Medicare’s Forgotten History Shows How to Rescue Obamacare.

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In the last few years, even though premiums in the Affordable Care Act’s health insurance marketplaces were rising, most customers could avoid a big price rise by shopping for a cheaper plan. Next year, according to a preliminary analysis, shopping for a cheaper plan in the Affordable Care Act’s insurance market places will be considerably harder.

Even someone who shopped wisely this year and is willing to switch plans to get the best deal next year is looking at an average premium increase of 11%, according to an analysis of rate filings in 18 states and the District of Columbia provided by the McKinsey Center for U.S. Health System Reform.

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That’s more than double the increase McKinsey measured last year for the same plans in the same group of states, according to The New York Times.

To get the best deal, more than half of last year’s bargain hunters will need to switch. The plans that were least expensive this year in the popular “silver” category are no longer the price leaders in most markets, according to the analysis. People who want to stay in their current plan–either because they like the coverage or want to keep a certain group of doctors and hospitals–could face much larger increases.

The national picture could be even worse. This analysis looks only at states that have publicly released all insurance filings for next year, and some of those states have the most stable markets. In many of the remaining 32 states with the health exchange plans, insurers have been requesting large price increases, and lower-cost insurers have left.

Most current customers will be insulated from the full increases. To help people afford insurance, the law offers sliding-scale subsidies to people earning less than 400% of the federal poverty level, which is around $16,000 for a single person.”

The analysis suggests that most people with a subsidy will see smaller price increases if they switch to the lowest-cost plan. But people earning higher incomes, who pay the full cost of their insurance, will face bigger price increases than before. So will the federal government, which will now pay more in subsidies for everyone else.

Many observers have written extensively about Obamacare’s dismal year. Townhall reports that the number of uninsured is expected to spike by 2 million people between 2017-2026, with the number of those enrolled coming in 24 million under the original CBO projections.

The conservative paper says a large percentage of those who enrolled in Obamacare were already insured before their previous plans were “gutted” under the law, suggesting that the law is on the verge of total collapse.

“It’s a total disaster,” says the paper. “Yet NBC News, CBS News, and ABC News’ evening programs seem to ignore that President Obama’s signature domestic achievement is on life support.”

Steve’s Take: I get a lot of email from my conservative friends and relatives, basking in the supposedly clearly established fact that Obamacare is dead. And I mean, deader-than-a-doornail dead.

After all, big private insurance companies bailing out of a government-sponsored healthcare program, complaining about huge financial losses. Hundreds of thousands of customers lose their health plans. Terminations are especially severe in rural counties, leaving virtually no competition. Total enrollment drops.

This is Obamacare, 2016, right? Nope, actually Medicare, 1998-2002. I was living and working in Washington, DC, at that transformational occasion on July 30, 1965 when LBJ, at the helm of The Great Society, signed Medicare into law.

Something sparked a simple question: Did Medicare go through anything similar to what Obamacare is now? I did some digging and Michael Hiltzik of the Los Angeles Times recently penned a brilliant piece showing how we could all learn quite a bit from Medicare’s rocky, early history. Something we can use to make Obamacare work the way it was intended. Hiltzik must have wondered the same thing, and his article nails it.

During that shaky period (1998-2002), insurers canceled nearly half of their contracts to participate in the managed care program then known as Medicare+Choice and now called Medicare Advantage. Between 300,000 and 1 million customers lost their plans. Total managed care enrollments fell to 4.6 million from 6.4 million. The future of the program was very much in doubt. Sound familiar?

And yet, enrollments in Medicare Advantage today number 17.2 million.

What happened? Hiltzik says the answer comes from Sabrina Corlette and Jack Hoadley of Georgetown University’s Health Policy Institute. In a new study published by the Robert Wood Johnson Foundation, they apply lessons from that experience and other healthcare reforms to the state of the Affordable Care Act individual exchange.

When you provide a public benefit using private companies, those companies are going to make business decisions that are not in the public interest.— Sabrina Corlette, Georgetown University

Resistance by private insurers to the Medicare managed care program elicited concerns about the program’s survival. That should sound familiar to followers of the ACA’s individual exchanges, which have suffered withdrawals by insurers covering hundreds of thousands of enrollees nationwide.

The most recent announcement comes from Aetna, which recently said that it would cease selling exchange plans next year in 11 of the 15 states where it has been participating. That potentially will force more than 500,000 customers to find new plans. The company will continue to sell exchange plans only in Delaware, Iowa, Nebraska, and Virginia.

