Exchanges Will Raise U.S. Health-Care Costs

... Understanding Health Insurance Exchanges

The designers of the health-care exchanges have also assumed that consumers, by shopping for the best deal, will drive down premiums. However, a major flaw in the design of insurance subsidies will insulate almost all of the initial customers -- the estimated 20 million subsidized households -- from concern about how much their policies cost.

Now, it’s not supposed to work this way. Only those Americans who don’t get insurance at work and who have income that puts them between 100 percent (138 percent in Medicaid expansion states) and 400 percent of the federal poverty level are eligible for exchange subsidies. As income rises within this bracket, the subsidy shrinks. But in practical terms, everyone who is subsidized has an infinite subsidy that will make them insensitive to premium levels.

How can that be? Let’s take an example. A family of four at 138 percent of the poverty level ($32,499) has its premium capped at 3.29 percent of income or $1,071. The rest is subsidy. So, if the cost of a silver plan is $10,000, the subsidy for this family is $8,929. A family at 400 percent of the poverty level ($94,200) has to pay up to 9.5 percent of its income for a plan, or $8,949. So the same $10,000 premium carries a subsidy of only $1,051.

Insurer’s Perspective

But now look at those two families from the insurer’s perspective. A $10,000 plan already costs more than the maximum amount either family would pay. If the insurer raises the premium to $10,001, both families get $1 in additional subsidy. If it raises premiums to $11,000, both families get $1,000 in additional subsidy. In other words, no matter how much an insurer raises rates, a subsidized household pays zero more.

The second-cheapest silver plan is the benchmark for setting subsidies. How can insurers push up premiums artificially on this plan when there are platinum, gold and bronze plans also for sale? Again, easy. By law, these other plans differ from silver primarily by the amount of beneficiary cost-sharing. So the insurer can simply price a silver plan as high as possible, and then adjust the premiums for the other plans accordingly. If these prices end up being too high to attract any actual customers, who cares? Why would an insurer lose the opportunity to share 20 million price-insensitive customers just to compete for a smaller number (the Congressional Budget Office estimates 4 million by 2016) of low-profit price-sensitive ones?...

Excerpted from Exchanges Will Raise U.S. Health-Care Costs - Bloomberg

Are We Headed This Way? On Eve of ObamaCare, Britain's NHS Needs Political Therapy

This is from Philip Klein writing at the Washington Examiner highlighting how insignificant the individual is in the NHS's decision making.  Bureaucracy at its worst: 

... The drawback of such an approach is that because the system prides itself on creating equity by putting the needs of society as whole ahead of any given patient, it means that the needs of individuals often get lost in a sea of managers, administrative targets and rationing decisions.

“The individual is essentially a supplicant,” said Philip Booth, program director at the Institute of Economic Affairs, a free market think tank in London. “He's irrelevant to the whole system as far as the National Health Service is concerned.”

Individuals cannot get tests within the NHS if its doctors don’t approve them. The National Institute for Health and Care Excellence (whose acronym NICE is a source of irony to critics), a board of experts that recommends treatments based on cost-benefit analyses, can deny cancer patients drugs if it concludes that a short extension of life isn’t worth the expense. In a further bit of irony, NICE was created in the 1990s to foster equality within the system because certain drugs were more available in some regions of the country than others.

The NHS is rife with examples of centralized policies producing real-world results that range from tragic to absurd.

For instance, the former Labor government responded to complaints about waiting times at hospital emergency rooms by instituting a target for NHS hospitals to treat patients within four hours. Under pressure to meet these targets, the Daily Mail reported in 2008, hospital administrators let seriously ill people wait in ambulances for hours outside the hospital so that they weren’t technically counted as patients. As a result, the ambulances weren’t available to answer emergency calls.

One of the more recent scandals has its roots in the 1990s, when the NHS established a set of best practices for providing care to patients at the end of their lives. Known as the Liverpool Care Pathway, it has since been applied to hundreds of thousands of people. Last November, the Mail reported, an independent review found that 60,000 people were put on the pathway without their consent and a third of the time families weren't even informed. Thus, they had no idea that their close relatives were removed from life support equipment and were being denied nourishment. In extreme cases, nurses shouted at relatives who attempted to give their dying loved ones sips of water. According to the Mail, hospitals were given incentive payments for putting more people on the pathway - effectively, the government was providing bonuses for ending people's lives earlier. ... 

Divorce Attorneys Will Love ObamaCare

This is from Jacqueline Leo writing in the Fiscal Times:   

Someone in the White House thinks marriage is a bad idea. 

Earlier this year, TFT showed that a high-earning couple, each with incomes of $400,000, would save about $27,000 annually if they divorced and filed their taxes separately. Now we learn that the Affordable Care Act, a.k.a. Obamacare, is dangling a similar fate in front of middle income earners.

