Tag: preexisting conditions

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.

* * * 

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:

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.

ObamaCare’s Greatest Political Vulnerability

In two new posts at the Health Affairs blog, I lift the fog of economic jargon to show ObamaCare’s preexisting-conditions provisions are reducing quality, are wildly unpopular with voters, and are indeed the law’s greatest political vulnerability:

Public opinion surveys show voters support ObamaCare’s preexisting conditions provisions by a two-to-one margin. If those provisions have the effect of reducing quality, however, that initial support flips to two-to-one opposition. The biggest shift is among Democrats, who swing from 82 percent in favor to 55 percent opposed. Voters turn against those provisions whether the erosion in quality comes in the form of less access to medical tests and treatments, longer waits for care, more surprise medical bills, or less access to top-rated treatment centers…

In “Is ObamaCare Harming Quality? (Part 1),” I explain that new research shows that ObamaCare is not working how it is supposed to work in theory: the law’s preexisting conditions provisions create perverse incentives for insurers to reduce the quality of coverage; those provisions are reducing the quality of coverage relative to employer plans; and the erosion in quality is likely to accelerate in the future.

In “How To Ensure Quality Health Coverage (Part 2),” I explain why regulators cannot fix this problem, and why providing sick patients secure access to quality health care requires allowing consumers to purchase health plans not subject to ObamaCare’s preexisting conditions provisions.

Part 2 also explains how expanding the definition of “short-term” health insurance to include policies that include guaranteed-renewability riders, a change the Trump administration can make on its own via regulation, would free consumers from ObamaCare and pressure Democrats to come to the negotiating table.

The Trump Administration Isn’t Sabotaging ObamaCare—That Was Democrats

To the relief of many Democrats and the consternation of many Republicans, Congress will not be repealing ObamaCare this month. But that doesn’t mean Democrats are riding high or that ObamaCare is doing well. Premiums are still rising rapidly (Miami Herald: ”Obamacare Premiums in Florida to Rise 45 Percent on Average Next Year”), insurers are still leaving the Exchanges (Healthcare Marketplace: “Nearly Half of the Country Left with One Carrier Option in 2018”), and ObamaCare coverage is still becoming a worse and worse deal for the sick (Wall Street Journal/yours truly: “How ObamaCare Punishes the Sick”). 

Now that repeal is no longer an immediate threat, the conversation has naturally turned to who’s to blame for ObamaCare’s failings. Democrats claim everything was going swimmingly until the Trump administration came along and began sabotaging the law. The funny thing about that line of attack is that’s if it were true, then Democrats’ real complaint would be that voters are sabotaging ObamaCare.

But it’s not true—and reporters should stop repeating this partisan line of attack as if it were. Here are five crucial points:

  • The Trump administration is not causing the instability we are seeing in the Exchanges—ObamaCare is. Specifically, ObamaCare’s community rating price controls have both unleashed adverse selection (sick people enroll, healthy people don’t) and are making coverage worse for the sick (as insurers use plan design to deter the sickest from choosing their plans). There are only two ways to deal with that instability: eliminate community rating, or subsidize the heck out of insurers (either explicitly, or implicitly by encouraging healthy people to enroll).
  • The Trump administration is not stoking the instability ObamaCare is creating in the Exchanges. Democrats claim that by not ending the uncertainty surrounding cost-sharing subsidies to insurers, and by not investing in enrollment activities as much as the Obama administration did, it is in fact the Trump administration that is creating or exacerbating that instability. That is false. As noted above, it is ObamaCare’s community-rating price controls that are creating this instability, not the Trump administration’s actions. The administration is not even adding to the instability. To do so, it would have to make ObamaCare’s community-rating price controls even more binding, which would exacerbate adverse selection. The worst you can say about those actions is that the Trump administration is failing to mitigate the instability ObamaCare creates, which brings us to our next point. 
  • The Trump administration does not have a duty to reduce the instability ObamaCare creates, or to reduce the uncertainty ObamaCare creates, or to make ObamaCare “work.” The Trump administration’s only duty is to execute the law faithfully. So long as it does, it has the prerogative to pursue its political goals however it wants. I’m not aware of anyone accusing the Trump administration of not following the law in its handling of ObamaCare. 
  • Reporters who say the Trump administration is causing or stoking instability in the Exchanges are simply regurgitating partisan talking points. Embedded in that claim is the normative, disputed, and ultimately false premise that the Trump administration somehow has an obligation not just to follow the law, but to make ObamaCare “work.” That is a pretty radical notion, because it implies ObamaCare opponents don’t have a right to use lawful means to press their views through the political process. 

Can Romney Lead the Fight against ObamaCare?

Both the Wall Street Journal and the New York Times have just run major stories on presidential candidate Mitt Romney’s difficulties in getting people to understand the difference between his Massachusetts universal-health-care plan, which featured an individual mandate, subsidies, and forbidding insurance companies to deny coverage for preexisting conditions, and the Obama-Reid-Pelosi plan, which features an individual mandate, subsidies, and forbidding insurance companies to deny coverage for preexisting conditions.

President Obama is putting Romney on the spot by telling Matt Lauer that his bill is similar to Romney’s. Daniel Gross of Newsweek recommends that Obama hire Romney – someone who has management experience, no current job, and “relevant experience in implementing a large-scale health-care reform program, ideally one that involved using an individual mandate and the private insurance system to attain near-universal health insurance” – to run ObamaCare.

As Romney attacks the Obama bill as an unconstitutional “government takeover,” he makes two basic arguments in defending his own plan: First, that the Massachusetts law was passed on a bipartisan basis, hardly a substantive defense. Second, that his was a state plan, not a federal intrusion on state authority. He also offered a “conservative” defense of the individual mandate:

But he did so by adopting a more GOP-friendly vocabulary, declaring it a matter of “personal responsibility” for all people to buy into insurance pools so that “free riders” without insurance can’t stick taxpayers with their hospital bills.

“We are a party and a movement of personal responsibility,” he said at a book signing in Manchester. He invoked the same idea at the college, calling it a “conservative bedrock principle.”

That’s a point that Stuart Butler of the Heritage Foundation made as far back as 1992, but most conservatives didn’t embrace the argument. And they’ve strongly opposed the mandate in the Obama bill.

Conservatives have campaigned for more than a year against the Obama health care bill, with its mandate, subsidies, and insurance regulations. Now they are backing “Repeal It!” efforts and lawsuits to have it declared unconstitutional. Yet such conservative leaders as Rush Limbaugh and the editors of National Review endorsed Mitt Romney, the man who wrote the prototype for ObamaCare, in 2008. Romney is leading Republican polls for the 2012 nomination. Romney just won the straw poll at the Southern Republican Leadership Council (with only 24 percent, to be sure, and just 1 vote ahead of Rep. Ron Paul). Can the Republican effort to defeat President Obama and repeal ObamaCare really be led by the first American political leader to impose a health care mandate on citizens?