Tag: Obamacare

Stopping Risk-Adjustment Payments and Cutting Navigator Grants Make ObamaCare Harms More Transparent

The Trump administration has announced it is suspending so-called “risk adjustment” payments to insurers who participate in ObamaCare’s Exchanges, and cutting spending on so-called “navigators,” who help (few) people enroll in ObamaCare plans. 

The Washington Post’s Catherine Rampell and other ObamaCare supporters are calling these steps sabotage. In fact, what these steps will do is make the costs of ObamaCare’s supposedly popular preexisting-conditions provisions more transparent.

Risk-Adjustment (Bailout) Payments to Insurers

ObamaCare’s so-called “risk adjustment” program exists to funnel money to insurers who enroll lots of sick people who cost more in claims than they pay in premiums. Without it, insurers probably wouldn’t participate in ObamaCare. We may therefore confidently describe the risk-adjustment program as a bailout designed to rescue insurers from the costs of ObamaCare’s preexisting-conditions provisions. 

The risk-adjustment program does a better job of protecting insurance companies than sick patients. Those preexisting-conditions provisions literally punish insurers for offering coverage that the sick find attractive. They therefore create powerful financial incentives for insurers to make their offerings unattractive to the sick.

The risk-adjustment program is supposed to counteract those incentives. Anecdotal evidence and empirical research both show it’s not working. The risk-adjustment program is failing to counteract the perverse incentives that ObamaCare itself creates. ObamaCare coverage is therefore getting worse for many sick patients. Don’t worry, the insurance companies come out okay. Insurers can mitigate whatever losses the bailouts don’t cover with even more restrictive benefit designs to keep the sick away. Sick patients fare less well.

Reducing or eliminating spending on the risk-adjustment program would reveal more of the harms of the preexisting-conditions provisions. More of the cost would fall on insurers, who would respond by offering even more restrictive coverage, or exiting the market. More such transparency might finally push Congress to repeal those provisions and put health care for the sick on a more stable footing. 

In February, a federal district court in New Mexico ordered the Centers for Medicare & Medicaid Services to cease using its methodology for making risk-adjustment payments until the agency adequately explains that methodology. On July 7, the agency announced it will not make any risk-adjustment payments until the issue is resolved.

The insurers will eventually get their bailouts. But the delay will cost them money and add uncertainty to the process. Those effects in turn may lead insurers to take even greater steps to protect themselves from the costs of the preexisting-conditions provisions—thereby making those costs more transparent.

Cutting Navigator Spending

ObamaCare authorizes CMS to make grants to “navigators”—i.e., groups who are supposed to help people enroll in ObamaCare plans. They are a waste of taxpayer money, and likewise hide the costs of ObamaCare’s preexisting-conditions provisions.

According to CMS, navigators received $63 million for plan year 2017 and $36 million for plan year 2018. In both years, they signed up less than 1 percent of ObamaCare enrollees. “During grant year 2016-2017,” CMS reports, “seventeen of those Navigators enrolled fewer than 100 people at an average cost of $5,000 per enrollee.” That’s more than the cost of the health insurance, in many cases. The Wall Street Journal reports, “One grantee took in $200,000 to enroll a grand total of one person. The top 10 most expensive navigators collected $2.77 million to sign up 314 people.” The Las Vegas Review-Journal editorializes, accurately, “the navigator scheme is a make-work government jobs program rife with corruption and highly susceptible to scam artists. It’s a slush fund for progressive constituent groups.”

The navigator program also hides the cost of ObamaCare’s preexisting-conditions provisions. Since the sick will reliably enroll in ObamaCare even without navigators, those whom navigators end up enrolling are going to be disproportionately healthy. Thus navigators are also helping to hide the costs of those provisions by spreading the costs across more (healthy) people. Cutting spending on navigators will likewise reveal more of the costs of those provisions.

The Trump administration announced it is cutting spending on navigators to $10 million for plan year 2019. It should eliminate the program entirely. The less the federal government spends on navigators, the more transparent ObamaCare’s costs will be.

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When ObamaCare supporters complain about such steps, they are describing transparency as sabotage. Think about what that means.

