Tuesday, March 10, 2015

March 2015 CBO Report: Health Reform to Cover Fewer as Premium Increases Set to Double | With Audio from Armstrong & Getty

Most of the talk about the latest Congressional Budget Office Report on the Patient Protection and Affordable Care Act (PPACA or Health Reform) has been rather positive. Headlines proclaim that costs are decreasing and cursory reports lead readers to believe that some element of PPACA must be working to reign in the costs of American healthcare.  But a more in depth look reveals large scale problems with the law.  Our savings are not due to some masterful control in costs but instead to a greater degree of cost shifting, a still struggling economy, and under-utilization due to woefully narrow networks.  People aren't using as much healthcare because:
  • Too many Americans are still not working or underemployed.  I don't care that the disingenuously manipulated U-3 is going down.  That statistic is useless.  The last jobs report revealed that the population grew by 176,000 while the labor force shrunk by 178,000 for a net increase of 354,000 people not in the labor force. This reduced our participation rate again to 62.8%.  
  • Higher deductibles and copays used in PPACA's most common Bronze and Silver plans are keeping people from going to the doctor. And, 
  • The incredibly narrow networks used in the Exchanges have greatly impeded people's ability to actually see doctors.  
For more on the how the economy, jobs and income impact healthcare use, take a look at this excellent piece from Avik Roy in Forbes illustrating how the current slowdown in healthcare spending actually began in 2007 - long before we had PPACA.  

There definitely are some elements of good news in this report, namely:
  • The total cost of PPACA is now slated to be $1.75 trillion as opposed to January's 2.03 trillion. 
  • This is anticipated to result in a net cost of 1.2 trillion after PPACA's taxes and fees are collected.
  • Fewer people will be relying on government handouts for their healthcare as 22 million are now estimated to be in an Exchange in 2025 as opposed to January's 24 million estimate.  
  • Similarly, fewer people will have to rely on Medicaid or CHIP (very poor performing programs for those in poverty).  That number has dropped from 16 million to 14 million.  
  • 2 million fewer folks will actually lose their employer coverage.  Now the CBO estimates that 7 million will lose it by 2025 as opposed to 9 million.  

But further analysis of this report paints a much more troubling picture:

   More Government Subsidies
  • Subsidies to help purchase coverage through the Exchanges totaled $15 billion in 2014. That figure is expected to grow to $41 billion in 2015 and $107 billion in 2025.  
  • 8 million of the 11 million individuals enrolled in Exchange coverage will receive subsidy transfers averaging $3,960 in 2015. By 2020, about 17 million of the 23 million expected to be enrolled in Exchange coverage will receive annual handouts of $5,070 on average. 
  More Spending on the Broken System of Medicaid
  • CBO officials estimated an $8 billion increase in Medicaid spending over the next two years because of unanticipated higher federal spending on the program during the first four months of 2015.
  More Uninsured
  • "When the CBO first estimated Obamacare’s impact on the uninsured, in March 2010, the agency predicted that the law would reduce the number of uninsured U.S. residents by 32 million by 2019. Its now predicts a reduction of 24 million; in other words, Obamacare’s impact on coverage will be 8 million fewer than originally predicted." - Avik Roy, Forbes
  Entirely Unaffordable
  • It's unaffordable without handouts. "Of the 8.8 million people who signed up for 2015 coverage via Healthcare.gov through Feb. 22, 87% qualified for premium tax credits, Health and Human Services Secretary Sylvia Burrell said Monday, leaving just 13% of the group unsubsidized." - Jed Graham, Investors Business Daily
  The Illusory Cadillac Tax Moves Closer
  • CBO is finally starting to acknowledge that the Cadillac Tax on higher value plans, set to begin in 2018, will not yield the revenue they expected it would.
    • Taxes such as this rarely generate what they are anticipated to generate because businesses and individuals engage in rational avoidance.  
    • But more importantly, as that date approaches and the unions who hate the provision join together with other opponents of the law, the likelihood of its amendment, repeal or administrative neutering becomes increasingly probable. 
    • In fact, I suspect this aspect of the law will be repealed or amended so as to render this provision toothless, eventually. 
    • In this revision, alone, the CBO expects to yield 62 million fewer dollars from the Cadillac "Excise" Tax. That is a downward revision of 42% in two months. 
  Premiums About to Spike, Again
  • Private healthcare spending per enrollee is going to double from about 4.3% inflation per year per enrollee to about 8.5% for two reasons, the CBO Says: 
    • "Reinsurance payments that the government makes to insurance plans whose enrollees incur particularly high costs for medical care will be phased out over the next two years, placing upward pressure on exchange premiums.  
    • Plans initially offered through the exchanges appeared to have, in general, lower payment rates for providers, narrower networks of providers, and tighter management of their subscribers’ use of health care than do employment-based plans. CBO and JCT anticipate that many plans will not be able to sustain such low provider payment rates or such narrow networks over the next few years, placing upward pressure on exchange premiums."
    • I.e., premiums are about to spike at double their historical rate as insurer bailouts are set to expire and because the woefully inadequate, super narrow networks can't last. 
I visited Armstrong & Getty briefly on Wednesday morning to discuss this report. All Armstrong and Getty podcasts can be found here. This was today's segment: