisfying insurers’ claims against losses. They will look elsewhere to be made whole. That “elsewhere” is the risk corridors.

One of the most worrying developments is that, despite repeated extensions of so-called special enrollment periods, the intake into Obamacare appears to have maxed out. Investor’s Business Daily writes, “Is ObamaCare Enrollment Already Hitting A Wall?”

Earlier this year, the Obama administration hoped to boost ObamaCare sign-ups by offering a special enrollment period for millions who didn't know about the individual mandate penalty until they filed their taxes.

They'd have until the end of April to buy a plan and avoid paying an even bigger ObamaCare penalty when they file taxes next year. At least one outside observer expected as many as 1.2 million to sign up.

But last week the administration admitted — buried in the middle of a press release — that a mere 36,000 had done so by the end of March.

It was another sign that enrollment could be hitting a wall, well before ObamaCare has signed up enough people to be sustainable. …

Exchanges needed to enroll up to 75% of their eligible markets, according to Kingsdale. But states are having trouble getting over the 40% mark.

Another report shows that ObamaCare is turning out to be a tough sell, even with subsidies.

Avalere Health broke enrollment down by income groups to see what share of each was signing up for ObamaCare. The exchanges are succeeding at signing up the near-poor, it found, but not the vast majority of others eligible for subsidies.

That is basically a warning that the program will have to operate on a budgetary deficit.  Obamacare is one of the biggest tax increases and redistribution programs in history.  But it may not reach the self sustainment and require not just the massive tax rise, but a growing deficit to keep it going.

How to Cut Costs According to Economists

POSTED 3 months ago BY HEALTH CARE COMPACT

So what does drive down medical costs if mere insurance expansion cannot? Megan McArdle, writing in the Insurance Journal tries to address this question head on. The one thing that appears to work is reducing demand for medical services is hard times.  The Great Recession drove down the increase in medical costs because people put off going to the doctor.

“What about price controls,” asks McArdle. “ Medicare has held the line on prices, but utilization is high, so costs grew anyway. Private insurers have held the line on utilization, but had little success at controlling prices, so costs grew anyway. Medicaid has controlled both, but it’s not clear that this is a sustainable strategy. It’s quite hard to find a doctor taking new Medicaid patients, precisely because the reimbursements are so low.” “Which leaves us with technological change,” she writes.  But in public medicine innovation is sometimes viewed as a villain.

Cost growth, the argument goes, is largely driven by innovation. Not necessarily good innovation — quite a bit of time was spent denigrating Proton Beam facilities (used for cancer treatment) that cost in the tens of millions of dollars and don’t seem to do patients much good, yet whose total number is set to double between 2010 and 2014. And this is where I started to get nervous. Most participants agreed that if you want to control costs, you need to stop third-party payers from paying for new technologies — particularly Medicare, which is not very discriminating, and which makes it hard for private insurers to deny a treatment that the U.S. government has thereby endorsed. Several people argued rather hopefully that the government could do this — and maybe even would do this, with moves, in Medicare and Obamacare, toward bundled payments and “Accountable Care Organizations.” But no one offered any reason to believe that the government, or the ACOs, would only shut down bad innovation.

It may seem counterintuitive to think of innovation as bad, but remember that innovation is often disruptive. When “health reformers” talk about “evidence based medicine” they are embracing the virtues “existing, accepted treatments” whose effects are known and whose costs can be brought down.  The conflict between evidence-based medicine and innovation is highlighted by an article in the British medical journal Lancet, which denounced a bill which would give doctors greater latitude to deviate from regular treatments when patients were terminal.

On Nov 13, 2014, 100 prominent UK oncologists signed a letter to The Times stating they “neither want nor need” the Medical Innovation Bill tabled by Lord Saatchi—an unelected individual with no professional medical or scientific training—that is currently making its way through the House of Lords. These oncologists join almost every prominent British medical association in condemning the Bill. In about 600 words, the Bill tables a series of sweeping indemnities, which would see medical professionals exonerated for not following “the existing...accepted medical treatments...if the decision to do so is taken responsibly”. As defined by the Bill, acting responsibly includes having “obtain[ed] the views of one or more appropriately qualified doctors in relation to the proposed treatment”, and taking full account of these views as “any responsible doctor would”. A doctor may only depart from accepted medical treatment if it is with the patient’s consent, and certainly not “for the purposes of research, or for any purpose other than the best interests of the patient”.  …

This information may not stop pharmaceutical companies from promoting their treatment to medical professionals. Doctors could end up prescribing drugs that hurt their patients, only to find later that the toxicities were known, but undisclosed. Not only would this cause otherwise preventable harm to patients (clearly at odds with the founding tenet of medicine to “do no harm”), but could cause immeasurable psychological pain for doctors who believed they were providing the best care for their patients. And who would pay for these drugs outside a specially designated funding mechanism?

The Lancet article argues against a system of medicine which might save a few desperately ill people, but the price of disrupting the efficient delivery of regular healthcare for the masses.  After all, in the words of the fictional Mr. Spock, “the needs of the many outweigh the needs of the few”. “Existing, accepted treatments” can be delivered more cheaply, in assembly line fashion.  By discouraging the disruptive effects of innovation, costs can be brought down.

McArdle says the case against ‘overtreatment’ has not been proved citing economist Joseph Doyle of the Massachusetts Institute of Technology, who showed, by comparing the outcome of people who had received more rather than less treatment for a given disease, that those who got more care did better. Overtreatment is not as bad as it is made out to be. In a world without resource constraints, a patient who did not respond to “existing, accepted treatments” could try experimental ones without ‘taking away’ from anyone else.

Economist Jonathan Skinner on the other hand has made up his mind. He believes innovation is empirically the bane of cost control. “It may surprise you to learn that economists agree on why the fiscal outlook for health care is so dismal: the cause is the continued development and diffusion of new technologies, whether it’s new drugs for treating depression, left-ventricular assistance devices, or implantable defibrillators.” What Skinner wants to know is why innovation raises prices more frequently in the medical industry than in other fields, where it tends to depress the price.

Technology doesn’t raise prices in other parts of the economy. Improvements in computers provide better products at lower prices, and automobiles are an equally good example: after adjusting for consumer price inflation, my 1988 Volkswagen Jetta would have sold new for $22,600, more than the list price of a brand-new 2013 model. And I’d take the 2013 Jetta any day; it’s a much better car (my old Jetta lacked even a lap belt). …

In research with Amitabh Chandra at Harvard’s Kennedy School of Government, funded by the National Institute on Aging, I have been puzzling over why advances in medical technology lead the U.S. to spend more per person on health care than any other country in the world (see “We Need a Moore’s Law for Medicine”). We came up with two basic causes. The first is a dizzying array of different treatments, some that provide enormous health value per dollar spent and some that provide little or no value. The second is a generous system of insurance (both private and public) that pays for any treatment that doesn’t obviously harm the patient, regardless of how effective it is.

The availability of money -- say from Federal subsidies -- plus innovation is a toxic combination, he argues, because it creates a market that is insensitive to price.  With big insurance or big government buying from big pharma the result is big prices.  Skinner suggests a solution.

The implications for innovation policy are twofold. First, we should pay only for innovations that are worth it, but without shutting out the potential for shaky new ideas that might have long-term potential. Two physicians, Steven Pearson and Peter Bach, have suggested a middle ground, where Medicare would cover such innovations for, say, three years; then, if there is still no evidence of effectiveness, Medicare would revert to paying for the standard treatment. Like many rational ideas, this one may fall victim to the internecine political struggles in Washington, D.C., where it’s controversial to suggest denying even unproven treatments for dying patients.

There’s yet another alternative, advocated by Robert Garboyes of the George Mason University.  His answer to Skinners question is to suggest that we put more control in the hands of individual consumers and doctors so that medicine responds to market forces and individual choice.  In that way, the market can reward cost-effective innovation, not some Medicare committee.

https://www.youtube.com/watch?t=238&v=z4GCQ3bGzcI

But none of this is likely to happen under Obamacare.  Obamacare is big insurance, big government and big prices.

Bending the Cost Curve Part 2

POSTED 3 months ago BY HEALTH CARE COMPACT

If providing subsidized insurance to the public does not encourage them to seek more preventive care or shift to healthier lifestyles and thereby cut costs, what else can be tried?  Rising health costs are a feature of nearly all health care systems, not just the American one.  The Guardian reports that Britain’s single-payer National Health Service will be in deficit unless it is recapitalized with new public money.

The problem is general.  The European Steering Group on Sustainable Healthcare noted that unless they could change patient behavior, medicine would have to be rationed due to the aging population. By 2050, 37 percent of the European population will be over 60 years old.  “The status quo in healthcare is no longer an option. If we want to continue with health service in Europe that’s of high quality – universally acceptable to everybody on the same basis without care to be rationed – then we have to transform in a radical way the way (that) we provide services, how we intervene with patients at an earlier stage and how we empower citizens to take more control and manage their own health.”  Single payer -- any payer -- could not continue to afford it.

The problem, as Australian health pundits note, is that medical treatment is getting expensive far faster than any other product in the economy, as measured by the CPI or consumer price index.  Describing the Australian health system Stephen Duckett and Cassie McGannon noted, “government health spending grew 74% over the past decade, far faster than GDP, which grew by 46% above CPI.”  The Australian researchers note that the aging population is not the sole cause of rising costs.  

Received wisdom is that rising health costs are all about demographic change, but this is not true. Together, population growth and the ageing population structure accounted for only a quarter of government expenditure growth above CPI since 2002-2003. A further 5% of the growth comes from health inflation growing faster than CPI.

The rest of the increase is due to people of all ages getting more and more expensive services per person. On average, a 50-year-old now is seeing doctors more often, having more tests and operations, and taking more prescription drugs, than a 50-year-old did ten years ago. The quality of the treatment they are getting has improved in many cases, and there are new treatments that did not exist in 2003.

There’s no reason to think that this trend will slow down in the next ten years without major policy reform. Government health spending now consumes an additional 1% of GDP compared to a decade ago; this is projected to increase to 2% in the next ten years.

Economist Austin Frakt, writing in the New York Times, believes that advancing technological possibilities are partly responsible for the explosion in cost. There are treatments available today that never used to exist.  The problem is, these new treatments are expensive.  Creating subsidized insurance will do nothing to reduce cost.  All it will achieve in cost terms, Frankt says, is make dollars available to pay for these expensive treatments.

Health economists have shown that both insurance expansion and technology drive health spending upward. A few studies have teased out a deeper relationship between the two: By increasing the market for health care products (like prescription drugs and medical devices), coverage expansion encourages investment in health sector research and development. And, depending on what technologies are subsequently brought to the market, this can lead to more costly, though often better, care.

By increasing coverage, the Affordable Care Act will expand the market for prescription drugs and medical devices, so we might expect growth in new products. For example, Daron Acemoglu and Joshua Linn, in a study published in the Quarterly Journal of Economics, found that a 1 percent increase in a drug category’s potential market size was associated with a 6 percent increase in the number of new drugs entering the market in that category.

Frakt’s argument is corroborated by Chris Conover writing in Forbes. Conover, in a convincing economic analysis argues that Obamacare’s claims to have cut or slowed down costs are unfounded.  Changes in medical costs have largely tracked the growth of the US economy, Once the effects of depressed economic demand are factored in, there is no benefit that Obamacare can claim.

Here we go again. What is it about Obamacare that inspires its fiercest supporters the cherry-pick evidence as proof it is “working”?  The latest entrant in this never-ending contest is Matt Phillips, who trumpets the news “Obamacare fixed U.S. healthcare inflation.”  If true, this would be no mean feat since as we’ll see, medical inflation has outpaced general inflation rather regularly over the past half century, sometimes by as much as 6 percentage points in a single year.  But as we’ll also see, giving Obamacare credit for the recent slowdown in health prices is quite a stretch for two reasons: first, it fails to account for the fact that this downward trend was clearly visible years before President Obama was even elected president; and second, it fails to account for what was happening to the general economy and general inflation during the same time period.

Conover’s last chart isolates medical inflation from general inflation. “When general inflation is high, so is medical inflation. No surprise there. So what really matters is the extent to which medical inflation is outstripping general inflation. My final chart shows what happens when we subtract general inflation from medical inflation.”  By doing this Conover arrives at a measure of “excess” medical inflation -- and finds Obamacare has done nothing to bend the cost curve with subsidized insurance.

This provides a more realistic (and I would argue, far less rosy) picture of Obamacare’s impact on medical inflation. Admittedly, there is a lot of year-to-year variation, but in this chart, we can see even more clearly that a general downward trend in gradually  diminishing “excess” medical inflation began well before President Obama’s arrival in the Oval Office. And since Obamacare was enacted, at best this metric has been flat. And at worst, one can detect a slight upward trend rather than a continuation of the downward trend that had been in place for at least a half decade for President Obama  took office.  It’s a rather sizable stretch to point to this chart and argue it is proof that Obamacare has whipped healthcare inflation.

All of these suggest that the only thing Obamacare can achieve is expanding insurance coverage.  Judging by the experience of Romneycare, it will do little to improve preventive medicine.  It will do nothing to bend the cost curve.  It’s fundamental effect is income redistribution rather than health improvement.   That might be a laudable goal in itself, but it is not the objective that Obamacare set out to reach.

Bending the Cost Curve Part 1

POSTED 3 months ago BY HEALTH CARE COMPACT

Since cost is at the heart of Obamacare -- or any other health insurance -- it’s useful to review how it pays for the medical treatment of the American population.  The presumption that it is enough to extend “coverage” to the population ignores two important factors.  How much treatment is actually provided and with what effect and secondly, what it costs.

Jason Millman of the Washington Post notes that a long term study of the Massachusetts health care system -- the so-called “Romneycare” after which much of the ACA was patterned -- reveals where the concept falls short.  In an article titled “Where Romneycare fell short — and what that could mean for Obamacare”, Millman notes that it didn’t save any more nor improve health in the hoped-for places.

You would probably expect that more people having insurance means better access to primary care, meaning fewer people who would be hospitalized for avoidable conditions. However, the rates of preventable hospitalizations were practically the same in the first few years of the Massachusetts health reform, the researchers found. Further, blacks and Hispanics continued to have higher rates of hospitalization, and the disparity gap didn't narrow in a meaningful way.

"Because the national reform is really closely based on the Massachusetts reform, the results are concerning," said McCormick, also a primary care physician with the Cambridge Health Alliance system. …

The findings, though, might emphasize deeper shortcomings in the health-care system that an insurance card alone won't fix. Out-of-pocket costs for doctor visits and drugs may be preventing many of the newly insured from affording necessary primary care that would have otherwise kept them out of the hospital. Patients may have a hard time finding a doctor. And there are socioeconomic factors at play, like fewer community resources and lower levels of literary and English proficiency among the uninsured.

The lesson is that cost, both in monetary and ease of access terms, always matters in healthcare provision.  Insurance is, after all, only a means of increasing the affordability of treatment.  Once out of pocket and network narrowness constraints grow past a certain point, it cancels the  effect of insurance.  You become “insured, but not covered”.

One of the ways in which public health advocates have tried to make care affordable is giving public dollars to patients who cannot afford treatment themselves. One approach was for government to create special “high-risk pools” of uninsurable people and buy insurance for them.  The Pre-existing Condition Insurance Plan (PCIP) was a program which preceded Obamacare. “In response to the problems of uninsurable individuals, 35 states set up high-risk health insurance pools over a 25 year span, from 1976 to 2009.  Across these 35 states, the national enrollment was 226,615 by December 31, 2011.”

These high risk pools were phased out by Obamacare, which merged them into the general into the general insurance pool by providing that no one with pre-existing conditions would be turned away.  However, in order to prevent the general population from fleeing the arrival of the high risk individuals, the ACA created penalties to force people to remain in Obamacare.  This is the infamous “individual mandate”. But as Bruce Japsen points out, forced membership is a feature in all schemes which attempt to force actuarially dissimilar people to remain in the same pool.

Whether it’s a penalty to pick a drug plan under Medicare or the new Republican proposal to replace the Affordable Care Act or the President’s health law alone, penalties abound for being uninsured.

A new analysis by the Urban Institute said “individual responsibility” requirements akin to the controversial individual mandate included in the Affordable Care Act requiring individuals to buy coverage or face a tax penalty also exist in other health reform proposals and existing health insurance programs.

Some, like the Medicare Part D drug coverage for seniors and Medicare Part B’s physician services for the elderly, have been in place for years. Another, a new Republican proposal to replace the ACA, also has its penalties.

The so-called “Patient Choice, Affordability, Responsibility, and Empowerment Act” or PCARE, proposed by Republican Rep. Fred Upton of Michigan and GOP Sens. Orrin Hatch of Utah and Richard Burr of North Carolina would “impose strong penalties on the uninsured,” Urban Institute health policy researchers Linda Blumberg and John Holahan wrote in their analysis out this week called, “the New Bipartisan Consensus for an Individual Mandate.”

Unfortunately the arrival of the high risk individuals together with all the punitive measures required to prevent low risk people from fleeing leads to rising costs.  Grace Marie Turner in Forbes describes the Faustian bargain in taking in people who can’t pay.  By making things cheaper for the uninsurable, it is necessary to make things more expensive for the holders of regular insurance with whom they are commingled.   Turner describes the administration’s attempt to make ends meet.  The “temporary Pre-Existing Condition Insurance Plan is running out of money, and the Obama administration has closed enrollment to any new applicants, saying it needs the money that is left to cover the medical costs of the 100,000 people already enrolled through the end of the year.”

And the costs are significant:  The average cost per enrollee in 2012 was $32,108 a year.  But the costs varied widely by state, from a low of $4,276 per enrollee to a high of $171,909. Some patients have annual claims as high as $225,000 per person.

The Administration had already tried cost-cutting measures:  It raised the maximum a patient would have to pay out of pocket from $4,000 to $6,250 a year, cut what it pays providers, and limited the number of pharmacies that can dispense specialty drugs through the program.  It didn’t work.

The copayment and narrow network make their appearance very early on as a cost-saving measure to offset rises from standardized ACA packages which often exceed and at other times fall short of the individual needs of the buyer.  Similarly, costs arising from young healthy people fleeing the pool and or old and infirm people who buy insurance only when they need it need to be diffused in some way.

Obamacare saves no money in and of itself.  The long term hope of its architects is that it could somehow change patient behavior to allow the medical system to treat them more cheaply. As Jason Millman points out, Romneycare failed to do that.

Boston University School of Medicine researchers, looked at every single such hospital admission in Massachusetts in almost two years before and after the state's health-care law was enacted. They compared the results to three control states — New Jersey, New York and Pennsylvania — that didn't have a similar coverage scheme.

You would probably expect that more people having insurance means better access to primary care, meaning fewer people who would be hospitalized for avoidable conditions. However, the rates of preventable hospitalizations were practically the same in the first few years of the Massachusetts health reform, the researchers found. Further, blacks and Hispanics continued to have higher rates of hospitalization, and the disparity gap didn't narrow in a meaningful way.

If Romneycare couldn’t “bend the cost curve” by providing subsidized insurance there is little hope that Obamacare can.  That will be the subject of Part II of this series.  Can managing technological innovation cut health care costs?

Standing in the Way of Innovation

POSTED 3 months ago BY HEALTH CARE COMPACT

Grace Marie-Turner says in Forbes that even if states wish to hurriedly establish an exchange in the aftermath of a ruling against the government in King vs Burwell many pitfalls await them, citing Oregon as an example.

Some states are considering setting up their own exchanges so billions of dollars in tax subsidies can continue to flow to their citizens, even though leaders in Congress have pledged to provide them other options.

These states might want to study Oregon’s experience with its state exchange before taking further action to establish an exchange.

Oregon, under then-Gov. John Kitzhaber, aspired to create a shining model for other ObamaCare exchanges, but instead, it became its poster child of dysfunction. After spending more than $300 million in federal taxpayer dollars, Oregon pulled the plug last year and decided to default to the federal exchange.

However in Marie-Turner’s discussion of what went wrong with Oregon  -- or Maryland, Nevada, Massachusetts -- largely misses an essential point.  Why should states create their own exchanges simply to implement a monolithic Obamacare?  Why re-invent the wheel when it is the same wheel?  State exchanges make conceptual sense only if there is substantial variety between the offerings.  Otherwise they wind up being like fast-food franchises, differently as to location but serving the same old menu.

Nearly every Republican alternative to Obamacare emphasizes an important role for the states; substantive roles which go far beyond merely serving as conduits for federal subsidies.  For example, Ted cruz’s Health Care Choice Act would “allow residents in one state the option to purchase a health insurance plan of their choice in any other state”.

The bill is cosponsored by Sens. John Barrasso (R-WY), Mike Crapo (R-ID), Marco Rubio (R-FL), and David Vitter (R-LA). Rep. Marsha Blackburn (R-TN) has introduced companion legislation in the U.S. House of Representatives, H.R. 543.

The primary reason given for this philosophy is to foster competition in insurance markets, something which Obamacare has notably failed to achieve. "This bill is a true market-based reform that will make health insurance more personal and affordable, giving consumers the freedom to select plans that fit their needs, anywhere from Alaska to Texas to Vermont," the Cruz camp said.

But there is another reason why 50 marketplaces -- rather than 50 outlets of the same franchise -- is more desirable than a single, one size fits all Obamacare.  It is fostering innovation.  Greg Doyel of the Indystar tells the hearbreaking story of patients with Lou Gehrig’s disease, or ALS. “Amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig's disease and Charcot disease, is a specific disorder that involves the death of neurons … characterized by stiff muscles, muscle twitching, and gradually worsening weakness due to muscle wasting. This results in difficulty speaking, swallowing, and eventually breathing.”

Doyel says the tragedy is that patients, who usually have no hope of survival, are precluded from trying emerging cures because of a gigantic federal health bureaucracy. “Doctors and scientists are working on new drugs, new technologies to combat ALS, but they are racing time, and every day another 15 or 20 Americans die of ALS. This battle, it's impossibly difficult. And too often, the government and the insurance companies are standing in the way.”

There is hope – and for an ALS patient, hope is a miracle. But the FDA is taking too long to move on this hope, this chance, this only chance for Maureen to hold off ALS. It's a drug called GM604, it was made by small California company called Genervon Biopharmaceuticals, and it has shown encouraging results in limited testing. To date Genervon has tested GM604 on a few dozen patients and has reported a significant slowing of ALS' awful progression.

There are ALS patients who want to take GM604, and they want to take it right now, but a decision on its approval could be a decade away. Despite calls from ALS advocates and a massive email campaign to U.S. senators and an opinion piece in the New York Times, the FDA hasn't put GM604 on an accelerated track that could lead to a far quicker decision. And until the FDA approves it, Maureen can't take it.

"What does she have to lose?" Jim Burakiewicz says.

What does an ALS patient have to lose? Nothing.  But as Health Care Compact advocates have been pointing out all along, illogical policy is a byproduct of a governance problem.  Because ironically the states are willing to let people like the Maureen of Doyel’s article try new drugs, but the feds won’t let go.

There is a glimmer now, but the FDA stands in the way. Gov. Pence signed the right-to-try bill last week, making Indiana the ninth to pass the legislation. The law gives terminally ill patients the opportunity to try drugs that have cleared the first phase of the FDA process.

Without FDA approval, though, there are insurance companies that wouldn't cover it, making GM604 too expensive for most people.

The Hoover Institution’s Clint Bolick examines the whole question of whether the states ought not take bigger role in deciding health care policy and choosing delivery systems.  It is the scientific equivalent of the economic competition that Ted Cruz advocates.  Bolick calls it the “right to try”.

A measure beginning to sweep through the states is offering new hope to patients with terminal diseases and their loved ones. Called “Right to Try,” the statutes establish the right of terminally ill patients to access certain experimental drugs prior to final approval by the Food and Drug Administration (FDA). For many people, Right to Try can make the difference between life and death.

Nearly everyone has a loved one who has suffered a terminal illness. Their instinct is to fight, to find a cure or at least a way to extend life. The amazing leaps and bounds of medical technology often fuel that hope. But too often, our government places obstacles in the path of making the hope a reality. …

The widely acclaimed Hollywood film Dallas Buyers’ Club focused national attention on regulatory barriers the FDA has erected between promising drugs and the patients who desperately need them. But efforts at the federal level to reform and streamline the FDA’s drug approval process repeatedly have failed.

Right to Try shifts the reform focus to the states and reverses the presumption that potentially life-saving drugs should be available only after federal bureaucratic dictates have been satisfied. Developed by the Goldwater Institute, Right to Try gives terminally ill patients the right to access drugs prescribed by their doctors that have satisfied phase I—the safety phase—of the FDA approval process, so long as the manufacturer is conducting clinical trials.

Ironically, the legal basis for the “right to try” is the US Supreme Court on the “right do die”. The court “upheld Oregon’s “Right to Die” initiative against a federal pre-emption challenge. Attorney General John Ashcroft argued that the state law was pre-empted by the Federal Controlled Substances Act. In a 6-3 decision, the Court narrowly construed the federal law, acknowledging that regulation of medicine is traditionally entrusted to the states”.

Let’s read that again: “regulation of medicine is traditionally entrusted to the states”.  And that is why state exchanges and medical systems should be more than just expensive, redundant delivery systems for Obamacare, no better than a fast-food franchise.  The Hoover Institute paper continues:

Indeed, states are free to go beyond the federal Constitution in guaranteeing rights to their citizens. Right to Try is the most recent in a series of efforts designed to create a “federalism shield” against abuses by the federal government. Two other Goldwater Institute proposals have been widely adopted. The Health Care Freedom Act protects the right of individuals to choose their own doctors and to not be forced to participate in a health insurance system. It was used by states to give them standing to assert their citizen’s rights in challenges to Obamacare.

Obamacare is a bad idea because it delivers institutional medicine at Michelin Three Star prices.  High premiums, narrow networks, astronomical co-pays and last, but not least, “restricted formularies” are reasons why this program is doomed in the end.  Progress in both the technical and economic aspects of medicine is driven by competition, not by a giant bureaucracy named after the sitting president.

Those Health Care Payment Reforms

POSTED 3 months ago BY HEALTH CARE COMPACT

The word “reform” in any policy description usually means one should be careful about what follows next. Drew Harris of the Jefferson School of Population Health claims that Obamacare is saving Medicare a lot of money by instituting new and innovative payment systems that provide quality care for less. “This week, the Department of Health and Human Services, the federal agency overseeing the massive Medicare program, announced a significant change in the way it pays doctors and hospitals. The goal is to tie most payments (85 percent in 2016 and 90 percent in 2018) to the quality and value of care rather than to the number of services rendered. This is called value-based purchasing.”

Value based purchasing means paying according to some metric, instead of per service performed.  The HHS determines how should be paid for a given profile of treatment and the providers try to hit these targets.

Under Medicare’s new payment arrangement, providers are paid less, if at all, when the service doesn’t deliver the expected value or quality. They won’t be paid for redundant or unnecessary tests and may even be penalized if inadequate care results in additional costs. In 2008, Medicare stopped paying hospitals for the costs associated with treating “never events” -- occurrences that should never have happened, such as instruments left in after surgery or a patient falling out of bed.

Recently, Medicare started cutting payments to hospitals with high readmission rates—large numbers of patients coming back for additional treatment within 30 days of discharge. In 2013, nearly 14 percent of hospitalized Medicare patients were readmitted less than one month after discharge at an estimated cost of $17 billion.

