Author Archive | John Barrett

Medicare’s Dirty Little Secret It’s already insolvent.

It’s something everyone knows, but no one wants to talk about: Medicare’s cash position makes Enron’s business model look downright reputable.

Medicare is bleeding cash — a fact disguised by creative accounting. According to Monday’s release of the 2012 Trustees Report, in 2011 Medicare took in $260.8 billion in payroll taxes and beneficiary premiums, but spent $549.1 billion in medical services. That means last year Medicare ran a $288.3 billion cash shortfall.

And 2011 wasn’t the exception; it was the norm. Since President Lyndon Baines Johnson secured passage of Medicare legislation in 1965, the program has run cash deficits every year except 1966 and 1974.

Advocates of the status quo argue that Medicare receives “general revenue transfers,” but that’s government-speak for raiding the Treasury to spend other tax revenues. It’s the dramatic use of general-revenue transfers that has hidden Medicare’s true insolvency from the public and masked Medicare’s contribution to the national debt.

The annual release of the Medicare Trustees report offers a fleeting moment for adult conversations among policymakers about the program’s long-term trajectory. We must take advantage of this year’s moment and come to a bipartisan understanding that the Medicare program needs structural reform and not just nibbling around the edges.

To illustrate why structural reform is needed, consider what it would have taken to have had a positive Medicare cash-flow balance in 2011:

For Medicare Part A (hospitals), the cash deficit was $61 billion. To balance this deficit, payroll taxes on employers and workers would have to have been increased by 31 percent.

For Medicare Part B (physicians), the cash shortfall was $168 billion. To balance this deficit, seniors’ physician premiums would need to increase by 392 percent, meaning the annual physician premium cost to seniors would have risen from $1,198 to $4,687 — an increase of $3,499.

For Medicare Part D (drugs), the cash shortfall was over $59 billion. To balance this deficit, seniors’ premiums for prescription drugs would need to increase by 871 percent, meaning the annual drug-premium cost to seniors would rise from $372 to $3,250 — an increase of $2,878.

It is plain that these sharp increases are not viable. Nonetheless, President Obama steadfastly defends Medicare’s existing financing structure. In his address to AP reporters last month, the president called alternative (and bipartisan) approaches such as premium support to be “thinly veiled social Darwinism.” Since only the fittest will survive the future collapse of Medicare, President Obama should think hard before making such accusations.

Since taking office, President Obama has overseen a Medicare cash-flow deficit of more than $869 billion. This includes $570.7 billion in red ink accumulated since the passage of the president’s signature health-care law, which siphoned off $732 billion in Medicare funding over the next ten years. By the end of 2012, the trustees project that the Obama administration will have overseen a $1.2 trillion Medicare cash shortfall.

Left unchanged, Medicare costs will continue to escalate, leading to annual shortfalls and a projected cash-flow deficit of over $450 billion in 2020. These shortfalls lie at the heart of past and future deficits. Between 2001 and 2010, cumulative Medicare cash-flow deficits totaled $1.5 trillion, or almost 28.5 percent of the total federal debt accumulated in the hands of the public during the past decade.

Going forward, the situation is even worse. By 2020, the cumulative cash-flow deficits of $6.3 trillion will constitute 41 percent of the nation’s total debt accumulation. Including interest costs, accumulated Medicare spending will be responsible for over 43 percent of public debt.

A sensible solution would be to offer Medicare beneficiaries the option of a defined-contribution program — as proposed by House Republicans and Mitt Romney. Seniors would be budgeted an annual contribution, which could be adjusted to reflect costs associated with their health status and financial wherewithal. For the federal budget, the result is a capped exposure to Medicare — one that would adjust to reflect the number of seniors and inflation.

That would be great news for the nation’s spending outlook. It would be even better news for the exploding debt and the threat it carries to the nation’s economic health. Most importantly, it would secure Medicare for future generations.

— Douglas Holtz-Eakin is the president of the American Action Forum and previously served as the director of the Congressional Budget Office. Jim Nussle is a former chairman of the House Budget Committee and previously served as the director of the Office of Management and Budget.

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If Supreme Court rejects Obama’s health law, employers, insurers will drive their own overhaul

Chicago Tribune, By Ricardo Alonso-Zaldivar

April 24, 2012: If the Supreme Court strikes down President Barack Obama’s health care overhaul, don’t look to government for what comes next.

Employers and insurance companies will take charge. They’ll borrow some ideas from Obamacare, ditch others, and push even harder to cut costs.

Here’s what experts say to expect:

— Workers will bear more of their own medical costs as job coverage shifts to plans with higher deductibles, the amount you pay out of pocket each year before insurance kicks in. Traditional insurance will lose ground to high-deductible plans with tax-free accounts for routine expenses, to which employers can contribute.

— Increasingly, smokers will face financial penalties if they don’t at least seriously try to quit. Employees with a weight problem and high cholesterol are next. They’ll get tagged as health risks and nudged into diet programs.

— Some companies will keep the health care law’s most popular benefit so far, coverage for adult children until they turn 26. Others will cut it to save money.

— Workers and family members will be steered to hospitals and doctors that can prove that they deliver quality care. These medical providers would earn part of their fees for keeping patients as healthy as possible, similar to the “accountable care organizations” in the health care law.

