The Burden of Obamacare


One of the major currents on the healthcare scene is how expensive insurance premiums will be and how much more expensive still after the “Cadillac Tax” kicks in.  Rhode Island’s insurance commissioner was almost apologetic about the huge increases her office was trying to soften at its worst edges.  Richard Salit of the Providence Journal writes, “PROVIDENCE, R.I. — Health insurance premiums will be on the rise again in 2016 — and at a pace that the state's health insurance commissioner acknowledges leaves room for improvement when it comes to affordability.”

After receiving requests from insurers to increase premiums by double-digits in some instances, Commissioner Kathleen Hittner announced Wednesday that she has approved rate hikes ranging from 2 percent to 8 percent in a variety of categories — for individuals, small employers and large employers.

The increases were driven by the imposition of new fees to fund the state exchange, but mostly because of the underlying rise in costs.

Other factors reflect trends that have been driving up health care costs for years.

"The rising cost of medical care — the prices insurers pay to providers for particular services and the number of services members use — continues to be the main driver of health-insurance premium growth," the commissioner's office stated.

The hope that Obamacare would somehow lower costs has not been realized.  But the worst of the increases is yet to come. Sally Pipes writes in Forbes that the heaviest blow will come from the so-called “Cadillac Tax”, scheduled for 2018.  This tax was purposely designed to make employer-based health insurance expensive in order to slim it down.  The chosen vehicle is a tax imposed on generous health benefits packages.

Consumers are trying to figure out how they’ll absorb the double-digit increases in health insurance premiums that many insurers have announced for next year. American employers, meanwhile, are worried about what will happen to health costs several years out, in 2018.

That’s because 2018 is when one of Obamacare’s most onerous taxes takes effect — the “Cadillac” tax. The levy will apply to employer-provided insurance plans deemed too costly by the federal government.

The Cadillac tax is meant to lower the nation’s healthcare tab by discouraging companies from offering overly generous health plans. But Obamacare’s many mandates will eventually make every plan so costly that it qualifies as “overly generous.”

Consequently, this tax designed to reduce overall health spending will actually force Americans to pay even more for health care.

The other time bomb that is ticking away are the premium increases levied on young Americans, many of whom have momentarily escaped the rises by remaining on their parents insurance.  However, once they reach age 27 these young people will be forced into the world of high cost Obamacare insurance and start to feel the pinch.  

Why is it so expensive? Because young people’s insurance was meant to be expensive in order to offset insurance company losses incurred for taking in persons with pre-existing conditions.  Justin Haskins of Heartland Institute explains the deal.

Premium increases for middle-age and older Americans, while significant, pale in comparison to those felt by young people. Health insurance premiums under Obamacare have risen by nearly 45 percent for many young women and by an astounding 78 percent for young men. All this despite the fact that the National Association of Insurance Commissioners says health care costs for 63-year-olds are five times greater than for 22-year-olds. …

A Gallup poll conducted in April shows only 18 percent of Americans age 18 to 29 believe ACA has hurt them or their family members, the lowest number of any age group surveyed. Notably, young people were more likely than any other age group to say Obamacare helped them compared to those who said it hurt them. Every other demographic had more respondents say Obamacare has hurt them compared to the percentage that said it helped.

The reason for the large gap between perception and reality for younger Americans is partly due to ACA’s provision allowing young people to stay on a parent’s health insurance plan until age 26 – and in some cases, until age 27 – but the real reason young people continue to support Obama’s failing health care policies has more to do with how ACA opponents frame their arguments against the Obama administration.

With the cost squeeze on across the board, the search is on for ways to disguise the inferiority of Obamacare insurance, which was designed to be more widespread yet inferior; the inferiority being necessary to find a way to spread the health services around.  

The solution in California was narrow the health care networks.  The Los Angeles Times reports, “a new study finds that 75% of California's Obamacare health plans have narrow physician networks -- more limited choices than all but three other states.”  Yet this downgrade is cynically described as being an accomplishment.  It’s saved money!

Dan Polsky, executive director of the Leonard Davis Institute of Health Economics at Penn and the lead researcher, said narrow networks can be an effective way to control medical costs.

Consumers often have the ability to search for specific doctors before picking out a policy. But that information doesn't tell a consumer how restricted an overall network may be for primary-care doctors or specialists.

Polsky recommends a labeling system akin to T-shirt sizes, going from extra small to extra large. Extra small and small are narrow networks under the researchers' 25% definition.

"We need a good way to communicate this information to consumers so they can make an informed decision at the point of purchase for a health plan," Polsky said. "Narrow networks in my opinion aren’t necessarily bad things, but they are being poorly implemented."

State and federal regulators have been grappling with how to respond to consumer complaints about skinnier networks and inaccurate information in provider directories.

Polsky said it took considerable time and effort to clean up insurance company provider lists before this analysis could be done.

Giving people a shoddy product is certainly a way of saving money.  Michael Hiltzik of the same newspaper is at pains to explain that those receiving employer based insurance are going to get their benefits slashed but it’s not really the Cadillac Tax’s fault.  First of all, it serves the cause of Social Justice by abolishing tax credits employed people never should have obtained.

There's a good rationale for a tax of this nature. That's because employer-sponsored health insurance gets a huge tax subsidy — premiums paid by the employer and employee alike are tax exempt, and employers have the further option to offer tax-advantaged health savings accounts and flexible spending plans and even to help employees with their contributions. The value of these benefits gets counted when the Cadillac plan is calculated. The FSA allows workers to set aside an annual pre-tax sum (up to $2,550 this year) to pay healthcare costs other than premiums.

And of course, it will save money.

Tax subsidies for premiums alone cost the government an estimated $250 billion a year, swamping the value of the tax subsidies allocated to individual insurance buyers under the Affordable Care Act (about $45 billion in 2014). The Cadillac tax is partially an attempt to bring these tax breaks into line. Healthcare economists say the tax break for employer-sponsored insurance encourages companies to offer more generous plans than they should, driving up costs and leading to unnecessary usage.

In what must be the most ironic argument any supporter of Obamacare has ever made, Hiltzik hopes some future Democratic congress will repeal the Cadillac Tax and stop it from being implemented!

There's reason to believe that the Cadillac tax may never be implemented, at least in its current form. The opposition from unions and big companies is one reason. Another is that its complexities will produce inequities within companies, with some workers choosing packages that exceed the thresholds while others are thriftier with their employers' money. As it's set up, the tax must be calculated on each individual worker's benefit. There may also be geographical inequities, as the tax will fall harder on employers in regions with high healthcare costs.

A functioning and grown-up Congress would have every opportunity to adjust the tax to make it easier to administer, more equitably applied or smaller. Of course, it first would have to find another revenue source to make up the $87 billion the tax is expected to bring in. Any such tweaks will have to wait, as the current Congress majority is unequipped to address any changes in the Affordable Care Act without braying for full repeal.

Maybe a “functioning and grown-up Congress” will reverse a problem which a “functioning and grown-up Democratic president” created.  There’s an argument to conjure with. Hiltzik forgot to mention that the current president will veto any attempt to abolish the tax he so ardently hopes will be set aside in the future.  As Sally Pipes notes the current administration is trying to close off every escape from its exactions, including Health Savings Accounts.

The Cadillac tax is projected to even hit high-deductible plans paired with Health Savings Accounts, which are expressly designed to reduce overall healthcare spending by giving patients more control over their healthcare dollars. These tax-advantaged accounts allow consumers to save money for routine health expenses — and keep whatever they don’t spend from year to year.

But Obamacare counts contributions that employers and individuals make to HSAs toward the Cadillac tax thresholds. Next year’s HSA contribution limits are $3,350 for an individual and $6,750 for a family. So it won’t be hard for someone socking money away in an HSA to cross the line after which the Cadillac tax applies.

Penalizing people who are trying to keep their premiums in check by taking on high deductibles would seem to be at odds with the Cadillac tax’s original intent. But that’s exactly what the tax will do.

It’s little wonder, then, that not just Obamacare’s critics but labor unions, higher education administrators, and even local governments are concerned about the Cadillac tax.

So is Congress. Rep. Joe Courtney (D-Conn.) and Rep. Frank Guinta (R-N.H.) have each introduced bills of their own that would repeal the Cadillac tax. Courtney’s bill has 118 Democratic co-sponsors.

President Obama would no doubt veto any effort to repeal the tax. But his successor may prove more pliable.

Long time health industry observer Dan Mangan of NBC news has an even better description of the perversity of the situation.  Obamacare is destroying the healthcare system in order to save it.

If you like your flexible spending account ... you might not be able to keep your flexible spending account.

Obamacare's looming "Cadillac tax" on high-cost health plans threatens to hit one in four U.S. employers when it takes effect in 2018 — and will impact 42 percent of all employers by a decade later, according to a new analysis.

And many of those employers will be subject to the heavy Obamacare tax because they offer popular health-care flexible spending accounts to workers, which, ironically, are designed to reduce the income tax burden to those employees.

As a result, the co-author of the analysis expects the health FSAs to start being phased out and "largely disappearing" over time by companies looking for reduce their exposure to the Cadillac tax.

The Cadillac Tax saves Obamacare by accomplishing two things.  First, it makes getting treatment more expensive (thereby discouraging health care costs) and pays for the subsidies the administration touts.  Mangan explains why it’s so necessary.

"It's a tax that deficit hawks and economists love, but every other interest group hates," Levitt said.

The tax is designed to generate revenue — an estimated $87 billion over a decade — to help fund the federal government's expansion of health insurance coverage to more Americans through subsidies to customers of Obamacare plans sold on government exchanges, and through expanded Medicaid benefits.

The Cadillac tax is also designed to help decrease overall health-care spending inflation by imposing a steep levy on high-cost insurance plans, discouraging overuse of medical services. Most Americans, about 160 million people, are covered by job-based health insurance plans.

It is "one of the strongest cost-containing measures in the ACA," Levitt said.

The unabated rise in medical costs, plus Obamacare’s propensity to guzzle money for handouts has laid a dead hand on the system, whose leveling effect is ironically referred to as reform. The bottom line is that economics will make Obamacare a major political issue in 2016 and beyond.

Nobody’s even pretending it is affordable any more.  All they are arguing now is that you can’t get rid of it.

Single Payer Vs Socialized Medicine


Although Bernie Sanders has promised to convert the US health care system into a Single Payer system if elected president, the Obama administration appears to be well on the way to making that happen already.  Wikipedia defines a “single payer system” as one in which the government pays all the health care bills.

Single-payer health care is a system in which the government, rather than private insurers, pays for all health care costs.  Single-payer systems may contract for healthcare services from private organizations (as is the case in Canada) or may own and employ healthcare resources and personnel (as is the case in the United Kingdom). The term "single-payer" thus only describes the funding mechanism—referring to health care financed by a single public body from a single fund—and does not specify the type of delivery, or for whom doctors work. The actual funding of a "single payer" system comes from all or a portion of the covered population. Although the fund holder is usually the state, some forms of single-payer use a mixed public-private system.

Steve Sternberg of US News and World report notes that the mergers of health insurance companies and the emergence of the government as their principal customer signifies a “shift in the healthcare market place”.  “The federal government is becoming one of the insurance industry’s biggest customers.”  It may not be Single Payer yet, but to all intents and purposes, the system is getting there.  The article continues:

A pair of mergers involving four of the nation's five for-profit health insurance Goliaths—Cigna Corp. and Anthem, Aetna Inc. and Humana Inc.—provoked a swift reaction from doctors who fear they will rob patients of treatment options and doctors of their bargaining power.

But what may be just as significant about the planned mergers, experts say, is that they signify a major shift in the nation's health care marketplace. …

James C. Robinson, director of the University of California's Berkeley Center for Health Technology, calls the government's transformation from regulator to purchaser "huge and inexorable." If the mergers win federal approval, this means the government "will be paying for more and more care provided by fewer and fewer companies," Robinson says.

Underway ever since the creation of Medicare managed-care plans in the 1970s, the transition accelerated with the adoption five years ago of the Affordable Care Act, also known as Obamacare, according to the 2015 U.S. News & World Report Health Care Index. The Affordable Care Act has added an estimated 16.4 million previously uninsured people to the ranks of those with coverage, according to federal data.

Many of those new customers are buying government-subsidized private plans or public plans managed by private insurance companies. That makes public coverage a vast and potentially rewarding market for insurers.

Many Single Payer elements are already in place.  The Wikipedia article continues:

Medicare in the United States is a single-payer healthcare system, but is restricted to only senior citizens over the age of 65, people under 65 who have specific disabilities, and anyone with End-Stage Renal Disease. Government is increasingly involved in U.S. health care spending, paying about 45% of the $2.2 trillion the nation spent on individuals' medical care in 2004. However, studies have shown that the publicly administered share of health spending in the U.S. may be closer to 60% as of 2002.

That was before Obamacare. The US News Report article describes the immense growth and centralization of spending under the current administration.

"We're talking about the top five health insurers collapsing to the top three," says AMA president Steven Stack. "We could have 42 percent of the U.S. population covered by three companies. Staggering, right? And if it goes through means that the nation's top antitrust watchdog feels it's okay."

The scale of that spending is about to grow enormously.  Dan Mangan at CNBC reports that “Nearly $1 in every $5 spent in the United States by 2024 will be on health care, according to a government projection.”

Annual health spending is expected to grow an average of 5.8 percent during the period of 2014 through 2024, mainly because of the expansion in the number of people with health insurance due to Obamacare, stronger economic growth and an older population transitioning into the Medicare system, the Office of the Actuary at the Centers for Medicare and Medicaid Services said.

The CNBC article gives a different estimate for the percentage of healthcare spending attributable to government.  However its sources agree that the share of government in spending is rising. “By 2024, national health expenditures are forecast to be $5.43 trillion annually. Nearly half of that spending—47 percent—will be paid for by federal, state or local governments, primarily through the Medicare and Medicaid health coverage programs. That is up from 43 percent last year.”

The trends are quite clear.  Everette James, the director of the University of Pittsburgh Health Policy Institute, tracks the rise of the government share in healthcare spending in an article in Forbes.  As can be readily seen in the diagram from the article below, Single Payer, far from being some wild-eyed scheme, has been steadily creeping up on American society.




Everette James says that America already spends more on healthcare than any country in the world.  The proponents of Obamacare argue that these vast sums did little good. If absolute increases have achieved nothing, will giving over decision-making to government achieve what absolute increase in spending could not?

The evolving U.S. health system has reached an important juncture. It’s not the Affordable Care Act (ACA) clearing its latest legal hurdle to remain the law of the land, or even the 50th anniversary of Medicare. It’s certainly not our population becoming the healthiest in the world. Although we spend far more on healthcare than any other nation, we still rank 42nd in life expectancy at birth and last among a number of other developed nations in efficiency, quality and access to care. The critical point our health system has quietly reached is–for the first time–government-sponsored programs now make up the majority of healthcare spending in the U.S.

In other words, will changing the proportions of this pie (from the Forbes article) make any difference?  If the blue part of the pie is increased by shrinking the red slices, can the total size of the pie be reduced?  In other words, will moving to Single Payer create a more efficient health care system?  People like Bernie Sanders seem to think so.




But in reality, growing Single Payer in America has only resulted in higher profit margins for the oligopolistic providers.  The record of Obmacare is clear in this point.  The US News and World Report article lays out the growth in crony capitalism that parallels the growth in Single Payer till now.

Both Aetna and Anthem say their mergers will improve health care access, affordability and quality for consumers.

But physicians say the consolidation will allow the insurers to raise costs and trim benefits. Most health insurance markets are no longer competitive, Stack asserts, citing an analysis released in 2014 by the AMA in showing that 41 percent of metro areas have a single health insurer with a market share of 50 percent or more. Stack also pointed to a 2013 study showing that premiums rose by 13 percent following the 2008 merger between UnitedHealth Group and Sierra Health Services.

Growing Single Payer has so far resulted in growing monopolies.  The truth is that nobody even pretends to know whether Obamacare is saving any money; whether by increasing the share of blue in the cost pie the total expense pie is shrinking.  Dan Mangan of CNBC writes:

It is not known to what extent provisions in the Affordable Care Act will help contain health spending inflation over the next decade.

The ACA is responsible for some of the expected inflation because of its extension of health insurance, through government-run insurance exchanges and expansion of Medicaid in many states, to about 8.4 million previously uninsured people as of 2014. But the ACA is also designed to help control overall health spending by, among other things, reducing the amount of Medicare reimbursements the government pays.

Keehan's co-author and fellow economist in the Office of the Actuary, Gigi Cuckler, said, "it's difficult to say" how much Obamacare will be responsible for keeping health spending below historically high rates through 2024.

"We no longer explicitly estimate the spending impact for the entire ACA," Cuckler said. "We no longer can come up with a counterfactual scenario whereby the ACA never passed."

The probability is that, as the government share of healthcare expenditures grows -- as it comes closer to Single Payer -- that no cost savings whatsoever will be achieved.  At the very least, no one can know if cost savings compared to an alternative have been achieved. All that we will know is that healthcare as a share of national income will rise year upon year. Mangan continues:

Health spending in 2013 accounted for 17.4 percent of GDP. But by 2024, it is projected to make up 19.6 percent of GDP.

The forecast expects that spending from 2016 to 2018 will be grow by an average of 5.3 percent, but will speed up in following years, to 6.2 percent annually through 2024. The increase in later years is attributed to expected stronger economic growth, which usually is followed by increased use of health-care goods and services.

Having government write the checks while private companies provide the service is unlikely to bend the cost curve.  It’s only succeeded in shoveling more business at the providers.  Sooner or later, even Bernie Sanders will realize that the Single Payer system he regards as paradise is already here.  Giving more money to the companies can increase the number of people covered, but it won’t cut costs.

The last big hope to save money among liberals isn’t Single Payer but Socialized Medicine.  Unlike Single Payer, where the government simply pays private providers for care, Socialized Medicine consists of the direct provision of medical services by the government.  “The Veterans Health Administration, the military health care system,  and the Indian Health Service are examples of socialized medicine in the stricter sense of government administered care, although for limited populations.”

Bernie Sander’s website reprints an op-ed by Richard Cohen titled “Op-Ed: 'Socialized Medicine? Bring It On”” reprinted from the Washington Post.  Cohen argues nobody should be afraid of socialized medicine.

When I was in the Army and known to my friends as "Combat Cohen," I could not get over the fact that, during an era of almost universal military service, the American public supported high Pentagon spending despite firsthand knowledge of astounding waste and theft. I cite, for instance, the well-known and frequently witnessed pillaging of food by mess sergeants. From tasting their stuff, I can say that theft is what they did best.

Now I am similarly perplexed. Many, if not most, Americans have some experience with our nation's mostly private health-care system. Yet they still fall prey to the scare tactic that nothing -- but nothing -- could be worse than a government takeover of the system. How things could be worse than they are now, I cannot imagine.

In the past two months, I have spent many hours accompanying a loved one to hospital emergency rooms -- all of them privately operated. The rap on what is sometimes called socialized medicine is that if the government ran the system, the wait would be interminable. Well, I am here to tell you that even when the government does not run the system, the wait can be interminable.

And uncomfortable. In one hospital there was not enough space in the emergency room for all those seeking treatment. My friend got moved from a bed -- where she was relatively comfortable -- to a wheelchair in the hallway. There she sat, in agony, for about six hours. Something similar happened at another emergency room, though this time she was given a cot. The wait, though, was just as long.

The gist of Cohen’s argument is that things have reached the point when we would rather be treated by the VA than by a private hospital or doctor.  That’s not true yet.  But it may be true eventually.  The progression of American health care policy is toward failure justified by previous failure.  To improve Obamacare, which is failing, it is necessary to increase government share of expendtures.  When the share of government expenditure for health eventually reaches 100% with dismal results, Single Payer will be deemed a failure. The only salvation remaining will be Socialized Medicine.

Maybe when that fails the entire project will loop around to private insurance and the quest for a perfect health system will begin again.

Why Obamacare is Not Working


The standard rationale for Obamacare is that it can achieve cheaper and statistically better health care for Americans by improving the distribution of care.  David Harlow of the Healthblawg clearly articulates this critique “an avalanche of unnecessary medical care”.

The US system of high-quality but expensive and poorly distributed medical care is in trouble. Dramatic advances in medical knowledge and new techniques, combined with soaring demands created by growing public awareness, by hospital and medical insurance and by Medicare and Medicaid, are swamping the system by which medical care is delivered. As the disparity between the capabilities of medical care and its availability increases, and as costs rise beyond the ability of most Americans to pay them, pressures build up for action.

That action is Obamacare.  The trouble is that it’s not working.  Despite claims from the administration that it is now an accepted part of the policy landscape, an August 2015 survey by Rasmussen reveals that most people think it has changed things for the worse.

Voters are less satisfied with the health care they personally receive and remain pessimistic that the national health care law will make the system any better.

The latest Rasmussen Reports national telephone survey finds that 67% of Likely U.S. Voters still rate the quality of the health care they receive as good or excellent. Still, that’s down from 70% in April  and is the lowest finding in nearly two-and-a-half years of regular surveying. These positives have generally run in the high 70s and low 80s for most of this period but have been trending down since the first of the year.

The public view of Obamacare has been consistently unflattering. An earlier Rasmussen survey, taken in July 2015 right after the administration’s victory in King vs Burwell underscores this point.

Despite its recent victory in the U.S. Supreme Court, the president’s health care law is still disliked by most voters who expect it to worsen the quality of care and make it more expensive.

A new Rasmussen Reports national telephone survey finds that 42% of Likely U.S. Voters share a favorable opinion of the law, with 20% who view it Very Favorably. Fifty-three percent (53%) view Obamacare unfavorably, including 37% with a Very Unfavorable opinion. These findings are consistent with surveying for several years.

Not only is Obamacare unpopular, but it is now manifestly failing its chief purpose, as described by its title, the “Patient Protection and Affordable Care Act”.  It is failing to make healthcare more affordable.  On the contrary it is raising prices as never before.  Paul Howard, writing in Forbes titles his article “America's Health Care-Cost Slowdown Goes Kaput; What Should Republicans Say (And Do) About It?” The gist of his argument is that costs are going up -- and just in time for the presidential elections, too.

Just in time for the next presidential election, health care spending is starting to take off again. Through 2024, health care spending is projected to grow by 5.8% annually, on average, according to CMS. While this isn’t unexpected—health economists across the political spectrum expected health care costs to start growing again (and growth rates are expected to still be lower than the long-run average)—the window for addressing health care costs in a less painful way is closing. Without better cost controls in the private sector, and without immediate reforms to Medicare, the health care sector is set to gobble up a full fifth of the U.S. economy in just 10 years.

So the Obama Administration is going to have to put some corks back into their champagne bottles. Obamacare has not slain the health care cost dragon. Back to the drawing board.

It’s worth pausing at this point to note that Obamacare was never about building hospitals, adding more doctors or nurses to the system or deploying some new medical technology.  It would leave the supply side of medicine unchanged.  It might even shrink it a little -- not a bad thing if you believed America was buried under “an avalanche of unnecessary medical care”.  But if the premise was wrong so too would be the predicted result.  Howard notes that after all that redistribution costs did not decline.

Healthcare costs are growing at 1% faster than GDP which means it is increasing relative to everything else, including paychecks.  Over time this will become a pressing problem. Both the public and private components of medical care deliver are growing, with public sector spending increasing at a slower rate than private sector provision.

The big drivers of spending growth will, unsurprisingly, be Medicaid and Medicare.  Even as per-capita costs in these programs grow relatively slowly—averaging just around 4% through 2024—greater enrollment in the two programs will drive spending: 7% for Medicare, thanks to a retiring cohort of baby boomers, and around 6 percent for Medicaid, mainly due to the ACA’s Medicaid expansion.

Don’t forget the remaining 60% of America’s health care economy. Per capita costs in private insurance are slated to grow 4.7% through 2024, on average; in recent years, the growth rate averaged only 2.8%.

But that was as intended, since private insurance is taxed or otherwise burdened, in order to reduce its alleged overconsumption and transfer resources to government provisioning.

Further, these projections take into account the effects of the Cadillac Tax, which will push businesses to make benefits less generous. Meanwhile, overall out-of-pocket spending is expected to fall, thanks to enrollment in Medicaid, Medicare, and growing insurance coverage on the exchanges.

It’s worth pointing out that Medicare and Medicaid services are actually supplied by private providers.  Most of the savings in Medicare and Medicaid have been achieved by imposing caps on what the doctors and providers will be paid. “New York is moving all of its enrollees, including long-term care and dual-eligible populations, into private managed-care plans, subject to capitation payments and quality benchmarks.”

On the private side, attempts have been made to force cost cuts by slimming down the offerings. “Employers—the purchasers of most private health insurance in the U.S.—are beginning to shift to defined-contribution approaches, using tools such as private exchanges (in 2015, at least 5 million employees have been enrolled using private exchanges, according to Accenture), higher-deductible plans, and reference pricing.”  

Howard notes that Obamacare has achieved redistribution but without cutting the costs.  Government has “covered” more Americans yet only by buying more insurance and paid for it by increasing taxes on the middle class.  Obamacare has none of the “secret sauce” which its supporters hoped it would bring.  It is pure tax-and-spend; tax more and spend more.  In that way it is straightforward; there is nothing in inherently wrong with this, nor anything particularly clever.  It would be no different than if the government had simply raised taxes and expanded Medicaid, without going through the extra expense and complexity of creating exchanges.  Perhaps most disappointing of all to its advocates, Obamacare has failed to cover everyone despite its great expense.  Howard says:

The U.S. uninsured rate has fallen by about 25% as a result. But middle-class Americans—people footing their own bills—are staying away from the exchanges in droves … insurance hasn’t gotten cheaper. Costs are going up. We’re just subsidizing more people, rearranging deck chairs on the Titanic. There’s little evidence that having comprehensive insurance offers better health outcomes for most people. What insurance does do is protect against catastrophic costs. …

Even when Obamacare is fully implemented, CBO estimates that 25 million Americans won’t have access to that security. Does that sound like a good deal to you?

It is ultimately going to break the bank, as Scott Gottlieb explains in an August, 2015 article in Forbes.  “In the real economy, medical costs are on a sharp upswing.”  He focuses on the real weakness of Obamacare, which sought to slow the rise in costs by changing the way bills were paid and money was allocated.  Gottlieb notes that the real problem is that healthcare delivery itself is getting more expensive.

It’s important to distinguish between three common but different ways that most commentators try and gauge whether healthcare costs are on the rise. Either by measuring increases in total healthcare spending, measuring the cost of providing health insurance, or calculating the rise in prices charged for actual medical care.

All three measures are rising, and all three are, of course, interrelated.

Yet on a relative basis, the increases in actual medical charges seem to be growing more quickly than the cost of insurance, or measures of total health spending. This suggests that the real underlying inflation in healthcare has yet to be fully felt.

Howard’s metaphor of “rearranging deck chairs on the Titanic” is appropriate here.  Despite the redistribution (rearranging the deck chairs) the Titanic is still sinking (the costs are rising).  Nothing Obamacare has done, except by rationing care through narrower networks or higher deductibles, appears to have affected this variable in the least.  Gottlieb explains:

According to new data released Centers for Medicare and Medicaid Services, which published its projections last week in the policy journal Health Affairs, spending on healthcare is expected to grow at an average annual rate of 5.8 % over the next decade. In the years following the recession, healthcare expenditures grew at historically low rates of around 4%. That slowdown is judged to be over.

These hikes in healthcare spending will exceed even the rosy estimates for growth in the GDP — by 1.1%, according to the Obama estimates. As a result, the share of the economy devoted to healthcare will rise from 17.4% today to 19.6% in 2024.

Yet this focus on the amount of total healthcare spending belies an even more troubling trend in the healthcare sector – the rising cost of the actual medical care.

The medical care index, which is maintained by the Bureau of Labor Statistics, measures these medical prices. It rose 0.7% this summer. This was the “largest increase since January 2007,” the BLS wrote in its report. These are the actual prices being charged for things like tests, treatments, and doctor visits.

In the BLS report, the broadest subset of medical care services grew by 0.9%. It was an unusually steep increase. Medical care service is the largest component of the medical care index. It includes the prices of doctors, hospital care, and other related services. The cost of hospital services alone rose 1.9% in the monthly report.

Moreover, the BLS report may be underestimating medical inflation, since it measures the consumer price index. As Kelly Evans explained on CNBC, the CPI captures mostly out-of-pocket healthcare costs, being an index of what consumers themselves are paying. By comparison, the gauge used by the Federal Reserve — the price index for personal consumption expenditures — covers “all goods and services consumed by households regardless of who paid for them.”

One of the culprits for rising costs may ironically be Obamacare’s cost-cutting efforts.  The Affordable Care Act has not only failed to increase medical capacity  it is actually reducing it by fostering monopoly providers.  The classic theory of supply and demand holds that when supply diminishes and demand is held constant then prices rise.

These rising prices are indisputably a result, in part, of the consolidation underway in healthcare delivery, where doctors and hospitals are binging on mergers.

Hospital mergers, for example, have been on a record pace. There were 95 hospital mergers in 2014, 98 in 2013, and 95 in 2012. Compare that with 50 mergers in 2005, and 54 in 2006. As I noted in the Wall Street Journal, cheap debt and Obamacare’s regulatory framework almost guarantee more consolidation.

Of even greater concern is the consolidation of individual doctor practices into large medical groups that are often owned or controlled by local hospitals.

The consolidation of doctors into regional, hospital-based health systems reduces (and in some cases eliminates) any real local competition between different medical providers. This blocks the ability of health plans and other purchasers to contract with providers on the basis of the quality or the cost of the care they deliver.

Thus, despite all the scorn poured on “market based” reforms by Obamacare supporters, such measures remain the only remaining alternative to its failed approach. The Affordable Care Act has not succeeded in making healthcare either universal or cheaper by taxing the “avalanche of unnecessary medical care” it deemed to be the culprit.

It’s time to try something different.

