President Obama Endorses Earlier State Opt-Out of PPACA

The ongoing debate over the Patient Protection and Affordable Care Act is about more than whether this provision or that provision is beneficial or damaging to the nation’s economy and health care system. The debate is also about the appropriate role of the federal government compared to that of state governments and individuals. Health insurance, and consequently much of health care, has long been the purview of the states. The PPACA changes that balance considerably.

Enter Senators Ron Wyden and Scott Brown – the former a Democrat the latter a Republican. They are co-sponsoring a bill allowing states to opt-out of many of the more controversial provisions of President Barack Obama’s health care plan as early as 2014 if they meet certain eligibility requirements. (The health care reform law already provides for this opt-out in 2017, but by then states will have invested heavily in implementing the PPACA).

This legislation, one of the few bi-partisan health care reform-related measures put forward in the past few years, just received a politically important boost. Speaking before the National Governor’s Association meeting in Washington, DC today, President Obama endorsed the Wyden-Brown proposal. Were the bill to pass, states could replace the individual and employer mandate, health insurance exchanges and whatever the federal government comes up with as “essential benefits” all health insurance policies must cover. Yet the states would still receive the insurance subsidies and administrative funding they’d be eligible for under the PPACA.

Gaining this privilege to go their own way, however, is no easy task. As described by Kate Pickert in Time’s the Swampland blog, states would need to show their own health care reform approach would:

  • not increase the federal deficit
  • provide insurance to as many people as would the PPACA
  • provide insurance as least as comprehensive as that called for in the PPACA
  • provide insurance that’s just as affordable

Avik Roy at Forbes’ The Apothecary blog has an excellent presentation of the pros-and-cons of the Wyden-Brown legislation. For example, he sites Ben Domenech as observing that “states would have to prove a greater number of people will purchase a product under their alternate plan than would do so under a law requiring them to purchase that product!” However, this may be easier than Mr. Domenech apparently believes. As I’ve pointed out previously, there are other ways to encourage consumers to obtain coverage than a government imposed mandate. The Waiver for State Innovation, as the Wyden-Brown proposal is referred to, doesn’t allow states to return to the status quo. On the contrary, states would still need to put forward comprehensive health care reform. They can just go about it in a different way than that taken by the Obama Administration in the PPACA.

As President Obama said to the Governors when describing the value of moving the state opt-out opportunity to 2014, “It will give you flexibility more quickly while still guaranteeing the American people reform.”

For example, states could set up a system in which consumers are given health insurance vouchers to purchase coverage. Carriers could be required to issue policies to all who apply. To protect their pools from the adverse selection of people waiting until they’re on their way to the hospital to obtain insurance, carriers could be permitted to exclude coverage for pre-existing conditions for as long as a consumer has been without coverage. This kind of approach would do away with exchanges and the PPACA’s approach to the individual mandate. Of course, so would the single-payer approach being considered in Vermont.

A wise man once told me, “You never solve problems, you just replace old problems with new ones.” President Obama is giving states the opportunity to solve – and create – their own problems. Whether any will be able, or willing, to seize this opportunity remains to be seen.

Rate Regulation Grants Announced by HHS

Carriers set health insurance premiums based on several criteria. The single biggest component is the expected cost and utilization of medical services. Then there’s the need to cover overhead (such as operations, sales costs, marketing and armies of lawyers to deal with regulation) and profit (or retained earnings for non-profits). Insurers know they don’t operate in a vacuum, however, so they consider the pricing of competitors as well.

What’s a reasonable premium? Arguably it’s one that covers claims, operations, provides a profit, but is still affordable to consumers, at least relative to the pricing of competing carriers. This approach assumes an effective market. Carriers that get greedy (and overcharge) will lose market share to more fairly priced competitors. Those that underprice their plans one year will need to seek large premium increases the following year to make up for losses. At any one time a particular carrier’s pricing may be out-of-whack (to use the technical term), but over time the market is supposed to work things out to keep pricing reasonable.

The market, however, can be messy. A carrier seeking to make up for losses in prior years may need to seek substantial rate increases (think 40-to-50 percent).  Within the walls of the insurance company such increases makes perfect sense. Medical costs and utilization are skyrocketing. Operating efficiencies take time to achieve (without totally degrading customer service). Executives are rarely first in line to reduce their own take-home pay (nor would it amount to a lot if they did). The only way to make up for underpricing errors is to raise rates – a lot.

Outside the bubble that is most corporations, however, double-digit premium increases appear more like highway robbery than a logical business decision. How many items in our economy go up 10, 20, 40 percent of more each year? Year-after-year? Cars don’t. Most food items don’t. Gas prices may skyrocket, but they drop from time-to-time, too. Health insurance premiums seem to be on a one-way trajectory upward. When’s the last time health insurance premiums fell? (1996 is the last time I recall, but I may be missing some other exceptions).

This pricing trend is unsustainable. Some of you may recall the “rule of 72” from your economics (or math) classes. The rule of 72 is a way to estimate how long, given a growth rate, it takes to double a number. Just divide the assumed rate of growth into 72. Invest $100 in an account paying 5 percent interest and your principal will double in roughly 14.4 years (72/5 = 14.4). Increase the cost of health insurance by 10 percent per year and premiums will double in 7.2 years.

