Monthly Archives: August 2010

How Fuzzy Reinsurance Math Will Lead to Future Calls for Bailouts

The Administration released information regarding the first round of applications to the retiree reinsurance program today.  According to the release, nearly 2,000 employer applications have been approved; a list by state is available on the HHS website.

Over and above the vast number of union employers – municipalities, school districts, or multi-employer plans maintained by union organizations – included on the list, it’s worth examining the math behind the program and its funding.  Specifically, Section 1102 of the health care law appropriates $5 billion between now and January 2014 for the reinsurance program.  Assuming 2,000 employers apply for the program, that amounts to a total subsidy of $2,500,000 per employer for the next four years – or $625,000 per employer per calendar year.

Under the law’s provisions, employers can receive a maximum of $60,000 in funding for each retiree – 80% of a worker’s medical claims above $15,000 and below $90,000.  But as noted above, the $5 billion in funding, divided evenly among 2,000 employers, provides each employer with an average of $625,000 per year, an amount that is only enough to cover full claims on 10 retired workers.  In other words, if the participating employers average more than 10 catastrophically sick employees per year, the reinsurance program will run out of money.

To be fair, not all retirees will be eligible for the full $60,000 in federal subsidies, because they won’t have $90,000 in medical claims per year; if retired workers don’t accumulate $15,000 in claims per year – and some won’t – their employer won’t receive a subsidy for that worker at all.  But how many people think that companies like AT&T, General Motors, General Electric, and the hundreds of cities whose applications were accepted really will have fewer than a dozen retirees per year making the full catastrophic claim on the federal program?  If that happens – and it seems virtually inevitable – union special interests will advocate for a taxpayer bailout of the under-funded program, just as they advocated for creation of the $5 billion reinsurance fund in the first place.

Based on this fuzzy reinsurance math, it’s clear that once again, Democrats have created another entitlement program – this one directed toward their union friends and allies – that is unsustainable, and one that will face pressure for a federal bailout before the program concludes.

Health Care Law MORE Unpopular

Key take-aways from this month’s Kaiser Tracking Poll, released this morning:

  • The health law became more unpopular in August, with approval falling seven points to 43%, and disapproval rising by ten points, to 45%.
  • Fewer than one in three (29%) voters believe the law will make them better off – up only one point from the historic low of 28%, set in June.
  • Only 39% of respondents believe that health “reform” will help the country as a whole – the lowest rating since the current health care debate began, and down 20 points from the 59% who thought health reform would benefit the country in February 2009.
  • A net majority of 50% believes the health care law will not be successful in “reducing the total amount the country spends on health care” (31% disagree strongly), compared to only 46% who believe the law will contain costs (only 14% strongly).
  • Among registered voters, 34% are more likely to oppose a candidate who supported the health care law (26% strongly), while 31% are likely to support a candidate who voted for the law (only 18% strongly).
  • A majority (52%) of voters strongly disapprove of the health care law’s individual mandate to purchase insurance.  A further 18% somewhat disapprove, leading to an overall negative rating for the mandate of 70% – almost the same margin by which voters in Missouri rejected the mandate in a referendum earlier this month.
  • Informing those who initially approved of the individual mandate that such a provision “could mean that some people would be required to buy health insurance that they find too expensive or did not want” led nearly half of the mandate’s supporters to reconsider their position, driving the mandate’s net disapproval up to a whopping 83%.

Politico has a brief summary of the poll, noting that the results are “a far cry from the bump proponents had hoped to see as some of the law’s more consumer-friendly provisions kick in.”  And unfortunately for Democrats, future months are unlikely to see many welcome developments either.  Among the “coming attractions” for individuals heading into open-enrollment periods this fall: Premiums will go up, many Americans will discover they will lose their existing coverage as soon as next year thanks to the law’s new mandates and regulations, and millions of seniors will lose access to Medicare Advantage plans they have and like.  No wonder the polls remain clear that Democrats’ government takeover of health care is a change most Americans do not believe in.

Setting the Record Straight on Obamacare and the Deficit

In case you hadn’t seen it, Sen. Crapo’s office earlier this afternoon sent out a release regarding spurious claims Democrats and their allies have made in recent days regarding the health care law’s impact on the deficit.  Specifically, the White House and others have claimed that a letter from CBO to Sen. Crapo last week regarding the $455 billion cost of repealing “certain provisions” in the health care law is equivalent to the cost of repealing the entire law itself.  Nothing could be further from the truth.

