Last week on the Health Affairs Blog I read the post, Implementing Health Reform: Health Reimbursement Arrangements And More, and it pissed me off. As a healthy person with a healthy family I hoped the unintended consequences of the Affordable Care Act would not affect me. Here is the part that bothered me.

The FAQ clarifies that this approach is not possible under section 2711.   The agencies intend to issue further guidance on the issue, but have concluded that stand-alone HRAs used to purchase individual coverage will not be considered to be integrated coverage that complies with the annual dollar limit requirement.  Indeed, if employees are offered an HRA and group coverage, but decline the group coverage, the stand-alone HRA coverage will violate section 2711.  The FAQ does permit amounts accumulated in a stand-alone HRA prior to January 1, 2014 to be drawn on after that point if certain conditions are met.

After I read the FAQ I realized that my days of benign neglect are over. I also read the Federal Register Section 2711. It appears that the Department of Labor opted to for an interpretation that makes HRAs illegal. FAQ #11 states that: "The Departments intend to issue guidance providing that for purposes of PHS Act section 2711, an employer-sponsored HRA cannot be integrated with individual market coverage or with an employer plan that provides coverage through individual policies and therefore will violate PHS Act section 2711." As a person who is presently using a HRA to pay for my health expenses I strongly disagree with their interpretation and have started the process of fighting their decision. My first step is to ask the Department of Labor for clarification on two questions. It should be interesting how far I will be willing to go with this issue.

Q#1. Can a firm with less than 50 employees continue to offer HRAs since these firms are specifically exempt from the regulations?

Q#2. I use my HRA to purchase health insurance in the individual insurance market. Although my health insurance is a grandfathered plan, my insurance company is making a good faith effort at complying with Section 2711. I discussed our future health care options at our small business and we have two options, a HRA or nothing. I think they would prefer nothing. Can you explain the logic why the Department of Labor prefers that I pay for my health insurance completely out of pocket versus my present arrangement with a HRA?

Let us be perfectly honest here. With this ruling it is obvious that I was much better off before the Affordable Care Act. Is this really a step forward in health care?

I made a comment on the Forbes article, “In Ohio, Obamacare to Increase Individual Insurance Premiums by 55-85%”, which reflects my objections to Obamacare as health care reform. The amount of cost attributed to “benefit expansion” in the article surprised me. I read the report last year and forgot that “benefit expansion” was a polite way to describe the additional benefits the chronically sick will get via a “Silver” plan that will reduce their out of pocket expenses.

As a person who purchases individual health insurance in Ohio and who read the Milliman report, there are a couple of issues I should highlight.

1. Ohio is one of those states in which the individual health insurance market costs considerably less than the small business or group insurance plans. My “bronze” plan through Aetna costs only $4188 per year. Compared to rates in large plans my plan is where real health care reform should be going. I would like to keep my plan just the way it is but Obamacare won’t let me.

2. The two major drivers of the individual health insurance cost increase, “benefit expansion” and “risk pool composition changes”, only benefit the “un-insureables”. I did not find any benefit expansion for the healthy in the report that my existing plan does not already have. By forcing the “un-insureables” onto the smallest market segment the individual health insurance purchasers will bear a disproportionate share of health care costs for the un-insuredables. The likely consequence of the rate increases, is that the healthy will leave the individual insurance market and rates will continue to spiral upward for those remaining in the market until the market ceases to exist. The obvious solution is that we should spread society’s obligation to care for the chronically sick over the entire population. The individual mandate was a really dumb idea for how we should pay for the chronically sick.

3. Health care reform does not exist until we can show that we have slowed down the increases in health care costs.

Ouch!

As a health care plan, Romneycare is an unmitigated fiasco. It has caused costs to skyrocket, insurance premiums to soar and nonprofit providers like Blue Cross to suffer hundreds of millions of dollars in losses.

But as a political policy, Romneycare is nearly unparalleled in Republican history. It has destroyed one front-runner’s presidential hopes (Romney’s) and helped undermine an entire presidency. For, as Barack Obama’s supporters keep reminding us, Romneycare was the precursor to Obamacare.

Romneycare a big bust – BostonHerald.com

Healthcare cost shifting is an issue that is near and dear to my heart. As a healthy person I have been practicing my form of “cost shifting” for over ten years. My health care strategy arose when I moved to Cincinnati and was unemployed. When I looked at the COBRA insurance rates and our health history, it was financially attractive for my family to go without health insurance. I did not plan to go with our insurance for so long but it worked. The two times we had major medical costs we used our “unemployed” status to negotiate lower payments. Cost shifting is not just for poor people any more!

My situation has changed over the years. Although I am now covered by a HRA at work, I still have the passion for getting the most out of my health care spending. For over twenty years while covered by a comprehensive health care plan, I exceeded my annual insurance deductible twice. Whether I was covered by insurance or not, most of my health care expenses have been out of pocket costs. So its natural that I question health care providers about costs. It is my money that is going to pay for the service. This sense that I own my health care is probably a good thing and something PPACA would like to encourage. In a strange irony, I am the type of person our health care reform needs to help drive down health care costs and the type of person PPACA wants to eliminate. I was surprised to find out a couple of months ago that the Individual Mandate and Essential Benefits provisions of PPACA take a direct aim at people like me. It seems so strange to me. How did I become the problem?

