After Repeal of Obamacare: Moving to Patient-Centered, Market-Based Health Care

A PDF of this Backgrounder is available on the Heritage Foundation website.

For a better life, Americans need a health care system that they, not the government, control. Consumers should have the ability to choose how to meet their health insurance needs in a free market for insurance. Taxpayers should benefit from a more efficient and affordable system for helping those who need health care but cannot afford it. Above all, patients, with their doctors, should make their own health care decisions free from government interference.

The important first step is to repeal the Obamacare statute that puts the government in charge of health care. The second step is to let the country move to a patient-centered, market-based system that focuses on citizens and not on the government.

Principles for Reform

To allow Americans to reclaim control of their own health care and benefit from competition in a free market for insurance and health care, Congress should repeal the Obamacare statute and enact patient-centered, market-based reforms based on five principles:

  • Choose, control, and carry your own health insurance;
  • Let free markets provide the insurance and health care services that people want;
  • Encourage employers to provide a portable health insurance benefit to employees;
  • Assist those who need help through civil society, the free market, and the states; and
  • Protect the right of conscience and unborn children.

The Patient Protection and Affordable Care Act (Obamacare) moves health care in the wrong direction. It puts government, not patients, in charge of individual health care decisions. Moreover, it fails to meet the promises laid out by President Barack Obama. With each passing day, it becomes clearer that Obamacare will not reduce premiums for average American families, bend the cost curve in health care spending, or bring down the deficit. For these reasons, among others, Obamacare must be repealed.

However, a return to the status quo before Obamacare is not the final step. Policymakers should pursue reforms based on five basic principles. Adopting such reforms would move American health care in the right direction: toward a patient-centered, market-based health care system.

Principle #1: Choose, control, and carry your own health insurance.

True health reform should promote personal ownership of health insurance. While Obamacare uses government-run insurance exchanges to limit individual choice, real reforms would focus on encouraging Americans to purchase insurance policies that they can take with them from job to job and into retirement in a competitive, free market. Policymakers should enact several key changes for this culture of personal health care ownership to take root.

Portability. Most Americans obtain coverage through their place of work. This allows employers to provide tax-free health benefits to their employees, while individuals purchasing health insurance on their own must use after-tax dollars. As a result, most individuals with private health insurance obtain that coverage from their employer.[1]

Rather than following Obamacare’s example of forcing Americans into government-run health insurance exchanges, true patient-centered reform of health care would make insurance more portable. Individuals should be able to purchase an insurance policy when they are young and carry that policy with them throughout their working lives into retirement.

Equal Tax Relief. While Obamacare alters the tax treatment of health insurance, it does so in a way that increases burdens on taxpayers. Its 40 percent tax on so-called Cadillac health insurance plans is but one of 18 separate tax increases included in the law,[2] which, according to the Congressional Budget Office and the Joint Committee on Taxation, will raise $771 billion in revenue from 2013 to 2022.[3]

A better approach would equalize the tax treatment of health insurance without raising new revenues. The Heritage Foundation has previously proposed replacing the existing deduction for employer-provided health coverage with a flat tax credit that individuals could use to purchase a health insurance policy of their own.[4] Another idea, first proposed by then-President George W. Bush, would give all Americans purchasing health coverage—whether through an employer or on their own—the same standard deduction for health insurance.[5] Both proposals assume revenue neutrality over 10 years. Unlike Obamacare, they do not propose using reform to increase net tax revenues.

Both of these proposals would accomplish two important objectives.

First, they would equalize the tax treatment between health coverage provided through an employer and health coverage purchased by an individual. Providing equal tax treatment would remove a major obstacle that discourages individuals from buying and holding their own health insurance policy for years and taking that coverage from job to job. Tax equity would also encourage firms either to provide direct contributions toward their workers’ health coverage or to increase wages in place of health benefits.

Second, limiting the amount of the tax benefit provided, either with a tax credit or with a standard deduction, would encourage individuals to become smarter purchasers of health insurance coverage. Studies have demonstrated that the current uncapped tax benefit for employer-provided health insurance encourages firms to offer richer health plans and individuals to overconsume health care. According to the Congressional Budget Office, reforming the tax treatment of health insurance “would provide stronger incentives for enrollees to weigh the expected benefits and costs of policies” when buying insurance, thus helping to reduce costs.[6]

Choice of Providers. Through its new system of government control, Obamacare restricts choice and access for many patients. The nonpartisan Medicare actuary concluded that the Medicare reimbursement reductions in Obamacare could make 40 percent of all hospitals unprofitable in the long term, thus restricting beneficiary access to care.[7] Moreover, preliminary reports suggest that Obamacare’s insurance exchanges will feature limited provider networks in an attempt to mitigate premium increases for individuals purchasing exchange coverage.[8]

The most important element of any health care system is the trusted relationship between doctor and patient. Any system of truly patient-centered health care should work to preserve those important bonds and to repair the damage to those bonds caused by Obamacare.

Encouraging Personal Savings. Since their creation in 2004, health savings accounts (HSAs) have become a popular way for millions of families to build savings for needed health care expenses. HSA plans combine a health insurance option featuring a slightly higher deductible—but catastrophic protection in the event of significant medical expenses—with a tax-free savings account. As one of several new consumer-driven health options, HSAs encourage patients to take control of their own health care, providing financial incentives for consumers to serve as wise health care purchasers.

Over the past several years, millions of families have taken advantage of the innovative tools that HSA plans offer. The number of people enrolled in HSA-eligible policies has skyrocketed from 1 million in March 2005 to 15.5 million in January 2013.[9] Numerous studies have also shown that individuals with HSA plans have used tools provided by their health insurer to become more involved with their health care—for example, by using online support tools, inquiring about provider cost and quality, and seeking preventive care.[10] As a result, individuals had saved at least $12.4 billion in their HSAs by the end of 2011.[11]

However, HSA holders still face obstacles to building their personal savings. For instance, under current law, funds contributed to an HSA may not be used to pay for insurance premiums, except under very limited circumstances.[12] Changing this restriction and increasing HSA contribution limits would enhance both personal savings and personal ownership of health insurance.

Coverage for Pre-Existing Conditions. The problem of providing access to individuals with pre-existing conditions, while very real, did not necessitate the massive changes in America’s health care system included in Obamacare. In 2011, the Obama Administration suggested that as many as 129 million Americans with pre-existing conditions were “at risk” and “could be denied coverage” without Obamacare’s massive changes in America’s insurance markets.[13]

That claim was wildly untrue. Under prior law, individuals with employer-sponsored coverage (90 percent of the private market) could not be subjected to pre-existing condition exclusions.[14] In fact, prior to Obamacare, the number of individuals with pre-existing conditions who truly could not obtain health coverage was vastly smaller, and the problem existed only in the individual market. It is therefore not surprising that, according to the most recent data, only an estimated 134,708 individuals have enrolled in the supplemental federal high-risk pool program since it was created under Obamacare to cover individuals with pre-existing conditions[15]—still less than the 200,000 individuals originally projected to enroll.[16]

States could use a variety of approaches to provide coverage to individuals who are unable to purchase insurance. For instance, 35 states already operate high-risk pools with a collective current enrollment of 227,000 individuals to ensure access to coverage for individuals with pre-existing conditions.[17] Alternatively, states could establish reinsurance or risk transfer mechanisms under which insurance companies would reimburse each other for the cost of treating individuals with high medical expenses without added funding from state or federal taxpayers. Either approach would be far preferable to the massive amounts of regulation, taxation, and government spending under Obamacare.

Principle #2: Let free markets provide the insurance and health care services that people want.

Many individuals have already learned that, due in part to Obamacare, with its government-run health exchanges, new bureaucracies, and other forms of government control, they will not be able to retain their current health insurance.[18] There is a better way, and it involves providing more choice through market incentives rather than undermining markets through centralized bureaucracy.

