The Shape of Obamacare’s Economy

The Shape of Obamacare’s Economy
February 11, 2014

Benjamin Domenech

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

Consumer Power Report #406

The White House just undermined everyone who was speaking from its talking points sheet over the past week on the CBO analysis by reacting as if all the criticisms of Obamacare’s effect on labor markets are true. [http://vlt.tc/1a64">The second delay of the employer mandate is obviously driven by politics, not policy:

For the second time in a year, the Obama administration is giving certain employers extra time before they must offer health insurance to almost all their full-time workers. Under new rules announced Monday by Treasury Department officials, employers with 50 to 99 workers will be given until 2016 – two years longer than originally envisioned under the Affordable Care Act – before they risk a federal penalty for not complying. Companies with 100 workers or more are getting a different kind of one-year grace period. Instead of being required in 2015 to offer coverage to 95 percent of full-time workers, these bigger employers can avoid a fine by offering insurance to 70 percent of them next year …

As word of the delays spread Monday, many across the ideological spectrum viewed them as an effort by the White House to defuse another health-care controversy before the fall midterm elections. The new postponements won over part, but not all, of the business community. And they caught consumer advocates, usually reliable White House allies, by surprise, particularly because administration officials had already announced in July that the employer requirements would be postponed from this year until 2015. … A senior administration official, who briefed reporters on the proposal on the condition of anonymity shortly before the rule became public, said the Treasury Department decided to allow medium-size businesses more latitude because they “need a little more time to adjust to providing coverage.”

More here on the decision. The important thing to recognize here is that this is not a “failure of implementation” or a “rollout problem” or anything like that. It’s an example of Obamacare working exactly as it’s supposed to – see Robert VerBruggen’s analysis here. The CBO’s justification for its analysis makes this even more clear:

Here’s a useful way to think about the choice of wording: When firms do not have enough business and decide to lay people off, the people who are laid off are generally worse off and are therefore unhappy about what is happening. As a result, other people express their sympathy to those people for having “lost their jobs” due to forces beyond their control. In contrast, when the labor market is strong and people decide on their own to retire, to leave work to take care of their families, or to cut back on their hours to pursue other interests, those people presumably think they are better off (or they would not be making the voluntary choices they are making). As a result, other people are generally happy for them and do not describe them as having “lost their jobs.”

So to be clear: In the Obamacare economy, people will have less money, fewer people will be working, the ones who are will be working for lower wages, and the economy will have less growth. But hey, there’s always Medicaid. No wonder Obamacare fatigue is setting in even among its fans.

-- Benjamin Domenech


IN THIS ISSUE:


OBAMACARE ENROLLMENT SLOWS TO A CRAWL

With less than seven weeks of open enrollment to go, ObamaCare enrollment – and payments – have slowed to a near-crawl in some states.

Minnesota’s exchange enrollment goal of 67,000 seemed within reach on Jan. 4, when signups stood at 25,860.

But after surging by more than 4,000 per week in the prior five weeks, signups collapsed back to November’s pace of less than 700 per week.

As of Feb. 1, Nevada had just 14,999 paid enrollees – vs. the state’s March 31 goal of 115,000.

Washington state, meanwhile, was slightly more than halfway to its goal of 340,000 signups – but only 88,071 had paid as of Feb. 1.

The January data available from a handful of states raise new doubts about whether ObamaCare’s downgraded firs-year prospects are still too optimistic.

Further, a spotty payment rate (50% in Washington and 66% in Nevada) creates a risk that the demographics of the paid exchange population may be older – and possibly sicker – than even the national signup data have signaled.

Health care consultant Robert Laszewski wrote that he believes about 20% of ObamaCare enrollees haven’t paid. The administration said that exchange signups hit the 3 million mark around Jan. 23 – up from 2.2 million on Dec. 28. Laszewski figures the paid total through Feb. 1 will likely be about 2.5 million.

More will be known about how pervasive these trends are when the Obama administration releases January data for all of the exchanges in coming days. But January data from New York, Colorado, Maryland and Kentucky (easily accessible via acasignups.net) all suggest that the momentum which carried from December into January substantially faded in the second half of the month.

SOURCE: Investor’s Business Daily


VERMONT’S BROKEN HEALTH INSURANCE EXCHANGE

HealthCare.gov, the federal insurance marketplace CGI also built before effectively being fired last month, is ticking along more smoothly now after its disastrous debut last October. But many state exchanges that chose to set up their own marketplaces (some using CGI Federal) are still dealing with severe glitches.

Vermont’s CGI Federal-built website didn’t work on October 1, and today, the state still does not have a fully functioning marketplace. There is no way for small businesses, the heart of Vermont’s economy, to purchase coverage online; instead, they have to buy insurance directly from one of two state-approved insurers. Payments for premiums still cannot be processed online – people have to snail-mail checks to a CGI processor in Nebraska. And individuals who registered online but then got divorced, changed jobs or had either pay cuts or increases cannot alter their information online.