Reactions to Scott Walker’s Proposal


Megan McArdle hammers the last nail into speculation that the Republicans have given up on repealing Obamacare. In fact, as has been observed elsewhere, the principal GOP presidential candidates for 2016 are now vying with each other to construct the replacement.  Writing in the Bloomberg View she says:

Republicans have been saying "repeal and replace Obamacare" for so long that it has started to sound like one of those ceremonial phrases that drop out automatically at opportune moments, like "hellohowareyou" or "thankyouhaveaniceday." …

Unfortunately, when you're running for president, polite nods to social necessity aren't quite enough. We've known for a while that the serious contenders were going to have to release an actual plan, one with enough details to critique. And sure enough, today Scott Walker has done so, while Marco Rubio has penned a moderately detailed essay in Politico that tells us where his plan is likely to go. So what do they tell us about what the GOP is thinking?

It says first of all, that there’s a considerable commonality among the GOP replacement plans put forward so far.  McArdle lays out the common lineage.

Both Walker and Rubio are endorsing some version of the plan advanced by the 2017 Project, which would repeal Obamacare in its entirety, and then use age-rated, advance-refundable tax credits to help people buy health insurance. Both would allow people to shop for insurance across state lines, which liberals argue would lead to a "race to the bottom" of insurers locating in the most lightly regulated states, and conservatives believe would cut back the cost tangle of regulatory burdens and ever-increasing legislative mandates to cover this service or that. Both candidates endorse high-risk pools for people with pre-existing conditions, and would beef up health savings accounts -- in Walker's case, by adding a $1,000 refundable tax credit for anyone who opens one. Both also have nasty things to say about bailing out insurance companies.

The biggest difference so far is in how they would reform our current, very expensive entitlements for the elderly and the poor. Rubio endorses moving Medicare to a premium support model, which you might think of as a sort of Obamacare for the elderly. Scott Walker focuses his reform efforts on Medicaid, which would be converted to a program for poor families like CHIP, which has a capped funding level rather than providing matching grants, with a more open-ended entitlement for people with disabilities and low-income seniors. Walker also has some blandly-nice-but-unlikely-to-change-much things to say about unleashing innovation and encouraging wellness, which Rubio doesn't have the space for in an op-ed format.

Yet given the fact that the healthcare scene must of necessity have largely the same institutional cast of characters, McArdle raises the question of whether any Republican -- indeed anyone -- can do anything except rearrange the scenery on the same old stage.  In other words, is healthcare “unreformable”?

The first thing to observe about the structure of this plan is that it is not necessarily what you would come up with if you were looking for a bold, game-changing reform. It tinkers around the edges in possibly productive ways, shifting power out of the hands of regulators and into the hands of consumers. And thanks to Obamacare, that's pretty much what Republicans are stuck with. Obamacare was itself a large reform, but not a bold one: It won expanded coverage by buying off existing stakeholders with the assurance that nothing substantial would change.

Paying the providers more to take on more customers hardly qualifies for “reform”. If anything Obamacare gave industry giants the means to entrench themselves further. “In the process, of course, it entrenched many of the biggest problems with the system more deeply. All the bad incentives of our fragmented and inefficient third-party-payer system are now not merely legal, but mandatory.” In the light of that development, what can the GOP candidates realistically do? For openers they can attempt to extricate some public funds from the wreck, a process that Kevin Drum in Mother Jones calls ‘screwing the poor’.  He writes that the government is going to hand out less money because  Walker’s tax credits are lower than Obamacare’s subsidies.

This is going to be the most anticlimactic blog post ever, but can you guess how Scott Walker's health care plan compares to Obamacare for the poor? And how it compares for the upper middle class and the wealthy?

Damn. You guessed. But just to make it official, here are a couple of charts that show how the subsidies in the two plans compare at different income levels. I used the Kaiser calculator to estimate Obamacare subsidies and Walker's written document to calculate tax credits under his plan. The chart on the left shows a 3-person family with 30-year-old parents. The chart on the right shows the same thing with older parents.

The problem with Kevin Drum’s accusation is that it’s false.  The Walker plan gives tax credits to everyone, without means testing, based solely upon age.  It is truly universal health insurance, albeit at a more basic level. By contrast Obamacare’s subsidies are contingent upon passing an income test.  

The more fundamental question is whether simply throwing more taxpayer money at healthcare solves anything.  Mark Cuban examined an analogous situation in the educational context, commenting on a proposal by Hillary Clinton.   He argued that government has just been shoveling money to the colleges.

Clinton unveiled her $350 billion “New College Compact” last week, a plan that would guarantee tuition at public schools without forcing students to go into debt, cut interest rates on student loans and make community college free.

Progressive groups have lauded the plan as “bold” and “ambitious.” …

Billionaire businessman Mark Cuban says Hillary Clinton's plan to curb growing student-loan debt will actually make attending college more expensive.

“[Hillary’s plan] stands a better chance of increasing the amount of money students owe than decreasing it,” Cuban said on his Cyber Dust app on Friday.

“Just as easy money led to the real estate bubble a few years ago, the easier it is to borrow money for college the easier it is for colleges to raise tuition. Tuition keeps going up because no matter how high they raise it, students can still borrow more to pay for it,” Cuban continued.

Cuban, who stars on ABC’s “Shark Tank” and owns the Dallas Mavericks, has for years warned of a “student loan bubble.”

“At some point, it’s going to pop,” Cuban told Business Insider in March.

McArdle argues that the ground for reform has shifted in unexpected ways to one of who to shift the burden onto.  She writes:

There are a lot of ways this could play out, but the Republican proposals for a post-Obamacare world sketch a very plausible one: Republicans become the party of universal, but lean, benefits that won't be enough to lift people out of poverty, while Democrats become the party of generous benefits for the poor, redistributing money and benefits downwards from the middle class while paying lip service to middle-class problems. Who wins that debate will tell us a lot about what kind of government we'll have in 50 years.

But McArdle may be wrong in framing the issue as a choice between serving the middle class or the poor.  From experience only the giant institutional players -- the crony capitalists - have won.  Neither the middle class nor the poor have any dog in that fight.  What is at stake is whether the productive middle class will be beggared into destruction; for if that happens then the goose which lays the golden eggs will be slaughtered on the altar of patronage.  Once those eggs are gone, there’ll be no omelet for anybody.

The Scott Walker Plan


Scott Walker’s Obamacare replacement plan was announced today and has some interesting features.  Reid Epstein and Stephanie Armour of the Wall Street Journal report the bald fact, “the Wisconsin governor and GOP presidential candidate says the plan wouldn’t add to the federal deficit and would completely repeal and dismantle the Obama administration’s health-care law.” The Wall Street Journal article summarizes Walker’s alternative this way.

The proposal would provide tax credits to everyone without employer-sponsored health coverage. The credits could be used to purchase insurance on the open market, and the value would be based solely on consumers’ age. Young people -- those 17 years old and younger -- would get a credit valued at $900, while older consumers between 50 and 64 years old would get a credit valued at $3,000. It would also increase annual limits on tax-free health savings accounts, a popular program for people in high-deductible plans, and it would allow anyone who signs up to get a $1,000 refundable tax credit. …

He would reorganize Medicaid, the state-federal health insurance program for the poor, into smaller, separate divisions. States in one program for low-income families and people without disabilities would be able to set eligibility requirements and rules for how services are delivered and costs are shared. He would also let consumers band together to purchase insurance—for example, letting farmers join together to buy insurance as a group.

He would also seek to put limits on what he calls excessive lawsuits over medical care, a move certain to win some support within the health-care industry while alienating consumer advocates.

The plan itself is available as a PDF on Walker’s website.  As the WSJ summary indicated, it plans to complement, rather than replace employer-based coverage.

My plan would provide refundable tax credits to individuals who do not have employer-based coverage to make health

insurance more affordable and more portable. This would strengthen health insurance markets by enabling individuals to

Use their tax credits to buy insurance outside the workplace.  Like Obamacare, it would be portable.  Unlike the ACA system, it would based on one simple variable: age.

For example, a 35-year-old woman who makes $35,000 per year and has no children gets $0 in ObamaCare subsidies – she’s too young and too middle class. Under my plan, this same woman would receive a $2,100 tax credit that she could use to shop for insurance in the open market and put any savings into a health savings account.

Tax credits will level the playing field between those who purchase coverage through an employer and those who purchase it on the open market, expanding options and lowering costs for health plans offered outside the workplace. This would ensure people are not locked into their current jobs just to maintain health insurance coverage and give people the flexibility to switch employers or even careers.

The value of the tax credit would depend on the age of the recipient, as shown in the table below. Tax credits would be available to anyone without employer-based coverage. And the credits would not be based on individual or family income.

Walker’s plan frees consumers from having to purchase insurance in specific geographic locations.  Consumers may purchase insurance offered in any state of the union which potentially increase competition to an significant degree because it would abolish the protectionism of locality.  The Walker plans is apparently specifically designed to do that:

Health insurance is one of the only products individuals are not allowed to shop for across state lines. My plan would allow individuals to shop in any state to find health insurance that covers the services they need at a price that fits the family budget. Opening the health insurance market across state lines would allow companies to compete and require states to scrutinize the costs of their regulations. This will also provide incentives to increase transparency and lower costs for consumers.

One area that is still unclear is how insurers will be compensated for assuming the risk of pre-existing conditions.  The Walker Plan creates a sliding scale of subsidies that will be universally provided.  A healthy 18 year old might be able to buy a minimal plan or $1,200 but someone with a pre-existing condition like HIV probably cannot be ensured for $1,200 without the insurance company taking a loss.  It may be, however, that the $1,200 sufficiently over-insures the rest of the group to statistically cover the sick consumer.


Age Credit Value
0-17 $900
18-34 $1,200
35-49 $2,100
50-64 $3,000




However that may be, the Walker Plan appears to be much simpler than Obamacare.  There are no complex rules, no incentives to establish giant health care bureaucracies and a good deal of encouragement to provide competition.

The Wall Street Journal summary largely missed an important shift.  The Walker plan returns regulatory authority to the states that was presumably lost under Obamacare.  In Obamacare the states lost authority but were charged with establishing expensive exchanges.  In the Walker plan the states regain authority -- presumably over Medicaid -- and have no obligation to create exchanges, leaving the entire task to insurance companies nationally.  

The past five years have clearly demonstrated that giving Washington top-down control over regulating health care coverage does not work – this power belongs to the states. Repealing ObamaCare’s essential health benefits requirement would return regulatory authority to states. The fact remains that state and local leaders are better equipped than federal bureaucrats to make state and local decisions.

My plan would give states increased flexibility. For example, it is likely many states would choose to extend rules allowing young people to stay on their parents’ plan. Some states, including Wisconsin, extended this option to young people before ObamaCare’s federal mandate.

This has many interesting implications, not the least of which is that the Walker Plan may serve the Blue States as well as the Red.  With the states in control of Medicaid they can control government provided health care as they like.  Vermont, for example, might be able to create a reasonable facsimile of Single Payer -- for those without employer provided or private health cover -- while Vermonters who so choose can buy an insurance plan anywhere in the United States!

There is one significant change to Medicaid however, that Walker would insist on: stratifying into programs to better serve what he believes to be a heterogeneous clientele.  The Walker Plan says:

To make Medicaid work, my plan would give states the ability to run Medicaid and reorganize it into smaller, focused parts, including the following:

1) Medical Assistance for Needy Families (MANF):

Medical Assistance for Needy Families (MANF) would include capped allotments similar to the Children’s Health Insurance Program (CHIP) covering low-income children, their parents, and nondisabled adults. States would set eligibility requirements and rules for how services are delivered and costs are shared. MANF benefits would follow current CHIP and Medicaid benchmarks. Additionally, states would receive a guaranteed level of funding from the federal government and the states’ share would be converted from a match to a specified state contribution. Under this approach, states would keep any savings they achieve without forfeiting federal funds, encouraging efficiencies that could then be used to improve access to care.

2) Acute care for people with disabilities and low-income seniors:

Acute care medical services for people with disabilities and low-income seniors would be provided through a separate part of Medicaid. Federal grants would remain open-ended and would match state expenditures. There would be no change to eligibility or the current structure of mandatory and optional benefits. Children with disabilities and children in foster care would continue to receive all medically necessary services they currently get under the Early Periodic Screening, Diagnosis, and Treatment (EPSDT) program.

3) Long-term services and supports for people with disabilities and low-income seniors:

Long-term services and supports (LTSS) for low-income seniors and people with disabilities would be provided through a third Medicaid program. Each state would receive a capped allotment based on spending on LTSS in a base year, which would be indexed in future years. My plan would determine eligibility based on a three-part test, including a financial, functional, and needs assessment. Individuals could be eligible for both LTSS and acute care services or just LTSS, but eligibility would be determined separately for each.

States would receive a guaranteed level of funding from the federal government. The states’ share would be converted from a match to a specified state contribution. As with MANF, states would keep any savings they achieve without forfeiting federal funds, encouraging efficiencies that could then be used to improve access to care.

The heart of Walker’s plan is this: “states would receive a guaranteed level of funding from the federal government. The states’ share would be converted from a match to a specified state contribution.”  This would be in stark contrast to the tighter control being exercised by administration over state health budget allotments today.

While it would be unlikely for Blue States to fawn over Walker’s plan, they can hardly help but be delighted by the prospect of managing their own money. This might encourage competition between the states to see who can attract the better workforce from neighboring areas.  And increased competition, was noted earlier, appears to be a motif of the Scott Walker plan.  Perhaps one of the proposals that will be popular on both sides of the political divide are its measures to limit excessive litigation.

It is critical that patients have the ability to pursue legal action if there is wrongdoing during their treatment. However, our current legal system has become a lottery, giving outsize awards to a very few, while failing to punish legitimate wrongdoing and compensate people for harm. The unfairness of this system leaves the door open for excessive litigation that in turn leads to “defensive medicine,” where doctors may over-treat some patients as a way to avoid frivolous lawsuits. My plan would encourage states to implement lawsuit reform to lower costs by limiting excessive litigation, while making sure consumers have opportunities to be compensated for harm and pursue legal recourse in instances of wrongdoing. My plan would incentivize states to pass meaningful lawsuit reform and encourage them to establish specialized expert reviews to determine if and when a doctor made a mistake, or commonsense legal defenses for doctors who demonstrate that they followed established clinical practice guidelines in a case.

According to the AP, “Topher Spiro of the  Center for American Progress, a think tank often aligned with the White House, said Walker's plan would be a step backward.”  He criticized it as being unaffordable.  "The math only adds up if he's slashing Medicaid and increasing taxes on middle-class people with employer plans".

But on soundness in principle and simplicity alone, Walker’s plan appears to be far superior to the bloated and hideously expensive Affordable Care Act.  What is plain, probably even to Spiro, is that opposition to Obamacare is far from dead.  In fact, it is burgeoning.  Obamacare had almost 6 years since 2010 to make a positive impression on the American public.  The undeniable fact, as demonstrated by the polls, is that it has not made the sale.

A substantial number of people remain dissatisfied with Obamacare.  The principal reason, and the hardest to blame on pure partisanship, is its high price.  This, coupled with its narrow networks and high deductibles, has made it less than a hit among consumers, many of whom frankly detest it.  The mediocrity of the product, its high price, not to mention its Byzantine complexity and slowly mounting taxes, make it hard program to defend.

The fact is that even Bernie Sanders and Hillary Clinton are openly considering changing Obamacare.  Every single Republican candidate has vowed to repeal it to one degree or the other.  Whether a Democrat or Republican wins in 2016, the changes of Obamacare surviving unscathed are exactly zero.

Walker’s plan shows how the application of a little common sense can produce a superior or competitive policy to Obamacare.  The ACA is hardly invincible.  It’s days are probably numbered.


The Politics of Obamacare Repeal


One of the few politicians who isn’t waiting with bated breath for Scott Walker’s rollout of his detailed alternative to Obamacare is his rival for nomination, presidential candidate Bobby Jindal. Jindal  has his own repeal plan for Obamacare.  Max Ehrenfreund of the Washington Post wrote: “Unlike many of his competitors for the GOP presidential nomination, Louisiana Gov. Bobby Jindal has laid out a detailed plan for replacing President Obama's health-care reform, widely known as Obamacare.” The plan is grounded on sensible principles: a safety net supplemented by private insurance.

The plan would give the states full control over Medicaid and would pool people at a high risk of illness, offering them subsidies with the goal of making sure that even the sickest Americans can afford insurance. Jindal would also get rid of the tax break that businesses get for offering employees health insurance to put workers at big firms on a level with the self-employed.

Jindal's proposal has been criticized by both the right and the left. At Talking Points Memo, Sahil Kapur argued that Jindal's plan for dealing with high-risk consumers would be too expensive. Ramesh Ponnuru, writing for National Review, wondered if his plan for employer-based insurance would be too disruptive to the existing system.

But it would be false to claim that only Jindal and Walker have plans to supersede Obamacare.  Donald Trump has one too and it sounds a lot like the Democrat Bernie Sanders.  Avik Roy writes in Forbes:

Last night in Cleveland, the 17 declared Republican presidential candidates participated in the first official debates of the 2016 election season. Health care policy was a bone of contention. “How can you run for the Republican nomination and be for single-payer health care?” asked former Texas Gov. Rick Perry of Trump. When Fox anchor Bret Baier later asked Trump to defend his position, Trump responded: “As far as single payer, it works in Canada, it works incredibly well in Scotland.”

Roy spends the rest of the article explaining why Trump is wrong to take that position.  But that discussion is for another time; the point is that Trump has a plan, albeit at variance with his fellow Republicans. And there’s John Kasich, whose replacement for Obamacare emphasizes Medicaid expansion.

For those who argue that replacing Obamacare is no longer an issue with the voters and the Republicans, nothing could be further from the truth.  The leading candidates are actually vying with each other to craft an alternative. Jeffrey Anderson of the Weekly Standard has an overview of the various GOP alternatives, including but not limited to those already mentioned.  He notes that voter determination to repeal Obamacare remains strong; and is perhaps even stronger than it was at the outset.

In pushing to repeal Obamacare and replace it with a conservative alternative, a candidate would be doing the American people’s bidding. A McLaughlin & Associates poll commissioned by the 2017 Project asked 1,000 likely voters (including 37 percent Democrats and only 31 percent Republicans) the following question shortly after the King v. Burwell Supreme Court decision, in which the Court ruled in favor of the Obama administration.

In response, 43 percent said Obamacare should be repealed and replaced with a conservative alternative, while an additional 12 percent said it should be repealed but not replaced. Only 38 percent said it should not be repealed. In other words, with a conservative alternative in play, likely voters support repeal by a margin of 17 points—55 to 38 percent.

There is a strong grassroots push to roll back the program, which has come to symbolize the Obama era and all its opponents dislike about it.  It is an issue that is driven less by the GOP than by its voter base.  Whether they like it or not, every GOP candidate who hopes to become the next president of the United States is finding himself looking from an alternative to Obamacare.

From an electoral perspective any successful replacement for Obamacare will need to have three characteristics, without which it will not achieve popular legitimacy.

  1. It must be lower cost than the current Obamacare program, not simply in the artificial sense of being subsidized, but in actual underlying dollars and cents.  The voters are wise to the ACA tactic of shifting costs around by postponing or otherwise concealing premiums; by narrowing networks or increasing deductibles.  They want truly affordable care.

  2. It must expand medical access so that a significant percentage of poor people can receive treatment or medication when they need it;

  3. It must be flexible so that it not only satisfies the Red States, but also deeply Blue States like California or Vermont.

None of these desiderata has chance of being met under the current ACA system.  The approach it adopted has increased real actual medical costs, curtailed competition and imposed huge administrative overheads.  Any Republican alternative which aims to reduce costs by simply rearranging the bureaucracy or tinkering with payment formulas is almost certainly bound to fail.

Probably the sole remaining hope for bending the cost curve is to get government out of any unnecessary involvement in health care delivery and increasing, rather than restricting competition.  Unleashing the burgeoning medical technologies of the 21st century probably constitutes the last, best hope for “bending the cost curve” downwards.

New mobile devices, telemedicine, bionic limbs, computerized mechanical mobility aids, genetic therapies, precision and nano medicine -- all of these bid fair to become the new game changers.  Individualized medicine, not the “one-size-fits-all” approach of Obamacare most closely approximates the future trends.

Yet in a country as diverse as America, each major political viewpoints needs a way to use these new technological opportunities in their preferred ways.  Fortunately, as Jindal’s and other GOP candidates’ platforms show, there is considerable openness to state level variation in their visions of an Obamacare replacement.  With the voters up in revolt against monolithic Washington-centric systems, the stage is set for allowing a variety of state level solutions to emerge.  These can vary from “single payer” in Vermont to a more market based system in other states. The conservative ideology is inherently more open to grassroots experimentation that Obamacare or its derivatives, because those are highly dependent on centralized control.

In summary, the political environment for the repeal of Obamacare is probably greater than ever, simply because of grassroots pressure.  Any successful solution must be cheaper, more widespread and more flexible than the current program.  New technology and state level systems, including the Health Care Compact are likely to play a big role in the future of American health care delivery.

The Beginning of the End of the State Obamacare Exchanges


News that the young and personable head of Get Covered Illinois, Karin Zosel was leaving the Obamacare exchange in the president’s home state for a job at a college was described in sheepish article as having nothing to do with her failure or lack of qualification.  The Chicago Tribune wrote:

The top official in Illinois overseeing health insurance plans through Obamacare has left her job after just five months, raising questions about who will oversee the program as thousands of residents prepare to sign up for the third year of enrollment this fall.

Karin Zosel departed Aug. 7 as executive director of Get Covered Illinois, the state's Department of Insurance confirmed Friday.

Zosel took a job as vice president for institutional advancement at MacMurray College, a private college near Springfield with about 500 students, according to a press release issued this week by the college.

Zosel was not fired or asked to leave, said Alissandra Calderon, spokeswoman for the Illinois Department of Insurance.

"Karin Zosel has been instrumental in leading Get Covered Illinois for the past six months," Calderon said in a statement. "We appreciate her leadership throughout her time with Get Covered Illinois and wish her well in her new endeavor."

Zosel declined to say why she left her state post after five months. During that time, she was paid $49,218.25.

The explanation for her depature is further down in the article. “This marks the latest disruption to the organization created to promote health insurance sold under the federal Affordable Care Act. Last month, Get Covered Illinois eliminated most of its staff in a move the group attributed to decreased federal funding.”

There’s a half-hearted attempt in the State Journal Register to depict it as a kind of Republican vendetta at the state level against the state exchange, but the lack of funding is clearly the result of the phase out of funding for such efforts specified in the original bill.

CHICAGO — Gov. Bruce Rauner's administration has eliminated 15 staff positions from Get Covered Illinois, the state's health insurance exchange, three months ahead of the third annual enrollment period under President Barack Obama's health care law.

The layoffs raise questions about the Republican administration's plans for helping consumers enroll in health insurance coverage under the law — the Democratic president's signature domestic policy achievement.

Staff members learned Wednesday of the layoffs that take effect July 31. The open enrollment period for health insurance coverage begins Nov. 1 and runs through Jan. 31.

"Entering year three, we will be operating with less federal funding than in previous years and have reduced our staffing levels," according to a statement emailed by chief marketing officer Jose Munoz, one of the people whose job was cut.

Governing explains that every state -- not just those with Republican governors -- are facing the problem of sustaining the exchanges when the Obamacare seed money dries up.  Chris Kardish writes: “Facing high costs but smaller budgets, states like Hawaii and Rhode Island are struggling to find financially and politically sustainable ways to keep their health exchanges running.”  Some states, like California, are tacking on a fee to insurance policies to pay for exchanges like Get Covered Illinois.

States like Hawaii, Rhode Island and Vermont plus the District of Columbia can no longer depend on the federal grants they used to initially develop and fund their exchanges. The federal Centers for Medicare & Medicaid Services (CMS) prohibited using those grants toward operations starting earlier this year.

In statehouses over the next several months, debates will rage over how to fund exchanges -- but also whether those exchanges are worth maintaining at all, and in what form. The main source of revenue for state-based exchanges comes from fees paid by insurers. Most exchanges, though, are also still counting on at least some financial support from their general funds. California, which has the highest enrollment of any state, is one exception. The state can't use general revenue to fund its exchange, and is now running into an $80 million deficit that could require raising insurer fees from the current $13.95 per policy.

Dan Mangan of CNBC notes that the death knell for the state exchanges was ironically, King vs Burwell.  After the Supreme Court decided that the Federal Government could pay subsidies to Obamacare policy holders with or without “state exchanges”, much of the rationale for creating the exchanges went away.

About $5 billion or so in federal money has been spent on building Obamacare exchanges run by individual states—but opinion is split on whether many of those marketplaces have a future, or if they represent enough of an attractive alternative to to continue operating and possibly encouraging other states to join them.

Last month, a major Supreme Court decision gave new fuel to that debate. The high court said that subsidies that help most Obamacare customers pay for their health insurance could be issued everywhere in the United States—including for coverage sold on the federal exchange—and not just to people who buy plans from state-run marketplaces. The decision means that states can, if they want, abandon their Obamacare marketplaces and let enroll their residents, and still guarantee eligible residents receive financial assistance.

Beforehand, several states were taking steps to create their own exchange in the event the court had ruled the other way.

Larry Levitt, senior vice president at the Kaiser Family Foundation, said the King v. Burwell decision gives the remaining 13 states that operate their own exchanges along with the District of Columbia a chance to evaluate the costs and other burdens of doing so. He predicts many then will opt for the

King vs Burwell cut out the middleman insofar as subsidies are concerned.  With many state exchanges (like Hawaii’s) already bankrupt there is no compelling reason to keep them going.  Get Covered Illinois was due for a drastic downsizing.  It had already lost 15 staff positions due to a lack of funds.

Karin Zosel could not but fail to read the handwriting on the wall.  Her move to an academic position was due, not to her lack of performance in the job, but to the fact the job itself was disappearing.  In the words of Donald Trump, the King vs Burwell told Covered Illinois: you’re fired.

The Coming Political Assault on Obamacare


Recently a number of media outlets claimed that the lack of emphasis on repealing Obamacare during the Republican debate was a sure sign that the GOP had surrendered on the issue of the ACA.  Obamacare was here to stay.  Charles Gaba, writing in Health Insurance heard silence in the debate and thinks the candidates have conceded the battle over Obamacare to the administration.

Sometimes, what isn’t said can speak volumes.

When asked me to write a “rapid response” entry to debunk the inevitable nonsense spewed about the Affordable Care Act from the mouths of several hundred Republican candidates during two debates this evening, I had to think about it for a minute:

Did I really want to spend three to four hours of my life subjecting myself to this drivel? I finally agreed, then half-jokingly asked whether I would receive hazardous duty pay.

In fact, I wasn’t sure what the point of writing the piece was, since I was certain that it would just be the same tired, debunked lies that FOX News and the GOP have been subjecting the country to for the past several years.

You know the score: “Job Killer!” … “Gazillions of Policies Cancelled!” … “Death Spiral!” … “$700B Stolen from Medicare!” and so forth – all of which have been proven flat-out wrong or absurdly exaggerated. Hell, I figured I could write most of this column before the debate even took place.

Instead, something very different happened: Near silence on the ACA (in the midst a whole lot of screaming and insults on every other topic). Obamacare was virtually absent from both debates.

Sarah Kliff of Vox asserted the same thing. “Only one candidate, Scott Walker, uttered the Republican rallying cry: ‘Repeal Obamacare.’ The near-complete absence of Obama's health overhaul is remarkable.”  

But that’s not how it turned out. Now it is clear that Obamacare’s supporters were just whistling past the graveyard.  Obamacare, as shown by Bernie Sander’s promise to replace it, and Hillary Clinton’s openness to revoking the Cadillac Tax is hardly the settled policy its advocates claim it is.  Whoever wins in 2016 someone’s going to change it.

Especially if that someone is a Republican. Now, as if to answer the newspaper accusations of surrender, Republican presidential candidate Scott Walker has written a long teaser to announce his comprehensive plan to replace the ACA which he will release next week.

Let’s be honest. Obamacare was nothing more than a bait and switch. But Americans never took the bait.

In 2010, as President Obama and his fellow Democrats were trying desperately to ram Obamacare down our throats, they made one false claim after another. They told us health-care premiums would go down. They insisted if you liked your health-care plan you could keep it. They guaranteed Obamacare wouldn’t include any tax increases for the middle class. Americans didn’t buy these lofty promises then, and they certainly don’t now, given that each and every one of them has been broken.

Five years after Democrats forced Obamacare on the nation, Americans still don’t support it. We don’t like the president’s health-care plan, and we don’t want to keep it. Therefore, we must pull this dysfunctional and destructive law out by the roots.

We must repeal Obamacare in its entirety as soon as possible. But we can’t stop there. The president’s policies must be replaced with a plan that will send power back to the people and the states, fix the decades-old problems of rising medical-care and health-insurance costs, and support economic growth instead of punishing workers and small businesses. We must do all of this while ensuring affordable coverage for those with pre-existing conditions, and removing the fear that something as simple as changing jobs could result in loss of coverage.

Next week, I will release a plan to replace Obamacare that accomplishes all of these goals, and addresses the following problems with the law …  There is a better way. That is why I will soon be releasing a plan to reverse every single destructive Obamacare policy and make health care more affordable and accessible for Americans across the country. Stay tuned.

Declaring victory for Obamacare is not going to work, especially when the Democratic presidential campaign is in crisis with the party’s front-runner, Hillary Clinton, in potentially serious trouble for using her private email server to handle government communications.  In 2016, a number of long-delayed taxes will hit the voter’s pocketbooks.

Penalties for not having Obamacare-compliant insurance will double that year, for example.

The penalty for not having health insurance in 2015 is $325 per adult and $162.50 per child under 18 (with a total family maximum of $975, regardless of family size), or 2% of your annual household income, whichever is higher. Only the amount of income above the tax-filing threshold (about $10,150 for an individual) counts toward the percentage calculation of the penalty.

In 2016, the penalty jumps to $695 per adult and $347.50 per child under 18 (with a family maximum of $2,085), or 2.5% of your annual household income above the tax-filing threshold, whichever is larger.

Obamacare premiums in many states will increase by double-digits. Health analyst Robert Lazewski notes that the initial seed money is running out one year early and the pain that was meant to be postponed until 2017 is hitting in 2016.

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.

Faced with these price hikes the administration is leaning on regulators to keep the lid on premiums, if only for a little while longer.

The Obama administration is worried that proposed Obamacare rate increases for 2016 could further damage public’s perception of the Affordable Care Act. To combat this the administration is urging states to review rate increases requested by insurers with an eye toward keeping them down.

The New York Times reported last month that market-leading insurers around the country, like Blue Cross and Blue Shield, were seeking rate increases of 20 to 40 percent for 2016. Insurers say these rate increases are necessary because those enrolling in the Obamacare marketplace continue to be less healthy than anticipated.

But the Obama administration is urging state regulators, who have the power to review rate requests, to keep the rates down. In a letter to state commissioners, the chief executive of the federal insurance marketplace wrote that the increasing tax penalty for failing to purchase insurance “should motivate a new segment of uninsured who may not have a high need for health care to enroll for coverage.”

Scott Walker knows this and he is timing his rollout of an Obamacare replacement to coincide with the national pain that will be felt as the presidential campaign hits high gear. Obamacare has not only failed to achieve real victory, it will be hard pressed to survive.

Deficit Reduction


One of the most interesting claims of Obamacare advocates is that the program is shrinking the deficit.  One of the proofs for this assertion is a Congressional Budget Office study finding that “a repeal of the Affordable Care Act would probably increase budget deficits with or without considering the effects of macroeconomic feedback.”  The assumption is that reducing the budget deficit is an unambiguous good thing.  Very little thought is devoted to understanding why an Obamacare repeal would tend to reduce the deficit.

It is because Obamacare is a tax.  It’s a trillion dollar tax and when government cuts taxes without reducing spending then the deficit increases.  Everything about the ACA’s revenue raising is a tax.  The Supreme Court held that the Individual Mandate is a tax.  The “Cadillac Tax” on employer insurance is -- surprise, surprise -- a tax.  And Hillary is thinking of repealing it.

In a questionnaire for the American Federation of Teachers (AFT), which endorsed her this week, Clinton noted that the so-called “Cadillac tax” levied under Obamacare is one area she is “examining.”

The Cadillac Tax is a surcharge on expensive health care plans. It’s a crucial provision of Obamacare, bringing in much-needed revenue and trying to curb the incentive for employers to offer outlandish insurance plans to their workers. But it doesn’t kick in until 2018, so it’s going to be the next president’s problem.

If Clinton opposes it, she’ll be running against nearly every U.S. health policy expert and the White House. They all see it as clunky but necessary to reduce health care costs.

Avik Roy notes that Jonathan Gruber, one of Obamacare’s architects, knew the whole scheme was a tax which voters “were too stupid” to recognize.

Gruber also points out that Obamacare’s individual mandate—the provision that requires most Americans to buy government-approved insurance, or pay a fine—was described in the law as a “penalty” instead of as a “tax” in order to hide the mandate’s effects. “I mean, this bill was written in a tortured way to make sure CBO did not score the [individual] mandate as taxes,” said Gruber. “If CBO scored the mandate as taxes, the bill dies. Okay, so [the law is] written to do that.”

It is possible to return to the CBO study, go past the soundbite of deficit reduction and look at what it really says.  The study breaks down the repeal effects into two components: 1) the amount of money that would be saved from dropping the ACA and 2) the reduction in revenue from the repeal of the tax measures.  These effects are spelled out in a CBO letter to John Boehner.

First, as to the savings to be obtained by repealing Obamacare. These are calculated by computing the excess cost of Obamacare, which is the taxes directly related minus the benefits including the subsidies.  Since Obamacare takes in more taxes than provides benefits, this willl be saving.

The ACA contains a set of provisions designed to expand health insurance coverage, which, on net, are projected to cost the government money. The costs of those coverage expansions—which include the cost of the subsidies to be provided through the exchanges, increased outlays for Medicaid and the Children’s Health Insurance Program (CHIP), and tax credits for certain small employers—will be partially offset by penalty payments from employers and uninsured individuals, revenues from the excise tax on high-premium insurance plans, and net savings from other coverage-related effects. By repealing those coverage provisions of the ACA, over the 2013–2022 period, H.R. 6079 would yield gross savings of an estimated $1,677 billion and net savings (after accounting for the offsets just mentioned) of $1,171 billion.

However, if Obamacare is repealed, Congress will have to restore funding to Medicare and other programs which the ACA is supposed to have replaced.

The ACA also includes a number of other provisions related to health care that are estimated to reduce net federal outlays (primarily for Medicare). By repealing those provisions, H.R. 6079 would increase other direct spending in the next decade by an estimated $711 billion.

The government would also lose the other monies that Obamacare taxes are indirectly raising.

The ACA includes a number of provisions that are estimated to increase federal revenues (apart from the effect of provisions related to insurance coverage), mostly by increasing the Hospital Insurance (HI) payroll tax and extending it to net investment income for high- income taxpayers, and imposing fees or excise taxes on certain manufacturers and insurers. Repealing those provisions would reduce revenues by an estimated $569 billion over the 2013–2022 period.

In this context “deficit reduction” is not such an ambiguous good.  It’s another name for being able to keep tax money they’ve raised under Obamacare.  The Monitor explains it in layman’s terms when it describes the process of taking in taxes and paying out benefits.  The key thing to remember is that more taxes are taken in than benefits are distributed.

More than 15 million Americans, thanks to the ACA, are paying significantly more for health coverage than they would without the law’s onerous health plan regulations. By contrast, only about 6.5 million nationwide qualify for subsidies on the 34 states with a federal exchange (and many of these people will have to pay a portion of their subsidies back if their income exceeds what they reported it would be this year.)

Young people are hit especially hard, paying as much as 44 percent more for coverage than they would without these regulations in place. In Texas, repealing these federal insurance requirements would save a 21-year-old more than $1,000 and a 64-year-old nearly $600. For those who are self-employed or whose employer doesn’t offer coverage, these higher costs directly affect their income and hinder economic mobility.

Last year, about 2.8 million Texans had individual or small-group coverage, yet only about 448,000 — a mere 16 percent of the total market — received subsidies through the exchange. This year, the number of Texans receiving subsidies has grown to more than 800,000, but it’s still a small fraction of the total individual and small group market in the state.

The arithmetic is simple.  Fifteen million pay more, half that number qualify for subsidies.  It’s a scam, but it also cuts the deficit because the government brings in more money than it spends. This is in miniature what Obamacare is all about: a lunch that you have to pay for.   The operator of the cafeteria cuts his deficit, but that’s not necessarily a good thing.

Rule 9010 and the Rise of Costs


The news seemed too bad to be true. Another Obamacare tax. Richard Pollock of the Daily Caller reported that “all Americans who bought health insurance policies this year – not just those enrolled in Obamacare – face a 41 percent increase in excise taxes because of hidden fees contained in an obscure section of the Affordable Care Act, according to an investigation by The Daily Caller News Foundation.”

Virtually everyone who pays for health care insurance this year will be affected by the tax. The little-known tax was imposed on all consumers regardless of whether they obtained their insurance through Obamacare or through their employer or as individuals in the private market.

But the substance of it is undeniably true. The final implementing rules of Affordable Care Act Provision 9010  -- Health Insurance Providers Fee is on the IRS website “Section 9010 of the Patient Protection and Affordable Care Act (ACA), imposes a fee on each covered entity engaged in the business of providing health insurance for United States health risks.”

It’s important to note that the tax will be tacked on to health insurance providers, not the consumers directly, and while little-known 9010 was not hidden. Lisa Han of Managed Healthcare explained the broad outlines of the scheme in a 2013 article. “Starting January 1, 2014, health insurance providers with net insurance premium over $25 million must pay an annual fee under the Patient Protection and Affordable Care Act (PPACA). The federal government seeks to generate revenue from the health insurance industry starting at $8 billion for 2014 and gradually increasing to $14.3 billion for 2018.”

A table of the targets may be found in the IRS website.

Fee Year Applicable Amount
2014 $ 8,000,000,000
2015 $11,300,000,000
2016 $11,300,000,000
2017 $13,900,000,000
2018 $14,300,000,000
2019 & thereafter The applicable amount in the preceding fee year increased by the rate of premium growth (within the meaning of section 36B(b)(3)(A)(ii).

Han adds that “specifically, under Section 9010 of PPACA, each health insurance provider must pay to IRS an annual fee calculated based upon its premium revenue proportionately. The annual fee will be treated as an excise tax and non-deductible for income tax purposes.”

The Daily Caller’s article argues that this tax will be tacked on to insurance premiums. Most probably it will. Obamacare architect Jonathan Gruber caused a stir when he explained to an audience that Obamacare’s taxes on health plans are always taxes on the final consumer, though American consumers are often too stupid to realize it.

Gruber explains that the Obama administration passed the so-called “Cadillac tax” on high-value employer health plans “by mislabeling it, calling it a tax on insurance plans rather than a tax on people, when we know it’s a tax on people who hold these insurance plans.” Americans would not support a tax on individuals, so “We just tax the insurance companies, they pass on the higher prices . . . it ends up being the same thing.” The ruse, Gruber says, was “a very clever . . . basic exploitation of the lack of economic understanding of the American voter.”

Pollock’s article is credible in principle when he argues that the consumer is going to bear the final brunt.

This year the tax will cost individuals more than $500 in extra premiums according to one actuarial estimate. Families who purchased ,insurance will see their premiums go up by more than $700.

The new tax also hits senior citizens who rely on Medicare Part D and Medicare Advantage. It will land on the nation’s poor who depend upon Medicaid-managed care programs.

The 41 percent sticker shock increase doesn’t stop in 2015, however. Over the next four years, the statutorily mandated Obamacare fees are expected to double again.

Over the next decade, consumers will pay more than $145 billion for the tax, according to the Congressional Budget Office. The levy will continue to go up each and every year into the future.

Han’s article explains how the tax is calculated. “The IRS is responsible for calculating the fee amount based on an insurer’s total annual premium as reported. In doing so, the IRS will disregard each entity’s first $25 million of net premiums and then determine each insurer’s fee amount proportionately based upon the total fee to be collected from the insurance industry.”

What is most interesting are the exceptions which provide a tax advantage for health insurers who focus largely on government business.  These exceptions will tend to work against small insurance providers and load the dice in favor of the giant providers who do business with the Federal Government.

Section 9010 includes a number of exemptions. Health insurance providers with annual net premiums less than or equal to $25 million are not subject to the fee, although they are still required to report the premiums. Self-insured employers, government entities, and voluntary employees’ beneficiary associations (VEBAs) are not subject to the annual fee.

Additionally, those entities that receive more than 80% of gross revenue from government programs such as Medicare, Medicaid and CHIP are not required to pay the fee if they are nonprofit entities under state law and do not distribute net earnings to private parties.

The public policy goal of 9010 is simply to raise money. It is the “tax” part of “tax and spend”.  Han explains:

Several bills have been introduced that would essentially repeal Section 9010. The Jobs and Premium Protection Act (S. 603), introduced by Senators John Barrasso (R-Wyo.) and Orrin Hatch (R-Utah), and H.R. 763, introduced by Rep. Charles Boustany (R-La.-3), both seek to abolish the annual fee and reduce the financial burden of the excise tax on health insurers, employers and consumers.

On the other hand, supporters of the annual fee suggest that repealing the tax on health insurers would increase the budget deficit about $116 billion in the next 10 years. They argue that large health insurers are financially positioned to bear some of the tax, PPACA has built-in mechanisms which will slow the growth of insurance premiums and the new health insurance exchange will increase competition and reduce administrative fees through standard benefits and the prohibition of medical underwriting. …

Due to the nearly $60 billion dollar cost to the health insurance industry over the next five years, the fee is likely to remain a contentious issue.

Perhaps the most contentious aspect is its intention to tax Medicare Part D which the Daily Caller says will amount to a tax on the poor and elderly.

Section 9010 mandates that taxes must be paid for seniors who rely on Medicare Advantage and Medicare Part D.

Oliver Wyman estimated Medicare Advantage would cost seniors $360 more this year. Medicaid managed-care enrollees will be expected to face increases of $152, according to the firm.

Milliman, the national health actuarial firm, reported in 2014 that states will lose 52 cents for every dollar they receive from Medicaid because of the fee.

“The result is a transfer of $0.52 from state government to the federal government for every $1.00 of ACA health insurer fee,” the accounting firm said.

Milliman further said the Obamacare tax will cost states 1.8 percent to 2.8 percent more for Medicaid managed care, which is a low-cost way to offer medical services to the poor. Half of the nation’s Medicaid recipients are signed up by the states under Medicaid managed care, according to Milliman.

It’s part of the clawback for all the subsidies and “free” Medicaid expansion dollars that Obamacare has promised.  There was never a free lunch.  All the apparent gratuities will be collected from individuals and the states, with interest.

Money -- of the lack of it -- has always been the Achilles Heel of Obamacare.  Whatever the benefits of Obamacare turn out to be, the sad truth is that it is bound to add billions, perhaps trillions of dollars to the total cost of health care.  Advocates of the ACA often argue that however expensive Obamacare’s programs are, they will in the long term save money by increasing the percentage of insured.  But as Margot Sanger Katz of the New York Times explains, it’s simply not true that insured people consume less medicine.

In selling the Affordable Care Act, President Obama was fond of making these sorts of arguments. “There’s no reason we shouldn’t be catching diseases like breast cancer and colon cancer before they get worse,” he said, in his big 2009 address to Congress, urging passage of the bill. “That makes sense, it saves money, and it saves lives.” The White House was careful to describe the overall financial forecast for the law — the administration said the law would slow spending growth and not reverse it. But it has also argued forcefully and repeatedly about the financial value of preventive care.

This argument for the cost savings from universal health coverage makes some intuitive sense, but it’s wrong. There’s strong evidence from a variety of sources that people who have health insurance spend more on medical care than people who don’t. It also turns out that almost all preventive health care costs more than it saves. Those facts don’t mean that giving people health insurance is a waste of money, since those dollars spent may improve their health and financial security. But there are only a few situations in which giving someone more health care will actually end up saving money. …

There’s evidence about the link between insurance status and health spending from many sources. A famous randomized study of health insurance, started in the 1970s by the RAND Corporation, was designed to answer this exact question. It found that the less expensive you made it for people to obtain medical care, the more of it they used. That follows the pattern for nearly every other good in the economy, including food, clothing and electronics. The cheaper they are for people, the more they are likely to buy. ...

But what about prevention? In certain situations, early spending on someone’s health will stop an expensive disease in its tracks, reducing future spending. Giving people health insurance often enables them to get just this sort of preventive care — and Obamacare requires insurers to offer most preventive services without charging any co-payments. You might expect health spending to jump initially, then slow in future years as people benefit from new prevention. But research shows that even preventive care rarely ends up saving money.

Here’s why: For the individual patient whose heart attack is prevented by a cholesterol screening, to give one example, that blood test is a cost-saver. But to prevent one heart attack, the health care system has to test hundreds of healthy people — and give about a hundred of them cholesterol-lowering drugs for at least five years. Added together, those prevention measures cost more than is saved on the one heart attack treatment. (My colleagues Aaron E. Carroll and Austin Frakt have written a helpful article on this concept, known in medicine as the “number needed to treat.”)

Joshua T. Cohen, the deputy director of the Center for Evaluation of Value and Risk in Health at Tufts Medical Center, said: “We’ve all heard it before: ‘An ounce of prevention is worth a pound of cure.’ It doesn’t really play out when you analyze the numbers, and the reason for that is that you have to give a lot of people those ounces of prevention to end up with one person who’s going to get that pound of cure.”

There’s also the unavoidable fact that every time you prevent people from dying from one disease, they are likely to live longer and incur future medical expenses. The patient who benefits from the cholesterol screening may go on to develop cancer, arthritis, Alzheimer’s or some other costly illness.

But as Megan McArdle argued, what’s wrong with that?  As societies age, they tend to spend a smaller percentage on food and more on health care and life extension.

Good things make health care costs rise faster, and bad things make them rise slower. But actually, that's not much of a paradox -- at least as long as you think that more health care makes people healthier. If that's the case, then an increase is pretty good news; it means that we've found some new way to make people better. Of course, if you don't think this, then we should be displeased when costs rise, because that just means that we're wasting a lot more money. Some of those same astute readers will also note that this rather undercuts the urgency of expanding health insurance coverage.

CMS seems to be betting that health care is a good thing -- and that as we live longer, and get richer, we'll want more of it. That will be hard on the federal budget. But it will be easier on people who get sick.

However they cannot spend more and get good medical care if the dollars are spent inefficiently.  The greatest danger of Obamacare is that it begins with the dishonest premise that it will deliver more healthcare for less by concentrating the funds with a few giant providers.  In fact it will deliver less actual healthcare for more by reducing competition and leaving American with a few gigantic providers.

Rule 9010 shows that increasing costs are part of Obamacare’s design.  Unfortunately so are narrower networks and fewer providers.  There’s trouble ahead and the sooner that is realized, the better.

Why Was Obamacare Not a Separate Issue in the GOP Debate?


The debate among Republican presidential candidates refocused the public policy debate upon Obamacare, or at least on the GOP attitudes toward it.  The pundits couldn’t make up their minds.  Charles Gaba, writing in Health Insurance heard silence in the debate and thinks the candidates have conceded the battle over Obamacare to the administration.

Sometimes, what isn’t said can speak volumes.

When asked me to write a “rapid response” entry to debunk the inevitable nonsense spewed about the Affordable Care Act from the mouths of several hundred Republican candidates during two debates this evening, I had to think about it for a minute:

Did I really want to spend three to four hours of my life subjecting myself to this drivel? I finally agreed, then half-jokingly asked whether I would receive hazardous duty pay.

In fact, I wasn’t sure what the point of writing the piece was, since I was certain that it would just be the same tired, debunked lies that FOX News and the GOP have been subjecting the country to for the past several years.

You know the score: “Job Killer!” … “Gazillions of Policies Cancelled!” … “Death Spiral!” … “$700B Stolen from Medicare!” and so forth – all of which have been proven flat-out wrong or absurdly exaggerated. Hell, I figured I could write most of this column before the debate even took place.

Instead, something very different happened: Near silence on the ACA (in the midst a whole lot of screaming and insults on every other topic). Obamacare was virtually absent from both debates.

Sarah Kliff of Vox heard Scott Walker. “Only one candidate, Scott Walker, uttered the Republican rallying cry: "Repeal Obamacare." The near-complete absence of Obama's health overhaul is remarkable.”  But she seconds the emotion, conveying the impression that the Republicans have surrendered on the subject and are merely paying lip-service to the issue.

Dunstan Prial of Fox, by contrast, seemed to have heard things that Gaba missed or discounted.  “Reforming the tax code and repealing two of President Obama’s signature pieces of legislation – ObamaCare and the Dodd-Frank banking reform bill – would promote economic growth and are key priorities for the top Republican candidates for president.”

“The economy we live in today is dramatically different than it was five years ago,” Rubio said, and small businesses in particular are struggling under the regulatory burdens of ObamaCare, Obama’s signature health care reform legislation, and the Dodd-Frank banking legislation passed in the wake of the 2008 financial crisis. …

Former Florida Governor Jeb Bush … said that a higher growth rate is possible if better quality jobs are created and the U.S. fixes a “convoluted tax code.” He also called for repealing ObamaCare, saying it raises costs for business owners. …

Trump also said he would repeal ObamaCare.

What has happened is that the argument to repeal Obamacare has become part of a larger theme, one which dovetails with tax and economic policy. Jeremy Quittner of Inc catches this new tone.

On Obamacare. Nearly every Republican except Ohio governor John Kasich said they'd gut the health care law, as well as entitlements such as Social Security and Medicare.

For Jeb Bush, killing the health care law was equivalent to getting the U.S. economy growing again at his target 4 percent growth rate.

"You get rid of Obamacare and replace it with something that doesn't suppress wages and kill jobs," Bush said.

Similarly, Wisconsin governor Scott Walker said: "One of the best things we can do is get the government out of the way, repeal Obamacare," as well as lower the tax rate and reform the tax code.

No one exemplifies this linkage more clearly than Carly Fiorina.  At a public forum held only days before the Republican debate, Fiorina said “that the Affordable Care Act has made the tax and regulatory codes so complicated that only the biggest, richest businesses can afford to grapple with the details.”

“Why does Obamacare have to be repealed?” said Ms. Fiorina at the Western Conservative Summit. “Not just because it’s failing by every measure — emergency room visits are up over 20 percent, insurance premiums are up over 35 percent, we’re dumping people into Medicaid, there aren’t enough doctors in Medicaid any more — we’re not serving people.”

The ACA “is so many thousands of pages, literally tens of thousands of pages, that what do you see happening right now? Insurance companies consolidating. Big merger announced last week. Hospitals consolidating. Drug companies consolidating. The big are getting bigger to handle big government. That’s what’s happening,” she said.

The result is that “the wealthy are getting wealthier,” and “the small, the powerless, the start-ups are getting crushed,” Ms. Fiorina said.

“Crony capitalism is alive and well now, and the reason for that is when you have big complicated government, only the big, the powerful, the wealthy, the well-connected can deal with it,” she said.

Rubio’s website takes the same tack, but in a less convincing but more rhetorical way: “Obamacare = Job Killing Disaster … President Obama was wrong, and so is his failed health care law. It is a job-killing disaster filled with new spending, taxes and mandates that are increasing the cost of care, stifling innovation, and busting the budget.”

Scott Walker’s announcement for candidacy contains an explicit pledge to repeal Obamacare. “First, we must repeal ObamaCare. That's right, repeal the so-called Affordable Care Act entirely and put patients and families back in charge of their health care decisions — not the federal government.

As Governor, I approved Wisconsin joining the lawsuit against ObamaCare on my first day in office. We need a President who — on the first day in office — will call on Congress to pass a full repeal of ObamaCare.”

And of course, Ted Cruz’s signature line is repealing “every word” of Obamacare.  All in all, the idea that the GOP will somehow “forget” or “surrender” on Obamacare or that a Republican president will somehow take office in 2016 and leave the program untouched is unrealistic.

Which is why Marc Daalder of In These Times has the opposite impression of the Republican debate.  He understands that the opposition to Obamacare is now part of a generalized program to repudiate the entire legacy of the administration.  Daalder does not see a white flag as much as a signal to advance in his article “Why Last Night’s GOP Debate Should Terrify the Left”.

In his closing statement in last night’s GOP debate, frontrunner Donald Trump made a terrifying assurance: “We have to end Obamacare, and we have to make our country great again, and I will do that.”

In Trump’s idea of a great country, big business rules the health system, buys elections and receives massive tax breaks. Replacing Obamacare with a privatized healthcare system would be President Trump's first step to a totally privatized America.

Almost every candidate promised to repeal Obamacare in last night’s debate—the first of 12 to be held over the coming months. And this was perhaps the mildest of their pledges. With guarantees of dismantling Social Security and Medicare, expanding the military and cracking down on women’s rights, the Republican presidential candidates seem to be striving to outdo each other in how far right they can go.

And this only makes sense.  As Robert Reich noted in his article “The Revolt Against the Ruling Class”, the electorate -- whether on the left or on the right -- is in no mood for continuity.  It is in rebellion.  In his view a deluge is coming.  Obamacare will not survive the flood.  Why should it?

The 1332 Waiver Illusion


Alfred Hitchcock  popularized the term "MacGuffin" to describe something intentionally embedded in a story which seems to be important, but is actually inconsequential to the plot.  It’s main purpose is to fixate people on the unimportant thereby providing a objective which is actually illusory.

It might be a Scottish name, taken from a story about two men on a train. One man says, "What's that package up there in the baggage rack?" And the other answers, "Oh, that's a MacGuffin". The first one asks, "What's a MacGuffin?" "Well," the other man says, "it's an apparatus for trapping lions in the Scottish Highlands." The first man says, "But there are no lions in the Scottish Highlands," and the other one answers, "Well then, that's no MacGuffin!" So you see that a MacGuffin is actually nothing at all.

The debate swirling around a little publicized provision in Obamacare, the so-called 1332 waivers, essentially revolves around whether they are a meaningful way to create a working healthcare system or if in fact they are what Hitchcock described as a MacGuffin.

Section 1332 of the Affordable Care Act is titled “Waiver for State Innovation”.  Brookings makes the case for its importance as a way to customize Obamacare:

Allows states, starting in 2017, to apply to the federal government for 5-year renewable waivers from key provisions of the legislation. For instance, states could request changes to or exemptions from the individual and employers mandate, the market exchanges, the exchange subsidies, the Essential Health Benefits requirements, and other provisions. Moreover, states can combine waivers from ACA provisions with waivers from Medicaid provisions (so-called 1115 waivers), Medicare, the state Children’s Health Insurance Program, and waivers available through “any other Federal law relating to the provision of health care items or services.”

Brookings admits that Obamacare is kind of rigid and unwieldy. Section 1332 it argues, provides a way for a state to adjust the law to fit local conditions more closely, in the way a tailor can lengthen or shorten store-bought pants.

The opportunity for states to transform the ACA within their borders is breathtaking. It’s little wonder that a former top aide to the late Senator Edward Kennedy describes Section 1332 as “state innovation on steroids.”

Paige Winfield Cunningham, writing in the Washington Examiner, depicts 1332 as some kind of Last Chance Saloon in which the opportunities lost in King vs Burwell might be recouped. “Now that Congress and the courts have failed to overhaul Obamacare, states are eyeing the only current remaining opportunity to modify the healthcare law — this time from the inside out.”

If their waiver requests are approved by the Department of Health and Human Services, states could modify the rules governing the benefits that plans have to cover or how subsidies are provided to low-income individuals. They also could reduce or eliminate the law's fines on individuals and employers for lacking coverage or failing to provide it.

Arkansas, Minnesota, New Mexico and Hawaii have created working groups to look into the possibility of applying for waivers; Rhode Island's legislature has authorized the state to pursue one; and California lawmakers are poised to do the same. Colorado legislators recently held a hearing on them, although it is not clear whether they will move ahead.

But as Brookings notes, waivers requested under 1332 must ultimately be approved by the White House.  It would be foolish to think the current administration would let it be used to seriously challenge Obamacare itself.  As Brookings continues:

Section 1332, however, is not a blank check for states to ignore the whole intent of the ACA, even assuming the White House or the next administration were open to that. It has important fine print. To obtain a waiver, a state’s proposal must retain important protections, such as guaranteeing that health plans accept an applicant regardless of their health status or other factor. The proposal’s coverage must be “at least as comprehensive” and cover “at least a comparable number of its residents” as the ACA, and insurance must be as affordable. Any state plan must also be budget neutral for the federal government.

This power may be used directionally,  “Liberal Democrats in Vermont have wanted to use the waivers to move toward a single-payer system … The possibilities for waivers appear far-ranging, from allowing states to permit illegal immigrants to buy private plans on the marketplaces, as California is pursuing,”  It will certainly not be given automatically.

In any case, the waivers (by their very name) merely aspire to be the occasional exception to the rule. The fundamental framework is still established by the ACA.  As the Commonwealth Club notes: “The Affordable Care Act (ACA) establishes a new national paradigm for health coverage while leaving room for considerable experimentation by states. Indeed, building on a long history of state innovation with coverage, payment, and delivery models, the ACA is fueling far-reaching campaigns by governors to reform state health care systems across payers and providers. “

As a practical matter, nobody knows how the 1332 waivers will actually play out.  For one thing, the provision is only slated to come into effect in 2017, when a new president will have been elected.  For another, the waivers are limited to a lifespan of five years after which they must be renewed.

Developed with bipartisan support that continues to this day, section 1332, known as State Innovation Waivers, authorizes states to request five-year renewable waivers from the U.S. Departments of Health and Human Services (HHS) and the Treasury of the ACA’s key coverage provisions, including those related to benefits and subsidies, the exchanges (also known as marketplaces), and the individual and employer mandates. Depending on their policy and political priorities, states may propose waivers to pursue broad alternative approaches to expand coverage or targeted fixes intended to smooth the rough edges of the ACA. Some ACA provisions, such as guaranteed issue, may not be waived and all applications must demonstrate that coverage remains as accessible, comprehensive, and affordable as before the waiver and that the proposed changes will not contribute to the federal deficit.

As an alternative goal to comprehensively replacing Obamacare with something better, such as a Health Care Compact which will permanently return authority over health care delivery to the states, pursuing 1332 seems absurdly short-sighted.  For one thing, nobody knows what something that comes into effect in 2017 and lasts only 5 years will turn out to be.

From that point of view 1332 is a MacGuffin, a distraction, a chimeric will-o’-the-wisp.  It looks important but probably it is not.

The Rise of Giants and Giant Prices


Robert Pear of the New York Times shines a spotlight on the zombie threat that keeps haunting Obamacare.  Despite being declared dead multiple times and repeatedly buried by the ACA’s supporters, the problem of rising costs keeps rising from the grave and staggers forward to menace the program.

Hoping to avoid another political uproar over the Affordable Care Act, the Obama administration is trying to persuade states to cut back big rate increases requested by many health insurance companies for 2016. …

After finding that new customers were sicker than expected, some health plans have sought increases of 10 percent to 40 percent or more.

Administration officials have political and financial reasons for wanting to hold down premiums. Big rate increases could undermine public support for the health care law, provide ammunition to Republican critics of the measure and increase costs for some consumers and the federal

The administration argument for recommending against granting the price hikes is that the insurance companies don’t know their own costs.  Things have only apparently gotten more expensive, but administration spokesmen insist that the stormy seas are only temporary and will soon be replaced by calm waters.

Kevin J. Counihan, the chief executive of the federal insurance marketplace, is urging states to consider a range of factors before making their decisions.

“Recent claims data show healthier consumers,” Mr. Counihan said in a letter to state insurance commissioners. The federal tax penalty for going without insurance will increase in 2016, he said, and this “should motivate a new segment of uninsured who may not have a high need for health care to enroll for coverage.”

In addition, federal officials said, much of the pent-up demand for health care has been met because consumers who enrolled last year have received treatments they could not obtain when they were uninsured.

Federal officials have also told state regulators that medical inflation will be less than what many insurers assumed in calculating their rates for 2016.

It was an extraordinary assertion of supposedly superior knowledge on the part of the regulators which was roundly rejected by the companies seeking increases.

But Scott Keefer, a vice president of Blue Cross and Blue Shield of Minnesota, which requested rate increases averaging about 50 percent for 2016, said his company had not seen an improvement in the health status of new customers.

“Our claims experience has not slowed at all,” Mr. Keefer said. “The trend has gotten a little worse than we expected.”

2016 is of course, an election year and imperatives dictate that even if Mr. Keefer and the insurance companies were right, they must at all costs be proven wrong. To admit that costs were truly rising and the “trend has gotten a little worse” would be to explode Obamacare’s foundational boast:  that’s it has made health care affordable.

There is some reason to think the insurance companies are not being completely forthright about their costs.  The Los Angeles Times reports that Blue Shield of California will have to refund an average of $136 to its customers for not spending a minimum of 80% of its collected premiums on medical care.

The refunds are required when insurers fail to spend a minimum of 80% of premiums on medical care for individual and small-business customers.

Blue Shield said it fell short of that mark, spending 76.8% of premiums collected on medical care in both its individual and small employer business last year.

The company said it missed the mark on premiums, in part because it wasn't entirely sure how the first year of Obamacare enrollment would turn out.

Between the additional costs imposed by the Obamacare bureaucracy and the greed of insurance companies there is enough blame to go around.  But the Affordable Care Act bears at least partial responsibility for fanning the fires of monopoly pricing.  Megan McArdle, writing in the Chicago Tribune argues that the ACA has driven a wave of mergers and acquisitions that have effectively resulted in diminished competition in the healthcare sphere.  It’s driven a trend towards gigantism that has culminated in “Godzilla versus Mothra”.

So why is the insurance industry consolidating? Lots of reasons. First, heavily regulated industries thrive on consolidation. These companies have a lot of regulatory overhead, first of all for compliance and second of all for lobbying. The bigger you are, the easier it is to afford a team of experts to make sure that you understand all the pertinent regulations and a second team of experts to prevent legislators and bureaucrats from burdening you with a lot more pertinent regulations. These are largely fixed costs, and merging reduces them. Getting bigger also makes it harder for legislators to refuse to return your phone calls.

Second, Obamacare’s new exchanges may play at least a small role. Not all of it, by a long shot — the individual market for health insurance is a small and not particularly well-loved part of insurers’ overall business. However, that piece may get larger, if Obamacare succeeds in restructuring the market for health care, as employers convert more positions to part-time jobs without benefits or as employers decide it’s easier to give people money to shop on the exchanges than to keep dealing with the hassle of providing health insurance. And thanks to the exchanges, that individual market is now competing on price more than it did in the past because prices are now completely transparent and roughly comparable. Pricing power suddenly matters more, not so much the power to charge consumers more but the power to pay suppliers less.

Which brings us to the third big reason for merging: Insurers are under pressure from other parts of the industry that are also consolidating. Hospital networks have gotten bigger and more powerful. Physicians are increasingly going to work for hospitals or large practices. This could put insurers at a disadvantage to negotiate prices. If your suppliers are highly fragmented, you can walk into the meeting and say, “Here’s what we’re offering; take it or leave it.” But if there are only two or three big hospital networks in your area, they can say the same thing to you. This has produced something of an arms race between insurers and providers trying to get bigger so each group will better be able to crush the other. When Mothra and Godzilla are battling over the city, you don’t want to be the tiny human standing on the ground between them.

What this means is that premium increases, narrowing networks and giant bureaucracies aren’t simply one-off phenomena caused by “pent-up demand”.  They are the outcomes of Obamacare’s flawed design.  Don’t expect lower prices any time soon.  As individual you have ceased to matter.  In the words of McArdle, you’re just a speck between Godzilla’s toes.

And what that means for you is a world in which your health care is increasingly delivered by only a few big players. That has a lot of implications both for the care you get and the price you pay for that care. How all this will shake out is far from clear. But one thing is: When everyone is supersizing, it’s not hard to suspect that you’ve been assigned the role of “tiny mortal standing between Godzilla’s toes.”

Why Not Expand Medicare?


It’s a tale of two agencies. Louise Sheiner of the Wall Street Journal explains the differing projections of future Medicare costs.  The Medicare board of trustees says costs will not go up much, but the Congressional Budget Office believes they will go up a lot?  Which of these two agencies is right?

The recent slowdown in Medicare spending has been touted as evidence that the health cost curve has finally “bent” and that the Medicare financing problem can be managed with modest changes in policy.

The Medicare Trustees report, released last week, basically confirms this view.  Under the trustees’ baseline projection, Medicare spending increases from 3.5% of GDP today to 5.5% by 2050 and 6% by 2080. In contrast, the Congressional Budget Office, in June, projected much larger increases in Medicare spending over time, with spending reaching 7% of GDP by 2050 and over 11% by 2080.

How can projections by the government’s best experts be so different? And which should we believe?

The key difference in the assumptions between the studies is that the Medicare Trustees believe the government will be more efficient at paying for health care than private insurance.  That efficiency underpins the low cost growth projection of the Trustees.  The Congressional Budget Office (CBO) by contrast, thinks there will be no significant difference in efficiency, leading to higher estimates.

Both the trustees and the CBO assume that the growth both of public and private health spending will slow over time, as the incremental benefit from additional health care becomes less valuable.  Where they differ is in what is assumed about Medicare spending growth relative to growth other health spending.

The trustees assume that per capita Medicare spending will rise more slowly than other health spending; CBO assumes that Medicare spending will rise more rapidly.

The trustees look at the provisions of the Affordable Care Act governing provider reimbursements and conclude that Medicare payments under the Affordable Care Act are increasingly likely to fall below reimbursement by private insurers and Medicaid (the state-federal program for the poor) over time.  Thus, they expect Medicare spending to rise more slowly than other health spending.

CBO economists believe future health spending is too uncertain to be modeled. They consider the effects of legislation only over the ten-year budget window—that is, from fiscal years 2015 to 2024.

Basically the difference amounts to this: Medicare will “bend the cost curve” because the Trustees believe Obamacare will “bend the cost curve”.  The CBO is more agnostic about the program’s ability to save.  Hence the divergence in estimates.

The trouble is that the supposed evidence for the decline in Medicare costs is from data which predates Obamacare.  Liz Szabo of USA Today reports: “The U.S. health care system has scored a medical hat trick, reducing deaths, hospitalizations and costs, a new study shows.”

Mortality rates among Medicare patients fell 16% from 1999 to 2013. That’s equal to more than 300,000 fewer deaths a year in 2013 than in 1999, said cardiologist Harlan Krumholz, lead author of a new study in the Journal of the American Medical Association (JAMA) and a professor at the Yale School of Medicine.

“It’s a jaw-dropping finding,” Krumholz said. “We didn’t expect to see such a remarkable improvement over time.”

Researchers based the study on records from more than 68 million patients in Medicare, the federal health insurance program for people age 65 and older.

Perhaps the most striking finding was that Medicare achieved savings in fee-for-service, which is the most commonly cited cause for high costs in Obamacare literature.

Researchers were able to find additional information about hospitalization rates and costs among Medicare’s traditional “fee-for-service” program, in which doctors and hospitals are paid for each procedure or visit. This information wasn’t available for people in the managed-care portion of Medicare, which had about 29% of patients in the overall Medicare program in 2013.

Among fee-for-service patients, hospitalization rates fell 24%, with more than 3 million fewer hospitalizations in 2013 than 1999, Krumholz said. When patients were admitted to the hospitals, they were 45% less likely to die during their stay; 24% less likely to die within a month of admission; and 22% less likely to die within a year, the study found.

Costs for hospitalized patients also fell by 15% among fee-for-service patients.

One possible explanation for this astonishing outcome is that the Medical billing simply grew to fill the amount available for the payment of medical services.  In other words the answer the the question of  “how much does this procedure cost” is another question: “how much money do you have?”

Economist Austin Frakt stumbles across proof of this possibility in his recent article in the New York Times: “Don’t Blame Medicaid for Rise in Health Care Spending”.  He notes that Medicaid is apparently even more economical than Medicare!  But is this due to the fact that Medicaid is more efficient or simply a function of caps, which also limit the acceptance of Medicaid.

According to the Congressional Budget Office, per-person Medicaid spending growth has been below that of Medicare and other sources since 1975. Between 1990 and 2012, Medicaid spending outpaced the overall economy by only 0.1 of a percentage point, while overall health spending grew 1.1 percentage points faster than the economy.

Medicaid is by no means a perfect system for delivering health care, but it is the cheapest source of coverage. It costs about $3,200 per year to cover an adult on Medicaid, again with the federal government picking up most of the tab. Private insurance, delivered through an employer, costs about $5,300 annually.

Medicare is also limited in what it can pay out.  Sarah Kliff of Vox bemoans the doctor pay caps and celebrated a  $214 billion dollar funding package that set aside the “current Medicare funding formula” and raised them to more competitive levels.  She writes:

The Medicare Access and CHIP Reauthorization Act, or MACRA, managed to overcome Congressional gridlock — passing the Senate with a 92 to 8 vote — because it does something nearly everyone in Washington supports: repeals the current Medicare funding formula.

That's a big deal: the two parties have tried to do this for than a decade, but to no avail. They always got hung up on where to find the funds to pay for a decade-long increase to doctor salaries.

The source of this whole problem is an aging law on the books that mandates a double-digit pay cut for Medicare doctors every so often because it doesn't provide enough funding to keep salaries steady. But instead of letting those pay cuts go into effect, Congress always scrounges up extra billions to save doctors' salaries.

This time around, legislators decided, in part, to stop caring about the cost. They passed a permanent doc-fix that, while partially paid-for, is still expected to raise the deficit by $141 billion over the next decade.

Medicaid is even more constrained than Medicare.  Peter Ubel, MD writing at a doctor’s website lays out reasons why many doctors refuse to see Medicaid patients.

Not surprisingly, it starts with low reimbursement rates. Medicaid pays about 61% of what Medicare pays, nationally, for outpatient physician services. The payment rate varies from state to state, of course. But if 61% is average, you can imagine how terrible the situation is in some locations. Physicians interviewed in the study explained that they felt it was their duty to see some amount of Medicaid patients in their practice. They recognized the moral need to provide care for this population. But they did not want to commit career suicide — they did not want good deeds to bankrupt their clinical practices.

But reimbursement rates were not the only story. Many physicians talk about unacceptable waiting times to receive reimbursement from their state Medicaid programs. To make matters worse, these low reimbursements came on top of increasingly complex paperwork that their office staff are forced to fill out. Less money and a month late too. Not a recipe for happiness.

It’s not surprising then that Private Insurance has higher costs than Medicare, which has higher costs than Medicaid.  The less money a program has, the less money it is charged.  Austin Frakt notes that the government healthcare is not inherently cheaper.  When it has more money, it spends more.  Total government health care spending is rising and most of the growth comes from the unconstrained parts of the system.

Growth in health spending is crowding out state and local spending for other services. For example, in my home state of Massachusetts, between 2001 and 2014, government health spending grew 37 percent, while that for education and public safety declined 12 and 13 percent. In California, spending on health care is having the same effect.

The main source of the problem is growing spending on health care for state employees. Health care spending for retired state employees and their beneficiaries grew 61 percent in the past six years. The Pew Charitable Trusts predicts that over the next 40 years spending on health care alone will surpass that for all other state and local government services. Coverage for public-sector retirees accounts for much of state and local health care spending, even though Medicare pays most of the costs once those retirees reach 65.

In a recent paper in The Journal of Health Economics, Byron Lutz and Louise Sheiner estimated that state and local governments’ current liability for retiree health benefits is $1.1 trillion, or about one-third of total annual revenue. A vast majority — 97 percent — of the liability is unfunded, meaning it lacks dedicated trust fund dollars with which to pay benefits.

The citizens get the el cheapo Medicare and Medicaid while the public employee retirees get the gilt-edged health plans.  To conclude from this that therefore all medical spending should be public is perverse.  But this is exactly what Democratic presidential candidate Bernie Sanders asserts.  The Tech Times reports:

"The time has come to say that we need to expand Medicare to cover every man, woman and child."

Medicare was signed into law by then President Lyndon Johnson in 1965 and is available to those age 65 and older, as well as younger people who have disabilities. Events were staged across the country to commemorate the 50th year of the launch.

Sanders has criticized insurances and pharmaceutical companies for inflating healthcare costs saying that a single-payer system could reduce costs by negotiating the price of medications with manufacturers, something that Medicare is currently prohibited to do.

What is more likely to happen is what is already occurring.  Government health spending will be dispensed in tiers.  There will be a high quality tier for the Chiefs and low- cost growth, low-quality tier for the Indians.  The only reliable way to cut costs is competition and innovation. The real gains in the Medicare system have been due to the advances in medicine itself, as Harlan Krumholz, a cardiologist and professor at the Yale University School of Medicine notes.

Public health improvements also likely played a part in cutting death rates, Krumholz said. While more Americans today are obese than in the 1990s, the air is generally cleaner and fewer people smoke. New drugs for common conditions such as cancer and heart disease also may have kept people alive longer.

“What’s gratifying is the cost savings don’t appear to have come at the expense of quality,” said Helen Burstin, chief scientific officer at the National Quality Forum, a non-partisan group that aims to improve the quality of health care.

Burstin said she hopes the country will expand its efforts to improve health care quality by focusing on outpatient care, such as that given in nursing homes or by home health aides.

It’s not the way health care providers are paid which has made the key difference in Medicare progress.  It is the changes in the efficacy of medical technology which has been the big factor.

Megan McArdle noted that costs were by themselves the wrong metric to use in judging the efficacy of a health care system. Writing in the Bloomberg view she wrote that more effective healthcare is what society ought to be trying to maximize.

So why did costs fall? The best explanations I've seen rely on two factors: the economic slowdown from the financial crisis, and a decline in the rate of technological innovation. Doctors just don't have that much great new stuff to do, and when we were all poorer, we couldn't afford to pay them to do it anyway. So health care cost growth fell.

Astute readers will have picked up something of a paradox: Good things make health care costs rise faster, and bad things make them rise slower. But actually, that's not much of a paradox -- at least as long as you think that more health care makes people healthier. If that's the case, then an increase is pretty good news; it means that we've found some new way to make people better. Of course, if you don't think this, then we should be displeased when costs rise, because that just means that we're wasting a lot more money. Some of those same astute readers will also note that this rather undercuts the urgency of expanding health insurance coverage.

What Obamacare may do is redirect healthcare into selected channels and play budget games rather than actually improve the cost and quality of American medicine.  Health care will improve over time, but that will be due more to whatever innovation remains than to any magic payment formulas of the Affordable Care Act.

The Massacre of the Obamacare Co-Ops


One component of Obamacare that has unambiguously failed are its co-operative insurance plans or co-ops.  As the Hill put it, “most nonprofit “co-op” health insurers set up under ObamaCare are losing money and falling short of enrollment targets, according to a Health Department watchdog report.”

That is definitely an understatement.  The more sensational Daily Caller headline says “22 of 23 taxpayer-backed Obamacare co-ops lost money in 2014”.

A new report from a government watchdog examining the success of taxpayer-funded Obamacare co-ops found that the vast majority lost money last year and struggled to enroll consumers, throwing their ability to repay the taxpayer-funded loans into question.

According to the audit from the Department of Health and Human Services’ inspector general, 22 of the 23 co-ops created under the Affordable Care Act experienced net losses through the end of 2014. Additionally, 13 of the 23 nonprofit insurers enrolled significantly less people than projected.

The real significance of the failure is it represented the collapse of one of key goals of Obamacare: fostering competition. “Co-ops, or consumer-oriented and operated plans, are nonprofit insurance companies created under Obamacare. Co-ops exist in a variety of capacities, and lawmakers hoped the entities would foster competition in areas where few insurance options were available.”

The co-op program received significant funding from the government: two billion dollar’s worth, most of which is now irretrievably lost, as the Daily Caller notes. “The co-ops received $2 billion in loans from the Centers for Medicare and Medicaid Services to assist in their launch and solvency. However, the government watchdog warned that repayment may not be possible.”

But the co-ops were more than an attempt to introduce a measure of competition into the Affordable Care Act, they were also a political sop to the Left Wing of the Democratic Party who wanted “public option” medicine for the American population. The Hill article observes.

These nonprofit co-op health plans were created under ObamaCare as a compromise after liberals failed to secure a “public option,” a government-run plan to compete with insurers.

The law ended up allowing the government to make start-up loans to nonprofit co-ops that would compete with the established insurers.

What died with the demise of the Obamacare co-op effort was not merely a sideshow, but a key component of the entire design.  The “public option” concession to the Democratic Party Left wing went down in flames.  Perhaps worse, the effort to create competition went up in smoke, leaving nothing after its collapse but the rapidly contracting number of giant health care monopolies that we see today.  As RJ Lehman reported in late July, 2015: “and then there were three”.

In the latest in what has become a roller coaster of mergers and acquisitions in the health insurance sector this month, No. 2 insurer Anthem Inc. announced this morning it will purchase No. 4 competitor Cigna Corp. in a $54.2 billion deal. If approved, the move would allow Anthem to leapfrog over UnitedHealth Group to become the largest in the nation by number of members served.

The news comes on the heels of two other significant deals earlier this month. First, No. 6 insurer Centene Corp. announced it was buying No. 7 insurer Health Net Inc. in a $6.3 billion deal. Then, No. 3 insurer Aetna Inc. announced a $37 billion deal to buy No. 5 insurer Humana Inc. The combined Aetna-Humana would have been the second-largest group, but with the Anthem-Cigna deal, now likely will remain at No. 3.

With these deals, there would be only three significant general purpose health insurers operating at the national level — Anthem, Aetna and UnitedHealth. The rest of the market is largely composed of state-level mutuals, Medicaid specialists and supplemental plan underwriters. Of course, this assumes that Anthem isn’t still considering being swallowed by UnitedHealth, a much-rumored transaction the past few weeks, which would leave us with only two.

Obamacare, which proudly boasted it was cut prices by increasing competition among insurers had achieved precisely the opposite.  It had presided over the massacre of the co-ops and the rise of health care premiums historical highs.  The Medpage notes CMS predicts a 6% per annum growth in Medical costs through to 2024.  Obamacare had failed to “bend the cost curve”.  It didn’t even slow it down.

The word in the District this week is that annual health spending will rise 6% over roughly a decade, according to the Centers for Medicare & Medicaid Services (CMS). … Health spending in the U.S. is expected to grow by an average of 5.8% annually through 2024, while spending on physician services is expected to grow by smaller amounts, CMS officials said Tuesday.

One of the more interesting questions to pose in the aftermath of the death of the co-op plans is why did the effort fail?  With the handwriting on the wall clear by the end of 2014, Tim Worstall of Forbes attempted to answer the post-mortem question and put it down to the inability of co-operatives, as institutions, to raise sufficient capital.

It’s fair to say that I’m not a great fan of Obamacare: I’m along with the thoroughly libertarian Mike Munger in thinking that even single payer would be better than this lash up of a system. However, it’s also worth being fair about this system, as it is worth being fair about any other or an idea or body of thought. At which point, that fairness lever kicking in, it’s worth pointing out that the failure of CoOportunity Health, one of the cooperatives set up to deliver health care insurance under Obamacare, isn’t really a failure of Obamacare as such. Rather, it’s a failure of the cooperative model. And the failure comes from a rather simple underlying economic point, one that we’ve all got to keep in mind when deliberating over the myriad benefits of the cooperative model. …

That’s the problem with getting rid of the capitalist, The Man. For what the capitalist provides is capital. And if you’re a coop and you’ve not got enough capital then where do you go and get it from? Your customers (in this case) aren’t really all that likely to be willing to cough up a capital issue to support the organisation. But they’re, nominally and legally, the owners of it. So they’re the only people who can cough up that needed capital.

But lack of capital was never the core problem.  They had $2 billion dollars in federal tax money to run with.  Rather the difficulty was that the co-ops lost money from the start.  As Clay Masters of NPR noted in following events in Iowa co-ops, the root cause of losses were insufficient premiums and an excessively unhealthy risk pool.

CoOportunity hit a kind of perfect storm, says Peter Damiano, director of the University of Iowa's public policy center. First, the co-op had to pay a lot more medical bills than those in charge expected.

"CoOportunity Health's pool of people was larger than expected, was sicker than expected," Damiano says. "So their risk became much greater than the funds that were available."

The co-ops were an attempt to provide cheap, high quality medicine to everybody.  They failed to do so without losing money.  By contrast, the giant healthcare providers pushed expensive, narrow network medicine to everybody -- with a government subsidy -- and they succeeded at turning a profit, because they were supported by the taxpayer.

The failure of the co-ops and the success of the giant providers illustrates the true economics of Obamacare.  You can’t keep your doctor.  Medicine will be much more expensive than it was before -- if you can get it..  Co-pays will be rise.  And so will taxes.  But other than that, what’s there not to like?


The Coming Benefits Rationing


Michael Tomasky writes in the Daily Beast that government should “expand Medicare” because it’s worked so well. Despite Ronald Reagan’s warnings, Medicare has become an established institution.  Never mind that it was founded on lies, Medicare was the right thing to do!

Lyndon Johnson went into the 1964 election knowing that he wanted to pass a universal health-care bill. He figured he couldn’t get full-bore socialized medicine, so he settled on socialized medicine for old people, reckoning that was a winner. Immediately upon winning election, he directed aides to get cracking, saying as I recall something to the effect that he was going to lose a little political capital every day, so the sooner the better.

It was big and messy and complicated, just like Obamacare, and frankly, Johnson lied about the cost, back in those pre-Congressional Budget Office days. But it passed, and it passed in a way that wasn’t just like Obamacare at all. Thirteen Republican senators voted for it, and 17 against; and in the House, 70 Republicans supported it, while 68 voted no. In other words, almost exactly half of all voting congressional Republicans, 83 out of 168, voted for the program that Ronald Reagan at the time was warning heralded the arrival of Marxism on our shores.

The best news of all is that it’s not going to go bankrupt as early as predicted, Tomasky writes. “Now, the experts say Medicare is stable until 2030. Now 2030 isn’t infinity and beyond, but it’s not tomorrow either. The crisis has eased, and it has eased considerably.”

How considerably eased? Kelly Holland of CNBC considers the economics, and the easing is not much.  Costs are rising because the numbers of elderly are growing.  “The Kaiser foundation calculates that the number of Medicare beneficiaries age 80 or above will increase from 11.3 million in 2010 to 30.9 million in 2050.”  One way or the other the government will be forced to cut back.

The expansion of the Medicare population, particularly the costlier segment, will eventually put pressure on lawmakers to act. If "the federal government doesn't finance the care, either the costs will shift to seniors or Medicare will need to find some other way to reduce the growth in spending …

Some possible policy moves are already in the air. Take means testing. Legislation signed into law this year added a means test to the prescription drug coverage part of Medicare, with higher income beneficiaries paying more for the benefit. The change, which was intended to partly offset the cost of a fix to Medicare's payment rates to physicians, uses the same income cutoffs as a means test applied earlier to the Medicare section covering physician and medical care. Seniors with incomes over $85,000 (or $170,000 for a couple) now pay more for those types of coverage.  …

Others have proposed changing the age at which people become eligible for Medicare. Some argue that gradually raising the age of eligibility from 65 to 67 is the answer. The Congressional Budget Office estimated in 2012 that such a change would generate about $113 billion in savings over 10 years. But in 2013 it revised that estimate down to $20.6 billion over 10 years because people enrolling at 65 are likely to be healthier than older enrollees and may also have insurance through an employer, reducing the cost to Medicare. …

Melissa Spickler, a managing director at Merrill Lynch Wealth Management, said health care is always a wild card in planning for later years.

"We somehow have to come up with a way to make sure that as we live longer, we are able to live comfortably and still be aware of how much we need from a health standpoint and possibly a long-term care standpoint," she said.

As a practical matter, government is already taking Tomasky’s advice and expanding its role in healthcare provision, whether one calls it Medicare or not.  Philip Klein of the Examiner notes that “in 2014, according to new data from the Centers for Medicare and Medicaid Services published in the journal Health Affairs, "[h]ealth care spending sponsored by the federal government is projected to have risen by 10.1 percent." This was the year that Obamacare added millions of beneficiaries to Medicaid and forked over billions in subsidies for individuals to purchase insurance on government-run exchanges.”

Looking at the broader trend is more revealing. In 2007, when Obama launched his presidential campaign and outlined a plan to overhaul the nation's healthcare system, private spending accounted for 60 percent of total U.S. health expenditures, compared with 40 percent coming from government-sponsored spending. By 2024, after a decade of Obamacare's coverage expansion, the government share is projected to reach 47 percent, while the private share is expected to shrink to 53 percent. In that year, CMS predicts government at all levels will spend over $2.5 trillion.

These numbers, however, understate the extent of government's role in healthcare. CMS figures count premiums and payroll taxes that individuals and businesses pay toward the government-run Medicare system as private expenditures. Money spent on premiums toward the purchase of insurance on Obamacare's government-run exchanges are also categorized as private.

Beyond the direct spending, Obamacare's regulations exert more control over the healthcare system. For instance, even "private" insurance must be designed based on dictates of the federal government, which also limits how much profit insurers can earn on policies after paying out medical claims.

If expansion is good then why isn’t more expansion better?  Because government is running out of money.  Not only does Medicare have to cut back benefits and increase the age of eligibility, so does Social Security as Myra Adams writes in the National Review.  She points out that Medicare has already been cut back to 77% of its promised payouts.  It said so right on her Social Security form.

While engaging in the mundane task of gathering financial statements for a “secure retirement” meeting with my husband’s and my adviser, this Baby Boomer stumbled upon documented proof that our nation does not have the guts to confront one of its most serious economic problems. The realization came when I pulled from my files a document statement innocently titled, “Your Social Security Statement.”

At first glance, the statement did not appear menacing. I was told I could expect to receive a benefit of “about $2,136 a month” upon reaching age 70 — which certainly seems like good news. But immediately I thought of a parallel of President Obama’s infamous Obamacare promise: “If you like your Social Security, you can keep your Social Security.”  Then, as if on cue, I saw an asterisk with the following message:  The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.

That caused Adams to look at an older Social Security form.  “Sitting in the back of my Social Security file was an earlier statement dated March 10, 2009. Again, followed by an asterisk was a sentence that read exactly like my 2015 statement except for two major differences (emphasis added): The law governing benefit amounts may change because, by 2041, the payroll taxes collected will be enough to pay only about 78 percent of your scheduled benefits.”

The inference was clear.  The Social Security “promise” to Americans was dwindling year by year.  Like a countdown it is reeling downward with each passing year, just like Medicare benefits.  Myra Adams concluded that welfare benefits are being written down and rationed.  

In this context, what does Michael Tomasky’s cry “expand Medicare” and Obama’s mantra “expand Medicaid” actually mean? It can only mean an empty promise.  One cannot expand what cannot even be sustained.

The Coming Benefits Rationing


Michael Tomasky writes in the Daily Beast that government should “expand Medicare” because it’s worked so well. Despite Ronald Reagan’s warnings, Medicare has become an established institution.  Never mind that it was founded on lies, Medicare was the right thing to do!

Lyndon Johnson went into the 1964 election knowing that he wanted to pass a universal health-care bill. He figured he couldn’t get full-bore socialized medicine, so he settled on socialized medicine for old people, reckoning that was a winner. Immediately upon winning election, he directed aides to get cracking, saying as I recall something to the effect that he was going to lose a little political capital every day, so the sooner the better.

It was big and messy and complicated, just like Obamacare, and frankly, Johnson lied about the cost, back in those pre-Congressional Budget Office days. But it passed, and it passed in a way that wasn’t just like Obamacare at all. Thirteen Republican senators voted for it, and 17 against; and in the House, 70 Republicans supported it, while 68 voted no. In other words, almost exactly half of all voting congressional Republicans, 83 out of 168, voted for the program that Ronald Reagan at the time was warning heralded the arrival of Marxism on our shores.

The best news of all is that it’s not going to go bankrupt as early as predicted, Tomasky writes. “Now, the experts say Medicare is stable until 2030. Now 2030 isn’t infinity and beyond, but it’s not tomorrow either. The crisis has eased, and it has eased considerably.”

How considerably eased? Kelly Holland of CNBC considers the economics, and the easing is not much.  Costs are rising because the numbers of elderly are growing.  “The Kaiser foundation calculates that the number of Medicare beneficiaries age 80 or above will increase from 11.3 million in 2010 to 30.9 million in 2050.”  One way or the other the government will be forced to cut back.

The expansion of the Medicare population, particularly the costlier segment, will eventually put pressure on lawmakers to act. If "the federal government doesn't finance the care, either the costs will shift to seniors or Medicare will need to find some other way to reduce the growth in spending …

Some possible policy moves are already in the air. Take means testing. Legislation signed into law this year added a means test to the prescription drug coverage part of Medicare, with higher income beneficiaries paying more for the benefit. The change, which was intended to partly offset the cost of a fix to Medicare's payment rates to physicians, uses the same income cutoffs as a means test applied earlier to the Medicare section covering physician and medical care. Seniors with incomes over $85,000 (or $170,000 for a couple) now pay more for those types of coverage.  …

Others have proposed changing the age at which people become eligible for Medicare. Some argue that gradually raising the age of eligibility from 65 to 67 is the answer. The Congressional Budget Office estimated in 2012 that such a change would generate about $113 billion in savings over 10 years. But in 2013 it revised that estimate down to $20.6 billion over 10 years because people enrolling at 65 are likely to be healthier than older enrollees and may also have insurance through an employer, reducing the cost to Medicare. …

Melissa Spickler, a managing director at Merrill Lynch Wealth Management, said health care is always a wild card in planning for later years.