I Will Bet Drew Altman $100 that ObamaCare’s Preexisting Conditions Are Unpopular

The Trump administration announced it will argue in federal court that ObamaCare’s preexisting-conditions provisions are unconstitutional. Supporters of the law, including many reporters, are beside themselves with glee. Republican fools! Everyone knows ObamaCare’s preexisting-conditions provisions are the most popular part of the law! (Democrats, crush them!!)

ObamaCare’s supporters have this one exactly backward. The law’s preexisting-conditions provisions are not popular. They are wildly unpopular. Supporters of the law believe they are popular – and have fooled even Republicans into believing the same – because they have been drinking a strong brew of economic ignorance, shoddy polling, and bad journalism.

In response to the Trump administration’s announcement, Kaiser Family Foundation president Drew Altman wrote:

Protections for people with pre-existing conditions are hugely popular, and the administration may have handed Democrats their strongest health care weapon yet — because now they can make the case that the administration has gone to court to take away protections for people with pre-existing medical conditions.

The case is also likely to drag on, so it could be the political gift that keeps on giving through 2020, even if it is eventually thrown out.

The Washington Post’s Paige Winfield Cunningham wrote:

The Trump administration has given Democrats a generous political gift
Preexisting conditions health coverage is very popular.

President Trump has given Democrats the political gift that Capitol Hill Republicans were too smart to grant them last year. And Republicans know all too well it could be disastrous…

Dismayed, top Republicans have been moving quickly to put space between themselves and the administration on the matter, anxious to distance themselves from such popular consumer protections…

Politicians and policymakers are well aware that preexisting protections [sic] poll extremely well with Americans. Seventy percent of respondents to a Kaiser Family Foundation poll last year — including 59 percent of Republicans — said the federal government should continue prohibiting insurers from charging these folks more for coverage.

Less smart than Capitol Hill Republicans? Them’s fightin’ words.

The reason Altman, Cunningham, and almost everyone else in Washington believe ObamaCare’s preexisting-conditions provisions are popular is because they conduct (in the case of Altman) and rely on (in the case of Cunningham) poll questions that ask only about the presumed benefits of those provisions–as if those provisions have only benefits, and no costs. Here is the Kaiser Family Foundation poll question both of them cite.

Bad Polling

The question basically asks whether respondents want the federal government to guarantee that sick people will pay no more for health insurance than healthy people pay. It asks only about the intended benefits of ObamaCare’s preexisting-conditions provisions: lower premiums for the sick.

Kaiser Family Foundation scholars from Altman all the way down to the lowliest research assistant, as well as seasoned health-policy journalists like Cunningham, know full well that requiring insurers to charge healthy and sick enrollees the same entails significant costs as well as benefits. And they know what those costs are. But while I have seen Kaiser Family Foundation polls ask respondents to offer opinions informed by both the benefits and the costs of a certain policy, I have never seen them do so with regard to ObamaCare’s preexisting-conditions provisions.

Fortunately, we at the Cato Institute have done so. The results may shock you! 

Topics:

Coming Soon to a Los Angeles Times Corrections Box Near You

Correction: The article “Trump’s New Insurance Rules Are Panned by Nearly Every Healthcare Group that Submitted Formal Comments” claimed the Trump administration proposes allowing short-term health insurance plans “to turn away sick people.” In fact, federal law already allows short-term plans to turn away sick people, and to our knowledge not even opponents of the administration’s actual proposal have proposed changing that feature. We regret the error.

The article claimed the Trump administration’s short-term plans proposal would weaken consumer protections. In fact, the proposal would strengthen consumer protections by allowing short-term plans to shield enrollees who fall ill from medical underwriting—a consumer protection the Obama administration prohibited these plans from offering. We regret the error.

The article described groups that advocate forced health care subsidies as “patient and consumer advocates,” but withheld that designation from patient and consumer advocates who oppose forced health care subsidies. We regret allowing ideology to creep into our reporting.

Finally (we hope), the article identified the financial interests of groups supporting the Trump administration’s proposals, but not the financial interests of groups opposing them. We regret our failure to follow the money.

HHS Can and Should Allow Short-Term Plans to Protect the Sick from Medical Underwriting

If you aren’t paying attention to the debate over short-term health insurance plans, you should. It’s a mixed-up, muddled-up, shook-up world where Republicans are pushing to expand consumer protections, Democrats are fighting to block them, and the public debate has it exactly backward.

