The Two Million Scenario: What if the Affordable Care Act enrolls a lot fewer people in the Exchanges than predicted?

People can be blinded by dreams in many spheres.

Many people who remain basically positive about the Affordable Care Act are viewing the enrollment statistics like the football fan whose team is 2-6 and who point out that the team could win 7 out of its 8 remaining games and still probably make the playoffs.

Yes, getting off to a really bad start doesn’t preclude a happy ending. Success may still be mathematically possible. But unless there’s good reason to think that the fundamental factors such as poor coaching,  poor game plans or unexpected injuries that have led to the bad start no longer apply, the more reasonable prediction is that things will continue more or less as they have.

It’s time to start thinking realistically about what happens if a core component of the Affordable Care Act, subsidized, non-underwritten health insurance available from private insurers, essentially fails to provide many with better access to medical care. This might not happen in every state — there might be a few whose Exchanges can be deemed “successful” — but it is looking more and more to me as if we are heading for enrollments in many states well, well short of that on which the arguments for the ACA were significantly premised.

Indeed, some supporters of the ACA have started moving the goal posts, revising history to say that the real goal of the Act wasn’t to reduce the number of uninsureds but to have an actuarially sound pool. (So the purpose of the Act was to help insurance companies stay afloat?) And it hardly helps enrollment when President Obama urges his allies to hold back enrollment efforts so the insurance marketplace does not collapse this coming week under a crush of new users even after he earlier assured the nation  healthcare.gov  was supposed to be working much better by this time.

For purposes of this blog entry, I’m going to assume that enrollment in the Exchanges ends up being about 2 million for 2014 instead of the projected 7 million.  I can’t rigorously justify that number — but, of course, neither could the pundit who is now saying 4 million. And, if I had time and space I’d prefer to do this analysis under a variety of scenarios, but, for now, the 2 million figure feels about right. And if I were betting on which side of the 2 million we will fall, it would be the lower side. What are the consequences? I can’t address all of them in a single blog entry — and trying to predict matters past 2014 gets very treacherous — but here are some.

And, for those of you who don’t want to read further, here’s the headline:

Insurance sold through Exchanges without medical underwriting — a central promise of the Affordable Care Act — is likely to implode in a significant number of states by 2015 while limping along in several others but providing little net desired decrease in the number of people without quality health insurance.  The silver lining in this failure will be that the program will likely cost less than projected due to fewer number of people receiving subsidies, although this reduction will be partly offset by higher-than-projected subsidies to the insurance industry. Expect significant pressure to grow among supporters of the Affordable Care Act to use these net savings to increase the subsidies available to people buying coverage through the Exchanges and to lure insurers in the problem states back into the Exchanges.

1. The number of people without private health insurance may actually grow

This is so because, if 2 million obtain insurance through the Exchanges but more people (3.5 million is a prevailing estimate from sources ranging from Forbes to Jonathan Gruber) lose their current individual health insurance, that’s a net decrease in the number of insured.  And if we add in the loss of 100,000 or so people from the Pre-Existing Condition Insurance Plan that likewise is terminated or those who heretofore were in various state high risk pools, there is a serious risk that the Affordable Care Act will have decreased the number with private health insurance.

In fairness, I have not taken Medicaid expansion into account. Some may see it as unfair to count just the number of people with private health insurance rather than the number with access to health care through private insurance or public schemes such as Medicaid. And, indeed, in those states in which Medicaid has been expanded — one can’t blame President Obama too much if other states choose not to participate — enrollment has outpaced enrollment in private plans at about a 4-to-1 ratio. This suggests, by the way, that people are willing to use a web site, even some clunky ones, to sign up for health care if they think the price is right.

The rejoinder to the argument that we should consider Medicaid, however, is that an awful lot of political energy and an awful lot of monetary investment has been predicated on healthcare reform benefiting more than just the poor but the middle class too. If it turns out the middle class has, net, been hurt by the 2014 features of Affordable Care Act or has paid a large investment for the 2014 features of a law that, net, does provide little marginal benefit, it’s fair to criticize the 2014 features of the Act for their architectural shortcomings. And, yes, I know all about staying on your parents’ policy until you are 26 and limitations on rescissions, but none of those pre-2014 “achievements” should count in assessing the 2014 record.

2. The number of people with quality health insurance may stay about the same

Yes, there will be people who formerly had no health insurance or who had rotten health insurance who, thanks to the 2014 aspects of the ACA, now have health insurance that covers more.  There are many news accounts from pro-ACA forces providing evidence of this. Here’s one (although all the “success stories” are likely to have high medical claims); here’s another (notice again that the successes are likely to have high medical claims).

But it may well be that for every such success story apparently to be catalogued by paid grants from the government, there is another who had health insurance tailored to their needs (such as policies for the 50 and over set that did not cover maternity expenses) who now find themselves priced out of the health insurance market with its Essential Health Benefits requirement (section 1302 of the ACA). Here’s a website inviting people to post their cancellation notices.  Here are some anecdotes relating such problems (although one always have to be very careful about exaggerations in this arena; see here for a discussion of a particular case by Consumer Reports).  Here’s another.

On balance, though, it’s quite believable that, many of the gains due to subsidization may be offset due to government offering only products that have more “features” than many people are willing to pay for.  To analogize, consider a law that prohibited people from owning either a clunker car (defined somehow) or a car without four-wheel drive. The theory behind the law was that clunkers were unsafe and that four-wheel drive is sometimes useful: even if you don’t need it right now, you might need it or have needed it at some point.  Fair enough. But such a law might not actually increase the number of people driving quality cars that fit their needs. Some people just can’t afford a new car.  And others, who could afford a respectable car without four wheel drive and didn’t think they needed it right then (urban Floridians, for example), might simply decide not to get a car rather than use scarce marginal dollars for cars with features they don’t need. While such a result need not occur — it depends on all sorts of factors — my sense is that this is where we are heading with the Affordable Care Act and its fairly demanding and undifferentiated requirements for coverage in policies sold on the Exchanges.