"We somehow have to come up with a way to make sure that as we live longer, we are able to live comfortably and still be aware of how much we need from a health standpoint and possibly a long-term care standpoint," she said.

As a practical matter, government is already taking Tomasky’s advice and expanding its role in healthcare provision, whether one calls it Medicare or not.  Philip Klein of the Examiner notes that “in 2014, according to new data from the Centers for Medicare and Medicaid Services published in the journal Health Affairs, "[h]ealth care spending sponsored by the federal government is projected to have risen by 10.1 percent." This was the year that Obamacare added millions of beneficiaries to Medicaid and forked over billions in subsidies for individuals to purchase insurance on government-run exchanges.”

Looking at the broader trend is more revealing. In 2007, when Obama launched his presidential campaign and outlined a plan to overhaul the nation's healthcare system, private spending accounted for 60 percent of total U.S. health expenditures, compared with 40 percent coming from government-sponsored spending. By 2024, after a decade of Obamacare's coverage expansion, the government share is projected to reach 47 percent, while the private share is expected to shrink to 53 percent. In that year, CMS predicts government at all levels will spend over $2.5 trillion.

These numbers, however, understate the extent of government's role in healthcare. CMS figures count premiums and payroll taxes that individuals and businesses pay toward the government-run Medicare system as private expenditures. Money spent on premiums toward the purchase of insurance on Obamacare's government-run exchanges are also categorized as private.

Beyond the direct spending, Obamacare's regulations exert more control over the healthcare system. For instance, even "private" insurance must be designed based on dictates of the federal government, which also limits how much profit insurers can earn on policies after paying out medical claims.

If expansion is good then why isn’t more expansion better?  Because government is running out of money.  Not only does Medicare have to cut back benefits and increase the age of eligibility, so does Social Security as Myra Adams writes in the National Review.  She points out that Medicare has already been cut back to 77% of its promised payouts.  It said so right on her Social Security form.

While engaging in the mundane task of gathering financial statements for a “secure retirement” meeting with my husband’s and my adviser, this Baby Boomer stumbled upon documented proof that our nation does not have the guts to confront one of its most serious economic problems. The realization came when I pulled from my files a document statement innocently titled, “Your Social Security Statement.”

At first glance, the statement did not appear menacing. I was told I could expect to receive a benefit of “about $2,136 a month” upon reaching age 70 — which certainly seems like good news. But immediately I thought of a parallel of President Obama’s infamous Obamacare promise: “If you like your Social Security, you can keep your Social Security.”  Then, as if on cue, I saw an asterisk with the following message:  The law governing benefit amounts may change because, by 2033, the payroll taxes collected will be enough to pay only about 77 percent of scheduled benefits.

That caused Adams to look at an older Social Security form.  “Sitting in the back of my Social Security file was an earlier statement dated March 10, 2009. Again, followed by an asterisk was a sentence that read exactly like my 2015 statement except for two major differences (emphasis added): The law governing benefit amounts may change because, by 2041, the payroll taxes collected will be enough to pay only about 78 percent of your scheduled benefits.”

The inference was clear.  The Social Security “promise” to Americans was dwindling year by year.  Like a countdown it is reeling downward with each passing year, just like Medicare benefits.  Myra Adams concluded that welfare benefits are being written down and rationed.  

In this context, what does Michael Tomasky’s cry “expand Medicare” and Obama’s mantra “expand Medicaid” actually mean? It can only mean an empty promise.  One cannot expand what cannot even be sustained.

The Downward Spiral of Healthcare


Jared Bernstein, described as a former chief economist to Vice President Biden, argues that the bipartisan antipathy to the “Cadillac health tax” is misplaced since basically, Obamacare needs all the money it can get and legislators shouldn’t mess with the president’s carefully crafted plan.  Bernstein writes:

the assault on the ACA will continue, and one forthcoming line of attack will be on the excise tax on high-cost premiums, aka, the Cadillac tax (even Democratic candidate Hillary Clinton, a solid supporter of the ACA, is apparently having second thoughts about the tax) …

anyone who wants to kill the tax has some explaining to do. Post-SCOTUS, ideological attacks and votes to repeal the ACA are particularly meaningless, as health reform appears to be here to stay. So what’s your alternative revenue raiser?

If raising money were the only problem then how about hiking premiums on the Obamacare exchanges? Oh wait, they’re doing that already. Take California.  While premiums for everyone in the state are rising by an average of “only” 4%, the consumers in the Bay Area are going to get hit hard.  The San Jose Mercury News reports:

Covered California, the state's health insurance exchange, on Monday boasted a second straight year of modest rate hikes next year for the majority of its customers, but one region of the state won't have it so easy: the Bay Area.

While average premiums will rise only 4 percent statewide, rates will climb as high as 12.8 percent in Santa Cruz County, 7 percent in Santa Clara County and more than 6 percent in Alameda and San Mateo counties, exchange officials revealed.

The Mercury News puts down the high prices to a lack of competition in the Bay Area compared to other localities in California.

Meanwhile, premiums will move more modestly in some parts of the state, such as Southern California, where rates will dip 0.2 percent in northeast Los Angeles County and inch up in southwest L.A. by only 2.5 percent. The reason, many say, is simple: There is more competition among hospitals and doctors' groups in Southern California than in Northern California.

"Health care is local," Peter Lee, executive director of Covered California, said during a news conference to announce the rates, "and provider competition based on where you live is the key driver of underlying costs."

Covered California's rates only affect people who buy their own health insurance, and have no bearing on small-group or large-employer plans.

In the Bay Area, only hospital-rich San Francisco will see an average rate of increase -- 3.4 percent -- lower than the state average.

Bernstein neglects to mention that general effect of the Cadillac Tax is to drive consumers towards high cost plans such as are afflicting California.  The Wall Street Journal examines the economic consequence of disincentivizing the provision of generous employer health coverage.  Not surprisingly, it is driving employers to cut back or drop it.

Finance chiefs grappling with rising health-care costs face a new dilemma: how to avoid paying hefty taxes on generous employee health-care plans.

The Affordable Care Act calls for an excise tax on high-cost health plans, starting in 2018. The tax is meant to help fund insurance for previously uncovered Americans through the new health law.

The levy, often called the “Cadillac tax,” is 40% a year on the amount by which employer-sponsored plans exceed government-set thresholds.

These cost thresholds begin at $10,200 for individual coverage and $27,500 for family coverage. The cost is the total amount both the employer and employee pay in premiums.

The tax is expected to generate $5 billion in revenue in 2018, then $34 billion by 2024 as more plans reach the thresholds, according to the Congressional Budget Office. …

“To me it’s a penalty for giving our employees a generous benefits package,” said Chief Financial Officer Brian Giambagno.

Bernstein perversely calls this tax an “incentive”.  He writes: “one point of the tax is to incentivize employers and providers to find ways to lower premium costs, and this will almost certainly occur, implying my 2030 estimates of who gets dinged are too high. To be sure, some of these costs will surely be passed on to consumers as higher co-pays and deductibles. Others will be absorbed by shaving certain benefits, like narrowing the networks that plan members can access. So no one’s claiming that this will be painless.”

The only way providers are going to be able to pay the tax and cut the costs is to reduce the benefits.

People are being squeezed, like toothpaste in a tube, from employer-based insurance to enlisting in Obamacare exchange insurance.  But as Obamacare insurance premiums rise customers are going to be squeezed downward yet again.  Sally Pipes in the New York Post describes the perverse incentives that the ACA’s pricing structure created.

Consider the example of a low-income adult worker without children. If enrolled in one of the 31 states (including Washington, DC) that has expanded Medicaid under ObamaCare, he’ll get free health coverage. But that’s only true if his income remains below 133 percent of the federal poverty level — or a little over $15,000.

But if his income rises to 134 percent of the FPL, he’s out of the program.

If his employer doesn’t offer health insurance, he’ll have to pay for it himself through an exchange operated by his state or He’ll be eligible for a subsidy based on his income. But he’ll have to spend 3 to 4 percent of his income on premiums — upwards of an extra $450 a year.

That can be the difference between paying one’s rent or not.

If his employer offers coverage and has more than 100 employees, then he could be even worse off. ObamaCare defines employer-provided insurance as “affordable” if it costs a worker less than 9.5 percent of his income.

If the employee turns that affordable coverage down, he’s not eligible for subsidized coverage in the exchange — nor can he qualify for Medicaid.

Add it all up, and a worker may feel like he’s better off working fewer hours in order to stay below the poverty line and keep his Medicaid coverage.

As Obamacare insurance premiums rise, the effective threshold of unaffordability rises also from 134% of FPL to some number greater.  At the same time, as inflation raises the cost of insurance, the level of what used to be “Cadillac plans” is reached by ordinary plans. People are taxed from above and are disallowed from subsidies below. The consumers are put in a squeeze and the whole result is called “progress”.

Ultimately most of Obamacare will consist of Medicaid.  Medicaid expansion already comprises over 71% of all Obamacare insurance expansion.  Much of that Medicaid expansion money will be captured by an ever decreasing number of giant private healthcare providers as the New York Times’ Robert Pear describes:

As Medicare and Medicaid reach their 50th anniversary on Thursday, the two vast government programs that insure more than one-third of Americans are undergoing a transformation that none of their original architects foresaw: Private health insurance companies are playing a rapidly growing role in both.

More than 30 percent of the 55 million Medicare beneficiaries and well over half of the 66 million Medicaid beneficiaries are now in private health plans run by insurance companies like the UnitedHealth Group, Humana, Anthem and Centene. Enrollment has soared as the government, in an effort to control costs and improve care, pays private insurers to provide and coordinate medical services for more and more beneficiaries.

Ironically this was the opposite of what Medicare and Medicaid founders promised.  They saw these two programs are ways to provide care for those who couldn’t afford private health insurance.  

The architects of Medicare and Medicaid, among them Wilbur J. Cohen and Robert M. Ball, had concluded that private insurance was out of reach for many older and low-income Americans, who could not obtain affordable coverage in the commercial market. At the time, Mr. Ball was the Social Security commissioner, and Mr. Cohen was a top official at the Department of Health, Education and Welfare, who later became secretary. Both men had been inspired by the New Deal and had worked for decades on Social Security.

“They believed that commercial health insurance had failed the elderly, and they wanted to replace it with social insurance, as a first step toward similar coverage for the rest of the population,” said Theodore R. Marmor, a Yale professor and historian of Medicare.

In a secretly recorded telephone conversation in March 1965, Mr. Cohen described the Medicare bill that had just been approved by the House Ways and Means Committee. “Quite frankly,” Mr. Cohen told President Johnson, “there’s no longer any room for the private insurance companies to sell insurance policies for people over 65.”

Little could they have foreseen that Obamacare would tax employer insurance, raise the price of individual plans -- and then use taxpayer money to buy insurance from giant private providers under Medicare and Medicaid -- and call the whole thing Affordable Health Care.

The irony is that the sustainability of both Medicare and Medicaid is questionable. Kimberly Leonard of US News and World Report says: “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.”

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.

Much of the cause for rising costs is attributable to how health care providers are paid, speakers and panelists at the event said. The majority of systems are rewarded by the amount of services they provide, rather than whether those services result in better outcomes for patients. …

When Medicare and Medicaid were created in 1965, half of Americans age 65 or older lacked hospital insurance and a third lived in poverty. Since then, the spending and the number of beneficiaries of these programs have grown dramatically. …

Projections indicate that as many as 80 million people may be eligible for Medicare in 2030.

As Medicare enrollment numbers have climbed, the costs have as well. In 1967, the program's first full year of operations, Medicare spending was $4.6 billion; in 2014, it reached nearly $600 billion, or 14 percent of the federal budget. …

The government's health care program aimed at low-income Americans, Medicaid, also continues to grow. In 2014 it covered almost 70 million low-income Americans, making it the largest source of health insurance in the country. Two-thirds of costs cover the elderly and those with disabilities.

Just like Medicare, it experienced a sharp spending increase over the last few decades, from just under $1 billion in 1966, to $454 billion by 2013.

Obamacare was sold as a means of saving Medicare and Medicaid from bankruptcy.  But in order to do this it has expanded both programs whose costs it promised to curb.  This absurd circularity arises from the fact that Affordable Care Program has so far failed to “bend the cost curve” of healthcare downward.  All it has done is promise to bend it downward in the future through schemes like bundled payments or unspecified innovations.  A more efficient Medicare, a leaner Medicaid will save the system for posterity.

There is little hope this will actually happen.  What Obamacare has done superlatively well is increases taxes and redirect the huge additional amounts to a few giant healthcare providers.  This is the effect of taxing employer insurance,  increasing the cost of plans sold on the exchange and shoving billions of dollars at a few providers to expand Medicare and Medicaid.

The administration should not be celebrating the birthday of Medicare or Medicaid.  Perhaps it should be announcing their funeral.

The Republican Revolt Spreads


The real significance of the skirmishing between Republican conservatives and the party leadership over Obamacare was as the tip of the iceberg.  It was the first sign of a much wider conflict between two wings of the GOP. This dispute has now broken out into the open on news that Rep. Mark Meadows (R) is seeking the removal of Speaker John Boehner.

Rep. Mark Meadows (R-N.C.) has filed a motion to try to force Speaker John Boehner from his leadership post,” Politico wrote in a breaking news alert. “The move, called a motion to vacate the chair, represents a new level of opposition to GOP leadership from the conservative wing of the House Republican Conference. The motion can be postponed for several days before consideration.”

Meadows is relatively junior in tenure, but is widely known as a champion of conservative causes as Lauren French of Politico notes:

For a sophomore member who previously owned a sandwich shop and worked in real estate development, it was a remarkably assertive way to question his party’s leadership.

Meadows, 56, has shown a rebellious streak before, voting at times against his leadership on key votes. He’s among the cadre of conservatives who earlier this year launched the House Freedom Caucus, which has been a hotbed for scheming against leadership.

He voted against Boehner for speaker on the House floor in January — one of 25 Republicans to do so. He also cast one of just 34 Republican votes against a pivotal procedural move on trade.

He was also a leading member of the group of GOP lawmakers who forced a government shutdown in 2013.

The trade vote again thrust Meadows into the spotlight once House Oversight and Government Reform Committee Chairman Jason Chaffetz moved to strip the North Carolina Republican of his chairmanship of a subcommittee. That decision was later reversed, with Chaffetz, a Republican from Utah, saying “we both better understand each other. I respect Mark and his approach. The discussions and candor have been healthy and productive.”

The revolt in the House started to merge with the uprising led by Ted Cruz in the Senate when the senator from Texas extended his political support to the Congressman. Breitbart reports:

GOP presidential candidate Sen. Ted Cruz (R-TX) 96%

posted on Twitter Monday: “What happened to @RepMarkMeadows is shameful. No one should be punished for voting his or her conscience.”

Cruz is the second GOP presidential candidate to stand up for Meadows, who was punished for voting against House leadership prior to the final vote on Trade Promotion Authority (TPA) granting President Obama fast-track trade authority.

The other supporter was GOP presidential candidate, former Arkansas Gov. Mike Huckabee.

Meadows decided to vote against House leadership on the Rule vote, prior to the final vote on Trade Promotion Authority – which grant’s President Obama fast track trade authority – because he felt the legislation was riddled with holes.

Huckabee said: “I salute Congressman Mark Meadows for his backbone, courage and commitment to North Carolina workers.”

Huckabee adds that President Obama can’t be trusted to negotiate a multi-trillion dollar trade agreement with Asian countries that could cost American workers thousands of jobs.

“In the face of enormous pressure from the House GOP leadership to vote for ObamaTrade, Congressman Meadows voted his conscience. For this act, he was punished by party leaders and lost his subcommittee chairmanship,” Huckabee stated in his press release Monday.

“Congressman Meadows values convictions over committee assignments, principle over politics, and service to Americans over service for himself. In my book, you should be lauded-not loathed. Well done Congressman, well done!”

Dissatisfaction with the speaker has been brewing for a long time.  For the most part it stayed under the radar, but the conservative dissatisfaction with him was there, just under the surface.  In 2013 Government Accountability Institute President Peter Schweizer’s book, Extortion: How Politicians Extract Your Money, Buy Votes, and Line Their Own Pockets  accused him of engaging in unethical practices.  Breitbart reported on its contents.

An explosive new book alleges Speaker Rep. John Boehner (R-OH) collected over $200,000 in donations from executives and companies just days before holding votes on three bills of critical importance to their industries. …

“You pay money at a tollbooth in order to use a road or bridge,” writes Schweizer. “The methodology in Washington is similar: if someone wants a bill passed, charge them money to allow the bill to move down the legislative highway.”

The first bill Schweizer says Boehner used the tollbooth tactic on was the Wireless Tax Fairness Act of 2011. The bill, which received broad congressional and public support, placed a five year freeze on state and local governments’ ability to slap taxes on cellphone users. Big phone companies like AT&T and Verizon strongly supported the bill. The Wireless Tax Fairness Act of 2011 (H.R. 1002) was introduced in March 2011 and easily passed the House Judiciary Committee in July.

Instead of promptly scheduling a vote, however, Schweizer says Boehner sat on the popular bill: “Everyone expected Boehner, given his general aversion to raising taxes, to support the bill and hold a vote. But as the months went by and mid-October arrived, it was unclear whether the vote would ever come.”

Boehner finally set a vote for November 1, 2011. “The day before the vote, Boehner’s campaign collected the toll: thirty-three checks from wireless industry executives, totaling almost $40,000,” writes Schweizer. The bill passed easily on a voice vote.

Two more bills Schweizer says Boehner employed the tollbooth strategy on were the Access to Capital for Job Creators Act (H.R. 2940) and the Small Company Capital Formation Act (H.R. 1070). The bills were designed to help small businesses get easier access to capital by easing stock offering regulations. Brokers and venture capital and investment firms all supported the proposed law.

Once again, says Schweizer, Boehner collected a tollbooth fee hours before bringing the bills to the floor for a vote on November 2 and 3. …

Schweizer says the tollbooth strategy, while completely legal for members of Congress, could result in possible jail time for others.

“If an Army general were to ask for favors in return for performing his duties, he would be drummed out of the military and might even go to jail,” writes Schweizer.

The difficulty is that Boehner’s antics -- or at least the perception of them --were a direct threat to Republicans with presidential ambitions.  Cruz and Huckabee, to mention only two, now found Boehner a ball and chain round their ankles.  The voters were outraged at the seeming lack of opposition to unpopular measures proposed by the administration.  Any suggestion that Boehner was “selling out”, whether true or not, would play to their worst fears and make any public cooperation between the presidential candidates and Boehner.

The Republican revolt was driven by electoral politics and voter discontent.  Whatever the true feelings of the protagonists were, the sheer need for political survival meant that the price of Boehner’s “tollbooth” was giving the White House.  That might prove too high a price to pay.

The Highway Bill and Obamacare


A mini-rebellion within the Republican party has highlighted one of the possible reasons for the apparent invincibility of Obamacare: the leadership is deliberately pulling its punches.  The problem first came to public notice when Brian Bordelon of National Review described how Republicans voted against efforts by Senator David Vitter to repeal health insurance subsidies that the lawmakers had questionably awarded themselves.

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. …

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.

Vitter tried again, this time with Ted Cruz in support. “Nearly two years after the Louisiana Republican’s first attack on Congress’s Obamacare exemption, Vitter and Texas senator Ted Cruz are teaming up for yet another shot at the federal health-care subsidies fraudulently obtained by lawmakers.”

In a departure from previous attempts, the pair believe that a measure to kill the subsidies will attract more support from their colleagues if it exempts congressional staffers. And they intend to tack such a measure on to the crucial federal highway bill currently making its way through Congress — if their fellow senators don’t nix the provision before it reaches the Senate floor.

On Tuesday, Vitter filed a standalone bill requiring members of Congress, the president, and all presidential appointees to enroll in Obamacare and give up subsidies fraudulently obtained through D.C.’s small-business health-insurance exchange. Cruz plans to submit an identical amendment to the Highway and Mass Transit Bill, a must-pass piece of legislation and a likely vehicle for pet projects on both sides of the aisle.

“Virtually all of my Republican colleagues regularly come to the floor and rightly complain about President Obama changing statutory law with a stroke of his pen, acting beyond his authority,” Vitter said on the Senate floor Tuesday. “This is a crystal-clear example of that. And when we complain about it in other contexts, I think we should speak up and complain about it even when it benefits us. . . . We should not stand for this Washington exemption from Obamacare.”

The results were again predictable. Sarah Ferris of Politico describes how the repeal bill, tacked to a highway measure, failed in the face of solid opposition by Democrats and discreet sabotage by the Republicans.

The Senate on Sunday rejected a GOP-led amendment to repeal ObamaCare that fell several votes short of a 60-vote threshold to advance.

The largely symbolic vote, which was attached to a three-year highway funding bill, marked the Senate’s first attempt to repeal ObamaCare since Republicans took control of the chamber in January.

The measure had been certain to fail, lacking support from any Democrats. The final vote was 49-43 along party lines, with eight senators not voting.

Several Republican senators blasted it as a “show vote” that was intended to appease conservatives angry about a planned vote to reauthorize the Export-Import Bank.

Here is where the strange link between the Export-Import Bank drama intersects the effort to repeal Obama.  Again the connection between the two issues is Senator Ted Cruz.  Cruz accused the Republican leadership of doing a David Vitter on him by misleading him and other Republicans into supporting the Export-Import Bank.

In a stunning, public attack on his own party leader, Republican Sen. Ted Cruz accused Majority Leader Mitch McConnell of lying, and said he was no better than his Democratic predecessor and couldn't be trusted.

Cruz, a Texan who is running for president but ranks low in early polling, delivered the broadside in a speech on the Senate floor Friday, an extraordinary departure from the norms of Senate behavior that demand courtesy and respect.

"Not only what he told every Republican senator, but what he told the press over and over and over again, was a simple lie," Cruz said.

At issue were assurances Cruz claimed McConnell, R-Ky., had given that there was no deal to allow a vote to renew the federal Export-Import Bank — a little-known federal agency that has become a rallying cry for conservatives. Cruz rose to deliver his remarks moments after McConnell had lined up a vote on the Export-Import Bank for coming days. …

No senator rose to defend McConnell on the floor, as some Republicans sought to avoid engaging in the dispute and giving Cruz still more attention. Questioned by reporters later, Sen. Orrin Hatch, R-Utah, challenged Cruz's criticism of McConnell, telling reporters, "I think it's wrong to disclose private information, especially when the disclosure is not accurate."

Although Vitter’s attempt to get Congress off subsidies and Cruz’s claims of betrayal over the Export-Import Bank pertain to different subjects they both depict the Republican leadership as being sell-outs to the Democrats.  In a political sense, the efforts to repeal Obamacare have morphed into a rebellion against the GOP leadership.  The Washington Post’s Paul Kane and Kelsey Snell describe the evolution of an ideological battle:

The pitched battle over a relatively unknown federal agency further inflamed the Republican Party’s ideological feud as the Senate voted Sunday to extend the life of the Export-Import Bank over intense conservative objections. …

The fight over the bank has taken on a life of its own in some corners of the conservative movement, particularly among tea party activists who are trying to move Republicans away from their traditional support for corporate America.

Opponents of the amendment such as Cruz deride the bank as a form of corporate welfare … The Ex-Im Bank’s charter expired June 30 because House conservatives blocked any vote to allow it to issue new loans. In the 4 1/2 years since taking control of the House, including the past seven months in the Senate majority, Republicans can count the bank’s shuttering as the only significant federal agency to close on their watch.

It’s turned the Export-Import Bank issue into a litmus test.  The procedural battleground for both the Ex-Imp bank issue and Obamacare is -- you guessed it -- the highway bill.  Cruz and his allies are turning the bill, which many of the lawmakers are desirous of passing,  into a kind of hostage to the principle.

On a roll-call vote of 67 to 26, the chamber included language in a federal highway bill that would renew the charter of the bank, which extends loan guarantees to help U.S. corporations sell goods abroad. The vote split the GOP caucus almost evenly and exposed a deep division among the party’s leaders and presidential contenders.  …

If the House cannot approve the Senate highway plan, then McConnell may have no choice but to pass the House’s short-term extension of highway funding to buy more time to craft a six-year plan.

The House bill does not include extending the Ex-Im charter, which would leave the agency in a continued state of limbo: It can continue administering the loans it already has guaranteed but cannot do new loan work.

McConnell and his allies have closed ranks and are trying to show Cruz who’s boss. Politico’s Manu Raju and Burgess Everett describe how they purposely attempted to humiliate the Senator from Texas.

Ted Cruz just wanted a roll-call vote on Sunday. Instead, he got a smackdown.

Republican leaders, led by Majority Leader Mitch McConnell (R-Ky.), delivered what senators described as punishment for Cruz’s brazen floor tactics — the Texas senator first accused McConnell of lying and later sought to change Senate procedures in order to push for an Iran-related amendment.

So when Cruz came to the floor looking for 16 senators to agree to hold a roll-call vote, only three raised their hands. McConnell, sitting at his desk, turned around and peered at Cruz, who looked stunned at what had just happened. The Senate dispensed with his effort by a voice vote and quickly moved on, doing the same to Sen. Mike Lee (R-Utah), a Cruz ally who sought to use arcane procedures to force a vote on defunding Planned Parenthood.

It all went down in an instant, but the message was clear: If Cruz doesn’t want to play nice with his Republican colleagues, they will respond in kind.

“You learn that in kindergarten: You learn to work well together and play by the rules,” said Sen. Lamar Alexander of Tennessee, a close McConnell ally who was beaming after Cruz and Lee were handed such lopsided defeats. “Another thing you learn in kindergarten is to respect one another.”

However, as the Washington Post article noted, Ted Cruz doesn’t want to be in McConnell’s kindergarten.  He wants to be president, and Cruz has little chance of winning by being content to carry McConnell’s water.  To preserve his ambitions Cruz cannot easily back down and in a cruel cut, called McConnell the “so-called Republican leader.”

Cruz — who has been sagging in presidential polling for the past month as Donald Trump has soared — has placed the bank’s future at the center of his campaign. He uses it to rail against what he calls the “Washington cartel” of leaders such as McConnell and House Speaker John A. Boehner (R-Ohio).

Despite admonitions from his senior colleagues, Cruz has refused to apologize for his accusations and doubled down on his attack against McConnell.

“Speaking the truth about action is entirely consistent with civility,” he said during a floor speech, and he later told reporters that McConnell is the “so-called Republican leader.”

Kelsey Snell of the Washington Post describes how Cruz intends to strike back at McConnell.  By using a procedural maneuver designed by the Democrats to force votes on specific issues Cruz and his allies intend to smoke out McConnell by forcing obvious showdowns.

Conservative firebrand Sen. Mike Lee (R-Utah) announced on Friday that he plans to use a complicated procedural maneuver known as the nuclear option to repeal the Affordable Care Act with just 51 votes.

Democrats famously used the strategy in 2013 to break a Republican blockade of President Obama’s nominees to fill judicial openings. Now Lee wants to use the partisan procedure get rid of Obamacare. …

Lee said he will try to re-offer the Obamacare repeal as a special amendment that is directly related to highway funding. Under Senate rules, amendments that are directly related, or germane, to the underlying legislation can pass with just 51 votes.

Lee knows that the chair of the Senate is likely to reject his logic that Obamacare repeal is germane to highway funding, so he  plans to use the nuclear option. That means he will formally object to the ruling of the chair — requiring a 51-vote simple majority  to overturn the ruling. Then, the Republican plans to move on to the coveted simple-majority vote to repeal Obamacare.

This will give McConnell and the Republican leadership no place to hide.  As the Huffington Post reports, a battle between the two sides seems inevitable, with both sides seemingly unyielding.

In an impassioned 12-minute speech, Sen. Orrin Hatch (R-Utah), who serves as pro tempore of the Senate, took to the floor to scold Cruz for his comments about McConnell.

"We are not here on some frolic, or to pursue personal ambitions," Hatch said. "We serve the people, not our own egos."

Hatch didn't stop there, adding Cruz's "misuse of the Senate floor must not be tolerated."

"We must ensure that the pernicious trend of turning the Senate floor into a forum for advancing personal ambitions, for promoting political campaigns, or for enhancing fundraising activities comes to a stop," he said.

Senate Majority Whip John Cornyn (R), Cruz's senior senator from Texas, also joined in on the scolding. He warned that if senators sided with Cruz to overturn current procedure, the Senate would descend into chaos and not be able to function.

Cruz shot back that his speech on Friday was consistent with Senate decorum because he was speaking the truth.

"In a time of universal deceit, telling the truth is a revolutionary act," Cruz said, referencing a quote often attributed to author George Orwell. "It is unlike any speech I have given in this chamber, and it is one I was not happy to give."

The Republican Party is unlikely to self-destruct any time soon.  But the fault lines between two factions are clear.  On the one side are the older politicians who have grown up “getting along” with their Democratic counterparts and the administration.  Ranged against them are ambitious young politicians who understand that the Republican grassroots voters have had enough of just playing along.

Obama Creates Giant Monopolies


Long long ago in a galaxy far away the president sold the Affordable Care Act as a policy which would promote competition and increase health insurance choice. In March, 2014 Jason Millman of the Washington Post was already looking back wistfully at what looked to be a broken promise.  “Obamacare is supposed to create competitive marketplaces where insurers will have to fight for people’s business. Is that actually happening?”

The short answer is “no”.

The Guardian put it succinctly after Anthem announced its plans to buy Cigna in a deal worth over $50 billion.  “And then there were three.”\

The rapid consolidation of the US health insurance industry continued on Friday with the announcement that Anthem plans to buy rival Cigna in a deal valued at $54.2bn that will create the country’s largest health insurer by membership.

Together the two companies would cover about 53 million patients in the US, ahead of the largest insurer by revenues, UnitedHealth, which covers 45.8 million people. The proposed transaction comes just three weeks after the third-largest insurer, Aetna, bid $34bn for Humana, the fifth largest. Should both deals be approved by regulators and shareholders, the US’s five massive US health companies will be reduced to three even larger ones.