Cross-State Purchasing. Currently, state insurance markets suffer from two flaws: Many markets are uncompetitive, with up to 70 percent of metropolitan areas considered “highly concentrated,”[19] and costly benefit mandates raise health insurance premiums. A prior Heritage Foundation analysis found that each benefit mandate raises costs by an average of approximately $0.75 per month.[20] Another study found that states have imposed a total of 2,271 benefit mandates—or approximately 45 per state.[21] Taken together, these two studies suggest that the cumulative effect of these mandates could raise premiums by $20–$40 per month, or hundreds of dollars per year.

Congress can help to mitigate these problems by removing federal barriers to interstate commerce in health insurance products. Individuals should have the ability to purchase insurance products across state lines, choosing the health plan that best meets their needs regardless of the location of its issuer.

Pooling Mechanisms. Another way to improve patient choice and make insurance markets more competitive would involve new purchasing arrangements and pooling mechanisms. Small businesses, individual membership associations, religious groups, and fraternal organizations should be able to sell health insurance policies through new group purchasing arrangements. The federal government’s role should be to remove the barriers to such arrangements.

By extending the benefits of group coverage beyond the place of work, these new purchasing arrangements would also encourage portability of health insurance coverage. These reforms would allow individuals to obtain their health plan from a trusted source—one with which they would be likely to have a longer association than they have with their employer—thereby creating a form of health coverage that Americans could truly own.

Medicare Private Contracting. Seniors could also benefit from patient-centered Medicare reforms, one of which should help to restore the doctor–patient relationship. Congress should eliminate the anti-competitive restrictions that prevent doctors and patients from contracting privately for medical services outside of traditional Medicare.[22] Congress can also restructure the Medicare benefit, modernizing the design of a program that has remained largely unchanged since its creation nearly 50 years ago.[23] These changes would enhance patient choice while preserving the program’s solvency for future generations of Americans.

Medicare Reform. Regrettably, Obamacare imposes many its most harmful effects on senior citizens.[24] According to the Medicare actuary, the Medicare reimbursement reductions in Obamacare will make 15 percent of all hospitals unprofitable within the decade and 40 percent unprofitable by 2050.[25] As a result, seniors may face significant obstacles to obtaining health care in the future.

There is a better way. Specifically, Congress should provide seniors with a generous subsidy to purchase a Medicare plan of their choosing. Seniors who choose a plan costing less than the subsidy would pay less, while seniors who choose a plan costing more than the subsidy would pay the difference in price.[26 ]

Consumer Choice and Competition. As part of its system of government control, Obamacare hinders patients’ ability to choose their own health plan. One survey found that the mandates and requirements in the law mean that more than half of all insurance policies purchased directly by individuals will not qualify as “government-approved” under Obamacare.[27] As a result, many Americans are finding that they will not be able to keep the health plan they have and like[28]—despite President Obama’s repeated promises.[29]

True patient-centered reform would bolster HSAs and other consumer-directed health products—such as health reimbursement arrangements and flexible spending accounts—that have the ability to transform American health care. One study published in the prestigious journal Health Affairs in 2012 found that expanding market penetration of consumer-driven health plans from 13 percent to 50 percent of all employers could reduce health costs by as much as $73.6 billion per year—a reduction in health spending of 9.1 percent.[30]

In other words, expanding consumer choice and competition could reduce health care costs and spending—the opposite of Obamacare, which restricts consumer choice and increases health costs and spending.

Principle #3: Encourage employers to provide a portable health insurance benefit.

Because most Americans traditionally have received health insurance from their employers, many individuals have few, if any, choices when selecting a health plan. According to the broadest survey of employer plans, nearly nine in 10 firms (87 percent) offer only one plan type, and only 2 percent offer three or more plan types.[31] As a result, employees have only a very limited ability to choose the plan that best meets their needs.

Defined Contribution. An ideal solution would convert the traditional system of employer-provided health insurance from a defined benefit model to a defined contribution model. Rather than providing health insurance directly, employers instead would offer cash contributions to their workers, enabling them to buy the plans of their own choosing. Combined with changes in the tax treatment of health insurance and regulatory improvements to enhance portability, moving to a defined contribution model for health insurance would allow workers to buy a health insurance policy in their youth and take that policy with them from job to job into retirement. These changes would also enable workers and families to negotiate contributions from multiple employers rather than having just one employer foot the bill.

Principle #4: Assist those who need help through civil society, the free market, and states.

While some health reforms—such as changing the tax treatment of health insurance and reforming the Medicare program—remain fully within the purview of the federal government, states also play a critical role in enacting reforms that can lower costs, improve access to care, and modernize state Medicaid programs. By serving as the “laboratories of democracy,” states can provide examples for other states—and the federal government—to follow. Because many state-based reforms do not rely on Washington’s involvement or approval, states can move ahead with innovative market-based solutions even as federal bureaucrats attempt to implement Obamacare’s government-centric approach.

State Innovation. If given proper time and space by an all-too-intrusive federal government, states can act on their own to open their insurance markets. A few states have already acted to open their insurance markets. In 2011, Georgia enacted legislation allowing interstate purchasing of health insurance, and Maine passed legislation allowing carriers from other New England states to offer insurance products to its citizens.[32] Just before Obamacare was enacted in 2010, Wyoming acted to permit out-of-state insurers to offer products.[33] While it may take some time before a critical mass of states creates a true interstate market for insurance, these nascent efforts demonstrate the nationwide interest in expanding health insurance choice and competition.

Medicaid Premium Assistance. Among various forms of health coverage, the Medicaid program is known for its poor quality and outcomes for patients. Numerous studies have found that Medicaid patients suffer worse outcomes than other patients suffer.[34] A recent study from Oregon concluded that after two years, patients in Medicaid did not achieve measurable health benefits from their insurance coverage.[35] Even participants—recognizing that many physicians, because of the program’s low reimbursement rates, will not treat Medicaid patients—complain that the program is not “real insurance.”[36]

Obamacare makes Medicaid’s problems worse, consigning millions more Americans to this poor government-run program. True reform would instead subsidize private health insurance for low-income Medicaid beneficiaries. The Heritage Foundation has previously promoted such a solution as part of its comprehensive reform of the Medicaid program.[37] Congress should take steps to encourage states to provide premium assistance. Such programs would promote health care ownership and provide beneficiaries with better access to care than the traditional Medicaid program does.

Medicaid Reforms. Despite the looming presence of Obamacare, states should continue wherever possible to seek opportunities to reform their Medicaid programs, moving toward more personalized care and including strong incentives for personal responsibility. States can also seek additional flexibility from Washington to modernize care; many governors have already made such requests.[38]

Congress also should act to reform and modernize Medicaid. Efforts in this vein would include comprehensive reforms—such as a block grant or per capita spending caps—that trade additional flexibility for states in exchange for a fixed spending allotment from Washington.[39] Other reforms could incentivize and subsidize Medicaid beneficiaries to move to private insurance policies that they can own and keep. All of these reforms would focus on modernizing Medicaid to provide better quality care, reduce costs, and promote personal responsibility and ownership.

Reducing Fraud. Regrettably, many government health programs are riddled with fraud. Some estimates suggest that as much as $60 billion in Medicare spending may involve fraud.[40] Similar problems plague many state Medicaid programs. A 2005 New York Times exposé on Medicaid fraud quoted James Mehmet, a former chief investigator in New York State, as saying that 10 percent of the state’s Medicaid spending constituted outright fraud, with another 20 percent to 30 percent comprising “unnecessary spending that might not be criminal.” Overall, Mehmet estimated that “questionable” Medicaid spending totaled $18 billion in New York State alone.[41]

Congress and the states should do more to crack down on the waste, fraud, and abuse that plague America’s health entitlements. Reforms should end the current “pay and chase” model, under which investigators must attempt to track down fraudulent claims and providers after they have already received reimbursement. Other solutions would enhance penalties for those who engage in fraudulent activity—for instance, buying or selling personal patient information, which is often used to perpetrate fraud schemes. These and other reforms would save taxpayer dollars, helping to preserve Medicare and Medicaid for future generations.

