Relevant and even prescient commentary on news, politics and the economy.

Republican Dilemma on ACA: the Good Parts Take Money

This will be short and sweet, consider it a Health Care Open Thread.

‘Repeal and Replace’ is a pipe dream. Because all the good parts of ACA including guaranteed issue, coverage of pre-existing conditions and inclusions of young people on their parents’ policy actually cost money. At least up front. Which has to come from somewhere. And that ‘where’ tends to come from the pockets of Republican leaning constituencies including medical equipment manufacturers, insurance companies, and medical providers generally. For example a huge part of projected ACA savings comes from reduction of payments for Medicare Advantage, originally billed as a way to leverage the ‘efficiency’ of private (and profit making) economic entities to public ones. Which efficiency calculation has proved problematic even before you calculate the ‘profit’ thingee. With the result that Medicare reimburses Medicare Advantage providing insurance companies with a 14% surcharge over traditional Medicare. Or I should say “reimbursed”, because most of the much ballyhooed “cuts” to Medicare trumpeted by Republicans have come from elimination of the surcharge. Itself rather problematic given that there seems to be no evidence of actual “efficiencies” in MA.

Republicans have no answer for this dilemna. Just about every specific item they oppose about ACA serves as an offset to the increased costs of guaranteed issue and coverage of pre-exisitng conditions. Including their so-called ‘death panels’ which after all are simply cost-benefit analyses of current provision of medical care. Or the same thing that private corporations spend millions on hiring consultants to address. Because when it comes right down to it ‘efficiency’ in the private corporative sense boils down to cost controls.

As a result Republicans are flailing. Their ‘solutions’ such as they are, including cross state border insurance sales and tort reform do little to nothing to having negative consequences on the actual provision of medical care to end-users (aka ‘patients’) but instead reduce burdens on insurance company and provider bottom lines. The same for repeal of the medical device tax and employer mandates and individual mandates. All increase cost while providing bubkis on the ‘available’ and ‘affordable’ fronts.

Those of us who followed health care reform on a daily basis back in 2009 saw that it was at times the rawest form of legislative sausage making. In order to enjoy the nice juiciness of the Bratwurst of Affordable Health Care you had to stomach the knowledge of the nasty bits that actually saved money on the price of the resulting Sausage Dog. And Republicans have no recipe to provide that same Red Hot that doesn’t decrease the quality or increase the sawdust component.

Hoisted by their own Weinar, err Petard.

Health Care Thoughts: Obamacare Fail

by Tom aka Rusty Rustbelt

Health Care Thoughts: Obamacare Fail

When I mention problems with Obamacare implementation in the blogosphere, I am pummeled. Liberals think I am overly cynical, too focused on the practical, and I fail to understand the power of good intentions.


The S.H.O.P. program for small businesses has been delayed until 2015 for the 33 states with federal involvement in the exchanges. Full exchange states have an option to delay. In effect, there will only be one policy available for employers, rather than the menu promised. If that policy does not fit, then……….?

What does this mean? 2014 is shaping up to be a disaster in the small business health insurance markets, where half of a transition equals chaos. Small businesses may have greater incentives to dump employees into the state exchanges, IF the state exchanges are operating as intended (not a sure thing).

One more time. Complexity is the enemy of a smooth roll out and operational efficiency.

Healthcare Reform; Socialism or Fascism?

by Run75411

Healthcare Reform; Socialism or Fascism?

Whole Foods CEO John Mackey in 2009 originally called President Obama’s healthcare plan a form of Socialism while writing an op-ed for the Wall Street Journal:

“The problem with socialism is that eventually you run out of other people’s money.” Margaret Thatcher”

and added to Thatcher’s statement:

“While we clearly need health-care reform, the last thing our country needs is a massive new health-care entitlement that will create hundreds of billions of dollars of new unfunded deficits and move us much closer to a government takeover of our health-care system,” he wrote.

