Will Obamacare Survive? Nine Key Questions

How did it go? Unavoidably, that will be the big question come Tuesday.

But there will be much more to it than that.

A 180-Day Open Enrollment––Not a One-Day Open Enrollment

What happens on the first day, for good or bad, will constitute only a tiny percentage of the open enrollment period. Consumers will likely visit the new websites many times before they make any decisions, and that is exactly as it should be.

Many of the health plans touted as being low-cost plans are going to be very limited access plans. It won’t be easy for consumers to compare one plan’s provider network to the other. In the best of circumstances, consumers will be confused by what is being offered for some time and will have to make a major effort to make sense of it for themselves.

Let’s not forget, they will be buying something that will cost thousands of dollars––their money or the government’s––and that kind of purchase will never be as simple as going to Amazon and buying a book.

I will suggest that if the local press wants to be helpful they will waste less time asking how things went the first day and more time doing stories on the quality of the various health plans in their local communities––particularly over provider access, which will be the only major product differentiator between health insurance companies.

Will There Be Administrative Problems With the Exchanges?

There already are. And, there will be lots more.

During the last 24-hours I have been told that the information technology testing between insurance companies and the federal government, particularly around the government telling insurance companies who they will be covering, continues to be a real mess.

But whatever obvious problems there are at launch, there will likely be more problems and more serious problems behind the scenes in the lead-up to January 1, the initial problems will be worked out in a few days or a few weeks. Operational expectations are now so low for Obamacare’s health insurance exchanges a small disaster will be considered a political victory.

But It Does Matter How Efficiently the New Exchanges Launch

Some people are spinning that the administrative problems are not all that significant. After all, the real target date is January 1; the first date people can be covered.

But it does matter.

The country is so cynical about Obamacare that any more screw-ups will only add to that cynicism. The administration has been saying that the prices for the insurance plans are a lot lower than expected and that there will be plenty of good access to a wide variety of providers for these prices.

The administration hasn’t managed expectations––it is has spun them.

When people begin to see the prices they will pay and the benefits they get for those prices, many will become even more cynical (See: Benefit Shock).

If there are serious launch problems that goes to the heart of the administration’s credibility. After all, they have been telling us this would all work on time––albeit with a few “bumps.”

If people have lots of trouble and frustration trying to gain access to sites or call centers or provider lists, word will get around. If they are sick, people will run the gauntlet to get covered. If they are healthy, they won’t bother.

If only sick people show up, Obamacare is on a long walk off a short pier.

Seven Million People Signing Up Aren’t Close to the Number of People We Will Eventually Need to Make Obamacare Sustainable

We often hear that the administration’s first-year objective is to sign-up 7 million people––of which 2.4 million need to be aged 18-34, in order to get a sustainable mix.

It is estimated that about half those who could buy on the exchange, about 26 million, will be eligible for subsidies. Then there are the rest of the people who do not qualify for a subsidy but could still buy on the exchange.

Getting 7 million people out of those millions is only getting a small fraction of the people who are today uninsured or already in the individual market. That is hardly a good cross section of the available pool likely to get us enough healthy people.

There Isn’t Rate Shock?

Tell that to the 16 million people in the current individual health insurance market whose plans are not “grandfathered,” and therefore must comply on January 1 with the new Obamacare benefit and rating rules.

Everyone of them will be getting a letter before their renewal date (most renew in January) telling them their old plan no longer complies with the new rules and they will have to move to an Obamacare compliant plan for a different premium.

For the vast majority of these people there will be shock. A reporter recently called me with a letter in hand from the health plan currently insuring a 60-year-old couple. Their rates are doubling.

Many insurers are now approaching their current customers––individual and small group––advising them to change their policy anniversary date in order to avoid, for one last year, the rate shock that isn’t supposed to be happening.

No, there hasn’t yet been rate shock when states and the Obama administration have focused on promoting the second-lowest cost Silver plan. But in almost all cases, those plans are not the plans people are buying today. These are plans specially crafted for a low-income market––made up of providers willing to take the lowest reimbursements.

But a plan like you have today? The federal subsidy is tied to that second lowest plan. If you want the kind of provider network you can to expect prepare to pay a lot more, whether you are subsidized or not.

In fact, many insurance companies are only offering these cheaper network plans on the exchange and saving their traditional broad access network plans for sale outside the exchanges.

This is a legitimate strategy on the part of insurers focused on what they think will largely be a low-income population more used to a Medicaid network and worried about saving every dime they can.

But, buyer beware. Consumers need to be very thorough here. A Silver plan is not a Silver plan is not a Silver plan.

Watch-Out for January, February, and March

The real indication of just how well Obamacare was administratively launched won’t be known until after January 1. That is when patients will be showing up in doctors’ offices expecting their provider to have them in the computer system. That is when the first premium deductions will come out of peoples’ bank accounts.

Maybe more importantly, that is when the insurance companies will have to deal with an arcane thing called “adds and deletes.” That is when thousands of people’s administrative status will have to be changed every month for any number of reasons out of perhaps tens or hundreds of thousands of Obamacare names the insurance company has in their records. If there is a potential for a nasty breakdown in the connections between the exchanges and the insurance companies, it is here.

Then there are all of the people who signed up and paid a month’s premium and didn’t pay for the next month. Many very low-income people don’t have bank accounts making their ability to continue to pay their premiums a challenge. Heck, most low-income people don’t have money making it a major challenge for them to keep the insurance.

We Won’t Know if Obamacare Managed To Attract a Good Balance of Enrollees For Two Years

So, don’t call me on Tuesday and ask me if enough healthy people are signing up.

The 2015 exchange rates and health plans will have to be developed by the participating insurance companies in mid-2014 so they can go through the approval process and be put on the exchange in time for the next year’s October 1 open enrollment.

That means health insurance companies will be looking at only a few months of claims experience when 2015 rates are developed. They will know more than they know today but not enough to have a high confidence in their 2015 actuarial projections.

It won’t be until we see the 2016 exchange plans and rates that we will have a solid idea of just how Obamacare is doing toward being a vibrant and sustainable program––whether the rates will remain stable or skyrocket because we didn’t get enough healthy people signing-up.

Just How Well Obamacare Does Will Likely Vary a Great Deal From State to State
Massachusetts implemented something very close to Obamacare relatively smoothly.

But, they had more ramp-up time to get the job done and had fewer uninsured to start with.

But maybe more importantly, there was wide support for their new law not just from Democrats but also from the provider community, business, and a Republican governor.

In particular, among the “red” Republican states, there has been a steady drumbeat of criticism from political leaders. In many “red” states an overwhelming majority of the electorate just plain hates this new law. That attitude, plus a much lower level sign-up effort, because these “red” states got far less implementation and marketing money from the feds than states building their own exchange, will only hurt the effort.

That takes us back to the challenge of getting the healthy to buy in order to provide the money to pay for the sick. My outlook for these “red” states is far more pessimistic than in the “blue” states that have enthusiastically embraced Obamacare.

Will Obamacare Survive?

I don’t think it can survive without a number of major fixes.

I think these fixes are technically doable and should be politically possible. Democrats are right when they say Obamacare was built on Republican principles––at least at the chassis level. Insurance exchanges and advanceable tax credits to buy insurance, after all, have long been Republican ideas.

But to get this thing fixed, Republicans are going to have to be willing to work with Democrats to make “Obamacare” sustainable. For now, Republicans really do have a hate reaction when they hear or say that word.

Let’s hope these attitudes become more constructive. After all, this is about solving an important national problem by getting people covered.

And, if Obamacare fails the Democrats’ willingness to ever do another market-based health insurance reform bill will go down with it.

Watching them for 20 years, I have little confidence that Republicans in Congress will ever come up with a fundamental health insurance reform bill the country could take seriously as an alternative.

That means that after it became clear Obamacare had failed, it would be the Democrats who would most likely come back with another health insurance reform effort.

I doubt they would even bother to have a public option in that one.