As Bruce Japsen wrote in Forbes, the deal is so bad for competitiveness that it looks bad enough to damage Obamacare by its very appearance.

News that Anthem will buy Cigna for $54 billion– a deal that closely follows the proposed merger of Aetna and Humana  — will intensify regulators’ focus on antitrust issues in the health insurance industry.

Because Anthem’s proposed acquisition of Cigna creates the nation’s largest health insurer with 53 million customers, it’s already being met with a healthy dose of criticism from doctors and hospitals who say insurers are already squeezing them.

In particular, doctors and hospitals say insurers are narrowing their networks for customers who buy coverage on public exchanges under the Affordable Care Act. Though insurers say narrow provider lists allow them to keep costs low and ensure high quality doctors are on the menu of preferred providers and bad physicians are not, providers say they will be in greater danger of being shut out of a network if consumer choices dwindle.

Back in 2014 Jason Millman could still write “the idea behind the Obamacare exchanges is to level the playing field in the individual market – eliminate medical underwriting and require insurers to adhere to requirements related to benefits, care provider networks and limits on out-of-pocket spending. By operating under the same set of standards, insurers are supposed to be able to compete fairly for customers.”

Events have made a mockery of that supposed competitive potential. As the Guardian notes that Obamacare by increasing the costs sold reduced competition as a solution to the price hike problem.

Obamacare has increased the size of the health insurance market but put pressure on prices. The rapid consolidation of the health insurance industry – which is seeking cost reductions through mergers and greater scale – is likely to present a challenge to the Obama administration and antitrust regulators are expected to closely examine the deals.

The high cost of Obamacare was the disease and massive consolidation was the cure. It was as if the ACA first set the public’s hair on fire and then tried to put it out with a hammer.  The irony of the situation is expressed in Bruce Japsen’s article:

“One of the main goals of the Affordable Care Act was to restore competition in the health insurance sector,” said David Balto, a former policy director at the Federal Trade Commission who is now in private practice in Washington. “This consolidation will reverse these gains of the Affordable Care Act.”

Instead it may be used to illegally fix the wages of doctors and medical personnel throughout the country.  The Japsen article continues:

In Anthem’s case, the plan already is a defendant in a major antitrust lawsuit against Blue Cross and Blue Shield plans that has been consolidated into a class action wending its way through a federal court in Alabama. Anthem operates most of its commercial health insurance business under the Anthem Blue Cross Blue Shield brand.

The suit accuses the Blues plans of conspiring to fix what they pay doctors and other medical-care providers across the country. The Blues plans have denied the allegations.

Not only are doctors behind the 8-ball in this spate of new mergers, so is the public.  The consolidations are being undertaken with the probable intent of shutting down “redundant capacity” (i.e. competing clinics) among the newly merged providers.

But health plans are culling their networks to keep plans more affordable and that has left providers out of networks and consumers with fewer choices. A new analysis by Washington research and policy firm Avalere Health says “plans offered on the health insurance exchanges created by the Affordable Care Act  include 34 percent fewer providers than the average commercial plan offered outside the exchanges.”

One player who is laughing all the way to the bank is Larry Robbins of Glenview Capital Management.  “Glenview Capital Management LLC made a bold decision when President Barack Obama’s health-care overhaul was rolling out: Bet on it.”

The result has been one of the most successful hedge-fund wagers in recent years. New York-based Glenview has realized and paper gains of more than $3.2 billion since it started making investments in hospitals and insurers four years ago, according to a Wall Street Journal analysis of securities filings.

The fund is run by Larry Robbins, a billionaire hockey fanatic known for his sermonizing investor letters. Its latest win comes courtesy of Anthem Inc., the nation’s second-largest health insurer by revenue, which announced a $48 billion-plus acquisition of rival Cigna Corp. Friday. Glenview owns shares in both companies, as well as in insurers Aetna Inc. and Humana Inc., which struck a $34 billion deal of their own three weeks ago. Shares of all four companies have rallied in anticipation of tie-ups.

The passage of the Affordable Care Act, known as “Obamacare,” has riled executives throughout corporate America over concerns about its costs and deeper government involvement in a key industry. But while the health-care industry, many investors and individuals wrestled with the uncertainties created by the law, which was passed in 2010, a team at Glenview was laying the groundwork for the wager early on.

Robbins bet that Obamacare would result in consolidation and he won!  His next bet is even more interesting. “Glenview isn’t done with the bet. The firm is now building stakes in pharmaceutical companies, such as AbbVie Inc. and Allergan Inc., looking for winners in the next wave of health-care changes that it thinks will focus on cost cuts and drug prices.”

People like Robbins standing to make more billions.  And those billions will come from the consumer.  So much for Hope and Change.

Vitter and Cruz vs Congressional Obamacare Subsidies


The real significance of David Vitter’s one-man crusade against Congress’ anomalous granting to itself of Obamacare subsidies isn’t that it might succeed: there’s not a snowball’s chance in hell of that.  Rather it serves as a bellwether of how serious official Washington is when expresses outrage at the scandals of Obamacare. Brian Bordelon of the National Review writes: “Senator David Vitter is nothing if not persistent.”

Nearly two years after the Louisiana Republican’s first attack on Congress’s Obamacare exemption, Vitter and Texas senator Ted Cruz are teaming up for yet another shot at the federal health-care subsidies fraudulently obtained by lawmakers. In a departure from previous attempts, the pair believe that a measure to kill the subsidies will attract more support from their colleagues if it exempts congressional staffers. And they intend to tack such a measure on to the crucial federal highway bill currently making its way through Congress — if their fellow senators don’t nix the provision before it reaches the Senate floor.

An amendment added to Obamacare shortly before its passage in 2010 required congressional lawmakers and their staff to enroll in the law’s health-insurance exchanges, but offered no provision through which they could maintain employer health-care subsidies. Lawmakers scrambled for a solution once this was discovered, beseeching the Obama administration for aid.

The White House directed the Office of Personnel Management to allow the House and Senate to file for health care as small businesses — a dubious designation for two legislative bodies that employ thousands of staffers. Lawmakers submitted applications to the D.C. small-business exchange claiming implausibly that the House and Senate each had just 45 employees. At the apparent direction of GOP leadership, an attempt by Vitter to investigate the fraud was squashed by five Republicans on the Senate Small Business Committee.

Vitter and Cruz may get a little help from outside organizations who regard this as a clear case of the Republicans selling out to the administration, a kind of moral corruption even if it is not technically illegal. The Council for Citizens Against Government Waste is framing it as an “ethics” issue, according to Joe Schoffstall in a Free Beacon article reprinted in the Wall Street Journal.

A coalition of 10 organizations has filed an ethics complaint calling for an investigation into whether senators and their staff committed fraud when they submitted applications to the health insurance exchange in Washington, D.C.

The Council for Citizens Against Government Waste, the lobbying arm of the nonpartisan watchdog group Citizens Against Government Waste, led the coalition in filing the complaint to the Senate Select Committee on Ethics. The organizations involved are calling for an investigation into whether members of Congress and their staff violated laws by claiming to be a “small business” in order to buy their insurance and qualify for taxpayer-funded subsidies.

Attaching the removal of Obamacare subsidies to a highway bill is a tactic aimed at reconciling the needs of Washington politics with the exigencies of red-meat politics in an attempt to stay inside the boundaries of both.  From one point of view Vitter and Cruz have to embark on this attempt, however doomed it may be. Cruz is running for president and has no choice but to oppose a health insurance scheme that is deeply unpopular with Republican voters.  At the same  time both Senators are well aware that horse-trading is the lifeblood of the capital.

What Cruz and Vitter appear to be doing is giving the GOP the chance to keep most of the subsidies (used to reward their staffers) in exchange for the politically advantageous move of renouncing them for themselves.  Since the Congressmen are probably rich enough not to care about the substances anyway, they lawmakers may see it as a chance to rid themselves of a political albatross on the cheap.  By tacking the measure on to the highway bill, Cruz and Vitter are essentially threatening to delay an important measure over chump change.

Even if Cruz and Vitter fail, the Senator from Texas can tell his voters “at least I tried”.  Complicating Cruz’ problem is Donald Trump. Paul Mirengoff in the widely read Powerline writes that Cruz has to strongly differentiate his brand from Trump, lest he become nothing but a me-too candidate.

Several Republican presidential candidates have been critical of Donald Trump, but Ted Cruz is not among them. Earlier this week, in an appearance with Megyn Kelly, he praised Trump.

Cruz told Kelly, “I salute Donald Trump for focusing on the need to address illegal immigration. I think amnesty’s wrong, and I salute Donald Trump for focusing on it.” Cruz added, “I like Donald Trump. He’s bold, he’s brash.”

But wait! Cruz made his name as a crusader against Obamacare, which he views as a fundamental threat to American liberty. Yet, Trump has said we “must have universal healthcare” under a system that “looks a lot like Canada.” Such a system would be an even greater intrusion on our liberty than Obamacare.

Obamacare costs look to be on track to surge in 2016, hitting Americans in the wallet just in time to affect the polls. Chriss Street of Breitbart predicts that the program will be one of the hot-button items of the presidential election:

Oregon Insurance Commissioner Laura N. Cali has approved premium rate increases of 25 percent for the Moda Health Plan and 33 percent for LifeWise in 2016. Due to Obamacare’s radical plan design and high utilization costs, skyrocketing American healthcare costs are becoming the norm–and will be a top issue in 2016 elections.

Democratic presidential candidate Bernie Sanders for one, is going to make Obamacare an issue in 2016, claiming it doesn’t go far enough and proposing to replace it with “Single Payer”.  Eric Bradner of CNN writes “Bernie Sanders: Obamacare not enough”.

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.

"We need to join the rest of the industrialized world," Sanders said on ABC's "This Week."

In this environment the GOP cannot easily punt on the issue of Obamacare subsidies for members of Congress.  Cruz knows this.  Vitter knows this.  The problem is whether the Republican leadership know this.

Grasping at Straws


Anyone who thinks Obamacare is here to stay, a done deal, should think again.  Just ask Zeke Emmanuel who was one of the architects of Obamacare, who wrote of the deep trouble the program is in. Obamacare’s problem is cost.  In an article titled The Coming Shock in Health-Care Cost Increases, Emmanuel says that the president must work on making the Affordable Care Act affordable.

Most analysts expect that the growth in health-care costs will rise without further action. And the latest data from the Census Bureau indicate this acceleration may be starting. The country is at an inflection point: Will we let our foot off the brakes, or will we permanently bend the cost curve?

The high cost of Obamacare premiums and copayments broke out into the open among Democratic activists when members of the audience shouted to Bernie Sanders that it was too expensive for them, according to the Washington Post.

The Vermont senator faced chants and heckling as well, but Sanders continued talking. Asked what he had done in the Senate to benefit black Americans, he started to talk about the 2010 Affordable Care Act.

“We can’t afford that!” heckled Elle Hearns, a 28-year-old Ohio-based coordinator for the LGBT rights group GetEqual.

The administration had initially pinned its hopes of cost reduction on Affordable Care Organizations or ACOs to lower costs.  The ACOs use a variety of payment methods that economists believed would cut total expenses.

An accountable care organization (ACO) is a healthcare organization characterized by a payment and care delivery model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. A group of coordinated health care providers forms an ACO, which then provides care to a group of patients. The ACO may use a range of payment models (capitation, fee-for-service with asymmetric or symmetric shared savings, etc.). The ACO is accountable to the patients and the third-party payer for the quality, appropriateness and efficiency of the health care provided. According to the Centers for Medicare and Medicaid Services (CMS), an ACO is "an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it."

Unfortunately, ACOs are not working as intended. Zeke Emmanuel describes the results but does not advance an explanation for them.

The results so far are less than encouraging. Several studies found that ACOs achieved minimal savings after two years. This is not unexpected. Investing in technology, hiring nurses and changing the way care is delivered is complex and takes time to implement effectively. But we don’t yet have evidence that ACOs can reduce costs substantially.

The bigger problem is scale. In the advanced ACO program—which penalizes heath-care providers for overspending—13 of 32 participating groups dropped out. In the other ACO program—which rewards organizations for underspending but does not penalize them for excessive spending—the number of new participants is falling, and more than half of the participants are now deciding whether to renew. The fundamental problem with a voluntary program is that to attract participants, Medicare needs to make it easy for the ACO to be rewarded. Paradoxically, this makes it hard to achieve substantial savings.

A cost-control strategy that relies on expanding the number of ACOs won’t be successful. Before it is too late, the Obama administration must focus on a reform that can be scaled.

Instead he moves straight to the sure-fire new model: bundled payments.

Medicare should lump together physician services, hospital costs, tests, medical devices, drugs and rehabilitation services related to common ailments—such as broken hips, heart stents and cancer treatments—into a bundle.  ...

Scaling bundles offers significant advantages over the current strategy. First, the discount means that savings are immediate and guaranteed. Second, private payers, i.e., employers and insurance companies, can also adopt the Medicare bundle as their payment method, amplifying the incentive. Finally, this reform is not just for big health systems that think they will do better financially by participating. It can work in rural areas and for smaller hospitals and practices and become the standard method of payment nationwide.

Time is running out. If Mr. Obama doesn’t act soon to control costs, escalating costs may ultimately threaten the sustainability of his coverage expansion—and his entire health-reform legacy.

Yep, that’ll do it. But as Robert Book points out in Forbes, bundled payments have been around a long time even in Medicare. Zeke Emmanuel can’t suddenly pretend he’s re-invented the wheel.

In this morning’s Wall Street Journal, former Obama health care official (and one of the architects of the Affordable Care Act (ACA)) Ezekiel Emanuel, and Topher Spiro of the Center for American Progress warn of an impending “shock” in health care cost increases. …

As an alternative, Emanuel and Spiro propose to expand the use of “bundled payments” in Medicare. Instead of paying individually for each individual component of the related set of services – say, a surgery and the follow-up care that goes with it – a bundled payment is a single payment to a health care provider for the entire “bundle” of related items.

Bundled payments have been used in Medicare for a long time (and in private insurance even longer). Emanuel and Spiro simply propose expanding the use of bundled payments by increasing the number of “bundles” and including more services in each bundle.

In fact, Book argues that Medicare Advantage is the ultimate bundled payment scheme. “Emanuel and Spiro don’t mention this, but it is possible in fact to create the Ultimate Bundle – all of the services a patient might need during a given year. Not just one surgery plus the associated office visits and drugs and devices – but everything a patient might need over an entire year.”

It turns out Medicare already has a system like this. They just don’t call it “Ultimate Bundled Payment System.” They call it “Medicare Advantage.”

In Medicare Advantage, each Medicare beneficiary chooses a private-sector insurance company (non-profit or for-profit) to handle their health care, and Medicare makes fixed monthly payment to that company. That company is then responsible for paying for all that patient’s health care (subject to deductibles and copays which are usually lower than in the rest of Medicare).

Medicare Advantage is currently optional – patients can sign up or not, as they wish. Are Ezekiel Emanuel and Topher Spiro proposing transitioning all patients to that system?

So why didn’t Medicare Advantage save the American healthcare system?   And if all Zeke Emmanuel and Barack Obama could do was make a false start and copy Medicare advantage then what was Obamacare all about but an exercise in futility?  The Affordable Care Act is now an intellectually bankrupt program grasping at straws to justify itself.

Health analyst Robert Lazewski captured its state of absurdity when commenting upon news that the California Senate had voted to extend Obamacare benefits to illegal aliens.  It violates every economic principle the administration claimed was absolutely necessary for the program to function.

King V. Burwell opponents said killing subsidies would blow up Obamacare­­–now in California they want to open up unsubsidized care to illegal Californians.

State Senator Richard Lara has already moved a bill through the California State Senate … The bill would also extend coverage to illegal residents under the age of 19 to enroll in California’s fully paid-for Medicaid program. …

To say that granting any kind of access to Obamacare for illegal immigrants is controversial is an understatement. But for now, I want to focus just on the insurance issues.

Last month, Obamacare supporters were adamant, and rightly so, that a Supreme Court decision in favor of the King v. Burwell plaintiff would have killed the insurance subsidies in at least 34 states and would have forced the collapse of Obamacare. Their argument was that without subsidies millions of people would have been forced to drop their coverage leaving only the sickest willing to pay for the then far more expensive cost of unsubsidized insurance. The program would have no longer been sustainable. …

So, in two Supreme Court cases as well as the original selling of Obamacare, advocates have argued that the combination of the subsidies and the individual mandate were crucial to Obamacare’s being able to get enough healthy people to offset the costs of the sick and its ability to survive.

But now in California, the State Senate has already passed Senate Bill 4 and sent it to the State Assembly. SB 4 would make Obamacare health insurance available on a guarantee issue basis to illegal immigrants on the Covered California exchange:

  • Without a subsidy.

  • To people who would not have to comply with the individual mandate.

So a new class of people would be allowed to access Obamacare on Covered California without having to comply with the individual mandate legal residents and citizens have to comply with.

They also would not be subsidized and would be forced, often as poor people, to pay the full price of the health insurance in order to get their claims paid. …

So, all of these people who told us during the 2012 NFIB v. Sebelius debate that the combination of the individual mandate and subsidies was key to a functioning Obamacare don’t think that’s necessary when covering a new class of people through Covered California—millions of poor illegal immigrants in the state. …

Subsidies would be crucial to a sustainable insurance system for the overwhelmingly poor illegal immigrants that would be required to buy coverage. But they are illegal immigrants, just how would we accomplish that? Dealing with this very real issue of access to health care via immigration reform would seem to make a lot more sense than this proposed convoluted backdoor to an already struggling Obamacare insurance system.

By making a mockery of their own healthcare economics the Obamacare is becoming exactly what its worst critics alleged it to be: another power grab, another vote buying program.  Another expensive failure.  Rather than becoming president Obama’s “legacy” it will be regarded as the biggest of his herd of white elephants.

The consumers may suspect that Obamacare has finally jumped the shark. CNBC’s Dan Mangan writes that “About 7.5 million taxpayers so far have paid a penalty on their taxes for failing to have health insurance last year … even though many of them apparently didn't have to.”

"The IRS will be reaching out to these taxpayers to inform them about available exemptions and note that they may benefit from amending their tax return," said Mark Mazur, assistant Treasury secretary for tax policy, in a blog post Monday. "This outreach will also help educate taxpayers about the options they have for future years."...

Another 5.1 million people failed to state they had health coverage, claim an exemption, or say they had paid the fine, officials said. The IRS is now "analyzing these cases to determine their status," according to a letter officials sent Congress.

Far from being energized and excited, millions of people are simply paying for it to go away. It’s painful to think about a program which has become a candy store for Democratic party vote buying and pandering to special interests.  Lazewski writes of the California bill:

SB 4 would also make it clear that a foreign person could land at LAX, give Covered California a call and sign up for an almost full pay Platinum plan for a few hundred dollars a month, on the first of the following month when their coverage became effective show up at Cedars-Sinai Medical Center and have thousands of dollars of treatment, get back on the plane and go home, and then drop the coverage.

Why not? As long as the payments to Cedars-Sinai are bundled America should save money. Bundling also solves the problem of where to send the bill for political stupidity.  They can send it to Obamacare’s architects. There’s a discount for purchasing imbecility in bulk.



Margot Sanger Katz of the New York Times has written in general about the administration’s desire to substitute a new payment scheme, often called ‘bundled payments’ for the existing Medicare fee-for-service system. “Fee-for-service (FFS) is a payment model where services are paid for as itemized in the hospitals invoice.”

Theoretically, fee-for-service “gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care.”  Perhaps the most egregious example of overtreatment was the criminal behavior of Dr. Farid Fata of Michigan who gave more than 500 patients chemotherapy even when they did not need it in order to collect $35 million from Medicare.

Consequently, as Katz says, “for the first time, the Obama administration has deployed an important new power it has under the Affordable Care Act: proposing to pay doctors and hospitals based on the quality of care they provide, regardless of whether they want to be paid that way.”

It introduced two such programs this week. One would require all hospitals in 75 metropolitan areas to accept a flat fee for the costs associated with a hip or knee replacement — including the costs of surgery, medications, the joint implant and rehabilitation. And if the quality of the care is not judged to be good, Medicare will take back some of the money it paid. Another program would increase or decrease payments to home health agencies in nine states, depending on how they perform on certain quality measurements.

There is more than a little controversy over the legality of this scheme.  But the administration is set on making this mode of Medicare payment widespread as part of the president’s desire to put his mark on the healthcare industry.

The Department of Health and Human Services always had the authority to change the amounts it paid for certain services, but before Obamacare, it needed Congress to pass legislation to change the way it paid for them. …

These changes will allow the administration to reshape the Medicare program. The new payment rules, while guided by existing evidence, are still experimental — and are likely to anger Obamacare critics and members of Congress who would prefer to see major changes to Medicare enacted through legislation.

The proposal “does raise the question of how much legislative authority can be ceded,” Joseph Antos, a scholar at the conservative think tank the American Enterprise Institute, said in an email.

So much for the generalities.  The actual details of the CMS plans are in the Proposed Rule by the Centers for Medicare & Medicaid Services in the Federal Register. The present effort, called the Comprehensive Care for Joint Replacement (CCJR) is limited to treating knee and hip replacement conditions, which it calls LEJRs or lower extremity joint replacements because it appears to be a very definite, relatively simple and well understood course of cure.

One of the most important things to understand about the CCJR is that neither the hospitals nor the patients admitted to it have any choice in the matter.  Comparing the CCJR to earlier pilot projects, the Proposed Rule says “the CCJR model is different from BPCI because it would require participation of all hospitals (with limited exceptions) throughout selected geographic areas, which would result in a model that includes varying hospital types.”

The earlier programs were voluntary, but in the interests of realism, the CMS wishes to study a program in which membership is mandatory. “Most importantly, participation of hospitals in selected geographic areas will allow CMS to test bundled payments without introducing selection bias such as the selection bias inherent in the BPCI model due to self-selected participation.”

Not only will the hospitals have no choice but to participate, but so must the Medicare patients. In a section titled “Beneficiary Choice and Beneficiary Notification” the Proposed Rule says: (emphasis mine)

Because we have proposed that hospitals in selected geographic areas will be required to participate in the model, individual beneficiaries will not be able to opt out of the CCJR model when they receive care from a participant hospital in the model. We do not believe that it is appropriate or consistent with other Medicare programs to allow patients to opt out of a payment system that is unique to a particular geographic area. For example, the state of Maryland has a unique payment system under Medicare, but that payment system does not create an alternative care delivery system, nor does it in any way impact beneficiary decisions. Moreover, we do not believe that an ability to opt out of a payment system is a factor in upholding beneficiary choice or is otherwise advantageous to beneficiaries or even germane to beneficiary decisions given that this model does not increase beneficiary cost-sharing.

The other property of the new experimental bundle system is that the hospital -- not the doctor -- occupies the center of the system. The reason for this is simple.  The bundled services may involve several doctors and other medical personnel.  It may consume resources over a fairly lengthy period of time over several departments.  Therefore the only party that Medicare can possibly deal with is the hospital institution.  The doctor, previously the kingpin, plays the role of a faceless resource.

The hospital “starts the clock” in which the CMS has chosen to call “an episode” of treatment. It also “stops the clock” by discharging a patient.  The Proposed Rule says:

In view of our proposal that hospitals be the episode initiators under this model, we believe that hospitals are more likely than other providers to have an adequate number of episode cases to justify an investment in episode management for this model. We also believe that hospitals are most likely to have access to resources that would allow them to appropriately manage and coordinate care throughout the LEJR episode. Finally, the hospital staff is already involved in discharge planning and placement recommendations for Medicare beneficiaries, and more efficient PAC service delivery provides substantial opportunities for improving quality and reducing costs under CCJR.

We considered requiring treating physicians (orthopedic surgeons or others) or their associated physician group practices, if applicable, to be financially responsible for the episode of care under the CCJR Model.

In exchange for this primacy of place, the hospital was financially responsible for meeting the bundled payment cost targets. Called the “two-sided risk model” it put the institution on the hook whenever estimated costs were exceeded. In theory this incentivized the hospital to operate efficiently.  In actuality it put the bean-counters in charge of treatment. Each patient was not only someone to be cured but either a potential profit -- or loss .

We propose to establish a two-sided risk model for hospitals participating in the CCJR model. We propose to provide episode reconciliation payments to hospitals that meet or exceed quality performance thresholds and achieve cost efficiencies relative to CCJR target prices established for them, as defined later in sections III.C.4 and III.C.5 of this proposed rule. Similarly, we propose to hold hospitals responsible for repaying Medicare when actual episode payments exceed their CCJR target prices in each of performance years 2 through 5, subject to certain proposed limitations discussed in section III.C.8 of this proposed rule. Target prices would be established for each participant hospital for each performance year.

CMS granted a phase-in period as the institutions adjusted from fee-for-service to bundled payments, but after that period hospitals ultimately could not exceed the fixed price that CMS calculated they ought to spend to cure someone with a hip or knee problem.

we believe not holding hospitals responsible for repaying excess episode spending would reduce the incentives for hospitals to improve quality and efficiency. We also considered starting the CCJR payment model with hospital responsibility for repaying excess episode spending in performance year 1 to more strongly align participant hospital incentives with care quality and efficiency. However, we believe hospitals may need to make infrastructure, care coordination and delivery, and financial preparations for the CCJR episode model, and that those changes can take several months or longer to implement. With this consideration in mind, we propose to begin hospitals' responsibility for repayment of excess episode spending beginning in performance year 2 to afford hospitals time to prepare

Although hospitals were allowed to challenge the government’s rulings ultimately the bureaucracy had the last word. “If the participant hospital did timely submit a calculation error form and the participant hospital is dissatisfied with CMS's response to the participant hospital's notice of calculation error, the hospital would be permitted to request reconsideration review by a CMS reconsideration official. The reconsideration review request would be submitted in a form and manner and to an individual or office specified by CMS.”  The shift to a bundled payment scheme clearly represented an enormous increase in government power over the medical process.

Although the bundled payment system could reduce overtreatments of the sort represented by Dr. Farid Fata, they are not without their drawbacks.  The first problem has already been mentioned: doctors will lose clinical autonomy.

With hospitals in charge of bundling, there's a possibility that they'll try to influence how doctors practice. Michael Abrams, managing partner with Numerof and Associates, a St. Louis-based consulting firm, says hospitals will have to begin exerting more pressure on physicians to reduce variations in care in order to do well under payment bundling.

In fact the concept of “your doctor” may become entirely meaningless since it is the hospital and its procedures which is ultimately in control of the course of a patient’s therapies.  It has to be, if it is to maintain control of costs. In order to maintain reliable, repeatable costs treatments will be done according to a protocol. These protocols are literally drawn up by a committee and “sized” to meet the government reimbursement schedule.

They will tend to work well for the average patient, in the same way that ready to wear clothing fits the average customer.  Like ready to wear clothing, CMS provides for an “adjustment” process to take certain factors into account, much in the same way an alterations department fixes the length of department-store bought clothing. But there will be many patients for which it will not be suited or wholly inappropriate.

As the Healthcare Blog notes, reviewing past CMS bundled payment experiments, “the true benefit of bundling payments derives from reengineering care delivery, not from combining separately paid line items into a single tab.”  The bundled care approach of which the knee and hip replacements represent the tip of the iceberg, are not merely another way of billing, they are a cost-reducing approach to medicine itself.

But as some doctors have noted hip and knee replacements are atypical of general medicine. “The bundled payment concept works well for orthopaedic surgery procedures, many of which have clearly defined episodes of care and similar related usual expenses.”  Generalizing from this special case to the whole of medical practice is like trying to calculate the average height of the population by measuring players in the NBA.

Given the enormous cost of creating the administrative network to collect data, enforce standards, generate protocols, maintain uniformity, etc, is it worthwhile designing a system that works only with hip and knee replacements when it is inapplicable in the majority of cases?

“At best, it’s going to affect a relatively small percentage of spending,” says Bob Berenson, a policy fellow at the Urban Institute. “It’s one of the issues I’ve always been concerned about — if it’s only for a small number of conditions, is it worth all the administrative difficulty?”

In the California study, the few health-care organizations that embraced bundled payments chose to process bills manually because the custom-made software necessary to process bundled claims cost more than $1 million, [Susan Ridgely of RAND] said.

For bundled payments to pay off, a health-care provider has to treat a minimum number of patients. Below that threshold, the administrative costs could be too much of a burden, Ridgely said.

Only very small parts of the medical process have any hope of standardization. If as Dr. Tom Coburn, former Senator from Oklahoma stated in testimony before the Senate Subcommittee on Space, Science and Competitiveness said that “personalized treatment” is the wave of the future, then CMS is building an industrial age medical system for a 21st century world.

If the nightmare of fee-for-service is Dr. Farid Fata, the dystopian future of bundled medicine is the hospital factory where patients come in at one end and are protocoled out the other.  Medical reform must be more than a choice between two evils.  There is little benefit to avoiding Scylla only to fall victim to Charybdis.

Unsustainable Medicaid Expansion


The debate over state Medicaid expansion continues. Those favor expansion, like Michael Ollove, argue that by refusing to expand the program, states have to continue to pay for uncompensated care in their states as hospitals care for the people who are either uninsured or unenrolled in Medicaid expansion.

Dallas County property owners paid more than $467million in taxes last year to Parkland Health and Hospital System, the county’s only public hospital, to provide medical care to the poor and uninsured.

Their tax burden likely would have been lower if the state of Texas had elected to expand Medicaid, the federal-state health insurance program for low-income people. If more low-income patients at Parkland had been covered by Medicaid, then federal and state taxpayers would have picked up more of the costs.

Elsewhere in Texas and in most of the 20 other states that have chosen not to expand Medicaid, residents pay local taxes to help support hospitals that care for uninsured people. On top of that, they pay a portion of the federal taxes that help subsidize Medicaid in the 29 states and District of Columbia that did expand the program to cover more people — places where residents can expect to see lower local taxes as more people become insured.

