Why Obamacare is likely to fail in Indiana (and most other states, too)

June 12, 2014
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As we all know by now, Obamacare has radically reshaped the health insurance markets with new restrictions on insurers’ worst practices, new markets for individuals and small businesses, and generous subsidies for low- and moderate-income families to buy coverage.

But what if it's all a bit of a sideshow? A lot of heat and light that will, in the end, just not affect that many people?

That’s what Dr. Ben Park, the CEO of American Health Network, thinks. His reasoning? A large majority of people covered by private health insurance get that coverage from employers that actually insure themselves and, as a result, are exempted from most of Obamacare’s new rules.

Health insurance professionals call that self-insuring or self-funding. When an employer self-funds its benefits, they often still hire a health insurer in order to get access to its provider discounts and to process medical bills. Then the employer buys reinsurance that pays any claims that exceed a maximum amount, such as $50,000 or $100,000.

When employers self-fund their health benefits, they are no longer governed by state health insurance regulations, which is the arena that most Obamacare provisions affect. Instead, self-funded employers are governed by a much-less restrictive law known as ERISA.

“That’s why I think Obamacare will fail in Indiana,” Park told me a year ago, noting that about 70 percent of Hoosiers with private insurance were covered by self-funded health plans. I noted his thoughts in a related post last year. And, when I checked back with him this week, he said his view remains the same.

Park is worth listening to on this point. Not only does he run the largest independent physician practice in Indiana. He also spent years working for Anthem Blue Cross and Blue Shield in the 1990s and early 2000s.

And far from being a kind of anti-Obamacare reactionary, Park has embraced the accountable care reforms in the law, forming relationships with Franciscan Alliance and other hospital systems around the state.

But until now I couldn’t find any good data to back up Park’s claim that 70 percent of Hoosiers are already covered. An Anthem spokesman said that sounded about right, but didn’t have any better numbers for me.

But now I do have good data. In April, Citi Research issued a report of total enrollment in actual health insurance plans for every state, based on data filed by each insurer with each state’s insurance department.

I then divided each state’s enrollment by the total number of residents who were reported as being covered by private insurance in each state, according to the Census Bureau’s Current Population Survey.

The result? Park’s estimate is actually too low.

By my calculations, 79 percent of Hoosiers covered by private health insurance are in self-funded plans. Or, put another way, eight out of every 10 Hoosiers covered by private insurance are exempted from nearly all of Obamacare’s new rules.

Indiana ranks third-highest in the nation for self-insurance, behind only Wyoming and West Virginia. You can see results from all states in this spreadsheet.

But lest you think Indiana’s high rate of self-insurance is uncommon, consider these facts.

Out of all 50 states, only 10 have self-funded below 60 percent. And only four states have fewer than half their privately insured residents in self-funded plans. Those four states are North Dakota, California, New York and Hawaii.

And the national average is 60.5 percent. That means six out of every 10 Americans are mostly unaffected by Obamacare’s new rules.

And there is lots of evidence these rates are going higher. Citibank analyst Carl McDonald noted that, nationally, the number of people covered by actual health insurance fell 2 million from 2011 to 2012 and has fallen more than 14 million since 2002.

“The benefits of self-funding are so significant for many employers that we believe risk enrollment will continue to shrink,” McDonald wrote in his research report, which you can read here.

And those benefits got a whole lot more significant this year.

Employers that self-fund their health benefits are not bound by Obamacare’s mandates on essential health benefits, which will save them money versus actual health insurance plans. (All employers do, however, have to cover dependents up to age 26).

Also, self-funded employers and stop-loss insurers will not be subject to the new tax Obamacare will assess on actual health insurance policies sold by insurers. In Indiana, WellPoint expects such taxes to add 2.7 percent to overall premiums.

And for small employers, self-funding may be a way for them to avoid Obamacare’s community rating rules. For employers with younger-than-average workers, avoiding those rules could help them dodge premium increases ranging from 50 percent to 100 percent that could start kicking in this year.

Self-insurance used to be considered an option only for large companies. But now more reinsurers and even traditional health insurers have created new products that allow firms with as few as 10 employees to insure their own health benefits, thus dodging Obamacare’s rules.

“Self-insurance rates are already more than 70 percent,” said Park, the physician CEO. “I think that’ll go up to 90 percent.”

A few caveats are in order. Obamacare is more than just a set of regulations on private health insurance. The law provides federal money to expand government-sponsored health coverage for low-income people. It also slows the future growth of Medicare payments to health care providers and encourages doctors and hospitals to reorganize themselves into tighter-knit organizations that make money by boosting quality while reducing costs.

Those parts of the law could still bring big changes to the health care industry. But since two out of every three people—in Indiana and across the country—has private insurance coverage, the reforms in that area were supposed to be the most impactful.