In this morning’s Wall Street Journal, I explain:

ObamaCare premiums keep skyrocketing. Rate hikes as high as 91% will hit many consumers just before Election Day. Maryland insurance commissioner Al Redmer warns ObamaCare is in “a death spiral.”

So-called short-term health plans, exempt from ObamaCare’s extensive regulations, are providing relief. Such plans often cost 70% less, offer a broader choice of providers, and free consumers to enroll anytime and purchase only the coverage they need.

But there’s a downside. When enrollees fall ill, either their premiums spike or they lose coverage, leaving an expensive ObamaCare plan as the only alternative. Markets solved that problem decades ago via “renewal guarantees,” which allow enrollees who get sick to keep paying the same premiums as healthy enrollees.

For more than two decades, Congress has consistently tried to prevent sick patients from being to medical underwriting. Yet in 2016, the Obama administration did exactly the opposite. It issued a regulation that exposed enrollees in short-term plans to medical underwriting after they got sick:

In 2016, in an effort to force people into ObamaCare plans, the Obama HHS shortened the maximum duration for short-term plans from a year to three months and banned renewal guarantees. The National Association of Insurance Commissioners complained this reduced consumer protections and exposed the sick to greater risk, including the risk of having no coverage.

The Trump administration has proposed reversing the Obama rule and allowing short-term plans to offer both 12-month terms and renewal guarantees that allow enrollees who get sick to keep paying the same premiums as healthy enrollees (i.e., no more underwriting). Both of these proposals are consumer protections that would protect the sick from medical underwriting and in some cases protect the sick from losing coverage entirely. 

Believe it or not, Democrats are opposing these consumer protections! I am tempted to say their opposition is inexplicable, but it’s all-too explicable. Democrats want to prevent short-term plans from offering these consumer protections because they fear consumers will find short-term plans more attractive than ObamaCare. Democrats are literally trying to stop Republicans from expanding consumer protections because they would rather protect ObamaCare. 

Democrats Ask Trump Administration to Block Consumer Protections

In a recent letter to the Trump administration, leading congressional Democrats ask the administration not to allow protections for enrollees in short-term health plans.

Yes, you read that right. Dated April 12, the letter comes from Sens. Patty Murray (WA) and Ron Wyden (OR), as well as Reps. Frank Pallone (NJ), Bobby Scott (VA), and Richard Neal (MA), each the top Democrat on a different congressional committee with jurisdiction over health care. They ask the administration to withdraw in its entirety a proposed rule that, if implemented, would offer significant protections to enrollees in so-called “short-term limited duration plans.”

The administration has proposed lengthening the maximum term for such plans from 3 months to 12 months, which had been the limit for nearly two decades before the Obama administration shortened it. The administration has also asked for public comments (due April 23) on whether it should allow insurers to offer short-term plans with “renewal guarantees”—a consumer protection that allows enrollees who develop expensive illnesses to continue paying low, healthy-person premiums.

The letter asks the administration to “withdraw the proposed rule in its entirety,” which would block those consumer protections. These Democrats literally want to prevent short-term plans from giving consumers the peace of mind from knowing they will be covered for an entire year. Worse, these Democrats want to prohibit short-term plans from offering a consumer protection that protects the sick from premium spikes. 

The reason for this animosity toward short-term plans is rather clear: ObamaCare supporters don’t want the competition. Federal law exempts “short-term limited duration plans” from ObamaCare and other federal health-insurance regulations. Short-term plans free consumers to purchase only the coverage they want, rather than have ObamaCare force them to buy coverage they don’t want, including coverage for things they may find morally repugnant. ObamaCare supporters do not want consumers to have that freedom, because when consumers leave ObamaCare coverage for short-term plans, ObamaCare premiums will reflect more and more of the cost of that law.

The Emerging Graham-Cassidy 2.0 Proposal

Conservative groups including the Heritage Foundation are circulating a proposal that builds on legislation by Sens. Lindsay Graham (R-SC) and Bill Cassidy (R-LA) to overhaul ObamaCare. Even though I don’t know whether Graham and Cassidy have endorsed these updates, I will go ahead and call this proposal Graham-Cassidy 2.0. The proposal seems ill-advised, particularly since there is an alternative that is not only far superior in terms of policy, but also an easier political lift that would deliver more political benefit.

