The Affordable Care Act (ACA) is the law of the land, and nothing the Tea Party does is likely to lead to its repeal. But the ACA can be amended to make it less objectionable, and it wouldn’t be that hard. We just need to modify it to allow Tea Partiers (and others) to form their own healthcare groups.
All insurance, including healthcare insurance, works by forming risk pools. The members of the pool contribute to a pool of money which is then used to pay the claims by the members. Most participants pay in more than they use. In healthcare most people pay more money into the pool than the cost of the care they receive. A few people receive far more care than they pay for.
For risk pools to work, boundaries have to be drawn around what is paid for by the risk pool. As an example car insurance policies place a limit on how much they will pay for any one accident. It’s nice to think that as a rich country we don’t have to draw boundaries around healthcare, that we should be able to pay for any possible medical treatment, but we can’t. We already spend almost twice as much on healthcare as other nations and if costs keep increasing eventually it will bankrupt our country.
Many people blame private insurance companies for our expensive healthcare system, but insurers actually have very little to do with rising costs. Instead advancing medical technology is the primary cause. Our for-profit medical technology industry has made amazing advances in treatment and care that have allowed us to save people that used to die. But its primary goal is still profit. Every year the industry comes up with new procedures or refinements. Most provide only incremental improvements in care but they all come with a higher price tag. Every year the industry spends billions of dollars – yes, billions – successfully encouraging doctors to recommend the new procedures. And it’s about to get much, much worse. There is a flood of new treatments and targeted drugs getting ready to hit the market. Some will undoubtedly be true advances, but all are likely to cost tens and even hundreds of thousands of dollars per treatment.
Obamacare is impacting the small group insurance market in many of the same ways as the individual health insurance market. While employers with less than 50 workers don’t have to provide coverage, if they do they are required to comply with the same essential benefit mandates, age rating changes, and pre-existing condition reforms the individual market faces.
That means essentially all small group policies cannot continue as they are––they have to be discontinued.
What makes things a bit easier, if not any less expensive, is that small employers typically have health insurance brokers to run interference for them and help them through this change where individual consumers often get that dreaded cancellation letter telling them they will not have health insurance after a certain date if they do not act quickly in what is a confusing marketplace in the best of times.
The first small group renewals are now occurring––the January 1 renewals that typically have to be delivered during the month of November under state law.
Many employers are facing significant changes in order to comply with Obamacare and therefore price increases. One Maryland broker I spoke to this week has 90 small group accounts and he reports his smallest increase was 15%, his largest was 69%, and most are in the 30% – 40% range.
(By comparison, Mercer just announced the average large employer health care cost increase for 2014 will be 5.2%, meaning small groups could have reasonably expected an increase under 10% without Obamacare.) The biggest rate increases are generally going to those employers with the youngest groups the most impacted by the new “age compression” rules.
Does this mean these small employers’ coverage has been outright cancelled and they will now send their workers to the exchanges, as I have heard some commentators argue?
No, at least not anytime soon.
But that does not mean that lots of these small employers aren’t angry and confused.
What are these small employers doing?
He seemed a bit grumpy when he came into the office. I am used to the picture: male in his early to mid-forties, with wife by his side leading him into the office to “finally get taken care of” by the doctor. Usually the woman has a disgusted expression on her face as he looks like a boy forced to spend his afternoon in a fabric store with his mother. My office is the last place he wants to be.
He let himself down on the couch across from my desk with a wince, belying the back pain that brought him here. He looks around at my office, which is not only a place he didn’t expect to be, but not what he expects a doctor’s office to look like. First there’s the sofa he is sitting on, which is where my patients spend most of their time during their visits. Then there is my guitar just behind me. He and his wife comment on how their daughter would love the fact that I have a guitar, as she is into acoustic guitar music. Then there’s me, wearing jeans and an untucked button-up shirt, sitting back in my chair and chatting like an ordinary person. He seems intrigued.
He owns a business, which is a service type business like mine. Like me, he and his wife choose to do things differently, charging less for folks who can’t afford it. I chat with him about the stress and strain of owning and running a small business, pointing out how his choice is similar to mine.
He had actually suggested coming to me after he had seen me on television, but obviously had initial doubts as to the accuracy of the report. Spin happens. But as we talk, there is much to find in common, and he warms up. His shoulders relax, he sits back on the couch, and forgets he’s in the doctor’s office.
The administration suddenly announced last night that the requirement that all employers with 50 or more workers offer health insurance has been delayed until 2015.
If an employer with 50 or more workers did not provide health insurance to their full time workers in 2014, they would have been subject to a fine of $2,000 per worker. The employer would have also been subject to a $3,000 fine for each worker that went to the insurance exchanges if the employer package was not affordable.
Why did the administration delay the large employer mandate?
Because many employers have been in the early stages of planning to cut back the hours of workers in order to avoid having to offer insurance to those customarily considered part time, those who work at least the 30 hours per week the law established for defining a full time worker––and they haven’t been bashful in telling their employees why. In addition, there has been growing evidence that some employers were holding back on hiring in order to avoid more of the mandate costs at a time of high unemployment.
While the administration cited employer administration issues with mandate reporting as the reason for the delay, the bottom line is that the Affordable Care Act (“Obamacare”) was looking like it was about to be successfully labeled a job killer and the administration wanted to avoid that.
You also have to wonder if all of the reporting challenges were just with employers or was the administration also having trouble with the complex employer mandate information systems they will ultimately have to build?
It’s official. The road sign clearly welcomed me here. I guess all business start-ups have to go through this town (Hell).
What? No bravado? No chest pounding about how my ideas will change health care while making patients smell as springtime fresh? Nope. None of that. It’s hard to get excited about ideas when only money pays the bills.
Having now left the safe confines of my leftover earnings from my old practice, I am now supposed to be self-supporting. Two big things have caused this to not go as smoothly as I have planned:
- My construction took twice as long as I expected.
- I have yet to find a computer system that doesn’t make me want to pound on my desk and wantonly overuse the word “inconceivable.”
It’s been a month since I started my new practice. We are up to nearly 150 patients now, and aside from the cost to renovate my building, our revenue has already surpassed our spending. The reason this is possible is that a cash-pay practice in which 100% of income is paid up front has an incredibly low overhead. My admitted ineptitude at financial complexity has forced me to simplify our finances as much as possible. This means that the accounting is “so simple even a doctor can do it,” which means I don’t need any front-office support staff. I don’t send out bills because nobody owes me anything. It’s just me and my nurse, focusing our energy on jury-rigging a computerized record so we can give good care.
Our attention to care has not gone unnoticed. Yesterday I got a call from a local TV news reporter who wanted to do a story on what I am doing. Apparently she heard rumor “from someone who was in the hospital.” I was the talk of the newsroom, yet I’ve hardly done any marketing; in fact, I am trying to limit the rate of our growth so I can focus on building a system that won’t collapse under a higher patient volume. I explained this to the disappointed reporter why I was not interested in the interview by telling her that I left my old practice because I needed to get off of the hamster wheel of healthcare; the last thing I want to do now is to build my own hamster wheel.
If the Administration wants to make good on President Obama’s election night promise to work across the aisle to solve the nation’s problems, a good place to start would be how it implements a key provision of Obamacare – namely, the Republican idea buried in Section 1334.
The Affordable Care Act is a bulging sketchbook of ideas – some old, some new, some borrowed, some not-so-blue – for improving Americans’ access to health insurance. Obamacare’s cheerleaders and naysayers alike will probably be shocked to learn that one of those ideas, both old and borrowed, was formulated more than a dozen years ago by advocates of market-based health reform. Once the cornerstone of President George W. Bush’s and presidential candidate John McCain’s health policy platforms, the “Association Health Plan” – or AHP – lives on today in Obamacare.
This time around, AHPs are called “Multi-State Plans.” As before, they seek to let consumers, the self-employed, and small businesses from across the country band together into groups to buy a health plan from insurers competing across the country. These old-new plans were and are a powerful idea that could shake up local insurance markets, catalyze competition, and significantly reduce costs – if implemented by the Obama Administration as designed by their Republican architects. The original AHPs – also known for a time as “health marts” – were to be vehicles for giving individuals and the smallest groups access to a full range of insurance options, with the same purchasing freedom and bargaining power of large groups and self-insured employers. They also represent the most feasible way to consummate a perennially popular bipartisan idea for health insurance market reform: model private purchasing by consumers and small groups after the highly successful federal employees health benefits program.
With critical mass, these old-new plans would consolidate the large, chaotic mess at the long end of the insurance market – the tens of millions of individuals, self-employed folks, family businesses, and small groups suffering from the highest costs, lowest medical coverage ratios, and least affordable premiums. Why? Because this end of the market isn’t much of market at all, but hundreds of local markets with limited choices and 50 different sets of rules and regulatory processes.
