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The ACA/Obamacare: Predictability and Practicality

With all the news and among the conjecture, punditry and analysis that fits any twenty-four hour news cycle, I wondered with a few colleagues the other day, how predictable the events current with Obamacare were.  Americans being who we are, our collective political memories and policy memories are short.  I too, often find even the recent past a bit muddled in memory though in my case, I attribute the “muddling” to age and a ton of issues always at-play. Nonetheless, my files are always organized and my memory good enough to recall a series of prior articles and posts that I wrote as Obamacare emerged.  For current and past readers, I’ve referenced each below.

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When I go back through this list and my notes, etc., my first reaction is kind of an “I told you so”, smug feeling.  The same is quickly buffered by a feeling of how so many folks couldn’t see this coming or refused to view the forest for the trees.  The practical reality is that health care in this country is complicated.  It can’t be re-configured wholesale.  Additionally, experiments that rely heavily on failed math and distributive justice theories (or redistributive theories) are predestined for failure in a society where, like it or not, capitalism continues to reside.

I have colleagues that are small business men/women and self-employed (many consultants are).  They are successful, for the most part, and premiere capitalists.  They are the folks who rely purely on their own skills, intellect, etc. to forge a living for themselves and for the folks they employ. Virtually to a sole, each has had their small business insurance or personal insurance eviscerated by Obamacare.  Unfortunately, none qualify for Medicaid or public subsidy.  Their sole flaw?  They work for themselves or own a small business (or both in most cases).

Certain elitists will claim that their success has come as a result of some oppressive force that hurts a sector of folk less well-off.  The notion that it is about time these folks “paid their fair share”.  Strange logic indeed.  Truth told, these folks have always paid more into the system via taxation and their employment of others.  Likewise, they didn’t get to this stage, nor did I, without committing a single flawed act – worked longer, harder, and sacrificing more disproportionately than many.  Even in the U.S., one isn’t successful ultimately, without putting in a disproportionate share of effort and taking risks that many will simply, not.

The course of failure for Obamacare lies predictably, in its lack of practicality.  It sought to level an artificial playing field created by government via a Robin Hood like approach.  In as much as I love Robin Hood, the perversity in Obamacare is that no legislation can redefine the “haves from the have-nots” (recall, Robin Hood stole from an oppressive government, not from the people – a moral on taxation without representation). The problems of those who don’t “have” is fixable but not at the expense of those who already have and not through a Washington knows best recipe. The result is clear: Obamacare grew out of failed ideology that the “haves” were bad or disproportionately (more) rewarded than those who didn’t have.  Now we know.  Many of those supposed “haves” are nothing more than people who by definition, are middle class or the working class.  The jab isn’t just to my self-employed and small business colleagues but to mid-sized employer plans (non-union) when come 1/1/14, they get a gut kick and thus, so do the employees. Wait until next year when the stomping ramps-up exponentially.

This mess isn’t about failed websites or cancelled individual insurance plans.  It is about a systemic over-reach, destined to fail by design.  Yes, folks point out that Medicaid expansion is by comparison, running smooth.  Enrollment is one thing, access and payment for providers another.  How good of a system is it (Medicaid) when those who now have benefits, can’t find a doctor willing to care for them?  Or, as so much of the U.S. remains rural, can’t find access to a clinic, hospital, or other providers other than one that is hundreds of miles away?  Not my definition of practical or for that matter, smooth.

As I wrote back in 2009, the ACA/Obamacare wasn’t ever about health care reform.  Health care reform was and remains the practical target.  All fixes now going forward are political dynamite and as such, this is the tragedy of Obamacare.  Pragmatically, the flaws in the systems, Medicare and Medicaid, etc., remain and until addressed, finding another way to re-dress this pig with new earrings or a different ensemble will only change the pig’s outward appearance.  Economically, socially and away from the political milieu, answers of a practical nature remain.  We as a nation, need to demand these solutions be at a minimum, discussed and vetted.

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November 26, 2013 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Obamacare/ACA: Implications for Consumers

Having jumped around just a bit in the last few weeks “topically”, this post may seem a bit disjointed.  It is meant as a continuation of a series I’ve compiled on the various implications providers, consumers, etc. can/will experience under the Affordable Care Act (a/k/a Obamacare).  Given the news cycle of late and the recent roll-out of the insurance exchanges under the ACA, many readers may think this post somewhat non-relevant.  Begging to differ, the implications for consumers under the ACA are expansive and the surface today is all that is visible.

