Tag Archives: insurance exchanges

Running from a Negative Image

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Corporations engage in rebranding for a variety of reasons.  Often they are trying to hide from past shortcomings or wipe away a negative image.  Phillip Morris attempted to change its image by changing its name and logo to Altria in 2003.  More recently after emerging from bankruptcy, General Motors began selling itself as “the New GM” with fewer models, stronger models, and greater efficiencies.  Rebranding is either accompanied by a change in the product being sold or it’s simply an attempt to escape a bad image. 

A January 16, 2013, post on the HealthCare Blog from HHS Secretary Kathleen Sebelius (http://www.healthcare.gov/blog/2013/01/affordable-insurance-countdown.html ) provides a good example of rebranding.  One of the key elements in the legislation is the establishment of “American Health Benefit Exchanges,” that will serve as a mechanism for individuals to purchase qualified insurance plans.  Called “exchanges” from the beginning of the debate, Sebelius has now introduced new language referring to them as the “new Health Insurance Marketplace,” or simply “Marketplace.”  A newly redesigned website (www.Healthcare.gov) has expunged all reference to exchanges and is using the term marketplace exclusively. 

So, what’s the problem with these changes, you ask?  It’s just marketing.  No, it’s not just marketing.  It’s putting lipstick on a pig.  It’s still a pig.  Normally, when private companies reintroduce a product, rebrand it, there is some change.  The product is always marketed as “new, improved, redesigned, or updated.”  There are no such changes in the exchanges.  They’re still the same mechanism as envisioned in the original legislation, except now 25 states have said that they will not create their own exchange.  Instead, they will let the federal government set them up, run them, and spend billions of dollars in the process.  This in my opinion is a pretty smart move. 

Let’s be clear.  These exchanges are not marketplaces.  As established these exchanges are required to undertake activities that are not typically a part of an open marketplace, who can buy, who can sell, what is available, and the price that is charged.  Specifically:

  • The exchanges must screen all applicants to determine if they are eligible to participate.  This requires the exchange administrators to have the prospective participants employment records, including income, insurance status, availability of employer sponsored insurance, number of dependents, and the same information on other members of the household (in particular, the spouse).  Additionally, the exchange must keep track of any changes in employment information in order to determine eligibility for government subsidies. 
  • The exchanges must certify and rate plans according to HHS guidelines to ensure that they are qualified.  This means that to qualify as an insurance option, a plan must meet certain standards as defined by HHS, including a required benefit package and pricing.  If premiums are determined to be too high, the exchange can refuse to include the plan in its offerings.  The freedom to determine the product being sold and its price is determined solely by the government. 
  • The exchange must provide this information to the government and the applicant’s employer. 

No wonder so many states are not eager to join the federal government in setting up these highly regulated insurance pools.  No wonder that Secretary Sebelius is changing the name of one of the centerpieces of ObamaCare.  No more popular now than the day it was signed into law, the Administration is desperately trying to rebrand one of the main components of the legislation, hoping that by changing what it’s called, we will suddenly see the exchanges as marketplaces.  Let’s hope that Americans are smart enough to see this ruse for what it is, putting lipstick on a pig. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

OBAMACARE: FLAWED FROM ITS INCEPTION

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Remember when Nancy Pelosi said, “But we have to pass the [health care] bill so that you can find out what is in it.”  Well, they passed it.   We’re finding out what’s in it.  And there’s a lot not to like.  This sentiment is not based on my ideological stance against big government.  This legislation is flawed and Republican opposition or not, it needs to be fixed if there is any chance of a successful outcome.  It is understandable that there are problems.  The bill was cobbled together in the first place to ensure the required votes for passage (220-215 in the House without a single Republican vote).  The House had to accept the Senate version in its entirety because of the loss of the Massachusetts seat to the Republicans.  What we have is a document with 8 glaring problems that will be its undoing unless they are addressed. 

  1. Weak individual mandate.  The tax penalty is small relative to the premiums.  The mandate lacks a strong enforcement mechanism: no garnishing of wages, no attaching assets, no jail time.  The only hammer is a lien on over-withholding.  The lesson here is don’t expect refund if you don’t have insurance.  If you plan to forego insurance, make sure you withhold only what you will owe in taxes.   The result is an incentive to game the system.  In other words, don’t buy insurance until you absolutely need coverage and then drop it when you don’t.  This will create adverse selection in insurance pools with only sick people purchasing insurance and premiums will continue their upward march. 
  2. Disruptive employer mandate.   Firms with more than 50 full-time workers (defined as those who work more than 30 hours per week) are required to provide affordable insurance for their employees.  Those that don’t are subject to a $2,000 fine per worker.  The incentive exists to reduce current workers to part-time status, and only hire part-timers in the future.  Fully, one-third of the restaurant and hospitality industry (with unskilled, low wage employees) will make the shift to part-time labor.  Papa John’s, Carl’s Jr, Olive Garden, Red Lobster, Kroger, Hampton Inn, Sheraton, Holiday Inn, and even the College of Allegheny County have already announced their intentions to limit worker hours.  Welcome to the era of the 28-hour workweek. 
  3. Ambitious Medicaid expansion.  The legislation makes Medicaid eligibility uniform across the country at 138% of the federal poverty level (approximately $30,000 for a family of four).  Because establishing eligibility standards has historically been a state’s responsibility, they vary wildly from a low of 17% of FPL in Arkansas to as much as 285% in Minnesota.   The impact of the expansion would have relatively little impact in some states and result in significant increases in state spending in others.  Texas, for example, would see about a billion dollar per year increase in state obligations to the program.  The Supreme Court ruled that the expansion was voluntary, so as many as 17 states may choose to forego expansion.  Instead of covering an additional 18 million nationwide, the expansion will add only about 11 million. 
  4. Complex insurance exchange rules.  States were expected to set up and finance their own insurance exchanges to provide coverage for uninsured residents.  These exchanges require a massive amount of information to verify user identity, certify health plans, and provide a platform for individuals to shop and purchase plans.  The systems must be able to access employment information and IRS files to determine an individual’s eligibility for subsidies.  The complexity is enormous and states do not have to comply.  They can simply sit back and let the federal government do it for them.  Sixteen have already said that they will follow that route.  There is a potential problem if the states don’t act.  The subsidy is clearly available if insurance is purchased from a state-level exchange.  Any mention of subsidies in federal exchanges is glaringly omitted from the legislation.  Expect litigation. 
  5. Medicare spending cuts.  The Congressional Budget Office (CBO) reports that the law will cut Medicare spending by $741 billion over the next ten years.  This “savings” will be used to fund the Medicaid expansion and the state-level exchange subsidies.  CBO scoring of the law indicates that these same dollars will also be used to shore up the Medicare Trust Fund.  But as any first year economics student knows, every dollar has an opportunity cost.  If spent on Medicaid coverage, it can’t be spent to save the Medicare Trust Fund.  In other words there is no “savings.”  The result will be that by the end of the decade, 1 in 7 hospitals will drop Medicare and more physicians will refuse to take new Medicare patients (already 1 in 3 do not). 
  6. Spending continues to rise.  A bill that was promised to “bend the cost curve” falls woefully short.  Currently, health care spending at 17.6% of GDP will approach 20% by the end of the decade.  Premiums will continue to rise, especially for the young who will be pooled with their elders and pay substantially more for their insurance than is actuarially fair.  Many will opt out, choosing not to buy insurance, but rather pay the tax penalty (or not), and insurance premiums for everyone who does buy insurance will be higher. 
  7. Not universal coverage.  The CBO estimates that at least 30 million will not have insurance coverage, about 10% of the non-elderly population.  States opting out of Medicaid, the problems with subsidies in the federal exchanges, and widespread gaming are likely to drive that number up substantially. 
  8. Does not improve access.  Nothing in the legislation addresses the current and future physician shortage.  Basic economics tells us that when you increase demand and do nothing to supply, prices go up or if they don’t, availability lags.  The law has a backup plan for Medicare when this happens.  It’s the Independent Payment Advisory Board (IPAB).  With Medicare price controls as their only tool, seniors can expect at best bottlenecks in their access to care.  At worst, the low hanging fruit is end-of-life care.  (If you want to read more on this topic go to https://blogs.baylor.edu/jimhenderson/2012/10/15/will-obamacare-lead-to-death-panels/). 

