More Predictions of Rate Shock Because of the New Health Law

Last week, I reported on my informal survey of health insurance companies and their estimate for how much rates will rise on account of the Affordable Care Act ("Obamacare").

Today, there are press reports quoting the CEO of Aetna with their estimate. The Aetna estimate is worse than mine.

Conservative States: Do a Partnership Exchange? Expand Medicaid?

Should states build their own health insurance exchanges under the Affordable Care Act (ACA) ("Obamacare")?

Should states expand their Medicaid programs under the ACA?

These are the tough questions many, particularly conservative, states are now wrestling with. While it is too late for a state to now decide to build an exchange before the fast approaching launch date, it is still possible to build an exchange in partnership with the feds.

The Affordable Care Act: Ten Months to Launch "Obamacare"––Get Ready for Some Startling Rate Increases

What will health insurance cost in 2014?

Will the new health insurance exchanges be ready on time or will the law have to be delayed?

There Will Be Sticker Shock!
First, get ready for some startling rate increases in the individual and small group health insurance marketplace due to the changes the law dictates.

The Feds Will Administer the Insurance Exchanges for Twice What it Costs to Administer Medicare

The Obama administration just released another set of regulations, the "Draft Notice of Benefit and Payment Parameters for 2014."

Among many other things in the 373 pages, they have announced their proposed assessments to cover the cost of running the federal exchange.

In order for the feds to administer the new insurance exchanges, they have proposed a fee of 3.5% of premium on each insurance policy sold in the exchanges (page 224).

The 2012 Elections and 2013––We Face a Daunting To-Do List

The Affordable Care Act ("Obamacare") is now settled law.
It will be implemented. It will also have to be changed but not until after it is implemented and the required changes become obvious and unavoidable. We can all debate what those things will be (cost containment is on top of my list) but it doesn't matter what we think will happen––time will tell. 

There are and will be more lawsuits.
I wouldn't waste a lot of time worrying about those. Anyone in the market will do better spending their time getting ready for all of the change coming.

But, when will the Affordable Care Act (ACA) be implemented?
So far, only about 15 states say they want to implement health insurance exchanges. Some of those may not make the October 1, 2013 kick-off date.

Maybe now that it is clear the law will go forward, some of the conservative states who have said they would not build one will get into high gear rather than have the Obama administration do it for them. But they may not have enough time to be ready in less than eleven months.

Private Health Insurance Exchanges––Will They Save Money? Will the Idea Grow?

Private health insurance exchanges will save employers money but not make health insurance cheaper.

Because private health insurance will save employers money, they will grow.

Will Private Insurance Exchanges Reduce Health Insurance Costs?

There's lots of buzz these days about private insurance exchanges. The idea is to give employees more choice in purchasing their own individual coverage from a big menu of insurance companies and plan alternatives, and as a result, create more robust competition and thereby help control costs.

But I think private insurance exchanges will have just the opposite effect on the price of large employer health insurance plans.

Will Many of the Smallest Employers Circumvent the Affordable Care Act by Using Self-Insurance?

Not surprisingly, only about 10% of firms with fewer than 200 workers take advantage of self-insurance––and almost no very small groups (fewer than 50 workers) use the product. It just isn't worth it for these small employer groups to take the risk that they will either have too many claims or very big claims from their workers––that is what insurance companies are for.

Already, 96% of workers in firms with more than 5,000 employees are in self-insured health plans. For firms between 1,000 and 5,000 workers, 79% are in self-insured plans. For employers with 200 to 1,000 workers, the self-insured rate is 50%.

But with the bulk of the implementation of the Affordable Care Act (ACA) to begin in 2014, that may be about to change.

The Medicaid Controversy––The Republican Governors Should Put Up or Shut Up

Indiana, New Mexico, and Wisconsin are asking the federal government to exempt people making between 100% and 133% of the poverty level from the upcoming Medicaid expansion.

These Republican governors need to put up or shut up.

Ever since the passage of the Affordable Care Act (ACA), Republican governors have been clamoring for block granting Medicaid.

The Supreme Court ruled that a state doesn't have to accept the new Medicaid expansion money under the ACA.

Many Republican governors––all of them actually––were saying before the Court ruling that the Medicaid expansion was yet another unfunded federal mandate they could not afford. Now the Court has told them they don't have to do it.

Be careful what you wish for.

Romney Intends to Repeal “Obamacare” in 2013—Has He Thought Through the Unintended Consequences If He Does?

Romney says he will repeal “Obamacare” if he is elected. Given that this has been part of his platform from the beginning of the campaign he is entitled to do that if he wins.

I did not support passage of the Affordable Care Act (ACA) in 2010 because I saw it as an unaffordable entitlement expansion with no real hope of containing costs.

But the practical reality of killing the Affordable Care Act in 2013 is a different matter.

Obama vs. Romney: A Detailed Analysis of Mitt Romney’s Health Care Reform Plan

Let’s take a look at Mitt Romney’s Health Care plan using his own outline ("Mitt’s Plan") on his website.

Romney's approach to health care reform summarized:

• "Kill Obamacare" - There seems to be no chance Romney would try to fix the Affordable Care Act––he would repeal all of it.
• No new federal health insurance reform law - There is no indication from his policy outline that he would try to replace the health care reform law for those under age-65 ("Obamacare") with a new federal law--his emphasis would be on making it easier for the states to tackle the issue as he did in Massachusetts.
• Small incremental steps - His approach for health insurance reform for those under age-65 relies on relatively small incremental market ideas when compared to the Democrats big Affordable Care Act--tort reform, association purchasing pools, insurance portability, more information technology, greater tax deductibility of insurance, purchasing insurance across state lines, more HSA flexibility.
• Getting the federal government out of the Medicaid program - He would fundamentally change Medicaid by putting the states entirely in control of it and capping the annual federal contribution--"block-granting."
• Big changes for Medicare - Romney offers a fundamental reform for Medicare beginning for those who retire in ten years by creating a more robust private Medicare market and giving seniors a defined contribution premium support to pay for it.

