Monthly Archives: August 2016

Liberals’ Agenda: Tax Health Benefits to Fund Corporate Welfare

A feature article in Sunday’s Washington Post provided the latest summary of Obamacare’s woes: Premiums set to spike dramatically, insurers leaving in droves, and millions of Americans held hostage to a lengthening comedy of errors. But liberals stand ready with their answer: More of the same government taxes and spending that created the problem in the first place. To wit, the Left would tax Americans’ employer-provided health benefits to fund a permanent bailout fund for insurance companies.

In a brief released earlier this month, the liberal Robert Wood Johnson Foundation had several possible “solutions” to solve the problem of low enrollment, and low insurer participation, in Obamacare’s health insurance exchanges. In the document, the foundation suggested making program of reinsurance now scheduled to expire at year’s end permanent:

Extending [Obamacare’s] reinsurance program and its mechanism of financing would more likely have a stabilizing influence [on insurers]. The program could be authorized permanently…or for a set period of time, with authority for CMS [the Centers for Medicare and Medicaid Services] to continue it if needed….Funds for the reinsurance pool would need to be, as they are currently, collected from individual market insurers, group market insurers, and self-funded plans.

In other words, individuals who do not purchase coverage from an exchange should have their benefits taxed, to fund more corporate welfare subsidies to health insurers, in the hopes that they will continue to offer exchange coverage.

That was the basic premise of the law’s reinsurance mechanism. Put slightly more charitably, Section 1341 of Obamacare imposed an assessment on Americans with employer-provided coverage, or those who purchase health coverage directly from an insurance carrier rather than through a government-run exchange, to help subsidize exchange insurers with high-cost patients.

The assessments were set to last three years—from 2014 through 2016—serving as a transition while the new marketplaces developed. But after three years, the exchanges are in worse shape than ever. Healthy and wealthy individuals have not purchased coverage, making the exchange population sicker than the average employer plan.

Rather than fixing a problem that onerous government regulations—a mandated package of benefits, and rating requirements that have raised premiums so substantially for healthy individuals that many have chosen to forgo coverage—the Left just wants more of the same. The Robert Wood Johnson Foundation paper included numerous “solutions” straight out of the liberal playbook: Requiring insurers to participate on exchanges; a government-run “public option” intended to destroy private coverage, richer subsidies; and new penalties for late enrollment. In other words, more of the taxes, spending, and regulations that brought us this mess in the first place—not to mention the permanent insurer bailout fund.

Two clear ironies stand out when it comes to the reinsurance proposal. First, the Obama administration has already given insurers far more than they expected—or the law allows—on the reinsurance front. Government officials have repeatedly increased reinsurance reimbursement levels, giving insurers nearly 50% more support from the program in 2014 than they originally expected. And the non-partisan Congressional Research Service believes that the Administration has violated the law by prioritizing payments to insurers over payments to the Treasury—giving insurers billions of dollars in extra funding that legally should be returned to taxpayers.

Second, Barack Obama himself campaigned vigorously against “taxing health benefits” in 2008. He ran ads attacking John McCain for making health insurance subject to income tax, saying the tax would fund subsidies that would go straight to insurance companies. Yet Obamacare contained not one, but two, separate “assessments” (read: taxes) on health plans—the first to fund comparative effectiveness research that could be utilized by health plans reimbursement and coverage decisions, and the second for the “temporary” reinsurance program. After violating his campaign pledge not once, but twice, in Obamacare itself, the president’s allies want Congress to make permanent the tax on health benefits—to finance a bailout fund that will go—you guessed it!—straight to the insurance companies.

With labor force participation still historically low, and Americans struggling with high health costs, now is certainly not the time to tax the health coverage that businesses provide to working families so that insurers can receive billions more dollars in bailout funds. Congress should not even think about throwing good money after bad in a vain attempt to keep the sinking Obamacare ship afloat.

Democrats’ Priorities: Obamacare or Zika?

If Nero was the emperor who fiddled while Rome burned, Barack Obama must surely qualify as the president who dithered while his signature initiative rapidly crumbled. Despite a public-health emergency in sections of the southern United States, the president seems more interested in shoveling money to insurers than in stopping the threat from the Zika virus.

Last week the New York Times reported that the Obama administration was attempting yet another Obamacare relaunch, this one including a federally funded “advertising campaign featuring newly insured individuals, as well as direct appeals to young people hit by tax penalties this year for failing to enroll.” With enrollment in the law’s exchanges well below original estimates, insurers leaving in droves, and premiums ready to spike, the move seems to be a desperate attempt to increase sign-ups and keep insurers at the Obamacare table.

