GovCare troubles reflect a more basic problem

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Around the time of the mid-term elections in 2014, polls showed a spike in public dissatisfaction with Obamacare (or GovCare as we call it). Authorized by the massive Affordable Care Act (ACA) that was enacted in 2010 without a single Republican vote, this program to expand government control over the healthcare industry was never forthrightly explained to the general public. Numerous problems surfaced in the course of implementation, which reflected fundamental design deficiencies as well as a poorly-executed rollout. Although convinced that President Obama would block any major changes to GovCare, we surmised that the path forward might be a leading issue in the 2016 elections. Postelection update: GovCare,
12/8/14.

Problems with GovCare have continued, as will be discussed, and negative sentiment as well. Public approval of healthcare law, realclearpolitics.com, chart for
10/1/14 to 5/10/16.
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However, it’s hard to keep the public focused on any given issue for long, especially if the details are complicated, and the fervor of opposition seems to have subsided.

GovCare supporters point to achievement of the program’s prime objective, while ignoring problems or offering big government solutions thereto. GovCare critics have failed as of yet to offer a commonly accepted and lucid alternative.

A. HCI coverage is up – The number of Americans without healthcare insurance (HCI) stood at over 15% of the population before the ACA was enacted. By 2015 this figure was down to 9%, which the administration touted as a milestone. Number of uninsured in US dropped below 10% for first time in 2015, Louise Radnofsky, Wall Street Journal, 5/17/16.

Health and Human Services Secretary Sylvia Mathews Burwell said 2015 was “the first year in our nation’s history that fewer than 1 in 10 Americans lacked health[care] insurance, and the report documents the progress we’ve made expanding coverage across the country.”

The reduction in uninsured Americans was achieved by (a) raising the earnings ceiling for Medicaid eligibility, and (b) organizing government-run exchanges on which higher income workers whose employers did not provide HCI coverage could purchase qualifying policies offered by private insurance companies. (Some non-profit co-ops were organized to sell HCI as well; many of them failed after the initial government financial assistance ran out.)

The insurance exchange operations bolster the impression that HCI coverage is being expanded by offering Americans more choices versus simply providing more taxpayer-funded assistance. But in fact, many purchasers of the exchange policies are receiving substantial government subsidies – and probably wouldn’t buy the policies if they were paying full price. More young people signing up for Obamacare, Robert King, Washington Examiner,
12/23/15.

[Ron] Pollack [executive director of Families USA] said it may make financial sense for younger people to sign up for Obamacare *** "The comparison between what they would pay for a penalty and what they would pay [after] a substantial tax credit subsidy will find that it makes good sense from a value perspective to buy insurance," he said.

Moreover, much of the reduction in the number of people without HCI was achieved by making more people eligible for Medicaid (at taxpayer expense) versus by boosting HCI purchases on the exchanges. [2014’s] rates of uninsured by state before and after Obamacare, John Kiernan, wallethub.com,
11/9/15. (We were unable to find comparable data through 2015; perhaps it hasn’t been compiled yet.)

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What accounts for the 28+ million Americans who remain uninsured? Here’s a rough breakdown by category. Number of uninsured in US dropped below 10%, op. cit.,
5/17/16.

Other estimates have shown that the largest share of the remaining uninsured are people who could get coverage under the law but [have] chosen not to. Smaller groups are people who are eligible for Medicaid but haven’t enrolled, and immigrants excluded from coverage by the law [roughly 7.5 million according to an underlying source]. The smallest share, translating to about three million people, are people who live in states that opted not to expand Medicaid under the law.

B. Systemic problems – The hallmark of a successful insurance operation is that premiums for coverage are based on the known risk factors. That’s why young male drivers pay very high auto insurance premiums, for example, so that the insurance companies won’t incur big losses for covering them.

A very different approach was used in setting the ground rules for HCI policies sold on the exchanges. Coverage can’t be refused or priced higher due to preexisting conditions – gender differences in healthcare costs must be ignored – the ability for insurers to charge more for coverage issued to older vs. young individuals is unrealistically limited – individuals are subject to a fine if they don’t acquire HCI, but they can nevertheless choose not to do so in any given year.

Critics predicted from the start that HCI costs for individuals would soar as older/sicker people acquired coverage while younger/healthier people chose not to do so. HCI insurers would find it necessary to keep asking for higher rates, which would drive premium costs even higher and further depress participation, leading to an “insurance death spiral” that would force insurers to keep reducing the coverage offered (narrow networks, higher deductibles & co-pays) and/or stop participating in the HCI marketplaces. The unstable economics in Obama’s health[care] law, Greg Ip, Wall Street Journal,
8/17/16.

By incentivizing insurers to misprice risk, the law has created an unstable dynamic. Total enrollment this year will be barely half the 22 million the Congressional Budget Office projected just three years ago. Premiums, meanwhile, are set to skyrocket, which will further hamper enrollment. It isn’t clear how this can be fixed.

