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“A Vague Hand-Waving Promise Is Not A Plan”: The Republican Plans To Replace Obamacare Have Been Tried, And They Failed

Before Obamacare, the individual insurance market for people who could not get health care through their job was a nightmare. The only way for insurers to make money was to avoid getting stuck with customers who would rack up high medical bills, forcing them to expend enormous time and expense to screen potential customers for preexisting conditions. Even people who could find plans with affordable premiums had to sign contracts loaded with fine-print exclusions leaving them responsible for unexpected costs. Obamacare overhauled that market, eliminating insurers’ ability to screen out healthy customers. In the new, regulated individual markets, people buy plans regardless of their prior health status. This has been a godsend to those unable to obtain coverage before.

Republicans would repeal all these new protections. But never fear, conservatives insist. In their place will be new protections. Ramesh Ponnuru, writing in National Review, points to two protections put in place by Scott Walker’s proposal, which is the prototypical Republican “see, we do too have a plan to replace Obamacare” plan.

Ponnuru mentions two protections. The first is a provision that would “bar insurers from charging higher prices to sicker customers provided they had maintained continuous coverage.” Republicans have taken to using this line a lot, because it sounds to the average person tuning in a lot like a promise to protect people with preexisting conditions, but the last six words are crucial. Maintaining continuous coverage is really hard. We know this because Congress passed a law in 1996 letting people who have employer-provided insurance keep their plan if they maintain continuous coverage. It has proven nearly useless. Maintaining continuous coverage is really hard for people who have financial distress, and it’s harder if the insurance company has every incentive for you to miss a payment or fail to dot one of your i’s or cross one of your t’s, so they can kick you out. And, of course, in a market where insurers can charge higher prices to sicker customers, “maintaining continuous coverage” means buying insurance that’s really expensive and can deny you coverage for lots of treatments you need.

The second provision is high-risk pools. This is a special market for the customers with the most expensive medical needs. Many states have tried high-risk pools. They also work really, really badly. There are all sorts of practical barriers that make it hard to operate a special insurance system for people with the most expensive conditions. For instance, how do you determine eligibility? Tens of millions of Americans have something in their medical history that makes them a less than perfect risk, from the insurance company’s standpoint. Where do you draw the cutoff for eligibility? And how do you keep insurance companies from skimming the high-risk pools, too — after all, they’ll want to cover the least costly people in the high-risk pool, not the most costly ones.

Even if it is possible to devise solutions to these problems, the biggest single impediment is that high-risk pools cost money. There’s no magic secret in a high-risk pool that makes insurers able to sell affordable insurance to people who need lots of medical care. And where would Republicans get the money to finance the high-risk pools? They don’t say. And they all have signed the Grover Norquist pledge that they will never raise taxes under any circumstances — even if aliens come to Earth and threaten to destroy humanity unless the president agrees to raise taxes by a single penny.

The funding problem is not ancillary. There’s an old joke in which a chemist, a physicist, and an economist are trapped on a desert island, and some cans of food wash up onshore. The physicist devises a plan to smash open the cans. The chemist comes up with a plan to heat them open. And the economist says “assume a can opener.” This is the problem not just with the high-risk pools, but the Republican health-care plans as a whole. They assume the availability of funding, but the party is theologically opposed to raising revenue of any kind. Like having a can opener, if the Republicans were able to overcome their fanatical opposition to revenue, the problem wouldn’t exist in the first place. Any reform that assumes Republicans will find a way to fund it is assuming a can opener. It’s premised on a fantastical assumption. That is why, in the absence of some concrete way around the no-taxes-ever problem, a vague hand-waving promise can’t be called a real plan.

Before Obamacare took effect, different measures were tried to reform America’s cruel and dysfunctional individual health-care marketplace. The continuous-coverage protection and high-risk pools both failed. One thing that succeeded was tried in Massachusetts, by Mitt Romney. The Obama administration decided to build that model out nationally, and it has worked very well — premiums have actually come in well under projections. But since it was Obama’s plan, Republicans oppose it. But since Obamacare is working, they need to have something they can say they’ll replace it with, and they’ve turned to the things that have already failed.

