The weightlessness of Obamacare

February 17, 2014
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So many old rules in health care and insurance no longer seem to apply.

I keep stumbling upon situations, where, what used to be up is now down and what used to be down is now up.

No one seems to know for sure how things will settle out under the new reality created by Obamacare and the even more unpredictable reactions to the law by health care companies, employers and, most especially, you and me.

I’ve started using the term “weightlessness” to describe this state we’re in. Picture the astronauts on the international space station, floating through a room, flipping at will, as likely to settle on a wall or on the ceiling as on the floor.

That’s what life is like under Obamacare now—for physicians, hospital administrators, insurance executives, benefits brokers and employers.

Here are a few examples:

1. I wrote last week about how a chunk of workers, even at large employers with generous benefits, would actually get a better deal on health insurance from the Obamacare exchanges than from their employers. So their employers are starting to consider whether they should deliberately make health benefits unaffordable for those low-wage workers, so they can qualify for Obamacare’s tax-subsidized insurance.

That could be good for both employers and employees. The effect on taxpayers, which would switch from granting a tax credit to employers to instead granting it to the employees, is unclear.

2. Even though insurers were certain that price would be king on the Obamacare exchanges, that hasn’t led most customers to buy the plans with the cheapest premiums. Through January, 76 percent of Hoosiers buying in the exchanges have picked the higher-premium silver and gold plans, with only 24 percent picking bronze plans.

“There are a few geographies where we believe we are gaining share despite lower price competition which points to the value of our local market depth, knowledge, brand, reputation and networks,” WellPoint Inc. CEO Joe Swedish said during an January conference call with investors.

It’s possible that’s a result of older and sicker patients being the earliest buyers on the exchange, and that as healthier people buy coverage, they’ll gravitate to the low-cost bronze plans. But that hasn’t happened yet—which, as I wrote on Friday, has proved wrong hospitals’ concerns about the super-high deductible bronze plans.

3. Conventional wisdom has consistently held that insurers, in order to have a prayer of being profitable on the exchanges, need to sign up lots of young and healthy customers. But that’s not actually true, according to this analysis by Seattle-based actuarial firm Milliman Inc.

It found that Obamacare’s risk adjustment mechanisms—known as the 3Rs—would actually overcompensate insurers this year for patients that are older and sicker, as well as for newborns and women of childbearing years.

Milliman calculated that, at least in 2014, those groups that used to be money losers for insurers would now be profit makers, while the formerly profitable patients would be money losers.

Does your head hurt now?

The practical importance of this insight is minimal, since two of the three risk adjustment mechanisms are revenue neutral, and the one that isn't phases out in three years. That means, if the population in Indiana is older and sicker than anticipated for the long-term, there isn’t any extra money, overall, to divide among insurers. So unless one insurer happens to attract all the older patients, there won’t be much advantage gained from this provision.

But it is a sign that the path to prosperity is no longer primarily about avoiding the patients that actually need health care.

Charlotte MacBeth, CEO of Indianapolis-based MDwise Inc., said her company isn’t trying to capture the most attractive slice of patients—however that’s defined—but is instead focusing on managing the health of its customers as a way to minimize losses.

“We are not out marketing or trying to capture a certain type of membership category based on risk scores,” MacBeth wrote to me in an email. “MDwise will rely on a well-run complex care management program to help manage patients with the highest risk for a bad outcome.”

4. Hospitals and physicians are conceding, quietly, that their former methods for achieving financial success aren’t working anymore. Ramping up access and supply of lucrative procedures won’t cut it. They actually have to provide less care in order to achieve a profit margin from payments that aren’t rising.

As I wrote last month, hospitals in Chicago are doing exactly that—with some success. Indianapolis hospitals are further behind but moving that direction.

Another case in point, physician groups are actually embracing what’s called the permanent doc fix in Congress, even though it would increase their Medicare reimbursements just 0.5 percent per year—and allow up to 10 percent of their payments to hinge on a performance framework that is far from road-tested and will only pay bonuses to some doctors by cutting payments to others.