Payment systems like this have been around for a long time.  One of their unintended consequences is to penalize medical facilities which treat the poor. The reason for this is simple. Payments are based on a computed normative value. Consider the curve below for purposes of illustration. The area shaded in blue are those which exceed the benchmark.  That shaded in red falls short of the benchmark.  The problem is that hospitals which serve the poor are often less than the best, which may mean that “under Medicare’s new payment arrangement, providers are paid less, if at all, when the service doesn’t deliver the expected value or quality.”

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Andrew Ryan writes in the New England Journal of Medicine that “after years of small-scale pilot projects, demonstrations, and experiments, the Affordable Care Act mandated that Medicare payment to hospitals and physicians must depend, in part, on metrics of quality and efficiency. The first program to do so is Hospital Value-Based Purchasing (HVBP), which began affecting Medicare payments to acute care hospitals in October 2012.”  But one of the things it does is increase disparities in care.  Johns Hopkins will almost always qualify for reimbursement. An inner city hospital might not, but that might be the only facility available.

At the same time, there are concerns that such programs could exacerbate disparities in care associated with race and socioeconomic status. Perhaps most compelling of these concerns is that, through the distribution of bonus payments and penalties to providers, these programs could expand the quality gap in the care provided to more affluent and less affluent patients. Lower-performing providers tend to care for poorer patients and have a larger share of patients from racial or ethnic minority groups than do higher-performing providers.  If these providers receive lower incentive payments or face payment penalties, they may be less able to fund quality-improvement initiatives — an effect that could, in turn, increase race- and income-related disparities in care.

Ryan examined actually payments and found that hospitals in low-income areas, simply by using race and income as a proxy variable, got paid less. This is particularly interesting because Obamacare is notable for its narrow networks.  If you are in a network with lots of providers in a low-income area they stand to collect less.

I used linear regression to estimate the relationship between the DSH index value and both outcomes among 2981 hospitals that were eligible to participate in the first year of HVBP and that had valid data on the DSH index. The analysis did not adjust for hospital characteristics because it focused only on whether hospitals caring for more disadvantaged patients performed worse in HVBP, not whether caring for more disadvantaged patients actually caused hospitals to perform worse in the program.

Hospitals with a higher DSH index value had significantly lower Medicare payment adjustments (P<0.01) in the first year of HVBP (see Panel A of the figure

Relationship between Hospitals' Disproportionate Share Hospital (DSH) Index and Payments in the First Year of Hospital Value-Based Purchasing.), which resulted in a significantly more negative expected financial impact (see Panel B of the figure).

John Graham argues in Forbes that the real driver of these new “reforms” is to make the sure the right people get paid first.  Graham examines the bipartisan “doc fix” of Medicare, which is designed to restore funding some of which went over to Obamacare.  The main thing it does is replace the year-to-year fee increase of doctors with a 10 year fix which will blow out the deficit.  Rather than increase the fees $15 billion a year, they’ll do $200 billion for ten years.

Congressional leaders from both parties have agreed on a long-term, so-called “doc fix” that claims to solve the problem of how the federal government pays doctors who treat Medicare patients.

Currently, Congress has a certain amount of money every year to pay doctors. This amount of money increases according to a formula called the Sustainable Growth Rate (SGR), which was established in 1997. The SGR is comprised of four factors that (by the standards of federal health policy) are fairly easy to understand. Most importantly, the SGR depends on the change in real Gross Domestic Product (GDP) per capita.

The Medicare Part B program, which pays for physicians, is an explicit “pay as you go” system. Seniors pay one quarter of the costs through premiums, and taxpayers (and their children and grandchildren) pay the rest through the U.S. Treasury. Therefore, it is appropriate taxpayers’ ability to pay (as measured by real GDP per capita) be an input into the amount.

The problem is the amount is not enough. If growth in Medicare’s payments to doctors were limited by the SGR, the payments would drop by about one-fifth, and they would stop seeing Medicare patients. So, at least once a year, Congress increases the payments for a few months. The latest patch (H.R. 4302) was passed in March 2014 and runs through March 31, 2015. It costs $15.8 billion.

The most interesting part of Graham’s article deals with how Medicare has met its increases by saving money from some other part of the system called offsets.  Over the past few years the Medicare budget people have balanced the books by “saving taxpayers more than $130 billion from health care programs. Reforms have included expansions of bundled payments, equalizing payments for the same services done at different sites of care, more accurate payments for hospital services, bringing payments to Medicare Advantage plans more in line with the costs of traditional Medicare, recapturing unintended Affordable Care Act (ACA) premium subsidies, and reduced overpayments for services like clinical labs and advanced imaging. And then some of the savings have come from extending health care cuts already in place.”

If that sounds a lot like Drew Harris’ reforms, it is because it is.  Graham writes, “no wonder stories of this SGR fix being a lobbyist-fest are already coming out. National Review’s John Fund reported that UnitedHealth Group has hired a former aide to Representative Steny Hoyer, who has succeeded in inserting a policy rider that would favor the insurer in the Federal Employees Health Benefits plan.”

Much of the offsets appear to be due to increased federal control of how doctors practice medicine. This is gussied up in fancy language about paying doctors for value. There will be more acronyms: “In addition to measures used in the existing quality performance programs (PQRS, VBM, EHR MU), the Secretary would solicit recommended measures and fund professional organizations and others to develop additional measures.”

Whether more acronyms will improve physicians’ performance is debatable. However, what is not debatable is that the Secretary of Health & Human Services, Sylvia Burwell, is satisfied with the power that current law (that is, Obamacare) already gives her over doctors. Just weeks ago, she announced:

…… a goal of tying 30 percent of traditional, or fee-for-service, Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements by the end of 2016, and tying 50 percent of payments to these models by the end of 2018.  HHS also set a goal of tying 85 percent of all traditional Medicare payments to quality or value by 2016 and 90 percent by 2018 through programs such as the Hospital Value Based Purchasing and the Hospital Readmissions Reduction Programs.

Get the picture?  Many of the reforms -- though by no means necessarily all of them -- are basically ways to control money.  As to whether it will save the taxpayer money or give the patient better care, that remains to be seen.

Did Obamacare Save 50,000 Lives?

POSTED 3 months ago BY HEALTH CARE COMPACT

Graham Kessler at the Washington Post argues that Obamacare really did prevent 50,000 statistical deaths. How, by insuring people?  No.  By changing the way some hospitals provide outpatient care. Kessler writes that the problem was to establish causality between the Partnership for Patients program and the claimed reduced deaths:

The 50,000-number is derived from a study, released on Dec. 2, 2014, by the Agency for Healthcare Research and Quality, an arm of the Department of Health and Human Services.

The study looked at the impact of the Partnership for Patients, a $460-million program funded by the health law which ties together 3,800 hospitals in 27 “health engagement” networks, with the goal of reducing ten categories of “patient harms,” such as adverse drug events, pressure ulcers and catheter-associated urinary tract infections. The networks work together to identify possible solutions to common problems and then circulate those ideas among the various hospitals, with the goal of reducing preventable hospital-acquired conditions (HACs) by 40 percent and 30-day hospital readmissions by 20 percent.

The study admits that “the precise causes of the decline in patient harm are not fully understood,” but notes that “the increase in safety has occurred during a period of concerted attention by hospitals throughout the country to reduce adverse events” though programs like the Partnership for Patients. So a key question is whether the impact is coincidental or the result of the ACA.

The majority of the preventable deaths arose from two categories of possible mismanagement: “it turns out pressure ulcers and adverse drug events are responsible for nearly 65 percent of the reduction in estimated deaths—20,727 fewer deaths from pressure ulcers and 11,540 from adverse drug events. So can we draw a straight line from the Affordable Care Act to those saved lives? Administration officials argue that is correct.”

So under the ACA’s Partnership for Patients, greater scrutiny of supposedly low risk drugs and better patient management was implemented in hospitals.

Similarly, to thwart pressure ulcers, hospitals began paying closer attention to repeatedly turning patients, providing more appropriate mattresses, applying moisture barriers and repeated toilet assistance and keeping track of nutrition and hydration. …

As our colleagues at PolitiFact noted, in-patient deaths were already declining before the Affordable Care Act was implemented. The Centers for Disease Control and Prevention found a 60,000 decline in patient deaths in the decade before 2010. This is not quite the same statistic, but it indicates that before the ACA was passed into law, progress was already being made in reducing deaths from conditions acquired in hospitals.

But officials say there is also little question that the half-billion dollars in ACA funding sparked significantly greater cooperation among thousands of hospitals

That is hardly a straight line.  That there is any line at all is disputed by others.  First, as to the money.  According to Dan Diamond of California Healthline, the true figure is a billion dollars, not $460 million.  That billion dollar figure is echoed by Modern Healthcare. Secondly, according to an article in the New England Journal of Medicine, the causality cannot be supported.  Peter Pronovost, M.D., Ph.D., and Ashish K. Jha, M.D., M.P.H. address the issue directly in the article, “Did Hospital Engagement Networks Actually Improve Care?”

Everyone with a role in health care wants to improve the quality and safety of our delivery system. Recently, the Centers for Medicare and Medicaid Services (CMS) released results of its Partnership for Patients Program (PPP) and celebrated large improvements in patient outcomes.But the PPP's weak study design and methods, combined with a lack of transparency and rigor in evaluation, make it difficult to determine whether the program improved care. Such deficiencies result in a failure to learn from improvement efforts and stifle progress toward a safer, more effective health care system.

CMS launched the PPP in December 2011 as a collaborative comprising 26 “hospital engagement networks” (HENs) representing more than 3700 hospitals, in an effort to reduce the rates of 10 types of harms and readmissions. The HENs work to identify and disseminate effective quality-improvement and patient-safety initiatives by developing learning collaboratives for their member facilities, and they direct training programs to teach hospitals how to improve patient safety. In a February 2013 webcast, CMS announced that the rates of early elective deliveries had dropped 48% among 681 hospitals in 20 HENs and that the national rate of all-cause readmissions had decreased from 19% to 17.8%, though it is unclear which HENs were included for each measure and what time periods were the pre- and post-intervention periods.

These numbers appear impressive, but given the publicly available data and the approach CMS used, it's nearly impossible to tell whether the PPP actually led to better care. Three problems with the agency's evaluation and reporting of results raise concerns about the validity of its inferences: a weak design, a lack of valid metrics, and a lack of external peer review for its evaluation. Though the evaluation of many other CMS programs also lacks this basic level of rigor, given the large public investment in the PPP, estimated at $1 billion, and the strong public inferences about its impact, the lack of valid information about its effects is particularly troubling. …

Beyond using a poor design, CMS did not use standardized and validated performance measures across all participating hospitals — further hampering inferences about the program's effects. To support engagement, CMS allowed each HEN to define its own performance measures, with little focus on data quality control. …

CMS also required HENs and participating hospitals to submit a large number of process measures of unknown validity. … CMS also required HENs and participating hospitals to submit a large number of process measures of unknown validity.

Graham Kessler gives the Obamacare claim a coveted “Gepetto” in its Pinocchio scale, which means the claim is “the truth, the whole truth, and nothing but the truth” even though this view does not appear to be shared by a prestigious medical journal. Note that the NEJM uses the billion dollar figure in evaluating the cost of this Obamacare success story -- and point out what massive waste of resources it was to blow a billion on something which cannot even be accurately measured.

The PPP involved an investment of nearly $1 billion to improve care — three times the annual budget of the AHRQ, the lead federal funding agency for implementation science, which often lacks resources for promising projects. With such a sizable investment, CMS could have supported a better evaluation. It could have randomized HENs or hospitals to receive interventions earlier or later; used standardized, validated measures across the HENs; built in basic data quality controls; and independently collected qualitative information alongside quantitative data to learn not just whether the interventions worked but also how and why they did, thereby advancing our understanding of the mechanisms and context of improvement science. These changes would have allowed the country to learn so much more.

The Washington Post “fact checking article” is of dubious value.  It may be the case that the Patient Protection program has benefited patients, but the methodology used makes it difficult to state the case.  Even if the claims are true it cost $20,000 per life saved to induce hospitals to be more careful about outpatient care.  While every life saved is something to be treasured Obamacare’s PPP is a helluva way to run a railroad.

Obamacare is Doomed

POSTED 3 months ago BY HEALTH CARE COMPACT

Henry Aaron writes in Newsweek that “Obamacare will survive a Republican president,” repeating the mantra that Obamacare is here to stay because everyone has a seat at the dining table. “All major elements of the health care system—insurers, hospitals, doctors and drug and device manufacturers—have an interest in continuation of the ACA. This alignment of forces suggests that Obamacare will survive current threats.”

The only two things wrong with Aaron’s analysis. First it does not include the customer or the taxpayer in the alignment of interests and second, the money he is counting on to hold it all together will run out. It already is. Nowhere is this clearer than in California, which is one of the most Democratic and liberal states in the union. The LA Times, citing a recent survey by private health insurance exchange EHealth said that the biggest worry of medically insured individuals is how to pay for treatment.

People who get health insurance through work and on their own have seen their costs rise dramatically over the last decade.

According to the Commonwealth Fund, a New York think tank, annual increases in work-based health plan premiums rose three times faster than wages from 2003 to 2013. Out-of-pocket costs have also been climbing.

"More people have [higher] deductibles than ever before," says Sara Collins, a Commonwealth Fund vice president. From 2003 to 2013, the size of deductibles has grown nearly 150%.

Whether a person is coping with a severe illness or trying to deal with everyday medical costs, the challenges are many. …

Bradley Konia of Burbank faces a different type of financial angst. He finds the health plan he buys on his own to be fairly reasonably priced at $265 a month.

But the plan comes with a $5,000 deductible he must meet before getting help with medical bills from his insurer.

The 46-year-old marketing professional takes just one prescription medication. He pays $137 a month, up from $60 last year. "I'm paying for all of it out of pocket even though I have insurance," he says.

Konia says he's able to cover his current costs without much strain, but he worries about unexpected medical expenses if he were to become sick or even require a second prescription drug.

"If something were to happen," he says, "I would be in a bad situation."

This is a phenomenon known as “insured but not covered”, a phrase coined by Elisabeth Rosenthal of the New York Times to describe what she was seeing. People with health insurance found that the bills still outran their ability to pay -- even when they received their insurance payments. To understand why this is so, one need only watch this explanatory video from Cigna health insurance.

The insurance pitchman cheerfully explains the customer pays out two items of money: the monthly premium and out of pocket costs. The out of pocket costs include deductibles, co-insurance and co-payments. The gist of it is that the out of pocket costs can still be huge and the patient, whose bank account is already depleted by the premiums, must face costs in addition.

This harsh reality is driven by one basic thing: the high cost of medical care. No matter how one slices and dices it, insurance is only a way of paying for these astronomical sums. The higher the cost of medical care, the more expensive the insurance and the more prohibitive the out of pocket expenses.

Obamacare has increased the number of people with a health card, but it has often failed to alleviate the financial burden it was meant to relieve. What is the good of a health card if you are not protected from financial disaster? What is worse, the ACA has expanded coverage by making insurance more expensive, either by regulation or by adding on charges to pay for the titanic bureaucratic empires it supports.

College students, who are notoriously poor, have been driven from their cheap plans into more expensive “Obamacare compliant” plans they can scarcely, if at all, afford. “SEATTLE (AP) -- The federal health care overhaul is leading some colleges and universities to get out of the health insurance business.”

Experts are divided on whether this change will be good or bad for students. Some call it an inevitable result of health care reform and a money-saver for students since insurance in the marketplace is usually cheaper than the college plans. Others worry that more students will go without health insurance since their premiums won't be folded into the lump sum they pay for school, and they say college health plans offer more coverage for the money than other options.

The main driver of colleges getting out of the insurance business is a provision in the Affordable Care Act that prevents students from using premium tax subsidies to purchase insurance from their college or university, according to Steven M. Bloom, director of federal relations for the American Council on Education, a Washington, D.C., group representing the presidents of U.S. colleges and universities.

The federal government recently published the latest guidelines on out-of-pocket expenses at levels that would boggle many lower income individuals.

For 2016, the out-of-pocket maximum for self-only coverage will be $6,850; and for non-self-only (family) coverage it will be $13,700. … In terms of compliance, the HHS said that “2016 plans must comply with this policy” – although the final regs take effect on April 28, 2015. So it’s not entirely clear whether plans have to comply with the embedding clarification for the 2015 plan year.

Aaron’s conclusion in Newsweek that “All major elements of the health care system—insurers, hospitals, doctors and drug and device manufacturers—have an interest in continuation of the ACA. This alignment of forces suggests that Obamacare will survive current threats” should be rewritten as: all major elements of the health care system—insurers, hospitals, doctors and drug and device manufacturers—have an interest in continuation of the ACA.  But taxpayers and customers have a clear interest in its abolition. This alignment of forces suggests that Obamacare will not survive for long.

One way to glimpse the future of Obamacare is to observe the crisis gripping the city of Chicago -- hometown to the president and many of his leading subordinates.  John Judis writes in the National Journal that it’s a “Broken City.”  For years it increased the size of its bureaucracy and the generosity of its giveaways until it realized there is no earthly way it can afford it.

If the gaping holes in Chicago's social and fiscal fabric can somehow be mended, the city will have created a powerful blueprint that other large urban centers could in theory follow. And if they can't be fixed? Then Chicago may end up serving as a cautionary tale about the grim political and economic fate awaiting other U.S. cities that put off or wish away their problems. …

The blame largely belongs to Daley, Emanuel's predecessor, who lavished money on civic projects and doled out funds to appease aldermen without raising taxes. When finally faced with falling revenues, he undertook several controversial efforts at privatization, but the initial funds the city gained quickly evaporated.

This is exactly the formula for Obamacare: unsustainable subsidies, bureaucratic expansion without limit, heedless of the consequences. The cynical calculation that everyone -- insurers, hospitals, doctors and drug and device manufacturers -- can be paid off fails to consider that eventually the bureaucrats run out of other people’s money.

A Wonderful Chance for US Senators to Buy Obamacare

POSTED 3 months ago BY HEALTH CARE COMPACT

James Downie writes in the Washington Post that Obamacare arch-critic Ted Cruz is a “hypocrite” for enrolling in it. “With Cruz’s wife, Heidi, stepping away temporarily from her job at Goldman Sachs, the Cruz family has to get its insurance somewhere, and the Texas senator has decided that ‘somewhere’ is HealthCare.gov.”

The implication is that Cruz somehow covets membership this program, acquiring for himself and his family the benefits that he would deny to others.  However, as a survey by the Avalere company shows, the US Senator has voluntarily submitted himself to what is effectively a low-income person’s program.  Enrolling in Obamacare would be as if Cruz had passed up a meal at an upscale restaurant to eat at soup kitchen.

Not that there’s anything wrong with food at soup kitchens, but the comparison is apt. “As of the close of the 2015 open enrollment period, exchanges using HealthCare.gov had enrolled 76 percent of eligible individuals with incomes between 100 and 150 percent of the federal poverty level (FPL) or  $11,770 to $17,655. However, participation rates declined dramatically as incomes increase and subsidies decrease. For instance, only 16 percent of those earning 301 to 400 percent FPL picked coverage through an exchange, even though they may be eligible for premium subsidies.”

In other words very few higher income people enrol in Obamacare. Only 2% of those making 400% of the federal poverty level (FPL), or  $47,080, enrolled in Obamacare.  The annual salary of Ted Cruz as a US Senator is $174,000, or about 1,500%, of the FPL.  Finding people at Cruz’s level of income voluntarily choosing Obamacare is a statistical improbability.

1427290263_ExchangePlansbyIncome.jpg

The Avalere report suggests that more punishments must be enacted to force lower income people into the exchanges since ‘tax credits’ are clearly not a sufficient incentive to attract sufficient percentages into the ACA. (Emphasis mine)

“exchanges will need to attract higher income consumers to ensure enrollment continues to grow over time,” said Caroline Pearson, senior vice president at Avalere. “So far, tax credits do not appear to be enough to entice participation, so greater emphasis on individual mandate penalties may be needed to help increase enrollment among low- and middle-income individuals.”

Even that may not be sufficient. A McKinsey survey of 3,000 adults found  that many people would rather pay the fine than buy Obamacare. “Only about 12 percent of those who are uninsured would buy policies if they learned about the penalty”.  In a  Wall Street Journal article dated March 15, 2015 Stephanie Armour reports that “major tax-preparation firms say many customers are paying the penalty and not getting health insurance.”  The administration even announced a special enrollment period to give these people a second chance.

At H&R Block Inc., “our analysis indicates that a significant percentage of taxpayers whose household members were not covered for at least a portion of 2014 are opting” to pay the penalty, said Mark Ciaramitaro, a vice president of health-care enrollment services at the tax-preparation firm.

Richard Gonzalez, 59 years old, of Navarre, Fla., found out he will pay a $250 penalty for going without insurance. The retired employee of United Parcel Service Inc. said he won’t take advantage of the special enrollment period because it is cheaper for him to pay out-of-pocket for health care than to buy insurance on the exchange. He said he shopped on the exchange but would have to pay $400 a month for a plan with a $6,000 deductible.

“I think it’s wrong I have to pay the penalty,” said Mr. Gonzalez. “But it beats paying more than $10,000 a year.” …

Lackluster sign-ups during the special period mean the Obama administration may only get a small enrollment boost. About 11.7 million people have already signed up on state and federal exchanges this year, though not all of them have yet paid premiums.

While federal officials have said that as many as six million households may owe a penalty for not having insurance, they haven’t said how many people they expect to sign up for coverage during the special enrollment period. Still, the administration has been eager to increase sign-ups, especially for key demographics such as healthy young adults and minorities who have high uninsured rates. …

The special enrollment period applies to people who have to pay a penalty for going without coverage in 2014 and also face a penalty in 2015. They must pay any penalty they owe for not having coverage but can use the special enrollment period to obtain coverage and not generate any more fines.

People -- even those in low income brackets -- are hardly beating a path to the Obamacare exchanges.  Despite offers of money and threats of penalties, many middle class customers are giving it the ultimate insult: they are paying the fine for the privilege of going without it.  If it were a restaurant it would be like customers paying not to eat the food. Modern Healthcare reports that Obamacare is not meeting with much success among minorities and young people.  Young people, like the higher income brackets cited by Avalere, are necessary to keep the ACA actuarially viable, and they are staying away.

The agency appeared to lose ground in attracting minorities to the federal exchange. The percentage of Latino and Asian enrollees on federally operated exchanges remained flat compared to last year at 11% and 8%, respectively. The percentage of African-American enrollees dropped from 17% to 14%. …

Demographic details on enrollees show more than 4.1 million under the age of 35 signed up for marketplace coverage, representing 35% of all plan selections compared to 34% at the end of 2014 open enrollment.

These are problems to do with the cost and features of the product itself.  The packages offered by the ACA are not very attractive despite the penalties and subsidies offered. Clearly something has to be done to make it a better buy for consumers.  That is not going to happen any time soon because The Atlantic reports that Obamacare premiums are going to rise by 8.5 per year!

Between 2016 and 2018, CBO expects that the benchmark premium—the average cost of a "silver" plan on insurance exchanges—will increase 8.5 percent per annum. There are two reasons for that: First, the government will stop backing insurance programs that have especially high costs, and second, it seems as if many of the new insurance programs created under the law didn't pay providers as much as employer-based insurance. CBO thinks that's unsustainable, and that those plans will have to jack up premiums to bring their provider payments up to par.

Arguments that a wealthy man like Senator Ted Cruz would be salivating to get Obamacare are not credible.  Even the poor are shunning it if given the chance.  It must surely be improved to be attractive.  The ACA is not the wonderful program it is touted to be.

The Only Game In Town

POSTED 3 months ago BY HEALTH CARE COMPACT

Although many words have been written warning that a decision against the government in King vs Burwell would kill the subsidies that sustain Obamacare, relatively few people have pointed out that the administration will effectively do the same thing in 2017.  There are currently a number of programs which keep Obamacare premiums artificially low with respect to its true cost.  One the ways the price is lowered is through bailouts of insurance companies.

Republican critics of Obamacare have lately trained their fire on a program within the health care law that would provide a federal bailout to companies that lose money on insurance plans they sell on the Affordable Care Act exchanges.

But the “risk corridor” program, jointly funded by the government and the insurance industry, is not the only Obamacare program that would offset insurance companies against excessive financial losses. The “risk adjustment” program also provides money to insurers that lose money on the Obamacare exchanges. However, where “risk corridors” subsidize insurers’ losses on a plan, “risk adjustment” subsidizes losses suffered on an individual consumer.

The other method is subsidies, the most famous of which are under threat in King vs Burwell.  But there are other policies which effectively act as subsidies -- which are due to expire beginning in 2017.  “Michael Gotzler, chief legal counsel of QTI Group, a Madison-based human resources company ... said. If the Supreme Court bans subsidies in the majority of states that use the federal exchange, including Wisconsin, some firms may stop providing insurance”.

Premiums on the exchange mostly have been considered affordable, especially when factoring in the subsidies, but rates could increase in coming years, said Mike Hamerlik, president and CEO of WPS Health Insurance.

That is because two of three financial programs designed to keep costs down for insurers end in two years, Hamerlik said.

"When that goes away in 2017, that revenue is going to have to be replaced by premiums," he said. "They're artificially low right now."

These expiring programs were described by Jason Millman of the Washington Post in 2014. “Why the major test for Obamacare premiums might wait until 2017.”

Stephen Parente, a University of Minnesota health economist who advised Sen. John McCain's (R-Ariz.) 2008 presidential campaign, used the Obama administration's final 2014 enrollment reports and his microsimulation model to project health plan prices and enrollment over the next decade. His projections, shared first with the Washington Post, find an increase in individual plan enrollment in 2015 and 2016, before sharply dropping off in 2017 and then slowly decreasing below 2015 levels by 2024. …

So, how does Parente's model explain the big drop-off in coverage between 2016 and 2017? He cites two major factors: the scheduled expiration of ACA programs meant to blunt major rate hikes and the phasing in of new health plan requirements as old health plans come to an end.

On the first point, the temporary reinsurance and risk corridor programs are scheduled to end in 2016. These programs are designed to stabilize premiums as insurers adjust to the health-care law's new coverage requirements, with the idea that the reformed market will settle within three years. …

To the second point, Parente estimates between 4 million and 6 million people will see their existing individual coverage end in the next few years when either their plans lose grandfathered status or the White House's extension of non-compliant health plans runs out near the end of 2016. These holdovers from the individual market predating the ACA are expected to be younger, healthier and more sensitive to price. …

Parente's model finds these factors will have the most significant affect on 2017 premiums for less-robust plans in Obamacare's "metal tiers." These include catastrophic and bronze-level health plans, which have the cheapest premiums but the highest out-of-pocket costs. The effects will differ by state, but the national picture shows a big price jump for bronze and catastrophic plans between 2016 and 2017 — premiums for the average individual bronze plan, before subsidies, are projected to climb between $2,132 and $4,174 between those two years.

Megan McArdle, writing in Bloomberg in 2014, noticed the same thing. “We won’t actually know what effect the Affordable Care Act is having on insurance prices until 2017, when a bunch of temporary subsidies for insurers expire.”

Right now, and for the next year, insurers are operating under the expectation of large subsidies from the Obama administration via the various reinsurance provisions in Obamacare. Those provisions expire in 2016, and if a Republican takes the White House that year, insurers can also probably forget about getting favorable regulatory rulings.

Right now, it’s just not very risky to write a policy that loses a bunch of money, because your losses are capped at a few percent. Starting in 2017, all that changes. Insurers are going to need to price policies with the expectation of making money and the fear of losing it.

