“Obamacare’s number-one idea for improving health care quality and reducing costs is to promote something called ‘accountable care organizations’ in Medicare. That effort is sinking like a stone, because it – like the rest of this sweeping law – is premised on the fatal conceit that government experts can direct the market better than millions of consumers making their own decisions.”
“Typically, demonstration programs exist to prove the effectiveness of a reform proposal before implementing it nationwide. This was apparently forgotten in the drafting of ObamaCare, which relies heavily on accountable care organizations (ACOs) to curb runaway spending in Medicare and the health care system at large… Unfortunately, the authors of ObamaCare didn’t wait around to see how effective ACOs would actually be before including them as a main cost-reduction strategy in their health care overhaul.”
“The White House conveniently failed to notice the program’s problems during the health care debate. But last fall, the president’s own fiscal commission officially called for a total repeal of the program. At this point, even Obama’s top health care officials won’t stand behind the program’s worthless fiscal design. ‘While the law outlined a framework for the CLASS Act,’ Health and Human Services Secretary Kathleen Sebelius told members of Congress in February, ‘we determined pretty quickly that it would not meet the requirement that the act be self-sustaining and not rely on taxpayer assistance.’ Whoops!”
“One of the key components of ObamaCare, tax subsidies to purchase federally approved health insurance, will substantially increase the number of people who are not paying for government services and thus have a lower incentive to be concerned about record-breaking government spending. These tax subsidies, which take effect in 2014, will also harm the economy by increasing the national deficit and by creating huge marginal tax rates that will discourage productivity for many households. Obamacare’s tax subsidies are one of the primary reasons to repeal Obamacare.”
“Even before Obamacare was enacted, the nation’s most difficult long-term economic challenge was runaway entitlement spending. Obamacare is more gasoline on what’s already a raging fire. The law included no real reform of Medicare or Medicaid. It simply doubled down on the failed model of command-and-control payment rate reductions. Those have never worked before to make the programs sustainable, and they won’t work this time either.”
“Beginning in 2014, the Affordable Care Act will expand the mandatory population and require that states make Medicaid available to all individuals, married or single, under the age of 65 with incomes at or below 133 percent of poverty. Although the federal government will provide funds for states to cover this newly eligible population, it will increase the fiscal burden on many states, particularly those that do not already cover expanded optional populations.”
“The Patient Protection and Affordable Care Act aims for a delicate balance that even its champions acknowledge as highly challenging: Making medical services affordable for tens of millions of uninsured Americans, and yet restraining the expenditures needed to vastly expand coverage so that it shrinks, rather than swells, the looming deficits.”
“So, I’d like the advocates of IPAB to tell me two things: (1) Can they formulate an objective way for the government to determine how much Lucentis should cost? (2) Why shouldn’t individuals get to decide for themselves how much they would be willing to pay to see out of both of their eyes, instead of just one?”
“PhRMA saw the health care overhaul as a chance to advance its long-term interests and played along. But funny enough, it now seems that the White House is not all that interested in holding up its end of the bargain. President Obama’s recent speech on the debt included proposals that would violate the agreement.”
Another reminder that the Congressional drafters of what’s come to be called ObamaCare shaved fiscal corners came early this month in a notice published in the Federal Register. The news: after May 5, 2011, no more applications will be received for the Early Retiree Reinsurance Program. Why? The applications already received plus those expected to be received by May 5 will blow through the money available.
This small program—less than one percent of all the spending in ObamaCare’s first decade—was, like subsidies for state high risk pools, one of the “early implementation” provisions of the law. It would show somebody getting something during the period when most of the action would be bureaucratic rumbling getting ready for the “Big Bang” on January 1, 2014. All sorts of new subsidies take effect on that date.
It would have been more than one percent if Congress funded the whole thing. Instead, the Congressional drafters opted for an installment plan. They would put up a defined amount of money for the whole program, and then close enrollment once enough companies had signed up.