3.  Federal mandate tax payments may be a little bit bigger than expected for 2014

The Congressional Budget Office estimates this spring that the United States Treasury would receive about 2 billion dollars as a result of the individual mandate tax (26 U.S.C. § 5000A). That figure was premised, however, on a belief that 7 million people would enroll in the Exchanges.  If only 2 million people get insurance through the Exchange that’s roughly 5 million fewer than anticipated who will not. There thus could be as many as 5 million more people who will have to pay the individual mandate (26 U.S.C. §5000A) and could lead to something like another $500 million in revenue next year.

Before we spend the money of 5 million more Americans who might have to pay extra in tax, however,  we need to we need to subtract off two categories of people.  (1) We should subtract off those who acquire faux-grandfathered policies created by President Obama’s recent turnabout to let people who like their (potentially cruddy) coverage keep it under some circumstances and not have to pay the individual mandate.  (2) We should subtract off the small number of people who were projected to purchase policies on the Exchange but, because of poverty or otherwise, would not have had to pay the mandate tax had they failed to do so.

So, let’s say on balance that 3 million fewer people than projected pay the tax under 26 U.S.C. 5000A. It’s hard to know exactly what sort of tax revenue would be involved, but it is likely in excess of $285 million per year because each such person would have been responsible for at least a $95 per person penalty. (I know, I know, there are lots of complications because the penalty is difficult to enforce and because you only have to pay half for children, but then there are complications the other way in that $95 is a floor and one may have to pay 1% of household income). Why don’t we use round numbers, though, and say that the government might get about $300 million more in tax revenue for 2014 (although they may not get the money until 2015) due to lower-than-projected enrollments in the Exchanges.

4. Before the federal government subsidizes them, insurers in the Exchange will lose billions

Before consideration of various subsidies (a/k/a bailouts) of the insurance industry created by the Affordable Care Act, insurers could lose $2 billion as a result of having gambled that the Exchanges would be successful.  Here’s how I get that figure. No one knows for sure but, if the experience under the PCIP plan is any guide, when about 1/3 of the projected number of people apply to a plan that is not medically underwritten, expenses per person can be more than double that originally expected.  Even if we assume that experience under the PCIP is not fully applicable, given an enrollment 1/3 of that projected, it would shock me if covered claims were not at least 125% of that expected. If so, on balance that means that losses per insured could total roughly $1,000. If we multiply $1,000 per insured by 2 million insureds, we get about $2 billion. If the Exchanges lose money at the same rate as the PCIP, insurer losses could be upwards of  $7 billion. Again, I make no pretense of precision here. I am simply trying to get a sense of the order of magnitude.

5. The federal government will subsidize insurers more than expected but insurers will still lose money

The Affordable Care Act creates several methods heralded as protecting insurers writing in the Exchanges from claims that were greater than they expected.  One such method, Risk Corridors under section 1342 of the ACA, could end up helping insurers in the Exchanges significantly. But, if, as discussed here, enrollment in the Exchanges for 2014 is 2 million persons, the cost of helping the insurance industry in this fashion will be another $500 million for 2014. Risk Corridors, which have recently been aptly analogized to synthetic collateralized debt obligations (CDOs), requires the government to reimburse insurers for up to 80% of any losses they suffer on the Exchanges.  It also imposes what amounts to a special tax (again of up to 80%) on profits that insurers may make on the Exchanges. The system was supposed to be budget neutral but, as I and others have observed, will in fact require the federal government to pay money in the event that insurer losses on the Exchange outweigh insurer gains. The basis for my $500 million computation is set forth extensively in a prior blog entry. It will only be more if, as discussed in another prior blog entry, the Obama administration modifies Risk Corridors to indemnify insurers for additional losses they suffer as a result of President Obama’s decision to let those with recently cancelled medically underwritten health insurance policies stay out of the Exchanges.

If claims are, as I have suggested 25% higher as a result of enrollment of 2 million, insurers will lose, after Risk Corridors are taken into account, about 9% on their policies. It would thus not surprise me to see insurers put in for at least a 9 or 10% increase on their policies for 2015 simply as a result of enrollment in the pools being smaller than expected.

The relatively modest 9% figure masks a far more significant problem, however.  It is just a national average. Consider states such as Texas in which only 2,991 out of the 774,662 projected have enrolled thus far.  If, say, Texas ends up enrolling “only” increasing its enrollment by a factor of 16 and gets to 50,000 enrollees, I would not be surprised to see claims be double of what was projected.  Even with Risk Corridors, insurers could still lose about 24% on their policies. A compensating 24% gross premium increase, even if experienced only by that portion of the insurance market paying gross premiums, could well be enough to set off an adverse selection death spiral.

Footnote: For reasons I have addressed in an earlier blog entry, one of those methods, transitional reinsurance under section 1341 of the ACA is best thought of as a premium subsidy that induces insurers to write in the Exchanges. Because the government’s payment obligations are capped, however, the provision is unlikely to help them significantly if the cost per insured ends up being particularly high throughout the nation.