Removing Barriers to Care. With studies indicating that America faces a doctor shortage in future years, policymakers should focus on removing barriers that discourage institutions from assisting those who need health care.[42] Regrettably, America’s litigious culture has resulted in the widespread practice of defensive medicine by doctors and other health practitioners. In response, some states have changed their medical liability laws to discourage frivolous lawsuits, prompting doctors to move to those states to practice medicine. Were other states to adopt such reforms, this would encourage doctors—a majority of whom believe the practice of medicine is in jeopardy[43]—to remain in practice and would encourage students to join the profession.

In addition, reforms that improve the liability system could reduce the prevalence of defensive medicine practices and thereby help to reduce health costs. One government estimate found that reasonable limits on non-economic damages could reduce total health spending by as much as $126 billion per year by reducing the amount of defensive medicine practiced by physicians.[44] More recently, the Congressional Budget Office concluded that enacting comprehensive liability reform would reduce health care spending by tens of billions of dollars per year, reducing the federal budget deficit by tens of billions over the next decade.[45]

To help to eliminate barriers to care and reduce health costs, states should reform their liability systems, capping non-economic damages and taking other steps to reduce the incidence of frivolous lawsuits and ensure proper legal protections for health care providers.[46] However, because liability reform and torts in general are properly a state issue, Congress should not impose liability reforms except where the federal government has a clear, constitutionally based federal interest. Examples might include liability reforms with respect to medical products approved by the federal Food and Drug Administration or when the federal government is a payer of health care services, as it is with Medicare and Medicaid.[47]

Reforming Scope-of-Practice and Certificate of Need. State governments control the licensure of both medical professionals and medical practices. By removing artificial obstacles that restrict the supply of medical providers, states can expand access to health services across populations while unleashing new competition that can work to reduce costs.

States can reform their health care systems by re-examining scope-of-practice laws, which frequently limit the ability of nurse practitioners and other health professionals to care for patients. In 2010, the Institute of Medicine concluded that “state regulations often restrict the ability of nurses to provide care legally” and that policymakers should remove “barriers that limit the ability of nurses to practice to the full extent of their education, training, and competence.”[48] Many states have begun to reform their scope-of-practice laws to allow physician assistants, nurse practitioners, and others to treat more patients even as entrenched interests have fought to preserve their preferential treatment.[49] States should follow the recommendations of the Institute of Medicine in reforming their scope-of-practice laws to allow all medical professionals to practice to the full extent of their training.

A total of 36 states also impose certificate-of-need requirements, which impede the introduction of new hospitals and medical facilities. These laws require organizations seeking to build new medical facilities to obtain a certificate from a state board that the facility is “needed” in a particular area.[50] As with scope-of-practice requirements, reforming or eliminating certificate-of-need restrictions would encourage the development of new medical facilities, expanding access to care and giving patients more choices.

Principle #5: Protect the right of conscience and unborn children.

Government should not compel individuals to undertake actions that violate their deeply held religious beliefs. Regrettably, Obamacare imposes just such a requirement on Americans, forcing many employers to offer, and individuals to purchase, health coverage that violates the core tenets of their faith regarding the protection of life.[51]

Congress should ensure that individuals never again are required to violate their religious beliefs to meet a government diktat.

Rights of Conscience. Congress should protect the rights of consumers, insurers, employers, and medical personnel to refrain from facilitating, participating in, funding, or providing services contrary to their consciences or the tenets of their religious faith. Enacting these protections would prevent Americans from facing the moral dilemma presented by Obamacare, which has forced individuals, employers, and religious organizations to choose between violating the law and violating their faith or consciences.

Permanent Prohibition on Taxpayer-Funded Abortion. Congress should make permanent in law the existing annually enacted prohibitions on the use of federal taxpayer funds to finance abortions or health insurance coverage that includes elective abortions. These protections, enacted as the “Hyde Amendment” every year since 1976, prevent the use of taxpayer dollars to fund elective abortions.[52] After nearly 40 years of renewing these protections on an annual basis, Congress should finally make them permanent in law.

A New Vision for Health Reform

Obamacare moves American health care in the wrong direction. Not only does the law raise health costs rather than lowering them, but it creates new bureaucracies that will erode the doctor–patient relationship.[53] The trillions of dollars in new spending for Obamacare will place a massive fiscal burden on future generations of taxpayers.[54] For these reasons and more, Congress should repeal the law in its entirety.

Once this has been done, policymakers should then advance health reforms that move toward patient-centered, market-based health care. Such reforms would promote personal choice and ownership of health insurance; enable the free market to respond to consumer demands; encourage portability of coverage for workers; help civil society, the free markets, and the states to assist those in need; and protect the rights of faith, conscience, and life.

 

 


[1] According to the most recent census data, 86.2 percent of Americans with private health insurance coverage obtained that coverage through an employer. Carmen DeNavas-Walt, Bernadette D. Proctor, and Jessica C. Smith, Income, Poverty, and Health Insurance Coverage in the United States: 2011, U.S. Census Bureau, September 2012, p. 65, Table C-1, http://www.census.gov/prod/2012pubs/p60-243.pdf (accessed September 20, 2013).

[2] Alyene Senger, “Obamacare’s Impact on Today’s and Tomorrow’s Taxpayers: An Update,” Heritage Foundation Issue Brief No. 4022, August 21, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-todays-and-tomorrows-taxpayers-an-update.

[3] Joint Committee on Taxation, “Estimated Revenue Effects of a Proposal to Repeal Certain Tax Provisions Contained in the ‘Affordable Care Act (“ACA”)’,” June 15, 2012, and Congressional Budget Office, “Table 2: CBO’s May 2013 Estimate of the Budgetary Effects of the Insurance Coverage Provisions Contained in the Affordable Care Act,” http://www.cbo.gov/sites/default/files/cbofiles/attachments/44190_EffectsAffordableCareActHealthInsuranceCoverage_2.pdf. The total amount of tax revenue collected from the individual mandate, employer mandate, and 40 percent excise tax on high-cost health plans comes from the CBO’s May 2013 estimate. For all other taxes, the amount of tax revenue totaled comes from the Joint Committee on Taxation’s June 2012 estimation.

[4] Nina Owcharenko, “Saving the American Dream: A Blueprint for Putting Patients First,” Heritage Foundation Issue Brief No. 3628, June 6, 2012, http://www.heritage.org/research/reports/2012/06/saving-the-american-dream-a-blueprint-for-putting-patients-first.

[5] The White House, “Affordable, Accessible, and Flexible Health Coverage,” 2007, http://georgewbush-whitehouse.archives.gov/stateoftheunion/2007/initiatives/healthcare.html (accessed September 20, 2013). Recently, the House Republican Study Committee included a standard deduction in its proposal for health reform. See U.S. House of Representatives, Republican Study Committee, “The American Health Care Reform Act,” September 18, 2013, http://rsc.scalise.house.gov/solutions/rsc-betterway.htm (accessed September 25, 2013).

[6] Congressional Budget Office, Key Issues in Analyzing Major Health Insurance Proposals, December 2008, pp. 84–87, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/99xx/doc9924/12-18-keyissues.pdf (accessed September 20, 2013).

[7] John D. Shatto and M. Kent Clemens, “Projected Medicare Expenditures Under Illustrative Scenarios with Alternative Payment Updates to Medicare Providers,” Centers for Medicare and Medicaid Services, Office of the Actuary, May 31, 2013, pp. 8–10, http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/ReportsTrustFunds/Downloads/2013TRAlternativeScenario.pdf (accessed September 20, 2013).

[8] Anna Wilde Mathews, “Many Health Insurers to Limit Choices of Doctors, Hospitals,” The Wall Street Journal, August 15, 2013, http://online.wsj.com/article/SB10001424127887323446404579010800462478682.html (accessed September 20, 2013; subscription required).