 

By: Jonathan Chait, Daily Intelligencer, New York Magazine, August 21, 2015

August 22, 2015 Posted by | Affordable Care Act, Health Care, Republicans | , , , , , , , | 1 Comment

The Importance of the Individual Mandate — Evidence from Massachusetts

The most contentious aspect of the Patient Protection and Affordable Care Act (ACA) is the individual mandate requiring that most documented U.S. residents obtain health insurance or pay a tax penalty. Many experts have long advocated a mandate as a central pillar of private-sector–based health care reform. Others, however, have argued that a mandate is not necessary for successful reform.

Proponents of the mandate argue that it is necessary to reduce adverse selection in a reformed nongroup insurance market. Adverse selection occurs when a larger fraction of relatively unhealthy people than healthy people purchase health insurance. It is analogous to the purchase of car insurance only by high-risk drivers (or worse, only by drivers who have just had an accident). However, one of the most popular aspects of the ACA may encourage such adverse selection, since the law prohibits health insurers from discriminating against applicants on the basis of health, either by charging higher premiums for sick people or by excluding preexisting conditions from coverage. Absent other reforms, such regulations would theoretically increase premiums for healthy people and lead them to exit the nongroup insurance market, which would cause premiums to rise even more. Informal support for this hypothesis comes from the fact that the five U.S. states with such regulations (known as “community rating”) are among the states with the highest nongroup insurance premiums.1

Opponents of the mandate counter that community rating may work as long as there are large subsidies that attract healthier enrollees to the insurance pool. Such subsidies include the tax credits that the ACA authorizes for people with incomes between 133 and 400% of the federal poverty level. (The federal poverty level for a family of four is about $22,000 per year.) States with community rating do not generally offer such large subsidies, so we can’t use their experience to predict the effects of national reform minus the mandate. But understanding whether the mandate matters, even with large subsidies in place, is critical for assessing its role in reform.

The early experience with health care reform efforts in Massachusetts may offer some lessons. Massachusetts made heavily subsidized insurance available to residents with incomes below 300% of the federal poverty level for nearly a year before mandating insurance coverage. By examining the characteristics of the subsidized insurance pool before and after the mandate went into effect, we assessed how much of an additive effect the mandate had over that of simply offering subsidized, community-rated insurance.

As part of the Massachusetts reform, the Commonwealth Care program provided free insurance to people with incomes below the federal poverty level from October 2006 onward and for those with incomes below 150% of the federal poverty level from July 2007 onward. In both cases, the state automatically enrolled people who were eligible for free coverage; people in higher income groups could enroll but had to pay premiums. We therefore examined the behavior of Massachusetts residents with incomes between 150 and 300% of the poverty level, who were eligible for subsidies and had to pay insurance premiums that were meaningful but much smaller than those mandated by the ACA.

Using claims data from the Massachusetts Commonwealth Connector, we measured the health mix of the population enrolling in Commonwealth Care according to average age, average monthly health care expenditures, and the proportion of enrollees with a chronic illness. We identified enrollees as having a chronic illness if within the first 12 months after enrollment they had an office visit at which a diagnosis of hypertension, high cholesterol level, diabetes, asthma, arthritis, an affective disorder, or gastritis was recorded.2 Relying on only the first 12 months of claims ensured that our estimates of rates of chronic illness for earlier enrollees, whose claims data covered a longer period, were similar to estimates for later enrollees.

We examined these data for the period from March 2007 (the date of the first available reliable information on people with incomes in the relevant range) through June 2008 (the last month for which we could calculate our 12-month measure of chronic illness). In each month, we measured the health of the enrollees who joined the program.

We assessed the characteristics of these enrollees before, during, and after the phasing in of the mandate. Technically, the mandate went into effect on July 1, 2007. The Connector began a massive public outreach campaign in May 2007, and the number of hits on its Web site peaked around July 1. The penalty, however, was assessed on the basis of insurance coverage as of December 31, 2007. That is, people who purchased insurance in November that began in December did not have to pay the penalty, even if they had been uninsured beyond July 1. The penalty for 2007 was the loss of the individual state income tax exemption, a relatively modest $219. It increased to about $900 in 2008 and was prorated on the basis of the number of months of coverage during the year.

Characteristics of New Enrollees in Commonwealth Care, According to Enrollment Period

Number of Enrollees in Commonwealth Care, According to Chronic-Illness Status

 

                         
We considered three periods: before July 1, 2007; the phase-in period from July through November 2007; and the “fully effective” period from December 2007 through mid-2008. The table shows the average age, rate of chronic illness, and average monthly spending per member for new enrollees in each of the three periods. In each period, the numbers of enrollees with chronic illness were higher at the beginning of the period than at the end of the period. The enrollees who signed up for Commonwealth Care before the mandate went into effect were nearly 4 years older, were almost 50% more likely to be chronically ill, and had about 45% higher health care costs than those who signed up once the program was fully effective.

 

It seems possible that even without the mandate, people with the highest health care costs would enroll first and healthier people would enroll over time. But data on the health status of new enrollees suggest that that was not the case (see graph). At the beginning of the mandate’s phase-in in mid-2007, there was a greater increase in the number of healthy enrollees than in the number of enrollees with chronic illness. When the mandate became fully effective at the end of 2007, there was an enormous increase in the number of healthy enrollees and a far smaller bump in the enrollment of people with chronic illness. The gap then shrank to premandate levels as the remaining uninsured residents complied with the mandate, but clearly the mandate brought many more healthy people than nonhealthy ones into the risk pool. The large jump in healthy enrollees that occurred when the program became fully effective suggests that enrollment by the healthy was not simply slower than enrollment by the unhealthy, but rather that the mandate had a causal role in improving risk selection.

Whether the Massachusetts experience can be generalized to the rest of the country depends in part on the relative sizes of the subsidies provided: the higher the subsidies, the smaller the role for an individual mandate. Under Commonwealth Care, adults with incomes between 150 and 200% of the poverty level were asked to contribute $35 per month. Under the ACA, their monthly contribution would be $51 to $107. At 200 to 250% of the poverty level, the monthly contributions are $70 in Massachusetts and $107 to $171 under the ACA; at 250 to 300% of the poverty level, the contributions are $105 in Massachusetts and $171 to $242 under the ACA. The larger subsidies in Massachusetts would be expected to have a greater effect in inducing healthy people to obtain insurance than the ACA’s smaller subsidies — which suggests that mandating coverage might well play an even larger role in encouraging the healthy to participate in health insurance markets nationally than it has in Massachusetts.

By: Amitabh Chandra, Ph.D., Jonathan Gruber, Ph.D., and Robin McKnight, Ph.D.-New England Journal of Medicine | This article (10.1056/NEJMp1013067) was published on January 12, 2011, at NEJM.org.

Source Information

From the John F. Kennedy School of Government, Harvard University (A.C.), and the Massachusetts Institute of Technology (J.G.) — both in Cambridge, MA; and Wellesley College, Wellesley, MA (R.M.).

References

  1. Rosenbaum S, Gruber J. Buying health care, the individual mandate, and the Constitution. N Engl J Med 2010;363:401-403Full Text | Web of Science | Medline
  2. Goldman DP, Joyce GF, Escarce JJ, et al. Pharmacy benefits and the use of drugs by the chronically ill. JAMA 2004;291:2344-2350CrossRef | Web of Science | Medline

January 22, 2011 Posted by | Affordable Care Act, Individual Mandate | , , , , , , , , , , , , , | 1 Comment

Pool Fools: Republicans Denounce Republican Health Care Plan

As pointed out by Jonathan Chait in his recent article in The New Republic on January 12, 2011, “When you combine the GOP’s intense opposition to Obama with its very weak commitment to any alternative policy architecture, you get this kind of wild, opportunistic flip-flopping”. Reference the following enlightening article by Timothy Noah: 

Of all the arguments Republicans have been waging against Obamacare as the House of Representatives prepares to vote for its repeal, none is harder to take than their criticism of the federally subsidized high-risk pools the law created to provide immediate relief to the uninsured. In May, the House Republican Conference complained that these high-risk pools would be unfair to people currently enrolled in existing state-run risk pools because the latter group was paying higher premiums. In July, the House Republican Conference complained that implementation of this unfair federal program was being delayed. By January, the House Republican leadership was grousing (in a report titled Obamacare: A Budget-Busting, Job-Killing Health Care Law) that costs for this unfair-but-wrongly-delayed program were higher than expected even as participation in this unfair-but-wrongly-delayed-but-too-costly program was lower than it should be.