What we want to know is what happens when they’re actually in a competitive market. I can tell a story where the exchanges create transparency and competitive pressure that drive prices down; I can tell a story where the subsidies and various regulations drive prices even higher. I can tell a story where the insurers conclude that this market isn’t worth the tsuris and leave it to Blue Cross/Blue Shield, with all sorts of fascinating results. We won’t know which story is true until 2017 or beyond.

The irony of King vs Burwell is that the administration is decrying the loss of subsidies when it plans to effectively do the same thing in 2017. The strategy for establishing Obamacare appears to rely on the classic ploy of holding introductory prices at an artificially low level in order to capture market share and displace competing products.  This is known as penetration pricing.

Penetration pricing is a pricing strategy where the price of a product is initially set low to rapidly reach a wide fraction of the market and initiate word of mouth. The strategy works on the expectation that customers will switch to the new brand because of the lower price. Penetration pricing is most commonly associated with marketing objectives of enlarging market share and exploiting economies of scale or experience.

Then, having destroyed the older health care insurance model, the Obamacare system would be free to raise premiums after 2017, since to all intents and purposes, it hopes to be the only game in town.

Obamacare and Medicare Fight For Dollars

POSTED 3 months ago BY HEALTH CARE COMPACT

Ezra Klein at Vox unintentionally tells the fascinating story of just how unpopular Obamacare was, even in the Democratic Party. He notes that without Harry Reid’s relentless maneuvering and strongarming it would not have had the numbers to pass.  “Obama has Harry Reid to thank for his biggest accomplishments.”

It passed because Harry Reid managed something that seemed almost unthinkable: he held every single Senate Democrat — 60 of them, at least at the crucial moment — together to vote for a sprawling, unpopular bill that raised taxes, cut Medicare spending, and insured tens of millions of Americans. …

This was an extraordinary accomplishment by Reid, and it speaks to the fact that what we call Obama's legacy is just as much Reid's legacy. If Obama had pushed his health-care bill but five Senate Democrats had defected, there would be no Patient Protection and Affordable Care Act — which is to say, there would be no Obamacare.

Speaking of cutting Medicare spending, Reid’s accomplishments led indirectly to the massive Medicare “doc fix” -- a giant infusion of cash to save it from going under.  Avik Roy writes “Unfixed: House Passes Medicare 'Doc Fix' That Will Increase Spending & Deficits For At Least 20 Years”.

Medicare and Medicaid alone account for $100 trillion of unfunded liabilities to the federal government.

But Congress appears to believe that the biggest problem facing American health care is that doctors don’t make enough money. This is such a big problem, they say, that it’s worth actually adding to Medicare’s unfunded liabilities in order to ensure that doctors make more.

You heard that right. According to the Congressional Budget Office, the bill passed by the House—formally titled the Medicare Access and CHIP Reauthorization Act of 2015—would increase the federal deficit by $141 billion over the next ten years. It would increase federal spending by $145 billion, and revenues by $4 billion, over that period.

(Remember that next time you hear about all the “free” federal money that the states are stupidly turning away.  The federal government has no real money to give away.  It is in hock for years to come.)  We live in an era where “accomplishments” means scheming to spend the taxpayer’s money.

The only way to stop the flood of red ink, says Roy, is to somehow cut costs.  He notes for example that doctors in America earn an extraordinary amount of money.  Howard Gleckman notes the Medicare fix hopes that some form of payments-for-results system will reduce overtreatment.  But there is no great confidence that it will. In fact, Gleckman writes:

While this sounds great, it will be very hard to do. Getting both the quality metrics and the payment incentives right is enormously complicated. My Urban Institute colleague Bob Berenson, a physician and health policy expert, fears the new system will be so challenging it may have the perverse result of driving more docs out of Medicare. Other critics argue that will encourage physicians to accept only the easiest-to-treat patients.

About the only sure-fire way to cut the deficit is to raise taxes or increase payments.  Gleckman notes that’s in the bill too. “Some costs of those extra doc payments would be funded by a small premium hike for all seniors. However, Medicare beneficiaries with high-incomes would face steep premium increase starting in 2018.”

The deficit is going to wind up like a pea under a carnival conjurer’s shell. It will be kited to save one program after another. “The House Republican budget would cut more than $5 trillion in federal spending over the next decade and abolish Obamacare while shoring up Medicare for generations to come,” is a phrase that sounds fine until one realizes that Obamacare was supposed to save Medicare  in the first place.

As Sophie Novak wrote in the National Journal: “If the ACA can deliver on its promise of a healthier population, it would save Medicare big money. The law’s critics aren’t holding their breath.”

Mitt Romney continually accused President Obama of "robbing Medicare to fund Obamacare" throughout the 2012 election. Now, long after the campaign, the charge lives on as one of Republicans' top talking points as they attempt to shore up support among seniors.

But the Affordable Care Act's defenders say the GOP has it backwards. If the law can deliver on its promise of a healthier population, they say, it will go a long way toward keeping the cash-strapped entitlement program solvent.

By expanding insurance to millions of people, the law hopes to reduce the rate of preventable conditions that, as patients age and enter Medicare, become very costly. And there's some evidence that broader insurance coverage will lead to better health and lower costs.

And now that even Klein admits Obamacare doesn’t save any money at all, American healthcare is right back to where it started. Klein writes in the Washington Post that “the 2010 health-reform law does little to directly address prices.”

It includes provisions forcing hospitals to publish their prices, which would bring more transparency to this issue, and it gives lawmakers more tools and more information they could use to address prices at some future date. The hope is that by gathering more data to find out which treatments truly work, the federal government will eventually be able to set prices based on the value of treatments, which would be easier than simply setting lower prices across-the-board. But this is, for the most part, a fight the bill ducked, which is part of the reason that even its most committed defenders don’t think we’ll be paying anything like what they’re paying in other countries anytime soon.

Ted Cruz is probably right when argues that the problem must be approached from first principles. “Number one, allow people to buy insurance across state lines. Number two, we need to expand health saving accounts. Number three, we need to de-link health insurance from employment.”  His general prescription is that only greater competition and freer markets hold any hope of breaking the deadly cycle of tax and spend.

Competition is the only hope.  Obamacare is the light that failed.

Competition or Price Controls

POSTED 3 months ago BY HEALTH CARE COMPACT

Five years into Obamacare its advocates can let their hair down and admit: it hasn’t cut any costs. Ezra Klein has been cheerleader of the ACA from the first but he writes in the Washington Post that “the 2010 health-reform law does little to directly address prices.”  The ACA turns a lot of wheels but the car goes nowhere, like a jalopy up on cinder blocks.

It includes provisions forcing hospitals to publish their prices, which would bring more transparency to this issue, and it gives lawmakers more tools and more information they could use to address prices at some future date. The hope is that by gathering more data to find out which treatments truly work, the federal government will eventually be able to set prices based on the value of treatments, which would be easier than simply setting lower prices across-the-board. But this is, for the most part, a fight the bill ducked, which is part of the reason that even its most committed defenders don’t think we’ll be paying anything like what they’re paying in other countries anytime soon.

Lower prices is not the part it ducked.  It’s the part it promised. Obamacare care is not called the Patient Protection and Affordable Care Act for nothing. But “affordable” in this case means as expensive as ever, and we have it on Klein’s belated admission that “even its most committed defenders don’t think we’ll be paying anything like what they’re paying in other countries anytime soon”.

Having admitted that nothing in Obamacare controls costs, Klein plunges ahead to describe what does: price controls.  Here’s how he puts it:

Prices don’t explain all of the difference between America and other countries. But they do explain a big chunk of it. The question, of course, is why Americans pay such high prices — and why we haven’t done anything about it.

“Other countries negotiate very aggressively with the providers and set rates that are much lower than we do,” Anderson says. They do this in one of two ways. In countries such as Canada and Britain, prices are set by the government. In others, such as Germany and Japan, they’re set by providers and insurers sitting in a room and coming to an agreement, with the government stepping in to set prices if they fail.

It’s not that the price control idea has been hiding all this time.  Back in 2012 Sarah Kliff wrote “yes, we do know how to control health cost inflation”.  How? Price controls.

David Brooks's column today is a suggested opening for his Wednesday night debate. It includes this "brutal truth" about Medicare costs: "Nobody knows how to reduce health-care inflation."

It's would be a pretty brutal truth except for the fact it's not really true at all: We have a lot of examples to look at where governments have successfully held down the rate of health-care cost inflation. Most of them do that through some version of price controls, where the government sets the rates that doctors can charge for various services.

If “Soylent Green is people” Obamacare is smoke and mirrors. As Newt Gingrich put it in a video with USA Today’s Jayne O’Donnell (watch the video because O’Donnell’s article wholly misrepresents what Gingrich said), Obamacare is mostly Medicaid expansion plus some hideously expensive insurance to cover relatively few people.  And Medicaid is unsustainable if you can’t find a way to cut costs.

The two ways to cut costs are either to make the market more competitive or price controls.  We already know which strategy Klein thinks will work.  The trouble is, many of the countries Klein admires can simply charge the marginal cost of newly developed medical technologies or pharmaceuticals because the American market has paid the full cost.  Price controls in foreign countries don’t affect supply because demand is generated from the US market.

Our high spending makes medical innovations more profitable. “We end up with the benefits of your investment,” Sackville says. “You’re subsidizing the rest of the world by doing the front-end research.”

The moment this special condition is abolished, fixed prices will as everywhere, bring about a diminished supply of medical innovation.  One way Obamacare is already implementing price controls is by placing expensive drugs off limits to its subscribers through closed formularies. Scott Gottlieb writes:  “Obamacare is making closed formularies that offer very narrow selections of specialty medicines far more prevalent. But long term, provisions in Obamacare may also make such restrictions hard to maintain.”

But the other way to reduce costs is to undermine the ability of health providers to extract rents by encouraging competition.  Gottlieb says competition, not closed formularies, can bring new drugs within reach of patients.  He gives an actual example.

Express Scripts has captured headlines this past year waging a vigorous fight with Gilead Pharmaceuticals and that company’s drug for hepatitis C, Sovaldi. Express Scripts’ beef is with the way that Sovaldi was priced. The PBM’s solution has been to tacitly campaign for drug price controls. This earned Express Scripts some allies on Capitol Hill, and painted them onto one side of a policy divide. But in the end, it wasn’t price controls that got Express its discount. It was market-based competition.

With Sovaldi too expensive for many patients, “the Pharmacy Benefit Manager Express Scripts extracted a deep discount on AbbVie’s new medicine for hepatitis C (Viekira) and will offer it in lieu of competing drugs from Gilead and Johnson and Johnson.”  They took their business from the expensive drug and bought from the competitor.  This is good for Express, but the savings are unlikely to be passed to patients, which it could, if the market were freer.  And this is where the potential lies.

With new medicines launching that will compete with Sovaldi, Express Scripts was able to goose its profits, while taking advantage of AbbVie’s desire to win some early market share. Many PBMs like Express make money through a complicated web of discounts that they extract from drug makers, but don’t fully pass on to their customers – the self-insured businesses and health plans that contract with them. …

Closed formularies that offer very narrow selections of drugs are becoming far more common as a way to cut costs, especially in Obamacare. The battle Express waged, and its decision to completely freeze Gilead from its formulary, is a signal to the market that they are willing to take punitive measures as a way to extract price concessions and cut costs.

But Obamacare may be ironically making it harder for the ultimate consumer to extract the benefits from competition. “If a capitated provider group or hospital system has a patient on their roster, the provider group knows they are likely to be responsible for that person’s health for many years. This is becoming more acute as providers consolidate around hospitals, and health systems start to buy up their local markets.”

Obamacare has abetted the rise of local health provision monopolies which have no incentive to pass on savings to the consumers.  The problem, as Gottlieb sees it, is how to arrange things so that consumers get the discounts that companies like Express can extract; and not how to implement price controls, which is another word for rationing.  That choice between more competition or price controls is the fork in the road.

And it is also the basis of the fundamental debate over the character of the health care system. On the one side Obamacare’s advocates say price controls are the best they can do.  Ranged against that are the advocates of freer markets.  That is the issue at its most fundamental.

The Long Term Prospects of Obamacare

POSTED 3 months ago BY HEALTH CARE COMPACT

Grace Marie Turner writes in Forbes that positions on Obamacare have been deadlocked for a long time.  She cites polls summarized by Real Clear Politics which shows that the majority of respondents still oppose the program -- after five years -- and that those in favor have never taken the polling lead.

 

Poll

Date

Sample

For/Favor

Against/Oppose

Spread

RCP Average

2/13 - 3/5

--

42.0

52.5

Against/Oppose +10.5

NBC News/Wall St. Jrnl

3/1 - 3/5

1000 A

37

44

Against/Oppose +7

FOX News*

3/1 - 3/3

1011 RV

38

58

Against/Oppose +20

Reuters/Ipsos

2/27 - 3/3

2348 A

46

54

Against/Oppose +8

Rasmussen Reports*

2/28 - 3/1

1000 LV

44

52

Against/Oppose +8

Pew Research

2/18 - 2/22

1154 RV

43

55

Against/Oppose +12

CBS News

2/13 - 2/17

1006 A

44

52

Against/Oppose +8

 

Two years ago it was the same story.  And in 2014 Gallup found that even after the online exchanges were fixed, people still didn’t like it. “- Although the Obama administration is boasting higher-than-expected enrollment for the Affordable Care Act, Americans' attitudes toward the healthcare law have changed only marginally since the open enrollment period ended for 2014. A steady 43% of Americans approve of the 2010 Affordable Care Act, also known as "Obamacare," while a majority continue to disapprove of it, roughly where sentiment was before the enrollment window officially closed on March 31.”

How can a program which boasts it is giving away money in subsidies and heavily promoted by the government still be so unpopular.  Domenico Montanaro of KPBS offers up this graph to show just how immovable the attitudes have been.

kaiser_custom-70acc7eb0cf04fcc1b3c0df964a4132fd39090b1_t1200.png

 

It wasn’t suppose to be this way.  NBC's chief White House correspondent and political director Chuck Todd was probably echoing the Democratic Party’s internal reckoning when he declared the game over in 2014: "So at a minimum, the importance of hitting the six million....it means the law is unrepealable....It means that it's here to stay."

Fast forward a year and enrollments and it is no more popular than before. One thing appears to be certain, Barack Obama has not made the sale despite two terms and hundreds of billions of dollars in government sugar. Montanaro writes that it will be up to future Democratic president’s to cement it in place.  He writes, “as he recedes into lame-duck status during his remaining time in office, it will be up to Hillary Clinton, the likely Democratic standard bearer in 2016, to sell that message, preserve Obama's signature law, and, with it, his legacy.”

Clinton appears willing to carry it forward. David Knowles of Bloomberg Politics says “make no mistake, Hillary loves Obamacare.”  But he adds that she would probably rather have it known as Hillarycare and that fact will mean that its provisions will be altered under her administration.

Clinton, who had tried and failed to push through a single payer healthcare system as First Lady, has defended the Affordable Care Act before, even while acknowledging some of its faults.

“I think we are on the right track in many respects but I would be the first to say if things aren’t working then we need people of good faith to come together and make evidence-based changes,” Clinton said at a healthcare event in Orlando, Fla., last June. Ahead of the 2014 midterm elections, Clinton had urged Democratic candidates to run on Obamacare's successes, rather than let Republicans control the narrative of what they portrayed as a failed law.

But if the permanence of Obamacare depends on Hillary, how likely is it that she will be elected in 2016?  They are probably in neighborhood of 50-50. That is probably what the chances of Obamacare’s survival area, and its not a good place to be. The product itself is not particularly attractive. It has high premiums, narrow networks, astronomical deductibles.  As Grace Marie-Turner puts it, “the majority of the newly-insured are enrolled in Medicaid, the joint federal-state health program that generally pays doctors and hospitals less than any other health plan.”

The persistent unpopularity of the ACA means it has no deeply entrenched constituency that will ensure its survival. For Obamacare’s long term survival to depend on the political prospects of an aging Democratic politician is too fragile a basis to depend upon. Even its most ardent backers can be expected to hedge their bets.

It is in this knowledge that Ted Cruz has unveiled an Obamacare alternative as has Marco Rubio, not to mention the proposal already being put forward by Kline, Ryan and Upton.  The core of these proposals are plans to deregulate the sale of medical insurance and to provide everyone with a tax credit towards it, with special provision for uninsurable people.  They all take from Obamacare the idea of universal or near universal coverage, but add to it some real prospect of actual affordability.  Many of the Republican proposals also give states far more latitude than the Obamacare system.

These alternatives are designed to be different enough from Obamacare to qualify as “repeal” yet offer enough opportunity to leach away Obama’s base of industry support.  More importantly, they offer the prospect of being at least partly acceptable to some Democrats.  One of the key problems of the Affordable Care Act was its excessively narrow political base. It was passed without a single Republican vote which ensured that it could not outlast its creator -- without a Hillary Clinton to continue it.

From a coldly political point of view, Obamacare is far from settled policy.  The public has manifestly refused to embrace it.  It is of dubious inherent utility and it is horridly expensive.  Its chances for survival depend largely on the election of Hillary Clinton.  Therefore the balance of probability is that it will not survive in its present form for very much longer.  It will be replaced -- even by Clinton.  It will be the enduring legacy of Barack Obama, except insofar as the Edsel is a monument to Edsel Ford.

Ted Cruz and Obamacare

POSTED 3 months ago BY HEALTH CARE COMPACT

Andy Borowitz has a satirical piece in the New Yorker implying that denying Senator Ted Cruz Obamacare coverage would be a form of punishment.

Just hours after Senator Ted Cruz (R-Texas) told CNN that he had no choice but to sign up for Obamacare, President Barack Obama signed an executive order making Cruz ineligible for coverage under the Affordable Care Act.

“Clearly, the hardship of receiving Obamacare was causing Ted a great deal of pain,” the President said. “This should take care of that.”

Obama acknowledged that the executive order, which makes Cruz the only American expressly forbidden from signing up for Obamacare, was an extraordinary measure, but added, “I felt it was a necessary humanitarian gesture to protect Ted from the law he hates.”

However long before president Obama fictionally exempted Ted Cruz from Obamacare, he actually exempted himself.  Jane Orient described the contrast between Obama’s Care and Obamacare.

The whole country has heard the saga of the President's sore throat. Many people who have a similar problem—or a true emergency—might compare his treatment with theirs.

For a complaint of an apparently mild sore throat lasting a couple weeks, the President reportedly got an ENT consult, a fiberoptic ENT examination, and a CT scan of the neck because some "swelling" was noticed. The scan was done on a Saturday afternoon to suit the President's convenience. According to an article in the Arizona Daily Star, an opening occurred in the Presidential schedule when rain caused the cancellation of his golf game. Then a diagnosis of acid reflux was announced, and unspecified "appropriate" treatment was prescribed.

Now suppose you, as a beneficiary of ObamaCare, developed this symptom. There would be no motorcade to an iconic medical center. Instead, you would need to seek an appointment with your PCP (primary care provider). Several weeks later, you might see the first available "provider"—probably a nurse practitioner or physician assistant.

To become a patient in the "medical home," you would need an electronic health record (EHR). It would document your complete "health" history, including an extensive sexual, drug, alcohol, and smoking history. Many practices now ask about gun ownership, and even about how any guns are stored.

Although EHRs are not very good at "interoperability" (sharing with other medical facilities), they are available to very large number of "authorized" users (such as law enforcement, government planners, insurers, and researchers) and quite vulnerable to hackers. Most patients have no opportunity to opt out of a health information exchange. Once in the record, an item may be impossible to remove, even if it is a serious error. Physicians are required by law to retain records and make them available to licensure boards, attorneys, courts, and law enforcement. They cannot "lose" records, as regularly happens in government agencies, with impunity. And don't even think about lying, or asking your doctor to lie. Making a misstatement in a health record is a federal felony.

This President, in contrast, has managed to keep much of his past a secret.

Not only has the president exempted himself, he’s exempted many high government officials. This exemption was created by executive regulation, in other words, under Obama’s authority itself. Senator Ron Johnson of Wisconsin actually filed suit in court to compel the legislative branch to live under the same rules as ordinary Americans.   In a Wall Street Journal article Johnson wrote:

On Monday, Jan. 6 [2014], I am filing suit in the U.S. District Court for the Eastern District of Wisconsin to make Congress live by the letter of the health-care law it imposed on the rest of America. By arranging for me and other members of Congress and their staffs to receive benefits intentionally ruled out by the Patient Protection and Affordable Care Act, the administration has exceeded its legal authority. …

It is clear that this special treatment, via a ruling by the president's Office of Personnel Management, was deliberately excluded in the law. During the drafting, debate and passage of ObamaCare, the issue of how the law should affect members of Congress and their staffs was repeatedly addressed. Even a cursory reading of the legislative history clearly shows the intent of Congress was to ensure that members and staff would no longer be eligible for their current coverage under the Federal Employee Health Benefit Plan.

In June 2014 a federal judge ruled that Johnson could not challenge the provision because he was not injured by this thinly disguised bribe.  In other words Johnson could not sue because he was better off staying out of Obamacare.

A Republican senator had no grounds to sue the Obama administration over how it interpreted the part of Obamacare that forces members of Congress to get their health care insurance through the law’s new exchanges, a federal judge ruled Monday.

Sen. Ron Johnson of Wisconsin said he was disappointed in the outcome of his legal challenge, which argued the administration provided lawmakers and their staffs with illegal preferential treatment when it decided it would still dole out employer-based subsidies to help them pay their monthly premiums. A provision of the president’s 2010 health law required members of Congress and key staffers to get their insurance coverage through the exchanges.

Mr. Johnson said ordinary Americans in the Obamacare marketplace will not enjoy those benefits and must qualify for less-generous income-based subsidies.

But first he had to prove he was harmed by the rules. On Monday, Judge William C. Griesbach said the lawmaker failed to meet that test.

“I conclude that any injury traceable to the contested regulation is too speculative and undeveloped to constitute a redressable injury,” the judge wrote in an order to dismiss the case.

Logically Cruz, by opting to enrol in Obamacare, is voluntarily disadvantaging himself by jumping from the frying pan into the fire.  Cruz in explaining his decision said, "I strongly oppose the exemption that President Obama illegally put in place for members of Congress because (Senate Minority Leader) Harry Reid and the Senate Democrats didn't want to be under the same rules as the American people," Cruz said, before repeating: "I believe we should follow the text of the law."

Borowitz’s snarky argument is the exact opposite of the truth.  Obama will not partake of the dish he insists everyone should eat.  If that isn’t hypocrisy, then what is

Has Obamacare Boosted Employment

POSTED 3 months ago BY HEALTH CARE COMPACT

One of the proud claims of Obamacare is that it’s created a plethora of jobs.  For example, Alex Wayne at Bloomberg News reports that “more than 90 new health-care companies employing as many as 6,200 people have been created in the U.S. since Obamacare became law, a level of entrepreneurial activity that participants say may be unprecedented for the industry.”

The health law, which took full effect in 2014, represents the most dramatic change to the U.S. health system in 50 years. Entrepreneurs, including some from within President Barack Obama’s administration, have founded companies that target employers, health insurers, hospitals, doctors and consumers looking to navigate new requirements and possibilities.

“There’s a lot of opportunity for new market entrants,” Zenefits’ Conrad said. “The ground is literally shifting under the feet of the incumbents.”

Conrad, a cancer survivor, said that after reading the Affordable Care Act cover-to-cover and talking to insurance experts, he realized it offered an opportunity to ease the process of pricing, selling and managing health insurance for small businesses. Zenefits, which has 10,000 clients, can “spit out pricing” for every health insurance plan in a state “in milliseconds,” using only the ages and addresses of employees, he said.

Zenefits is fairly typical of the kind of business that has sprung up around Obamacare.  It helps small businesses “ease the process of pricing, selling and managing health insurance”.  Michael Estrin of Bankrate examined the kinds of occupations that have thrived under Obamacare.

  • Lawyers. Median annual salary: About $113,000. The more than 900-page Affordable Care Act and its many related regulations have created a bonanza for lawyers, and for more of them. "First, the ACA is complicated and long (and) few people really want to read it. Second, there is an abundance of incorrect information freely disseminated (about the law)."

  • Management consultants. Median annual salary: About $78,000. For the most part, consultants are advising these institutional insurance customers on how to meet the law's requirements without breaking the bank. Consultants also are advising pharmaceutical firms and medical device makers on how to exploit opportunities presented by the ACA, and they're helping doctors adapt their practices for the potential influx of new patients.

  • Insurance Sales Agents. Median annual salary: About $47,000. To explain health insurance products to the potential new pool of customers, Blue Cross and Blue Shield companies across the U.S. are ramping up operations, says Eric Lail, a spokesman for the Blue Cross and Blue Shield Association, the nationwide umbrella group for the 37 separate "Blues."

  • Customer service representatives. Median annual salary: About $30,000. Many of those jobs are for call center operators, to explain insurance options and answer questions by phone. In one example, the consulting firm Challenger, Gray & Christmas says an Iowa call center added 120 jobs after winning a contract related to the health care law.

  • Navigators. Estimated average pay: $29.20 per hour. "Navigator" is a new class of job created by the health care law. The Obamacare navigators are charged with helping people work through enrollment paperwork. They educate consumers about the new marketplaces and determine if they qualify for a federal tax credit to save on the cost of health insurance. The job functions are similar to those of a call center operator.

  • IT professionals. Median annual salary: About $71,000. "The ACA mandate for the implementation of electronic medical records has created a strong need for IT professionals, which creates excellent job opportunities," says Amanda Bleakney, managing director for health services at The ExecuSearch Group, a New York City staffing firm.

While these are all decent, honest jobs they mostly spring from the need to help people understand the byzantine complexities of affordable care.  They are mostly paper pushing jobs.  People who explain the law; who litigate cases, answer telephoned questions, help fill out forms and handle electronic records.

H&R Block, for example, is part of this “entrepreneurial” boom. The Daily Caller wrote: “five years ago, a bevy of high-priced H&R Block lobbyists worked on the tax preparation company’s behalf to shape the Affordable Care Act.”

And this April 15, those efforts are set to pay off in a big way for the company.

H&R Block is well positioned to earn more than $100 million in additional fees from low-income Obamacare enrollees as they face the daunting challenge to properly file this year’s complicated health-related tax forms.

Consumers are familiar with H&R Block’s massive “Get Your Billions Back” ad campaign that includes direct appeals to Obamacare recipients who will have to file health information on this year’s IRS tax forms.

Obamacare has set off what some people call Regulation Rodeo.  The torrent of regulations pertinent to the Affordable Care Act are documented on this site.  Just tracking them is a full-time job. For businesses Obamacare means hiring more people -- another employment benefit -- to deal with the paper work. Joyce Rosenberg, the AP’s business writer says:

Complying with the health care law is costing small businesses thousands of dollars that they didn't have to spend before the new regulations went into effect.

Brad Mete estimates his staffing company, Affinity Resources, will spend $100,000 this year on record-keeping and filing documents with the government. He's hired two extra staffers and is spending more on services from its human resources provider.

The Affordable Care Act, which as of next Jan. 1 applies to all companies with 50 or more workers, requires owners to track staffers' hours, absences and how much they spend on health insurance. Many small businesses don't have the human resources departments or computer systems that large companies have, making it harder to handle the paperwork. On average, complying with the law costs small businesses more than $15,000 a year, according to a survey released a year ago by the National Small Business Association.

"It's a horrible hassle," says Mete, managing partner of the Miami-based company.

But there are some winners. Some companies are hiring people to take on the extra work and human resources providers and some software developers are experiencing a bump in business.