Mackey joins other CEO’s (Papa Johns, Olive Garden, Applebees, etc.) (Raising the Cost of Pizza 10 to 14 cents); who refuse to understand the need for healthcare reform, support a commercial healthcare insurance and industry solution even though both have done little to voluntarily rein in costs, are willing to penalize their employees for the PPACA, and ignore the results of doing nothing and associated increased costs. Since Hillarycare (1994), the industry has ignored increasing costs and has not provided solutions to mitigate them. As shown in Figure 1 annual healthcare cost has grown much faster than inflation. Figure 4 shows the increase in House hold expenditures since 1994 when Hillarycare was considered.

“American Healthcare since 1994” Center for American Progress

Recently during an NPR interview, John Mackey changed his opinion calling the PPACA fascism instead of Socialism:

“Technically speaking, it’s more like fascism. Socialism is where the government owns the means of production. In fascism, the government doesn’t own the means of production, but they do control it — and that’s what’s happening with our health care programs and these reforms.” Obamacare Is Fascist, Not Socialist

In a short period after labeling the PPACA as fascism, John Mackey reconsiders his words after a public uproar and retracted his name-calling of President Obama as a fascist and the PPACA as fascism. All of this from a Liberal now turned Libertarian.

The term fascism today stirs up too much negative emotion with its horrific associations in the 20th century,” he said. 

“I believe that, if the goal is universal health care, our country would be far better served by combining free enterprise capitalism with a strong governmental safety net for our poorest citizens and those with preexisting conditions, helping everyone to be able to buy insurance. This is what Switzerland does and I think we would be much better off copying that system than where we are currently headed in the United States.Whole Foods CEO Regrets . . .”

It has only been since the passage of the PPACA (see S&P Healthcare Indices) has the healthcare industry begun to rein in costs as reflected in Medicare, Medicaid, and SCHPS through efficiencies. Much of this is due to the healthcare industry rapidly preparing for the 2014 final implementation of the PPACA. More will come after 2014.

You would think this would be enough? At the same time, the Republicans are calling for cuts to the three programs to lower deficit spending; the President is offering to consider modest cuts and shows willingness to sell-out the citizens to achieve his Grand Deal. Cuts in any of the programs will do nothing to lower healthcare industry cost as these programs are a reflection of the industry. In the end, such a Grand Deal will lay the burden of healthcare costs on the elderly, the poor and the children of this nation. The “I Made This” John Mackeys of the world who became rich as a result his customers buying from Whole Foods will absolve themselves of any social responsibility.

Raising the Price of Pizza 10 to 14 cents. . .

by Bill aka run75441

Raising the Price of Pizza 10 to 14 cents. . .

Will pizza and food prices really have to increase to cover healthcare costs for the mostly young employees of the Olive Garden’s, Denny’s, and Papa John’s restaurants?

A 10 to 14 cents increase per pizza is being proposed by Papa Johns’ to pay for the PPACA. At the same time, Papa John’s is advertising a 2 million-pizza giveaway with the help of Peyton Manning “Two Million Free Pizzas” (must be a freebie?). Not sure myself how I might decide to account for the cost; but, here is a try; free pizza for 2 million NFL fans to increase sales, . . . cut employee hours to avoid the PPACA and keep the price, . . . raise prices 10 to 14 cents per pizza to have healthcare insurance for the restaurant staff, . . . or maybe a kind of half cheese/half sausage combo. . . healthcare and free pizzas with Peyton Manning promoting the social responsibility of Papa John’s?

Maggie Mahar at The Health Beat Blog “Can US Businesses Afford Obamacare?” points to an interesting article by John Padua of Managed Care Matters discussing who bears the healthcare reform cost if restaurant owners opt out while Forbes Caleb Melby runs the numbers and questions the increased costs suggested by Papa’s John’s CEO “Papa John’s Obamacare Math” .

The issue(s): The Affordable Care Act dictates that full-time employees (30 hours or more per week) at companies with more than 50 workers need to be provided health insurance. CEO John Schnatter has further claimed that some employers will cut employee hours to avoid providing them with healthcare.

The Cost: John Schnatter estimates that Obamacare will end up costing his company $5-8 million annually.

The Price Increase: 10 to 14 cents per pizza

Checking John Schnatter’s Math: Last year, Papa John’s International captured $1.218 billion in revenue. Total operating expenses were $1.131 billion. If Schnatter’s math is accurate (Obamacare will cost his company $5-8 million more annually), then new regulation translates into a .4% to .7% expense increase. It is difficult to set that ratio against the proposed pie increase and across all sizes given size and topping differentials, but many of their large specialty pizzas run for $16. Remarkably, a 10-14 cent increase on a $16 pizza falls in a comparable range of .6% to .9%; but, the cost transference becomes less equitable if you are looking at medium pizzas which run closer to $12, meaning a .8% to 1.15% price increase.

Lets say that Papa John’s sells exactly half medium/half large specialty pizzas. Averaging the ranges for both sizes, then averaging that product yields a .86% price increase — well outside the range of what Schnatter says Obamacare will cost him.

So how much would prices go up, under these 50/50 conditions, if they were to fairly reflect the increased cost of doing business onset by Obamacare? Roughly 3.4 to 4.6 cents a pie.

3.4 to 4.6 cents does not seem like such a huge increase to bear by either customer or the business and if the advertising is done right; it might prove more positive than giving away 2 million freebie pizzas during the NFL season . . . a little like Schooner Tuna in the movie “Mr. Mom,we are in this together for the long haul.'” What customer would not buy into this?

The Issue(s): From the annals of I made this; “Everyone is looking for a way ‘not‘ to provide insurance for their employees. It is essentially a huge tax on all us business people,” declares Denny’s RREMC Franchise Owner CEO John Metz on Fox News. To offset costs further, John adds; “he also will slash most of the staff’s time to fewer than 30 hours per week” to start January 2014.

Talk about giving a long notice for plant closures to employees. What happens if franchise owner sidesteps the insurance provision of the PPACA and cuts hours to fewer than 30? John Padua of Managed Care Matters says the cost falls back on the US citizenry, employees, and customers of these restaurants.

If companies do not provide insurance for low-paid workers, we taxpayers have to. That is the way Obamacare works; folks with incomes below 400% of the FPL can get subsidized coverage. If restaurants cut workers’ hours so as not to insure employees, all of us taxpayers get to pay for their health insurance. These companies are avoiding their responsibility and increasing our tax burden. “The Cost of Obamacare -14 cents per pizza”

The Cost: Maggie Mahar raises the question in her “Can They Afford It???” post. Metz employs 1,200 associates at his Denny’s RREMC franchise. Taking the extreme case of all 1200 employees going into the state exchange and being subsidized up to 400% of FPL; by slashing everyone’s hours to 28, Metz avoids the $2,000 penalty (~$2.34 million in total) for those going into the state exchange.

The Price Increase: 5% surcharge to all meals in 40 Denny’s in Georgia, Florida and Virginia. (note: I wonder how that will appear on the bill?)

Checking The Math: The CBO (which forever appears to be anti-healthcare reform) found in a recent study, 2014 comprehensive healthcare insurance could be had at $3,400 for an employee up to 30 years of age and single. Understanding we are not talking about writing off Metz’s employee expenses from his corporate income tax yet and knowing the PPACA requires an employer to pay 65% of the employee’s healthcare insurance, the $3,400 per person (down from a projected $6,700 without the PPACA) now becomes $2,210 per person.

Denny’s franchise owner Metz is angry with Obama, the PPACA, and his employees. Granted, the example is as much an extreme as Metz’s knee jerk reactions and posturing; but, it points to the overall fallacy in the too-much-healthcare- cost is a drag on my business argument. Both of these entrepreneurs did take grief for their stances. Denny’s CEO John Miller did call john Metz to discuss his stance and John Schnatter has been called out in various blogs and is the subject of multiple boycotts.

Much of this sounds like sour grapes starting with SCOTUS affirming the PPACA and is carryover from the re-election of Barack Obama to the Presidency. Some have protested the validity of the PPACA claiming it was immoral to force business owners to pay for employee healthcare insurance. In an email exchange, John Paduca answers:

“In response to your query as to when it became an employers’ responsibility to provide health insurance, that would have occurred when PPACA was passed, signed into law, and upheld by the Supreme Court. Laws run this country, not morals. If ‘morals’ did, we never would have invaded Iraq or water-boarded prisoners or interned Japanese Americans or overturned legitimate governments in Africa and Central America or supported the Shah of Iran. ‘Morals’ are personal; laws are societal.”

Maybe it is just Republicans having to cancel their airline tickets to Boston for the celebration on November 7th which has placed both Johns in a bad mood. Or could it be pent up anger with the very people who elected Barack to The White House for a second term? You know, those 47 percenters who might make up the bulk of the restaurant workers.

The CBO Wants to Discuss Healthcare and the Deficit?

The CBO Wants to Discuss Healthcare and the Deficit?
(from run75411)

Someone struck a nerve, “The Lady Doth Protest Too Much: CBO Director Asks for A Chat . . .”. Yves Smith at Naked Capitalism received an interesting email after a voice mail from the Associate Director of Communications for the CBO:

Greetings, Susan.

I am following up on my voicemail to see if we can arrange a time either today or sometime this week for you to speak with our director, Doug Elmendorf. He wanted to speak with you about your blog post “Fed Budgetary Experts Demolish CBO Health Models, the Lynch Pin of Budget Hysteria” that appeared Sunday on Naked Capitalism regarding CBO.

I am copying Brianne Hutchinson, Doug’s executive assistant, who will work with you to find a convenient time for the call. You can reach Brianne by e-mail or directly at: 202-226-2700.
We look forward to hearing back from you at your convenience.

Kind regards,
Deborah Kilroe
Associate Director for Communications
Congressional Budget Office
2nd and D Streets, SW
Washington, DC 20515

Recently, Dan posted some of my earlier conversation with Yves and other participants on her post’s thread “Healthcare Spending Growth in the US” at Naked Capitalism . Yves’s post pointed to a recent paper completed by Glen Follette and Louise Sheiner examining and challenging the CBO analysis of healthcare costs as a percentage of GDP An Examination of Health-Spending Growth in the US. Simplified, what the study is found Healthcare growth as a percentage of GDP is sustainable at 1% which is precisely what Obama and even Romney used in their limiting factor for healthcare costs.

Read more at   Health spending growth in the US  at Angry Bear.

Health Care Thoughts: Reform Status According to Really Smart People

by Tom aka Rusty Rustbelt

Health Care Thoughts: Reform Status According to Really Smart People

So after two days in rooms full of top notch front line experts, and two nights sleeping on a couch in a hospital waiting room, I offer a list of key take-aways.. This is reporting only, not advocacy. Some of my opinions may vary (not much). I avoid the nitty-grittiest of operational details. So…..

The amount and complexity of work to be done in the next 24 months is crushing and impossible – expect delays or sloppy rollouts.

Scale is everything, small providers will get crushed. Impacts on rural health care uncertain, so…

Consolidation and integration is the critical path. Some bad outcomes likely.

The Obama administration is incapable of producing regulations and guidance papers on time (in Washington a little late is considered on time).

Providers are preparing cuts both permenant and “cliff” cuts.

The amount and complexity of IT work through the system is staggering. Data is the new currency of health care.

Setting up the exchanges is a massive and messy task, even in the enthusiastic states. Letting the feds install “plug-and-play” may become a good option for many states.

Some large public companies are seriously considering dropping health insurance and paying the penalty (stunned me). No decisions yet known.

Winners, sorta in sequence:

Health IT – vendor companies and geeks
Health lawyers – transaction and regulatory
Health executives – the “talent wars” are going full blast
Health CPAs, finance officers and consultants
Physician executives
Nursing executives
Bureaucrats and regulatory


Physicians – mostly (depends on many factors)
Nurses – hands on care givers
Therapist and ancillary providers
Hospital support staff

Getting a child ready for college? Push them towards…..

IT, health emphasis
Health care administration
Medical records administration / health informatics
Medical coding (good jobs with 2 year degree)
Accounting and finance, health emphasis
Actuarial science

Private health insurers may be really big winners (oops). Some private health insurers are building primary care networks and ACOs.

There are some intesresting and even exciting geriatric care innovations morphing out of the Obama administration, academia and providers.

The “old elderly” are using huge amounts of Medicare resources, innovations may cut usage with the same or better care.

Hospital capital spending is going wild as a market share play, just what we don’t need.