In fact, as the press release indicates, Sen. Crapo did NOT request an estimate for the full repeal of the legislation – rather, the CBO’s estimate relates to the cost of repealing only the Medicare savings provisions.  Sen. Crapo requested this estimate from CBO because the Medicare actuary, both in the annual Medicare trustees report earlier this month and a separate analysis of the health care law, believe that most of the major Medicare reductions are not sustainable.  For instance, the Medicare actuary asserted that under the law’s provisions “Medicare beneficiaries would almost certainly face increasingly severe problems with access to care,” and that providers “would have to withdraw from providing services to Medicare beneficiaries.  Likewise, the CBO itself concluded in its long-term budget outlook last month that most of the health law’s major savings provisions are “widely expected” NOT to occur, and if they were implemented, “might be difficult to sustain for a long period.”  However, as Sen. Crapo’s letter revealed, if these unrealistic provisions were overridden by Congress, the result would be a significant net increase in the budget deficit.

So while Democrats are attempting to use the CBO letter to make the false claims that repealing the health care law would cost $455 billion, the REAL story is the fact that the claims that the health care law will reduce the deficit in the first place are based on projections that virtually all independent experts believe will never take place – a budgetary gimmick if ever there were one.

Washington Times on Donald Berwick’s Non-Disclosures

This morning the Washington Times features a front-page story about Centers for Medicare and Medicaid Services (CMS) Administrator Donald Berwick’s failure to disclose donors to the Institute for Healthcare Improvement (IHI), which he lead for over a decade prior to his appointment.  As previously noted, Dr. Berwick in his letter claimed that he could not release IHI’s privately-held records, as he has severed ties to the organization.  However, Dr. Berwick had the power to disclose this information for more than a month prior to his appointment – when he was still working as IHI’s chief executive – but chose not to do so.

Dr. Berwick’s lack of transparency regarding his financial dealings is consistent with the Administration’s public relations strategy of not making Dr. Berwick available for interviews.  But it’s yet another broken promise from an Administration that pledged “an unmatched level of transparency, participation, and accountability.”  And the fact that Dr. Berwick chose not to disclose IHI’s financial information when he had the power to do so – and has not so much as taken a single question in public from Members of Congress or members of the press – speaks to the controversial nature of both his appointment and the health care law he will implement.

Liberal Groups’ Strategy: Don’t Talk About Health Care!

Politico has a fascinating article this morning about how the liberal umbrella group Health Care for America Now (HCAN) is “fighting hard to help re-elect lawmakers who voted for the [health care] bill – even if it means not talking about it….HCAN’s field crews are finding that the best way to support reform-friendly lawmakers is to talk about something else,” like jobs or the economy.

The article also included a striking admission from HCAN’s national field director: “Most people out there are not going to see their health care change for awhile…You might see your premiums go up, but your premiums are going to go up anyway.”  This of course represents a clear break with the President’s rhetoric on the campaign trail, as candidate Obama famously promised to reduce family premiums by up to $2,500 “by the end of my first term as President.”

Just as important, when it comes to jobs and the economy, the health care law is a loser not just on message, but in substance as well.  The law contains more than half a trillion dollars in job-killing taxes on businesses large and small, and contains perverse financial incentives that the Congressional Budget Office recently found would discourage work, further damaging the American economy.

Speaker Pelosi famously said in March that Democrats had to pass the health care bill “so that you can find out what is in it.”  Now, nearly six months later, even liberal groups are afraid to talk about their unpopular health law, and have admitted that the public doesn’t believe the law will help either the deficit or the economy.  When will the majority admit that their government takeover of health care is the furthest thing from the “reform” most Americans wanted?

Update on Berwick and Conflicts of Interest

Late yesterday afternoon CMS Administrator Donald Berwick sent a letter to Sen. Grassley responding to Sen. Grassley’s July 29 letter to Dr. Berwick that he disclose information regarding the donors who funded the Institute for Healthcare Improvement (IHI) during Dr. Berwick’s time as its CEO.  The letter only discusses conflict-of-interest issues, and does not represent the “point-by-point rebuttal” to critics of his controversial writings that the New York Times reported last month Dr. Berwick is preparing.  Three interesting points of note from the letter:

  • With regard to Sen. Grassley’s specific request for more information regarding IHI’s donors, Dr. Berwick responded that “because the information you requested includes non-public documents in the possession of my now former employer, it is not within my power to comply with your entire request.”  However, as Sen. Grassley’s letter noted, Finance Committee staff first requested the IHI donor information from Dr. Berwick on June 4, 2010 – more than one month prior to Dr. Berwick’s recess appointment, while he was still head of IHI.  In other words, Dr. Berwick had the power to compel disclosure of IHI’s funding sources while he still headed that organization, but chose not to do so prior to his appointment – and is now attempting to use his recess appointment as a justification to keep the information private.
  • In response to Sen. Grassley’s request about ethics waivers, Dr. Berwick replied that “two of my former clients – Kaiser Permanente and The Commonwealth Fund – would have a particularly significant role in providing input to officials at CMS on policy matters related to health care quality, Medicare payment reform, and health care reform implementation, and that it would therefore be important for me to participate in discussions that are likely to include participation by The Commonwealth Fund or Kaiser Permanente.”  Dr. Berwick therefore said he will shortly seek an ethics waiver regarding these two former clients.  Some may note with interest the logic that nominees should recuse themselves from matters involving former clients – unless those clients’ interests before the agency are “particularly significant,” in which case the nominee can apply for a waiver.  However, Dr. Berwick did claim that his ethics waiver would be limited, and he would not participate in any matter regarding these two parties “that has a direct and predictable effect on the[ir] financial interest…including such matters as contracts, grants” and other similar proceedings.
  • With regard to Dr. Berwick’s relationship with IHI, he claimed that upon his resignation from IHI “I forfeited all benefits from IHI except” his supplemental executive pension.  Therefore, Dr. Berwick wrote that “IHI does not currently and will not provide any benefits to me or my family, including health care coverage.”  As previously noted here and elsewhere, IHI noted in its financial statements that in 2003 it “established a postretirement health benefit plan” for Dr. Berwick, which offered coverage “from retirement until death.”

Sadly, Dr. Berwick’s apparent lack of transparency regarding his financial dealings is consistent with the Administration’s public relations strategy of not making Dr. Berwick available for interviews.  But it’s yet another broken promise from an Administration that pledged “an unmatched level of transparency, participation, and accountability.”  And the fact that Dr. Berwick chose not to disclose IHI’s financial information when he had the power to do so – and has not so much as taken a single question in public from Members of Congress or members of the press – speaks to the controversial nature of both his appointment and the health care law he will implement.

Business Week: “Small Businesses Skip the Tax Credit”

Business Week has an article this morning highlighting the ineffectiveness of the small business tax credit in actually helping companies afford health coverage.  The article interviews one small business owner with only 15 workers who doesn’t qualify for the credit, because his workers’ average salary is too high – a recipe for wage deflation if there ever was one.  And therein lies the problem with the credit:

The response has been tepid, according to insurance brokers who sell small-group policies. The reason, they argue, is that the credit starts to phase out for companies that pay average annual wages of more than $25,000 or employ more than 25 workers. The value of the benefit declines quickly, so many business owners in high-cost states get no tax break, and those elsewhere often say the credit is too small to make much of a difference.

As the article notes, the small business credit is limited in its amount.  Just as important, the law also limits its duration, meaning that firms will need to absorb the full brunt of premium costs in relatively short order.  But the law contains dozens of mandates to be implemented over the next several years, each of which could raise premium costs by 1-3 percent.  Who then would want to take on new health care costs – or even continue to offer coverage – knowing that the meager small business credit will soon expire, and a mountain of premium-raising federal mandates loom on the horizon in its stead?

Democrats advertised the small business tax credit as one of the “immediate deliverables” promised by the law – but this morning’s article confirms that its poor structure means it will prove much less effective than advertised.  Moreover, while Democrats attempt to re-direct focus on to a relatively paltry tax credit, American businesses, just like American workers, are already seeing the adverse effects of Democrats’ unpopular law emerge before their eyes.

On Access to Life-Saving Treatments

Last week, the CEO of the Cleveland Clinic – which President Obama famously visited last year to tout as a model of health reform – worried about the impact of comparative effectiveness research on patients’ access to treatments.  As a Cleveland Plain Dealer article notes, Dr. Cosgrove stated his concern that “if we only pay for one of those [treatments], we begin to limit what people are willing to do in terms of developing new products.”  He went on to explain the lengthy – and costly – process needed to approve new drugs and treatments, and asked the question of whether investors will want to keep funding research projects for new therapies not knowing whether or not a government board will eventually approve those therapies as “effective.”

While Dr. Cosgrove stated his concerns that comparative effectiveness research – even research that does not consider the cost of treatment options – could hinder life sciences research, an article in the August edition of Health Affairs (subscription required) goes in the opposite direction, evaluating the costs of improving mortality levels for certain diseases in order to derive health care “value.”  This study, which examined trends in hospital mortality and costs for several common diseases, included the following noteworthy conclusion:

For all diagnoses, the oldest patients experienced the lowest cost per life saved because they had the largest mortality reductions and the smallest cost increases.  However, younger patients usually live longer when mortality is averted.  For this reason, cost per life-year saved is a better measure of cost-effectiveness.

