All posts by Hal Gershowitz

The ACA, AHCA and the CBO

Of Thee I Sing Heading AuthorsSo, America is getting a close-up look at the sausage-making spectacle we know as the U.S. bi-cameral legislative process. But at least we’re getting to see the spectacle this time around as the Republican-controlled Congress wrestles with the American Health Care Act (AHCA). This, of course is the attempted repeal and replacement of President Obama’s so-called Affordable Care Act (ACA).  The reader will recall the ACA was (is) the Act that Speaker (at the time) Pelosi proclaimed we could see AFTER congress passed it.  And pass it the Democrats did.

So, what have we finally learned about the ACA (aka ObamaCare). Well, for one thing the ACA is a seriously deteriorating, preexisting condition. It really is.  The only question is whether the intervention by Speaker Paul Ryan will produce a better healthcare alternative for the American people. We have our doubts, but continuing the ObamaCare course the nation is currently on really would constitute a type of governing malpractice.  We’ll hasten to stipulate that abrogating healthcare coverage for up to twenty-four million Americans, as the CBO projects will happen under the AHCA, would be an even worse case of governing malpractice. We’ll get to the CBO a bit further down in this essay.

When all is said and done, under the ACA, premium costs that were supposed to dramatically decrease by 2012 have, instead, dramatically increased as have deductibles. People who were assured they would be able to keep their doctors quickly learned they couldn’t necessarily do that as promised (no matter how much they liked him or her), nor could they necessarily keep the healthcare plan with which they were quite satisfied.

Worse, much worse, the Faustian bargain the insurance industry made with the Obama Administration is turning out to be what all Faustian bargains turn out to be—a disaster. The Obama Administration promised the insurance industry tens of millions of new customers. The problem is the government delivered a large preponderance of older, sicker, higher-cost customers and fewer younger, healthier customers whose low demand for service was supposed to invigorate insurance company income statements.

We’re sure there are many very bright people in the insurance business. We’re just not sure where they were when their industry signed on to supporting the ACA. The critical flaw in the ACA is that it created an actuarial breech of titanic proportions through which flooded a tide of red ink. If no one could be turned down or charged more because of illness including very nasty pre-existing conditions, why (one might ask) would young, healthy men and women or families pay for insurance before they got sick and needed it?

Not surprisingly, many health insurance companies got clobbered. Industry giant, Humana, seeing a flood of red ink flowing their way decided to withdraw entirely from its participation in the law. Aetna, also quickly began withdrawing from exchanges as has UnitedHealth and Humana.

And, speaking of insurance industry giants, there is the case of Anthem Inc. which announced just before the election last November, that it may join other major U.S. health insurers in largely pulling out of Obamacare markets by next year if its financial results under the program don’t improve.

Anthem’s retreat from the Affordable Care Act means that almost all the major American health insurers have substantially pulled back from the law. Hundreds of U.S. counties now must rely on only one insurer left in the marketplace.

Time will tell whether the AHCA (Trump/Ryan replacement bill) turns out to be the improvement President Trump has promised. There is much more that we don’t know than we do know because most of what eventually would become the AHCA hasn’t been drafted yet.

Most of what will be the final legislation has yet to be drafted because the current focus is on an initial phase that deals with aspects affecting the existing budget and subject to the arcane reconciliation process which only requires a simple majority to pass in the Senate which, presumably, the Republicans can muster. All of the nuts and bolts of the AHCA will follow the reconciliation phase and will, therefore, require a super majority of sixty votes in the Senate. That will involve a lot of arm twisting or as President Trump declared, “It’s a big, fat, beautiful negotiation. Hopefully we’ll come up with something that’s going to be really terrific.” Well, let’s hope.

Most of the details of what will be the final AHCA are unknown and largely unwritten at this time. Here’s what we do know.

The individual mandate in the ACA that requires individuals who can afford to buy insurance to do so or pay a penalty is eliminated in the AHCA and replaced with a “continuous coverage incentive” that would impose a 30 percent penalty for people who do not buy insurance until they are sick.

The employer mandate, as of this time, would be repealed.

Under the AHCA premium subsidies would be based on age rather than income.  Tax credits of $2,000 would be available in full to individuals under thirty earning less than $75,000 and households earnings less than $150,000.  The tax credit would be increased to $4,000 for people over sixty.

The ACA enabled states to expand Medicaid coverage by raising the eligibility cutoff to 138% of the federal poverty level. The AHCA would let states keep Medicaid expansion and allow states that expanded Medicaid to continue getting federal funding as they would have under the ACA until 2020. Federal funding under the AHCA for people who became newly eligible starting in 2020 or who left the program and came back would be reduced.

The AHCA would just about double the amount individuals or families could put into tax-free health savings accounts.

