HEALTH INSURANCE EXCHANGES MUST BE ACCESSIBLE AND CONSUMER FOCUSED FOR PURCHASERS

Business Wire –

Nov. 8: Orange, CA. – As states around the country begin to assemble their own health insurance exchanges as mandated by healthcare reform, the nation’s leading expert on such programs believes some fundamental essentials must be followed in order for these exchanges to be stable and sustainable.

“State exchanges need to be as welcoming to those currently insured as they are to the uninsured,” said Ron Goldstein, president of CHOICE Administrators, the nation’s leader in developing and administering employee-choice health benefit programs. “Exchanges will need to appeal every bit as much to individuals and small groups who do not qualify for subsidies or tax credits as they do to those who qualify for these incentives. Only by being inclusive to all individuals can a state exchange attract the type of balanced enrollment that will allow it to be a stable and sustainable force in the market.”

As the architect and president of CHOICE Administrators, Goldstein oversees the nation’s oldest and most successful private health insurance exchange for small and mid-size groups – CaliforniaChoice. Launched in 1996 CaliforniaChoice currently works with more than 10,000 employers and covers 150,000 members. In August it became the first health insurance exchange in the nation to reach the 20 million member-month historical plateau.

Leveraging this experience, Goldstein believes that in order for state exchanges to be balanced and sustainable, they must focus on a three-pronged formula for success. “First, state exchanges must harness existing sales and enrollment channels such as brokers and general agents who already have established relationships in the market and who know how to get the job done,” he says. “It is vitally important that we don’t unnecessarily disrupt the market or force purchasers away from something that is already working.

“Second, state exchanges will need to make sure they are operationally and administratively excellent with a strong consumer focus,” Goldstein continues. “And third, they need to acknowledge that there will remain a market outside the exchange providing businesses and consumers choices in their healthcare decision making.”

Health insurance exchanges are a key feature in the Patient Protection and Affordable Care Act, which mandates that every state establish a health insurance exchange by January 1, 2014, or default to a federal “fallback” exchange.

Exchanges are designed to promote choice and make health insurance purchasing more value based by allowing an individual or small business to compare the costs and benefits of various health plans and benefit options. With such information in hand, purchasers will be able to do a better job selecting a health plan that best fits their needs and budget.

“Exchanges may end up the yardstick by which health reform is judged for generations to come,” said Goldstein. “Making health insurance more accessible and affordable for all Americans is an awesome task and noble goal. If we all pull together, we can make it work.”

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New Governors to Target Health Law

By JANET ADAMY  Associated Press

Scott Walker, Wisconsin’s Republican governor-elect, says he plans to join a lawsuit over the health law.

Newly elected Republican governors are planning to blunt key parts of the federal health overhaul and join lawsuits against it, suggesting states could trump Congress as the hottest front in the fight over the law.

Republicans recaptured at least 11 governors’ seats from Democrats in Tuesday’s election, winning in Pennsylvania, Ohio, Michigan, Wisconsin, Kansas, Oklahoma, Wyoming, Tennessee, New Mexico, Iowa and Maine. Democrats reclaimed at least two seats from Republicans, in California and Hawaii.

House Republicans have pledged to repeal the law, which is designed to expand insurance to 32 million additional Americans, or at least choke off funding to implement it. Democrats in the Senate can block any repeal, and the defunding strategy faces roadblocks.

While governors can’t avoid much of the law, they can throw sand in its gears and keep states out of involvement in a central part of it—new exchanges for selling insurance policies.

Wisconsin’s Republican governor-elect, Scott Walker, met with lawmakers Wednesday to discuss how to minimize the state’s participation in the law’s expansion of Medicaid, the federal-state insurance program for the poor. He also wants to lean on private entities to run the insurance exchanges, where lower earners who qualify for tax credits and small businesses will shop for insurance starting in 2014.

Under Gov. Jim Doyle, a Democrat, Wisconsin ambitiously courted early health-law money, including funding for free birth control.

Mr. Walker is worried that the Medicaid expansion, initially paid for by the federal government, will be too costly once states must begin paying for a portion of it in 2017.

“Free money is not free,” he said in an interview. “If we can’t afford it, it doesn’t matter how much of it is free.”

Mr. Walker, along with new GOP governors in Wyoming and Oklahoma, said they planned to join in the legal fights against the law’s requirement that most Americans carry insurance or pay a fine.

Plaintiffs in the largest suit, a 20-state effort led by Florida’s Republican attorney general, plan to reach out to as many as six states with newly elected Republicans to join the effort, according to a person familiar with the case, though it may be too late to join.

Health-care companies say GOP gains at the state level offer new opportunities to influence how the law is implemented.

“We have more Republican governors who may have interest in different models,” Aetna Inc.’s Chief Executive Ronald Williams told analysts in a conference call Wednesday. So the discussion “may very well tip it more toward market-based solutions as opposed to others.”

