The Death of Obamacare


The threatened exit of United Health, one of the largest insurers in America, from Obamacare sent shivers of anxiety through Obamacare supporters, the political class and the stock market. Sarah Ferris writes in the Hill about the “angst” running through the insurance industry.


A threat by the nation’s largest health insurer to pull out of ObamaCare is a sign of the industry’s growing angst about the viability of the federal exchanges, sources close to the industry say.


UnitedHealthcare’s warning sent new shockwaves across the healthcare sector after weeks of mounting anxiety among private insurers, whose participation in the exchanges is critical to the viability of the president’s signature law.


In the last month alone, insurers have learned that the Obama administration has significantly lowered its expectations for new customers and will have far fewer federal dollars to help cushion insurer losses. …


In a call with shareholders Thursday, UnitedHealthcare CEO Stephen Hemsley said the company was lowering its profit expectations by several hundred million dollars as a result of the grim outlook of ObamaCare plans. He said the company was taking a “proactive step” to halt the company’s marketing of ObamaCare plans next year, and would evaluate whether to participate at all in 2017.


“As we see those markets actually being sustainable, we would be open to participating in them,” Hemsley told investors, stressing that the company did not want to continue losing money. “We cannot sustain those kinds of costs and losses, and we will evaluate the marketplace as it goes.”


The announcement — less than three weeks into this year’s open enrollment — caused panic across the marketplace. Within hours, stocks for major providers and hospital groups nosedived and multiple industry analysts began predicting a domino effect among other insurers.


“I think everyone is looking at this, like, ‘OK, here’s a big guy pulling out. If anything, they could have sustained these challenges and these losses, and they’re not going to do it,” the industry source said.


Even the related hospital industry took a beating. Hospitals stocks plummeted on expectations that many patients would lose their insurance as the providers either folded, like the Obamacare co-ops, or exited as might United Healthcare.  This reflects the fact that if insurance goes under, the hospitals are simply not going to get paid to the degree anticipated.


Hospitals, including for-profit chains HCA Holdings Inc. and Tenet Healthcare Corp., have already agreed to cuts in Medicare reimbursements, expecting they’d see fewer uninsured patients, said Sheryl Skolnick, an analyst with Mizuho Securities USA Inc. in New York. The administration has predicted slow growth in sign-ups under the ACA, and UnitedHealth’s announcement suggests insurers are less willing to participate.


Hospitals are “going to ratchet back their expectations for ’16,” Skolnick said in a telephone interview. “They may feel real pressure in terms of growth in newly insured for next year.” …


Shares of HCA, based in Nashville, Tennessee, fell 6.9 percent to $65.39 at 4:00 p.m. on Thursday in New York; Dallas-based Tenet tumbled 8 percent to $30.40 and Community Health Systems Inc. of Franklin, Tennessee, dropped 7.9 percent to $26.32.


Dan Mangan of CNBC pretty much summarized the situation by observing that all these recent developments suggest that Obamacare is not economically viable. "’The Obamacare business model doesn't work,’ said Robert Laszewski, president of consultancy Health Policy and Strategy Associates in Virginia. ‘Obamacare has got to be retooled.’"  


That has included the planned shuttering of what will be more than half of the new co-ops created to sell insurance on the exchanges, the government's announcement that insurers will receive just a small fraction of the money they could have expected under a financial risk protection program, and stories detailing how rising premium prices and deductibles are causing consumers to question whether to buy exchange-sold plans. …


But one insurance expert said UnitedHealth's statements are evidence that the Obama administration needs to adjust the ACA if the program is to remain a viable option for both insurers and for customers.


“Retooled” is apparently a code word for bailed out. The only way a company like United Healthcare can operate at a loss is if the taxpayer picks up the bill. Right on cue “the Department of Health and Human Services attempted to reassure private insurers on Thursday that they'll be able to recover losses from participating in Obamacare by claiming it was an ‘obligation’ of the U.S. government to bail them out.”


In a statement issued Thursday, the same day that the nation's largest insurer, UnitedHealth announced it may exit Obamacare due to mounting losses, Tavenner said, "We've been very clear with the administration about the serious challenges facing consumers and health plans in this Exchange market. Most recently, nearly 800,000 Americans have faced coverage disruptions as a result of the significant and unexpected shortfall with the risk corridors program. When health plans cannot rely on the government to meet its obligations, individuals and families are harmed as a result. The administration must act to ensure this program works as intended and consumers are protected."


What the government can legally do is a $64 billion question.  Joshua Green, an Obamacare supporter, warned that the administration in a moment of hubris, had failed to block a Republican measure forbidding the government from using unappropriated funds for bailing out insurance companies.  In 2013, Marco Rubio led an effort to write the bailout prohibition into law:


Republican Senator Marco Rubio of Florida will introduce a bill today that represents a new and potentially crippling line of attack against the Affordable Care Act, aka Obamacare.  … Rubio’s bill takes a new tack by seeking to abolish “risk corridors,” one of several mechanisms in the law meant to hold down premium costs and entice insurers to participate in the exchanges by ensuring they won’t lose a lot of money if they draw a costlier applicant pool than anticipated. Risk corridors function like Major League Baseball profit-sharing: Insurers who wind up with unexpectedly healthy applicants and lower costs will “pay in” money to the government, which in turn “pays out” to insurers with costlier applicants, thereby stabilizing the nascent market. (snip)


When the law was written, the winners and losers were expected to balance out, making the risk corridors budget-neutral. But if too many insurers lose money, the government may need to step in. While the ACA’s risk corridors are meant to transfer money from winners to losers, the text of the law (it’s Section 1342, for those following at home) makes clear that the government will pay insurers whose costs end up being significantly higher than anticipated. This is what Rubio is seizing on in his new bill—he’s calling it a “bailout” and trying to stop it.


If Rubio were truly motivated by concern that taxpayers might end up footing a “bailout,” there’s an easy solution: Write a bill stipulating that risk corridors must be budget-neutral. Presto, problem solved. But Rubio’s bill is far more sweeping than that—it eliminates risk corridors altogether by striking Section 1342 from the law. This is a clue that his real motivation isn’t to eliminate the possibility of a payout but to eliminate the Affordable Care Act altogether. …


Once Republicans took over Congress Rubio’s bill passed into law. There would be no bailouts of health insurers. There would be no bailouts for health insurers.


Green proved prescient.  The ACA is heading into financial failure. Obama cannot save his health program without engaging in a massive bailout of the healthcare insurance industry.  But the law forbids it. The president is now well and truly in a corner.

United Health Group Threatens to Bail on Obamacare


Even the most enthusiastic supporter of Obamacare will be worried about reports that United Health Group, “the parent of UnitedHealthcare, the largest single health carrier in the United States”, is reviewing its participation in the ACA’s exchanges.  Bruce Japsen at Forbes reports that it may exit the exchanges by 2017:


UnitedHealth Group, in a surprising announcement, said this morning it has revised its profit expectations for the rest of the year due to what it called a “deterioration” of its individual commercial insurance offerings on government-run exchanges under the Affordable Care Act and offered no commitment it would stay in the business beyond next year.


The nation’s largest health insurer said it was “evaluating the viability of the insurance exchange product segment,” pulling back on its marketing efforts for individual exchange products for next year and “will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.” The insurer sells individual plans on public exchanges in 24 states and covers more than a half million Americans in these plans.


If those half-million Americans lose their insurer they will join the ranks of many hundreds of thousands who have lost their coverage in the collapse of the Obamacare exchanges. As Amanda Cox and Margaret Sanger-Katz of the New York Times explain 18% of the lowest priced plans have simply vanished in the great co-op extinction.


Last year, we encouraged returning Obamacare customers to shop around for a better deal. This year, a lot of people will have no choice.


In markets throughout the country, the plan in the most popular category that was least expensive this year will not be offered next year. That means that some people who took our advice and shopped for a bargain will need to shop again, even if they're happy with their plan.


There are 499 markets for Obamacare plans in the United States. In 89 of them, the insurance company that offered this year's best deal in the "silver" category will not be returning for 2016. We've marked those areas in dark grey on our map. Most of those exits are a result of insurance co-op plans that failed. A few exits came as insurers that are still operating elsewhere decided to leave particular markets. People in these canceled plans can't simply renew their current policy if they like it - they have to go back into the marketplace and find a new insurer.


The widespread cancellations reflect continuing shifts in the new health insurance markets, which sprang into being in 2014. Insurers are still learning what sorts of plans will be most popular and what prices will be low enough to attract customers while still covering their medical bills.


The numbers come from an analysis from the McKinsey Center for U.S. Health System Reform, which did the work of examining all the plans and matching 2015 products with 2016 offerings. McKinsey examined the larger market areas that insurance companies use to set their rates, instead of individual counties. That means that our estimate of terminated plans may be an undercount, because there are some additional counties where renewing customers will be out of luck.


The greatest potential danger to the ACA is that the trend will snowball and eventually destroy Obamacare entirely. The alarm bells are already sounding. “According to Bloomberg, UnitedHealth still covers just 550,000 people on the exchanges. But the actions of one mega-insurer could have a ripple effect in an increasingly consolidated insurance industry.”


The Obama administration earlier this year announced they expect 10 million people to be covered through the exchanges by the end of 2016, lower than original Congressional Budget Office estimates. Insurance companies still continue to make money through employer-sponsored care as well.


An official with the Department of Health and Human Services said Thursday that the marketplace will stabilize.


Sarah Kliff of Vox, who has been a consistent supporter of the ACA does some rough calculations to see if Obamacare will still float with United Health out of the picture. In an article entitled “UnitedHealth might quit Obamacare. That would be a huge deal” she argues that the flagship program might stay afloat with a United Healthcare sized hole in it.  But having sustained such damage it would have almost no reserve buoyancy left:


Chief executive Stephen Hemsley told investors that United would decide in early 2016 whether to sell on the marketplaces the following year. "We cannot sustain these losses," he said. "We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."


What, exactly, would that mean for Obamacare? I used data from the Kaiser Family Foundation to map the states where United had the biggest individual market presence in 2013. This is prior to Obamacare, but still is a good sense of the states where the company had a robust individual market presence in the lead-up to the health insurance expansion. You can see below that some states, particularly Nevada, would experience massive disruption if United pulled out of the marketplaces. …


Overall, United does not have an especially large chunk of the Obama market. The health data firm Avalere estimates that United covers 550,000 Obamacare enrollees — about 5.6 percent of the 9.9 million people who rely on the law for private coverage. …


But in the long term, United pulling out of Obamacare might signal something even more troubling: that the marketplaces aren't a good business decision for other large carriers like Blue Cross Blue Shield or Aetna. If other large carriers come to the same conclusion that United is weighing — that the Obamacare exchanges aren't a good business proposition — it could maim Obamacare's expansion of private insurance entirely.


Cynics have argued that the collapse of Obamacare would ultimately prove to be good news for advocates of a single-payer system.  It is certainly the view of Democratic presidential candidate Bernie Sanders that Obamacare is but a step to single-payer.


Sanders has proposed a variety of new programs designed to help Americans pay for everything from child care to college tuition. Most famously, Sanders is also a longtime proponent of “single-payer” health insurance -- in other words, expanding Medicare so everybody, not just the elderly, could enroll in it.


While Sanders has supported the Affordable Care Act, or Obamacare, he has described the legislation as merely a first step toward guaranteeing that every American has health insurance. He has said that creating a single-payer system, similar to the schemes that now operate in countries such as France and Taiwan, would achieve that goal.


However, this strategy require concluding that Obamcare is ultimately a failure.  Making this admission is particularly painful for Hillary, who supported Obamacare in the first place.

United Health Group Threatens to Bail on Obamacare


Even the most enthusiastic supporter of Obamacare will be worried about reports that United Health Group, “the parent of UnitedHealthcare, the largest single health carrier in the United States”, is reviewing its participation in the ACA’s exchanges.  Bruce Japsen at Forbes reports that it may exit the exchanges by 2017:


UnitedHealth Group, in a surprising announcement, said this morning it has revised its profit expectations for the rest of the year due to what it called a “deterioration” of its individual commercial insurance offerings on government-run exchanges under the Affordable Care Act and offered no commitment it would stay in the business beyond next year.


The nation’s largest health insurer said it was “evaluating the viability of the insurance exchange product segment,” pulling back on its marketing efforts for individual exchange products for next year and “will determine during the first half of 2016 to what extent it can continue to serve the public exchange markets in 2017.” The insurer sells individual plans on public exchanges in 24 states and covers more than a half million Americans in these plans.


If those half-million Americans lose their insurer they will join the ranks of many hundreds of thousands who have lost their coverage in the collapse of the Obamacare exchanges. As Amanda Cox and Margaret Sanger-Katz of the New York Times explain 18% of the lowest priced plans have simply vanished in the great co-op extinction.


Last year, we encouraged returning Obamacare customers to shop around for a better deal. This year, a lot of people will have no choice.


In markets throughout the country, the plan in the most popular category that was least expensive this year will not be offered next year. That means that some people who took our advice and shopped for a bargain will need to shop again, even if they're happy with their plan.


There are 499 markets for Obamacare plans in the United States. In 89 of them, the insurance company that offered this year's best deal in the "silver" category will not be returning for 2016. We've marked those areas in dark grey on our map. Most of those exits are a result of insurance co-op plans that failed. A few exits came as insurers that are still operating elsewhere decided to leave particular markets. People in these canceled plans can't simply renew their current policy if they like it - they have to go back into the marketplace and find a new insurer.


The widespread cancellations reflect continuing shifts in the new health insurance markets, which sprang into being in 2014. Insurers are still learning what sorts of plans will be most popular and what prices will be low enough to attract customers while still covering their medical bills.


The numbers come from an analysis from the McKinsey Center for U.S. Health System Reform, which did the work of examining all the plans and matching 2015 products with 2016 offerings. McKinsey examined the larger market areas that insurance companies use to set their rates, instead of individual counties. That means that our estimate of terminated plans may be an undercount, because there are some additional counties where renewing customers will be out of luck.


The greatest potential danger to the ACA is that the trend will snowball and eventually destroy Obamacare entirely. The alarm bells are already sounding. “According to Bloomberg, UnitedHealth still covers just 550,000 people on the exchanges. But the actions of one mega-insurer could have a ripple effect in an increasingly consolidated insurance industry.”


The Obama administration earlier this year announced they expect 10 million people to be covered through the exchanges by the end of 2016, lower than original Congressional Budget Office estimates. Insurance companies still continue to make money through employer-sponsored care as well.


An official with the Department of Health and Human Services said Thursday that the marketplace will stabilize.


Sarah Kliff of Vox, who has been a consistent supporter of the ACA does some rough calculations to see if Obamacare will still float with United Health out of the picture. In an article entitled “UnitedHealth might quit Obamacare. That would be a huge deal” she argues that the flagship program might stay afloat with a United Healthcare sized hole in it.  But having sustained such damage it would have almost no reserve buoyancy left:


Chief executive Stephen Hemsley told investors that United would decide in early 2016 whether to sell on the marketplaces the following year. "We cannot sustain these losses," he said. "We can't really subsidize a marketplace that doesn't appear at the moment to be sustaining itself."


What, exactly, would that mean for Obamacare? I used data from the Kaiser Family Foundation to map the states where United had the biggest individual market presence in 2013. This is prior to Obamacare, but still is a good sense of the states where the company had a robust individual market presence in the lead-up to the health insurance expansion. You can see below that some states, particularly Nevada, would experience massive disruption if United pulled out of the marketplaces. …


Overall, United does not have an especially large chunk of the Obama market. The health data firm Avalere estimates that United covers 550,000 Obamacare enrollees — about 5.6 percent of the 9.9 million people who rely on the law for private coverage. …


But in the long term, United pulling out of Obamacare might signal something even more troubling: that the marketplaces aren't a good business decision for other large carriers like Blue Cross Blue Shield or Aetna. If other large carriers come to the same conclusion that United is weighing — that the Obamacare exchanges aren't a good business proposition — it could maim Obamacare's expansion of private insurance entirely.


Cynics have argued that the collapse of Obamacare would ultimately prove to be good news for advocates of a single-payer system.  It is certainly the view of Democratic presidential candidate Bernie Sanders that Obamacare is but a step to single-payer.


Sanders has proposed a variety of new programs designed to help Americans pay for everything from child care to college tuition. Most famously, Sanders is also a longtime proponent of “single-payer” health insurance -- in other words, expanding Medicare so everybody, not just the elderly, could enroll in it.


While Sanders has supported the Affordable Care Act, or Obamacare, he has described the legislation as merely a first step toward guaranteeing that every American has health insurance. He has said that creating a single-payer system, similar to the schemes that now operate in countries such as France and Taiwan, would achieve that goal.


However, this strategy require concluding that Obamcare is ultimately a failure.  Making this admission is particularly painful for Hillary, who supported Obamacare in the first place.

Co-ops Were a Foreseeable Catastrophe


Costs are not only killing Obamacare insurance they are also killing its vaunted cooperatives.  The story of the collapse of the co-ops is one of the most tragic chapters in the program’s short life. “Half of the newly minted organizations created under the Affordable Care Act have now failed, confirmed in congressional testimony by CMS Chief of Staff Dr. Mandy Cohen.”


The twelfth of the 23 nonprofit co-ops to fail was Consumers Mutual Insurance of Michigan, and now just 11 of the firms are left offering insurance on the exchanges for the coming season. All told, the 12 collapses will disrupt insurance coverage for 740,000 individuals and small-business employees.


The question will be asked: why did they fail? An insurance regulator in the deeply blue state of Vermont anticipated the collapse of the Obamacare cooperatives even as they launched and prevented the debacle from unfolding in her jurisdiction.  The Daily Caller tells the story of Susan L. Donegan, commissioner for Vermont’s Division of Insurance, who simply could not ignore the numbers.


in 2013 … she refused to issue a license to the proposed Vermont Health CO-OP, saying it failed to meet state standards. Her action barred the Obamacare non-profit from selling health insurance in the state.


She quickly came under fire in Sen. Bernie Sanders ‘s deep-blue home state, where co-ops are immensely popular. Today, she looks like a prescient state official who likely saved thousands of Vermonters from buying their health insurance from a doomed insurer.


Donegan concluded that the co-ops would lose money and decided it was better not to let them enlist customers for what was bound to be a nasty ride.  She stuck to her guns despite the considerable political pressure to let the co-ops go through.


Denying a license to the health co-op was not an easy decision for Donegan, who first joined Democratic Gov. Peter Shumlin’s administration as a deputy insurance commissioner in 2010.


First, she already knew when the co-op’s application arrived at her her office that federal officials in Washington, D.C., had pre-approved the co-op’s plan and allocated to it $33 million in taxpayer funds.


Second, she knew the co-ops were an important part of President Obama’s signature health reform effort. Obama is extremely popular in Vermont, having garnered 67 percent of the vote in his 2008 and 2012 campaigns. …


Donegan sensed trouble as soon as she read the co-op’s application. There were optimistic and questionable forecasts, a board filled with friends, sweetheart deals, high salaries, deep conflicts of interest and a staff with little business expertise.


She believed the Obamacare co-op model — as presented by Centers for Medicare and Medicaid Services officials in Washington, D.C. — was deeply flawed for Vermont.


“The model was not sustainable,” she said. And referring to the 13 co-op’s that have failed: “I think perhaps, my thoughts back then may have borne themselves out in some way.”


There was more than a little of the irregular about it, from operating on borrowed money to questionable deals and high salaries.


“This is basically going to be funded with a loan from the federal government. When you have a loan, that means you have to pay it back at some point. It was going to be a burden to pay that back. So what happens when you have a debt that can’t be met,” she said. “We realized that there was going already to be a burden financially on the company from Day One.” …


She also discovered that like many other of the federally established health co-ops, it was wracked with poor governance. The board was filled with conflicts of interest and insiders who would be in positions to exploit the company for personal gain. …


Another of the early problems Donegan discovered was the co-op’s newly installed president, Mitchell Fleischer, owned Fleischer-Jacob, an insurance brokerage firm that got a sweetheart contract worth from $500,000 $2 million. He also paid himself $120,000 a year in a salary, while other commercial insurance company leaders were paid as little as $28,000.


By refusing to authorize the operation in Vermont, Donegan potentially avoided the scandal which is now rocking another co-op, the Health Republic of New York, which is now under investigation. “The New York State Department of Financial Services announced several actions on Sunday regarding Health Republic of New York. They are the latest attempts by state regulators to minimize the political fallout of the insurer's chaotic winding-down, and its impact on consumers.”


DFS said it specifically was investigating Health Republic's "inaccurate representations" to regulators about its financial condition. The agency said it only found out on Oct. 30 that Health Republic's finances were "substantially worse than the company previously reported to the state."


While DFS places blame for Health Republic's demise on the insurer, others are blaming the regulator, which has a fiduciary duty to monitor insurers' finances.


"DFS failed completely in its mandated function of ensuring the financial stability of a licensed and regulated carrier," said one insurance broker. "What were they doing with the quarterly financial reports filed with them by Health Republic these past two years?"


There but for the grace of God almost went Vermont. What concerned Donegan most were economics of the operation.  She realized the co-operatives were not going to be able to meet their insurance obligations, nor their high overheads on the rates they proposed to charge.  “Her small army of insurance experts, actuaries, accountants and forensic economists also had other questions, including its optimistic membership forecast of 19,000. Then there was the lack of staff with experience in either business or insurance, a common flaw among the Obamacare co-ops.”


Michael Cannon of the Cato Institute argued that the other state regulatory agencies must have foreseen the coming train wreck, which would be plain even to a blind man. “The failure of more than a dozen other ObamaCare co-ops suggests these problems were not limited to Vermont’s proposed co-op. Yet regulators in those states, not to mention CMS, nevertheless approved them.”


One might even say the rule is that government regulators either were unable to spot these co-ops’ looming insolvency, or worse, allowed political considerations to trump their judgment; and Vermont is the exception, where regulators both identified the problem and had the courage to pay the political cost of denying that carrier a license. Something to keep in mind when contemplating the costs and benefits of government regulation of insurance-carrier solvency.


The likely explanation for the failure of the co-ops is that they were a political sop to the Obama voter base, launched without any real expectation of success.  They were a gimmick, a stunt which cost billions and has resulted in the displacement of tens of thousands of health insurance policy holders.

The VA Debate.  Hillary vs Bernie


The department of Veterans Affairs became ground zero in the Democratic Party’s debate over the future of health care.  The rhetorical storm started when presidential hopeful Hillary Clinton told talk show host Rachel Maddow that problems within the Veterans Affairs Department have “not been as widespread as it has been made out to be” and blamed Republicans for politicizing the agency. Clinton accused the Republicans of trying to tar the program with an ideological brush.


“They try to create a downward spiral,” Clinton said. “ 'Don't fund it to the extent that it needs to be funded, because we want it to fail, so then we can argue for privatization.' They still want to privatize Medicare. They still want to do away with Social Security. And these are fights we've been having for 70, 80 years now.”


However, Clinton’s remarks, coming as they did in the wake of numerous reports on the VA’s scandalous management, were soon under attack from the press and her Democratic rivals as proof that she was ignorant or uncaring about the extent of the agency’s problems. Soon afterward Clinton’s Republican foes began raking her over the coals.


Sen. John McCain lambasted Hillary Clinton on Wednesday for her controversial comments about the Veterans Health Administration, calling on her to apologize for what he described as "disgraceful" remarks.


He's part of growing chorus of Republicans who are seizing on the Democratic front-runner's comments and trying to paint her as out of touch on one of the biggest government scandals in recent years. …


Clinton's campaign on Tuesday backed away from the candidate's claim that issues at the VA were not "widespread."


Brian Fallon, Clinton's press secretary, acknowledged to CNN wait times and other mismanagement of care by the Department of Veterans Affairs were indeed "systemic" and that Clinton will roll out her plan to reform the VA in November.


"Even now, too many of our veterans are still waiting an unacceptably long time to see a doctor, or to process disability claims and appeals," Fallon said in a statement to CNN.


Fallon said that when Clinton is president she "will work to further reform the VA to make sure it truly works for our veterans, and will demand accountability and performance from VA leadership."


Perhaps in an effort to cast the Apple of Discord among the Democratic candidates McCain mischievously suggested that Democratic Clinton’s rival, Bernie Sanders, was better up to the task of reforming the VA. “Democratic Sen. Bernie Sanders of Vermont is a stronger presidential candidate for Democratic voters when it comes to advocating for veterans, Sen. John McCain said Wednesday. “


McCain, an Arizona Republican who served in the Vietnam War and was held as a prisoner of war for over five years, has long been an outspoken defender of veterans' rights.


McCain pointed out that Sanders, who serves on the Committee on Veteran Affairs, had helped pass bills protecting veterans with bilateral support. “To my knowledge, I know of no activity, legislative or otherwise, that Hillary Clinton was engaged in during her time as a United States senator,” McCain said, as reported by the Hill.


Clinton responded by advancing a plan to save the VA. Although details of the plan have yet to be announced, the Boston Globe reported the following pledges by Hillary:


• Improve medical and counseling services to veterans suffering from mental health and substance abuse problems “whenever and wherever they’re needed.”


• Continue the post-9-11 GI Bill, which Clinton cosponsored when she was a US senator from New York, for “future generations.” This bill was designed to pay for the education of service men and women who served for more than 90 days after September 10, 2001.


• Do more to help the families of those serving. “Service and sacrifice on the home front rarely gets the respect and recognition it deserves,” Clinton said. She supports extending childcare for military families and granting access for families to mental health and substance abuse services.


The Wall Street Journal writes that Hillary’s plan fundamentally involves increasing the funding for the agency while rejecting a substantial outsourcing of its functions.


In a 12-page fact sheet, her campaign called the long waits for care and backlog of benefits claims “government at its worst.”


Her campaign’s prescription for the VA builds on legislation co-authored by her rival for the nomination, Vermont Sen. Bernie Sanders, that combines traditional government-run health care and private services. Mr. Sanders has said that he didn’t like the privatization piece of the legislation but went along in order to get changes he wanted, including new money to fix problems in the traditional system.


A Sanders aide said Tuesday that the Clinton plan appeared to be increasing privatization in the system and noted that she is proposing such a plan on her own, while Mr. Sanders reluctantly supported private services. …


Mrs. Clinton proposed that government doctors coordinate health care and provide care for conditions related to military service, such as treatment for post-traumatic stress disorder or prosthetics. But she said the government should contract with the private sector for other services, such as surgery, mental health care and substance abuse treatment, and for times when the VA is unable to offer timely care.


At the same time, she emphasized her opposition to outright privatization, as some Republicans have proposed.


“Privatization is a betrayal, plain and simple, and I’m not going to let it happen,” she said. …


She said the VA needed to employ more gynecologists, a recognition that the agency has long been understaffed in that area of care. And her plan seeks to make it easier to fire employees who aren’t performing well and to bolster whistleblower protections for people who question the agency’s practices from inside.


The Department of Veterans Affairs came under intense scrutiny last year after reports that veterans faced excessive wait times and that the agency concealed the delays from the public. Congress passed a more-than $16 billion emergency spending measure in large part to hire new health care providers and to allow veterans to get appointments through private providers.


But there was little in her proposals to explain how these reforms were to be effected.  The VA issue is especially important because dissatisfaction with Obamacare among Democratic voters has made Single Payer -- which looks a lot like VA care -- a popular successor among its base.  But Single Payer, along with the VA reforms Clinton proposes, require one thing the Democratic candidates are loathe to discuss, namely: tax hikes.


A central promise of Barack Obama's 2008 campaign and presidency — that the middle class would not pay more in taxes — is now dividing the Democratic candidates vying to replace him, underscoring how Democrats are split over how far to go with their ambitions for what government can accomplish.


Sen. Bernie Sanders of Vermont and former Maryland governor Martin O'Malley say the middle class could see at least somewhat higher tax rates to pay for the expansive government programs they favor. They also say the middle class will benefit overall from their plans.


But Hillary Rodham Clinton, for the first time in this campaign, is now committing to the same pledge Obama made: no new taxes on households earning under $250,000 a year. Clinton also took the pledge when she ran for president in 2008 — a position that then aligned with Obama's — but she is making it today in a more populist Democratic environment.


"Hillary Clinton is proposing a bold, ambitious agenda," Clinton spokesman Brian Fallon said in a statement, "but in paying for her proposals, she fundamentally rejects the idea that we should be willing to raise taxes on middle-class households. We need to raise these families' incomes, not their taxes."


The lack of a ‘magic formula’ to fix the VA or Obamacare implies that tax hikes are the only remedy for the program’s woes.  This bald truth is likely to be unpalatable, but unfortunately that is what the Hillary Clinton proposals are all about.

Obamacare Has Fallen


The collapse of the Obamacare health co-operatives continues to damage the entire program.  


The Daily Caller reports the Health Republic of New York is now under investigation by regulators for possibly misleading authorities regarding the financial condition of the co-operative.  It is doubly embarrassing because it was founded by Sarah Horowitz, who was politically close to president Barack Obama and received large amounts of public money to jump-start and support it.


New York insurance regulators have opened an “official investigation” into the nation’s largest Obamacare health co-op for “substantial underreporting” and “inaccurate representations” of its financial condition, according to the New York Department of Financial Services.


DFS also is seeking to appoint an independent monitor to oversee the management of the failed health insurance co-op, called Health Republic of New York.


The swiftly unfolding crisis forced regulators to issue its extraordinary actions Sunday. Federal taxpayers are expected to pick up the tab for $355 million in losses due to Health Republic. …


The Obama administration awarded Health Republic $265 million in 2012 and issued an additional emergency $90 million more in September 2014 in “solvency funds.”


Health Republic is the largest of the 23 Obamacare co-ops in the country. It was founded by political activist Sarah Horowitz who first met then Senator Barack Obama when they both worked at the same think tank.


According to the New York Department of Financial Services (NYDFS) it is all part of their effort to protect consumers who have now lost their coverage in an abrupt and perhaps scandalous manner.


NYDFS is also investigating Health Republic’s representations to the State about the company’s financial condition. On October 30, 2015, NYDFS found that Health Republic’s finances were substantially worse than the company previously reported to the state, making it necessary to end the company’s policies as of November 30, 2015.


Anthony J. Albanese, Acting Superintendent of Financial Services, said: “We will continue to take aggressive action to protect consumers in the wake of Health Republic’s failure. The extended deadline and auto-enrollment option are important steps in helping ensure the company’s customers do not go without insurance. Additionally, while our first and primary focus is protecting consumers, we are also investigating the inaccurate representations Health Republic made to the State about its financial condition.”


Some two hundred thousand policy holders have been orphaned due to the collapse of the Health Republic of New York.  The Buffalo news described the local impact of this development in an area where Health Republic was #1 in the individual market.


Health Republic was one of 23 co-op insurers created with $2.4 billion in federal loans to bring competition to the Affordable Care Act’s insurance exchanges.


In New York, consumers responded to Health Republic’s low premium prices. Health Republic ultimately enrolled 215,000 individual and small-group members on and off the NY State of Health exchange, including 107,000 individual members, as of February.


In Western New York, Health Republic enrolled 12,468 individual and small-group members through the exchange, where it was No. 1 in the individual market at 43 percent.


However, Health Republic reported losses of $77.5 million in 2014 and an additional $52.7 million in the first half of this year, according to its regulatory filing. That drove the two state departments and the federal Centers for Medicare & Medicaid Services on Sept. 25 to order the shutdown of Health Republic. At first, members individual members would be able to keep their coverage through the end of the year. On Oct. 30, the state said all Health Republic members must find new coverage by Nov. 15 that takes effect Dec. 1, citing deeper concerns about the insurer’s finances.


But there’s more.  According to the Wall Street Journal, what the authorities are really trying to stem is the possibility that the failures will ripple through the insurance system and crash it. “The majority of ObamaCare’s insurance co-ops—12 of 23—have now folded, and their $1.24 billion in federal loans has all but vaporized. More will fail, nearly a million Americans may lose coverage, and now the contagion from their failures is spreading.”


The co-ops are government-sponsored nonprofits that were supposed to increase competition, but instead they’re causing the greatest insurance disruption in decades. The co-ops aren’t merely jilting their displaced members or the taxpayers who supplied their “seed money.” Local regulators are defying the feds to close them because other insurers are liable for their toxic balance sheets. …


Only five health insurers of any significant size have failed since the 2008 financial panic, along with another 10 life insurers writing health policies on the side, according the National Organization of Life and Health Insurance Guaranty Associations. The last time a dozen or more life and health insurers failed in a single year was 1994, when 13 went under, and the rolling 10-year average is 1.7.


At the direction of state insurance commissions, receivership groups called guaranty associations wind down troubled insurers and sell off assets. But under the guaranty process, any pending or outstanding obligations to policyholders, doctors or hospitals after liquidation are then transferred to all other insurers doing in-state business, based on market share.


So ultimately all consumers will pay for the co-op implosion as their IOUs are passed to commercial insurers. Guaranty associations typically are financed ex post facto, depending on how much is required, so no one can know how bad the arrears will be. But they will not be negligible, and not all the runoffs will be orderly.


The insurance world is waiting for the other shoe to drop.  Nearly all of the remaining co-operatives, 10 out 11, are bleeding cash.  It may only be a matter of time before they too collapse.


The real story is that state regulators are intervening to stop a failure contagion. In Tennessee, the Community Health Alliance Mutual Insurance Company requested a 32.6% rate increase for 2016, but the state mandated a 44.7% increase to prevent failure—and the co-op was still declared nonviable weeks later. The states know that their voters can’t draw on an ObamaCare line of credit and the longer the co-ops lose money, the deeper the guaranty holes will be. The greatest danger may be the 11 co-ops that remain in business, given that 10 have run deficits for as long as they’ve existed.


The co-ops are also exposing the larger ObamaCare problem. Contrary to popular belief, the exchanges aren’t profitable for insurers. The consultants at McKinsey inspected commercial insurer finances and concluded that the industry spent $2.5 billion in 2014 over revenue on net, even after government risk payments. Some 64% of health-care payers lost money, 23% posted earnings of $0 to $10 million, and 13% earned more than $10 million.


If they more collapse will be more than just bad news for Obamacare.  It maybe the end.

A Sad Redistribution Program


Even critics of Obamacare were willing to concede it had succeeded somewhat in achieving income redistribution.  While it might have made health insurance more expensive for most people, at least it reduced the cost for the poorest -- or so the argument went. But some economists are now arguing it is not even achieving that well.


Tyler Cowen, an economics professor at George Mason University shows that the ACA has made insurance cheaper for the poor at the cost of making it expensive for the near-poor.  In a New York Times article, Cowan explains that Obamacare insurance has become more expensive than expected because people can chance remaining uninsured, in the belief they will be given some level of care even if they are uninsured.  


This raises the cost of insurance for everyone because it reduces the participants in the risk pool.  The penalty on remaining uninsured may cut that rate of nonparticipation to some extent, but only by charging people even more money.


in an economic study, researchers measured such preferences by looking at data known as market demand curves. Practically speaking, these demand curves implied that individuals would rather take some risk with their health — and spend their money on other things — partly because they knew that even without insurance they still would receive some health care. These were the findings of a provocative National Bureau of Economic Research working paper, “The Price of Responsibility: The Impact of Health Reform on Non-Poor Uninsureds” by Mark Pauly, Adam Leive, and Scott Harrington; the authors are at the Wharton School at the University of Pennsylvania.


One implication is that the preferences of many people subject to the insurance mandate are likely to become more negative in the months ahead. For those without subsidies, federal officials estimate, the cost of insurance policies is likely to increase by an average of another 7.5 percent; even more in states like Oklahoma and Mississippi. The individuals who are likely losers from the mandate have incomes 250 percent or more above the federal poverty level, the paper said. (The federal poverty level is $11,770 for a single person, more for larger families). They are by no means the poorest Americans, but many of them are not wealthy, either. So the Affordable Care Act may not be as egalitarian as it might look initially, once we take this perspective into account.


Megan McArdle, another prominent pundit on public policy and economics has tracked the effect of Obamacare on the prices of insurance besides the “benchmark silver plan”.  She concludes that they have risen far more than anyone had expected.


Last week, the Centers for Medicare and Medicaid Services released the 2016 premium data for the “benchmark” plans in the states using federal exchanges. Those are the second-lowest-cost Silver plans in each area, a benchmark chosen by health-care experts using arcane methods involving chicken entrails and a pound of dry rhinoceros horn. …


This data, which showed premiums rising an average of 7.5 percent, is useful. But it is limited. We’d like to think that this tells us “how much premiums went up,” but it’s not that simple.


First of all, while the subsidies are pegged to the benchmark plan, not everyone buys that plan. Some people buy the cheapest Silver plan. Some people buy a more expensive one. Some people buy an even cheaper Bronze plan, and some people spring for Gold or Platinum coverage. Knowing how the price of the benchmark has changed tells us a great deal about how the subsidies will be calculated in 2016, but not nearly as much as we’d like to know about what people are experiencing in the marketplace. …


subsidies are probably the biggest thing keeping the markets from sliding into the dreaded adverse-selection “death spiral,” in which sick people are more likely to buy insurance, so the pool is sicker and more costly, so prices go up, so the healthiest folks decide the insurance isn’t worth it, so the pool gets sicker and more costly….


Contrary to expectations, the mandate really doesn’t seem to be doing much to get people to buy insurance, at least yet (the penalty is set to go up again this year, and that may get people to pay attention). The subsidies, on the other hand, clearly have a large effect, which is why the customer base for the exchanges is so disproportionately composed of folks who are getting large amounts of taxpayer assistance to buy insurance. Anything that increases the gap between the cost of the insurance and the subsidy they are getting is therefore worrisome, if you want the exchanges to get and stay healthy. …


The biggest thing they tell us is that, as I suspected when I wrote about the CMS release, the whole bottom of the market is undergoing a fairly massive repricing. In most states, the cost of the cheapest Silver plan, relative to the cheapest one last year, rose even more than the benchmark rate. And in most states, the cost of the cheapest Bronze plan went up by more than the cost of the cheapest Silver plan. (The average increase was 13 percent, but it looks as if it's unweighted, while the government used a weighted average. As I noted last week, the weighted average is usually the most meaningful national metric, but the unweighted can be revealing as well.)


That still doesn’t tell us what happened at the top of the market, with the carriage trade splurging on policies that cover nearly everything. But I think there’s one thing we can say for certain: Insurers significantly underestimated how much people would spend on health care, even if they chose stripped-down plans that have narrow provider networks and require consumers to cover a significant portion of their own costs.


Actual experience shows that many Americans, include many poor ones, have been hit hard by higher prices in order to lower the prices for a comparatively small number of metal plan beneficiaries.  Whether it is worth it is a value judgment.


It may be objected that since the real Obamacare coverage gains occurred in Medicaid, it is there to which one must look to judge its redistributive efficacy.  But even there the record is grim.  Evelyn Everton and Chris Hudson describe in the Wall Street Journal how states, falsely relying on the belief they were getting “free” expansion money from the Feds, got themselves into dire financial trouble.


Things began promisingly enough with the usual promise of something for nothing.


Recall that the Affordable Care Act was designed to essentially bribe states to expand their Medicaid programs: The feds offered to pay 100% of additional costs through 2016, dropping to 90% by 2020. This “free money” prompted 30 states and the District of Columbia to take the deal. Democratic activists have joined with state hospital lobbies to pressure lawmakers in the remaining 20 state capitals to follow.


That was certainly the case this year in Utah and Florida, where we live. This spring the Utah state Senate passed a Medicaid expansion bill backed by Gov. Gary Herbert, who espoused the “free money” argument during his January State of the State address. “We can either watch our hard-earned tax dollars remain on the table in Washington, D.C.,” he said, “or we can bring back a significant amount of our own money to be spent on Utahans.” The more conservative House, which noted the proposal’s $328 million price tag over 10 years, never passed the bill out of committee.


But there were some who suspected it was too good to be true.  How could you get something for nothing?  Indeed one could not.  The idea that “we can bring back a significant amount of our own money to be spent on Utahans” provided the clue.  Medicaid expansion was ultimately identical to spending Utahan money, even though it might come from the Federal government.  Therefore any expansion was tantamount to increasing a state program, which meant more state taxes.


The Florida House, concerned over the unknown future liabilities, refused to pass the plan. This led to a budget standoff, forcing a 20-day special session in June. After almost seven hours of debate, the chamber rejected the Senate’s proposal 72-41.


Florida and Utah taxpayers will thank their legislators in the years to come. Consider the experience of the states that did expand Medicaid. “At least 14 states have seen new enrollments exceed their original projections, causing at least seven to increase their cost estimates for 2017,” the Associated Press reported in July.


The AP says that California expected 800,000 new enrollees after the state’s 2013 Medicaid expansion, but wound up with 2.3 million. Enrollment outstripped estimates in New Mexico by 44%, Oregon by 73%, and Washington state by more than 100%.


This has blown holes in state budgets. Illinois once projected that its Medicaid expansion would cost the state $573 million for 2017 through 2020. Yet 200,000 more people have enrolled than were expected, and the state has increased its estimated cost for covering each. The new price tag? About $2 billion, according to the Chicago Tribune. …


Unlike the federal government, most states have strict balanced-budget requirements. As Medicaid costs spiral, lawmakers must cut spending from vital priorities like education and infrastructure, raise taxes or do both.


Which is to say that expanding Medicaid under the pretense that it represents “free money” from the federal government is the epitome of being penny-wise and pound-foolish.


The fact is the Federal Government has no “free money” to give away.  The former chief of the GAO told an audience recently that US debt is three times more than the public thinks. Uncle Sam is $65 trillion in a hole.  Any money spent will have to come from somewhere.


Dave Walker, who headed the Government Accountability Office (GAO) under Presidents Bill Clinton and George W. Bush, said when you add up all of the nation’s unfunded liabilities, the national debt is more than three times the number generally advertised.


“If you end up adding to that $18.5 trillion the unfunded civilian and military pensions and retiree healthcare, the additional underfunding for Social Security, the additional underfunding for Medicare, various commitments and contingencies that the federal government has, the real number is about $65 trillion rather than $18 trillion, and it’s growing automatically absent reforms,” Walker told host John Catsimatidis on “The Cats Roundtable” on New York’s AM-970 in an interview airing Sunday.

The former comptroller general, who is in charge of ensuring federal spending is fiscally responsible, said a burgeoning national debt hampers the ability of government to carry out both domestic and foreign policy initiatives. …


He said Americans have “lost touch with reality” when it comes to spending.

Walker called for Democrats and Republicans to put aside partisan politics to come together to fix the problem.