Setting aside what we know of the exchange access problems and the individual enrollment glitches, the crux of the ACA implications for consumers is cost and ultimately access.  The ACA fundamentally resurfaces the consumer insurance landscape and changes the rules in terms of how individuals access insurance, how prices for insurance coverage are determined, and what coverage levels individuals can experience.  Promoted as simple, one-size premise approach to accessing coverage, the ACA for consumers doesn’t come anywhere close to its promised result.  In fact, consumers can expect a dizzying array of complex choices, cost levels and limited provider and carrier choices (depending on location) than ever before.

The biggest initial jolt for most consumers under the ACA is what will occur within employer sponsored health plans.  Employer plans represent the largest source of insurance for consumers, though the participation rate continues to decrease.  At present, 59% of individuals receive their health insurance coverage via employer sponsored plans. Given the provisions within the ACA that impact employer plans directly, the projected number of employers that will opt to drop health insurance as a benefit is actually minimal (less than 5%).  Where the ACA impact becomes onerous is cost pushed back to the individual.  Employer plans are subject to an ACA tax in 2014.  Additionally, with or without the employer mandate, fully insured plans via group insurance providers are expected to experience premium increases ranging from 10%  to 65%.  Why the big difference?  Regional differences account for some of the increase and the majority, plan design changes mandated by the ACA.  For example, plans formerly offered as high-deductible plans with Medical Savings Accounts can no longer qualify as compliant under the ACA.  The mandated plan changes such as full wellness coverage, affordability requirements, and eligibility expansion (must cover individuals working 30 hours or more) are the fundamental drivers to the added premium cost.

For most consumers covered today via an employer sponsored plan, their first reaction to premium levels in 2014 is akin to sticker shock.  Two things are certain to occur.  First, premiums paid by consumers via their employer plan will rise and in virtually all cases, by minimally 10%.  Second, their plans will change, some for the positive and some for the negative.  The positive will occur in a trade-off fashion: Richer benefits but at a higher premium.  The negative will occur as employers reduce plan benefits to the ACA minimum as a means of offsetting premium increases and where possible, increase employee cost share.  Across my client base, the vast majority of which fall in the large employer category under the ACA and presently offer health insurance to their employees, the projected premium increase in 2014 is 15% on average.  Eighty plus percent of this group plans on passing along, in the form of cost to the insured, 80 to 90% of the increase.

Certain for consumers, regardless of where they access insurance or how, save those who fit an expanded Medicaid eligibility definition and/or qualify for near full-subsidy in an exchange purchase, is that their health insurance will cost more and thus, their net expendable income will decrease.  It is this latter element that represents the biggest impact for consumers and the biggest impact for the economy current.  Wage inflation is negligible across virtually all industries.  Only certain regions and certain industries are clamoring for labor (oil and gas for example in North Dakota) and thus, scarcity produces rising wages to a modest extent.  Presuming a 10% increase in premium cost for an employee covered under an employer plan and an inflationary wage adjustment in 2014 of 2%, the net (simple) decrease to income is 8%.  Taking this just a step closer to reality, assume a 14% increase in premium and no wage adjustment or an adjustment of say, 1.5%.  The net (simple) decrease to income is 12.5% to 14%.  What occurs for a consumer when a change in incomes is so profound is behavioral change.  Consider the following as plausible;

  • Forestalled large-scale purchases such as homes, major appliances and automobiles.
  • Reduced savings and increased consumer debt.
  • A continued lag on employment (job) recovery.
  • A continued lag on GDP recovery and growth as consumer consumption accounts for approximately 65% of GDP.

For consumers not participating in employer sponsored plans, a similar sticker-shock will occur for all but those that achieve coverage via Medicaid expansion and/or full subsidy through an exchange.  What we are already seeing for this group is an evaporation of their current private options and/or premium increases routinely above 25%.  For those whose access to coverage is through an exchange, enrollment today is problematic.  More problematic is the cost, especially sans complete subsidy.  While premiums on their face seem somewhat reasonable, out-of-pocket costs plus premiums for the “bronze” or low-level options equate to 60% of total.  For example, a bronze premium for a 40-year-old in Illinois averages $180 per month or $2,160 per year.  A bronze plan leaves an out-of-pocket exposure of 40% of health costs save wellness benefits (an annual physical, certain wellness tests).  In North Dakota, the cost jumps to $215 per month.  This is for an individual only.