In a recent NBC News/Wall Street Journal survey, 51% of respondents said it would be acceptable to repeal the law. President Barack Obama said Wednesday he wanted to know which parts of the law Republicans don’t like.

“When it comes to pre-existing conditions, is this something you’re for or you’re against?” he said at a news conference, referring to the mandate on insurers to cover those who already have ailments.

“Helping seniors get their prescription drugs—does that make sense or not?” he said.

Mary Fallin, a Republican elected Oklahoma governor, said she was emboldened by a largely symbolic 65%-35% vote in her state for a measure opposing the individual insurance requirement.

“I think the people of Oklahoma have spoken that they’re concerned and they do not support the program of taking over the health-care system,” Ms. Fallin said.

She said she was looking at whether Oklahoma can lean on an existing public-private program that provides insurance to the poor as an alternative to the law’s Medicaid expansion.

“We certainly will try to minimize the impact the new federal law will have on the state of Oklahoma and certainly on our budget with unfunded mandates,” Ms. Fallin said.

Should states opt out of the law’s Medicaid expansion, they would have to remove themselves entirely from the Medicaid program—an unlikely outcome.

But Ray Scheppach, executive director of the National Governors Association, said states were likely to press the federal government to delay the expansion beyond 2014 given states’ bleak budget picture.

Matt Mead, Wyoming’s Republican governor-elect, can appoint his own attorney general and insurance commissioner-two positions with ample influence over the law’s enactment.Mr. Mead said in an interview that the current governor, a Democrat, has already begun preparing the state to operate the insurance exchanges, but he hasn’t decided whether he will go forward with running them. The federal health law provides for state-based exchanges but allows states to leave operation to the federal government.

“It’s just a question of what is right for Wyoming,” he said

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States, not Congress, can thwart healthcare law

Los Angeles Times – Reporting from Washington and Chicago —

House Republicans swept to power Tuesday with promises to roll back the new healthcare law and subject its creators to a merciless round of congressional investigations.

But the fate of President Obama‘s sweeping overhaul will probably be determined not in Washington but in state capitals across the country, where the GOP also scored dramatic victories.

Republican governors and legislatures, who are charged with carrying out crucial parts of the law, will be in a position to put pressure on the White House to scale back some plans, including the extension of government-subsidized health benefits to millions of uninsured Americans.

State Republicans could also temper insurance regulations and compel a relaxation of new mandates set to take effect over the next few years.

And by joining a multistate legal challenge, Republican governors may further embolden conservative judges to invalidate a new requirement that Americans get health insurance beginning in 2014, a key pillar of the healthcare law.

The governors-elect of Kansas, Oklahoma, Wisconsin and Wyoming have already indicated they want to join the 21 states suing over the law.

“While there are some important decisions still to be made in Washington, the real action is out in the states,” said Alan Weil, executive director of the National Academy for State Heath Policy.

With Democrats in control of the Senate and President Obama sure to veto any healthcare repeal, House Republicans have little power to force many changes from Washington.

But Republicans gained at least 11 governor’s offices last week, while losing three, flipping states such as Wisconsin and Pennsylvania where Democratic governors had been moving aggressively to implement the new law.

The GOP will also control state legislatures in at least 25 states next year, up from 14. Among actions expected of the states under the law are creating state-based insurance exchanges in which people who don’t get benefits at work would be able to shop for health plans starting in 2014.

Many of the newly elected officials, such as Florida Gov.-elect Rick Scott, ran blistering campaigns against the healthcare law. Scott, a former hospital executive who personally bankrolled one of the first ad campaigns against the healthcare bill in 2009, has called the law the “single largest government power grab in history.”

However, Weil and other healthcare experts who are working with states say it is unlikely that even the most critical Republican politicians will simply refuse to implement the law.

GOP officials in many states that are fighting the law in court — including Virginia, Florida, Louisiana, Minnesota and Nevada — have already convened healthcare task forces to work on the overhaul.

“If I had been a member of Congress, I would have voted against the law,” said Louisiana Insurance Commissioner James Donelon, a Republican. “But it’s the law, and we will comply with it until and unless the courts or Congress change it.”

Republican governors have another incentive. The new healthcare law authorizes federal officials to operate an insurance exchange in any state that chooses not to do so.

“Having the federal government march in” is not appealing to many state leaders, said Timothy Jost, a law professor and consumer representative to the National Assn. of Insurance Commissioners.

But resistance to the new law has already emerged in several statehouses. Legislatures in Minnesota and Rhode Island in the last year have rejected bills to create insurance exchanges.

In California, legislation creating an exchange passed without a single Republican vote in the Senate.

Now, several governors are also looking at ways to slow down a major expansion of the Medicaid program, the federal-state insurance program originally designed for poor children.