Private health insurance exchanges will save employers money but not make health insurance cheaper.
Because private health insurance will save employers money, they will grow.
Will Private Insurance Exchanges Reduce Health Insurance Costs?
There’s lots of buzz these days about private insurance exchanges. The idea is to give employees more choice in purchasing their own individual coverage from a big menu of insurance companies and plan alternatives, and as a result, create more robust competition and thereby help control costs.
But I think private insurance exchanges will have just the opposite effect on the price of large employer health insurance plans.
First, private insurance exchanges will increase the insurance program expense factor for any large employer plan using them. A large self-insured plan may operate on an expense factor in single digits (maybe 90% of premiums go for claims and 10% of premiums for insurance company overhead). Individual products operate on an expense factor of as much as 20% and small group plans as much as 15%. Moving away from self-insurance and to an individual choice platform will increase the expense factor leaving the employee less money for benefits.
Second, employers currently save a lot of money in a self-insured plan because self-insurance gives the employer more flexibility. For example, a self-insured plan doesn’t have to comply with state benefit mandates. There is widespread agreement that self-insurance flexibility saves employers lots of money and that is why almost 100% of large employers do it. That savings would end, or be reduced, if the employer eliminated its self-insured plan and instead offered a much more complex individual choice platform in an insurance exchange, leaving less money for benefits.
Proponents of private insurance exchanges argue that by pitting many health plans against each other and giving employees these choices we will have a more robust market which will drive health insurance prices down. But it’s dog eat dog out there now in the group health insurance business. Ask a business owner or benefits manager how they market their health insurance and they will tell you they have their consultant or broker regularly get bids from a number of insurers to improve their plan. Most small employers do it every year.
Last week, the U.S. Supreme Court heard six hours of oral arguments for and against the constitutionality of the new health care law. As a small business owner, I am not a constitutional scholar, but I can definitively say this: the Affordable Care Act is cutting my health care costs and helping my business.
My wife and I run an auto repair shop in Columbia, MD. We started as a small, family-business in 1978. Now, we’re a well-respected business with 19 employees, a long string of awards and a reputation for service.
One of the biggest barriers to growing a successful business has been the rising cost of health insurance. We’re committed to offering insurance coverage, but over the past 10 years it has become a real struggle to keep up with the costs.
We’ve become accustomed to rates going up 10 percent to 20 percent each year (sometimes even more), and we’ve had to look at many different ways to deal with the extra expense. We’ve got a great agent who does a lot of research and works hard to find the best options for us. But in the end, we’re the ones who have to decide what to do — and foot the bill.
The 2010 health care law, the Patient Protection and Affordable Care Act (PPACA), hits small business with a barrage of inequities. Among the most egregious is the health insurance tax (HIT) launched by the law’s Section 9010. Ostensibly a tax on insurers, its real effect will be hundreds of billions of dollars of taxation on people who purchase coverage in the fully-insured market – mostly small business employers and employees and the self-employed. These are the people who usually generate around two-thirds of America’s new jobs.
In contrast, the HIT bypasses those who have coverage through self-insured plans – mostly big business, labor unions, and governments. Like PPACA’s essential health benefits and longstanding state benefit mandates, the HIT puts an anchor around the neck of small business while leaving larger organizations free to swim unburdened. And the anchor is a heavy one.
Over the first decade, the HIT will hit the fully-insured market with an estimated $87.4 billion tab, but that figure greatly understates the long-run financial impact. The tax is not implemented until the fourth year of the decade (2014) and is only fully implemented in 2018. The tax rises from $8 billion in 2014 to $14.3 billion in 2018 and in later years, even higher according to a complex (and at this point opaque) index, discussed below.
To put this in perspective, that $14.3 billion equals around 15 percent of the total small business expenditures on employee benefits in 2007. According to IRS data, proprietorships, partnerships, and corporations with up to $10 million in annual receipts deducted $96.8 billion that year for Employee Benefit Programs. An extra 15 percent or so constitutes an enormous blow to the ability of small businesses to compete against larger entities.
The HIT’s full magnitude will only become apparent in the second decade (2021-2030), when businesses and consumers experience 10 years of a premium-indexed, fully-implemented HIT. The second-decade cost is difficult to forecast, but may exceed $200 billion or even $300 billion. It all depends on how rapidly the law’s arcane index lifts the HIT beyond its $14.3 billion base in later years. There are two major sources of uncertainty in that index.Continue reading…