“You can be a Democrat, you can be a Republican, you can be unaffiliated, you can be whatever you want, but your duty of loyalty needs to be to country rather than to party, and we need to solve some of the large, known, and growing problems that we have,” he said.


The states are discovering that the additional money will have to come from them. That does not mean that money spent for patients under Medicaid expansion is wasted, but it does mean that it comes at the cost of other services, like schools, public safety and infrastructure repair.


There is no free lunch.


Taken together actual experience has shown that the redistributive benefits of Obamacare are offset by very real costs.  The subsidized metal plans have raised premium costs for everyone else, especially the near-poor, sometimes quite dramatically.  Medicaid expansion has provided services to the poor, but it has been paid for at full cost, often crowding out other essential services.


In summary, Obamacare has been a very expensive and arguably a very wasteful redistribution program.   Perhaps the government could have done better by mailing a voucher out to the poor rather than creating a giant new bureaucracy.

Networks Are Narrowing Painfully


Two thousand fifteen may eventually be known as the year Obamacare started shrinking.  ACA health plan providers, under the relentless pressure of economics, either began to cut back their product features in an attempt to stay afloat or collapsed under their customers.


The demise of the Health Republic Insurance co-operative of New York stranded 200 cancer patients at Sloan-Kettering without coverage.  “Now the patients either have to find new insurers and doctors or pay higher out-of-pocket costs for extended care at Sloan.”


Some 250 patients receiving treatment at Memorial Sloan Kettering Cancer Center are facing a crisis because they signed up with the only ObamaCare insurer in New York that provides coverage at the world-renowned hospital — and the insurer is going bust. …


Under state law, patients are guaranteed 60 days of “continuity of coverage” at the facility where they are being treated.


Sloan Kettering said it is urging the state to extend that to one year.


But no other ObamaCare insurer has been able to reach a deal with Sloan Kettering, leaving the Health Republic patients in the lurch.


“Unfortunately, at this time, no exchange plan has agreed to include access to Memorial Sloan Kettering despite our concerted and consistent attempts,” said hospital spokeswoman Christine Hickey.


Across the country in Nevada the same sad tableau was being acted out as a well known cancer center abandoned an Obamacare co-operative because it wasn’t being paid.


Comprehensive Cancer Centers of Nevada has left the provider network of Nevada Health CO-OP, a nonprofit insurer created to sell coverage through the Nevada Health Link exchange. Because Nevada Health CO-OP was the only carrier on the exchange to contract with Comprehensive Cancer Centers, patients who want to visit the practice must now buy a plan off of the exchange or pay out of pocket. …


Comprehensive Cancer Centers has abandoned the CO-OP’s network because it was taking as long as 60 to 90 days to get reimbursed for services, said medical oncologist and practice President Dr. James Sanchez. The industry norm is 32 to 33 days, he said.


“It was long enough that it was just not something that was conceivable for our business to survive on,” Sanchez said.  …


The move does not affect CO-OP members actively receiving chemotherapy, radiation therapy or other treatments through Comprehensive Cancer Centers. But new referrals, as well as patients in follow-up or just getting labwork done, must find other options. The practice also has financial counselors to help patients figure ways to pay for treatment.


The change could affect thousands.


The Texas Standard says these are not isolated incidents associated with a few failing providers, but part of a widening disappearance of high end services from insurance plans.


The healthcare marketplace is open once again, but if you look closely at the offered insurance plans you might find something lacking: coverage for specialized treatments.


Preferred Provider Plans, or PPOs, often do cover specialized treatment like care for cancer patients.The loss of individual-market plan PPOs will affect tens of thousands of people who buy their insurance privately rather than through an employer. Before the Affordable Care Act, it was the way most people who did not have employer insurance got coverage.


Jenny Deam, with the Houston Chronicle, investigates the disappearance of these plans. She says there will no longer be any plans, by any carrier on the federal exchange for the Houston area, that cover treatment at the MD Anderson Cancer Center. How the marketplace got that way, she says, is a little unclear.


In other words there is only a shrinking pathway from an Obamacare exchange into the famous MD Anderson cancer clinics.  The ACA is selling admission to a museum where all the good exhibits are marked “off limits”. The providers have cut back on services in order to make the premiums affordable.


“The PPOs had started disappearing a couple of years ago,” she says. “The last one in Houston was Blue Cross Blue Shield of Texas and they announced in the summer that they were getting rid of them, that they were no longer sustainable. PPOs with their wider range of network and hospitals… are very expensive.”


What insurers have done instead is shift people in the individual market and on the healthcare exchange to HMOs, which are usually less expensive. The downside, Deam says, is that patients with specialized and complex medical needs will have limited coverage.


In her investigation, Deam profiled one cancer patient, Martha Gardenier, who was told by a doctor that she needed to start making end-of-life preparations. She sought a second opinion from MD Anderson, and began to see her situation improve from Stage 3 to Stage 1 cancer. This experience showed Gardenier that not all doctors who treat cancer are created equal – that she was getting better care at MD Anderson.


Now, it’s as if that carpet is being pulled out from under her. Gardenier will no longer will have a PPO that will cover the costs as it once did. She’s going to have to pay out-of-pocket for care that could reach $10,000 a month.


As Bruce Japsen notes in Forbes, the networks are narrowing to exclude much of the good stuff. It’s not just the failing co-ops which are being affected.  The narrowing is happening on a national scale.


Humana said it will discontinue several products offered on government-run exchanges under the Affordable Care Act, impacting about 100,000 individuals currently covered by the insurer’s plans across the country.


The move, disclosed this morning in the company’s third-quarter earnings report, comes due to higher-than expected medical costs from sick newly insured patients covered under the health law. …


The plans Humana will discontinue had “product designs which attracted a higher-utilizing member base than was assumed when the 2015 plan offerings were priced,” the company said but didn’t specify the kind of plans that will be pulled. “The transitory nature of the population served has also contributed to use of emergency room services and non-participating providers above priced-for levels.”


Although the increasing cost of premiums has hogged much of the headline space over Obamacare the much more important story has been the rise in deductibles.  Now the network narrowing has reached the point where it’s beginning to be noticeable.  In economic terms these are just different forms of the same phenomenon: the rising cost of insurance.


The price of Obamacare, as expressed in premium cost, deductibles and network size, is increasing.  To use the metaphor of a network, where they cannot raise the price of the ingredients they are adding access fees or cheapening the ingredients.  But the net result is a reduction in value for money.


It is the hope of Obamacare advocates that the decline will level off at some point.  But if it doesn’t Health Insurance will become a major issue in the 2016 elections the way it was in Kentucky.  Obamacare is becoming a millstone round the administration’s neck.

Obamacare Advocates Say Bevin Can’t Reverse History


The reaction of Obamacare supporters to Kentucky’s governor-elect Matt Bevin’s pledge to undo Obamacare have fallen into three general categories:


How dare he do it?

He can’t do it.

He will do it but it won’t mean anything.


The Huffington Post’s piece by Jeffrey Young and Jonathan Cohn is an example of reaction #1.  It laments the insanity of it all:


Bevin has vowed to roll back Kentucky's participation in the Affordable Care Act by dismantling the state's health insurance exchange, Kynect, and curtailing the expansion of Medicaid that has given health coverage to about 400,000 poor Kentuckians since 2013.


"It's heartbreaking. It really is," said Emily Beauregard, the executive director of Kentucky Voices for Health, an advocacy organization in Louisville. "We see a lot of positive things happening in Kentucky, and we're really concerned that we're going to lose some of that access to care that's been so critical, and that all the work that we've done and the national model that Kentucky has become is going to be lost." …


Bevin's election jeopardizes those advances and marks the first time since Obamacare sign-ups started that a new governor will ascend on a platform that includes undoing elements of the program already in place. Republican Arkansas Gov. Asa Hutchinson had such an opportunity this year, but declined to support doing away with the privatized Medicaid expansion created by his Democratic predecessor, Mike Beebe, despite conservatives clamoring for its repeal. Four states either abandoned plans for handling their own enrollments or halted those activities amid technical or financial troubles, but Kynect would be the first successful state-run exchange to shut down.


During his campaign against Democratic Attorney General Jack Conway, Bevin promised to reverse the course set by term-limited Gov. Steve Beshear, a Democrat who established Kynect and expanded Medicaid under state laws that allowed him to circumvent the state legislature, which is divided between Republicans and Democrats.


Tierney Sneed of Talking Points Memo takes the #2 approach by arguing that Obamacare was designed to be irreversible.  It was like the Hotel California.  You could check out any time you liked, but you could never leave.


Matt Bevin wouldn't be the first politician to over-promise and under-deliver.


But what the Obamacare-hating Bevin has promised to do as Kentucky's new Republican governor versus what he may actually be able to do offers new insight into how entrenched Obamacare already is in the health care economy.


Top health policy experts contacted by TPM the day after Bevin's victory weren't panicking or predicting a dramatic rollback of Obamacare in Kentucky. They were generally concerned about mischief Bevin could make at the margins, because any additional hassle faced by insurance customers can dampen participation. But experts watching closely said they were skeptical Bevin would be able to deliver a grave setback to the progress the state has made through its Obamacare programs.


“It is nearly politically impossible to take benefits from people -- even for Republicans,” Caroline Pearson, vice president of Avalere Health, an independent consulting firm and a top expert on health policy, told TPM. “I think that’s not likely to happen, even though that might sell well on the campaign trail.”


For TPM’s sources, history travels in only one direction.  Just to make sure nobody missed the point Ryan Cooper of the Week penned an article ominously titled “How many Kentuckians will die if Matt Bevin snatches away ObamaCare?”  For life of him, Cooper can’t understand why people would choose to commit suicide, or why there should be elections or even why the states should exist at all.  He writes:


At any rate, there are several things to note here.


One is how Democrats are still absolutely terrible at off-year, down-ballot elections: Turnout in Kentucky was a measly 31 percent. On the one hand, this speaks to Democrats' generally weak state-level organization (though as Greg Sargent points out, they are working feverishly on it), but on the other, it demonstrates how utterly senseless it is to have elections on weird off-year dates. Turnout is higher during presidential elections and lower during midterms — and lower still on off years. The lower the turnout, the older and whiter — and hence more conservative — the electorate.


A second thing is simply how much headache the byzantine and decentralized structure of ObamaCare is causing. America's vaunted "federalism" generally means giving conservative states an opportunity to harm their own citizenry. If Congress had simply removed Medicaid from state budgets and control, and then expanded it, we wouldn't be having this discussion.


However, it's not clear that Bevin will actually have the nerve to snatch coverage from hundreds of thousands of vulnerable people and cause hundreds of pointless deaths. He might instead throw people onto the federal exchange, which now works pretty well, and seek a waiver from the government allowing a quasi-private Medicaid expansion, which has worked okay in Arkansas and Indiana.


Cooper refers to transferring people onto the Federal exchange, something which many states including Oregon have done -- as something reprehensible, which no doubt it may be.  But that is damning the program he wants to defend in the first place.


Talking Points Memo finally admits it doesn’t quite know what Bevin will do, but he feels he won’t be able to do much. “When it comes to tackling the state exchange, Bevin’s plan to eliminate it and move users on to a federal exchange is fairly clear cut, though it would not have a major impact on the benefits users receive from the marketplace, experts said.”


The thing to watch, according to Health Affairs Blog, is how he moves on Medicaid expansion. David Jones writes:


The stakes are not so high with the dismantling of the exchange. There are some advantages to running the exchange at the state-level, including the ability to control outreach and to reduce churn by better coordinating with other programs. However, the Supreme Court’s decision in June affirms that people will have access to subsidies regardless of whether they get coverage through an exchange run by the state or federal government.


The consequences of repealing the Medicaid expansion, on the other hand, would be enormous. More than 400,000 people would lose the coverage they had just gained. Kentucky would join the remaining 19 states with a gap in which people are too poor to receive help on the exchange and ironically too well off to qualify for the old Medicaid program.


TPM understands that Bevin has a way out by converting the Medicaid money into a customized state program.  


Bevin’s intentions for the Medicaid expansion are much murkier. He could roll it back entirely, as he at first suggested he would do. But in more recent interviews -- perhaps due to political blowback -- he has said he would alter the expansion instead.


"We're going to use what's called 1115 waivers. An 1115 waiver will be our request to CMS [the federal agency that runs Medicaid] for basically the ability to take a block grant and customize as Indiana and others have done to actually come up with a program that will provide for these folks," Bevin told NBC News the day before the election. "Nobody's losing anything.


In theory, the waiver program -- which dates back decades, to Medicaid before Obamacare -- is for states to try to out new ideas to make programs more effective. In practice, experts said, red states that have used them for Obamacare's Medicaid expansion have largely made their programs more complicated.


This is not as pointless as TPM thinks it is because Obamacare is in deep trouble.  With its premiums increasing in 2016 and the individual penalty up, people will be driven out of it anyway.  Besides Medicaid expansion -- and therefore the 1115 waivers -- is where all the poor people will fall back upon for treatment.


Bevin only has to do better than the disaster overtaking Obamacare in 2016 to justify his election.  At least he’ll have a chance to.  The other governors stuck with standard Obamacare will have no chance at all.

Bevin’s Victory in Kentucky Foreshadows Trouble for the ACA


Obamacare’s newest victim might be Jack Conway, the Democratic Party’s candidate for governor of Kentucky.  The New York Times describes the stunning victory of Republican Matt Bevin who ran in part on opposing the Affordable Care Act.


Matt Bevin, a Republican political novice, wealthy Louisville businessman and Tea Party favorite, was elected Kentucky’s next governor on Tuesday and swept fellow Republicans into statewide office with him. The stunning victory heralds a new era in a state where Democrats have held the governor’s mansion for all but four of the last 44 years.


In beating his Democratic opponent, Attorney General Jack Conway, Mr. Bevin, 48, shocked people in his own party, who believed that the climate in Kentucky was ripe for a Republican but feared that Mr. Bevin, a charismatic conservative with a go-it-alone style, was too far out of the mainstream and too inexperienced to win. …


Of the six statewide offices in Kentucky, Republicans currently hold one; Tuesday’s results mean they will hold four — and Mr. Bevin’s running mate, Jenean Hampton, will make history as Kentucky’s first African-American to hold statewide office.


In one sign of how bad the night was for Kentucky Democrats, State Auditor Adam Edelen, seen by many as a rising star — and a possible 2016 challenger to Senator Rand Paul — lost his bid for re-election.


The NYT tries to soften the blow against Obamacare, although the brutal election result appears to speaks for itself.


Mr. Obama’s health care law was an especially contentious issue in the race, and some see the Bevin victory as a rebuke to Gov. Steve Beshear, a Democrat, who expanded Medicaid under the measure. An estimated 420,000 Kentuckians, nearly 10 percent of the state’s population, now have coverage as a result. Mr. Bevin, a fierce opponent of the health care law, at first said he would reverse it, but has since softened his position and said he would stop enrolling new people but would not take coverage from those who had it.


The Washington Post seems unable to reconcile the election tally with what they saw as an implicit endorsement of Obamacare and struggled to make sense of it. David Weigel writes that despite the seeming popularity of former Gov Steve Beshear’s insurance exchange, Bevin ran against it.


When people called Greg Stumbo to talk "Obamacare," it was usually to say they were against it. The Democratic speaker of the Kentucky House of Representatives knew just what to say. President Obama had nothing to do with their health care, not really. They were eligible to find insurance on KYnect, the exchange created by popular outgoing Gov. Steve Beshear (D-Ky.). …


The disconnect between Obamacare and KYnect was one of the great paradoxes of American politics. In polls, Kentucky voters rejected Obamacare at roughly the rate they rejected the president, 2-1. But they were fond of KYnect, which Beshear created by executive order, bypassing a gridlocked Kentucky legislature. Month by month, Kentuckians took advantage of the state's Medicaid expansion or the plans offered on the exchange, and the state's uninsured rate plummeted from 20.4 percent to 9 percent. Beshear predicted that "the Democratic nominee will make this a major issue and will pound the Republicans into the dust with it.”


On Tuesday night, it was the Democrats eating dust. Attorney General Jack Conway, who was expected to replace Beshear, lost in a rout to Tea Party activist Matt Bevin. Conway defended KYnect; Bevin called it a disaster. While his prescription for changing it shifted, he ended the race with a promise to undo Kentucky's successful experiment.


Wiegel thins it is a case of voters behaving irrationally, or as he put it “striking out against their interests”.


Bevin's win, and the Republican victories in neighboring Virginia, were body blows to Democratic hopes of enforcing the Affordable Care Act. Virginia voters rejected a chance to hand the state Senate back to a party that would expand Medicaid; some Kentucky voters who had benefited from the expansion surely voted against the candidate who'd keep it as is. Bevin pulled some of his best numbers in Kentucky's impoverished eastern counties, where enrollment had been highest. As the polls closed, the situation reminded author Thomas Frank of his thesis in "What's the Matter With Kansas?" of voters striking out against their interests.


But the rationality of the voter’s choices was not hard to find.  As Politico noted a week ago, Kynect and Obamacare were being perceived as a disaster by voters who could see rising premiums, collapsing health co-ops and increasing state budgets.  “The sudden collapse of nonprofit health plans supported by tens of millions of dollars in Obamacare loans is igniting a new political wildfire over the health law — and it’s playing out in a tight gubernatorial race in Kentucky.”


The recent demise of Kentucky Health Cooperative, a nonprofit startup seeded with federal loan dollars under the Affordable Care Act, is part of a bigger, national trend. More than a third of the 23 nonprofit health plans created under Obamacare with $2.4 billion in federal loan dollars have collapsed, and most experts predict more failures on the horizon. Late last week, South Carolina’s co-op became the ninth to fail, following similar crashes in Iowa, Louisiana, Nebraska and New York.


But Kentucky is in the spotlight because the co-op went bust earlier this month amid a high-stakes political contest and it is quickly becoming a wildcard issue. The Kentucky plan dominated exchange enrollment during the first two years of operations, capturing roughly 60 percent of customers in a red state hailed as a symbol of Obamacare’s potential. Those Kentuckians will now have to scramble to find new coverage during the looming open-enrollment period, beginning Nov. 1, just as voters head to the polls to pick a new governor.


The political scale of the Kentucky Health Cooperative’s collapse was enormous. “The Kentucky Health Cooperative announced on Friday it is going out of business and will not enroll new members next year, leaving 51,000 members to find other coverage.”  Not only did it go out of business, it took millions of dollars in taxpayer loans down with it.


Kentucky’s co-op had been awarded $146.5 million in taxpayer loans, including $65 million in solvency funding as recently as November of 2014.  Premium increases of more than 20% for 2016 had been approved, and the co-op had been banking on risk-protection payments from other insurers to maintain a semblance of solvency.  It had asked for $77 million from the risk corridor program but just learned it was to receive only $9.7 million, according to interim CEO Glenn Jennings.


The news is only going to get worse for Obamacare.  The economics of it are reflected in the mirrored in the demise of the risk corridor payments, which are reflection of the profitability of the program.  For the president the problem is not Kentucky.  It is what Kentucky is a harbinger of.

A Giant Bait and Switch


The failure of the Obamacare co-ops has been headline news in the health insurance industry.  Edmund F. Haislmaier of the Heritage Foundation lists out the tale of woe. “Cooperative health insurers (or co-ops) created under a federal grant and loan program in the Affordable Care Act seem to be falling like dominoes.”


It started in February, when CoOportunity Health, which operated in Iowa and Nebraska, was ordered into liquidation. In July, Louisiana’s insurance department announced it was shuttering that state’s co-op. The following month brought news that Nevada’s co-op would also close. On September 25, New York ordered the shutdown of Health Republic Insurance of New York, which had the largest enrollment of all of the co-ops. Then, within the space of a week in mid-October, the number of failures doubled from four to eight, as state insurance regulators announced that they were closing the co-ops in Kentucky, Tennessee, Colorado, and one of the two in Oregon. Last week came news that South Carolina’s co-op will be closed, followed this week by the announcement that Utah’s co-op is also being shut down.


In sum, of the 24 Obamacare co-ops funded with federal tax dollars, one (Vermont’s) never got approval to sell coverage, a second (CoOportunity) has already been wound down, and nine more will terminate at the end of this year.


The conventional wisdom is that the failure of the co-operatives was the result of idealists who got in over their heads.  Haislmaier argues that they were completely un-businessnesslike:


The program offered federal loans and grants to startup insurers but required that they be non-profits, not have anyone affiliated with an existing health insurer on their boards, and not spend any of their federal funding on marketing.


Co-ops are also subject to another provision of the ACA requiring all health insurers to pay out in claims at least 80 percent of premium revenues, or refund the difference to policyholders. By law, insurers can retain no more than 20 percent , out of which they must fund sales and administrative costs before booking any remainder as free cash. That significantly constrains a non-profit carrier’s ability to accumulate capital needed for growth, as it can’t raise funds through equity or debt offerings.


Imagine how a business school class would react to their professor assigning them the task of planning a start-up, but with the restrictions that: 1) experts at other companies in its industry were barred from serving on its board; 2) it would have virtually no access to capital other than government loans; 3) it couldn’t use those funds to market its products, and 4) if successful, it couldn’t retain more than nominal profits to fund future growth.


As if that wasn’t daunting enough, the law also required co-ops to focus “substantially all” of their activities on offering health insurance in the individual and small group markets—just as other provisions of Obamacare were thoroughly disrupting those markets by imposing new rules on insurers and complicated new payment arrangements for many of their customers.


One of the co-operatives that did not go under, Health Republic of New Jersey, survived because it relied on “risk adjustment payments” rather than the other method of subsidy: the “risk corridors” which have gone bankrupt.


Unlike other co-ops, Health Republic of New Jersey did not rely on risk corridors payments, a federal reimbursement program that fell short. And it gradually built its enrollment, allowing it to better manage risk and capital reserves. It was also one of the few co-ops that benefited from risk adjustment payments, meaning its patient population was sicker when compared to the average patient population in the state.


The risk adjustment program collects money from low risk pools (insurers with healthy clients) and pays them out to insurers with high risk pools (insurers with sick clients).


Historically, risk adjustment was only used in Medicaid and Medicare – in effect, redistributing some revenue from health or drug plans with a relatively healthier mix of members to those plans with a more costly enrollment profile.  However, the Affordable Care Act (ACA) extends risk adjustment to the individual and small group health insurance markets starting in 2014.


A new brief from The Synthesis Project tackles the issue and makes several interesting recommendations for how to improve risk adjustment methods for the post-ACA market. Without accurate risk adjustment, health plans have a strong financial incentive to seek out only the healthiest enrollees, especially under ACA-mandated adjusted community rating.  …


Risk adjustment is particularly important now because the health reform law placed new restrictions on premiums health plans could charge to high-cost groups. For example, a consumer’s health status and sex may not be used to set premiums, even though unhealthy consumers and women tend to have higher per capita medical costs. Health plans will also be limited in their ability to vary premiums based on a person’s age.


Health Republic of New Jersey survived because it took in poor risks whereas the Health Republic of New York assumed good risks.  The savings of having a low risk population were less than the payouts from a government entity. The survival of the NJ co-op was due to artificial bureaucratic considerations, not basic economics.


Nowhere is the contrast clearer than when you compare Health Republic of New Jersey to its neighbor, Health Republic of New York, which was forced to wind down last month.


Health Republic of New York had an unexpectedly huge surge in enrollment the first year with a healthier than average population, so it had to pay out a huge sum in risk adjustment and was banking on the risk corridor payments. …


Health Republic of New Jersey was one of a handful of co-ops that didn’t count on the risk corridor payments.


“Based on our actuary’s suggestion, we did not build any risk corridor payment into our 2015 rates,” Health Republic of New Jersey spokesperson Cynthia Jay said in an email. “There was discussion at the time whether those funds would be available so we took the more conservative route.”


One failing health co-op, Health Republic Insurance of Oregon warned that the failure of the risk corridors expose the program as a house of cards.  Dawn Bonder, CEO of Health Republic Insurance of Oregon said the economics are murder.  She claimed the risk corridors were part of the presumed business environment and accuses the government of “bait and switch”.


“It is likely we will see more CO-OPs cease operations,” she continues. “I wouldn’t be surprised if two to four more go in the near future. I also think we will see non-CO-OP carriers cease operations as well.”


The risk corridor program and the federal reinsurance program are the two temporary programs designed to mitigate the risks of entering the ACA market with little data to rate plans. A third program, risk adjustment, also helps to spread the risk and is a permanent program.


Moda Health made news earlier this year for its expectation of $82.5 million from the risk corridor program. The Portland Business Journal commented that this figure,which makes up 70 percent of the carrier’s total capital, raised significant questions about the balance sheet of Oregon’s largest health insurer.


“It was a quid pro quo agreement; if risk corridors had not been a part of the ACA, health plans would have been facing unfathomable risk in a new market. Carriers participating in the ACA market entered in good faith. For the federal government to turn around and say “we changed our minds” is the definition of a bait and switch,” said Bonder.


According to Bonder, part of the reason things are so tough is because Obamacare metal plans are competing with Medicaid expansion.  With the qualifications for Medicaid so lax, young people are flocking to it, starving insurance pools of the healthy people they need to lower costs.  With the low-cost people going to Medicaid, outfits like Health Republic of Oregon get left with the dregs.


“1 in 3 people are on Medicaid and many of them are very young. With this Medicaid population—who is in the commercial individual market? I think we are starting to find out, and they are the most costly individuals,” said Bonder. “There is also the question of what is going to happen as Medicaid becomes more of a state obligation. Historically, it has been very difficult to raise money in this state. I have concerns about when this market will find equilibrium as it is not a sustainable situation.”


Moda Health, which is not a co-operative, was badly struck by the collapse of the Obamacare risk corridors.  It is hanging on , largely due to its greater resources.  But its condition remains parlous.


Moda Health CEO Robert Gootee sounded a confident and optimistic note about the insurer’s ability to collect the full $89.5 million owed it from a federal government program.


Meanwhile, he said, Moda can withstand the financial hit.


“We have a lot of capacity within our corporation with which to handle the ups and downs of these turbulent times,” Gootee said. “We’re going to move forward with this in a positive way.” ...


Moda will receive $11.3 million under the "risk corridor" program for last year, far short of what it was expecting. Contributions to the program from more profitable insurers aren’t sufficient to cover losses from the less profitable. So the program is paying out only 12.6 cents on the dollar for last year.


Despite the $78 million hit to its bottom line, Gootee said Moda will have sufficient “risk based capital,” as required by state regulators. Its parent company, ODS, has $3 billion in revenue.


“We have put capital from our holding company into the system to remain above those thresholds,” Gootee said. “If we have to write off most of last year and all of this, it will flow through to a big loss on our statement. Will we still remain in compliance with regulatory standards? Yes.” …


Gootee noted that the risk corridors program was one of three risk mitigation programs designed to ease insurers into the individual market under the new rules of the Affordable Care Act. Moda received a net payment from the government of $96 million under the other two — the reinsurance and risk adjustment programs.


Some insurers weren’t banking on the risk corridor program paying in full, after Congress late last year deemed it to be “budget neutral,” meaning no other funding could be drawn on in the case of a shortfall.


Moda booked the full amount on its 2014 financial statements.


“We have a significant receivable,” Gootee said “Unless it was immaterial or you couldn’t estimate it, you had to book it. Our auditors believe it was the right thing to do.”


Moda was expecting $61.5 million from the risk corridor program for this year, but that’s also been thrown into doubt. He said the total loss or gain from the program won’t be known until the fall of 2017.


What insurance providers are counting to get them out of trouble are higher insurance premiums.  “Next year, the program could be much more solvent for a few reasons, he said. For one thing, rates are going up next year in the individual market, so the losses should be less.” But higher premiums could be dynamite for a politically controversial Obamacare.


Zachary Tracer wrote in Bloomberg that although premiums will climb in 2016-17, insurers will struggle to stay afloat.  That is because premiums were set too low to “lure customers”.  It was bait and switch not only for co-ops, but for their members as well.  


Many people shopping for health coverage this weekend on the websites created by Obamacare are going to see double-digit percentage increases in their premiums. That’s still not enough for some insurers.


Anthem Inc. says there remain competitors in the government-run marketplace offering premiums that aren’t enough to profitably provide the coverage patients will require. Prices in some areas probably will have to climb in 2017 and even 2018 to reach levels that make sense, according to Chief Financial Officer Wayne Deveydt. Meantime, Anthem will sacrifice market share to keep its plans profitable, he said.


“When you have fewer national enrollees and you have price points that we don’t believe are sustainable, we’ve just made a conscious decision we’re not going to chase it,” Deveydt told analysts on a conference call on Wednesday. “We are going to need to be patient until this works itself out.”


Deveydt’s remarks spotlight a problem for the Patient Protection and Affordable Care Act’s marketplaces as the third annual sign-up period begins Sunday. Set prices too low to lure customers, and losses can mount. Some smaller firms already have closed, and some bigger insurers have withdrawn from markets -- such as Aetna Inc., which will offer coverage in two fewer states this year.

Obamacare was priced at loss, under the cynical assumption that prices could later be foisted on a by-then captive market. Unfortunately, the trap sprang too soon and it is begin to fall apart prematurely.

Design Flaws Catch Up


Is Obamacare affordable?

As usual two different narratives about the affordability of Obamacare are being told.  On the one hand, the administration is maintaining that, when tax credits are taken into consideration, insurance premiums are cheaper than ever.  On the other hand, many stories report that premiums are rising by 7.5% on average nationwide.

These stories can be confusing.  What does it all actually mean?  The base tables are shown by the Kaiser Family Foundation.  It consists of two columns.  One column shows the 2015 and 2016 monthly premiums for Obamacare insurance without tax credits “for a 40 Year Old Non-Smoker Making $30,000 / Year” buying the 2nd Lowest Cost Silver Obamacare plan.  The other column shows the same data after a tax credit.

When CNN Money reports that “premiums will increase an average of 7.5% for the benchmark silver insurance plan next year in the 37 states using the federal Obamacare exchange, according to the Department of Health and Human Services,” they are referring to the numbers in the first column.

The HHS report, released late Monday, focuses on the monthly premiums for the benchmark silver plan, the second lowest cost plan, which is used to calculate premium subsidies. It did not look at the District of Columbia and 13 states that run their own exchanges.

The largest increase among the 37 states was in Oklahoma, where the benchmark plan's premium rose by an average of 36%. Other states with premium increases of more than 25% were Alaska, Montana and New Mexico.

And indeed when we look at the Kaiser data the entry for Oklahoma it shows increase referred to, which is the highest for all states.

How does one reconcile it with stories from other sources, for example Jayne O’Donnell’s piece in USA Today which says that health care premiums are low or going down? That is because it refers to the second column, and further more to a poorer demographic than “a 40 Year Old Non-Smoker Making $30,000 / Year”.

About 70% of those who return to the federal insurance exchange when open enrollment starts Nov. 1 will pay less than $75 a month after they receive tax credits, a government analysis released Monday shows.

The Centers for Medicare and Medicaid Services also reported that for this third open enrollment about 80% of consumers shopping again on will be able to pay less than $100 a month after tax credits.

The way to understand these contrasting figures is to realize the comparison is between apples and oranges.  The actual price of Obamacare insurance (apples) has gone up nationally by 7.5%.  However, some highly subsidized buyers (oranges) will pay less because the taxpayer will make up the difference.  As this graphic from Real Clear Health shows, insurance premiums have generally risen.  What the HHS says is that for selected groups, it will go down.


The significance of the 2015-2016 insurance prices is that they are a complete reversal of the 2014-2015 trends.   In 2014-2015 the insurance prices for Obamacare benchmark Silver plans either dropped or grew at a much lower rate than 2015-2016, as these corresponding KFF figures show.  For example, the increase in Oklahoma was 8.8% in 2014-2015 vs 34.7% in 2015-2016.  Overall costs are trending up, which is not a good sign. The Wall Street Journal explains that he source of these price increases is the underlying cost of providing treatment, especially pharmaceuticals.

Insurers sought increases for 2016 because many found business more costly than expected or have incurred losses. The law requires companies to sell policies to anyone regardless of their medical history, and with only limited variations on premiums.

Insurers, who have priced plans for 2016 in part based on what they experienced in 2015, also faced higher costs in part due to rising prescription-drug prices, and they saw lower-than-expected payouts from a federal program that aims to offset carriers’ risk by providing funds to companies with costlier, sicker consumers.

Even though premiums are rising what is really putting the hurt on consumers is deductibles, the amount a patient must front up before insurance picks up the cost.  Drew Altman at the Wall Street Journal noted that premiums are rising 2.4x and deductibles are rising 6.7x faster than wages.  In other words, some of the cost increases are being passed on in the form of premium hikes but even more of it is appearing in the form of higher deductibles.


Subsidies are no help with respect to deductibles. Altman argues that the public is wising up to the game and wishes to view the cost of insurance as a total package, including deductibles and pharmaceutical prices.  However much Obamacare’s advocates claim that subsidies make coverage affordable, the actual real cost to consumers has been rising -- and more importantly appears to be rising at an accelerating rate.

Growth in deductibles has been especially pronounced in smaller firms, where the share of covered workers with a deductible of $1,000 or more has grown from 16% in 2006 to 63% in 2015. If the “Cadillac tax” on more generous health coverage plans goes into effect as scheduled in 2018, it would lead to a spurt in deductibles as employers raise deductibles to try to keep premiums down and avoid the tax.

Public support may be gathering for a health-care agenda that focuses on consumer issues such as deductibles and drug costs, which means that soon the Affordable Care Act may not dominate the health agenda as it has since 2009, just before the law passed in 2010.

With the actual cost of health care rising government must pay an ever larger amount in subsidies to keep the apparent cost of premiums from rising.  Here also the spin must be disentangled from the actual numbers.  Obamacare’s supporters always claim that the law is costing less than expected, but the fact remains that subsidies are by any measure projected to rise over time.  Using CBO data, the well known health pundit Avik Roy produced this chart.  This represents an attempt by the tax system to keep pace with rising underlying insurance premium costs.  Note that it does not offset the deductibles and drug costs, which constitute the biggest areas of price increase.


The flip side of keeping the subsidies up is keeping taxes high.  The Heritage Foundation drew this chart of Obamacare taxes. Note they rise to match the subsidies -- they have to, in order to keep pace with the rising offsets.  But there’s more.




Taxes under Obamacare play multiple roles role.  They are not only used to raise revenue for Medicaid expansion and premium subsidies, they are used to suppress medical demand, thereby keeping the costs from rising even faster.  The highly pro-Obamacare site Vox describes the role that the “Cadillac tax” -- (see the chart above) -- plays in reducing medical costs.

Obamacare's Cadillac tax has, so far, drawn a clear set of battle lines through Washington.

On one side are politicians, who hate the idea of a 40 percent tax on the most expensive health plans. They know it's unpopular because it could lead companies to scale back the health insurance they offer by increasing copayments or deductibles. The Cadillac tax is set to start in 2018 and is the only major Obamacare program that both Bernie Sanders and Hillary Clinton want to dismantle.

On the other side are policy wonks, who really like the Cadillac tax. Right now in the United States, employer-provided health benefits aren't taxed as income the way cash wages or most other in-kind benefits are. More than 100 economists recently signed on to a letter supporting the Cadillac tax as a way to discourage companies from plowing lots of compensation into too-generous health insurance, possibly reducing wasteful spending.

Brian Faler at Politico emphasizes the function of the Cadillac tax. By taxing employer provided health insurance it suppresses ‘wasteful’ luxury health spending and it raises $87 billion to help pay for those subsidies.

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. …

The government has encouraged companies to offer health insurance by letting them write off from their taxes the cost of providing workers with coverage for more than a half-century, a byproduct of World War II-era wage controls.

Eager to attract workers and unable to increase pay, companies turned to expanding fringe benefits such as health insurance. But economists of all stripes have long complained the open-ended tax break companies get for providing that coverage drives up health care costs while disproportionately benefiting the affluent.  … The administration has long argued it is a modest step to get health care costs under control.

This makes Obamacare the perfect self-licking ice cream cone.  To create apparently cheap insurance, the price of insurance is raised for everybody else.  To pay for the subsidies that are needed to cover up the underlying price increases, taxes must be raised on higher income groups.  In order to suppress runaway price increases which may arise from the requirement to enrol high risk groups, employer health care insurance is itself taxed to lower demand.  

People are not only being hit over the head with a hammer, they are paying for the hammer that does it.  Why would anyway stay in such a lunatic system?  That is where taxes come in again.  In order to prevent customers from trying to escape from the asylum, the individual mandate penalty comes into play.

Obamacare works only because there is No Exit.  As Larry Levin wrote in the Kaiser Family Foundation, without taxes on those who would exit, the ACA would fall into a death spiral.  As he explained back in 2012 Obamacare will raise prices for anyone who isn’t subsidized.  They would tend to flee, leaving behind a pool of high risk people, forcing premiums up even higher.  To prevent the Death Spiral, a tax is used to bolt the door.

What is a death spiral and why do some people believe it could happen?

If the individual mandate were overturned by the court with the rest of the ACA untouched, we would be left with an individual insurance market beginning in 2014 where everyone would be guaranteed access to insurance, even if they have pre-existing health conditions requiring expensive medical care. Insurers could not turn people down based on health status, restrict their coverage, or surcharge their premiums. People who are healthy could choose to forego insurance, knowing that they could start buying it if they get sick (although they’d have to wait until the next open enrollment period).

It’s pretty clear that in a system like that, sicker people would be more likely to buy insurance, and premiums would rise as a result. This is known as “adverse selection.” As premiums rise, insurance would look like even less of a good deal for people who are healthy, leading some of them to drop coverage and forcing premiums even higher. And so on. A mandate can prevent such a spiral by requiring that healthy people buy insurance, even if they don’t perceive it to be in their financial interest.

The problems which Obamacare is facing today is that it is failing despite all these intricate measures.  Premium costs have risen so high that even the individual mandate penalty cannot keep people from escaping the system.  The subsidies have not prevent many Obamacare co-ops from going bankrupt.  Unexpectedly high pharmaceutical costs are proving too intractable to tame. The result is that Obamacare is entering a Death Spiral despite the best efforts of the administration to sustain it.

The ACA began on a number of false premises, the biggest of which was that it would be cheap.  In fact it was designed to raise the cost of health care for most in order to make it cheaper for the poor.  It’s primary goal was to achieve wealth redistribution, not economic efficiency.  On those terms Obamacare is  fair attempt at taxing the rich to give to the poor.  Where it went wrong was by adding so many inefficiencies that it finished up raising costs for everyone: the rich and even the poor by way of high deductibles and narrow networks.

Word of the Obamacare Disaster Spreads


The collapse of the Obamacare co-ops may not be the worst problem of the troubled system, but it is currently the most visible manifestation of its woes.  New York state just experienced the very visible implosion of the Health Republic insurance system, which was spun off from the high profile Freelancers Union.  Those days of hope are described in an article from 2014.

About 370,000 New Yorkers have enrolled in private health insurance plans through the state marketplace, and nearly one in five of them signed up with a new kind of company. Health Republic, a start-up formed two years ago with federal funding, has the largest market share of any insurance carrier whose plans are offered on the New York State of Health …

Health Republic, which refused to speak with WNYC for this story, is one of three spinoffs around the country from the Freelancers Union and one of 23 “Consumer Operated and Oriented Plans” nation-wide.

Fast forward to 2015 and the contrast could not be greater, as the New York Post reports.

Bad news for New Yorkers, thanks to ObamaCare: More than 100,000 policyholders just learned that their Health Republic insurance plans will be canceled on Dec. 31. The start-up insurer (spun off from the Freelancers’ Union) is hemorrhaging red ink and has to close down.

That’s unfortunate for the policyholders, who now have to scramble to find other coverage and try to keep their doctors. …

The New York co-op’s collapse is an especially humiliating defeat for the Freelancers’ Union and Sara Horowitz, its self-proclaimed labor visionary, who has spent years touting the benefits of the collectivist “sharing economy.” But make no mistake: Taxpayers and policyholders nationwide are taking a hit.

The New York Times recorded the events in the blackest of terms.  “The grim announcements keep coming, picking up pace in recent weeks,” referring  to the collapse of the cooperatives.

About a third, or eight, alternative health insurers created under President Obama’s health care law to spur competition that might have made coverage less expensive for consumers are shutting down. The three largest are among that number. Only 14 of the so-called cooperatives are still standing, some precariously.

The toll of failed co-op insurers, which were intended to challenge dominant companies that wield considerable power to dictate prices, has left about 500,000 customers scrambling to find health insurance for next year. A ninth co-op, which served Iowa and Nebraska, closed in February.

At a time when the industry is experiencing a wave of consolidation, with giants like Anthem and Aetna planning to buy their smaller rivals, the vanishing co-ops will leave some consumers with fewer choices — and potentially higher prices.

The failures include co-ops in New York, Colorado, Kentucky and South Carolina.

The collapse has led to a chorus of “I told you so’s” especially in Kentucky where it did more than just embarrass a celebrity labor organizer.  In the Bluegrass State it may have a direct impact on the governor’s race.  “The sudden collapse of nonprofit health plans supported by tens of millions of dollars in Obamacare loans is igniting a new political wildfire over the health law — and it’s playing out in a tight gubernatorial race in Kentucky.”

Kentucky is in the spotlight because the co-op went bust earlier this month amid a high-stakes political contest and it is quickly becoming a wildcard issue. The Kentucky plan dominated exchange enrollment during the first two years of operations, capturing roughly 60 percent of customers in a red state hailed as a symbol of Obamacare’s potential. Those Kentuckians will now have to scramble to find new coverage during the looming open-enrollment period, beginning Nov. 1, just as voters head to the polls to pick a new governor.

"This financial debacle is a direct result of Obamacare,” said Republican challenger Matt Bevin, who seized on the failure earlier this month as a validation of his concerns about the landmark health care law and laid blame for it on his Democratic opponent, Attorney General Jack Conway.

It’s no exaggeration to say that politicians across the country are looking for a way to extricate themselves from the wrack of the failing program. In Colorado the Democratic party is pre-empting failure by proposing the replacement of Obamacare itself with a single payer healthcare system.

With Colorado’s shaky Obamacare exchange in peril, some health care advocates are calling for voters to scrap it and replace it with something far more ambitious.

Proponents of a statewide single-payer health care system have submitted 156,107 signatures, far more than the 98,492 required to qualify for the November 2016 ballot, to the Colorado secretary of state’s office for verification.

The program, called ColoradoCare, comes with a steep price tag: $25 billion, which would be raised with a 10 percent payroll tax increase. At the same time, the plan would provide all residents with Medicare-style health care coverage and allow the state to dump Obamacare.