The key to evaluating any proposal to overhaul ObamaCare is to understand the law’s centerpiece is its pre-existing conditions provisions. Those provisions are actually a bundle of regulations, including a requirement that insurers offer coverage to all comers, restrictions on underwriting on the basis of age, an outright prohibition on underwriting on the basis of health, and a requirement that insurers treat different market segments as being part of a single risk pool. ObamaCare’s preexisting-conditions provisions have the unintended and harmful effect of penalizing high-quality coverage and rewarding low-quality coverage. ObamaCare contains other harmful regulations, but its preexisting-conditions provisions are by far the worst. Unless a proposal would repeal or completely free consumers from ObamaCare’s preexisting-conditions provisions, it is simply nibbling around the edges.

From what I have seen, Graham-Cassidy 2.0 nibbles around the edges.

To its credit, Graham-Cassidy 2.0 would zero-out funding for and repeal the entitlements to both ObamaCare’s premium-assistance tax credits (read: Exchange subsidies) and benefits under the Medicaid expansion. Unfortunately, it would not repeal that spending. Instead, it would take that money and send it to states in the form of block grants. The aggregate spending level for those block grants would grow more slowly over time than Exchange subsidies and federal Medicaid-expansion grants would under current law.

Limiting the growth of those spending streams seems like a better idea than letting them grow without limit, as current law allows. However, there is more downside than upside here.

First, Graham-Cassidy 2.0 would transform a purely federal spending stream into a intergovernmental transfer. At present, Exchange subsidies are payments the federal government makes to private insurance companies. Under Graham-Cassidy 2.0 (and 1.0), the feds would send those funds to states, which would use them to subsidize health insurance in various ways. Roping in a second layer of government diffuses responsibility and reduces accountability, regardless of whether the feds send those funds to states in the form of a block grant. Voters who don’t like how those funds are being spent would have difficulty knowing which level of government to blame, and whichever level of government is actually responsible could avoid accountability by blaming the other. Intergovernmental transfers are so inherently corrupting, there should be a constitutional amendment prohibiting them. And yet Graham-Cassidy 2.0 would substitute an intergovernmental transfer for spending with clearer lines of accountability.

Second, Graham-Cassidy 2.0 also diffuses accountability for ObamaCare’s preexisting-conditions provisions. Those provisions would continue to operate (with slight modifications). As a result, they would continue to destabilize the individual market, punish high-quality coverage, and reward low-quality coverage. The purpose of the Exchange subsidies is to mitigate that instability. Today, it is clear that Congress is responsible for any harm those provisions inflict, and the success or failure of the Exchange subsidies to mitigate those harms. Graham-Cassidy 2.0 would give that money to states and task them with mitigating those harms. When states fail to do so, as at least some states inevitably will, whom should voters blame? Congress, which started the fire? Or states, to whom Congress handed the fire extinguisher?

Third, while Graham-Cassidy 2.0 would eliminate two federal entitlements, eliminating entitlements is desirable only to the extent it limits government control over economic resources—in this case, spending. And while Graham-Cassidy 2.0 proposes to hold the growth of this repurposed ObamaCare spending below what it would be under current law, there is reason to doubt such a spending limitation would hold.

When examining the merits of any policy proposal, one must also consider the political dynamics the proposal would unleash. Generally speaking, states are a more politically powerful and sympathetic constituency than the current recipients of Exchange subsidies (private insurance companies). States have been able to use that political clout to get Congress to disregard the spending limits it imposed on SCHIP, for example, when so-called emergencies led states to blow through their initial allotments. Moreover, since Graham-Cassidy 2.0 would preserve ObamaCare’s preexisting-conditions provisions, it would come with its own built-in emergencies. As sure as the sun rises in the East, states will come to Congress and claim their block-grant allocations were insufficient to mitigate the resulting harms. Congress would be unlikely to say no—members rely on state officials for political support, after all—which means the spending restraints in Graham-Cassidy 2.0 are less than guaranteed.

Fourth, also pushing the direction of bigger government, Graham-Cassidy 2.0 would expand the constituency for ObamaCare spending. At present, the money the federal government spends on ObamaCare’s Medicaid expansion does not enjoy the support of the 19 states that have not implemented the expansion. The block grants in Graham-Cassidy 2.0, by contrast, would go to all states. As a result, non-expansion states like Texas would go from not caring about whether that federal spending continues to insisting that it does. At the same time, Graham-Cassidy 2.0 would expand the constituency of voters who want to preserve that spending. At present, able-bodied, childless adults in non-expansion states receive no benefit from ObamaCare’s Medicaid expansion or its Exchange subsidies. Graham-Cassidy 2.0 would allow (and in some cases require) states to provide subsidies to such adults below the poverty level, thereby creating another constituency that will reliably vote to expand those subsidies.