— Some workers will pick their health plans from a private insurance exchange, another similarity to Obama’s law. They’ll get fixed payments from their employers to choose from four levels of coverage: platinum, gold, silver and bronze. Those who pick rich benefits would pay more.

“Employers had been the major force driving health care change in this country up until the passage of health reform,” said Tom Billet, a senior benefits consultant with Towers Watson, which advises major companies. “If Obamacare disappears … we go back to square one. We still have a major problem in this country with very expensive health care.”

Business can’t and won’t take care of America’s 50 million uninsured.

Republican proposals for replacing the health care law aren’t likely to solve that problem either, because of the party’s opposition to raising taxes. The GOP alternative during House debate of Obama’s law would have covered 3 million uninsured people, compared with more than 30 million under the president’s plan.

After the collapse of then-President Bill Clinton’s health care plan in the 1990s, policymakers shied away from big health care legislation for years. Many expect a similar reluctance to set in if the Supreme Court invalidates Obama’s Affordable Care Act.

Starting in 2014, the law requires most Americans to obtain health insurance, either through an employer or a government program or by buying their own policies. In return, insurance companies would be prohibited from turning away the sick. Government would subsidize premiums for millions now uninsured.

The law’s opponents argue that Congress overstepped its constitutional authority by requiring citizens to obtain coverage. The administration says the mandate is permissible because it serves to regulate interstate commerce. A decision is expected in late June.

The federal insurance mandate is modeled on one that Massachusetts enacted in 2006 under then-Gov. Mitt Romney. That appears to have worked well, but it’s unlikely states would forge ahead if the federal law is invalidated because health care has become so politically polarized. Romney, the likely Republican presidential nominee, says he’d repeal Obamacare if elected.

That would leave it to employers, who provide coverage for about three out of five Americans under age 65.

“With or without health care reform, employers are committed to offering health care benefits and want to manage costs,” said Tracy Watts, a senior health care consultant with Mercer, which advises many large employers. “The health care reform law itself has driven employers, as well as the provider community, to advance some bolder strategies for cost containment.”

First, employers would push harder to control their own costs by shifting more financial responsibility to workers.

Data from Mercer’s employer survey suggests that a typical large employer can save nearly $1,800 per worker by replacing traditional preferred provider plans with a high-deductible policy combined with a health care account. “That is very compelling,” said Watts.

It won’t stop there. Many employers are convinced they have to go beyond haggling over money, and also pay attention to the health of their workers.

“As important as it is to manage the cost of medical services and products, and eliminate wasteful utilization, there has been a strong recognition that ultimately healthier populations cost less,” said Dr. Ian Chuang, medical director at the Lockton Companies, advisers to many medium-size employers. His firm touts programs that encourage employees to shed pounds, get active or quit smoking.

Employer health plans were already allowed to use economic incentives to promote wellness, and the overhaul law loosened some limits.

A Towers Watson survey found that 35 percent of large employers are currently using penalties or rewards to discourage smoking, for example, and another 17 percent plan to do so next year. The average penalty ranges from $10 to $80 a month, but one large retailer hits smokers who pick its most generous health plans with a surcharge of $178 a month, more than $2,100 a year.

Overall, one of the most intriguing employer experiments involves setting up private health insurance exchanges, markets such as the health care law envisions in each state. Major consulting firms such as Mercer and Aon Hewitt are developing exchanges for employers.

As under the health care law, the idea is that competition among insurers and cost-conscious decisions by employees will help keep spending in check. Aon Hewitt’s exchange would open next January, with as many as 19 companies participating, and some 600,000 employees and dependents.

“The concept of an exchange does not belong to Obamacare,” said Ken Sperling, managing the project for Aon Hewitt. “We’re borrowing a concept that was central to the health care law and bringing it into the private sector. Whether the law survives or not, the concept is still valid.”
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Obama’s $8.3 Billion Re-Election Slush Fund

Investor’s Business Daily Editorial

Medicare: Backers like to say the more people know about ObamaCare, the more they’ll like it. So why is the administration spending $8.3 billion to hide a key provision from millions of seniors until after the election?

That’s precisely what administration officials are doing right now as a way to mask the effect of ObamaCare’s deep cuts to the popular Medicare Advantage program.

Championed by Republicans in 1997, Medicare Advantage offers seniors an escape valve from the creaky, government-run Medicare insurance program.

The idea was that private insurance companies could better manage costs than the government’s own top-down insurance plan, and give enrollees more and better benefits while still saving taxpayers money.

Medicare Advantage has proved popular with seniors, 12 million of whom have enrolled. But the left loathes it, arguing that Medicare overpays insurance companies, thereby ripping off taxpayers to enrich this industry.

Obama himself long complained about Medicare Advantage while running for office and while pitching ObamaCare.

In his 2009 health care speech to Congress, he said Medicare Advantage offered “unwarranted subsidies” that “do everything to pad (insurance company) profits and nothing to improve your care.” And he repeatedly vowed to “eliminate” these subsidies.

ObamaCare delivered — targeting Medicare Advantage for $145 billion in spending cuts over the next 10 years, equal to almost 30% of ObamaCare’s planned Medicare cuts.

Whatever merits to the claim that Medicare Advantage overpays insurers — there’s some evidence that this does happen — the fact is that ObamaCare’s payment cuts will, if left in place, drive many out of the Medicare Advantage business.

Medicare’s own actuary reported that ObamaCare would eventually force more than 7 million seniors off their private plans and back onto traditional Medicare as insurers flee the market.

Obama may not care that this violates his endlessly repeated promise that “if you like your health plan you can keep it.”

But somewhere along the way, someone in his administration realized that millions of seniors would soon catch on that he was lying — and that this would happen just before the November election, when seniors make their annual Medicare Advantage selections.

Not wanting to confront angry voters who’ve seen their health care choice eliminated by ObamaCare, the administration apparently decided instead to paper over these spending cuts, pumping $8.3 billion back into the program through “bonuses” to Medicare Advantage plans.

The administration’s lame excuse is that this is simply a “demonstration project” to see how the bonus money can be used to encourage the private plans to improve quality.

But the attempt to disguise its real purpose was so inept that it didn’t take the Government Accountability Office long to uncover the scam.

Among the glaring problems with this “experiment”:

• It’s seven times larger than any demonstration project Medicare has ever attempted.

• Almost all the bonus money is front-loaded. In fact, in the first year, the extra bonuses will fill in more than 70% of ObamaCare’s scheduled Medicare Advantage cuts. That will, conveniently, keep Medicare Advantage plans up and running through the election.

• For all the money, the so-called experiment was so poorly designed that it won’t produce any credible results.

The entire project is so transparently political that the normally reserved GAO urged the Health and Human Services Department to cancel it altogether.

Canceling is just the beginning. The bigger question lawmakers must answer is this: Can it really be legal for a Cabinet agency to spend $8.3 billion in taxpayer money simply to help Obama get re-elected?

 

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Health Care Reform: Workers May Trade Health Insurance For Raises

Would you give up your health insurance for a raise?

A minority of big companies offered extra pay to workers who waived their health benefits last year. This practice, which was common decades ago, could see a resurgence once the biggest parts of President Barack Obama’s health care reform law take effect in 2014 and start to rearrange the health insurance market.

Last year, 17 percent of employers with at least 500 workers gave a little extra money to those who turned down an offer of health insurance, according to a survey conducted by the human-resources advisory firm Mercer that will be published later this month. The Huffington Post obtained early access to the data. The median amount of extra pay was $1,000, which is considerably less than the $11,664 average cost an employer and worker incur for job-based health insurance this year, according to the consulting company Towers Watson.

Jobs are the most common source of health insurance for working-age Americans and provide 154 million people with coverage, according to the Congressional Budget Office. But the implementation in 2014 of new benefit requirements on employers and individuals, along with the creation of health insurance “exchanges” and federal subsidies for individuals, families, and small businesses, will change how many Americans get health plans, unless the Supreme Court strikes down the law on constitutional grounds.

The health care reform law includes a “pay or play” requirement that companies with at least 50 employees must either provide employees with health benefits or pay penalties as high as $3,000 per worker to offset the government’s cost of subsidizing insurance coverage. Although jobs are projected to remain the number-one source of health coverage, some workers will be affected, since the penalty is less money than the insurance coverage.

In some cases, that will mean higher paychecks to make up for lost benefits. In 2006, Dallas resident Red Coine was offered that deal by Cisco Systems, where he was a network engineer working as a contractor. Coine, who is now 35, got an extra $200 a month and bought his own health insurance for $88, so he came out $112 ahead. “I never regretted giving up the company insurance, and no one ever mentioned to me or complained about not having it,” he told HuffPost via email.

The connection between jobs and health insurance has been weakening over the years for reasons unrelated to Obama’s health care reform law. Rising health care costs have led more employers to drop coverage: Between 2001 and 2011, the percentage of companies offering health benefits dropped from 68 percent to 60 percent.

The health care reform law created incentives that will lead some employers to maintain coverage or begin offering benefits, but cost pressures will likely cause other companies to stop providing health insurance to some or all of their workers. According to another Mercer survey, 91 percent of firms with at least 500 workers are likely to keep offering health benefits.

Employees of smaller companies are more likely to lose coverage, but are already more likely to not have it in the first place, according to Mercer.

Overall, 14 million fewer workers will get insurance from their jobs as a result of health care reform, and all but 2 million will find coverage elsewhere, thanks to the law’s federal subsidies and insurance market reforms, according to the Congressional Budget Office. Economists also predict companies that drop insurance for some or all of their workers will boost their compensation by raising pay or strengthening other fringe benefits.

People earning between 133 percent and 400 percent of the federal poverty level — $30,657 to $92,200 for a family of four this year — would qualify for federal tax credits to defray the cost of health insurance, which could make it cheaper than the coverage available at work, said Tom Billet, a senior consultant at Towers Watson.

Modified from Huffington Post

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Californians Struggle To Find Accurate Medical Pricing

California residents are having difficulty obtaining accurate price estimates for medical procedures despite a state law requiring hospitals to publish average charges for common procedures on a state website, the Los Angeles Times reports.

Barriers To Finding Accurate Pricing

Although the law — enacted in 2006 — requires hospitals to publicly post average charges for common medical procedures, most facilities do not list prices on their own websites, where residents are more likely to seek cost information. In addition, the prices listed on the state Office of Statewide Health Planning and Development website often are not what people actually pay for a procedure. Insured patients would pay a smaller amount than listed on the site, depending on the price negotiated by their insurer. In addition, prices provided by hospitals contacted by the Times often did not include physician costs or other related expenses.