Despite efforts to depict these jobs as additions to the health sector brought about by Obamacare, they add almost nothing to the national stock of actual healthcare provision (like doctors, nurses and medical technicians).  They are mostly employment for admin and legal types.  The argument that it has boosted the economy is at the very least a cynical one.

Paul Ryan: Let Obamacare Die, We Have a Plan

POSTED 3 months ago BY HEALTH CARE COMPACT

Paul Ryan has a message for Republican state officials.  A Wall Street Journal article reports that if the Supreme Court rules against the federal government in King vs Burwell, Ryan advises against a panic rush to replace the subsidies. “It’s not going to be as if in a few weeks all these people in our states, my state included, are going to be out of subsidies and have a 256% increase in their premiums, which is the average price increase we’re predicting.

Mr. Ryan, chairman of the House Ways and Means Committee and the GOP vice presidential nominee in 2012, asked the state legislators to hold firm and promised them congressional Republicans would have alternative health-care legislation—with an official cost estimate—introduced by June 20. The bill, he said, would revive lower-cost, limited coverage insurance plans in states that didn't want their own exchanges. Currently, 37 states use HealthCare.gov.

“If people blink and if people say this political pressure is too great, I’m just going to sign up for a state-based exchange and put my constituents in Obamacare, then this opportunity will slip through your fingers,” he said.

Ryan implied that under the new GOP plan people would be able to buy much cheaper insurance than that currently offered on the Obamacare exchanges.  The plans would be allowed to ditch certain features in the interest of reducing price and fostering competition.

Mr. Ryan said state lawmakers should brace for a “high octane” wave of criticism for refusing to set up their own exchanges, but that they could persuade people to embrace a specific GOP alternative. ...

His remarks Thursday offered the most detailed vision yet of the House Republicans’ thinking. Mr. Ryan suggested the GOP caucus was most enthusiastic about allowing states to strip some of the health law’s requirements that insurance plans must provide certain minimum benefits and a requirement that insurers sell to all customers equally regardless of their medical history.

“We think things like community rating and other regulations make insurance needlessly expensive for most people and that there are better more targeted ideas out there to help those with pre-existing conditions get affordable care,” he said. “We just want to give people market freedom and personal freedom so that they can buy what they want.”

Those ideas include reviving high-risk pools, which are state-run insurance pools for people turned down by commercial insurance plans, and beefing up protections that let people with insurance switch their plans regardless of their medical history.

The congressman’s remarks suggest the GOP is far closer to a comprehensive alternative to Obamacare than the ACA’s advocates have cared to admit.  Many pro-Obamacare pundits ridiculed the idea that the GOP could offer anything more than a pastiche given the long gestation time that the ACA itself had.  But Ryan has been working on an alternative for some time and the GOP has been fecund with ideas that have centered largely around breaking down regulations rather than creating an entire universe of them.

Stuart Butler of the Brookings Institution examined the Ryan proposal and found it was anything but slipshod. “But the real question is this: does the Ryan proposal have ingredients that could be part of a future agreement on the long-term shape of the American health care system? I believe it does.”

Butler notes that Ryan’s plan contains insurance protections against the denial of coverage, a system of tax credits to buy insurance on a much more liberated market than the Obamacare exchanges and a wide degree of state flexibility.

Such provisions overlap with protections in the ACA. So there is plenty of room for broad bipartisan agreement on a range of protections. …

Another reason for optimism is that the Ryan-Kline-Upton outline embraces a refundable, advanceable tax credit for health coverage meaning the assistance would be available to those paying little or no tax and would be available when premiums are due. Moreover, the credit would be available for coverage outside exchanges including, presumably, for those Americans affected by an adverse decision in King v. Burwell. And like the Hatch proposal, the House chairmen’s plan would adjust the credit by age, which is a rough approximation of the cost of insuring different segments of the population. This credit structure opens the door to a more comprehensive agreement on subsidies. …

The House chairmen’s plan would also give states an “off ramp” from the ACA to pursue their own vision of coverage and avoiding federal mandates as they do so. That sounds radical, but Section 1332 of the ACA also provides sweeping waivers to states, starting in 2017, to pursue the goals of the ACA without the legislation’s individual and employer mandates or the need to set up exchanges. To be sure, the House proposal doubtless envisions a much looser set of goals for states and no requirement that states must seek a waiver from Washington. But if Section 1332 were merely to be amended to take effect immediately, it would go a long way towards achieving the chairmen’s vision of state flexibility as well as giving options for addressing a King decision against subsidies in federal exchanges.

It’s the bipartisan bill Obamacare could have been had it not been obsessed with carrying out an unworkable vision of the president’s ideas. Butler writes:

It’s unfortunate that the Obama Administration and a bipartisan group of congressional lawmakers were not able to draw on broadly held ideas about protections, tax assistance and state flexibility to craft a bipartisan health reform in 2010. But the House chairmen’s plan, like the earlier Hatch, Burr and Upton plan, is a good starting point for a fresh discussion of lasting, bipartisan health reform.

Ryan has a trump card the president lacks.  He has a plan that might work, whereas Ryan knows from his long experience with congressional budgetary issues, that Obamacare hasn’t a snowball’s chance in hell of actually functioning. What is more Ryan knows the Democrats understand this too.  The Ryan proposal isn’t an “off-ramp” for Obamacare; it’s a life raft for Democratic politicians who are looking for a way out of the sinking ship without appearing to betray the president -- or at least the principles he espoused.

By offering a plan which is far more flexible than Obamacare, Ryan has given every politician in trouble a life-line to hang onto.  The governors need a way to provide health care to voters; the congressmen need a source of savings to rescue an starving Medicare; the states need flexibility (witness the Health Care Compact) and the American people need cheaper health insurance with fewer restrictions than Obamacare.

The Ryan alternative offers some chance of achieving at least some of these goals.  Obamacare has marked its fifth anniversary and it is now widely acknowledged that it will never meet its design targets. “Obamacare is now slated to hit only 65 percent of the CBO’s original coverage projection for 2015.”

If the Supreme Court rules against Burwell, it will not be the cause of the ACA’s demise so much as a coup de grace.  It’s been dying these five years.  There’s no future in it.

Don’t Limit People to the Company Store

POSTED 3 months ago BY HEALTH CARE COMPACT

Bruce Japsen asserts that the advent of Obamacare has not driven employers to push their staff out onto the public exchanges.  He argues that while the economic incentives tend to encourage this, the need to keep valued employees has forced most companies to suck up the costs of Affordable Care.  Japsen cites a Beth Umland, Mercer’s director of research for health and benefits, as evidence.

“Given that the penalty for not offering coverage under the ACA is far lower than the average per employee cost of health coverage – which hit $11,641 in 2014 – it’s not surprising that nearly one out of 10 employers saw terminating their health plans as a likely  option back in 2010,” Umland added.  “But in fact, virtually no large employers have jumped ship so far, and today few are even considering it.

Mercer’s survey of employers comes less than three months after employers with 100 or more workers in January were required by the Affordable Care Act to offer 70 percent of their full-time workers coverage. In 2016, employers with 50 or more full-time workers have to start offering coverage.

Employers see offering health benefits as important to keeping the best workers. “Few employers want to risk being the first of their competitors or in their markets to drop health benefits, especially in an improving economy,” Umland said.

Making the opposite case is Rick Lindquist, president of Zane Benefits, which specializes in individual health insurance reimbursement for small businesses.  He predicts that the employers will increasingly pushing employees out of group plans, a trend that will only accelerate in the future.

There will be a massive shift; in fact, we’re in the middle of it. People categorize this as employers dumping health insurance. Yes, they stop offering insurance but they don’t stop offering benefits. They’re just changing they way they deliver them and replacing them with defined-contribution plans. It could save millions of dollars for employees and employers. …

In our book, we project that by 2017, the majority of small businesses that now offer health insurance will switch to defined-contribution. This is being led by small-business owners. But it doesn’t stop there.

A few years ago, some big companies [Verizon and AT&T] leaked documents saying they were evaluating dropping health insurance plans. Some big companies will drop their plans and that will have a snowball effect. We project that 90% of all businesses will drop offering health insurance plans in the next 10 years. … Since the early 2000s, health-care costs for businesses have been growing faster than any other employee cost. And they’ve shifted the cost to employees over the last 15 years with higher deductibles, higher copays and higher premiums.

Time will tell who is right. Defined-contribution plans are similar to a health care voucher provided by employers to their workers.  The company gives workers a certain sum of money which they can use towards buying a plan that best suits their needs. According to Wikipedia describes “a Defined Contribution Health Benefit” as “a consumer-driven health care arrangement in which employers choose a set dollar amount to contribute towards an employee’s healthcare.”

Under a Defined Contribution Health Plan the employee is responsible for researching and purchasing his or her own insurance policy. Defined contribution health plans are an alternative to traditional employer-sponsored group health insurance plans. A defined contribution health plan by itself is not a health insurance plan, but rather a health benefits strategy.

Employer contributions can be made on a tax-free basis when offered under a qualifying plan such as a Section 105 Medial Reimbursement Plan.

Similar to a defined contribution plan used by employers to contribute to their employees' retirement savings, defined contribution health plans allow employers to avoid uncertainty by fixing future obligations. Defined Contribution Health Plans have in recent years become a viable method for offering benefits as individual health insurance plans have become more widely available under the Patient Protection and Affordable Care Act (ACA). Industry experts expect that in the coming decade there will be a shift to defined contribution health benefits plans, similar to the recent shift in retirement plans from defined benefit to defined contribution.

One of the problems with Obamacare is that it forces people to spend their insurance dollars at “the company store” -- at bureaucratically encumbered official health care exchanges that are so expensive in themselves that even states can’t afford to operate them. For example, Rhode Island discovered it is simply too small to afford an exchange of its own.

“Insufficient scale to justify investment.  Do not pursue.”

Such was the conclusion of a 2009 report funded by the Robert Wood Johnson’s State Coverage Initiative to investigate then-Lieutenant Governor Elizabeth Robert’s plan for HealthHub RI.  This year, the first budget proposed by Rhode Island’s new governor, Democrat Gina Raimondo, provides proof that the study was right. …

With the Affordable Care Act requiring federal funding to cease soon, Rhode Islanders are now finding out what “insufficient scale” actually means.

To pay for the exchange, Raimondo’s budget includes a brand new tax on health insurance.  The governor’s spokeswoman has been explaining the “fee” as structured similarly to the one that the federal government charges for its exchanges.

Moreover, the insurance sold at the “company store” is too expensive for many low-income employees who must then pay the Obamacare penalty -- or apply for an exemption -- for being too poor to afford Affordable Care. A recent New York Times article described the plight of people forced to shop in the government exchange. “Josephine Kennedy, 51, worked a series of low-paying jobs in 2014 and went without health insurance, despite the Affordable Care Act requirement that most Americans maintain coverage.”

The state has now expanded Medicaid, and Ms. Kennedy said she would apply even though she preferred the free clinic she had gone to for years. If she remains uninsured, she will most likely be subject to the penalty for 2015, which will grow to $325 per adult or 2 percent of household income, whichever is larger.

“I still don’t see the point of forcing someone to get insurance,” Ms. Kennedy said. “But I’m happy I got this taken care of for now.” …

H & R Block also found that as of Feb. 24, just over half of its clients with subsidized marketplace coverage had to repay a portion of their subsidy because their 2014 income turned out to be higher than what they estimated when they applied for coverage.

Kathy Pickering, executive director of the Tax Institute at H & R Block, said these clients had owed back $530 on average, decreasing their tax refund by an average of 17 percent.

A far better approach might be to provide everyone with a healthcare voucher and let them choose from a much wider set of plans.  Nobody buys his cell phone, food or other consumer goods at a government run store.  There’s no reason why health insurance should be the exception to the rule.  If employer provided health insurance is on the way out, the logical next step will be to free the insurance markets from the onerous requirement that they be Affordable Care exchanges.

The Regulatory Minefield

POSTED 3 months ago BY HEALTH CARE COMPACT

While some people may think that the “typo” which caused the King vs Burwell challenge to reach the Supreme Court represents the ultimate ticking time bomb in the ACA there are a number of other provisions buried that could potentially have wide-reaching impact.  One was unearthed by a suit brought by a transgender person against a hospital on the basis of an Obamacare provision guaranteeing nondiscriminatory treatments for persons other than male or female.

Jakob Rumble was in severe pain when he came to the emergency room of Fairview Southdale Hospital in Edina with his mother.

What happened next provoked a federal lawsuit by the West St. Paul resident and a decision by U.S. District Judge Susan Richard Nelson that is being hailed by national transgender and gay rights organizations.

Nelson ruled this week that Rumble, who identifies himself as a transgender man, has built a “plausible” case that he was a victim of discrimination and mistreatment by an emergency room doctor on the basis of gender identity. She denied a motion by the doctor’s employer and Fairview to dismiss the case.

Nelson’s 63-page ruling is believed to be the first extensive federal court analysis of Section 1557 of the 2010 Affordable Care Act. The provision prohibits discrimination by health care providers and is the first federal civil rights law barring sex discrimination in health care.

The details of the case can be found in the actual court documents from the United States district court of Minnesota, which says: “The Court also notes that on December 12, 2013, Plaintiff filed a complaint of discrimination with the Office for Civil Rights (“OCR”) in the Department of Health and Human Services alleging that Defendants violated his rights under Section 1557 of the ACA.”

There is also a little known provision in Obamacare which allows foreign diplomats and UN employees to receive taxpayer subsidies for their health care. “A new law introduced in Congress seeks to prevent foreign diplomats and employees of the United Nations from receiving taxpayer-funded Obamacare subsidies. The bill has been introduced in the House of Representatives by Republicans Ed Royce and Paul Ryan.”

U.S. Rep. Ed Royce (R-CA), Chairman of the House Foreign Affairs Committee, and U.S. Rep. Paul Ryan (R-WI), Chairman of the House Ways and Means Committee, introduced H.R. 1368, the No Healthcare Subsidies for Foreign Diplomats Act of 2015, legislation to prevent foreign diplomats from receiving subsidized health coverage under the Affordable Care Act (ACA).  According to the Department of Health and Human Services, foreign diplomats and United Nations employees in the United States are currently eligible to obtain American taxpayer-funded subsidies under the ACA, such as premium tax credits and cost-sharing reductions, just like American citizens and lawful permanent residents.

The trouble is that the president is determined to keep the Congress from tinkering with the law, for once he allows the legislature to amend and repeal legislation -- which is actually their job -- then control over Obamacare may pass out of his hands.  The tug of war over control of the ACA has often made things worse rather than better.  Much of the implementation for Obamacare has been offloaded on the IRS. IRS Commissioner John Koskinen told Congress on he has had to take money away from answering tax phone and divert it to Obamacare implementation activities.

The IRS chief said Congress didn’t provide additional money to prepare for Obamacare and the tax penalty filings that began this year, so he shuffled at least $100 million from user fee funding that had been going to customer service.

“Because of the zero funding for the Affordable Care Act and [the Foreign Account Tax Compliance Act], the only way we could implement those statutory mandates … in the last year was to move a significant part of that support for taxpayer service into the IT accounts,” Mr. Koskinen said.

Under Obamacare, Americans who don’t have insurance coverage and don’t qualify for an exemption are required to pay a tax penalty to enforce the law’s “individual mandate.”

The executive branch has not covered itself with glory, clearly botching many activities. Perhaps best known to the public are the catastrophic rollout of the original website.  Less notorious are the succession of federally funded state sites which have crashed and burned.

The federal government's HealthCare.gov, which broke down in the fall of 2013, has been one of the most criticized components of ObamaCare's rollout. Some estimates have put the cost of the botched launch and the series of tweaks to fix the website at $2 billion, a figure that Hatch's staff cited Thursday.

The analysis includes $1.3 billion spent on now-defunct state exchanges: Minnesota, Massachusetts, Oregon and Maryland. These systems, all in blue states, were plagued by technical issues and eventually scrapped or majorly reformed. Republicans have frequently pushed federal health officials to recoup the costs of the exchanges.

But perhaps nothing says “botched” like the 80,000 tax forms which are on hold as they await the replacement of a form mistakenly sent them by the IRS. The forms mistakenly used the wrong year’s data and were therefore unusable.  Until taxpayers receive an updated form they must mark time.

The Obama administration announced Friday that 80,000 corrected tax forms for people on plans through ObamaCare have still not gone out.

It's unclear how many people will be affected by the delay, but the administration said people who have not received the corrected forms do not have to wait to file their taxes and will not have to pay any additional tax due to the effort.

The issues stem from the announcement last month that 800,000 people on insurance plans through ObamaCare received incorrect tax information. At the time, the administration said forms with corrected information would be sent out in the first week of March.

This confusion has naturally opened the door to scam artists. Scott Goss of the News Journal writes, “IRS warns taxpayers of new Obamacare tax penalty scam”.  The complexity of the form has permitted unscrupulous persons to charge immigrants the tax penalty and pocket it for themselves.

The Affordable Care Act, most commonly referred to as Obamacare, was signed into law in 2010, but this is the first time taxpayers are being required to certify that they have health insurance on their tax forms.

For those insured through their employer or receiving other qualifying coverage, that simply means checking a box on their tax form to indicate their family had health insurance for all of 2014.

Taxpayers without insurance – including those who lacked coverage for more than two consecutive months – will be required to pay a penalty of $95 per adult and $47.50 per child up to a maximum of $285, or 1 percent of household income, whichever is higher.

The Internal Revenue Service last week issued a consumer alert about the new Obamacare fraud after receiving "several reports" of tax preparers instructing their clients to pay the penalty directly to them, instead of the U.S. Treasury Department.

King vs Burwell is but one of the legal mines strewn through the Affordable Care Act which can neither be fixed nor mitigated as both executive and legislative battle over it.  The law that had to be passed to find out what was in it is showing its hand.  And the loser is the public.

No Virginia, The Federal Government Isn’t Santa Claus

POSTED 3 months ago BY HEALTH CARE COMPACT

Emily Cohn at the Huffington Post says she had a dream: the dream of free contraception under Obamacare. And for one, brief it actually came true.  “I'll always remember the first day I got birth control for free just over two years ago. This was one of the first times I felt a tangible effect of Obamacare. I immediately called my mom to share the news. I texted all of my girlfriends. I even posted a picture of my $0 bill on Instagram.”

Then a terrible thing happened. Her Obamacare provider decided to charge a fee to prevent policyholders from wasting or overusing the giveaways.  Cohn remembers her outrage on that horrible day.

So you can imagine how upset I was when a CVS pharmacist told me recently that I owed $20 for a 28-day supply of pills.

"I'm a journalist who covers health care," I protested to the pharmacist. "I understand Obamacare. I shouldn't be getting charged for birth control."

In fact, as it turned out, it was perfectly legal for me to suddenly get charged for birth control after years of getting it for free. That's because health care companies are allowed to dictate how you get your care, even if that conflicts with the original intent of the Affordable Care Act, also known as Obamacare.

The druggist explained to the journalist that you could get it for free if you jumped through hoops, filled out forms and saw the doctor for renewed prescriptions more often than you liked.  Or you could pay $20. In truth these requirements were purposely laid roadblocks to keep usage down.  Cohn wrote an almost “coming of age” ending paragraph: “I guess the moral of my story is that free birth control for all women was a lofty promise. There's still a lot of work women need to do to ensure they get the legal protections they're guaranteed under the law.”

It’s a terrible thing for a young person to realize that money doesn’t come out of the wall, as a child watching ATMs work might conclude.  “Someone” has to pay for that free contraception.  That “someone” if it wasn’t Cohn, would be someone else.  The Washington Post reports that funds for rural hospitals -- like those for doctors accepting Medicare payments -- have been raided to pay for all those contraceptives on the house.

Despite residents’ concerns and a continuing need for services, the 25-bed hospital that served this small East Texas town for more than 25 years closed its doors at the end of 2014, joining the ranks of dozens of other small rural hospitals that have been unable to weather the punishment of a changing national health-care environment….

The Kansas-based National Rural Health Association, which represents about 2,000 small hospitals across the country and other rural care providers, says that 48 rural hospitals have closed since 2010, the majority in Southern states, and 283 others are in trouble. In Texas alone, 10 have closed. …

Experts and practitioners cite declining federal reimbursements for hospitals under the Affordable Care Act as the principal reasons for the recent closures. Besides cutting back on Medicare, the law reduced payments to hospitals for the uninsured, a decision based on the assumption that states would expand their Medicaid programs. However, almost two dozen states have refused to do so. In addition, additional Medicare cuts caused by a budget disagreement in Congress have hurt hospitals’ bottom lines.

The poor rural folks, the grandpas and grandmas on Medicare are the someone else.  It has to be. The need to pay for the cost of goods provided means either charges creep back or money is taken from other programs or other health delivery systems to make it up.  A pea moved around under walnut shells may seem like more than one pea, and the bewitched onlooker may momentarily believe the illusionist is making new peas out of nothing, but when the shells are finally lifted there’s only lonely one pea after all. And that’s how it works with Obamacare.

There are the same number of dollars in the economy as there always. Then the government takes some dollars from somewhere and calls it a “tax”.  Then the same government mails it someone else and calls it a “subsidy”.

Cohn will probably not be surprised to learn that her experience was typical of many other Obamacare policyholders.  In the beginning it seemed a grand promise.  Jason Millman of the Washington Post writes, “Millions more have coverage, but the public still isn’t sold on Obamacare”.  And the reason is they expected the product to look like the picture on the box.  Like Cohn they thought their dreams had come true. But when they opened the package, as Cohn did, once the shiny paint had rubbed off their dream was revealed as shoddy goods.

Forty-three percent of Americans this month view the law unfavorably, while 41 percent give it a favorable rating, according to the Kaiser Family Foundation's tracking poll. According to Kaiser data, overall opinion on the law has been improving over the past few months, which saw a much smoother Obamacare enrollment season compared to last year, with fewer glitches.

A deeper dive into the polling numbers, though, shows a more complicated picture. The number of uninsured has plummeted, but that success hasn't translated into broad popularity for the law. Partisan views are entrenched. And there's declining optimism among those expected to benefit most from the health-care law's coverage expansion, Kaiser's polling data show.

Interestingly enough the more people used it, the less impressed they were. This was the paint rubbing off. “Among Hispanics, as you can see below, support for Obamacare has been strong since the law's passage, though it has dropped since then. More than two-thirds viewed the law favorably in April 2010, almost four times the rate of Hispanics who had unfavorable views. But now, just under half of Hispanics — who have the highest uninsured rate of any ethnic groups — view it favorably.”

Those who remain uninsured are pessimistic about their chances of getting coverage. Almost half (44 percent) of the uninsured said they don't expect to get health insurance in the next few months. About two-thirds of the uninsured last year didn't bother to look for coverage, largely because they didn't think they could afford it, according to an earlier Kaiser survey.

When the president was on the stump for Obamacare, many people like Cohn thought that “affordable care” meant free or cheap medicine. And they were excited.  But in actuality for most people premiums have risen, deductibles have climbed and physician networks have narrowed.  ‘Affordable’ meant more expensive.  The millions who received a new insurance card proving they were covered found they had to ante up co-pays or drive long distances to see doctors.  Many people found you can be insured and yet to all intents and purposes, not be covered.

Cohn expressed resentment at all the procedural hoops she had to jump through just to get what she might have bought for $20 at CVS.  It’s the same for most recipients of Obamacare.  In exchange for subsidy which doesn’t get them all the way to a premium that itself is rising,  they have to fill out a complicated tax form: 1095-A.

When something sounds too good to be true, it usually is.  Politician’s promises are one thing, but cost, insurance companies and taxes are another.  Fantasy is what is promised. Reality is what you actually get.

The Republican Plan to Crack Obamacare

POSTED 3 months ago BY HEALTH CARE COMPACT

While press attention was focused on King vs Burwell, Congressional Republicans were executing a complex maneuver to, in the words of Jonathan Weisman of the New York Times, ‘overhaul Medicare and repeal Obamacare’.  The entire operation appeared to consist of interrelated components:

  • a $200 billion rescue package for Medicare sometimes referred to as the “doc fix”.

  • cuts to Obamacare funding;

  • a bridging fund designed to cushion the effect of a hoped for Supreme Court ruling against the government in King vs Burwell and

  • a general package of “reforms” designed to reduce the cost of medical provision.

The doc fix is designed to prevent a fall in the reimbursement rates for doctors participating in Medicaid.  Medicare lost $716 billion to Obamacare. “In a rare display of bipartisanship, House leaders are actively pursuing a deal to permanently change the way Medicare pays doctors and to extend a children’s health program for two years.”

The estimated $200 billion package could be introduced as soon as this week by House committees responsible for health care policy. Both Speaker John Boehner (R-Ohio) and Democratic Leader Nancy Pelosi (D-Calif.) are personally involved to the point that Pelosi reached out to Senate Minority Leader Harry Reid (D-Nev.), and Boehner has spoken to Senate Majority Leader Mitch McConnell in recent days.

In recompense, the Republicans hope to cut about $510 billion a year, amounting to $5.1 trillion over 10 years.  In another article, Jonathan Weisman describes the GOP plan. He is not impressed and apparently regards the expected savings as the product of wishful thinking.

The plan contains more than $1 trillion in savings from unspecified cuts to programs like food stamps and welfare. To make matters more complicated, the budget demands the full repeal of the Affordable Care Act, including the tax increases that finance the health care law. But the plan assumes the same level of federal revenue over the next 10 years that the Congressional Budget Office foresees with those tax increases in place — essentially counting $1 trillion of taxes that the same budget swears to forgo.

And still, it achieves balance only by counting $147 billion in “dynamic” economic growth spurred by the policies of the budget itself. In 2024, the budget would produce a $13 billion surplus, thanks in part to $53 billion in a projected “macroeconomic impact” generated by Republican policies. That surplus would grow to $33 billion in 2025, and so would the macroeconomic impact, to $83 billion.

To be fair, Obamacare was going to do the same thing for Medicare.  It was going to save the US medical system by doing things much more cheaply.  However that may be, the next element of the GOP attack is to provide a bridging fund to reassure the court that no cataclysmic loss of income due to canceled Obamacare subsidies will hit the electorate.

GOP leaders had been eying reconciliation as a way to show the Supreme Court that they have a plan of action in case King v. Burwell goes in their favor, while buying themselves several months to hammer out details.

Enzi’s proposal gives power to two committees to draft legislation on ObamaCare — the Finance Committee and the Committee on Health, Education, Labor and Pensions (HELP).

The Senate budget notes that the healthcare law "is now under review by the U.S. Supreme Court," and says the ruling in the case "could significantly alter the levels of spending in the budget resolution."

"Consequently, the Senate Republican budget includes reconciliation instructions for health care, but the actual contours of that legislation are unknowable at this time."

This combined package is a serious attack on Obamacare.  By packaging the repeal of Obamacare with the rescue package for Medicare, it puts the president in the position of having to veto both to stop an attack on the ACA.  Obama can hardly relish the prospect of killing off a program, Medicare, which serves more than 40 million people, to save his pet law, which serves fewer.

Moreover, the bridging fund undercuts the administration’s argument that the sky will fall should the Supreme Court rule of the plaintiffs in King vs Burwell.  Lastly the government is broke.  It needs a budget that will reduce the deficit.  Taken together the bill contains a powerful package of measures that will be hard to completely stop.

Scott Gottlieb, who has long been a vocal opponent of Obamacare, fears that the compulsion to save the Treasury from bankruptcy will mean the government will be forced to destroy the medical system in order to save it. He argues that doc fix will institutionalize all the “capitation” provisions that, under other guises, are so much a part of HMOs and Obamacare.