[9] America’s Health Insurance Plans, Center for Policy and Research, “January 2013 Census Shows 15.5 Million People Covered by Health Savings Account/High-Deductible Health Plans (HSA/HDHPs),” June 2013, http://www.ahip.org/HSACensus2013PDF/ (accessed September 20, 2013).

[10] America’s Health Insurance Plans, Center for Policy and Research, “Health Savings Accounts and Account-Based Health Plans: Research Highlights,” July 2012, http://www.ahip.org/HSAHighlightsReport072012/ (accessed September 20, 2013).

[11] Devenir, “Health Savings Accounts Surpass $12.4 Billion in 2011,” January 31, 2012, http://www.devenir.com/2012/devenir2011yearendsurvey (accessed September 20, 2013).

[12] For the definition of “qualified medical expenses,” see 26 U.S. Code § 223(d)(2). HSA funds can be used to purchase health insurance only for COBRA continuation health coverage, health insurance purchased during periods of unemployment, Medigap supplemental coverage, or long-term care insurance (within certain limits).

[13] U.S. Department of Health and Human Services, Office of Planning and Evaluation, “At Risk: Pre-Existing Conditions Could Affect 1 in 2 Americans,” November 2011, http://aspe.hhs.gov/health/reports/2012/pre-existing/index.shtml (accessed September 20, 2013).

[14] Edmund Haislmaier, “HHS Report on Obamacare’s Preexisting Conditions Impact: Say What???” The Heritage Foundation, The Foundry, January 19, 2011, http://blog.heritage.org/2011/01/19/hhs-report-on-obamacare’s-preexisting-conditions-impact-say-what/.

[15] Centers for Medicare and Medicaid Services, Center for Consumer Information and Insurance Oversight, “Covering People with Pre-Existing Conditions: Report on the Implementation and Operation of the Pre-Existing Condition Insurance Plan Program,” January 31, 2013, http://www.cms.gov/CCIIO/Resources/Files/Downloads/pcip_annual_report_01312013.pdf (accessed September 24, 2013).

[16] Douglas W. Elmendorf, letter to Senator Mike Enzi (R–WY), June 21, 2010, http://cbo.gov/sites/default/files/cbofiles/ftpdocs/115xx/doc11572/06-21-high-risk_insurance_pools.pdf (accessed September 20, 2013).

[17] National Association of State Comprehensive Health Insurance Plans, “Pool Membership—2011,” September 2012, http://naschip.org/2012/Quick%20Checks/Pool%20Membership%202011.pdf (accessed September 20, 2013).

[18] Chris Jacobs, “Obamacare: Taking Away Americans’ Health Coverage,” The Heritage Foundation, The Foundry, August 6, 2013, http://blog.heritage.org/2013/08/06/obamacare-taking-away-americans-health-coverage/.

[19] Press release, “New AMA Study Finds Anticompetitive Market Conditions Are Common Across Managed Care Plans,” American Medical Association, November 28, 2012, http://www.ama-assn.org/ama/pub/news/news/2012-11-28-study-finds-anticompetitive-market-conditions-common.page (accessed September 20, 2013).

[20] Michael J. New, “The Effect of State Regulations on Health Insurance Premiums: A Revised Analysis,” Heritage Foundation Center for Data Analysis Report No. 06-04, July 25, 2006, p. 5, http://www.heritage.org/research/reports/2006/07/the-effect-of-state-regulations-on-health-insurance-premiums-a-revised-analysis.

[21] Council for Affordable Health Insurance, “Health Insurance Mandates in the States 2012: Executive Summary,” April 9, 2013, http://www.cahi.org/cahi_contents/resources/pdf/Mandatesinthestates2012Execsumm.pdf (accessed September 24, 2013).

[22] Chris Jacobs, “Medicare’s Sustainable Growth Rate: Principles for Reform,” Heritage Foundation Backgrounder No. 2827, July 18, 2013, http://www.heritage.org/research/reports/2013/07/medicares-sustainable-growth-rate-principles-for-reform.

[23] Robert E. Moffit and Rea S. Hederman, Jr., “Medicare Savings: Five Steps to a Down Payment on Medicare Reform,” Heritage Foundation Issue Brief No. 3908, April 11, 2013, http://www.heritage.org/research/reports/2013/04/medicare-savings-5-steps-to-a-downpayment-on-structural-reform.

[24] Alyene Senger, “Obamacare’s Impact on Seniors: An Update,” Heritage Foundation Issue Brief No. 4019, August 20, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-seniors-an-update.

[25] Shatto and Clemens, “Projected Medicare Expenditures Under Illustrative Scenarios,” pp. 8–10.

[26] Owcharenko, “Saving the American Dream: A Blueprint for Putting Patients First.”

[27] Jon R. Gabel, Ryan Lore, Roland D. McDevitt, Jeremy D. Pickreign, Heidi Whitmore, Michael Slover, and Ethan Levy-Forsythe, “More Than Half of Individual Health Plans Offer Coverage That Falls Short of What Can Be Sold Through Exchanges as of 2014,” Health Affairs, May 2012, http://content.healthaffairs.org/content/early/2012/05/22/hlthaff.2011.1082 (accessed September 20, 2013; subscription required).

[28] Jacobs, “Obamacare: Taking Away Americans’ Health Coverage.”

[29] For instance, see a 2008 campaign document answering the question “Will I have to change plans?” under the Obama proposal: “No, you will not have to change plans. For those who have insurance now, nothing will change under the Obama plan—except that you will pay less.” Obama for America, “Background Questions and Answers on Health Care Plan,” 2008, http://www.scribd.com/doc/191306/barack-obama-08-healthcare-faq (accessed September 20, 2013).

[30] Amelia M. Haviland, M. Susan Marquis, Roland D. McDevitt, and Neeraj Sood, “Growth of Consumer-Directed Health Plans to One-Half of All Employer-Sponsored Insurance Could Save $57 Billion Annually,” Health Affairs, May 2012, http://content.healthaffairs.org/content/31/5/1009.abstract (accessed September 20, 2013; subscription required).

[31] Kaiser Family Foundation and Health Research and Educational Trust, Employer Health Benefits: 2013 Annual Survey, August 2013, p. 56, Exhibit 4.1, http://kaiserfamilyfoundation.files.wordpress.com/2013/08/8465-employer-health-benefits-20131.pdf (accessed September 23, 2013).

[32] National Council of State Legislatures, “Out-of-State Health Insurance—Allowing the Purchase (State Implementation Report),” updated September 2012, http://www.ncsl.org/issues-research/health/out-of-state-health-insurance-purchases.aspx (accessed September 23, 2013).

[33] Ibid.

[34] For a summary of many of these studies, see Kevin D. Dayaratna, “Studies Show: Medicaid Patients Have Worse Access and Outcomes than the Privately Insured,” Heritage Foundation Backgrounder No. 2740, November 7, 2012, http://www.heritage.org/research/reports/2012/11/studies-show-medicaid-patients-have-worse-access-and-outcomes-than-the-privately-insured. See also Scott Gottlieb, “Medicaid Is Worse Than No Coverage at All,” The Wall Street Journal, March 10, 2011, http://online.wsj.com/article/SB10001424052748704758904576188280858303612.html (accessed September 23, 2013).

[35] Annie Lowrey, “Study Finds Health Care Use Rises with Expanded Medicaid,” The New York Times, May 2, 2013, http://www.nytimes.com/2013/05/02/business/study-finds-health-care-use-rises-with-expanded-medicaid.html (accessed September 23, 2013).

[36] Vanessa Fuhrmans, “Note to Medicaid Patients: The Doctor Won’t See You,” The Wall Street Journal, July 19, 2007, http://online.wsj.com/article/SB118480165648770935.html (accessed September 23, 2013; subscription required).

[37] Nina Owcharenko, “Medicaid Reform: More Than a Block Grant Is Needed,” Heritage Foundation Issue Brief No. 3590, May 4, 2012, http://www.heritage.org/research/reports/2012/05/three-steps-to-medicaid-reform.