Breaking this down to include subsidies, here’s what a nationalized approach looks like using the Silver plan option (middle of the road, 70% of costs covered, average deductible of $2,500 and out-of-pocket maximums of $6,000) under the ACA.

  • At 200% of the Federal Poverty Limit, the cost of a Silver plan for an individual ($22,980 annual income) is $1,452 per year and for a family plan, the premium is $2,964 – rates include all subsidies.  This equals a total possible cost annually for an individual of $7,452 dollars (premium of $1,452 plus out-of-pocket maximum of $6,000).
  • At 300% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $3,276 (range is due to regional pricing differences among carrier options plus income levels and subsidies between 200% and 300%) and for a family, the premium is $6.078 – all subsidies included.  The 300% income threshold for an individual is $34,470. At this premium level, the cost exposure is approximately $9,000 per year (premium plus max out-of-pocket).
  • At 400% of the Federal Poverty Limit, the premium for a Silver plan ranges from $2,772 to $4,368 (regional differences and income plus subsidy levels between 300 and 400% of the FPL).  The premium for a family is $8,952 – rates include all subsidies.  The individual income limit is $45,960.

Per the Kaiser Family Foundation and separately, from a study completed by Deloitte, each of the above options is more expensive for an individual (total cost plus deductible including subsidized premiums) than a typical employer sponsored plan offering.  For example, one of my client companies with 300 employees, 225 participants presently offers a single premium, 80/20 plan for $85 per month. They are a very typical company (health care provider) in their industry (just to dispel any reader’s notion that the company is unique in demographics).  In comparison, a better plan costs a single employee $1,020 annually versus a subsidized plan for the lowest income group (200% of the FPL) at $1,452 per year.

The Consumer Conclusion?  My summary is more, unanticipated cost and fewer options than most expected.  The real implication for the consumer is the economic impact.  The U.S. labor trend is weak and wage inflation minimal.  In such an environment, insurance increases that can’t be offset by wage inflation, reduce consumer income.  Reductions in a consumer’s ability to consume via an increase in health insurance cost will create one of two reactions (three in some cases).  First, if the consumer stays insured or participating in an employer plan, a reduction in net income available will reduce consumption in all areas.  Second, the consumer opts to drop coverage or inclusion, instead paying the minimal penalty.  The third option for those presently privately insured, is that they either drop coverage or alter coverage to lower levels as a means of offsetting higher premium costs.  What is most disconcerting to me is that the exposure in terms of coverage gaps via out-of-pocket costs under all ACA scenarios is growing and this impact is undoubtedly, negative for economic growth and consumer economic health.

October 18, 2013 Posted by | Policy and Politics - Federal | , , , , , , , | Leave a comment

The ACA, Funding Resolutions and the Shut Down

For readers approximating my age, a commercial slogan ties to the title of this post: “Is it real or is it Memorex”.  In this current round of Washington political maneuvering and on display dysfunction lies the question;  is the ACA issue real or is it a tool for political posturing?  Is this a real “red line” issue and an issue of such magnitude that a simple continuing resolution for government funding now resides in limbo? Maybe yes and maybe not.

Setting aside the news cycle rhetoric and the political ideologies at-play, merit exists to slow down ACA implementation and re-calibrate.  The problem is that neither party can find a way to address the process and thus, the economic and policy issues operative, without wading hip-deep into political muck.  Truthfully, the ACA issue is worthy of scrutiny and thus, legislative remedy but the timing and the mechanism is not during a budget procedural process.

Dissecting the debate further, removing the fringe and getting at the core, there is logic to explore and facts to review. Non-funding the ACA is a bogus proposition and one that is all but impossible to do.  It is not a stand-alone, singular expenditure like funding another aircraft carrier or a NASA mission.  It is already woven throughout the health care industry.  The issues that remain are whether certain elements need re-thought and arguably, many do.  This isn’t a political point but one shared by most economists (non-partisan), most health policy experts, and even the party leaders on both sides of the aisle.   No matter what the president’s rhetoric is at the moment, his administration delayed the employer mandate and for sound reasons.  The individual mandate deserves the same fate and for the same reasons.

