Healthcare

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Pulling out of Obamacare an option? Huh!

My inner MBA was piqued when the Aetna CEO talked openly about pulling out of exchanges as an option. Here is what he said in a CNBC interview.

There is so much uncertainty about Obamacare that Aetna, the U.S.’s third-largest insurance provider, may be forced to double its rates or opt out of the program, the company’s CEO, Mark Bertolini, told CNBC on Thursday.

What action Aetna will take is still up in the air, but the company doesn’t plan to set its 2015 Obamacare rates until May 15. Between now and then, though, Bertolini said he’s trying to get the necessary information from the Obama administration to properly price its insurance products.

I think I understand Aetna’s strategy in Ohio where they have opted to not participate in the exchange. Since they are not one of the top two health insurers for the state, they have limited marketing power. It makes sense that they adopted a wait and see strategy toward participating in the Ohio exchange. Aetna’s strategy is important to me. My AARP-Aetna Essential Healthcare plan is scheduled to be canceled in 2014. If the early exchange enrollment data ends up to be better than expected then I think Aetna will participate in the exchange in 2015. If the price is right then I will continue to insure with them. However if the exchange enrollment data is ugly and the government fixes scares Aetna then there is high likelihood that they will pull out of Ohio. Like most people I would like to keep my health insurance plan but I really want the number of insurance companies competing in Ohio to go up not down. More insurance companies competing in the market is probably as close as we get to getting better insurance rates in the next couple of years. On the other hand I understand Aetna’s predicament. The market is telling them to consolidate and focus their efforts on better markets.

What surprises me about Mr. Bertolini’s comments is that he is talking about exiting exchanges in one of those better markets. Let’s be honest here. Aetna has better managers and data than the government. That is just how businesses roll. I cannot help but speculate that his early warning is because the early enrollment data and administrative costs he is seeing is ugly. He goes on to say that Aetna has about four months to figure out how to make money in the exchange market. You cannot say that he didn’t warn us. Although each state will have different results, if Aetna does not think they can be profitable in their strong market states then this does not bode well for weak markets like Ohio. The best I can hope for is the administration will have another panic attack about insurance polices getting canceled and end up telling the insurance companies that they can continue those grandfathered policies for another year.

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Variations on an All-Payer System

For some time I have been toying with a single rate solution for some of our healthcare problems with the poor and the elderly. The disparity in prices paid for the same health care service between Medicaid, Medicare, insurance companies, and uninsured patients is the definition of insanity. It is hard to believe that we actually believe we can reform health care when we keep pricing the services the same stupid way over and over again. Pricing insanity equals lots of unintended consequences. After reading a blog post on The Incidental Economist I realize that this system is called an “all-payer rate setting”. So here are my ideas:

  • All-Payer Rate Setting for the Poor
  • All-Payer Rate Setting for the Elderly
  • All-Payer Rate Setting for the High Cost Patients

All of these groups suffer from price insanity. My inner MBA say that a mutually acceptable price for a health care service exists between the Medicaid, Medicare, and the insurance company prices. The all-payer rate setting for the poor would close the gap between Medicaid, the insurance companies, and the uninsured. Hopefully this would minimize the financial impact of coverage gaps caused by Medicaid churning. Likewise the all-payer rate setting for the elderly would close the gap between Medicare, the insurance companies, and the uninsured. In this case I am referring to the elderly as older than 55 and hopefully it would reduce the impact of community rating on individual insurance group market and take advantage of Medicare pricing power. The all-payer rate setting for the high cost patients is an attempt to control or cap costs. If we combine all-payer pricing with a discount schedule based on income and family size like they have at Trihealth, we probably have a pretty sane pricing solution for the groups who have the greatest financial risk from a health care disaster. The loser in all of these cases is the hospitals, doctors, and drug companies but these are the folks who benefited from the price insanity. This is what you should expect when the U.S. total health expenditure (PPP) per capita leads the rest of the world by a considerable margin.

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Why Did So Many People Sign Up For Medicaid Through The Exchanges?