Beginning in 2014, the law directs states to open Medicaid to all low-income residents, a move that is estimated to cover an additional 16 million people by 2019.

While the federal government is to provide most of the new funding, some state analysts predict it will be difficult for financially strapped states to shoulder even a small increase.

“This recession was so big and broad and wide that it will have repercussions for a decade or more,” said Ray Scheppach, executive director of the National Governors Assn.

State lawmakers may also resist efforts by the Obama administration to expand state oversight of insurance premiums, a key goal of the new healthcare law. Bills to strengthen state regulation were recently quashed in California and Pennsylvania.

Some state insurance commissioners are also looking to petition the Obama administration to delay other new regulations that require insurance companies to spend more on their customers’ medical care.

Maine was the first state to make such a request, citing concerns that the requirement set to take effect in January would force insurers to flee the state, leaving consumers with fewer choices.

Other states are expected to seek waivers from the so-called medical loss ratio provision in coming months.

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Employers Looking at Health Insurance Options

The new health care law wasn’t supposed to undercut employer plans that have provided most peopleT in the U.S. with coverage for generations.

But last week a leading manufacturer told workers their costs will jump partly because of the law. Also, a Democratic governor laid out a scheme for employers to get out of health care by shifting workers into taxpayer-subsidized insurance markets that open in 2014.

While it’s too early to proclaim the demise of job-based coverage, corporate number crunchers are looking at options that could lead to major changes. Gov. Phil Bredesen, D-Tenn., said the economics of dropping coverage are “about to become very attractive to many employers, both public and private.”

That’s just not going to happen, White House officials say.

“The absolute certainty about the Affordable Care Act is that for many, many employers who cover millions of people, it increases the incentives for them to offer coverage,” said Jason Furman, an economic adviser to President Barack Obama.

Yet at least one major employer has shifted a greater share of plan costs to workers, and others are weighing the pros and cons of eventually forcing employees to strike out on their own.

“I don’t think you are going to hear anybody publicly say ‘We’ve made a decision to drop insurance,’ ” said Paul Keckley, executive director of the Deloitte Center for Health Solutions. “What we are hearing in our meetings is, ‘We don’t want to be the first one to drop benefits, but we would be the fast second.’ We are hearing that a lot.” Deloitte is a major accounting and consulting firm.

“My conclusion on all of this is that it is a huge roll of the dice,” said James Klein, president of the American Benefits Council, which represents big company benefits administrators. “It could work out well and build on the employer-based system, or it could begin to dismantle the employer-based system.”

Employer health benefits have been a middle-class mainstay since World War II, when companies were encouraged to offer health insurance instead of pay raises. About 150 million workers and family members are now covered.

When lawmakers debated the legislation, the nonpartisan Congressional Budget Office projected it would only have minimal impact on employer plans. About 3 million fewer people would be covered through the job, but they’d be able to get insurance elsewhere.

Two provisions in the new law are leading companies to look at their plans in a different light.

One is a hefty tax on high-cost health insurance aimed at the most generous coverage. Although the “Cadillac tax” doesn’t hit until 2018, companies may have to disclose their exposure to investors well before that. Karen Forte, a Boeing spokeswoman, said concerns about the tax were partly behind a 50 percent increase in insurance deductibles the company just announced.

The tax is 40 percent of the value of a plan above $10,200 for individual coverage and $27,500 for a family plan. Family coverage now averages about $13,800.

White House adviser Furman said blaming a cost increase next year on a tax that won’t take effect for eight years “stretches credibility very far past the breaking point.”

Bigger questions loom over the new insurance markets that will be set up under the law.

They’re called exchanges, and every state will have one in a few years. Consumers will be able to shop for coverage among a range of plans in the exchange, with a guarantee they can’t be turned down because of an existing medical problem. To help make premiums affordable, the law provides tax credits for households making up to four times the federal poverty level, about $88,000 for a family of four.

Bredesen said last week that employers could save big money by dropping their health plans and sending workers to buy coverage in the exchange. They’d face a fine of $2,000 per worker, but that’s still way less than the cost of providing health insurance. Employers could even afford to give workers a raise and still come out ahead, Bredesen wrote in a Wall Street Journal opinion piece.

Employers are actively looking at that. “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism,” said Deloitte’s Keckley, the consultant.

Erin Shields, a spokeswoman for the senators who wrote that part of the law, says she’s confident that when companies do the math, they’ll decide to keep offering coverage.

That’s because employers get to deduct the cost of workers’ health care from the company’s taxes. Take away the health plan and two things happen: Employers lose the deduction and they’ll probably have to pay workers more to get them to accept the benefit cut. Not only will the company’s income taxes go up, but the employer will also face a bigger bill for Social Security and Medicare payroll taxes. So it’s not as simple as paying $2,000 and walking away.

“It is clearly cheaper for employers to continue providing coverage,” Shields said.

Another wrinkle: the health insurance tax credits available through the law are keyed to relatively Spartan insurance plans, not as generous as most big employers provide. Send your workers into the insurance exchange, and valuable employees might jump to a competitor that still offers health care.

MIT economist Jon Gruber says it’s impossible to create new government benefits without some unintended consequences, but he doesn’t see a big drop in employer coverage. “This is a brave new world with uncertainties,” said Gruber. But “the best available evidence suggests a small erosion. It’s not going go down wildly.”

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Health Reform’s $550B Hidden Costs to Taxpayers

 

Pop Quiz: if McDonald’s offered a 30 percent discount on hamburgers, would consumption increase, decrease or remain unchanged?

If you said “increase,” you understand a basic principle of economics that most Americans with common sense realize even without completing Econ 101. The idea that “if you tax something, you get less of it” is the same principle in reverse. Yet Congress completely ignored this truism in passing the health bill last March.

Notwithstanding President Obama’s firm pledge to the contrary, “Obamacare” included a plethora of new taxes that will impact Americans at all income levels. Indeed, less than half the revenue raised by Obamacare comes from taxes explicitly limited to high income households ($200,000 for individuals/$250,000 for families).

The remaining new taxes affect all consumers and include levies on prescription drugs, medical devices, health insurance providers and even tanning parlors. These and related revenue increases amount over 10 years to more about $225 billion (over $700 per U.S. resident), an enormous burden on the economy.

It is bad enough that the President would violate so flagrantly his own repeatedly-stated tax pledge. Even worse, Congress completely ignored hundreds of billions of dollars in hidden costs related to these taxes. Recall that virtually any increase in taxes results in lost production. So if we tax prescription drugs and medical devices, fewer people will buy them. The net dollar value of this lost production is called “deadweight losses” by economists, but it’s simpler to call it a social welfare loss.

This may seem trivial. However, economists have figured out that for every additional dollar imposed in new federal taxes, social welfare losses amount to 42 cents per dollar of new tax revenue collected.

Thus, every dollar of tax-financed spending really costs society $1.42 — one dollar in visible transfers from taxpayers to the government and another 42 cents in hidden losses related to unseen goods and services that would have been produced but for these added taxes.
You would think that Congress would take into account such massive hidden losses when debating proposals as expensive as health reform. Yet it does not. By ignoring these costs, the true costs of health reform — even if accepting the unrealistic way in which the bill was scored –were probably $157 billion higher than advertised.

But the bill also included Medicare and Medicaid savings that even the Medicare actuary has said “may be unrealistic,” along with an assumed 21 percent reduction in physician payments that no one expects to happen. Including the added taxes needed to cover $550 billion in savings never realized or to pay the roughly $300 billion needed over 10 years for a “doc fix” to avert deep cuts in physician pay, the overall hidden social welfare costs of taxes needed for health reform would rise to $550 billion.

Imagine you were a member of Congress who reluctantly cast a vote for health reform because Presidential arm-twisting persuaded you that the benefits exceeded costs. Had you been aware that the true cost of the bill was at least half a trillion dollars more expensive, might that have changed your vote?

It is distressing to think that such a massive cost would have made no difference in how some members of Congress evaluated this plan. Health reform barely passed the House. Yet a mere four more “no” House votes would have defeated it.

It is plausible to believe the outcome would have been different had Congress been made aware of the enormous, hidden costs embedded in this bill. Like the consumer who jumped at McDonald’s 30 percent off sale, Congress passed a plan that appeared to be about 30 percent cheaper than it actually will be after purchase. And now, we all are beginning to pay the price for this hasty and ill-informed decision.

Conover is a research scholar at the Center for Health Policy and Inequalities Research at Duke University.

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SURPRISED BY THE HIGH RATES OF HEALTH INSURANCE PREMIUMS

Santa Cruz Sentinel -Oct. 26: Santa Cruz – A program launched by California on Monday aims to insure 23,000 people with pre-existing conditions, but it won’t help Soquel resident Michael Rosenberg.A self-employed marketing consultant and tech writer, Rosenberg has a chronic nonlife-threatening condition that he says is under control with inexpensive drugs. In 2001, he was paying $570 a month for health insurance for himself, his wife and his two daughters.

He knew he would pay more when he turned 55 in September, but he didn’t expect the PacifiCare premium to go up to $2,391 a month for himself and his wife.

“That translates to a 400 percent increase in costs in 10 years, with just two on the plan now instead of four,” he said. “Even worse, we still pay 30 percent of all medical costs.”

He tried to switch to a PacifiCare plan with a higher deductible and a lower cost, but was denied. That’s when he called an insurance broker to see if he had options.

The state’s pre-existing condition insurance plan, known as PCIP, is open to people who have been without health coverage for at least six months.

So Rosenberg doesn’t qualify. “My choices are now to either let coverage lapse or pay a ridiculous $30,000 a year,” he said. “I just paid off my daughters’ college. I thought I was going to be free and clear.”