ObamaCare is a flawed document.  The Democrats were in such a hurry to pass it that they forgot the fundamental tenant of medical care: First, do no harm.  Well, we’re stuck with it, so what do we do?  The current makeup of body of lawmakers does not bode well for compromise.  All too often with the leadership we have, it’s either “my way or the highway.”  They say that we deserve the leaders we elect.  If that’s true, I’m fearful for the Republic. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.

States May Still Have The Last Say In The Matter of Healthcare Reform

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In an interview with ABC’s Diane Sawyer, House Speaker John Boehner seemed a bit confused on what his stance on the GOP’s promise to repeal ObamaCare in the new session.  The transcript of the interview shows his indecision. 

SAWYER: A couple of other questions about the agenda now. You have said next year that you would repeal the health care vote. That’s still your mission?

BOEHNER: Well, I think the election changes that. It’s pretty clear that the president was reelected, ObamaCare — is the law of the land. I think there are parts — of — the healthcare law that — are going to be very difficult to implement. And very expensive.  And as — the time when we’re trying to find a way to create a path — toward a balanced budget — everything has to be on the table.

SAWYER: But you won’t be spending the time next year trying to repeal ObamaCare?

BOEHNER: There certainly may be parts of it that we believe — need to be changed. We may do that. No decisions at this point.

A Boehner spokesperson quickly responded to the comments saying, “While ObamaCare is the law of the land, it is costing us jobs and threatening our health care.  Speaker Boehner and House Republicans remain committed to repealing the law.”

Should we be expecting a drawn out battle over ObamaCare, or should the GOP simply get over it? 

Let’s examine reality.  Regardless of what Congress does, the battle over ObamaCare is far from over.  The next step in the reform process is just beginning, implementation.  The two most important pieces of the new law are the creation of the insurance exchanges and the expansion of Medicaid, both state responsibilities. 

Beginning January 1, 2013, there are 30 states with Republican governors who are in no mood to cow tow to federal pressure to stand in line and play nice.  States are not obligated to either set up their own exchanges or expand Medicaid.  The law made it clear that if states refused to set up exchanges, the federal government would.  At this time these Republican governors do not seem to be in any hurry to spend their states’ tax dollars to set up their own exchanges.  It’s not just Republican governors either.  Only 17 states met the November 16 deadline to declare their intentions to establish their own exchanges; so few that the government has extended the deadline by 4 weeks to give them more time to reconsider. 

The federal government faces a multitude of problems in this situation.  The law does not provide appropriations for the federal government to establish exchanges and appropriations’ bills must originate in the Republican controlled House.  Additionally, there is some question whether the subsidies making insurance affordable for many American families is legal in the federal exchanges.  The law did not provide for subsidies in the section outlining how federal exchanges would work.  The IRS has ruled that subsidies are legal in federal exchanges.  Expect litigation. 

The Supreme Court in its rewriting of the legislation provided states with an option in the case of Medicaid expansion.  Ignore it completely.  Many of the Republican governors have already said that they will not expand Medicaid. 

State-level action is just one roadblock to successful implementation of ObamaCare.   There are also several design flaws in the law that must be corrected for it to have any chance of success.  I’ll discuss the flaws in my next blog entry. 

The opinions expressed in this blog post are mine alone, and do not reflect the opinions of Baylor University.   Baylor is not responsible for the accuracy of any of the information provided in this post.