David Byrnes, spokesperson for OSHPD, said the agency does not have the authority to request additional hospital data beyond billing charges. Meanwhile, insurers cannot provide detailed data that include specific names of hospitals or clinics because they would be in violation of contracts with health care providers.

California Insurance Commissioner Dave Jones (D) said he wants more consumers to have access to insurers’ pricing information. He said, “Consumers don’t really know the health-cost consequences of their decisions,” adding, “and they have more of their money at stake.”

Pending Legislation

State Sen. Ted Lieu (D-Torrance) has offered a bill that would require hospitals to disclose all potential charges for medical procedures — including all physician and lab fees — in certain cases. The Senate is scheduled to conduct a second hearing on the legislation later this month.

The California Medical Association and the California Hospital Association are concerned about the measure. The groups say hospitals should not be responsible for providing physician charges because doctors are independent contractors and cannot be employed by hospitals under state law.

The California Medical Association says insurance companies are better positioned to assist residents with questions about out-of-pocket costs. Molly Weedn, spokesperson for the group, said, “We have to ask whether we want physicians focusing on paperwork or treating patients”

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Most Small Businesses Not Planning for Health Care Reform According to Survey

Survey of true “small businesses” explores how employers feel about health care reform, why they provide coverage, and how far they’re willing to go to save money

Mountain View, CA – March 21, 2012 – The majority (85%) of small businesses are not making changes or long-term plans based on health care reform legislation, according to a recent survey of small business owners released today by eHealth, Inc.

Beginning in 2014, the Patient Protection and Affordable Care Act of 2010 (ACA) requires businesses with the equivalent of fifty or more full-time employees to provide health insurance coverage for their workers. However, businesses with fewer than 50 employees are exempt from this requirement, although employees may be required to purchase their own coverage.

eHealth’s Small Employer Health Insurance Survey focuses on these small businesses, many of them family-run. Nearly nine-in-ten (88%) of the small businesses responding to the survey had ten employees or fewer. The survey was conducted anonymously online between February 10 and March 13, 2012 and gathered responses from a total of 236 small businesses that had purchased group health insurance policies through eHealthInsurance.com.

Based on their size (fewer than 50 employees) none of the businesses surveyed would be required by the ACA to offer health insurance coverage to employees in 2014. However, the majority (60%) planned to continue offering coverage for their employees in 2014. Among those employers who considered themselves knowledgeable about aspects of the ACA, a larger majority (69%) said they had no plans to stop offering coverage to employees. According to the survey, most employers feel they have a moral obligation to provide health insurance for employees or feel they need to continue to do so in order to recruit and retain talented workers.

Small businesses are still sensitive to health care costs, however, with nearly all respondents (95%) citing “affordability” as one of the two most important factors when choosing a plan. Small businesses are also open to creative solutions to reduce health coverage costs. Many are willing to drop benefits like dental and vision (58%) or consider raising deductibles and offering accident or critical illness coverage (74%) in order to keep costs lower and continue offering employees health insurance.
eHealth’s Small Employer Health Insurance Survey report can be downloaded in full here or through the eHealth, Inc. Media Center.

Additional Survey Results

  • Nearly eight-in-ten small businesses (79%) report spending $200 or more for health insurance per insured employees or dependent each month
  • A majority (53%) said they required employees to contribute 10% or less of the total cost for their own or their dependents’ monthly health insurance premiums
  • More than six-in-ten (61%) reported that enrollee deductibles on their group health insurance plans were $1,500 or less per year
  • One-third of respondents (34%) said they might consider dropping employer-based group health insurance beginning in 2014
  • A majority of respondents (53%) said that they always or sometimes impose waiting periods before allowing new employees to join the company health insurance plan
  • More than four-in-ten (44%) said they felt a “moral obligation” to provide employees with health insurance
  • Most small businesses identified “affordability” (95%) and “richness of benefits” (68%) as the two most important factors when choosing a health insurance plan
  • Only six percent considered the insurer’s brand a top-two factor when choosing a plan
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Two Years Later—The ObamaCare Lies Continue

THIS ARTICLE IS AN EDITORIAL FROM INVESTORS BUSINESS DAILY

The Obama Record: Little noticed in the president’s remarks attacking the Supreme Court last week were two whoppers he told about ObamaCare. Then again, since that reform was built on untruths, why should he stop now?

At that press event, Obama told any justice thinking of overturning ObamaCare’s central tenet that “in the absence of an individual mandate, you cannot have a mechanism to ensure that people with pre-existing conditions can actually get health care.”

But this is false.

In fact, Obama himself argued precisely the opposite during the 2008 campaign, saying a mandate wasn’t needed to achieve universal coverage. “The reason people don’t have health insurance isn’t because they don’t want it,” he said then. “It’s because they can’t afford it.”

Plus, ObamaCare itself proves a mandate isn’t needed to cover those with pre-existing conditions. The law set up federal “high risk” pools that offer insurance to those denied it by private companies. Yet instead of making this a permanent solution, Obama kills these pools off in 2014 in favor of the mandate.