Ollove repeats the often made argument that states who refuse expansion are missing “their share” of federal taxes that are collected from them and are then spent in other states which expand Medicaid -- what one pundit called the Red States subsidizing the Blue.  The administration has reinforced the message by refusing  to return the taxes in forms requested by the states. Phil Galewitz of Kaiser Health News says Washington is threatening to cut off state programs that have long been funded by federal money insisting that they be replaced by 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 Texas funding is scheduled to end in September 2016. Officials there have also expressed indignation at what they perceive to be coercive pressure and talked about joining Scott’s lawsuit.

Kansas Medicaid officials said they received about $45 million this year in federal funding for their state uncompensated care program, which began in 2013 and is slated to continue through 2017.

Tennessee Medicaid spokewoman Kelly Gunderson said her state gets over $750 million in federal funding to cover uncompensated care.

It’s the Medicaid expansion Obamacare way for the states or no way and the administration is not shy about browbeating those who disagree.  Unfortunately, falling in with the administration’s strategy has its pitfalls too. States which got all that “free money” from the federal government have found that it has put them on the hook for unsustainable expenses which threaten to destroy their budgets.

Medicaid enrollment in expansion states has risen to levels much higher than predicted.  As the number of enrollees rose, so did the costs. Now, with the sunset of full federal funding, the states are being stuck with a gigantic Medicaid expansion population they can’t afford.  Christina Cassidy of ABC News reports:

More than a dozen states that opted to expand Medicaid under the Affordable Care Act have seen enrollments surge way beyond projections, raising concerns that the added costs will strain their budgets when federal aid is scaled back starting in two years.

Some lawmakers warn the price of expanding the health care program for poor and lower-income Americans could mean less money available for other state services, including education.

In Kentucky, for example, enrollments during the 2014 fiscal year were more than double the number projected, with almost 311,000 newly eligible residents signing up. That's greater than what was initially predicted through 2021. As a result, the state revised its Medicaid cost estimate from $33 million to $74 million for the 2017 fiscal year. By 2021, those costs could climb to a projected $363 million.

"That is a monstrous hole that we have got to figure out how to plug, and we don't know how to do it," said Kentucky state Sen. Chris McDaniel, a Republican who leads the Senate budget committee and opposed expansion. "The two biggest things that keep me up at night are state pensions and the cost of expanded Medicaid."

One of the states being overtaken by the tsunami is Oregon, which was once a poster state for the Obamacare exchanges, as this article from the Associated Press explains:

SALEM, Ore. (AP) - Amid the embarrassing collapse of Cover Oregon, the state's failed health insurance enrollment website, then-Gov. John Kitzhaber and lawmakers found solace in an unrelated success - a massive hike in enrollment in the Oregon Health Plan.

The Health Plan is Oregon's Medicaid program, and as hundreds of thousands of people became newly eligible last year under President Barack Obama's health care law, most of them signed up. In the first year, enrollment was 73 percent higher than anticipated, according to data from the Oregon Health Authority.

The bill will be soon be coming due, however, as the state begins sharing the costs. The Affordable Care Act said the federal government would cover 100 percent of medical costs only until 2017, when its share would begin dropping to 90 percent. …

The 2013 report estimated that the Medicaid expansion would cost the state $217 million in the 2017-2019 biennium, the first full two-year budget cycle in which the state begins shouldering some of the costs.

The Oregon Health Authority now projects it will cost $369 million, about 70 percent more.

By 2020, Medicaid's share of the total state budget is projected to grow from the current 6.2 percent to nearly 10 percent.

The figures assume the federal government doesn't change the state's share of the price tag and that Oregon doesn't take other actions to reduce the cost of Medicaid, such as reducing payments to doctors.

The same thing is happening in Michigan. “LANSING, Mich. (AP) - Enrollment in Michigan's expanded Medicaid program is a quarter higher today than what officials thought it would be five years from now, which will squeeze the budget starting in 2017.”

Gov. Rick Snyder's administration initially estimated 477,000 enrollees by 2020. But 600,000 have signed up more than 15 months after the Medicaid expansion launched.

Officials expect enrollment to hover there in the future.

The U.S. government is covering the cost of expanded Medicaid the first three years. Michigan must start contributing in 2017 and cover 10 percent by 2020 and each year after.

The Snyder administration estimates roughly $120 million in additional budget costs over four years due to the higher-than-expected enrollment, but says insuring more people will minimize uncompensated care costs and save money across the health system.

The arithmetic of the situation is simple.  Nobody got a free lunch.  The states which refused to expand Medicaid got taxed by the federal government which then took the money and created a bubble of “free healthcare” in expansion states which ultimately could not be sustained.  Since over 70% of Obamacare consists of Medicaid expansion, most of the ACA’s gains simply cannot be supported over the long haul without new taxes.

Medicaid expansion has created a ticking timebomb.  Hundreds of thousands of people who are newly enrolled in the expansion program will naturally resist any effort to cut back their benefits.  But their benefits cannot be maintained by endless federal subsidies.  Nor can the states pick up the slack.  The inevitable result will be financial crisis as the administration made a promise that it ultimately could not keep.

The Company Store


The scattered and anecdotal impression that Obamacare networks are narrower than previous health insurance plans has been quantified by a study conducted by Avalere.  The reduction in available services affects key areas like cancer and vascular specialists, but it also touches more basic areas of medicine like primary care.

Obamacare enrollees get to choose from fewer doctors and hospitals than typical health insurance plans, according to a new study.

Plans offered on Obamacare insurance exchanges offer 34 percent fewer providers than the average plan offered outside the exchanges, an analysis released Wednesday by the research firm Avalere Health found. ...

Specifically, exchange networks offer 42 percent fewer oncology and heart specialists, 32 percent fewer mental health and primary care providers and 24 percent fewer hospitals, Avalere said.

The study examined five states, Florida, California, Texas, Georgia, and North Carolina. “In each of these rating regions, Avalere compared the average number of providers included, for each of the five provider types examined, in exchange networks compared to commercial networks in the same geographic area. Commercial network data includes plans offered in the group and individual markets outside the exchange.”

Russ Britt of Marketwatch says narrow networks are not necessarily a bad thing -- if they lead to lower premiums.  They have not.  Robert Reich, who was Secretary of Labor under a Democratic administration, wrote that healthcare monopolies have only grown under the Affordable Care Act. Things are so bad that patients are bound for disaster unless the government replaces Obamacare with a Single Payer system.

Insurers are seeking rate hikes of 20 percent to 40 percent for next year because they think they already have enough economic and political clout to get them.

That's not what they're telling federal and state regulators, of course. They say rate increases are necessary because people enrolling in Obamacare are sicker than they expected, and they're losing money.

Remember, this an industry with rising share values and wads of cash for mergers and acquisitions.

The narrowing networks, the reduced number of healthcare providers and rising prices taken together constitute what used to be called The Company Store.  Obamacare is moving the American medical system in the direction of that reviled institution which historically offered narrow choices at high prices and which became notorious in folklore and in song.

A company store is a retail store selling a limited range of food, clothing and daily necessities to employees of a company. It is typical of a company town in a remote area where virtually everyone is employed by one firm, such as a coal mine. …

Company stores have had a reputation as monopolistic institutions, funnelling workers' incomes back to the wealthy owners of the company. Company stores often faced little or no competition and prices were therefore not competitive. Allowing purchases on credit enforced a kind of debt slavery, obligating employees to remain with the company until the debt was cleared.

Obamacare, like the company store, is built on compulsion. There’s no escape from Obamacare’s mandates even if you’re a conscientious objector. A federal appeals court ruled that the Little Sisters of the Poor aren’t exempt from Obamacare's Birth-Control Mandate. The Individual Mandate and the Employer Mandate are yet other mechanisms to ensure that you can go anywhere you like, as long as it is to the Obamacare establishment.

Peter Lee of Covered California, an Obamacare exchange, argues that narrow networks don’t matter because you can find a doctor anyway if you try hard enough.

However, Peter Lee, executive director of Covered California, the Obamacare exchange in California, says Avalere’s findings can be easily misconstrued. While the average exchange may have fewer doctors than a commercial plan does, consumers in either program are getting equal access to health care.

“The headlines scare consumers,” Lee said. “I don’t think it adds to a better understanding. It puts smoke, rather than light, on the topic.”

Lee points to a May study in Health Affairs magazine that says there is “no substantive” difference in geographic access to hospitals for those in public exchanges or commercial networks. At the same time, the Commonwealth Fund said that 77% of Obamacare exchange enrollees found it “very easy” or “somewhat easy” to find a doctor.

Finally, a recent survey from the Kaiser Family Foundation found that 91% of Covered California participants were able to find a doctor geographically close to them, identical to the proportion of those in employer-sponsored commercial plans, Lee said.

“We are no longer talking about Obamacare or the Affordable Care Act,” Lee said. “We’re talking about health care in America.”

And if you loaded 16 tons of coal, you could feed yourself at the company store.  The point of the Avalere study was the direction in which change was occurring.  People were going from more to fewer choices.  Only in Peter’s mind could this be progress.

The rise of monopolies that Robert Reich decries is accomplished through mechanisms that ‘lock-in’ a person’s paycheck.  One of the most efficient ways of taking a person’s money is through taxation and Obamacare is a trillion dollar tax consisting of 21 separate subtaxes. The next step is to disburse the wages in scrip, or any other restricted form of money.  The government calls these subsidies.  Some of the tax moneys come back, but it can only be spent in the Obamacare story.  This meets the classic definition of scrip.

“Company scrip is scrip (a substitute for government-issued legal tender or currency) issued by a company to pay its employees. It can only be exchanged in company stores owned by the employer.”  The subsidies handed out as tax credits can be applied only to Obamacare products.

Coal scrip is "tokens or paper with a monetary value issued to workers as an advance on wages by the coal company or its designated representative". As such, coal scrip could only be used at the specific locality or coal town of the company named. Because coal scrip was used in the context of a coal town, where there are usually no other retail establishments in that specific remote location, employees who used this could only redeem their value at that specific location.[6] As there were no other retail establishments, this constituted a monopoly. The country musician Merle Travis makes a reference to coal scrip in the song, "Sixteen Tons" on the Folk Songs of the Hills album.

You load sixteen tons, what do you get

Another day older and deeper in debt

Saint Peter don't you call me 'cause I can't go

I owe my soul to the company store

The Avalere study shows exactly what is happening to American healthcare in the age of Obama.  Higher premiums and increasing deductibles are being matched by narrowing networks.  You pay more, but get less.  You owe your soul to the company store.

The Facade


There have been a number of news stories about the susceptibility of Obamacare to fraud, focusing on a GAO report in which testers hired to scam the system did so with a relatively high success rate.  In the test, 11 out of 12 fraudsters successfully participated in the system and received copious benefits without being flagged by any of the checks.

Last year, the GAO set up a “secret shopper” undercover investigation. The agency created 12 fake identities to attempt to obtain healthcare premium subsidies through the website. Over the internet and on the telephone, the federal exchange approved 11 of the 12 fraudulent applications, according to the report. The government then doled out $2,500 per month or $30,000 per year in credits for insurance policies for these fabricated people.

The chief GAO investigator Seto Bagdoyan will testify Thursday that the website’s document processor is not required to detect fraud. Undercover investigators supplied fabricated documents, including proof of income and citizenship, even fake Social Security numbers which were accepted with no questions asked.

The failure was not simple bad luck.  It was the result of a systemic weakness. The article continued:

Even though GAO presented its undercover investigation at a hearing last year, the agency re-enrolled the 11 fictitious applicants this year, never getting detected by so-called system safeguards. In one case, GAO did receive a letter threatening to cancel coverage on one of its fake applicants. But guess what? Nothing happened. Both the coverage and the financial credits continued.

A few months ago, half of the fictitious applicants received notices that they were being terminated for failing to submit documentation with their re-enrollment. Investigators finally thought their scam was uncovered. But when investigators called the exchange, they were able to reinstate 10 fake applicants and get even higher subsidy amounts, the GAO report says.

The Business Insider described how nearly blind the system was to the deficiencies of the fraudsters.  “It's unclear whether the fictitious enrollees would have been kicked out of the program eventually. For example, no tax returns were filed on behalf of any of them. Since health insurance subsidies are income-based, tax returns are one of the main ways the government checks applicants.”

While most of the stories focused on the outrageousness of the frauds, relatively little attention was paid to the causes of the system’s weakness. But an examination of the root cause of vulnerability uncovers a scandal bigger than the fraudulent applications themselves.

Obamacare’s “back end” or data system is apparently not yet completely built.  In February, 2015 a relatively unnoticed article in Politico said: “Behind the curtain, troubles persist in”.

The “back end” of the Obamacare website still isn’t properly wired to the health insurance companies. … Even though consumers had a largely smooth enrollment experience this year, the fact that these gaps persist behind the scenes 18 months after launched shows that the system is still not working as intended. Instead of a swift process, health plans use clunky workarounds and manual spreadsheets. It takes time and it costs money.

These manual workarounds make automatic data checking (which would have uncovered the frauds) largely nonfunctional.  The system cannot tell when it is being scammed.  This back end weakness will exist until at least 2016.

The manual system has been in place since January 2014, and there’s no clear date for when the automatic process will replace it. A CMS official said the agency is beginning to test out the automated system with companies.

“There’s just going to be a whole lot more workarounds and paper clips and rubber bands for at least another year to get this stuff all sorted out,” said John Gorman, executive chairman of Gorman Health Group, which works with insurers.

And just last Friday, the administration announced that it would delay for another year the process of reconciling the second — smaller — set of subsidies paid to insurers. Those reduce the out of pocket costs of certain lower income Obamacare enrollees. Federal officials think the health plans are estimating wrong, so they’ve given them until April 2016 to work it out.

As late as mid-June, 2015 the back end was still not working.  Adam Mazmanian of FCW, which concentrates on technology issues wrote: “Back-end of remains in development”.

More than 20 months after its troubled launch, the system still lacks an automated financial back end. That is a key takeaway from an internal watchdog report that examined the processes in place at the Centers for Medicare and Medicaid Services to reconcile payments to insurance carriers to cover health care subsidies under the 2010 health care law.

The need to get the program working immediately led to a decision to pay insurance companies even if the data could not be checked by functioning data system. They simply went ahead and cut the checks, trusting to luck or perhaps the forebearance of the US taxpayer, for their protection.

Under the law, insurance companies get advance payments for certain subsidies to cover the costs of coverage for low-income enrollees. Because launched without financial reconciliation functions, CMS relied on non-automated processes to handle advance payments to insurance companies to cover premium subsidies in the form of advance tax credits, and payments to cover subsidized out-of-pocket expenses. These cost-sharing reductions are paid in advance based on estimated costs and carrier attestations of enrollment.

The Office of the Inspector General at the Department of Health and Human Services examined the financial reconciliation process for payments made to insurance carriers between January and April 2014, and found that internal controls to check for errors in payment were "not effective."

“Not effective” is another way of saying the back end doesn’t work. This is the root cause of Obamacare’s failure to spot 11 out of 12 scammers.  This is the reason why the scammers could not only endure a year’s worth of scrutiny, but persuade the system to increase the unlawful payments to them.

Overall, the OIG report suggests that as much as $2.8 billion in payments to carriers were "at risk," given the ineffective controls. Auditors could only identify about $314,000 in underpayments for cost-sharing reductions, but noted that they could not verify that any of the payments were made correctly because of the lack of a system in place to directly confirm enrollment numbers.

Without a backend, CMS is essentially like a ship without a compass.  It has no clear idea, short of resorting to laborious manual checks, who it is paying because there’s no way to cross-check.  The assurances of Obamacare administrators asserting they are on top of the situation are completely hollow.

CMS acting Administrator Andy Slavitt said in reply comments, "While CMS lacks fully automated payment systems, it has implemented a rigorous and effective set of internal controls to make accurate payments."

How would Slavitt know if his “internal controls” were working if “CMS lacks fully automated payment systems”?  He is certainly not going to resort to manual methods.  Not surprisingly “the OIG report recommends that CMS implement IT solutions to automate payment processing and enrollment verification.”

The Obamacare system is a Potemkin village.  It is like a Western movie set where the entire town consists of a fake facade with nothing behind it. It remains extraordinarily vulnerable to fraud.

Bundled Payments


Money continues to be the main worry of Obamacare. Merrill Matthews of the Atlanta Journal Constitution writes that Obamacare may become so badly bankrupted and expensive the only way for conservatives to save anything from the wreckage will be to embrace Single Payer.

Democrats knew they couldn’t pass a single-payer system, so they rammed through a convoluted mishmash that keeps the veneer of private-sector insurance but tries to make it work like Democrats think it should.

Now premiums are exploding for millions (including my family); millions can no longer see the doctor(s) they want; millions have chosen very high-deductible policies and are having to go to free clinics because they can’t afford the out-of-pocket costs; insurers and hospitals are merging so they can cut overhead costs and raise prices; nearly all of the insurance “co-ops” are financially under water; and most states that created their own insurance exchanges are complaining they can’t afford to fund them.

The Affordable Care Program has been playing the latest version of “hurry up and wait”, in this case called “subsidize and save”.  After literally forcing billions of dollars on States unwilling to expand Medicaid and surviving lawsuits challenging Washington’s power to give away money, the search is on for finding ways to pay for it.

The latest Obamacare scheme to save money is the “bundled payment”, which Margot Sanger Katz describes in the New York Times.

For the first time, the Obama administration has deployed an important new power it has under the Affordable Care Act: proposing to pay doctors and hospitals based on the quality of care they provide, regardless of whether they want to be paid that way.

It introduced two such programs this week. One would require all hospitals in 75 metropolitan areas to accept a flat fee for the costs associated with a hip or knee replacement — including the costs of surgery, medications, the joint implant and rehabilitation. And if the quality of the care is not judged to be good, Medicare will take back some of the money it paid. Another program would increase or decrease payments to home health agencies in nine states, depending on how they perform on certain quality measurements.

It’s not even clear that the Obama administration has the power to do this, but that little detail never stood in its way.  

The new payment rules, while guided by existing evidence, are still experimental — and are likely to anger Obamacare critics and members of Congress who would prefer to see major changes to Medicare enacted through legislation.

The proposal “does raise the question of how much legislative authority can be ceded,” Joseph Antos, a scholar at the conservative think tank the American Enterprise Institute, said in an email.

There will most likely be other such programs activated before President Obama leaves office. The administration has pledged that a majority of medical payments will include some measure of “value” by 2018.

Dan Diamond, who follows health issues, thinks the main reason for the new methods of payment, apart from attempting to save money, is to change the structure of the American health industry to resemble what Merrill Matthews has already described: a kind of half-baked Single Payer.

There's a bigger policy and political context here: Medicare is under pressure to hit ambitious, Affordable Care Act-related goals to change the way it pays providers. And there's no guarantee the next president will want to continue with the ACA and all of its reforms, so the Obama administration does need to start mandating changes — rather than trying to push hospitals, doctors, and other providers to make changes voluntarily — if they want their ideas to stick.

In order to accomplish this, the administration has decided to start where they are most likely to succeed: hip replacements. Peter Orszag in the Bloomberg View lays out the plan.

Sylvia Burwell, the secretary of health and human services, just took a big step toward controlling health-care costs: She proposed fixed Medicare payments for all the costs associated with hip and knee replacements in 75 metropolitan areas. If we really want to control health-care spending, changes like this -- payment that rewards value, not volume -- need to become the norm.

In January, Burwell set goals for Medicare: By the end of 2016, 30 percent of payments are to be based on value, and 50 percent by the end of 2018. To get there, we won't be able to rely exclusively on voluntary programs, in which providers choose whether or not to shift to value-based payment. Instead, Burwell needs to use her statutory authority to introduce mandatory, and preferably national, programs.

Bundled payments do not pay providers per procedure.  Rather they pay providers to cure a condition.  By starting the new system with hip and knee replacements paying for the cure is very nearly identical to paying for a procedure, in this case a hip or knee replacement operation.  While it is true that variations in cost exist when the treatment is calculated on a fee-for-service basis, knee and hip replacement treatments are more homogenous than many other diseases.

A 2011 study found wide variation in Medicare's payments for hip replacements, too: The most expensive fifth of hospitals had average costs that were almost $7,000 higher than hospitals in the cheapest fifth, even after adjusting for regional price differences and the severity of the patients' condition. (This variation isn't limited to Medicare. A January 2015 Blue Cross Blue Shield study found substantial variation in commercial insurance payments for hip and knee surgery.)

A big reason for this variation is that Medicare typically pays for each individual service or test associated with the surgery, rather than paying for the entire episode in one fixed payment. Paying piecemeal creates an incentive to tack on unnecessary services and diffuses responsibility for the overall results, which means costs are higher than necessary and quality is harmed. …

Here's how it works. Medicare will pay a fixed amount for all the care provided within 90 days following a hip or knee surgery. Bonuses will be available for hospitals that both reduce costs and exceed quality thresholds. At the beginning, hospitals will simply share in any savings, but over time they will also owe Medicare money if their costs are too high. (Evaluating quality should include knowing exactly which artificial hips and knees were implanted.)

Bundled payments are not without disadvantages.  They are hardly new,

In the mid-1980s, it was believed that Medicare's then-new hospital prospective payment system using diagnosis-related groups may have led to hospitals' discharging patients to post-hospital care (e.g., skilled nursing facilities) more quickly than appropriate in order to save money.  It was therefore suggested that Medicare bundle payments for hospital and posthospital care;  however, despite favorable analyses of the idea, it had not been implemented as of 2009.

The major problem was that bundled payments worked against the nonstandard patient, such as the patient with an adverse reaction to the treatment, or who is nonresponsive to the protocoll.  Very often patients have multiple diseases or conditions with overlapping symptoms that are hard to assign to bundles.

In such cases, the bureaucrats may regard the patient as “treated” -- having consumed the bundle -- but in actuality still not well. In order to score well, providers might discriminate against complex cases.  Essentially, providers will only accept the “easy to treat” and dump the difficult patients if they know the cost of treating them will exceed the amount that Medicare will reimburse.

But these issues may be of secondary interest to the administration.  The main attraction of bundled payments is that it provides another opportunity to expand government power. Whatever savings it can provide are of subsidiary importance.

Fata Attraction


The saga of Dr. Farid Fata, a Michigan oncologist who provided inappropriate or medically unnecessary chemotherapy to over 500 patients has gripped the headlines.  The stories have largely focused on the human suffering and death that Fata caused.  The judge allowed victims, many without teeth or suffering from debilitating side effects from unnecessary treatments, to describe the injuries they had sustained at the hands of the monstrous doctor.  

His actions wrecked his patients' health, with many sustaining chronic health problems such as brittle bones and fried organs. Other victims lost their homes and jobs, and were forced into bankruptcy.

On Friday, Fata broke down in court as he was sentenced to more than four decades in prison for what the judge described as a 'huge, horrific series of criminal acts' that had affected hundreds.

The doctor had remained stone-faced earlier in the week as his former patients had appeared in court to detail the shocking consequences of being put through unnecessary chemotherapy.

But during his sentencing, Fata - whose business, Michigan Hematology Oncology, had many upscale offices in the area - repeatedly broke down in loud sobs as he begged for mercy.

But apart from the human tragedy, the medical malpractice, the Fata story is an account of Medicare fraud. Some outlets, like ABC News, keep referring to the crime as “insurance fraud”, but as a team of writers from the Wall Street Journal argue, it was primarily Medicare fraud.

Farid Fata, an oncologist in Rochester Hills, Mich., injected more beneficiaries with a bone-marrow stimulant—used to reduce the risk of infection in chemotherapy patients—than any other provider in the Medicare data. He was paid $1.3 million for those injections in 2012.

Dr. Fata received more than $10 million from Medicare in 2012, ranking him the highest-paid oncologist and 7th-highest overall among individual health providers in terms of payment.

In August 2013, Dr. Fata was indicted on a charge of defrauding Medicare. Prosecutors accused him of submitting "claims for services that were medically unnecessary," including administering chemotherapy "to patients in remission." Dr. Fata pleaded not guilty. Mark Kriger, a lawyer for Dr. Fata, declined to comment.

A followup article by the WSJ noted that “court documents show more than three quarters of the Michigan Hematology Oncology practice was based on Medicare billing, totaling more than $35 million over a two-year period, including $25 million directly attributable to Dr. Fata.”

The fraud was at the hard evidence level, buried deep down in the records.  One of the men most responsible for uncovering Fata’s wrongdoing was another doctor, Dr. Soe Maunglay.  Maunglay was a new hire in the Fata’s practice but was exiled to a distant part of the Fata’s medical empire when he grew suspicious about the strange goings on. When he came across a patient being treated for cancer despite lacking any indications of the disease, Maunglay, in the best Hollywood tradition, closeted himself with the files.

On July 5, 2013, Maunglay took a deep dive into the patient's records. In the privacy of the MHO Clarkston office, he pored through the file, recorded on computer and in handwritten notes, seeking some justification for Fata's course of treatment. But every test result in the medical history confirmed his original reaction in the hospital: Flagg was being deliberately treated with high-risk drugs for a disease she did not have.

So over the 4th of July weekend, Maunglay realized he needed to find "very solid, very objective" evidence of wrongdoing, an anomaly that even a layperson might understand readily. But he worried, too: "What if this takes six months? What if I can't find it?

The turning point came when Maunglay secretly found allies among others in Fata’s staff.  Some had inwardly harbored suspicions but had kept it to themselves.  Now, by pooling information they could see their private misgivings were in fact shared by others.  Then, like Eliot Ness going after Al Capone, the doctors found a lever to bring Fata down: not medical malpractice, which was hard to prove, but Medicare fraud which was a much easier to understand offense.

Hindsight may be laser-sharp, but Fata had withstood auditing from insurance companies, at least one malpractice lawsuit, state regulators and the scrutiny of other doctors in and outside his practice for a decade. He had dispensed cruelty as casually as Tylenol, without anyone catching him. Maunglay had witnessed some of his techniques: He had been kept from Fata's patients entirely, except for cursory interactions. "If a patient has a cough that worries him, he would have the patient drive 30 minutes to his office instead of coming to me in five minutes," says Maunglay. …

Knowing that he needed allies, he described his concerns to an infusion nurse and a nurse practitioner, sharing details about the excessive use of IVIG, and persuading them to intervene (The nurses would not comment for this story.) At least one of them confronted Fata directly, before resigning. "At that point, Fata is kind of caught," says Maunglay, saying Fata agreed to stop using IVIG except in cases where there were clearly accepted medical reasons for doing so. To Maunglay, that in itself was further proof of Fata's deceit.

Even then, though, there was no clear way forward: Maunglay had reported some of his concerns to George Karadsheh, the practice manager, who was not a doctor. After the IVIG treatments stopped, he and Karadsheh met again in the Clarkston office. Together, they looked at a month of patient records, everyone who had IVIG, pulling up the records on Maunglay's computer monitor. "It was, 'Look at this. Some patients are correct then, look, this one does not meet the criteria. Look, this is Medicare fraud.' "

"He was convinced and revealed to me that he had experience reporting Medicare insurance fraud ... and he understands the seriousness of the fraud and abuse," Maunglay wrote, in a recent email. Karadsheh had, in 1996, uncovered fraud at Detroit's Lafayette Clinic and reported it under the False Claims Act, the federal whistle-blower law. …

At 8 p.m. Aug. 5, Maunglay arrived home from work to find his wife introducing him to visitors: two federal agents, one from the FBI, another from the federal department of Health and Human Services.

"I've been waiting for you guys," he said, with a slight smile.

At 7 a.m. on Aug. 6 — not even 12 hours later — agents arrested Fata in his Chevy SUV. By the time Crittenton Cancer Center staff arrived at work, federal agents already were swarming the office. "They did not let another drop of chemo go into anyone. They just pulled the plug," Maunglay says.

The drama left one crucial question.  How could the government -- which paid Fatah $35 million to essentially poison patients -- have been so completely fooled.  What would have happened without a whistleblower?  How long could it have gone on?  Medicare fraud consumes nearly one in ten of payments made by the program.  “According to the Office of Management and Budget, Medicare "improper payments" were $47.9 billion in 2010, but some of these payments later turned out to be valid.[1] The Congressional Budget Office estimates that total Medicare spending was $528 billion in 2010.

The Wall Street Journal, which was one of the first to sniff out the extraordinarily high billings that Fata charged to the program also anticipated in 2013 that Obamacare might indirectly lead to more such fraud.  The reason? Rising complexity would make it easier to hide fraud in the rambling castle of regulations. In an article titled “Fraudsters Are Exploiting New Health Law” Anne Tergesen wrote:

During the past year, scams tied to Medicare have risen sharply as con artists have sought to exploit confusion among older individuals about the Affordable Care Act, commonly known as Obamacare. …

In the months preceding the Oct. 1 opening of the state-based health-insurance exchanges, consumer complaints about Medicare—many alleging fraud—soared. In September alone, consumers filed almost 2,000 such complaints with the Federal Trade Commission, up from 57 in January 2012. An additional 58 complaints filed this year have mentioned the ACA, up from two in 2012.

The trend has prompted the FTC and nonprofit organizations—including the National Consumers League, the Better Business Bureau and the Coalition Against Insurance Fraud—to issue warnings in recent months about health-care scams that target the elderly.

None of the scams cited by the WSJ were employed by Dr. Fata to advance his evil schemes.  What Fata did use, however, was consolidation.  By becoming something of an integrated health care provider, Fata was able to control most aspects of his victim’s treatment.  This made it harder for outsiders to see what was going on because most of the information stayed within his purview.  Ed Cara of Medical Daily has the most detailed post-mortem of how the crooked doctor did it.

He deflected suspicion from the rituximab patients and medical staff by claiming that it was a part of a revolutionary “European” or “French” protocol, even going so far as to forge a medical paper after his arrest that supposedly proved the value of sustained rituximab use. Elsewhere, he kept a tight leash on information by denying patients access to their full medical files — important for seeking a second opinion — and he demanded that other physicians stay in constant contact with him when they took care of his patients during rounding duties at the seven hospitals he had admitting privileges at, while sharing little about his own treatment plans.