A review of the state’s race to build a health insurance website is more than a fresh look at how CGI Federal, the Fairfax, Va.-based arm of Montreal-based CGI Group, bungled its attempt to cobble together a highly complex piece of technology on a very tight deadline. It is also a tale of how many Republican and Democrat state officials, the latter ardent supporters of Obamacare and in control of the state, glossed over ominous warning signs and Keystone Cops-like planning to chase a bigger prize: bragging rights to an exchange that Vermont hopes will underpin the nation’s first system in which the state foots health-care bills for all residents – what conservatives call “socialized medicine,” some call “single-payer” and liberals, including Peter Shumlin, Vermont’s Democratic governor, call “universal financing.”

“It was all just way too ambitious,” says Amy Lischko, associate professor of public health and community medicine at Tufts University medical school and a member of an advisory board to Vermont exchange officials. “Did CGI overpromise? Yes, but everybody had a can-do attitude, and there was a lot of money floating around.”

SOURCE: Newsweek


AN ANALYSIS OF UTAH’S MEDICAID EXPANSION

The two options under consideration by Utah’s Health Reform Task Force are largely based upon Arkansas’s Private Option. Under the first option, the state would expand Medicaid eligibility to able-bodied adults earning less than 100 percent of the federal poverty level. Under the second option, the state would expand Medicaid eligibility to all able-bodied adults earning less than 138 percent of the federal poverty level. Both plans would have most Medicaid benefits delivered to this new expansion group through Qualified Health Plans (QHPs) offered on the federal health insurance exchange.

Under these proposals, able-bodied adults would be able to select any Silver-level QHP offered on the exchange. The Medicaid program would pay the full cost of premiums for these plans, as well as the cost-sharing and out-of-pocket costs owed by enrollees. Enrollees in Utah’s proposal would receive all Medicaid benefits, with traditional fee-for-service Medicaid coverage for benefits not covered by the QHPs.

Utah’s Medicaid expansion plans hurt the most vulnerable Utah’s Medicaid expansion plans put the state’s truly needy citizens at great risk. It is important to remember who would actually qualify for Utah’s Medicaid expansion. The Medicaid expansion does not cover the elderly, individuals with disabilities or even poor children – groups considered among the most vulnerable.

Instead, Utah’s plan simply expands Medicaid eligibility to a new class of able-bodied, working-age adults. Up to 85 percent of these able-bodied adults have no dependent children. Able-bodied childless adults have never been considered among the most vulnerable citizens, which explains why they have historically been ineligible for other types of taxpayer-funded welfare, including cash assistance and long-term food stamps. It is no surprise, then, that the majority of Americans oppose giving non-cash assistance, such as food stamps and Medicaid benefits, to able-bodied, working-age adults, especially those without children.

Although Utah used Medicaid savings to help pay for some primary care services for a limited number of adults without dependent children in the past, Obamacare’s optional Medicaid expansion would create an entirely new population in Utah eligible for all Medicaid benefits.

Obamacare’s Medicaid expansion would redirect limited state and federal resources away from the elderly, from children and from disabled individuals in order to fund Medicaid coverage for working-age, able-bodied childless adults. Worse yet, because the exchange’s QHPs reimburse doctors and hospitals at higher rates than Utah’s traditional Medicaid program, providers will have large financial incentives to treat the new working-age adults comprising the Medicaid expansion, rather than the most vulnerable already enrolled in Medicaid. This will ultimately create a two-tiered system of care, where able-bodied adults are prioritized over the truly needy. This is particularly worrisome, given the fact that all but one county in Utah has a shortage of primary care providers.

SOURCE: Foundation for Government Accountability


COVER OREGON SCANDAL DEEPENS

The story behind the massive failure of the Oregon health exchange website continues to unravel as allegations of fraud and gross mismanagement mount.

Local news agencies have obtained emails and other reports suggesting state officials lied about the progress of the website, possibly even creating dummy sites to present to federal officials.

“It’s a scandal much worse than New Jersey,” said state GOP representative Dennis Richardson, who is running for governor against incumbent Democrat Gov. John Kitzhaber.

The issue is starting to bubble up to Capitol Hill. Richardson is calling for an audit of the program by the federal Government Accountability Office. That push would likely come from Rep. Greg Walden (R., Ore.), the only Republican in the Oregon delegation.

A spokesman for Walden said the congressman is “aggressively pursuing” more information about the botched rollout of the website.

“Greg is very concerned about failure of Cover Oregon,” a spokesman for Walden said in a statement to the Free Beacon. “The breakdown of the exchange is unacceptable, and taxpayers deserve accountability for the more than $300 million the federal government has given the state.”

Oregon’s health care exchange recently announced it has enrolled more than 100,000 people, which is impressive considering not a single one enrolled through the exchange website.

SOURCE: Free Beacon


THE CBO SCORE OF OBAMACARE’S RISK CORRIDOR BAILOUT

The Congressional Budget Office (CBO) just issued a report that assumes the Affordable Care Act (ACA) system of individual policies sold in health insurance exchanges without medical underwriting can remain relatively stable. Tightly bound up with that assumption is its prediction about a controversial ACA program known as “risk corridors” that requires profitable insurers to pay the federal government up to 80% of profits they make on policies sold on the exchanges but that also requires the federal government to pay insurers up to 80% of the losses they suffer from policies sold on the exchanges. CBO now believes it has enough information to predict that the risk corridors will actually make money for the government – $ 8 billion over three years – at the expense of insurers.