6. The federal government might save $19 billion in premium subsidies

The Congressional Budget Office assumed that premium subsidies would be $26 billion in 2014, representing a payment of about $3,700 per projected enrollee.  If the distribution of policies purchased and the income levels of purchasers are as projected, but only 2 million people apply, that would reduce subsidy payments down to $7.5 billion.  And if the policies sold in 2014 cost a little less than projected, that might further reduce subsidy payments.  I think it would be fair, then, to estimate that low enrollment could save the federal government something like $19 billion in premium subsidies in 2014. This savings coupled with heightened tax revenue under 26 U.S.C. §5000A — could we round it to $20 billion — would be more than enough to cover insurer losses resulting from the pool being smaller and less healthy than projected.

The Bottom Line

I suspect my conclusion will make absolutist ideologues on the left and right equally uncomfortable.  What I am wondering is if the Affordable Care Act might not die in 2015 with a giant imploding bang but rather limp on with a whimper. On balance, what we may well see if only 2 million enroll in Exchanges pursuant to the Affordable Care Act is a system that fails to function in some states and remains fragile and expensive elsewhere. On the one hand, it will be an expensive system because of the enormous overhead incurred in creating a highly regulated industry that provides assistance to a relatively small number of people. On the other hand, precisely because it will be helping far fewer people than projected, it might well cost significantly less  than anticipated. I would expect this departure from what was projected to lead to two sorts of pressures:

(1) There will be a claim from ACA supporters that we can use the savings to increase subsidies or the domain of the subsidies beyond the 400% of Federal Poverty Line cutoff  and thereby reduce the adverse selection problem that will already be manifesting itself.

(2) There will be a claim from ACA detractors that all of this confirms that, apart from ideological considerations, the bill is an expensive turkey and that, if  the only way to save it is to impose more and more regulation and spend more and more money, it ought simply to be repealed.

Complicating factors


There are many factors that could result in the estimates provided in this entry being quite wrong.  I do not want to fall into the same trap as others who have ventured into this field and claim that there are not very large error bars around all of these numbers.  And I do not believe the system is necessarily linear. It may be that small changes have cascading effects. Here are several reasons my estimates might be wrong.

1. The rules change in 2015. There are at least three significant rule changes in 2015.

a. The tax under 26 U.S.C. 5000A for not having government-approved health insurance increases significantly, going from the greater of $95 per person or 1% of household income to the greater $295 per person or 2% of household income. Insurers may therefore assume that enrollment will be greater in 2015 than in 2014.  Some people will be pushed over the edge by the higher tax rate into purchasing health insurance. If so, insurers may feel less pressure to increase prices because they believe their experience in 2014 will not be repeated in 2015.

b. The employer mandate will presumably not be delayed again by executive order which may have two offsetting events: employers reducing the number of full time employees thereby adding more to the Exchanges or employers maintaining health insurance thereby reducing the potential pool for the Exchanges.

c. As discussed in an earlier blog entry, there will be a decline in transitional reinsurance now provided free to insurers in the Exchange which, in and of itself, will put significant pressure on premiums.

Finally, this is a field where events just frequently overtake predictions.  All of these predictions go out the window, for example:

a. if there is a major security breach in the government computer systems and people’s personal information is disclosed;

b. healthcare.gov continues to seriously malfunction during the critical pre-December 23 sign up period

c. if the yet-to-be-built payment system for insurers does not function and people become dissatisfied as a result;

d. if people find, as some are projecting (here and here), that the set of medical providers available in the Exchange policies is drastically reduced over what they expected; and

e. there is a major sea change in legislative power in Washington.

f. other

Seth J. Chandler is a Professor of Law at the University of Houston at the University of Houston and author of acadeathspiral.org, where this post originally appeared.

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  25. I will try to answer you in as few words as possible (but for more detail follow link to my blog):

    — Before R/Care Massachusetts passed so-called healthcare insurance reforms in 1985, 1988, 1993, and 1997 (basically we try every five or six years on average; R/Care — in 2006 — was just one of many failed attempts and RCare itself was replaced in 2012 with another “reform”)
    — R/C passed in 2006; the individual and employer mandates became effective in 2008 (Romney blathered about a lot of “free riders” before passage but it turned out there were none–see next bullet)
    — Mass. has always had 93% or more people insured and Mass. has long — since 1997– had a Federal waiver to give much better Medicaid benefits than rest of country (RCare made the Medicaid benefits even better)
    — 67% of the people insured in Mass were under self-insured plans or under Medicare and were not directly effected by RCare (but ended up being indirectly affected by the fact that RCare drove healthcare prices up even faster than they had been rising previously)
    — Primarily the people R/C affected were in small groups or bought their own insurance (10%-12% of the residents) or on Medicaid (20%); RCare merged the individual and small group markets (both of which already had guaranteed issue from earlier reforms); naturally individual premiums went down and small group went up the first year R/C went into effect (simple insurance math) and then the new combined premium soared thereafter at same rate as all the other rapidly growing healthcare costs
    — Because of the better Medicaid benefits and subsidized RCare (basically they were one and the same; to qualify for subsidized RCare you had to apply for Medicaid), 400,000 people got “insurance” (I personally don’t consider Medicaid insurance but I’ll keep it simple)
    — The increase in number insured was primarily this 400,000 (our population has not grown so percentages actually are comparable but why use them when we have the actual absolute numbers)
    — Major changes — not tweaks — such as ending continuous enrollment (initially you could sign up for Rcare in the hospital waiting room after the car accident) were made in 2008 and twice in 2010 because prices — for both insurance and health care — continued to skyrocket
    — Finally in 2012, as prices continued to explode, the legislature effectively ended RCare by replacing its market-oriented approach with Soviet-era price controls (price controls were also part of the 1988 “Dukakacare reform” and will also not work this time because it does not affect those of us on Medicare and self-insured plans)
    — Before RCare, about 70% of people were covered by employer sponsored insurance; now that percentage is down under 60%
    — Another thing Romney blathered about was that it was bad for people to get healthcare at ERs; but that practice has not changed (see next bullet)
    — Mass Medical Society surveys document very large decreases in doctors accepting new patients since RCare passed (any new patients, but espeically people with Medicaid, subsidized RCare and even full-price RCare–very few of the latter policies were sold)
    — Sales and income taxes were raised 20% to fund RCare; in Romney’s proposal the savings re ER and other aspects of “reform” were supposed to make the cost revenue neutral
    — There has been no improvement in people’s health (to be fair, although it is expensive we have always had good health care here in Massachusetts)

    If all these things that happened here in Massachusetts seem familiar, it is because they are all the predictions of what will happen trying to make RCare work nationwide.