[38] Republican Governors Public Policy Committee, Health Care Task Force, “A New Medicaid: A Flexible, Innovative, and Accountable Future,” August 30, 2011, http://www.rga.org/homepage/gop-govs-release-medicaid-reform-report/ (accessed September 23, 2013).

[39] Owcharenko, “Medicaid Reform: More Than a Block Grant Is Needed.”

[40] CBS News, “Medicare Fraud: A $60 Billion Crime,” 60 Minutes, September 5, 2010, http://www.cbsnews.com/8301-18560_162-5414390.html (accessed September 23, 2013).

[41] Clifford Levy and Michael Luo, “New York Medicaid Fraud May Reach into Billions,” The New York Times, July 18, 2005, http://www.nytimes.com/2005/07/18/nyregion/18medicaid.html (accessed September 23, 2013).

[42] Nisha Nathan, “Doctor Shortage Could Cause Health Care Crash,” ABC News, November 13, 2012, http://abcnews.go.com/Health/doctor-shortage-health-care-crash/story?id=17708473 (accessed September 23, 2013).

[43] Deloitte, “Deloitte 2013 Survey of U.S. Physicians: Physician Perspectives About Health Care Reform and the Future of the Medical Profession,” 2013, p. 3, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_2013SurveyofUSPhysicians_031813.pdf (accessed September 23, 2013).

[44] U.S. Department of Health and Human Services, Office of the Assistant Secretary for Planning and Evaluation, “Addressing the New Health Care Crisis: Reforming the Medical Litigation System to Improve the Quality of Health Care,” March 2003, p. 16, http://aspe.hhs.gov/daltcp/reports/medliab.pdf (accessed September 23, 2013).

[45] Douglas W. Elmendorf, letter to Senator Orrin Hatch (R–UT), October 9, 2009, http://www.cbo.gov/sites/default/files/cbofiles/ftpdocs/106xx/doc10641/10-09-tort_reform.pdf (accessed September 23, 2013).

[46] Randolph W. Pate and Derek Hunter, “Code Blue: The Case for Serious State Medical Liability Reform,” Heritage Foundation Backgrounder No. 1908, January 17, 2006, http://www.heritage.org/research/reports/2006/01/code-blue-the-case-for-serious-state-medical-liability-reform.

[47] Hans von Spakovsky, “Medical Malpractice Reform: States vs. the Federal Government,” The Heritage Foundation, The Foundry, March 19, 2012, http://blog.heritage.org/2012/03/19/medical-malpractice-reform-states-vs-the-federal-government/.

[48] Institute of Medicine, “The Future of Nursing: Focus on Scope of Practice,” Report Brief, October 2010, http://www.iom.edu/~/media/Files/Report%20Files/2010/The-Future-of-Nursing/Nursing%20Scope%20of%20Practice%202010%20Brief.pdf (accessed September 23, 2013).

[49] Melinda Beck, “Battles Erupt over Filling Doctors’ Shoes,” The Wall Street Journal, February 5, 2013, http://online.wsj.com/article/SB10001424127887323644904578271872578661246.html (accessed September 23, 2013), and Melinda Beck, “Nurse Practitioners Seek Right to Treat Patients on Their Own,” The Wall Street Journal, August 15, 2013, http://online.wsj.com/article/SB10001424127887323455104579013193992224008.html (accessed September 23, 2013; subscription required).

[50] National Conference of State Legislatures, “Certificate of Need: State Laws and Programs,” updated March 2012, http://www.ncsl.org/issues-research/health/con-certificate-of-need-state-laws.aspx (accessed September 23, 2013).

[51] The Heritage Foundation “Obamacare Anti-Conscience Mandate: An Assault on the Constitution,” Fact Sheet No. 103, February 17, 2012, http://www.heritage.org/research/factsheets/2012/02/obamacare-anti-conscience-mandate-an-assault-on-the-constitution.

[52] Chuck Donovan, “Obamacare: Impact on Taxpayer Funding of Abortion,” Heritage Foundation WebMemo No. 2872, April 19, 2010, http://www.heritage.org/research/reports/2010/04/obamacare-impact-on-taxpayer-funding-of-abortion.

[53] Alyene Senger, “Obamacare’s Impact on Doctors—An Update,” Heritage Foundation Issue Brief No. 4024, August 23, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-doctors-an-update.

[54] Alyene Senger, “Obamacare’s Impact on Today’s and Tomorrow’s Taxpayers: An Update,” Heritage Foundation Issue Brief No. 4022, August 21, 2013, http://www.heritage.org/research/reports/2013/08/obamacares-impact-on-todays-and-tomorrows-taxpayers-an-update.

How the Administration Knew Americans Would Lose Their Current Health Plans

There has been much chatter about an NBC News report last night highlighting one clear fact: The Obama Administration knew millions of Americans would lose their current health plans due to Obamacare. That the Administration knew about the impact of Obamacare on Americans’ health plans is clear, not least because internal Administration documents suggest an effort to downplay the law’s impact to the public.

At issue are regulations issued in June 2010 implementing the “grandfathering” provisions of Obamacare. In theory, this section of the law was intended to allow individuals to keep their existing health plans if they liked them. However, as a leaked draft of the “grandfathering” regulations reveals, the Administration knew that would not be the case. This paragraph, on page 56 of the leaked draft, admits that “most plans will relinquish their grandfathered status” over time—in other words, many Americans will lose their existing health coverage (emphasis added):

After careful consideration, the Departments opted against rules that would require a plan or sponsor to relinquish its grandfathered status if only relatively small changes are made to the plan. The importance of gradual change outweighs the risk of market segmentation. Similarly, the Departments concluded that sponsors and issuers of grandfathered plans should be permitted to take steps within the boundaries of the grandfather definition to control costs, including limited increases in cost-sharing and other plan changes not prohibited by these interim final regulations. As noted earlier, deciding to relinquish grandfather status is a one-way sorting process: after some period of time, most plans will relinquish their grandfathered status since plans rarely stay exactly the same. These interim final regulation will likely influence the time frame over which plan sponsors decide to relinquish grandfathered status.

Compare that paragraph to a very similar paragraph on page 11 of the official, publicly released regulation. The final version struck a sentence emphasizing “the importance of gradual change” in transitioning health coverage to the new, post-Obamacare regime—and said that “more plans,” not “most plans,” will relinquish their grandfathered status over time. In other words, the Obama Administration tried to massage and downplay the regulation’s impact on Americans’ ability to keep their health coverage, even though the substantive contents of the rule changed very little from the leaked draft to the official document.

For millions of Americans—as many as 16 million who buy their own health insurance, according to one estimate—Obamacare will prove anything but a “gradual change.” They are losing their existing health plans and have no good options. Some will migrate to Obamacare’s new (non-functioning) exchanges, where the law’s new requirements mean their premiums could increase substantially. This is change—a change that Heritage predicted—but it’s not the change President Obama sold to the American people.

This post was originally published at The Daily Signal.

Will Insurers Be the Next Obamacare Dropouts?

The ongoing malfunction of HealthCare.gov has led some to wonder whether Obamacare’s exchanges are headed for a “death spiral”—one in which only highly motivated sick people enroll, resulting in higher premiums, which further drive out healthy individuals. But there’s another “death spiral” to be worried about—one in which insurers drop out of the insurance marketplaces altogether.

Insurers may still be able to withdraw from the federally run exchange through this Thursday. The contract between qualified health plan issuers (QHPIs) and the Centers for Medicare and Medicaid Services (CMS) includes this provision:

Termination with Notice by QHPI. At any time prior to midnight on October 31, 2013, QHPI may terminate this Agreement upon sixty (60) Days’ written notice to CMS if CMS materially breaches any term of this Agreement, unless CMS commences curing such breach(es) within such 60-Day period to the reasonable satisfaction of QHPI in the manner hereafter described in this subsection, and thereafter diligently prosecutes such cure to completion.

