A couple of states have just released their estimates of the effect of PPACA on state health care expenditures over the next ten years or so. Democratic Maryland sees significant savings for the decade, while Republican Virginia forecasts huge cost increases over the next thirteen years. Is this political bias or just state-to-state differences?
The Baltimore Sun reports that Maryland’s Health Care Coordinating Council estimates that reform will save the state $829 million between now and 2019 and provide coverage to half of those who would otherwise be uninsured. The report also notes that the savings will peak by 2019 and then start to reverse to become expenditure increases.
In contrast, Virginia’s recently filed lawsuit challenging PPACA claims that the commonwealth would incur $1.1 billion in additional Medicaid costs over the 2015-2022 period.
So, is either estimate realistic? Why are they so far apart?
While there may well be some political bias—conscious or unconscious—in the estimates, and especially in the figures accompanying Virginia’s Republican Attorney-General’s lawsuit, there are also reasons why the numbers are very different in spite of the two states being close in population and geography. First, the Maryland forecast includes only “good years,” in terms of federal funding, while the Virginia estimate also includes three ”bad years,” in which additional costs most outweigh increased federal funding. Second, Maryland’s Medicaid program is currently more generous than Virginia’s and will not require the additional expenditures to meet PPACA’s expanded eligibility levels. Third, Maryland’s unique all-payer hospital reimbursement system means that costs will be reduced for Medicaid (and other payers) as the number of uninsured shrinks.
Perhaps more important than whether or not Maryland’s estimates are optimistic or Virginia’s are pessimistic, the comparison points out that health care reform is going to have a significantly greater impact on some states—those with the least generous Medicaid and state-only health care programs—than others.
Friday, July 30, 2010
Sunday, July 25, 2010
THE COST (AND BENEFITS) OF PREVENTION
One of the less controversial provisions of PPACA is the requirement that preventive services be covered by most health plans, generally with no patient cost sharing, for new and renewed enrollment after September 23, 2010 (the six month anniversary of the signing into law of the new act).
All plans other those grandfathered under PPACA must offer coverage of a list of preventive services based on recommendations from the United States Preventive Services Task Force, the CDC’s Advisory Committee on Immunization Practices, and HHS’ Health Resources and Services Administration.
Although grandfathered plans are excluded from the prevention requirement, many large group plans already cover some preventive services at no cost. As large groups modify their coverage and lose grandfathered status, they will become subject to the prevention provisions.
The interim final regulations just published jointly by HHS and the Departments of Labor and the Treasury are accompanied by a list of expected benefits including improved health from prevention or delayed onset or earlier treatment of disease, lower absenteeism and increased productivity, and lower health care costs due to avoidance of later more expensive treatment.
Also included is an estimate of the impact that the prevention coverage provisions will have on premiums. Not too surprisingly, adding coverage of preventive services with no patient cost sharing is going to result in premium increases. These are likely to be highest for those with individual coverage since these plans typically offer fewer preventive services today, and lowest for large groups which typically already include preventive care.
The average premium increases (due to a combination of increased demand for “free” services and transfer of some coverage costs from patients to insurers) is estimated to be about 1.5 percent, or around $200 a year for family coverage, an amount that reform advocates will likely claim is miniscule and opponents will trumpet as outrageously expensive in the middle of a recession.
All plans other those grandfathered under PPACA must offer coverage of a list of preventive services based on recommendations from the United States Preventive Services Task Force, the CDC’s Advisory Committee on Immunization Practices, and HHS’ Health Resources and Services Administration.
Although grandfathered plans are excluded from the prevention requirement, many large group plans already cover some preventive services at no cost. As large groups modify their coverage and lose grandfathered status, they will become subject to the prevention provisions.
The interim final regulations just published jointly by HHS and the Departments of Labor and the Treasury are accompanied by a list of expected benefits including improved health from prevention or delayed onset or earlier treatment of disease, lower absenteeism and increased productivity, and lower health care costs due to avoidance of later more expensive treatment.
Also included is an estimate of the impact that the prevention coverage provisions will have on premiums. Not too surprisingly, adding coverage of preventive services with no patient cost sharing is going to result in premium increases. These are likely to be highest for those with individual coverage since these plans typically offer fewer preventive services today, and lowest for large groups which typically already include preventive care.
The average premium increases (due to a combination of increased demand for “free” services and transfer of some coverage costs from patients to insurers) is estimated to be about 1.5 percent, or around $200 a year for family coverage, an amount that reform advocates will likely claim is miniscule and opponents will trumpet as outrageously expensive in the middle of a recession.
Friday, July 23, 2010
PUBLIC OPTION REDUX!
Just when we thought it was dead and buried, our old friend the public option has been resurrected by a trio of Democratic congressmen, headed by Representative Pete Stark.
HR 5808, introduced in the House this week with support from some 120 congressmen, would establish a national public health insurance plan to be offered though the new insurance exchanges. This public option would pay providers at rates tied to Medicare, but with physician payments detached from the SGR formula. Providers would not be required to participate in the public plan in order to participate in Medicare.
The CBO estimates that the public option’s premiums would be 5 to 7 percent lower than private plans offered through the exchanges, and that by 2019, some 13 million individuals would be enrolled through exchanges—if the public option were available. The CBO also estimates that while some providers would decline to participate, many would in the expectation that a plan administered by HHS would attract a considerable population of enrollees (and—not mentioned by the CBO—would probably be administered more loosely than a commercial plan). The CBO’s bottom line is a projection of a reduction in federal deficits through 2019 of about $53 billion, due to lower exchange subsidies and increased tax revenues.
So, is there really any life in the public option? Although the positive CBO scoring will give it some appeal, it seems very unlikely that many in Congress—even supporters of reform—will want to revisit the reform battlefield, especially in an election year. (Actually, some Republicans might be delighted to extend the reform debate to include such a socialistic concept.) So, Representative Stark and his fellow liberals will gain a little political traction, but—whatever its merits or otherwise—the public option is likely to quickly find itself returned to the tomb.
HR 5808, introduced in the House this week with support from some 120 congressmen, would establish a national public health insurance plan to be offered though the new insurance exchanges. This public option would pay providers at rates tied to Medicare, but with physician payments detached from the SGR formula. Providers would not be required to participate in the public plan in order to participate in Medicare.
The CBO estimates that the public option’s premiums would be 5 to 7 percent lower than private plans offered through the exchanges, and that by 2019, some 13 million individuals would be enrolled through exchanges—if the public option were available. The CBO also estimates that while some providers would decline to participate, many would in the expectation that a plan administered by HHS would attract a considerable population of enrollees (and—not mentioned by the CBO—would probably be administered more loosely than a commercial plan). The CBO’s bottom line is a projection of a reduction in federal deficits through 2019 of about $53 billion, due to lower exchange subsidies and increased tax revenues.
So, is there really any life in the public option? Although the positive CBO scoring will give it some appeal, it seems very unlikely that many in Congress—even supporters of reform—will want to revisit the reform battlefield, especially in an election year. (Actually, some Republicans might be delighted to extend the reform debate to include such a socialistic concept.) So, Representative Stark and his fellow liberals will gain a little political traction, but—whatever its merits or otherwise—the public option is likely to quickly find itself returned to the tomb.
Wednesday, July 21, 2010
WELCOME TO THE PPACA COST (OR SAVINGS) DARTBOARD
One thing about a democracy, everyone is entitled to publish their predictions about the future, and on the costs (or savings) of the Patient Protection and Affordable Care Act over the 2010-2019 decade, there are enough to cover the dartboard. Whether any have hit the bull’s-eye is another question.
The two most authoritative darts so far are those of the CBO and CMS’ Office of the Actuary. Each assumes that reform will be implemented exactly as stated in the new law, with no successful legal challenges and with legislated cost reduction targets achieved. The CBO forecast is limited to federal spending, while the OA projections cover both federal and overall national expenditures.