Whether Colorado voters would agree to take on that kind of tax hike is another question — two years ago, they rejected a comparatively paltry $1 billion tax increase for education — but there is no doubt that the “no-more-Obamacare” argument resonates with certain segments of the population.

“For some people, I say, ‘It gets us out of Obamacare,’ and some people cheer,” T.R. Reid, a spokesman for ColoradoCareYES, said during the signature-gathering campaign. “It’s a purple state, and we have this purple plan that can appeal to both sides.”

It is almost a case of “any port in a storm”.  According to MSN, a price storm is going to hit. “The lowest-cost bronze plans available on will see premiums jump an average 12.7% in 2016, an IBD analysis reveals. On top of that, deductibles for the cheapest plans will rise an average $420, or 7.4%, to $5,653.”

Coming on top of double-digit premium hikes, the jump in patients' out-of-pocket costs when they seek medical care reflects the difficulty of providing affordable coverage to enrollees that many insurers have said are using more care than expected.

ObamaCare provides substantial extra cost-sharing subsidies to defray out-of-pocket expenses for those with income up to 200% of the poverty level — if they buy silver coverage. But for those who can only afford bronze coverage or have income somewhat above 200% of poverty ($23,550 for a single in 2016), the higher ceiling on out-of-pocket costs could be a big problem if they wind up in the hospital.

IBD's analysis covers one major metro area in each of the 37 states using the federally run The biggest increases were in Anchorage, Alaska (46%), Nashville (35%) and Oklahoma City (32%). The cheapest bronze plan actually got a little cheaper in Chicago (-4%), Indianapolis (-3%) and Detroit (-2%).

Meanwhile, the cheapest available silver-plan premium in these 37 markets will rise 10.5% as the average deductible increases $257, or 7.6%, to $3,400.

Coming on top of the flatlining enrollment numbers, the collapse of the co-ops and the rise in pharma prices, this jump in insurance premiums has the potential to be politically lethal. Moreover, as MSN notes, the prices increases have the potential to accelerate the already quickening insurance death spiral.   The rise in Bronze Plan prices makes it economically attractive for the Young Invincibles to pay the fine required to stay out of Obamacare. “Troubling as those hefty increases are, a bigger concern — both for the health of the exchanges and the finances of those who have to buy coverage or pay a fine — is how much more bronze plans cost compared to the penalty for young adults with fairly modest incomes.”

If the young adults abandon Obamacare, prices for those who remain in it will rise even more rapidly as the system “spirals” into collapse.  

The search for an exit in states like Colorado may ironically give rise to demands for a health care compact-type arrangement among liberal voter blocs. It’s the only way they can get out of a sinking Obamacare.  Already advocates for Single Payer are framing their argument in healthcare compact like terms. (emphasis mine)

Supporters argue that the state’s $25 billion estimate is too high and insist that the plan would actually save people the money they would normally spend on health insurance. In addition, the program would allow Colorado to opt out of the Affordable Care Act, which would free up federal dollars.

“We’re a rich, compassionate country. We should provide health care for everybody,” said Mr. Reid, a former Washington Post reporter. “We’re not going to get there at the federal level. The federal government can’t do much. They’re gridlocked. So the way we’re going to get there is state by state.”

The plan also allows Colorado to avoid joining the federal Obamacare exchange if the state exchange crumbles. The struggling Connect for Health Colorado took another hit Oct. 16 when state insurance cooperative Colorado HealthOp was dropped from the annual Nov. 1 rollout over a lack of financial stability.

The collapse of Obamacare is now climbing out of the bottom of the fold and into the headlines. The best indicator of its new banner status are pronouncements by Donald Trump.  He told ABC’s The Week that it was pricing itself out of the market.

I don’t know if you have been watching lately over the last couple of weeks — people’s premiums … are going up 35, 45, 55 percent," Trump said on Oct. 25. "Their deductibles are so high nobody’s ever going to get to use it. So ... Obamacare is turning out to be a bigger disaster than anybody thought."

Though Trump’s actual numbers are suspect, his basic point is substantially correct.  As Stephanie Armour of the Wall Street Journal writes “the Obama administration said many consumers will see noticeable premium increases when buying health coverage on insurance exchanges in 2016, acknowledging for the first time what many health-care experts had predicted.”

Federal officials said Monday that the price of the second-lowest-cost midrange “silver plan”—a key metric for premiums around the country—will increase by 7.5% on average across the three-dozen states that rely on Washington to administer the health law for them.

And 60% of enrollees—across 30 of the largest markets in the U.S.—will see the average rate for that benchmark plan rise by 6.3%, according to a Health and Human Services report on premium data that hasn’t yet been made fully public.

The higher premiums are likely to intensify Republican’s claims that the health law isn’t holding down costs. The Obama administration is urging customers to go back online during open enrollment, which begins Nov. 1, and shop around to see if they can limit the impact of the cost increases.

For most, shopping around will be an exercise in futility. The average price of premiums is increasing and therefore the average consumer will be facing an increase.  When the higher individual penalty kicks in in 2016 the match will be set to the gasoline.  The Associated Press says that for the first time, the administration will be emphasizing coercion over benefits as a reason to sign up for the ACA.

The math is harsh: The federal penalty for having no health insurance is set to jump to $695, and the Obama administration is being urged to highlight that cold fact to help drive its new pitch for health law sign-ups.

That means the 2016 sign-up season starting Nov. 1 could see penalties become a bigger focus to motivate millions of people who have remained eligible for coverage, but uninsured. They're said to be more skeptical about the value of health insurance.

Until now, health overhaul supporters have stressed the benefits of getting covered: taxpayer subsidies that pay roughly 70 percent of the monthly premium, financial protection against sudden illness or an accident, and access to regular preventive and follow-up medical care.

But in 2016, the penalty for being uninsured will rise to the greater of either — $695 or 2.5 percent of taxable income — for someone who goes without coverage for a full 12 months. This year the comparable numbers are $325 or 2 percent of income. While the increase isn't good news, it does create a marketing opportunity. …

"More and more, people are mentioning the sticks as well as the carrots," said Katherine Hempstead, director of health insurance coverage for the Robert Wood Johnson Foundation, a nonpartisan organization that has helped facilitate the insurance expansion under Obama's law.

Hempstead says the message about penalties resonates with uninsured people, who are generally cash-strapped low- and middle-income workers.

The potential for a political backlash in the compulsory purchase of expensive, lousy insurance can only be imagined.

The Media Now Alert to the Crisis of Obamacare


The editors of the Wall Street Journal discourse at length on something that has become increasingly obvious: the Affordable Care Act is in serious economic trouble.  In an article titled “The Decline of ObamaCare” the editors write: “fewer enrollees and rising loss ratios will force a rewrite in 2017”. It is not just that the enrollees are fewer, they are actuarially unable to sustain the insurance policies.

This month the Health and Human Services Department dramatically discounted its internal estimate of how many people will join the state insurance exchanges in 2016. There are about 9.1 million enrollees today, and the consensus estimate—by the Congressional Budget Office, the Medicare actuary and independent analysts like Rand Corp.—was that participation would surge to some 20 million. But HHS now expects enrollment to grow to between merely 9.4 million and 11.4 million.

Recruitment for 2015 is roughly 70% of the original projection, but ObamaCare will be running at less than half its goal in 2016. HHS believes some 19 million Americans earn too much for Medicaid but qualify for ObamaCare subsidies and haven’t signed up. Some 8.5 million of that 19 million purchase off-exchange private coverage with their own money, while the other 10.5 million are still uninsured. In other words, for every person who’s allowed to join and has, two people haven’t.

Among this population of the uninsured, HHS reports that half are between the ages of 18 and 34 and nearly two-thirds are in excellent or very good health. The exchanges won’t survive actuarially unless they attract this prime demographic: ObamaCare’s individual mandate penalty and social-justice redistribution are supposed to force these low-cost consumers to buy overpriced policies to cross-subsidize everybody else. No wonder HHS Secretary Sylvia Mathews Burwell said meeting even the downgraded target is “probably pretty challenging.”

That excessively risky insurance pool leads directly to the second economic crisis: rising loss ratios. “The law’s failure to appeal to the young and rising middle class is already cascading through the insurance markets. Researchers at the Robert Wood Johnson Foundation and Urban Institute recently published a remarkable study of the industry barometer called medical loss ratios, or MLRs, and the pressure is building fast.”

MLRs measure the share of premium revenue that flows to reimbursing medical claims. ObamaCare sets an MLR floor of 80% for patient care, with one-fifth left over for overhead like administration and profits, and the pre-ObamaCare 2010-13 historical trend for the individual market ranged from 79% to 86%.

The researchers found that in 2014—the first full year of claims experience in ObamaCare—average MLRs across all health plans sold on 16 state exchanges roamed from 90% to 99%. Average MLRs in 11 states climbed to 100% or more, reaching as high as 121% in Massachusetts. A business can’t stay solvent for long spending $1.21 for every $1 that comes in.

The 2014 MLRs are used to set rates for 2016 premiums, which are still under regulatory review. But the researchers estimate that to rebound to an MLR of 85%, premiums in the 11 money-losing states need to rise by 10% to 36% in the best estimate and 23% to 52% in the worst scenario. The familiar danger is that as rates rise, more people drop out, and thus rates must rise still higher, as the states that attempted ObamaCare-like regulatory schemes in the 1980s and 1990s discovered.

In short Obamacare has entered a classic insurance death spiral. “Death spiral is a condition of the insurance market in which costs rapidly increase as a result of changes in the covered population. It is the result of adverse selection in insurance policies where lower risk policy holders choose to change policies or be uninsured. The term is found in the academic literature at least as early as Cutler and Zeckhauser's 1998 paper ‘Adverse Selection in Health Insurance’ which refers explicitly to an ‘adverse selection death spiral’.”

The first fatalities are the Obamacare co-operatives which began so optimistically at the launch of the ACA. What killed them were the MLRs, which meant they simply lost money.

Hundreds of thousands people will lose their insurance plans as a raft of health insurance cooperatives (CO-OPs) created by the Affordable Care Act will cease operations. Just last week, CO-OPs in Oregon, Colorado, Tennessee and Kentucky announced that they would be winding down operations due to lower than expected enrollment and solvency concerns (although the one in Colorado is suing the state over the shutdown order).  They join four other CO-OPs that have announced that they would be closing their doors. In total, only 15 out of the 23 CO-OPs created by the law remain. These closures reveal how ill-advised this aspect of the ACA was both in terms of lost money and the turmoil for the people who enrolled in them. The eight that have failed have received almost $1 billion in loans, and overall CO-OPs received loans totaling $2.4 billion that might never get paid back. In addition, roughly 400,000 people will lose their plans.

The co-operatives erroneously reasoned that because they were uninterested in profit they could offer insurance at a lower cost.  What they failed to realize was that profits are a non-issue when you are operating at a loss.

Proponents of the CO-OPs believed that they would be able to offer lower premiums than for-profit insurers because they did not have the same profit motive, but even non-profit insurers cannot operate at a financial loss indefinitely. …

Even some ACA supporters recognized the flaws inherent in the CO-OP design: Paul Krugman derided them as a “sham”  and in a 2009 interview Professor Timothy Jost said could not see how a CO-OP “does anything to control costs.” There have been multiple warning signs that many CO-OPs were in trouble.  Earlier this year The Centers for Medicare and Medicaid Services sent letters to 11 CO-OPs placing them on “enhanced oversight” due to financial concerns, and a 2014 report from the HHS Office of Inspector General found that “most of the 23 CO-OPs we reviewed had not met their initial program enrollment and profitability projections,” and that the government “had not established guidance or criteria to assess whether a CO-OP was viable or sustainable.”

The fundamentally uneconomic nature of Obamacare destroyed all the supposed protections that were supposed to sustain the co-ops.  Most notably, the risk-corridor program collapsed when it became clear that no taxpayer money could be used to bail out failing insurance providers without an appropriation from Congress.

They asked the Government Accountability Office to look into the matter. That September, the GAO issued its legal opinion: the administration would need an appropriation from Congress to make outgoing payments.

Of course, once insurers realized that the risk corridor payments might be limited to whatever was collected from companies offering profitable plans, their lobbyists descended in droves, arguing that premiums would skyrocket unless lawmakers propped up insurers by letting taxpayer dollars flow through the risk corridors.

Because the industry as a whole lost more money than it may, more was owing than received.  The risk corridor buffer simply never came into existence.  With its demise went the last hope of the co-operatives and in the longer run, the fate of Obamacare.

Competition Achieves More than Hillary


One of the most interesting storylines in recent healthcare news has been the saga of the Daraprim, a drug that has become the poster pill for pharmaceutical price gouging.  Daraprim was an old drug with a corner on the market whose company was bought up by an ex-hedge fund person with the intention of jacking up the prices.  The New York Times first brought the story to prominence.

Specialists in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection.

The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.

“What is it that they are doing differently that has led to this dramatic increase?” said Dr. Judith Aberg, the chief of the division of infectious diseases at the Icahn School of Medicine at Mount Sinai. She said the price increase could force hospitals to use “alternative therapies that may not have the same efficacy.”

Democratic presidential candidate Hillary Clinton soon latched onto the controversy and made the Dataprim story part of her talking points on the need to regulate overpriced pharmaceuticals.

Democratic presidential candidate Hillary Clinton on Monday urged U.S. regulators to determine how to bring lower-cost generic drugs to market more swiftly and combat anticompetitive practices in the pharmaceutical industry.

Clinton's requests to the Food and Drug Administration and the Federal Trade Commission were prompted by what she called the "egregious actions of Turing Pharmaceuticals," according to letters reviewed by Reuters.

The company drew fire from Clinton last month after news reports that it had raised the price of Daraprim, a 62-year-old treatment for a dangerous parasitic infection, to $750 a tablet from $13.50 after acquiring it.

Clinton's criticism sent drug industry stock prices tumbling. Turing Chief Executive Officer Martin Shkreli promised to lower Daraprim's cost to an unspecified price, and Turing is in the midst of a rebranding effort after being mocked on "Saturday Night Live."

In her letter to the FDA, which regulates food and drug safety, Clinton said that Turing has still not "meaningfully lowered the price." The company's decision to "artificially increase the price" exploited vulnerable patients dependent on the drug, which is often used by those with compromised immune systems, Clinton said.

But it wasn’t just Dataprim’s shares that took a beating.  Pharmaceutical stock prices plunged on fears that Clinton was gunning for the industry in general.  The Street reported:

Biotech losses escalated throughout the session, a hangover from extreme volatility over the past several weeks. Biotech stocks have been on alert after Democratic presidential candidate Hillary Clinton vowed to address "price gouging" in the industry in September.

A panel discussing the impact of pharmaceutical prices on health care costs was naturally affected by the Dataprim incident. Reuters reported that “a panel of medical experts said on Friday the prices of prescription medicines in the United States need to be brought in line with the value they bring to patients instead of continuing to let drugmakers set any price they choose.”

Some doctors, however, were skeptical that politicians held the solution to the problem.

Panelists taking part in Drug Pricing: Public Health Implications, presented by Harvard T.H. Chan School of Public Health in collaboration with Reuters, saw serious limitations in solutions being proposed by politicians to rein in prices that are vastly higher than what the rest of the world pays.

Democratic presidential candidate Hillary Clinton recently proposed capping patient co-pays as a way to help people cope with rising out-of-pocket medical costs.

But Meredith Rosenthal, professor of Health Economics and Policy at Harvard, likened that to minor pain relief. "The patient is bleeding and now you've numbed it ... and you haven't gotten to the root of the problem."

Calls to allow the government Medicare program to negotiate drug prices as it does the cost of so many other aspects of medical care were deemed unrealistic or problematic.

What everyone forgot was that Turing’s price gouging strategy created an opportunity for competitors to grab market share by underpricing them.  Now Newsweek reports that a rival pharma firm is selling a generic drug priced at one dollar compared to Turing’s $750.

A pharmaceutical company announced Thursday that it plans to introduce a significantly lower-cost version of Daraprim, the drug that made headlines last month after jumping from $13.50 per pill to $750.

Imprimis Pharmaceuticals is offering a “customizable compounded formulations” of the two main ingredients in Turing Pharmaceuticals’ Daraprim, which is typically used to treat toxoplasmosis, an infection caused by a parasite. The drug is particularly critical for pregnant women and those infected with immunodeficiency disorders like HIV/AIDS. Their version of the pill will be available for less than a dollar per capsule, according to a press release. A 100-pill bottle will sell for as low at $99, the company said.

“While we respect Turing’s right to charge patients and insurance companies whatever it believes is appropriate, there may be more cost-effective compounded options for medications, such as Daraprim, for patients, physicians, insurance companies and pharmacy benefit managers to consider,” said Mark L. Baum, CEO of Imprimis.

It was an impressive demonstration of the power of the market, especially when compared to Hillary’s ham-handed approach.  All she did was gain a few concessions from Turing and collaterally, ruin the shareholder value of unrelated pharmaceutical firms.  By contrast, Imprimis decisively lowered the price of the drugs to levels far below their former prices.

Politicians are rarely efficient economic allocators.  Politico noted that president Obama had included language in a free trade agreement to discourage generic pharmaceuticals.

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.

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.

Politicians are often captured by lobbyists.  That is why the only lasting solutions to health cost problems lie in competition, not in regulatory chimeras.

Showdown at the GOP Corral


One of the paradoxes of the last several years is that, despite a Republican majority in both houses of Congress, very little has been done to repeal or at least, modify Obamacare.  The recent resignation of Speaker John Boehner and the failure in the Republican party to elect a new speaker provided some insight into the reason why.

There was a perception that the Republican leadership was doing deals with the Obama administration and only “play fighting” on issues like Obamacare.  Hence the ouster of Boehner and the resistance to his replacement. The Freedom Caucus, a group of 40 or so conservative Congressional Republicans  have maintained the Speaker’s chair vacant unless the leadership was more responsive to the Republican voter sentiments.

The case against the Republican leadership was forcefully expressed by Senator Mike Lee (R), who argued in a video that it was perfectly feasible for the GOP to fulfill their pledge to repeal Obamacare using the budget reconciliation process.  The principal benefit of employing this parliamentary maneuver is that it allowed a piece of legislation to be put forward with only 51 votes in the Senate instead of the supermajority 60.

“It goes to the Senate with a special rule: it can pass with 51 votes and cannot be filibustered. Other legislation can be filibustered and requires 60 votes to end the filibuster.” This special feature allows Congress to set up a showdown with the president, whose only option then is to veto the bill. According to Senator Lee this was in fact the process used by Nancy Pelosi to pass Obamacare in the first place.  Brian Sussman recalls how reconciliation was used to pass the ACA in 2010.

Obamacare was signed into law in March 2010.  If you recall, Nancy Pelosi’s Democratic majority in the House of Representatives was unable to pass their version of a healthcare law. Because all revenue bills have to originate in the House, the Senate found a bill that met those qualifications: HR3590, a military housing bill. They essentially stripped the bill of its original language and turned it into the Patient Protection and Affordable Care Act (PPACA), aka Obamacare.

The Senate at that time had 60 Democrats, just enough to pass Obamacare.  However after the bill passed the Senate, Democrat Senator Ted Kennedy died.  In his place, Massachusetts elected Republican Scott Brown.  That meant that if the House made any changes to the bill the Senate wouldn’t have the necessary number of votes to pass the amended bill (because they knew no Republicans would vote for Obamacare).  So Senate Leader Harry Reid cut a deal with Pelosi: the House would pass the Senate bill without any changes if the Senate agreed to pass a separate bill by the House that made changes to the Senate version of Obamacare.  This second bill was called the Reconciliation Act of 2010. So the House passed PPACA, the Senate bill, as well as their Reconciliation Act. At this point PPACA was ready for the President to sign, but the Senate still needed to pass the Reconciliation Act from the House.

Sen. Lee plausibly argued that what the Democrats could do, the Republicans could do -- if they were so inclined.  There lay the rub. Was the Republican leadership so inclined?  The Freedom Caucus revolt suggests they believe the answer to be in the negative.  With power slipping out of their grasp, the stage was set for a last ditch attempt by the Old Guard to do one final deal with the administration, or at least soften the impact of the conservative revolt. A bill has been prepared stipulating the removal of some aspects of Obamacare.

But a further problem emerged. Three prominent Senators: Cruz, Rubio and Lee himself, declared themselves opposed to the partial repeal.

Sens. Ted Cruz (R-Texas), Marco Rubio (R-Fla.) and Mike Lee (R-Utah) are vowing to oppose any fast-track bill repealing only parts of ObamaCare, narrowing the path for the legislation to pass the Senate.

The House is set to vote on Friday on a bill under a fast-track process known as reconciliation that would repeal several parts of ObamaCare. The reconciliation process allows a measure to pass the Senate with 51 votes, instead of the usual 60, and get through to President Obama’s desk, where it would face a veto.

But the three senators — two of whom, Cruz and Rubio, are running for president — are vowing to oppose the House measure because it doesn’t go far enough.

“On Friday the House of Representatives is set to vote on a reconciliation bill that repeals only parts of Obamacare,” the senators said in a joint statement. “This simply isn’t good enough. Each of us campaigned on a promise to fully repeal Obamacare and a reconciliation bill is the best way to send such legislation to President Obama’s desk.

“If this bill cannot be amended so that it fully repeals Obamacare pursuant to Senate rules, we cannot support this bill,” the senators continue. “With millions of Americans now getting health premium increase notices in the mail, we owe our constituents nothing less.”

The half-measure restricts the sale of fetal body parts by Planned Parenthood, a hot-button issue with conservatives. It also strikes down some taxes. “The House Rules Committee finalized its version of the reconciliation bill late Wednesday night, which repeals the individual and employer mandate, along with a slew of taxes.”

The authors of the reconciliation bill say that even as it stand, the measure will be chancing it, standing upon uncertain procedural ground.  For reconciliations are about budgetary matters, not substantive actions.   “Already, its Republican sponsors stripped out a provision that would repeal Obamacare’s yet-to-be-named board on Medicare spending, since the Senate parliamentarian stood ready to rule it out of order.”

This is governed by the so-called Byrd rule, after Democratic Senator Robert Byrd.

Reconciliation generally involves legislation that changes the budget deficit (or conceivably, the surplus). The "Byrd Rule" (2 U.S.C. § 644, named after Democratic Senator Robert Byrd) was adopted in 1985 and amended in 1990 to outline which provisions reconciliation can and cannot be used for. The Byrd Rule defines a provision to be "extraneous" (and therefore ineligible for reconciliation) in six cases:

  1. if it does not produce a change in outlays or revenues;

  2. if it produces an outlay increase or revenue decrease when the instructed committee is not in compliance with its instructions;

  3. if it is outside the jurisdiction of the committee that submitted the title or provision for inclusion in the reconciliation measure;

  4. if it produces a change in outlays or revenues which is merely incidental to the non-budgetary components of the provision;

  5. if it would increase the deficit for a fiscal year beyond those covered by the reconciliation measure; and

  6. if it recommends changes in Social Security.

Any senator may raise a procedural objection to a provision believed to be extraneous, which will then be ruled on by the Presiding Officer, customarily on the advice of the Senate Parliamentarian. A vote of 60 senators is required to overturn the ruling. The Presiding Officer need not necessarily follow the advice of the Parliamentarian, and the Parliamentarian can be replaced by the Senate Majority Leader. The Vice President as President of the Senate can overrule the parliamentarian, but this has not been done since 1975.

But Senator Ted Cruz is prepared to challenge the Parliamentarian head-on. Cruz’s insistence -- as well as that of Senator Marco Rubio, a fellow presidential candidate -- is easy to understand.  Neither is out to make a career of the Senate.  They are out to be elected president and to do that, they must challenge the unpopular Obamacare.  They cannot be content to cut deals with the administration, like Boehner.

Sen. Ted Cruz (R-Texas) is suggesting that the GOP could ignore interpretations of the Senate parliamentarian if it means sending a full repeal of ObamaCare to the president’s desk.

“At the end of the day, the Senate parliamentarian is an employee of the Senate. Virtually every Republican campaigned promising full repeal,” Cruz, who is running for president, told The Hill on Thursday.

Cruz, Ted and Lee evidently want a political confrontation with president Obama, deeming it more important to lead larger electoral forces against what they view as a hostile Democratic ideology than to win a tactical victory like passing a bill.  President Obama himself is setting an example for confrontationalism by vetoing the defense authorization bill unless he gets concessions on unrelated spending matters.  As Justin Johnson explains in Real Clear Politics, Obama is taking the Defense Bill hostage.

For 53 consecutive years, Congress has passed a National Defense Authorization Act (NDAA) which establishes policies and budgets for the Defense Department. In that 53-year period, the NDAA has been vetoed only four times.

The first came in 1978, when President Jimmy Carter vetoed H.R. 10929, the NDAA for fiscal year 1979. Though the bill was written by Democratic majorities in the House and Senate, Carter vetoed it because it included funding for a nuclear-powered aircraft carrier. Two months after the veto, Congress passed a new version of the NDAA without the nuclear aircraft carrier. President Carter signed it into law.

In 1988 President Ronald Reagan vetoed H.R. 4264, the FY 1989 NDAA, primarily because of a dispute over his missile defense program. The Democratic Congress proposed cutting $3.7 billion from R&D on the Strategic Defense Initiative (SDI). Reagan also expressed concern about cuts to ballistic missile submarines and ICBM modernization programs. Once again, Congress removed the offending provisions, and the president signed the new version into law.

President Bill Clinton exercised his veto power on the FY 1996 NDAA, arguing that it "would unacceptably restrict my ability to carry out this country's national security objectives and substantially interfere with the implementation of key national defense programs." President Clinton and the Republican Congress clashed over a variety of issues, such as a missile defense program that Clinton believed would have conflicted with the ABM Treaty, restrictions on the president’s ability to conduct contingency operations, and the elimination of funding for the Defense Enterprise Fund. Yet again, Congress removed the objectionable provisions, and the NDAA was signed into law.

In 2007, President Bush vetoed the  2008 NDAA. The conflict centered on the Democratic Congress’ desire to freeze Iraqi assets in U.S. banks. Unlike the previous policy beefs, this was largely a technical issue with unexpectedly large diplomatic implications that popped up late in the process. In the end, Congress and the president worked out their differences, and a modified NDAA was signed into law.

Which brings us to the pending veto drama. Mr. Obama has threatened to veto H.R. 1735, the FY 2016 NDAA. But unlike any of the four previous disputes, the President’s primary objection lies not with a policy contained in the bill, but with something completely beyond the scope of the bill.

The administration vows to veto the defense bill unless Congress agrees to increase non-defense spending. The White House issued a statement saying that Mr. Obama “will not fix defense without fixing non-defense spending.” Of course, non-defense spending is not in the NDAA’s bailiwick. Given the rising threats around the world and the fact that defense spending has been cut 15% in the last four years, “fixing” defense should be considered on its own merits.

Compared to Obama’s actions, the objections of the 3 senators sound entirely reasonable.  They are at any rate symmetrical. If president Obama can play hardball politics, why not the Congress?  Much may depend on how the power has shifted within the Republican Party over the last week.  The Freedom Caucus is in a standoff with the Republican leadership over Paul Ryan.  The side which gets the upper hand will answer the Senatorial trio’s quo vadis question over Obamacare one way or the other.

One of Rep. Paul Ryan's conditions for running for House speaker was that he wanted to reform the "motion to vacate," a rarely-invoked legislative tool that's essentially a way to boot the speaker from his job.

His pitch didn’t go over well with the House Freedom Caucus, the group of 40 conservatives that helped drive John Boehner to the Capitol exits, including with threats of using it. They were reluctant, to put it mildly, to relinquish one of their most potent weapons without proof that Ryan would agree to other demands they had of the next speaker.

The issues are therefore now linked. The fight for Obamacare reduces to the willingness of the GOP to overrule its leadership and play political hardball against the president.  If the GOP leadership prevails, the compromise reconciliation bill will be put forward, perhaps to fare well against the president.  If the Republican rebels prevail, the Congress will embark on a protracted struggle with the fading Obama administration over its entire legacy.

Obamacare May Be Death-Spiraling


It has not escaped the notice of healthcare pundits that Obamacare may be entering a death spiral, “a condition of the insurance market in which costs rapidly increase as a result of changes in the covered population. It is the result of adverse selection in insurance policies where lower risk policy holders choose to change policies or be uninsured”.

At least that’s what Betsy McCaughey of the NY Post thinks.  In an article titled “ObamaCare is entering its dreaded ‘death spiral’” she writes:

ObamaCare is heading toward a death spiral.

The Obama administration is having trouble selling insurance plans to healthy people. That’s a big problem: When the young and healthy don’t enroll, premiums have to be hiked to cover the costs of older, sicker people, discouraging even more young people from signing up.

Last Thursday, the administration predicted enrollment for 2016 will be less than half what the Congressional Budget Office predicted in March.

Despite subsidies to help with premiums and out-of-pocket costs, most of the uninsured who are eligible for ObamaCare are saying “no thanks.” Only one in seven is expected to sign up. That’s despite a hefty increase in the financial penalty next year for not having insurance.

The president sees the writing on the wall. You won’t be seeing the customary nationwide TV campaign to encourage sign-ups, as there were in previous years. Remember the young guy in plaid pajamas — “Pajama Boy,” to conservatives — well, he won’t be back this winter.

The cost increases in Obamacare’s metal plans have been dominating the news, even in the president’s home state of Hawaii.

The Hawaii Department of Commerce and Consumer Affairs announced last week double-digit premium increases for health insurance in 2016. For Hawaiians purchasing plans through the Affordable Care Act (ACA) marketplace, the news isn’t good.

The state announced rate hikes of up to 34 percent that will affect 34,000 individuals across the state.

The state’s insurance commissioner attributed the dramatic increases to several factors related to the ACA, including taxes and fees, and an insurance pool that largely excludes healthier patients, and “pent up demand” for health care services.

This explanation doesn’t bode well for the quality of health care in Hawaii, and suggests a more fundamental problem with the Affordable Care Act. ­

Skyrocketing premiums were also news in Pennsylvania,  insurance regulators fought to stagger huge increases across several years to make them less noticeable.

The department asked six insurers that requested increases of more than 25 percent to phase in the increases over several years, according to a news release from the department.

"We are working to guarantee that Pennsylvanians can continue to shop for their best coverage options in a competitive insurance marketplace while still paying reasonable prices," Gov. Tom Wolf said in the release.

Highmark Inc., the state's largest insurer, had requested increases of 23 to 39 percent, saying the costs of treatment for new policyholders far exceeded what the company collected in premiums, a result of sicker-than-expected enrollees.

Only two plans — HM Health Insurance Co. and Keystone Health Plan West — will increase premiums by more than 25 percent next year, Pennsylvania Insurance Department spokesman Ronald Ruman said.

The well respected Kaiser Family Foundation (KFF) noted that “since 2010, Deductibles for All Workers Have Risen Almost Three Times as Fast as Premiums and About Seven Times as Fast as Wages and Inflation.”  As a poignant article in the New York Times underscores, the “affordable care” is anything but.  Stacy Cowley follows the efforts of Billy Sewell, the owner of the Golden Corral restaurant chain as he tried to comply with the Obamacare employer mandate. “ObamaCare’s “employer mandate” is a requirement that all businesses with 50 or more full-time equivalent employees (FTE) provide health insurance to at least 95% of their full-time employees and dependents up to age 26, or pay a fee by 2016.”

When Billy Sewell began offering health insurance this year to 600 service workers at the Golden Corral restaurants that he owns, he wondered nervously how many would buy it. Adding hundreds of employees to his plan would cost him more than $1 million — a hit he wasn’t sure his low-margin business could afford.

His actual costs, though, turned out to be far smaller than he had feared. So far, only two people have signed up.

“We offered, and they didn’t take it,” he said.

The reason the Golden Corral employees could not avail of the insurance was cost.  Sewell’s minimum wage employees couldn’t afford to pay for the insurance he provided, even though he was picking up 60% of the tab.  This was the experience of many other employers.

Evidence is growing that his experience is not unusual.  …

10 months after the first phase of the mandate took effect, covering companies with 100 or more workers, many business owners say they are finding very few employees willing to buy the health insurance that they are now compelled to offer. The trend is especially pronounced among smaller and midsize businesses in fields filled with low-wage hourly workers, like restaurants, retailing and hospitality. …

But for those trying to get by on near-minimum wages, a plan that qualifies as “affordable” can still seem far out of reach.

That is the case for many of Mr. Sewell’s workers. He employs 1,800 people at the 26 Golden Corral franchises he owns in six Southern and Midwestern states, and previously offered insurance only to his salaried management staff. In January, when the employer mandate took effect, he made the same insurance plan, with a bigger employer contribution, available to all employees working an average of 30 or more hours a week. …

The annual premium for individual coverage through the Golden Corral Blue Cross Blue Shield plan is $4,800. Mr. Sewell pays 65 percent for service workers, leaving them with a monthly cost of $140. ...

Clarissa Morris, 47, has been a server at the Golden Corral here for five years, earning $2.13 an hour plus tips. On a typical day, she leaves the restaurant with about $70 in tips. Her husband makes $9 an hour at Walmart but has been offered only a part-time schedule there, without benefits. Their combined paychecks barely cover their rent and daily essentials.

“It’s either buy insurance or put food in the house,” she said. On the rare occasions that she gets sick, she visits a local clinic with sliding-scale fees. It costs her $25 for a visit, and $4 to fill prescriptions at Walmart.

Costs leave low income Americans in a bind.  Unless they insure themselves in one way or the other, they may be subject to a fine.  So they are damned if they do and damned if they don’t.  Fines were an attempt by Obamacare system architects to prevent a “death spiral” by making it impossible for people to flee coverage.

However, as the flatlining of Obamacare enrollment numbers show, the fines are not enough.  People are being ruined by lousy and expensive Obamacare policies and are willing to risk the fines rather than be saddled with an inferior product.

Multiple Crises Assail the ACA


Obamacare advocates are thrashing around like fish in a barrel trying to figure out a way to deal with rising costs.  The liberal Huffington Post sighs “as the open enrollment period for 2016 health insurance draws near, you may be re-evaluating the Affordable Care Act and how it affects you. It is easy to start a spirited argument on the subject, but one thing is not up for debate: multiple surveys and articles report that the cost of health care insurance plans is on the rise again.”

A recent analysis by Agile Health Insurance said that insurers are requesting double-digit rate increases for almost one-third of the plans sold on HealthCare.Gov, and that every plan offered for three states (Delaware, South Dakota, and West Virginia) are asking for double-digit increases. Two of the larger state-run exchanges, California and New York, have shown more modest rate increases of 4% and 7%, but they are increases all the same.

Costs are rising, choice is declining, deductibles are increasing and enrollment is flat.  The system is experiencing multiple organ failure.  Nothing seems to work.  In an effort to boost enrollment, the department of Health and Human Services is increasing the individual mandate penalty. The Latin Post writes, “the U.S. Department of Health and Human Services (HHS) has been preparing for what may be a more difficult open enrollment period, as penalty fees increase to new highs.”

HHS said uninsured individuals "may be more inclined to enroll in coverage" as a result of the tax penalty, which is the larger amount between an individual's 2.5 percent yearly income or $695, per person -- although the fine is $347.50 per child under 18 years old….

Now heading into its third open enrollment year, the HHS secretary said the remaining uninsured population "is harder to reach." According to Burwell, approximately 40 percent of the uninsured population is living between 139 percent and 250 percent of the poverty level, or $30,000 to $60,000 for a family of four. She said more than a third are people of color, including 19 percent of Latinos, 14 percent of blacks and 2 percent of Asians.

But with screenshots of the bizarrely named Individual Shared Responsibility Payments (the tax penalty) circulating on the Internet, specifying huge sums for not joining Obamacare, the fines for not buying expensive insurance are generating resentment among voters.  Seven taxes are already part of Obamacare.  One of them, the so-called “Cadillac Tax” has raised so much ire it is actually in the sights of Democratic presidential candidate Hillary Clinton. The scope for increasing enrollment by punishment in Obamacare is clearly limited.

Perhaps nowhere is disillusionment so pronounced as among the co-operatives which came into being together with the ACA.  They are now mostly finished.  The Washington Post notes that four co-ops have collapsed very recently, like dominoes. This was itself triggered by another failure, the so-called Risk Corridor program of Obamacare.

Nearly a third of the innovative health insurance plans created under the Affordable Care Act will be out of business at the end of 2015, following announcements Friday that plans in Oregon and Colorado are folding.

In just the past week, four co-ops, as the nonprofit plans are known, have decided or been ordered to shut down. Their demise means that eight of the 23 co-ops in existence a year ago will be unavailable to consumers shopping for 2016 coverage through insurance marketplaces created under the ACA. …

But it was a move by the Department of Health and Human Services that the four closing co-ops say was critically destabilizing. HHS announced Oct. 1 that it could afford to pay insurers participating in the federal and state-run exchanges just 12.6 percent of nearly $3 billion they were owed under a temporary provision of the health-care law. Known as risk corridors, it is intended to help cushion insurers that end up with sicker customers and bigger medical claims than they had anticipated.

The CEO of the National Alliance of State Health CO-OPs, Kelly Crowe, labeled the latest collapses a “devastating blow to Americans who seek competition, choice, innovative benefits, and non-profit alternatives when selecting a health insurer.” In a statement, Crowe noted that “few businesses can sustain hits like the CO-OPs and other small and new insurance companies have endured” because of the federal government’s reversal on the risk corridor dollars.

The Risk Corridor collapse is a saga in itself, reflecting the money-losing nature of Obamacare. Brian Blase of the Apothecary writes that more insurers lost money on it than gained, thereby bankrupting the very fund that was supposed to sustain the vulnerable co-ops.

The ACA established a three-year risk corridor program to transfer funds from insurers with lower-than-expected medical claims on ACA plans, i.e., profitable insurers, to insurers with higher-than-expected claims, i.e., insurers with losses. Despite administration claims that incoming payments from profitable insurers would cover losses from unprofitable ones, the risk corridor program shortfall exceeded $2.5 billion in 2014. Insurers with lower-than-anticipated claims owed about $360 million, and insurers with higher-than-anticipated claims requested about $2.9 billion from the program.

The ACA’s premise was that it would “bend the cost curve”.  When it failed to do so, all the insurance companies that priced low were taken to the cleaners, as Blase notes.

Using available data, mostly from the administration, I estimate that insurance companies likely lost at least 12% on ACA plans in 2014. There are two explanations for such large losses, with both probably true to some extent. First, a larger share of older and sicker people enrolled for ACA coverage than insurers projected. Second, some insurers underpriced plans in order to capture market share and then raise rates in future years. Many people will stick to an insurance plan because of the hassle involved with switching plans. Moreover, the ACA’s reinsurance and risk corridor programs allowed insurers to price aggressively, anticipating that a large share of any initial losses would be heavily subsidized. Insurers’ large losses on ACA plans last year and Congress’s decision late last year to prohibit taxpayer money from filling in a risk corridor shortfall will undoubtedly put upward pressure on ACA plan premiums in the next few years.

The ACA is now facing a perfect storm. The extent to which shocked Obamacare advocates are questioning their beliefs is reflected in Sarah Kliff’s examination of high-deductible insurance.  Low deductible insurance, AKA “employer provided insurance” was supposed t be the villain of the American health care system.  It encouraged overconsumption.  Replacing them with Obamacare plans would reduce demand and restore the health care system to health.  Except that it didn’t.  Kliff wrote in Vox:

In 2006, about one in 10 employees had a health insurance deductible over $1,000. Today? About half do.

To health economists, this sounded like good news; they've long theorized that higher deductibles would force down health-care costs. The idea was that higher deductibles would make patients become smarter shoppers: If they had to pay more of the cost, they'd likely choose something closer to the $1,529 appendectomy than the $186,955 appendectomy (yes, some hospitals really do charge that much). This would push the really expensive doctors to lower their prices so cheaper physicians didn't steal their business.

This was, however, just a theory. And a massive new study suggests it might have been all wrong.

In other words Obamacare got it all wrong.  It replaced a flawed system with an even worse one.  That is the trap which the ACA finds itself in.  It is terminally flawed.  Nothing can save it.  Even its acolytes are looking -- belatedly -- for a way out.

Economists Explain why Obamacare is Flatlining


A team of Wharton economists have explained why the Obamacare metal plans have been such a flop.  HHS Secretary Sylvia Matthews Burwell recently announced that enrollment on its exchanges will flatline this year, with no realistic expectation of further expansion.

In a surprisingly pessimistic forecast, the Obama administration predicted on Thursday that health insurance enrollment on the Affordable Care Act’s public marketplaces will only inch up from current coverage levels by the end of 2016.

After an elaborate analysis of demographic data, Sylvia Mathews Burwell, the secretary of health and human services, said that 10 million people were expected to have marketplace coverage at the end of next year, up only about 100,000 from recent levels and millions short of earlier projections. She called that “a strong and realistic goal.”

Economists at the University of Pennsylvania now have a model which explains why Obamacare metal plans are bumping up against these enrollment limits.  It turns out that Obamacare plans are terrible deals for anyone except for the very poorest.  This discourages most of the middle class from participating, which in turn limits the money that can be distributed as subsidies to the poor.

To evaluate the change in financial burden and welfare, the authors compared the out-of-pocket payments made by uninsured people before the ACA with premiums and out-of-pocket payments made after gaining coverage. The authors also estimated the positive effects of health coverage, such as higher use of services and protection from catastrophic medical bills. Even so, the model found that non-poor adults who went from uninsured to insured were paying higher premiums (even with subsidies) and, surprisingly, more out-of-pocket fees. While the burden was lower for those with lower incomes, because of subsidies for premiums and co-pays, the burden across all levels of income was positive – meaning that the average non-poor adult who gained insurance under the ACA had a higher financial burden after purchasing insurance. …

Stated succinctly: “Persons with low incomes may fare better after the ACA, but those formerly uninsured at higher incomes not in poor health consistently are worse off.” …

The authors estimated that subsidy-eligible people with incomes below 250% of the poverty threshold likely experience welfare improvements that offset the higher financial burden, depending on assumptions about risk aversion and the value of consuming more medical care. However, even under the most optimistic assumptions, close to half of the formerly uninsured (especially those with higher incomes) experience both higher financial burden and lower estimated welfare….

The implication here is that middle class people with low perceived health risk might prefer to remain uninsured and pay the penalty for violating the individual mandate. Reluctance among healthier and higher-income uninsureds is no surprise, but this paper appears to be the first to robustly measure the actual trade-off they would have to make in purchasing insurance. …

But how did the authors conclude that the upsides of insurance – risk protection and actual services – are not enough to outweigh the financial burden and create “positive welfare” for newly insured people?