A typical 40-year old couple with two kids could save $7,230 a year by divorcing if one partner earns, say, $70,000 and the other $23,000. Sixty year-olds earning $62,041 each a year would save $11,028 annually if they broke up.

This analysis below, written by Tom Blumer, a blogger at PJ Media, points out the unintended consequence of what Obamacare will do to marriages and families. He used this calculator from the Kaiser Family Foundation to run the numbers. 

THE BABY BOOMERS 

In January 2010, two months before Obamacare’s passage, Robert Rector at the Heritage Foundation gave the impact a name: the “wedding tax.” To illustrate, let’s start with the 60-year-old married couple with no children.

If they have identical earnings totaling $65,000, which will usually net down to $50,000 or less in adjusted gross income after all income and payroll taxes, their Obamacare exchange Silver Plan premium next year with the same earnings will be $16,382, or about one-third of what used to be their take-home pay. 

What can this couple do? Well, they could decide to earn a few thousand dollars less, which will negate the five-figure premium hit. Encouraging ordinarily willing workers to put in less effort isn’t good in any economy, but especially not this one. But if either spouse’s earnings are unpredictable or hard to precisely track, they could still “mess up” and get socked with a premium they can’t afford. 

The “easiest” solution would be to avoid the “wedding tax” entirely by getting divorced while still living together. Here’s what would happen if they make that choice:

Instead of facing an exorbitant premium increase once their combined earnings hits $62,041 if they were to stay married, each cohabiting adult can earn up to $45,960 before Obamacare’s “tax credit”-free premiums kick in. Their annual after-tax savings at age 60 if they shack up and keep their individual earnings between $31,021 and $45,960 will range from $7,650 to over $11,000. The annual savings will slightly increase every year until Medicare kicks in at age 65. That kind of money can buy a lot of gifts for the grandkids. 

But the grandkids will also face the prospect of seeing their moms and dads divorce because of Obamacare. 

THE GEN X’ers 

Let’s look at the situation of a 40-year-old couple with two children. The spouses’ annual earnings are $70,000 and $23,000, respectively:

The couple’s annual unsubsidized premium while married is $11,547 (“tax credits” disappear at $92,401 for married couples with two children). But if they divorce and shack up while giving custody of both children to the lower-earning spouse, their combined annual premiums, at $4,317, will be more than $7,200 lower. That’s over $600 a month. As was the case in the previous example, the savings from divorce will gradually increase every year. Those parents will be torn between doing what Western civilization has considered morally right for millennia and their children’s financial well-being. 

(There may be contrary examples, but Blumer was unable to find a single instance where staying married led to a lower net health care premium compared to divorcing and living together.) Clearly, many couples who are considering marriage, especially after several years of seeing formerly married couples regress to cohabiting, will look at Obamacare’s “wedding tax” and say, “Never mind.” The effect on society will be incalculable, and certainly not for the good.

Labor Force Shrinking, Disability Claims Rising

In the early 1980s the distressing persistence of high unemployment in Europe was labeled "Eurosclerosis." Some now wonder whether "Amerisclerosis" is the right word to describe America's labor market. It is true that unemployment has slowly dropped from a peak of 10 percent in late 2009 to 7.3 percent at present. But this decline overstates the health of the jobs market, says The Economist.

• The labor force participation rate, the share of the working-age population either working or looking for work, has plunged from 66 percent in 2007 to 63.2 percent in August, a 35-year low.
• Participation rates have declined sharply for "prime-age" men and women between ages 25 and 54, and risen slightly for those ages 55 and over.

More generous unemployment benefits tend to elevate participation rates since workers must be looking for work to qualify. With disability insurance (DI), however, the opposite applies: to qualify applicants must generally demonstrate that they cannot work. In theory, disability and unemployment should not be correlated -- and from 1966 to 1985 they were not.

But in 1984 DI eligibility criteria were eased so that applicants could qualify based on a combination of conditions rather than just one. Since then, highly subjective conditions such as back pain and mental illness have grown to account for most DI beneficiaries, and claims have become more correlated with unemployment.

• That strongly suggests that many workers find a way to qualify for DI when other benefits have been exhausted.
• Between 2007 and 2012 the number of applicants for DI shot up from 11.2 per 1,000 working-age people to 14.
• Unpublished research by Mary Daly of the San Francisco Federal Reserve, estimates that this rise in applications equates to 2.6 million people.

Europe may have useful lessons here. In the 1970s DI became more generous in the Netherlands and caseloads exploded. Had the increase in disability numbers shown up in unemployment instead, the Dutch unemployment rate, which was 6 percent in 1980, would have been 13.4 percent. The crushing expense of DI eventually forced the Dutch government to make reforms about a decade ago, primarily by making employers bear more of the expense of employees who end up on the system. Since then, caseloads have dropped. America, whose DI trust fund is expected to run dry in 2016 based on current trends, should show similar resolve.