The contract does state that, if insurer(s) attempt to terminate their contracts due to a material breach, CMS has “fifteen days from the date of the notice in which to propose a plan and a time frame to cure the material breaches, which…shall be accepted by QHPI unless the same is substantially unreasonable on its face.”

Granted, CMS claims it can get the website fully functioning by November 30. But with independent experts claiming the web infrastructure could require months or years to repair and rebuild—if it even can be fixed—why should CMS’ assertions now be taken with any more credibility than the Administration’s assertions that it was ready to launch the exchanges on October 1? After all, one day after the Administration claimed the exchange “data hub” was working well, the “hub” stopped functioning at all—the latest embarrassment in Obamacare’s comedy of IT errors.

Lurking behind all this is another issue raised last week—the impact of sequestration on Obamacare, and on insurance companies in particular. The Congressional Research Service believes that insurance companies will personally end up footing the bill for the sequester’s cuts to Obamacare cost-sharing subsidies. Those cuts will total $286 million in the first nine months of 2014 alone. Multiplying Congressional Budget Office projections of spending on cost-sharing subsidies by the required sequester reduction percentages yields a total sequester cut of nearly $6.8 billion through 2021.

Despite promising to issue guidance prior to the start of open enrollment, CMS has yet to reveal how the sequester reductions will be applied—and whether individuals, or insurance companies, will be asked to foot the bill. Doubtless it will decline to do so before the October 31 deadline for carriers to terminate participation in the federal exchange. And every passing day makes it more and more likely that insurance companies, and not consumers, will end up footing the bill for the sequestration cuts. After all, will the Administration really force individuals who have endured the HealthCare.gov gauntlet to pay more in cost-sharing than advertised, because CMS failed to publicize the impact of the sequester’s cuts?

Earlier this year, many insurers declined to participate in the exchanges—one reason why, in a majority of U.S. counties, consumers face limited choices of plans. But some insurance companies decided to participate in the new marketplaces, either because they saw a business opportunity or feared the consequences if they did not.

But the HealthCare.gov rollout debacle should have those insurers—particularly those publicly accountable to shareholders—thinking again, this time with a focus on the consequences of continuing to participate in Obamacare. If (more likely when) the sequester’s spending reductions are placed on their head, insurers will have to overcome $6.8 billion in guaranteed losses over the next eight years—this while managing a balky website giving them logistical headaches and a enrollee risk profile that could prove catastrophically unsustainable.

The systemic failure augured by HealthCare.gov’s performance to date, coupled with the billions of dollars at risk from sequester, present health insurance actuaries with a dramatically different data set from those considered a year ago. Insurers still have a few days to crunch these new numbers and determine if prudence dictates they should back out of the federal exchange and escape from Obamacare’s web.

This post was originally published at The Federalist.

Another “Affordable Care” Sticker Shock Looms

President Obama and supporters of his health-care law have defended it by saying that the Affordable Care Act is “the law of the land.” However, the spending reductions in the 2011 Budget Control Act—the so-called sequester—also remain “the law of the land.”

In promoting the former, the Obama administration has failed to enforce the latter. As a result, people trying to buy health insurance on the new exchanges are getting incomplete and misleading information, and they may experience more sticker shock next year.

Some have claimed that the sequester “exempts” Obamacare’s subsidies from spending reductions. That is only half true. The Budget Control Act does exempt from sequestration the premium subsidies for households with incomes up to 400% of the federal poverty level ($94,200 for a family of four) and that meet other eligibility criteria.

But other Obamacare subsidies, paid directly to insurance providers on behalf of eligible beneficiaries, are subject to the sequester—namely “cost-sharing subsidies.” These include subsidies for households with incomes below 250% of the federal poverty level ($58,875 for a family of four) to reduce copayments and deductibles. They also include subsidies to reduce out-of-pocket expenses for households with incomes up to 400% of the poverty level.

The Obama administration has acknowledged that the cost-sharing subsidies are subject to sequester reductions. A May report from the White House Office of Management and Budget estimated that the sequester would reduce the subsidies by 7.2% in fiscal year 2014. That amounts to a $286 million reduction through next September—the first nine months of Obamacare.

However, the administration hasn’t issued guidance on how it will implement the required cuts. Appearing before the House Energy and Commerce Committee on Aug. 1, Centers for Medicare & Medicaid Services Administrator Marilyn Tavenner declined repeated requests to explain how the cost-sharing subsidy reductions would be applied. She did, however, pledge that the administration would release more information before the Oct. 1 start of open enrollment in Obamacare. But that deadline came and went without more information.

Clearly, someone will be left holding the bag, and the administration doesn’t want to address who that someone will be.

There are two possible outcomes. The first is that individuals who have managed to enroll in subsidized health insurance will find they’ve been misled about their copays and deductibles. Families who currently think their plan will charge a $20 copayment for doctor visits may instead face a $25 charge when the sequester kicks in. Individuals who now believe they face maximum out-of-pocket costs of $2,000 may end up paying hundreds more.

The other alternative is that insurers may be stuck with the sequester cuts. A May 31 Congressional Research Service report, noting that Obamacare requires insurers to reduce cost-sharing for eligible individuals regardless of the sequester, concluded that “insurers presumably will still have to provide required coverage to qualifying enrollees but they will not receive the full subsidy to cover their increased costs.” In other words, the CRS, Congress’s own think tank, believes insurers may be forced to eat the costs of the sequester reductions—$286 million through September, and billions more through 2021.

Having first proposed the sequester two years ago, the Obama administration now finds itself on the horns of a self-imposed dilemma. It can tell the American people that the “good deal” President Obama promised isn’t as good as they thought—that those who spent hours and days signing up on Healthcare.gov bought coverage that will cost more than advertised. If full disclosure truly were to prevail, the administration would also admit that this classic bait and switch occurred solely due to its failure to account for its responsibilities under the Budget Control Act.

Or the administration can try to force insurers to bear the full costs of the sequester reductions—and watch them promptly drop out of the exchanges.

This is no mere “glitch” in the website, nor was it unforeseen. The administration has known for years that the cost-sharing subsidies were subject to sequester, but has failed to plan for its impact.

In her Aug. 1 appearance before the House Energy and Commerce Committee, Ms. Tavenner testifed that it is the administration’s “strong preference that the issue of sequestration go away entirely.”

But neither Ms. Tavenner nor President Obama can pick and choose which laws they wish to enforce. And the administration’s rush to implement one law, while ignoring the requirements of another, means Americans could face a rude awakening when they discover what their Obamacare coverage will cost them.

This post was originally published in The Wall Street Journal.

Budget Sequestration’s Impact on Obamacare Subsidies

A PDF of this Issue Brief is available on the Heritage Foundation website.

Many Americans could face a rude awakening when they discover that the subsidies they thought they were getting to offset their health care costs are less than what they were promised. Some claim that the Obamacare subsidies are exempt from the spending reductions established by the Budget Control Act (BCA), but that is only half right.[1]

The BCA exempts only the premium subsidies, not the cost-sharing subsidies, from upcoming cuts. Regrettably, the Obama Administration has not taken steps to inform the American people of this fact as they navigate coverage options in the government exchanges.

The Sequester’s Impact on Obamacare Subsidies

Obamacare provides two forms of subsidies:

  1. Premium subsidy. Section 1401 provides that individuals with incomes under 400 percent of the federal poverty level ($94,200 for a family of four) who do not have access to “affordable” employer-based coverage and meet other relevant criteria are eligible to receive refundable tax credits for coverage purchased in the exchanges.
  2. Cost-sharing subsidy. Section 1402 provides cost-sharing subsidies to reduce maximum out-of-pocket expenses for households with incomes below four times the federal poverty level. Other language in Section 1402 directs cost-sharing subsidies to increase the actuarial value—the average amount of expected health expenses paid by insurance—for households with incomes below 250 percent of the poverty level.

