Obamacare’s Uncertain Replacement

Obamacare’s Uncertain Replacement
June 19, 2012

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)

Consumer Power Report #331

This likely represents the final edition of the Consumer Power Report prior to the Supreme Court’s ruling on President Barack Obama’s health care law. As I’ve noted in the past, the likeliest outcome is a partial strikedown – one that eliminates the individual mandate as well as the attached requirements of community rating and guaranteed issue. But few observers believe the law will be upheld in its entirety, and a total strikedown is still possible.

The Republican Party is likely to respond to the ruling with much rejoicing. But as I’ve argued in the past, this could be troublesome, as the Republicans have yet to settle internally on a particular method toward achieving their general goals of individual ownership of insurance, greater personal responsibility, and a true marketplace for health care. There are several bills that have been introduced as replacements for Obamacare, but the party as a whole has not settled on one in particular. My own favored solution is from Rep. Paul Broun, a physician from Georgia, whose proposal is summarized here.

Broun’s bill is divided into five parts: (1) repealing Obamacare; (2) changing the tax treatment of health expenditures; (3) Medicare premium support; (4) reforms of EMTALA, the federal mandate that forces emergency rooms to care for people regardless of their ability to pay; and (5) allowing people to purchase insurance across state lines, and small businesses to band together to purchase lower-cost association health plans (AHPs). “It’s 51 pages,” says Broun. “It’s a very simple bill that lowers costs for everyone. Plus, we cover those who cannot afford it by putting in a policy to help the uninsured get care.” The bill doesn’t directly address Medicaid, as Broun has co-sponsored another bill, the State Health Flexibility Act, that converts Medicaid into a series of block grants for the states.

The Republican response, whatever it is, is unlikely to be much larger than Broun’s 51 page bill. Instead, they prefer a step-by-step approach which is more transparent and gradual.

Many members of the GOP rank and file campaigned on a motto of “repeal and replace” in 2010 when it came to the law. But now, nearly two years later, they express no urgency to replace a law drafted by Democrats, and one they hope the court will kill, with a different one of their own.

“We’re not going to repeat the mistakes made by the Democrats who run Washington when they passed a 2,700-page bill that no one had actually read,” said Michael Steel, a spokesman for Boehner, R-Ohio.

The challenge for Democrats: Should they even try to make a policy response? Some observers on the Hill believe Democrats will simply throw up their hands and tell Republicans they broke it, they bought it – but I anticipate the White House and Democratic leadership will instead propose an alternative, likely one endorsed by prominent conservatives such as tax credits or auto-enrollment – as a way to “fix” the law under a partial repeal.

We’ll soon find out the answer to this massive question, resolving three years of political and legal battles. The tea-leaves thus far are few in number, but here’s a comment from Justice Ginsburg that implies a very close, divisive opinion … which suggests to me a strong case for striking down the law in whole or in part. And after the decision comes, politicians of both parties should expect to have their feet held to the fire to start over from scratch, and repeal the many aspects of the law which may remain intact. You can’t build a solid reform on a broken Rube Goldberg contraption. You have to start on a new, solid foundation.

-- Benjamin Domenech


IN THIS ISSUE:


AETNA CEO: WHY I NO LONGER SUPPORT THE HEALTH INSURANCE MANDATE

A fascinating column from Ron Williams.

Once the government mandates guaranteed issue, then a second mandate is required for individuals to purchase and maintain insurance. My early support for an individual mandate had always been grounded in this companion solution, supported by broadly funded subsidies for lower-income Americans.

Yet, as I studied the arguments for and against the individual mandate, it became clear to me that the legislation raises serious constitutional concerns.

For starters, the legislative process that produced the Act was driven by partisan politics, and traditional oversight mechanisms that would have facilitated bipartisan and reasoned policy development were discarded in favor of rapid enactment. Several structural flaws emerged as a result. For example, the mandate should have been framed as a traditional tax – a move that could have bolstered the Act’s constitutionality.

Most seriously, Congress insisted on describing personal inactivity – in this case, the failure to purchase insurance – as interstate commerce within its regulatory reach. Americans were alarmed, rightly, that this could empower future legislatures to mandate that citizens engage in activities none of us would think reasonable today.