Some folks think lots of employers will drop their group health benefits altogether, because Obamacare’s tax subsidies for individual insurance will prove a better deal for themselves and most of their employees. S&P Capital IQ predicted earlier this year that by 2020, 90 percent of workers insured by employers will be shifted into the Obamacare exchanges.

But it’s as equally likely that large and high-wage employers will see the exemptions they get by self-funding their health benefits as a competitive advantage when recruiting and retaining top employees. That could preserve health benefits as a standard employer perk and, if Park’s 90-percent prediction proves true, entrench it even more in the corporate world.

If that latter scenario plays out, then Park is right: Obamacare will have failed. Not as conservatives have predicted, with a colossal train wreck or a political uprising. But in a far more mundane fashion. Because lots of people will find it in their interest and in their power to work around it.

  • Socialism is the result..
    ...of governmental interference such as has occurred in the healthcare and insurance industries. They are BUSINESSES. Should they be monitored? Certainly, but not controlled. The insurance and healthcare industries, like all others when left to compete, survive, prosper and provide the best service at the lowest prices. It's called supply and demand in a free market economy. Welfare? Sure, where deserved. Half of the $800B we spend a year on 'entitlements' is fraudulently obtained and/or bartered. Imagine the benefit to policing that and kicking out the cheats? We, as a country, have become a welfare state by punishing the 'producers' and pandering to the 'gimme, gimme' set.
  • Amazed by opposition
    To this day, I am amazed that a federal plan (ACA) that was largely based on a state plan (MA) and which also builds on the existing health care and health insurance systems has been so controversial. As this post correctly indicates, ACA mainly works at the margins. Yes, it has a few new rules and regulations, and yes, it expands coverage. Parts of it could lead to slightly lower provider reimbursement per procedure or per capita over time, but most providers will also find over time that more and more of their patients present with insurance than without. It's really not a takeover of any individual sector of health care. In most cases, the government (via Medicare and Medicaid) have been the majority payor (or at least the plurality payor) for years now. So ACA says, we bump that up a few more points. But it's not as if we went from a primarily private payor market to a primarily public payor one overnight. That's been happening slowly ever since 1965.
  • Inaccuracies
    Many inaccuracies here. First, to call the Affordable Care Act(ACA)(I think it's time we started calling it by its proper name, don't you?) a failure because Indiana has such a high percentage of people covered by self-funded plans is nonsensical. The purpose of the law was to make health insurance coverage more accessible and affordable to those who didn't have access or couldn't afford it. The TYPE of plan that provides coverage to a great many Hoosiers who DO have access to coverage does not have much to do with the success or failure of the ACA. And, throwing out numbers like 50-100% rate increases is just plain irresponsible. As far as I know, not one state has completed their review of the 2015 rates, some haven't even finished receiving filings yet. The PROPOSED rates that I've read of are all over the board -- including some rate reductions, which were unheard of before the ACA. In the end, many of the approved rates will look nothing like the proposed ones. So it's way too early to be talking about rate increases. And, as far as Self-Funded Plans being exempt from the ACA market reforms. You are incorrect. I've provided, below, a list of ACA and some other fedreal market reforms that apply to self-funded plans. The beauty of putting these protections in federal law is that those many Hoosiers you write of who are covered by self-funded plans, can now enjoy the protections that those in fully-insured plans have benefited from, including some that have been in state law for years, but didn't apply to self-funded plans. Please note, that even though self-funded plans aren't required to provide the state benchmark plan's essential health benefits (EHBs)- not exactly something to be celebrated by those covered under those plans -- they ARE subject to many of the protections that apply to EHBs if they offer the same benefits. Some examples of those and the other ACA reforms that apply to self-funded plans are: --Rescissions Prohibited --Prohibition on Excessive Waiting Periods --Dependent Coverage up to Age 26 Required --Discrimination Based on Health Status Prohibited --Collecting and Discriminating Based on Genetic Information Prohibited --Pre-Existing Condition Exclusions Prohibited --Annual and Lifetime Dollar Limits on EHBs Prohibited --Limits on Out-of-Pocket Expenses for EHBs ---Coverage of medical and surgical benefits for Mastectomies Required -- Hospital coverage for mothers and newborns following childbirth ---Parity of Mental Health benefits with Medical/surgical benefits -- Coverage of preventive services with $0 cost-sharing --Coverage of emergency services -- Internal review and External review of adverse benefit determinations. --Coverage of routine costs for approved clinical trials There are a few more, but these are the most relevant.
    • Obamacare already a failure
      Obamacare was a failure the moment it was forced on the country with a strictly highly partisan vote. It has been known since day one as Obamacare and it wasn't until it was an obvious mess and failure late last year that certain folks tried (unsuccessfully) to remove the attachment to Obama, again for political reasons. Millions of people have had their policies cancelled against their will and at odds with the assurance "If you like your health plan, you can keep it. Period!" Now, even the Unions are trying to bail out. Still can't put lipstick on this pig.