The BCA exempted the premium subsidies from sequestration—not explicitly but by definition. The sequester mechanism in the BCA was largely based on formulae developed by the Gramm–Rudman–Hollings Act of 1985, which exempts refundable tax credits under the Internal Revenue Code from any federal sequestration.[2] Because Obamacare structured the premium subsidies as refundable tax credits, they remain exempt from the BCA sequestration.

However, with regard to sequestration’s spending reductions, the cost-sharing subsidies under Section 1402 of Obamacare are distinct from the premium subsidies under Section 1401 of the law in at least two significant ways:

  1. The language authorizing Obamacare cost-sharing subsidies is included as part of the Public Health Service Act (Title 42 of the U.S. Code). The sequester exemption for refundable tax credits requires that they be “made pursuant to provisions of Title 26” of the Internal Revenue Code.[3]
  2. Obamacare specifically requires the Secretary of Health and Human Services to “make periodic and timely payments to the issuer” of the insurance policy reflecting the increased cost-sharing. The sequester exemption in Gramm–Rudman–Hollings for refundable tax credits provides that only “payments to individuals,” not to insurance companies, are exempt from sequester reductions.[4]

For these reasons, the Congressional Research Service (CRS) has concluded that the cost-sharing subsidies under Section 1402 of Obamacare “appear to be fully sequestrable” under the BCA.[5]

Administration Confirms Cuts but Has No Plan

The Administration has likewise agreed that the cost-sharing subsidies are subject to sequestration spending reductions. An Office of Management and Budget (OMB) report issued in May 2013 categorized the cost-sharing subsidies as mandatory spending subject to sequestration.[6]

The report further estimated that a 7.2 percent cut in these subsidies, as required by sequestration, would reduce spending by $286 million in fiscal year 2014—a period that covers the first nine months of Obamacare’s coverage expansions, from January through September 2014.[7]

However, the Administration has not been similarly forthcoming about how the 7.2 percent spending reductions will be applied. Centers for Medicare and Medicaid Services (CMS) Administrator Marilyn Tavenner acknowledged that CMS had not communicated to officials who are operating exchanges, both federal and state, how this sequestration will be applied to the cost-sharing subsidies. However, she pledged to do so “before open enrollment, which starts on October 1, 2013.”[8] To date, no guidance has been released by either CMS or OMB.

Limited Options

It is impossible to predict how CMS intends to implement the required sequestration reductions. In the absence of clear guidance from the Administration about the impact of sequestration, one can envision two possible scenarios.

Scenario 1: Consumers Pay. Under this scenario, the individuals eligible for cost-sharing subsidies would face higher cost-sharing. Eligible individuals would face some combination of higher co-payments, higher deductibles, higher co-insurance, or the loss of some benefits to make up for the reduced cost-sharing subsidies.

The structure and requirements of sequestration place a high emphasis on regulatory guidance from CMS. The sequestration law requires that spending reductions “shall apply to all programs, projects, and activities within a budget account.”[9] But it remains unclear how the Administration will implement this requirement. For instance, CMS could decide to reduce all eligible individuals’ cost-sharing subsidies by an equal 7.2 percent. Alternatively, the Administration could try to implement the reductions on a sliding-scale basis so that households with lower incomes face a smaller-scale reduction.

However, because the Administration has not issued any form of guidance, the cost-sharing information currently published on the exchanges does not accurately reflect the impact of sequestration on the cost-sharing subsidies.[10] Thus, for those few individuals who have actually enrolled in subsidized health insurance on exchanges, their co-payments and cost-sharing may increase next year. Accurate information cannot exist until CMS publicly states how it intends to implement the required sequestration reductions.

Scenario 2: Insurers Pay. A second possible scenario would see insurers being forced to absorb the costs of the sequester reductions in cost-sharing subsidies themselves. CRS, examining Obamacare’s statutory requirements on insurers to provide cost-sharing reductions, considered this scenario a likely outcome:

The impact of sequestration is unclear. [Obamacare] entitles certain low-income exchange enrollees to coverage with reduced cost-sharing and requires the participating insurers to provide that coverage. Sequestration does not change that requirement. Insurers presumably will still have to provide required coverage to qualifying enrollees but they will not receive the full subsidy to cover their increased costs.[11]

This scenario would see insurers absorbing $286 million in losses in the law’s first nine months alone—losses that would grow over time. Citing estimates from the Congressional Budget Office and the Joint Committee on Taxation, CRS noted that the federal government is scheduled to spend $149 billion on cost-sharing subsidies between 2014 and 2023.[12] Given that sequestration is scheduled to remain in place through 2021, the reductions in cost-sharing subsidies under current law would likely total several billion dollars at a minimum.

The scale of the numbers at issue raises questions about whether and under what circumstances insurance companies would actually continue to offer exchange coverage, knowing they would be guaranteed to incur losses if they do so.

More Than a “Glitch”

While Obamacare’s defenders are fond of claiming that “glitches” are the only thing holding back the law’s implementation, the Administration’s failure to confront the impact of BCA cuts signed into law two years ago is no mere “glitch.” Either individuals who endure an arduous process to sign up for insurance on balky exchanges will face a “bait-and-switch,” with cost-sharing levels higher than advertised, or insurers will face the prospect of billions of dollars in losses. Neither option is acceptable.

The Administration that promised to be the “most transparent and accountable” in history has neglected to inform the American people about the impact of sequestration on its prized accomplishment.

 



[1]See, for instance, Ezra Klein, “Democrats Should Surrender on Taxes,” Bloomberg, October 16, 2013, http://www.bloomberg.com/news/2013-10-16/democrats-should-surrender-on-taxes.html (accessed October 24, 2013).

[2]2 U.S. Code 905(d).

[3]Ibid.

[4]Ibid.

[5]C. Stephen Redhead, “Budget Control Act: Potential Impact of Sequestration on Health Reform Spending,” Congressional Research Service Report for Congress, May 31, 2013, Table 4, p. 22, http://www.fas.org/sgp/crs/misc/R42051.pdf (accessed October 24, 2013).

[6]Office of Management and Budget, Revised Sequestration Preview Report for Fiscal Year 2014, May 20, 2013, p. 23, http://www.whitehouse.gov/sites/default/files/omb/assets/legislative_reports/fy14_preview_and_joint_committee_reductions_reports_05202013.pdf, (accessed October 24, 2013).

[7]Ibid.

[8]Marilyn Tavenner, “PPACA Pulse Check,” testimony before the Committee on Energy and Commerce, U.S. House of Representatives, August 1, 2013, http://energycommerce.house.gov/hearing/ppaca-pulse-check (accessed October 24, 2013).

[9]2 U.S. Code 906(k)(2).

[10]Tavenner, “PPACA Pulse Check.”

[11]Redhead, “Budget Control Act,” p. 15.

[12]Ibid., Table 4, p. 23.

Obamacare Website Calculator Doesn’t Show the Real Costs of Many Plans

CBS News reports this morning on another problem with the flawed Obamacare exchanges: In many cases, the new online calculator available at healthcare.gov underestimates premium costs for health insurance:

Industry analysts, such as Jonathan Wu, point to how the website lumps people only into two broad categories: “49 or under” and “50 or older.” Wu said it’s “incredibly misleading for people that are trying to get a sense of what they’re paying.”

Prices for everyone in the 49-or-under group are based on what a 27-year-old would pay. In the 50-or-older group, prices are based on what a 50-year-old would pay.

CBS News ran the numbers for a 48-year-old in Charlotte, N.C., ineligible for subsidies. According to HealthCare.gov, she would pay $231 a month, but the actual plan on Blue Cross and Blue Shield of North Carolina’s website costs $360, more than 50 percent higher….

The numbers for older Americans are even more striking. A 62-year-old in Charlotte looking for the same basic plan would get a price estimate on the government website of $394. The actual price is $634.

