The New Health Law Needs to Be Repealed, Expanded, and Replaced—So Long As It Doesn’t Have a Mandate

Last week’s State of the Union speech was notable because the President hardly mentioned the new health care reform law.

Avoiding what is supposed to be the centerpiece domestic accomplishment of President Obama’s first term stuck out like a sore thumb.

He said almost nothing because the Obama team simply doesn’t know what to say.

The fact is the Affordable Care Act (ACA) is generally unpopular, and its best-known provision, the individual mandate, is wildly unpopular.

Two years after passage and, the implementation of the law’s first steps all designed to build support, the public’s opinion of the law is unchanged and not good. The just out January 2012 Kaiser Health Tracking Poll leaves no doubt:

• Only 37% of those surveyed have a favorable view of the law.
• 44% have an unfavorable view of the Affordable Care Act.
• But even some of those who don’t like it don’t like it because it didn’t go far enough—31% of all of those surveyed want to expand the current law while 19% want to keep it in its current form. That’s a total of 50% that want to keep or expand it.
• 22% want it repealed outright and another 18% want it replaced with a Republican alternative—a total of 40%, fewer than want to expand it or keep it as it is.
• On the individual mandate, 67% have an unfavorable view of requiring everyone to buy coverage, while 30% have a favorable view of the requirement.
• While a total of 50% of those surveyed think the law should be kept or expanded, 54% say the Supreme Court should throw the mandate out, while only 17% say they think the mandate should be upheld.

So, let’s summarize. Only 37% have a favorable view of the law and 67% don't like the mandate. But 50% think the law should be kept as it is or even expanded.

No wonder Obama and his political team can’t figure out how to play this.

Perhaps even more intriguing is the dilemma the eventual Republican presidential nominee is about to find himself in—everyone of the candidates is telling voters lots of times a day that the first thing they will do as President is to get rid of "Obamacare."

For the Republican presidential candidates, that is a safe thing to say among Republicans—73% of Republicans have an unfavorable view of the ACA, while 62% of Democrats view it favorably.

But come the fall, when the eventual winner will need lots of independent voters, the Republican nominee will have to face the reality that only 40% of the overall electorate wants the ACA repealed or replaced.

Then Obama’s dilemma will have to become the Republican’s dilemma.

I guess the voters are telling us that to get a majority of support, the ACA needs to be repealed, expanded, and replaced—so long as it doesn’t have a mandate.

Important Research From Medicare Demonstration Projects: Almost Nothing Works

I will suggest that most of us believe the way to control health care costs, and at the same time maintain or improve quality, is to both use the managed care tools we have developed over the years, and perhaps more importantly, change the payment incentives so that both cost control and quality are upper most in the minds of providers and payers.

The Congressional Budget Office (CBO) has just released an important review of Medicare's results in testing those ideas. The news is not good.

From the CBO's blog post:

In the past two decades, Medicare’s administrators have conducted demonstrations to test two broad approaches to enhancing the quality of health care and improving the efficiency of health care delivery in Medicare’s fee-for-service program. Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly. Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

In an issue brief released today, CBO reviewed the outcomes of 10 major demonstrations—6 in the first category and 4 in the second—that have been evaluated by independent researchers. CBO finds that most programs tested in those demonstrations have not reduced federal spending on Medicare.

Looking at 34 disease management programs and care coordination programs, the research found "little or no effect on hospital admissions." The CBO went on, "In nearly every program, spending was either unchanged or increased relative to the spending that would have occurred in the absence of the program, when the fees paid to the participating organizations were considered."

Looking at the Medicare demonstration projects for value based purchasing, "Only one of the four demonstrations of value-based payment has yielded significant savings for the Medicare program. In that demonstration, Medicare made bundled payments to hospitals and physicians to cover all services connected with heart bypass surgeries, and Medicare spending for those services declined by about 10 percent. The other demonstrations appear to have resulted in little or no savings for Medicare."

The good news here is that when put on a budget, when the payment system was changed to create a downside if results weren't improved, one of the studies did identify "significant savings." But only about 10%.

Thirty years into managed care, the stark reality is that we aren't yet smart enough to get things under control.

Medicare is now about to test the Accountable Care Organization (ACO) concept. In an earlier post, Why ACOs Won't Work, I argued that this approach couldn't work unless we change the game--we change how providers are paid so that there is a significant downside if results aren't achieved. I said, "Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population." At least one of the studies the CBO is citing would appear to support that notion--but only one.

When Medicare first announced their ACO demonstration project, the providers all howled--they were being put at too much risk for too little return. The feds then lowered the bar by improving the odds there could only be winners and not losers––eliminating participant risk in the first of two ACO tracks. The second track continues to carry risk but offers larger potential rewards.

Medicare policymakers may have had no choice but to placate the providers in order to entice them into the new system in order to get it off the ground. That said, Medicare's strategy of overpaying HMOs to entice them into the Medicare Advantage business hasn't exactly worked out toward the goal of lowering costs.

This CBO study makes it very clear that ACOs with little risk, just layering these tools over the top of the fee-for-service system, is a pointless exercise. When we just provide incentives to do the right thing, we don't do the right thing.

What we need to be testing and perfecting is the combination of the best tools we have and significant risk--changing the payment incentives for real.

Unless ACOs, or any other managed care scheme for that matter, start out paying less, and the tools we have are then used to achieve a profitable result, there is no evidence there will be savings.

Will the Feds Be Ready With the Fallback Insurance Exchanges by October 2013?

Insurance exchanges have to be up and running in all of the states by October 2013 in order to be able to cover people by January 1, 2014.

If the states don't do it, the feds have to be ready with a fallback exchange. States have to tell HHS if they intend to be ready by January 1, 2013.

The White House just released a report saying that good progress is being made in 28 states. That begs the question, what about the other 22?

Writing in Kaiser Health News, Julie Appleby recently reported that HHS has let just two contracts toward building the federal fallback exchanges. One is for $69 million to build the data hub so that federal agencies can share data with the exchanges--the IRS for example. The other contract is more directly related to building federal fallback exchanges, a $94 million contract.

But in their progress report today, the administration said that they have already advanced $729 million to the states for exchange construction––17 of those states receiving $1 million, or less. So, more than $700 million has gone to 33 states--and that is just federal money to date.

If the feds are going to be ready to launch 10 or 20 federal fallback exchanges these numbers just don't compute. It is going to take a lot more than the $94 million HHS has contracted for to launch that many federal exchanges in the states that refuse to do so.

HHS says they will be ready. But they have been awfully secret over just how they are going to have lots of exchanges ready to go in 20 months. It is hard to see how that $94 million contract is more than just a down payment.

Whatever the threats are to the Affordable Care Act from the 2012 elections and the Supreme Court ruling expected by July, the market has no choice but to spend lots of money and resources toward being ready on October 1, 2013. HHS has an obligation to tell the market more than "don't worry about us." Market players are investing considerable resources and deserve to see the plan.

Right now, the numbers don't compute--the number of states that could well not be ready, the federal money being spent by states that say they will offer exchanges, and the much less money HHS admits to be spending for those that will not be ready.

Where's the plan?

I Hope Trustmark Tells HHS to Go Pound Sand

Today, the Department of Health and Human Services announced that, "Trustmark Life Insurance Company has proposed unreasonable health insurance premium increases in five states—Alabama, Arizona, Pennsylvania, Virginia, and Wyoming. The excessive rate hikes would affect nearly 10,000 residents across these five states."

The HHS statement continued, "In these five states, Trustmark has raised rates by 13 percent. For small businesses in Alabama and Arizona, when combined with other rate hikes made over the last 12 months, rates have increased by 27.2 percent and 18.1 percent, respectively. These increases were reviewed by independent experts to determine whether they are reasonable. In this case, HHS determined that the rate increases were unreasonable because the insurer would be spending a low percent of premium dollars on actual medical care and quality improvements, and because the justifications were based on unreasonable assumptions."

I hope Trustmark tells HHS to go pound sand.

Here inside the Beltway, there is this assumption that the health insurance market is not competitive and health insurance consumers--in this case small employers--are helpless without the federal government. From the HHS statement: "Before the Affordable Care Act, consumers were in the dark about their health insurance premiums because there was no nationwide transparency or accountability."

Baloney.

We can all have a vigorous debate about just how well the health insurance market has worked to control health insurance costs and readers of this blog know I haven't exactly been an insurance industry apologist on that score.

But anybody who thinks there is no "transparency" or no "accountability" in the small group market has never been there.

Small group carriers regularly see 30% of their block "churn" in a given year as they lose business to competitors. It is not unheard of for an entire block to turn over every few years. There are tens of thousands of health insurance agents and brokers tripping over each other out in the market--their trade association claims 100,000 members. If the incumbent agent isn't continually "check bidding" for his customers that agent can be sure lots of his competitors will be knocking on that client's door with lower rate quotes.

There is no market in America any more competitive than the small group health insurance market. Does competition work to control costs? That's another story. But a lack of competition is not what ails the small group health insurance market.

I have no idea whether Trustmark's rate increases are reasonable or not, or whether they made mistakes in calculating them. I am certain they know they will lose lots of business if these increases are not competitive.

Is a 27% rate increase justifiable at a time when health insurance cost trend is at historic lows? I don't know--it depends where the rates started. My point is that knowing a carrier's rate increase percentage tells you nothing about whether that rate is reasonable or not. It is the absolute rate that matters. Maybe Trustmark erred in setting these rates in the first place and is now playing catch-up.

What matters to a health insurance buyer is not the rate increase or even the medical loss ratio, what matters is the price--which insurer has the lowest price for the same benefits.

Who will know whether the final price is reasonable or not? The small group customer who, upon getting a 27% rate increase, will demand the business go out to bid--presuming the agent hasn't already done that. It the rate is not competitive, the business will very quickly be moved to another insurer where it is.

This rate increase action by HHS is just political grandstanding as the Obama administration tries to sell a still unpopular law.

But it is dangerous grandstanding.

Let me tell you something you may find counterintuitive about the small group and individual health insurance markets. It is the little and often "inefficient" carrier that keeps the big guys honest. These guys often come in and out of markets necessarily undercutting the dominant players' rate base to get a foothold in the market. And, by the way, Trustmark is a mutual company owned by its policyholders. The big guys would like nothing more than to get rid of these little "pests" that upset the market order. And, HHS appears to be doing its best to comply.

This rate oversight action by HHS amounts to nothing more than the jumbo insurance company full employment act. If HHS thinks an oligopoly in the health insurance market, where only a very few big guys dominate the market, is the way to create competition, they are well on their way.

Unless Trustmark, and the little guys like them, just tell HHS to go pound sand.

2012: A Year of Huge Uncertainty in Health Care Policy

2013 may be the most significant year in health care policy ever.

But we have to get through 2012 first.

Once the 2012 election results are in there will be the very real opportunity to address a long list of health care issues.

If Republicans win, the top of the list will include “repealing and replacing” the Affordable Care Act. If Obama is reelected, but Republicans capture both houses of Congress, we can still expect a serious effort to change the law. Then there is the granddaddy of all problems, the federal debt. The 2012 elections could well prepare the way for entitlement reform—particularly for Medicare and Medicaid. Even if Obama is reelected, the 2013 agenda will include a serious debate about Republican ideas to change Medicare into a premium support system and block grant Medicaid to the states.

If the election is a draw with neither side able to unilaterally move their agenda—likely in the form of Obama still in the White House but facing a Republican Congress, the pressure to deal with the growing costs of Medicare and Medicaid as well as nagging concerns about the implementation of the Affordable Care Act will create an imperative for action in 2013.

That first year after a presidential election is the time when things can get done. After a long and drawn out campaign, that is the year that everyone expects action. With 2014 being another election-year and 2015 and 2016 years in the run-up to another four-year presidential election cycle, passing big legislation only becomes more difficult as time goes on.

What does this mean for 2012? Look for most health care action to be out on the campaign trail as both sides try to achieve a mandate to act in 2013.

That doesn’t mean 2012 won’t be short on drama.

The big show will be up at the Supreme Court starting in late March. Will the Supremes uphold the whole Affordable Care Act, tell everyone to come back in 2014 when someone is actually harmed by the individual mandate (citing the Anti-Injunction Act), throw the individual mandate out and send the law back to lower courts for a many months process deciding what else has to go, toss the Medicaid expansion, or some combination of all of the above?

About the only certain judicial path over whether and how the Affordable Care Act would be implemented is for the Court to uphold the whole thing. The alternatives could be any number of combinations that would present the market with a nothing short of an implementation nightmare.

Can you even imagine the run-up to full implementation on January 1, 2014 if President Obama were to be reelected, the Republicans were to capture both houses of Congress, and the Court overturned the individual mandate and any number of related items? The law would have to be fixed. A Republican Congress would want to “fix” it one way and Obama would be determined not to see the Affordable Care Act gutted, with neither side able to unilaterally advance a solution.

Or, we could have a majority of Republicans in the Congress, and a Republican President in the White House, that would certainly kill at least the budget related parts of the bill before Valentine’s Day 2013 no matter what the Court said—it would take 60 votes in the Senate to get rid of all of the law. That would leave a market that had already implemented the first elements of the law and was almost ready to implement the rest of a long list of huge new changes that would have just evaporated but still leaving some of the law's items dangling if the two sides couldn't find a way to work together.

Or, the Court could throw out the individual mandate and the related insurance elements of the new law with a Republican Congress and President eager to throw out the rest of it, needing only 51 Senate votes to get virtually all that was left.

Will the Supreme Court throw a wrench into the Affordable Care Act? I have no idea and I don’t see any evidence anyone else does either. The chances they could throw out the mandate and other key parts of the law look to be about as good as their upholding the whole thing or citing the Anti-Injunction Act in telling everyone to come back in 2014. Don’t underestimate the Court’s interest in not fiddling with the Anti-Injunction Act any more or less than any other part of the law they are going to review.

The first half of 2012 will be the quiet before the potential storm as we await the Supreme Court’s decisions.

If they uphold the law we will need to await the election. With Republicans poised to hold the House and capture the Senate, the real question looks to be whether President Obama will be reelected and therefore able to defend the Affordable Care Act with his veto pen.

If the Court throws out key moving parts in the law, the only way to avoid real market problems will be for the 2013 Congress and President to work together.

If this spring the Court cites the Anti-Injunction Act and tells both sides to come back in 2014, we will just have more uncertainty with nothing decided and the same Constitutional issues still festering.

And, then there are the still growing federal debt and the Medicare and Medicaid entitlement issues to be decided. The 2012 elections are setting up to be a referendum over Republican proposals to limit federal entitlement liabilities by implementing a Medicare premium support system as well as shifting responsibility for Medicaid to the states via block grants versus Democrats who will defend the traditional structure of these entitlements.

What will 2012 give us in 2013?