The CBO’s well-publicized (by reform advocates, anyway) dart hit the board immediately prior to passage of PPACA with an estimate of federal savings of $86 billion (excluding advance premiums from the new CLASS long-term care insurance program), or slightly less than one percent of projected federal health care spending.
The OA dart, thrown a month later and applauded by reform opponents as contradicting the CBO forecast, landed on the $289 billion number for increased federal spending (prior to CLASS premium collections), and on $310 billion for increased national health care expenditures.
Other darts have been tossed from the left and right of the board by health care economists, including—from the left—David Cutler, and—from the right—Douglas Holtz-Eakin. Not too surprisingly, their darts hit far apart, with Professor Cutler and his co-authors (of a Commonwealth Fund paper) forecasting federal savings of $400 billion and national spending reductions of some $590 billion, and Holtz-Eakin and his co-author (of a Health Affairs article) projecting increased federal costs of a horrendous $554 billion (possibly along with the end of American civilization).
What are we to make of a dartboard spread of more than a trillion dollars?
Let’s start with the CBO and OA numbers.
Trying to reconcile the two governmental forecasts is impossible without more detail of their respective models, although it is apparent that assumptions about individuals’ coverage choices vary significantly. Even approaches to counting the covered population are different: CBO uses an FTE approach, while OA counts enrollment, so that, for example, dual eligibles are counted under both Medicare and Medicaid, leading to total insured enrollment appearing to exceed the entire US population. One common feature of the two forecasts, however, is the very limited savings each believes will be achieved by health care system “modernization,” such as use of ACOs, more effective IT, new payment approaches, and increased emphasis on quality and effectiveness.
Moving on to the health care economists, the range of scores across our dartboard is truly startling.
Professor Cutler and co-authors Karen Davis and Kristof Stremikis start with CBO’s estimate of federal savings, modify this to include all newly covered individuals’ spending, then adjust the result to reflect their estimates of savings from “modernization” and use of exchanges, to give reductions of $590 billion in national health expenditures and $400 billion in federal spending.
Is this a well-aimed dart, or merely a triumph of hope over experience? Certainly, Cutler et al seem cavalier about costs; in comparing their estimate of spending before adjustments with OA’s $311 billion higher figure, they comment: “$30 billion a year is very small on the scale of health expenditures…” (It’s tempting to ask Professor Cutler for the loan of a quarter; with this casual attitude to money, he’ll probably offer his wallet.) Aside from this modest $311 billion item, the major differences between Cutler et al ‘s numbers and those of the CBO and OA are in savings from exchanges and “modernization.” Cutler et al believe that use of exchanges will reduce average insurer administrative costs by three percent, compared with the CBO’s estimate of just 0.4 percent, and that system “modernization” will trim medical costs by one percent a year, each year after 2014, compared with the CBO and OA projections of close to zero.
Meanwhile, on the right-hand side of the dartboard, Douglas Holtz-Eakin and co-author Michael Ramlet also start with the CBO numbers, but reject almost all federal spending cuts as politically infeasible, then add in $260 billion for health grants and physician reimbursement not mentioned in PPACA, to give their estimate of a monster federal spending hike of $554 billion.
So, who is closest to the bull’s-eye? Of the governmental forecasters, OA has the advantage of more detailed federal spending data, so that its estimates for Medicare and Medicaid may be the more credible. On the other hand, one area where OA diverges most from the CBO numbers—by some $330 billion—is in projected revenue from drug manufacturer fees, hospital insurance taxes, and other provisions, which might be more within CBO’s budgetary forecasting capabilities. Inserting the CBO estimates into the OA forecast would give a net reduction of federal spending of $40 billion—reasonably close to the CBO savings of $89 billion.
In contrast to the conservative approaches of CBO and OA, the economists’ darts seem to have been thrown somewhat wildly. Cutler et al’s projection of exchange administrative savings is surely too high given that two-thirds of those privately insured are in large groups, whose costs will be little affected by the exchanges, while their estimates of savings from “modernization” assume a remarkable degree of provider cooperation in revenue reduction. These optimistic forecasts aren’t infeasible, but they assume a degree of behavioral change by insurers and providers that seems unlikely without a major restructuring of the health care system.