“The cure is actually worse, and potentially more expensive, than the disease we have now,” Jeff Goldsmith wrote in a withering analysis on The Health Care Blog of the proposed fix to what is called the Sustainable Growth Rate, or SGR. “This is because the proposed legislation casts in concrete an almost laughably complex and expensive clinical record-keeping regime, while preserving the very volume-enhancing features of fee-for-service payment that caused the SGR problem in the first place.”

So let’s review. Rich benefits are no longer so attractive, sick patients are no longer money losers, and hospitals and doctors are now health care preventers rather than health care providers.

This is the bizarre world to which Obamacare has brought us. I’m still not sure whether all this change is good or bad or a mix of both.

Your thoughts?

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  • Not so bizarre
    So providers might benefit from keeping folks well while insurers might have incentives to enroll everyone, not just the well. Coverage might not be tied to working for large employers. Doesn't sound so bizarre to me.
    • To Dave K
      Dave, don't take my word "bizarre" to mean bad. It's just startlingly different than the health care world we were used to. I can't say it's all good yet either, just because it's so uncertain how it will all work out. But I agree with you that these changes open up some encouraging possibilities.
    • Not the place to work
      What the very skilled and dedicated health care workers are learning is that Obamacare is destroying their work environment. Patient care is impacted. Understaffing is now the norm. Expect early retirements from Docs and nurses. Does this help the system?
      • Change Is Necessary and Appears to be Good
        JK - Good article. I'm glad to see some well-intentioned legislation (ACA) and well intentioned providers (insurers, hospitals, and doctors) show some indications that the health care system appears to be heading in the right direction in terms of costs and coverage and outcomes. Perhaps, the ACA's greatest contribution is to begin to bring about long-needed changes to the US health care system. Time will tell. And to Dave's comment, the health care system is changing for the better with respect to patients--it's primary goal is to not make the providers the primary beneficiary of the system; change is hard but necessary given the relatively high cost per capita of patient care in the US.
      • Provocative
        JK, your inputs are very provocative, and they do underscore the moving target of whatever the impact is, whether it relates to big and small employers, the employed (both high pay and lower paid), the unemployed, hospitals, physicians, para-medical staff, health care managers, taxpayers, etc. Since you are becoming quite an expert on the program, its too bad that the administration didn't have you on its planning and implementation committees, as I am certainly not convinced that the planners were very clueful. I suspect that if they were working in the free enterprise system, they would all have likely lost their jobs after the roll-out.
        • Conversation moving FORWARD
          It's really nice to read more thoughtful conversations about the ACA. When all is said and done, an individuals circumstances will have the biggest impact on whether it's implementation is a success. With the calamity of the financial system that took place in 2009-2010, we've all learned to be more creative and do more with less. Shake the tree, if you will. Why should health care be any different? If you do things the same way all the time, you tend to get the same results. In this case, the rising cost of health care was a result that needed a different outcome. Let's keep the conversation moving forward!
        • subsidies
          One cost of the ACA which is rarely addressed is the total amount paid out to cover the subsidies. Obviously, if I have to pay $900 per month for a policy that would cost less than $200 if I qualified for a subsidy, that $700 is coming from somewhere. Multiply that $700 by hundreds, or thousands, and you are talking about a substantial sum of money.
        • subsidies part II
          Why are the subsidies not done on a sliding scale? It appears, unless I am getting incorrect information, that once you reach a certain income threshold, they go away completely. A 50 cent an hour raise (roughly $1,000 per year) could cost someone an additional $10,000 in premiums, under a worst case scenario. This makes no sense at all. J.K.- tell me if I'm wrong.
          • To Steve
            You are correct. Subsidies go away completely if your income goes above 400% of the federal poverty limit. That's now $46,650 for a single adult or $95,400 for a family of four. The subsidies also drop off rather dramatically after 250% of the poverty limit. Several commentators (mostly on the right) have noted recently that structuring the tax credits in this way functions as a tax on labor, because it makes additional work costly as the tax credit falls off. How many people this will affect, I don't know. If it's a lot, there will probably be political pressure to change it, perhaps to a system of tax credits that are available to all but capped at a certain dollar amount.
          • To Mike