The simplest of all reasons is neither at present, is in workable fashion and likely won’t be anytime soon.  The implementation and enforcement provisions for the requirements exist in only pieces.  Further, the complexity of the mandates (individual and employer) create so many unintended consequences that each deserves a time-out and re-think to address the possible consequences.  For example, the employer mandate created the real consequences of lost work hours and lost jobs – untenable outcomes in a job less recovery.  With this looming outcome and a loss of or reduction in, employer-sponsored health plans the participation goals of the ACA can’t be met and worse, the numbers break ugly quick on additional government resources required to pick-up the slack via Medicaid and subsidies through the exchanges.

A similar course is visible with the individual mandate.  The process is confusing and individuals simply don’t get it.  While the rates look at first glance palatable the reality is, rates plus out-of-pocket costs on the affordable plans don’t equal affordable coverage.  Similarly, rate subsidies are tied to tax credits not direct to income support for most (cash flow timing is markedly different with tax credits).  When viewed against employer coverage options existing, the choice for most is clear – the exchanges lose.  Additionally, Medicaid is full and overflowing.  In a number of states that have recently moved to a Managed Medicaid platform, the transition has created problems yet unresolved in terms of payment, claims adjudication, enrollment and provider access.  Adding to this mess is a certain nightmare, particularly in rural areas or inner-city areas where participating Medicaid providers (especially physicians) are limited and declining.  Worse, the numbers of participants that qualify for the exchanges and ultimately participating appears by estimate, to be far below projections.  If, as I believe and a number of health care economists similarly, the initial participants are folks with immediate health needs and chronic diseases, the costs via premium in year 2 will explode (too many sick people, not enough healthy people in ratio, paying premiums).  Recall, anyone qualifying to purchase insurance on an exchange can do so at any time and not be denied coverage.  There is no penalty to lapse in and lapse out effectively and initially, the “tax” penalty is meager – assuming some methodology of enforcement is available (one isn’t today).  Reality suggests that most who are healthy and presently under or uninsured, will not jump to lower their income via purchasing insurance until doing so is proximal to an immediate need.

If the above reasons aren’t compelling enough to re-think and re-craft the key ACA components, the state of the economy is.  Politics aside, the ACA is anathema to a rebuilding economy that is trying to shift to a different plane.  Large, overarching legislation that is ripe with new entitlements, new taxes, new mandates, and crosses traditional state boundaries with federal intercession creates temporary economic impacts – socially and politically in the immediate, financial beyond.  It is the social and political shifts that are creating a pull opposite to an economy seeking equilibrium.  The fundamental drag or tug is opposite or oppositional to labor, wages, income and consumer spending.  All of these elements succeeding or byproduct of industrial and business growth, capital investment, and production/service expansion.  Point in fact, the ACA addresses more issues in a past or former economy than it does in the shifting current economy.  Hence the flaws in the employer mandate so troubling to many employers.

What we know today of the economy is that its labor norms (employment) are fundamentally different and thus, income and consumption patterns have shifted.  For example, workforce participation rates are significantly down with retirement up and at least for a decade or more, likely to remain at this trend level.  The number of people working at fragmented jobs, temporary jobs and jobs below their former pay and grade has significantly increased and the increase again, is permanent not temporary.  Many of the jobs lost over the course of the last five to seven years are gone permanently.  Government employment is waning and will continue to do so.  This labor shift combined with a wage shift can’t be resolved by government policy.  The shift likewise, in employment and income status and thus, health insurance coverage isn’t adjusted by the ACA – only magnified.  Again, regardless of subsidies and Medicaid expansion, the number of permanently covered individuals won’t shift dramatically and in many regions and states, will shift negatively – more uninsured and underinsured.  Why?  The folks fundamentally “shifted” in the current economy are working, can’t qualify for Medicaid, and regardless of access to an exchange with some or limited subsidy, can’t or won’t afford the “total” cost of coverage (premium plus out-of-pockets costs).  The jobs they lost included benefits and the replacement jobs, without or at a higher cost.  This is the new economic norm and the ACA, unless adjusted, is an adverse factor in the labor market recovery.  Without a labor recovery, the overall recovery will languish.  This is an undeniable fact and one that no political fight or government policy can alter.

October 1, 2013 Posted by | Policy and Politics - Federal | , , , , , , | Leave a comment

Obamacare/ACA: Implications for Providers

This is the second post of a four-part series on the status and implications of the continuing roll-forward/roll-out of the Affordable Care Act (aka Obamacare).  In this post, the context is the implications for providers, given the evolving state of the ACA and some of the current uncertainty of its future.