Just as people who turn 55 start thinking about retiring, they enter the age bracket where health insurers consider them a higher risk. “I’m a baby boomer,” Rosenberg said. “There must be a million like me.” He’s loath to drop his coverage, saying, “That’s Russian roulette if you have something major happen.”

Tyler Mason, a spokesman for UnitedHealthcare, PacifiCare’s parent company, said he could not comment on Rosenberg’s situation because of the federal privacy rule, but UnitedHealthcare public relations director Will Shanley issued a statement explaining that insurance premiums reflect the cost of care, which is rising due to hospitals charging higher prices, drug prices going up and increasing demand for services such as MRI and CT scans and knee replacements.

Gov. Arnold Schwarzenegger announced the PCIP plan as “a major milestone in health care reform,” funded by $761 million from the federal government. The idea is to bridge the gap between now and 2014, when federal health care reform will not allow insurers to decline to cover people with pre-existing conditions or charge them higher premiums.

“Unfortunately, these people have to make a choice,” said Jeanie Asajian of the state’s Major Risk Medical Insurance Program, noting the six-month gap was written into the federal law. “That was a surprise to the state as well. We didn’t have any input on that.”

She suggested Rosenberg and others in a similar situation look at the state’s high-risk pool, MRMIP, which stands for Major Risk Medical Insurance Program. “He doesn’t have to drop insurance for that,” she said. “It’s not nearly as expensive as what he’s paying.”

The MRMIP handbook posted online lists two options in Santa Cruz County: Kaiser, a health maintenance organization with facilities in San Jose, at $631 per month per person, and Anthem Blue Cross, a preferred provider organization, at $982 per month per person.

The state agency pays insurance brokers a fee for enrolling people in the program, Asajian said. “I had already looked at the MRMIP program,” Rosenberg said. “It sounds like I’d be eligible, except that I have been able to secure adequate coverage.’ It’s just gone through the roof in terms of cost.”

He got more bad news Monday: A rejection notice from Anthem. “There is no other carrier I can go to,” he said.

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Employers looking at health insurance options

By Ricardo Alonso-Zaldivar Associated Press

WASHINGTON—The new health care law wasn’t supposed to undercut employer plans that have provided most people in the U.S. with coverage for generations.  But last week a leading manufacturer told workers their costs will jump partly because of the law. Also, a Democratic governor laid out a scheme for employers to get out of health care by shifting workers into taxpayer-subsidized insurance markets that open in 2014.

While it’s too early to proclaim the demise of job-based coverage, corporate number crunchers are looking at options that could lead to major changes. Gov. Phil Bredesen, D-Tenn., said the economics of dropping coverage are “about to become very attractive to many employers, both public and private.”

That’s just not going to happen, White House officials say.

“The absolute certainty about the Affordable Care Act is that for many, many employers who cover millions of people, it increases the incentives for them to offer coverage,” said Jason Furman, an economic adviser to President Barack Obama.

Yet at least one major employer has shifted a greater share of plan costs to workers, and others are weighing the pros and cons of eventually forcing employees to strike out on their own.

“I don’t think you are going to hear anybody publicly say ‘We’ve made a decision to drop insurance,’ ” said Paul Keckley, executive director of the Deloitte Center for Health Solutions. “What we are hearing in our meetings is, ‘We don’t want to be the first one to drop benefits, but we would be the fast second.’ We are hearing that a lot.” Deloitte is a major accounting and consulting firm.

“My conclusion on all of this is that it is a huge roll of the dice,” said James Klein, president of the American Benefits Council, which represents big company benefits administrators. “It could work out well and build on the employer-based system, or it could begin to dismantle the employer-based system.”

Employer health benefits have been a middle-class mainstay since World War II, when companies were encouraged to offer health insurance instead of pay raises. About 150 million workers and family members are now covered.

When lawmakers debated the legislation, the nonpartisan Congressional Budget Office projected it would only have minimal impact on employer plans. About 3 million fewer people would be covered through the job, but they’d be able to get insurance elsewhere.

Two provisions in the new law are leading companies to look at their plans in a different light.

One is a hefty tax on high-cost health insurance aimed at the most generous coverage. Although the “Cadillac tax” doesn’t hit until 2018, companies may have to disclose their exposure to investors well before that. Karen Forte, a Boeing spokeswoman, said concerns about the tax were partly behind a 50 percent increase in insurance deductibles the company just announced.

The tax is 40 percent of the value of a plan above $10,200 for individual coverage and $27,500 for a family plan. Family coverage now averages about $13,800.

White House adviser Furman said blaming a cost increase next year on a tax that won’t take effect for eight years “stretches credibility very far past the breaking point.”

Bigger questions loom over the new insurance markets that will be set up under the law.