Romney vs. Obama--Romney Would Kill "Obamacare"

“On his first day in office, Mitt Romney will issue an executive order that paves the way for the federal government to issue Obamacare waivers to all fifty states. He will then work with Congress to repeal the full legislation as quickly as possible.”

Romney vs. Obama: The Romney-Ryan Medicare Plan Compared to the Obama Medicare Plan—Who’s Telling the Truth on Medicare?

They both are and they both aren’t.

I’ve never seen a week in health care policy like last week. The media reports have to be in the thousands, all trying to make sense of the furious debate between Obama and Romney over Medicare.

As someone who has studied this issue for more than 20 years, it has also been more than exasperating for me to watch each side trade claims and for the press to try to make sense of it.

This blog post is quite long because the subject matter is complicated. If you want to cut to the chase, see my conclusion and summary at the end of this post.

Wyden and Ryan—One is Up and the Other is Down—and They Are Both Telling the Truth

Republican Vice Presidential pick Paul Ryan isn’t the only one Democrats are piling on this week. The knives have come out for Senator Ron Wyden, the Oregon Democrat.

I guess that isn’t a surprise. If Ron Wyden is right on Medicare then so are Paul Ryan and Mitt Romney.

The fundamental problem here is that the Democrats have decided that their best path to victory in the November elections is to say that the Republicans want to destroy Medicare as we know it and that the Democrats can preserve it.

The truth is that no one can preserve Medicare as we know it. There isn’t a prayer that your father’s Medicare will be around in 10 years. There is a legitimate policy debate going on about the direction we will have to go with it.

The Game’s Not Over, and It May Not Even Be The Real Game

by Brian Klepper

Like most health law watchers, I was surprised by the recent Supreme Court decision. I'm sure that on this issue, as with everything else, zealous responses rationalize the result and split the country down the middle.

Do You Have Any Idea How Close the Affordable Care Act Came to Being Toast?

I expected Supreme Court Justice Anthony Kennedy to vote to toss the individual mandate. I had no doubt the other three conservative justices would want the whole of the Affordable Care Act thrown out.

I also expected the four liberal justices to support both the individual mandate as well as the entire law.

About everyone expected Roberts and Kennedy to vote alike.

If Roberts had gone with Kennedy, that would have been a majority of votes (5-4) to void all 2,900 pages of the Affordable Health Care Act. Not just kill the mandate, but the whole thing. Apparently, just killing the mandate was never an option for this Court--something most of us believed was the most likely outcome!

But Roberts had an opinion of his own. In his mind, like the other conservative justices, the mandate was inconsistent with the Commerce Clause of the Constitution. But, unlike the other conservatives, Roberts believed failure to comply with it triggers a tax. Which it is what it looks like to any regular person outside the Beltway for that matter.

So the law stands.

Four justices to kill it, four justices to keep it, and one justice who saw things dramatically differently than all the rest.

To all my liberal and progressive friends: No more complaining about Citizens United and the "politicized" Supreme Court. Did you notice that the justice your guy did not vote to confirm also sided with liberals to invalidate much of the Arizona immigration law on Monday?

To my conservative friends: Pay the tax or buy insurance and stop your whining. To the extent this is a mandate, it's a pretty tepid one.

This was a hard decision for John Roberts. I like people who think all of this is hard. We need more people who see more than black and white and understand just how hard to solve health care reform--or any of the other of the big problems facing our country--is.

This was an agonizing decision for John Roberts and I think of him as a better person for it.

Except next time, could the Court just skip all the summer falderal making us try to guess which day they were going to grace us with their decision and just tell us which day to be paying close attention?

The Supreme Court Ruling on Health Care, Its Impact on Medicaid, and 29 Republican Governors--Be Careful You Might Get What You Wish For

Conservatives wanted the Supreme Court to do the work of killing the Affordable Care Act (ACA) for them. They didn’t get their wish but the Court may have put conservatives into a political corner they will find very uncomfortable.

Under the new health law, the Medicaid program will be substantially expanded. Those making up to 133% of the federal poverty level (about $30,000 in annual income for a family of four) will be eligible for Medicaid benefits. Many conservative governors—there are 29 Republican governors—were angry that the federal government would force even more Medicaid spending on them at a time their current Medicaid programs have become a major burden on their state budgets. Originally, under the ACA, if the state didn’t agree to expand their Medicaid program, they would lose all Medicaid funding.

The Supreme Court has now said that if a state doesn’t want to expand their Medicaid programs they don’t have to and they will not lose their current Medicaid funding from the federal government.

Now, conservative governors who said they wanted no part of a Medicaid expansion shoved down their throats from Washington have the ability to opt out of it without a penalty. That puts those conservative governors and their legislatures on one big hot seat. Whether or not their state gets a Medicaid expansion is now entirely up to them. It’s put up or shut up time for conservative governors and state legislators who said the ACA was an onerous expansion of federal powers over their states.

If some states do reject the Medicaid expansion, consumers between 100% of poverty and 133% of poverty would become eligible for the private federally subsidized insurance in the exchanges since the subsidies start at 100% of poverty. That would mean more business for those offering private insurance in the exchanges.

It also means that the federal government’s cost of covering these people would increase—covering them under Medicaid would be cheaper than under the private plans in the exchanges.

For those between 100% of poverty and 133% of poverty, it would be a mixed bag. Instead of a Medicaid plan, they would get a mainstream private insurance plan from the exchange that could gain them access to the health care system beyond only the providers who accept Medicaid patients. But they would have to pay 2% of their income in premiums—$600 a year if they make $30,000 a year. And, unlike Medicaid, they would be subject to standard deductibles and copays—perhaps an upfront $1,000 deductible per person. The cheapest plan, the bronze plan, is intended to only cover about 60% of health care costs.