The regulators did not do a very good job of detection. Even after a nurse reported Fata to the Medical Board, no official action was forthcoming.

Angela Swantek, a nurse who had exclusively worked in oncology for the past 19 years, went in for what she thought would be a routine job interview with Fata in the early spring of 2010. By the end of it, she left dismayed over the medical care she saw administered to patients. “It was just one thing after another,” she told told The Detroit News.

Swantek, after a first day of interviewing, returned later in the week to one of Fata’s offices to observe a nurse during her rounds. Before long, she saw people hooked up to infusion chairs being slowly pumped full of drugs that were meant to be given via a quick injection into an IV, and other treatments like Neulasta, a human growth factor, being given immediately after chemotherapy, instead of after 24 hours as recommended. Any trained professional should have instantly seen these procedures as inappropriate and even dangerous, yet when Swantek brought it up, all she got from the nurse on staff was indifference. "That’s just the way we do things here," she recalls being told.

Swantek reported her suspicions to the Bureau of Health Professions that March. "I feel this physician is doing more harm than good to his patients and needs to be investigated by the State, OSHA [Occupational Health and Safety Administration], Medicare, and BCBS [Blue Cross Blue Shield]," she wrote. More than a year later, in May of 2011, she received a letter from the state-run Department of Licensing and Regulatory Affairs (LARA, which manages the Bureau of Health Professions) telling her that an investigation had cleared Fata of any wrongdoing. But, Swantek says, the state never actually reached out to her.

Fata’s staff actually began to sabotage his malpractice in a kind of passive resistance to his methods. It is evident that Fata’s crime was not simply the case of individual evil but systemic dysfunction.  It ended when enough people refused to go along and, led by an MD, Dr. Soe Maunglay, finally nerved itself to revolt.

As the prosecutors noted in their memo, several nurses and doctors of Fata’s practice knew enough to begin actively working around his methods. One nurse defied his orders and released full medical files to his patients; employees would question the unofficial policy of routinely scheduling iron transfusions before any lab work indicating their need had been performed; and at least one doctor was reluctant to ever provide referrals to an inadequate hospice care agency that bribed Fata in exchange for recommendations. Some even resigned or found other jobs in order to avoid working with him, but many did what was asked of them or turned a blind eye.

As reported by the Detroit News’ Laura Berman, one of these employees, Dr. Soe Maunglay, eventually reached their breaking point in July 2013. For the previous 11 months, Maunglay had been working for Fata’s practice, Michigan Hematology Oncology (MHO), and from the very beginning, their relationship had been rocky. Fata assigned Maunglay to a location and hours that kept him far away from his own patients when Maunglay requested that a physician be present anytime a patient was undergoing chemotherapy soon after he arrived. And his suspicions further developed after he caught Fata lying about MHO having already obtained certification from the Quality Oncology Practice Initiative (QOPI) program when it actually hadn’t. His growing frustration with Fata led him to tender his resignation for that upcoming August.

Dr. Farid Fata was “too profitable to jail”.  He “deliverd” care.  He prescribed drugs.  He referred people to crooked hospices and similar institutions.  He was part of a great big system of government funded -- Medicare funded -- healthcare, which like Dr. Fata’s former empire, is consolidating itself into ever more monolithic providers.  For the key to fraud was controlling the information within an integrated environment.

The potential for abuse grows when a medical practice becomes vertically integrated and starts owning or selling services tangentially related to their specialty, such as Fata’s did. Though he only owned United Diagnostics for a few months before his arrest, he endlessly pushed patients to delay obtaining PET scans until the building opened in July of 2013, enlisting staff members to lie to them about the lack of urgency for such a screening.

At least one nurse went behind his back and gave out referrals to other diagnostic facilities, but by all indications, these underhanded acts drew no concern from any outside sources — nothing was noted by his suppliers, insurers, or the hospitals he had affiliations with. …

In the two years since Fata’s scheme was finally brought to a halt, the government has made earnest attempts to patch up some of the holes that enable medical corruption to fester unnoticed. With the implementation of the Affordable Care Act came the Physician Payments Sunshine Act in 2014, which requires drug and medical product manufacturers who are reimbursed by federal healthcare programs like Medicare to report any financial payments or services they provide physicians and teaching hospitals. It's a valuable resource that allows everyone, patients included, to look in and determine if a doctor or hospital is beset by potential conflicts of interest, according to Dr. Evans.

This was a known danger against which the Physician Payments Sunshine Act was enacted as part of the Obamacare package. “The Sunshine Act was first introduced in 2007 by senior US Senator Charles Grassley, a Republican from Iowa and Senator Herb Kohl from Wisconsin, a member of the Democratic Party.  The act was introduced independently and failed. After debate by various groups  it was enacted along with the 2010 Patient Protection and Affordable Care Act.”

But it might not have stopped Dr. Fara, who wasn’t receiving kickbacks from pharma.  He was defrauding the Federal Government itself.  Perhaps the most disquieting element of the tragedy is that the system could not independently detect the problem through statistical quality control.  It had to happen the old fashioned way -- with men and women willing to risk their jobs -- for the evil Dr. Chemo to be brought to book.

Spiderman observed that “with great power comes great responsibility”.  Obamacare has great power.  Whether it has great responsibility, remains to be seen.

Now Medicaid Costs Are Rising


Obamacare consists mainly of Medicaid expansion.  The Heritage Foundation explained the relative proportions of Obamacare exchanges to Medicaid expansion in a paper.  About 71% of all additional “cover”  comes from expanding eligibility for the Medicaid program.

Health insurance enrollment data show that the number of Americans with private health insurance coverage increased by a bit less than 2.5 million in the first half of 2014. While enrollment in individual market coverage grew by almost 6.3 million, 61 percent of that gain was offset by a reduction of nearly 3.8 million individuals with employer-sponsored coverage. During the same period, Medicaid enrollment increased by almost 6.1 million—principally as a result of Obamacare expanding eligibility to able-bodied, working-age adults. Consequently, 71 percent of the combined increase in health insurance coverage during the first half of 2014 was attributable to 25 states and the District of Columbia adopting the Obamacare Medicaid expansion.

Healthcare dot Gov explains how the program was expanded to include people with higher incomes  that the old cutoff score.  

The Affordable Care Act provides states with additional federal funding to expand their Medicaid programs to cover adults under 65 with income up to 133% of the federal poverty level. (Because of the way this is calculated, it’s effectively 138% of the federal poverty level.) Children (18 and under) are eligible up to that income level or higher in all states.

The expansion was supposed to “save the states money” because the Federal Government would pick up the tab. “Medicaid expansion has given a budget boost to participating states, mostly by allowing them to use federal money instead of state dollars to care for pregnant women, inmates, and people with mental illness, disabilities, HIV/AIDS, and breast and cervical cancer, according to two new reports.”

The Kaiser Family Foundation summarized the major effect as follows: If all states implement the ACA Medicaid expansion, the federal government will fund the vast majority of increased Medicaid costs.”  Federal expenditures were expected to rise, but there was no anticipated difference between new intakes under expansion and persons already in the Medicaid program.

Growth in spending per enrollee largely reflects inflation and expectations of the costs to purchase medical services in the health care market place.  By 2024, spending for an aged or disabled enrollee is projected to be about five times greater than spending for a child or adult enrollee.  (Figure 5)  The aged and disabled tend to use more complex acute care services as well as expensive long-term care services.  Over the 2014 to 2024 period, spending per enrollee is expected to increase at rates ranging from 4 percent for the aged to 6 percent for adults.  Historically, Medicaid spending has increased at rates faster than inflation, but slower than per person increases for private health care premiums.

But now, according to “a just-released ‘2014 Actuarial Report on the Financial Outlook for Medicaid’ from the Department of Health and Human Services, ObamaCare’s Medicaid expansion is costing significantly more than projected”.  Somehow, people now being admitted into Medicaid are cost a $1,000 more than people already in the program -- about 20% more.

In 2014, the average benefit costs of newly eligible adult enrollees are expected to have been substantially greater than those for non-newly eligible adult enrollees in the program. Newly eligible adults are estimated to have had average benefit costs of $5,517 in 2014, 19 percent greater than non-newly eligible adults’ average benefit costs of $4,650. These estimates are significantly different from those in previous reports, in which average benefit costs for newly eligible adults in 2014 were estimated to be 1 percent lower than those of non-newly eligible adults.

Michael Cannon, writing in Forbes, says: “So the Obama administration had projected newly eligible Medicaid enrollees would cost about $50 less than other Medicaid-enrolled adults, but they actually cost nearly $1,000 more.  Nice.”  But sarcasm aside the question must be: why?

The HHS actuarial report explains that costs are going up for three reasons.  One is regular healthcare cost inflation, the second is increased administrative costs.  The third factor is provisions in Obamacare which have yet to kick in.

Total Medicaid expenditures (Federal and State combined) for medical assistance payments and administration are estimated to have grown 9.4 percent in 2014 to $498.9 billion and are projected to reach $835.0 billion by 2023, increasing at an average rate of 6.2 percent per year over the next 10 years. Federal government spending on Medicaid medical assistance payments and administration costs is estimated to have increased by 13.9 percent to $299.7 billion in 2014, representing about 60 percent of total Medicaid benefit expenditures. Federal spending on Medicaid is projected to reach $497.4 billion by 2023, or about 60 percent of total spending. Total State Medicaid expenditures for benefits and administration are estimated to have increased to $199.2 billion in 2014, a growth rate of 3.2 percent, and are projected to reach $337.5 billion by 2023.

The Affordable Care Act contains many Medicaid provisions, most of which were implemented by 2014 and are expected to have a significant influence on future Medicaid expenditure trends. Included in these provisions is a substantial increase in Medicaid eligibility that began in 2014. The impacts of this increase are presented in more detail in the next section. …

Growth in Medicaid benefit expenditures in 2014 is largely attributable to the start of the Medicaid eligibility expansion that occurred on January 1, 2014 under the Affordable Care Act. The majority of the projected acceleration was driven by new expenditures for newly eligible enrollees, but the projected increase in the growth rate also reflects additional enrollment among non-newly eligible persons.

What is particularly interesting is the observation that health care costs will continue to increase -- faster than before in fact.  While this may not be Obamacare’s fault, it does underscore the reality that the ACA has not substantially bent the cost curve.

Over the next 10 years, expenditures for capitation payments and premiums are expected to grow the fastest of the major Medicaid service categories, as shown in figure 4. These expenditures are projected to grow 10.7 percent per year on average from 2014 to 2023, which would be 4.3 percentage points faster than overall Medicaid benefit growth. Relatively faster projected growth in these payments is in part the result of the Medicaid eligibility expansion under the Affordable Care Act, since most of the new enrollees are expected to be enrolled in managed care plans. Moreover, expenditures for capitation payments and premiums have grown substantially more quickly than other service expenditures in recent history.37 From 2001 to 2013, Medicaid payments for managed care plans and other premiums grew on average 11.9 percent per year, faster than overall Medicaid benefit expenditures (6.0 percent).

Acute care fee-for-service Medicaid expenditures are projected to grow at an average rate of 3.5 percent per year over the next decade. In 2014, these expenditures are estimated to have grown by 7.4 percent—a sharp increase that was partly due to the increase in adult enrollees related to the eligibility expansion, as some of their costs were covered through fee-for-service programs (although the majority of the expenditures are expected to be paid under managed care). In addition, the 2014 growth rate reflects the temporarily increased primary care physician payment rates provided by the Affordable Care Act.

Medicaid spending on fee-for-service long-term care is projected to grow by 3.2 percent on average for 2014 through 2023. Aged and disabled enrollees receive the vast majority of long-term care services, and growth in these expenditures is driven in part by growth in enrollment among these beneficiaries. Newly eligible adults, along with other adults and children, are expected to need very few longterm care services. In recent history, Medicaid expenditures on these services have increased very slowly; from 2009 to 2013, long-term care expenditures grew at an average rate of only 1.8 percent per year. This limited growth reflects relatively slower growth in reimbursement rates and utilization of long-term care services. Additionally, there has been increased use of managed care for long-term care in Medicaid over the last several years, which has slowed fee-for-service expenditure growth in the program. As a result, the projected growth rate of long-term care expenditures through fee-for-service programs is notably slower than in last year’s report.

None of this is news.  Obamacare costs have been rising in the exchanges.  Now they are rising in Medicaid as well.  Obamacare was supposed to control costs and make medical care more affordable to the American public.  It is not notably succeeding on either count.  These costs mean Obamacare will continue to be a hot political issue going into 2016 and beyond.

Costs vs Obamacare


The truth is that it’s all about money.  Obamacare is tied up in the straitjacket of costs.  Therefore it tries to prevent patients from coming into the system but funding birth control.  It tries to speed up departures from the system by funding death planning.  Because ultimately the system is driven by the need to allocate medical care.

Just recently Obamacare rolled out the brass band for its birth reduction programs. “Obamacare as of August 2012 has mandated that insurance plans not impose copayments, coinsurance expenditures or other cost-sharing requirements on women when they obtain birth control. Instead, the plan is required to fully cover the costs of contraception.”

"There's room to grow, basically, for women in the United States to use birth control," Becker said. "This out-of-pocket change could potentially increase birth control use." …

"While most women are using some form of contraception or do so at some point during their lifetime," she said, "only about 30 to 40 percent of women are actively using prescription contraception at a given time."

On the other end of the life spectrum Obamacare is making it easier for patients patients to die, which is not necessarily a bad thing of itself.  However the motivation from a system perspective would be to reduce the cost burden on the health care apparatus. Pam Belluck in the New York Times writes, Medicare Plans to Pay Doctors for Counseling on End of Life.

Medicare, the federal program that insures 55 million older and disabled Americans, announced plans on Wednesday to reimburse doctors for conversations with patients about whether and how they would want to be kept alive if they became too sick to speak for themselves.

The proposal would settle a debate that raged before the passage of the Affordable Care Act, when Sarah Palin labeled a similar plan as tantamount to setting up “death panels” that could cut off care for the sick. The new plan is expected to be approved and to take effect in January, although it will be open to public comment for 60 days.

Medicare’s plan comes as many patients, families and health providers are pushing to give people greater say about how they die — whether that means trying every possible medical option to stay alive or discontinuing life support for those who do not want to be sustained by ventilators and feeding tubes.

For those in between being born and dying -- good luck.  Helaine Olene, writing in Slate, which is generally liberal says Obamacare is overpriced and terrible.  Unless fixed it will prove to be a political embarassment for Democrats. “Someone is “it,” the party paying the bill. And that “it” is you, whether you receive insurance on the exchanges or from an employer.”

In sum, it’s a problem so pressing that even Ezekiel Emanuel, one of major players behind Obama’s health care reforms, took to the Wall Street Journal this week to declare, “If Mr. Obama doesn’t act soon to control costs, escalating costs may ultimately threaten the sustainability of his coverage expansion.”

In the meantime, you shouldn’t need a political consultant to tell you why consumers paying hundreds of dollars—or even more than $1,000 a month—for health insurance they are required to buy and often can’t afford to use might well get angry. Once you name something the Affordable Care Act, people oddly expect the product on offer to be affordable. Who’d have thunk it?

Obamacare’s problem is cost.  That’s why it’s trying to keep patients from being born.  That’s why it is ushering the dying to the grave.  That’s why it is offering the living cut rate treatment with big out-of-pocket expenses.

The Los Angeles Times writes: “In ironic twist, S.F. is worried Obamacare could hurt its most vulnerable residents”.  They can’t afford it.

The local health program known as Healthy San Francisco, which has served as many as 60,000 patients annually since its creation in 2007, is almost free.

Obamacare plans, however, are not. They come with government subsidies that bring down costs, but premiums, co-pays and deductibles can still add up to hundreds or thousands of dollars a year. That's more than many people can afford, health advocates say. …

Many tell Sekera they can't afford the additional costs that have come with Obamacare coverage while managing the high cost of living in San Francisco.

Some are living paycheck to paycheck, facing some of the highest rents in the country, and can't afford health insurance premiums, co-pays and deductibles, she said.

Wendy Wolf and Morgan Hynd of the Health Affairs Blog say that the administration’s victory in King vs Burwell only provides Obamacare with a temporary respite.  It’s real “Achilles Heel” is cost.  Obamacare is failing at adding people into the insurance risk pool.  Most of its provision is through Medicaid expansion which is expensive and inefficient.  For this and other reasons, Obamacare is not containing costs.  It’s attempt at attracting people into the insurance pool is failing.

The success of the ACA is dependent on having near-universal coverage to broaden health plan risk pools, decrease charity care, and promote higher-value delivery of care with early prevention and better primary care. Without Medicaid expansion in the Pine Tree state, Maine hospitals and health clinics are reporting substantial increases in uncompensated care costs, which are driving their bottom lines into the red. As providers struggle financially, they must make up for losses by cost shifting to the private market, which, in turn, drives health insurance costs higher and higher.

This is the very scenario that fueled the rapid growth in health care costs and in insurance premiums prior to the ACA. As long as sizeable numbers of people fall into the coverage gap, upward pressure on costs will continue this cost-shifting phenomenon that drives higher and higher insurance premiums.

Part of the reason the insurance side of Obamacare isn’t working is newly added bureaucratic costs.  The Tribune Review points out that all that government machinery and all those mandates add up to a substantial burden.

The canard that ObamaCare cuts health care costs is exposed, if not entirely torn asunder, in a new study that shows administrative costs alone will explode to more than $270 billion for both private insurance companies and government programs. Or, put another way, about one out of every four health care dollars will pay for a bloated bureaucracy.

These new costs have an outsize effect on the program.  They drive away the young and healthy who alone can make an insurance pool viable.  The Cato Institute writes: “The Obamacare Giveaway – It’s Better to Be 64 than 30”.

Take a typical 30-year-old and 64-year-old, earning identical amounts of money, living in the same place, and choosing the same health plan. Who will pay more for that health care plan under Obamacare?

No one would dispute that 30-year-olds have much lower health care costs than 64-year-olds, on average. A compelling illustration comes from a highly cited article using the National Medical Expenditure Survey; the authors show that health care costs for 64-year-old women and men are approximately 2 to 4 times that their 30-year-old counterparts (Cutler and Gruber, 1996, p. 429). A natural implication is that groups with higher expected medical costs (such as older individuals), will tend to face higher health care premiums than those with lower expected medical costs (such as younger individuals).

Because Obamacare wasn’t designed as a business, it is not attractive in and of itself.  Like most government programs it is bloated, inefficient and of indifferent quality.  These problems reflect themselves in the costs that Slate beamoaned.  Obamacare is a dog.  Just ask Democratic presidential candidate Bernie Sanders, who wants to replace it with Single Payer.

King vs Burwell may be over.  But Obamacare vs Cost has just begun.

Obamacare Becomes a 2016 Election Issue


The race to move on from Obamacare is under way.  Perhaps the clearest signal that the intellectual ground has shifted out from under it is a remarkable piece by former Secretary of Labor Robert Reich arguing that Single Payer is the only escape from the crushing burden Obamacare is about to impose on the country.

The Supreme Court’s recent blessing of Obamacare has precipitated a rush among the nation’s biggest health insurers to consolidate into two or three behemoths.

The result will be good for their shareholders and executives, but bad for the rest of us – who will pay through the nose for the health insurance we need.

We have another choice, but before I get to it let me give you some background.

Reich goes on to explain how the health provider consolidation under Obamacare will result in a handful of companies that will reap monopoly profits.  The public has been delivered over to giant companies who will squeeze them for all they are worth.

Executives say these combinations will make their companies more efficient, allowing them to gain economies of scale and squeeze waste out of the system.

This is what big companies always say when they acquire rivals.

Their real purpose is to give the giant health insurers more bargaining leverage over employees, consumers, state regulators, and healthcare providers (which have also been consolidating).

Therefore to avoid the tightening noose, which will asphyxiate the paying public eventually, Reich argues that Obamacare must give way to Single Payer.  It’s a perverse argument.  Having led the voters to the Promised Land, the administration now explains that it’s actually a desert.  “We lied”.  However if the voters are willing to go a little further the real Promised Land is to be found over the next range of distant mountains.

The problem isn’t Obamacare. The real problem is the current patchwork of state insurance regulations, insurance commissioners, and federal regulators can’t stop the tidal wave of mergers, or limit the economic and political power of the emerging giants.

Which is why, ultimately, American will have to make a choice.

If we continue in the direction we’re headed we’ll soon have a health insurance system dominated by two or three mammoth for-profit corporations capable of squeezing employees and consumers for all they’re worth – and handing over the profits to their shareholders and executives.

The alternative is a government-run single payer system – such as is in place in almost every other advanced economy – dedicated to lower premiums and better care.

Which do you prefer?

Playing the role of Moses will be Bernie Sanders. Sanders is drawing huge crowds among the Democratic faithful in part by promising to ditch Obamacare for Single Payer.  Sanders has gone from being a dark horse candidate to a credible challenger to Hillary Clinton.  He too believes that the problem with the ACA is that it hasn’t gone far enough to the Left and admires the politicians in Greece.

His main selling point to Democrats is that he has the courage of the party’s current convictions. His animating concern is income equality, and his solution is much higher taxes. He’d raise income-tax rates, lift the income cap on the payroll tax and impose a death-tax surcharge, for starters.

Mr. Sanders thinks government is too small, entitlements should be more generous, and free trade is a betrayal of the American worker. He admires Greece’s Syriza Party and praised its rejection of Europe’s bailout terms. These views are now the beating heart of the Democratic grass roots, which delights in Mr. Sanders’s raging candor over Mrs. Clinton’s cautious political code.

John Goodman believes that insofar as he can tell, Sanders’ critique of Obamacare is based less on its economics -- which are bad -- than on a kind of left wing religious conviction, which more or less assigns the attributes of paradise to Single Payer.  Goodman says that if you think Obamacare is expensive, wait till healthcare is “free”.

Vermont Democratic Sen. Bernie Sanders appeared on Fox News yesterday and Chris Wallace asked him why his own state had abandoned all plans to implement single payer health insurance – something that is apparently allowed under Obamacare.

Since Sanders is a self-described “socialist,” you would expect him to be up to the task. He wasn’t. Sanders had no explanation of why Vermont’s brief flirtation with socialized medicine was such a flop. Instead he repeated the standard leftist line: other countries spend half as much as we do and they guarantee everyone health care.

If that’s true, why isn’t it a simple matter to copy what everyone else around the world is doing? Part of the answer is that the claim isn’t true. Other countries don’t spend half as much as we do and guarantee everyone health care. More on that below.

The real reason Vermont abandoned the left’s most cherished public policy idea was unveiled by Megan McArdle a few months back: It would have made Vermont the highest taxing state in the country — by a long shot.

Even “free” healthcare has to be paid for by someone, such as by the taxpayer for example.  But unless medical costs are somehow tamed then the “free” healthcare will simply be as expensive as the unaffordable healthcare it replaces.

What “single payer” these days to people like Paul Krugman, for example, is everyone enrolled in Medicare. But as I wrote previously, in moving everyone into Medicare, we will not have solved a single problem of any importance that we currently experience under Obamacare.

The easiest way to fund universal Medicare is the same way we are funding Obamacare. That means: all the same taxes, same premiums, etc., including somehow capturing the current employer contribution to employee health insurance, the state’s contribution to Medicaid and continuing Obamacare taxes on everything from tanning salons to pacemakers and wheelchairs.

Single Payer would be implemented, one might add, by the same healthcare providers that Robert Reich has denounced and this negates whatever theoretical advantages government provision might have.   

The dynamics of both Obamacare and Single Payer make government the major, if not the sole customer of the entire healthcare industry creating what economists call a monopsony, “a market form in which only one buyer interfaces with would-be sellers of a particular product.”  But at the same time the regulatory requirements and the need to bargain with the powerful federal bureaucracy force the providers into a monopoly, as Scott Gottlieb explains in his article “How the Affordable Care Act Is Reducing Competition”.

Five big insurers seem set to become three, as Aetna buys Humana and Anthem eyes Cigna. Thanks, ObamaCare. ...

The wave of mergers poised to sweep the industry is a result of this kind of regulation. To sustain themselves, insurers must spread fixed costs over a larger base of members. The bigger they are, the easier it is to meet the government-imposed cap on their operating costs while cutting their way to profitability.

This same pressure discourages new health plans from launching. Startups often must channel more money into initial operating expenses. But the caps largely prevent this, so the market stagnates. Under the entire Obama presidency, only about 50 new health carriers have entered the commercial market, according to a November analysis from Goldman Sachs, and half are the struggling co-ops. Around 40 health plans have also left the market since 2007; many merged with competitors, but at least 13 were shut down or liquidated.

ObamaCare’s architects saw these trends coming—and welcomed them. They mistakenly believed that consolidation would be good for patients, on the theory that larger companies would have more capital to invest in innovations that are thought to improve coordination of medical care, such as electronic health records, integrated teams of medical providers and telemedicine.

This was a profound miscalculation. The truth is that the greatest innovations in health-care delivery haven’t come from federally contrived oligopolies or enormous hospital chains. Novel concepts—whether practice-management companies, home health care or the first for-profit HMO—almost always have come from entrepreneurial firms, often backed by venture capital.

That venture capital has been drying up since ObamaCare was passed. Instead, the biggest wagers in health-care services are being placed by private equity, which is chasing opportunities to roll up parts of the existing infrastructure. For instance, there were 95 hospital mergers in 2014, 98 in 2013, and 95 in 2012. Compare that with 50 mergers in 2005, and 54 in 2006. Cheap debt and ObamaCare’s regulatory framework almost guarantee more consolidation. That will mean less choice for consumers.

What is actually happening in the healthcare industry is the simultaneous rise of both monopsony and monopoly, a condition economists call a bilateral monopoly. “Bilateral monopoly situations are typically analyzed using the theory of Nash bargaining games, and market price and output will be determined by forces like bargaining power of both buyer and seller.”  Classic examples of a bilateral monopoly can be found in the US Defense industry.

An example of a bilateral monopoly would be when a labor union (a monopolist in the supply of labor) faces a single large employer in a factory town (a monopsonist). A peculiar one exists in the market for nuclear-powered aircraft carriers in the United States, where the buyer (the United States Navy) is the only one demanding the product, and there is only one seller (Huntington Ingalls Industries) by stipulation of the regulations promulgated by the buyer's parent organization (the United States Department of Defense, which has thus far not licensed any other firm to manufacture, overhaul, or decommission nuclear-powered aircraft carriers).

Most readers will be have heard stories about the stupendous inefficiencies of the defense industry and would shudder at the thought of medicine being provided on the same basis.  But when everything is purchased by a Single Payer (the government) and provided by a giant providers that is exactly what they can expect.  

In economic theory, the struggle between two dueling monopolies is determined by bargaining power. That is why Robert Reich wants more political power for the federal government when he writes “the real problem is the current patchwork of state insurance regulations, insurance commissioners, and federal regulators can’t stop the tidal wave of mergers, or limit the economic and political power of the emerging giants.” Reich understands that Single Payer won’t work unless the government is given so much power it can browbeat its opposite numbers.

But history suggests that in many cases, monopoly industry beats even the most powerful bureaucracies through a process called regulatory capture.  “Regulatory capture is a form of political corruption that occurs when a regulatory agency, created to act in the public interest, instead advances the commercial or special concerns of interest groups that dominate the industry or sector it is charged with regulating. Regulatory capture is a form of government failure; it creates an opening for firms to behave in ways injurious to the public (e.g., producing negative externalities). The agencies are called ‘captured agencies’".

The reason Bernie Sanders is drawing in the Democratic crowds is because many voters believe the current leaders have “sold out” to corporations. “Selling out” is vernacular for regulatory.

The reality is that rising costs have plunged Obamacare into crisis which both parties are scrambling to address. As Brietbart’s Chris Street notes, “due to Obamacare’s radical plan design and high utilization costs, skyrocketing American healthcare costs are becoming the norm–and will be a top issue in 2016 elections.”  Even if the Republicans do not successfully put it at the front and center, Bernie Sanders is already doing so.

The challengers to Hillary Clinton, from both the left and right, will alike claim that Obamacare is a costly failure, which it is.  What will be at issue is the solution to the problem created by the Affordable Care Act.  People like Sanders and Reich will argue that Single Payer and more centralization is the answer.  Individuals like Ted Cruz and Scott Walker will endorse more competition and a decreased government role provide the answer.

One thing’s for sure.  Obamacare can’t survive in its current form.  The only question is what will succeed it.

Anything You Want From the Fast Food Menu


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


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


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


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


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


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?


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 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


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


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


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?


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 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


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


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?


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 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 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


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 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 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 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


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…


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


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


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?


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?


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


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 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


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 "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


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 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?


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


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


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


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


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


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,

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 unexpectedly quit last Thursday. The IT firm, which is the third to manage 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


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.


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


“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.


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


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 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


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 Contractor Quitting?


The Daily Caller focused its attention on a curious development in the management of  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 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 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 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 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 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 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 role will have give it more freedom to pursue other contracts, said Mr. Stearns. “By no longer acting as senior adviser to, 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 remain unfinished, especially the all-important backend.

Many of the remaining technological challenges for the federal government are with the broader infrastructure supporting, 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 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 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 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, may prove an unhealthy place to be in 2016 and Slavitt may have decided to quit while he was ahead.

TheRise of Deductibles


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


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


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 exchange to ensure coverage next year. Migrating to 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 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


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


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. 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. 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 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


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


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


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 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?


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?


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


Increased slightly


Remained the same


Decreased slightly


Decreased greatly


Not sure


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


Increased slightly


Remained the same


Decreased slightly


Decreased greatly


Not sure


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


Increased slightly


Remained the same


Decreased slightly


Significantly decreased


Not sure


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


retail clinics


telephone triage lines


primary care options


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


emergency visits will stay the same


emergency visits will decrease


my emergency department will be at risk of closing


not sure


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


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 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


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


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,, 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


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


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?


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


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


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 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


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


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


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 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


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 "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 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?


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


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 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

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


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 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


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,

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 (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


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


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:




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


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


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.




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 poo