  26. The outlines of ACA are becoming clearer. That word affordable means cheaper. No mistake about it. the operative line in the article linked is this:

    If a patient needs a covered service, such as a heart transplant, but it’s not provided at in-network hospitals, insurers must cover it elsewhere.

    The unwritten part is that if the insurance’s provider has a “covered” service contract arrangements have been made with the insurance company to furnish that service less expensively than those outside the network. It’s all about profit margins. Even those so-called non-profits have what is euphemistically called “operational profits” (even if they are essentially money-laundering centers for a surrounding community of for-profit operations).

    Regarding your other inquiry (I presume you are the same “Judy” living in Massachusetts) I am not well-informed. Hopefully some else can provide a more specific response. My understanding is that “Romneycare” officially ended when ACA took effect, which lays down new rules for all health care insurance providers, whether listed in an exchange or not. It will be several accounting periods before the added costs of the new rules find their way into the form of insurance, but I’m certain that anything advertised on the exchanges will be the next thing to Medicaid, cost-wise. (Incidentally, I also read that even prior to Romneycare over ninety percent of Mass. residents were already insured, so closing that gap to “everybody” was not as much of a stretch as many other states. Red states tend to have far more of a challenge than those like Massachusetts.)

    As for quality, that is another matter. We already know that more care and/or higher prices do not necessarily mean better or more appropriate care. Often they do, but too many times they do not. All those high-end hospitals up there in Massachusetts are famous, but they also cost a lot more to run. When you’re in the shadow of some of the most famous medical schools in the world you gotta have a lot on the ball. BUT, you don’t have to cut corners financially. And except for generous endowments, the only revenue stream is — guess what?– your bill.

    This is a good time to review what Dr. Berwick found out. Check this clip from Money Driven Medicine.


  27. In Washington State – based on an article in the Seattle Times – http://seattletimes.com/html/localnews/2022371201_exchangenetworksxml.html, there was summary of providers offered by the different insurance on the exchanges. The only one that allowed you to go to all the major network providers is the one offered by Medicaid. Also, if you don’t need a subsidy, you can buy insurance not through the exchange and get all providers. So basically, the working class gets worse insurance.

  28. Can you explain what happened in Massachusetts and Romneycare? The research online seems to make it that the amendments were tweeks and that ACA overrode Romenycare, but that the basic premise of everyone being insured and having an exchange was always there.

  29. Mexican health insurance for Americans! What a great idea. Unfortunately I don’t think NAFTA includes insurance contracts, unfortunately. Actually, with a little tweaking and influence-peddling to the North, Canada could also be competitive with US medical care despite all the condescending foolishness about Canadian health care. But seriously your points are well-taken.

    I agree that concierge medicine and medial tourism will flourish. They are already a growth segment. I don’t know any citizens who have traveled abroad for medical care, but I know two from Asia and one from Mexico who have gone home for dental work. And I am personally aware of at least two older couples with Medicare who retain PCPs on the side. I’m not sure but I think one charges an extra thousand dollars a year to keep them in his practice as Medicare patients.

    But as long as income inequality in America continues to be as large as it is (and appears to be yawning wider) most people will not be able to take advantage of medical tourism as individuals. I read about a company in North Carolina that sends employees to the Caribbean for expensive surgery to save on surgical costs (joint replacements, cardiac issues), , but that is in connection with company-paid group insurance. My instinct is that group insurance is not going away but may be an endangered species as employees discover over time that they can be covered individually for less with the new insurance regulations.

    To that point, the actuarial arithmetic of group insurance is a lot like the example you tossed off at the end about young men and “breeding females” subsidizing sick old people. Group insurance, unlike the individual market, charges all employees the same rate — young and old alike — which means that younger, healthier employees do, in fact, subsidize older ones.

    The individual market, on the other hand, has age ratings that enable young people to be insured for less because they are healthier and less costly. But collectively lower rates for lower costs balances higher rates for higher costs which is more balanced from a risk management angle, How else could insurance companies do what they do?

    You can see where this is headed. Not all at once, but over time the market for individual insurance will grow (especially as long as subsidies continue to 400% of FPL) and group policies will become more expensive as younger employees learn the drill. Add that to the weakening of “job lock” and we are looking at a long term trend away from group insurance toward the individual market.

    In other news, the current flap over contraceptive coverage makes and interesting footnote to that “breeding females” reference. Most people don’t seem to care, but it is a very slippery slope from contraception to abortion — so the best way to avert abortions is (sorry, Catholic friends) better and more available contraception. Word is getting out, I hear. The teen pregnancy rate has dropped dramatically for all income and ethnic groups over the past few years, so kids are finally discovering how to prevent

  30. I think a more dynamic analysis would reveal more uncertainties that will lead to a demise of Obamacare. Two could be the rise of concierge medicine and medical tourism. I read that the Mayo Clinic, Sloan-Kettering and MD Anderson will not be in anybody’s Obamacare network, meaning that they will practice elite medicine for the few at elite prices.

    What would happen if someone were to open a world-class clinic of that sort across the border in Mexico. Clinics doing cosmetic surgery and dental care have already proliferated in Argentina, Brazil and Mexico, among many others.

    I myself have elected to have cataract surgery done at half price in Brazil. In Mexico, it would cost 1/3 what is charged in Texas. If someone offered Mexican insurance to Americans, lots of healthy, young men would flee Obamacare altogether, and even more would have the option once their employers cancel employer-provided health insurance.

    I hear that residents of Northern New Hampshire have the Obamacare choice of only one insurer who offers limited doc and clinic options, with the result that some folks there will have to drive 200 miles to their nearest in-network hospital. If the Mexican border were only 200 miles away, as it is from San Antonio, many NH residents would find their health care in Mexico, I’m sure.

    A young male who drops out of Obamacare will enjoy a world-wide network of docs and physicians at some very high savings, considering that he now subsidizes women who use 80% more health care and seniors who use 500% more. Then once the flight of young men occurs and insurance costs rise to cover the breeding-female and seniors pool, the non-breeding females and later the breeding females will drop out. DEATH SPIRAL!

  31. The old geezer paying for maternity care seems like a bs argument. Does a 64 year old woman pay for maternity care? If so what are the actuaries being paid for when they set her rates? Oh that’s right everything is perfectly priced now, no subsidies for those over 65, no healthy paying for the sick. Completely fair because anyone who is sick is that way because it is their own fault or they deserve to die anyway. If you can’t figure out a “private” plan you deserve to die and suffer on your way out. It is not like the “private” companies are in their writing the legislation for the McCarthy criminals, airport bathroom maggots, spreading disease and collecting their set for life congressional insurance coverage. Besides they can always quit their “public service” and make millions on FOX. Quitters, pervrts. Should be pushing some old retarded vet to a hitler monument, that is who they must have been fighting for. Propoganda and lies.

  32. Attorney Chandler and you didn’t seem to mention anything about, who is going to provide the care to these patients. The higher and higher expectations by people who will have healthcare or lose healthcare and be any ever more significant medicinal risk. Nothing addressing this and malpractice reform in this ever increasingly complex system of healthcare. Promising care by giving an insurance card and not having the primary care manpower to take care of this is the end game.

  33. Health insurance companies, however, convinced the government that they are instrumental to the delivery of health care, so the government is compelling people to buy that.

  34. Do you think psychiatrists are seeing walk-ins on Saturday? I am a real thirty year Plus ER doc. “Today” I was at our Urgent Care. There may be limits somewhere, there may be co-pays somewhere, but they do not keep these people from roaming and grazing to their heart’s content. Certainly not at the end of the year. If there is a gate there is no fence. There anxieties are fed by limitless ability to go wherever they can be seen. I suppose I could just not take Medicare like my competitor has chosen. I am enabling them.

    The feds are going to make sure they all think there have been no real cuts by raising the cost of “coverage” (whatever that really is) for the rest of us. The trust fund is insolvent. Rationed care is coming for everyone. They indeed have us “covered”. It just does not mean what you think.

    I advocate freedom, too, but not on the publics dime. They did not pay for the benefits they are being granted.

    Save your money. Cash will buy you care. Obamacare will not. I won’t take chickens…at leasst not yet.

  35. “the net result is that many young and poor people can no longer find a dirt cheap used car.

    You can even stretch the analogy to building codes. The enforcement of stricter codes has increased the number of homeless persons — the disappearance of SRO hotels and shabby homes with poor electricity and plumbing has resulted in better places to live, but fewer of them.”

    And don’t forget, football helmets cause dementia.

  36. Peter:

    The other challenge to getting to lower per capita costs is that it costs a great deal of money to get elected. So it’s a bit of a catch-22 in that to reduce lobbying (hence per capita costs) you are asking those in Congress to cut off the very interests that enabled them to get into office in the first place.

  37. “How then can single pay/government regulated be doing it for about half?”

    Because they don’t allow pharma, insurance, device OEM and trial lawyer gouging and sleazy lobbying.

    Add to this look at our cost of education. $40-70k for undergrad and say similar for med school = $400k to become a doctor. And of course Sallie Mae is a business.

    Regardless of where one stands ideologically unless high costs are addressed you can’t drop per capita costs.

  38. Absolutely right. The only cost/price relief would have have come from a single-payer public option (optional Medicare for all) or price controls — both of which are anathema to our retrograde anti-socialist Libertarian-leaning super-patriot brothers and sisters. Price and cost controls were never on the table. ACA should have been tagged “Health Insurance Reform Act” but that hasn’t the political cache of “Affordable Care”.

    (Besides, the original legislation included the CLASS Act, which turned out to be actuarially unworkable. Too bad, too. It turned out to be more of a symbolic tribute to the late Senator Kennedy than workable legislation, but the problem it was meant to fix is not going away. We have yet to find a way to address the huge challenge of taking care of us when we get old, outlive our assets and need long-term care. Intergenerational assets are evaporating even as we speak as aging seniors discover too late about “spending down” to meet Medicaid eligibility requirements. The five-year “lookback” for next generational transfer of assets has been extended to ten years in many places — yet another health care expense that is back-loading all systems, making cost containment even more difficult.)

    Meantime, the only hope for cost relief lies with Medicare and Medicaid reimbursement models which will morph slowly but surely into tighter, more “persuasive” tools to change both the practice and cost accounting of delivery systems. The ACO experiment and variants I have read about are efforts to replicate some of the systems already in existence (both public and private) that actually do deliver better outcomes at lower per-patient costs. Mayo, Kaiser, Geisinger and Cleveland are names that always get mentioned in this regard. And Dr. Gawande’s great pieces about the contrasts between McAllen and El Paso, Texas illustrate how good results can be had at lower costs even within the system we now have.

    Hopefully the new “death panel” (the old MedPac now rebranded as PPAB) will move carefully but forcefully — good cop/ bad cop fashion — to get hospitals and the Medicare Advantage models to lead the way to more reasonable pricing and accounting systems.

  39. Good points, all, Mr. Hertz. Especially the “clunkers” example. My son-in-law is a mechanic and he pointed out at the time there is a flourishing aftermarket for used car parts from junked cars, and destroying the entire car was an over-reach when some less destructive way might have been used to prevent fraudulent claims.

    That bit about the software not yet done for government premium subsidies is unsettling as well. Hopefully that will be a state-by-state problem, not a wholesale federal debacle.

    But when the dust settles the industry will still be operating with new rules which make health insurance far more affordable and less explosive to more people than the high-deductible ticking bombs that have been the only option until now.

    (Regarding building codes, down heah in the South we still have plenty of pay-weekly motels, some of which have spaces smaller than storage stalls, and a fair share of “trailer parks” and old houses grandfathered in as building codes improved. I had never heard of knob-and-tube wiring until one of our family who is an electrician told me it was still to be found in some old places.)

  40. John, I didn’t see any act or scene that brought about cost/price relief. I don’t know how long many people will be able to hold out for it. Remember when bus loads of seniors were going to Canada to break the law just to get “affordable” drugs. See how we “fixed” that.

    Bob, the specter of more uninsured after ACA fits with your clunker/housing analogies. The max income for subsidies now puts more people into lower rather than upper middle class due to mandate and cost of insurance. Many will become insurance serfs.

    As usual I enjoy reading Mr. Ballard and Mr. Hertz.

  41. Thanks to Prof Chandler for raising the clunker car analogy with regard to old health insurance. In fact he could have gone further. Obama’s actual Cash for Clunkers program led old cars to be destroyed, and the net result is that many young and poor people can no longer find a dirt cheap used car.

    You can even stretch the analogy to building codes. The enforcement of stricter codes has increased the number of homeless persons — the disappearance of SRO hotels and shabby homes with poor electricity and plumbing has resulted in better places to live, but fewer of them.

    Now to the ACA itself. According to Jon Kingdale, who ran the Massachusetts program, the worst is yet to come in implementation.
    Any person who gets a subsidy in the ACA will need the government to send a portion of the monthly premium to the right insurer at the right time.

    The software to do this has not been built at all per Henry Chao of CMS.

    Finally –
    The insurer losses that Prof Chandler projects are not enormous in dollar terms (i.e. health insurance is an $800 billion industry, they will not be capsized by $2 billion in losses).

    But insurers will in fact flee the exchanges if the govt does not make them totally whole and right away. This has happened time and again whenever private insurers are drawn into public programs

    Bob Hertz, The Health Care Crusade

  42. ACA was a huge over-reach, and its harm will be mitigated the sooner the madness is repealed. Until then, we have to just hold our noses.

  43. I do live in Massachusetts. I am not sure what it means that RomneyCare has ended. In your post, you indicate additional legal mandates made it even more extensive and expensire, but has it been stopped? Is this because the Federal ACA has precednece?

  44. To no one in particular, here is my summary of the big picture of health care and the genesis of PPACA. It’s a long, rambling and still incomplete story, but it started about the end of WWII and is still a work in progress. (I use that word “progress” carelessly in this case.)



    All this yammering about a failed legacy, broken promises and now “the Affordable Care Act might not die in 2015 with a giant imploding bang but rather limp on with a whimper” really gets on my nerves. To say that professor Chandler’s predictions make me “uncomfortable” is more than an understatement. It’s offensive, considering the whole package is not scheduled to be totally complete until 2018 — not taking into account very real possibilities that unanticipated delays may push that date even further into the out years. This plan has to work. The alternatives are unthinkable simply because now that guaranteed issue, MLR, and OOP caps are in place there is no politically realistic way to put that toothpaste back into the tube.

    The language of sections 1 and 2 above suggests there may be some difference between insurance offered through the exchanges and that which is obtainable in the open market. Both make oblique references to “what the government offers” as though insurance obtained via the exchanges is not somehow private insurance, This is not the case, of course, since all plans handled by the exchanges are exactly that — private insurance plans — that have been approved as having met the minimal standards of ACA. Nothing prevents the private market from offering other plans with more or different bells and whistles, but they will still have to comply with the insurance constraints in accordance with the new law in the same way that new autos must meet higher standards than those on the highway. That’s what all the hoopla has been about with cancelled versus grandfathered policies.

    I fully expect the insurance industry to offer premium plans that may include cosmetic, dental and optical coverage, which is why ACA anticipates taxing such “Cadillac” policies beginning in 2018. And for those who have such plans, for people who can well afford them, additional taxes will be paid in the same way that airline passengers and phone customers now pay a raft of junk fees for bells and whistles for extras in those areas. There will be complaints, but those taxes will be paid.

    No one seems to be reporting on it but the biggest challenge facing ACA right now is the mundane fact that millions of Americans have never been insured and haven’t any idea how insurance operates. Words like premium, co-pay, out-of-pocket, tax-credit, subsidy and deductible have never been in their vocabulary. Before they get insurance they need to know what the are buying. I heard one quick remark from an agent who said the main problem he was encountering was teaching people the basics of insurance before they could even make choices about what they needed or could afford. But most journalists are reporting about numbers and Web wrinkles having little to do with the realities facing agents and navigators..