Governors even end up having an incentive to dump Medicaid people onto the exchange—the state has to pay 10% of any Medicaid extension starting in 2017 but none of the cost of subsidies in the private exchanges.

And, some states don't now provide Medicaid coverage for some poor people making less than 100% of the poverty level--leaving them caught in a gap before federal coverage starts at 100%.

So, it’s not an open and shut case for the states on what they should do.

And, can you even imagine the pressure these governors and legislators are going to come under from providers? Hospitals, for example, will suffer cuts under the new health care law--cuts they agreed to in order to increase the number of people coming to them with Medicaid cards in hand. If the states don't take the Medicaid money, the hospitals will be left with the cuts but not get the benefit of more patients gaining coverage.

Many of these conservative governors and state legislators will have lots of options--options they will have to vet openly in front of all of their voters. And no one is shoving anything down their throats--it's all up to them.

The Supreme Court's Decision on the Affordable Care Act

In the immortal words of Rosane Rosana Dana, "Never mind."

From the SCOTUS blog live in the court room: "Chief Justice Roberts' vote saved the ACA."

On to the elections.

What Would Health Insurance Cost if the Supreme Court Overturns the Individual Mandate But Leaves the Insurance Reforms in Place?

That will be the big question on Thursday if the Court throws out the mandate and the parallel insurance reforms that would require health plans to take all comers without regard to their health status and require insurers to cover pre-existing conditions.

But before we get to that scenario, let’s look at another possibility.

The Court Overturns Both the Individual Mandate and the Insurance Reforms
First, if the mandate were to be thrown out, and with it the insurance reforms, the impact on the health insurance companies would only be positive—there would be no “adverse selection” from only the sickest buying insurance. Insurance companies could continue to underwrite--decide who and who not to cover--but would have the federal government spending $50 billion a year under the surviving parts of the Affordable Care Act (ACA) giving consumers subsidies with which to purchase their insurance plans.

On the surface, that would be a great thing for the health insurance business. It might even mean lower prices than those we have today, as millions of healthy people would be subsidized to enter the insurance pool.

However, these subsides would not be available until January 1, 2014. In the meantime, Democrats would do all they could to reinstate the insurance reforms and try to implement one of the alternatives to the individual mandate.

Republicans would do all in their power to “repeal and replace” the rest of the Affordable Care Act in the wake of what they hope will be an election victory this November. With control of the House, a minimum of 51 votes in the Senate, and Romney in the White House, Republicans would at least gut the remainder of the ACA, irrespective of what they might do to “replace” it. The insurance premium subsides would be the easiest thing to get rid of under Senate budget rules.

The only way I see insurance companies benefiting from a Supreme Court ruling that would toss the mandate, as well as the insurance reforms, is if the Congress later couldn’t agree on how to fix or repeal the ACA and the circumstance neither side supported continued indefinitely.

The Court Overturns the Individual Mandate and Keeps the Insurance Reforms in Place
The most problematic outcome would be if the Court only struck the mandate but allowed the insurance reforms to continue in place. In this case, insurance companies would be required to cover everyone—both the sick and the healthy. While there would likely be some administrative limits on when people could buy health insurance, consumers could generally wait until they were sick to get covered.

In a recent study, Larry Levitt and Gary Claxton at the Kaiser Family Foundation said, “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.”

But the authors went on to argue that, “It is by no means inevitable that the individual market will enter a death spiral.” They rightly point out that the ACA, unlike past state efforts to reform the insurance market, will grant subsidies to millions of people making coverage affordable for them.

As I have said on this blog a number of times before, a mandate is not needed if affordable health insurance is available. There is currently no mandate that employees buy insurance when it is offered at work yet we have an excellent cross section of risk in the employer health insurance market. The same is true in the Medicare Part D drug program where seniors have the option of buying the drug plan.

But, while there is no mandate in employer-based coverage, if a worker declines the coverage they and their dependents would be subject to a pre-existing condition limitation if they later choose to buy (both a protection for the insurance company and a penalty for the consumer)—not the case under the ACA. In Medicare Part D, late enrollees are penalized by paying higher premiums, something also not a part of the ACA.

The bigger problem is that while the ACA’s subsidies are very good for low-income people, they are far from adequate for the middle class—particularly families.

As the Kaiser study pointed out, the Congressional Budget Office (CBO) has estimated that about half those in the individual market will be eligible for a subsidy under the ACA.

I will suggest that what is critically important here is that those not getting a subsidy, or at least a big subsidy, are the ones the mandate was directed at in the first place.

Families making $20,000, $30,000, $40,000, or even $50,000 a year were always going to get a big percentage of their health insurance paid for under the ACA. For example, a family of four making $55,000 a year would pay about $400 a month for their insurance—close to what most families in employer plans now pay. Families making less would have much better subsidies—a family at 150% of poverty would only pay 4% of their income for health insurance under the ACA.

But families making 300% to 400% of the federal poverty level would have to pay 9.5% of their incomes for health insurance—a $60,000 family would have to find $5,700 in their already tight annual budget. Families making more than 400% of the poverty level would have to pay the entire cost of health insurance—which today averages $14,000 a year in employer plans.

There is another wild card—the ACA caps the premium older people would pay at three times the premium the youngest people would pay—it is often 5:1 today. The Kaiser study argued that this would help the younger and healthier buy coverage. That is true--presuming this insurance reform doesn't get tossed by the Court with the other insurance reforms. But I will also suggest the younger are more often the lower income people and that the tighter age bands in the ACA will make it even more expensive for older people to be able to afford coverage—more often the sicker part of the population that would gain from entering and exiting the market when it would be most convenient for them to do so.

There are a number of estimates that say without a mandate individual health insurance would cost 10% to 40% more.