Should the Act or part of it be overturned by the high court, I believe many of the consumer-friendly aspects already implemented will be adopted by the industry or quickly find their way into new legislation. The federal government should encourage rather than micromanage market reform in all 50 states. Since health care is local, private-sector innovation in conjunction with state-level reform of the individual and small-group markets is a better approach.

SOURCE: Wall Street Journal


ROBERT SAMUELSON: THE FOLLY OF OBAMACARE

Let’s not lose sight of how ill-thought this law was.

Uncontrolled health spending is the U.S. system’s main problem – and the ACA makes it worse. Spiraling health costs crowd out other government programs and squeeze wage increases by diverting compensation dollars into employer-paid insurance. Because insured people use more health services than the uninsured, the ACA (covering an estimated 30 million more) raises spending. As for the ACA’s cost-control provisions, even the government’s own actuaries don’t believe they will do much. By their latest projection, total health spending – government and private – rises from 17.9 percent of the economy (gross domestic product) in 2010 to 19.6 percent in 2021. In 1980, health care was 9 percent of GDP.

Obama’s program also worsens the federal budget problem. Driven by Medicare and Medicaid, health care already exceeds one-fourth of the budget and is headed toward a third. It’s the crux of the problem. So Obama creates another huge health program. The administration’s retort: the program lowers the budget deficit. This is rhetorical hocus-pocus. Here’s what happens. From 2012 to 2022, the ACA raises federal spending by $1.762 trillion, estimates the Congressional Budget Office. However, all of this and a bit more is offset by tax increases and assumed cuts in Medicare. But these tax increases and cuts could have been used to shrink the huge budget deficits that pre-existed Obamacare. Now they can’t; moreover, the Medicare cuts might be repealed or reduced.

The ACA discriminates against the young in favor of the old. Government policy already does this through payroll taxes that have young workers subsidizing Social Security and Medicare benefits. The ACA compounds the effect by forcing some young Americans to buy insurance at artificially-high premiums that would pay for the care of a sicker, older population.

SOURCE: Real Clear Politics


NYT: IN HEALTH CARE RULING, VAST IMPLICATIONS FOR MEDICAID

One aspect of the law the Court seems likely to uphold: the Medicaid expansion, which holds key and dangerous ramifications for state budgets.

The expansion of Medicaid – if it is upheld by the Supreme Court – is among the most significant parts of the law, as it will provide coverage to people with the greatest financial needs. Many health care advocates support the expansion, saying it will allow poor people to receive needed care, while many state officials, especially Republicans, worry that it will bring budget-breaking new costs.

The expansion may also strain the health care system, given the shortage in some places of primary care doctors, who will be vital to expanded coverage. The Supreme Court, which is expected to rule on the health care law this month, devoted more than an hour of argument to the Medicaid provision.

Arkansas illustrates not only the potential benefits but also the major challenges facing states as they plan for a larger Medicaid program. The state does not have enough doctors and other health care workers to care for all the new beneficiaries, experts say, and state officials worry about the costs.

“The expansion of Medicaid is a sea change, and it’s occurring at the most difficult fiscal time in the history of the program,” said the Medicaid director in Arkansas, R. Andrew Allison, who is the president of the National Association of Medicaid Directors. “States are preoccupied with the challenge of sustaining the Medicaid program we already have.”

Arkansas officials have discussed cutting Medicaid services in the coming year to help close a gap between Medicaid costs and expected state appropriations. The gap – up to $400 million – represents more than one-fourth of state spending on the program.

SOURCE: New York Times


RULING MAY MAKE NEW YORK TURN TO ROMNEYCARE

A strikedown of PPACA could lead Cuomo to endorse a Romney-like plan.

New York isn’t expected to retreat from its effort to increase health care coverage for residents, even if the Supreme Court overturns all or part of the 2010 Affordable Care Act.

If the Supreme Court decides that the law’s requirement that everyone buy insurance is unconstitutional, the state might consider creating its own mandate. It could be modeled after one Mitt Romney established in Massachusetts – called “RomneyCare” – while he was governor.

“For progressive states like New York, we would probably take a hard look at perhaps doing what Massachusetts is doing,” Kenneth Raske, president and CEO of the Greater New York Hospital Association, said Wednesday.

Unlike the 26 states involved in the Supreme Court case that want to overturn the 2010 law, New York filed a brief supporting the legislation.