It seems to us that most of the other essential elements of the ACA are maintained in the AHCA.

Enter the CBO.

CBO (Congressional Budget Office) is a truly non-partisan agency responsible for estimating the budgetary impact of legislation. Some of its projections are pretty objective such as dollar inflows and outflows. Some are far more subjective such as estimating how people will behave given certain economic circumstances.

The Democrats and most of the press have made much of the recent CBO scoring of the AHCA. They’ve largely ignored the substantial objective projections of reductions in the federal deficit of nearly $340 billion over the next decade and the $1.2 trillion reduction in federal spending during the same period. Instead they have focused, almost deliriously, on the subjective projections of how people will behave, or more succinctly, how many will choose to buy insurance or not buy insurance in a more competitive marketplace which will be a key element of the final AHCA.

The CBO is projecting that 24 million fewer people will be covered by 2026. CBO projects the reductions in insurance coverage would result from changes in Medicaid enrollment, believing some states will discontinue their expansion of eligibility, and that some states that would have expanded eligibility in the future would choose not to continue, and per-enrollee spending in the program would be capped.

We suggest a bit more caution is warranted here regarding these subjective projections of individual and family participation in the AHCA. This is the same CBO that estimated that 21 million people would enroll in the ACA exchanges in 2016. Actually, closer to 10 million people enrolled. CBO estimates that 18 to19 million people will be enrolled in the ACA exchanges, but, in fact, enrollment is currently declining.

Our concern with the AHCA, at least with what we know of it, is that President Trump and Speaker Ryan are counting on very substantial reductions in premiums stemming from vastly increased competition as barriers that keep insurance companies from competing on a national basis are eliminated. Premium reductions must come, primarily, from lower reimbursements that insurance companies negotiate with hospitals and physicians for service. At some point, the insurance companies will have wrung just about everything they can out of hospitals and physicians. We’re not sure just how much room there is for further reductions and, thus, future premium savings through competition. These are costs that insurance companies can only mitigate so much. Health insurance premiums may not be as influenced by market-driven forces as the Administration thinks.

The Administration might want to temper its expressions of certainty regarding the social benefits of Adam Smith’s invisible hand theory of the social benefits of individual actions seeking what is in the individual’s best interest. On the other hand, the resist-at-any-cost faction should think more than twice about embracing a failing government healthcare program.

The opposition, even former President Obama, now acknowledges that the ACA needs to be fixed. They have, however, been no more forthcoming than the Republicans had been on how they would fix it.

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Obamacare – It Has Not turned Out as Planned

It is axiomatic that people and employers will act in their economic self‑interest, and that is absolutely true of one of the major costs in today’s economy–healthcare costs.

In 2010, shortly after President Obama’s election to his first term, the so‑called Affordable Care Act was passed without a single Republican vote and thus began a saga of whether or not this Act would reduce healthcare costs and make affordable coverage available to most Americans.

That question has been answered.  There are many employers not joining the Obamacare law, but in fact, those who were expected to join have elected not to do so.  As the Washington Post reports:  “As more about the law is learned, more problems come to light.  Two groups crucial to the healthcare law’s success, employers and young adults, are beginning to see that the costs may be outweighing the benefits.”  Participation by employers is critical to making the law work.  The law counts on employers to continue offering coverage.

What is happening, however, is that since the costs of the employer mandate are learned, many employers have cut back on the hours that their employees work to under 30 per week, because as part timers the law does not require coverage.  Therefore, the very people who were supposed to benefit now have to live with part‑time employment.  The cost‑benefit obviously is not working.  Full‑time would clearly exceed the benefits that the healthcare law would confer.  Young adults who are generally less costly to cover are also expected to play a key role in the law’s success by keeping costs down.  Reportedly, the Administration estimates that of the 7 million enrollees they expect in the Exchange next year, 2.7 million need to be young healthy adults to make the premiums work.  In fact, however, as we just said, those young adults are beginning to see the reality of the healthcare law and understand how they wind up losing from every angle.

The costly benefit mandates, plus paying artificially higher premiums solely because of their age, will make their coverage costs higher than the penalty for not purchasing government approved coverage.  Thus, many young adults will simply pay a lower price penalty instead.  And finally, whether they try to pay for coverage or opt for the penalty, some will likely find part time jobs where full time employment used to be.

Although the healthcare law applies to everyone in the private sector, isn’t it surprising that Congress in covering its staffers, has decided not to buy healthcare coverage under the Obamacare law.  This is kind of a what’s good for thee is not good for me.

The interesting thing is that although the President had no legal position to do so, last year in 2012 he delayed the acts coverage until 2013.  Why then does he consider the Republican effort to defund Obamacare so evil?

“While the Administration has handed out waiver after waiver and exemption after exemption for the well‑connected in Washington, they have done nothing to lower health care costs for families in Michigan,” said Dave Camp, Chairman of the tax‑writing House Ways and Means Committee.

Camp said the OPM ruling is the “latest proof” of impending failure for the reforms and pledged that Republicans would keep trying to repeal them.  Even House Democratic leader Nancy Pelosi said the language problem would have caused unintended “collateral damage” on Congressional staff, causing many to leave for the private sector.

This is part of the reason that the American people are so disgusted with Congress and probably having learned the true ramifications of Obamacare, the entire government itself. 

The Wall Street Journal editors have revisited the maneuverings of Congress and the Obama Administration to work around a rule that required our fine Representatives and Senators and their staffs to be subject to Obamacare rules.  It is worse than they thought.  The White House having released the legal details behind the Obamacare bailout for Members of Congress and their staffs, and if anything the rescue is worse than the leaks which suggested:  dispensation for the ruling class, different rules for the hoi polloi.

Don’t expect that the law will be repealed because even if the House and Senate either defunded or repealed Obamacare, the President would clearly veto that legislation and there would not be sufficient support to override his veto.  Don’t you love the sound of the political class scratching each other’s backs?

The charitable term for such legal gymnastics is creative.  When statutes conflict, such as the Full Employment Act, the bedrock administrative law obligation is to enforce the most recent statute, which is, of course, the Affordable Care Act (Obamacare).  “Notwithstanding” clauses are routine catchalls that are supposed to emphasize Congress’s intent that a new bill is controlling and pre‑empts other laws on the books.

The White House is claiming the clause means the opposite, as if the 2010 law and the 1959 Full Employment Act have nothing to do with each other.  That is not how it is supposed to work.  When Congress kicked itself out of the traditional Full Employment Act, it kicked itself out of Obamacare, the most sweeping healthcare program created in a half century, is expected to extend coverage to 25 million Americans over the next decade, according to government estimates.  But that will still leave out a projected 31 million people without insurance by 2023.  Those left out include undocumented workers and poor people living in 21 states, such as Virginia, that have so far declined to expand Medicaid under Obamacare.

“The law will cut the number of the uninsured in half,” said Matthew Buettgens of the Urban Institute.  He said, “This is an important development, but it certainly isn’t the definition of universal.”

If all states expand Medicaid, Obamacare still leaves millions uncovered.  Mr. Buettgens wrote an excellent paper on this for the Urban Institute before the Supreme Court decision which upheld the law.  He estimates that more than half of those without health insurance would fall into two categories:  Undocumented immigrants who are ineligible for the insurance expansion, and people who are eligible for Medicaid but not enrolled.  “Even in states that have done a good job with outreach, they are way below 100 percent, maybe around 60 percent.

So even with the increased outreach under the Affordable Care Act, it is estimated that take up rates are in the range of 70 to 75 percent.”  Thus, even with Obamacare, Mr. Buettgens’ work estimates that some will have an affordability exemption and will not be able to find a health insurance plan that costs less than 8 percent of their income, which means they won’t have to pay a penalty for not carrying insurance coverage.  Others will find affordable coverage, but simply decide not to buy it.  Isn’t this exactly the consequence that Obamacare was passed to avoid happening?

Thus, as we said above, if you work for a company that doesn’t currently provide health insurance to its full‑time workers and you work up to 30 hours per week, you are at the highest risk of having a negative effect from the health care law.  Although the law’s “mandate” is meant to help provide this insurance, it has backfired with some of America’s largest employers and ironically many government institutions.  While only a small portion of the companies affected have responded by cutting hours, the Americans who are affected is staggeringly high.  If you have been affected by the Obamacare “employer mandate,” we would like to know who you are.

On top of all of this, Obamacare small business Medicare tax hike is a 0.9 percent increase on the current Medicare part A tax.  Small businesses making under $250,000 dollars in taxable profit, don’t have to pay this tax.  The group of small businesses making over $250,000 in taxable income accounts for 3 percent of small businesses in America.  It is reported that if all states expand Medicaid, Obamacare still leaves million uncovered.  Thus, as we said previously, provisions of the Obamacare law don’t work, and the law has had an effect contrary to the hopes of those who passed it in the first place.

As we said at the outset of this essay, it is axiomatic that people and employers will act in their economic self‑interest, and that self‑interest certainly is not to have insurance coverage under the flawed provisions of Obamacare.

Happy Holidays from “Of Thee I Sing 1776”

 

We want to take this opportunity to express our appreciation to each and every one of you, and to let you know how much we appreciate your loyal readership and the time so many of you take to share your views and thoughts with us.  We hope this holiday season is filled with happiness and that the New Year is a time of renewal, good health and peace.

We’ll be back on January 8th, 2012.  “See” you then.