Important to note: Affirmatively, the ACA has fundamentally changed the health care landscape for providers, regardless of its ultimate fate.  Unraveling the Act in its entirety is virtually impossible.  The ACA as drafted and passed, is a singular layer of law that provides the framework for an incredibly deep-set of regulatory/administrative law provisions.  Illustratively, the ACA is like an onion; broad layers on the outside leading to more intricate, narrow layers on the inside.  It is essentially, an enabling piece of legislation rather than a single or for that matter, bifurcated or trifurcated law focused on enabling, funding and enforcement.  The ACA is written to cause other agencies and entities to exist, to promulgate rules and to cause Congress to fund via a prescriptive mechanism, the evolution of what the ACA was passed to create.  Complex, I know – hence the thousand plus page bill.

Because the ACA ties providers, insurers, employers and individuals ultimately together, the implication for providers is a function of the elements of the law directed at providers (really quite minimal) and all other elements that pertain directly to insurers, employers, individuals and to another extent, government itself.  The latter is where the ACA creates another level of entitlement within the government, primarily through Medicaid expansion and the insurance exchanges.  In short, logically separating the pieces, providers vs. all other groups impacted, clears the picture for providers.

Because the ACA doesn’t structurally change healthcare or for that matter, the major regulatory or payment components, provider implications at the core, are truly minimal.  Arguably, without the ACA, providers would still see a similar level of regulatory activity and reimbursement changes.  These issues are truly separate from the ACA as remember, the ACA doesn’t touch Medicare, Medicaid (other than to expand it) or reform or modify, any other federal conditions of participation.  It didn’t even address the physician payment formula (known as the SGR).  Regardless of the political rhetoric, the ACA only served to create a methodology for spending reductions to offset its associated implementation costs, greater output to states for Medicaid spending, and a series of provider taxes (DME) as a method for internal funding transfers.

What providers experience today in terms of increased fraud vigilance, RACs, rate rebasing, pay for performance (quality measures), changes in HIPAA, Medicare reimbursement cuts, etc. are events non-organic to the ACA.  True, the ACA codified some additional elements such as Accountable Care Organizations and bundled payment demonstrations, etc. but not in any great detail.  The reality is that the ACA didn’t need to exist for these events to occur as the administrative levels within government (Department of Health, CMS, etc.) can create, and has, this level of regulation and activity via agency fiat or other legislative (normative) functions within Congress (budget appropriations, etc.).  These issues and events are all or were all, in motion prior to ACA passage.  Providers would have seen them with or without and perhaps, in quicker time increments as the ACA has muddied the picture rather than made it clearer.

The driving element for providers isn’t the ACA but the changing structural nature of our society, our economy and the federal mechanism for funding and paying for, entitlements.  The ACA doesn’t change these issues or even address them indirectly.  Providers face cuts, regulatory oversight, other regulatory initiatives to make healthcare more “efficient” and outcome driven because of the federal funding issues, growth in entitlements and budget allocation for entitlement spending.  In federal parlance, the cost of and growth of entitlements are too large and too “ineffective” to continue (the last point arguable of course).  Too much money is spent for too little care or ineffectively so and too many people are ending-up in the entitlement pool for government to remain solvent or achieve equilibrium.  Taking away the ACA, the issues remain.  Keeping the ACA, the issues remain.  The ACA didn’t address them nor changed the entitlement window or programmatic elements driving the fiscal course one iota (other again, than to expand certain elements such as Medicaid).

The real implications for providers arise when insurers and consumers fully integrate into the picture.  Today, this is the government’s dilemma.  In the desire of the drafters to create more insureds, improve access, and redistribute the health care pie, the ACA became the poster for “unintended consequences”.  For example, look at the shift in union/labor support for the ACA.  Because the ACA includes a “tax” on benefit rich insurance plans (Cadillac plans) and sets a definitional limit on employee eligibility for firms to provide mandate coverage at 30 hours per work week, the law is directly oppositional to union positions (full-time employment at 40 hours and “privately’ negotiated benefit plans).  The ACA does not exempt collective bargaining plans from tax imposition if the same plans meet the “Cadillac” definition.  Similarly, businesses that wish to avoid the ACA’s employer mandate on insurance benefit plan structure, can do so by reducing their employee work week to under 30 hours.