So here’s the situation: carriers price their products to cover their costs (both claims and administration), to earn a profit and to be competitive in the marketplace. Consumers see their costs increasing at unacceptable levels. What’s a lawmaker to do?

If that lawmaker believes in markets they let nature take its course. If the lawmaker: 1) believes the market isn’t working; and 2) government needs to step in when markets are broken, you require carriers to get government approval before raising their rates. The Patient Protection and Affordable Care Act includes provisions to encourage this latter approach. Or as the federal government’s web site puts it, “The affordable Care Act provides new tools and resources to protect consumers and employers from large and unreasonable health insurance premium hikes.”

That encouragement is the reason the Department of Health and Human Services is making $199 million in grant funds available to help states “create or enhance their premium rate review programs.” The goal is to bring greater transparency to the rate making process while assuring that the states are “comprehensively” reviewing carrier’s proposed prices hikes.

The idea is to prevent “unreasonable” rate increases – which begs the question: what’s unreasonable? According to a regulation proposed by HHS, that would be any rate increase of 10% or more in the individual and small group market segments. Maybe. The 10 percent threshold doesn’t determine whether a rate increase in unreasonable, but it would trigger a state review to determine if it is. Carriers would also need to post their justification for such rate increases on the Internet.

Personally, I don’t mind increased transparency in health insurance pricing. As I’ve written before, carriers need to educate consumers and lawmakers about the value they provide. After years of being hammered politicians in both parties and reams of articles about denied or rescinded coverage, the general public would be excused asking “what is it you folks do that’s of any benefit?”

So if the states ask tough questions and make carriers justify their increases, I’m fine with it. A second set of objective eyes couldn’t hurt and as I’ve noted in an earlier post, the resulting dialogue could be a way to educate the public about how rates are driven by the cost of medical care. But what we’re likely to see is an increasing number of states deciding their regulators need to sign off on any rate increase (some states already do this).

Inserting politics into the premium setting process distorts an already messy process. What politicians (or their appointees) are going to sign off on a significant rate increase – even an objectively necessary substantial premium hike – in the middle of an election season? Rates are already impacted by the underwriting cycle, now they are to be beholden to election cycles? The calculation for a politician is simple: if they allow a substantial rate increase they anger voters; if they deny it they upset an insurance carrier. Sure they could try to explain to their constituents why the rate hike was needed. But that’s hard work. It’s far easier to just say no.

Nor are public officials likely to link medical cost increases to premium hikes. Far easier to attribute increasing costs to greedy insurance executives than doctors or hospitals. Nor is there anything regulators with the authority to reject premium increases can do about increases to medical costs. The PPACA does not give states the power to tell doctors what they should charge for a given procedure. Anyone who has read this blog for long knows I’m not a fan of a single payer health care system. I do respect, however, the honesty of single payer advocates who recognize that their approach is about controlling the cost of health care at its source – what doctors and hospitals charge for care.

Advocates of increased government involvement in rate setting believe it will help lower costs. And there’s no requirement that states seek approval powers over premiums to qualify for the grants. But some (I’m looking at you California) no doubt will.

There are cost containment provisions in the PPACA. Certainly not enough, but they’re there. Rate regulation, and encouraging states to establish themselves as the final arbiters of what rate increases are permissible, is not one of them.

Health Care Reform Developments

Some quick tidbits and news items concerning health care reform you hopefully find useful – or at least interesting:

Judge Upholds PPACA: This time the plaintiffs claimed the individual mandate provisions in the Patient Protection and Affordable Care Act violated their religious freedom. They also argued the financial penalties were too severe. U.S. District Judge Gladys Kessler dismissed their lawsuit, declaring that Congress was “within the bounds” of the Commerce Clause in mandating that all individuals obtain health care coverage. Judge Kessler based her decision on the cost shift that occurs when uninsured individuals obtain medical care and how their lack of coverage results in higher premiums for those with medical policies. The result is “substantially higher insurance premiums for those other individuals who do obtain coverage. Thus, the aggregate effect on interstate commerce of the decisions of individuals to forgo insurance is very substantial.”

This makes three District Court Judges who have upheld the PPACA and two who have opposed it. Most of the reports on this most recent decision note that the three Judges finding the PPACA constitutional were appointed by President Bill Clinton, a Democrat, while the two declaring the individual mandate unconstitutional were appointed to the bench by Republican presidents. This focus on the party affiliation of the appointing president comes up frequently when appellate courts, including the Supreme Court, make a decision. It’s important not to get too caught up in this.

Yes, presidents tend to support judges with similar perspective to the law – and to what constitutes justice –as they have. Which means Democratic appointees tend to be more “liberal” and Republican appointees more “conservative.” (I use the quotes because these terms don’t always mean the same thing in the context of legal decisions. The Supreme Court decision in Citizens United, for example, which overturned decades of precedent to unfetter corporations’ ability to contribute to campaigns, can be cited as an example of judicial activism, something conservatives often decry, yet in this case was a result Republicans applauded). But judges, like people in general, are full of surprises. Chief Justice Earl Warren, generally regarded as a liberal judge, was appointed by President Dwight Eisenhower. Justice Lewis Powell was appointed by President Richard Nixon. And so on. My point here is not that courts are immune from politics or what’s happening in society. I’m simply pointing out that assuming you can predict how other court decisions concerning the PPACA will be resolved by looking at the party of the president appointing the judge or justices is of limited value.

Seeking Clarification: When Federal District Court Judge Roger Vinson found the individual mandate provision of the PPACA exceeded Congress’ authority under the Commerce Clause he further declared that this made the entire law unconstitutional. However, he did not issue an injunction preventing implementation of the law. Which raises an interesting question: should states and the federal government continue to implement the PPACA or not?

The Justice Department has asked Judge Vinson to clarify his ruling. The concern expressed by the DOJ is that stopping state and federal officials from moving forward in implementing the law while various suits against it make their way to the Supreme Court “would pose a risk of substantial disruption and hardship for those who rely on the provisions hat have already been implemented. Others assert that Judge Vinson’s ruling is clear: the government lacks authority to enforce the law in the 26 states connected to the suit decided by Judge Vinson.

Judge Vinson wants to move quickly to clarify the situation. He has given states party to the suit until tomorrow to respond to the Administration’s argument that implementation of the law should proceed in spite of his finding the law unconstitutional.

CLASS CHANGES: Secretary of Health and Human Services Kathleen Sebelius, acknowledging the long-term care provisions of the Patient Protection and Affordable Care Act are “far from perfect” is looking to make some significant changes to this part of the law. The PPACA gives HHS a great deal of latitude in developing and overseeing the Community Living Assistance Service and Supports Act program. Under this program, employees will be automatically enrolled in this long-term care plan without regard to pre-existing conditions. After participating in the program for at least five years enrollees would be eligible for no less than a $50 per day benefit.

According to CQ HealthBeat, Secretary Sebelius has expressed concern about the long-term sustainability of the program unless it can be designed to attract healthy individuals and not just those with health problems. She cited a clear need for a strong educational program.

According to Modern Healthcare, the changes to the CLASS Act program being considered by HHS include indexing premiums to projected benefits; offering a range of payments instead of a $50 daily benefit (indexed to inflation); modifying qualifications; and eliminating loopholes that allow enrollees to receive benefits even if they only sporadically pay premiums.

Be Careful What You Wish For:  I’m frequently asked why the PPACA is written the way it is, why Democrats wanted to insert the federal government so deeply into the health insurance world. Why couldn’t they let the markets handle things? The reason is that they (and many Republicans) don’t think the market was working well. I’ll write more about this in a later post, but it’s important to put the health care reform debate in context. Premiums were skyrocketing. Rescissions, many of which seemed inexcusable, was front-page news. Job-lock due to pre-existing conditions was viewed as dampening the economy. Health insurance company executives were receiving huge sums of money while a rapidly increasing number of middle-class Americans were finding it impossible to afford insurance coverage. Again, more details on this to come, but the response was the PPACA: insurance market reforms coupled with increased subsidies to help more Americans obtain more regulated products. (And yes, a whole lot more, but for now, please allow me to oversimplify).

However, when government engages in managing a segment of the economy no single lawmaker, regulator or party gets to determine where that involvement ends. Democrats may have wanted to assert control over the behavior of what they consider to be irresponsible insurance companies. But they’re getting a whole lot more: conservatives using health care reform to advance their anti-abortion agenda. This in turn has opened the door for broadening the abortion debate beyond government health care programs. Representative Chris Smith has authored a bill that would disallow tax deductions by businesses if their health care plans coverage abortions while employees would have to treat premiums paid on their behalf for such plans as taxable income.

As I wrote over a year ago, it was inevitable that conservatives would use the tools crafted by liberals concerning health care reform to advance their own goals. It’s as if politicians believe the balance of power will never change. Democrats control Congress and the White House so the health care reform law will only be used to advance progressive causes. The reality, however, is that pendulums swing – and political pendulums swing quickly and far. One party may craft the power tools, but the other party will always get a turn at using them.

Bill to Exempt Broker Commissions from MLR Formula Coming Soon

Supporters consider the medical loss ratio provisions in the Patient Protection and Affordable Care Act to be critical to the “affordable” part of the new health care reform law’s title. They also believe that requiring carriers to spend a specified percentage of premiums on medical claims and health quality improvement programs is necessary to prevent heath insurers from receiving an unwarranted windfall when all consumers are required to obtain health care coverage beginning in 2014.

As a direct result of this MLR provision carriers are slashing broker commissions. Cuts in broker commissions on individual health insurance policies of 35-to-40 percent are common, and some cuts exceed 50 percent. Few businesses can absorb a revenue reduction of this magnitude and insurance agencies are no exception. As a result, many brokers are considering abandoning the individual market altogether, an unfortunate outcome for both these producers and consumers in general. Consumers benefit greatly from the expertise of professional brokers not only when purchasing coverage, but when problems arise after the sale as well. Exchanges created by the PPACA cannot replace the value brokers deliver, a fact borne out by the experience of existing exchanges.

All this explains why, at their October meeting, the National Association of Insurance Commissioners was on the verge of recommending that commissions to brokers be removed from the formula used to calculate a carrier’s medical loss ratio. Their lawyers, however, convinced them that the PPACA denied the NAIC the authority to do so.

Carriers receive no benefit from the commissions they collect from policy holders and pass along to brokers. Insurers provide an administrative convenience (reducing system wide overhead), but pass through 100 percent of the commission. Consequently, including these dollars in the medical loss ratio calculation fails to further the purpose of this provision. However, to make this common sense adjustment to the PPACA will require legislation.