It’s also one of the few states that have moved ahead with creating state-based exchanges where uninsured individuals and small businesses will be able to buy affordable insurance coverage beginning in January 2014. Gov. Andrew Cuomo issued an executive order in April authorizing the exchange, and the state has received $88 million in federal funding to set it up.

Here’s another difference: Unlike states that have challenged the authority of Congress and the White House to require them to expand their Medicaid programs, as the 2010 law mandates, New York already has expanded eligibility for Medicaid health services.

“We have one of the most extensive safety nets in the country and we are very proud of that,” New York State Medicaid Director Jason Helgerson said in a telephone interview. “I don’t think that long, progressive tradition is going to change in New York. We are very committed.”

SOURCE: DemocratAndChronicle.com


WASHINGTON STATE PROVIDES CASE STUDY ON EFFECTS OF HEALTH CARE REFORM

What happened when Washington state decided to pursue guaranteed issue:

In 1993, Washington state passed a law guaranteeing all residents access to private health-care insurance, regardless of their health, and requiring them to purchase coverage.

The state legislature, however, repealed that last provision two years later. With the guaranteed-access provisions still standing, the state saw premiums rise and enrollment drop, as residents purchased coverage only when they needed it. Health insurers fled the state and, by 1999, it was impossible to buy an individual plan in Washington – no company was selling.

Washington is among a handful of states that have pursued universal access to health insurance. The challenges they have faced could give some clues about the federal overhaul’s fate should the individual mandate get struck down.

“There are seven states that tried this in the mid-1990s and, in every case, it was a disaster,” said MIT health-care economist Jonathan Gruber, who worked on Massachusetts’ health-insurance law and the Affordable Care Act. “It became pretty clear that, if you want a market to work, you need a mandate.”

Washington state began pursuing health-care reform in 1990, when its legislature created a commission to study how best to provide universal coverage for the state’s 5 million residents. The commission weighed a single-payer scheme in which the state would create and run its own health-insurance plan, but it settled on a “managed competition” model in which the state would play a greater role in regulating the insurance market.

“There were essentially three goals of the law: To cover everybody, to reduce the rate of health-care cost growth by managing competition better and to improve health-care outcomes,” says Aaron Katz, a University of Washington health policy professor who served on the commission.

Starting on July 1, 1993, health insurance companies were required to accept all state residents who applied for coverage – and it barred health plans from charging sick subscribers more, a practice known as underwriting. The requirement to purchase coverage, meanwhile, was not slated to take effect until five years later, in 1998.

That didn’t happen. Republicans took control of the state legislature in 1994 and repealed the individual mandate. The guaranteed-issue provision, however, remained on the books.

“The legislature was loath to repeal the insurance reforms because those were very popular,” says Katz, who advised the legislature on the issue. “That put the insurance companies in a bind.”

The bind they were in was this: The only people buying health insurance were those who foresaw themselves incurring high medical costs. That drove health insurance premiums up. As premiums went up and insurance became less affordable, enrollment decreased significantly.

As one report from the Washington State Insurance Commissioner’s Office described it, the insurance market entered a “death spiral,” with customers buying coverage only “when they needed it.”

SOURCE: Washington Post


HOW BLOOMBERG’S SOFT DRINK BAN WILL BACKFIRE ON NYC PUBLIC HEALTH

A classic case of “you know nothing of my work.”

New York City’s mayor proposed a restaurant ban for any soft drink over 16-ounces. The hope is that by banning big drinks people will drink less and weigh less. He and others cited our research as the science behind the policy. Indeed, a dozen of our studies show when you randomly give people large sizes of food like popcorn and French fries, they overeat. Another of our cited studies showed that people ate 73 percent more soup when eating from a soup bowl that secretly refilled itself.

There’s a critical difference between the lab and Lexington Avenue that the mayor’s office didn’t account for: when Joe the Plumber and Bob the Banker buy soft drinks, they buy the size they want. They aren’t randomly forced to take a 44-ouncer when they really wanted a 12-ouncer. Moreover, their Coke or Pepsi doesn’t magically refill itself. If that happened, they’d overdrink. Instead, most restaurants give us a choice of a small or large drink – just as nearly every fast food outlet gives us a choice of small, medium, or large fries, and every movie theatre gives us a choice of small, medium, or large popcorn. People who want a little buy a little, and people who want a lot figure a way to get it.