Why this is the crux of the ACA implication for providers is simple.  Pushing aside current Medicare and Medicaid demand, the remaining demand is “all other”.  This ” all other” category is dominated by privately insured individuals.  The ACA exists to morph this category via mandates on employer plans, mandates on private insurance offerings, and mandates (via taxes or penalties) on individuals to purchase/access insurance.  Assuming, as is presently the case, that nothing more changes in the ACA as written, providers are certain to face the following;

  • Companies that formerly offered insurance benefits to their employees, dropping their plans and opting to pay the ACA penalty.  This will shift more individuals into the expensive private market place purchasing, if they can, higher cost insurance with lower benefit levels.
  • Companies will reduce their work-week hour requirement below to the 30 hour threshold and thus, limit their insurance benefit plan requirements under the ACA. Again, employees formerly insured will now enter the private marketplace, the exchange or Medicaid.
  • Medicaid will expand and the numbers of participants will swell.  The payments from Medicaid will not increase proportionately and thus, while providers may experience less bad debt (although not total elimination), the trade-off is patients with an inadequate payment source.  I know few provider types, perhaps other than hospitals via default, who willingly want to see more patients with Medicaid as their primary payer.
  • Exchange plans, when available, will not come cheap (although subsidies exist for income qualified participants) and in some states, may involve only one plan offering.  We don’t know much about the Federal exchange participants yet.  What we do know is that the elements within the ACA that mandated benefits for private insurance plans, upped the dependent coverage age for adult children, removed pre-existing condition limits and lifetime benefit limits, raises the cost of insurance to levels where affordability is questionable.  The trade for affordability is coverage levels (higher copayments, deductibles, etc.).

When these issues arise, and they are or have to a certain extent already, providers see different consumer behavior.  Lacking insurance or facing reduced benefit levels, individuals will alter their consumption behavior; including the consumption of health care services.  Simply having access to insurance isn’t going to mean for the most directly impacted middle-class/working class, that one can afford it.  While the ACA expands benefits and access via Medicaid and subsidies to the “working poor” (125% or under the Federal poverty limit), it doesn’t protect the cost for anyone else.  Further, its provisions shift financial burdens and incentives among private, non-union benefit plans so much so that many employers will significantly alter their insurance offerings, negatively impacting their employee insureds.  Negative impacts of this type mean individuals behave differently, purchase differently, and access care differently so as to minimize personal financial exposure.  Providers will see demand slack.

The expansion of Medicaid presents a completely different picture for providers.  Picture a group that has previously had minimal to no access to care.  This group is awarded a rich benefit plan typical of any government entitlement program.  Having likely delayed or refrained from using or accessing care other than in a circumstance of urgency, they now have immediate benefits and immediate (perceived) access.  The analogy best suited is a person wins the lottery; sudden wealth and a former lifestyle of delayed or no consumptive gratification.  The likely demand from this new group of Medicaid recipients, once they become aware of their purchasing power via the government, is for care.  The question is, what care and how infirmed and debilitated is this group?  Will providers accept this group?  Can they afford to accept this group?

In answer to the above, we’ll see.  What I know is that as of today, given the present payment mechanisms and levels under Medicaid, few providers will willingly open their doors.  This is particularly true for physicians – the portal to all other care.  Hospitals who have somewhat embraced the Medicaid expansion in general, are today just realizing the somewhat perverse implication that may arise if physicians abdicate Medicaid further – a growing flux in emergency care visits, already a problem for Medicaid and the under/non-insured market.  The ACA doesn’t address this complication and in all cases, makes it worse by expanding a program that is viewed by  providers as a poor payer.

What providers can expect in terms of ACA implications is a fundamental shift in consumer behavior toward health care.  Its not the governmental implication of what the ACA does directly to providers; it is what the ACA does to insurers, employers and consumers.  As the impacts for insurers are employers are shifts in the cost of benefits paradigm (negatively), both will react to reduce exposure and to insulate against financial erosion.  This means providers need to understand that insurance plans will offer less coverage at higher prices, the same coverage with higher cost-share, and employers will reduce employee coverage either directly or indirectly via higher premium levels/cost share.  These elements when applied in an economic element, shift behavior away from consumption, reducing demand for non-essential health care services or toward cheaper alternatives.  Medicaid expands but within the same framework, pouring newly benefit rich consumers into the marketplace.  The problem is that these new consumers, full of pent-up demand, only bring payment at fractional levels of costs.  Plenty of consumption possibilities but at a loss to most if not all providers.