It is an odd approach to an odd program. The money does not go to provide health insurance to people who are without. Instead, it is a subsidy for coverage for people who already have it. And it isn’t a subsidy for people. It is a subsidy for the former employers. And it isn’t a per retiree subsidy. It is reinsurance, an agreement by one insurer (here the government) to take on some of the risk of another insurer. And it isn’t full reinsurance, it is reinsurance over a particular risk corridor. The program makes payments to employers for 80 percent of their costs for services covered by Medicare for costs that fall between $15,000 and $90,000.
A total of $5 billion is available until 2014. Rather than accepting what the Congressional Budget Office (CBO) would say a program that lasts until 2014 would cost, it only lasts until the money runs out. And rather than make the reinsurance fit with the money they had, something they could do by saying we’ve got so much money each year and we’ll vary the percentage paid or the risk corridor according to the money available, they wrote a range into the law, $15,000 to $90,000 and decided to make how long the program lasts the margin of adjustment. At the time the money runs out, the program is over. At least that’s the story they told CBO, taking advantage of CBO’s dedication to the proposition that the stories Congress tells us are all true. Applying the programs rules, CBO projected the money would run out about half way through 2012.
The history of this proposal seems to go back to the 2004 election. The Democratic presidential nominee, Sen. John Kerry, embraced reinsurance as a way to subsidize retiree health insurance costs. In a different era, many employers, particularly those with unionized workforces, added health insurance benefits for retirees as an additional inducement for older, more expensive workers to leave voluntarily. Without health insurance, retiring before reaching age 65 and Medicare eligibility meant taking on a lot of risk. By offering to continue health benefits, employers would have a better chance of getting employees younger than age 65 to leave.
A lot of reality intervened between the time when those commitments were made and the present day. Health care costs turned out to be higher than expected. Employers made promises but did not put aside the money to make good on them. As employers wised up, the share of workers who had retiree health benefits or could look forward to getting them when they retired fell. Estimates of the share of the workforce who can look forward to getting health benefits from their current employer say about one in five will get them.
Two groups were distinctly less nimble in getting out of their retiree health benefit commitments—unionized employers, particularly in the automobile industry, and public sector employers. And now that there is a government program to subsidize employers’ cost for their retirees, where are the funds going in greatest concentration? Unionized employers and public sector employers.
General Motors would have been the biggest beneficiary had it lived to cash the check. As part of old GM’s demise, its health insurance obligations have gone over to the United Auto Workers Retiree Benefits Trust. A report from the Department of Health and Human Services identifies that entity as the largest source of claims in 2010 and presumably it is also the recipient of the largest payment, $108.6 million, made to an unnamed entity.
If the idea was to help out the UAW and the auto industry, the program has worked. The likely UAW payment was one-fifth of the $535 million paid out by the end of 2010. While the political muscle might have been the UAW’s, the largest amount of payments is going to state and local governments. They received 55 percent of the 2010 payouts.
After the UAW, the next six largest claimants, measured as number of retirees with costs high enough to trigger a payout, are all state governments or their pension funds (California, New Jersey, Kentucky, Georgia, Texas and Louisiana.) Only after them is there a private employer, Alcatent-Lucent USA, successor to the old AT&T’s Western Electric.
Relative to other people who have retired, retirees with health benefits are better off. This is not a program for the truly needy. And while the program’s rules require that sponsors raise their right hands and swear or affirm that they are using the money to reduce retiree costs or otherwise help retirees, the anecdotes about what they are doing sound like things they would have done anyway in the name of controlling costs: disease management programs, case management for high cost cases, etc.
The question is: what happens when the music stops? As that Federal Register notice reminded us, $5 billion won’t last as long as the retiree health commitments employers have made. The UAW’s health benefits trust fund will still be just as underfunded when the federal funds run out as it is today. States and local governments will still have crushing amounts of unfunded retirement liabilities. It could be that it was fun while it lasted. It will also be an opportunity for employers and retirees to bang the tin cup and ask for more.
The story Congress told its budget office was that when the money runs out, the spigot shuts off. Whether that’s a promise they will keep likely depends on who controls Congress when that happens.
Hanns Kuttner is a visiting fellow at Hudson Institute