    Comments threads are great places to have discussions. But when it comes to the nitty-gritty of insuring millions of previously uninsured people the challenge is very different from the conceptual arguments. PPACA is a huge undertaking. It’s as big or bigger than Medicare. And announcements of it’s demise are seriously premature.

  45. Yes, without younger (presumably healthier) younger participants the public risk pool cannot balance appropriately,

    In the open market, however, age variations are the norm allowing lower premiums for younger beneficiaries which increse as they grow older. I think the ratio is allowed to be as much as 3:1, which means younger people can be charged two-thirds less than their elders. The arithmetic works because the cohort is much healthier, therefore less costly to insure.

    Unlike the open market, group plans charge everybody the same premium and award the same matching employer subsidy, irrespective of age, which means the older folks get a break and the younger ones pick up the difference. When you think about it (and few people do) it’s pretty obvious.

    In the case of Vermont, the key to success will be cutting the insurance industry out of the cycle. I haven’t read the details, but I’m sure the state will not be giving providers a blank check. In the same way that Medicare, Medicaid and the VA have reimbursement schedules to follow, the state will have to have the same type of arrangement. I’m sure that anyone who wants to pay more out of pocket for concierge practices will be free to do so, as well as elective and cosmetic procedures which may be on a separate reimbursement schedule or disallowed altogether. There are many ways to skin this cat but Vermont will be breaking new ground for sure.

  46. “AT&t lacks “clout”? Who knew?”

    Maybe then the clout of hospitals weighs more on each – they are the real generator of prices. I’ve never found insurance to want to break out of the pack.

  47. Perhaps “health care equalization” is just a very expensive proposition. Its proponents seem to expect something like the Miracle of Loaves and Fishes to come to pass here.

    AT&t lacks “clout”? Who knew?

  48. “Or might it be state regulation?”

    How then can single pay/government regulated be doing it for about half?

  49. “as younger employees discover they have been subsidising their elders all these years”

    Isn’t that what the ACA hopes to achieve?

    “with Vermont poised to become the first state to go single-payer in 2017, the role of private insurance companies in health care may be what implodes.”

    We can only hope John. I hope Vermont has the numbers to make it work and the power to control prices while keeping their docs.

  50. Sometimes the insidious agenda is so well hidden, the subterfuge of the alleged chaos of simplistics keep the masses distracted and focused on the wrong detractors. I know in my heart this legislation has no interest in helping the public nor the health care system, and in the end, it will be both ironic and outrageous when the truth to the real purpose is revealed.

    And I hope that every single supporter based on blind faith and terminal optimism to see this law stay in place as set is significantly disrupted, if not outwardly harmed by the consequences of what PPACA was meant to create.

    But, I equally hope the consequences are severe and long lasting for the party behind it, and careers are ruined and foundations irrevocably damaged. It is the only way for people to truly learn and move forward after being hijacked by partisan interests and selfish gains for the few at the expense of the many.

    As the poster says, “and in their desperation, they turned to man they did not fully understand.” Oh, it is a harsh analogy, but, the deeds of those in power do not reflect leadership but just developing brutal rule. And all these clueless, inattentive, and fatally naive followers don’t know what they are in for as this law takes hold.

    Good luck with Obamacare staying afloat. People will be harmed, and others will be taking much joy in the pain. It is the partisan agenda of people entrenched in positions of power these days.

    And let the partisan attacks ensue!

  51. Because they don’t have as much clout as large purchaser insurance companies do and they don’t manage their insured very well?

  52. Again… Huh?

    Medicare has astronomical co-pays and lifetime limits. It has gatekeepers every step of the way (signing up, making an appointment, paying the co-pays, appeals, etc.). I can’t speak for every ACO — and they are all pilot tests anyways — but the ACO my mother is on in Massachusetts gives her the complete ability to “roam and graze” (by which I assume you mean the right to see any doctor that accepts Medicare and that will see her–you know, that American thing called freedom).

    I hope to hell you are a psychiatrist MD and not a real one!!!

  53. Archon

    I’ll go you one better.

    Before RomneyCare — which everyone agrees is the blueprint for PPACA — both the insurance and acute care provider markets in Massachusetts were 99% non-profit but highly regulated by the state. We had the highest healthcare costs in the world. After six years of RomneyCare in its four different iterations over that period (RomneyCare ended Nov 15, 2013) with all kinds of new state regulations and essential benefits mandates, we have the highest healthcare costs in the world.

    So do you think it’s the corporate structure of the insurers and providers? Or might it be state regulation?

    (As an aside, the PPACA like subsidies that were part of RomneyCare brought in both for-profit acute care and for-profit insurance companies.)

  54. Everything gets screwed up, so reducing the funding will look like an increase when it is all done, since no one at any age will have the coverage that they previously had.

    Since unlimited dialysis and the malpractice crisis and the advent of MRI and Part D and no gatekeeper and no co-pay, the government could never afford Medicare. It has been bleeding to death for decades.

    Every senior I have seen as a patient today is a bank (of the USA)robber. Once there are medical homes and “Accountable Care Organizations”, they will not be free to roam and graze.

  55. I have often, without an intelligible response, posed to my “progressive” friends who believe insurers, with their extortionate profits and CEO compensation, are the source of all healthcare evils, a very simple inquiry: Just why is it that the savings of self-insured employers have been so modest?

  56. The failure movement is active and very well funded. You probably know about the creepy Uncle Sam character in ads financed by the Koch brothers. Sicko Sam is seen leering over a woman on her back in a hospital exam room, her legs in stirrups. This same guy is now showing up on college campuses, trying to get young people to opt out of health care. On some campuses, he plies students with free booze and pizza — swee-eeet!