We noted nearly two weeks ago that one major bottleneck in the federal exchange occurs because the Administration does not want to reveal how much Obamacare is raising premiums. The Department of Health and Human Services (HHS) forced individuals to go through a time-consuming login process, because they did not want individuals to see premium costs without also seeing the taxpayer-funded subsidies offsetting those premiums for some. As we wrote:

One obvious reason why the Administration wants to highlight the cost of health insurance after the application of premium subsidies is because the law’s new mandates and requirements dramatically raise the cost of insurance before those subsidies are applied.

In response to myriad complaints about the website, HHS introduced the online calculator function to produce “estimated” premiums—supposedly providing more information to interested shoppers unable to complete the online login process. But, as the CBS News report notes, even that “calculator” can vastly understate the costs of Obamacare coverage for many Americans.

Even when the Obama Administration says it’s being transparent, it’s not being transparent. But ultimately, nothing can hide the fact that premiums are going up due to Obamacare.

This post was originally published at The Daily Signal.

Obama’s Defense of Obamacare and Its Failed Website

Here’s what the president did—and didn’t—say about Obamacare in his talk today.

What the President actually said doesn’t stand up to scrutiny. He claimed that “the product [i.e., Obamacare] is good,” and that the law was “a good deal.” But the law is NOT a good deal for the millions of Americans in the process of losing their current health insurance—who don’t have a website to go to where they can browse alternative options. And even if they did, it still wouldn’t be a good deal for them; many will have to pay more in premiums due to the law’s new benefit requirements.

Just as important is what the President didn’t say. He provided no explanation for the myriad failures that practically shut down healthcare.gov for weeks, nor did he say when those failures would be fixed. He also didn’t explain why a federal government that had three and a half years to build exchanges couldn’t get the job done right the first time. For the self-proclaimed “most transparent and accountable Administration,” it’s a stunning lack of candor with the American people—the equivalent of “whistling past the graveyard.”

The website failures, the higher premiums, and the millions losing their current plan demonstrate that it’s not just the exchanges that are unworkable—it’s the entire law. The American people deserve better.

This post was originally published at The Daily Signal.

Could Obamacare Cause More People to Lose Coverage than Gain It?

Obamacare’s supporters have always claimed that the law will help increase the number of Americans with health insurance. But an analysis released yesterday provided persuasive data showing that the number of people losing coverage under Obamacare could exceed the number of people who gain it.

Health insurance industry expert Robert Laszewski’s updated analysis of Obamacare’s insurance exchanges included the following nuggets:

The U.S. individual health insurance market currently totals about 19 million people. Because the Obama administration’s regulations on grandfathering existing plans were so stringent about 85% of those, 16 million, are not grandfathered and must comply with Obamacare at their next renewal. The rules are very complex. For example, if you had an individual plan in March of 2010 when the law was passed and you only increased the deductible from $1,000 to $1,500 in the years since, your plan has lost its grandfather status and it will no longer be available to you when it would have renewed in 2014.

These 16 million people are now receiving letters from their carriers saying they are losing their current coverage and must re-enroll in order to avoid a break in coverage and comply with the new health law’s benefit mandates––the vast majority by January 1. Most of these will be seeing some pretty big rate increases.

In total, 16 million people who purchase insurance for themselves could lose their current health plans on January 1. And that number doesn’t even count the Americans losing employer-provided health coverage—because their firms are dropping spousal coverage or dropping coverage for part-time workers.

Earlier this year, the Congressional Budget Office (CBO) estimated that in 2014, Obamacare would enroll 7 million people in exchange coverage and 9 million people through Medicaid. (Medicaid’s problems with physician access and patient outcomes are so widespread that some beneficiaries don’t consider the program “real insurance,” but that’s a separate story.) The CBO total of 16 million who will gain coverage is exactly equal to the 16 million Robert Laszewski estimates will lose their existing health plans due to Obamacare’s new mandates.

But based on the opening weeks of Obamacare’s open enrollment period, it’s far from certain that the CBO’s estimate of 7 million exchange enrollees will be reached. Laszewski estimates that only 20,000 people have actually enrolled in health plans in the 34 states using a federally run exchange. Based on internal Administration estimates obtained by the Associated Press and released earlier this week, enrollment is well behind even its meager projections for the first few weeks of open enrollment. Moreover, the ongoing technical difficulties faced by insurance companies and users alike give little prospect for massive new uptake any time soon.

Given the ongoing exchange chaos, it’s entirely likely that Obamacare could result in more people losing their current health insurance next year than obtaining new coverage. Any way you slice it, that’s not reform.

This post was originally published at The Daily Signal.

Washington Versus the American People

Various press reports indicate that Congress is preparing to announce a “deal” that would allow Obamacare to move forward virtually uninterrupted. If that is what happens, such as a “grand bargain” may be a political win inside the Beltway but a loss for the American people.

It’s a loss for the Americans who are losing their health insurance due to Obamacare. It’s a loss for the workers who have lost their jobs due to the law. It’s a loss for those who will pay more next year for their health insurance. And it’s a loss for future generations, who will pay the price for Obamacare’s trillions of dollars in spending.

This debate has never been about satisfying one political party or another; it’s been about common-sense solutions that protect the American people from Obamacare. And the materializing “deal” ensures their pleas to Washington for relief from the health law’s burdens will, for the moment at least, fall on deaf ears.

This post was originally published at The Daily Signal.

Sen. DeMint Op-Ed: A Letter to President Obama

Dear Mr. President:

As the temporary slowdown in government operations enters its second week, I write to explain why conservatives have insisted on making the Patient Protection and Affordable Care Act the prime source of contention. Speaking for our organization, I can tell you we’re in this fight because of the harm the law is inflicting on Americans across the country.

We are fighting for people like Michael Cerpok, a leukemia patient in Arizona, who recently learned he will lose his current health insurance due to this misguided law. He notes that “my $4,500 out-of-pocket [expense] is going to turn into a minimum of $26,000 out-of-pocket to see the doctor that I’ve been seeing the last seven years,” and he worries that he and his wife might need to take second jobs to stay afloat.

We are fighting for people like California resident Tom Waschura, who voted for you twice, yet was shocked by the higher premium bill he recently received in the mail. Tom’s insurance rates will go up by almost $10,000 for him and his family. He fears that these higher premiums will harm his family, and jobs in his area: “When you take $10,000 out of my family’s pocket each year, that’s otherwise disposable income or retirement savings that will not be going into our local economy.”

We are fighting for people like Rod Coons and Florence Peace, a retired Indiana couple satisfied with their current coverage. “I’d prefer to stay with our current plan because it meets our needs,” says Rod. But their plan isn’t government-approved under Obamacare’s new rules, so Rod and Florence are losing their health insurance plan at the end of this year.

You have claimed that Obamacare has nothing to do with the budget. But over the next decade, this widely unpopular program will add nearly $1.8 trillion in new federal spending—and will cost taxpayers trillions more beyond that, making it nearly impossible to balance the federal budget. What’s more, for millions of struggling Americans, the law will crush their family budgets due to fewer work hours, lost jobs, and higher premiums. With the economy still mired in a scattered and sluggish recovery, these people deserve relief from Obamacare—and they deserve it now.

Your Administration has already granted numerous waivers and exemptions during the three years since the law was passed. Millions of union members received temporary waivers from the law’s costly benefit requirements. Big businesses have received a one-year delay from the onerous employer mandate—a delay your Health and Human Services Secretary, Kathleen Sebelius, struggled to defend in an interview earlier this week. And Members of Congress have obtained special treatment for themselves and their staffs—illegally—that allows them to continue to receive taxpayer-funded insurance subsidies.

At a time when so many Americans are suffering because of the rollout of this new law, I remain puzzled by your failure to acknowledge the faults caused by this unfair, unworkable, and unpopular measure. We believe the law should be fully repealed, but at minimum, both sides should agree not to fund the law for one year—a “time-out” that would halt the law’s most harmful effects before they start.

Even though Democrats have thus far refused to negotiate on anything related to the current government slowdown, millions of citizens need relief from this law. I encourage you and your Administration to work with Congress on ways to stop Obamacare from harming the American people and the American economy.

This post was originally published at The Daily Signal.