The Holtz-Eakin forecast is as overly pessimistic as Cutler et al’s is optimistic. The contention that virtually every PPACA spending cut will be rejected as politically infeasible seems close to absurd, given both political parties’ promises to cut the deficit. Almost certainly, there will be some yielding to lobbyists, but a more likely effect will be modest shortfalls in savings from, for example, IPAB-recommended payment changes.
The conclusion? While both the CBO and OA darts look to land somewhere close to the target in terms of federal expenditures (except for the difference in revenue estimates), the path to the national spending bull’s-eye is much more uncertain. Some of the reform law’s changes are likely to result in insurer industry consolidation, which could begin to change the balance between providers and insurers and lead to lower medical costs. At the same time, providers’ revenue expectations may—in the face of Medicare cuts—result in further cost shifting to the private sector. Basic economic theory may also play a major part: reform-driven demand will increase much faster than supply, implying further increases in medical prices (as appears to have happened in Massachusetts). And, finally, the individual mandate may be overturned by the courts, undermining much of the foundation of PPACA outside of Medicare and Medicaid.
The two most authoritative darts so far are those of the CBO and CMS’ Office of the Actuary. Each assumes that reform will be implemented exactly as stated in the new law, with no successful legal challenges and with legislated cost reduction targets achieved. The CBO forecast is limited to federal spending, while the OA projections cover both federal and overall national expenditures.
The CBO’s well-publicized (by reform advocates, anyway) dart hit the board immediately prior to passage of PPACA with an estimate of federal savings of $86 billion (excluding advance premiums from the new CLASS long-term care insurance program), or slightly less than one percent of projected federal health care spending.
The OA dart, thrown a month later and applauded by reform opponents as contradicting the CBO forecast, landed on the $289 billion number for increased federal spending (prior to CLASS premium collections), and on $310 billion for increased national health care expenditures.
Other darts have been tossed from the left and right of the board by health care economists, including—from the left—David Cutler, and—from the right—Douglas Holtz-Eakin. Not too surprisingly, their darts hit far apart, with Professor Cutler and his co-authors (of a Commonwealth Fund paper) forecasting federal savings of $400 billion and national spending reductions of some $590 billion, and Holtz-Eakin and his co-author (of a Health Affairs article) projecting increased federal costs of a horrendous $554 billion (possibly along with the end of American civilization).
What are we to make of a dartboard spread of more than a trillion dollars?
Let’s start with the CBO and OA numbers.
Trying to reconcile the two governmental forecasts is impossible without more detail of their respective models, although it is apparent that assumptions about individuals’ coverage choices vary significantly. Even approaches to counting the covered population are different: CBO uses an FTE approach, while OA counts enrollment, so that, for example, dual eligibles are counted under both Medicare and Medicaid, leading to total insured enrollment appearing to exceed the entire US population. One common feature of the two forecasts, however, is the very limited savings each believes will be achieved by health care system “modernization,” such as use of ACOs, more effective IT, new payment approaches, and increased emphasis on quality and effectiveness.
Moving on to the health care economists, the range of scores across our dartboard is truly startling.
Professor Cutler and co-authors Karen Davis and Kristof Stremikis start with CBO’s estimate of federal savings, modify this to include all newly covered individuals’ spending, then adjust the result to reflect their estimates of savings from “modernization” and use of exchanges, to give reductions of $590 billion in national health expenditures and $400 billion in federal spending.
Is this a well-aimed dart, or merely a triumph of hope over experience? Certainly, Cutler et al seem cavalier about costs; in comparing their estimate of spending before adjustments with OA’s $311 billion higher figure, they comment: “$30 billion a year is very small on the scale of health expenditures…” (It’s tempting to ask Professor Cutler for the loan of a quarter; with this casual attitude to money, he’ll probably offer his wallet.) Aside from this modest $311 billion item, the major differences between Cutler et al ‘s numbers and those of the CBO and OA are in savings from exchanges and “modernization.” Cutler et al believe that use of exchanges will reduce average insurer administrative costs by three percent, compared with the CBO’s estimate of just 0.4 percent, and that system “modernization” will trim medical costs by one percent a year, each year after 2014, compared with the CBO and OA projections of close to zero.
Meanwhile, on the right-hand side of the dartboard, Douglas Holtz-Eakin and co-author Michael Ramlet also start with the CBO numbers, but reject almost all federal spending cuts as politically infeasible, then add in $260 billion for health grants and physician reimbursement not mentioned in PPACA, to give their estimate of a monster federal spending hike of $554 billion.
So, who is closest to the bull’s-eye? Of the governmental forecasters, OA has the advantage of more detailed federal spending data, so that its estimates for Medicare and Medicaid may be the more credible. On the other hand, one area where OA diverges most from the CBO numbers—by some $330 billion—is in projected revenue from drug manufacturer fees, hospital insurance taxes, and other provisions, which might be more within CBO’s budgetary forecasting capabilities. Inserting the CBO estimates into the OA forecast would give a net reduction of federal spending of $40 billion—reasonably close to the CBO savings of $89 billion.
In contrast to the conservative approaches of CBO and OA, the economists’ darts seem to have been thrown somewhat wildly. Cutler et al’s projection of exchange administrative savings is surely too high given that two-thirds of those privately insured are in large groups, whose costs will be little affected by the exchanges, while their estimates of savings from “modernization” assume a remarkable degree of provider cooperation in revenue reduction. These optimistic forecasts aren’t infeasible, but they assume a degree of behavioral change by insurers and providers that seems unlikely without a major restructuring of the health care system.
The Holtz-Eakin forecast is as overly pessimistic as Cutler et al’s is optimistic. The contention that virtually every PPACA spending cut will be rejected as politically infeasible seems close to absurd, given both political parties’ promises to cut the deficit. Almost certainly, there will be some yielding to lobbyists, but a more likely effect will be modest shortfalls in savings from, for example, IPAB-recommended payment changes.
The conclusion? While both the CBO and OA darts look to land somewhere close to the target in terms of federal expenditures (except for the difference in revenue estimates), the path to the national spending bull’s-eye is much more uncertain. Some of the reform law’s changes are likely to result in insurer industry consolidation, which could begin to change the balance between providers and insurers and lead to lower medical costs. At the same time, providers’ revenue expectations may—in the face of Medicare cuts—result in further cost shifting to the private sector. Basic economic theory may also play a major part: reform-driven demand will increase much faster than supply, implying further increases in medical prices (as appears to have happened in Massachusetts). And, finally, the individual mandate may be overturned by the courts, undermining much of the foundation of PPACA outside of Medicare and Medicaid.
Wednesday, July 14, 2010
PLANNING FOR MLR REGS—AND CONTINUED RECESSION?
The regulations for PPACA’s limits on medical loss ratios have not yet been published, but faced with declines in enrollment due to the recession, insurers are busy making plans to slash administrative costs.
Just in the past couple of days, Blue Plans in North Carolina and Oklahoma have announced cuts of up to twenty percent in administration, and other plans are expected to follow. Marketing is one obvious target area, as this will be most affected by the implementation of insurance exchanges for individual and small group business.
While reform is expected to increase insurer enrollment and more than balance recession losses, the imposition of the MLR limits (85 percent for large groups, 80 percent for small groups and individual plans) is likely to force further cuts in administrative costs, especially for plans with the least large group business (in which typical MLRs are already above the 85 percent level).
Just in the past couple of days, Blue Plans in North Carolina and Oklahoma have announced cuts of up to twenty percent in administration, and other plans are expected to follow. Marketing is one obvious target area, as this will be most affected by the implementation of insurance exchanges for individual and small group business.
While reform is expected to increase insurer enrollment and more than balance recession losses, the imposition of the MLR limits (85 percent for large groups, 80 percent for small groups and individual plans) is likely to force further cuts in administrative costs, especially for plans with the least large group business (in which typical MLRs are already above the 85 percent level).
Tuesday, July 6, 2010
PITFALLS OF PPACA #7 – THE INDIVIDUAL MANDATE
The individual mandate is the single most controversial feature of the Patient Protection and Affordable Care Act. Everyone who can afford coverage—unless an undocumented immigrant or exempted on religious grounds—is required to have it or pay a penalty of $695 or 2.5 percent of income.
The rationale is straightforward: without a mandate, many people would wait until they needed care before buying insurance, driving up premiums for those with ongoing coverage, and potentially creating an “insurance death spiral” as the higher premiums lead to increasing numbers simply dropping their coverage. (This last part is basically what we have today, but will be magnified by PPACA’s ban on preexisting condition exclusions.)
The individual mandate was preferred for obvious reasons over the alternative of a general tax offset by credits for premiums paid. Democratic lawmakers had no wish to be blamed for imposition of a new tax—no matter how reasonable the arguments in its favor. In fact, as President Obama made clear in an ABC television interview: “I absolutely reject that notion [that the penalty is a tax].”
The individual mandate has now become the centerpiece in Republicans’ legal fight against reform. Suits challenging PPACA have been filed by the attorneys general of nineteen states (with the first, in Virginia, already being argued), with the constitutionality of the mandate a key issue in every case.
The latest Health Affairs includes articles affirming and denying the mandate’s constitutionality, by Timothy Jost and Ilya Shapiro respectively. Jost argues that the mandate is covered by the commerce clause of the Constitution, allowing the government to regulate interstate commerce—broadly defined as all economic activity—since a decision not to buy insurance has an economic impact on those who do have coverage. Shapiro argues that the government’s constitutional power cannot extend to a non-activity, like not buying insurance. Both authors also discuss whether or not the mandate penalty is really a tax and, if so, whether the government can impose it. Not surprisingly, Jost concludes that the penalty is a legitimate tax, and Shapiro concludes the opposite.
The Supreme Court’s eventual response is anyone’s guess, although reform advocates might well worry about the Court’s present conservative leaning. The timing of a Court ruling is equally uncertain; Jost notes that the Court might find the issue premature until the government attempts to impose the mandate penalty on specific individuals, something that will not happen until 2015 at the earliest, while Shapiro suggests that the Court may try to find a way to duck the constitutionality issue entirely.
All this uncertainty has important implications. States involved in the various legal challenges may drag their feet in setting up the insurance exchanges, possibly leaving the federal government to step in at the last minute. Insurers, already faced with actuarial problems, will face even more uncertainty in estimating enrollment from the currently uninsured (and typically healthier) population. And individuals, of course, will have their own gamble: risk the penalty or not.
What would be the possible impact of a Supreme Court finding of unconstitutionality? The federal government will lose anticipated penalty revenues of some $10 billion a year. Insurance premiums for individuals and small groups will rise with the loss of enrollment of many younger and healthier individuals. Most important of all, the number of uninsured will be significantly higher than if the penalty were in force, somewhere between the CBO estimate (assuming mandate penalties) of 22 million and today’s 50 million.
The reactions of individual states to an unconstitutionality finding would presumably reflect their politics, with states to the right of center being able to claim a fundamental failure of reform, especially as premiums increase in the absence of new healthier enrollees. Left-leaning states might take the option, however, of imposing their own individual mandates consistent with their state constitutions—much as Massachusetts did in 2006, although possibly with a different, more effective structure that would further lower the number of uninsured. And that might make for some interesting comparisons.
The rationale is straightforward: without a mandate, many people would wait until they needed care before buying insurance, driving up premiums for those with ongoing coverage, and potentially creating an “insurance death spiral” as the higher premiums lead to increasing numbers simply dropping their coverage. (This last part is basically what we have today, but will be magnified by PPACA’s ban on preexisting condition exclusions.)
The individual mandate was preferred for obvious reasons over the alternative of a general tax offset by credits for premiums paid. Democratic lawmakers had no wish to be blamed for imposition of a new tax—no matter how reasonable the arguments in its favor. In fact, as President Obama made clear in an ABC television interview: “I absolutely reject that notion [that the penalty is a tax].”
The individual mandate has now become the centerpiece in Republicans’ legal fight against reform. Suits challenging PPACA have been filed by the attorneys general of nineteen states (with the first, in Virginia, already being argued), with the constitutionality of the mandate a key issue in every case.
The latest Health Affairs includes articles affirming and denying the mandate’s constitutionality, by Timothy Jost and Ilya Shapiro respectively. Jost argues that the mandate is covered by the commerce clause of the Constitution, allowing the government to regulate interstate commerce—broadly defined as all economic activity—since a decision not to buy insurance has an economic impact on those who do have coverage. Shapiro argues that the government’s constitutional power cannot extend to a non-activity, like not buying insurance. Both authors also discuss whether or not the mandate penalty is really a tax and, if so, whether the government can impose it. Not surprisingly, Jost concludes that the penalty is a legitimate tax, and Shapiro concludes the opposite.
The Supreme Court’s eventual response is anyone’s guess, although reform advocates might well worry about the Court’s present conservative leaning. The timing of a Court ruling is equally uncertain; Jost notes that the Court might find the issue premature until the government attempts to impose the mandate penalty on specific individuals, something that will not happen until 2015 at the earliest, while Shapiro suggests that the Court may try to find a way to duck the constitutionality issue entirely.
All this uncertainty has important implications. States involved in the various legal challenges may drag their feet in setting up the insurance exchanges, possibly leaving the federal government to step in at the last minute. Insurers, already faced with actuarial problems, will face even more uncertainty in estimating enrollment from the currently uninsured (and typically healthier) population. And individuals, of course, will have their own gamble: risk the penalty or not.
What would be the possible impact of a Supreme Court finding of unconstitutionality? The federal government will lose anticipated penalty revenues of some $10 billion a year. Insurance premiums for individuals and small groups will rise with the loss of enrollment of many younger and healthier individuals. Most important of all, the number of uninsured will be significantly higher than if the penalty were in force, somewhere between the CBO estimate (assuming mandate penalties) of 22 million and today’s 50 million.
The reactions of individual states to an unconstitutionality finding would presumably reflect their politics, with states to the right of center being able to claim a fundamental failure of reform, especially as premiums increase in the absence of new healthier enrollees. Left-leaning states might take the option, however, of imposing their own individual mandates consistent with their state constitutions—much as Massachusetts did in 2006, although possibly with a different, more effective structure that would further lower the number of uninsured. And that might make for some interesting comparisons.
A LITTLE GOOD NEWS—WELL, SORT OF…
Those who hate big insurers won’t be happy, but recent comments by Wellpoint’s VP for investor relations at an investment conference in Boston suggest that some details of health care reform may be more effective than expected in reducing administrative costs. The combination of the medical loss ratio rules (still to be defined by HHS), limits on premium increases (also awaiting final rules), and insurance exchange competition is expected—at least by Wellpoint—to cause a number of smaller insurers to drop out of the market or be acquired by larger firms.
This forecast is supported by comments from a Sanford Bernstein analysis that projects that at least one hundred insurers with 200,000 enrollees or fewer will be pushed out of the health insurance market by the effects of reform.
These estimates also won’t please those who believe that “if some competition is good, more is better.” On the other hand, having insurers with high administrative costs leave the market will lower average costs and—presumably—premiums, as well as strengthening the remaining companies’ negotiating position in setting provider payments.
This forecast is supported by comments from a Sanford Bernstein analysis that projects that at least one hundred insurers with 200,000 enrollees or fewer will be pushed out of the health insurance market by the effects of reform.
These estimates also won’t please those who believe that “if some competition is good, more is better.” On the other hand, having insurers with high administrative costs leave the market will lower average costs and—presumably—premiums, as well as strengthening the remaining companies’ negotiating position in setting provider payments.
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