    • So???
      You must be hard up! You write a whole column to prove that most people are covered by self-funding employer plans. We knew that before Obamacare was passed! Obamacare, as part of its moderate approach to health care reform, did not aim to replace these self-funded plans; it focused on the relatively small percentage of people who were either covered in individual plans, which are the ones where abuses usually occurred, or those who weren't covered at all. EMPLOYER PLANS, INCLUDING SELF-FUNDED ONES, HAVE GENERALLY ALWAYS PROVIDED GOOD COVERAGE AND RESPONSIBLE SECURITY. You have proven nothing, except that you don't have a good argument. And let me help you: a good argument is achieved by providing a good alternative. And a good alternative means as close to everyone as possible is covered. So far, no one has come up with anything of the sort. Senators Coburn et al tried and the CBO scored their plan as more expensive and less effective than Obamacare. We're waiting; show up what you've got. Or are you content merely to mislead your readers?
    • Eaxctly . . .
      Firstly, I'll say that before I started reading he article, on a hunch, I looked up info about the author, and as expected, he is a big republican supporter and campaign donator. This also explains why his article is filled with so many misleading, inconsistent, illogical and just plain wrong arguments. The entire ante-ACA brigade has been using these kinds of arguments, or anectodal stories that also turn out to be insultingly misleading or untrue.If they were on the right side if this issue they wouldn't need to try to outsmart and trick people into agreeing with them. They're pathetic.
      • American Health Network
        Based on recent experience with American Health Network and Franciscan Alliance, Mr. Park is not disclosing the totality of the relationship with Franciscan Alliance. The "accountable care reform" is in my opinion the fox watching the hen house. Franciscan can inflate cost while American Health Network refers to Franciscan. While not illegal, based on my experience not affordable. The procedure I had done could have been done at an independent facility for $1000.00 less than Franciscan billed out. Franciscan said they billed the amount based on Medicare reimbursement. This was not a Medicare claim. It was a private insurance claim. If Franciscan is billing Medicare and/or Medicaid $1000.00 more than other facilities how can this be considered "affordable healthcare reform"? Franciscan and American Health Network are not what I would consider a healthy combination for the state.
      • Failing
        no one ever talks about quality of care and the fact that once fully implemented we're going to wait longer to see doctor. no one talk about the fact that we aren't saving $2500 as obama promised. no one talks about the numbers enrolled and who's actually paid. no one talks about fact that the corrupt and incompetent IRS, who just so happened to recently lose 2 years worth of Lerner emails is in charge of Obamacare. No one talks about Obamacare being nothing more than another subsidy on backs of middle class, no one talks about not being able to keep our doctor as obama promised, no one talks about the gov run VA system and its miserable failures (meanwhile liberals think single payer would be great?) Obamacare is far from a success no matter how much the left want to believe its working.
        • More on this coming
          Thanks to everyone for their feedback on this post. I particularly appreciate Sally McCarty's contributions--which always add significantly to the value of The Dose. I think some of my arguments have been misinterpreted or misunderstood, and on some points, I simply disagree. But since there are such subtle distinctions on some of these issues, I plan to address them in a separate post, on Wednesday. Thanks again for reading.
        • Thanks Sally!
          My thanks to Sally for sticking to the facts and enlightening many of us in her comments. Also thanks to her for keeping the ACA in perspective with regard to its scope and requirements. JK - I hope her comments put some balance into your view of Mr. Park's faulty assertions and political leanings!
          • To Jim and Sally
            I'm not making up facts, here. The 50-100% premium increases I reported were rates that insurers like Anthem and UnitedHealthcare told some small employers they would receive once they were required by Obamacare to buy a policy that adheres to Obamacare’s new community rating rules. These rules require that older individuals be charged no more than 3 times as much as younger workers. That’s a big change from current practice, which typically sees the oldest workers charged 5 or 6 times more than the youngest workers. So, if an employer has younger than average workers, then buying a new policy that adheres to those community rating rules would almost certainly be more expensive—significantly more expensive—than before. Could the insurers have been exaggerating with their 50-100% estimates? Yes. But I don't think it is irresponsible to cite rates that have been put out into the marketplace, even if informally. This is the kind of information people are using to make real decisions about this stuff. It would be irresponsible for me to ignore it or hide it.
          • To GAry
            Just to be clear, Ben Park is not the author of this article. I am. And I, J.K. Wall, have never contributed to any political candidate, Republican or Democrat.

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