Twenty years ago, during the heyday of narrow network HMOs, these provisions were referred to as “capitation”. Today, they are termed “payment reform”.

The end result is the same. It was a big part of ACA. Mr. Obama didn’t give a single major speech on health reform without touting one of the large integrated health systems that formed the inspiration for this blueprint — Kaiser Permanente, Geisinger Health System, the Mayo Clinic, or Intermountain Healthcare. Obamacare was built on a premise that these institutions could be recreated everywhere.

Now Republicans in the House are about to pick up these ideas, and extend them, by extending and expanding the Obamacare “payment reforms” that transfer more financial risk to doctors and cement the current trends in healthcare delivery.

If the new measures pass intact, they will mark the moment that we cast a permanent end to the private practice of medicine. The provisions are so clumsy, and quickly transfer so much financial risk to providers, that it will be hard for doctors to remain independent, as part of small and medium sized groups. Even if doctors can assume the financial risk, they will have a hard time keeping up with the litany of complicated payment provisions that Medicare is poised to enact.

But it’s hard to see how it could be otherwise given the growing centralization of spending power in the hands of the government. In Gottlieb’s own words, doctors are becoming ‘price takers’ rather than ‘price setters’.  The rise of health provision monopolies has been matched by a corresponding rise in insurers.  And the biggest insurer of all is the government.

The last faint hope for restoring competitiveness is to break up the action into smaller arenas.  That is why the Health Care Compact idea is so powerful.  Only by dismantling the managed “competition” between giant institutions can real competition and innovation be restored.  Without breaking things up, a one size fits all Democratic health care plan will only be replaced by a Republican version.  But both will be made in Washington with all the problems that implies.

Obamacare Threatened by Arithmetic

POSTED 3 months ago BY HEALTH CARE COMPACT

The triumphant tone of last weeks talking points depicting Obamacare as an established success suddenly gave way to shrill warnings that the GOP was about to deal it a death blow through the new Congressional budget.

House Republicans on Tuesday will introduce a budget plan that eliminates the budget deficit within 10 years, repeals Obamacare, and gives more power to states to make choices about issues such as education.

The introduction of the GOP’s ‘balanced budget for a stronger America’ will mark the start of budget season in Washington, that time of the year when several factions will lay out competing visions of what the next fiscal decade should look like for Washington. Several Democratic versions of a budget will also pop up, as will a proposal from the conservative Republican Study Committee, which will likely call for steeper cuts to get to balance more quickly.

Hillary Clinton was not long in taking to Twitter to denounce it. “Our nation's future - jobs & economic growth - depends on investments made today. The GOP budget fails Americans on these principles. … Repeal of the ACA would let insurers write their own rules again, and wipe out coverage for 16 million Americans.”

The budget is a potential threat to Obamacare because the federal government may have enough money for Medicare or Obamacare, but not both.  Margot Sanger Katz in the New York Times tries to dance around the connection but is ultimately unsuccessful.  The linkage is too clear.

Less explicitly accounted for is the fact that the health law, despite its huge federal spending on insurance expansion, was also designed to reduce the deficit. The law imposed substantial cuts to the Medicare program and raised a series of new taxes, including ones on wages, health insurance and medical devices.

Perfect estimates are difficult at this point, because most of those changes are now integrated into current budget estimates, but it’s safe to say that the law’s Medicare cuts save more than $700 billion over the next 10 years, and the taxes will raise around $1 trillion.

The budget doesn’t ignore those dollars, but it’s awfully vague about how they can be recouped. In contrast with the $2 trillion cut in Obamacare spending that’s spelled out in its own line, there is no specific accounting of the Medicare savings and revenue gains that would be lost in a repeal.

It would be more accurate to say that Obamacare “saved $700 billion” from Medicare by moving that sum to Obamacare.  Now to keep Medicare from collapsing after it was drained of financial blood it is necessary to re-infuse $200 billion into the system.  The obvious remedy of clawing the money back from Obamacare is precisely what the administration doesn’t want to happen.  Katz writes: “That means that the budget assumes that if Congress wants to eliminate the Obamacare Medicare cuts, it must somehow find another several hundred billion dollars’ worth of Medicare changes to make up the difference.”

Five years after Obamacare started the government is right back where it began. Broke.  The ACA did not “bend the cost curve” and unpleasant fact is that money must be cut from somewhere, a process Katz describes as “complicated”.

Beyond Obamacare, the budget also recommends that Congress develop a new health reform package that will “increase access to quality, affordable health care by expanding choices and flexibility for individuals, families, businesses and states while promoting innovation and responsiveness.” If such a bill will cost the government money, the budget doesn’t specify where that money should come from.

Republicans in Congress may want to repeal Obamacare entirely and reduce the federal deficit. But the budget highlights how repealing the health law is much more complicated than simply cutting its spending programs.

The real threat facing Obamacare isn’t King vs Burwell but economics.  The budget is a threat to the ACA in ways that the Supreme Court case could never be because it forces a hard choice that the Republicans are clearly not inventing. Either save Medicare or choose to keep funding Obamacare.  It is an unavoidable dilemma.  The real significance of King vs Burwell is that it clearly illustrates how Obamacare must be held up by wires.

William Baude, in an op-ed for the New York Times asks: “Could Obama Bypass the Supreme Court?”  In order to keep the subsidies that keep Obamacare alive it might be worth taking the risk of ignoring the Court.  He writes: “If the administration loses in King, it can announce that it is complying with the Supreme Court’s judgment — but only with respect to the four plaintiffs who brought the suit.”

This announcement would not defy a Supreme Court order, since the court has the formal power to order a remedy only for the four people actually before it. The administration would simply be refusing to extend the Supreme Court’s reasoning to the millions of people who, like the plaintiffs, may be eligible for tax credits but, unlike the plaintiffs, did not sue.

To be sure, the government almost always agrees to extend Supreme Court decisions to all similarly situated people. In most cases, it would be pointless to try to limit a decision to the parties to the lawsuit. Each new person who was denied the benefit of the ruling could bring his own lawsuit, and the courts would simply rule the same way. Trying to limit the decision to the parties to the suit would just delay the inevitable.

But the King litigation is different, because almost everybody who is eligible for the tax credits is more than happy to get them. Most people who receive tax credits will never sue to challenge them. Lawsuits can be brought only by those with a personal stake, so in most cases the tax credits will never come before a court. The administration is therefore free to follow its own honest judgment about what the law requires.

Quite apart from its legal merits the op-ed piece is interesting because it illustrates the degree to which Obamacare survives on taxpayer money.  Money must continue to flow to policyholders. Indeed it must be supplied to the insurance companies. Paul Ryan recently wrote the Treasury to ask where the $3 billion being paid to insurance companies is coming from given that Congress never authorized it.

The U.S. Treasury Department has rebuffed a request by House Ways and Means Chairman Rep. Paul Ryan, R- Wis., to explain $3 billion in payments that were made to health insurers even though Congress never authorized the spending through annual appropriations.

At issue are payments to insurers known as cost-sharing subsidies. These payments come about because President Obama’s healthcare law forces insurers to limit out-of-pocket costs for certain low income individuals by capping consumer expenses, such as deductibles and co-payments, in insurance policies. In exchange for capping these charges, insurers are supposed to receive compensation.

What’s tricky is that Congress never authorized any money to make such payments to insurers in its annual appropriations, but the Department of Health and Human Services, with the cooperation of the U.S. Treasury, made them anyway. …

In response, on Wednesday, the Treasury Department sent a letter to Ryan largely describing the program, without offering a detailed explanation of the decision to make the payments.

While Treasury may be able to blow off Ryan, the question nobody can leave unanswered is where the money to save Medicare is going to come from.  Nothing explodes the myth of an unlimited cornucopia of taxpayer dollars which conservatives are stingily preventing from disbursement as well as the impending collapse of Medicare.  It puts the hard choices into stark focus. One dollar can’t be in two places at the same time.  Not even in the Obama administration.

The Talking Points

POSTED 3 months ago BY HEALTH CARE COMPACT

There are two ACA talking points this week. First, that Obamacare has cut the numbers of uninsured Americans to record lows; and second the program is far cheaper than first expected.  The Associated Press says “More than 16 million Americans have gained coverage since President Barack Obama's health care law took effect five years ago, the administration said Monday.”  And then the story adds, “but measuring a different way, an independent expert who took into account insurance losses during some of those years had a much lower estimate: 9.7 million.”

Of course the necessary sequel is, “what did it cost.”  Here again, spin rules.  The Huffington Post says, “Net spending on subsidies for private health insurance and greater enrollment in Medicaid and the Children's Health Insurance Program will total $1.2 trillion from next year through 2025. That's 11 percent less than the Congressional Budget Office projected just two months ago.”

It’s also $6,818 or $11,246 in subsidy per year per person insured depending on whether you use the administration’s or independent expert’s estimate of people who were covered. Most of that money is going to insurance companies, including the higher co-pays and premiums that everyone is complaining about it. Dr. James Hamblin in the Atlantic says all this progress is in danger if the subsidies are reduced.

"We think we will win the case," said a senior administration official this morning. If the Supreme Court decides against the federal government, it will be making a decision that tax credits and subsidies will not be available in the 36 states with a federal marketplace. Eighty-seven percent of the 8.4 million people who have come through the federal marketplace are receiving subsidies, at an average of $263 per individual per month.

"When you do the math, for most people, that's a lot of money," said the official. "The relationship between that drop and the affordability that's created through the tax credits or subsidies, one assumes, is extremely real."

Without subsidies, prices of insurance will rise because only sicker people will buy in. As premiums in the individual market go up, a so-called "death spiral" will ensue. While that might sound like a good thing, officials emphasize that it's not. It remains unclear exactly how many people would lose their insurance, but the same senior official today confirmed that the effect would be "massive damage."

But wait a minute: $263 x 12 is only about $3,000, where did the rest of the money go?  Well that’s friction for running the program.  Maybe the money would have been better spent mailing everyone a health tax voucher.  But the irony is that Obamacare originally started as “health care reform.”  It was going to save money, not spend it.

The other big piece of news this week which has been carefully left off the talking points is the $200 billion rescue of Medicare, which both Nancy Pelosi and John Boehner are working on to the chagrin of the Republican conservative caucus.  Briefly, Medicare is broke because Obamacare took about $716 billion. As Sarah Kliff of the Washington Post put it in 2012: “Romney’s right: Obamacare cuts Medicare by $716 billion”.

Unless Congress re-funds Medicare, which has been picked clean by Obamacare -- created to save it -- then Medicare will eventually collapse. And that would not be good news because of its importance in the health care system.

In 2010, Medicare provided health insurance to 48 million Americans—40 million people age 65 and older and eight million younger people with disabilities. It was the primary payer for an estimated 15.3 million inpatient stays in 2011, representing 47.2 percent ($182.7 billion) of total aggregate inpatient hospital costs in the United States.[1] Medicare serves a large population of elderly and disabled individuals

The original purpose of Obamacare -- “health care reform” -- was to save the system from collapse, which implies savings at some point. It has since morphed into an argument against all restraint.  The extent to which that transformation has happened is illustrated in Johnathan Weisman’s report in the New York Times. “House Republican Budget Overhauls Medicare and Repeals the Health Law.”

Why isn’t this Republican Budget health care reform?  Because it saves money.  And that’s bad. Money, or the lack of it, is the root of all Republican efforts to repeal, amend or otherwise modify Obamacare.

WASHINGTON — House Republicans on Tuesday will unveil a proposed budget for 2016 that partly privatizes Medicare, turns Medicaid into block grants to the states, repeals the Affordable Care Act and reaches balance in 10 years, challenging Republicans in Congress to make good on their promises to deeply cut federal spending.

The House proposal leans heavily on the policy prescriptions that Representative Paul D. Ryan of Wisconsin outlined when he was budget chairman, according to senior House Republican aides and members of Congress who were not authorized to speak in advance of the official release. …

Democrats — and those Republicans who support robust military spending — will not see Mr. Price’s “Balanced Budget for a Stronger America” in those terms. Opponents plan to hammer Republican priorities this week, as the House and Senate budget committees officially begin drafting their plans on Wednesday, and then try to pass them through their chambers this month.

The ACA has largely given up on “bending the cost curve.”  It no longer talks about saving money, only about spending less money that the blowout the critics feared.  It is emphasizing people “insured” and de-emphasizing numbers of people treated.  As Elizabeth Rosenthal put it in the New York Times, America is entering the age of “Insured, but Not Covered.”=

The notion that the Federal Government has this free money to subsidize expensive insurance flies in the face of headlines like the impending collapse of California’s pension system.  CBS Local recently attempted to answer the question: “why are people fleeing Illinois?” Illinois is president Obama’s home state

CBS 2’s Dorothy Tucker takes a look at what’s luring people away.

Weather, work and money.  Those are three of the biggest reasons people are leaving.

According to the Illinois Policy Institute’s Michael Lucci, some 95,000 people moved to other states last year.

The weather can’t be helped, but work and money are scarce.  And money is scarce at the Federal level as well.  Obamacare may look good in the talking points, but it’s not selling. Despite the individual mandate compelling people to buy it -- and unaffordable subsidies galore -- it is, as the Atlantic put it, in a precarious position. That suggests the economics of it are bad and that is something spin won’t cure.

The Needs of the Many

POSTED 3 months ago BY HEALTH CARE COMPACT

Doctors are still divided over whether Obamacare is a good or bad thing according to a DeLoitte survey of practitioners.  On the one hand, some can’t help but benefit from the spending increases on health insurance.  On the other hand other doctors resent the loss of professional independence and worry about their patient’s welfare.  Rick Ungar writes: “If these numbers—which clearly represent a highly divided point of view—sound familiar to you, it may be because they so closely mirror the general public’s feelings about the law.” But the differences of opinion among the categories of physicians surveyed is highly illuminating. In general, primary care doctors (or screeners) seemed to like Obamacare better than doctors whose job was to provide actual medical interventions -- like surgeons.

Forty-four percent of primary care physicians believe that Obamacare was a move in the right direction as compared to 39 percent who do not. Non-surgical specialist also came to this conclusion by a margin of 53 percent to 36 percent.  Other physicians (those who do not fit into the categories of primary care, non-surgical specialist or surgical specialist) are overwhelmingly supportive of the notion that the ACA was a good beginning by a ratio of 68-32.

Indeed, the only category of physicians where we find more physicians believing that the ACA was a step in the wrong direction are the surgical specialist who believe the law is bad news by a wide margin of 60 percent to 28 percent.

Perhaps one reason for the split popularityis a reluctance to accept “evidence-based medicine”, in which treatment decisions are based not on some individual doctor’s judgment, but on a cookbook which lists ‘cost-effective’ treatments for various ailments. People get treated according to an approved formula which is supposedly better on ‘average’ though it might be a death sentence in individual cases.

One outcome of “evidence based medicine” is the discontinuation of treatments and tests which ‘are not worth the money’. Glenn Reynolds noted that while this is not necessarily a bad approach, the parties responsible for ruling treatments out have a conflict of interest because they are rewarded for saving money.  Reynolds writes:

FUNNY HOW SINCE OBAMACARE, ALL THOSE “EARLY DETECTION” TESTS THEY USED TO PUSH HAVE BECOME BAD: CTA No Better Than Stress Test for Coronary Disease. “Patients with symptoms of coronary artery disease (CAD) who underwent coronary computed tomographic angiography (CTA) did not have better clinical outcomes than those who had functional testing. . . . Using CTA did not reduce the composite incidence of death, myocardial infarction, hospitalization for unstable angina, and procedural complications at 12 months. Event rates were low in both groups: 164 patients (3.3%) in the CTA group and 151 patients (3.0%) in the functional testing group. Overall radiation exposure was higher in the CTA group compared to the functional testing group, which included nuclear stress testing, stress echocardiography, and exercise electrocardiogram. One third of patients in the functional-testing group had no radiation exposure at all.” I’m not saying this is wrong, I’m just noticing.

This is exactly what occurred in one of the most notorious public hospital scandals in the United Kingdom. As many as 1,200 patients were basically left to die at Stafford Hospital because managers could improve their performance by applying the ‘guidelines’ in ways favorable to their careers. Instead of being doctors, those who ran Stafford acted like cost-cutting bureaucrats.

Academics at the University of Oxford and King's College London have criticised its recommendations to legally enforce a new duty of openness, transparency and candour amongst NHS staff, arguing that increasing 'micro-regulation' may produce serious unintended consequences. In their research on the effects of different forms of regulation in healthcare, Fischer and colleagues found rules-based regulation tends to erode values-based self-regulation, producing professional defensiveness and contradictions which undermine, rather than support, good patient care.

The inquiry into Stafford Hospital found that health bureaucrats tended to hide behind rules to meet cost targets and earn bonuses. Those who bucked the system were ousted.  Since resistance was futile, everyone was eventually assimilated.

Mr Taylor, whose firm helped devise the standardised measure of death rates that first picked up problems at Mid Staffordshire NHS Foundation Trust, said the Health Secretary had to address incentives that made managers “do the wrong thing”.

Writing for telegraph.co.uk, he explained: “What happens when a hospital like Mid-Staffordshire finds it is struggling to deliver a high quality service with the resources available?

“As an NHS chief executive in that situation, you could simply overspend and breach your targets – and quite likely lose your job.

“You could try to argue to re-organise services but you are likely to face considerable opposition from both clinicians and the public.

"Or you can just cut costs, cross your fingers and and hope that no-one notices if the standards of care deteriorate.”

He continued: “The frightening truth about the NHS is that the third of those options is the one that every incentive in the system is pushing you towards.

Health care executive John Graham takes issue with Ezra Klein of Vox who argues that many diagnostic tests simply ruin health care statistics.  If you look for disease, one will likely find it.  But will knowing do society any good, because many of these diseases may not kill the patient anyway and thus lead to unnecessary treatment.  Graham writes that knowing is good and ignorance, while bliss, can kill you:

For other cancers, however, improvements in diagnoses and treatment are largely responsible for the improved outcomes. The five-year relative survival rate for all cancers diagnosed from 2004-2010 was 68 percent, up from 49 percent from 1975-1977. This is the number of people diagnosed who survive for five years divided by the total number diagnosed.

Critics like Ezra Klein disapprove of this measure, noting that more frequent testing will lead to earlier diagnosis of cancer which may not ever kill the patient, so will artificially improve survival rates. A better measure, according to Mr. Klein, is the death rate, which is simply the ratio of cancer deaths to the number of people in the country. The ACS report answers that convincingly:

Death rates for breast cancer are down more than one-third (35%) from peak rates, while prostate and colon cancer death rates are each down by nearly half (47%) as a result of improvements in early detection and treatments.

Two of those three, breast cancer and prostate cancer, are often identified as “over diagnosed” and “over treated” in America. The evidence of the last two decades tell us we should be wary of policies that would swing the pendulum back to under diagnosed and under treated. The death rate from prostate cancer has dropped from 40 per 100,000 men in the early 1990s to half of that in 2011. For women, breast cancer deaths peaked at about 30 per 100,000 in 1990 and dropped to about 20 in 2011.

Comparing the improvements in the five-year survival rate across different types of cancer also suggests that those who claim that over diagnosis is responsible for improvement in prostate or breast cancer survival may be stretching their case. Over the two periods, 1975-1977 and 2004-2010, the survival rate for prostate cancer increased from 68 percent to over 99 percent, an improvement of almost half, and the survival rate for breast cancer improved from 75 percent to 91 percent, an improvement of one-fifth.

However, the survival rate for lung cancer increased from 12 percent to 18 percent, an improvement of half. For stomach cancer, the improvement was from 15 percent to 29 percent, almost double. For cancer of the pancreas, the improvement was from 3 percent to 7 percent, more than double. Critics have not asserted over diagnosis of lung or stomach or pancreatic cancer during those years.

In light of this success, Americans should be wary of overly optimistic promises to change our health coverage dramatically, which could threaten future successes in the war on cancer. Obamacare brings about such change. Unfortunately, the ACS sees only good outcomes from Obamacare, cheering that it will increase the number of insured people.

Obamacare, like other forms of government medicine, has a strong redistributive streak.  It aims to smooth out the terrain, to reduce the inequalities. It has a definite bias toward providing average medicine for more people over providing exceptional medicine for relatively fewer people.  This is not necessarily a wrong approach, but it would be a bold man to argue that it is not the Obamacare methodology.  As the fictional Mr. Spock phrased it: “the needs of the many, outweigh the needs of the few”.  The question is whether you want this approach.

But in danger is that once bureaucratic medicine really gets a grip then “the needs of the many will be met by the few”.  Rationing is the normal result of socialized economies everywhere, which rarely provide average comfort; instead delivering universal penury. It would be foolish not to think that something like rationing -- whatever you want to call it -- isn’t part of the Affordable Care Act.

Plan B to Save Obamacare

POSTED 3 months ago BY HEALTH CARE COMPACT

Avik Roy claims that the Obama administration had a Plan B in case they lost the King vs Burwell suit in the Supreme Court all along. If the Court will allow it, they’ve simply got forms authorizing states to rebrand federal exchanges as state. Roy writes:

The Obama administration has been striving to create the impression that a health care apocalypse will ensue if SCOTUS sides with those who believe that a plain reading of the Affordable Care Act’s statutory language forbids the deployment of subsidies in the federal exchange. “If they rule against us,” said President Obama, “we’ll have to look at what our options are. But I’m not going to anticipate that.”

Behind the scenes, however, the administration appears to be telling another story. A few weeks ago, Rep. Joe Pitts (R., Pa.) told Burwell that he had learned of a 100-page document working through various contingency plans in the event of an adverse ruling. Burwell responded with a classic non-denial denial, stating that she was not aware of the existence of such a document.

Two sources who have spoken to HHS about the matter have informed me that the agency does in fact have a “Plan B” to deal with an adverse ruling. It involves encouraging states to declare that they are subcontracting the management of an insurance exchange to HHS, thereby “establishing” an exchange as per the law.

The existence of a Plan B was never seriously in doubt. The strategy of Obamacare’s architects was to “hook” or addict a wide variety of actors on federal money in order to establish it.  The basic defense of the subsidies is that, while the law seems to forbid it, there are too many people accustomed to receiving it already.  What was less evident was that the administration had been hooked by its own drug.

Too many bureaucrats, insurance lobby groups, pharmaceutical companies and giant hospital chains are invested in the scheme as it is to endure any wrenching change now.  While the average policy holder may stand to lose a few hundred dollars in subsidies (which he might have to pay back any way in the next tax filing) from an adverse decision, the stakes for the administration was much higher.  Billions of dollars, whole industries, entire political careers were at risk from Supreme Court decision.  With so much money at stake, of course they had a Plan B.

The harder part is getting the money to stay put.  The ACA is designed to take from and give to. The employer mandate is really an income tax on business, aimed at funding what some call a vote-buying program. Efforts by businessmen to turn it into a sales tax by passing the cost through to customers is a change the administration cannot countenance.

If you’re in Florida and planning to join in on the Papa John’s “buycott” scheduled for this Friday, you might want to save some room for dessert and hit Denny’s afterward. A West Palm Beach restaurant owner is the latest target of a boycott campaign after floating the idea of adding a 5 percent “Obamacare surcharge” to customer checks starting in 2014.

You wanted Obamacare? You got it -> Denny’s And Hurricane Grill & Wings Imposes Surcharge For Obamacare  …

Franchisor John Metz told the Huffington Post that “although it may sound terrible that I’m doing this, it’s the only alternative. I’ve got to pass the cost on to the consumer.” In August, Papa John’s CEO John Schnatter was among the first to come under fire for suggesting that implementing Obamacare would entail costs that would have to be passed on to customers.

Applebee’s has also been targeted for a boycott, although the company was quick to point out via a Twitter post that comments about a possible hiring freeze were made by an independent franchisee. Do little details like that matter, though, when Obamacare is insulted? Is Denny’s in for a boycott nationwide?

Obamacare is fundamentally a money distribution program.  The administration planned to buy political support by charging small businessmen money to sell overpriced health care.  The policyholders wouldn’t see any benefit unless they got sick.  For the most part the money would pass through to the insurance industry and Big Pharma. A surcharge would ruin everything if the businessmen passed the costs to Obama’s own constituency.

The winner-loser duality permeates everything in the program.  Big hospital chains get bigger but small rural hospitals close.  Winners and losers. The only question is which column you will be counted in.  Rich Weinstein, the investment adviser from Philadelphia, began to research Obamacare “when his own health insurance was canceled in late 2013.”  That led him to track down the little-known videos of Jonathan Gruber, who designed the Obamacare program.  What he found was Gruber boasting about how it would create winners and losers by creating a tax no one would see in order to create payoffs which he hoped no one would notice.

In several videos unearthed by Weinstein, Gruber refers to voters as “stupid.”

“And basically, call it the stupidity of the American voter or whatever, but, basically, that was really, really critical to getting the thing to pass,” Gruber says of the Affordable Care Act in an academic lecture on Oct. 4, 2013.

In another, Gruber discusses how a trick in wording hides a large tax that is passed onto consumers.

“Because the American voter is too stupid to understand the difference,” Gruber says, prompting laughter from the audience.

Weinstein says when he first heard the comments on the video he’d found, “I just thought he was trying to put one over on us. Not just on me or you, but on everybody.” …

In another, he states, “If you had a law in which it said healthy people are gonna pay in, you made [it] explicit that healthy people pay in and sick people get money, it would not have passed. Lack of transparency is a huge political advantage.”

Weinstein spent countless hours scouring the Internet. As he found more videos and information, he became disenchanted with the news media.

“It’s pretty disappointing,” he says. “The media just has not had any, very little intellectual curiosity … all these videos were out there in plain sight.”

The point of Obamacare was to create all those money flows which the HHS claimed would grind to a half if the Supreme Court held against them.  But they could never let that happen. For that reason there was always a Plan B to save it.  And a Plan C, D, E, F … too.  It’s all about money and the administration thinks the voters are too dumb to notice.

Robbing Peter to Pay Paul

POSTED 3 months ago BY HEALTH CARE COMPACT

Of the several games that the federal government plays with taxpayer money, few are more interesting than the interplay between Medicare and Obamacare. “Medicare is a national social insurance program, administered by the U.S. federal government since 1966, that guarantees access to health insurance for Americans aged 65 and older who have worked and paid into the system.”  But the funds available for Medicare have been slowly deflating, like a tire running out of air. “According to Dr. Hoven, the costs associated with caring for seniors have risen 25 percent since 2001, but Medicare payments to doctors have not even increased 4 percent over the same time period.”

Unless more money is provided to Medicare participating doctors will simply abandon it.  The Wall Street Journal writes: “The number of doctors who opted out of Medicare last year, while a small proportion of the nation's health professionals, nearly tripled from three years earlier, according to the Centers for Medicare and Medicaid Services, the government agency that administers the program. Other doctors are limiting the number of Medicare patients they treat even if they don't formally opt out of the system.”

The proportion of family doctors who accepted new Medicare patients last year, 81%, was down from 83% in 2010, according to a survey by the American Academy of Family Physicians of 800 members. The same study found that 4% of family physicians are now in cash-only or concierge practices, where patients pay a monthly or yearly fee for special access to doctors, up from 3% in 2010.

A study in the journal Health Affairs this month found that 33% of primary-care physicians didn't accept new Medicaid patients in 2010-2011.