One reason is that most of the formerly uninsured were receiving some amount of free care (“bad debt” or “charity care”) before the individual mandate took effect. What’s changed is that people are on the hook for premiums and co-pays to receive that same care, plus other services that might not have been provided for free.

Health Pundit John Goodman, writing in Forbes, notes that theory explains the Obamacare enrollment data. “The conclusion is consistent with the evidence on enrollment. About 83% of people obtaining insurance in the exchanges have incomes below 250% of poverty and above that level enrollment drops off sharply as income increases.”

What accounts for these results? To begin with, the authors point out that the uninsured at almost every income level have implicit insurance – someone else pays most of their medical bills. On the average, they consume less than half of the medical care consumed by people with insurance. And they pay only about 25% of the cost of the care they do consume (“more generous than a Bronze plan and similar to that for a Silver plan”). When they obtain insurance in the exchange, they give up this de facto insurance and obtain the coverage the new health law requires.

Looking at the second lowest cost Silver plan and the lowest cost Bronze plan, the Wharton economists calculate the premium that must be paid (net of subsidies) and the out of pocket expense incurred once people obtain the insurance and take advantage of it. At almost every income level people end up spending more.

The declining enthusiasm for joining Obamacare with rising income reflects its falling utility. This is shown by a bar graph showing the enrollees in the ACA by income.


Matthew Martin believes the biggest weakness of Obamacare was its emphasis on redistribution without regard to its effect on the value of the health insurance product.  It was as if the price of feeding the poor was the requirement that everyone else eat swill.

It has always seemed to me that much of the ACA is about redistribution rather than strict pareto-improvements. Broadly speaking, the goal of redistribution is to take from the well-off and give to the less fortunate. "Well-being" is a multi-dimensional beast but two of the most important dimensions are income and health--you want to redistribute from rich to poor, and from healthy to sick. Every developed country, to varying degrees, engages in redistribution along both of these dimensions.

The desire to redistribute explains some of the key features of the ACA. For example, we didn't merely impose a mandate to buy health insurance, which by itself would address the narrow efficiency problem of adverse selection, but also imposed a "community rating" rule which by itself has the opposite effect as the mandate, increasing the welfare costs of adverse selection. This policy choice can only be explained by a widespread desire to redistribute from the healthy who would otherwise have faced lower premiums to the sick who would have had much higher premiums. But we didn't just redistribute along the health dimension--the ACA also provides huge income-based subsidies to buy health insurance. Partly, the subsidies are there to further reduce the problem of adverse selection, but that alone can't explain why the subsidies are strictly income-based. In fact, the ACA engages in quite a bit of income-based redistribution as well as health-based.

In a redistribution scheme, it is not unreasonable to have a situation where a majority of people are somewhat worse off.

But you cannot make them too much worse off.  And as the University of Pennsylvania study shows, it made very many people significantly worse off to pay for a rather small expansion in insurance coverage.  As the table below shows, most people lost utlity through Obamacare.


Redistribution is only acceptable if the imposed pain on the majority is perceived as a fair trade for the grant to the poor.  But in Obamacare’s case, the market (as shown by declining enrollments) has received as a bad deal.

The Wheels Come Off the Obamacare Wagon


One of the little remarked pieces of news is Sylvia Burwell’s admission that the Obamacare exchanges have run out of steam. Robert Pear of the New York Times writes what the HHS secretary told the public:

WASHINGTON — In a surprisingly pessimistic forecast, the Obama administration predicted on Thursday that health insurance enrollment on the Affordable Care Act’s public marketplaces will only inch up from current coverage levels by the end of 2016.

After an elaborate analysis of demographic data, Sylvia Mathews Burwell, the secretary of health and human services, said that 10 million people were expected to have marketplace coverage at the end of next year, up only about 100,000 from recent levels and millions short of earlier projections. She called that “a strong and realistic goal.”

Burwell strongly suggested that little growth in Obamacare coverage could be expected henceforward, arguing principally from demographics.  But underneath the verbiage, the principal reason was price.

Because of gains in coverage in the last two years, Ms. Burwell said, there are fewer uninsured Americans, and “they are a little harder to reach.”

In addition, she said, “the remaining uninsured have a lot of concerns about whether they can afford coverage,” even with the financial assistance available under the Affordable Care Act.

The Milwaukee Journal-Sentinel says the new and self-admitted enrollment plateau will once again raise questions about about the soundness of Obamacare’s design. In particular, it will call into question the affordability of the program.

The administration's new target is well below an estimate from congressional budget analysts of about 20 million covered in 2016.

The huge difference quickly raised questions about whether advances in health insurance coverage under President Barack Obama's Affordable Care Act may sputter or stall, leaving millions still uninsured.

"If enrollment plateaus, we may see growing discussion of whether the law is fulfilling expectations in covering the uninsured, and whether the subsidies for low- and middle-income people are sufficient to make coverage truly affordable," said Larry Levitt, an expert on the law with the nonpartisan Kaiser Family Foundation. …

Premiums are expected to go up next year by a bigger amount than this year. Surveys show that among the 10.5 million remaining uninsured who are eligible, many are young adults, a demographic that traditionally has not put a high priority on having health insurance.

Many are unfamiliar with insurance terms like "premium," "deductible," "copays," and "networks." And money is a problem.

"We know that the remaining uninsured have a lot of concerns about whether they can afford coverage," Burwell said. "About half have less than $100 in savings."

One of the most important bits of news was in the fine print.  Not only were enrollments in exchange plans leveling off but Medicaid expansion had stopped.  “Meanwhile, progress on the law's Medicaid expansion has largely come to a standstill. Although a majority of states have accepted expanded Medicaid, high-population southern states including Texas, Florida, Georgia and North Carolina continue to hold back because of entrenched political opposition to Obama's overhaul.”

However, it was clear that the exchanges were also in deep trouble.  The Journal-Sentinel article continued:

The insurance markets are now 2 years old, but they don't quite appear to have stabilized. Experts cite a combination of reasons:

■High turnover. Some people who sign up for a plan don't follow through and pay their first month's premiums.

Among those who do obtain coverage, some later switch to an employer plan or qualify for Medicaid.

Others drop out because they can't afford even their subsidized premiums.

Turnover has always been a big part of the individual health insurance market.

■Costs. A new research paper from the administration finds that nearly 60% were not aware or did not understand that subsidies are available to help with their premiums.

Half had difficulty affording basic necessities.

And many have other financial priorities — such as paying down debt or making car repairs — before buying health insurance.

■Complexity.Getting and keeping coverage under Obama's law can be frustrating, especially when it comes to documenting eligibility for benefits.

The administration said recently it terminated coverage for some 420,000 people who couldn't document that they were citizens or legal immigrants.

And nearly 970,000 households had their subsidies "adjusted" because of problems documenting their incomes.

Of all the factors named, the slowdown in Medicaid expansion is potentially the most troubling for the Obamacare program.  Nearly all of its insurance coverage increase has come from Medicaid.  The Obamacare exchanges, even during their period of growth, were just re-enrolling the people whose coverage other aspects of the program had canceled.  A recent Heritage Foundation study looking at the data for 2014 concludes that 8.99 million of the 9.25 million added to coverage came from Medicaid.

Health insurance enrollment data for 2014 shows that the number of Americans with health insurance increased by 9.25 million during the year. However, the vast majority of the increase was the result of 8.99 million individuals being added to the Medicaid rolls. While enrollment in private individual-market plans increased by almost 4.79 million, most of that gain was offset by a reduction of 4.53 million in the number of people with employment-based group coverage. Thus, the net increase in private health insurance in 2014 was just 260,000 people.

The Obamacare exchanges moved coverage from employer-provided insurance to Obamacare exchange plans, with no net gain.  The net gains came from Medicaid expansion.  Hence, if Medicaid expansion itself is at a standstill, Obamacare is dead in the water.


Well known health pundit Avik Roy argues that costs are now clearly the limiting factor to any further Obamacare expansion. Writing in Forbes, Roy says:

For years, this blog has been warning about how the high cost of Obamacare-sponsored insurance would limit the law’s expansion of health coverage. Well, the chicken has come home to roost. Today, the Obama administration announced that it projected dramatically lower enrollment growth for Obamacare’s exchanges in 2016: only 1.3 million, compared to a prediction of 8 million when the law was passed five years ago.

The limits were created by Obamacare itself, because the cost barriers are a direct outcome of the additional burdens imposed by the law.  In other words the ACA stands in the way of its own goals.  Roy continues:

The problem is fairly easy to understand. Obamacare imposed thousands of pages of new federal regulations on the market for private-sector health insurance purchased by individuals. These regulations mandated that all plans had to pay for a wide range of services, even if policyholders didn’t want them. They forced young people to pay double, and sometimes triple, what they had been paying before for coverage. And plans were required to provide higher financial payouts than they previously had to.

All of these bells and whistles cost money. And so, in 2014 alone, in the average U.S. county, Obamacare drove up the price of individually-purchased health insurance by 49 percent. In 2015 and 2016, additional double-digit rate hikes have been common throughout the country. …

That brings us to today’s announcement. The Office of the Assistant Secretary for Planning and Evaluation in the U.S. Department of Health and Human Services announced today that it was expecting only “9.4 to 11.4 million effectuated enrollees in the Marketplace at the end of 2016,” with the midpoint of the range being 10.4 million. That’s an increase of between 1.3 million from 2015. …

“We believe 10 million is a strong and realistic goal” for enrollment, said HHS Secretary Sylvia Burwell in a conference call this morning. “And our target assumes something that is pretty challenging, which is that more than one out of every four of the eligible uninsured will select plans.”

Chew on that for a minute. If Obamacare is so fantastic, why would it be considered “challenging” for the exchanges to enroll only a quarter of the people eligible for their subsidies? Because, Burwell said, “the remaining uninsured have a lot of concerns about whether they can afford coverage.” It goes without saying that the “Affordable Care Act” was supposed to solve that problem.

And it hasn’t. Obamacare has not “bent the cost curve”.  For all the Rube Goldberg wheels, it did no better than add people to the Medicaid rolls -- something it could have done without the complexities of Obamacare.  As a program it has failed and that is a conclusion which will become increasingly difficult to conceal in the coming months.

Liberals Agree the ACA Sucks, Thank Goodness for Obamacare!


Many of Obamacare’s former supporters now act like it is possessed; someone nice they once knew who has since been taken over by an evil spirit and turned into a demon.  The die-hard liberal site, the Daily Kos, has harsh words for a health program which was their leader’s proudest creation.  With exquisite sensitivity, the Daily Kos refer to the program that is beggaring Americans as the “ACA” -- short for the Affordable Care Act, rather than its more common name: Obamacare. After decrying rising insurance prices, narrow networks and high deductibles the Kos says that it has been a catastrophe and the only hope now is to double down and go for Single Payer:

So, in a nutshell, we have the following: poor people -- and the middle class -- already can't afford all the costs associated with accessing health care in America, but instead of the problem getting better, wee have the following: insurers gaming the perverted system to keep premiums "low" by increasing deductibles, which will just mean a greater overall financial burden for American patients.

To be frank, if Canadians or Europeans were forced to adopt the ACA as it stands today, there would be riots in Toronto, London, Paris and Rome.

To be frank, the American health care "system" could not be more disastrous for the poor and middle class. It is literally the most regressive, pro-rich health care system in the entire developed world.

We must push forward and demand an end to this madness. We must revisit health care reform and demand single-payer, Medicare-for-all.

I know that Bernie Sanders wants to do this. He has my vote, because the status quo in health care, while a bit less barbaric and cruel than it was in 2013, remains an absolute nightmare for 99 percent of Americans. …

In America, health insurers -- members of an "industry" best defined with obscenities -- apparently think it's a game.

Yes, they think your health, your wellbeing, your finances, are a game -- a game of profiteering and rent-seeking with your wallet and your tax dollars.

Kos fails to notice that it’s not just bad for customers, but also hell on small insurers.  Since Obamacare was started, it has forced the consolidation of the smaller providers into a handful of giant companies.  This process of consolidation will continue until there is only one payer for all services, which is the actual description of the single-payer system so ardently sought by the Daily Kos.

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.

Many of the startup co-ops which optimistically launched with the introduction of Obamacare have since bitten the dust. Rather than promoting competition, Obamacare has resulted in a drastic winnowing out of providers.  The Hill reports that another one just died in Tennessee:

A sixth ObamaCare insurance startup announced it will shut its doors on Wednesday, escalating concerns about the future of a program designed to increase competition in the marketplace.

Tennessee’s insurance commissioner released a statement saying that its health insurance startup, also called a co-op, will no longer offer health plans in 2016 due to the growing financial burden.

“With thousands of Tennesseans’ coverage hanging in the balance, [the co-op’s] financial success could not be guaranteed,” commissioner Julie Mix McPeak wrote in a statement Wednesday afternoon.

The decision comes less than a week after the collapse of Kentucky's co-op. The two programs are among 23 that received seed money from the federal government to help create alternatives to traditional insurers — money that is looking less likely to ever be repaid.

Like Kentucky's, Tennessee's closure was also abrupt: The program had planned to offer coverage in 2016 and had already gotten approval for its new rates.

One consequence of these bankruptcies is that policyholders are orphaned.  For example, 27,000 members of the co-ops must now go somewhere else.

The Department of Health and Human Services (HHS) has acknowledged that, as startups, not all co-ops will succeed. Now, its priority is to help the 27,000 people who were previously insured through the co-op.

"We are working with Tennessee officials to do everything possible to make sure consumers stay covered," HHS spokesman Ben Wakana said.

This can make gypsies of patients, forcing them to wander from one physician to another as they are shunted from network to network.  Michelle Malkin, the columnist, has been forced to change plans twice since Obamacare was introduced.  She recounts her sad experience.

It’s deja screwed all over again.

In the fall of 2013, our family received notice from Anthem Blue Cross Blue Shield of Colorado that we could no longer keep our private health insurance plan because of “changes from health care reform (also called the Affordable Care Act or ACA).”

We liked our high-deductible preferred provider organization plan that allowed us to choose from a wide range of doctors. But Obamacare wouldn’t let us keep it. Reluctantly, and after great bureaucratic difficulty, my hubby and I enrolled in an individual market plan with Rocky Mountain Health, which offered a much narrower provider network than the Anthem PPO plan we had before the feds snuffed it out.

Thanks to “reform,” our two kids’ dental care was no longer covered, and we had our post-Obamacare insurance turned down at an urgent care clinic — something that had never happened before.

This summer came another bombshell.

In August, we were informed of the “discontinuation of your Rocky Mountain Individual and Family plan effective December 31, 2015.”

Over the past month, we have received several bold-faced notices alerting us that “IMPORTANT ACTION IS REQUIRED: YOU MUST CHOOSE A NEW INDIVIDUAL & FAMILY PLAN TO MAINTAIN YOUR HEALTH COVERAGE IN 2016.” The clock is ticking: open enrollment begins Nov. 1.

The coerced choices are pretty damned crummy. Individual market PPOs have evaporated. We are being shoved once again toward the Obamacare government health insurance exchange vortex known as Connect for Health Colorado (which should really be called “DISconnect from Health Colorado). Or into a narrow regional HMO.

So much for “If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what,” eh, Mr. President?

Obama lied and our health plan has now died — twice.

The 27,000 members of the Tennessee Health cooperative are now looking around, just like Michelle Malkin.  But like the Daily Kos says, the “ACA” is a cruel joke.  Aren’t you glad to have Obamacare?

Obamacare: Less Doctor Time More Expenses


Bruce Japsen at Forbes suggests the reason why American health care costs seem so much more expensive than those of other Western countries is non-doctor expenditures in health care.  He presents the graph below and quotes a researcher from the Commonwealth Fund.

“What this report finds is that our extraordinary health spending is largely driven by more technology and higher health care prices, rather than more doctor visits or more hospital visits,” David Squires, senior researcher at the Commonwealth Fund said in a statement to Forbes


Obamacare’s “fix” for this problem is to disincentivize payments for overpriced technology which presumably make up the bulk of this overpriced non-doctor fees.  Japsen describes how this should result in more “physician-led” care that would “result in more patient interaction with physicians to keep patients well and from exhausting more expensive hospital care”.

High health costs are a key reason the Obama administration, via the Centers for Medicare & Medicaid Services, is shifting reimbursement away from fee-for-service medicine that pays providers based on volume to a value-based proposition that rewards outcomes. …

In the value-based model, better outcomes are generally achieved through more care coordination involving primary care providers and a primary care physician.  Large health insurers led by UnitedHealth Group (UNH), Aetna (AET), Anthem (ANTM) and Blue Cross and Blue Shield plans are escalating payments to physician-led value-based care models while also boosting payments for telehealth consultations which could result in more patient interaction with physicians to keep patients well and from exhausting more expensive hospital care.

But as Dan Mangan of CNBC pointed out, the opposite has happened.  Annual visits per capita to the doctor, which Japsen bemoans as excessively low, has declined even further.  Doctors see fewer patients and charge them more.

Despite dire warnings of a big wave of new patients swamping doctors' offices and disrupting care after getting health insurance under the Affordable Care Act, there was actually a small net decrease in patient visits last year for primary care physicians, according to data collected from almost 20,000 doctors.

But even in the face of that decline, primary care doctors actually saw a net revenue increase of 3 percent or more from their patients in 2014. The findings came in data compiled by ACAView, an Obamacare-measuring project of Athenahealth and the Robert Wood Johnson Foundation.

Moreover, non-doctor costs have risen dramatically as well. Leading the charge were unprecedented increases in the costs of pharmaceuticals and insurance administration.  Merrill Goozner of Modern Healthcare writes:

The latest report from private forecasters at the Altarum Institute shows healthcare spending surged to 18.2% of the gross domestic product in July, the second time it's reached that high watermark this year. “Out-of-control spending on prescriptions drugs and the soaring cost of health insurance administration continue to be the two major drivers behind rising healthcare costs.”

Out-of-control spending on prescriptions drugs and the soaring cost of health insurance administration continue to be the two major drivers behind rising healthcare costs. Though small as a share of overall spending, fast-rising drug prices and higher insurance overhead have set the stage for healthcare to increase its share of the overall economy at the fastest clip since the onset of the Great Recession.

The 18.2% of GDP registered in July compared to 17.7% a year ago, according to the Altarum report and analysts at the CMS. That's up slightly from 17.4% in each of the previous five years.

Healthcare spending grew to $3.3 trillion in August, up 5.7% from a year ago. Prescription drug spending however, leaped ahead at a 9.2% pace. The higher prices drug makers are demanding for specialty drugs and some generics sent the sector's share of overall personal healthcare spending to 12.3%, or $339.1 billion in August, up from 11.9% of overall personal healthcare spending a year ago.

Administration and net costs of health insurance (after paying medical bills) hit $267.9 billion in August, an increase of 9.4% from a year ago.

By contrast, hospital spending rose 6.1% from a year ago to $1.046 trillion; physician and outpatient clinical expenditures rose 5.0% to $650.1 billion; and investment in structures and equipment rose just 1.7% to $121.2 billion—the smallest increase in the sector.

Patients are seeing doctors less and they are spending more on pharma and pencil pushing.  If there’s any “physician-led” care in this cost outbreak it is hard to discern.  Bloomberg Business looked at the trends and pointed out that if you’re old, you can’t afford to get sick.  The estimated cost of healthcare for a retiring couple jumped 11% between 2014 and 2015.

The average 65-year-old couple retiring this year will face health-care costs of $245,000 in the years ahead, up 11 percent from a 2014 estimate of $220,000, according to a new report.

That's alarming if you're 65, and maybe more alarming if you're 25 — imagine what the cost will be when you're ready to retire. (It also offers an incentive to work at staying healthy as you age. More advice for the young below.)

The higher number stems in part from a change in assumptions about how long we'll live. In the wake of updated mortality tables put out by the Society of Actuaries last year, Fidelity Investments raised life expectancies in its annual Retiree Health Care Cost Estimate. For 2015, it assumes that a 65-year-old man will live to 85, and a 65-year-old woman to 87. In 2014, the estimate was 82 for a man and 85 for a woman.

What drove these price hikes was higher drug prices and rising deductibles.  The higher deductibles were a double whammy, because nothing discourages physician visits so much as deductibles.

Prescription costs are trending higher than medical, at slightly above 7 percent, said Sunit Patel, senior vice president of Fidelity's Benefits Consulting group. Prescription drug costs account for 23 percent of that $245,000 figure. Money spent on deductibles and cost-sharing with an insurer make up 43 percent, and 34 percent goes to Medicare Part B and D premiums.

Prices are rising so fast that “wellness” makes no difference. Cost increases are overwhelming even healthy lifestyles.

You'd think the estimated costs for a healthy couple might be lower, but the surveys use different assumptions, so there's no apples-to-apples comparison to be made. HealthView's estimate for a fit 65-year-old couple retiring this year is $266,589. When dental, vision, co-pays, and all out-of-pocket expenses are included, the tally rises to $394,954.

Obamacare can say it all it wants about “value payments” for healthcare.  But as Hillary Clinton’s criticism of Obamacare shows, Americans are increasingly worried about the high cost of the Affordable Care Act.  It’s not Affordable.

The Risk Corridors Collapse


Obamacare’s optimistic advocates, like Nancy Pelosi, promised it would “a glorious thing” in part because would be economically efficient.  Thus, when critics warned that a “risk corridor” program aimed at lowering premiums was merely a hidden mechanism for bailing out insurance companies, administration supporters claimed it would be “budget neutral” because insurance companies which made a windfall would pay into a fund which would help cushion the losses of insurers who lost money. Since Obamacare was economically efficient, the gains should have been enough to compensate for the losses.

However, should Obamacare be a net economic loser, the losses would far outweigh the profits and there would be nothing “budget neutral” about the risk corridor program as the Robert Wood Johnson Foundation researchers  pointed out.

The risk corridor program created by the Af­fordable Care Act (ACA) has proven to be one of the most controversial aspects of the health care law. Questions have been raised about the source of payments, whether the Department of Health and Human Services (HHS) has the authority to make payments under the pro­gram, and whether the program is required to be budget neutral. …

If risk corridor claims exceed receivables and HHS does not find an alternative source of funding, it seems likely it will revert to its earlier pro­posal to prioritize paying off shortfalls from previous years before making new payments. If the shortfalls were great enough, this could effectively eliminate payments to insurers for the final two years of the program. Shortfalls to the risk corridor program could have an effect on insurers’ ability to set premiums. Insurers must factor into their rates the pos­sibility that the risk corridor payments may not be fully made in a given year.

The data is in, and the results show that claims will exceed receivables by huge margin.  In other words more insurers lost money on Obamacare than made it.  This has put the risk corridor program into a hole.  There is no way it can compensate the losing companies and still remain “budget neutral”.  The Wall Street Journal reports that the worst case HHS scenario has materialized.

An Affordable Care Act program meant to ease risks for health insurers in the law’s new marketplaces will initially pay many companies less than they expected, likely putting financial strain on some.

Federal authorities said that insurers will at first receive only about 12.6% of the money that they requested from the program, known as risk corridors, for 2014, its first year of operation. Insurers have requested approximately $2.87 billion in payments from the program based on their 2014 results. But the pool available to make those payments is just $362 million, which came from collections from other insurers that did relatively well on their marketplace business.

An official from the Centers for Medicare and Medicaid Services said as more money comes into the program in future years, it will be paid out to backfill the shortfall for the 2014 allotment. But if there is still a shortfall after the program’s third and last year, 2016, she said, “We will explore other sources of funding, subject to the availability of appropriations.”

A CNN Money article depicted the outcome in a graph.  Expected receipts did not match the actual losses.  It was not even close.  “Insurers requested $2.87 billion in so-called "risk corridors" payments for 2014, but will only receive $362 million, or 12.6%, said the Centers for Medicare & Medicaid Services, which oversees Obamacare.”


The Wall Street Journal article points out what happened. “Deep Banerjee, an analyst with Standard & Poor’s Ratings Services, said the shortfall in the risk-corridor program reflects the fact that many insurers posted losses on their business in the health law’s exchanges in 2014, resulting in a greater number seeking risk-corridor payouts than had to pay into the program.”

One Kentucky Obamacare nonprofit will close immediately as a result. The Hill reports: “Kentucky Health Cooperative, a nonprofit insurer known as a co-op, explained that it could not stay financially afloat after learning of a low payment from an ObamaCare program called ‘risk corridors.’”

The Kentucky co-op is the fifth to close, following New York’s co-op last month.

“CMS’s priority is to make sure that Marketplace customers have access to quality, affordable coverage through the Marketplace,” said HHS spokesman Ben Wakana, referring to the federal agency that helps oversee the health law. “We are working with Kentucky officials to do everything possible to make sure consumers stay covered.”  

The Kentucky co-op provides insurance for 51,000 people, who will lose their plans at the end of the year.

It is unlikely to be the last. Dan Mangan of CNBC quotes analyst Deep Banerjee as predicting that more closures are expected.

Banerjee said insurers with businesses that are well-diversified beyond the Obamacare exchanges will be able to easily handle not getting risk corridor payments to which they are entitled.

But for insurers that are heavily concentrated on the exchanges, "not getting the money they think they are supposed to get will have a much bigger impact," Banerjee said.

A large number of insurers—more than half of the Obamacare exchange issuers—"were conservative" and did not record any risk corridor payments that they might be owed, the report found. "This indicates that the actual aggregate payments due to insurers from the corridor are likely even higher than what has been currently recorded."

If in fact there is a significant amount of receivables that are not being publicly disclosed, that means that the risk corridor program is even more underfunded than S&P estimated in its report, Banerjee said. That's because it's unlikely that insurers are understating the amount of money they have to pay into the risk corridor to nearly the same degree that the receivables are being understated, Banerjee said.

The report went on to argue that "insurers likely didn't record the receivables because they doubt they'll actually receive their eligible corridor payments."

In another potentially worrisome sign, a number of insurers had risk corridor receivables that exceeded 50 percent of their reported capital.

Perhaps most disturbingly, Standard and Poors said there was little chance that the program would recover in the coming years.

Standard & Poor's said that even if CMS then used risk corridor collections from 2015 to first cover the unpaid amounts in 2014, "we do not expect the individual exchange business in 2015 to be profitable enough to offset the deficit from the previous year.

Unless there is a taxpayer bailout it is a virtual certainty that either more customers lose their insurance or that premiums are raised to offset the losses.  There’s not enough money in the risk corridor program to save the losers.  This means that even higher prices can be expected to kick in soon, which will materially affect the elections in 2016.

If president Obama expected the worst effects to strike after 2016, he was sadly mistaken.  The storm is here now.

The Price of Pills


A recent Kaiser Health poll unsurprisingly showed that Americans are most worried about high pharmaceutical prices.  It’s not that they are unconcerned about rising deductibles or insurance premiums.  However, the fastest growing item on the health care bill is pharmaceuticals.  That is where the public’s fearful eye is turned.  Perhaps the most indicative result is that big pharma is now less popular than that perennial villain, banks.

With renewed discussion of the high cost of prescription drugs recently, the August Kaiser Health Tracking poll finds that most Americans feel that drug costs are unreasonable (72 percent) and that drug companies put profits before people (74 percent).  …

Large shares, across the partisan spectrum, have favorable views of several proposed actions to lower drug costs, including requiring drug companies to release information to the public on how they set their drug prices (86 percent) and allowing the federal government to negotiate with drug companies to get a lower price on medications for people on Medicare (83 percent), and majorities also say these strategies would be effective. Reflective in part of the perceived high costs of prescription drugs and focus on profits, about 4 in 10 (42 percent) Americans have a favorable view of drug companies, lower than the shares who feel favorably towards doctors (78 percent), food manufacturers (58 percent) and banks (58 percent).

Modern Healthcare’s Merrill Goozner notes that drug costs are now the biggest drivers of medical cost. Coming a close second are increased administrative costs.  In dead last are new investments in hospital plant and equipment.  But it is pharma which is leading the way.

Out-of-control spending on prescriptions drugs and the soaring cost of health insurance administration continue to be the two major drivers behind rising healthcare costs. Though small as a share of overall spending, fast-rising drug prices and higher insurance overhead have set the stage for healthcare to increase its share of the overall economy at the fastest clip since the onset of the Great Recession.

The 18.2% of GDP registered in July compared to 17.7% a year ago, according to the Altarum report and analysts at the CMS. That's up slightly from 17.4% in each of the previous five years.

Healthcare spending grew to $3.3 trillion in August, up 5.7% from a year ago. Prescription drug spending however, leaped ahead at a 9.2% pace. The higher prices drug makers are demanding for specialty drugs and some generics sent the sector's share of overall personal healthcare spending to 12.3%, or $339.1 billion in August, up from 11.9% of overall personal healthcare spending a year ago.

Administration and net costs of health insurance (after paying medical bills) hit $267.9 billion in August, an increase of 9.4% from a year ago.

By contrast, hospital spending rose 6.1% from a year ago to $1.046 trillion; physician and outpatient clinical expenditures rose 5.0% to $650.1 billion; and investment in structures and equipment rose just 1.7% to $121.2 billion—the smallest increase in the sector.

Ironically, both the increased pharma and administrative costs may be driven by Obamacare.  The increase in administrative costs is readily understandable as the direct result of the additional complexity and bureaucracy of the program.  However, Obamacare’s effect on driving up drug prices is more subtle.  As Barry Werth pointed out in the MIT Technology Review, pharmaceuticals were often sold for all the market will bear in the bad old days of employer provided, low deductible insurance.

Because of medical insurance, co-pay reductions, and expanded access programs for the uninsured, relatively few Americans pay more than a few thousand dollars per year for even the most expensive drugs. The primary customers in the United States are not patients or even individual physicians, although physicians can drive demand for a drug; rather, the customers are the government (through Medicare and Medicaid) and private insurance companies. And since the insurer or government is picking up the check, companies can and do set prices that few individuals could pay. In the jargon of economics, the demand for therapeutic drugs is “price inelastic”: increasing the price doesn’t reduce how much the drugs are used. Prices are set and raised according to what the market will bear, and the parties who actually pay the drug companies will meet whatever price is charged for an effective drug to which there is no alternative. And so in determining the price for a drug, companies ask themselves questions that have next to nothing to do with the drugs’ costs. “It is not a science,” the veteran drug maker and former Genzyme CEO Henri Termeer told me. “It is a feel.”

In other words, expensive pharmaceuticals were overconsumed.  This was problem that Obamacare attempted to address by taxing employer health care via the “Cadillac tax” and by increasing deductibles.  The trouble was, Obamacare also had the effect of promoting consolidation among the health care insurance companies.  Hence, in an ideal Obamacare world, pharmaceuticals are paid for by one a handful of giant insurance providers.  As Werth pointed out, “real prices” did not exist in that artificial world: only negotiated agreements.

What occurs is that pharma is paid a “cost plus” to recover its development expenses.  Newly released miracle drugs are often open priced to recover as many rents as possible before the intellectual protection expires and generic or biosimilar substitution is allowed.  The net effect is that Americans subsidize generic medicine for the rest of the world, Werth says.

There are inherent problems with a system where the government is one of the biggest payers, and where doctors, hospitals, insurers, pharmacy benefit managers, drug companies, and investors all expect to profit handsomely from treating sick people, no matter how little real value they add to patients’ lives or to society. Drug companies insist that they need to make billions of dollars on their medicines because their failure rate is so high and because they need to convince investors it is wise to sink money into research. That’s true, but it’s also true that the United States, with less than 5 percent of the world’s population, buys more than 50 percent of its prescription drugs. And it buys them at prices designed to subsidize the rest of the industrial world, where the same drugs cost much less, although most poor governments can’t afford them at even those lower prices.

In summary, the mergers and consolidations driven by Obamacare may themselves have created incentives to release very expensive new drugs.  Why?  Because these giants can pay for it.  Taxpayer money becomes partially available through “subsidies” to funnel money to big pharma.  However because the sums are so huge, a portion of these increased costs are passed on to the consumer.

Obamacare has created its own nemesis in higher costs.  The solution has become the disease.

Patients Abandon Obamacare


The Los Angeles Times reports 700,00 refugees, not from Syria but from Obamacare. “Nearly half of the estimated 700,000 Californians who have dropped their Obamacare policies during the past two years have enrolled in an employer-based plan, a new report from the Covered California exchange shows.”

In a news conference Thursday, Peter Lee, the organization’s executive director, said there were about 1.3 million Californians enrolled in the exchange’s plans as of June 30. That was about two-thirds of the 2 million who have enrolled in the exchange since it opened Oct. 1, 2013. …

Lee said the exchange always expected that a range of circumstances would cause many of those who initially signed up to depart.

“This finding underscores that for many, Covered California is not an endpoint,” Lee said.

No it wasn’t an end point.  It was a place to get away from, a joint to bust out of.

According to the exchange, 44% of the 700,000 who left did so for policies offered by their employers; 16% enrolled in Medi-Cal, the state’s insurance program for the poor; 15% returned to the ranks of the uninsured; 13% obtained private coverage outside of the exchange; and 11% enrolled in health plans from other sources. …

“We need to know what caused these folks to drop out. Was it confusion, affordability or something else?” he said.

Finding enough new enrollees to not only replenish the lost ranks but also expand membership is important if the exchange is to reach its long-term goal of insuring more than 2 million people statewide.

Enrollment is now at the low end of projections made in early 2014, which ranged from 1.3 million to 1.7 million people, according to Covered California. Estimates for the coming year are more conservative than they were for the previous year -- from 1.3 million to 1.5 million by June 30, 2016.

The primary reason for the abandonment of Obamacare is no secret.  It’s cost.   The New York Times’ Robert Pear notes that Hillary Clinton is campaigning on making Obamacare cheaper.  She knows what the problem is.

Hillary Rodham Clinton, as she offered up a sheaf of new health care proposals, said she was “building on the Affordable Care Act.” But lurking in those proposals was a veiled criticism of President Obama’s signature domestic achievement: For many families, the Affordable Care Act has not made health care affordable.

Mr. Obama has spent five years minimizing cost issues still confronting many health care consumers. Mrs. Clinton is taking those on without apologies. She would go beyond the president’s 2010 law, capping a patient’s share of the bill for doctor visits and prescription drugs. She would repeal the law’s planned tax on high-cost employer-sponsored insurance — a tax the White House says is needed to constrain the growth of health spending.

However several health economists doubted whether Clinton’s proposals to make Obamacare cheaper could ever be carried out because the program itself was largely responsible for raising prices through taxes, mandates and regulations.

But while surveys show that health costs, and particularly drug costs, are a top concern for many voters, it’s not at all clear that Clinton’s proposals – some of which have been mentioned for decades – would provide an actual cure.

“There’s no magic bullet here except getting health costs down,” said Len Nichols, a health economist at George Mason University and a longtime backer of the federal health law.

The fundamental problem, says Nichols, was built into the health law itself. By requiring many new benefits, such as maternity care and coverage for mental health and substance abuse,  insurers were left with few choices when trying to keep premiums from spiraling. Many insurers narrowed their provider networks and collected more from customers who use the system most. …

But setting specific limits for those who are sick will simply drive up premiums for everyone, says the insurance industry. “When you look at mandating additional benefits, that has a huge impact on the cost of coverage,” said Clare Krusing, a spokeswoman for America’s Health Insurance Plans (AHIP), the industry trade group. …

“They were never honest with the American people about how much this was really going to cost and the trade-offs needed to pass it,” he said. He likened President Obama, when he was lobbying for the bill, to Oprah Winfrey on her television show’s famous give-away episode  – “YOU get a car, and YOU get a car,” he said. Basically the backers were offering everything to everyone at the same time many of the costs were either hidden or pushed off to the future, he said.

The reality was that nobody got a free car and if you had a car, you might have to sell it to pay for treatment.   The maddeningly uncompetitive costs that Obamacare promised to fix are still there, except they are higher.  Patients find that prices are wholly made up by providers, as if conjured out of thin air.

It’s a frustrating reality of the medical marketplace: Prices are all over the map.

If you need an angioplasty to treat heart disease in Birmingham, Ala., it will cost about $15,500. But the identical procedure in Sacramento will cost four times as much.

And even within the same Boston-area market, the price of removing a common type of skin cancer can vary by hundreds of dollars depending on which hospital you go to.

Prices vary wildly from city to city and hospital to hospital for all sorts of medical care, and it’s nearly impossible to get a straight answer ahead of time on what you’ll pay. That means real consequences for family budgets now that consumers must pick up a greater-than-ever share of the health care tab.

New Hampshire patient advocate Dave deBronkart spent three months shopping for care and researching costs before being treated for basal cell carcinoma on his jaw line three years ago. Facing a $10,000 insurance deductible that he had to pay before insurance kicked in, he examined options for treatment at three different Boston-area hospitals.  He was told that one treatment, an excision, would cost up to $2,062 at one hospital, up to $2,500 at another and up to $4,010 at a third. Prices for other treatments also varied substantially by hospital.

“There can be no explanation other than some secret malarkey going on,” says deBronkart, 65. “I feel disempowered and disrespected, because aside from the incredible cost crunch we’re all experiencing, it’s a downright sin that my family can’t readily find out what the options are and what the costs are.”

The principal change of Obamacare was to make the “secret malarky” very expensive secret malarky.  And that is why consumers are abandoning it for other forms of coverage.

Like a Frankenstein’s Monster


Political alarm bells are ringing like in a World War 2 movie warship preparing for collision.  Health premiums are going through the ceiling in Minnesota and politicians are worried.

Much to the dismay of people who buy health insurance on their own, premiums for thousands in Minnesota’s individual market are going way up.

The state Commerce Department said Thursday that rates will increase an average of nearly 50 percent at Blue Cross and Blue Shield of Minnesota — the largest insurer in the market — and anywhere from 14 percent to 39 percent on average at four other insurers in the state that sell the policies. …

“I can’t take an additional $8,000 automatic increase in medical without doing something about it,” said Cindy Penning, 58, of Wilmont who currently buys individual coverage for her family of five. 

Kristi Nelson of Hastings said she will look for ways to handle next year’s increase, too, but said future spikes would prompt her to consider dropping coverage. “You can only afford what you can afford,” Nelson said.

That’s probably why Hillary Clinton has broken with the Obamacare united front and called for the repeal of the so-called Cadillac Tax.  It won’t roll back the price increases.  About all it will do is keep them from accelerating faster.  The cost fire will continue to consume what’s left of American middle class income.  But Hillary promises not to pour fire on the flames.

Hillary Rodham Clinton is calling for the repeal of part of President Barack Obama's health care law, the so-called "Cadillac tax" on health insurance that's unpopular with large corporations and unions alike.

Critics say the tax will raise costs for consumers, while supporters see it as a brake on wasteful health care spending.

Clinton's effort is part of a series of changes she is proposing to "build on" the Affordable Care Act, Obama's signature domestic achievement. On the campaign trail, she often praises the law but says she wants to expand the cost-savings and coverage benefits, particularly for middle-class Americans.

What’s got her spooked is costs.  People are hurting and they don’t need any more salt on the wounds.  The Baltimore Sun laid it out plainly.  There’s no more money to pay for the skyrocketing costs of Affordable Health Care.

American workers saw their out-of-pocket medical costs jump again this year as the average deductible for an employer-provided health plan surged nearly 9 percent in 2015 to more than $1,000, a major new survey of employers shows.

The annual increase, though lower than in previous years, far outpaced wage growth and overall inflation and marked the continuation of a trend that in just a few years has dramatically shifted health care costs to workers.

Over the past decade, the average deductible that workers must pay for medical care before insurance kicks in has more than tripled, from $303 in 2006 to $1,077 today, according to the report by the nonprofit Kaiser Family Foundation and the Health Research & Educational Trust.

That is seven times faster than wages have risen in the same period.

"It's a quiet revolution," said Drew Altman, the foundation president. "When deductibles are rising seven times faster than wages ... it means that people can't pay their rent. ... They can't buy their gas. They can't eat."

The New York Times struck the same note.  The fact that reliably liberal outlets are in full cry about Obamacare’s costs means that its fundamental promise -- “affordable” health care -- has turned into a cruel joke.  Reed Abelson writes:

It may not seem like much — just an extra hundred dollars or so a year.

But the steady upward creep in health insurance deductibles has easily outpaced the average increase in a worker’s wages over the last five years, according to a new analysis released on Tuesday by the Kaiser Family Foundation.

Kaiser, a health policy research group that conducts a yearly survey of employer health benefits, calculates that deductibles have risen more than six times faster than workers’ earnings since 2010.

“It’s a very powerful trend,” said Drew Altman, Kaiser’s chief executive. …

The prospect of the so-called Cadillac tax, a new tax created under the law on high-price health plans, is causing more companies to consider changes like increasing the size of their employees’ deductibles. The tax, which is expected to go into effect in 2018 but faces widespread opposition, could change the steady increase in deductibles into a “spurt,” Mr. Altman said.

But asking employees to cover more of their medical bills through high deductibles raises questions about whether some workers, especially those with expensive, chronic conditions, are being discouraged from seeking the care they need. …

But as wages have stagnated, the steady increase in deductibles is squeezing an already beleaguered middle class. While employers have generally felt some relief from the burden of ever-rising health care costs in recent years, workers are feeling increasingly vulnerable to high medical bills.

Some are making difficult choices about what care they can afford. About two years ago, Beth Landrum, a 52-year-old teacher, who is insured through her husband’s job as an engineer, saw the deductible on her family’s plan increase to $3,300 a year.

Ms. Landrum decided to delay having the M.R.I. her doctor recommends she get every three years. Ten years ago, she had a noncancerous brain tumor that required surgery and radiation. “My doctor’s really mad at me because I haven’t had the M.R.I.,” she said, but she and her husband say they need to save toward the cost.

Stories like these hammer home the message to the candidate’s pollsters.  Obamacare is toxic.  Between the Republicans who vow to repeal it and the two Democratic presidential candidates Clinton and Sanders who effectively vow to repeal it, everyone vows to repeal it.  Although Clinton has been careful not to cast Obamacare as a failure, preferring to say she’ll “build on it”, her phraseology fools nobody.

Obamacare is like a political anvil.  And it's one the Democratic party has fastened round its neck.

At Last, the Truth


Ezra Klein at Vox published what is probably the most honest description of Obamacare.  It’s a tax.  A tax levied for the purpose of suppressing health care consumption in the belief that this is better for society as a whole.  Klein writes with surprising candor.