Republican attacks on Obamacare’s high-risk pools sound a lot like the old joke about the restaurant where the food is terrible—and such small portions! But the contradictory nature of the GOP’s complaints doesn’t rankle half so much as their fundamental hypocrisy. High-risk pools are, in fact, a terrible solution to the health-care crisis. But they happen to be the terrible solution Republicans most favor (along with tax breaks) whenever they’re forced to state their preferred alternative to last year’s Patient Protection and Affordable Care Act. They were the central idea in the health plan proposed by Republican presidential nominee Sen. John McCain, R-Ariz., during the 2008 election. They were the central idea in the House leadership’s proposed substitute for the Democratic plan in 2009, and they played a major role in the alternative plan set forth that year by Sen. Tom Coburn, R-Okla., a medical doctor who became the GOP’s lead opponent to Obamacare. They were the central idea in a 2010 repeal bill introduced in May by Rep. Wally Herger, R-Calif., that would have replaced the health reform bill that became law with the 2009 House leadership bill. They’re absent from the current leadership repeal bill, introduced Jan. 5 by House Majority Leader Eric Cantor, R-Va., but only because Cantor’s bill proposes no substitute at all.

 

Republican health care policies, I noted not quite one year ago (“Pool Party“), typically segregate the healthy majority from the unhealthy minority in order to lower insurance premiums for the healthy. Never mind that that raises insurance premiums sky-high for the unhealthy. High-risk pools are the most efficient way to achieve such segregation and about the least efficient way to pay medical bills here on planet Earth. A health insurance pool consisting entirely of people too sick to qualify for private insurance is like a fire-insurance pool consisting entirely of pyromaniacs. The best that can be said for such groupings is that the hospitalizations (or the fires) probably won’t all happen in the same month. Health insurance high-risk-pool premiums are typically 125 percent to 200 percent above normal premiums, but even so, a government subsidy is typically required to cover costs.

Obamacare introduced new high-risk pools (it calls them the “Pre-Existing Condition Insurance Plan“) as a temporary bridge to the federally subsidized state insurance exchanges to be created in 2014. Premiums are indeed set below those for existing state-run risk pools and are intended to match what buyers would pay for health insurance in the non-group market (assuming non-group insurers were willing to sign them up, which in many instances they wouldn’t be because of the buyers’ pre-existing conditions). Even so, enrollment has not been high. Medicare’s chief actuary predicted that 375,000 people would sign up in 2010, but as of Nov. 1 only about 8,000 had, including only four in West Virginia, only one in North Dakota, and none at all in the District of Columbia and Vermont. That’s partly because 27 states declined to participate in the program, relying instead on their own risk pools (apparently they worry they’ll get stuck with the higher cost); partly because even Obamacare’s more-highly-subsidized high-risk premiums were relatively expensive (non-group insurance doesn’t come cheap for people with pre-existing conditions); partly because potential customers worried that Congress would eliminate the new high-risk pools by repealing Obamacare; and partly because the Obama administration, no doubt wrestling with the high-risk pools’ fundamental unworkability, didn’t start signing people up until summer.

 

Conservatives claim the problem is not the inherent contradiction in insurance pools consisting entirely of people who need lots and lots of health care, but rather in poor management by the Obama administration. The American Enterprise Institute’s Thomas P. Miller and the Ethics and Public Policy Center’s James Capretta have argued that the administration ought to narrow eligibility; increase the subsidy; and introduce “more effective incentives and tools for both patients and providers to make higher-value health care decisions,” i.e., pressure doctors and hospitals to lower costs and eliminate unnecessary procedures. But the first solution is preposterous in light of weak enrollment (in fairness, Miller and Capretta wrote before that became apparent); the second solution is perhaps necessary but expensive; and the third is a laudable goal that’s much more difficult to achieve with a sick population than with a healthy one. Taken together, these three solutions betray an extreme myopia about the inherent limitations on high-risk pools to begin with.