    The Republican Party started a failure campaign earlier this year, but then the strategy got sidetracked in a coercive government shutdown that cost us all $24 billion or so. With the disastrous rollout of the federal exchange, Republicans now smell blood. A recent memo outlined a far-reaching, multilevel assault on the Affordable Care Act. Horror stories — people losing their lousy health insurance — will be highlighted, and computer snafus celebrated.


    Is bullet point #4 in a larger font to underscore the specter of the insurance industry’s exposure to actual risk?
    Bring me a handkerchief, please, to wipe away my tears. Insurance companies have a very long list of revenue streams, including fire, auto, theft, liability and that biggest of them all — life insurance in all it’s deceptive variants. I feel sure that a few years adjusting to the new rules the insurance people will, like cats, land on their feet. After all, the era of “self-insured” group policies will eventually phase out as younger employees discover they have been subsidising their elders all these years, and companies learn that group insurance “job lock” does not have the retention value it once did.

    Opponents can dream all they want about the implosion of ACA but it’s here to stay and it will be as important to the fabric of American economics as Social Security and Medicare. And who knows — with Vermont poised to become the first state to go single-payer in 2017, the role of private insurance companies in health care may be what implodes.

  57. What could you possibly mean by

    “The entire effort also was to fund Medicare..?”

    PPACA takes a trillion dollars out of Medicare, defunding it.

  58. Many who do not have insurance do not want to disclose their personal information because they are running from the law or are marginally abiding by law in general.

  59. “And it is cheap-shot easy to speak against the ACA without offering alternatives to fixing the real problems in our health care system.”

    The “real” problems of the system cannot be fixed under the present votes-for-bribes political system. Insurance and providers want nothing to change that reduces their incoming, the real problem with the system. We spend double for good reason.

    “e. there is a major sea change in legislative power in Washington.”

    Why I’m staying out of the system this year. I’d rather keep my premiums for my own use rather than piss them down the insurance drain for one year.

    I still can’t believe the web site was so incompetently configured to fail – knowing full well it would be target number one. If the administration was so stupid about this I can’t believe they are smarter about the rest of it.

  60. The entire effort was based on the mistaken notion that the uninsured would get insurance if they could afford it. That is false. Some of them wanted it but could not afford it. Most did not see a need for it. They are correct….most do not need it.

    The entire effort also was to fund Medicare, which is circling the drain.

    The low enrollment numbers are due to the same thinkng…they do not need it. They also do not feel threatened by the penalty for not purchasing it. As the penalties increase, the absurdity of this law will surely reult in unequal protection injuring millions. The SCCOTUS will get another chance to get it right.

  61. The dramatic reversal of approval for Obamacare reflected in recent polls can’t be explained by electronic malfunctions. Other forces are obviously at work, and they won’t be negated by glowing accounts of how some were helped by premium subsidies.

    The broad Middle Class, wrapped in cocoons of egalitarian “feelgood,” enthusiastically supported “affordable insurance for all”–as long as it was funded by others. They are just now becoming aware that they will be required to fund, through increased premiums and taxes, subsidies for others. (ME? You thought $60,000 a year ME was going to pay for all THAT?”) They are further discombobulated by the growing awareness that “exchange” plans will be narrow, divorcing them from the physicians, hospitals and specialists upon whom they depend. Indeed, section 1311 (c) of the act seems to require that certified plans include “those essential community providers. . .that serve predominately low-income, medically-underserved individuals. . . .” True, there is nothing to prohibit exchange networks from including practitioners at the Enclave at Tuscan Hills, but there is little incentive for them to do so. Personally, I think it will be good for the souls of our suburban sophisticates to have their faces rubbed in the sights, sounds and smells of the “inner city,” but they aren’t going to like it.

  62. “So the purpose of the Act was to help insurance companies stay afloat?”

    Well, there is the obvious quid pro quo. Call it “AHIPcare,” which is what PPACA is to a significant degree.

  63. The author’s conclusion (to a great analysis):

    “What I am wondering is if the Affordable Care Act might not die in 2015 with a giant imploding bang but rather limp on with a whimper.”

    In other words, as with all of the other long-running analogies between the federal Patient Protection and Affordable Care Act (PPACA) and Massachusetts’ RomneyCare, PPACA will have to be significantly amended three times (as RomneyCare was in 2006 and 2010) and then effectively terminated (as happened to RomneyCare in 2012 when its PPACA-like market orientation was changed to Soviet-era price controls).

    NOTE: RomneyCare was not actually terminated until August 2013 when its employer mandate was dropped and November 16, 2013 the day on which a person in Massachusetts could not longer buy RomneyCare insurance.

  64. I prefer to see the ACA as a partial enablement of a solution, one that helps remove barriers to getting affordable insurance and encourages kinder behavior toward the medically indigent. It is NOT a solution in and of itself. It certainly is not a complete failure for the solutions it has already enabled.

    It is cheap-shot easy to blame the ACA for others’ bad behavior, or to justify one’s own. It is cheap-shot easy to imagine awful scenarios without assessing the actual risks, let alone helping mitigate those risks. It is cheap-shot easy to blame the ACA for things that have not happened yet, and may not ever happen. And it is cheap-shot easy to speak against the ACA without offering alternatives to fixing the real problems in our health care system.

  65. What I like about the law is that those who passed it do not know what is in it.

    The healthcare.gov site dysfunction is not unlike the EHRs that the US Gubbermint has forced on the doctors, nurses, and patients.

    Recent illness in my cousin: she said that the nurses paid attention to the computers, but not to her needs. Sux.