Source: "The Missing Millions," The Economist, September 28, 2013, summarized by National Center for Policy Analysis.  

Northern California Buyers Experiencing Price Shock over ObamaCare Premiums

This is from the San Jose Mercury News, Tracy Seipel:

Cindy Vinson and Tom Waschura are big believers in the Affordable Care Act. They vote independent and are proud to say they helped elect and re-elect President Barack Obama. 

Yet, like many other Bay Area residents who pay for their own medical insurance, they were floored last week when they opened their bills: Their policies were being replaced with pricier plans that conform to all the requirements of the new health care law. 

Vinson, of San Jose, will pay $1,800 more a year for an individual policy, while Waschura, of Portola Valley, will cough up almost $10,000 more for insurance for his family of four. … 

"There's going to be a number of people surprised" by their bills, said Jonathan Wu, a co-founder of ValuePenguin, a consumer finance website. "The upper-middle class are the people who are essentially being asked to foot the bill, and that's true across the country." … 

"I was laughing at Boehner -- until the mail came today," Waschura said, referring to House Speaker John Boehner, who is leading the Republican charge to defund Obamacare. 

"I really don't like the Republican tactics, but at least now I can understand why they are so pissed about this. When you take $10,000 out of my family's pocket each year, that's otherwise disposable income or retirement savings that will not be going into our local economy." … 

According to data compiled by ValuePenguin, Santa Clara County, San Mateo County, San Francisco as well as Santa Cruz, Monterey and San Benito counties have some of the highest health insurance rates in the state. Covered California officials say that in addition to the higher cost of living here, more hospitals in the Bay Area are owned by hospital groups that can demand higher rates because of the lack of competition. ...

Retirees Need $360,000 to Cover Medical Costs Post Age 65 (per Couple)

This is from the Employee Benefit Research Institute:

The estimated savings that new Medicare beneficiaries will need to cover the costs of health care in retirement continues to drop as the growth of projected future health premiums slows, according to a new report by the nonpartisan Employee Benefit Research Institute (EBRI).

EBRI found that retiree health care savings targets declined from 6 percent and 11 percent from 2012 estimates for a person or couple age 65. For a married couple, both with drug expenses at the 90th percentile throughout retirement, who wanted a 90 percent chance of having enough money saved for health care expenses in retirement by age 65, targeted savings fell from $387,000 in 2012 to $360,000 in 2013.

Because women have longer life expectancies than men, they generally need more savings than men to cover health insurance premiums and health care expenses in retirement post-65. EBRI found that in 2013, a man would need $65,000 in savings and a woman would need $86,000, if each had a goal of having a 50 percent chance of having enough money saved to cover health care expenses in retirement. To achieve a 90 percent chance, $122,000 would be needed for a man and $139,000 would be needed for a woman. ... 

Expect More Unemployment

Because of ObamaCare, that is. This is from Casey Mulligan in the New York Times (Hat Tip John Goodman):

Work incentives for low-wage workers are eroded more than 10 percent of their compensation over the next couple of years, compared with 5 percent for midwage workers. Before the Affordable Care Act, the compensation for each additional hour of work by a low-wage worker, as with midwage workers, was split 50 percent, on average, for employee and 50 percent for the government. Under the law, it will be 39-61.

How ObamaCare Wrecks the Work Ethic

This is from Casey Mulligan in the New York Times: 

A new wave of redistribution will arrive in America on Jan. 1, primarily thanks to the Affordable Care Act. The president's health-insurance plan forces those who hire, work and produce to pay full price for health care, while creating generous discounts for practically everyone else.

This second redistributionist wave of the Obama era will follow a first wave of tax hikes, additional unemployment benefits, food-stamp expansions, waived work requirements for welfare benefits, etc. These measures were supposed to be temporary, intended to help people cope with the recession. The recession officially ended in mid-2009, but many of the administration's measures continue.

Regardless of whether redistribution is achieved by collecting more taxes from families with high incomes, levying employment taxes on businesses, providing more subsidies to families with low incomes, or all of the above, an essential consequence is the same: a reduction in the reward for working. In a National Bureau of Economic Research paper issued in August, I quantify the combined effect of the two redistribution waves and higher payroll taxes on the financial reward for working.

 

The chart nearby shows an index of marginal tax rates for non-elderly household heads and spouses with median earnings potential. The index, a population-weighted average over various ages, occupations, employment decisions (full-time, part-time, multiple jobs, etc.) and family sizes, reflects the extra taxes paid and government benefits forgone as a consequence of working.