This CBO prediction of $8 billion in federal revenue, which has gained much publicity, pulls the rug out from critics of the ACA, such as Sen. Marco Rubio, who have introduced legislation that would repeal the risk corridors because they function as an insurance industry “bailout.” Such a blunting of Rubio’s proposed repeal legislation is crucial in the ongoing battle over the ACA because repeal of the risk corridors could result in insurers (who just might not believe CBO’s numbers) exiting the exchanges for fear of having no government protection against losses resulting from unfavorable experiences in the new market the government has created. On the other hand, if CBO is just getting its number wrong, Rubio’s case for repeal of the risk corridors remains as strong (or problematic) as it ever was. The CBO projection is also important because the risk corridors program nets the government money if and only if 1) the ACA works, 2) insurers are able to make some profits, and 3) a death spiral never takes hold.

And this is a prediction about which many have serious doubts. ...

I’ve done the math and I don’t see how CBO is getting this $8 billion number unless it is assuming either very high enrollment in policies covered by risk corridors or very high rates of return made by insurers. Or it made a mistake. I don’t think CBO’s own numbers support very high enrollment in policies covered by risk corridors and I don’t believe either an emerging reality or CBO’s own rhetoric justify assuming very high rates of return. So I think CBO ought to take a second look at its prediction. People should not yet make policy decisions based on the CBO estimate.

SOURCE: The Federalist


WHITE HOUSE HOLDING 45 MILLION HOURS OF ACA PAPERWORK

The most infamous ACA provision, the individual mandate tax, has been stuck at OIRA since August 23; it would impose more than 7.5 million paperwork burden hours on American taxpayers. Curiously, the administration finalized the rulemaking on August 30, 2013, but the White House still hasn’t approved the collection. Under current law, no individual is required to comply with federal paperwork, “unless the collection of information displays a valid control number assigned by [OIRA].” Without approval, taxpayers are not required to comply with the individual mandate forms. However, don’t ignore the individual mandate tax completely. The IRS considers this defense to tax liability “fictional.”

Even more peculiar, a note on the paperwork requirement reads, “Need approval by 8/26/2013.” It’s clear OIRA missed that deadline, and with tax season approaching, IRS needs authorization before it can legally implement these forms.

The largest burden at OIRA would implement the Net Investment Income Tax, which would add 3.8 percent to certain investment income under the ACA. This new tax is scheduled to generate more than $123 billion, but IRS also estimates the tax preparation alone will impose more than 24 million hours of paperwork.

In the final rule published last December, IRS claimed, “The collection of information contained in these regulations has been reviewed and approved by [OIRA] in accordance with the Paperwork Reduction Act (PRA).” However, according to White House records, it has not approved the Net Investment Tax, even though the rule was effective upon publication. According to IRS, the tax “went into effect on Jan. 1, 2013.”

OIRA is also currently reviewing health care exchange regulations. One requirement, for “Premium Stabilization Programs, and Market Standards” would add more than 380,000 paperwork burden hours. In addition, there is a paperwork burden under review for consumers willing to report their “Enrollee Satisfaction” in the health care exchanges. The survey would add more than 100,000 burden hours.

SOURCE: American Action Forum


DRUG SHORTAGES AND PUBLIC HEALTH THREATS

The number of drug shortages remains high. Although reports of new drug shortages declined in 2012, the total number of shortages active during a given year – including both new shortages reported and ongoing shortages that began in a prior year – has increased since 2007. Many shortages are of generic sterile injectable drugs. Provider association representatives reported that drug shortages may force providers to ration care or rely on less effective drugs.

The immediate cause of drug shortages can generally be traced to a manufacturer halting or slowing production to address quality problems, triggering a supply disruption. Other manufacturers have a limited ability to respond to supply disruptions due to constrained manufacturing capacity. GAO’s analysis of data from the Food and Drug Administration (FDA) also showed that quality problems were a frequent cause. GAO also identified potential underlying causes specific to the economics of the generic sterile injectable drug market, such as that low profit margins have limited infrastructure investments or led some manufacturers to exit the market.

While shortages have persisted, FDA has prevented more potential shortages in the last 2 years by improving its responsiveness. Among other things, FDA implemented Food and Drug Administration Safety and Innovation Act (FDASIA) requirements and recommendations GAO made in 2011. FDA has also initiated other steps to improve its response to shortages, such as developing procedures to enhance coordination between headquarters and field staff. However, there are shortcomings in its management of drug shortage data that are inconsistent with internal control standards. For example, FDA has not created policies or procedures governing the management of the data and does not perform routine quality checks on its data. Such shortcomings could ultimately hinder FDA’s efforts to understand the causes of specific shortages as well as undermine its efforts to prevent them from occurring. In addition, FDA has not conducted routine analyses of the data to proactively identify and evaluate the risks of drug shortages.

SOURCE: Government Accountability Office

Benjamin Domenech

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