“When you provide a public benefit using private companies, those companies are going to make business decisions that are not in the public interest,” Corlette said. “Policy makers have to be ready to manage that.” Yes they do, but easier said than done.

Medicare and Obamacare differ from each other in significant ways, so the solutions chosen for Medicare aren’t entirely applicable to the Affordable Care Act, Hiltzik notes. But they do provide a rough, constructive roadmap to guide Congress and state and federal regulators.

It’s time for the government to play hardball with those whining Obamacare insurers.

That’s because the two programs faced similar problems, endemic to situations in which insurers are required to accept enrollees regardless of the risk that they’ll require costly healthcare. That happened with Medicare managed care and with the government’s Federal Employees Health Benefit Program, which delivers group coverage to government workers.

In 1989, Corlette and Hoadley found, Aetna withdrew from FEHBP because of this so-called adverse risk selection; more recently, other commercial insurers, including UnitedHealth Group, have cut back their participation.

Typically, this translates into a complaint that the insurers aren’t being paid enough to shoulder the risk–the essence of their problem with the ACA exchanges. Congress responded to the insurance industry’s complaint about Medicare managed care by increasing reimbursements to the insurers starting in 2003, temporarily paying about 10% more than they were paid for straight Medicare treatments.

“Congress threw money at the problem,” Corlette says. The changes enticed insurers back into the managed care market: While nearly a third of Medicare enrollees had no access to managed care in 2000, nearly all did by 2006.

That remedy won’t work for the ACA, says Hiltzik, because the insurers aren’t paid directly by the government, but by enrollees. Premiums, deductibles and co-payments are set via marketplace competition, overseen (in some cases) by state insurance regulators.

Hiltzik says Congress could, however, increase subsidies to help enrollees meet those costs. I agree completely.

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That would encourage signups by more people, especially younger and healthier customers who are needed to bring insurers per-customer expenses down. That would lure insurers back into the system, Corlette and Hoadley contend. Hillary Clinton has advocated that change as part of her Presidential campaign, but enacting it will require Congressional cooperation.

Another possible option is to force insurers to participate in the exchanges, perhaps as a tradeoff for something they want. As Hiltzik observed, “Some of the same insurers who are bailing out of the individual exchanges are making big profits in Obamacare’s Medicaid expansion programs; why not tie the two together?”

Another option has been pioneered by Florida, which conditioned its consent to the proposed merger of Aetna and Humana to the merged company’s agreement to offer individual exchange plans in five counties where it was not yet operating. Insurers want and need accommodations from state and federal authorities all the time; there’s plenty of opportunity to make deals. Always in a free, laissez-faire market.

For all that, Hiltzik says the most important lesson from Medicare and other public programs has been ignored by the insurers themselves, namely the creation of a new marketplace with a large risk pool will mean new risks that have to be covered.

The risk profile of the overall public in itself should not be a surprise; as insurers know from their experience with Medicare, Medicaid, and employer health plans, a small minority of patients always accounts for the preponderance of costs. Before the ACA, insurers in the individual market dealt with this reality simply by refusing to offer insurance to high-risk customers or pricing them effectively out of the pool.

Under the ACA, such “medical underwriting” is forbidden. Consequently, the risk profile of ACA customers looks a lot worse than that of the pre-ACA individual market, though not much different from employer-sponsored insurance, in which all customers must be covered.

Corlette acknowledges that the key to making the ACA market work is to broaden the customer base by attracting more low-risk customers. But she questions whether the insurers themselves have taken sufficient steps to bring them into the pool.

“What are they doing to market to young healthies?” she asks. “From what I’ve seen, instead of doing more outreach, they’re disappearing into their bunkers. To some extent, if the risk pool is unbalanced, they’re to blame.”

There you have it. Lesson from Medicare: Just broaden the ACA customer base, INSURERS. Harkin back to what you did post Medicare. Your despised IT people can dig up that data in a heartbeat. Surely there’s room at the table for everyone.

But would I want to be the next president that has to deal with all this, especially if the exchanges go into a death spiral? Uh, no thanks.

  • Not sure if the issue is your analysis or your LA Times source’s analysis or Hoadley’s analysis or some misunderstanding of what happened when but…

    1. The change in public Part C of Medicare in the middle of the last decade that has led to its increasing popularity — to the extent it was not demographic (the likely case) — was primarily due to the competitive bidding portion of a 2003 law, not to throwing money at the issue.
    2. To the slight extent there was a throwing-money idea related to Part C of Medicare it was a risk adjustment formula that dated to a different “Medicare reform” law in 2000 but that law did not fully go into force until 2007 and was almost immediately repealed/changed when the “about 10%” higher spending you mentioned happened (it was actually 7% higher). These payments had nothing to do with the services delivered but to the beneficiaries’ health status. Just as it took seven years to roll out the failed risk-adjustment formula, it has taken seven years to back out of it and CMS is not there yet.
    3. Other than that (and an oddball three year quality bonus program in PPACA, and a real sweet deal for unions that ends next year, and a crazy capitated-fee fee for service program that lasted a few years), the same amount of money — plus or minus a percent — was and is spent on average on people who choose public Part C Medicare on top of their A/B as people who choose private insurance on top of their A/B over the entire history of the almost 20-year-old Part C program. That is the intent of the 1997 law and it makes public Part C of Medicare totally different than the insurance sold through the under-65 marketplaces. There was no broadening of the marketplace as suggested in this article.

    However, as an aside, one way that Part C is like PPACA is that Part C beneficiaries do pay insurers for Part C plans in the same way (and to the same extent) that people on the under-65 marketplaces do. Effectively just as with people under 65 using the marketplaces, those of us on Part C get a figurative voucher and choose among Part C plans that range in monthly price to us from $0 to $200 for from $1000 to $1200 worth of insurance. Deductibles and co-payments vary and are regulated.

    • Thank you for your insightful comments. You hit the nail on the head questioning the genesis of the issue at hand in the article, namely, is there anything we can learn from the evolution of Medicare in tailoring the ACA to a program wherein mostly all the intended participants benefit. If I didn’t know better, I’d say you sat on the government or private legal side of the table that wrestled with the Part C Medicare dilemma, among others, drafting regulations attempting to resolve qualification and funding issues.

      One of the biggest differences, among others between the two social programs, is the fundamental risk pool. People over 65, for the most part, constitute the Medicare coverage pool. The ACA risk pool spans a much less homogenous group with—up to this point—the youngest, healthiest segment opting to merely go “naked,” rather than pay insurers a monthly premium, no matter how small. You are absolutely right about the drawbacks associated with “throwing money” at the problem. The failure, so far, to attract this important-to-the ACA’s success group of “healthies” might be remedied by a paycheck deduction, along the lines of social security. The amount of the deduction would be calculated for the cheapest plan for that individual’s age and health status.

      I realize this probably has already been considered, and I’m no expert on the metrics and/or the financial feasibility of the appropriate calculation and corresponding deduction, but it might be a step in the right direction. Again, it’s relatively early in the maturation of the ACA program vis-a-vis Medicare. I tend to agree with those who believe the ACA won’t be scuttled entirely. But there are unforeseen developments such as the opt-out behavior of the healthiest segment of the risk pool that need to be addressed to carry out Congress’s underlying intent.

      • I do not know much about ACA other than what I read because I’ve been on Medicare since before there was an ACA. All I was doing was reacting to the idea of comparing the ACA to the public Part C Medicare Advantage program (I think the comparisons are weak as I said).

        But to your idea:

        “The failure, so far, to attract this important-to-the ACA’s success
        group of “healthies” might be remedied by a paycheck deduction, along
        the lines of social security. The amount of the deduction would be
        calculated for the cheapest plan for that individual’s age and health
        status.”

        … if you made the deduction more like IRS withholding than SS withholding you might have something. Tell everyone that they are going to have the “Roberts tax” (see Note) withheld (rather than having to pay it with a 1040 15 months later) and they might say “Well I may as well spend the money on insurance then.”

        (Note: I do remember that the ACA would have been stopped before it started if Justice Roberts had not ruled that the penalty for not buying insurance was not unconstitutional but just effectively a tax.)

        • Yes, I believe you and I are thinking along the same lines.

          In states unwilling to expand Medicaid, private insurers could bid for the “healthies'” coverage business and then the monthly “premium” for at least some baseline coverage would be deducted from their paychecks under “Taxes.” Chief Justice Roberts would agree this “ACA withholding” would appear under the Taxes withholding of each paycheck along with the usual Fed Withholding, the Fed MED/EE (Medicare), the FED/OASDI/EE (Social Security) and the applicable state tax withholding.

          Whether this involuntary participation program is workable is yet to be discussed, as far as I know. As you say, maybe these “healthies” and other ACA nonparticipants will say, “Might as well spend a little of each paycheck on health insurance.” We all know that the door to the emergency room is NOT the one you want to use to enter the hospital each time. That hasn’t, doesn’t and never will be the appropriate portal for the most cost-efficient care.

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