The 2009-10 peak for marginal tax rates comes from various provisions of the "stimulus" programs in the American Recovery and Reinvestment Act of 2009 and the extension of unemployment benefits to 99 weeks in some states. At the end of 2012, the marginal tax rate index reached its lowest value since 2008: 43.9%. A little over a year later (January 2014), the index will be close to 50%, driven up by the expiration of the payroll tax cut and multiple provisions of the Affordable Care Act. The ACA employer penalty, delayed until 2015, adds more than a percentage point in that year alone, while other ACA provisions strengthen their disincentives for the various reasons cited above. ... 

Obamacare phones offered to health insurance buyers

This is from Alex Pappas  at The Daily Caller: 

Say hello to Obamacare phones.

In Tennessee, those shopping on the new health insurance co-ops could end up with more than just some health insurance. They might even walk away with a free smartphone.

The Nashville Business Journal is reporting that Community Health Alliance, Tennessee’s Obamacare health insurance co-op, is using the prospect of a free phone to encourage folks to enroll:

Community Health Alliance, Tennessee’s health insurance co-op, is running a unique promotional program to drive enrollment in its plans for sale on the exchange: health insurance in exchange for a smartphone.

As part of its Community Health Connection Program, CHA is offering qualified individuals an LG Lucid 2 4G smart phone (or equivalent model), a phone plan and tech support, included as a cost of their health plan benefits. The phone plan includes unlimited talk, unlimited texting and 1.2GB of data. 

The idea is to make it easier for providers and patients to stay connected, but it will also help CHA keep track of its member population, many of whom are expected to be new to the health insurance market.

“Members will have the phone number for their CHA representative pre-loaded in their phones and can quickly get answers to questions about their policies,” said CHA Chief Operating Officer Judy Slagle in a news release. “At the same time, we will be able to connect with our members by phone, by email or by text almost instantly with health tips and reminders.”

The co-op received a federal loan of more than $73 million.

PPACA Exchange Flops

Insurance Manager: 'We Have Yet To Have Someone Successfully Register'...

TV Station Can't Find Anyone Who Signed Up...

Some state websites see less than 1% signup rates...

Louisiana: Zero Enroll? 

CA says 5M hits; actual number 645K...

Is ObamaCare Designed to Fail?

This is Joseph Antos writing in the American (Link):

... The navigators, considered by the Department of Health and Human Services (HHS) to have a “vital role in helping consumers,” will only have 20 hours of training on the mechanics of applying for insurance with little or no emphasis on the different policies that are available. Many applicants are likely to enroll this fall in insurance plans they don’t understand, only to find out in January, when the coverage begins, that they made an expensive mistake. 

In addition, sensitive personal information is at risk of being compromised, and there is no assurance that HHS can prevent it. Critical information, including social security numbers and details of employment, must be reported on the exchange application. Many applicants, unaware of the potential for fraud, will give that information to the person helping them complete the form. 

The federal government, which will run exchanges in 34 states, faces similar problems. HHS has admitted that it is behind in testing its data systems, and the Government Accountability Office (GAO) warned that exchanges may not be ready in all states by October. 

No one should be surprised when widespread problems are reported during the first few weeks of exchange operation. Oregon announced that its online insurance exchange will not be made available to the public until at least the middle of October, giving the state more time to iron out problems. California has warned that its online enrollment process could be delayed. Other states are likely to follow suit when it becomes clear that computer systems are not ready for prime time. 

The federal government, which will run exchanges in 34 states, faces similar problems. HHS has admitted that it is behind in testing its data systems, and the Government Accountability Office (GAO) warned that exchanges may not be ready in all states by October. 

The administration has also relaxed other requirements of the ACA as technical problems mount. In a July 5 regulation, HHS gave the 16 states setting up their own exchanges an additional year to implement procedures to verify an applicant’s income and employer health insurance status. The data “hub” that is supposed to give states the necessary personal information from eight federal agencies (including the Internal Revenue Service and Homeland Security) will not be ready in time. HHS’s recent one-week delay in signing contracts with health plans to be sold on the federal exchanges shows that the implementation process will extend well beyond October 1. 

Regardless of who runs the exchanges, they will all have problems getting up and running. Establishing an insurance exchange is “highly complex . . . unprecedented and it’s not going to be smooth,” according to Kevin Counihan, chief executive of Connecticut’s health exchange who helped implement Massachusetts’s health reform. “This is a two- to three-year implementation we’re doing in 10 months. I wish I had a year.” 

The bottom line: individuals will be able to purchase insurance through the exchanges if they are persistent. Those who can wait a while are likely to have an easier time of it. Given the complicated rules and conditions that must be met to buy insurance on the exchanges, this will never be a simple process. ... 

Do you prefer Obamacare or the Affordable Care Act?

Heaven help us: