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

Repeal the ACA and Lower Costs for Citizens

by Run75441

Repeal the ACA and Lower Costs for Citizens…

Chicken Little, Courtesy of “EW.Com Entertainment Weekly”

What presidential candidate Romney has vowed to repeal is showing more benefit than harm in driving down the cost of healthcare for individuals, groups, and commercial insurance. If repealed by Romney, the results could cost more than leaving it in place.

The most recent projections of the CBO and JCT reflect a decrease in the insurance cost coverage provision of the ACA over the 11-year period 2012-2022, a decrease of ~$86 billion from the initial projection of $1.252 trillion to $1.1.68 trillion. The projected decrease does not include other aspects of the ACA which in the aggregate will drive the reduction in healthcare cost further. , July 24, 2012.

In the same report, the CBO addresses a letter from House Speaker Boehner asking about the benefits of repealing the ACA. Speaker of the House Boehner and he House Republicans have floated a bill which would repeal the ACA. In a separate CBO letter to John Boehner, the CBO estimates the repeal would reduce outlays by ~$890 billion and revenues by $1 trillion. Over the same period 2012 – 2021, the repeal would increase deficits by ~$109 billion. This estimate does not include the hidden costs of people not being insured if the ACA is repealed.

Over at Maggie Mahar’s Health Beat, Maggie touches upon the decreasing cost of healthcare Breaking The Curve of Healthcare Inflation and what the intent is of the ACA:

“- The ACA told insurers that they would no longer be able to shun the sick by refusing to cover those suffering from pre-existing conditions. They also won’t be allowed to cap how much they will pay out to a desperately ill patient over the course of a year –or a lifetime.”

“- insurance companies selling policies to individuals and small companies will have to reimburse for all of the “essential benefits” outlined in the ACA–benefits that are not now covered by most policies and if they hope to stay in business, they will have to find a way to ”manage” the cost of care–but they won’t be able to do it by denying needed care.”

“providers too will be under pressure. A growing number will no longer be paid ‘fees for service that rewarding them for ‘volume’ or for ‘doing more.’ Bonuses will depend on better outcomes, and keeping patients out of the hospital–which means doing a better job of managing chronic illnesses.”

But, what of the overall program results?

– “From 2000 through 2009, Medicare’s outlays climbed by an average of 9.7 percent a year. By contrast, since the beginning of 2010, Medicare spending has been rising by less than 4 percent a year.” It is now ~2.5%.

– “Zeke Emanuel (an oncologist and former special adviser for health policy to White House OMB director Peter Orszag) to Maggie: providers are ‘anticipating the Affordable Care Act kicking in. They can’t wait until the end of 2013: They have to act today. Everywhere I go, ‘Emanuel, added, ‘medical schools and hospitals are asking me, How can we cut our costs by 10 to 15 percent?'”

– “Rather than have Medicare set prices for lab tests and medical devices we should put all such purchases out for competitive bidding. ‘In 2011,’ he (Peter Orzag) pointed out, ‘bidding reduced Medicare spending on wheel chairs and other equipment by more than 40 percent.'”

And for the average person, what are and what were the paybacks? Exploring Maggie’s article further, this chart can be found on the US Department of Health detailing the amounts of rebates in total, by state, and by Healthcare Insurance Company. “The 80/20 Rule”


To take this a step further and look up your own insurance company, a pivot table at the site will allow you to look up insurance companies by state and what the average rebate is if called for from the application of the MLR. Your Insurance Company and Cost of Coverage

 How successful the MLR has been can be measured by the impact of the MLR in measuring administrative costs of insurance companies against benefits, providing rebates to citizens, and giving states the ability to review requests for insurance increases through greater access to information. There are fewer double digit increases requested, more decreases in insurance rate requested, and reversals in rates at the state level due to greater information provided to states. 2012 Progress Report: Health Reform is Opening the Insurance Market and Protecting Consumer

Early on, the ACA is having a tremendous impact on controlling and reducing costs providing better value for the money and reducing the inflationary impact of the overall healthcare industry.

Mandate No! MLR SI!: Heard here frist (sic)

No not the striking down of the mandate part, heck probably a thousand fingers were poised over an equal number of ‘Send’ keys when the ruling came down. Me? I took a shower and started thinking about the practical implications of ACA as it will operate under current law as modified today.

Starting with the MLR. Which you did hear about here first in this AB post from July 2009 HR3200 Sec 116: Golden Bullet or Smoking Gun . MLR stands for Medical Loss Ratio which in the final version of ACA was set at 85% for the Group market and 80% for the Individual market for health insurance policies issued by private insurers. Now ‘Medical Loss’ is itself an interesting term of art, it represents the actual amount of insurance premiums collected ‘lost’ via being expended on actual care paid for under your policy. That is for insurance companies the actual end service being delivered from purchase of their product is from their perspective a dead loss to be reduced. Hence a business model built around denying claims.