The poor performance of Obamacare’s high-risk pools aren’t an argument against Obamacare. They’re an argument in favor of it. High-risk pools are a Band-Aid to stanch a hemorrhage. Democrats don’t kid themselves that the Band-Aid will do much to stop the bleeding, which is why they don’t embrace it as a long-term solution. Republicans ought to stop pretending it can be one.

Original Article By: Timothy Noah-Slate, January 11, 2011

January 16, 2011 Posted by | Health Reform | , , , , , , , , , , , , , | Leave a comment

Why We Need the Minimum Coverage Mandate

A district court judge in Virginia ruled on December 13 that the “minimum coverage” requirement in the Affordable Care Act is unconstitutional. The opinion is clearly at odds with other rulings in Virginia and in Michigan, where courts upheld the law.

Judges may disagree, but there’s a consensus among legal and economic scholars that this requirement to purchase health insurance is essential to making health insurance available and affordable to everyone, without regard to health status or “pre-existing conditions.” Without this provision, the law is unworkable and the consumer protections it provides become unenforceable. As the issue wends its way through the courts, it is useful to review why this requirement is in the law and the valuable protections we have to lose if it’s eviscerated.

Today, limited affordable coverage in the small business and individual markets reflects the fact that purchasing health insurance is totally voluntary. Given that health insurance is expensive relative to family or small business incomes, people are reluctant to purchase protection unless and until they need health care. If people who need health care come to dominate an insurer’s policyholders, then insurance can no longer spread or “pool” risk—collect premium dollars from a broadly healthy group of purchasers to distribute to the minority among them who need costly care. For this reason, health insurers do everything they can to screen out or deny protection to people with care needs. The Affordable Care Act ended those practices.

Opponents of the Affordable Care Act claim we can change this behavior without a requirement that people buy health insurance, and simply prohibit insurers from denying health insurance based on pre-existing conditions. But states have tried and failed in this approach. Several states tried what are called “community rating reforms”—requiring health insurers to offer policies within a given area at the same price to all persons without medical underwriting. The result: dramatic increases in insurance prices and a rapidly shrinking insurance market. In other words, the markets failed.

The lesson—incorporated in the Affordable Care Act—is that effective insurance markets require not only requirements on insurers, but requirements that people buy insurance along with subsidies to make insurance affordable. All three legs of this three-legged stool are critical to effective health insurance.

What happens if requirement to purchase coverage is removed as Judge Henry Hudson ruled? One of us has estimated the effects using a microsimulation model similar to that used by the Congressional Budget Office to estimate the Affordable Care Act’s effects. The results are striking. Eliminating the minimum coverage provision would increase the average individual premium by 27 percent in 2019 and reduce the expansion of insurance coverage by three-quarters, from 60 percent to 12 percent of the 55 million people uninsured in 2019.

Removing the mandate would at the same time dramatically alter the “bang for the buck” in federal spending. While removing the mandate cuts the legislation’s coverage gains by more than 75 percent, it would reduce the spending by less than a quarter—as subsidies are increased to cover the higher premiums for the more modest number of the sicker uninsured who are most likely to participate.

Judge Hudson’s decision may be good politics but the policy implications will be devastating for millions of Americans. His decision jeopardizes putting affordable coverage out of reach for those who cannot find it now, especially those with pre-existing conditions. The Affordable Care Act seeks to improve our nation’s health system; Judge Hudson’s decision makes it worse.

By: Jonathan Gruber and Judy Feder-Jonathan Gruber is a professor of economics at the Massachusetts Institute of Technology and Judy Feder is a Senior Fellow at the Center for American Progress; Center For American Progress-December 14, 2010

December 29, 2010 Posted by | Health Reform | , , , , , , | Leave a comment

   

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