Moving one step forward, socially and economically the picture for providers can be truly unsettling.  The picture for society perhaps even more concerning.  More people, less covered plus more people better covered but via a poor payer (Medicaid) equals less care, not more.  For the Medicaid folks, what good does it do to have a great benefit plan but access to limited providers?  For the insured group, what good does it do to have insurance but at a price and cost-share point that constrains access or places the insured at-risk for accessing the system(s) from a financial perspective?  Providers will see the end result of this social/economic shift and the end result is less core demand and patient flow, demand for services with a less than adequate payment, the risk of more bad debt from those insureds with higher cost-share levels, and a greater reliance on urgent/emergent access for those whose only access is via this portal.

September 6, 2013 Posted by | Policy and Politics - Federal | , , , , , , , , , | Leave a comment

Obamacare/ACA: Where it is at, why and where next

A number of my regular readers and clients routinely ask for my thoughts/analysis on where the Reform Act/Affordable Care Act/Obamacare is at, particularly in-light of the recent one-year delay in the employer mandate.  Given the complexity of this subject and the scope of the overall law, a single post won’t cover the subject adequately.  In compiling my notes, research, etc., the logical approach is to address this subject in four posts;

  • The economic, social and political environment
  • The implications for providers
  • The implications for consumers/employers
  • The “best guess” of what happens next, post-the mandate delays, etc.

This first post, not to state the obvious, is focused on the economic, social and political environment that envelopes the legislation and is impacting its course.

Like the legislation or not or like or not its intent,  the ACA is a fascinating window into current social, economic and political realities.  It by its legislative intent, is a governmental attempt to address a number of social, political and economic factors within one large, overarching piece of law.

  • The rate of spending or expenditures relegated to healthcare in the U.S.
  • The cost of and access to, health insurance for a subset of individuals not covered or inadequately covered through traditional entitlement programs (current or former eligibility tests applicable) or traditional health plans (employer sponsored primarily).
  • The government’s role in assessing the adequacy and quality of provider programs.
  • Certain innovations deemed worthy of further exploration that in theory, will improve efficiency, care delivery and thus, quality as measured via outcomes.
  • The legislative mechanics to accomplish the above (authorizations, funding, delegation to various agencies, creation of other governmental entities for implementation and administration, etc.).

Structurally, the ACA is overlaid across existing governmental programs such as Medicare and Medicaid.  It does virtually nothing to change these programs, their benefits, their funding, etc. Arguably, the most the ACA does to these programs is fine-tune certain elements and add some subtle adjustments to payments and disclosure requirements for providers.  The most notable change within the ACA occurs within Medicaid as the ACA expands the definition (financial) of eligibility allowing people with greater financial means (up to 133% of the federal poverty limit effective in 2014) to participate in the program.

Politically, the need for the ACA was expressed (condensed) as an intervention to increase the number of people in the U.S. with health insurance coverage (reduce the number of uninsured) while simultaneously, “bending the cost curve” on Medicare and other entitlement programs (the rate of spending).  Both intents are laudable.  The latter may be somewhat attained but the cost curve bend, not and certainly, not as a result of the ACA.

The primary reason the ACA will have negligible impact or frankly, none at all in changing federal outlays for healthcare is that it doesn’t address, by legislative language or other, any specific funding and benefit elements of current entitlement programs, save to actually expand benefit eligibility (Medicaid).  It further ties the government to enhanced levels of funding in order to effectuate the expansion.  Additionally, the economic and social factors at play in the U.S. don’t coalesce around the legislation and in fact, are polar opposite to the legislation.

The driving elements of increasing expenditures, current and future, under Medicare and Medicaid are economic and social factors that can’t be adjusted by legislation.  Legislation or policy at its best can only respond to these factors via incentive and alignment but essentially, in the U.S., government fiat doesn’t work to adjust economic and social factors.  Our system of government and enterprise, even with greater regulation and oversight, can’t alter certain mercantile and social forces at play.  Principally;