The whole point of the Cadillac Tax was to make health insurance plans lousier — not to make them terrible, by any means, as these are the more expensive plans on the market right now. But its whole goal is to reduce the quality of benefits that workers receive. So it’s no wonder workers are frustrated, now that employers are working toward that policy aim. And it’s little surprise that repealing the Cadillac Tax is quickly becoming a bipartisan juggernaut in Washington, as reduced health benefits are one very tangible way voters can see Obamacare’s effects.

In the Obamacare world, affordable or inexpensive health care is bad.  It encourages the consumer to use more of it. And in the zero-sum world of socialist economics, using more of something means using less of something else.  So in order to reduce ‘overconsumption’, health care is taxed, just like cigarettes and alcohol.  Klein explains:

The Cadillac Tax places a heavy 40 percent tax on the most expensive health insurance plans. … Traditionally, the government doesn’t tax employer-sponsored insurance. This has created a huge incentive for companies to spend more money on generous insurance plans and less on cash wages. This, in turn, pushes up health-care costs across the system. When workers have expensive plans with no copays or deductibles, they’re likely to use lots of health care, including trips to the doctor they don’t really need.

Government taxes health care, but assures everyone they will get what they really need.  In fact, Klein argues that the only problem with the Cadillac tax is that it doesn’t go far enough.  What it should do is tax the rich at a higher rate.

When Democrats talked about the Cadillac tax during the health reform debate, they would often discuss it as a tax targeting the ultra-rich. Obama adviser David Axelrod described it in 2009 as "an excise tax on high-end health care policies like the ones that executives at Goldman Sachs have."

That’s not quite right, and it’s at the core of one of the best critiques of the Cadillac Tax. It will likely hit some bankers but will also reduce benefits for people we don’t think of as rich, like teachers. These are workers who tend to have robust insurance plans and who have, to some degree, accepted lower wages in return.

The most cutting critique of the Cadillac Tax is that it's a blunt instrument that doesn't take into account granularities in the health-care system. There's no adjustment, for example, for people who live in places where health care is really expensive — so the threshold is the same in the Midwest, where health insurance is pretty cheap, as it is in remote states like Alaska, where it's more expensive to deliver health care. It’s the same for teachers as it is for bankers, for someone who has a chronic disease that really does require many doctor visits and for someone who is perfectly healthy.

The trouble with Klein’s argument is that the very bureaucrats charged with implementing his economic philosophy must themselves -- they should be paid well, shouldn’t they? -- be made to pay more.  Indeed they are.  The Federal Employees Health Benefits Program is the biggest employer provided health system in the country.  As the Huffington Post notes “even the Federal Employees Health Benefits Program's (FEHB) will be negatively impacted. In a recent study, the FEHBP Blue Cross Blue Shield standard option plan was projected to hit the 40% tax in 2019 for employee-only coverage, and in 2025 for family coverage.”

The Washington Post reports a storm brewing among federal employees as their health care premiums rise. “The enrollee share of premiums in the health insurance program for federal employees and retirees will rise by 7.4 percent on average in 2016, the largest increase since 2011, the government announced Tuesday.” This actually amounts to a wage cut for many current and retired government employees.

The government pays about 70 percent of the total premium on average. The U.S. Postal Service pays a higher percentage for its employees, although not for its retirees, under terms of union contracts there. The average increases for postal employees work out to be higher by several percentage points.

On average, non-postal enrollees with self-only coverage will pay $5.50 more per biweekly pay period, rising to $89.59; those with family coverage will pay $19.61 more, rising to $203.40, and those who opt for self plus one coverage will pay $192.71, $8.92 more per pay period than the 2015 average for self and family coverage. Retirees pay the same total, only on a monthly basis. …

Organizations representing federal employees and retirees decried the increases, pointing out that federal employees are in line for only a 1.3 percent raise in January on average, and that retirees likely will receive no cost of living adjustment, or only a minimal one, due to the overall low rate of inflation.

Rising health-care costs “could even mean reduced take-home pay for some federal employees,” while retirees “are facing an even worse situation,” National Active and Retired Federal Employees Association President Richard G. Thissen said in a statement.

Klein is correct to argue that the opposition of Bernie Sanders (and Hillary Clinton) to the Cadillac tax is nonsensical within the logic of Obamacare.  After all, the Cadillac tax is simply subtax of a larger tax.  Klein writes:

The fact that consumers and legislators are beginning to get furious about the Cadillac Tax isn’t evidence that the law is broken. Quite the opposite: It shows that the Democrats are accomplishing a key policy goal — reducing the size of health benefit packages — and happening to make voters quite angry in the process.

However, the outcry over higher health prices -- to which Sanders and Clinton are opportunistically responding -- strongly suggest that the theoretical foundation of Obamacare was looney to begin with.  Klein’s solution is pointless. You can’t tax a health system into both universal coverage and high quality.  The effect of a tax will be to supply either less health care or a product of inferior quality.

Which is exactly what Obamacare is.

The Coming of Hillarycare


Hillary Clinton and Bernie Sanders have put forward their own replacements for Obamacare.  Whichever of these gets to be president two things are certain: government will spend more money and most of it will go to companies represented by powerful Washington lobbies.

The New York Times tells its readers that Sander’s “single payer” replacement for Obamacare would be even more expensive -- if Vermont were any precedent. “His home state of Vermont flirted with the idea, but it dropped its plans because of fears that the high costs would harm the economy. A national program could be more cost-effective, but it has no chance of surmounting opposition from Republicans and from health care industries that fear their profits would be cut.”

The NYT article regards Hillarycare -- as Clinton’s health care policies are now being called -- a more serious contender.  But that doesn’t mean it is any more economically sound than Sanders’ plan.  As well known pundit Scott Gottlieb and James Capretta describe it as a fake free lunch, or at least as a meal with the price tag artfully hidden away.

Clinton is now campaigning to “build upon” Obamacare, mostly by trying to blunt the high cost of Obamacare’s regulatory excess with yet more costly regulation. Nor is it surprising that what she is promising sounds an awful lot like what Obama promised nearly seven years ago — free health care, with no consequences. In recent days, she proposed a $250 annual limitation on what people must pay for pharmaceutical products (with insurers presumably covering all costs above that amount and charging higher premiums as a result). She also wants to give everyone in the United States three free trips to the doctor each year, along with a $2,500 tax credit ($5,000 for couples) for people with high out-of-pocket expenditures. Who would pay for all of this?

She claims it would be paid by cost savings from painless government-imposed cost controls, especially on drug companies. But, of course, price controls are never “costless.” Access to new drugs will suffer. By definition, with price controls there will be less innovation and fewer new products to address the many ailments that afflict millions of patients every year.

And Clinton’s agenda will not stop there. She has signaled that she will continue the Obama administration’s plans to impose more government control on the provision of services, as well as adopt the cost-control agenda of the Democratic party’s top thinkers.

Alec MacGillis of ProPublica thinks whatever happens, Hillarycare or Berniecare will be written by Washington’s lobbies.  He looks at the new career of Marilyn Tavenner, former administrator of the Centers for Medicare and Medicaid Services.  She’s now the “chief executive of America’s Health Insurance Plans, the industry’s main lobbying group”. But Tavenner is not the industry’s most highly placed advocate. As MacGillis points Hillary took the industry cash. The relationship between Hillary and the lobbies is deep and incestuous.

Marilyn Tavenner, former administrator of the Centers for Medicare and Medicaid Services, became chief executive of America’s Health Insurance Plans, the industry’s main lobbying group, which is known as AHIP. As the latest of a half-dozen prominent architects and overseers of Obamacare to move into the health industry, her move signified growing ties between health insurers and Democrats despite battles over the Affordable Care Act.

The relationship has long been marked by ambivalence and tension. Tavenner’s predecessor at AHIP, Karen Ignagni, was a former Democratic staffer on Capitol Hill, but the insurance lobby led the way in defeating the Clinton health coverage plan in 1993 and secretly spent about $100 million to attack Obamacare even as it negotiated to make it palatable to the industry. More recently, as the law added millions to the insurance rolls and generated big profits for many companies, they have turned to defending it.

a Washington firm called the Dewey Square Group, which is closely identified with the Clinton campaign, was at the center of the industry’s efforts to win influence among Democrats—at a time when the two sides were sharply opposed.

As it helps corporations play both sides of the street, Dewey Square stands as a primary example of an ascendant breed in the Washington influence industry: Democratic consulting firms that, over time, have expanded from advising political campaigns into advising industry groups.

While these firms may do actual lobbying here and there, their main service is what’s known as “grass-tops organizing,” to help corporate clients win over Democratic constituencies. Others in the business, including Glover Park Group and SKDKnickerbocker, also lean Democratic. Their clients generally need less help reaching Republicans. …

Among the more than 40 consultants at Dewey Square is Minyon Moore, the director of its multicultural and state and local practice, a former political aide in Bill Clinton’s White House who joined the firm in 2004. Moore is close with Hillary Clinton—in 2008, she asked a Washington businessman to fund a shadow pro-Clinton effort during the Democratic primaries in four states and Puerto Rico

The industry has no interest in cutting healthcare costs.  The more the Federal Government spends, the more business it is for them. Single payer is as good for them as it bad for the American budget.

When Democrats took control of Congress after their 2006 election sweep—a sweep in which Whouley played a key role in boosting turnout—one of their first agenda items was to expand health insurance for low-income children. To pay for it, they proposed reining in subsidies given to insurers who offered seniors coverage under Medicare Advantage, the privately run alternative to Medicare.

Medicare Advantage was created on the logic that it would increase choice and provide more efficient care. But by 2007, the plans were costing the government about $1,000 more per enrollee than traditional Medicare. Congressional budget analysts found that if the government cut payments to insurers to match those in the traditional system it could save $54 billion over five years.

It therefore comes as no surprise that Bernie Sanders should advocate including illegal aliens in Obamacare.  The politicians have stopped representing the voters and are working full time for themselves. The more government spends the better it is for Washington and the more money the insurance industry earns.  

Will Hillarycare replace Obamacare?  To paraphrase Hillary, “what difference would it make?” It will simply be the same set of actors acting at the behest of the same lobbyists.

The Dam Breaks


Reihan Salam at the reliably liberal Slate Magazine says the previously forbidden word: Republicans and Democrats should get together and change Obamacare because “it’s not just conservatives who have a problem with Obamacare. Just ask Bernie Sanders and Hillary Clinton, both of whom have had a lot to say about how they’d overhaul Obamacare.”

In reality the law sucks and has created a problem for politicians on both sides.   The problem is how to fix it without appearing to criticize it. “As long as middle-class voters don’t believe that Obamacare is benefiting them, Obamacare is going to be politically vulnerable.”

He prescribes a strategy for finessing Obamacare into the the political grave. Salam faults the Republicans for insisting on the nasty word “repeal” in connection with the ACA, which creates a political obstacle for Democrats.  If the GOP were only willing to pay lip service to the president’s health care “achievement” then everyone can get on with the job of repealing it without actually using the word.  

Salam calls the secret bipartisan repeal a “truce”

Sanders favors scrapping Obamacare’s convoluted structure outright and replacing it with a Medicare-for-all single-payer system. Clinton wants to make Obamacare’s benefits more generous while also getting rid of the Cadillac tax, one of the law’s chief revenue-raising measures. …

The time has thus come for a temporary Obamacare truce. Conservatives and liberals have very different gripes about Obamacare. On the right, critics fear that it will cause federal spending to skyrocket over time, and that it is stymieing cost-saving, quality-enhancing innovation with its stringent regulations. On the left, there is a sense that Obamacare hasn’t gone far enough to expand coverage and to protect the interests of its poorest beneficiaries. What both sides have to confront is that their best-case scenarios—starting from scratch with a free-market approach for conservatives, embracing single-payer for liberals—aren’t going to pan out any time soon. To achieve their goals, both sides will have to give a little, at least for now. …

What might an Obamacare truce look like? Rather than fight the fact that the Obamacare exchanges have become a refuge for the poor and the sick, Republicans and Democrats should embrace it. The central elements of the Obamacare truce would be to repeal the unpopular individual and employer mandates, which are meant to corral people into buying insurance, and to deregulate individual insurance plans that are not sold on the exchanges. (Right now, all individual health insurance plans must be compliant with Obamacare’s insurance regulations.) If you want to buy an Obamacare-compliant policy, you’d be welcome to buy one on an exchange. But Obamacare’s insurance regulations and its premium subsidies would only apply to plans sold on the exchanges. If you choose to buy private insurance not on an exchange, your plan would be regulated by your state government, and you wouldn’t be eligible for any financial assistance. Premiums for off-exchange plans would tend to be much lower than for Obamacare-compliant plans, as they’d offer fewer free services upfront and they’d skimp on Obamacare-mandated benefits that many consumers don’t want or need. Yet because these plans are better-targeted to meet the needs of the middle-class unsinsured people who are avoiding the Obamacare exchanges like the plague, there is good reason to believe that coverage levels would increase. That’s an outcome both the left and the right should celebrate.

In one fell swoop, this Obamacare truce would transform the regulated exchanges into high-risk pools that would serve the people the unregulated private insurance market can’t serve well.

Perhaps the clearest sign things are turning against Obamacare is Hillary Clinton’s open break with the incumbent’s legacy. Jonathan Bernstein at Bloomberg explains how the effect of rising costs has turned the Democratic frontrunner against it.

Is Hillary Clinton signaling a turning point in the health-care debate – one in which Democrats adopt the same fiscally irresponsible position that Republicans take?  

Democrats have been at a disadvantage in waging the public-opinion war because they've been mostly realistic about its costs.  (Yes, there have been exceptions: Barack Obama’s claim that people could keep their old plans if they wanted, for example -- perhaps the most egregious example of over-promising.)

The administration also called it the “Affordable Care Act” and gave the impression it would cost less than a cell phone plan before admitting that Obamacare was anything but affordable. Now, with 2016 looming and the voters angry, Hillary has to talk down the prices somehow even if it means being “unrealistic” again as Bernstein explains.

To square the circle, Bernstein figures Hillary will lie.  She’ll simply promise to repeal the Obamacare taxes in order to appease unsophisticated voters tired of the high costs.  But in the end those revenue cuts are not sustainable so Bernstein figures she must slip in new taxes via the backdoor or through some technicality.

So it was a surprise when Clinton came out this week for repeal of the “Cadillac tax” -- the Obamacare provision that tries to cut overall health-care spending by limiting the current tax advantages for gold-plated employer-linked health insurance.

As HuffPost’s Jonathan Cohn explains, the Cadillac tax is a provision of the law that “economists love and pretty much everybody else says they hate.” Many unions dislike it because they have bargained for excellent insurance for their members that is worth less to workers under the tax; they also don't trust that employers, if they cut back on compensation in the form of health insurance, would make it up with increased wages. Republicans hate the tax because, well, it’s a tax. Economists like it because it promotes efficiency and fights medical cost increases.

Clinton didn’t recommend an alternative way to fight overall health-care inflation. Nor has she suggested, at least so far, a different revenue stream to replace the tax revenue. Perhaps she will, in which case her proposal may turn out to be perfectly responsible, whether one agrees with it or not.

I wonder, however, if she’s up to something more clever, assuming that’s the right word. She may decide to campaign against the Cadillac tax, and leave it up to Congress to replace it – pledging, if she’s elected, to sign something only if it replaces the revenue lost. She knows that even a Democratic Congress would be unlikely to find a replacement for the tax, and a divided or Republican Congress assuredly would not. So she would be reaping the gains of running against the unpopular provision without doing anything to disrupt Obamacare after all.

In either case, the myth of Obamacare’s “permanance” is exploded.  It is living on borrowed time.  Neither the Democrats nor the Republicans can live with it.

Big Pharma and Competition


The recent news coverage of steep pharmaceutical price increases have highlighted the role of monopoly power in the health care industry.  John Green of Healthcare Triage described the recent controversy surrounding Daraprim, an old drug whose company was acquired by “Turing Pharmaceuticals, a start-up run by a former hedge fund manager”.

Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.

Green pointed out that Daraprim is one of several companies that have followed the identical strategy of buying up an old drug for which there are no therapeutic substitutes, then exploiting that uniqueness by raising prices to astronomical levels.  He mentions cycloserine, isuprel, nitropress and doxycycline as drugs which followed the same strategy employed by Daraprim.

Green also notes that such companies, having cornered the market for that particular drug, then differentially price it commensurate with their bargaining power. For example, Daraprim will charge the government much less than it will charge privately insured or uninsured individuals.  This is a classic case of price discrimination by a monopoly.  “Price discrimination occurs when a business charges a different price to different groups of consumers for the same good or service, for reasons not associated with costs.” It’s an indicator that the market is not working.

Here are the main conditions required for discriminatory pricing:

Differences in price elasticity of demand: There must be a different price elasticity of demand for each group of consumers. The firm is then able to charge a higher price to the group with a more price inelastic demand and a lower price to the group with a more elastic demand. By adopting such a strategy, the firm can increase total revenue and profits (i.e. achieve a higher level of producer surplus). To profit maximise, the firm will seek to set marginal revenue = to marginal cost in each separate (segmented) market.

Barriers to prevent consumers switching from one supplier to another: The firm must be able to prevent "consumer switching" – i.e. consumers who have purchased a product at a lower price are able to re-sell it to those consumers who would have otherwise paid the expensive price.

The obvious way to prevent the practice of monopoly gouging and price discrimination such as Daraprim’s is to encourage the use of generics and biosimilars.  The availability of a generic alternative to Daraprim would make it impossible for Turing to charge exorbitant amounts for this pharmaceutical. “Biosimilars are comparable to generics in the sense that they are approved substitutes for specific bio-engineered therapies, or biologics.” A RAND study showed that highly significant savings were possible by ensuring that patent holders did not have an indefinite monopoly on their products.

Unfortunately one of the biggest obstacles standing in the way of pharmaceutical competition is Obamacare itself.  As part of a deal to support the president’s program, Big Pharma was allowed more patent and intellectual property protection.  The Wall Street Journal editors reported in February, 2015 in an article titled “Big Pharma’s ObamaCare Reward” that “for helping pass the law, the drug companies get price controls.”

Politico noted how this quid pro quo worked. “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.”

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.

Throughout the TPP talks, the Obama administration has pledged to balance the goals of fostering innovation in the drug industry, which means allowing higher profits, and promoting wider access to valuable medicines, which means keeping prices down. U.S. Trade Representative Michael Froman has pointed out that pharmaceutical companies often have to invest hundreds of millions of dollars to get a new drug to market, which they would have little incentive to do without strong protections for the patented product. But Froman has also recognized the value of allowing much cheaper generic drugs to enter the market after those brand-name patents expire. In the U.S., generics now comprise more than five-sixths of all prescription drugs, but only about one-quarter of drug costs.

The Wall Street Journal article writes that the fixed deal is unstable because the government has the incentive to renege.  High drug prices are unpopular with the voters, so the government will strive to crack down on the monopolies in order to win votes.  That means that whatever the politicians promise big pharma they are going to be tempted to double cross their contributors.

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%.

Hillary Clinton is caught on the horns of this very dilemma. As the Hill reports, Clinton is campaigning on a program of controlling pharmaceutical prices.

Hillary Clinton is launching ads that take credit for a pharmaceutical company's decision last week to roll back its 4,000 percent price increase of a life-saving drug.

Clinton’s campaign has purchased ads in Iowa and New Hampshire to draw attention to her attack on Turing Pharmaceuticals, a company that drew national scorn for dramatically raising the pricetag of a decares-old drug that’s commonly used to treat AIDS patients.

The price increase was rolled back one day after Clinton accused the company’s CEO of “price gouging” on Twitter.

Clinton’s campaign said the back-and-forth demonstrated that the candidate “is already getting results in her fight to curb prescription drug costs,” according to a statement from her campaign announcing the ad Monday.

Yet those same pharmaceutical prices are the result of Obamacare and it’s sweetheart deals with Big Pharma.  Ultimately Clinton cannot simultaneously buy off the voters and buy off the pharmaceutical industry.  The only solution is to increase competition, but apparently nobody wants that.

Hillary Ditches Obamacare Cadillac Tax


Hillary Clinton broke openly with Obamacare for the first time since her campaign began over the issue of the “Cadillac Tax”.  Sarah Ferries of the Hill reports:

Former Secretary of State Hillary Clinton broke from the Obama administration this week in declaring her opposition to ObamaCare's “Cadillac Tax" on high-end healthcare plans.

"Too many Americans are struggling to meet the cost of rising deductibles and drug prices. That’s why, among other steps, I encourage Congress to repeal the so-called Cadillac Tax, which applies to some employer-based health plans, and to fully pay for the cost of repeal," Clinton wrote in a statement Tuesday.

Opposing the tax will put her at odds with most ObamaCare backers, though it could also unlock important endorsements from the country’s largest unions. The tax, which goes into effect during the next president's tenure, specifically targets expensive health plans, making it a top issue for union groups, which typically give members generous benefits.

Clinton has been under mounting pressure to oppose the tax or risk losing big-dollar union support to her 2016 Democratic rivals; Sen. Bernie Sanders (I-Vt.) and former Maryland Gov. Martin O’Malley have both come out against it.

Count on it.  Obamacare will not survive.  With Clinton determined to turn it into Hillarycare 2.0 and Bernie Sanders poised to replace it with single payer and the unions against the Cadillac Tax, coupled with the Republican pledge to overturn it, there is no plausible scenario in which the ACA survives in anything like its original form.

The National Journal says there are hints Hillary will tax Big Pharma and insurance companies as a way of replacing the lost revenues from the Cadillac Tax.  But that is probably not going to work.  Taxes have done nothing but raise costs.  The Medical Device tax is yet another unpopular measure that Hillary is under pressure to repeal.

The Ca­dillac tax is a 40 per­cent ex­cise tax on em­ploy­er-provided health be­ne­fits that ex­ceed a cer­tain threshold. It was in­cluded in the ACA as a way to con­trol health care costs, help pay for the law, and ad­dress gov­ern­ment rev­en­ue lost by the tax ex­clu­sion of em­ploy­er-provided health care plans.

Policy-wise, the dif­fer­ence between Clin­ton’s pro­pos­al and the Demo­crats’ Sen­ate bill is that hers sug­gests a way to re­place the rev­en­ue the tax is ex­pec­ted to bring in: her pre­vi­ous health care pro­pos­als re­leased last week that largely tar­geted phar­ma­ceut­ic­al com­pan­ies and in­surers. …

Clin­ton’s policy pro­pos­als re­leased last week in­clude in­clude re­quir­ing drug com­pan­ies to re­dir­ect funds from mar­ket­ing to re­search, en­cour­aging the de­vel­op­ment of gen­er­ics to in­crease com­pet­i­tion for pre­scrip­tion drugs, al­low­ing Amer­ic­ans to im­port drugs from abroad, de­mand­ing high­er re­bates for pre­scrip­tion drugs through Medi­care, and al­low­ing Medi­care to ne­go­ti­ate drug and bio­lo­gic prices. Clin­ton’s plan also would cap monthly and an­nu­al out-of-pock­et costs for pre­scrip­tion drugs.

Both Clinton and Sanders are caught on the horns of a dilemma.  The taxes imposed by Obamacare were intended to make health care more expensive so that consumers would use less of it.  Taxes, by raising prices, dampen demand which was a key ACA goal.  The president’s advisers believed Americans were overconsuming healthcare, something the Cadillac Tax was intended to correct.

The problem with the taxes was the voters hated it. This has driven Hillary to promise to repeal the taxes, which if successful would actually destroy Obamacare. As Jonathan Cohn writes in the Huffington Post “economists won't be happy, but unions will be.”  Liberal economists, anyway.  Cohn writes:

White House officials, who fought to include the tax in their health care overhaul, won’t be happy about the news, first reported by Maggie Haberman of The New York Times. But many interest groups, particularly labor unions, will be ecstatic. And that probably has a lot to do with why Clinton's taking this position.

The tax, set to take effect in 2018, is a levy on the most expensive health insurance plans. It is basically an effort to roll back an existing tax break for health insurance, one that’s been around since the middle of the 20th century and that many experts believe contributes to rising health insurance premiums.

As the thinking goes, the existing tax break on health insurance makes a dollar of health insurance worth more than a dollar of income, giving employers and employees alike artificial incentive to spend extra money on health care. The Cadillac tax is basically a roundabout way of undoing at least part of that incentive. Once it takes effect, most economists believe, employers will respond by finding ways to spend less on health insurance -- a change employees would see as lower premiums and higher take-home pay.

The truth is that the Affordable Care Act hopes to work by making health care unaffordable so that people consume less health care.

The Congressional Budget Office basically made it clear that, without something like the Cadillac tax, the health care law was unlikely to reduce health care spending.

The Cadillac tax will also generate revenue for the federal government. That money will partly offset the cost of the the expansions of Medicaid and health insurance tax credits that are helping so many millions of people to get health insurance. …

The problem is that the key Democratic constituencies, like teacher’s unions, don’t want to give up their tax subsidized health benefits.  They don’t want to spend less.  They liked things just as they were.  Hillary, the political animal, must pander to their wishes even if it  means contradicting her own health care ideology.

Labor has been prevailing upon Senate Democrats and, more recently, the Democrats running for president, to endorse repeal. Just this week, presidential hopeful Sen. Bernie Sanders (I-Vt.) co-sponsored a bill with Sen. Sherrod Brown (D-Ohio) that would eliminate the tax. Now Clinton has joined their call.

In a carefully worded statement that praised the Affordable Care Act for a historic reduction in the number of uninsured Americans, Clinton on Tuesday said, “I encourage Congress to repeal the so-called Cadillac Tax, which applies to some employer-based health plans, and to fully pay for the cost of repeal.”

That last part is important: The tax is supposed to generate $91 billion over the next decade. The health care law as a whole appears to be coming in much cheaper than projections originally suggested, but that’s still a lot of money for the federal government to give up.

Equally critical is whether Clinton will also propose measures that would restrain health insurance premiums as effectively as the Cadillac tax would. If not, then repealing the tax could mean a return to higher health care inflation in the future.

Hillary Clinton cannot square the circle. Obamacare is founded on a fundamental contradiction.  It aims to control health costs by taxing them.  This is futile. Ultimately health costs can only be reduced by innovation.  Hillary doesn’t do innovation.  But she does handouts and she does taxes.

Three Scandals


A number of recent bombshell investigative reports have peeled back the glossy exterior of Obamacare and shown a glimpse into a rather disquieting interior.  The first is the suggestion that Obamacare might have served as a vehicle for the transfer of federal funds to Democratic party-affiliated individuals.  The Daily Caller cites a GAO report titled “Health Insurance State Marketplaces” that details a depressing catalog of management failures.  Americans for Tax Reform summarize it as follows:

The Centers for Medicare and Medicaid Services (CMS) failed to conduct sufficient oversight over state-based Obamacare exchanges prior to the 2014 enrollment period, according to a recently released report by the Government Accountability Office (GAO). Taxpayers gave over $5.5 billion in grants to all 50 states and DC to plan and construct exchanges, with the 17 states that proceeded to construct an exchange receiving almost $4.6 billion of that amount. Since then, these funds have largely been wasted by inept bureaucrats on systems that do not work. …

As the report concludes, these problems were so severe in four states (Massachusetts, Maryland, Nevada, and Oregon) that these exchanges had to rely on alternative ways to enroll customers during the first enrollment season.

Given that state exchanges received $4.6 billion in federal grant money, their poor performance is concerning to say the least.

While several exchanges have already defaulted back to the federal system, and many others have been characterized by severe operational problems and inept management, GAO reports that just over $1 million of the $4.6 billion of taxpayer money has been returned to the federal government.

The other investigative report concerned the Obamacare website itself. Judicial Watch cites a Department of Health and Human Services Office of Inspector General report which concludes  that $600 million in contracts were incompetently or questionably given to contractors.

Months after Judicial Watch exposed massive security risks with the government’s website, a federal audit reveals that the public employees responsible for overseeing the disastrous Obamacare site were not properly trained, failed to keep adequate records and stood by as delays mounted to millions over the original contract costs.

We’re talking an astounding $600 million in contracts to build the website for the president’s signature healthcare law. The government employees tasked with supervising the colossal project actually helped private contractors fleece American taxpayers, according to an investigation conducted by the Health and Human Services (HHS) Inspector General (IG). Most of the derelict employees work at the Centers for Medicare and Medicaid Services (CMS), which manages federal healthcare programs including Obamacare. The IG determined there were widespread failures and poor oversight by CMS, which functions under HHS.

The investigation focused on nearly two dozen contracts considered to be most important to the operation of the website, which was supposed to create a marketplace that serves as a one-stop shop for health insurance. Instead, it’s had a multitude of problems that have been well-documented in the media. The deals to develop this federal insurance marketplace went mostly to eight politically connected companies that raked in north of $600 million, the IG’s report says. “As of March 31, 2014, CMS had identified 62 contracts that it had awarded to 35 different contractors to develop, implement, and operate the Federal marketplace,” the report states.

Judicial Watch, like the Daily Caller, thinks that the incompetence is so staggering as to be suspicious.  Huge amounts of money simply evaporated and there are not even enough available records to know where it has gone.

These atrocious examples are probably not the half of it because CMS couldn’t even provide investigators with routine documents that should have been readily available. That means there’s no telling the true magnitude of the damage. As for accountability, there appears to be none as is often the case in government. The Obama officials—former HHS Secretary Kathleen Sebelius and former CMS head Marilyn Tavenner—in charge of this boondoggle are both gone and it’s highly unlikely either will face any consequences.

The HHS watchdog report only confirms the fraud and corruption that has plagued the president’s hostile takeover of the nation’s healthcare system. Back in 2013 Judicial Watch reported that was designed by a team made up entirely of Obama minions, including the design manager for the president’s 2008 campaign and the White House Deputy Director of New Media. The expert team of Obama pals promised to deliver a bilingual website that would be the healthcare law’s centerpiece and serve as an essential tool that would guide millions of Americans through the rigorous process of choosing insurance.

Despite huge failures, the government officials in charge of Obamacare’s tumultuous implementation and beleaguered health exchange website quietly received tens of thousands of dollars in performance bonuses and other taxpayer-funded perks. In fact, last year JW obtained records documenting that enraging reward system. JW has also exposed incriminating HHS records detailing a massive, taxpayer-funded multi-media campaign designed to promote Obamacare. A few years ago JW reported on a controversial Obamacare initiative that gives “community-based organizations” $1 billion to devise “compelling new ideas” to deliver better services to those “with the highest health care needs”

What this vast expenditure bought the public according to security professionals, was a hack waiting to happen. Doug Olenik, the online manager of SC magazine wrote, “the personal data of millions of Americans who signed on with the Affordable Care Act (ACA) for health insurance was still at risk due to poor security practices at even after the agency said the issues were fixed, a federal audit found.” He cited the same HHS Inspector General report which concluded that the vulnerabilities remained even after CMS said they were fixed.

The HHS IG found that the CMS had still failed to check for basic security flaws that would have found the vulnerabilities on MIDAS, which houses customer data.This after the IG had issued a report last year on these and other security problems and that CMS had said were fixed.

Some of the problems the audit uncovered were password weakness, not encrypting user sessions, shared read-only account for access to the database with the personal information, and not disabling unnecessary generic accounts. In addition, the IG discovered 135 database vulnerabilities, 22 of which are considered high risk and 62 of medium risk.

These findings take on a peculiar urgency in the wake of the OPM data breach in which 5.6 million federal employee records, many of those concerning sensitive personnel, were taken by Chinese Hackers.  Foreign Policy quotes the DNI, James Clapper.

“We don’t actually know what was actually exfiltrated,” Director of National Intelligence James Clapper said during an appearance at Georgetown University. “So what you’re hearing about is absolutely the worst case.”

OPM revealed that as many as 5.6 million fingerprint records were among the data stolen in a breach disclosed in June. That’s up from their previous estimate of 1.1 million fingerprint records. The 5.6 million people whose fingerprint records were compromised are a subset of the total number of people whose records were stolen from OPM. The total number of people whose records — including documents gathered during the course of background investigations for current, former, and prospective federal employees seeking security clearances — were compromised remains at 21.5 million.

The same thing could potentially happen to every America’s health records.  It’s a staggering finding of incompetence.  It’s hard to imagine why Obamacare’s supporters should expect such great things from some bumbling a crew.

SHOCKER: Why Obamacare won’t save money


One of the unappreciated effects of health care consolidation under Obamacare caused by the reduction in health care provider numbers to a mere handful on the supply side coupled with government regulated insurance and Medicaid on the demand side, is the distortion of the price signal.  For a long time, the critique of the medical care system was that prices for care were negotiated between hospitals and insurance companies. They bore no relation to what they cost in the market because there was no market.  


Obamacare promised to change all that -- and it has by replacing one non-market valuation system with another.  The result is that prices may still bear no relationship to anything the market values.


Take the price of being fat.  What is the price of being 20 pounds overweight?


Abby Ellin of the Observer notes that Obamacare formulas, as applied, can make it very expensive for someone to be overweight, via something called the “wellness” provision.


A few months ago, Tracy Raymond, a first-grade teacher in Palm Beach Gardens, FL, discovered that she was too fat for her school. A 50-year-old mother of two, Ms. Raymond has always carried around extra padding, but it never bothered her. “I know I’m heavier than I should be for my height, but I’m not obese,” she says. “I really don’t care.”


If the diet police has its way, she might have to start caring. Because according to her employer, her weight is a big problem—so much so that she was warned that if she didn’t lose weight and lower her cholesterol, either by participating in a wellness program or fixing the problems on her own, her insurance premiums would increase by $50 a month.


This isn’t unique to Palm Beach County.


A 2013 report by ConscienHealth, a consultancy, found that 16 percent of employers require wellness program participation, including medical screenings, for access to full health benefits. Of these, 67 percent set goals for weight and/or other health indicators linked to obesity (weight, blood pressure, cholesterol, diet). But 59 percent said that their companies didn’t cover any evidence-based treatments for obesity, like fitness training, dietician, or medical weight loss clinics.


Penalizing employees for pounds is perfectly legal. Under provisions in the Affordable Care Act, 2014, employers can charge employees an extra 30 percent of the total cost (employer and employee portions) of individual or family health benefits coverage if they don’t meet specific wellness goals, including body mass index (BMI). This is up from 20 percent, which was imposed in 2006 and permitted under the Health Insurance Portability and Accountability Act regulations (HIPPAA). Prior to 2006, employees couldn’t be penalized for missing a wellness target. “You could offer them nominal incentives to engage in activities like participating in a class, but you never could penalize them for actually smoking or not losing weight, or having high blood pressure,” said Karen Pollitz, a senior fellow at the Kaiser Family Foundation, in Washington, D.C.


It may not have been Obamacare’s intention to treat being fat as a “pre-existing condition”, but that is the result.  It’s what happens when prices are determined by regulations, rather than market for the marginal price of these services, of which there is still apparently none.  That won’t stop the six billion dollar wellness industry from making a killing, because they’re automatically baked into the formula.


The heart of Obamacare’s cost containment is something called value payments.  Under this concept, fee-for-service is replaced by a lump sum reimbursement for treating a condition.  According to Obamacare advocates this will cut medical costs significantly.  John Goodman in Forbes explains why it will not.  Basically it is because companies won’t get to pocket a significant portion of the savings as profits.  This counterintuitively, leads to bad results.


In a normal market, the entrepreneurs wake up every morning and ask themselves: How can I make costs lower, quality higher, and access to my product better today?


But in a bureaucratic system – where revenues are determined not by customer satisfaction, but by complicated payment formulas – they tend to wake up and ask: How can I get more money out of the payment formulas today? …


magine that UnitedHealth care or Humana or Cigna discovered away to cut health care costs in half – with no reduction in quality or in access to care. The stock price of the company that made this discovery would go through the roof. Right? Not quite. Under rules imposed by the Obama administration, the company would be forced to give virtually all of its newfound profit back to Medicare.


Here’s why. Under the “Medical Loss Ratio” requirement, a health plan is required to spend at least 85 percent of its premium income on health care. Let’s say a health plan was doing that. After the discovery of a way to cut those costs in half, it would be spending only 42.5 percent of premium income on health care. Not only would the health plan be forced to give all of its savings back to Medicare, it could actually be fined and kicked out of the Medicare Advantage program for spending so little!


With those incentives in place, do you think any of the MA plans are going to be discovering ways to realize huge cost savings anytime soon?


What  providers are likely to do is take profit downstream of where the government can see it, as Goodman explains.


Here is what the heath plans are doing instead. Increasingly, they are contracting with independent doctor associations, typically managed by entrepreneurs. There is no medical loss ratio rule governing these entities. If they find a way to cut health care costs in half they can take the savings right to the bank. Not only that, they can actually share the savings with the health plan that farmed out the business to them – and Medicare doesn’t get any of that.


In other words, if Cigna finds a way to cuts health care costs in half and does so, it has to give all the profit back to Medicare. But if Cigna contracts with a doctor association that cuts costs in half, nothing is returned to Medicare. Moreover, nothing is returned to Medicare even if the doctor’s group shares the profits 50/50 with Cigna.


Now with those incentives in place, where do you think entrepreneurs are finding ways to cut costs?


Government never gets any change back on the dollar. Under these circumstances Obamacare will never achieve any savings worth mentioning.  All that will have been achieved in the end is a higher price for everything in the name of good intentions.

Who likes the national health care system


During the Republican presidential debate Donald Trump expressed his admiration for the British National Health Service.  Trump said:


During a question on US healthcare, Trump said President Obama’s Affordable Care Act had been a disaster and argued for a single-payer system of healthcare.


Trump said: “As far as single-payer, it works in Canada, works incredibly well in Scotland. Could have worked in a different age, which is the age you’re talking about here.”


Trump then went on to say: “What I would like to see is a private system without the artificial lines around every state” suggesting one large private healthcare provider rather than the state provided NHS used by the majority of Scots.


Trump is not alone in his admiration of the NHS. The Guardian recently reported that a Washington think-tank rated the NHS the best health care system in the world, relegating the American system to the bottom.


The report has been produced by the Commonwealth Fund, a Washington-based foundation which is respected around the world for its analysis of the performance of different countries' health systems. It examined an array of evidence about performance in 11 countries, including detailed data from patients, doctors and the World Health Organisation.


"The United Kingdom ranks first overall, scoring highest on quality, access and efficiency," the fund's researchers conclude in their 30-page report. Their findings amount to a huge endorsement of the health service, especially as it spends the second-lowest amount on healthcare among the 11 – just £2,008 per head, less than half the £5,017 in the US. Only New Zealand, with £1,876, spent less.


In the Commonwealth Fund study the UK came first out of the 11 countries in eight of the 11 measures of care the authors looked at. It got top place on measures including providing effective care, safe care, co-ordinated care and patient-centred care. The fund also rated the NHS as the best for giving access to care and for efficient use of resources.


The only serious black mark against the NHS was its poor record on keeping people alive. On a composite "healthy lives" score, which includes deaths among infants and patients who would have survived had they received timely and effective healthcare, the UK came 10th.


For some reason, the NHS has acquired the sobriquet of the “envy of the world”, despite the fact that it does not rank highly in efficiency, in dollars per outcome -- where the the champion is Singapore, nor does it do particularly well in providing care to seriously ill patients, as manifested by cancer survival rates.  “Five-year survival rates for early-stage breast cancer were only 78 per cent, against 97 per cent in the U.S. and 93 per cent across Europe.”


Cancer patients in Britain have a far worse chance of surviving than those in any other country in the developed world, a shocking study reveals today.


Researchers who studied data covering millions of patients in dozens of countries said their findings laid bare Britain's appalling record.


Five-year survival rates for early-stage breast cancer were only 78 per cent, against 97 per cent in the U.S. and 93 per cent across Europe.


Similarly, only 70 per cent of patients with early-stage colo-rectal cancer live for five years in Britain, against 90 per cent in the U.S. and 80 per cent in Germany.


The researchers blamed 'absolute minimum' spending on drugs in the NHS, shortages of cancer doctors and a lack of effective screening.



Those who object that high American cancer survivals are purchased at the price of social inequality would do well to examine the survival rates among countries with systems perceived to be broadly similar to the NHS.  What is really interesting is that there are wide differences in the outcomes of system presumed to be alike. The British Journal of Cancer examined the survival rates of cancer patients “with similar healthcare systems”.


The research, from the London School of Hygiene & Tropical Medicine, compared survival for colon, breast, lung, ovarian, rectal and stomach cancers in England, Australia, Canada, Denmark, Norway and Sweden between 1995 and 2009, and survival trends in England up to 2012. It included more than 1.9 million cancer patients in England and another 1.9 million cancer patients from the other five countries.


Of all six countries cancer survival was lowest in England, while Australia and Sweden had the highest cancer survival overall.


Compared with the better performing countries - Australia, Canada, Norway and Sweden -five-year survival was five to twelve per cent lower in England across all the cancer types measured.


There may be as much difference between so-called socialized or single payer health care systems as between systems of different types.  Russia for example, long had the very archetype of socialized medicine, but health care in the USSR was distinctly inferior.  Perhaps nothing highlights the difference between Britain, Australia and Canada than articles in the Guardian describing the experience of doctors who have left the NHS for Australia or Canada.


One doctor who left the UK for Australia is stricken with guilt that she has it so good while her colleagues in the “envy of the world” have it so bad.


I left the UK a year ago, accepting a temporary work contract in Australia. I now find myself uncertain if I can return home. I am a UK doctor, an NHS supporter, and I am panicking on the other side of the world. I awoke last week to a social media furore from friends and colleagues in the UK. A consensus of anger and outrage reigned. And repeatedly I saw #juniorcontract. A few clicks later and I too was erupting.


The new non-negotiable contract means doctors will receive a pay cut of up to 40%. This will force many to leave the profession or seek work abroad to service their student debts and mortgage commitments. With the NHS already facing crippling staff shortages, patient care will be further compromised and the privatisation of our health service becomes inevitable. …


So here I am in sunny Australia working as a principle house officer in paediatrics. I am contracted to work a 76-hour fortnight and receive extra pay for evening, night and weekend shifts. I am therefore working roughly half the hours a month compared to my previous post in the UK, and yet receive double the pay. My role is well-supported and is infinitely rewarding.


Another doctor who left the NHS for Canada has a similar story to tell, but feels only the desire to gloat and not the slightest twinge of guilt.


When I read the British newspapers, in which GPs are denigrated on a daily basis, I smile at the articles that used to make me cry.


Having practised in Canada for more than a year, and having regularly discussed life with colleagues who have fled to Australia and the unfortunate ones who remain in the UK, I can say with certainty that the grass is greener for GPs on the other side.


In the UK, GPs are underpaid and overworked. After indemnity, taxes, increasingly unattractive pension contributions, national insurance and student loan repayments, most full-time GPs take home between £3,000 and £4,500 a month. …


At dinner parties in England, I would fear telling strangers my profession because of the inevitable barrage of abuse that would ensue. They would ask why they could never get through to their GP when they called, or why it took a week for their doctor to see them. Or worse, they would ask what GPs do in their three-hour lunch break and joke that we all just play golf.


I would bite my tongue for the most part when really my blood was boiling and the answers were on the tip of my tongue: “The phone lines and the appointments are mostly taken up by ignorant ingrates who lie about having severe symptoms to get urgent appointments because they want to be seen immediately for their minor and self-limiting ailments, for which we can do nothing anyway.


“And as for the three-hour lunch breaks, between the four home visits for patients who couldn’t possibly make their way to the practice yet are somehow able to pick up their own prescriptions, piles of paperwork, business meetings, staff meetings and checking blood and test results, I don’t have much time for golf.”


It appears what matters is less whether a health system is “single payer” or “socialized” or “private” than whether it is well run or not.  Singapore, like Australia, combines a public health care system with a robust private system. In fact, the vaunted Singaporean system has aspects which are very “uncaring”.  Wikipedia describes how it works:


Singapore has a non-modified universal healthcare system where the government ensures affordability of healthcare within the public health system, largely through a system of compulsory savings, subsidies, and price controls. Singapore's system uses a combination of compulsory savings from payroll deductions to provide subsidies within a nationalised health insurance plan known as Medisave. Within Medisave, each citizen accumulates funds that are individually tracked, and such funds can be pooled within and across an entire extended family. The vast majority of Singapore citizens have substantial savings in this scheme. One of three levels of subsidy is chosen by the patient at the time of the healthcare episode.


A key principle of Singapore's national health scheme is that no medical service is provided free of charge, regardless of the level of subsidy, even within the public healthcare system. This mechanism is intended to reduce the over-utilisation of healthcare services, a phenomenon often seen in fully subsidised universal health insurance systems.[citation needed] Out-of-pocket charges vary considerably for each service and level of subsidy. At the highest level of subsidy, although each out-of-pocket expense is typically small, costs can accumulate and become substantial for patients and families. At the lowest level, the subsidy is in effect nonexistent, and patients are treated like private patients, even within the public system.


The increasingly large private sector provides care to those who are privately insured, foreign patients, or public patients who are able to afford what often amount to very large out-of-pocket payments above the levels provided by government subsidies.

The Swiss system is also public-private.


Swiss are required to purchase basic health insurance, which covers a range of treatments detailed in the Swiss Federal Law on Health Insurance (ger: Krankenversicherungsgesetz (KVG); fre: la loi fédérale sur l’assurance-maladie (LAMal); ita: legge federale sull’assicurazione malattie (LAMal)). It is therefore the same throughout the country and avoids double standards in healthcare. Insurers are required to offer this basic insurance to everyone, regardless of age or medical condition. They are not allowed to make a profit off this basic insurance, but can on supplemental plans.[2]


The insured person pays the insurance premium for the basic plan up to 8% of their personal income. If a premium is higher than this, the government gives the insured person a cash subsidy to pay for any additional premium. …


The compulsory insurance can be supplemented by private "complementary" insurance policies that allow for coverage of some of the treatment categories not covered by the basic insurance or to improve the standard of room and service in case of hospitalisation. This can include complementary medicine, routine dental treatments, half-private or private ward hospitalisation, and others, which are not covered by the compulsory insurance….


The Swiss healthcare system is a combination of public, subsidised private and totally private systems.


But then so is the American health care system.  The combination of Medicare, Medicaid, Employer provided insurance and Medicare Part D all constitute elements of a public-private system, comparable in its essentials with Switzerland.  The problem is it doesn’t work very efficiently.  But this may be due to the lack of competition and institutional deficiencies rather than the nature of the system.


Competence counts for a great deal.  It certainly accounts for the difference between the British NHS and the Australian and Canadian systems.  Both the NHS and the Veteran’s Administration are forms of government provided health care, but no one would dream of calling the VA the “envy of the world”, unless it was the “envy of the Third World”.

Hillarycare 2.0


Hillary Clinton may say that she stands foursquare against the repeal of Obamacare, but the press is already talking about the replacement she has for it: Hillarycare 2.0.   Jeffrey Young, healthcare reporter of the Huffington Post explains that Clinton is branding it, not as a repeal but a replacement.  After all, the healthcare issue was her turf within the Democratic Party for decades until Obama came along.

By both backing President Barack Obama's most significant domestic policy achievement while also acknowledging its shortcomings and pledging to improve it, Clinton is, in a way, returning to her roots and reclaiming ownership of a signature issue.

Health care reform helped define Clinton in the 1990s when she headed former President Bill Clinton's failed efforts to make over the system into what critics in the insurance industry and the Republican Congress derided as "Hillarycare." During the 2008 Democratic primary, Clinton and Obama sparred over their competing health care platforms, and while Obama won the nomination, he ultimately embraced the individual mandate to get health coverage that was the cornerstone of Clinton's plan. And while representing New York in the Senate in 2009, Clinton played a small, early role in developing when became the Affordable Care Act before departing Congress to join Obama's cabinet as secretary of state.

When the current president was elected, he created a problematic monstrosity with a number of distinct political liabilities.  The biggest problem with Obamacare is that it is unaffordable.

The Obama administration has cited successes of the law, including extending health coverage to  an estimated 17.6 million previously uninsured people since 2013, and overseen  a historic slowdown in the speed on health care spending growth. But out-of-pocket costs like high deductibles and big copayments are  becoming increasingly common in both job-based health plans and those bought on the Obamacare exchanges, and can squeeze household budgets and make health insurance itself seem less valuable.

"Yes, the uninsured rate is the lowest in decades, but the cost of prescription drugs went up by over 12 percent last year. Your income, I'd bet, didn't go up 12 percent," Clinton said Tuesday. "Meanwhile, other out-of-pocket costs are growing, too, and the insurance companies just keep raising the premiums. So while the overall growth in health care spending has slowed -- and that's good news for our economy -- for a lot of families, it doesn't feel like health care costs are coming under control."

Therefore, the bulk of Hillarycare 2.0 is aimed reducing the perceived cost of services which have skyrocketed in price.  This implicitly raises the amount of tax revenue that will be needed for it, but Hillary isn’t talking the tax aspect of it up.

A linchpin of Clinton's plan is a tax credit worth up to $5,000 that would be made available to households with out-of-pocket health care costs that exceed 5 percent of their income in a year, which she would finance by cutting federal spending on prescription drugs. To make high-deductible insurance more useful to consumers with modest health care needs, Clinton proposes requiring insurers to cover three doctor visits a year outside the deductible.

Clinton also calls for new rules that would protect patients against unexpected bills incurred during a medical emergency when a provider at the hospital isn't in the patient's insurance network even though the hospital itself is. Other elements of her plan include promising better and more up-to-date information about what health care providers and prescription drugs are covered by insurers, increased federal authority to block large health insurance premium hikes and stricter oversight of mergers between health care companies.

The trouble with Hillary’s proposal is nothing in it makes actual healthcare cheaper.  Hillarycare 2.0 simply relies on more government spending or mandates to cushion the price impacts caused by Obamacare.  In fact, in order to reduce the cost to the consumer Hillary plans to repeal the taxes which caused some of the ACA jumps in the first place. This will have the effect of reducing federal revenue while increasing the payouts in the form of subsidies.

Large employers and labor unions have attracted bipartisan support for doing away with, or at least scaling back, the Affordable Care Act's so-called Cadillac tax on the highest-cost health insurance plans. This tax helps pay for Obamacare and is key to the law's efforts to reduce health care costs by curtailing generous health insurance that encourage heavy use of the medical system.

Removing the Employer Mandate and the “Cadillac Tax” will not only reduce government revenue, it will increase healthcare consumption by making it cheaper, a development which will ironically unleash more health care demand.  As many will have by now realized, Obamacare planned to slow healthcare consumption by making it more expensive for most while making it cheaper for some (low income and other target individuals).

In this it has succeeded wonderfully, while in turn generating a backlash that Hillary hopes to handle with more subsidies.  It’s not going to work.  The biggest failure of Obamacare is that it has failed to bend the cost curve.  Covering more people costs more money -- actually it costs disproportionately more money -- instead of doing what it promised, which is cut the unit cost of healthcare.

Chris Conover notes: “The latest KFF/HRET Employer Health Benefits Survey figures have arrived with yet more bad news about Obamacare. … Obamacare has not slowed down premium growth relative to wages at all!”


Conover explains the graph:

As anyone can plainly see, the post-Obamacare trend in premiums–especially for family coverage, which is the most burdensome on workers to finance–is not slower than it was in the years immediately prior to either Obamacare itself or President Obama’s taking office. This shows how ludicrous it is for Obamacare’s defenders to assign credit to the law for putting the brakes on health spending. In reality, the entire economy slowed down, including growth in wages. Once this is taken into account–as in my chart–it is straightforward to observe that premium growth has continued to outstrip wage growth by a healthy margin in every year since Obamacare began.

This makes Hillarycare 2.0 futile.  Taking taxes out of one end to pay for rising premium costs is like trying to bail out the ocean.  Obamacare’s starting premise that costs mattered is correct.  A way must be found to bend the cost curve, otherwise more healthcare will simply cost more.

Is Martin Shkreli a Plant?


The poster boy for Hillary Clinton’s campaign against high priced pharmaceuticals, Martin Shkreli, turns out to have peculiar connections to the Democratic Party.  Shkreli’s name and his controversial pricing policy was specifically mentioned by Clinton as one clear example of why she is starting her drug pricing initiative.  Politico reported:

In a speeches in Louisiana and Arkansas on Monday, Clinton defended Obamacare, urged states to expand Medicaid and said it was time for Republicans to stop vowing to repeal a law that's covering millions. She also briefly previewed her forthcoming salvo on drug costs.

“It is time to deal with skyrocketing out-of-pocket costs and runaway prescription drug prices,” she said. She referred to a Sunday New York Times report on how a 62-year-old medicine jumped from $13.50 a pill to $750 after a company bought it last month. She added: “Nobody in America should have to choose between buying their medicine and paying their rent.”

The Washington Post also bannered the story, naming Shkreli’s company Turing as the price-gouger.

Democratic presidential candidate Hillary Rodham Clinton pledged Monday to bring down the costs of prescription drugs for consumers, citing the overnight increase of one medication from less than $20 per pill to $750 per pill.

“It is time to deal with the skyrocketing out-of-pocket costs and runaway prescription drug prices,” Clinton said.

She referred to news coverage Monday of the decision by Turing Pharmaceuticals to hike the price of the 62-year-old drug Daraprim by more than 4,000 percent. The New York-based company purchased Daraprim for $55 million this summer and immediately raised the price. The drug is used to treat toxoplasmosis, a parasitic infection that can be severe in patients with compromised immune systems, such as HIV, and for pregnant women.

“The company said it needed more profits,” Clinton said at a political rally here that is part of a roll-out of her campaign health-care program. She is embracing the Affordable Care Act, often called Obamacare, while proposing some tweaks. She is also proposing expansion of coverage and protections that are separate from the law, such as the prescription drug proposal.

“I am announcing a detailed plan to crack down on these” increases, by capping out-of-pocket costs for patients, Clinton promised.

“We want companies to get a fair return, that’s the way our system works,” she said. “But there is no excuse” for the Daraprim example, she said.

“Nobody in American should have to choose between buying the medicine they need and paying rent,” Clinton said.

The villain of the piece, Martin Shkreli was a made for television bad guy, a young former hedge fund manager who bought an old brand and raised the cost out of pure greed.  Andrew Pollack of the New York Times described him in ways that evoked Gordon Gecko of Wall Street or Jordan Belfort in Wolf of Wall Street.

Specialists in infectious disease are protesting a gigantic overnight increase in the price of a 62-year-old drug that is the standard of care for treating a life-threatening parasitic infection.

The drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.

“What is it that they are doing differently that has led to this dramatic increase?” said Dr. Judith Aberg, the chief of the division of infectious diseases at the Icahn School of Medicine at Mount Sinai. She said the price increase could force hospitals to use “alternative therapies that may not have the same efficacy.”

He looks just as you might expect.  Young, white, casually dressed with in-your-face Ray Ban Wayfarer sunglasses.  And just as in the Hollywood stories he gets his just deserts from Gee Ma’am  Hillary Clinton.  Samantha Allen of the Daily Beast reports the chastened Shkreli cringing before the light of social justice.

After raising the price of a life-saving drug by 5000 percent and becoming the most hated man on the Internet, Martin Shkreli says he’ll lower the cost. But we’re not fooled.

Well, that was fast. A matter of days since becoming the most-hated man in America for jacking up the price of the drug Daraprim by over 5000 percent, Turing Pharmaceuticals CEO Martin Shkreli told NBC news that he would lower the price to a more reasonable level, albeit without specifying the new cost.

But even in lowering the price of Daraprim, which is used to treat the parasitic disease toxoplasmosis, a parasitic disease that can be particularly harmful for pregnant women and immunocompromised patients, Shkreli is still trying to paint himself as guileless.

At this point, his denial is almost superhuman. …

In fact, by lowering the price, Shkreli is effectively conceding that his attempts to justify the hike over the past few days were deceptive—good news for patients, bad news for a man that did nothing to salvage an already tarnished public reputation. Shkreli can try to cover over his history of misdirection with a wave of his hand, but we can—and probably should—dwell on it for longer than a social media outrage cycle lasts.

The media should stay past the final credits, because they might see something interesting. Martin Shkreli is apparently a big contributor to the Democratic Party.  The Progressive Midwesterner notes he gave $33,400 to the Democratic Senatorial Campaign Committee.

You may have read about Turing Pharmaceuticals owner Martin Shkreli being a total jerk on social media in response to his company raising the price of Daraprim, a drug used to treat toxoplasmosis, a medical condition that can be fatal to people with AIDS and developing fetuses, from $13.50/pill to a whopping $750/pill. If not, you can read about it here.

However, when I was looking on the Federal Election Commission (FEC) website about political donations that Martin Shkreli made, I managed to find one political donation that I am 100% certain is of Turing Pharmaceuticals’s Martin Shkreli, and that is a $33,400 donation that Shkreli made to the Democratic Senatorial Campaign Committee (DSCC) on July 18th of this year:

The fact that the DSCC is taking money from people as odious as Martin Shkreli is disgusting and not in line with the progressive values that the Democratic Party should stand for.

I’ve created an online petition where you can tell U.S. Senator and DSCC Chairman Jon Tester (D-MT) and the DSCC to take the $33,400 they accepted from Shkreli and donate it to charity, preferably one whose mission is to help find a cure for AIDS. You can sign that petition here.

The stunning coincidence raises the issue of whether the Shkreli brouhaha was a setup. It does not prove it, but it certainly suggests a closer look.  When something looks too good to be true, it sometimes is.

Monopolies and the Rise of Drug Prices


One of the objectives of Obamacare was to promote competition.  Any semblance of progress in that direction has long since vanished.  In its place, a structure of dual monopolies is emerging. Anna Wilde Mathews writing in the Wall Street Journal says it has created a “Land of Giants”.

Five years after the Affordable Care Act helped set off a health-care merger frenzy, the pace of consolidation is accelerating, transforming the medical marketplace into a land of giants.

The trend is under a new spotlight now, as Congress zeroes in on the competitive and cost impact of proposed deals that would collapse the health-insurance industry’s top five players into just three massive companies, each with more than $100 billion in annual revenue. On Tuesday, a Senate subcommittee is set to hear testimony from the chief executives of Aetna Inc., which plans to acquire Humana Inc., and Anthem Inc., which is seeking to buy Cigna Corp., as well as the head of the American Hospital Association.

This gigantism is supposed to lower costs by making it possible for vast consolidated networks of providers to negotiate lower drug costs, for example, among their suppliers.  But it’s not working out that way.  Margot Sanger Katz of the New York Times writes that pharmaceutical prices are up and Obamacare “didn’t do much to counteract those trends.”

Both Bernie Sanders and Hillary Rodham Clinton are trying to make the rising cost of prescription drugs an issue in the presidential campaign.

Mr. Sanders introduced a bill in Congress this month, spelling out a host of policy changes to drive down drug costs. Mrs. Clinton tweeted on Monday that her plan would be released Tuesday. (A new proposal from the Center for American Progress, a liberal think tank with connections to Mrs. Clinton, may provide some hints of its contents.)

Here’s why prescription drugs are bubbling up to the top of the Democratic health care agenda: Drug prices are bubbling up. Per capita drug spending increased by more than $100 last year, a big jump. At the same time, a growing share of Americans are being asked to foot the bill for their medicines, even if they’re insured. The Affordable Care Act, which has expanded insurance coverage, didn’t do much to counteract those trends.

Voters have clearly noticed the higher drug costs. This year, a survey from the Kaiser Family Foundation asked people to identify health issues that they thought should be top priorities for the president and Congress. The No. 1 issue was making drugs for serious diseases affordable. The No. 2 issue: lowering the cost of prescription drugs. A follow-up survey in August found that 24 percent of people said that they or a family member had declined to fill a prescription because of the cost.

The cause of the price problem has been put down to medical innovation.  According to this theory technological progress itself is driving the costs. Sanger-Katz continues:

A lot of that increase came from the introduction of some very expensive and popular new treatments for the chronic liver disease hepatitis C. But costly new drugs for cancer, multiple sclerosis and autoimmune disorders also explained the change, according to an analysis from the IMS Institute for Healthcare Informatics, which tracks the pharmaceutical industry. (The government numbers don’t count all drugs — some cancer medications and other drugs given by doctors aren’t included — but the number measures how much the country is paying for drugs sold through pharmacies, and that amount is rising.)

The manufacturer of the poster drug for rising pharmaceutical costs, Daraprim, made exactly the cost argument.  Prices go up, the company CEO said, because costs have gone up.

Democratic presidential candidate Hillary Rodham Clinton pledged Monday to bring down the costs of prescription drugs for consumers, citing the overnight increase of one medication from less than $20 per pill to $750 per pill….

She referred to news coverage Monday of the decision by Turing Pharmaceuticals to hike the price of the 62-year-old drug Daraprim by more than 4,000 percent. The New York-based company purchased Daraprim for $55 million this summer and immediately raised the price. The drug is used to treat toxoplasmosis, a parasitic infection that can be severe in patients with compromised immune systems, such as HIV, and for pregnant women. …

"The drug was unprofitable at its former price,” Martin Shkreli, the chief executive of Turing, said in an interview with The Washington Post. “This drug was practically being given away, so people are sort of fooled by the math."

But Clinton was not convinced.

“The company said it needed more profits,” Clinton said at a political rally here that is part of a roll-out of her campaign health-care program. She is embracing the Affordable Care Act, often called Obamacare, while proposing some tweaks. She is also proposing expansion of coverage and protections that are separate from the law, such as the prescription drug proposal.

“I am announcing a detailed plan to crack down on these” increases, by capping out-of-pocket costs for patients, Clinton promised.

“We want companies to get a fair return, that’s the way our system works,” she said. “But there is no excuse” for the Daraprim example, she said.

It’s hard to believe such an increase could be due to costs alone.  If they were genuinely the result of increased factors of production, capping the cost of Daraprim would only force it out of production.  The same argument holds true for the new drugs which cost so much.  If this truly reflected the economics of production, regulation would be futile.

What Hillary Clinton is actually arguing when she asserts that “we want companies to get a fair return … but there is no excuse” for the Daraprim hike is that the price increases are arising from rent-seeking. Companies like Turing are price-gouging the consumer.  But wait: isn’t this what Obamacare was hoping to prevent by encouraging the rise of monopolies?

The Wall Street Journal article explains that it is intended to do just that.

The supersizing, which hasn’t been slowed so far by signals of regulatory concern about health-care consolidation, reflects efforts by companies in both industries to gain the scale and heft to succeed amid changes unleashed or accelerated by the health law. Those include growing pressures to constrain costs, and new forms of payment that require providers to meet efficiency and care-quality goals. Health systems are adding hospitals, doctor practices and a range of other services that enable them to manage all of a patient’s care. And each industry is bulking up to amass leverage in contract negotiations against the other.

“The ACA is a trigger,” said Robert Kocher, a former White House health adviser now at venture-capital firm Venrock. Now, he said, “as providers have gotten consolidated, payers have been finding they’re getting pushed by providers saying, ‘Take my rates or you’ll have no network.’ ” The health-plan deals aim “to help balance the power.”

So why can’t these giant providers simply bargain down the price of Daraprim?  Why will it take a Clinton drug initiative to accomplish what Obamacare boasted it would achieve?  The only logical answer is that Obamacare is not achieving it.  It’s creating monopolies.  And that never boded well for the consumer.

The Costly and Unsustainable Triumphs of Obamacare


The two dueling narratives about Obamacare are not necessarily contradictory.  The first narrative is that more Americans are now insured mostly through Medicaid expansion.  The second narrative is that the government is spending more -- and disproportionately more -- to achieve the additional coverage.

Evidence for the first assertion comes from the Business Insider.   It writes,  “the Census Bureau on Wednesday released estimates of how many Americans had health insurance in 2014 and how that compares to previous years”.

Comparing 2014 to 2013 and other recent years gives us a good first look at how the healthcare law has performed in its main goal of making sure more Americans have health insurance.

By that measure, the law appears to be working. According to the Census Bureau’s Current Population Survey Annual Social and Economic Supplement, which asks respondents in March of each year whether they had health insurance at any time in the previous year, about 13.3% of Americans lacked insurance in 2013.

That percentage dropped nearly three percentage points to 10.4% in 2014. This represents 11.6 million more Americans with health insurance in 2014 than in 2013.

What caused this drop in the rate of the uninsured? Medicaid expansion. “States that had relatively high uninsurance rates before the law went into effect, and that adopted the Medicaid expansion (indicated with an * next to the state’s abbreviation), saw the biggest declines in the percentage of residents without insurance.”

Dina Overland of the FierceHealthPayer emphasizes the point. “ACA lowers uninsured by 15M people, mostly in Medicaid expansion states.”  Margot Sanger Katz in the New York Times makes it yet again. “Medicaid expansion really mattered.”

But this expansion hardly required Obamacare, with its complicated insurance exchanges, value formulas, tax rebates etc.  Medicaid pre-dated Obamacare.  If all of Obamacare’s benefits are simply due to expanded Medicaid  why was it was necessary to create the clanking and cumbersome Affordable Care Act.

The answer of course is to pay for Medicaid expansion.  Obamacare is American history’s largest tax hike.   The Supreme Court actually approved the individual mandate on the grounds that it was a tax.  The administration needed these taxes to hand out subsidies and to expand Medicaid.

Supreme Court Chief Justice John Roberts decided to save President Obama’s signature legislation by ruling that the individual mandate requiring Americans to have health coverage or pay a fine is constitutional under the federal government’s taxing power.

That ruling took most people by surprise, since the Justice Department appears to have thought the “taxing power” argument was the weakest of its three weak justifications.  Maybe Roberts has an affinity for weak arguments, because he certainly made a number of them himself in justifying the mandate as a tax.

The CBO quantified this by noted that without the Obamacare taxes -- the individual mandate, medical device tax, employer mandate and “Cadillac tax” to name some, the federal government would incur $353 billion worth of deficits.  That’s what it will take to keep an additional 22 million Americans covered by Medicaid, which comes to roughly $160,000 per person added to coverage.

Since Medicaid isn’t that expensive the figure contains an enormous amount of inefficiency and waste. Obamacare is collecting a vast amount of money, raising insurance premiums by double digits and creating monopolies in the health care provision industry in exchange for this triumphal addition.  But in fact, these Americans would have been better off they had simply been handed the money or medicated directly -- assuming the hospital was efficient.

The reason Democratic presidential candidate Bernie Sanders dislikes Obamacare is because he believes it represents a hell of a lot of money for very little benefit, preferring instead to pursue the idea of Single Payer on the grounds that you can’t do worse than the ACA.

This second narrative -- that the government is spending more -- disproportionately more -- to achieve the additional coverage is now supported by proof. Jordan Rau and Jenny Gold of Kaiser Health News report the results of a study.

A high-profile Medicare experiment pushing doctors and hospitals to join together to operate more efficiently has yet to save the government money, with nearly half of the groups costing more than the government estimated their patients would normally cost, federal records show.

The Centers for Medicare & Medicaid Services offers the lure of bonuses to health care practitioners who band together as accountable care organizations, or ACOs, to take care of patients. The financial incentives are intended to encourage these doctors, hospitals, nursing homes and other institutions to keep patients healthy rather than primarily treat illnesses, which is what Medicare payments traditionally have rewarded. ACOs that save a substantial amount get to keep a share of the savings as a bonus.

The Obama administration touts ACOs as one of the most promising reforms in the 2010 federal health care law. The administration set a goal that by the end of 2018, half of Medicare spending currently based on the volume of procedures a doctor or hospital performs will instead be linked to quality and frugality. But so far the ACO program generally has been a one-way street, with most doctors and hospitals happy to accept bonuses while declining to be on the hook for a share of any excessive costs run up by their patients.

This is extremely bad news for the Affordable Care.  At its core, Obamacare promised to “bend the cost curve” by making coverage more universal, encouraging consolidation to achieve economies of scale and changing methods of payment to reflect value.  These were the very ideas the accountable care organizations promised to implement.  Each in turn has failed.

But to stop the overpriced system of delivery which has emerged would roll back Obamacare’s proudest achievement.  Higher numbers under treatment.  To continue on the other hand, would be to risk ever higher costs.

Jeff Goldsmith, a health industry analyst and professor at the University of Virginia who is a longtime ACO critic, said the ACO model is flawed. Consumers do not actively opt to participate in the ACOs and do not share in any savings, so they lack financial incentives to help keep costs down, he said. ACOs also have limited leverage to control the costs incurred by highly paid specialists such as surgeons and cardiologists. Patients in ACOS can still go to any doctor who accepts Medicare’s regular method of paying, in which they receive a set fee based on the nature of the service without regard to its outcome.

“Faux managed care is actually harder to do than real managed care,” Goldsmith said. The ACO program, he said, “has a bad enough reputation in the provider community that is not going to grow sufficiently to replace regular Medicare.”

With no easy way out its box Obamacare must stagger on, at increasingly higher levels of cost. It achieved more simply by spending disproportionately more.  As a victory, it was a pyrrhic victory.

Hillary, Obamacare and 2016


Hillary Clinton, like everybody else, is aware of the high and increasing cost of Obamacare.  But unlike everyone else Clinton is bound by party loyalty to make approving noises about it.  The presidential candidate’s formula for squaring the circle is to campaign on ‘reforming’ Obamacare. “Clinton feels that "protecting, defending and improving" Obamacare should be a "top issue" for her campaign, the aide added, and that is why they are pushing the issue now,” says CNN politics.

Clinton will officially roll out her proposed changes to Obamacare on Tuesday during a community forum in Des Moines, Iowa.

Although Clinton regularly touts Obamacare -- she told a cheering audience in New Hampshire earlier this month that "the Affordable Care Act is here to stay" -- she has previously outlined aspects of the law that she doesn't support and would like to see changed.

The candidate has lately embraced addressing rising prescription drug costs by bargaining with drug companies for lower prices and examining the tax on the premium health care plans, something unpopular with political important unions.

"I would be the first to say if things aren't working, then we need people of good faith to come together and make evidence-based changes," Clinton said in February 2014.

The most concrete change Clinton has embraced is the law's small business mandate, which requires businesses with 50 or more full-time employees to offer health insurance of pay a penalty. At the same February speech Clinton endorsed addressing businesses "moving people from full-time work to part-time work to try to avoid contributing to their health care."

Clinton also suggested at a paid health care speech in October 2014 that people who disagree about Obamacare's medical device tax should be able to "begin to sort it out."

The medical device tax is a 2.3% excise tax created in part to fund Obamacare; it went into effect at the beginning of 2013. The tax, which helps fund the law, is unpopular with Democrats and Republicans alike, especially those with ties to the medical devices industry.

Hillary Clinton’s approach reflects the fact that Obamacare “hasn’t polled well”.  As Anne Gearan of the Washington Post explains, Clinton is walking a line between completely endorsing it and blaming it for its unpopular aspects. “The focus on health care represents a shift for national Democrats and a full embrace of a law that had a troubled rollout and has not always polled well. Unlike in the 2012 election, when many Democrats tiptoed around their support for Obama’s namesake law, Clinton is making it a central part of her argument that she should succeed him.”

The gist of Clinton’s reforms will be to increasing spending (to make prescription drugs more affordable) and cut taxes (the unpopular medical device and “Cadillac” taxes).

The campaign did not provide specifics on those proposals but said she would address rising prescription drug costs and other patient out-of-pocket expenses not fully covered by the ACA.

The Clinton campaign will also launch an online petition against repeal of the ACA in an effort to show grass-roots support for the law, which has often been more popular in practice than in theory.

This kind of legalistic parsing has not been working well for candidate Clinton. Nate Cohn, writing in the New York Times, charts the precipitous drop in Hillary’s polling numbers. “Over the last two months, the steady and expected erosion of her ratings has surprisingly accelerated. Her ratings are now lower than they were in 2007 or 2008, or at any point in her political career.”

She hasn’t lost ground only among Republicans or Republican-leaning independents, but also among Democratic voters. I don’t have a comprehensive data set of Mrs. Clinton’s old favorability ratings among Democrats, but a quick survey of polls from August and September 2007 showed Mrs. Clinton with 80 percent to 88 percent favorability ratings among Democrats. Today, they range from 65 percent to 77 percent. That shouldn’t be a surprise, given how far her national ratings have slipped.

It seems obvious that Clinton’s half-hearted and mediocre positions on Obamacare have not “excited” the voters much.  Cohn notes that one of the few bright spots for Hillary is that the Democratic Party elites have not “jumped ship”.  Clinton’s exquisite triangulation may be an attempt to reassure the Party bigs of her loyalty while retaining some facsimile of populism.

Clinton has left herself with some room to maneuver in anticipation of the predicted high-price hikes that are due to kick in just in time for the 2016 elections. “Insurers have asked for double-digit rate increases for nearly 1 out of every 3 Obamacare plans that will be sold on for 2016 coverage, according to a new analysis,” according to CNBC.

Existing Obamacare customers in six other states on that federally run marketplace, which serves two-thirds of the United States, could also be in for a rude awakening come November when open enrollment resumes.

In those other six states, a majority of plans are requesting double-digit hikes, ranging from Montana, where 86 percent of the plans have asked for such increases, down to North Dakota, where 67 percent of the plans are doing so.

"The natural reaction [for those customers] is: They're going to be surprised," said Sam Gibbs, executive director of

Surprised is not the emotion that comes to mind on suddenly facing a double-digit hike for “affordabl care”.  Anger, outrage and sputtering rage seem better descriptors.  Hillary and Obamacare will face tremendous pressure to put the lid on.  An eerie preview of possible disaster occurred when a “62-year-old drug that is the standard of care for treating a life-threatening parasitic infection” rose fiftyfold overnight.  The New York Time’s Andrew Pollack reports: “the drug, called Daraprim, was acquired in August by Turing Pharmaceuticals, a start-up run by a former hedge fund manager. Turing immediately raised the price to $750 a tablet from $13.50, bringing the annual cost of treatment for some patients to hundreds of thousands of dollars.”

This was the sort of thing Obamacare was designed to prevent.  The argument was that by promoting mergers and acquisitions and generally encouraging the rise of giant health care providers these resulting behemoths could play hardball with companies like Turing Pharmaceuticals.

Turing’s price increase is not an isolated example. While most of the attention on pharmaceutical prices has been on new drugs for diseases like cancer, hepatitis C and high cholesterol, there is also growing concern about huge price increases on older drugs, some of them generic, that have long been mainstays of treatment.

Although some price increases have been caused by shortages, others have resulted from a business strategy of buying old neglected drugs and turning them into high-priced “specialty drugs.”

But the pharmaceuticals don’t care.  With most of Obamacare business now concentrated in Medicaid expansion, predatory companies can implement two-tier pricing.  As Pollack notes, “Turing’s price increase could bring sales to tens or even hundreds of millions of dollars a year if use remains constant. Medicaid and certain hospitals will be able to get the drug inexpensively under federal rules for discounts and rebates. But private insurers, Medicare and hospitalized patients would have to pay an amount closer to the list price.”

Having destroyed competition, Obamacare cannot now revive it on a selective basis.  Hillary Clinton may have to do a lot better than pick away at the margins of Obamacare in 2016.  If the the prices keep going up she will be hoist by her own petard.

When Your Doctor Works For the Government


Clover Health is a new health insurance startup built on the idea that patient data is the key to success. Based out of San Francisco, Clover is betting that this approach will “rebuild healthcare for senior citizens from the ground up”.

It wants that by tracking all the inputs of a person’s medical history from insurance claims and determining who the highest-risk patients are. Clover health then works with those patients to help them become healthier and improve overall clinical outcomes. To pull that off, the company has raised $100 million in an equity round led by First Round Capital and debt.

“At the core we’re using data and software to build clinical profiles of people, identify gaps in care, and fill those gaps in care,” Kris Gale, Clover Health’s CTO, said. “We have a small team that will do targeted interventions to drive improved health outcomes of people. Every in-patient hospital admission we can prevent by filling these gaps in care, this ends up being a positive for us.”

Collecting data is what insurance companies have always done, the industry being founded after all on actuarial science.  But while collecting data is a health insurer’s stock-in-trade, making intelligent use of that information, however, is not always easy.  The New York Times points out that the health cooperatives that started under Obamacare are failing. Some have already met an ignominious end.

Late last month, the Nevada Health Co-op became the third casualty among 23 insurance start-ups created under the federal health care law to inject competition for coverage in certain parts of the country.

Set up as nonprofits with consumer-led boards, the co-ops were designed to provide affordable insurance coverage to individuals and small businesses. They were intended under the law to offer alternatives — and hopefully cheaper prices — to the plans sold by large established insurance companies in some regions.

But as the new co-ops begin failing just a year into the effort to remake the health care industry with more competition and lower costs, the marketplace is proving hostile to newcomers trying to break into an industry dominated by powerfully entrenched businesses. …

The co-ops’ problems are compounded by moves among the industry’s biggest companies, like Anthem and Aetna, which plan to buy their rivals to become even bigger. That raises the specter of even less competition in the marketplace and less room for smaller players to make a dent. Congress is holding hearings on the proposed mergers’ potential for raising insurance costs, and regulators are expected to scrutinize the deals closely.

They can fail -- have failed. Despite Clover’s faith in data, the only proven way to success in Obamacare so far is mergers and consolidations. “Ms. Corlette, the Georgetown researcher, says a market’s dominant player, typically a Blue Cross plan, enjoys significant advantages because it has large sums of capital and existing relationships with hospitals and doctors. Experienced companies are better able to nail down lower prices than new competitors.”

In addition to the co-op failures, there have been other notable departures. Assurant Health, a for-profit insurer that tried an aggressive entry into the individual insurance market last year, stopped selling coverage altogether. Even one of the most popular new plans in Minnesota, offered in 2014 by a collaboration of local hospitals and doctors, no longer covers people through the state marketplace.

The McKinsey Center for U.S. Health System Reform counted dropouts among insurance carriers that were selling insurance to individuals for the first time (rather than group coverage to small businesses or large employers). It found that eight carriers had dropped out of nine states so far.

“We would view this overall marketplace as evolving,” said Patrick Finn, a McKinsey partner in Detroit.

“Consolidating” might be a better world than “evolving”. However more than insurance data is required under the new Obamacare environment because the real business of the Affordable Care Act isn’t insurance but in government contracting. Margot Sanger Katz of the New York Times that no one is really certain how many newly insured people there are under Obamacare because it canceled many older policies to move patients into new ones. What really mattered was Medicaid expansion.

States that expanded Medicaid saw substantially bigger reductions in their uninsured rates than those that didn’t. The effect appears to travel up the income scale, too. Even people who didn’t qualify for Medicaid appear to have obtained insurance in greater numbers in states where the Medicaid expansion took place. That may be because states that expanded embraced the health law more fully, and worked harder to get people at all incomes enrolled in insurance.

Government contractors had to accept a fixed amount for a given product, but now Obamacare wants to change the definition of product delivery away from specific medical activities (such as an operation or an x-ray) to something broader, such as curing the condition. Bruce Japsen at Forbes described the plan earlier this year.  This approach may eventually apply to most of Obamacare like Medicaid.

The Obama administration will push Medicare payment rapidly away from fee-for-service medicine within four years, outlining a plan to have half of all Medicare dollars paid by to doctors and hospitals via “alternative” reimbursement models by the end of 2018.

U.S. Secretary of Health and Human Services Sylvia M. Burwell today said reforming Medicare payment is a priority now that millions more Americans have health coverage under the Affordable Care Act and her agency therefore will focus “energies” on using “incentives to motivate higher-value care.” A detailed look is here.

“A majority of Medicare fee-for-service payments already have a link to quality or value,” Burwell said in a perspective piece published in the Jan. 26 New England Journal of Medicine. “Our goal is to have 85% of all Medicare fee-for-service payments tied to quality or value by 2016, and 90% by 2018. Perhaps even more important, our target is to have 30% of Medicare payments tied to quality or value through alternative payment models by the end of 2016, and 50% of payments by the end of 2018.

“Value” data is the sort of data that Clover Health and other Obamacare providers will need. Caleb Stowell and Christina Ackerman, both MDs, make the case in the Harvard Business Review that modern information technology might make it possible to know how much it costs to cure someone (within the definition of cure) of a given condition.

Implementing a value-based strategy is on the mind of nearly every health care organization in the U.S. It seems that every week, one or another announces a new “Center for Health Care Value” or “Center for Health Care Innovation.”  These organizations are accepting the fact that the volume-driven system is in its dying days, and that the future will demand that they deliver demonstrably better value: improved outcomes, lower costs, or both.

The heart of the problem, as some authors see it, is that patients are lousy consumers.  They don’t know what’s good for them, opting instead to blindly follow the orders of their doctors.  Michael E. PorterThomas H. Lee explain this reasoning in a 2013 Harvard Business Review article.

In health care, the days of business as usual are over. Around the world, every health care system is struggling with rising costs and uneven quality despite the hard work of well-intentioned, well-trained clinicians. Health care leaders and policy makers have tried countless incremental fixes—attacking fraud, reducing errors, enforcing practice guidelines, making patients better “consumers,” implementing electronic medical records—but none have had much impact.

It’s time for a fundamentally new strategy.

“It’s time for a fundamentally new strategy,” the authors say. That strategy consists of replacing the patient -- or even his doctor -- with the provider in the role of customer..

Facing severe pressure to contain costs, payors are aggressively reducing reimbursements and finally moving away from fee-for-service and toward performance-based reimbursement. In the U.S., an increasing percentage of patients are being covered by Medicare and Medicaid, which reimburse at a fraction of private-plan levels. These pressures are leading more independent hospitals to join health systems and more physicians to move out of private practice and become salaried employees of hospitals.

As “salaried employees” physicians will work for the hospital or provider, which acts like a government contractor for Medicare and Medicaid.  It now becomes the provider’s role to take on the risk and make the decisions.  The hope is that since these decisions will be based on data and evidence, that the newly empowered customer -- the provider -- will make better decisions.

In this environment, providers need a strategy that transcends traditional cost reduction and responds to new payment models. If providers can improve patient outcomes, they can sustain or grow their market share. If they can improve the efficiency of providing excellent care, they will enter any contracting discussion from a position of strength. Those providers that increase value will be the most competitive. Organizations that fail to improve value, no matter how prestigious and powerful they seem today, are likely to encounter growing pressure. Similarly, health insurers that are slow to embrace and support the value agenda—by failing, for example, to favor high-value providers—will lose subscribers to those that do.

As described in the paragraph above, patients will still exercise choice, but in the aggregate form of choosing the provider that supplies the most value, sort of like choosing the best hotel or airline.  However specialist guidelines and the provider will make most of the actual medical choices.

When combined with the rapidly shrinking set of providers characteristic of Obamacare, the shift away from physician directed care to provider-based “value payments” jointly constitute an extraordinary change in whose consumes and who provides healthcare.  Porter explains how it might be done.

The first principle in structuring any organization or business is to organize around the customer and the need. In health care, that requires a shift from today’s siloed organization by specialty department and discrete service to organizing around the patient’s medical condition. We call such a structure an integrated practice unit. In an IPU, a dedicated team made up of both clinical and nonclinical personnel provides the full care cycle for the patient’s condition.

In an IPU, personnel work together regularly as a team toward a common goal: maximizing the patient’s overall outcomes as efficiently as possible. They are expert in the condition, know and trust one another, and coordinate easily to minimize wasted time and resources. They meet frequently, formally and informally, and review data on their own performance. Armed with those data, they work to improve care—by establishing new protocols and devising better or more efficient ways to engage patients, including group visits and virtual interactions.

The patient enters a black boxes and walks out the other with his problem solved. Porter gives an example of a person with low back pain.

Patients with low back pain call one central phone number (206-41-SPINE), and most can be seen the same day. The “spine team” pairs a physical therapist with a physician who is board-certified in physical medicine and rehabilitation, and patients usually see both on their first visit. Those with serious causes of back pain (such as a malignancy or an infection) are quickly identified and enter a process designed to address the specific diagnosis. Other patients will require surgery and will enter a process for that. For most patients, however, physical therapy is the most effective next intervention, and their treatment often begins the same day.

By contrast, Porter says, current Medicine is like an interactive decision process where a patient can take unpredictable paths through the hospital system.

One patient might begin care with a primary care physician, while others might start with an orthopedist, a neurologist, or a rheumatologist. What happens next is unpredictable. Patients might be referred to yet another physician or to a physical therapist. They might undergo radiology testing (this could happen at any point—even before seeing a physician). Each encounter is separate from the others, and no one coordinates the care. Duplication of effort, delays, and inefficiency is almost inevitable. Since no one measures patient outcomes, how long the process takes, or how much the care costs, the value of care never improves.

The problem is that on an individual level treatment may take an individual path.  The black box or “value” case assumes that most of the relevant patient information is known before the specific black box is chosen.  In the interactive medical process that characterizes traditional fee-for-service additional information is discovered during the process of treatment.