But the timing of the announcement could not be more incongruous. Even as the Department of Health and Human Services wastes taxpayer dollars to promote yet again a measure enacted into law six years ago — on which public opinion has remained decidedly stable (and negative) — HHS also claims that it desperately needs additional funding to fight the Zika virus. Senate Majority Leader Mitch McConnell wrote to HHS on Friday to ask why the agency’s leaders  believe that taxpayer dollars “would be better spent propping up the failed Obamacare exchanges than other important public health priorities — such as preventing the spread of Zika.”

The fact remains, however, that HHS’s top priority is propping up the failed Obamacare experiment — a bigger priority than obeying the text of Obamacare itself. The non-partisan Congressional Research Service and other outside experts have concluded that, in implementing Obamacare’s reinsurance program, the administration violated the law by prioritizing payments to insurers over payments to the Treasury. As a result, insurers will receive billions of dollars in extra funding that legally should be returned to taxpayers.

To sum up the situation: The Obama administration is funneling billions of dollars to “greedy” insurers that Democrats hate, while Nancy Pelosi and other Democrats have called for Congress to return from its recess to pass billions of dollars in spending to fight Zika. There is, however, an easy win-win solution: Use the reinsurance funds to pay for the new Zika spending, rather than giving insurance companies another Obamacare bailout.

The Zika conference report that the House passed in June did pay for new spending on the virus by rescinding some unspent Obamacare funds. Two-thirds of the funds rescinded, however ($543 million in total), came from an account used to establish Obamacare exchanges in United States territories. With exchanges having been established for years, this “rescission” amounts to Congress agreeing not to spend money that was never going to be spent anyway — a “pay for” on paper rather than in reality.

By contrast, utilizing reinsurance funds to finance Zika spending would represent a legitimate savings to taxpayers. Such a move would reclaim billions of dollars that otherwise would have been (unlawfully) diverted to insurance companies — some of which would fund the new Zika spending, and some of which would be returned to the taxpayers to whom the funds belonged in the first place.

Using reinsurance dollars to fund a Zika package would be not only good policy but good politics as well. Most Americans would put the health of infants and pregnant women over the health of insurance companies’ bottom lines — and so should Congress. If Democrats wish to defend crony capitalism and corporate-welfare payments to insurers, that is their right. But particularly after the premium spikes hit this fall, few may wish to do so.

As the old saying goes, to govern is to choose. Senator McConnell rightly pointed out last week that this administration has prioritized its failed Obamacare experiment over protecting Americans from the Zika virus. When it comes to finding any new source to pay for new Zika spending, ending Obamacare’s reinsurance bailout should stand at the top of the priority list.

This post was originally published at National Review.

Another Insurer Bites the Obamacare Dust

Late Monday evening, health insurer Aetna confirmed a major pullback from Obamacare’s exchanges for 2017. The carrier, which this spring said it was looking to increase its Obamacare involvement, instead decided to participate in only four state marketplaces next year, down from 15 in 2016. Aetna will offer plans in a total of 242 counties next year — less than one-third its current 778.

Coupled with earlier decisions by major insurers Humana and UnitedHealthGroup to reduce their exchange involvement, Aetna’s move has major political and policy implications:

Exchanges are in intensive care
Insurers have lost literally billions selling Obamacare policies since 2014. One estimate found that insurers suffered $4 billion in losses in 2014; other studies that suggest carriers lost the same amount last year as well. And these multi-billion-dollar losses come after taking into account two transitional programs that have used federal dollars to protect insurers — programs that will end this December 31.

Over the weekend, in a report on premium increases for 2017, the New York Times noted that for one Pennsylvania health plan, nearly 250 individuals incurred health-care costs of over $100,000 each — “and then cancelled coverage before the end of the year.” While the administration has proposed some minor tweaks to minimize gaming the system, they will not solve the underlying problem: It takes tens of thousands of healthy enrollees to even out the health costs of 250 individuals with six-figure medical expenses, and Obamacare plans have failed to attract enough healthy individuals.

An opening for Trump?
The Wall Street Journal noted that the Aetna’s pullback means that some areas in Arizona now have no health insurers offering exchange coverage. Individuals there who qualify for insurance subsidies will have nowhere to spend them.

