Economists Weigh In

By Greg Scandlen

I’m not going to do this very often, but here is an excellent collection of essays by some of the top health economists in the country, published by Berkley Electronic Press and edited by Aaron Edlin and Joseph Stiglitz (Nobel recipient in 2001). The publication is The Economists’ Voice and it doesn’t usually deal with health care.

I haven’t had a chance yet to read these articles, but they seem to make for some pretty solid analysis. Except, perhaps, for the description of the Goldman-Lakdawalla piece that starts –“Now that we have covered the uninsured, it is time for us to put the priority on health, not health insurance.”

Sorry, guys, but we haven’t covered squat as of yet and the chances are very high that ObamaCare won’t cover very many even if it stays in effect. There’s a big difference between writing it on a piece of paper and actually doing it.

Anyway, here are the articles. Go to The Economists’ Voice to access.

 

Health Care Reform

The Health Care Reform Legislation: An Overview

Chapin White

The Affordable Care Act (ACA) fundamentally shifts the social contract in the U.S., according to Chapin White of the Center for Studying Health System Change.

 

The Simple Economics of Health Reform

David M. Cutler

According to David Cutler of Harvard, a key player in crafting health care reform, the Affordable Care Act (ACA) could turn out to be the most successful piece of health care legislation ever.

 

The Economics, Opportunities, and Challenges of Health Insurance Exchanges

Mark G. Duggan and Robert Kocher

Can the health insurance exchanges in the Affordable Care Act substantially improve the functioning and reach of the private health insurance market? They can if executed correctly, according to Mark Duggan of the University of Maryland and Robert Kocher of McKinsey Center for U.S. Health System Reform, who point to new incentives for individuals, employers, and insurers.

 

Can the ACA Improve Population Health?

Dana P. Goldman and Darius N. Lakdawalla

Now that we have covered the uninsured, it is time for us to put the priority on health, not health insurance, according to Darius Lakdawalla and Dana Goldman, both of the University of Southern California. The authors argue that benefits to population health are likely to be limited under the Affordable Care Act (ACA).

 

Systemic Reform of Health Care Delivery and Payment

Henry J. Aaron

We need to be better informed about the four formidable obstacles facing The Health Care Act (ACA), according to Henry Aaron of the Brookings Institution. Aaron delves into the tough fights that lie ahead for certain sections of the ACA, given the precarious balance of political forces leading up to the 2012 election.

 

How Stable Are Insurance Subsidies in Health Reform?

Mark V. Pauly

The case that insurance subsidies will improve health is far from compelling, according to Mark Pauly of The Wharton School at The University of Pennsylvania, and needs to be strengthened if the program is to be politically stable. The time for this conversation is now, argues Pauly.

Chronic Failure

By Greg Scandlen

Every federal initiative that I can think of in health care has been a failure. Maybe you can think of some that have worked as promised. I can’t.

This is not an ideological critique, but a practical one. Most Americans are practical people. We like to do what works and avoid repeating our mistakes. This country is famous for “second acts” and “second chances.” We don’t condemn people for making mistakes, but we expect them to learn from the error and do better the next time. But that assumes that the second act is not an exact repeat of the first one.

Unfortunately, today we are repeating all of the things that have been proven failures in the past. Managed Care was soundly rejected by most of the public, so now we are doing it all over again with a new name – “Accountable Care Organizations.” Much like today, we tried to lower health care costs by reducing the supply of health care services with the massive federal Health Planning Act in the 1970s. It had the exact opposite effect. Hospital rate setting was tried by 30 states in the 1980s and repealed in all but one (Maryland.) But today there is new talk of a new round of hospital rate setting. Community Rating and Guaranteed Issue have been tried with horrendous results, but today it is national policy with one small twist – everyone will be required to buy whether they want to or not.

Even the much-touted Medicare program is a failure by any standard. Yes, it is popular and defended by the elderly. Of course it is. The “beneficiaries” pay a mere fraction of what the program costs. Of course they like it. And there no longer exists any alternative in the market. Of course they defend it. That does not make it a success.

As John Goodman writes in Forbes, Medicare’s unfunded liabilities are $89 trillion on top of any expected premiums and dedicated taxes. Or, he adds, if we froze the program today and just looked at what is owed to today’s worker’s and retirees the unfunded amount would equal $33 trillion. That is – 33,000 billion dollars, or about $100,000 for every man, woman, and child alive in the United States today.

More recently, writing on the From Forum, Bruce Bartlett looked at an obscure federal report, “The Financial Report of the U.S. Government,” that takes an accrual approach to obligations, rather than the cash flow approach of the federal budget. Every private corporation in the United States is required to use accrual accounting in its financial statements, says Bartlett.  He reports that Medicare liabilities over the next 75 years were $38 trillion at the end of 2009, but were cut by $15 trillion in 2010 because of the health reform law. Of course, that $15 trillion “cut” was just being transferred from Medicare to the other programs within ObamaCare, so it isn’t really saving money at all.

So, the program is massively insolvent. But it is also a lousy insurance program. You would not be able to sell this program as a private benefit plan. It has a bewildering array of deductibles, coinsurance, and limits on covered benefits. In fact there is absolutely no limit on the out-of-pocket liability for beneficiaries, so that most people on the program also have to buy an expensive supplemental policy to cover all the coverage gaps.

The list of failures is so long it would take a book (which I am currently writing) to list them all. The SCHIP program was supposed to ensure that all low-income children would have insurance coverage. It didn’t. Hillary Clinton’s federal vaccine program was supposed to ensure that all kids could be vaccinated at low cost. The doses rotted in warehouses.

It is not the opponents of these programs that are ideological, but the supporters. In most cases the skeptics were willing to give the ideas a chance to succeed even while doubting that they would. But the supporters are unwilling to ever admit failure and keep pushing the same ideas in spite of all the empirical evidence.

MLRs: The Seductive Myth of ObamaCare

By Ross Schriftman

Would you invest your money in a company whose managers spend most of their time focused on how to reduce 15% of their spending?  Wouldn’t you find it weird if they conducted lots of meetings about how to cut back on the number of desk staplers they purchased rather than figuring out how to keep their overall prices competitive and improving their customer service so they could sell more of their products or services?

Unfortunately the new health care “reform” law in Washington is forcing health insurance companies to do just that.  Within the massive act referred to as ObamaCare there is a whole section dealing with Medical Loss Ratios. (Also referred to as Minimum Loss Ratios).  Insurance companies are going to be required to spend no more than an arbitrary 15% of your premium dollars on “administrative” costs in the large group market and no more than 20% in the small group and individual markets.  If they do spend more they will be required to refund customers.

For years I have heard advocates supporting more government regulation of health insurance promote this concept.  They honestly believe that if the government could simply get insurance companies to spend less on running their companies the savings would pay for all kinds of new benefits and give everyone lower premiums.  This is a simplistic answer to a complex problem but the idea is very seductive. They really believe that the government can make a private industry more efficient by piling on even more regulations. In reality they will be lucky to reduce costs by more than one or two percent.  In reality this absurd provision will have many unintended consequences which will drive up dissatisfaction among the public for Obamacare.

By the way, last year most health insurance companies were already in the minimum loss range talked about.  The industry made a whopping $3 billion in profit last quarter which actually breaks down to less than 3% of premiums collected.  The drug companies enjoyed a 7% profit last year.
So where will they find the savings for our health insurance premium dollars?

What is included in the administrative side of the equation?  The new regulations list includes paying claims, collecting premiums, fraud management, some taxes and paying employees as administrative costs.  They also include paying out commissions to insurance agents including independent agents, who must pay all of their own expenses themselves.  It also includes compliance costs such as making sure every word in plan materials are in compliance and the printing and distribution of dozens of required documents to consumers.  Finally, the insurance companies are required to set up an administrative process to send out refunds if they spend too much on administration which this provision in itself adds to their costs.

With these added costs how will insurance companies comply?  Where do they have wiggle-room?  The answer is customer service.  Already health insurance companies are laying off employees leaving those who still have a job with even more work to do.  Call center wait times for customers will increase dramatically.  Insurance companies are now sending letters to the insurance agents they partner with telling them that their compensation for selling and servicing their health insurance will be cut by as much as 40%.  Many agents are considering selling other lines of insurance that will allow them to remain in business.  Many small businesses and individuals rely on their personal insurance agent to help them navigate all the new rules of ObamaCare.  Health insurance agents help keep insurance companies rates competitive by shopping coverage for their clients every year.  With fewer agents to help them many small business will now be forced to hire benefit managers at the very time when they are struggling to meet payroll and keep their own workers.  The “reform” law has forced these business owners to spend countless hours trying to figure out if they are in compliance with the new law.  Medical Loss Ratios will cut off many of them from the help they need by no longer having their own agent to help them.

The whole idea of medical loss ratios was to keep premiums down.  Instead, in order to comply some insurance companies are raising their premiums so that they can match their 15% or 20% share with the added reporting and other requirements demanded by our government officials.  In addition, health plans that do a poor job of wellness and end up with a sicker group of customers will be rewarded by not having to give refunds while those who help their customers stay healthy will be penalized with more administrative costs.

The Medical Loss Ratio provision is just another example of our government gone wild.  Rather than having this bizarre rule and requiring refunds the next Congress should throw out Obamacare and instead focus on wellness, health education and streamlining the regulations on the health insurance industry.  The elimination of medical loss ratios will actually lower administrative costs, improve innovation and may result in lower rate increases going forward.  I believe my clients would rather see better rates at renewal time than getting some kind of refund after it has gone through a nightmarish administrative process overseen by government bureaucrats that ends up costing them money.