Obama also claimed at that press conference that the law “was passed by a strong majority of a democratically elected Congress.”

Also false.

The House approved it by a slim 7-vote margin, with 34 Democrats joining every Republican to oppose it. Less than a year later, the House voted to repeal ObamaCare by a significantly larger margin, 245-189.

It was only in the Senate, where Democrats held a temporary supermajority, that it did well, and even then they could only get it through using a variety of unusual parliamentary tricks. What’s more, just 51 Senators voted to keep the law in a 2011 vote.

But as the old saying goes, lies beget more lies. Here’s just a sampling of past Obama prevarications about his signature reform law:

“If you like your doctor, you will be able to keep your doctor, period. If you like your health care plan, you’ll be able to keep your health care plan, period. No one will take it away, no matter what.”

Fact: The Congressional Budget Office estimates that as many as 20 million will be forced off their plans as employers dump workers into the government health exchanges to avoid ObamaCare’s costs. A survey by McKinsey and Co. found that nearly a third of employers were likely to drop coverage for employees once ObamaCare kicked in.

And an analysis by the Medicare actuary found that ObamaCare’s attacks on Medicare’s private insurance options would force nearly 8 million seniors out of plans they’ve chosen.

“If any bill arrives from Congress that is not controlling costs, that’s not a bill I can support.  It’s going to have to control costs.”

Fact: The law Obama signed contains no meaningful cost-control provisions, something every honest health care analyst admits.

“We will bring down premiums by $2,500 for the typical family.”

Fact: The CBO projects that premiums over the next decade will climb at a faster rate than they did in the past five years. The CBO also projects that premiums in the individual insurance market will be as much as 13% higher in 2016 as a result of the law. Premiums for small businesses could go up 1%. Meanwhile, a study done for Wisconsin by one of the architects of ObamaCare found that “the majority of individuals in the nongroup market will pay more in premiums for health insurance in 2016 than they do today.” The average increase: 30%.

“And it will slow the growth of health care costs for our families, our businesses, and our government.”

Fact: ObamaCare will accelerate spending at every level. In 2014, when the law takes full effect, national spending on health care will shoot up 8% and go on climbing at more than 6% a year, according to official government forecasts.

“The plan I’m proposing will cost around $900 billion over 10 years.”

Fact: The current Congressional Budget Office report pegs the 10-year cost of ObamaCare at $1.7 trillion. The only way Obama could get his price tag down so low is by putting off the start date by four years. Once Obama-Care fully kicks in, it will add $260 billion a year, and rising, to the budget.

“To help ensure that everyone can afford the cost of a health care option in our exchange, we need to provide assistance to families who need it. That way, there will be no reason at all for anyone to remain uninsured.”

Fact: Despite spending $800 billion to subsidize premiums in the government-run exchanges, over the next 10 years, along with $931 billion in new Medicaid costs, ObamaCare will still leave 27 million — or 10% of the population — uninsured, according to the CBO.

We could go on, but you get the idea.

The best thing the Supreme Court could do for the country is to chuck the entire law, and give Congress the opportunity to put together an honest package of reforms.

Emphasis added

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Officials ponder how to ensure healthcare reform in California

As doubts grow about the survival of the federal healthcare law, state officials are considering ways to keep key elements of the legislation alive in California.

Skepticism of the Affordable Care Act by conservative Supreme Court justices during oral arguments last week has raised the possibility the court will strike the individual mandate to purchase health coverage or throw out the entire law as unconstitutional.

Even if the whole law is scrapped nationally, many of its consumer protections, such as guaranteed coverage for children, are expected to survive in California. But a massive expansion of coverage for the poor and the uninsured would be doubtful without tens of billions of dollars in federal aid.

There’s already legislation pending in Sacramento to further implement the federal overhaul, and those proposals could become the vehicle for a state substitute. Crucial to that effort, supporters say, would be ensuring all Californians purchase health coverage in order to spread the risk and lower costs for everyone.

“I would work with other state leaders to make sure California continues to move ahead,” said Dave Jones, state insurance commissioner. “We require everyone to have auto insurance in California, and the world hasn’t stopped spinning on its axis. All this political tumult generated by the far right is really ignoring the reality in California and elsewhere.”

Assemblyman William Monning (D-Carmel), who is chairman of the state Assembly Health Committee, said he would support a measure mandating Californians buy coverage if federal funding is still available to assist consumers.

But Monning said such a measure probably would take a two-thirds majority vote in the Assembly and Senate because such a state requirement to buy coverage could be considered a tax and require a super-majority. “It could be an uphill fight to get the political support to do that,” he said.

California went down this route before, nearly approving an individual mandate in 2008 as part of reform under then-Gov. Arnold Schwarzenegger.

Some health-policy experts said California could pursue other options to encourage healthy consumers to join the insurance pool and to help offset the medical costs of sicker policyholders. The state could impose an open enrollment period similar to what employers use and have penalties for people who try to sign up at a later time.

California insurers are preparing to fight any efforts to force them to accept sick applicants without some requirement that healthy Californians enter the market as well. Without that, the industry warns that premiums will rise substantially and even more people will drop coverage. The state has nearly 7 million uninsured, or about 21% of the population, according to the California HealthCare Foundation.

“California would need to look at the pillars upon which the entire Affordable Care Act is based and make sure there is not a problem that comes from pulling out one pillar of the structure,” said Patrick Johnston, president of the California Assn. of Health Plans.

Soon after President Obama signed the healthcare law in March 2010, California took the lead and became the first state to enact legislation for an insurance exchange, which is designed to negotiate the best rates with insurers and help millions of consumers shop for policies.

Since then, state lawmakers have passed other laws implementing federal reform, including provisions that guaranteed coverage for those under age 19, allowed young adults to remain on their parents’ policies until age 26 and mandated maternity coverage.

Jones said all those reforms — plus a new state requirement that health insurers spend at least 80% of premiums collected on medical care for individual policyholders — would remain intact without the federal law. Insurers contend that California’s rule on spending for medical care may not stand if the federal law is deemed unconstitutional.

But the biggest blow by far would come if the Supreme Court ruling cuts off federal money for the two most expensive parts of the federal healthcare program: an expansion of Medi-Cal — the state and federal program for the poor and disabled — and subsidies for families purchasing private coverage.

Under the federal law, California stands to get as much as $55 billion in federal funds for the Medi-Cal expansion from 2014 to 2019, according to the Kaiser Commission on Medicaid and the Uninsured, and a similar amount for subsidies for people who are now uninsured. An estimated 2 million people would be added to Medi-Cal, and 2.2 million Californians could be eligible for subsidies toward the purchase of private coverage.

Meanwhile, the California Health Benefit Exchange — using about $40 million in federal money — has been setting up an enrollment process and marketing campaign to reach consumers in preparation for a January 2014 launch.

Peter V. Lee, the exchange’s executive director and a former healthcare official in the Obama administration, said he’s aware state lawmakers are looking at a health insurance requirement for all Californians, but the exchange has not taken a position while the court’s decision is pending.

Lee said both a mandate and government subsidies are crucial components to ensure the exchange attracts a large enough pool of consumers to be effective.

“The exchange in California isn’t pausing, isn’t waiting, isn’t taking its foot off the gas,” Lee said. “There’s a broad consensus in this state that we need to address the access and affordability problem together.”

Consumer advocates are urging state leaders to forge ahead because, they say, the status quo is untenable for people with and without insurance. The average California family with coverage pays an additional $1,400 in premiums annually to cover the costs of the uninsured, according to the California Endowment, a private foundation focused on health issues.

“It is a little premature to be reading an obituary” for the federal law, Insurance Commissioner Jones said. “Having said that, we need to be prepared, and those conversations are occurring.”

Modified from an article by Chad Terhune, Los Angeles Times

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California seeks limits on small-business self-insurance trend

Critics say health insurers offering new type of self-insurance for firms with as few as 25 workers are gaming the system and may undermine a key goal of the federal Affordable Care Act.

Sensing a fresh threat to state and federal healthcare reforms, California insurance officials are seeking new limits on a controversial form of health coverage insurers are selling to small employers. At issue is a new type of self-insurance for small businesses with as few as 25 workers.

Self-insurance, in which employers pay medical providers for their workers’ care, has traditionally been used only by large employers that have the financial resources to pay for expensive medical claims. A Kaiser Family Foundation study found that 60% of U.S. workers with health coverage were in self-insured plans last year.

About 3 million Californians get health coverage through small businesses with fewer than 50 employees while 15 million are insured through larger employers, according to the California HealthCare Foundation. Small businesses are eager for new options since the average premium for employer coverage in California has increased 154% over the last decade, more than five times the 29% increase in the state’s overall inflation rate.

Critics said insurers such as Cigna Corp. are using these new plans to game the system and cherry-pick companies with healthier workers. They said this could undermine a key goal of the federal Affordable Care Act to lower premiums by pooling together more healthy and sick Americans into insurance exchanges. Premiums could continue to escalate without a diverse pool of consumers. That prospect has federal health officials weighing action against this practice as well.

*Self-insurance is attractive for many reasons, particularly the prospect of lower costs. It’s exempt from state insurance regulations such as mandated benefits, granting employers the flexibility to design their own benefit package and the opportunity to reap some of the savings from employee wellness programs. A federal law, the Employee Retirement Income Security Act, or ERISA, governs self-funded plans. Some aspects of the Affordable Care Act do apply to self-insurance, such as the elimination of caps on lifetime benefits and some preventive care at no cost.

Insurance officials say that they are responding to employer demands for more affordable coverage and that regulators shouldn’t interfere in the market. Mike Ferguson, chief operating officer at the Self-Insurance Industry Institute of America, a trade group, said there’s no evidence that insurers are targeting companies with healthier employees.

“We are concerned about regulators’ actions because self-insurance is arguably one segment of the healthcare market that is working well,” Ferguson said. “These companies are generally able to control costs better and offer more customized benefits.”

Now some insurers are chasing after much smaller customers with new plans designed to limit employer payouts for big claims using what’s called stop-loss policies. This guarantees that businesses won’t be responsible for anything over a certain amount per employee, perhaps as low as $10,000 or $20,000, with the rest paid by an insurer. Regulators and health-policy experts say this arrangement undercuts the notion of self-insurance since employers aren’t bearing much of the risk, and it allows companies to circumvent some state insurance rules.

California Insurance Commissioner Dave Jones will unveil proposed legislation next week that would bar insurers from selling stop-loss policies below a certain amount. The specific dollar figure is still under consideration, but some experts recommend a minimum of $40,000 per worker. This proposal would make these new self-insured plans less attractive for small employers because they would be on the hook for more employee medical bills.

“The goal of the legislation is to help ensure the success of the small group market as significant healthcare reforms are going into effect,” said Janice Rocco, California’s deputy insurance commissioner for health policy. “There’s a concern carriers are selling a product that’s not really appropriate for small groups.”

Officials in the Obama administration are keeping a close eye on developments in California and other states where insurers are aggressively selling these plans.

“We are working carefully to ensure that consumers in all markets have the protections guaranteed by the Affordable Care Act and will provide more clarity on the tools available to reinforce these protections soon,” a spokesman for the U.S. Department of Health and Human Services said.

Monday, the U.S. Supreme Court will begin hearing arguments over the constitutionality of the federal healthcare law and specifically its mandate that individuals purchase health insurance.

Anthem Blue Cross, California’s largest for-profit insurer and a unit of WellPoint Inc., began selling these self-insured plans to employers with as few as 35 workers March 1, down from its previous minimum of 250 employees. Assurant Inc., a New York-based insurer, is selling plans to companies in California and other states with as few as 10 workers.

Marc Neely, vice president for Cigna’s self-insured business in 14 Western states, said his sales to small businesses with as few as 25 people are growing at a double-digit rate because employers are fed up with annual rate hikes of 10% to 15% on their traditional plans. Neely said Cigna offers stop-loss coverage as low as $20,000 per employee. “We’re excited about California as a growth market for us,” Neely said.

Higher stop-loss amounts are more the norm. The average stop-loss policy for firms with fewer than 200 workers was $78,321 per employee last year, according to the Kaiser Family Foundation. Larger firms had stop-loss coverage of $208,280 per worker, on average.

Some other states have already taken action. Oregon and New York ban the sale of stop-loss insurance to employers with fewer than 50 people enrolled, making self-insurance unappealing. However, there is debate over states’ power in this area because the federal ERISA law generally bars state regulation of self-insured plans.

This issue has even split the insurance industry. For instance, Blue Shield of California supports the state’s bid for tougher rules. But that hasn’t stopped the company from following its rivals by introducing self-insured plans in December for companies with as few as 100 employees. Previously, the company wouldn’t go below 250 workers.

“It has the potential to take out the favorable risks and destabilize the fully insured market,” said David Joyner, Blue Shield’s senior vice president of large group and specialty benefits. “There is a risk of cherry-picking.”

Joyner said it’s “silly” for insurers to provide stop-loss coverage as low as $10,000 to $20,000 since that’s not how self-insurance typically works. But Blue Shield isn’t willing to completely cede the market to its rivals. “We definitely need to offer something because our competitors are,” Joyner said.

Self-insured plans have an immediate cost advantage since there’s no state tax on insurance premiums being passed along by an insurer. Starting in 2014, they will also avoid additional fees levied on health insurers to help pay for the federal healthcare law. The Self-Insurance Institute of America estimates companies can save 3% to 5% annually because of better claims management.

Small businesses switching to self-insurance do gain more insight into why their medical costs might be rising so fast because they have access to detailed claims data. (Employee information is protected under federal privacy law.) Under California law, insurers aren’t required to share those details with an employer on a traditional health plan. Cigna’s Neely said companies like the ability to see whether their employees’ use of healthcare is above average and to make changes in the benefit package to bring those costs in line.

 

Modified from a Los Angeles Times article

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Health care reform: Four inconvenient truths

President Barack Obama promised over and over during the health care debate that “if you like your health care plan, you can keep your health care plan.”

It turns out that, for a lot of people, that isn’t true.

A Congressional Budget Office report issued this week says that 3 million to 5 million people could move from employer-based health care plans to government-based programs as the Affordable Care Act takes effect. And in the worst-case scenario, it could be as many as 20 million.

For Obama, it’s an inconvenient truth at a really inconvenient time — coming less than two weeks before the Supreme Court begins oral arguments on the law and just as the administration touts the law’s early benefits on its second anniversary.

And it’s not the only hard truth Obama and the law’s supporters are facing. No matter what they said about rising health care costs, those costs aren’t actually going to go down under health care reform. The talk about the law paying for itself is just educated guesswork. And people aren’t actually liking the law more as they learn more about it — and some polls show they are just getting more confused.

But it’s Obama’s signature promise — “If you like it, you can keep it” — that’s most likely to get thrown back in his face. Here are the four hard truths of health care reform as the law approaches its March 23 anniversary:

1) Some people won’t get to keep the coverage they like.

For Republicans, the CBO report is a giant “I told you so” moment — and they’re lining up to tell you so.

“President Obama repeatedly promised during the health care debate, ‘if you like your current plan, you will be able to keep it,’” House Energy and Commerce Committee Republicans said in a statement Friday. “Even under CBO’s ‘best estimate,’ President Obama will have broken his promise to 3 million to 5 million Americans each year, but unfortunately, that number could be much higher.”

Supporters of the law say it’s not as bad as all that. The 20 million figure is the extreme scenario, they point out — CBO says that 3 million to 5 million is more likely. And that’s out of the 161 million Americans who would have had workplace health insurance before the law was passed.

Even in that case, the number is misleading, according to Topher Spiro of the Center for American Progress, because CBO says about 3 million wouldn’t be forced out. They would leave their workplace coverage voluntarily — possibly for better coverage, with subsidies, through the law’s new health insurance exchanges.

And for the rest, Spiro said, employers will have to take the responsibility for what happens — because they’ll still have plenty of incentives to offer coverage to their workers, especially once the individual mandate requires everyone to have it. “If they decide to drop coverage, that will be their decision, and they should not blame the health care law,” Spiro said.

But try explaining all that over the 30-second Republican campaign ads that are sure to come. And it’s not what Obama promised as he pushed for the new law two years ago.

“If you like your plan and you like your doctor, you won’t have to do a thing,” Obama promised at a press briefing in June 2009. “You keep your plan; you keep your doctor. If your employer’s providing you good health insurance, terrific. We’re not going to mess with it.”

The estimate of 3 million to 5 million is also a net figure, so it masks some bigger changes in both directions.

For one thing, CBO says 11 million Americans won’t get employment-based health insurance they would have had before the law — so they will be forced out (technically by their employer, not by the president, but the context will be the changes brought about by the health law). Another 9 million would gain coverage — but everyone who loses it will see their lives disrupted, and it will be used as more evidence of broken Obama promises.

But all of that assumes CBO is right. For the law’s supporters, the dream scenario is that employment-based coverage will go up — which is what happened in Massachusetts under Mitt Romney’s health care reform law, which (as his Republican rivals have been known to point out) also has an individual mandate. According to the state’s figures, the percentage of employers that offer health coverage has increased from 70 percent to 77 percent since 2005.

2) Costs aren’t going to go down.

The video released by the Obama campaign Thursday has a graph that shows health insurance premiums climbing and climbing — way above general inflation. Giving families and businesses relief was a big part of Obama’s sales pitch for health care reform.

“Health care costs had been rising three times the rate of inflation, crushing family budgets and choking businesses. And he knew that he couldn’t fix the economy if he didn’t fix health care,” narrator Tom Hanks says in the video.

But no matter what happens with the law, the line on that graph isn’t going to go down. If the law works as the administration hopes, premiums may not rise as fast. But they’re not going to plummet.

That’s because the main drivers of rising costs — including technology, expensive new drugs, an aging population, a surge in chronic diseases, and Americans’ propensity to use a lot more health care than many other countries, even if it doesn’t make them any healthier — have nothing to do with the law.

It’s not clear whether a lot of people actually expected premiums to go down — but there’s already a perception that the law has increased the cost of insurance, which is feeding the negative attitudes. A Kaiser Family Foundation poll released this week found that 49 percent believe the law has “significantly increased the price of health insurance.”

That’s not true. An Aon Hewitt survey of health plans found that health insurance premiums on average rose 12.3 percent in 2011 — but only an average of 1.5 percent can be attributed to the health law. And health premiums had been rising for years before the law was passed.

But what is true is that what most people pay for their insurance — either through higher premiums or bigger co-pays and deductibles — aren’t rising more slowly. The law creates lots of experiments for delivering health care more efficiently, but those are just getting underway. If those don’t work, and costs keep rising, the law will get blamed for it.

3) It’s just a guess that the law can pay for itself.

The Obama administration insists that the health care law will actually reduce the deficit — which sounds like a fantasy to many people, since the law will clearly increase spending through insurance subsidies and an expansion of Medicaid.

But that’s what CBO says. And it’s because the budget office believes the law will pay for itself through cuts in Medicare payments and various new taxes, including fees that health insurers and medical device makers will pay.

Like everything else CBO does, though, those estimates are mostly educated guesses — and they assume Congress is actually going to let the Medicare cuts happen. For example, the law is supposed to save $157 billion over 10 years by increasing Medicare payments more slowly for inpatient hospital, home health and skilled nursing facility services. The law expects those providers to become more productive and more efficient. But watch for plenty of lobbying pressure on Congress to cancel those cuts.

4) “The more they know, the more they’ll like it” isn’t happening.

When the bill passed, Democrats were convinced that Americans would like the health care reform law more once they were able to see its benefits. When then-House Speaker Nancy Pelosi said Congress had to “pass the bill so you can find out what is in it” — an inartful phrase that Republicans have happily quoted ever since — her aides insisted that’s what she meant: People would find out about its benefits once the controversy died down.

Except the controversy has never died down, and people don’t like the law any more now than they did then.

The latest Kaiser Family Foundation poll found that 41 percent had favorable views of the law, while 40 percent had unfavorable views. That’s down from the 46 percent who favored the law in April 2010, right after Obama signed it.

And people actually seem to know less about what’s in the law than they did then. Only 56 percent now know that people will get subsidies to pay for health insurance, compared to the 75 percent who knew in April 2010. Just over half of Americans knew that people with pre-existing conditions will be guaranteed coverage, compared to the 64 percent who knew it in 2010.

The part the most people knew about is the individual mandate — the least popular part of the law. And once the Supreme Court starts hearing the health care reform case on March 26, they’ll hear about that part even more.

Modified from a Political.com article

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