So, now to plug through a thousand or so pages on operational and regulatory details. Did I mention the Obama administration writes a lot of long and largely incomprehensible regulations and guidance statements?

Interesting times ahead.

Tom aka Rusty

Health spending growth in the US

Yves Smith at Naked Capitalism brings us news of an important study addressing the issues of determining the costs of medical care, delivery, and insurance:

A remarkably important and persuasive paper that calls into question the need for “reforming” Medicare has not gotten the attention it warrants. “An Examination of Health-Spending Growth In The United States: Past Trends And Future Prospects” (hat tip nathan) by Glenn Follette and Louise Sheiner looks at the model used by the Congressional Budgetary Office to estimate long term health care cost increases. Bear in mind that this model is THE driver of virtually all forecasts of future budget deficits.
This paper, although written in typically anodyne economese, is devastating in the range and nature of its criticisms.

The election for Senator in MA is close and takes a lot of time, so discussion of this topic has received short shrift till later, but reponses are in the works.  I have taken the liberty of lifting comments from that thread at Naked Capitalism from run75441, Yves, and reader river.

run75441 says:
I have mentioned this before and caught a lot of flak, Elmendorf was one of several who helped kill Hillarycare.
 Yves Smith says:

  • November 4, 2012 at 1:24 pm
    Yes, Dean Baker (along with others) have been criticizing these models for some time, but the fact that it is the folks in the Fed’s fiscal impacts section who have also gone after it (i.e., are not card carrying lefties and therefore don’t have an axe to grind) puts this in a different light.
    What is distressing is that Krugman in particular (someone who is seen as knowledgeable about health care and a pinko) has been taking the conventional line.

And further question and answers here:

river says:
November 4, 2012 at 6:57 pm
Long time reader, but haven’t written on here too much, as I am a financial illiterate and find that this blog is above me a great deal of the time.
That said, the overall point of this blog post seems to be that the CBO is simply basing their long range predictions of health care spending based on the overall increase in spending seen over the last thirty years, but what will actually happen is that the cost increases will taper off naturally because they almost have to . . . you can’t have ever rising exponential growth in a world of limited resources.
The question then becomes what will happen to stop the cost increases from continuing their upward march, and what will be the consequences of that occuring. After all of us experiencing this exact same thing play itself out in the housing market, I can only imagine how it would play itself out in healthcare. For the last few years, most of my raises have gone to healthcare cost increases, and I would expect that to continue, but after a while, we would switch to a catestrophic insurance program and just not use the services that they are providing. As the costs keep going up, more and more people would stop getting any insurance. Bankrupcies, and cost pressures on medical facilities will start to hit the practitioners (if all of the antelopes are starving, the lions will soon starve themselves).

  • run75441 says:
    November 4, 2012 at 9:00 pm
    I have not looked lately; but, commercial healthcare insurance has been increasing in cost at ~8% as opposed to ~2.4% for Medicare (S&P Healthcare Indices). The goal is to get both down to 1% through a series of cost initiatives led by Medicare. Obama has pledged to allow Medicare to begin negotiating healthcare industry services.
    The MLR was put in place to control the amount of premiums spent on insurance administration. Within the MLR are risk factors based upon the youngest and healthiest insuree, 150% for smokers (too low), and up to 300% for the elderly. There is also a maximum you will pay as a percentage of income.
    I had a discussion today with Maggie Mahar on the growing costs and the attached article. I am sure she would not mind my posting some of her thoughts:
    “It seems to me that any attempt to forecast that far out is nuts. Wall Street analysts don’t try to predict a corporation’s finance out more than 3 years– maybe 5– and that’s just one corporations.
    They’re talking about healthcare spending– a huge chunk of the economy.They also assume that the aging of America means higher spending.
    A number of countries in Europe that have populations that are significantly older than ours have shown that just isn’t true. (I’m thinking of Germany & Sweden in particular).
    We’ve always been somewhat hysterical about “What will happen when the Baby Boomers Grow Old!!” We’ll handle it because we have to.
    We already know that 1/3 of Medicare dollars are wasted. Cut even 2/3 of that waste, and problem solved. Getting away from fee for service, more efficient systems, refusing to pay for preventable errors, reducing what medicare pays for services we know are not terribly effective; greater use of nurse practitioners, less screening, . . . etc.”

Universities and ‘think tanks”

Via Naked Capitalism comes a heads up from reader Paul Tioxon:

Propaganda on the Rise on the Health Care Policy FrontReader Paul Tioxon sent the following sighting by e-mail. By way of background, it’s important to keep in mind that pretty much every place that professes simply to read research and translate into stuff journalists and the lay public can understand is generally called a “think tank” and they are Trojan horses for policy agendas. It is also worth noting that Leonard Davis founded Colonial Penn, a large insurance company. 

From Paul:
$100M annually for 200 fellows for Wharton econ research into health care policy economics at the Leonard Davis Institute.
“Established in 1967, LDI is one of the country’s largest health services research centers with more than 200 Senior Fellows studying the organization, delivery, management and financing of health care.” They have their own “Journal of Health Economics”. They recently hired an Ad Age journalist to head up a group of writers who will translate econ mumbo jumbo for decision makers who need guidance and make health policy.
You can read the blog piece which links to Penn’s announcement which should give you a picture of the kind of policy that goes on there. Nice work if you can get it, huh?

Read more at Naked Capitalism.

Uwe E. Reinhardt on health spending

Uwe E. Reinhardt offers his viewpoint on trends in US health spending.  Following are excerpts from two articles in the NYT’s Economix  concerning the costs of our system and how they are apportioned in the big picture, and the impact on family budgets.  Reading the charts is actually important.

There are trends in our health care system that are in place and that providers are responding to, making the regulation process only part of the bigger story.

The Fork in the Road for Health Care

For 2012, the nationwide average of the total health spending for a typical family of four was estimated by Milliman to be $20,728. On a regional basis, that average varies from a low of $18,365 in Phoenix to $24,965 in Miami.

A just-released study by the Health Care Cost Institute shows that much of these spending increases are the result of rising prices and not of rising use. Reporting on the study, Julie Appleby of Kaiser Health News notes,

Higher prices charged by hospitals, outpatient centers and other providers drove up health-care spending at double the rate of inflation during the economic downturn – even as patients consumed less medical care over all. 

The chart below shows the path of the Milliman Medical Index since the year 2000. Although the increase of “only” 6.9 percent between 2011 and 2012 was the lowest since Milliman started publishing the index 12 years ago, a 6.9 percent increase is nevertheless alarming in a period when gross domestic product per capita and the gross wages of employees rise at much lower rates.

Although the family’s contribution of $8,584 is by no means trivial, it is less than half of the total average cost of a family’s health care cost. Most employees probably believe that “the company” – that is, its owners – absorbs the other 58 percent of the family’s total health spending. 

Economists have long argued that this is an illusion – that over the longer haul the bulk and possibly all of the ostensibly employer-paid health insurance premiums gets indirectly shifted back into the employee’s paycheck through lower increases in take-home pay. 

To the extent that there is a limit to this cost shift – e.g., for low-wage or unionized employees — the backward shift takes the form of reduced employment or, alternatively, the employer’s decision not to offer employees health insurance at all. 

This point on backward cost-shifting was driven home recently in a paper in Health Affairs by David Auerbach and Arthur Kellerman. The authors present data showing that a decade of health care cost growth in employer-based health insurance “has wiped out real income gains for an average U.S. family” from 1999 through 2009. Health care has come to chew up American household budgets like Pacman.

Is US health spending finally under control?

Charts 1 and 2 show the growth of health spending from 1965 to 2010, broken down by source of payment. Chart 1 exhibits the time path of actual health spending, not adjusted for inflation. Chart 2 exhibits the percentage of total national health spending contributed by the various sources in the chart. In the charts the green area denotes out-of-pocket spending at the time health care is consumed, the red private health insurance, the gray Medicare, the yellow Medicaid and the blue “other third-party payments.”

Economists would explain such a trend as flows: as the fraction of G.D.P. devoted to health care increases, the added satisfaction, or utility, that people derive from added health care is likely to diminish relative to the added satisfaction derived from consuming more of other things. It could explain a gradual decline in the excess growth of health care spending.