The interactive approach is better suited to complex cases in which complications or undiscovered conditions are found in the course of examination.  The black-box is better suited to the cut and dried patients, which is why the HHS is trialling the approach in the field of knee and hip replacements.  But the two approaches have distinct strengths of their own and in the new world of Obamacare, they are likely to run in parallel.  Private insurance may continue to remain the domain of personalized Medicine while Medicare and Medicaid -- which comprise the bulk of Obamacare -- will increasingly be dominated by “value” or black box medicine.

Why government contracting should be such a promising approach is an interesting question in itself.  Megan McArdle, writing in Bloomberg, points out that’s problems stem largely from government contracting.  She cites a CMMS post-mortem as a source of her conclusions.

The Centers for Medicare and Medicaid Services inspector general has issued a new report on what went wrong with the Obamacare insurance exchanges. Or rather, one thing that went wrong: how the agency mismanaged the contracts so that they experienced significant cost overruns.

You can take this report as a searing indictment of the agency and its contracting personnel. I took something rather different away from reading it:

  1. The architects of the law were incredibly naïve.

  2. Federal contracting rules are crazy.

… Which brings me to: The federal government contracting process is insane. Over and over, the inspector faults people for not having gotten the paperwork that might have allowed them to detect some problem.  For example, on one contract folks at CMS who were not authorized to modify the contract added budget-blowing work before they got authorization to spend the extra money, and the contract folks don’t even seem to have realized this was happening, because the contractor was only reporting billings in its monthly report, not forecasted total cost.

Wow. I’m not saying that private-sector contracting relationships never go wrong -- they do, all the time -- but this is crazy. As an IT consultant back in the day, I never added work without making it clear that this would add cost, and making sure the person in charge of the budget had signed off on the extra cost. No one had to force me to do this, or even ask; it was simple self-preservation. Adding work hours and then handing your client a surprise bill for more than your contract specified is a good way to ensure that client never hires you again, and also badmouths you to all their friends in the industry. A client is a long-term relationship; you want to preserve that.

Yet this is in effect what Obamacare is doing.  It is moving medical provision away from inefficient fee-for service and into “value services” provided by an ever-decreasing number of giant contractors.  Perhaps the most fundamental change is the alteration of “who decides”.  Once upon a time it was the patient and his physician who called the shots.  But this was too inefficient and they were insufficiently informed.

The answer was to replace them with doctors hired as salaried employees of providers, shuttling people into value packages in order to save money.  The irony will not be lost on those who have followed Obamacare.  The president promised that if “you liked your doctor you could keep your doctor”.  In reality he hoped for the complete opposite, for that is the direction in which Obamacare is trending.

A team of authors, writing in the Journal of the American Medical Association, look back with a twinge of regret, at the consumer choice that is being lost.  Noting that “Sylvia Burwell, Secretary of Health and Human Services, recently announced the department’s intention to tie most Medicare fee-for-service payments to value by 2018” the authors write that the medical system has one way of calculating value, but patients may have another.

Paying for value, though, requires measuring what actually matters to patients. Yet almost all current quality metrics reflect professional standards: eg, medications after myocardial infarctions, cancer screening according to guidelines, or glycated hemoglobin A1c levels being under control for patients with diabetes. …

However, serious, life-altering, and ultimately life-ending chronic conditions, often in old age, pose a particular challenge for the health care system because traditional professional standards may not effectively address what an individual most wants.6Individuals confronting grave illnesses, severe pain or impairment, and mortality must manage their hopes and fears and consider critical factors such as being comfortable, controlling finances, having food and shelter, being connected with others, honoring their family and social role, and being right with their spiritual commitments. Patients and physicians are often confused by this unfamiliar situation. Usually, a process of careful discussion and engagement can help patients and their families identify deeply held values and personal perspectives. These are difficult and intensely personal conversations resulting in identification of patients’ goals—goals that the current approach to measuring quality undervalues and therefore fails to integrate. Although professional standards are important, they can fail to capture what matters most to each individual.

“Although professional standards are important, they can fail to capture what matters most to each individual.”  In the past the patient had a trump card when the doctor worked for him.  But that is rapidly changing under Obamacare.  Where medical providers work as contractors for the government, the doctor works for the government.  The justification for this arrangement is that the government knows best -- despite what of what Megan McArdle and the inspector general of the CMMS might say.  That it is more efficient.

In some cases it may be more efficient. But that does not change the fact that a very basic change is taking place in American medicine.  It is shifting away from a patient-centered approach to a “value” or budgetary methodology.  That is the necessary consequence of handing the population’s money to the government through taxes and designating them to make medical decisions.  You get “free” medicine.  But you only get what you get.

The Price of a Life


What’s a life worth?  A new generation of costly drugs is threatening to bankrupt the Obama health care system. Andrew Pollack of the New York Times reports a study group, the Institute for Clinical and Economic Review (ICER), described as “a nonprofit organization that made a name for itself last year when it warned about the costs of new drugs to treat hepatitis C” has warned that two anti-cholesterol drugs, though effective, aren’t worth the money.

Two powerful new drugs that can sharply lower cholesterol are vastly overpriced based on the value they provide, according to a new analysis by an independent organization that evaluates pharmaceutical costs. …

The two drugs, Repatha from Amgen and Praluent from Sanofi and Regeneron Pharmaceuticals, were approved by the Food and Drug Administration in the last two months. In clinical trials they lowered the level of LDL cholesterol, the so-called bad kind, by 40 percent or more, even when patients were already taking statins.

But the drugs’ prices — $14,100 a year for Repatha and $14,600 a year for Praluent — have raised concern about costs, especially since the drugs might be used year after year by millions of Americans.

“Even if these drugs were used in just over 25 percent of eligible patients, then employers, insurers and patients would need to spend on average more than $20 billion a year,” Dr. Steven D. Pearson, the founder and president of ICER, said in a statement.

The company which produces Repata, disagreed of course. They argue that ICER’s methodology undervalues the benefits of cholesterol reduction.

Amgen said in a statement on Tuesday that while it welcomed a “balanced discussion of value,” it disagreed with ICER’s methodology, assumptions and preliminary conclusions, which it noted had not undergone public comment or formal peer review.

“We are concerned that ICER’s review does not place value on addressing a significant unmet medical need,” the statement said, “and its short-term budgetary focus will be used to create access barriers to innovative medicines like Repatha for appropriate patients.”

ICER’s methodology uses the famous QALY. “One QALY equates to one year in perfect health. If an individual's health is below this maximum, QALYs are accrued at a rate of less than 1 per year. To be dead is associated with 0 QALYs, and in some circumstances it is possible to accrue negative QALYs to reflect health states deemed 'worse than dead'.”  One of the most interesting things about the threshold QALY is nobody is sure where to draw the line.

ICER estimated the potential benefits on the basis of an amalgamation of results from smaller trials and on the level of cholesterol reduction achieved by the drugs. It said that use of the drugs might reduce mortality from all causes by about 50 percent. …

It estimated that use of the drugs would prevent hundreds of thousands of deaths, heart attacks or strokes over the next 20 years, but at a cost exceeding $500,000 for each additional “quality-adjusted life-year.”

That is a measure used by health economists, in which a year of life in perfect health is one quality-adjusted life-year, while a year in less than good health is some fraction of a life-year.

Health care economists use different thresholds for determining when a procedure or drug is cost-effective. Some say less than $50,000 per quality-adjusted life-year; others say less than $100,000 or less than $150,000. To get to the $150,000 level, the cholesterol drugs would have to cost $4,811 a year, and to get to $100,000, they would have to cost $3,615, according to the analysis.

Is it $50,000 or $100,000 or $150,000?  The number is becoming important in the face of an Obamacare push to lower overall costs.  It’s drive to expand coverage has to be offset by savings elsewhere.  Remember that Obamacare was pitched as a way to save the American healthcare system from bankruptcy.

Britain’s NHS appears to draw the line at between $31,000 to $46,000 per QALY, though some researchers have argued it should be as low as $20,000.  A blog featuring Sir Andrew Dillon of the British National Institute of Health and Care Excellence (NICE) argues that the ultimate number reflects a political balance.  There’s really no magic formula which provides an answer.  The best Dillon’s colleagues can do is pick a level that saves money while not riling the voters too much.

Researchers at the University of York have argued that NICE is advising the NHS “to pay too much” for new drugs. NICE uses ‘quality adjusted life years’ (QALYs), to compare different drugs, devices and other technologies for different conditions. NICE’s ‘threshold,’ over which treatments are less likely to be recommended for use in the NHS, is typically between £20,000 and £30,000 per QALY. New research led by Professor Karl Claxton suggests that paying more than £13,000 per QALY for technologies “does more harm than good” by displacing other more effective healthcare from the NHS. …

Over the last 16 years, we think we’ve found a balance that reflects what the public expect the NHS to do. Our independent committees use a threshold for recommending treatments of between £20,000 and £30,000 per quality adjusted life year. We think it represents a reasonable compromise between ensuring everyone has fair and equitable access to the NHS and enabling access to new and innovative treatments.

At this threshold, NICE currently recommends 8 out of 10 drugs or other technologies that it appraises, including 6 out of 10 cancer drugs. So we are careful about protecting, as much as we can, the interests of those who don’t benefit from the newest treatments.

Unless you believe that drug companies would be prepared to lower their prices in an unprecedented way, reducing the threshold to £13,000 per QALY would mean the NHS closing the door on most new treatments.

When a government regulatory body (like NICE) meets a politically sensitive drug like Truvada a problem results.  Truvada is the brand name of Tenofovir/emtricitabine developed by Gilead Sciences in America. It is tremendously effective against HIV -- and tremendously expensive.

In studies, tenofovir reduced the incidence of HIV infection, especially in high-risk individuals, (by 42% in MSM in the iPrEx study) but produced conflicting results in other studies (notably the FEM-PrEP study in heterosexual African women). One study estimated through mathematical modeling that daily intake of Truvada could potentially achieve a 99% of risk reduction of contracting HIV in high risk individuals...

As of 2014, the median wholesale cost per tablet, worldwide, was US 20.28¢

Taken daily, will cost the NHS $7,000 a year to medicate people who aren’t even sick in order to prevent them from contracting HIV. In ten years a person might consume $70,000 worth of drugs. Should an agency which only approves “6 out of 10 cancer drugs” subsidize Truvada?  The Guardian says, “yes”.

The history of HIV prevention has evolved over time just as much as its treatment. A “combination approach” to HIV prevention will undoubtedly yield the greatest success. Those at risk need a range of options and choice to best meet their individual needs and circumstances. It is clearly now time for us to use PrEP alongside other effective prevention interventions such as condom use, behaviour change and regular testing for HIV.

This is a wake-up call and it is imperative that policymakers, commissioners and those who hold the NHS purse strings make PrEP available to those at greatest risk as soon as possible. If we take bold action now, we have the tools at our disposal to make HIV in the UK a thing of the past.

Slate says “yes”.  In fact an entire political LGBT apparatus will say yes.

The NHS—is primarily worried that Truvada will lead to a drop in condom usage, which will in turn lead to an increase in other STIs, like syphilis. Because Truvada doesn’t lead to a drop in condom usage, this fear is unfounded. But if it were true, Truvada would still be worth it. When it comes to STIs, HIV is in a class on its own in terms of health impact and expense. Syphilis, chlamydia, and gonorrhea can be treated with antibiotics; herpes can be easily suppressed; genital warts can be burned off; but HIV is forever—and AIDS is always lurking around the corner. An HIV-positive person must take a variety of expensive drugs throughout his lifetime to stay healthy and remains at heightened risk for myriad serious diseases. Preventing HIV infection in the first place, even at the hypothetical cost of other STIs, would still produce a net benefit.

All mention of a $20,000 QALY will mysteriously disappear, because as Sir Andrew Dillon pointed out, pharmaceutical rationing is largely a political decision and Truvada is politically unstoppable. The LGBT apparatus is not the only potent political lobby.  Any disease can become the nucleus of a powerful force if it has a celebrity spokesman or a dramatic story.

The story of Australian mogul Ron Walker and Keytruda, a drug for treating metastatic melanoma is a case in point for how politics can influence medicine. Walker was a prominent Australian businessman who was given three months to live by his doctor, But instead of accepting the death sentence Walker used his fading energy to identify treatments in development for his disease.  He found a trial for a then obscure Merck drug named Keytruda. Walker’s dramatic recovery is the stuff of movie scripts.  

There is no cancer on Walker's latest body scan. It's incredible. Ron Walker is clear of the insidious disease that had been growing, spreading and killing him. "I'm the luckiest guy alive," says Walker, 75, who has been sitting near Hicks, and is dressed in a smart navy suit, blue tie, cream business shirt and matching pocket handkerchief. He's been watching the computer screen and the holograms of himself spin around. There's the dead Walker. There's the living Walker. He still marvels at those images, and at the description of the earlier image as the dead man walking scan. "I knew, when he said that to me, what I was in for," recalls Walker. "I didn't want to die. I had things to do."

The problem is that Keytruda is also very expensive.  If the QALY cost-benefit metric were followed, it would not be funded by governments. But armed with an articulate and prominent spokesman and a dramatic story worthy of Hollywood to lend it substance the Australian health authorities surrendered to the inevitable, whether justified by QALY or not, the drug was approved for use in public treatment.

Australia has become one of the latest countries to register the cancer drug that former Melbourne lord mayor Ron Walker credits with saving his life.

The Therapeutic Goods Administration has registered Keytruda for initial treatment of patients with advanced melanoma.

The drug, which has not been listed on the Pharmaceutical Benefits Scheme, is expected to cost about $150,000 a year.

Peter MacCallum Cancer Centre's Grant McArthur said more than 1000 Australians battling advanced melanoma each year could need the new drug.

Ewe Reinhardt, writing in the Journal of the American Medical Association captured the problem of the QALY in graphical form.  He observed that for any given state of technology, the cost to treat diseases of increasing difficulty resembled a curve which rose gradually at first, but steeply at the end.


This graph shows that a society could designate any point along the line as the “cost efficient” cutoff, the so-called point “z”, depending on its wealth and utility attitude towards health.  Increasing wealth enables a society to choose a point further to the right of the curve than a poorer one.  But the steeply rising nature of the curve guarantees that medical costs will eventually eat up the entire income of the society for only little gain at the margins.  This means that throwing more money at health problems helps only a little, at the margins. Technological innovation on the other hand, has the dramatic effect of flattening the curve, enabling very substantial increases to health even while holding income constant.

But as the story of Truveda and Keytruda showed, there is no single supply curve for QALY.  Politics ensures are a series of curves for individual diseases, because when government makes healthcare decisions, those choices invariably reflect the influences of constituencies who lobby for funding.  Thus Truveda and Keytruda are way to the right of the self-declared point “z” computed by the medical bureaucracies, but they are funded anyway.

Innovation too, is politicized. As Reinhardt notes, government regulation is the source of pharmaceutical rent-seeking, which it then takes away by more regulation.  The government giveth, and the government taketh away.

In pursuing their pricing strategy, specialty drug producers should not imagine themselves as free-enterprisers operating within the competitive markets of textbook fame. On the contrary, we can think of them as fragile little birds that the protective hand of government carefully shields from the harsh vagaries of truly free, competitive markets. That protective hand consists of patents granted these producers by the US Patent and Trademark Office and market exclusivity that can be granted by the US Food and Drug Administration on request. It also consists of prohibiting resale of these products among customers, such as reimporting drugs from countries that have been granted lower prices.

When the government grants private investors the monopoly powers extended to the producers of specialty drugs, it has the right and the duty to monitor and possibly to regulate what these investors do with that privilege, including their pricing policies. The government has to be mindful of the social opportunity costs of high health care spending, which means beneficial activities such as education and infrastructure that are displaced by high spending on health care.

Ultimately health policy is the study of government’s effect upon the medical market.  Obamacare is the result of a government intensive approach to health care.  It may do some good, but it undeniably does a lot of bad.

What Does It Cost?


In one of Oscar Wilde’s plays, the following dialog occurs:

Cecil Graham: What is a cynic?

Lord Darlington: A man who knows the price of everything, and the value of nothing.

Cecil Graham: And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything and doesn’t know the market price of any single thing.

It’s shocking to realize -- even though it’s actually true -- that the real life American health care system operates on the basis of sentiment.  It doesn’t know the market price of a single thing.  Gina Kolata of the New York Times describes how one Utah Hospital is trying to figure out how much things actually cost. “What Are a Hospital’s Costs? Utah System Is Trying to Learn”

SALT LAKE CITY — Only in the world of medicine would Dr. Vivian Lee’s question have seemed radical. She wanted to know: What do the goods and services provided by the hospital system where she is chief executive actually cost?

Most businesses know the cost of everything that goes into producing what they sell — essential information for setting prices. Medicine is different. Hospitals know what they are paid by insurers, but it bears little relationship to their costs.

That’s because American health care prices are set the same way aircraft carriers or B2 bombers are priced.  There is no conventional market for these goods.  Rather, they are negotiated by a two-sided or bilateral monopoly.  Most wouldn’t think their hospital costs are calculated in the same way as an F-35 Joint Strike Fighter, but that’s what actually happens.  “Unlike any other business, costs in the health care industry are determined by negotiation with insurance providers, not on the actual cost of a test or exam.”  The New York Times article continues:

No one on Dr. Lee’s staff at the University of Utah Health Care could say what a minute in an M.R.I. machine or an hour in the operating room actually costs. They chuckled when she asked.

But now, thanks to a project Dr. Lee set in motion after that initial query several years ago, the hospital is getting answers, information that is not only saving money but also improving care.

The effort is attracting the attention of institutions from Harvard to the Mayo Clinic. The secretary of health and human services, Sylvia Mathews Burwell, visited last month to see the results.

Secretary Burwell might want to know how much things cost.  Obamacare’s “value” based system assumes providers know what things cost.  Without real price information the value calculation is impossible.

The cost issue has taken on new urgency as the Affordable Care Act accelerates the move away from fee-for-service medicine and toward a system where hospitals will get one payment for the entire course of a treatment, like hospitalization for pneumonia. Medicare, too, is setting new goals for payments based on the value of care.

Under such a system, if a hospital does additional tests and procedures or if patients get infections or are readmitted, the hospital bears the cost. To make money, medical centers have to figure out what it actually costs to provide care and how to spend less while maintaining or improving outcomes.

Under a bilateral monopoly prices are typically determined by bargaining, sometimes called a Nash bargaining, after the game theoretician of that name.

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).

In the defense industry, this has led to the proverbial overpriced toilet seats, hammers and coffee pots. A University of Maryland economics paper described how competition dried up in the defense industry.

DoD’s strategy was based upon the belief that consolidation increased the efficiency of the remaining firms. Thus, a consolidated defense industry would, thereby, reduce overall costs through mechanisms such as combined operations and decreased overhead allocations. …

As firms merged with one another over time and programs within the industry dried up following the cuts in defense spending, market power shifted from many firms into the hands of only a few. And, as a result, in virtually all defense sectors there are just a small number of potential suppliers—creating oligopolies. When one considers the defense market, there is generally only one buyer: the government; hence, there is a monopsony market. In a monopsony market, the producing firms are competing for the single buyer’s business. A monopsonist generally has market power because it can affect the market price of the purchased good by varying the quantity bought.

This uncompetitive environment almost exactly describes the system which has so far frustrated the Utah Hospital’s attempts to find a price.  It simply does not exist because there is no functioning market to set it. The result are high and arbitrary costs, the medical equivalent of gold plated toilet seats, hammers and coffee pots.

In the absence of a market, Dr. Vivian Lee is attempting to calculate a price in the same way that a central planner in the former Soviet Union might have done.  Instead of looking at a market price, Lee uses a computer program.

The linchpin of this effort at the University of Utah Health Care is a computer program — still a work in progress — with 200 million rows of costs for items like drugs, medical devices, a doctor’s time in the operating room and each member of the staff’s time. The software also tracks such outcomes as days in the hospital and readmissions. A pulldown menu compares each doctor’s costs and outcomes with others’ in the department.

The hospital has been able to calculate, for instance, the cost per minute in the emergency room (82 cents), in the surgical intensive care unit ($1.43), and in the operating room for an orthopedic surgery case ($12).

With such information, as well as data on the cost of labor, supplies and labs, the hospital has pared excess expenses and revised numerous practices for more efficient and effective care.

Lee’s method is a variant of the Lange model, in which market prices are simulated.  With any luck, Dr. Lee’s computer will arrive at a price that would have been set by the market, had it existed.

The economic models developed in the 1920s and 1930s by American economists Fred M. Taylor and Abba Lerner, and by Polish economist Oskar Lange, involved a form of planning based on marginal cost pricing. In Lange's model, a central planning board would set prices for producer goods through a trial-and-error method, adjusting until the price matched the marginal cost, with the aim of achieving Pareto-efficient outcomes. Although these models were often described as "market socialism", they actually represented a form of "market simulation" planning.

But it is a bizarre way to proceed when Obamacare relies on methods used by the former Soviet Union to achieve “reform”.  A far more straightforward approach would be to dismantle healthcare monopolies instead of fostering them, and to avoid the monopsony position of the government.  Obamacare is trying to solve the problem of insufficient competition by creating a dual monpoly.

By doing this it can only hope to raise prices.  And that’s exactly what it’s doing.

Obamacare’s Transformation of Medicine


Those who thought that the Affordable Care Act (or Obamacare) was about liberating American medicine from the clutches of capitalism should think again.  Both Fortune and NPR describe how American doctors are being taught to charge prices for the first time by Obamacare.  NPR’s Rebecca Plevin writes:

Time for a pop quiz: When it comes to health care, what's the difference between cost, charge and payment?

"Does anyone want to take a stab at it?" Sara-Megumi Naylor asks a group of first-year residents at the David Geffen School of Medicine at UCLA.

Naylor answers her own question with a car metaphor. "Producing the car might be $10,000, but the price on the window might be $20,000, and then you might end up giving them [a deal for] $18,000, so that's cost versus charge versus payment," she explains.

It might seem natural for new doctors to learn about the cost of the care they're providing, but, in fact, doctors have been taught to provide the best care possible, leaving the cost considerations aside.

In the old days doctors were taught to ask, “what treatments are best for my patient?”  Today they ask: can we get it reimbursed from Obamacare?  Can the patients even afford it under Obamacare? Plevin writes that knowledge of what can be paid for must now be part of the medical curriculum.

It's "a dramatic change," says Dr. Janis Orlowski, chief medical officer with the Association of American Medical Colleges, which helps medical schools develop curricula.

A recent AAMC survey finds that 129 of 140 responding medical schools offered a required course on the cost of health care during the 2013-2014 school year. Nearly 40 percent of the schools said they also present the issue in elective courses.

Among the reasons for this change: the Affordable Care Act, which is moving towards rewarding doctors for providing high-value care, not for how many tests they order or surgeries they perform.

Another reason is that many more people now have high-deductible health plans. More patients now have to pay a lot for their care before insurance picks up the tab, and that's spurring some to become cost-conscious consumers. …

Letting buy-in from students can be challenging, says Dr. Paul Lyons with the University of California, Riverside School of Medicine.

"They're so busy trying to master the basics of medicine, the science and the interpersonal skills, that I think it feels sometimes like this is one more issue they're being asked to master, when they have so much on their plate already," he says.

The Los Angeles Times describes how a doctor, acting on purely medical considerations, can bankrupt a patient insured under Obamacare by including a resource “outside” of an Obamacare network in treating the sick.  That turns out to be surprisingly easy to do in California, where plan networks are narrow and a dearth of directories identifying which doctors are “in” and which are “out”.  The LA Times writes:

But here and in other states, insurers have been competing by assembling "narrow" networks of healthcare providers, dropping more costly doctors and hospitals in favor of those that deliver high-quality care more efficiently. Unfortunately, the lists of in-network doctors and hospitals that insurers have posted have been riddled with inaccuracies, making it impossible to be sure which doctors you'll have access to when you sign up for coverage.

People shouldn't have to guess which doctors' services are covered by their policies, where they're located or whether they accept new patients. A bill (SB 137) by Sen. Ed Hernandez (D-West Covina) would require insurers to fix the errors in their provider lists and keep them up-to-date, while penalizing doctors who don't respond to insurers' inquiries about their status.

The rise in narrow insurance networks has created a second problem for consumers. In-network hospitals may quietly use out-of-network specialists as part of a patient's treatment, resulting in a huge and unexpected bill only partially covered by the patient's insurer. AB 533 by Assemblyman Rob Bonta (D-Alameda) would make sure that patients who go to in-network hospitals don't face higher out-of-pocket costs even if they're treated by out-of-network physicians, unless they agree to the higher charges at least three days in advance.

The consequences -- not of making a medical mistake but a bureaucratic one -- are heavy. The New York Times’ Tara Siegel Bernard featured the story of a woman who faced enormous bills following an operation in which a doctor, perhaps unknowingly, used an out of network physician as part of the team. “We assumed that because we showed them our insurance card and nobody had any objections, we were covered,” said Ms. D’Andrea, 35, of Farmingdale, N.Y.

“This is not an issue that the Affordable Care Act fixes,” said Timothy S. Jost, a professor at the Washington and Lee University School of Law and expert on health care laws. “It is conceivable that the problem gets worse for some people if the Affordable Care Act encourages narrower networks, which some people think it might do.” …

Many of the state-run exchanges do not have provider directories or search tools on their Web sites — at least not yet — so customers cannot easily check which doctors and hospitals are included in a particular plan’s network.

And even though the D’Andreas could not have known that out-of-network doctors were treating their daughter, it underscores how important it is to ensure all of their providers will be on the plan they ultimately choose. “Basically, if you’re out of network,” Ms. Cooper said, “you’re out of luck.”

One way out of this cost dilemma is to pay cash, funding the expense through some form of self-insurance or health savings account. Bob Heman of Modern Healthcare describes how this can result in substantial savings.  In an actual example, an insured patient was charged $3,000 over and above his coverage when he might have payed for the whole operation with $1,000 -- cash.

Los Angeles colorectal surgeon Dr. Allen Kamrava regularly faces financial challenges related to narrow-network health plans.

He recently performed a gastrointestinal procedure on a patient at a local hospital. Both he and the hospital were in-network providers for the patient's plan. But unbeknownst to him and the patient, the anesthesiologists and pathologists involved in the procedure were not. So the patient ended up on the hook for $3,000 for those out-of-network provider services. Had the patient gone to a nearby out-of-network outpatient surgery center and paid for the entire procedure out of pocket, the total bill would have been less than $1,000.

“Many patients are simply accepting pure cash pricing for procedures—as if they had no insurance coverage at all—because it is cheaper than if they were to stick with their narrow-network options,” Kamrava said. …

Carmen Balber, executive director of California-based advocacy group Consumer Watchdog, said today's narrow networks are reminiscent of the HMO-style plans that spurred a backlash in the 1990s. There could be growing political pressure to regulate narrow networks, particularly if they start migrating into the employer health plan sector. “If insurance companies start to try moving these narrow networks to employer-based plans, then we'll hear a loud consumer groundswell against this practice,” Balber said. “We're already hearing it now.”

Some observers predict that insurers will have to ease up on how skinny they make their networks. The Congressional Budget Office said this month that it anticipates premiums for the second-lowest-cost silver plans on the exchanges will increase by 8.5% a year on average between 2016 and 2018. It said the increase is partly because insurers will not be able to sustain the lower provider payments and narrower networks that are used to hold down the premium costs.

But Amanda Starc, assistant professor of healthcare management at the University of Pennsylvania, said narrow networks are likely to survive, especially if they succeed in forcing higher-cost hospitals to lower their prices.

One can see why new doctors must not only have a knowledge of medicine, but the rulebook as well. In addition to figuring out treatments physicians must navigate the maze of providers and ensure they do not enlist resources which are not covered by the narrow networks.

The problem is not limited to doctors but the medicines themselves. The Obamacare pharmaceutical equivalent of “narrow networks” is a restricted list of medicines called the “closed formulary”.  Scott Gottlieb in Forbes writes “Obamacare is making closed formularies that offer very narrow selections of specialty medicines far more prevalent. But long term, provisions in Obamacare may also make such restrictions hard to maintain.” Drugs are the fastest growing cost component of modern medicine. A Kaiser Family Foundation poll found that:

“making sure that high-cost drugs for chronic conditions are affordable to those who need them” emerged as the public’s No. 1 priority for President Barack Obama and Congress, with 75% of the public saying it should be a top priority, far ahead of various other Affordable Care Act issues.  “Government action to lower drug prices” was No. 2, picked by 60 % of the public and by 51% of republicans.

This has led pharmacy benefit managers (PBM)s to aggressively manage which drugs are available to plan members in order to restrict costs. Gottlieb describes PBMs allow access to some drugs, but not to their competitors.  Sometimes this favors the consumer, but often it just favors the PBM.

Many PBMs like Express make money through a complicated web of discounts that they extract from drug makers, but don’t fully pass on to their customers – the self-insured businesses and health plans that contract with them. Consumers don’t see these discounts either. Much of it flows to Express, and this sort of deal making has made these companies among the most profitable segments in healthcare. …

Closed formularies that offer very narrow selections of drugs are becoming far more common as a way to cut costs, especially in Obamacare. The battle Express waged, and its decision to completely freeze Gilead from its formulary, is a signal to the market that they are willing to take punitive measures as a way to extract price concessions and cut costs. What’s less clear is whether this tactic is going to prevail alongside other changes that are sweeping healthcare.

Part of the problem is that the decision to close off access to a drug can cause other medical costs to rise, especially when the cheaper drug is less well tolerated or has certain therapeutic disadvantages.  This cost-shifting affects the overall attractiveness of the network which the PBM serves.  Having cheap drugs, but poorer outcomes may not be the best overall value proposition for a network manager struggling to build up his brand.  Gottlieb writes:

If the PBMs made access to a medicine more difficult as a way to cut drug costs, and it ended up raising other medical charges, this wasn’t readily noticed. The tradeoff functioned, to some degree, in the old model where most new drugs were aimed at primary care needs or the treatment of chronic disease. Where the differences between drugs were subtler. Where health plans saw many of their beneficiaries turn over each year. And where the clinical impact of formulary restrictions was harder to measure.

But if the payment reforms embedded in Obamacare come to prevail, then prescription costs will be more closely scrutinized against the other medical costs that they can help to offset. Providers at risk for their beneficiaries’ health won’t want to outsource these decisions to PBMs and have them made largely on the basis of price alone, or influenced by the discounts that PBMs can extract for themselves. …

Health plans may like their ceremoniously cheapened formulary. But providers may see it as adverse and outmoded.

What Gottlieb is describing is the far more constrained medical environment of Obamacare.  Not only do network sizes set limits to therapeutic choices, but so do formularies. And it may get even more constrained as formularies, which often serve areas, bring their narrowed product offerings to whole geographical locations.

Providers know that people change their geography far less frequently than they change their health plan. If a capitated provider group or hospital system has a patient on their roster, the provider group knows they are likely to be responsible for that person’s health for many years. This is becoming more acute as providers consolidate around hospitals, and health systems start to buy up their local markets.

The only possible way to increase choice in the face of this narrowing trend is to increase competition.  What better way to limit the power of formularies than by making it possible for a consumer to buy insurance anywhere in the fifty states?  But instead Obamacare has fostered mergers and consolidation.  This is often viewed as merely a financial phenomenon.  But as Fortune and PBS now tell us, finance and medicine are merging into one.

That is ironic benefit of Obamacare.  If you like your doctor you can’t keep him.  And if you get him back he’ll be changed: from the whole doctor he was to half-doctor, half-bureaucrat.

The Price Rocket


The one unsettled thing about Obamacare -- and it is the most fundamental thing -- is whether it provides any additional value at all.  At a Congressional Hearing insurers clashed with consumer advocates on the effect of the growing monopolization of the health care industry.  Robert Pear of the New York Times writes:

Doctors, hospitals and health insurance companies clashed Thursday over the merits of mergers planned by four of the five biggest insurers in the United States.

The confrontation came at a hearing of a House Judiciary subcommittee that is investigating competition in the industry and how it would be affected by mergers combining Aetna with Humana and Anthem with Cigna.

Daniel T. Durham, an executive vice president of America’s Health Insurance Plans, a trade group for the industry, told Congress that the consolidation could promote competition and benefit consumers, achieving economies of scale that reduce costs.

Moreover, Mr. Durham said, insurers are trying to counter the “harmful impact of consolidation among hospitals and other health care providers” and what he called “monopoly pricing” by makers of some prescription drugs.

However, Thomas L. Greaney, an expert on health and antitrust law at St. Louis University, said he was skeptical of the argument that insurers had to merge to counter the market power of hospitals and doctors.

Professor Greaney likened giant insurers and hospital systems to sumo wrestlers. “Experience suggests that a showdown between the sumo wrestlers may well result in a handshake rather than an honest wrestling match,” he testified.

Even if a dominant insurer succeeds in bargaining successfully with providers, Mr. Greaney said, “it has little incentive to pass along the savings to its policyholders.”

Fortunately such debates can be settled empirically.  The real world data so far supports the conclusion that employer provided health care prices -- and health insurance premiums -- are rising.  Not only are they rising, but increasing at an ever more rapid rate.  What is worse, the out of pocket share borne by the customer is rising fastest of all.

The actuarial service firm Milliman recently released the 2015 Milliman Medical Index (MMI), an index that tracks the hypothetical costs of a family of four with health insurance coverage through an average employer-sponsored preferred provider organization (PPO). Initiated in 2001, this index is unique in that it measures the collective costs of healthcare benefits instead of focusing on just an employer's share or the premiums.

To no great surprise, the MMI index rose in 2015. The MMI reached $24,671 for 2015, compared to $23,215 in 2014 and $22,030 in 2013. The 5.4% cost increase in 2014 was the smallest in the history of the MMI, but 2015 represents a larger percentage increase (6.3%). Since the initial reading in 2001, the MMI index has shown an almost tripling of costs.

This year, prescription drug costs are leading the charge. Pharmaceutical costs grew by 13.6% over the previous year, considerably higher than the 6.8% average growth over the last five years. Thanks to this increase, 15.9% of the total healthcare spending for the hypothetical family of four is now taken up by prescription drug costs.

While all costs are increasing, the employee's portion of the cost is increasing at a higher rate. Defined as the total of payroll deduction and out-of-pocket costs, over the last five years, the employee's cost burden has increased by almost 43% compared to 32% for employer's costs. For 2015, employer contributions covered 58% of the costs ($14,198) while employee costs of $10,473 were split between $6,408 in employee contributions (26% of the total) and $4,065 in out-of-pocket costs (16% of the total). …

Milliman suggests that continuing trends will eventually trigger the "Cadillac tax" (an excise tax on higher-cost, higher-benefit plans) for the MMI average family. Milliman estimates that smaller employers may cross the excise tax line as early as 2018.

Indirect costs from the ACA may also affect the MMI family, as lower income from the individual market may shift costs toward the employer market to make up the difference.

The bottom line of the Milliman report: health insurance costs are going up yet again. Future MMI reports are likely to reach the same conclusion. The only real question is how much the costs will rise, and whether the cost increases are broad or concentrated in one particular area.

Those who buy insurance in the Obamacare exchanges are no better off. People are actually dropping out of the exchanges perhaps because they can’t afford them. The Investor’s Business Daily writes:

ObamaCare enrollment has fallen sharply since March, and that's before consumers confront huge rate hikes for 2016. These are not the signs of a successful program.

In its latest enrollment report, the Centers for Medicare and Medicaid Services says 9.9 million were still enrolled in ObamaCare exchange plans.

That's almost 2 million fewer than the administration claimed in the spring, when it bragged that 11.7 million had signed up, and way below the Congressional Budget Office's earlier forecast of 13 million. …

In state after state, insurance commissioners are approving huge rate hikes, based on the fact that the people who've signed up for ObamaCare are older and sicker than insurers hoped.

By one estimate, the average rate hike in Oregon — a state that eagerly embraced ObamaCare — is above 24%. Average approved rates are 20% or higher in Alaska, Idaho, Iowa and Kansas.

An analysis by Agile Health Insurance found almost a third of all plans being sold through the federal exchange — which covers 36 states — had double-digit rate hikes.

Premiums for every plan offered in South Dakota, Delaware and West Virginia will be up by 10% or more.

The jury would appear to be in.  Obamacare has not reduced the cost to consumers of health care.  The only argument remaining is the counterfactual assertion that in some alternative universe without the ACA the prices would have risen even higher!  The editorial board of the Los Angeles Times, which has supported Obamacare, advises its readers to become insurance and medical gypsies, drifting from one insurer or doctor to the other in order to keep prices from becoming completely unaffordable.

The Affordable Care Act has helped slow the overall growth of healthcare costs in the U.S., but for many Americans, health insurance premiums have continued to rise at an alarming rate. To lower their rates, consumers may have to switch insurers, which may also mean switching doctors. That's not an easy decision, but two bills are pending in the Legislature to make the process less fraught for Californians.

Insurance premiums have been particularly volatile in the last few years for those with individual policies — people not covered by group plans at work. Although the Affordable Care Act required virtually all adults to obtain coverage as of 2014, insurers weren't sure how many relatively young and healthy people would sign up. So some insurers set premiums too low in a bid to attract previously uninsured consumers, and they are raising them now to reflect higher-than-expected medical bills. Others set premiums too high, and they are lowering them now to try to catch up to their competitors.

This is a lame attempt to make excuses for high prices.  It shows that not even the LA Times can find a way to spin disaster into a triumph.  The monopolies can say what they want, but if all economic history is any guide, prices will increase.

The Trouble With Rationing


At a time when every politician promises to give people “control over their lives” or “choice” the one area where freedom is rapidly diminishing is health care. To begin control over health care decisions typically reside with the party who pays the bill.  “Who pays the piper calls the tune” applies just as truly in medicine as anywhere else. Increasingly it is government who pays the bill.

This trend has been growing for a long time, as this chart from Forbes shows.  The government now pays a greater share of health care costs than the private sector. Consequently its influence on health care decisions has correspondingly grown.


In the UK, where 83.3% of total healthcare expenditure was made by the “public sector”, the state is dominant. Policy on who receives treatment is determined by the National Institute for Health and Care Excellence (or NICE) under the Department of Health. NICE decides what care or drugs are reimbursible.

The process aims to be fully independent of government and lobbying power, basing decisions fully on clinical and cost-effectiveness. There have been concerns that lobbying by pharmaceutical companies to mobilise media attention and influence public opinion are attempts to influence the decision-making process. A fast-track assessment system has been introduced to reach decisions where there is most pressure for a conclusion.

NICE carries out assessments of the most appropriate treatment regimes for different diseases. This must take into account both desired medical outcomes (i.e. the best possible result for the patient) and also economic arguments regarding differing treatments.

NICE is frankly a British government agency for rationing care, something which occurs in both private and public settings since money is not unlimited.  However, the key difference is that the choices on whether to make or withhold spending are made by a bureaucracy rather than by the patient or his family because the money is “public”. Of course NHS “public” money was once “private” before the taxman collected it.  But having transferred the money to the state, the taxman also transferred the power to make medical decisions.  The justification for NICE is that its decisions are based on evidence and presumptively scientific.

As with any system financing health care, the NHS has a limited budget and a vast number of potential spending options. Choices must be made as to how this limited budget is spent. Economic evaluations are carried out within a health technology assessment framework to compare the cost-effectiveness of alternative activities and to consider the opportunity cost associated with their decisions. By choosing to spend the finite NHS budget upon those treatment options that provide the most efficient results, society can ensure it does not lose out on possible health gains through spending on inefficient treatments and neglecting those that are more efficient.

NICE attempts to assess the cost–effectiveness of potential expenditures within the NHS to assess whether or not they represent 'better value' for money than treatments that would be neglected if the expenditure took place. It assesses the cost–effectiveness of new treatments by analysing the cost and benefit of the proposed treatment relative to the next best treatment that is currently in use.

The coin of the NICE realm is something called quality-adjusted life years (QALY).  “By comparing the present value (see discounting) of expected QALY flows with and without treatment, or relative to another treatment, the net/relative health benefit derived from such a treatment can be derived. When combined with the relative cost of treatment, this information can be used to estimate an incremental cost-effectiveness ratio (ICER), which is considered in relation to NICE's threshold willingness-to-pay value.”

QALY is coming to America. In 2014 Andrew Pollack of the New York Times described a plan by medical associations to introduce the measure in determining the advisability of treatment. “Saying they can no longer ignore the rising prices of health care, some of the most influential medical groups in the nation are recommending that doctors weigh the costs, not just the effectiveness of treatments, as they make decisions about patient care.”

“We understand that we doctors should be and are stewards of the larger society as well as of the patient in our examination room,” said Dr. Lowell E. Schnipper, the chairman of a task force on value in cancer care at the American Society of Clinical Oncology.

In practical terms, new guidelines being developed by the medical groups could result in doctors choosing one drug over another for cost reasons or even deciding that a particular treatment — at the end of life, for example — is too expensive. In the extreme, some critics have said that making treatment decisions based on cost is a form of rationing.

The concept that “we doctors should be and are stewards of the larger society as well as of the patient in our examination room” marks the emergence of dual allegiance. Which of the two masters does the doctor work for?  But Pollack noted that objections stemmed not from the subordination of the doctor-patient relationship to economics, but from the effrontery of doctors to trespass on the territory of economists.  In that view, doctors should stick to scalpeling and leave the QALY to the experts.

Still, it is unclear if medical societies are the best ones to make cost assessments. Doctors can have financial conflicts of interest and lack economic expertise.

The cardiology societies, for instance, plan for now to rely on published literature, not commission their own cost-effectiveness studies, said Dr. Paul A. Heidenreich, a professor at Stanford and co-chairman of the committee that wrote the new policy.

They plan to rate the value of treatments based on the cost per quality-adjusted life-year, or QALY — a method used in Britain and by many health economists.

The societies say that treatments costing less than about $50,000 a QALY would be rated as high value, while those costing more than $150,000 a QALY would be low value.

Certainly there can be nothing wrong about gathering data to guide decision makers, whether public or private.  Peter Neumann, Director, Tufts Center for the Evaluation of Value and Risk in Health argued that trying to measure cost/effectiveness was better than consciously remaining in ignorance of it. What is intriguing is the assertion that the medical cost curve cannot be bent without rationing based on QALY.  David Harlow of the Healthblawg writes:

In order to bend the cost curve — no matter what the approach to health care reform: be it federal legislation, state initiatives, federal pilots and demonstration projects, and/or private sector initiatives — most would agree that we need a rational approach to cost-effectiveness research, or comparative effectiveness research that we can all rely upon.  Anyone who embarks on a search for such an approach will soon find Peter Neumann‘s Center for the Evaluation of Value and Risk in Health at the Tufts University Medical Center and the CEVR’s Cost-Effectiveness Analysis Registry.