Robert Laszewski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

28 replies »

  1. I recently lost my job and as you all know, I lost my health care too. I begin to think about ObamaCare and am wondering what other choice do I have. I am in my 30s and can’t get any Medicare or other health care benefits. Because I lost my job, I put my family’s health at risk. It’s not something I want but the choice there is very limited. ObamaCare is not perfect and has its own pros and cons. When the pros outweigh the cons, people should consider it. Some advantages like if you have some pre-existing conditions, ObamaCare still insures you so it is beneficial to people with already existing medical ailments and conditions. There are some other pros like tax credit or medicare improvement etc. To see the list of the pros and cons of ObamaCare, you may visit http://www.formosapost.com/obamacare-pros-and-cons/ for more information.

  2. Donald,

    You make some good points here, though I did have to read it twice to separate good ideas from the slightly odd ones. For example, does Obama pay ABC to make him look good? Not unless he buys ad time from them(which happens, I know). That’s the business of television: selling ads. Leaning more than a little to the left or right is only a tactic to inflame interest, attract more eyeballs, get higher ratings, and sell more ads.

    So yeah, don’t believe them, but also please don’t believe that they care whether the ACA succeeds or fails. Trying to make anything about politics look good is a profitless enterprise. The real profit is in making the situation look bad, or worse.

    I know that seems nitpicky, it is. I pick nits. You make good points, and I hate to see them disappear in the noise that inflammatory statements like “And you really don’t have to buy that new home, appliance, smart phone, computer or mattress.” create.

  3. Well that is the $64,000 question. I can tell you whatbMedicaid, Medicare and commercial insurance reimburse for a particular service. Many providers would share that Medicaid and Medicare do not cover their cost of services. Commercial insurance pays on average 120% for services to make up for the inadequate reimbursement of public payment programs. True cost may be in the eyes of the beholder. Let’s rephrase it to say, billed and allowed charges.
    Today’s employee gets a $3,000 MRI at a teaching hospital when they could get the same MRI for $800 on an outpatient radiology basis. Suppose this employee works at an employer who makes a 10% profit margin. The firm will have to sell $22,000 of goods and services to make up for the added cost of the decision for the employee to “fly first class” and use the more expensive facility. In assure you the public exchange plans won’t give the same point of service discretion to consumers. Networks will be narrow and reimbursement lower. True cost will be defined as what the consumer is willing to pay.

  4. “and socialize them to the true cost of health services,”

    How would you define the “true” cost of health services?

  5. A very thoughtful analysis. And very true. The legislation is flawed and will likely contribute as much as $1T more to the public debt between 2020-2030. You will recall that 2010-2020 was supposed to cost $800B but raise $940b according to the CBO. Much of this will come as plans start getting dinged with the Cadillac tax. Once employers start to lose their deduction for health premiums, you wont have to worry about the employer link to healthcare because they will convert to private exchanges and defined contribution models. All that said, folks, we have to start somewhere and while the legislation misses the mark, it is setting in motion important market based changes e.g ACOs, narrow networks, compliance based plan designs, and community rating. When we finally airlift the last consumer off ” $5 co-pay island” and socialize them to the true cost of health services, we will set even further changes in motion. The public exchanges will be closely regulated and the optics of double digit rate increases will not be acceptable to insurance commissioners and HHS. The only plans likely to yield low single digit trends are narrow network, aggressively medically managed PCP based health plans. Guess what? It’s exactly what Medicare needs to reduce the NPV of $50T – yes trillion, in its own underfunding. It’s going to be messy and this is a messy start. But, we all agree that this is an unsustainable trend and any economist will tell you that any unsustainable trend always ends — some times badly. BTW, the insurers are going to be fine. Only two things scare them — self insurance and a public option offered in the exchanges. It’s the first inning of a decade long ball game. Buckle up!

  6. To John Ballard:

    we probably agree on a lot of points. Group health may become like defined benefit pensions, slowly fading out without a hell of a lot to take its place other than gimmicky 401(k)s or gimmicky HRA’s.

    The people who say that Canadian or German firms do not pay for health insurance seem to forget that these firms and all the ciitzens in their countries pay very large payroll taxes and/or sales taxes for health care.

    We may not need America’s employers to provide health insurance directly, but we do need their money. If there is not a “maintenance of effort” from employers, voluntary or not, the health care sector will shrink dramatically.
    And there go most of the new family wage jobs from the last 20 years!

  7. Good points. Something tells me that this is not one of those “unintended consequences” but was one of the actuarial subtleties understood by the insurance people easily missed by congressional staffers crafting the finished product. I can’t find it now, but I came across something a few weeks ago pointing out that group insurance actually has a rather socialistic quality simply because the same premiums apply to all employees, even though those who are young and healthy are thereby subsidizing those older and close to retirement.

    Premiums broken down by age (compare life insurance, term and otherwise) are easily understood that way. And so are the exchanges. (Though I heard New York forbids age categories — interestingly the individual states still have a mixture of regs, like everything else. There seems to be nothing more than “best practices” at the national level.

    In any case, I expect the group plans to become high end amenities, something like stock options or profit-sharing, which the company furnishes only to the upper echelons. Hence the upcoming tax on luxury plans that kicks in 2018.

    As employees realize the golden handcuffs are being unlocked companies will be smart fo pay closer attention to other incentives. All this shoving people to under 30 hours to shrink the full-time workforce or avoid fines is a totally short-sighted management decision. Ask Home Depot, Best Buy, Costco and other really successful companies what happens when they treat staff and customers better and are not penny-wise and pound foolish. Some have had to learn the hard way. (And a few didn’t learn in time.)

  8. (…oops… wish this thread had an edit function) …with 20% only for administrative expenses. It’s welfare, alright. That’s what those of us who wanted actual government health care (like VA, military forces, bigger and more well staffed community clinics) or single payer (like Medicare for all) have only grudgingly had much praise for Obamacare.

    But it’s a start. We can know costs are getting under control when we stop hearing about medical tourism. A few years medical tourism was an exotic fringe, but lately it has enabled patients to go to Europe for high-end joint replacements. And last night, ABC had a feature about a company in NC, I think, that has saved millions by sending employees to Costa Rica for medical procedures to save money.


  9. Tell that to the various state insurance commissions which monitor the private sector insurance companies.
    As for welfare, the only “welfare” is the tax money applied to subsidies (not given to the people buying insurance) every dime of which is earmarked for the private sector. The Medical Loss Ration (80:20) insures that premiums collected will be applied mostly for actual medical care with 20%

  10. 1. Outlawing carriers from underwriting destroys the concept of insurance and replaces it with welfare.

    2. I view this bitter medicine more like LEECHES than antibiotics.

    Yeah, leeches, as in parasitic.

  11. “This is not true at all of the ACA. A 59 year old couple with no kids and a household income of $63,000 will face a family premium of $16,578 for a silver plan on most exchanges — and no subsidy whatsoever.”

    Bob, where’s the magic 9.5% of income rule? Does this family get a pass on the mandate penalty – sorry, tax.

  12. I have been reading for a number of years that health insurance should be uncoupled from employment.

    There are many defects in an employment based system — i.e. job lock, COBRA disasters, shabby treatment of part timers, wage suppression, etc.

    And I deny none of them.

    But any transition has got to deal with the fact that most group insurance is community rated. Smokers and the ill and the middle aged are assessed the same premium as anyone else. The company gets a group rate.

    This is not true at all of the ACA. A 59 year old couple with no kids and a household income of $63,000 will face a family premium of $16,578 for a silver plan on most exchanges — and no subsidy whatsoever.

    I do not know what employers are going to do. (They don’t either.)

    The ACA was meant to have a firewall so that employer plans would be undisturbed, while the ACA reformed the individual market. The penalties were part of the firewall. Look out below, however!

  13. America has the most expensive health care in the world. Obamacare is a first step in bringing medical care costs into line with what the rest of the world might consider expensive but reasonable. Those costs will always be high because in America we pay more for just about everything than elsewhere. We complain about it. But we still pay it. From packaging that costs more than the products being bought to capricious, irrational pricing schemes for everything from airline tickets to sporting events, from new clothes at the start of a season to the identical products on sale to make room for next season’s inventory — Americans seem not to care how much anything costs as long as they have a chance to charge it an make payments. Where but in America do people pay more by the gallon for water than for gasoline, and complain about the costs of the gas?

    Getting back to health care and insurance, the two big changes that are happening are…

    1. Health insurance is about to become an actual insurance product instead of the illusion of care it has been for two or three generations, a tax-favored scheme to swell the profit lines of companies offering group insurance to their employees as well as the insurance companies that service those policies, and

    2. the first steps to uncoupling employment from the delivery of health care, which will have a couple of unpleasant consequences as beneficiaries for the first time must face the realities of what it costs to insure them and meet their real (or perceived) medical needs. Both of these changes will be bitter medicine for many.

    Yes, it is bitter medicine we will have to swallow, and the president is wise not to allow political pressures to change his determination to give this new a chance to take effect. Those who argue for repeal or delay are no different from patients who stop taking a full course of antibiotics when they get to feeling better, or worse, are part of that extreme group which eschews antibiotics altogether, along with vaccinations and other science-based solutions to disease and injury.

    Meantime, a large population of people who have no experience with insurance will encounter something like sticker shock as they discover the economic mine fields of co-pays and deductibles which vary widely in the insurance landscape.

  14. Are there “Liars against Obamacare”?

    The only thing I agree on is that we are being told that buying into the most expensive system in the world is, “affordable”.

    But what do Republican/Teaparty offer to reduce cost – except less care and less coverage.

  15. “9. If your health insurance premiums and deductibles seem unaffordable, Obama will be happy to see you stop smoking, skipping your daily Starbucks, canceling your health club and cable TV contracts and keeping your old vehicles for four or five more years than you otherwise would. And you really don’t have to buy that new home, appliance, smart phone, computer or mattress.”

    Yes, those things are much more important than health care.

  16. I agree, Sumner. Not only are you liable to go broke paying for high deductibles, but all this talk of “cheap” rates is an illusion as well. In reality, most of the cost will be heavily subsidized. By waiving the employer mandate for a year, there is no way to verify eligibility for subsidies. (That, not employers aren’t ready, is the real reason for the waiver.) So, when you buy through the exchange, you can lie about your income and get a bigger subsidy. Also, the rates seem low because, for the most part, the plans have very narrow provider networks. So, you’ll have “cheap” insurance, but good luck getting an appointment, or go out of network and get slammed.

  17. Lots of advice is being given to consumers who are being enticed into using ObamaCare exchanges. I wrote these 10 tips in response to a somewhat misleading piece on wsj.com:

    1. Exchanges will give more choices of insurers in urban markets than in rural markets where only one insurer may be available. That could make rural insurers more expensive.

    2. You will have a choice of deductible plans. Chose a plan that involves deductibles and copays that you can pay off in a year or so at your current income.

    3. Many state insurance exchanges won’t be fully functional on Oct. 1, and nobody can predict when they will be bug free and give you accurate price quotes on your premiums, copays and deductibles.

    4. Health insurance brokers and people certified as “navigators’ will be as intimidated by ObamaCare as you are. Don’t rush to signup. Give the exchanges, brokers and “navigators” time to learn at the expense of other people.

    5. While the government is inviting you to lie on your applications about your income and other variables, remember that sooner or later the IRS will come after you. Violating federal laws is a big deal.

    6. Don’t believe much of what you see and hear on ABC, NBC, CBS or CNN. They are in the business of selling ObamaCare and making Obama look good. They’re serving Obama, not you. The article published above by the WSJ.com shows the same kind of pro-ObamaCare optimism that should be taken with huge grains of salt.

    7. Carefully calculate whether you can go wiithout ObamaCare insurance until you have a catastrophic financial loss due to a sickness or accident. Enrollment periods last only six months, as I understand it. That could mean that if you need insurance outside the enrollment period, you won’t be able to buy it when you need your free lunch.

    8. ObamaCare covers a lot of worthless preventive care and wellness care services for the worried well. The literature warns that such services too often give false positives and result in unnecessary procedures that could do more harm than good. But if you have pre-existing conditions that require wellness or preventive care services, use them.

    9. If your health insurance premiums and deductibles seem unaffordable, Obama will be happy to see you stop smoking, skipping your daily Starbucks, canceling your health club and cable TV contracts and keeping your old vehicles for four or five more years than you otherwise would. And you really don’t have to buy that new home, appliance, smart phone, computer or mattress.

  18. One thing not addressed is the high deductibles associated with these new health care plans which I believe will be the real “sticker shock” to most people. Otherwise a well written and informative report.