            Sorry to be slow in responding to your flattering comment. I'm sure the Obama folks had plenty of people smarter and more knowledgeable than me when trying to design Obamacare. In fact, since the bill is a bit of an everything-but-the-kitchen sink approach to health reform, it's likely they had too many smart cooks stirring ingredients into the stew. But I'll do my best to keep sorting it out for you.
          • Employee Freedom
            For years, there's been some benefit in staying with a certain employer who offered health insurance coverage-- even if this was not a job that "fit", and even if one needed to relocate for other reasons. Now, perhaps workers will have some portability in their health insurance and that's a good thing, not a negative. Freedom to change careers has always been there for those at the top of the ladder; it's time all Americans had some of the same freedom to do that as they do in other developed nations with health plans.
          • I'm now conflicted
            I was a previously huge supporter of the ACA as a start to making our healthcare/insurance more affordable. However, getting signed up was a nightmare, with no web access and 30+ hrs spent on hold, trying to get Anthem assistance. I qualified for and now have Anthem Silver, a policy through the marketplace, and my monthly premiums are $250 lower/mo. than I'd been paying with an Anthem indiv. policy. I found out yesterday at a dr.'s appt. that they don't accept Anthem from the marketplace - only Anthem direct. No one clarified that for me when I set up the appt. a month ago. I had to pay out of pocket. The dr. was furious to find out all of this. He, obviously, hates the new laws. I'm thinking more every day that the ACA will only benefit the insurance co's. My actual premium in the Silver plan is $550 and the subsidy, paid by taxpayers, saves me $400 a month. (I'd been paying $350 for an indiv. policy before, so the rate for a similar plan jumped considerably, even though I save money with that subsidy. Those who don't qualify for the subsidy are stuck paying 20-30% more for the same policy they had before the ACA took effect.) Anthem wins, and I get screwed, because now there are very few docs who take the marketplace insurance I have. I couldn't be more disappointed in our elected officials, to let this plan reach the public with such glaring problems. It's great that sick people can't be denied health insurance, and that pre-existing conditions don't make insurance unattainable, but if doctors become frustrated enough, they'll just quit. I can only hope my initial optimism will come to fruition as they iron out the kinks and fix this debacle so it's fair for everyone.
            • response to inky
              I don't want to make this personal, since you seem to be wavering in your support of the ACA. To your credit, you do admit that taxpayers are paying $400 of your premium every month (do you realize that comes to $48,000 over ten years?) And you are just a SINGLE person. Do the math! How in the world is this thing going to be paid for? My premium (for my wife and I) would be about 30% higher than what I am paying now, and about five times higher (per person)than what you are paying, for lesser coverage than we have now, and I can almost say for certain that these premiums eat up a far greater percentage of our income than yours do. And I would venture to guess that our tax bill is far higher than yours also. We are by no means wealthy, by the way. This ACA is a train wreck, and it will only get worse. I have predicted for some time now that the personal horror stories will start coming out once people start filing claims and come to realize just how poor their coverage is and how their high deductibles will hit them in the wallet.
            • Medicare Cuts with Obamacare
              Medicare patients beware! You can't cut 500 billion dollars from the Medicare program and think the level of care is going to be the same as it was before the cut. It will be less, unfortunately the politician that crafted Obamacare don't have the courage to tell you that. When the Medicare patients start complaining about being sent home from the ER for their second exacerbation of congestive heart failure in one month instead of being admitted as Obamacare encourages hospitals to do or risk nonpayment or a penalty...I imagine the politicians will blame the physicians and hospital like they did the banks and mortgage companies they pressured to lend money to individuals they knew could not afford to pay it back. Sad!
            • Bestdrugsale
              Your inputs area unit terribly provocative, and that they do underscore the moving target of regardless of the impact is, whether or not it relates to huge and little employers, the utilized (both high pay and lower paid), the dismissed, hospitals, physicians, medical workers, health care managers, taxpayers, etc. It's very nice to browse a lot of thoughtful conversations regarding the ACA. Once all is claimed and done, associate individual’s circumstances can have the largest impact on whether or not its implementation could be a success. I will solely hope my initial optimism can return to fruition as they iron out the kinks and fix this debacle thus it's honest for everybody.

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