MLR minimums start to flip that model on its head. Under the rule if the ratio of premium collected to provider payments issued exceeds 15% or 20% respectively in Group or Individual market the difference has to be rebated to the policy holder. And indeed such rebate checks actually went out this year, this provision having already kicked in. Well after this morning’s ruling that rule will continue to operate until specifically repealed. And it is important, though maybe not as much as I was able to convince Donny Shaw of when he put this post up on Open Congress on Nov 14, 2009 The Most Important Health Care Reform Provision You’ve Never Heard Of. For example Richard Escow of HuffPo and elsewhere is of the opinion (expressed semi-privately to me and some others), that while important MLR can be gamed. And in fact I discuss that somewhat in my original 2009 post, feel free to rip on this in comments. Me? I still think MLR is transformational.

So what things are NOT included as ‘medical losses’? In short: administration, management, and direct profits from operations. (For example gains from retained and reinvested profits would not I think count against the company). Currently a lot of health insurance administration is focused on making sure that people likely to submit claims don’t get signed up and/or denying claims to those who for whatever reason obtain coverage. Well various separate ‘must cover’ ‘no pre-existing condition exclusion’ rules take care of much of the first part, under ACA the companies have little room to just turn customers away. And MLR installs limits on the second part. While companies have an incentive to trim their medical ‘losses’ as close to the minimum as possible, every dollar spent doing so puts a squeeze on the same 15% or 20% of premiums they need to pay management salaries and return profits to shareholders. While every dollar squeezed out of the claims process by increasing efficiency and throughput of claims (i.e. actually paying providers on a timely basis with a minimum of paperwork requirements) leaves that much left over for management and shareholders. Gosh all of a sudden we have a business model based on efficient DELIVERY of services rather than DENIAL of them.

Paging Rusty Rustbelt! And Mike Halasy! Because I would love to see how this argument plays to people from the provider community. Particularly folk who have been on both sides of the overall issue. And of course I welcome comment from everyone else. I have been largely absent from the Health Care Debate since actually passage of ACA, the ball went into the lawyers’ court and I am if anything less a lawyer than I am an economist. But after this morning we are right back in the policy analysis game. To which I say “Put me in coach!”

MLR bomb…

There is a amazing piece in Forbes that Tim Worstall (also at Forbes) notes reporting on scary news that is misleading:

I’m very confused by this piece from fellow Forbes contributor Rick Ungar. He tells us that there’s a bomb buried in Obamacare (or more formally, the Patient Protection and Affordable Care Act) and that it’s just gone off. Further, that it will mean the end of private, for profit, health care insurance on any large scale: whatever remains will be just a luxury item for those who like to beat the queues as such insurance is in the UK where we have the NHS.

Angry Bear’s Bruce Webb noted the MLR in the legislation on July 28, 2009 (and here and here), among the first to offer analysis, but hardly a surprise now.

Tim [edited for clarity] quotes Ungar and then refutes:

That would be the provision of the law, called the medical loss ratio, that requires health insurance companies to spend 80% of the consumers’ premium dollars they collect—85% for large group insurers—on actual medical care rather than overhead, marketing expenses and profit. Failure on the part of insurers to meet this requirement will result in the insurers having to send their customers a rebate check representing the amount in which they underspend on actual medical care.

This is the true ‘bomb’ contained in Obamacare and the one item that will have more impact on the future of how medical care is paid for in this country than anything we’ve seen in quite some time. Indeed, it is this aspect of the law that represents the true ‘death panel’ found in Obamacare—but not one that is going to lead to the death of American consumers. Rather, the medical loss ratio will, ultimately, lead to the death of large parts of the private, for-profit health insurance industry.

Why? Because there is absolutely no way for-profit health insurers are going to be able to learn how to get by and still make a profit while being forced to spend at least 80 percent of their receipts providing their customers with the coverage for which they paid.

What confuses me here is that in a competitive market it’s entirely normal for an insurer to have a loss ratio higher than 80%. There are plenty of entirely profitable and growing insurance companies that have loss ratios over 100%. So I cannot really understand why the law insisting on an MLR of 80% (or 85% in the large group market) is going to cause all for profit insurance companies to fall over.

Now of course one wonders what is important in addition to this scarey announcement of a medical cost bomb? Issues of accounting for expenses, a more recent mlr formula that is more permissive, enforcement issues. And even why the ratios may be central as a part of the legislation. Another post of course.

Medical Loss Ratio Revisited: Cost and Coverage Controls that Work.

Back on July 28th I posted on what I considered to be the most important provision of the original House Tri-Committee Health Care Bill in Sec 116: Golden Bullet or Smoking Gun Smoking Gun referred to the belief by Republicans that this bill was designed to ultimately transition to Single Payer, and Golden Bullet to my belief that they were right, that if you forced private insurance to give up its predatory business model that ultimately they would abandon less profitable markets just as they did in the heyday of managed care.

What Sec 116 did was to establish minimum Medical Loss Ratios for all plans participating in the proposed Exchanges. Medical Loss Ratio is the industry term for percentage of premium dollar actually spent on provider payments with the remainder retained by the company to pay for marketing, administration, executive compensation, and profit. Under the House Bill the actual mandated MLR for each area would be set by an auction process and in that model you pretty much needed a Public Option to establish a baseline.

Over the course of the summer and fall the language of Sec 116 was displaced and minimized in a way that restricted it only to policies issued before the establishment of the Exchanges and so make it almost useless in the bigger picture. But then a near miracle happened at the last minute, the Team of Ten inserted Section 2718 “BRINGING DOWN THE COST OF HEALTH CARE
COVERAGE”. MLR Regulation was back, and better the ever. Text from the Manager’s Amendment and commentary below.

‘‘(A) REQUIREMENT.—Beginning not later than January 1, 2011, a health insurance issuer offering group or individual health insurance coverage (including a grandfathered health plan) shall, with respect to each plan year, provide an annual rebate to each enrollee under such coverage, on a pro rata basis, if the ratio of the amount of premium revenue expended by the issuer on costs described in paragraphs (1) and (2) of subsection (a) to the total amount of premium revenue (excluding Federal and State taxes and licensing or regulatory fees and after accounting for payments or receipts for risk adjustment, risk corridors, and reinsurance under sections 1341, 1342, and 1343 of the Patient Protection and Affordable Care Act) for the plan year (except as provided in subparagraph (B)(ii)), is less than—
‘‘(i) with respect to a health insurance issuer offering coverage in the large group market, 85 percent, or such higher percentage as a State may by regulation determine; or
‘‘(ii) with respect to a health insurance issuer offering coverage in the small group market or in the individual market, 80 percent, or such higher percentage as a State may by regulation determine, except that the Secretary may adjust such percentage with respect to a State if the Secretary determines that the application of such 80 percent may destabilize the individual market in such State.

The language is convulted but the result is simple, insurance companies can no longer make money by ensuring people who don’t make claims.

Under the current business model of private insurers the goal is to recruit insurees who in all likelhood won’t make claims, while denying those who are certain to either because of pre-existing conditions or simply by falling sick. The bill directly outlaws those practices but under 2718 they wouldn’t have the desired effect anyway. Take the hypothetical case where your entire risk pool is made up of healthy young adults whose claims are mostly limited to broken bones from skiing or biking accidents. Under 2718 unless those claims across the risk pool don’t add up to 80% or 85% depending the insurer has to rebate the extra premium. At the extreme the company would have to rebate the entire premium and so go out of business having no revenue to even pay employees. Under the new model the only ways to increase profits are one, to compete on the basis of volume, or two to reduce administrative costs, which is a 180 from the current model of hastling claimants into dropping coverage or simply finding excuses to rescind coverage.

Similarly 2718 limits or eliminates the utility of simply raising premiums because it would require a parallel increase of provider payments on an 85 to 15 ratio, otherwise the rebate provision would trigger. And while collusion between provider and insurer can’t be excluded the benefits would flow more than 5 to 1 to the provider while the price differential with other plans falls entirely on the insurer. The same effect occurs by eliminating a category of coverage, even if you didn’t fall afoul of the Acceptable Benefits Package requirements once again you risk triggering the rebate provision.

The words are not used in the bill but the result is nearly automatic cost controls. And enforcement is relatively easy, most of the information needed to calculate MLR is readily available in SEC filings and IRS returns, you don’t need HHS auditors rummaging around in the records, the SEC, the FBI and the IRS are already on the job.

On some other blogs I called this “The Most Important Health Care Provision You Never Heard Of”, something that is no longer true. It was reported the other day that the Health Care insurers were ecstatic at the passage of the bill, all those new customers delivered by the individual mandate! And Wall Street responded. But then some lobbyist realized what the real import of 2718 was and sent a follow up memo saying “not so fast”.

This language is not in the House Bill, at least not with the same effect, and we can expect that insurance companies will start working on the usual suspects to kill the bill on final. Which in my mind is reason to just get this bill signed to nail 2718 into law. Because on its own it has many of the same benefits on the overall system that the Public Option was supposed to deliver.