The “fix” for Medicare is more funding and is the subject of the SGR Repeal and Medicare Provider Payment Modernization Act of 2014.  But there’s not enough money to re-inflate the Medicare tire because the funds have been diverted to Obamacare.  Avik Roy pointed out in 2012 that some of that money being touted as available to Obamacare really came from cuts to Medicare. “There are 600,000 physicians in America who care for the 48 million seniors on Medicare. Of the $716 billion that the Affordable Care Act cuts from the program over the next ten years, the largest chunk—$415 billion—comes from slashing Medicare’s reimbursement rates to hospitals, nursing homes, and doctors. This significant reduction in fees is driving many doctors to stop accepting new Medicare patients, making it harder for seniors to gain access to needed care.”

Sarah Kliff, writing for the Washington Post in 2012 admitted that’s how the money swap worked. But it was going to be a wash, she implied, because Obamacare would save so much money it would take up the slack.

As to how the Affordable Care Act actually gets to $716 billion in Medicare savings, that's a bit more complicated. John McDonough did the best job explaining it in his 2011 book, "Inside National Health Reform." There, he looked at all the various Medicare cuts Democrats made to pay for the Affordable Care Act.

The majority of the cuts, as you can see in this chart below, come from reductions in how much Medicare reimburses hospitals and private health insurance companies.

The blue section represents reductions in how much Medicare reimburses private, Medicare Advantage plans. That program allows seniors to join a private health insurance, with the federal government footing the bill. The whole idea of Medicare Advantage was to drive down the cost of health insurance for the elderly as private insurance companies competing for seniors' business.

That's not what happened. By 2010, the average Medicare Advantage per-patient cost was 117 percent of regular fee-for-service. The Affordable Care Act gives those private plans a haircut and tethers reimbursement levels to the quality of care administered, and patient satisfaction.

Obamacare was going to use the money it took from Medicare and save it by doing things more efficiently, or so the theory went. It was like transferring the balance from one credit card account to another credit card which demanded a lower interest rate.  Since Obamacare would do it better the transfer would pay off.

Only it didn’t.  Medicare itself continued to assure its enrollees that it wasn’t going away. “Medicare isn’t part of the Health Insurance Marketplace established by ACA, so you don't have to replace your Medicare coverage with Marketplace coverage.“  As US News emphasized: “Obamacare is not replacing Medicare. In fact, AARP representatives say Medicare will become stronger once the Affordable Care Act is in full swing. ‘Medicare's guaranteed benefits are protected in ways they hadn't been protected in the past," says Nicole Duritz, AARP's vice president for Health Education and Outreach.’”

AARP’s assurance was actually the opposite of the truth.  Medicare’s declining reimbursement rates were not protected. In fact they were fatally damaged by by the need to fund Obamacare. Nor did Obamacare seem to generate savings. On the contrary it appeared to develop an insatiable hunger for more money. The National Journal writes: “For the third consecutive year, the administration has proposed Medicare Advantage cuts, and a lot of members don’t like it.”

March 12, 2015 It's become an annual tradition: The Obama administration proposes Medicare Advantage cuts, the insurance industry and members of Congress from both parties lobby to stop them, and the cuts get walked back.

A group of 239 House members is sending a letter, provided exclusively to National Journal, to the Centers for Medicare and Medicaid Services on Thursday, urging the agency to reverse the cuts to the private Medicare plans, which serve 16 million seniors, that CMS proposed last month.

"The newly proposed cuts could represent a significant threat to the health and financial security of seniors in our congressional districts who rely on their MA plans to meet their health care needs," says the letter circulated by Reps. Brett Guthrie, R-Ky., and Patrick Murphy, D-Fla.

"As CMS works to finalize 2016 payment rates," the letter says, "we strongly urge you to protect Medicare beneficiaries by reversing the proposed payment cuts and providing a stable policy environment for the MA program."

The credit card payment balance transfer didn’t work.  There was still some hope that it would. The Brookings Institution explained how the Obamacare “fix” consisted of Congress finding $150 billion to keep Medicare alive for 10 years, by the end of which it would become as efficient as Obamacare via a new billing system.

The most fundamental change in the legislation is to give physicians an option to leave the traditional Medicare fee-for-service system behind. Physicians can receive bonuses of up to 5% per year from 2017 to 2022 for transitioning to “alternative payment models” in which payments are increasingly related to value defined as measured quality and total cost of care. In contrast, fee-for-service rates will only increase by 0.5% annually. The alternative payment model must account for an increasing share of a physician’s practice, rising to more than 75% in the next decade. While the details of the alternative payment models are not clear, the alternative payment would generally involve augmenting or replacing some of the current fee-for-service payments with a patient-level payment amount not related to volume or intensity. To receive full payment in the alternative payment arrangement, physicians would have to meet meaningful measures of quality of care. Qualifying alternative payment systems must not increase overall Medicare costs. ...

Before Medicare reaches that stage, however, there is one difficult legislative step ahead: finding a way to pay for a permanent SGR fix: 10 years of patches plus the costs of transitioning to the alternative systems. Over the past decade, Congress has only been able to cobble together offsetting savings to pay for short-term patches, mostly by shifting the payment rate cuts to other Medicare providers. These incremental reductions in payments to hospitals, nursing homes, home health agencies, and others have added up to close to $150 billion. Roughly the same total amount would need to be legislated all at once for a permanent fix, requiring more substantial reforms.

In the future everyone will be rich.  For the moment everyone’s broke.  On the face of things the administration took $716 billion from Medicare to fund Obamacare.  Obamacare was going to save Medicare, but that didn’t happen. Now Medicare needs $150 billion in new money to stay alive.  But don’t worry, there’s still that future billing system. The situation is beginning to resemble a circular check-kiting scheme, which aims to conceal the underlying defect that there is not enough taxpayer money - perhaps not enough money in the world - to pay for all the promises politicians made to voters.

And still they keep making the promises. The unlimited Federal money the administration keeps promising to people isn’t really new money, its just money taken out of one pocket and put in the other.

A Real Brawl

POSTED 3 months ago BY HEALTH CARE COMPACT

The fight between Obamacare critics and advocates has settled into a kind of trench warfare.  The polls suggest a stalemate. An NBC/Wall Street Journal survey concluded that “forty-seven percent of those surveyed (including 81 percent of Democrats) said that the law is working well or needs only minor modifications. Fifty-one percent (including 86 percent of Republicans) said that the law needs a major overhaul or should be totally eliminated.”  Despite billions of dollars in subsidies and an unprecedented promotional effort Obamacare has far from having swept the field.

In fact it is acting scared, resorting to increasingly more coercive measures to beef up its enrollment, which as Avik Roy has pointed out, has slowed down markedly. Nearly 200,000 Coloradans have had their existing health insurance policies canceled and told to buy Obamacare. “DENVER - About 190,000 Coloradans will lose access next year to health insurance plans which don't comply with the Affordable Care Act, the Colorado Division of Insurance (DOI) decided.”

In March of 2014, President Barack Obama decided to give states the option of allowing people on noncompliant health plans to be grandfathered in by renewing their old plans early, while problems with insurance exchanges were ironed out.

Colorado insurance commissioner Marguerite Salazar opted to do that for 2015, but told 9NEWS on Friday that the exception is no longer needed for plans in 2016, even though Colorado could have continued them an additional year.

"By delaying it, it doesn't give us a good pathway into full implementation of the ACA," Salazar told 9NEWS. "I feel like we gave people that year, we have a great robust market in terms of health insurance in Colorado."

“A great robust market” are hardly the words Michelle Malkin would use to express her experience with the Colorado exchange. She says she was literally transported by deceit from a plan of her choosing into an “Obamacare-compliant” option.

In 2013, our Anthem Blue Cross plan got canceled because of “changes from health-care reform (also called the Affordable Care Act or ACA).”

Millions like us in the individual market for health insurance — including self-employed people, small-business owners, writers and artists — suffered the same fate.

My husband contacted Colorado’s exchange, “Connect for Health Colorado,” to see what our options were. We later settled on purchasing a new, non-ObamaCare plan from a different private insurer, Rocky Mountain Health.

The provider network is much narrower than the plan we had before the feds intervened.

Our kids’ dental care is no longer covered, and we’ve had our insurance turned down at an urgent-care clinic — something that had never happened before. Better off? Bullcrap. But wait, it gets worse.

Somewhere along the way, Connect for Health Colorado dragooned us into an ObamaCare plan without our knowledge or consent.

Last month, we received an IRS 1095-A form, which indicated that we’d paid ObamaCare premiums every month in 2014.

It took hours on the phone and Internet to get an explanation on how this happened. Here was the government’s response, word for incomprehensible word:

‘‘We apologize for the delay in responding to your email. After checking your account we are showing you might have had coverage from October 2014 to June 2014. Please call the number below to speak with a Customer Service Representative if this information is incorrect.”

‘‘Might” have had coverage? From “October 2014 to June 2014”?

We were finally able to un-enroll in the ObamaCare plan.

Nor is it just those who are bitterly clinging to their doctors and insurance who Obamacare’s advocates are gunning for.  CNBC says yet another extension has been announced in an effort to attract young adults into the fold. These actions belie the outward show of confidence affected by the ACA’s pitchmen.

A month after Obamacare's open enrollment season closed, the federal government Sunday starts a special enrollment period for people who only now are finding out they face a penalty for failing to have obtained some form of health insurance in 2014.

"We clearly are very hopeful that people will avail themselves of the chance to get covered, to get insurance during this period," said Kevin Counihan, CEO of HealthCare.gov, the federal Obamacare insurance marketplace that serves 37 states.

But it's unclear how many people will take advantage of that offer and end up adding to the 11.7 million people or so who already signed up for 2015 health plans on government Obamacare exchanges.

Obamacare is also fighting for its life in the Supreme Court, where the legality of its subsidies are being challenged in King vs Burwell.  David Rivkin and Elizabeth Price Foley responded in Politico magazine to the defense du jour of Obamacare’s advocates, who claim the lawsuit would harm the states because it might deprive them of subsidies.  Rivkin and Foley argue that the states have the right to do that.

Beyond this fundamental understanding of when the concept of coercion can be properly applied, it’s important to realize that states had a meaningful choice, with pros and cons of both sides, regarding whether to operate a state exchange. If a state decided to operate a state exchange, it would cost it millions of dollars, but its residents would qualify for subsidies when they bought health insurance on the exchange. By contrast, if a state opted not to operate a state exchange, its residents would lose tax subsidies, but the state itself would save millions of dollars. And perhaps most importantly, the employers in that state would avoid the employer mandate and be able to create more jobs with the money saved.

Avoiding the ACA’s employer mandate would obviously be an economic boon for employers, and a victory for employers’ liberty. This is salient because the court has made it clear, most recently in a unanimous decision in Bond v. United States (2011), that “by denying any one government complete jurisdiction over all the concerns of public life, federalism protects the liberty of the individual from arbitrary power.” If, in King, the court concludes that states can’t opt out of the employer mandate, the liberty-enhancing function of federalism will be thwarted. If employers are subject to the employer mandate regardless of whether their state operates a state exchange, this is a net reduction of liberty for employers, with no net increase in liberty for individuals, who are subject to the individual mandate regardless of where they live. Since the purpose of federalism is to preserve individual liberty, this strongly suggests that the plaintiffs’ interpretation, not the Obama administration’s, furthers federalism.

The bottom line is that declining to operate a state exchange has both good and bad consequences—and each state is free to weigh those consequences as it thinks best. In this regard, as Oklahoma Attorney General Scott Pruitt argued in a recent Wall Street Journal op-ed, “The states are not children that the federal government must paternalistically ‘protect’ from the consequences of their choices by rewriting statutes. In our constitutional system, states are free to make decisions and bear the political consequences, good or bad, of those choices.” He further explained that declining to operate an exchange “allowed Oklahoma to voice its strong political opposition to the Affordable Care Act as a whole,” as well as proclaim that it didn’t want the “employer mandate … to have effect within its borders.” While Oklahoma’s citizens lost tax subsidies, the state believed the benefits of declining to operate an exchange outweighed this cost. And its choice, while difficult, “was a choice the state was happy to make.”

States thus had good reason to decline operating a state exchange. The fact that declining to operate a state exchange would have negative consequences for some of those states’ citizens isn’t the same as a negative consequence for the state qua state. Even if it is—which would be a novel interpretation of the clear statement rule indeed—there is no reason to believe that the states made the choice to opt out with anything less than eyes wide open.

The battle is joined across a wide spectrum of fronts.  One further complicating factor is the growing proximity of the 2016 presidential elections, an event which has led many Republicans to believe that presidential politics must be factored into it.

As Republicans weigh their options for how to respond to a victory in King, they’re likely to settle on the bill that gives the next presidential candidate the most flexibility to decide what Republicans will offer as an alternative to Obamacare. “They would probably say that they’d like to have that kind of latitude,” one GOP Senate says of the potential presidential contenders.

Other GOP sources suggest that the Senate may yet rally behind a single plan — that’s “the heart and soul of what is an everyday tactical discussion in the senate GOP conference,” according to one aide — but the impulse to adopt such an alternative is weakened by the knowledge that Obama will veto the legislation for as long as he is in office. That’s why the idea of deferring to the presidential candidates has broad support in the GOP conference, even among Republican lawmakers who tend to regard their own leadership as lacking in ideas.

In the House, majority leader Kevin McCarthy has tapped Ryan, Kline, and Upton to go beyond the King v. Burwell fixes and draft a plan to replace Obamacare entirely, in the hopes of uniting the conference behind a single bill.

But the goal is not to enact legislation that replaces Obamacare, which would be subject to the president’s veto, or even necessarily to push it through the Republican-dominated Senate. “You can do a lot of good work in the House that moves the broader conversation in conservative politics,” says Brendan Buck, a spokesman for Ryan at Ways and Means. “You look at what he did with his budget proposals over the years and they really became pretty central to what Mitt Romney was proposing. And so, I think as long as we are pushing out good conservative ideas and good thoughtful policy, you will find yourself in a much better place to easily enact things whenever you do have a Republican president.”

The bottom line is that neither side has yet scored a knockout -- a fact which suggests the Obamacare opponents are ahead on points.  The administration had reckoned their program would be established by now, cemented in place with billions of dollars.  What defeated their plan was less the Republicans than the mediocrity of their product.  Obamacare is bad and expensive; it neither solves the problem it set out to solve, and in the process has made the system worse while it also diminishes individual choice and freedom. It’s narrow networks and high deductibles have made “insured but not covered” a wry byword among its hapless policyholders. When looking at Obamacare through reality-tinted glasses, it’s obvious that though the proponents have dug their feet in, they really aren’t fighting for much.

The Fate of the ACA

POSTED about 4 months ago BY HEALTH CARE COMPACT

It’s becoming abundantly clear that Obamacare will be superseded -- it will evolve, if you like -- whether or not the Supreme Court rules against the government in King vs Burwell.  In the first place, many of its design assumptions have not panned out. As Avik Roy points out, it will be far less universal than it thought. After scooping up the “low hanging fruit” the exchanges have picked up far less than they had projected, picking up 3 million uninsured as opposed to the estimated 6 million.

In other words, the low-hanging fruit have been picked: the people who have the most to gain from Obamacare’s subsidies and regulations.

When the CBO first estimated Obamacare’s impact on the uninsured, in March 2010, the agency predicted that the law would reduce the number of uninsured U.S. residents by 32 million by 2019. Its now predicts a reduction of 24 million; in other words, Obamacare’s impact on coverage will be 8 million fewer than originally predicted.

The price for swelling the ranks of the uninsured was increasing the average cost of insurance.  This was clearly going to happen because the money to pay for the indigent and uninsurable had to come from somewhere.  These price hikes have been folded into co-payments, narrow networks or just plain increases in the premium.  What is interesting, according to Roy is the price increases have been mitigated to some extent by competition.

We’re reported extensively in this space on how Obamacare has dramatically increased the cost of individually-purchased health insurance. The Manhattan Institute’s 2014 study found that in the average county, premiums increased 49 percent relative to the year before.

However, in 2010, the CBO estimated that average exchange-based premiums would increase by much more. That’s because the CBO guessed that Obamacare’s exchange costs would be similar to those in the pricey employer-sponsored market.

But the competitive, premium-support dynamic in the exchanges meant that premiums came in meaningfully lower than those in the employer-sponsored market, but meaningfully higher than those in the old individual market.

So why not concentrate on boosting the competition in the markets Roy asks?  Why not indeed. At the moment, many Obamacare markets are burdened with arbitrary requirements and overlaid with bureaucracy. Although it is common to speak of ACA exchanges as if they were “just there”, they do in fact cost astronomical amounts of money which require continuous taxpayer support.

Washington state’s health care exchange needed $125 million in taxpayer support last year. “Republicans are angry because they were told the exchange would be self-sufficient by the end of this year.”  It may never be.  The Obamacare exchanges are only partially competitive.

Only 14 states, including Washington, are operating their own ObamaCare exchanges and many are struggling to make it without help from taxpayers.

New York’s governor wants a $69 million tax on non-exchange health insurance policies while Vermont has projected a $20 million shortfall by the end of 2015. There also is a bill in Rhode Island to scrap the state exchange and go with the federal exchange to avoid a $24 million hit to taxpayers. Massachusetts, which has been at this longer than anyone, does not have a general tax to fund its exchange, but does rely on a hefty cigarette tax and an employer’s tax.

The fact is that competition may be the Federal Government’s last chance. Far from being flush with “free money” as Obamacare supporters like to suggest, Washington is actually about to go broke. Time Magazine describes the debate in Congress to keep Medicare funded.

Congress must act to prevent a big cut in fees to Medicare doctors. But a short-term solution now will mean soaring costs for older Americans later.

As of April 1 fees paid by Medicare to participating doctors will be slashed by a steep 21%. This cut is the result of a 1997 budget formula, called the Sustainable Growth Rate (SGR), which should have been junked years ago. Physicians have already been complaining about Medicare’s low level of reimbursement, and if the cut happens, there could be a mass exodus of physicians from the program.

Congress has had plenty of opportunities to reset the the SGR formula to permit fair fees and annual adjustments but instead has opted for short-term fixes 17 times. Last year lawmakers agreed on a long-term plan to set physician rates—a so-called “doc fix”—and this consensus proposal has been reintroduced in the new Congress. But the long-term price tag for the adjustment threatens to make it a non-starter.

How much would a long-term doc fix cost? The Congressional Budget Office (CBO) estimated the 10-year budget hit of a permanent reform at $138 billion in early 2014. A year later, the 10-year bill has risen to nearly $175 billion. For perspective, the agency’s latest 10-year price tag for the Affordable Care Act is “only” $142 billion.

It’s hard to believe that Congress will be able to find $175 billion in spending offsets in the next couple of weeks, or that Republicans would agree to boost the deficit in order to pay the long-term tab. So expect another one-year fix—number 18. It would cost an estimated $6 billion, which would not have much of an immediate impact on consumers.

A ten year “fix” that costs more than Obamacare is no solution.  The whole premise that government had money to spare on the Affordable Care Act was completely false.  There is no free money. There may not even be enough to keep Medicare alive. The fact is that there is no “fix”, either short or long term unless some way is found to rein in costs.

There are only thing that is certain are rising deficits.  The Hill reports that the Democrats and the Republican leadership may make common cause against fiscal conservatives in order to pass a $174 billion ten year “fix”.

But bringing up the legislation would be a huge gamble because it could spark a revolt among fiscal conservatives who are likely to balk at legislation that adds to the deficit.

A backlash on the right could force Boehner to rely on Democratic votes, once again thrusting House Minority Leader Nancy Pelosi (D-Calif.) into the role of deal-maker.

A Democratic aide said the GOP talks on a Medicare fix seemed to have “reached critical mass” this week.

What with fighting the fires in Medicare and Obamacare, the Federal Government has no hope of extinguishing the blaze using tax increases and deficit spending alone.  At some point it must try to align expenditures and incomes.  It must lower the cost and the best hope for that is competition.

Obamacare is on its way to becoming just another giant Washington program.  Big but far from universal.  It actually cannot aspire to universality because there’s no enough money in the public coffers to make it work for everyone as designed.  Therefore Obamacare will “die” -- that is, it will become another ordinary law, like Medicare Part D -- it will never be that Holy Grail of Liberals, the Universal Health Care system.  With or without a favorable ruling in King vs Burwell, the ACA has to change, and change so fundamentally that it will be tantamount to repeal and replace.

Subsidies Lost to Costs

POSTED about 4 months ago BY HEALTH CARE COMPACT

Money, money, everywhere, yet not a drug to drink.  This phrase could describe the state of the Affordable Care Act, which claims it provides subsidies to a whopping 86% of all enrollees. According to a New York Times article by Robert Pear, “the Obama administration said Tuesday that 11.7 million Americans now have private health insurance through federal and state marketplaces, with 86 percent of them receiving financial assistance from the federal government to help pay premiums.”

Yet despite this vast amount of assistance many people are barely making the cost of the care they are charged.  The reason is high deductibles and high pharmaceutical costs.  The Daily Beast relates a not atypical story of a man who was “insured but not covered”.

Since the Affordable Care Act went into effect, Robert Shore’s health insurance premium has more than doubled, from $173 for a discontinued bare-bones plan with a $10,000 deductible to $373 for the least expensive bronze plan he could find on HealthCare.gov. Then in November, the Ft. Lauderdale man’s health insurance went up again under Obamacare, as the ACA is popularly known.

The reason? Shore, a gay man, wanted to make sure he was as protected as possible from HIV. And that meant finding a plan that would allow him to afford the only medication approved by the Food and Drug Administration for HIV prevention. …

Shore doesn’t want them to end up in the situation he was in last year, when he went to pick up his Truvada prescription under his ACA plan, and was hit with a several-hundred-dollar deductible.

“Wow,” remembered Shore, who has since switched to a plan with a higher premium—$565 a month—but lower prescription drug costs. “I’m one of those people now, hit by a hundreds-of-dollars bill just to get a prescription. Wow. I’m going to have to do this.”

So Shore shopped around until he found an Obamacare plan whose premium/pharmaceutical benefit plan he could afford.  But that’s just the trouble, according to the AIDs Foundation of Chicago.  Although Obamacare is supposed to hang a “welcome” sign out for people with uninsurable or pre-existing conditions, in fact many policies hang a “keep out” sign where these infirm people are not wanted.  It’s called “adverse tiering”.

Placing drugs for AIDS and HIV, diabetes, cancer and other chronic conditions into higher-cost categories, or tiers, within an insurance plan is sometimes called "adverse tiering" and has been documented by researchers. Patient advocates say the tiering may be a new way for insurers to keep high-cost patients off their plans, a common practice before the Affordable Care Act prohibited it.

A recent Harvard study published in the New England Journal of Medicine found evidence that insurers were adversely tiering HIV and AIDS drugs on 12 of 48 plans sold on the federal exchange in 12 states. People with midrange "silver" plans that were adversely tiered would pay about $3,000 more per year for their drugs than those in other plans, according to the study.

Whatever the politicians have promised, treatments and pharmaceuticals still cost money.  Therefore providers must charge higher prices for expensive medicines.  The linkage between cost and price can never be eliminated.  It can only be disguised.  A health industry consultant explained why tiering was inevitable.

Nancy Daas, a partner at Chicago-based health industry consultant CMC Advisory Group, said the pricing of HIV and AIDS treatments is not the result of discrimination but a reflection of the costs insurers pay for the drugs.

"I'm not saying it's easy for people (to afford them), but these drugs cost a lot of money," Daas said.

A year's worth of a common, single-pill regimen called Atripla costs $26,000 to buy wholesale, up from $14,000 a year when the pill was introduced in 2006, Humana spokeswoman Cathryn Donaldson said in an email.

The problem, as the astute reader will have noticed, is embedded in the last paragraph.  The cost increases are overwhelming the subsidies.  When drugs which once cost $14,000 a year now cost $26,000 wholesale the “subsidies” touted by Obamacare become nothing but a pass through payment to the drug companies.  When out of pocket costs keep going up despite the so-called government subsidies and the consumer is as far behind as ever.  They are like a diner who is given a $10 meal ticket to eat and finds that all the restaurants charge a minimum of $50 for a hamburger.

Obamacare enrollees are just making it.  Just wow fragile the system is was unwittingly highlighted by Margot Sanger-Katz at the New York Times argues that any loss of subsidies arising from a government loss in King vs Burwell would send not just Obamacare, but the entire industry into a tailspin.

Even if you don’t receive Obamacare subsidies, you could still be harmed by the Supreme Court case that could take them away.

A court ruling for the plaintiffs in the case, King v. Burwell, would have wide-reaching effects for the individual insurance markets in around three dozen states. The approximately six million people currently receiving subsidies in those states would be hit hard, of course. But so could the millions who now buy their own insurance without subsidies. The results could be surging prices and reduced choice for health insurance shoppers across the income spectrum.

It’s a phenomenon some health policy experts call the “death spiral,” the result of an insurance pool getting smaller and sicker as more healthy people leave an increasingly expensive health insurance market.

But the loss of all those low-income, relatively healthy people could destabilize the individual health insurance markets for everyone else. No one knows for sure how bad things would get, but economic forecasters estimate that, on average, prices in the affected states would rise by at least a third, and some 1.4 million unsubsidized people would leave the increasingly expensive market.

If a health care system in which 86% of all Obamacare policyholders receive subsidies yet are just getting by; if the slightest reduction in coverage can send the entire insurance market into a “death spiral” in an economy where the health care industry gobbles up a bigger part of the economy that any comparable First World country -- then there is something wrong with the system that a mere government victory in King vs Burwell cannot fix.

This is exactly health care consultant Robert Laszewski’s argument in the Health Care Blog. “If Democrats would just admit Obamacare needs some pretty big fixes, and Republicans would be willing to work on making those fixes by putting some of these good ideas on the table, the American people would be a lot better off. In fact, I am hopeful that this is eventually what will happen once Obamacare’s failings become even more clear (particularly the real premium costs) and both sides come to understand that neither will have a unilateral political upper hand.”

The political arguments on both sides have obscured the central problem. The subsidies are just feeding the fire; they are creating a perverse incentive for providers to charge more and/or provide less. Somehow the healthcare markets must be made more competitive in ways that the pre-Obamacare and Obamacare systems failed to do.  Until then government can pay 100% of all policyholders subsidies, but that will still leave health care unaffordable, even for those in the cruel position of “insured but not covered”.

An Obamacare Triumph

POSTED about 4 months ago BY HEALTH CARE COMPACT

Some time ago this blog observed that while the ostensible goal of Obamacare was to make health care more affordable, in reality it appeared geared towards controlling the skyrocketing consumption of medicine by raising its price.  That observation has now been made by the CBO itself, though of course they don’t put it that way.

Nick Timiraos and Stephanie Armour of the Wall Street Journal have an article encouragingly titled Future Obamacare Costs Keep Falling. “Nearly five years after President Barack Obama signed the Affordable Care Act into law, federal budget scorekeepers have sharply revised down the projected costs of the signature bill.”  Sounds good -- but why?

The slower growth in health care spending is attributed in part to the slow economic recovery and more insurance cost-sharing requirements like deductibles, which have prompted consumers to rein in their own spending on medical care. Medicare spending growth has also slowed….

The report also reflects lower-than-expected enrollment in federal and state exchanges set up under the Affordable Care Act. The Obama administration said about 11.4 million people signed up for private insurance through the health law’s exchanges so far this year.

Future costs to the government will fall because fewer people are going to use Obamacare and will have to pay more of the expenses themselves. This is definitely good news for the treasury, but it’s not really what supporters of Obamacare had in mind.

A PWC survey reported that “for 2015, PwC's Health Research Institute (HRI) projects a medical cost trend of 6.8%, up from 6.5% projected for 2014”.  The survey’s conclusions basically echoes the CBO report.  Health providers can expect business to boom. Consumers can expect costs -- and their share of costs -- to rise.

A stronger economy and millions of newly insured Americans mean an uptick in spending growth for healthcare organizations. That may be a welcome respite from recent years of budgetary pressure. But the fact that health spending continues to outpace GDP underscores the need for a renewed focus on productivity, efficiency, and, ultimately, delivering better value for purchasers.

As employers continue to shift financial responsibilities to their employees, the cost-conscious consumer will exert greater influence in the new health economy. Savings that come from standardization can help position health businesses for the value-driven future. But real success and profitability will go to the insurers, drug makers, and healthcare providers that deliver highly personalized customer experiences at a competitive price.

Eventually this will result in a cutback in demand for medical services.  The higher the price, the less people are willing to buy. As Elizabeth Rosenthal of the New York Times wrote,  people are entering the age of  “insured but not covered”.  Her article reprises, at an anecdotal level, what the dry macro prose of CBO and PWC have already said.

When Karen Pineman of Manhattan received notice that her longtime health insurance policy didn’t comply with the Affordable Care Act’s requirements, she gamely set about shopping for a new policy through the public marketplace. After all, she’d supported President Obama and the act as a matter of principle.

Ms. Pineman, who is self-employed, accepted that she’d have to pay higher premiums for a plan with a narrower provider network and no out-of-network coverage. She accepted that she’d have to pay out of pocket to see her primary care physician, who didn’t participate. She even accepted having co-pays of nearly $1,800 to have a cast put on her ankle in an emergency room after she broke it while playing tennis.

But her frustration bubbled over when she tried to arrange a follow-up visit with an orthopedist in her Empire Blue Cross/Blue Shield network: The nearest doctor available who treated ankle problems was in Stamford, Conn. When she called to protest, her insurer said that Stamford was 14 miles from her home and 15 was considered a reasonable travel distance. “It was ridiculous — didn’t they notice it was in another state?” said Ms. Pineman, 46, who was on crutches.

There in individual detail are all the accomplishments -- and reasons for the lower expenditures -- of Obamacare.  The high premiums.  The narrow networks.  The $1,800 co-pay.  And to top it off -- no doctor!   Rosenthal says Obamacare is Christmas in July for insurance companies.

The Affordable Care Act has ushered in an era of complex new health insurance products featuring legions of out-of-pocket coinsurance fees, high deductibles and narrow provider networks. Though commercial insurers had already begun to shift toward such policies, the health care law gave them added legitimacy and has vastly accelerated the trend, experts say.

It is also, to be frank, a case of bait-and-switch.  Many poor people thought “affordable care” would be “free health care”.  The more sophisticated consumers, like Ms Pineman, knew they would have to pay something towards.  But nobody imagined they would have to pay more for less. Now that the reality has sunk in the federal government can say, ‘at least we are saving the taxpayer money’.

Incredibly Michael Hiltzik of the Los Angeles Times thinks that states which refuse to participate in the program are themselves guilty of bait-and-switch. Speaking of the possibility that not every subsidy can be restored should the Supreme Court rule against the government in King vs Burwell, Hiltzik writes:

The biggest mistake is to assume these plans are for real. In the days since the Supreme Court's hearing on King vs. Burwell, Republican leaders seem to have dropped the pretense that they'll have even a transitional measure ready by June, when the court is expected to rule. "We'll do our best," Hatch said Thursday. "But we'll have to see." It's the old bait-and-switch — but all bait, and no switch.

This, from a program that promised that “if you like your doctor you can keep your doctor”, which canceled millions of policies as substandard and imposed a fine on those who would not enter its mediocre precincts is truly the pot calling the kettle black.  But Hiltzik will be glad to know that if the Supreme Court cancels the subsidies it can also be recorded as an Obamacare success, because then the federal government’s costs will be “lower than expected”.

“Don’t Push Us Off the Cliff

POSTED about 4 months ago BY HEALTH CARE COMPACT

One thing nobody can do is join Obamacare as a human being with a medical problem.  The programs program sees every applicant primarily through the prism of money: how much you got, how much you ain’t got. Penalties, subsidies and even premiums are referenced according to your income.  Obamacare isn’t primarily interested in what you are sick of but in what you what you earn.

Families USA, an Obamacare advocacy group that received a million dollars to “tell pro-Obamacare stories” is doing the opposite just now.  It’s telling a sob-story featuring insurance industry figure Wendell Potter who is telling anyone who will listen that if subsidies are stopped by the Supreme Court in King vs Burwell, the program will go into a “death spiral”.

He explained that if the “premium tax credits” are struck down in the 34 states without state exchanges, that would put in place a process known as “adverse selection,” meaning that without subsidies to offset the cost only the oldest and sickest would be motivated to buy health insurance: “And if that happens, you have to raise rates, and that means more young and healthy people leave … and that creates a system where very few people can afford coverage.”

That would lead to what’s known in the trade as the “death spiral,” a phenomenon that Justice Anthony Kennedy, a key vote if the ACA is to survive, invoked during oral arguments. Kennedy told the plaintiffs’ attorney, Michael Carvin, that if his argument is accepted, “the states are being told either create your own exchange, or we’ll send your insurance market into a death spiral. We’ll have people pay mandated taxes which will not get any credit on -- on the subsidies. The cost of insurance will be sky-high, but this is not coercion. It seems to me that under your argument, perhaps you will prevail in the plain words of the statute, there’s a serious constitutional problem if we adopt your argument.”

Obamacare isn’t insurance in the business sense.  As Potter explains, if you pull away the taxpayer dextrose the whole structure will go into shock.  It’s like an actor flying on wires.  Cut the wires and the man falls.  Everything operates on subsidies. Investigating possibly subsidy scams has already become a priority for the HHS. “The government’s top healthcare watchdog plans to amplify its focus on ObamaCare this year, with a particular focus on subsidies and the security of personal data,” it said.  Called the Health Reform Oversight Plan it plans to examine a number of areas.

Financial assistance payments (premium tax credit, advance premium tax credit, and cost sharing reduction)

Consumer Operated and Oriented Plan (CO-OP) Loan Program

Establishment grants

Navigator grants

Payments to Federal contractors

This does not even include the subsidies to insurance companies, the so-called “risk corridors”, which the administration promised would be “budget neutral” but have trouble staying that way.

House Republican lawmakers are asking the Obama administration to defend its payments to health insurance companies under ObamaCare's cost-sharing reduction program.

In letters sent Tuesday, Energy and Commerce Committee Chairman Fred Upton (R-Mich.) and Ways and Means Committee Chairman Paul Ryan (R-Wis.) accused the administration of "unlawfully and unconstitutionally misusing" federal money to fund the program.

All these subsidies are the individual wires which keep the program aloft. The arguments for defending each is the same.  Pull the plug on the subsidy and the whole program goes into a “death spiral”.  As can be readily seen the argument before the Supreme Court isn’t based on what the law’s text says.  It’s based on what would happen if you followed what the law’s text says.

Yet even with subsidies insurers are losing money. In Massachusetts, three out of four of the commonwealth’s biggest insurers reported operating losses to newly required electronics records systems and high payouts for medication.

Blue Cross Blue Shield of Massachusetts saw one of the biggest losses, reporting an $118.8 million operating loss in fiscal 2014, from a $17.2 million operating loss the prior year.

"We had planned for an operating loss so that we could keep premium increases as low as possible and to help fund significant investments in new technologies and services," said Chief Financial Officer Allen Maltz.

Yet the loss was higher than anticipated, largely due to a 30 percent increase in the cost of specialty medications, and the taxes and fees associated with the Affordable Care Act – also known as Obamacare - which totaled $286 million in 2014.

Why? because even with the subsidies Obamacare is already in a death spiral because the young and healthy refuse to join it.  In addition to taxpayer subsidies, it needs intergenerational income transfers to trudge along. Repeated extensions in the 2015 open enrollment were intended to redress the imbalance in the number of young adults.

Officials haven't specifically said they're using the special extension because of a shortfall in young-adult sign-ups, but that might be a motivation. Data through mid-January showed that just 26% of the nearly 7.2 million people who signed up via HealthCare.gov were in the 18-to-34 age group vs. 28% during last year's open enrollment.

Minnesota, the only state disclosing its demographic mix for 2015, said 18-to 34-year-olds account for 24% of the total, below last year's 24.3%. That result may have been affected by low-cost insurer PreferredOne's decision not to offer subsidized plans on the exchange this year.

Young adults represent about 40% of the potential exchange pool.

The inability to attract the young and healthy directly cause insurers to be overloaded with the old and sick and thus rack up high bills. Without the young the subsidies have to go up. But we knew this already since Obamacare’s own spokesmen speak of the “death spiral” that will occur once the taxpayer strings are severed.

Although most of the attention is focused on the Supreme Court subsidy case  the real Obamacare problem is that income is less than expenditure.  So they’ve raised the prices and hidden them in high deductibles. Jed Graham of Investor’s Business Daily talks about the ‘insured but not covered phenomenon’ where many find their policies worthless under most circumstances since most of the payout has to come from their own pockets.  One plan had a deductible of over $12,000 which means that for anything short of a major health problem, you might as well be uninsured.

In addition nearly half of all Obamacare networks were found to be “narrow” by a McKinsey study.  In such networks a significant percentage of people find that while they have insurance there are no doctors within convenient distance to treat them.

About half of the health plans offered on the insurance exchanges created under the Affordable Care Act (ACA) are narrow network plans, according to a recent report released by the McKinsey Center for U.S. Health System Reform.

In its analysis, McKinsey defined narrow networks as plans that have 31% to 70% of hospitals in the rating area participating, in contrast to broad networks, which have more than 70% of hospitals participating.

It found that 48% percent of the plans offered on the ACA exchanges are narrow networks, and those plans make up 60% of the networks in the largest cities in each state.

When the customer reads the fine print he finds he really doesn’t have insurance as a practical matter.  He only has the expensive illusion of insurance. He’s been conned.

John McGinnis in the City Journal says there’s a tendency in all big liberal projects to portray a social program as better than it is. Obamacare was no different. It was going to be “something wonderful”.  You could “keep your insurance if you liked it”.  You could “keep your doctor if you liked it”.  You would save $2,500 a year on health care premiums.  You could purchase insurance for cell phone money. None of these shining promises was true.

Now all Obamacare’s paid advocates can do is trot out insurance industry veterans and plead that if you cut the subsidies the whole program will fall into a death spiral.  McGinnis says progressives often have to to lie to sell the dream.

Nothing shows the progressive dependence on subterfuge more starkly than Obamacare, which, by imposing a personal mandate to buy insurance in an effort to bring health care to all, will restructure one-sixth of the American economy. Single-payer government health insurance has been a dream on the left for decades, but it was never a politically realistic option. This was true even while Democrats controlled both houses of Congress, as they did during the first two years of Obama’s first term. The American public wouldn’t tolerate the level of government funding that a single-payer system would require, so the best that the administration could do was to impose a regulatory structure, while accepting a private-insurance model. In crafting the Affordable Care Act, the administration intentionally avoided describing the individual mandate as a tax—a tacit admission that doing so could have sunk the bill. After the bill became law, however, the administration turned around and argued before the Supreme Court that the mandate was, in fact, a tax. The Court upheld the mandate as an exercise of an enumerated government power to levy taxes. Even then, the administration concealed Obamacare’s taxes on the wealthy, which were not added to the income-tax tables. The recently publicized comments of MIT professor Jonathan Gruber about the deception involved in promoting the Affordable Care Act demonstrate that such chicanery has become intrinsic to modern progressivism.

American affluence also proved a political obstacle for the law’s drafters. Most Americans already had health insurance and a doctor with whom they felt comfortable. To secure support for the ACA, therefore, Obama had to promise repeatedly that those happy with their current health plans (and doctors) could keep them. But ACA requirements resulted in the cancellation of many insurance plans, causing patients to lose access to their doctors. This proved the most damaging blow to Obama’s credibility.

Some have labeled the president’s economy with the truth a personal failing, but it’s more like a professional necessity. Modern progressivism’s business model requires obscuring the reality that new programs have winners and losers—and the losers are spread throughout the general population, not confined to members of the so-called 1 percent. As the Affordable Care Act goes fully into effect, the losers will become more visible. If people had known the truth about Obamacare in 2010, the bill would almost certainly have been defeated. If they had known it in 2012, Obama would likely have lost his reelection bid

If the administration had told them the truth, the voters would never have gone along with it.  Maybe they’re lying still -- about the subsidies -- because there’s every possibility that even if the Supreme Court holds for the government in King vs Burwell, the house of cards will still collapse.  Then the dream becomes a nightmare.

The Hyperpartisan Struggle for Obamacare Goes On

POSTED about 4 months ago BY HEALTH CARE COMPACT

Like a corrosive substance that attacks its very container Obamacare is pulling the Supreme Court apart at the seams. Lawrence Hurley of Reuters summarizes the basic story: “The U.S. Supreme Court appeared sharply divided on ideological lines on Wednesday as it tackled a second major challenge to President Barack Obama's healthcare law, with Justice Anthony Kennedy emerging as a likely swing vote in a ruling.”  What Hurley doesn’t capture is the intensity of conflict.

The liberal New Republic argues that by suggesting that simply by voicing skepticism over the ACA two justices were making themselves laughingstocks.

Antonin Scalia got laughed out of court (sort of) for claiming Congress might step in to fix the problem. Samuel Alito even intimated that states might step in and establish their own exchanges. The Court could even lend them several months time to do so.

“It's not too late for a state to establish an exchange if we were to adopt Petitioners' interpretation of the statute,” Alito said. “So going forward, there would be no harm.”

If his suggestion was designed to appeal to skeptical conservatives, like Chief Justice John Roberts, and Anthony Kennedy, he may have harmed his own cause.

Almost as astonishing is a piece by Slate claiming that Justice Sonia Sotomayor schooled Kennedy and Roberts, “backing them into a corner”. It says, “she curiously name-dropped a case that has twice reached the Supreme Court in recent years, Bond v. United States. The case had nothing to do with health care, but its two iterations did offer grand pronouncements on federalism—a constitutional principle respecting the dividing line between federal and state governments.”

And suddenly a light went on in the dark skulls of Kennedy and Roberts in this hagiographic account. This is par for the course in the media, as each side attempts to paint the other side in the blackest colors, attributing ignorance, base motives and even mental infirmity to those who would question their chosen point of view.  One standard argument, voiced with smug certitude by Greg Sargent of the Washington Post, is that conservatives are too stupid or lazy to conceive of an alternative to the ACA.  Therefore the only thing right thinking people should do is laugh the challenge out of court.

There’s a lot of media chatter out there this morning to the effect that Congressional Republicans are really, truly going to offer their own health reforms this time around, now that the Supreme Court may gut subsidies for millions of people in three dozen states. I’ve already repeated endlessly that these GOP feints appear designed to create the impression that lawmakers will step in to ensure that such disruptions might not be all that dire, perhaps to make it easier for the Court to rule against the ACA, a dance that two conservative justices (Samuel Alito and Antonin Scalia) engaged in at oral arguments this week.

The New York Times is a little more worried that Congress might actually pass a law. Jonathan Weisman opens his piece “As Supreme Court Weighs Health Law, G.O.P. Is Planning to Replace It” with the observation that the saboteurs are about to blow the charges. “The legal campaign to destroy President Obama’s health care law may be nearing its conclusion, but as the Supreme Court deliberates over the law’s fate, the search for a replacement by Republican lawmakers is finally gaining momentum.”

That is of course what legislative majorities do.  They write and repeal laws, just as Nancy Pelosi “destroyed” the pre-Obamacare legal health framework and replaced it with the one being questioned in the court.  When Pelosi did it, Obamacare’s advocates saw it as good. When the GOP does it they see it as bad. It may be either, but the automatic assignment is pure partisanship.

There are actually dozens of alternatives to Obamacare that have been offered, none of which the ACA’s proponents consider serious, since none of them rise to the choking, labyrinthine length of the bill which contained provisions so obscure and poorly that King versus Burwell arose precisely as a consequence.  In the eyes of the ACA’s proponents, length and verbosity equals profundity.

How did anyone live without it? Jeffrey Young at the Huffington Post paints disaster movie scenario should the court hold against Burwell. “Obamacare faces its strangest challenge yet when the Supreme Court takes up the law for the third time Wednesday, but the oddity of the lawsuit shouldn’t obscure the cataclysm that a loss for President Barack Obama would provoke.”

Note the word “cataclysm”. Actually, as Avik Roy notes in Forbes, continuing Obamacare would be the worst disaster possible because it is a huge, expensive and mediocre program.

Obamacare’s mandates and regulations have already led younger and healthier people to stay away from the exchanges: what wonks call “adverse selection.” Indeed, enrollment in the exchanges has skewed around 25 percent older than one would expect without adverse selection. And underlying premiums have skyrocketed; our Manhattan Institute analysis found that non-group premiums increased by 49 percent in the average county.

John Graham notes that even Obamacare’s implementors know this.  That is why the law cannot be implemented as written.  The Galen Institute notes 47 changes by administrative order so far in the interests of short-term practicability.  One of those changes was in fact the interpretation by the IRS -- more than a year after the ACA was passed -- that State Exchange meant Federal Exchange.  The Federal Register from mid-2012 says:

Commentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges.

The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.

The Supreme Court isn’t contemplating a change on its own account.  It’s reviewing an administrative change. It’s quite clear that the IRS itself had to make the adjustment for the Act to work.  Other significant changes were the employer mandate delay, the SHOP exchange delay, exemption of the unions from reinsurance fees, funds for insurance bailouts, exempting US territories, etc.

And this is to be as expected. Given this extensive history of revision, it is senseless to treat Obamacare as off limits to the Congress and even Supreme Court on the grounds that tinkering with it will cause the ‘cataclysm’ predicted.   More likely, as Graham argues, the ACA will require even further revision.  Why not make the changes as provided by the Constitution rather than treat Obamacare like the Holy Writ dictated on the summit of Mount Sinai?  He suggests four general areas of change.

Here are four proposals that both Congress and the President should find acceptable:

First, because exchanges are the cause of the problem, Congress should get out of the exchange business. People who had never paid much attention to Obamacare were appalled at the Rube Goldberg websites were rolled out last year to enroll them in Obamacare. Obamacare proved to be the DMV on steroids. Instead of forcing people to buy health insurance through a government exchange, allow us to buy health insurance however we want: Online from private exchanges, or on the phone or in person from an agent or broker.

Second, eliminate the individual and employer mandates. These are red lines for individuals and employers, which the President crossed. Repealing the individual mandate would reduce the deficit; and repealing the employer mandate will increase employment among low-income workers

Third, subsidize individuals, not insurance companies. This tax season, millions of Obamacare beneficiaries are going into shock as they learn from the IRS that the Obamacare policy they bought was overly subsidized. Having the IRS claw back the subsidies is causing financial hardship. Instead of subsidizing health insurers through exchanges, allow individuals to apply for tax credits themselves.

Fourth, re-scale the subsidies to make them fair. Obamacare subsidies phase out as household incomes increase, creating a high effective marginal tax rate for households with incomes up to about $80,000. Earning more pay results in a significant loss of subsidies. As a result, these workers demand fewer working hours, an extremely perverse incentive. The scale of subsidies should be made more fair by flattening it significantly, and eliminating the punishment for work.

But that would be too simple.  So the charade goes on, with the liberal press mocking or describing as dunces all who would amend, improve or question Obamacare, while the administration itself furiously churns out exemptions, delays and changes simply to keep it going.

The Unkillable Spending Machine

POSTED about 4 months ago BY HEALTH CARE COMPACT

Margot Sanger-Katz, writing in the New York Times, expresses a Washington truth. All the talk about a cataclysmic end to health care, the sky falling -- are untrue. Obamacare can’t die; there’s too much riding on it. Therefore it will live on, not primarily because people need health care but it must survive in some form in order to justify the money that providers, bureaucrats and lawyers require to keep breathing.

The case before the Supreme Court this week will not wipe Obamacare off the books.

Unlike the case the court considered in 2012, which could have erased the Affordable Care Act entirely, this one concerns the application of only one provision of the law, and only to certain states. A ruling for the plaintiffs in the case, King v. Burwell, would carry huge consequences in many states, but 15 million of the people estimated to get insurance under the law would still get it, according to an Urban Institute estimate.

The list of policy changes that would be untouched by any legal ruling is very long. The law’s Medicaid expansion, now covering more than nine million poor Americans, will endure. Regulations on health insurance, limiting insurers’ ability to impose lifetime caps on coverage or exclude customers who have pre-existing illnesses, will remain. Young adults will still be able to stay on their parents’ insurance until they reach 26. …

Major changes in the way Medicare pays doctors and hospitals, designed to make health care safer and more efficient, will continue. Workplaces will still need to provide places for lactating mothers to pump breast milk. Chain restaurants will still need to publish the calorie counts of their menu items. Drug companies will still need to report the money they pay to doctors.

As Akash Chougule notes in Forbes, it’s all about the money -- even Medicaid expansion. Obama hasn’t bent the health care cost curve.  But that’s alright as long as it has upped the spending. “With state legislative sessions now back in full swing for 2015, the Affordable Care Act’s supporters are upping their pressure on state lawmakers to expand Medicaid under President Obama’s signature health care law. Twenty-two states have yet to implement this federal largesse—and based on experiences of the 28 that have, they should continue refusing to expand.”

Perhaps no state is in worse shape than my home state of Rhode Island, where fully one-quarter of the population is now on Medicaid. Program spending has grown by a billion dollars since 2013—and is $118 million over budget this year. The state budget office estimates this single program will take up nearly one-third of this year’s $8.8 billion budget, squeezing out other spending priorities that are critical to the state.

As this health care program continues spiraling out of control, the state will be forced to make tough choices on how to plug the growing budget holes. Lawmakers will have to choose between a handful of politically difficult options: Raise taxes, cut Medicaid benefits, kick people off the program, reduce spending on other projects like roads and schools, or some combination thereof. The picture in Rhode Island is even bleaker in the context of years of out-migration resulting from slow economic growth—ironically, a byproduct of expansive government in the state.

Illinois offers additional evidence of the financial train-wreck that is Medicaid expansion. Health officials originally estimated it would cost $573 million from 2017 through 2020 when the state’s funding obligation kicked in. But nearly 200,000 more people enrolled in the program in 2014 than originally projected. State budget officials were forced to revise their cost estimates to $2 billion—more than triple initial estimates.

If anybody thinks the ACA music is going to come to a stop simply because six words in a law forbid it, they’ve got another thing coming.  The principle being followed is simple: if something stands in the way of expending taxpayer largesse, ignore it.  If any road block obstructs the gravy train, then smash right through it.

Jackie Bodnar at US News notes what has already been noted.  What’s being challenged in King vs Burwell is not the law, but an interpretation of the law by executive agencies.  King vs Burwell is about the Administration’s interpretation of the law. The Galen Institute notes 47 changes by administrative order have already been made.  One of those changes was an  the interpretation by the IRS -- more than a year after the ACA was passed -- that State Exchange meant Federal Exchange.  The Federal Register from mid-2012 says:

Commentators disagreed on whether the language in section 36B(b)(2)(A) limits the availability of the premium tax credit only to taxpayers who enroll in qualified health plans on State Exchanges.

The statutory language of section 36B and other provisions of the Affordable Care Act support the interpretation that credits are available to taxpayers who obtain coverage through a State Exchange, regional Exchange, subsidiary Exchange, and the Federally-facilitated Exchange. Moreover, the relevant legislative history does not demonstrate that Congress intended to limit the premium tax credit to State Exchanges. Accordingly, the final regulations maintain the rule in the proposed regulations because it is consistent with the language, purpose, and structure of section 36B and the Affordable Care Act as a whole.

Bodnar notes “There is no language in the president’s health care law that specifically empowers the IRS to implement those taxes and subsidized premiums in states that did not set up their own exchanges. In fact, they intentionally left that language out in order to incentivize states to participate in Obamacare.”

The real intention behind the “special subsidies” is to lower the perceived costs of Obamacare coverage. In other words, the IRS is lying to the American people about the true cost of government-run health care. …

Forcing the IRS to fully follow the laws of the United States is not extreme. What’s really extreme is that the IRS has been enforcing a version of Obamacare that doesn’t exist. If the Supreme Court allows the IRS to continue hiding the bad outcomes of Obamacare for political coverage, it would set a dangerous precedent that agenda-driven agencies can enforce whatever laws they want.

And now the argument is, the law must be thus otherwise the program would collapse and that would be an absurdity. It must mean, “by any means necessary.” Whatever’s inconvenient will be disregarded. “The Treasury Department is raising eyebrows with its refusal to explain $3 billion in ObamaCare payments to health insurers that were not authorized by Congress. The department has denied a request by House Ways and Means Chairman Representative Paul Ryan for an explanation about payments that were made as cost-sharing subsidies to insurers.”

But that doesn’t seem to mean a thing. The law doesn’t exist as it is written. It exists as it has to be written for money to be spent.

Unpacking King vs. Burwell

POSTED 4 months ago BY HEALTH CARE COMPACT

Ever so slightly the ground over which King vs Burwell is being fought in the Supreme Court has shifted from one of pure statutory interpretation - the meaning of what “through an Exchange established by the State” - to one in which a decision for or against would involve an interpretation of constitutional law.  The change in context does not necessarily favor a particular side, but it raises the stakes to one of Great Issues, and the political ante to boot.

The first gambit came in through the side door.  As Avik Roy explains, Yale professor Abbe Gluck argued in an amicus brief that to threaten the subsidies is to punish the states, an argument which strode onto center stage when Justice Kennedy repeatedly brought the issue up.

According to Gluck, not to continue the subsidies would be tantamount to penalizing the States, from which anyone supportive of federalism should recoil in horror. “The challengers’ interpretation turns Congress’s entire philosophy of states’ rights in the ACA upside down. Congress designed the exchanges to be state-deferential—to give the states a choice. But under the state-penalizing reading that challengers urge, the ACA—a statute that uses the phrase ‘state flexibility’ five times—would be the most draconian modern statute ever enacted by the U.S. Congress that included a role for the states.”

Yet as Roy points out, nobody seems to mind if Obamacare penalizes the states in myriad other ways - just when it becomes politically convenient for the president.  Cutting off the subsidies would not be half so punitive as continuing Obamacare.

First of all, the argument that havoc and destruction will ensue if subsidies go away is simply factually wrong. There will remain an individual mandate, forcing many people to purchase health coverage regardless of their eligibility for subsidies. It’s true that in a subsidy-free state, average premiums would likely go up, and that fewer people would enroll in Obamacare than originally hoped. But guess what? That has already happened, even with federal exchange subsidies.

Obamacare’s mandates and regulations have already led younger and healthier people to stay away from the exchanges: what wonks call “adverse selection.” Indeed, enrollment in the exchanges has skewed around 25 percent older than one would expect without adverse selection. And underlying premiums have skyrocketed; our Manhattan Institute analysis found that non-group premiums increased by 49 percent in the average county.

At the Supreme Court, Obama’s advocates called adverse selection and higher premiums a disastrous, chaotic, punitive result. So, then, do they also think that the insurance markets of today, imposed by Obamacare, are disastrous, chaotic, and punitive?

Once the door was opened to these larger issues, then any idea could come in.  The next “big” issue to wander in was introduced by Justice Antonin Scalia, who argued that it was not the court’s job to fix the consequences of laws.  That was what Congress was for.  Thus, if the wording of Obamacare led to so dire a scenario as the government claimed, what of it?  The courts job was to interpret the law, as to effects why the ordinary workings of politics would soon remedy it.  Garrett Epps of the Atlantic caught the Scalia exchange.

The problem for Verrilli is that the sky-will-fall argument may very well make his case weaker, not stronger. For one thing, I suspect that the Justices are sick of hearing about how they must decide in favor of the government or else doom women and children to die without health-care. The practical consequences of a decision are always important; but emphasizing them too strongly may feel less like argument than like pressure—or even threats.

For another, the Act’s opponents have come up with a glib counterargument. If a loss for the government will be that all-fired bad, it runs, then the political system will fix it right away. The Act’s two most tenacious opponents were Justices Antonin Scalia and Samuel Alito, and they tag-teamed Verrilli with that claim. “t's not too late for a state to establish an exchange if we were to adopt petitioners' interpretation of the statute,” Alito said. “So going forward, there would be no harm.”

Verrilli responded that setting up an exchange takes time and requires multiple stages of federal approval. The deadline for an exchange that could begin next tax year is May—well before the result in King will even be known. Oh, said Alito airily, the Court could “stay the mandate until the end of this tax year.” Problem solved.

Justice Scalia jumped in to suggest that trusty ol’ Congress will act if the states don’t. “You really think Congress is just going to sit there while—while all of these disastrous consequences ensue,” he said sarcastically.

“Well, this Congress, Your Honor…” Verrilli answered, provoking laughter.

“I don't care what Congress you're talking about,” Scalia snapped. “If the consequences are as disastrous as you say, so many million people without—without insurance and whatnot, yes, I think this Congress would act.”

The sky is always falling. And politics keeps catching the ceiling before it crushes the public.  Laws are amended and repealed all the time.  The government could not keep crying wolf with a legislative shepherd clearly in employment.  Besides there were bound to be other ordinary defects in the law, which Congress should fix from time to time without involving the court. For example, the New York Times notes that Obamacare networks were extraordinarily narrow.  So narrow and high priced  that they defeat the purpose of insurance -- the purpose which the government says must be protected at all costs even if it means ignoring the wording of the law.

In an article entitled “Insured But Not Covered” Elizabeth Rosenthal almost channels Avik Roy.  She says that in many cases you can’t get a doctor.  You are out the money paid to the insurer with nothing in return.  That’s more punitive than subsidies.

Ms. Pineman, who is self-employed, accepted that she’d have to pay higher premiums for a plan with a narrower provider network and no out-of-network coverage. She accepted that she’d have to pay out of pocket to see her primary care physician, who didn’t participate. She even accepted having co-pays of nearly $1,800 to have a cast put on her ankle in an emergency room after she broke it while playing tennis.

But her frustration bubbled over when she tried to arrange a follow-up visit with an orthopedist in her Empire Blue Cross/Blue Shield network: The nearest doctor available who treated ankle problems was in Stamford, Conn. When she called to protest, her insurer said that Stamford was 14 miles from her home and 15 was considered a reasonable travel distance. “It was ridiculous — didn’t they notice it was in another state?” said Ms. Pineman, 46, who was on crutches.

Someone has to fix it.  In fact, the Federal Trade Commission heard accusations alleging that Obamacare, in establishing narrow networks, was abetting the violation of anti-trust laws. In an article by Paul Demko headed “antitrust experts wrestle with the rise of narrow networks” the stifling effect of Obamacare on competition became clear.

Greater transparency about health plans' provider networks is needed to help consumers understand which doctors and hospitals they can go to without incurring very high out-of-pocket costs, experts agreed at a forum Tuesday sponsored by the Federal Trade Commission.

Health plans with narrow networks are pervasive on Obamacare exchanges and increasingly are being offered by employers as well. An analysis of 2014 exchange plans by McKinsey & Company found that nearly half of the 2,366 unique provider networks qualified as narrow networks, meaning less than 70% of hospitals in a coverage area were included.

Narrow-network plans were a primary focus Tuesday at the FTC's summit on healthcare competition in Washington, co-sponsored by the FTC and the Justice Department's Antitrust Division. Participants agreed that tailored networks, including those with different pricing tiers, are likely to become a fixture of the insurance landscape. But they differed on the steps needed to ensure that consumers can make informed choices about which products will meet their needs.

Those supporters of the administration who would answer that administrative rule changes can fix all glitches will have to contend with yet another “big issue” raised by Chief Justice Roberts, who asked the government lawyer if it was also his view that the post Obama administration could legislate administratively in the same broad manner the current officials claimed was their right.  Epps of the Atlantic wrote:

The chief justice was as taciturn at the oral arguments as he’s ever been since taking the center seat on the bench. He sat passively for most of the rapid-fire questioning and made only one inquiry of real substance, near the end of Solicitor General Donald B. Verrilli Jr.’s presentation.

“If you’re right — if you’re right about Chevron, that would indicate that a subsequent administration could change that interpretation?” Roberts asked.

Sounds like code. Could be very important. (Cornell law professor Michael Dorf calls the intense scrutiny of the oral argument transcripts “SCOTUS Kremlinology.”)

Roberts’s question was referring to “Chevron deference,” a doctrine mostly unknown beyond the halls of the Capitol and the corridors of the Supreme Court. It refers to a 1984 decision, Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., and it is one of the most widely cited cases in law.

Boiled down, it says that when a law is ambiguous, judges should defer to the agency designated to implement it so long as the agency’s decision is reasonable.

It is, in fact, the basis for the lower court decision in King v. Burwell that the Supreme Court is considering.

The Internal Revenue Service decided that even though the Affordable Care Act provides tax credits for low- and middle-income Americans who buy insurance on exchanges “established by the state,” the law envisioned the same subsidies for those who buy on exchanges set up by federal authorities."

Then the administration would be hoist on its own petard.  If Obama could make law without Congress, Robert was asking, then why not a President Ted Cruz should the occasion arise?  Why couldn’t Obama’s successor wave the same wand and make Obamacare go away?

This, say Ilya Shapiro and Josh Blackman of Cato Institute, gets to the core issue. Who decides? Why is the president treating the ACA like his private preserve, unwilling to see it amended, unable to accept a refusal from the states?  Where in the Constitution does it say he must have it his way instead of treating it like an ordinary amendable law?  They write:

This will be the third challenge to the Affordable Care Act to reach the court. But King is different. The law’s constitutionality was challenged in NFIB v. Sebelius, 2012, and the way certain regulations burden particular types of plaintiffs was addressed by Burwell v. Hobby Lobby last year. Now comes King, challenging the administration’s implementation of the law. Even though the ACA gives wide latitude to the executive branch over implementation, its most important parts—coverage rules, mandates and subsidies—were addressed by Congress with specific dates, formulas and other directions. None of these provisions has gone into effect as Congress designed, simply because the plan conflicted with the president’s political calculus.

For example, the executive branch delayed the “minimum essential coverage” provision for two years, suspended the requirement that millions maintain qualifying insurance, and modified the employer mandate into something very different than what the law demands. Through a series of memorandums, regulations and even blog posts, President Obama has disregarded statutory text, ignored legislative history and remade ObamaCare in his own image. …

But a funny thing happened on the way to utopia: Only 14 states set up exchanges, meaning that the text of the law denied subsidies in nearly three quarters of the states. This result was untenable to an administration intent on pain-free implementation. And so the administration engaged in its own lawmaking process, issuing an Internal Revenue Service rule that nullified the relevant ACA provision, making subsidies available in all states.

This is the ultimate political problem under King vs Burwell, the final “big issue” at stake.  Since Congress hasn’t the numbers to override a presidential veto the law, the tug of war is stalemated and it has found its way to the Supreme Court under the guise of statutory interpretation. But the arguments at their core are really over the substance of the law.  Ironically this may force the Court to decide on as narrow a basis as possible.  For the Justices to endorse the ‘wider intent’ or to endorse the challengers view that to do so would involve a violation of the separation of powers would be getting into the deep end of the pool.

King vs Burwell is really Congress vs the President, the States vs the Federal government in other clothing.  The challenge is there because the political process is locked in a standoff.  The Justices may look for a way out or be forced to make the political decisions that they are loathe to take upon themselves.

Reading the Tea Leaves

POSTED 4 months ago BY HEALTH CARE COMPACT

The punditry has begun to read the tea leaves, some doubtless in the hopes of affecting the kind of tea that is eventually brewed, as the opening arguments in the case of King vs Burwell began. David McCabe of CNN focused on the silence of Chief Justice John Roberts, which contrasted with his usual voluble demeanor and attempts to divine its significance.  Why is Roberts so reserved?

David Nather of Politico commented on the soaring hopes of Obamacare advocates following the close questioning by Justice Kennedy of the plaintiffs. “Obamacare supporters were cheered Wednesday by Justice Anthony Kennedy’s tough grilling of the lead attorney in the latest lawsuit — and the law’s opponents came away nervous.”

However Nather pointed out that Kennedy also raked the government lawyer over the coals and cautioned that the game is still even.  “Still, legal experts point out that both sides got tough questions, that Chief Justice John Roberts’ views are a big mystery, and that oral arguments aren’t always decisive in the Supreme Court, anyway. And conservative legal scholars say they saw signs that the court could still decide that the key phrase has to be read literally, which would badly damage the Affordable Care Act.”

The pattern of court activity established what everyone already knows: it will be close because the court is divided along ideological lines. To use a basketball analogy, what can be safely said is nobody pulled away in the opening minutes. Those who came expecting a blowout will be disappointed to learn that it will go down to the wire. Nather says the adjective that best describes things is “suspense.”

The New York Times marked time by publishing a lengthy human interest story on the lawyer for the plaintiffs Michael Carvin.  It depicted him as a “blunt-talking, rumpled” libertarian driven by the sting of his one and only defeat at the Supreme Court - when he failed to convince the justices to throw it out in the first place - to pursue Obamacare the way Ahab chased down Moby Dick.

To further the portrait of obsession, the NYT tells the anecdote of how he had to be restrained by cooler, wiser heads - the Wise Latina herself -  Sonia Sotomayor.

When he urged the Supreme Court on Wednesday to dismantle President Obama’s health care law, Justice Sonia Sotomayor — an ardent liberal — could not get in a word.

“Take a breath,” a slightly exasperated Justice Sotomayor finally said.

If being an obsessive were not sufficient, the NYT also depicted Carvin as a Luddite. “At 58 and decidedly not tech savvy — he edits legal briefs in longhand and only recently learned to use email — Mr. Carvin has toiled in conservative legal circles for decades, building a reputation for taking on the government and a specialty in elections law.”  

Well computer illiterates come in many flavors, such as a former Secretary of State who never had an State Department email address, relying on unidentified consultants to maintain a private email system of which she can say nothing definite.  But its politics all the time. In the absence of real court action, both the advocates and the opponents of Obamacare are taking their case to the public.  The Cato Institute for example, released this video summary of the issues it believed were at stake in King vs Burwell.

The case may be about law, but the battle for Obamacare resounds everywhere. Billions of dollars and untold political influence are riding on the decision and nobody can remain neutral in the face of those gigantic stakes. Reuters provided a balanced summary when it said, that “the U.S. Supreme Court appeared sharply divided on ideological lines on Wednesday.”

Kennedy, a conservative who often casts the deciding vote in close cases, raised concerns to lawyers on both sides about the possible negative impact on states if the government loses the case, suggesting he could back the Obama administration. But he did not commit to supporting either side.

Chief Justice John Roberts, who supplied the key vote in a 5-4 ruling in 2012 upholding the law in the previous challenge, said little to signal how he might vote.

The court's four liberals appeared supportive of the government. Conservatives Antonin Scalia and Samuel Alito asked questions sympathetic to the challengers. Fellow conservative Clarence Thomas, following his usual practice, asked nothing.

The knife-edge on which the fate of a large part of the American economy depends is an indictment of the whole process under which Obamacare was drafted.  Programs of this magnitude should be based on a broad political consensus. They can hardly be constructed on the basis of what a slim majority - now perhaps an actual minority - can impose on the rest.  Stable political programs are what the a clear preponderance of the population are willing to go along with.

The ACA was hardly that. Obamacare was passed without a single Republican vote.  Should it be scuppered by the Supreme Court - or confirmed - the margin will probably be one or two justice parsing perhaps six words in a roughly 2,700 page document, no more than the toss of a coin or the throw of the dice.  The fate of millions of Americans should never have to depend on what amounts to the turn of a card.

The structure built on that tiny sliver of legitimacy is astonishing. The sheer size of the Obamacare bureaucracy boggles the mind. It involves not just the HHS, but the IRS and numerous other government agencies.  As King vs Burwell highlights, there is not even an option for the states to opt out, for what meaningful dissent can there be from a program which, should states refuse to establish an exchange, the Federal government will establish one anyway?

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When then Speaker of the House Nancy Pelosi said, “we have to pass the bill in order to see what’s in it,” she was only speaking the truth.  The defective legal language now at the heart of King vs Burwell are proof, if any more were needed, that even its authors did not know what the giant law said.

There is no escape from the toils of Washington.  There is no escape except through the Health Care Compact; to find in simplicity what a made-in-Washington solution can never provide.  Even if the Republican Party succeeds in overturning the ACA via the Supreme Court, any successor program to the Obamacare monstrosity will most likely resemble it in scope, complexity and perversity if a Democratic one-size-fits-all program should never be replaced by a Republican one-size-fits-all fix.

Today, as King vs Burwell begins, and highly paid journalists examine the expressions in the justices’ faces in the same way Kremlinologists used to analyze the postures of the Soviet politburo, people should ask themselves: how did it come to this?

Addiction versus Withdrawal

POSTED 4 months ago BY HEALTH CARE COMPACT

The whole sales strategy for establishing Obamacare consisted of getting the public - and the states - hooked on subsidies.  Ted Cruz used the metaphor explicitly when describing the ACA he said: “His [Obama’s] strategy is to get as many Americans as possible hooked on the subsidies, addicted to the sugar.”

The trouble was there was never enough sugar to turn the country into a nation of subsidy addicts. Moreover, the Supreme Court may strike down the delivery mechanism in the impending King vs Burwell.  Then the music stops.  This prospect has caused both the advocates and opponents of Obamacare to argue their case by focusing on either intensifying or mitigating the effects of withdrawal.

Kamala Harris told the public that an end to subsidies would be “devastating.”  That’s the talking point.  Recent actions by the IRS have coincidentally give the public a taste of what its like not to get a check in the mail. It has been delaying refunds for Obamacare policyholders.

Deana Ard wants her tax refund as soon as possible. She says she files her return in mid-January every year and receives her refund within two weeks.

This year, Ard said her refund is taking longer -- and she's blaming Obamacare.

Ard, who went without health insurance last year, doesn't mind having to pay a $160 Obamacare penalty as part of her 2014 tax return. But she says her $7,124 refund is on hold, and the IRS won't tell her why.

According to CNN Money, the IRS is deliberately not telling the taxpayers why. The mystery and the missing checks gives the public a foretaste of the withdrawal symptoms that Kamala Harris warned about.  This fortuitous circumstance seems to say to the general public, “this is what is going to happen to you if the Supreme Court finds against.”  You have been warned.

The IRS is delaying the refunds of tens of thousands of Obamacare enrollees, said Nina Olson, the National Taxpayer Advocate.

The hold up, she says, is subsidy data from state health exchanges.

What's more, Olson said the IRS told its telephone representatives not to tell callers the reason for the delay.

The doomsday theme is taken up in a Politico article by Jennifer Haberkorn who warns that millions could be plunged into financial darkness with the rapidity of an electric switch. “Halt to Obamacare subsidies could come swiftly.  The decision could affect more than 6.5 million Americans who currently qualify.”

Several lawyers consulted by POLITICO, some of whom requested anonymity because they are working on the case in some fashion, expect the tax credits to end immediately, much faster than the 25 days it takes for the official ruling to be finalized and the order formally issued.

It’s hard not to think that the administration will try to maximize the pain in some fashion in order to drive their point across. They won’t even wait for the official paperwork from the court, according to the article, before stopping the checks.  They’ll move to cut the payments as soon as they hear news on TV.

The Supreme Court won’t issue its mandate — the official copy of the decision — for about 25 days after the ruling is announced from the bench and made public. The official word then has to travel back down the legal path that took it to the Supreme Court — back to the Court of Appeals for the 4th Circuit, then to the U.S. District Court for the Eastern District of Virginia and to the trial judge, who would issue the official order, telling the government to stop issuing the checks. That would take weeks.

In reality, though, officials at Treasury will find out about the ruling instantaneously, just like everyone else: through news reports, on TV and via social media.

This has convinced some Republicans that some kind of detoxification strategy will be needed to wean voters off the cash drug. The role of methadone or nicotine gum - the so-called bridge away from Obamacare - will be a system of extensions. Sens. Lamar Alexander of Tennessee, John Barrasso of Wyoming and Orrin Hatch of Utah “said there would be financial assistance for a ‘transitional period’ and that states would be allowed the freedom to improve their health care systems.”

But there are other ways to maximize the pain besides withholding the subsidies from policyholders.  News articles are speculating that Obamacare itself will descend into a death spiral as people stay away. This spiral will inevitably reduce the profit margins of insurance companies and the incomes of doctors.  For once the music stops then so does the fun.  Ana Mathews of the Wall Street Journal describes the predicted catastrophe:

An analysis by researchers at the Urban Institute, a liberal-leaning policy research group, projected that in states where the subsidies disappeared, individual insurance premiums would go up 35% on average in 2016. That increase would affect all consumers purchasing their own plans in those states, including people who didn’t buy through the government marketplace, the researchers suggested. The financial blow would be particularly tough for smaller insurers that can’t dilute the impact with other, unaffected business, like employer and Medicare plans.

“What happens is, you go into a classic death spiral,” says  Janie Miller,  chief executive of nonprofit insurer Kentucky Health Cooperative Inc. “It doesn’t hang together.” Her nonprofit’s home state wouldn’t feel the direct impact of a ruling, because Kentucky has its own exchange. But the insurer has said that next year it will go into West Virginia, where the subsidies could potentially be affected. Ms. Miller said the co-op would have to re-evaluate its expansion plans if the court struck down tax credits there. …

Insurers offering products in the federal-exchange states are worried that they could be caught short this year. An antisubsidy ruling could potentially take effect—and prompt consumers to drop coverage—as soon as this summer. Insurers are locked into rates for 2015 and typically wouldn’t be able to raise prices midyear. And partly because of state regulations, it isn’t clear if or when insurers would be able to withdraw from the federal marketplace before January.

But for 2016, if the federal insurance tax credits are unavailable in a state, “the impact would be substantial enough that I would expect many carriers to consider pulling from the market,” says Tom Snook, an actuary with consultants Milliman Inc. who is working with a number of insurers offering exchange plans. “There’s a question, if the subsidies are struck down, if it’s an insurable market.” That could leave consumers with fewer, and far pricier, choices.

It’s all a system of hostages. Interestingly, this is an admission that all of Obamacare - including the insurance company’s profit margins - are being held aloft by taxpayer subsidies.  The thing doesn’t fly of itself.  It requires the support of wires.  Cut the wires and the contraption falls to the ground.  The bad news is this requires that everybody is addicted.  The insurance companies get their cut, the hospitals carve out their share.  Even the policyholder gets a small check - which he has to pay back at refund time - the sugar is everywhere.

The entire argument for the government in King vs Burwell reduces to this.  You can’t stop addiction.  People will need a fix, and need it bad.  The Supreme Court must be made to understand that if you strike down the government case, there will be hell to pay.  And that’s probably right.  Obamacare inevitably opened the gates of hell. Whether that inferno is one of government bankruptcy or consumer addiction matters little. Doom in one form or the other is upon us now until we fundamentally change the system from a centralized behemoth to one that allows for more choice and more accountability.

Why the GOP Can Afford to Win King vs Burwell

POSTED 4 months ago BY HEALTH CARE COMPACT

Obamacare may not be ready to die, but many of its advocates are starting to feel some of Elizabeth Kubler-Ross’ five stages of grief.  The denial stage has ended.  Lisa Rein’s Washington Post article on the semantic origins the of King vs Burwell lawsuit describes the moment when IRS lawyers first realized they might have a problem.

It had never occurred to the Treasury Department official responsible for making the changes in the tax code required by the law that there was more than one way to read the phrase — until she happened across an article in a trade journal.

Emily McMahon, deputy assistant treasury secretary for tax policy, read an article in Bloomberg BNA’s Daily Tax Report in January 2011 raising questions about whether federal subsidies could be paid for millions of Americans buying insurance under the Affordable Care Act, according to Treasury Department officials. The issue was whether the law allowed these payments if the coverage was bought in states that did not set up their own insurance marketplaces.

So McMahon called a meeting with two of her top lawyers, one of them recalled, and asked whether there was “a glitch in the law we needed to worry about.”

The staff lawyer’s answer was: the law can’t mean what it ostensibly says because we aren’t meant to fail.  “In the end, the Treasury and IRS officials who wrote the rules adopted the more expansive reading of the law — allowing subsidies for all marketplaces — because they concluded this was required for the new health-care initiative to succeed, according to current and former agency officials and documents they provided to congressional investigators. And, the officials reasoned, Congress would not have passed a law that it wanted to fail.” Then when the challenge wouldn’t go away they started laughing it off.

At first, the team of Treasury and IRS lawyers considered the subsidy question a minor issue, in part because it was widely expected that states would set up their own marketplaces.

“It didn’t occupy a lot of conversation, because it was not at all clear that a lot of states wouldn’t establish their own exchanges,” said Clarissa Potter, a deputy tax director at American International Group who was the IRS’s deputy chief counsel until May 2011.

When she learned that opponents of Obamacare were targeting the federal subsidies, Potter recalled, “I remember thinking: ‘Jeez, really? Is this the best you can do?’ ”

That marked the “end of denial”. Now that the problem has gone all the way to the Supreme Court, denial has been replaced by the next stage: regret. Eric Toder at TaxVox says that it  would have been so much easier if only the Republicans had cooperated from the start. He engages in a thought experiment:“What if we funded public school like Obamacare?” he asks. Toder says Obamacare like public school would still work but it would be awfully complex.  Why wasn’t it done simply? Well it had to be convoluted because they couldn’t sneak it past the GOP any other way.

it would make life much more complicated for state and local taxpayers and tax administrators.   Low-income households would need to receive subsidies in real time (perhaps in the form of tuition discounts) to pay their education bills. The subsidies would have to be based on prior year income or property values, with a subsequent reconciliation. Penalties would have to be designed for parents who refuse to pay for their kids’ schooling. …

Years ago, Princeton economist David Bradford suggested tongue-in-cheek that the federal government could cut defense spending without hurting national security if it replaced Pentagon spending on weapons procurement with a tax credit for arms manufacturers. In a more complex way, the designers of the ACA applied Bradford’s insight, substituting targeted tax credits for a fully tax-financed system that would appear to raise spending and taxes much more than does the ACA.

That may have been the only way the United States could have enacted a health law that vastly expands insurance coverage. And it may still work out in the end. But it could have been so much simpler.

It’s almost as if Toder were mentally preparing himself for bad news but rationalizing the failure as the Republican’s fault.  ‘If only they had let us run Obamacare like a public school,’ he moans,  ‘then we wouldn’t have had to write a 1,000 page bill filled with all sorts of unimportant but pesky legal defects.’

Robert Barnes, writing in the Washington Post, is even more wistful.  King vs Burwell he says, will end the dream of a “nonpartisan Supreme Court”.  Barnes argues that while John Roberts miraculously found some way to support the ACA in a nonpartisan way, should he find against Obamacare now, he will destroy his legacy forever.

In a spectacular display of spot-welding, the chief justice joined fellow conservatives on some points and brought liberals on board for others. Roberts was the only member of the court to endorse the entire jerry-rigged thing, and even he made sure to distance himself from the substance of the law. (“It is,” he wrote, “not our job to protect the people from the consequences of their political choices.”) Still, his efforts rescued President Obama’s signature achievement on grounds that many had dismissed as an afterthought….

And then here comes Obamacare II. In King v. Burwell , to be argued Wednesday, plaintiffs say the text of the law must be interpreted in a way that would neuter it, canceling health insurance subsidies for about 7.5 million Americans in at least 34 states. Can Roberts’s portrayal of the Supreme Court as above politics survive another round with the most partisan issue of the decade?

Funny how that works. Everywhere the pundits seem to be saying that even though they no longer believe Obamacare is unassailable, they are urging on the Republicans to forbear from plunging in the knife because it would ruin the GOP reputation forever.  David Frum’s article in the Atlantic is the least ridiculous of these attempts.  Frum says the Republicans don’t dare win for fear of starting chaos.

At the Washington Examiner, Byron York detailed Senate Republicans’ increasingly frantic political calculations:

Republicans are going to find a way to continue paying subsidies to the estimated 7.5 million Americans who receive taxpayer-funded help to pay their insurance premiums through the federal Obamacare exchange.

The prospect of seeing those people lose their subsidies—even though some have received them for a short period of time, and even though Obamacare has imposed burdensome costs on many other Americans—is just too much for Republican lawmakers to risk.

"We're worried about ads saying cancer patients are being thrown out of treatment, and Obama will be saying all Congress has to do is fix a typo," said one senior GOP aide involved in the work.

Precisely because the outcome of a successful challenge to the ACA will unleash such operatic chaos, it seems more likely that the Court will flinch. The Supreme Court has upheld every social program enacted by Congress since Social Security in 1937—and it would take five very bold justices to disembowel the Affordable Care Act less than three years after they upheld the constitutionality of its most controversial feature, the individual mandate.*

Yet the same considerations didn’t hold the Obama administration back when it was fundamentally transforming America.  Somehow the press only regards as radical and extremist a return to the status quo ante, which after all, has the benefit of being a known quantity.

It takes Bobby Jindal to point out the obvious: a government loss in King vs Burwell won’t cause the sky to fall.  Even if subsidies are canceled, he notes, it will only mean that less taxes will be collected.  For every person who doesn’t get the subsidy there’s someone who doesn’t pay a tax. Sometimes they’re the same person since 52% of all those who received subsidies, according to H&R Block, had to pay some or all of it back. The subsidy money that won’t be paid isn’t somehow destroyed.  Writing in the National Review Jindal explains:

As a result, a ruling in King v. Burwell striking down the subsidies would represent a sizable tax cut. The Congressional Budget Office (CBO) January baseline gives the numbers: Eliminating the employer mandate nationwide would cut taxes by $164 billion, and weakening the individual mandate — assuming it would no longer apply to any individuals who heretofore qualified for subsidies — would cut taxes nationwide by approximately $18 billion. Conversely, eliminating the subsidies would raise taxes, but only by $134 billion. That’s because most of the subsidies ($775 billion worth) come in the form of refundable credits — the government writing checks to individuals with no income-tax liability — which budget scorekeepers consider not a tax cut, but government outlay spending.

Eliminating the subsidies nationwide would therefore cut Americans’ tax liability by approximately $48 billion on net. Granted, these sums from CBO apply to all 50 states, while the King ruling would apply only to the 37 states that have not established exchanges. But the trend from the numbers is crystal clear: The tax reduction from eliminating the employer mandate, and weakening the individual mandate, outweighs any tax increase from eliminating the subsidies — meaning a favorable ruling in King v. Burwell would cut Americans’ taxes by many billions.

Which means uncollected tax money available for replacement programs, such as are suggested by John Kline, Paul Ryan and Fred Upton.  Or at the worst it would mean some kind of reversion to the status quo ante but with more money in consumer’s pockets.  Either way, it won’t be the end of the world.  It might even be the beginning of a new one.

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