The CBO has said that without a mandate 16 million fewer people would be covered and premiums would be 15% to 20% higher.

That looks to me to be the best case.

In practical terms, that could be $1,500 to $2,000 more each year in higher premiums for a young family and $3,000 to $4,500 a year more for older people.

Having a health insurance market that provides guaranteed health insurance at these costs is hardly a sustainable situation. And if history is the guide, high insurance rates the first year only get higher each subsequent year as fewer and fewer healthy people see the value in coverage.

I would also suggest there is another wild card, presuming the Republicans don't repeal the ACA, that could impact either of these Supreme Court scenarios—the states.

“Blue States”—those having a Democratic governor and legislature—could well fill the vacuum created by any Supreme Court ruling. With $50 billion in annual federal health insurance subsidies in the market starting in 2014, a state could enact a mandate as well as insurance reforms in the wake of a Supreme Court ruling against the law.

Ironically, most states have not been able to do health care reform largely because they don’t have the money. But if the bulk of the law, and particularly if the subsidies remain, they would have the money and the legislative power to pass an individual mandate, or more likely one of the alternatives to the mandate, and reform the individual and small group health insurance market.

That could be a very potent combination for those largely “Blue States” that are building insurance exchanges.

But in the end, what would health insurance cost if the Supreme Court overturns the individual mandate but leaves the insurance reforms in place?

A lot more than most people, who didn't have plenty of government assistance, could afford.

But you know what? The Supreme Court ruling, whatever it is, will likely be small potatoes compared to what the November elections could do to kill or preserve the Democrats' Affordable Care Act well before January 1, 2014.

The Medical Loss Ratio (MLR) Report—Just Fiddling While Rome is Burning

Today’s headline was, “Millions Expected To Receive Insurance Rebates Totaling $1.3 Billion.”

The Kaiser Family Foundation estimates that 3.4 million people in the individual market will receive $426 million in consumer rebates because of the Affordable Care Act's new MLR rules. In the small group market 4.9 million enrollees will see $377 million in rebates, and 7.5 million people will get $540 million in the large group market.

Wow!

But take a closer look at the report. Only 19% of those in the large group market will be getting a rebate and that rebate will average $72.31 per person. In the small group market 28% of those enrolled in these plans will get a rebate averaging $76.37. And, in the individual market 31% of consumers who have these plans will get a rebate averaging $126.81.

The Wall Street Journal, citing a Goldman analysis, is reporting that Aetna will be paying out $177 million in rebates. But Aetna has $11 billion in premium so that’s only a 1.6% rebate. UnitedHealth will be paying out $307 million but that is only 1% of its $28.8 billion in premium. Wellpoint will pay out $94 million in rebates but that is only .28% of its premium for the year.

The average cost of employer-provided family health insurance is now about $13,000 per year. A family rebate of perhaps $200 will amount to only about 1.5% of premium for the relatively few people who will even get one.

I am surprised that the rebates are so low given how closely health plans have to calculate their pricing margins and with claim costs coming in less than expected during 2011.

The politicians can celebrate $1.6 billion in premium rebates that will not be going into the health insurers’ pockets as profits. That is true but their first quarter profits didn't appear to be suffering either.

But does a $200 rebate on a $13,000 premium make health insurance any more affordable?

This week, amid their first quarter earnings reports, health insurers said that their health insurance prices are expected to rise by an average of 6% to 6.5% during the next year—well above inflation and well above wage rates. And, typically, individual and small group price increases significantly exceed a company’s average cost increases.

So, just what impact has the first year’s MLR experience had on making health insurance any more affordable?

In the past, I have called the Medical Loss Ratio rules the jumbo insurance company full employment act. These MLR rules only serve to push competitors out of the market and accomplish little.

In order to comply with the new MLR rules most insurers simply cut insurance agent/broker commissions—which then caused the insurance agents to pass their cost of doing business directly onto their customers in direct fees outside normal insurance premiums.

I’d like to see a calculation for how much all health insurance policyholders have had to pay in higher agent/broker fees because of the MLR rules compared to the small percentage that will receive a rebate.

The Affordable Care Act saves consumers $1.3 billion!!!!

And, health insurance costs keep going up just like they did last year, and the year before that, and the year before that.

What Would Individual Health Insurance Cost if the Court Strikes the Mandate Down and Still Requires Insurers to Cover Everyone?

With the Supreme Court justices sounding like they might strike the mandate down, this is a question I've been getting a lot lately.

I have pointed to New Jersey as a real life example of what can happen when insurance reforms take place but there is no incentive for consumers to buy it until the day they need it.

In 1992, New Jersey passed health insurance reform that required insurance carriers to either offer individual health insurance on a guaranteed issue basis or pay an assessment to carriers that did. Other elements of the legislation were:

• Guaranteed coverage and renewability for all eligible people regardless of their health status. A pre-existing condition exclusion does allow insurers to limit coverage during the first 12 months (a limitation which is not contained in the Affordable Care Act).
• Guaranteed renewal of policies, provided (1) the insured does not become eligible for coverage under a group plan; (2) premiums are paid in a timely fashion; and (3) no fraud is committed by the insured.
• Community rating of the premiums, with variation allowed only for family status (single, adult plus child, husband and wife, and family). (The Affordable Care Act allows rate variations of up to three times from young to old.)
• Standardized insurance plans, referred to as Plans A, B, C, and D (indemnity options) and a single HMO plan.

New Jersey does not have a individual mandate or any other means to encourage participation in the health insurance pool.

What does the health insurance market look like today in New Jersey?

First, there are relatively few insurance plans participating in the New Jersey insurance market. According to the New Jersey Department of Banking and Insurance, if you want to buy a two adult plan with a $2,500 deductible and 80% coinsurance for example, there are only three carriers offering it. Aetna at $4,913 per month, Celtic at $12,322 a month, and Horizon a $6,127.78 per month. These rates do not vary by age.