Unlike NICE’s guidelines, Dr. Neumann’s Registry was an optional reference.  But he noted that this could change.

I think there’s more openness to using these techniques, broadly speaking, outside the US than inside the US.  No one even overseas likes to deny care or ration or use cost- effectiveness analysis explicitly, perhaps.  But I think there’s a greater willingness in many countries – certainly in many western European countries, in Canada, Australia,  even countries in Asia – to set limits using cost-effectiveness information to inform health care choices, and that hasn’t been the case in the US to a large extent. …

the UK maybe most famously has an institute called the National Institute of Health and Clinical Excellence that sifts through the data, looks at the economics of new treatments and then decides whether or not to cover.  And in some cases at least decides not to pay for new very expensive technologies that offer marginal benefits.

Harlow asked Dr. Neumann whether metrics like QALY might cause a “change in approach or a change in decisionmaking about what should be covered, what should not be covered, if there were a change in the basic approach to reimbursement for health care services in this country”.  Neumann said he believed it would because QALY would determine what was reimbursible and what was not.

Well I’m a strong believer that it would.  I think part of the issue that we’ve been talking about is the information itself and to what extent do we use that information in decisions.  Another issue we haven’t to this point talked about is the incentives in the system, and I think the information would have a much bigger impact in an environment with different incentives.  So if providers were under bundling arrangements where you have a global payment that follows a patient with a particular disease for example, particular diagnosis, I think the incentives change in ways that makes this information more relevant and more powerful.  And there are other ways to change incentives to also make this information more relevant – it could be salaried physicians, it could be changing incentives to do more and getting paid more, it could be incentives that are different for patients where they face more cost sharing.

Bundled payment arrangements would insert the cost term into any medical decision under Obamacare.  Bundled payments, the reader will recall, is a scheme to pay for patient treatment at a fixed cost instead of the traditional “fee for service”.  Under these conditions, the doctor will be incentivized to save money on the treatment so that he can keep the difference.  Of course there will be nothing wrong in this if the treatment provided is adequate and sufficient for the purpose.

Dr. Neumann acknowledges that QALY applies a kind of averaging to individual needs and readily concedes its drawbacks. “Sure, there’s a lot of pushback to economists or – even worse –  bureaucrats making these decisions that patients would like, and feel they should make on their own.  So a QALY is really a population-based metric, in a way, it’s an average of sorts, averaging across different people in the population and we do that in all sorts of ways in health care.  We average results from clinical trials into a single number, a new drug improves quality of life by so much and a new drug, a new program improves life expectancy by so much; and those are population-based metrics as well and they’re used as guides to clinical care, and maybe to policy.”

The result is unambiguously government rationing, which differs from private rationing in the matter of “who decides”.  When a patient decides to forgo treatment in order to save his money, it is his decision.  When government decides to withhold treatment to save on the budget is the state’s decision.  Richard Vize, writing in the British newspaper Guardian writes, “Rationing care is a fact of life for the NHS.”  It is hidden in various ways, but rationing all the same.

Rationing is nothing new, of course. When waiting lists stretched to many months and even years, treatment was often rationed simply by the patient dying before they reach the operating table. Heart surgery was a striking example of this. The long waits in A&E departments acted as another form of rationing.

Labour’s all-out assault on waiting lists and eventual introduction of the 18 weeks referral-to-treatment target ended this backdoor workload management system. Now the NHS Constitution gives the impression that clinical need and conformity with Nice guidelines are all that stand between the patient and treatment, while the purchasing decisions of commissioners should ensure that any rationing is open to public scrutiny.

In practice, it is not so straightforward. Research by the Nuffield Trust makes clear that some CCGs are now making explicit rationing decisions ... There are big variations in access to common procedures such as hip replacements, while some services such as speech therapy for people recovering from strokes are rationed by a shortage of staff.

Then there is the most common and least transparent rationing of all – the decisions by GPs on whether and where to refer a patient.

The arrival of NICE-style QALY guidelines in America, combined with the growing role of government in health care spending means that bureaucratic rationing is destined to expand as private decision-making shrinks.  In the purely government parts of the US healthcare system, such as the VA, rationing by waiting list is already an established feature.  The Daily Caller noted that a “total of 307,000 veterans have died while waiting for the Department of Veterans Affairs to process their healthcare applications, a new inspector general report found.”

Even if one accepts that rationing must inevitably occur in private or public settings, it is clear that a private system would probably be more flexible.  Instead of the total denial caused by non-processing by the VA, the private sector might have been able to substitute lesser quality or partial treatment, which if less than perfect, might conceivably be better than death.

One subject which Dr. Neumann does not touch upon is the implicit rationing caused by the suppression of innovation.  When government healthcare becomes dominant, the entire medical industry is transformed into a bilateral monopoly: “a market structure consisting of both a monopoly (a single seller) and a monopsony (a single buyer)”.  The rapid consolidation of health insurance providers under Obamacare has been well reported.

Anyone with even a passing knowledge of economics knows that innovation is stifled under monopoly.  Therefore the transformation of the American health care system from a predominantly private industry into a bilateral monopoly is likely to result, not simply in higher prices but in fewer and lower quality products.

Thus to the rationing caused by bureaucratic allocation must be added that caused by innovation foregone.  The American medical industry produces 90% of the world’s medical innovation.  The British NHS is fundamentally a consumer of American innovation.  NICE can deny, but NICE cannot create.

There may be some advantages to expanding the role of government in healthcare, but there are also significant dangers.  Bureaucratic rationing is one.

Stepping Away From the Obamacare Model


Perhaps the clearest proof that Obamacare will not survive -- at least not survive unchanged -- is Democratic presidential candidate Hillary Clinton’s plan to change it in a way that very much recalls both Ted Cruz’s health plan and the Health Care Compact. Dylan Scott, writing in the National Journal, performs a few intellectual somersaults to explain why Clinton’s departure isn’t really a rejection of the Obamacare concept.

For a few minutes last week, Hil­lary Clin­ton soun­ded a little bit like, of all people, Ted Cruz.

The Demo­crat­ic pres­id­en­tial front-run­ner was asked in Iowa about al­low­ing health in­sur­ance to be sold across state lines, which is a hall­mark of Re­pub­lic­an al­tern­at­ives to Obama­care. When Cruz pro­posed a health re­form bill earli­er this year, it did two things: re­pealed the Af­ford­able Care Act and au­thor­ized in­sur­ance plans to be sold in mul­tiple states. So you could ex­cuse those who raised their eye­brows at Clin­ton’s com­ments.

“If we’re go­ing to have a free-mar­ket sys­tem, we need a free mar­ket where we’ve got people com­pet­ing on cost and qual­ity, and that may be one thing we need to look at,” Clin­ton said in re­sponse to a ques­tion, NBC News re­por­ted.

Some con­ser­vat­ives took Clin­ton to task for seiz­ing on a pil­lar of their health re­form tem­plate.

“It is in­co­her­ent that can­did­ate Clin­ton is pick­ing up a Mc­Cain pro­pos­al from 2008 in hopes of in­ject­ing some com­pet­i­tion in­to the hope­lessly over-reg­u­lated, top-down Obama­care sys­tem she help to build,” Douglas Holtz-Eakin, pres­id­ent of the Amer­ic­an Ac­tion For­um and a policy ad­viser to John Mc­Cain’s 2008 cam­paign, which pro­posed the policy, told The Wash­ing­ton Post.

Scott assures readers that this is merely a modification provided for under Rule 1333 of Obamacare. So Hillary’s not really junking Obamacare.

And even if Clin­ton takes the idea ser­i­ously, she wasn’t ne­ces­sar­ily nod­ding to­ward con­ser­vat­ive health re­form ideas; she might have been simply pick­ing up on one of the least pub­li­cized pro­vi­sions of Obama­care, the found­a­tion of her own party’s health policy agenda.

“Al­though sale of in­sur­ance across state lines is com­monly a con­ser­vat­ive pro­pos­al, a lot de­pends on how it is done,” Tim Jost, a health law pro­fess­or at Wash­ing­ton and Lee Uni­versity who sup­ports the Af­ford­able Care Act, said in an email. “Sec­tion 1333 of the ACA already per­mits sale across state lines as of 2016, but sub­ject to state reg­u­la­tion and a num­ber of con­di­tions to pre­serve cov­er­age.”

Mys­tery (po­ten­tially) solved.

The problem with this line of argument is that it would be a case of the exception superseding the rule. The probable reason for expanding the markets is that Hillary Clinton must find some way to control costs.  Increasing competition using Rule 1333 is probably the only way.

Dan Mangan at CNBC reports that the premium hikes are going to explode on the scene in dramatic fashion. “Insurers have asked for double-digit rate increases for nearly 1 out of every 3 Obamacare plans that will be sold on for 2016 coverage, according to a new analysis.”

In three states—Delaware, South Dakota and West Virginia—every plan sold on is asking for 10 percent or more hikes in the prices of their premiums for next year, AgileHealthInsurance.comsaid in its report.

Existing Obamacare customers in six other states on that federally run marketplace, which serves two-thirds of the United States, could also be in for a rude awakening come November when open enrollment resumes.

In those other six states, a majority of plans are requesting double-digit hikes, ranging from Montana, where 86 percent of the plans have asked for such increases, down to North Dakota, where 67 percent of the plans are doing so.

"The natural reaction [for those customers] is: They're going to be surprised," said Sam Gibbs, executive director of

"In some of these states, there's going to be a strong reaction to it," said Gibbs.

This is clearly going to be a political problem for Hillary.  Added to the premium increases will be the impact of the so-called “Cadillac Tax”, which threatens to hit the middle class voters hard. Robert Pearl, MD describes how a policy ostensibly intended to dampen excess medical demand is turning into just a plain added cost.

This excise tax was intended to encourage employers to eliminate overly rich healthcare benefits that could lead to excessive, inappropriate utilization of heathcare services and unnecessary healthcare spending. In addition, the revenue from the tax was to serve as a funding source for a portion of the ACA’s insurance subsidies.

The drafters of this legislation assumed, at the time it was passed, that this tax would affect only very high-priced “Cadillac” or “gold-plated” healthcare plans. But it could well have far broader negative consequences when it goes into effect.

The overarching intent of the ACA was to level the playing field, and enable all Americans to seek early intervention and treatment without financial barriers. But the Cadillac tax threatens to undermine some of the progress that has been made.

What began as a reasonable concept – limit excessive coverage to eliminate unnecessary and low-value health spending through the threat of a high tax on premiums – is looking like a recipe to compromise the health status of many. Instead of impacting unnecessary care, the Cadillac tax as currently structured will increase hardship for a growing number of Americans with severe and chronic illnesses. And its salutatory impact on healthcare spending will be minimal at best.

The tax system is a blunt and imprecise method for managing demand.  It is not working for Obama.  Hence, Hillary will be forced to try and do something about supply.  Dylan Scott argues that what makes supply side economics acceptable for Hillary is the fact that the regulators will ultimately be in control.  He writes:

Start­ing in 2016, Obama­care al­lows states (with fed­er­al ap­prov­al) to enter in­to “health care choice com­pacts.” Un­der the com­pacts, health plans could be sold in mul­tiple states, but they would still be sub­ject to the reg­u­la­tions of the state where the in­surer is loc­ated and must sat­is­fy Obama­care’s rules for health cov­er­age. The ACA even al­lows for na­tion­wide health plans””as long as fed­er­al au­thor­it­ies ap­prove, states au­thor­ize it, and the law’s cov­er­age con­di­tions are again ob­served.

The con­cern about al­low­ing in­sur­ance sales across state lines has his­tor­ic­ally been that in­surers would mi­grate to the states with the least bur­den­some reg­u­la­tions. The Na­tion­al As­so­ci­ation of In­sur­ance Com­mis­sion­ers, which rep­res­ents state reg­u­lat­ors, has warned about a “race to the bot­tom.” Obama­care could there­fore re­duce some of that risk, by mak­ing sure its rules still ap­ply, and the law also re­quires the fed­er­al gov­ern­ment to con­sult with NA­IC in de­vel­op­ing rules for the multistate com­pacts.

This sounds more like a rationalization than anything else.  The fact that Democrats are now considered overthrowing the Cadillac Tax and freeing the states to step away from; indeed making the Obamacare exchange redundant and replacing it with “health care choice com­pacts is more than just tinkering at the edges.  It represents nothing less than a reversal of the fundamental philosophy of Obamacare.

What is killing Obamacare is its failure to contain costs.  Although many politicians, including Bernie Sanders, pay lip service to “single payer” health care systems the truth is that these must result in government rationed health care to save money. In place of regulation by price, single payer health systems rely on committees who effectively decide who receives treatment and who does not.  Otherwise they would bust the budget.

These choices are particularly acute when expensive treatments are involved.  For example, the British National Health Service has decided to withhold cancer drugs from certain classes of patients because they can’t afford not to, despite pledges from politicans.  The Daily Telegraph reports:

Thousands of cancer patients to be denied treatment. Common drugs for breast, bowel, prostate, pancreatic and blood cancer will no longer be funded by the NHS following sweeping cutbacks.

More than 5,000 cancer patients will be denied life-extending drugs under plans which charities say are a “dreadful” step backwards for the NHS.

Health officials have just announced sweeping restrictions on treatment, which will mean patients with breast, bowel, skin and pancreatic cancer will no longer be able to receive drugs funded by the NHS.

In total, 17 cancer drugs for 25 different indications will no longer be paid for in future.

Charities said the direction the health service was heading in could set progress back by centuries.

The Cancer Drugs Fund was launched in 2011, following a manifesto pledge by David Cameron, who said patients should no longer be denied drugs on cost grounds.

But there is more to this tale than the simple point that Single Payer health systems can’t afford to treat everyone.  It is that bureaucratic decision making cannot be as agile as the market.  Professor Paul Workman, an eminent innovator in cancer therapies wrote that relying on regulators was killing patients.

Just as decades of pioneering cancer research are bearing fruit, we are seeing drug after drug deemed too costly for NHS patients and rejected by Nice [a British regulatory agency].

This week has seen two highly innovative drugs hit the headlines – Olaparib, which is under review by Nice for BRCA-mutant ovarian cancer, and nivolumab, which had been available to NHS patients with lung cancer via an early-access scheme but has now been withdrawn until Nice can assess it for cost-effectiveness. …

On the one hand, Nice needs to radically change the way it evaluates drugs. It needs to place greater emphasis on genuine innovation in cancer treatment. We need a review of how Nice’s "end of life" criteria are applied, to make sure patients aren’t left to wait until their life expectancy drops before they can benefit from some drugs. And Nice needs to understand that the future of cancer treatment is in drug combinations at much earlier stages – and that we will only be able to overcome treatment resistance through approval of a wide range of treatments, hitting cancer in a variety of ways.

On the other hand, it is not acceptable that the public should shoulder the burden of over-inflated prices for expensive drugs. Some of the drugs coming to Nice for appraisal are just too expensive, and sometimes insufficiently innovative, to be made available on the NHS. It’s the companies who set the prices, and they need to be more realistic as recent examples look unaffordable.

The key is to better incentivise companies, and the non-profit organisations that work with them, to take the risks they need to take to discover and develop innovative treatments. When they do, they should be rewarded for this – through measures such as quicker authorisation, tax credits for research and development, and stronger patents.

The emergence of a cure or life extension is the equivalent of a cost reduction.  Even if a treatment is expensive, it is far cheaper than a situation where no cure was available at any price.  As with drugs, so with other medical technologies and therapies.  Gradually cost pressures are forcing Obamacare away from the Soviet-style model of economies of scale to one of a greater reliance on real competition.

What Obamacare has done instead is encourage mergers and consolidations while imposing a layer of paperwork and bureaucracy where none formerly existed. Aaron Davis of the Washington Post documented the growing regulation of personal trainers under Obamacare.

After decades of unregulated existence in all 50 states, the booming field of personal trainers is braced for a wave of scrutiny that is expected to transform the industry and could make or break some of the biggest fitness companies in the country.

The new regulations, being written by and for the nation’s capital city, will create a registry of all personal trainers in the District only. But they are expected to become a model that winners and losers in the fight believe will be replicated elsewhere.

The credit — or blame — for the newfound urgency can be traced in part to President Obama’s Affordable Care Act. A variety of workplace wellness programs and preventive health-care initiatives called for in the law could soon translate into rivers of billable hours for those with credentials to keep American waistlines in check.

And that means the race is on to be eligible for those credentials, which could eventually lead to the ability to bill insurance companies for services, much like such professionals as dieticians and physical therapists. With billions of dollars potentially at stake, lawyers and lobbyists are engaged in a no-holds-barred fight to shape the nation’s first-ever rules over who has the right to tell someone else how to exercise.

Only a fool would think this could possibly reduce personal trainer prices.  The Obamacare approach hasn’t made other types of medical care cheaper either.  Hillary and Bernie Sanders both understand that Obamacare is not very popular.  Hence they are searching for ways to repeal it, without making it appear they are.

Rising Unit Costs, Rising Numbers


The shadow of future cost increases is darkening the health policy and electoral landscape. What is casting the shadow is the flame of spending. Jeffrey Young of the Huffington Post claims that Obamacare has resulted in fewer Americans going without medical care, although the figures he cites really show the achievement amounts to a return to rates obtaining in the late 1990s.


But unlike the 1990s, where people could afford the treatment, the new rates of treatment have had to be paid for by increases in fees and taxes.  America is spending an ever-larger share of the national income in subsidies simply to equal in 2015 the affordability levels of 1998 without those subsidies.  This is reflected in a chart from the White House showing health care as a percentage share of GDP.


America must spend increasingly to keep “affordability” among the lower income at the same level.  Thus the flip side of the achievements of “expanding coverage” and making healthcare “affordable” is the need for every growing subsidies, which have to b supported by unprecedented increase in revenue raising and transfer payments.

One of the ways the administration is funding Obamacare is by taxing employer-provided insurance, most notably through the “Cadillac Tax”.  The Investor’s Business Daily describes the process, which has now spread to the Flexible Savings Accounts:

FSAs were designed to help level the playing field between the tax treatment of out-of-pocket costs (which had to be paid with after-tax dollars) and bills paid by insurers, tax free.

Millions of workers use these accounts to put aside money each year for bills they expect to incur.

ObamaCare already struck a blow against FSAs when it limited contributions and further restricted what the money could be spent on. Now the law's Orwellian Cadillac tax threatens to kill them off entirely.

For those who don't know, the Cadillac tax is a 40% excise tax on insurance premiums above set government limits — which is $10,200 for individual plans starting in 2018.

Although described as targeting only gold-plated health plans, more than a quarter of employers will get hit by it right out the gate. And because the premium thresholds are indexed to inflation — even though premiums always climb faster — nearly half of employers will be subject to the Cadillac tax by 2028, and 100% will at some point in the future, according to the Kaiser Family Foundation. …

And one of the first things to go will be FSAs. The reason is that ObamaCare inexplicably includes worker contributions to an FSA as though they were part of the premium. Let's say an employer offers a plan with a $9,000 premium, and a worker puts $2,700 into an FSA. ObamaCare would treat that as an $11,700 premium, which means it would be subject to the Cadillac tax. …

FSAs aren't the only health care innovation threatened by the Cadillac tax. As IBD reported recently, increasingly popular Health Savings Accounts could be doomed, as well.

And for the same reason: Money put aside in an HSA gets added into the premium when figuring the tax.

The tax assault on the FSAs is likely to have political repercussions.  Brian Faler of Politico notes that its effect on the middle class will be too painful to ignore.  Even the sound of its approach has been enough to generate heat in the Democratic presidential nominee race.

A popular middle-class tax benefit could become one of the first casualties of the Affordable Care Act’s so-called Cadillac tax, affecting millions of voters.

Flexible spending accounts, which allow people to save their own money tax free for everything from doctor co-pays to eyeglasses, may vanish in coming years as companies scramble to avoid the law’s 40 percent levy on pricey health care benefits.

“They’ll be one of the first things to go,” said Rich Stover, a health care actuary and principal at Buck Consultants, an employee benefits consulting firm. “It’s a death knell for them. If the Cadillac tax doesn’t change, FSAs will go away very quickly.”

That fact alone could dramatically alter the political equation surrounding Obamacare, potentially blindsiding middle-class voters who may be only vaguely aware of the Cadillac tax. Though the levy won’t take effect until 2018, it could be one of the first items on the next president’s desk.

Already, it’s become an issue in the Democratic presidential primaries, with Sen. Bernie Sanders vowing to junk the tax and Hillary Clinton saying she’s open to changes. “I worry that it may create an incentive to substantially lower the value of the benefits package and shift more and more costs to consumers,” she told the American Federation of Teachers.

Republicans, meanwhile, invoke the tax as one of many reasons to repeal the entire Affordable Care Act.

It’s part of a triple whammy.  The other two components of the curse are rising premiums and a looming increasing in Medicare contributions.

The question of increasing health insurance premiums has often come up in the press.  There is now no doubt that they are climbing, in many cases by double-digits, despite efforts by regulators to hold them down.

"Group health care premiums continue to outpace inflation, and while most employers are feeling the pressure of rising health care costs, benefits experts say smaller employers may face a heavier burden.

Large employers are projecting health care costs before implementing plan design changes to increase an average of 6% in 2016, according to a National Business Group on Health survey published earlier this month.

And according to an Arthur J. Gallagher & Co. survey of smaller employers, most of which have less than 1,000 employees, released Friday, 44% reported premium rate hikes of 6% or more in 2014. Twenty-three percent saw rates in the double digits, the survey showed.

Dave Ratcliffe, Washington-based principal in the health and productivity practice with Buck Consultants at Xerox, said employer health care cost trends before measures are taken to control costs are actually higher than most surveys show. …

We see trend rates closer to 9%… not at 6%-7%,” Mr. Ratcliffe said.

One of the biggest culprits of rising health care premiums is the rise in rising use of expensive specialty drugs, experts say.

The rising cost of “specialty drugs is a big issue for our clients, and we don't have answers to shift costs there,” Mr. Ratcliffe said.

High cost claims and the “sharp rise in specialty pharmacy” are the “two biggest cost drivers,” Mr. Wojcik said. Hepatitis C drugs, cancer drugs, arthritis medication and new cardiovascular medications are sending specialty pharmacy costs soaring, he said.

Changing demographics are also putting upward pressure on employers' health care costs. “As the baby boomers mature, they are working well past 65, and they cost a lot more as they mature,” Mr. Ellis said.

New enrollees in the health care system under the health care reform law may also be causing premiums to increase, as medical providers shift costs to the private sector.

The third, and for many the cruelest hike will be in Medicare premiums.  Eric Pianin of the Fiscal Times describes an issue that would be serious in its own right, but which when combined with other increases becomes especially serious.  Because of the way in which Medicare is structured, a huge cost increase is going to be passed on directly to 30% of Medicare members who are judged better off.

Nearly a third of the roughly 50 million elderly Americans who depend on Medicare for their physician care and other health services could see their premiums jump by 52 percent or more next year. …

Unless Congress or Health and Human Services Secretary Sylvia Mathews Burwell intervenes, an estimated 15 million seniors, first-time beneficiaries or those currently claiming dual Medicare and Medicaid coverage will see their premiums jump from $104.90 per month to $159.30 for individuals, according to an analysis by the Center for Retirement Research at Boston College. Higher-income couples would pay multiples of that increase.

A spokesperson for the Centers on Medicare and Medicaid Services on Friday confirmed that the premium hike is in the works, although a final decision won’t be made until later this year. While approximately 70 percent of Medicare beneficiaries “are expected not to see a premium increase in 2016,” he stressed, “the remaining 30 percent of beneficiaries would pay a higher premium based on this projection.”

The oncoming Medicare increase has been ignored until now, but it is going to bust into the open soon. “Unless the administration figures out some “work-around,” the study states, the base Part B premium would rise from $104.90 to $159.30 – a 52 percent increase.”

The likely rate hike has received relatively little public attention until now. According to the Center for Retirement Research study,  it illustrates the broader “complicated interaction” between Medicare premiums, which are typically automatically deducted from Social Security benefits, and the rest of Social Security funds that are used for retirement and other non-health care related expenditures.

For just the third time since automatic cost of living adjustments started in 1975, Social Security will not increase the cost of living benefit next year, simply because the Consumer Price Index used by the government has remained relatively flat.

Since Social Security COLAs do not “fully reflect the increase in health care costs faced by the elderly,” the study notes, any missed annual cost of living adjustment can trigger a crisis in the Medicare Part B program.

Because the law for various reasons “holds harmless” about 70 percent of Medicare beneficiaries from premium hikes to compensate for diminished resources caused by a missed cost of living adjustment, the remaining 30 percent of Medicare Part B beneficiaries get clobbered by premium increases. …

Unless the administration figures out some “work-around,” the study states, the base Part B premium would rise from $104.90 to $159.30 – a 52 percent increase.

The study goes on to say that participants with higher incomes would then have to “pay mul­tiples” of $159.30 depending on their income levels. As an example, each member of a married couple with household income ranging from $170,000 to $214,000 a year would pay a Part B premium in 2016 of $223.00. “Premiums would top out at $509.80 per person for couples with income of more than $428,000,” the study states.

Juliette Cubanski, a Medicare expert with the Kaiser Family Foundation, said on Friday that the premium increases “could sting” millions of older Americans, but cautioned  that the projected 52 percent average increase in premiums is based on 2015 Medicare Trustees’ projections that may be altered before the new rates take effect.

But the HHS is unlikely to find a workaround because the underlying problem is simply intractable.  Costs are going up.  In order for treatment rates to simply remain at their 1998 levels, federal taxation must rise in order to fund it.  Should Obamacare’s architects have seen this coming?  Yes, according to Gene Steuerle of the Altarum Institute.  They should have seen it coming but they failed to take into account the cost increases caused by their own political promises.

“Health cost growth has slowed down, we think. So let’s increase health costs.” This is the federal government’s apparent response to some recent sanguine estimates about the future of health cost growth. We might call this response a policy version of the “observer effect,” where the mere observation of reality changes that reality. In this case, the observation that health care costs may be increasing more slowly than expected creates a political reality in which fewer efforts are exerted to keep costs under control.

Projections based on past historical trends are fraught with danger. The influence of government policy sits near the top of that danger list. Since federal and state spending plus tax subsidies now cover about 60 percent of the health care budget, government legislation decides much of what the nation will pay for health care.  Speaking technically, policy is endogenous to—or influential on—the past trends we measure.

One of the things Obamacare’s architects neglected to consider was that their “cost containment” strategies might actually increase them.  This appears to be the case in the wave of consolidations occasioned by Obamacare among health care providers.  Arlen Meyers of MD writes:

By now you know that a) hospitals are gobbling up practices, b) hospitals are gobbling up each other and becoming vertically integrated delivery networks, and c) health insurance companies are merging, too. …

One side says provider and payer consolidation will drive down prices and insurance costs. Given recently announced increases in proposed rates for health insurance, many are doubtful and argue that, to the contrary, monopolies or oligopolies just restrict competition and drives up prices.

Ultimately Obamacare finds itself caught between two fires.  They promised greater medical coverage but in so doing they triggered costs which have increased, or at least failed to stop the rise in per capita health care treatment.  The combination of greater numbers of higher unit cost patients is blowing out the budget.  They’ve lit a blaze they cannot put out.  And it may consume them before long.

Fiorina and Empowering the States


Many of the Republican presidential candidates has a plan for repealing Obamacare.  These plans provide an insight into their intelligence and political philosophy.  While nearly every GOP plan has paid lip service to the notion of increasing the role of the States in healthcare delivery and policy, few have articulated the underlying reason as completely as Carly Fiorina.

Sahil Kapur writing in Bloomberg, describes the distinctive elements of Fiorina’s plan. “Carly Fiorina wants to repeal Obamacare and establish a health-care plan of her own … In its stead, Fiorina called for increasing federal aid to states.”

"I think the answer here is to allow states to administer high-risk pools to help those who are truly needy," she said. "Certainly I think the federal government can assist in funding." …

It sounds simple enough: Have the feds subsidize state-run insurance programs for the Americans who need medical care the most and who don't have proper access. Numerous Republican presidential hopefuls have championed high-risk pools, including Florida Senator Marco Rubio and Louisiana Governor Bobby Jindal.

The appeal of high-risk pools is apparent.  Such a program focus intervention and government spending upon those who are “high risk” and cannot fend for themselves.  But as Kapur notes, there is a danger that the high risk pool will expand to swallow up the allotted resources, creating a budgetary black hole.

Republican leaders have been down this road before. In April 2013, then-House Majority Leader Eric Cantor of Virginia tried to pass legislation authorizing a total of $3.7 billion for high-risk pools by cutting money from an Obamacare program. But conservative Republicans rebelled and forced him to pull the bill because, as Idaho Representative Raul Labrador argued at the time, "Subsidizing health care is not what Republicans should be about."

"High-risk pools are not a new idea," said Tim Jost, a health policy expert at Washington and Lee University School of Law. "It's one of those chestnuts that has been around forever, but just keeps coming back."

So, what's behind the support for the idea?

"High-risk pools are attractive because they seem to magically solve certain problems without onerous requirements or lots of government funding," said Larry Levitt, a senior vice president at the nonpartisan Kaiser Family Foundation, which focuses on national health issues. "But it's a bit of a mirage because they're really not a solution for covering the uninsured."

The federal government set up a temporary high-risk pool before the Affordable Healthcare Act's insurance reforms took effect, and said the average enrollee's claims cost was $32,000 per year.

"There's no way those people with preexisting conditions could afford to pay their own insurance. So there needs to be some kind of subsidy to make coverage even reasonably affordable," Levitt said, adding that no state has ever succeeded at using high-risk pools to cover its uninsured residents for a sustainable period of time.

The other criticism of high-risk pools is the "adverse selection" problem—they attract a crop of very sick, typically poor people, while younger and healthier people avoid buying insurance. That in turn drives up costs.

The normal solution to the “adverse selection” problem is requiring compulsory membership in the insurance pool.  By making it impossible for people to flee from a high risk pool, subsidized care can never, in theory, suffer from an insurance death spiral. This is the solution that Obamacare adopts.  It avoids the problem of high risk pool perceived costs by diluting them across the system.  Care is still expensive, but the voters notice it less. Kapur writes:

The Affordable Care Act, while offering subsidies to poor people and requiring insurers to cover them regardless of medical history, seeks to avoid the adverse-selection problem by requiring most Americans to buy insurance, the provision that Republicans despise most. "The way the ACA works is, it asks healthy people in the market to subsidize sick people," Levitt said. "So far that's worked pretty well."

However, as noted in many previous articles, the underlying cost of medical care under Obamacare has not decreased.  It may have even increased.  Part of the reason for this is because the people who spend the health care dollar are using “other people’s money”.  Carly Fiorina understands that the agency problem -- spending “other people’s money” -- reduces accountability.  Kapur adds:

Apart from high-risk pools, Fiorina said that if elected president she would "push decision-making as close to the people as possible" on health care and "try what we have never tried in the health insurance market, which is actually the free market."

But it may work even better in subsidized, or government paid care.  Since most of Obamacare -- 70% by some calculations -- consists of Medicaid expansion this is where big potential savings are.  And this is why Republican ideas which devolve health responsibilities to the sites make some sense.

Paul Howard notes in Forbes that giving States block-grant type Medicaid funding may have a similar effect to giving consumers control over their own healthcare spending.

When it comes to Medicaid, a number of approaches can work. Even a deep-blue state like New York has managed to cap total Medicaid spending growth, based on the 10-year average of CPI’s medical-inflation rate. That sounds an awful lot like a block grant, and could provide both states and the poor with better health options at lower cost. (In 2001–10, N.Y. State Medicaid spending grew by an average of 6%; the current cap will keep it around 4%. System transformation is possible, even in a state as hospital dependent as New York.)

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. CMS likes to hash out these types of approaches, “1115 waivers,” on a piecemeal basis, state by state. It should offer ready-made templates and allow states to opt directly into them. New York’s waiver gives the state increased federal funding—$8 billion in the mid-term—in return for larger long term savings.  But the state bears the risk if its Medicaid reform efforts don’t pay off. (N.Y. has committed to a 25% reduction in avoidable hospital use over five years. Having some skin in the game is another feature in common with block grants.)

It’s not a complete solution, but it acknowledges the fact that as long as the States are spending “free money” from Washington they are likely to be less careful than if it were their own.  National healthcare systems will always include a percentage of people whose needs will be subsidized by others. Republican misgivings are centered around the inefficiencies of direct government provision.  Ideally, they would like to separate welfare spending from purely private spending.

Even when such a separation is possible there are potential benefits to be derived from pushing purchasing decisions closer to the user so that meaningful consumer choice is possible.  This applies not only to individuals, but to government bodies.  Moving healthcare decisions back to the States is a key idea in the Health Care Compact.  It may also make economic sense.

That Danged Cost Curve


Only two years ago Walter Jessen of Highlight Health quoted the Kaiser Family Foundation’s fearless forecast that  Obamacare would reduce insurance premiums.

The Kaiser Family Foundation report, based on information available from 17 states and the District of Columbia that have publicly released comprehensive data on rates or the rate filings submitted by insurers, offers a preview of how premiums for various coverage levels will vary across the country and how much consumers will pay with or without available tax credits.

The analysis compares the healthcare premiumsin the largest cities in each of the 17 states plus DC for young individuals, families of four, and elderly couples in various circumstances to illustrate the insurance rates they might pay. The study also reported premium costs after tax credits for lower income consumers.

“While premiums will vary significantly across the country, they are generally lower than expected,” the study concluded. “For example, we estimate that the latest projections from the Congressional Budget Office imply that the premium for a 40-year-old in the second lowest cost silver plan would average $320 per month nationally. Fifteen of the eighteen rating areas we examined have premiums below this level, suggesting that the cost of coverage for consumers and the federal budgetary cost for tax credits will be lower than anticipated.”

It didn’t turn out that way.  Premiums have risen to historical highs and show no sign of stopping.  Louise Radnofsky and Stephanie Armour of the Wall Street Journal write that despite the president’s confident assurances and the efforts of state regulators to persuade insurers to moderate their requests insurance premiums are going up across the country by double-digits.

At a July town hall in Nashville, Tenn., President Barack Obama played down fears of a spike in health insurance premiums in his signature health law’s third year.

“My expectation is that they’ll come in significantly lower than what’s being requested,” he said, saying Tennesseans had to work to ensure the state’s insurance commissioner “does their job in not just passively reviewing the rates, but really asking, ‘OK, what is it that you are looking for here? Why would you need very high premiums?’”

That commissioner, Julie Mix McPeak, answered on Friday by greenlighting the full 36.3% increase sought by the biggest health plan in the state, BlueCross BlueShield of Tennessee. She said the insurer demonstrated the hefty increase for 2016 was needed to cover higher-than-expected claims from sick people who signed up for individual policies in the first two years of the Affordable Care Act.

Several regulators around the country agree with her, and have approved all or most of the big premium increases sought by the largest health plans in their states for the new sign-up season that begins Nov. 1.

The price increases are expected to affect the presidential elections in 2016.  The WSJ article continues, “the upsurge is likely to be a big talking point not only during the three-month enrollment season, but through the 2016 campaigns, where GOP opponents of the law are expected to use it as a defining issue against their Democratic rivals.”

A number of reasons have been given in order to explain this sudden climb in health insurance rates.  The first reason given  is ‘because the insurance companies are so greedy’.  The second may be described as ‘fulfilling pent-up demand from so many years neglect’.  MPRNews tries to argue that the price increases are caused by the insufficient regulation of greedy companies.

Walker argues that regulation is driving up health care costs. But new research strongly suggests regulation is holding premium prices down.

Pinar Karaca Mandic, an associate professor in the University of Minnesota's School of Public Health, led a study comparing premiums in states like Minnesota, where regulators can reject rate increases, and those like Wisconsin, that don't review prices.

From 2010 to 2013, Mandic said, premium increases in states with strong prior approval processes were 10 percent lower than in states where premium increases are not scrutinized.

"To us that was big," Mandic said. "We were not necessarily surprised that states with prior approval authority had lower growth in premiums, but we were surprised by the magnitude."

But Michigan’s regulators approved the price hikes just the same.  They offered another excuse however: pent-up demand. JC Reindl of Governing says:

Some Michiganders who buy health insurance on the individual market will face double-digit rate hikes next year under rate changes approved by state regulators.

Citing the high costs of specialty drugs as well as pent-up demand among the newly insured, the state's largest insurer -- Blue Cross Blue Shield of Michigan -- received permission to raise its premium rates 11.4% for individual policies in 2016. And its Blue Care Network health maintenance organization will raise individual rates 9.7%. Both entities combined cover 310,000 people.

Last year, the state approved a 9.7% hike, on average, for Blue Cross marketplace plans.

"We've had some pent-up demand," said Rick Notter, director of individual business at Blue Cross. "You've had a lot of people who couldn't get coverage before, and now people are going to the doctor and getting things taken care of that maybe they had put off for years."

But neither of those two factors are cited by the American Academy of Actuaries’ Health Practice Council report “Drivers of 2016 Health Insurance Premium Changes” names the other causes as responsible for the higher prices.

As states begin releasing information on 2016 premium rates and comparisons are made to 2015 rates, it’s important to understand the factors underlying the changes,” said Academy Senior Health Fellow Cori Uccello. “The Academy’s new issue brief provides insights into the important trends and changes that will be incorporated into 2016 premiums and whether these contribute to upward or downward pressure on rates.”

  • The drivers of health insurance premium changes for 2016 include:

  • Underlying growth in health care costs, including increased spending for medical services and prescription drugs, especially as more high-cost specialty prescription drugs come to market.

  • The scheduled reduction in the ACA’s temporary reinsurance program, which means less of an offset to insurers’ costs of higher-cost enrollees.

  • The incorporation of insurer experience regarding their 2014 and 2015 enrollee risk profiles into 2016 assumptions.

  • The ACA provision expanding the small group market to include employers with 51-100 employees.

Several things stand out in the actuaries’ report.  The first is the increases are due to the “underlying growth in health care costs”.  Obamacare has not “bent the cost curve” in any meaningful way.  The second is that prices are rising to their real level after the artificial suppressant of Obamacare bailouts starts to expire.

REDUCTION OF REINSURANCE PROGRAM FUNDS. The ACA transitional reinsurance program provides payments to plans in the individual health insurance market when they have enrollees with especially high claims, thereby offsetting a portion of the costs of higher-cost enrollees. This reduces the claim costs that insurers expect to pay, allowing them to offer premiums lower than they otherwise would be. Funding for the reinsurance program comes from contributions required by the ACA from all health plans, including not only plans in the individual market, but also those in the small and large group markets, as well as self-insured plans. These contributions are then used to make payments to ACA-compliant plans in the individual market. … the program sunsets after 2016

As the reinsurance funds decrease, there is corresponding upward pressure on premium rates, which will continue into 2016. For 2016, the reinsurance program will reimburse insurers for 50 percent of an individual’s health claims between $90,000 and $250,000, which would likely reduce net claims by about 4 to 6 percent. This compares to the rate reduction in 2014 of 10 to 14 percent and in 2015 of 6 to 11 percent. Insurers will be comparing the impact of these reinsurance parameters to those in their 2015 rates, which may have been based on the initially announced $70,000 attachment point or the reduced $45,000 attachment point.1 The lower reduction in claims for 2016 relative to the parameters in 2015 translates to about a 2 to 6 percent increase in projected claims—with insurers using the initial 2015 attachment point on the lower end of this range, and those using the lower attachment point on the higher end of this range.

The current spike of price increases is not primarily due to a one time factor like “pent up demand”.   Rather the new prices are the result of the removal of a one-time handout from the Federal Government which artificially depressed the sticker price.  The newly elevated insurance premiums are a reflection of the true burden of Obamacare, after the artificial makeup is washed off.

The actuaries’ report was at pains to point out that the new rates are based on actual data.  The earlier projections were based on mere estimates. The report says there may be some uncertainties remaining, but based upon the new and more accurate data costs will be higher than heretofore believed.

When calculating 2015 premiums, insurers made assumptions regarding the characteristics of individuals obtaining coverage—based on demographics, health status, prior health insurance status, etc.—and what their medical spending would be. There was much uncertainty regarding these assumptions because insurers had only limited experience data on individuals who were newly insured in the post-ACA reform market in 2014. With another year of experience, insurers have gained more information regarding the risk profiles of their enrollee populations and how these compare to the profiles for the market as a whole, and will adjust their premiums accordingly, either up or down. …

2014 claims data may have needed to be adjusted to the extent pent-up demand caused a temporary increase in spending among the newly insured that wouldn’t be expected to continue at that level in the future. There is considerable uncertainty regarding the size of such adjustments.

It’s important to note that these underlying increases are net of cost-saving effect such as

  • Changes in provider networks (narrow networks)

  • Changes in provider reimbursement structures (value payments)

  • Benefit package changes (deductibles) etc.

Despite all these, prices are going up.  Moreover, while the authors of the actuaries’ report are at pains to point out that new data can still affect future rates they can affect them in both direction.  Prices can decline from the 2016 filings, but equally they may need to rise even further.  Given these developments, how likely is it that the Kaiser Family Foundation’s fearless forecast of 2013 that Obamacare will reduce premiums can actually come true?  Clearly such a prediction is less likely in the light of the data now available.

Obamacare’s more modest claim is expressed by the Sun-Sentinel’s Ron Hurtibase. “Obamacare premiums to rise 9.5 percent, but costs will go down for subsidized plans.”  It concedes the cost of the underlying product is rising, but certain groups will pay less because part of the cost will be paid for by “other people’s money” -- transfer payments from taxpayers.

Prepare to pay an average of 9.5 percent more for your Obamacare health insurance plan next year if you don't qualify for federal subsidies. But consumers who qualify for subsidies and choose the most popular plans should see significant savings.

Florida's Office of Insurance Regulation on Wednesday announced that premiums for individual major medical plans sold on and off the federal exchange would increase an average of 9.5 percent beginning Jan. 1.

Yet, premiums will decrease significantly for individuals and families in most counties who qualify for federal subsidies and buy the most popular mid-priced "Silver" plans. That's largely because federal subsidies will increase to offset the premium hikes.

This is a dubious achievement totally different from the promise to “bend the cost curve”.  It’s an admission that, although the costs have rising globally, they have been reduced locally through the application of federal funding.  Of all the unfulfilled goals of Obamcare (“If you like your doctor you can keep your doctor, etc”)  the most damaging deception of all was promising “affordable care”.  To the country as a whole it is nothing of the sort.  That will become increasingly hard to deny in 2016.

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 Ghra