Yes, we have found that when people are given larger portions, they do drink or eat substantially more. But to claim that these results imply that the ban will be effective is to ignore our larger body of work. In our experiments, subjects were given larger or smaller portions of food in a dining or party setting, where they were unlikely to notice portion size. It is exactly because participants weren’t paying attention that we got the results we did.

The mayor’s approach, however, overtly denies people portions they are used to be able to get whenever they want them. In similar lab settings, this kind of approach has inspired various forms of rebellion among study participants. For example, openly serving someone lowfat or reduced-calorie meals tends to lead to increased fat or calorie consumption over the whole day. People reason that because they were forced to be good for one meal, they can splurge on snacks and desserts at later meals.

SOURCE: The Atlantic


DELAWARE CONSIDERS SINGLE PAYER

Will it follow in Vermont’s footsteps?

A new bill recently proposed in the Delaware legislature is threatening to implement a single-payer healthcare system that will destroy private health insurance, raise taxes, and drive away jobs and businesses in the First State. In the midst of a potential ObamaCare failure in the Supreme Court, this bill would essentially work towards effectively socializing medicine in Delaware.

This unprecedented overhaul of the Delaware health insurance market would essentially ban payments to private insurance companies in favor of a one-size-fits-all single-payer system. This new system would be implemented and enforced by an ambiguous Delaware Health Security Authority, ominously referred to throughout the bill as the “Authority.” Excuse the eerie 1984 reference, but this “Authority,” working as a supposed “non-government” entity, could easily be renamed “The Party: Healthcare edition.” In other words, this entity would be made up of government appointed bureaucrats who would not be held accountable to anyone nor anything other than themselves in controlling essentially the entire Delaware healthcare industry. This “Authority” would mandate coverage of “essential” benefits, determine doctors’ wages, and regulate health costs regardless of market demand. This bill would also effectively stifle competition in the healthcare industry, thereby driving up costs while simultaneously driving drown the quality of care.

Not only does this bill threaten the quality of the entire healthcare system, but it could lead to a gross job loss in Delaware, as employers are forced to pay for a great deal of the bill’s costs. In addition to federal dollars, a majority of the costs are covered through increased income taxes. As approximately 50% of Delawareans eligible for health insurance under this proposed legislation do not pay income tax, this bill would lead to a huge redistribution of wealth, forcing employers and employed citizens to cover the healthcare costs of the poor and the unemployed. This would result in a downtrodden economy defined by growing unemployment, as more and more wealthy job creators leave the state in search of lower income taxes elsewhere.

Given that the bill relies a great deal on federal funding from Congress, healthcare in Delaware under this newly proposed legislation would constantly rely on the ever-evolving, hostile political climate in Washington. For example, with Republicans in control of Congress, would Delaware still be guaranteed government funding for this huge bureaucratic monstrosity promising to take over the current system? If there’s anything that Greece taught us, it’s that a statist approach to healthcare does not work. To rely on funding from an increasingly unreliable and debt-ridden government is as careless as it is irresponsible.

SOURCE: Freedom Works


BERWICK: WE NEED FEWER MACHINES

The real point is that Berwick wants people like him – not consumers – to determine that there are fewer machines.

The act is set to improve and give access to healthcare for millions of people, but the Republicans “grabbed the high ground of communication”, he says. “They had concerns about rationing, about government takeover of medicine, about death panels, about the socialisation of medicine, none of which were accurate and many of which were completely deceptive, whether consciously or unconsciously so.”

The story did not get well told, but in the last six months, as provisions such as rebates on prescription drugs and children no longer being excluded from insurance for pre-existing conditions kick in, that has begun to change, he believes.

He warns that increasing the role of the private sector in the NHS, as the British government is now doing, is risky. “I would be cautious – very cautious,” he said. “When you invite entrepreneurial private sector investors into the delivery of care, under most payment systems, they will be very interested in volume. They will be very interested in doing more things to people and you may find that you lose control of that level of discipline to the disadvantage of patients. When more things are done, more unnecessary things get done and more hazard enters the system – not just cost.

“You want hospitals that seek to be empty, doctors that seek to be idle, machines that are few. In healthcare you want to find the way to help that is the least invasive of the person’s life and body. A volume-based system does not have that incentive structure.”

SOURCE: The Guardian

Benjamin Domenech

Benjamin Domenech (bdomenech@heartland.org) is a senior fellow at The Heartland Institute. Domenech... (read full bio)