Enter Congressman Mike Rogers. Politico Pulse broke the news in their February 16th edition: “The Michigan rep will introduce legislation in the coming weeks to pull brokers’ fees out of the MLR formula, just as agents had lobbied the NAIC to do.” According to the Politico report, the bill’s language has been drafted and mirrors the NAIC proposal. The article goes on to cite an “industry source” as claiming “There’s been some surprising interest from moderate Senate Democrats.” As any changes to the PPACA will require bipartisan support, this is indeed good news. (Representative Rogers is a Republican).

And yes, this is something broker organizations led by the National Association of Health Underwriters (NAHU) along with the National Association of Insurance and Financial Advisors (NAIFA) and the Independent Insurance Agents & Brokers (the Big I) have worked hard to make happen. Getting a bill introduced is neither simple nor easy. Members of Congress are harangued by countless individuals and groups to put forward legislation. But throwing something in the hopper is serious business and not undertaken casually. That Representative Rogers, a member of the House Energy and Commerce Committee’s Subcommittee on Health, will be putting his legislative reputation behind this bill is very meaningful.

Introducing a bill is, of course, not the same as enacting a law. However, no law gets enacted unless someone first introduces a bill. Which makes this news, as the saying goes, a [very] big deal.

Moderate Senate Democrats Seek Alternatives to Individual Mandate

In a thread to an earlier post on this blog, reader Curt Cella wrote ” I think if I heard just one Democrat admit that there might – MIGHT! – be some issues worth fixing with PPACA I’d feel a burst of optimism.” And he’s not alone. The sausage-making process that led to the Patient Protection and Affordable Care Act was even messier than usual. The result: legislation that is in dire need of fixing and a lot of people pessimistic about the future of health insurance.

Any changes to the new health care reform law, however, will require bipartisan support. Otherwise what emerges from the House will be defeated in the Senate and vice versa.  Which makes Curt’s wish especially meaningful. Unless some Democrats start calling for substantial changes to the PPACA (and repealing the 1099 reporting requirements in the law doesn’t count as substantial — worthwhile, yes, but not substantial) nothing important is going to change.

Fortunately, those waiting for “just one Democrat” to admit that the PPACA needs fixing are in for some good news. There are at least four Democratic Senators and one liberal columnist seeking meaningful change in the PPACA. The fix they are focusing on is the laws requirement that all consumers obtain health care coverage by 2014 (the individual mandate).

ABC News recently reported that a group of Democratic Senators are looking for alternatives to the individual mandate. (This is a provision in the law that requires all Americans to obtain health care coverage by 2014 or pay a modest penalty). As one of those Democrats, newly elected Senator Joe Manchin puts it “I’ve always had a concern and a problem with the mandate, that we were forcing it, basically saying by the law of the land you have to buy the product. But on the other hand, I know that’s been the lynchpin. I’m looking for flexibility any way I can.” Other Senators mentioned as engaged in this search for an alternative to the individual mandate are Senators Ben Nelson, Claire McCaskill and Jon Tester. ABC News describes them as seeking to “improve” the PPACA, not repeal it.

Needless to say, liberals are a bit unhappy with these moderate-to-conservative lawmakers. The Senators are not backing down, however. For evidence, take a look at an exchange between MSNBC host Rachel Maddow and Senator McCaskell on the individual mandate (the meat of the interview begins at about the 1 minute, 40 second mark).

That there are at least four Democrats looking for an alternative to the PPACA’s approach to the individual mandate is important. Together with the 47 Republicans they represent a majority of the Senate. Yes, Republicans in the last Congress proved that in the wacky world of the Senate a working majority requires 60 votes, but having a simple majority is no small accomplishment. If nothing else it puts pressure on others in the Democratic Caucus, especially moderates like Senators Joe Lieberman and Kent Conrad, to join in the fun.

Not all liberals are criticizing the Senators searching for alternatives to the individual mandate. Washington Post columnist Ezra Klein notes that “[r]eplacing the individual mandate wouldn’t be particularly hard” and then offers four suggestions. (For the record, I’ve offered my own individual mandate alternatives in previous posts).

Mr. Klein fixing the individual mandate as good public policy and winning politics for Democrats. “The danger …  is not that the law does get changed, but that it doesn’t. That the GOP won’t let it thrive and the Democrats won’t let it die and so it just limps along.”  Improving the PPACA makes it more difficult to repeal the law and more likely the legislation will be implemented in a constructive manner.

Of course, the individual mandate is just one part of the law that needs fixing, justifying a mere “burst of optimism.” Moderate Democrats should also look at teaming with Republicans to refine the medical loss ratio provision, make premium subsidies and tax credits available outside the exchanges, and enact meaningful medical cost containment.  Changes like these would justify long-lasting optimism.

Obama Budget Addresses Malpractice Reform

In his State of the Union address last month, President Barack Obama offered to work with Republicans on malpractice reform. That forum is not a place for details, so there’s been some question as to how far the President was willing to go on this issue. The budget the President introduced this week provides some of that meaningful detail.

Specifically, the Administration is proposing to provide federal funds to help states change their medical liability laws. The proposed budget would spend $100 million on these grants in 2012 with expenditures of $50 million in each of the next three years. The funds would be distributed by the Department of Justice in consultation with the Department of Health and Human Services.