  • An increasing percent of the population, even without changes to eligibility criteria, is eligible for federal entitlement benefits.  This is fundamentally the case for both programs – Medicare and Medicaid.  The aging population alone is the principal driver for increasing Medicare enrollment.  The economic shift in labor and payroll, an increasing driver for Medicaid eligibility.  These factors can’t be changed by policy unless the policy changes the eligibility in such a manner as to constrain growth.  The ACA did not do that.
  • The economy in the U.S. is in a period of adjustment and it has been now for the past twenty plus years.  This period is continuing and will for at least another twenty or thirty years.  The U.S. is no longer a production-based economy in the traditional sense; it is a consumptive, service based economy.  Economic activity is heavily influenced today by consumer behavior (consumptive) and as it has shifted toward an  employment locus in a service sector, the wage profile is different and lower than what was realized in the former production economy.  See the manufacturing industry as an example, particularly the assembly line style.  Today, the overall number of jobs are fewer, demand higher skills, and are slowly replaced by innovation and automation.  The fear is not overseas manufacturing usurping jobs but onshore technology advances eradicating jobs.  Manufacturing will remain a vital portion of the U.S. economy although not as relevant when viewed as a labor source in quantity.
  • Socially, we have come to expect government to be an arbiter in the distribution and production of health care and health benefits. We expect interventionist policy and the government to employ distributive justice for our care.  One only needs to look at the coverage breadth for government programs compared to private programs to see this evolution.  Gone are the days when private, employer sponsored plans can be considered “Cadillac” coverage compared to government entitlement programs.  Today, the inverse is true as employer plans have scaled options, imbedded greater increments of cost-share, and narrowed provider choices.  Oddly enough, the ACA is an evolved governmental effort to reach into the “private sector” and lay-over, a mandate for expanded coverage, benefits, and conditions – very similar to a government run, entitlement based infrastructure (e.g., no pre-existing condition limitations, no lifetime benefit caps, mandated coverage and benefit levels for group plans, etc.).  If government is, and I believe it is, a reflection or mirror if you will. of present-time, social expectations then one can readily conclude that the ACA exists because the dominant social trend current demands government intervention in health care.

Politics in the U.S. has evolved as well.  The political environment is about wins and losses in and across party divisions and sub-interest groups.  Broad consensus is rarely attainable on issues of substance.  The ACA evolved as a result of a point-in-time shift in central governance – a movement toward an ideological trend that government can and should be more involved in social imbalance.  The truth however is that the present wave of social imbalance, the slow decline of a “middle-class” isn’t fixable by government policy and redistribution.  This shift has occurred as a result of a changing world economy and in the opposite, government policy which hasn’t evolved.  In short, the change in social structure has arisen gradually, across multiple administrations and the trends have been present since the mid-70s.  Government can’t fix or legislate a re-balance.

In order to frame the life or death or evolution of the ACA going forward, the environmental factors of politics, economy and social expectations need dissection. For example, the political environment remains fractured so the likely remedy legislative is as we see today; subtle shifts around the edges, delays, and partial recalibration mostly coming via administrative rule-making and executive order rather than legislation.  While party balances in power may shift moderately, a ground-swell shift is unlikely – the electorate too disjointed and divided for this to occur.

Socially, the structures of society continue to shift.  People are more mobile.  Traditional jobs more scarce especially those with benefits.  Education is required but not necessarily in the form of traditional four-year degrees for many new and evolving jobs. The ability to earn a family supporting or for that matter self-supporting wage without special training or skills is eroding quickly, save for farming to a certain degree.  Wages will not inflate to any large degree for quite some time again, except in certain industries where scarce labor-skill is operative.  Child bearing occurs later and today, in rising numbers within single parent, non-intact couples. Saving rates remain low although personal debt levels have declined but this is likely temporary.  And finally, most individuals don’t view their income allocation toward health care as favorable and would prefer, a greater amount of their income be available for discretionary spending.  As long as this view, not supported economically, remains prevalent, the pressure on government to subsidize or create cheaper health care will remain high.

Economic trends and economies are changing and will continue to evolve for another decade plus.  This essentially means that labor-levels and employment levels are different and will remain different and thus, higher levels (historic) of unemployment, under-employment, income and non-participation will remain.  These factors cause governments to fund entitlements and support programs.  This will change over time as new sub-economies evolve and social structures adjust.  Expectations move and production shifts to balance a mixed demand for different services, goods, and commodities world-wide.  Today, the imbalance however is palpable as fossil fuel production has moved geographically, food production and distribution as well, and manufacturing re-structuring to a heavy industry third-world production and high-tech production and design residing in first-world countries  The U.S. economy will be different and thus so will be standards of living, valuations on real property, consumer behavior,, and credit and investing.  How this shapes the ACA going forward, I’ll delve into in the next series of posts.

August 17, 2013 Posted by | Policy and Politics - Federal, Uncategorized | , , , , , , , , | 2 Comments