They’re called exchanges, and every state will have one in a few years. Consumers will be able to shop for coverage among a range of plans in the exchange, with a guarantee they can’t be turned down because of an existing medical problem. To help make premiums affordable, the law provides tax credits for households making up to four times the federal poverty level, about $88,000 for a family of four.

Bredesen said last week that employers could save big money by dropping their health plans and sending workers to buy coverage in the exchange. They’d face a fine of $2,000 per worker, but that’s still way less than the cost of providing health insurance. Employers could even afford to give workers a raise and still come out ahead, Bredesen wrote in a Wall Street Journal opinion piece.

Employers are actively looking at that. “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism,” said Deloitte’s Keckley, the consultant.

Erin Shields, a spokeswoman for the senators who wrote that part of the law, says she’s confident that when companies do the math, they’ll decide to keep offering coverage.

That’s because employers get to deduct the cost of workers’ health care from the company’s taxes. Take away the health plan and two things happen: Employers lose the deduction and they’ll probably have to pay workers more to get them to accept the benefit cut. Not only will the company’s income taxes go up, but the employer will also face a bigger bill for Social Security and Medicare payroll taxes. So it’s not as simple as paying $2,000 and walking away.

“It is clearly cheaper for employers to continue providing coverage,” Shields said.

Another wrinkle: the health insurance tax credits available through the law are keyed to relatively Spartan insurance plans, not as generous as most big employers provide. Send your workers into the insurance exchange, and valuable employees might jump to a competitor that still offers health care.

MIT economist Jon Gruber says it’s impossible to create new government benefits without some unintended consequences, but he doesn’t see a big drop in employer coverage. “This is a brave new world with uncertainties,” said Gruber. But “the best available evidence suggests a small erosion. It’s not going go down wildly.”

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ObamaCare’s Incentive to Drop Insurance

My state of Tennessee could reduce costs by over $146 million using the legislated mechanics of health reform to transfer coverage to the federal government.

By PHILIP BREDESEN

One of the principles of game theory is that you should view the game through your opponent’s eyes, not just your own.

This past spring, the Patient Protection and Affordable Care Act (President Obama’s health reform) created a system of extensive federal subsidies for the purchase of health insurance through new organizations called “exchanges.” The details of these subsidies were painstakingly worked out by members of my own political party to reflect their values: They decided who was to benefit from the subsidies and what was to be purchased with them. They paid a lot of attention to their own strategies, but what I believe they failed to consider properly were the possible strategies of others.

Our federal deficit is already at unsustainable levels, and most Americans understand that we can ill afford another entitlement program that adds substantially to it. But our recent health reform has created a situation where there are strong economic incentives for employers to drop health coverage altogether. The consequence will be to drive many more people than projected—and with them, much greater cost—into the reform’s federally subsidized system. This will happen because the subsidies that become available to people purchasing insurance through exchanges are extraordinarily attractive.

In 2014, when these exchanges come into operation, a typical family of four with an annual income of $90,000 and a 45-year-old policy holder qualifies for a federal subsidy of 40% of their health-insurance cost. For that same family with an income of $50,000 (close to the median family income in America), the subsidy is 76% of the cost.

One implication of the magnitude of these subsidies seems clear: For a person starting a business in 2014, it will be logical and responsible simply to plan from the outset never to offer health benefits. Employees, thanks to the exchanges, can easily purchase excellent, fairly priced insurance, without pre-existing condition limitations, through the exchanges. As it grows, the business can avoid a great deal of cost because the federal government will now pay much of what the business would have incurred for its share of health insurance. The small business tax credits included in health reform are limited and short-term, and the eventual penalty for not providing coverage, of $2,000 per employee, is still far less than the cost of insurance it replaces.

For an entrepreneur wanting a lean, employee-oriented company, it’s a natural position to take: “We don’t provide company housing, we don’t provide company cars, we don’t provide company insurance. Our approach is to put your compensation in your paycheck and let you decide how to spend it.”

But while health reform may alter the landscape for small business in unexpected ways, it also opens the door to what is a potentially far larger effect on the Treasury.

The authors of health reform primarily targeted the uninsured and those now buying expensive individual policies. But there’s a very large third group that can also enter and that may have been grossly underestimated: the 170 million Americans who currently have employer-sponsored group insurance. Because of the magnitude of the new subsidies created by Congress, the economics become compelling for many employers to simply drop coverage and help their employees obtain replacement coverage through an exchange.

Let’s do a thought experiment. We’ll use my own state of Tennessee and our state employees for our data. The year is 2014 and the Affordable Care Act is now in full operation. We’re a large employer, with about 40,000 direct employees who participate in our health plan. In our thought experiment, let’s exit the health-benefits business this year and help our employees use an exchange to purchase their own.

First of all, we need to keep our employees financially whole. With our current plan, they contribute 20% of the total cost of their health insurance, and that contribution in 2014 will total about $86 million. If all these employees now buy their insurance through an exchange, that personal share will increase by another $38 million. We’ll adjust our employees’ compensation in some rough fashion so that no employee is paying more for insurance as a result of our action. Taking into account the new taxes that would be incurred, the change in employee eligibility for subsidies, and allowing for inefficiency in how we distribute this new compensation, we’ll triple our budget for this to $114 million.

Now that we’ve protected our employees, we’ll also have to pay a federal penalty of $2,000 for each employee because we no longer offer health insurance; that’s another $86 million. The total state cost is now about $200 million.

But if we keep our existing insurance plan, our cost will be $346 million. We can reduce our annual costs by over $146 million using the legislated mechanics of health reform to transfer them to the federal government.

That’s just for our core employees. We also have 30,000 retirees under the age of 65, 128,000 employees in our local school systems, and 110,000 employees in local government, all of which presents strategies even more economically attractive than the thought experiment we just performed. Local governments will find eliminating all coverage particularly attractive, as many of them are small and will thus incur minor or no penalties; many have health plans that will not meet the minimum benefit threshold, and so they’ll see a substantial and unavoidable increase in cost if they continue providing benefits under the new federal rules.

Our thought experiment shows how the economics of dropping existing coverage is about to become very attractive to many employers, both public and private. By 2014, there will be a mini-industry of consultants knocking on employers’ doors to explain the new opportunity. And in the years after 2014, the economics just keep getting better.

The consequence of these generous subsidies will be that America’s health reform may well drive many more people than projected out of employer-sponsored insurance and into the heavily subsidized federal system. Perhaps this is a miscalculation by the Congress, perhaps not. One principle of game theory is to think like your opponent; another is that there’s always a larger game.

Mr. Bredesen, a Democrat, is the governor of Tennessee and the author of “Fresh Medicine: How to Fix Reform and Build a Sustainable Health Care System,” just out by Atlantic Monthly Press.

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Utah, a Model of a Health Exchange That Works

By David Clark

Years of experience has taught us that, when it comes to Congress, “We the people” should keep our expectations low. With the passage of federal health care reform, it seems those expectations have been soundly met. The Patient Protection and Affordable Care Act (PPACA) is, at best, seriously flawed legislation. That said, it has certainly brought health care to the forefront and now serves as an unprecedented opportunity to legitimately reform a fragmented and failing system.

One of the most sweeping elements of the law was the requirement that all states establish a statewide health insurance exchange by 2014. It further stipulates that if, by 2013, the U.S. Secretary of Health and Human Services (HHS) determines a state hasn’t made “sufficient progress” toward establishing an exchange, the feds will come in, take over, and default the state into the one-size-fits-all federal program.

State health insurance exchanges, as originally conceived, were supposed to serve as “farmers markets”–a centralized location where insurance carriers could come and display their wares and where consumers could make comparisons on based price and quality and then purchase the plan that best suited their individual or family circumstances. The authors of PPACA, however, bastardized the concept by making exchanges less competitive and more regulatory.

Currently, only two states have functioning exchanges–Massachusetts and Utah. The two models share a number of similarities, but also some distinct differences. In Utah, we began our path to reform with the notion that the invisible hand of the market, not the heavy hand of government was the best means whereby problems with the health care system could be addressed.

We began by establishing the defined contribution market and creating the Utah Health Exchange. Employers who participate in the defined contribution market give workers a specified dollar amount rather than a specified (or “defined”) benefit plan. Workers then use those dollars to shop in the exchange for a plan that best fits their needs.

This approach has the potential to unleash competitive forces by offering expanded choice while preserving pre-tax advantages for both the employer and employee. Furthermore, it introduces consumerism into the system by re-sensitizing patients to costs and giving them control over their personal medical expenditures. It should be noted that the Utah Health Exchange was not a regulatory entity, was not a new state agency, and did not require any mandates.

States, by design, serve as laboratories for innovative government solutions. There is no “one-size-fits-all” solution to the question of how best to reform the health care system; truth be told, there should be at least as many solutions as there are individual states.

The upcoming elections introduce a level of uncertainty with respect to health care reform. The strategy to “repeal and replace” does not seem viable. Although it seems inevitable that Republicans will make significant gains in Congress this November, no one is forecasting a veto-proof majority. States must have a second battle plan in mind – one more likely to succeed as this drama plays out. The new federal health care reform legislation includes a great deal of regulatory discretion and, since power abhors a vacuum, that void will necessarily be filled with either the collective states or with the federal government.

Unfortunately, states have historically underplayed their hand in Washington, their inaction resulting in them being acted upon. With respect to health care reform regulation, states should assert themselves and beat Washington to the punch. As the regulatory infrastructure for health care reform begins to take shape, states must be able to present tangible evidence of their willingness and ability to handle this responsibility. They must also be able to demonstrate that they can do so more effectively and efficiently than Washington.