The more I learn about Medicaid the more I am puzzled why so many people signed up for Medicaid through the exchanges. With all of the churning Medicaid causes I doubt the people who are already familiar with Medicaid are thrilled that they are signed up again. Despite the web site problems they came in droves. I suspect they were hoping for free health insurance and got Medicaid instead. That has to be disappointing. It is the old bait and switch routine. So the sales technique we find reprehensible for used car dealers is okay for government health exchanges? So now we are left with the question, how many of these Medicaid signees are actually benefiting from Medicaid expansion or are most of the Medicaid signees benefiting from better health care in name only?

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Fixing The Affordable Care Act Requires Us To Ignore The Sunk Cost Fallacy

Over the weekend I was amused listening to the Plant Money podcast, Dear Economist, I Need A Date.  On the show they had the economist and author, Tim Harford, using economic theory to give love advice. While chuckling at his advice I was struck with the idea that most of the proposed fixes to the Affordable Care Act requires us to ignore the Sunk Cost Fallacy. For those who are unfamiliar with the concept of the Sunk Cost Fallacy, here is a nice synopsis from The Skeptic’s Dictionary.

When one makes a hopeless investment, one sometimes reasons: I can’t stop now, otherwise what I’ve invested so far will be lost. This is true, of course, but irrelevant to whether one should continue to invest in the project. Everything one has invested is lost regardless. If there is no hope for success in the future from the investment, then the fact that one has already lost a bundle should lead one to the conclusion that the rational thing to do is to withdraw from the project.

To continue to invest in a hopeless project is irrational. Such behavior may be a pathetic attempt to delay having to face the consequences of one’s poor judgment. The irrationality is a way to save face, to appear to be knowledgeable, when in fact one is acting like an idiot.

The Affordable Care Act supporters and a majority of the people in the United States would like the Affordable Care Act to be fixed despite the fact that most of them acknowledge that the www.healthcare.gov website and those narrow network insurance plans look like hopeless investments. The idea that we cannot keep our existing health care system of doctors and insurance plans with these new plans begs the question whether this investment has no hope for success even with additional tweaks. The problem is simple. I can understand why insurance companies want me as a healthy person to buy their plans. I do not understand why I should. If we remember one of the important characteristics of health care expenditures in the United States, half of all health care costs in the US is concentrated in only 5% of the population. If you are not part of that 5% and you are financially disciplined, the odds of you being successful with self-insurance is pretty good. All you are doing is copying the same plan the insurance companies are using to pay for the 5%. The high cost of the ACA insurance premiums becomes  a very powerful incentive for self-insuring. If you are successful with your self-insured health care plan, you get to keep the rewards.The Sunked Cost Fallacy reminds us that it  is irrational to continue to invest your money into the Affordable Care Act web site and health care plans and hope that things will get better. Here is an old graph from the Kaiser Family Foundation for you to ponder.

concentration-of-health-care-spending-in-the-u-s-population-2010-healthcosts

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Things That Make Me Go Hmm… Did Sen. Coburn lose his cancer doctor because of Obamacare?

I was reading Sarah Kliff’s article, “Did Sen. Coburn lose his cancer doctor because of Obamacare?”, explaining the circumstances why Senator Coburn’s long time cancer doctor was not covered by the Affordable Care Act and I started to wonder where we went wrong. I really like the idea expressed by the President that most of us would be able to keep our doctor and insurance plan while at the same time help the uninsured get coverage. This was a win-win situation. Now we find that Senator Coburn’s experience is far from a win-win situation. This was not supposed to happen.

For the moment let us assume that the President honestly believed that the Affordable Care Act would allow most of us to keep our doctor and insurance plan. This was both good politics and policy. The Affordable Care Act was passed in 2010 and according to Sarah’s reporting that was “how insurance markets worked before the health care law and how they work after it.” So if the President wanted people like Senator Coburn to keep their doctor we have to ask the question, why didn’t anyone try to minimize this problem in the last three years with some good policies? In the not to distant past we used to have a class of bureaucrats who could turn almost any dog piece of legislation into a workable policy. Where have all of the good bureaucrats gone? Did they look at the Affordable Care Act and give up? Three years out of the starting gate and all we have to show for it is a lousy web site and a bunch of narrow network insurance plans. When do we start winning?

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I Think I Know Where the Uninsured Have Gone

One of my favorite writers, Megan McArdle, asked the question recently, “Where Have All the Uninsured Gone?” It was an interesting piece to me because it chipped away at the philosophical underpinnings of our understanding of the uninsured. It must have struck a nerve with a lot of people since it had 1976 comments at last count. In that piece she says,

“Somewhere between 65 percent to 90 percent of the 2.2 million folks who bought insurance on the exchanges through late December seem to be people who already had insurance.”

One of the primary goals of the Affordable Care Act was to dramatically reduce the number of uninsured who were freeloading on the health care system. The idea was that they either belonged in Medicaid or they should be buying one of the affordable plans available through the health exchanges. This looks as American as apple pie. What could go wrong?

The problem is that health insurance must be marketed like it was a business. The Affordable Care Act took the path less traveled and that has made all the difference. The ACA focused on expanding subsidies and free health care. They assumed that the uninsured wanted health insurance and had the money to pay for it. The enrollment numbers makes it look like the Affordable Care Act supporter either forgot to talk to the customer or conveniently ignored what they said. The uninsured may care about health care but they definitely do not like paying for health insurance.

Then the Affordable Care Act supporters committed the ultimate marketing faux pas and ignored what the paying, healthy customers wanted. The problem is that un-subsidized health insurance costs are so much higher than last year that your best customers are freaking out. Freaked out customers is bad for business and encourages talk about the collapse of the health exchanges. Now we have a situation in which the uninsured are questioning why they should make the effort to acquire a health insurance through the exchange if the exchange is doomed to fail. The sad truth is that the people who are getting free or heavily subsidized insurance are not nearly as important to the insurance companies and the exchanges as the customers they can make a profit on. It is this profit that pays for the subsidies to the poor! If health insurance is a business then you must have a clue what the paying customers want and what they are willing to pay for.   I can’t say I didn’t warn you. The only people who care about health insurance and health exchanges is the middle class. Last year I wrote in Health Care Reform for the Forgotten Man:

Health insurance was a product created for the middle class and paid for by the middle class. The rich do need it and the poor do not have the money to buy it. Do we really want to go down the path in which health care insurance reforms do not make sense to the man and woman who are ultimately paying the bill? Are we really asking the most price sensitive people in the health insurance market to bear a disproportionate share of society’s burden for un-insurables and hope that it turns out okay?

Health insurance for the uninsured is much ado about nothing. All the poor want is someone to pay their hospital bills and they already have that. They just do not care about health insurance!

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Will we get the 60 year old gym rats?

“You talkin’ to me? You talkin’ to me? You talkin’ to me?” That is what I thought when Larry Levitt asked the question, “Will we get the 60 year old gym rats?” over at Wonkblog. He went on to make the point that the “health mix of ACA enrollment is much more important than the age mix”. His comment hit home since my wife and I turn 60 this year and probably qualify as gym rats. Her gym is riding horses while my gym is spread between riding, calisthenics, and running. Since I make most of the meals from scratch, we eat healthy. The last time we checked our cholesterol it was good. It is not surprising that we rarely go to the doctor. As I have said before, we are the perfect customer for an insurance company. Considering that we would pay two to three times what a millennial would pay for their health insurance on the exchange, the 60 year old gym rat is an important marketing segment to get right. What is amazing is that the health wonks have finally realized that they should not chase off their best customers if they want the exchanges to work! The Affordable Care Act supporters have arrogantly declared for some time that healthy people do not matter. It was a trade off the Affordable Care Act supporters were willing to make if they could extend health insurance to more people. Now they are getting nervous. They need a lot of people who are paying more than they are taking out for this scheme to work. They committed a massive marketing faux pas and are beginning to realize that people like me continue to look at health insurance as a financial decision that is not much different than the decisions we make for auto or home insurance. If you want us to buy then you must use a different marketing strategy than you would use for a person with a pre-existing condition. If you want the exchanges to work, you have to at least act like you are talking to me. They failed marketing 101. In our case the prices for health insurance on the exchanges tell us to opt out. If you want my business, show me the money!

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Some Helpful Information About Medicare and Assisted Living

I got a nice email from Laura at AssistedLivingToday who pointed out a broken link on my site and provided me with some helpful information about Medicare and elderly health care options. Since I have not looked into assisted living options I checked out her site. It was easy to use but it did not provide any recommendations for my zip code. So I searched the internet assisted living facilities near my zip code and came up with a few assisted living recommendations.

Here are her recommendations. The first link goes to eHealth Medicare, a division of eHealth, where you can shop for Medicare supplemental insurance. The second and third links go to a guide and Medicare cost information at www.medicare.gov. The last link goes to a doctor finder that looks a little easier to use than the one provided by my insurance company. Fortunately I do not need any of these sites. Now if I can keep it that way for the next five years.

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Medicaid, the Free Lunch, and the Disintegrating Foundations for the Affordable Care Act

A couple of months ago before President Obama suspended the employer mandate, my local newspaper had an article supporting Medicaid expansion in Ohio. In that article the journalist interviewed a couple of supporters including a local business man who ran a janitorial firm and a hospital administrator. The local businessman wanted the Medicaid expansion because it would lower his employer mandate penalty. Since he had a significant number of employees who qualified for Medicaid and was planning on paying the employer mandate penalty, his penalty would be smaller with the Medicaid expansion. The hospital administrator wanted Medicaid expanded because some of the uncompensated care patients would be eligible for Medicaid. The businessman want Medicaid expansion to lower his penalty and the hospital administrator hopes that it will reduce hospital costs. To make matters worse “a new Harvard University study finds that enrollment in public program significantly increases enrollees’ use of emergency departments”. Since hospitals and doctors have been complaining that they are losing money on Medicaid patients, an increased amount of Medicaid services should create bigger losses.  The elephant in the room is whether Medicaid will improve health care outcomes for the poor. In hindsight it is interesting to note that the journalist did not make the argument that the Medicaid expansion was going to improve health care for the poor.  One of the architects of the Affordable Care Act, Jonathon Gruber, makes that argument at Wonkblog while trying to downplay the increased health care cost problem.

“I would view it as part of a broader set of evidence that covering people with health insurance doesn’t save money,” says Jonathan Gruber, a health economist at the Massachusetts Institute of Technology, who has also studied Oregon’s Medicaid expansion but is not affiliated with this study. “That was sometimes a misleading motivator for the Affordable Care Act. The law isn’t designed to save money. It’s designed to improve health, and that’s going to cost money.”

One of the shinning lights of the Affordable Care Act has been the Medicaid expansion. The Medicaid expansion was the proverbial “free lunch” which for relatively little cost expanded and improved health care for the poor. It sounded too good to be true and it was. Affordable Care Act supporters might say that they expected people would be unhappy when they found out that they could not keep their health plans or doctors but they appear to be totally unprepared for the Medicaid expansion being bad for hospitals finances. In a sense we are expanding the free health care clinic market so we should expect similar reactions by the patients and health care outcomes. If free health care clinics is such a good idea, why are we expanding Medicaid? If we assume that hospitals are losing money or breaking even on Medicaid patients, then expanding Medicaid will be bad for hospital finances. It was assumed that changing patients from uncompensated care to Medicaid would be good for hospital finances. If an increased number of Medicaid visits impacts hospital finances then the hospitals will attempt to shift their costs to other patients. This is bad news for insurance premiums. State and federal Medicaid administrators should be getting pretty nervous that the Medicaid expansion might cost 40% more than expected. The Oregon Medicaid expansion study showed patients made 40% more trips to the emergency room and shattered hopes that they would start using primary care physicians for their routine health issues. Mr. Gruber might dismiss saving money as a misleading motivator for the Affordable Care Act but the Medicaid expansion is shaping up to be a disaster for hospitals, insurance premiums, and Medicaid budgets.