Although I have no qualms about pursuing “cost shifting” tactics as part of my health care strategy, I am confronted with a moral dilemma when it comes to “cost shifting” as a public policy. Since the primary weakness of the PPACA is in controlling health care costs, it is probably a good public policy to have a group of people with a vested interest in driving down health care prices.  On the other hand this group may be too small to have an effect on health care costs rates for the general population. The primary problem with this tactic is that the  lower rates experienced by this group may get swallowed up in “cost shifting”. Although “cost shifting” has some social benefit for the poor, it can be used by health care providers as a tactic to avoid change. I assumed that “cost shifting” with uninsured patients was a significant cost driver to health care cost growth. In today’s Wall Street Journal article, John Cogan, Glenn Hubbard, and Daniel Kessler express the view that “there is no credible evidence of a cost shift of any substantial evidence”. This would partially explain why the individual mandate has not reduced insurance rates in Massachusetts when I compared them to Ohio. Unfortunately this leaves the justification for an Individual Mandate and what constitutes “essential services” on shaky grounds. If the Individual Mandate is essential to health care reform, then it should have a significant effect on health care costs. In the case of Massachusetts, the Individual Mandate appears to have an insignificant effect. The Individual Mandate and Essential Benefits may have an effect on health care quality but I doubt anyone will presume that these quality improvements are essential to health care reform. It would be nice to have these quality improvements but they are not essential. It follows that “essential services” must be primarily linked to controlling health care cost growth. This brings me back to the same old question, “Why is the Individual Mandate and Essential Benefits necessary to health care reform if they are not lowering insurance rates?”

Here is some of the more pertinent parts of the Wall Street article.

But how strong is the evidence for this proposition? Our review of the research has found that there is no credible evidence of a cost shift of any substantial consequence, either within state boundaries or across state lines. Moreover, the new law will likely generate more cost shifting””the opposite of what its supporters would have us believe.

There are, surprisingly, few peer-reviewed studies of the magnitude of alleged cost shifting at the national level. A study conducted by George Mason University Prof. Jack Hadley and John Holahan, Teresa Coughlin and Dawn Miller of the Urban Institute, and published in the journal Health Affairs in 2008, found that so-called cost shifting raises private health insurance premiums by a negligible amount. The study’s authors conclude: "Private insurance premiums are at most 1.7 percent higher because of the shifting of the costs of the uninsured to private insurance." For the typical insurance plan, this amounts to approximately $80 per year.

The Health Affairs study is supported by another recent peer- reviewed study that focused exclusively on physicians. That 2007 study, authored by Massachusetts Institute of Technology economists Jonathan Gruber and David Rodriguez and published in the Journal of Health Economics, found no evidence that doctors charged insured patients higher fees to cover the cost of caring for the uninsured.

Where did Congress go wrong? We traced its estimates of the magnitude of the hidden tax of $43 billion per year, or an increase in family premiums by an average of $1,000 per year, to two sources””the aforementioned Health Affairs study, and a non-peer-reviewed study commissioned by FamiliesUSA, a Washington, D.C., group long known for its advocacy of greater government involvement in health care. Yet Congress simply ignored the evidence in the Health Affairs study and failed to recognize the serious flaws in the FamiliesUSA analysis.

Specifically, Congress ignored the $40 billion to $50 billion that is spent annually by charitable organizations and federal, state and local governments to reimburse doctors and hospitals for the cost of caring for the uninsured. These payments, which amount to approximately three-fourths of the cost of such care, mitigate the extent of cost shifting and reduce the magnitude of the hidden tax on private insurance.

ObamaCare and the Truth About ‘Cost Shifting’ – WSJ.com

Here is a great resource for the key issues in health care reform. Nice job Austin!

Last fall I posted slides for my talk on the challenges presented by our health care system. In preparation for giving it tonight in my community and twice more at the University of Chicago and MIT, I’ve updated the slides. In particular, I’ve inserted a bunch on market power-related issues. Go ahead, steal them, and put them to good use:

Click here for PDF version of slides

Click here for Power Point version of slides

Steal this talk | The Incidental Economist

Today I finally read the actual text of the Op-Ed piece by Laurence H. Tribe in the New York Times. As part of his justification for the Individual Mandate he actually makes the case that the health care law is little different from Social Security. Based on this association it is very small step for a person to conclude that Laurence expects the new health care law to look and act just like Social Security. Although Laurence may be comfortable with associating health care to Social Security, this is the last thing many people want to hear as health care reform. Social Security has the well deserved reputation of an entitlement that has been remarkably impervious to cost control. The idea of PPACA becoming another entitlement like Social Security is not only politically unacceptable but it extinguishes all hope of reining in rising health care costs.

For the system to work, all individuals ”” healthy and sick, risk-prone and risk-averse ”” must participate to the extent of their economic ability.

In this regard, the health care law is little different from Social Security.

On Health Care, Justice Will Prevail – NYTimes.com

A recent study by Hadley and others, which used that analytic approach, examined a sample of medical claims for uninsured individuals and projected that they would receive about $28 billion in uncompensated care in 2008. That study also examined reports by doctors and hospitals and derived a higher estimate: Their gross costs of providing uncompensated care would be about $43 billion in 2008, of which $8 billion would come from doctors and $35 billion would come from hospitals. But as the study noted, at least a portion of those costs could be offset by added payments under Medicare and Medicaid to hospitals that treat a disproportionate share of low-income patients (and by similar dedicated payments made under other federal and state programs). Another recent study found that, as a group, office-based physicians roughly "broke even" when treating uninsured patients because some of those patients paid more than the doctors would have received for treating a privately insured patient.

Introduction and Background from the CBO document, Key Issues in Analyzing Major Health Insurance Proposals.