You can buy a $2,500 deductible, 80-20 coinsurance plan for a family. Only one health plan, Oxford, offers it and it is age rated. If you are age 25, it will cost $2,498.20 a month, at age 40 it will cost $2,978.75 per month, and at age 60 $4,054.97 per month.

The cheapest family plan I found on the state site is a Horizon plan with a $10,000 deductible that costs $1,434.72 a month--$17,217 a year. The cheapest HMO plan was a Horizon plan for $1,546.08 a month--$18,500 per year. Although, the state does also offer very limited and scheduled benefit plans that cost as little as about $600 per month.

You can see the complete chart of rates at the New Jersey state website by clicking on the icon: "See Monthly Rates for All Standard Plans."

If anyone has Anthony Kennedy's email address I'd appreciate your sending this over.

If the Supreme Court Overturns the Individual Mandate

First, trying to predict how the Court will rule is at best just speculation. I know what Justice Kennedy said both today and yesterday and it certainly doesn’t look good for the Obama administration and upholding at least the mandate.

But I will remind everyone, based upon oral arguments, most Court watchers expected a ruling in favor of the biotech industry on a recent case involving health care patents. “Surprisingly,” the Court ruled against the industry.

Whatever the justices are now thinking, there isn’t a lot anyone could do differently until we actually get a ruling and know exactly what gets thrown out, if anything, in the 2,800-page law.

But if the mandate is overthrown, then what?

First, exactly how the Court rules on severability will be critical. What could go out with the mandate?

The Obama administration has smartly tried to build a firewall around the rest of the Affordable Care Act (ACA) by arguing before the Court that only the insurance reform elements of the bill should fall if the mandate goes down—that the mandate is the only quid pro quo for the insurance industry in exchange for taking all comers. That looks to me like the most logical outcome for overturning the mandate—but my perspective is one of an insurance veteran not a Court expert.

The Obama firewall strategy is a smart strategy for two reasons. First, it leaves the rest of the health law standing. Second, losing the most popular part of the new law, the insurance reforms, leaves the administration with lots of political leverage later on to fix the bill. Ironically, the Court, in accepting the Obama arguments, would be overturning both the most unpopular element of the law as well as the most popular.

From a policy perspective, I would see fixing the law in the wake of losing just the the mandate an easy thing to do. In place of the individual mandate, I would suggest a provision that:

• Has no mandate for any individual to buy insurance.
• Allow individuals and families to be able to buy insurance at any time.
• Upon purchase, everyone in the family would be covered under any of the plans available.
• But, if the insurance were not purchased at any time the individual was newly eligible, any preexisting condition would not be covered for two years.

Such a solution would provide guaranteed insurability if the insurance was purchased when first offered, no mandate to buy, people could purchase at any time and be covered, other family members would not be penalized, and the insurance pool would be protected.

The policy fix is easy.

But politically, in the current hyperpartisan environment, the Republicans have no interest in helping the administration fix the Affordable Care Act. Until both sides are willing to work together on a comprehensive compromise on health reform, there will be no fixes.

What happens if the mandate falls, the Court leaves the insurance reforms in place, and the political paralysis continues?

New Jersey. That state has had insurance reform and no mandate for a number of years and it’s a mess—even more unaffordable rates and enormous anti-selection in the insurance market.

The lack of a mandate won’t hurt the larger already efficient employer market and it won’t help the already problematic small group market. The employer mandate for those with more than 50 employees would continue.

In the exchanges, where the ACA would provide good subsidies for the poor and near poor, there would likely be adequate spread of risk among these lower income groups in a completely voluntary market because the insurance is affordable. But higher insurance rates will mean the CBO’s estimates for the cost of the subsidies will be way off. Remember, the ACA’s subsidy system caps the cost for health insurance based upon income—higher insurance premiums mean higher federal costs.

Without a mandate and with the insurance reforms still in effect, the anti-selection would be most pronounced in the middleclass where the subsidies were always insufficient anyway.

What happens if the Court throws out the mandate as well as the insurance reforms? The insurance industry would get the benefit of many more customers because the subsidies would still be in place. But they would be healthy because the insurance underwriting and pre-existing condition provisions would remain. While the insurance industry would do well, the providers would still suffer the ACA's payment cuts and not have as many patients coming in with insurance cards as they expected—particularly the most sick and costly for them.

If the Court throws out the individual mandate, as well as perhaps the insurance reforms, the law would have to be fixed.

But the political environment would have to change markedly before Republicans and Democrats could come together on a comprehensive fix to the new law.

Will the Pace of Innovative Change Overtake the Financial Imperative to Slash Spending?

I thought it was worth passing along the comments by Jim Tallon, president of New York's United Hospital Fund, in a recent post.

Tallon reflected on an international meeting he attended with health care leaders from a number of industrial nations--"nations whose health care systems, indeed underlying philosophies, ranged from market orientation through hybrids to government authority:"

"Across the industrialized world, people are coming up with fresh ideas and vital approaches to the profound, central challenge that health care constitutes—new ideas on organization, financing, and care, on far greater use of real-time information technology, and on patients’ greater engagement in their health…

"What were these leaders’ 'keeps me awake at night' concerns? Their answer, almost uniformly, was that the pace of innovative change would not overtake the financial imperative to slash spending.

"The challenge within the challenge, then, is how to take individual ideas and models to scale. With considerable consensus on the problems, and individual projects being implemented—whether generated in local communities or institutions or stimulated by government or private-sector support—we are now at a critical juncture: can the ideas that are being tested ultimately alter economic and societal trends, in which health care plays a major role? How do individual ideas, even the sum of those individual ideas, expand into systemic change that ultimately can get us the health care system we need, accessible for all, of the highest quality, and—the biggest challenge—actively altering the constant upward movement of the cost curve?"

We are 30 years into what could generally be described as managed care—all of the attempts to create an affordable quality health care system. But 30 years in, we may have done little more than to blunt our escalating health care costs.

Time is running out. And, not just in the U.S. And, not just in market-based systems.

Tallon’s full comments on the United Hospital Fund website.

"Five Myths About Medicare"

I recommend you read John Rother's recent op-ed in the Washington Post, "Five Myths About Medicare."

John argues that each of these statements is a myth:

1. Medicare is inefficient and fails to control costs--the CBO has projected that per capita spending will grow only 1% more than inflation over the next decade.
2. The well-off don't pay enough for their Medicare benefits--working age premiums as well as Part B premiums already vary considerably by income.
3. Medicare benefits are overly generous--in 2007 Medicare paid an average of only half of the $18,000 the average beneficiary spent.
4. Cutting Medicare is the only way to save it--changing incentives to providers offers more promise.
5. Medicare needs fundamental restructuring--"Even the most well-run and efficient program cannot nearly double its enrollment without a matching increase in money."

And this conclusion:

"Containing health-care cost growth is critical for Medicare’s survival, but it’s impossible to do that for Medicare alone. Payment restraints and incentives that improve value must be applied to the entire health-care system to be effective."

Read "Five Myths About Medicare"

ICD-10 To Be Delayed Indefinitely--Never Mind!

After years of telling us they are serious this time and everyone in the health care system had better be ready on time to implement the new disease coding system, CMS said today the whole project is going to be delayed indefinitely.

The new ICD-10 system requires payers and providers to convert from the old system of 13,000 codes to the new system of 68,000 codes.

All payers and providers were supposed to be ready by October 1, 2013. The acting CMS Administrator said, "There is a concern that folks cannot get their work done around meaningful use [of information technology], ICD-10 implementation, and be ready for [insurance] exchanges. So we decided to listen and be responsive."

Apparently, a new timeline will be developed through a "rule making process."

Fine, but that has not been the message for months now and lots of people have spent lots of money for apparently no good reason.

The concerns that particularly physicians would not be ready on time have not been minor. CMS conducted a survey between January and March of 2011 that clearly showed there were big problems ahead. But in the year since that survey, they continued to tell stakeholders to keep going ahead full speed, spending big money to be ready.

But in the last few weeks, the American Medical Association has been sounding the alarm--their people wouldn't be ready.

Sounds like the lowest common denominator in the health care system wins out.

Here are the results from a survey CMS conducted from January to March of 2011 by type of industry participant. AHIP is the insurance industry trade association, HBMA and AAPC are associations of industry coding and billing providers, ACP is the American College of Physicians and the AMA is the American Medical Association. The survey also measured readiness for the Version 5100 standards for electronic health transactions that were effective in January 2012, but for which enforcement has been delayed until March 31, 2012.


It was obvious a year ago that the docs (ACP and AMA) weren't going to be ready yet CMS kept telling everyone to keep spending big money on all of this.

There is No Free Lunch and There is No Free Contraception

The otherworldy Obama Administration solution to the contraception firestorm might work politically but it makes no sense in the real world.

The President, hoping to quell a growing political firestorm, today announced a new policy that no longer requires religiously affiliated organizations to provide employees with contraception coverage in health-insurance plans.

Under the new policy, insurance companies will be required to offer free contraception for their employees and dependents. The administration’s idea is to shift the onus for the coverage from the employer to the insurer. Catholic leaders, and lots of other people, had objected to the requirement, which exempted churches but not hospitals, charities and universities with religious affiliations.

So, let’s just play a game here. The religious organization just pretends that it has nothing to do with it but the insurance company pays for it anyway. Hey, the insurance companies are rich.

Of course there is a cost. Today, contraception is almost universally covered in health insurance policies. The argument that forcing insurers to pay for it, without deductibles and copays, saves money because it avoids pregnancy costs is just plain silly. If insurers saved money handing out contraception for free in the first place, they would have started to hand it out for free years ago. Add to that the insurance company must absorb a not insignificant administrative cost for adding a person-by-person "rider" for free contraception.

In addition, we have the unique situation where a business (insurance companies) will be required to provide a product to a specific market (religious organizations not wanting to provide the coverage) but prohibited from charging for it--apparently because the government has done the cost calculation for them and in their sole discretion has decided they don't have to.

The administration is arguing that offering contraception actually lowers costs and therefore forcing insurers to waive copays won't mean higher costs. If this were 1970, when modern contraception was first offered, that might be true. But now plan sponsors are expected to waive copays and deductibles on something that is already virtually universally available. There will be an incremental cost.

If the program is self-insured, the insurer will not get any of the benefits from lower pregnancy cost--it will all go to the plan sponsor--but the self-insured administrator will be expected to cover the entire cost of the contraceptive services.

This is simply an attempt by the administration to backpedal from a firestorm of controversy they should have never been in in the first place. They are caught between the left that is not about to back down over what they see as a critical women’s health issue and the right that is not about to countenance the government ever telling a church what to do.

But insurers will likely just shut up and go along with it. They have no intention of getting into the middle of this political mess—but they will quietly pass the costs along. In fact, for any large religious organization that is self-insured, they won’t have much choice but to pass the costs on to the employer. But that won’t be a problem so long as everyone just agrees to pretend.

This is a clumsy attempt on the part of the Obama Administration to be on both sides of a thorny issue.

The problem is that there is no free lunch and there is no free contraception.

Dismantling the Affordable Care Act: The Obama Supreme Court Argument + 51 Republican Senators

I have no idea which way the Supreme Court will rule this year on the Affordable Care Act. Let me go out on a limb and predict a 5-4 vote on the question of whether the individual mandate is Constitutional. Just don’t ask me which way the vote goes.

I found the recent Obama administration brief submitted to the Court on the mandate question somewhat ironic. Not surprisingly, the Obama Justice Department argued that a finding by the Court that the individual mandate is unconstitutional should not jeopardize the vast majority of the new health law.

But the Obama Justice Department did concede that there are two provisions of the Affordable Care Act that should also be declared invalid if the Court rules the individual mandate is unconstitutional—the health insurance guaranteed issue and community rating provisions.

Now, I know there are lots of other people, many of them filing briefs with the Court, that disagree arguing that the whole law needs to be found invalid because the mandate is the lynchpin for all of it. But I will suggest it is significant that the administration would appear to be building a firewall for the rest of the law as they concede these points.

But consider this potential scenario.

First, if the Republicans win the Senate come November—not a certainty but very possible—they will do it with only one, two, or three seats to spare. That would be way short of the 60 votes necessary to get rid of the entire law. You will recall it took 60 votes to pass the entire law in the first place. I fully expect Republicans will hold their House majority and a Republican House would be only too willing to support whatever the Senate could accomplish in repealing the Affordable Care Act.

Many Republican legislative strategists have already concluded they can get rid of all of the new health law having to do with the budget—with a House majority and only 51 Senate votes. The insurance subsidies are the biggest part of the law and they are budget related. Of all of the non-budget items needing 60 votes, the biggest are the insurance reforms—the guaranteed issue and community rating provisions.

The Obama Justice Department, in conceding these insurance reform provisions would have to go if the mandate falls, may have just potentially paved the way for getting rid of effectively the entire law should the Court throw out the individual mandate: The Court knocks out the mandate and with it the insurance reform provisions and a 2013 bare Republican majority gets rid of almost all of the rest of the law.

That just leaves one detail. Will it be a Republican President or President Obama that would have to sign any Republican repeal legislation?

Medicare Advantage Premiums Drop an Average of 7% and Enrollment up 10%—That Must Make Republicans Just Want to Cry

Medicare Advantage would appear to be a fantastic success—senior premiums are dropping and enrollment is increasing.

Listening to Health and Human Services Secretary Sebelius last week, you would think private Medicare plans were a Democratic idea and this is their success. Many industry observers, including me, have worried that Medicare Advantage benefits would shrink and premiums would rise because the new health care law reduced federal payments to the plans by $136 billion over the next decade.

“The Medicare Advantage program is stronger than ever,” said Secretary Sebelius. “Premiums are down on average, enrollment is up, and thanks to the Affordable Care Act we have unprecedented new tools to ensure that seniors and people with disabilities are getting the best value out of their coverage.”

Of course, privatizing Medicare has always been a Republican idea and most Democrats would like nothing better than to kill it dead out of fear that Medicare Advantage plans will undermine the financial integrity of Medicare—private plans get paid more than Medicare gets for the same enrollees—and that the private plans risk turning the Medicare entitlement into a two-tiered program—one for the rich and one for the poor.

And, Democrats can’t wait to use the Paul Ryan Premium Support plan, which would rely exclusively on private Medicare plans, as an election issue charging that the Republicans want to kill Medicare as we know it.

But instead the Obama administration used last week’s announcement of lower Medicare Advantage premiums and solid enrollment growth as evidence of just how successful they’ve been at running the program and how overdone Republican charges were that the Medicare cuts in the Affordable Care Act would wreck private Medicare.

There is that old saying, “Sometimes it’s better to be lucky than good.”

First, the entire health insurance industry is experiencing an unexpected drop in health care trend rates—costs are escalating far less than expected. When that happens, health insurers generally see their bottom line improve in the form of windfall profits.

What Medicare pays Medicare Advantage plans is a function of the last year’s experience. With the expectation that care costs would be higher than they turned out to be, private plans were inadvertently paid more, as well as charged seniors more, than they needed. That typically goes on for as long as health care cost trend decelerates.

The good results in Medicare Advantage were also helped by the Obama administration, which declared a “Lake Wobegon” moment. They took $6.7 billion intended to be paid as bonuses to the highest quality plans under the new health law and instead declared just about all of them “above average” or better and infused those billions among almost all Medicare Advantage contractors, further improving their bottom lines.

Why did the Democrats who hate Medicare Advantage so much find an extra $6.7 billion for them? Because it’s an election year. Seniors vote and the Democrats very quickly concluded that having seniors lose their private plans, or have to pay more for them because of payment changes due to the new health law, wasn’t going to help their reelection chances in places like Florida.

So, ironically, the Democrats were so scared Medicare Advantage premiums were going to soar that they dumped billions into the program to offset the expected.

But the expected didn’t happen when cost trend came in lower than everyone predicted. The result was even better profit results for the industry, better than expected prices for seniors, and enrollment growth.

Now, Sebelius could have said, “Whoops, we just flooded the health insurance industry with billions they didn’t need.” But why do that when you can take credit for a popular program you really want to kill?

Does this mean Medicare Advantage is out of the woods? No, more like there is a cliff still coming.

First, no more $6.7 billion gifts to the insurance industry from the Obama administration are in the pipeline.

Second, trend can’t keep falling. At best, it will stabilize and erase the windfall profits. At worst, it will start climbing and we’ll have the opposite impact on profitability and pricing.

Third, the $136 billion in cuts to Medicare Advantage the Affordable Care Act makes to the program really doesn't begin for another two years—the new law just froze payments this year at unintentionally generous levels.

Medicare Advantage plans are now benefiting from a perfect storm of good things. In a couple of years, it could be a perfect storm of bad things— no more “Lake Wobegon” payments, rising trend rates resulting in inadequate payments to insurers, and the $136 billion in real cuts finally kicking in.

Until then, we can expect to see President Obama campaigning in front of seniors taking credit for all the good things his new health law has done for Medicare Advantage.

It must make Republicans just want to cry.

The Wyden-Ryan Plan Will Be the Foundation for Serious Medicare Reform—and Maybe More

In two companion articles in January’s New England Journal of Medicine, Henry Aaron with Austin Frakt, and Joe Antos critique the Wyden-Ryan Medicare reform proposal.

Senator Ron Wyden (D-OR) and Representative Paul Ryan (R-WI) are proposing a hybrid Medicare reform proposal combing both Republican defined contribution free market principles—a premium support scheme—with Democratic defined benefit principles—a baseline guaranteed plan and premium support.

In, “Now is Not the Time for Premium Support,” Aaron and Frakt argue that there is a market history of Medicare experimentation that hasn’t accomplished much and that a premium support scheme could well leave beneficiaries the victims of cost shifting:

Advocates of premium support claim that Medicare Part D, which has a premium-support structure, shows that competition holds down spending and that beneficiaries make wise choices. Their claims are unjustified. Although Part D drug spending per enrollee is lower than was initially forecast, non-Medicare drug spending is even further below past projections. Furthermore, enrollees have, on average, chosen plans that exposed them to greater financial risk than the best options available to them. Most important, because Part D has no public option, it cannot provide evidence on whether private plans are better or worse than a government plan would be.

So, although it's true that Medicare is a key driver of long-term federal spending, we don't believe that recently proposed premium-support reforms are the solution. They lack safeguards for beneficiaries. They threaten to shift costs to the elderly and disabled and force them to shop for coverage in a confusing insurance market. And the ability to run health exchanges for the Medicare population is currently in doubt.

Even the more pro-market Antos, in an article titled, “The Wyden-Ryan Proposal--A Foundation for Realistic Medicare Reform,” offers only limited praise for the plan:

Ryan and Wyden hint at the need for commonsense reforms to traditional Medicare, including a new structure of deductibles and copayments, a cap on catastrophic costs, and a new physician-payment system. They skirt the central problem: a disorganized fee-for-service system and top-down limits on prices paid for services drive the use of more, and more complicated, services. The program's survival depends on our willingness to make substantial changes over the next few years — before the major reform is implemented — so that traditional Medicare can provide cost-effective care without draining the Treasury.

The current proposal also offers a more politically palatable fiscal target at the cost of achieving fewer “scoreable” savings. Under Ryan's earlier proposal, the federal subsidy would grow only with general inflation (1.5% in 2012, according to the CBO) instead of the more generous target of GDP plus 1% (a rate projected to total 4.8% in 2012). Not coincidentally, that is the same fiscal target established for the Independent Payment Advisory Board (IPAB) under the ACA.

A 3.3-percentage-point difference in fiscal targets translates to a 1-year increase in program spending of about $20 billion, or about $300 billion over 10 years. Adopting the weaker target means a substantial loss of budget savings, but only if Congress would actually enforce the stricter limits. That may be unlikely given recent history. Over the past 8 years, Congress has overridden even relatively small reductions in physician payments called for by the sustainable growth rate formula. Clearly, a favorable score from the CBO does not guarantee lower program spending.

But then Antos suggests Wyden-Ryan could be the basis of real reform:

Given the serious fiscal problems facing this country, slowing the growth of Medicare spending is no longer optional. The only question is how to do it. The Wyden–Ryan proposal outlines a strategy for Medicare reform that harnesses market forces to control costs. It provides a real alternative to the top-down controls favored in the ACA. Paul Ryan and Ron Wyden have defined the policy parameters that could be the basis for real Medicare reform in 2013.

I will suggest that the last point is key.

Wyden-Ryan is now little more than a policy outline. It does fall short on real reform because it offers only a bare outline for how it will contain costs—there will be a still undefined fallback mechanism if costs exceed targets.

But what Wyden-Ryan does do is offer a political roadmap for how we could well see Medicare reform addressed after the election—particularly if Republicans gain control of the Congress.

Any successful reform has to achieve two things:

1. It has to be politically feasible in the first place.
2. Then it has to work—in this case it has to control costs and provide quality health care.

What Wyden and Ryan have given us is a very well developed political strategy for reform and only the outline for policy reform.

As I said in an earlier blog post:

What is elegant about the Wyden-Ryan compromise is that they have proposed a hybrid plan—it contains significant elements of both a Republican defined contribution and a Democratic defined benefit approach.

Republicans get an affordable cap on what the federal government would spend on Medicare—that growth would be no more than GDP+1%—and they would get a program built on a free market platform where consumers would have the incentive to maximize their premium support by shopping for the plan that best met their needs.

Democrats would get a plan that still contained the traditional government-run Medicare plan as one of the options and they would have a plan where all seniors were guaranteed a federal premium support level good enough to buy at least the two lowest cost Medicare plans available in their community—albeit maybe not the traditional Medicare option.

If there was ever a place for Republicans and Democrats to compromise on Medicare reform this is it. It is an elegant compromise—a hybrid—of both defined benefit and defined contribution principles.

Sooner or later all of this partisan bickering has to end. A Republican sweep in the November elections would do it. Wyden-Ryan would be on top of the health care agenda if that happened.

Even if we faced a divided government in 2013, the imperative for entitlement reform makes addressing Medicare costs unavoidable. In that case a basis for ideological compromise will be necessary. Wyden-Ryan presents that opportunity.

It will be the next part of the plan that is still too vaguely defined—how costs would be controlled and beneficiaries therefore protected—that Wyden and Ryan must address. Both Antos and Aaron/Frakt are right in pointing that out.

How will we achieve the needed “scoreable” savings a future Congress can’t easily override and do it in a way that will be politically palatable in the first place? That is the big question. Wyden-Ryan is just an empty political box without answering that.

But do not underestimate how important this first bipartisan step is that Ron Wyden and Paul Ryan have taken. Unless the Democrats sweep the November elections, this is what the next debate will revolve around.

In fact, one can foresee this same bipartisan political formula as a means to eventually deal with the under-age-65 health insurance market. Remember Wyden-Bennett? Could there be another under-65 version of Wyden-Ryan?

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?