As Hillary Clinton might say, “What difference at this point does it make?” I doubt the Affordable Care Act will implode in 2014 since there are so many safety nets but it will be a painful subject. After the election it is likely that both sides will try to reform health care in 2015. The Affordable Care Act seems to have created more problems that it has solved. The biggest problem for the Affordable Care Act is that over half of the people in the country believe that number one issue for health care reform is that it should make their health care more affordable and it hasn’t. Their costs have gone up. When it comes to reducing health care costs the Affordable Care Act has transformed that strange coalition of big government and insurance companies into a trust problem with the American people. The cost and trust problems are cascading. The Affordable Care Act supporters sold the Medicaid expansion as a way to reduce uncompensated hospital care and cost shifting. The expansion was supposed to be an easy win-win for improving cost and trust. Now it looks like that may not be true.  It looks like more of the same old promises. Maybe by 2015 we will have some accurate cost data and smarter administrators that will allow us to make smarter decisions about expanding Medicaid and improving health care outcomes. Maybe a little less of the big government view and a little more state government and free market view will reduce the risk and improve the decision making. The old way does not seem to be making health care better and a single payer system would be far more disruptive than the current mess. The two lessons I hope we have learned from the Affordable Care Act is that the cost does matter and any idiot can expand health care if they are allowed to ignore health care costs.

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Affordable Care Act Loser #7 – Health Reimbursement Account

Last week my boss informed me that our Health Reimbursement Account(HRA) would be phased out at the end of 2014 and he said that the most recent interpretation of Affordable Care Act by the Department of Labor had effectively outlawed the HRA. He and our HRA administrator discussed the options and do not have a clue what they were going to replace it with in December 2014.  As of right now we do not have a company supported health care plan for 2015. Our present plan is a stand-alone health reimbursement arrangement in which I am reimbursed for paying my health insurance premium. It is a very simple, portable health care plan that worked really well before the Affordable Care Act. Since the company is small enough to be exempt from most of the Affordable Care Act I was hopeful that I could continue the HRA in the future. It is truly ironic that the people who voted for the Affordable Care Act seem to be the last people to figure out that they have condemned some of us to health care hell. Abandon hope all ye who enter here.

The sad part is that the demise of the HRA did not have to happen this way. As an example the Public Health Services (PHS) Act Section 2711 requires a health insurance issuer to not establish lifetime limits on the dollar value of benefits for any participant or beneficiary. I can see how this requirement should be applied to my insurance company, Aetna, so I am not surprised that my insurance company has already complied. This was one of the positive contributions of the Affordable Care Act that had bipartisan support. I do not understand why our bureaucrats are applying this restriction to a HRA used to purchase a health insurance policy that complies with the requirement.  The Department of Labor has grudging accepted that a flexible spending plan can be used to pay health insurance premiums if it provides preventative care as required by PHS Act Section 2713 at 100% without cost-sharing, too. Huh? Since my insurance plan already complies with both of these requirements, isn’t this redundant? Zane Benefits thinks that a new plan they call a limited Healthcare Reimbursement Plan (HRP) can be constructed to comply with the Department of Labor requirements. All of this sounds so iffy I have to ask the question why did the Department of Labor decide to screw with health insurance that was working?  It sure looks like it is deliberate malfeasance. Here are two alternatives my company is probably looking at for 2015.

  1. In an effort to avoid unnecessary employee turnover they might opt to give everyone a $5,000 raise and tell us to get our health insurance from the exchange. $5,000 was the amount they contributed to the HRA last year.
  2. As a company with less than 50 employees it is not obligated to provide me with health insurance. They might opt to drop the HRA with no change in employee compensation.

In this strange as hell health care world the “raise” option is actually less attractive because the subsidy is greater than what the raise provides after you take out the taxes. A raise will likely push my income above the 400% FPL so I will not receive a subsidy. Since I do not qualify for a subsidy and my monthly premiums will go from about $407 to over $886 per month(2014 rates) for the lowest cost bronze plan, my out of pocket costs will zoom from zero to about $6,000 a year even when I account for the raise. The second option qualifies me for a subsidy and my total out of pocket costs is just $4,800. In 2015 I have the option to pay an additional $6,000 or $4,800 for heath insurance I paid zero for in 2013. Either way I lose. The only way to minimize my loses is if I can keep the HRA just the way it was.

So for a person who went without health insurance from 1998 to 2008 it looks like there is a very good chance that my wife and I will roll the dice and go without health insurance in 2015. Until the Affordable Care Act was passed we were part of the solution. We had health insurance and we were healthy. In fact we were the perfect health insurance customer. We never made a claim.  Now we are part of the problem in this strange, strange health care hell.