The state reforms funded by the grants could not be used to put caps on jury awards. These caps are a top priority of most Republican and of the American Medical Association. They are an anathema to trial lawyers, most consumer groups and many Democrats.  GOP lawmakers will no doubt push for such caps, so that issue won’t go away. However, the Obama Administration’s proposal can be used by states to enact some interesting reforms that should appeal to Republican lawmakers.

One reform which the Associated Press cites as topping the Administration’s list is the creation of special health courts. Specially trained judges would hear and decide malpractice cases in these courts without the participation of juries. (It is not uncommon for juries, whether through outrage, a sense of justice or emotion, to award huge damages to plaintiffs — damages which are often reduced substantially on appeal). Further, these judges would make awards based on a set schedule.

Another reform states can use the grants to implement would establish a defense for providers who follow clinical guidelines and use electronic records. And another would allocate malpractice payments in proportion to responsibility for determined damages. This would replace the current practice of holding all providers responsible for the full award. Which means if one provider fails to pay damages, the other providers must step in and make up the difference.

 What’s significant is that these funds would not be used to study malpractice reform, but to actually implement it. Equally important, this approach leaves it to each state to fashion its own malpractice system. What can $250 million over four years actually accomplish? Quite a lot actually. For example, the Associated Press reports a source as claiming it “would cost $5 million to $7 million for a midsize state to set up health courts.”

The failure to allow for caps on damages will no doubt draw outrage from Republicans. While they’ll pursue legislation to impose limits on rewards, the likely defeat of that proposal in the Senate will probably not be enough to derail the ideas contained in the President’s proposal. At the same time, the Administration will need to fend off plaintiff attorneys who will vociferously oppose the creation of non-jury health courts.

Malpractice reform is a tough issue with powerful interests seeking incompatible ends. Finding solutions acceptable to Republicans, who control the House of Representatives, and to Democrats, who occupy the White House and have a majority in the Senate, will be no easy task. But the Obama Administration has made a start on the process.

Governors and HHS in Violent Agreement Concerning Exchange Flexibility?

While the Patient Protection and Affordable Care Act is federal law, much of its implementation is  in the hands of the states. Near the top of the list on the state’s to-do list is the creation, design and operation of the health insurance exchanges.

Not all Governors are happy with this burden. They are busy with other priorities, such as keeping their states from going bankrupt. However, the PPACA makes it hard for Governors, even those who oppose the new health care reform law, from avoiding their exchange-related responsibilities. If states fail to create an acceptable exchange in time (acceptability being determined by the Secretary of Health and Human Services) the federal government will step in and establish (and run) an exchange of its own in the non-cooperating state.

Which is one reason 21 Governors sent a letter to HHS Secretary Kathleen Sebelius asking for more control over the structure and operation of the exchanges. (Thanks to blog reader The Insurance Barn for commenting on this letter when it first became public). That all those signing the letter were Republicans suggests another reason might be political – shocking, I know. But focusing on the substance of the Governor’s concerns, they asked for six concessions (in their own words):

  • Provide states with complete flexibility on operating the exchange, most importantly the freedom to decide which licensed insurers are permitted to offer their products
  • Waive the bill’s costly mandates and grant states the authority to choose benefit rules that meet the specific needs of their citizens.
  • Waive the provisions that discriminate against consumer-driven health plans, such as health savings accounts (HSAs)
  • Provide blanket discretion to individual states if they chose to move non-disabled Medicaid beneficiaries into the exchanges for their insurance coverage without the need of further HHS approval.
  • Deliver a comprehensive plan for verifying incomes and subsidy amounts for exchange participants that is not an unfunded mandate but rather fully funded by the federal government and is certified as workable by an independent auditor.
  • Commission a new and objective assessment of how many people will end up in the exchanges and on Medicaid in every state as a result of the legislation (including those “offloaded” by employers), and at what potential cost to state governments. The study must be conducted by a neutral third-party research organization agreed to by the states represented in this letter.

Most of these items are non-controversial. In fact, soon after the letter was sent, Politico Pulse was reporting on a statement from HHS claiming that the PPACA already offered states the flexibility concerning the exchanges the Governors were seeking. Specifically, HHS claims (in its own words):

  • States will determine which insurers are permitted to offer products in the Exchanges.
  • States can choose benefit rules that meet the needs of their citizens.
  • Consumer-driven health plans and Health Savings Accounts (HSAs) will be available.
  • States have discretion over Medicaid coverage.
  • New funding to establish Exchanges and modernize eligibility systems is available.
  • Reliable, independent cost estimates are available.

So, the Republican Governors and the Democratic HHS Secretary are in violent agreement on this matter, right? Well, that depends on through what color lenses one is looking.

Substantively, probably. Some of the Governors’ concerns do seem to be addressed already in the PPACA or related regulations. Others are non-controversial and non=political. However, the independent cost estimates referred to by the HHS fails to meet the Governors’ criteria – to to address their concern regarding the financial impact on their states. There are some unanswered subtleties remaining, too, as well as new concerns that will no doubt surface over time.

Politically, so long as either party feels there are points to be made in the run-up to the 2012 elections by engaging in these disputes, they’ll continue to engage in these disputes. And since both sides do believe there are points to be made, expect a lot of letters passing between Governors and HHS.

What’s unfortunate in all this is that some harder questions concerning the exchanges are not being addressed. Leave aside the most important one, “are exchanges really necessary?” Most Democrats and Republicans believe they are. There are other questions needing answers, however.

For example, if exchanges will accomplish so much , why do they need special advantages? Why are tax credits offered to small businesses and premium subsidies made available to consumers only if they obtain coverage through the exchange? This assistance could be made available simply enough to those getting insurance outside an exchange. If lawmakers and regulators truly believe in maximizing consumer choice and are convinced the aggregated buying power of the exchanges will deliver increased value to small businesses and consumers, why limit the availability of the incentives? If they’re right, the exchanges will come to dominate a state’s insurance marketplace because consumers recognize their value. If not, then they have failed. Such real world feedback should be welcomed by policymakers.

Exchanges should be required to compete on a level playing field with the health plans available in the broader market. Governors of both parties should be asking for the flexibility to make this possible. And HHS should have the confidence in the exchanges necessary to make that goal a reality.

NAHU’s Legislative Influence in Context

This blog attempts to addresses health care reform issues of interest not just to brokers, but to a broader audience as well. This post, however, is aimed at brokers only.

Most brokers are disappointed with the Patient Protection and Affordable Care Act. The list of complaints are long, but would include the impact of the medical loss ratio provisions on their livelihood, the failure to deal with rising medical care costs, and a host of issues related to the exchanges.

Brokers fought hard to make health care reform meaningful, to assure it constrained costs and increased access. On some issues we succeeded. On too many we lost.

Brokers are angry with the result and, understandably, are looking to understand the cause. Sometimes its not enough to identify who won. Blame needs to be apportioned. And a surprising number of brokers, albeit a distinct minority, are blaming their own professional association, the National Association of Health Underwriters.

NAHU can defend itself from the specific charges being leveled (and I invite them to do so here on the blog). But if we’re going to spend time on a discussion of what NAHU could and couldn’t accomplished, then let’s have an informed discussion.

For example, I often hear brokers demand that NAHU educate Americans concerning the value of brokers. Ironically, this is a job each and every broker can do simply by doing their jobs in a professional, effective and visible way. But the context that’s missing from this criticism is the enormous cost such an undertaking would involve.

Then there’s the political battles. NAHU is apparently expected to win them all. But here’s a a quick quiz to explain why this might be harder than some believe. In considering your answers, it might be helpful to remember the adage of then-California Assembly Speaker Jesse Unruh that money is the mother’s milk of politics:

Given a political fight, who is more likely to be heard in Congress, Association A spending over $144 million on lobbying or Association B with a total budget – for everything it does – of less than $6 million?

Who is more likely to win a legislative battle, Association B with it’s $6 billion total spending budget or Association C with a mere $22 million lobbying payout?

Would it change your mind if Association B had a Political Action Committee with roughly $300,000 versus Association C’s contribution to federal candidates totaling more than $17 million?

When it comes to influencing Congress, the US Chamber of Commerce is the king of the hill. The Chamber spent over $144 million on lobbying activities in 2009 and another $132 million in 2010. No one else came anywhere close.

With over 225,000 dues-paying members, the American Medical Association is both a grassroots and a financial power. The AMA contributed over $27 million to federal candidates in the 2010 election cycle and spent $22.5 million on lobbying.

NAHU is the one with the $6 million budget (which also covers member educational activities and the like) and the PAC contributions totaling in the low hundreds-of-thousands-of-dollars.

Some other interesting numbers:

The Service Employees International Union spent over $1.7 million on campaign contributions in the 2010 campaign cycle, down from over $2.8 million for the 2008 election.

In the 2008 election cycle alone, the pharmaceutical industry contributed over $26 million to federal candidates.

Of the top spending lobbying efforts in 2009 according to OpenSecrets.org:

  • #1, as noted, was the Chamber of Commerce at $144.5 million
  • #4 was the Pharmaceutical Research and Manufacturers of America at $26.1 million
  • #5 was Pfizer Inc. at $25.8 million
  • $6 was the Blue Cross Blue Shield Association at $23.6 million
  • #7 was AARP at $21 million
  • #9 was the AMA at $20.7 million
  • #12 was the American Hospital Association at $18.3 million.

You get the idea.

The ability of these organizations to devote these resources to advocating for their members is because those members provide them the resources to do so. What resources NAHU has comes from the same source.

NAHU will never be in the league of $20 million lobbyists. Nor does it need to be. NAHU’s influence is far greater than its lobbying expenditures or the size of its PAC would suggest. It may not have the tens-of-millions of dollars necessary to run a national public education campaign, but it has educated lawmakers and regulators about the role of brokers. We did not win the fight on the medical loss ratio, but that battle continues and the loss would have been harsher, but for NAHU.

There are probably more than 100,000 brokers in this country who earn significant revenue from the sale and service of health insurance. Fewer than 25,000 are members of NAHU. That is a travesty, especially since many of the organization’s most vocal critics are numbered among those contributing nothing to the effort. Standing on the sidelines and criticizing is easy, often unhelpful, but easy.

So here’s the context: NAHU’s size is small relative to many of the other players. And here’s the reality: NAHU’s influence is much larger than its size. NAHU’s done much with relatively little. It could do more with more – more members, more revenue, more PAC contributions.

Asking tough questions of the association’s leadership is appropriate and helpful. If your not a member, letting the organization know why, in a professional manner, can be very helpful feedback. Seeking changes to its direction is the right of any member – non-members deserve and get no voice in determining the organization’s future.

So I am not suggesting in any way that criticism of NAHU is wrong. But to be constructive, the complaints need to understand the scale and scope of the political context in which NAHU operates.

Clarifying the Individual Mandate Alternative

In a recent post I suggested that President Barack Obama should abandon the individual mandate contained in the Patient Protection and Affordable Care Act. My theory is that the uncertainty surrounding the constitutionality of imposing a fine on Americans who fail to obtain health care coverage starting in 2014 is both a political and public policy risk that is simply not worth taking – especially since the penalty for failing to be insured is unlikely to achieve its public policy purpose.

I’ve received several questions about how this would impact the PPACA. Questioners have asked whether, without an individual mandate, the PPACA collapse? Does the reform law mean anything without a mandate? Would the exchanges be necessary without the mandate? That kind of thing.

So, to clarify.

Perhaps the title of my post, “President Obama Should Jettison the Individual Mandate.”  is causing some confusion. What I was addressing was the individual mandate as defined in the PPACA. The law includes one approach to encouraging individuals to take the responsibility for obtaining and maintaining health insurance. I was not suggesting that the President strip this individual accountability provisions from the health care reform law. Quite the contrary, I was suggesting he replace the current, government-enforced mandate with a privately enforced version.

The PPACA imposes a fee (or a tax, depending on whom you ask and when) if an individual fails to obtain health insurance. This is the constitutional weak-link in the law. Those asking the courts to overturn the law describe this approach as Congress forcing Americans to engage in an economic activity or pay the equivalent of a fine to the government.

Instead of this government-centric approach, I proposed replacing the fine with alternatives enabling carriers to protect themselves from consumers who have waited until they are on their way to a hospital before seeking coverage. As has happened in New York and New Jersey, without such protections premiums skyrocket even faster and higher than medical inflation would normally require. Creating an open enrollment period (perhaps the applicant’s birth month) would counteract this dynamic. Allowing carriers to set premiums higher for those who have gone without coverage and to exclude pre-existing condition for some period of time, would help keep the cost of insurance lower, too. (These are financial disincentives imposed on individuals who fail to maintain medical insurance. Fairness would dictate that these disincentives should be commensurate with how long the individual went without coverage, thus the limited time during which a premium surcharge or benefit exclusion would be permitted).

Carriers would not be obliged to impose these penalties. If they were commanded to do so by law some would argue they are simply agents of the government and the Administration would be back defending the constitutionality of a government-imposed individual mandate. By allowing, but not forcing, carriers to use an open enrollment period, increase premiums, or exclude coverage for existing conditions, the government is out of the equation. And so are constitutional challenges – at least to this provision.

The impact of this approach on other provisions of the Patient Protection and Affordable Care Act is minimal. In fact, by shifting the enforcement of personal responsibility from the IRS to private carriers this alternative might even save money overall.

Nor would removal of the individual mandate as currently defined in the law mean the rest of the PPACA would collapse – even if it were not replaced by an alternative. For example, exchanges can (and do) exist without an individual mandate. In fact, many Republicans and conservatives who are ardent supporters of exchanges oppose requiring all Americans to obtain coverage. They, like Democrats supporting the exchanges, believe a primary benefit of exchanges are to allow individuals to aggregate their purchasing power to obtain better pricing from carriers just as large employers do today. Exchanges and the individual mandate are aimed at two different policy goals and each can survive without the other. (This is not to say there’s not plenty of reasons to oppose exchanges or to seek changes to how they’re envisioned in the PPACA).

Without an individual mandate, but with a requirement that carriers accept all applicants for coverage, premiums will rise substantially. However, it is possible (if unwise) to have the one without the other (as is the case in New York and New Jersey). Nor would would the PPACA collapse if the individual mandate was removed and not replaced by something along the lines I’m suggesting? The PPACA is about a lot more than the individual mandate. The law creates exchanges, enables co-ops, imposes limits on carriers’ administrative expenses, establishes market reforms (such as requiring carriers to keep dependent children on their parent’s policies until age 26), changes rating practices (eliminating premium variations based on gender), creates new taxes, provides for premium subsidies, launches demonstration projects in an attempt to lower medical costs, expands Medicaid, reduces out-of-pocket expenses for some Medicare beneficiaries, and a whole lot more. The individual mandate is one part of a much larger whole.

All of which makes the risk that the individual mandate could lead the Supreme Court to find the entire PPACA unconstitutional an even greater incentive for President Obama to change the way individual responsibility is encouraged (or, more accurately, enforced).  That the President should seek a different approach to individual responsibility is both good public policy and smart politics. Whether Congress and the White House could agree on what those changes should be an altogether different question.

Why President Obama Should Jettison the Individual Mandate

Two key elements of the Patient Protection and Affordable Care Act are the requirement that health insurance carriers accept all applicants (what’s called guarantee issue) matched by a requirement that individuals obtain health care coverage or face a penalty (referred to as an individual mandate). The PPACA was not the first bill take this approach to move toward more universal coverage. In response to then President Bill Clinton’s health care reform proposal, 19 Republican Senators joined by two Democrats, put forward the Health Equity and Access Reform Today Act of 1993. Central to the proposed legislation was an individual mandate.

That was then.

Now Republicans cite the individual mandate as a key flaw of the Patient Protection and Affordable Care Act. Recently a Federal Judge in Florida declared the individual mandate contained in the the PPACA was unconstitutional and, as a result, the law itself was unconstitutional. Eventually the Supreme Court will rule on whether the individual mandate in particular and the health care reform law in general can stand. Their decision will hinge on how they interpret the Commerce Clause of the US Constitution.

This is not a clear-cut, black-or-white issue and the Court could go either way on the issue. The Commerce Clause has evolved considerably since the Constitution was adopted. That legal scholars and judges reach different conclusions when applying it is not surprising. Consider: to date, two Federal District Court Judges have rejected claims the individual mandate exceeds Congress’ powers under the Commerce Clause while two others determined it does. For those interested, NPR’s The Diane Rehm Show aired one of the most informative, clear and helpful discussions of the legal issues surrounding the PPACA I’ve come across. (The entire 51 minutes segment is well worth a listen, however, much of the key legal explanation takes place between the 8 minute and 28 minute marks).

Unless the Supreme Court accelerates the process, they will probably hear appeals of lower court decisions after they convene their next term in October of this year, with a decision likely to be published in the Spring of 2012. Take note of that timing – as we’ll see it matters.

The question is, should President Barack Obama even let the individual mandate reach the Supreme Court? An argument can be made that the President and his signature domestic legislative accomplishment would be better off abandoning the individual mandate as it exists and replacing it with a different approach. Here’s my version of the argument:

Requiring carriers to accept all applicants without a provision requiring consumers to obtain coverage is a recipe for disaster. The average premium for individual coverage (insurance purchased without a contribution from an employer) in New York and New Jersey are more than twice the average premium for similar coverage in California in large part because New York and New Jersey law requires guarantee issue, but lack an individual mandate. . Consumers there take the economically smart course of waiting until they are sick or have an accident before obtaining coverage. To cover the inevitable losses, carriers set high premiums.

This is why Democrats included an individual mandate in the PPACA. Unfortunately, it isn’t much of a mandate. Individuals who fail to obtain coverage, unless excused from the requirement on religious grounds, will be required to pay a penalty. In 2014 this fine is the greater of $95 or 1% of income; by 2016 $695 or 2.5% of income, whichever is greater. Given that the CBO estimates that individual premiums for the lowest level of benefits available to most Americans under the PPACA will average between $4,500 and $5,000 (that’s for the Bronze level of benefits for those keeping track) the economic calculation is pretty straightforward. $4,500 is 2.5% of $180,000. So anyone with a taxable income of $180,000 is arguably better off going without coverage until they need it – give or take risk tolerance.

The PPACA’s individual mandate may be lightweight, but the political cost has been heavy Jettisoning the individual mandate as it currently exists would neuter one of the Republicans core attacks against President Obama and the PPACA – that this provision exemplifies an abusive expansion of the federal government at the expense of individual liberty. (That the IRS will need to hire additional staff to enforce the penalties only makes the situation politically worse for the Administration). Democrats may describe the individual mandate as a call for individual responsibility, but they’re losing the debate – as the election results of 2010 underscores.

Replacing the PPACA’s individual mandate with something different, something that more directly speaks to personal responsibility – without involving the IRS – and that is more effective in accomplishing the goal of the individual mandate, is a winning public policy and political strategy.

Fortunately for the Administration, there are viable alternatives. For example, a year ago I suggested allowing carriers to exclude coverage for pre-existing health conditions and impose a premium surcharge on individuals who go without medical coverage for a specified period of time. Others are suggesting creating a limited open enrollment period during which uninsured individuals can apply for coverage on a guaranteed issue basis.

There’s another very practical reason for the President to seek a different approach to getting individuals to obtain coverage before they are sick or injured. Whether the Supreme Court will rule the PPACA’s individual mandate as unconstitutional is a great unknown. Legal decisions are hard to predict and given the makeup of the current Court, their decision on this matter will likely be close.

And the result could be devastating to the Administration. If the Court were to strike down the individual mandate in the Spring of 2012 the Administration would be forced to find a replacement in the heat of a presidential election campaign. How likely are Republicans to cooperate with the White House just weeks before their nominating convention? Worse, the Supreme Court could find that since the individual mandate is unconstitutional the entire health care reform law is nullified.

Imagine the chaos. Would 26 year olds insured under their parents’ policies suddenly be dropped? Would seniors be required to reimburse the government for checks they’ve received to close the donut hole in their Medicare prescription coverage? This is not what the President wants dominating the news during his re-election campaign.

The political and societal risk can be minimized to nearly zero simply by eliminating the element of the PPACA most open to challenge: the individual mandate. After all, the Supreme Court can’t declare unconstitutional a provision already removed from the law.

Republicans say they want to do away with the individual mandate. The President should let them do so. Yes, the GOP will claim victory. For the Obama Administration, giving Republicans bragging rights is a small price to pay for improving the PPACA, demonstrating his openness to bipartisan solutions, and avoiding a political nightmare of apocalyptic proportions.

This is one situation in President Obama should embrace the call to “repeal and replace.” Doing so is in his own – and more importantly, the American people’s – best interest.