Make no mistake about it, for anyone involved with the health care industry–including patients, doctors, hospitals, regulators, insurance carriers, and brokers–the world changed on March 23, 2010. From this point on, the effort to protect patient choice and preserve private health coverage will be a series of battles fought in the trenches of regulation. PPACA, if amended and corrected, has the potential to effectively elevate the efforts of states who dare to creatively advance in this most important effort–but only if we aggressively seize the opportunity.

Clark, a Republican, is Speaker of the House of the state of Utah.

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ObamaCare will clog America’s medical system

By Marc Siegel
A month ago, U.S. Health and Human Services Secretary Kathleen Sebelius sent a letter to the president of America’s Health Insurance Plans stating that the impact on insurance premiums from “the new consumer protections and increased quality provisions” of the new health reform law “will be minimal … no more than 1% to 2%.” Sebelius warned Karen Ignagni that there would be “zero tolerance” for insurers blaming unjustified premium increases on the new law. Talk about subtle.

Sebelius’ threat, though, obscures a larger problem: The new health care law mandates and extends the kind of insurance that breeds overuse, thereby driving up costs and premiums. And here I thought the reform intended to reduce costs.

As the details of this massive government-led health care overhaul begin to trickle out, let me be clear (to borrow the president’s go-to phrase): The medical system is about to be overwhelmed because there are no disincentives for overuse.

A free-for-all

ObamaCare was lauded by many for covering all Americans with pre-existing conditions. That’s not the issue. We’re going to get into trouble because of the kinds of coverage that the new law mandates. There are no brakes on the system. Co-pays and deductibles will be kept low, and preventive services will have no co-pays at all. That sounds like a good deal for patients, yes? But without at least a pause to consider necessity and/or cost, expect waiting times to increase, ERs to be clogged and longer lead times needed to make an appointment.

Patients with new Medicaid cards who can’t find a doctor will go where? To emergency rooms. The escalating costs of these visits (necessary and unnecessary) will be transferred directly to the American public, both in the form of taxes as well as escalating insurance premiums.

Beginning in 2014, insurance exchanges will be set up in every state so that individuals can choose a health insurance plan. This will help control costs, right? Wrong. Don’t expect to find individually tailored plans or those with higher deductibles or co-pays. They won’t be there because they can’t receive the government stamp of approval.

In the new system, my patients will be able to see me as often as they’d like. But will they get the same level of care? I don’t think so. I anticipate that more expensive chemotherapies and cardiac stents or transplants, for instance, will have a tougher time being approved, as is already the case in Canada.

Over on the public side, the new Independent Payment Advisory Board — established by the health reform law to “recommend proposals to limit Medicare spending growth” — will advise Medicare that some treatments are more essential and more cost-effective than others. I believe that value judgments inevitably will have to be made, reducing my options as a practicing physician. Private insurers will follow suit, as they often do.

During the battle over this reform, you often heard, even from President Obama, that you’d be able to keep the plan you have. What he didn’t say — but what we now know — is that because of this new law, the private markets will have to remake their plans, that the costs will rise and that the plan you were told you could “keep” is in all likelihood no longer available. But when your plan changes, backers of reform will simply blame it on those evil private insurance companies.

The truth is, private health insurance is a low-profit industry, with profit margins of 4% compared with over 20% for major drug manufacturers. With the additional costs of no lifetime caps and no exclusion for pre-existing conditions, these companies will be compelled to raise their premiums in order to stay in business. The individual mandate is supposed to be the tradeoff by providing millions of new customers, but there is no guarantee that this additional volume will preserve profits with all the new regulations. This is what occurred in New York state in 1992, when a new law denied exclusion on the basis of pre-existing conditions.

Every scratch or dent

None of this is terribly surprising. I mean, imagine if your car insurance covered every scratch or dent. Wouldn’t you expect your premiums to rise to meet the expanded coverage? And wouldn’t you expect your auto repair shops to become clogged with cars that didn’t really need to be repaired, competing for time and space with other cars with broken transmissions or burnt-out motors?

If we want lower insurance premiums, we will need to return to a system that favors high deductible, high co-pay catastrophic-type insurance with a built-in disincentive for overuse, such as the kind that some employers have provided as an option up until now. Patients could pay for office visits from health savings accounts or other flexible spending tax shelters. More than 10 million Americans already have such accounts.

Unfortunately, the new law is taking us away from the kind of insurance that compels patients to have more skin in the game. As a result, we’ll all pay in the long run — both financially and with less efficient, perhaps even lower quality, care.

The kind of insurance the new law mandates will, over the years, wear out the health care system in the same way that overuse in orthopedics wears out an elbow or knee joint. This won’t be fun for doctors or, most important, for patients.

Marc Siegel is an associate professor of medicine and medical director of Doctor Radio at NYU Langone Medical Center.

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