President Obama faced a self-imposed crisis in the fall of 2013 when millions of Americans faced a double whammy: Cancellation of their pre-Obamacare policies was coupled with much higher premiums for exchange coverage to replace it. Hillary Clinton could face an eerily similar dynamic in the weeks just before November 8. It remains to be seen whether Donald Trump’s campaign can capitalize on this potential October surprise hiding in plain sight.

Hillary has a problem
Over and above the obvious political problem that the exchanges present between now and November, their dire situation poses a policy quandary that a potential President Clinton would have to address — and fast — on taking office. Her campaign has proposed increasing federal subsidies for those affected by high out-of-pocket costs. But subsidies to individuals will matter little if insurers will not participate in exchanges to begin with.

So how would Hillary Clinton solve the exchange problem? Would she endorse a bailout of the insurers that liberals love to hate? Conversely, if Republicans retain control of at least one house of Congress, how on earth could she enact a government-run health plan that Barack Obama could not pass with huge, filibuster-proof majorities in both chambers? How would a President Clinton get out of the box that her predecessor has gift-wrapped for her?

Will conservatives stand fast?
As I previously noted, Aetna’s “solution” to the exchange problem is simple: Place taxpayers on the hook for their losses — in short, a permanent taxpayer bailout. But given the billions of dollars that insurers have already lost even after receiving tens of billions in corporate welfare from the federal government, Congress will, we should hope, exercise the good judgement not to throw good money after bad.

No Republican voted for Obamacare in either the House or the Senate — and for good reason. The poor design of its health-insurance offerings has ensured that only very sick individuals, or those qualifying for the richest subsidies, have signed up in any significant numbers. No small legislative changes or regulatory tweaks will change that fundamental dynamic. The question is whether, having seen their predictions proven correct, Republicans will seize defeat from the jaws of victory and view a Hillary Clinton victory as meaning they need to “come to terms” with a law that has destabilized insurance markets across the country. Here’s hoping that sale proves as elusive for Mrs. Clinton as Obamacare itself has been to insurers.

This post was originally published at National Review.

Aetna’s New Obamacare Strategy: Bailouts or Bust

Tuesday’s announcement by health insurer Aetna that it had halted plans to expand its offerings on Obamacare exchanges and may instead reduce or eliminate its participation entirely, caused a shockwave among health-policy experts. The insurer that heretofore had acted as one of Obamacare’s biggest cheerleaders has now admitted that the law will not work without a massive new infusion of taxpayer cash.

In an interview with Bloomberg, Aetna’s CEO, Mark Bertolini, explained the company’s major concern with Obamacare implementation:

Bertolini said big changes are needed to make the exchanges viable. Risk adjustment, a mechanism that transfers funds from insurers with healthier clients to those with sick ones, “doesn’t work,” he said. Rather than transferring money among insurers, the law should be changed to subsidize insurers with government funds, Bertolini said.

“It needs to be a non-zero sum pool in order to fix it,” Bertolini said. Right now, insurers “that are less worse off pay for those that are worse worse off.”

A brief explanation: Obamacare’s risk adjustment is designed to even out differences in health status among enrollees. Put simply, plans with healthier-than-average patients subsidize plans with sicker-than-average patients. But the statute stipulates that the risk-adjustment payments should be based on “average actuarial risk” in each state marketplace — by definition, plans will transfer funds among themselves, but the payments will net out to zero.

Risk adjustment, a permanent feature of Obamacare, should not be confused with the law’s temporary-risk-corridor program, scheduled to end in December. Whereas risk corridor subsidizes loss-making plans, risk adjustment subsidizes sicker patients. And while plans can lose money for reasons unrelated to patient care — excessive overhead or bad investments, for instance — insurers incurring perpetual losses on patient care have little chance of ever breaking even.

That’s the situation Aetna says it finds itself in now. In calling for the government to subsidize risk adjustment, Bertolini believes that for the foreseeable future insurers will continue to face a risk pool sicker than in the average employer plan. In other words, the exchanges won’t work as currently constituted, because healthy people are staying away from Obamacare plans in droves. Aetna’s proposed “solution,” as expected, is for the taxpayer to pick up the tab.

It’s not that insurers haven’t received enough in bailout funds already. As I have noted in prior work, insurance companies stand to receive over $170 billion in bailout funds over the coming decade. For instance, the Obama administration has flouted the plain text of the law to prioritize payments to insurers over repayments to the United States Treasury. But still insurance companies want more.

Some viewed Aetna’s threat to vacate the exchanges as an implicit threat resulting from the Justice Department’s challenging its planned merger with Humana. But the reality is far worse: Aetna was conditioning its participation not on its merger’s being approved but on receiving more bailout funds from Washington.

Like a patient in intensive care, the Left wants to administer billions of dollars to insurers as a form of fiscal morphine, hoping upon hope that the cash infusions can tide them over until the exchanges reach a condition approaching health. Just last month, the liberal Commonwealth Fund proposed extending Obamacare’s reinsurance program, scheduled to end this December, “until the reformed market has matured.” But as Bertolini admitted in his interview, the exchanges do not work, and will not work — meaning Commonwealth’s suggestion would create yet another perpetual-bailout machine.

Only markets, and not more taxpayer money, will turn this ailing patient around. Congress should act to end the morphine drip and stop the bailouts once and for all. At that point, policymakers of both parties should come together to outline the prescription for freedom they would put in its place.

This post was originally published at National Review.

Response to Brookings Premiums Blog Post

This Health Affairs blog post contains several material methodological errors, omissions, and distortions, such that it presents a misleading picture of the insurance marketplace.
First, the authors completely ignore multiple prior studies — including one published by one of their Brookings colleagues — all showing a significant increase in premiums when PPACA’s major insurance provisions took effect in January 2014.  A paper published by Brookings non-resident fellow Amanda Kowalski in the Fall 2014 issue of Brookings Papers on Economic Activity concluded that “Across all states, from before the reform to the first half of 2014, enrollment-weighted premiums in the individual health insurance market increased by 24.4 percent beyond what they would have had they simply followed state-level seasonally adjusted trends.”  This conclusion, as part of a paper studying the broader welfare effects of PPACA, utilized actual National Association of Insurance Commissioners data for 2013 and 2014 — unlike the post above, which compared 2009 data (extrapolated to 2013) with 2014 premiums. (Also unlike the blog post in question, Dr. Kowalski’s paper WAS peer-reviewed by colleagues prior to publication.)
Likewise, a recent Mercatus Center study (also peer-reviewed, unlike the above post) found that premiums for PPACA-compliant qualified health plans (QHPs) were significantly higher than non-PPACA compliant non-QHPs in 2014 — again suggesting a significant spike in premiums due to the law.  Despite the higher premiums for the new PPACA plans, however, insurers also suffered losses in 2014 — a point not acknowledged by the Brookings researchers.  Again, this Mercatus Center study utilized actual insurer data from 2013 and 2014, not the extrapolation method used by the blog post.
The blog post also conflicts with data from Standard and Poor’s showing significant increases in individual market costs in 2014 — a trend which continued in 2015.  The data show a nearly 38% increase in total health care costs for the individual market in 2014, and an aggregate 69% increase in total health care costs for the individual market from 2013 to 2015.  As with the Kowalski and Mercatus studies, the S&P report uses actual pre-post data, as opposed to an extrapolation of premium costs for the 2013 pre-PPACA period.
Second, as noted above, the authors make their estimates based on CBO’s estimate (using MEPS data) of premiums for 2009, extrapolated forward based on inflation measures to 2013, rather than actual 2013 premiums.  They provide insufficient support and justification for doing so.  While PPACA was enacted in March 2010, its largest regulations did not take effect until January 2014.  Moreover, as the authors themselves admit, by utilizing 2009 rather than 2013 data, they omit much of the effects of the slowdown in health spending that occurred following the 2008-2009 recession.  Given that the studies using ACTUAL (as opposed to extrapolated) pre-post data all show significant increases beginning in 2014, it is reasonable to question whether their conclusion is primarily, if not solely, the result of the use of a favorable inflation measure for the years 2009 through 2013.  Utilizing more recent MEPS premium data could have functioned as a sensitivity test — to determine whether their findings were solely a result of missing the effects of the health spending slowdown — but the authors chose not to undertake such analysis.
In a similar vein, the authors provide no explanation why they used 2009 CBO/MEPS data as the starting point, but then used a different inflation measure to adjust premiums upward from 2009-2013.  If the MEPS premium data (as utilized by CBO) were sufficient to provide the starting point, then why not use MEPS data going forward, to provide the inflation measure for years 2010 and following?  The authors neither acknowledge nor answer this question.
Third, the authors acknowledge — but failed to make any attempt to quantify — the effects of reinsurance on plan premiums in 2014 through 2016.  A recent Mercatus Center study using actual data from insurer filings found that in 2014, reinsurance payments to insurers amounted to approximately 20.4% of gross premiums — yet still suffered over $2 billion in losses.  Reinsurance payments alone account for all — if not more than all — of the supposed 10-21 percent premium “reduction” in premiums form 2013 to 2014.  It undermines entirely the authors’ argument that PPACA “lowered premiums” if said premium “reduction” came solely based on redistribution of reinsurance funds from employer-based plans (via the Treasury) — particularly when the reinsurance program will end following this calendar year.
Fourth, one of the authors himself admitted that the statements about PPACA plans providing “more” and “better” coverage because the law “increased the quality and robustness of coverage” were made in the absence of evidence.  On the afternoon this post was published, I asked one of the authors (Mr. Adler) on Twitter what evidence he had that plans under PPACA were “better.”  The law included new requirements regarding minimum actuarial values, but it also — as the authors admit — has resulted in narrower physician and hospital networks, as studies by Avalere Health and McKinsey have demonstrated.  I asked Mr. Adler what evidence he had that customers preferred these high-AV, narrow-network plans to the plans offered prior to the law.  Alternatively, did he have any evidence to suggest that these types of plans yielded better health outcomes for customers?
In response on Twitter, Mr. Adler stated that enrollees in PPACA plans have high satisfaction with them — a nice talking point, but not one that proves enrollees think their coverage “better” than what preceded it.  He then admitted that analyzing the quality of PPACA coverage — whether it really was “better,” as the post claims — “wasn’t the focus of the research piece.”  In other words, the authors made claims not supported by evidence.  He continued that the claim of “better” coverage “has nothing to do with the analysis itself of premium comparison” and that “the wording used in the intro/conclusion has nothing to do w/ analysis itself [sic].”
The talking point that “people are getting more for less” under PPACA remains key to press coverage of this post — despite one of the authors’ admission that they made said claim without undertaking research or analysis to support it.  A Los Angeles Times article last week highlighted that talking point, as have prior pieces elsewhere:
Fifth, the authors have failed to respond to concerns about their post that I raised directly with them.  The morning after their post was published, I e-mailed both authors — as well as Brookings Vice President for Economic Studies Ted Gayer — regarding their “conclusions” about PPACA providing “more,” “better,” and improved quality coverage.  I noted Mr. Adler’s public admissions the prior afternoon that the authors had conducted no research in this area, and that — in his own words — the claims made in the introduction and conclusion “has nothing to do with the analysis itself.”  Given that Mr. Adler had acknowledged making these claims without substantiating evidence, I asked for a clarification or correction.  To this date, nearly two weeks later, I have received neither an acknowledgment nor a reply.
In sum, this post appears to be a political talking point in desperate search of data.  With respect to the assertion that PPACA lowered premiums, the authors 1) did not explain why they used CBO/MEPS data from 2009 rather than more recent data, 2) did not explain why they used the inflation measures they did, rather than MEPS data, 3) did not attempt to quantify the effects of reinsurance on premiums, and 4) ignored the multiple studies — including one from a Brookings colleague — using actual pre-post data (as opposed to an extrapolation based on a 2009 estimate) that have all found PPACA raised premiums.
Mr. Adler conceded that he undertook no research to prove that PPACA coverage is “better” or of higher quality than prior plans — in other words, that the first half of the “people are getting more for less” equation has no evidence to support it.  Given this stunning admission, it is reasonable to ask whether the second half of the conclusion was “pre-cooked” as well — that is, whether the authors decided in advance to undertake a study determining PPACA lowered premiums, and cherry-picked data (quite possibly the only data available) to make their claims.  It would certainly explain why the authors made the four material omissions above — and it would also explain why the authors have obfuscated when I requested a correction/clarification following Mr. Adler’s own admission that the talking point of PPACA providing “more” or “better” coverage is unproven.
While not mentioned on Brookings’ site, Mr. Adler previously worked as a data analyst for then-Senator Obama’s campaign for the presidency in 2008.  This “analysis” properly belongs in that arena — as a political talking point for a campaign, not a scholarly study undertaken by a heretofore reputable organization like Brookings, or published (even in blog form) in a forum such as Health Affairs.  The authors should respond to the legitimate criticisms I (and others) have raised about their methodology — and if they cannot, or will not, the post should be taken down in its entirety.