Despite government subsidies provided for many of the individual HCI plans being issued and various other efforts that have been made to “sweeten the pot” for insurers, most insurers have been losing money on the exchange business and three big ones (UnitedHealthcare, Humana, and most recently Aetna) have announced plans to significantly pull back in this area. One in six Obamacare customers could lose plans, Paige Winfield Cunningham & Robert King, Washington Examiner,
8/17/16.

It's hard, if not impossible, to calculate precisely how many people will see their Obamacare plans canceled next year, since neither insurers nor the Centers for Medicare and Medicaid Services have comprehensively reported insurers' market share by state or county. But it could be about one in six Obamacare customers [total of about 11 million], or 17 percent, using enrollment numbers reported by insurers.

Given the adverse trend at work, it doesn’t seem like a big stretch to conclude that the HCI exchange business will collapse unless major changes are made. Aetna’s Obamacare pullout means the “insurance death spiral” has arrived, Sally Pipes, cnbc.com,
8/17/16.

Americans searching for plans on Obamacare's exchanges are finding increasingly slim pickings. For instance, Blue Cross Blue Shield of Minnesota recently announced it will only offer "narrow network" plans that limit which doctors and hospitals enrollees can see.

Insurers that haven't pulled out of Obamacare are requesting premium hikes averaging 24 percent next year. And some states have it far worse. Many Georgians could see a hike of 65 percent. The 600,000 Texans enrolled in Blue Cross Blue Shield may face a 59 percent premium increase.

We doubt this country’s political leaders will allow a death spiral for the HCI exchange business, however, as they would then have to justify the loss of subsidies that millions of Americans are currently receiving. There are two basic approaches to avert such a result; one or the other will probably be implemented starting in 2017.

C. Do more – It’s arguable that the current situation was foreseen all along, in that supporters never expected GovCare to represent anything more than a way station on the road to a single payer (government run) healthcare system. Obamacare is a Trojan horse for government-run healthcare starting in 2015, Emily Miller, Washington Times, 3/19/14.

“From the very beginning, they wanted a single-payer system of healthcare,” Sen. Marco Rubio told me on the “Shooting Straight with Emily Miller” radio show. “They obviously didn’t think they could get that far, so they went with Obamacare.” The Florida Republican said the current trajectory will lead to insurance companies in the exchanges making up their losses from this year with much higher premiums next year, which is when the left will pounce. “What they want to do is go to the public and say, ‘Look, these exchanges prove these insurance companies are greedy. That’s why it’s unaffordable. That’s why we need the government to be the single health[care] insurance company for the whole country. Let’s put everyone on Medicare.’”

During the Democratic presidential primaries this year, Bernie Sanders proposed to build on GovCare by implementing a single payer (“Medicare for all”) system. Hillary Clinton countered that this might be moving too far, too fast, but she has come out in favor of a “public option” and various other changes that would lead to essentially the same result.
https://www.hillaryclinton.com/issues/health-care/ accessed 8/20/16

Make a “public option” possible – let people over 55 buy into Medicare – bring down out-of-pocket costs like copays and deductibles – reduce the cost of prescription drugs – incentivize states to expand Medicaid – expand access to affordable healthcare to families regardless of immigration status.

The president has chimed in, characterizing a public option as a means of “giving consumers more affordable options while also creating savings for the federal government." Obama calls for “public option” for Obamacare, Tami Luhby, cnn.com,
7/11/16.

One might infer that government-run insurers are more cost efficient than private insurers, but this seems doubtful. Obamacare’s public option is no longer defensible, Megan McArdle, bloomberg.com,
8/19/16.

The public option was best sold as a way to keep insurers from taking excess profits off of a customer base that was required to buy their product. But as it turns out, that’s the exact opposite of the problem we actually have. Which makes it a little mystifying that the public option is still seen as the solution.

The real rationale for a public option is that government insurers could write HCI for individuals that the private insurers can’t cover on a profitable basis – thereby passing the excess cost on to taxpayers. The big Obamacare bubble, Bryan Rotella, thehill.com,
8/9/16.

With more doctors jumping ship and healthy patients choosing to take the annual penalty rather than buy extremely overpriced exchange plans, what's left to avoid a healthcare economic freefall? President Obama and Democratic nominee Hillary Clinton both have recently touted a renewed push for a government funded "public option." What irony, as the "public option" looks an awful lot like the government bailout of the mortgage banks. Only here the big health[care] systems and insurers are too big to fail.

Clinton’s other healthcare proposals would also contribute to higher government outlays for healthcare – which already consume over one-quarter of the total federal budget. We are not convinced of the need for even more government spending on healthcare programs, and this consequence has been shamelessly glossed over by proponents of an expanded government role.

D. Do better. – The Republican mantra remains that GovCare must be repealed and replaced, but that’s just political posturing. The real proposal at this point is to modify GovCare and the government’s other healthcare programs so they will hopefully work a bit better.

GOP proposals re healthcare (about two dozen of them) have been outlined by House Republicans in their pre-election agenda. “A better way,” section 5,
7/25/16.

Americans without access to employer coverage, Medicare or Medicaid would qualify for “a refundable tax credit to help buy health[care] insurance in the individual market. (Current HCI subsidies also come in the form of tax credits versus budgeted outlays.)

Some of the more popular features of GovCare would carry over, including the ban on denying HCI coverage due to preexisting conditions and the rule that young people can remain on their parents’ plans until they are 26.

A cap on the tax exemption for government-provided HCI coverage would replace the 40% excise tax on Cadillac plans, greater use of healthcare savings accounts (HSAs) would be encouraged, and sales of HCI across state lines would be facilitated.

“Reasonable limits” would be placed on medical malpractice awards in excess of actual damages.

High risk patients could not be charged more than standard rates, but the states would be given greater flexibility to authorize lower rates for younger patients and tailor their Medicaid programs to meet local needs.

Starting in 2024, Americans enrolling in Medicare would be afforded “the opportunity to choose from an array of competing private plans alongside traditional Medicare.”


Donald Trump has offered a somewhat different list of ideas (which he would urge Congress to implement).
https://www.donaldjtrump.com/positions/healthcare-reform, accessed 8/20/16.

End the individual mandate (fine for not acquiring HCI) – facilitate HCI sales across state lines – allow full tax deduction of HCI premiums – review basic options for Medicaid and work with states to ensure that those who want healthcare coverage can have it -- expand use of HSAs – encourage more price transparency from healthcare providers – block-grant Medicaid to the states – permit importation of “safe and dependable drugs,”

Some of the foregoing ideas are better than others, but they all deserve thoughtful consideration. We are certainly more attracted by the GOP’s “do better” approach to fixing GovCare than by the other side’s “do more” approach (Section C).

A word of caution seems in order, however, re the apparent willingness of Republicans to embrace a commitment of universal access to quality, affordable healthcare. Clearly, the cost involved cannot be quantified (if nothing else because terms like “quality” and “affordable” are inherently subjective), so how is it possible to determine whether this country can or cannot afford such a commitment? In our view, this issue can only be intelligently addressed in the context of an overall review of the fiscal problem that our political leaders have avoiding for years.

Experience has shown that advocates of government social spending typically underestimate the cost involved, and the birthing of GovCare was no exception. Déjà vu: scoring a healthcare bill,
10/12/09.

While the Affordable Care Act was being drafted, it was understood that the president would not sign any healthcare “reform” bill that was expected to increase the deficit. Happily, the Congressional Budget Office scored successive drafts of the ACA as modestly decreasing deficits. Here’s a summary of one such analysis (2010-2019, billions of dollars), which was sent to Senator Max Baucus in October 2009.

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We were skeptical of this analysis at the time, and felt vindicated later when the CBO abandoned its efforts to track the fiscal effects of GovCare – perhaps to avoid embarrassing admissions about how far off its initial estimates had been. Obama and the CBO – no longer “giddy”, Larry Elder, Townhall.com,
6/12/14.

**********FEEDBACK**********

#As the HCI market is not operating based on economic principles, there are no systemic cost constraints. Costs will keep surging, therefore, just as they have for SS and welfare. – SAFE director

#Healthcare insurance is not a "right," in my opinion, but our society seems to support healthcare access as a means to maintain social order, whether compassion is present or not.  The real issue is not cost, but defining the level (or quality) of care that will satisfy society’s standards. No one seems to have a good handle on this issue. My preference would be for charities to provide these services; they are closer to the problem and can operate on a facts and circumstances basis.

Coverage for pre-existing conditions is akin to issuing fire insurance policies for houses that have already burned down. That’s not insurance, it’s simply welfare. Let’s call a spade and spade and reject this verbal obfuscation.

We have become a nation of wimps, unwilling to accept individual responsibility or the consequences of bad decisions.  Schools can help, but ultimately, it’s up to the family and the individual. – Former insurance agent/financial planner.

#Excellent presentation of a troublesome subject this week! – Retired IBMer

#Really good write up.  Not an easy solution. Aren't there some countries with health[care] systems that cover all their citizens? Retired financial executive

Response: Numerous countries have universal healthcare, and what’s more they don’t spend nearly as much per capita as the US does. Care levels tend to be lower, however, and the cost savings are generally due to de facto rationing rather than greater efficiency. Also, higher status people typically get far better care than the hoi poloi, so the purported moral superiority of these systems is debatable. SAFE developed a HCI plan in 2009, which is still posted on the Healthcare page. The focus was on cutting costs for the benefit of all versus wrecking the overall system in order to benefit people that are arguably not getting their due.


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