Fifth, a provision of Graham-Cassidy 2.0 that supporters consider a selling point would expand the constituency for more spending yet again. The proposal would require all states to allow all able-bodied, non-elderly Medicaid enrollees to use their Medicaid subsidy to purchase private insurance. Since greater choice would make Medicaid enrollment more valuable, and since roughly one third of people who are eligible for Medicaid are not enrolled, this would perversely lead to a large “woodwork effect,” where people who were previously eligible for Medicaid but not enrolled begin to enroll in the program. When Medicaid enrollment increases, so will Medicaid spending, and so will the population of voters who are willing to vote for higher Medicaid spending and the higher taxes required to finance it.

Since Graham-Cassidy 2.0 would preserve ObamaCare’s preexisting-conditions provisions, it is hard to see what would justify taking these one or two uncertain steps forward and multiple steps backward.

This is particularly true since there is a much better alternative on the table: strongly encouraging the Trump administration to allow insurers to offer short-term health insurance plans with renewal guarantees that protect enrollees from having their premiums increase because they got sick. Doing so would allow consumers to avoid all of ObamaCare’s unwanted regulatory costs, particularly those imposed by its preexisting-conditions provisions. The Trump administration can create this “freedom option” by administrative rulemaking—comments on the administrations proposed rule are due April 23—which is a much easier political lift than garnering 217 votes in the House and 51 votes in the Senate. Expanding short-term plans would also create salutary political dynamics that would force Democrats begin negotiating a permanent overhaul of ObamaCare.

As of today, Graham-Cassidy 2.0 just can’t compete with that cost-benefit ratio. Every ounce of energy spent on it, rather than on expanding short-term plans, is a waste.

Failed ACA Reinsurance Program Shows: Government Subsidies Don’t Reduce Premiums

ObamaCare turns eight years old today. Some opponents had hoped to mark the occasion by giving supporters the birthday gift they’ve always wanted: a GOP-sponsored bailout of ObamaCare-participating private insurance companies. Fortunately, a dispute over subsidies for abortion providers killed what could have been the first of many GOP ObamaCare bailouts.

ObamaCare premiums have been skyrocketing. All indications are this will continue in 2019, with insurers announcing premium increases up to 32 percent or more just before this year’s mid-term elections. Some Republicans fear voters will punish them for the effects of a law every Republican opposed and most still want to repeal.

Senate health committee chairman Lamar Alexander (R-TN), Sen. Susan Collins (R-ME), and House Energy & Commerce Committee chairman Greg Walden (R-OR) hope to avert calamity by expanding on a proven failure. For months, they have been pushing legislation that would resurrect ObamaCare’s expired “reinsurance” program with $30 billion of new funding.

ObamaCare’s architects knew the law’s preexisting-conditions provisions would effectively destroy the individual health insurance market. They added the reinsurance program in an attempt to put Humpty Dumpty back together again.

ObamaCare’s preexisting-conditions provisions both increase health-insurance premiums and reduce health-insurance quality. They achieve the former, first, by requiring insurers to cover patients with uninsurable preexisting conditions, and again by unleashing adverse selection. Those factors in turn reduce quality by literally punishing insurers who offer high-quality coverage for the sick.

From 2014 until it expired at the end of 2016, ObamaCare’s reinsurance program gave participating insurers extra taxpayer subsidies to cover the claims of high-cost patients whom its preexisting-conditions provisions require them to cover at a loss. The extra subsidies were supposed to reduce premiums, and prevent a race to the bottom fueled by ObamaCare’s penalties on quality coverage.

If ObamaCare’s reinsurance program was supposed to keep premiums from skyrocketing, it was an utter failure. Premiums increased 18-25 percent per year from 2013 through 2016, well above the trend of 3-4 percent from 2008 to 2013. By 2017, premiums had doubled—a cumulative increase of 99 percent or 105 percent, depending on the source—from pre-ObamaCare levels. ObamaCare’s preexisting-conditions provisions were the driving force behind these premium increases.

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