The article’s emphasis on achieving greater value in health care, coupled with talk of “the relative value of different therapies that might not be applied equally to all age groups,” raises the specter of denying older patients access to treatments precisely because they are old – and therefore might not live long enough to generate enough “value” from the therapy in the eyes of government bureaucrats.

The Administration’s controversial new head of Medicare, Donald Berwick, has not embraced the concerns expressed by Dr. Cosgrove and others that comparative effectiveness research will harm research in innovation.  To the contrary, he has instead embraced the theories of cost-effectiveness research – to which he has devoted the bulk of his professional career – as a means for government to deny access to treatments; Dr. Berwick said last year that “The social budget is limited—we have a limited resource pool….The decision is not whether or not we will ration care—the decision is whether we will ration with our eyes open.”

As this debate moves forward, the American people should closely examine the words – and actions – of Dr. Berwick and others in the Administration, to ensure that controlling health costs, and obtaining “value,” does not come by denying vulnerable individuals needed care.

Time Magazine: “The First Victims of Health Reform”

Time magazine is out with an article asking whether insurance agents will be the first victim of the health care law – even before it fully takes effect in 2014, agents “might have already experienced a real downside of the massive overhaul, so much so that they may no longer exist.”  The article examines the effect that new federal price controls on insurance policies – in the form of medical loss ratio (MLR) requirements forcing plans to pay out a certain percentage of premiums in medical claims – will have on broker commissions, and ultimately their business models.

Also worth noting: The reaction of “consumer advocate” Timothy Jost regarding the impact of the MLR rules on smaller insurers, who do not have some of the economies of scale that larger carriers enjoy.  To the idea that some carriers may go out of business because of the onerous new mandates and MLR requirements, Jost responded: “Congress intentionally decided it wasn’t necessary to save every player in the market…Some [carriers] will be lost – good riddance.”  Whatever happened to “If you like your current plan, you can keep it” and the President’s campaign promise that “You will not have to change plans?”  How will purposefully driving insurance companies out of business – which Jost says was Congress’ intent – allow individuals to keep the coverage they have – and like?

Democrats’ Latest Health Care Re-Launch

An article in this morning’s LA Times outlines how Democrats and their allies plan a massive ad campaign “in an attempt to stem public disaffection with the health overhaul ahead of the November election:”

“A nationwide, multimillion-dollar ad offensive — organized in consultation with the White House and funded by sympathetic groups and wealthy individual donors — is set to kick off in the coming days.  At the same time, dozens of leading consumer advocates, patient associations and medical groups, working independently and alongside the Obama administration, are scrambling to put together initiatives to tout the law’s benefits.”

Several things to note in this article, beginning with the involvement of non-profit – and in some cases, ostensibly non-partisan – organizations like the AARP and the Robert Wood Johnson Foundation in a political campaign “organized in consultation with the White House.”  These organizations will likely “educate” the public about its purported benefits, while giving short shrift to its drawbacks, like the Congressional Budget Office’s assessment made last week that the legislation will kill hundreds of thousands of jobs.  On a related note, the Health Information Campaign says it will start running ads in support of the law next week – and hopes to “spend $125 million over the next five years.”  Will Democrats – including President Obama – who support the DISCLOSE Act publicly request that this pro-health “reform” organization disclose all its donors?

Over and above the logistics of the latest attempt to “re-launch” the health care “reform” sales effort, there’s the bigger problem that the bill’s provisions remain unpopular with voters.  A survey by Families USA leaked last week admitted that the packaging effort around the law failed, and that the American public believes (rightly) that the law will hurt both the economy and the federal deficit.  Earlier this week, Third Way’s David Kendall admitted that “The healthcare debate raised people’s expectations and there is now disappointment as a result that the problem isn’t solved,” despite all the talk about the law’s supposed “immediate deliverables.”  And a blog posting by the Food and Drug Administration earlier this week on restaurant menu labeling talked about requirements in “the new law,” while neglecting to mention that the new law containing the menu labeling requirements was the health care law – the Patient Protection and Affordable Care ActIf the Administration is afraid to mention the health care law by name on its own website, how unpopular does that make the law – and does anyone really believe that running more ads will change the dynamic?

As Republicans have claimed all along, the problem is not the messaging but the substance.  Once Democrats finally admit that, Congress can start taking steps to enact true health reform, not the 2,700 page behemoth that the majority rammed through earlier this year.