This is the first of three blog posts, each of which will make a compelling case for one of three distinct positions on Obamacare in Indiana: why it will succeed, why it will fail and why it will be a “non-event.” The second and third posts will be published Aug. 5 and 8, respectively. No single post should be read as my personal view on Obamacare, but rather as my best attempt to analyze the available evidence for three potential outcomes of the law.
Critics of President Obama’s overhaul of the American health care system should remember that Dr. Obama was given a very sick patient when he arrived in office in 2009. The system had these worrisome symptoms:
1) per-capita costs double those in other developed countries. Health care costs have been crowding out other spending at public institutions and making some companies uncompetitive with foreign peers;
2) worse rates of chronic diseases and even mortality than other developed nations;
3) a private insurance market that encouraged health insurers to woo healthy individuals while allowing them wide latitude to refuse or rescind coverage to people actually in need of care;
4) 850,000 Hoosiers and nearly 50 million Americans—roughly one in every seven people—who had no insurance coverage at all; and
5) a bizarre financing system that rewarded hospitals and doctors for building more buildings, buying more equipment and doing more stuff to every patient they could and, at the same time, gave patients no incentive to seek less or less-expensive care.
I could go on. But let’s just say American health care was essentially flatlined.
Obamacare, when it fully kicks in Jan. 1, is like a defibrillator. It will cause the patient to convulse wildly, but in the end, will get the patient’s heart beating again, leading to a much healthier future.
You’ll start seeing the convulsions exactly two months from now, when the Obamacare exchanges start operating. Even the president has admitted that there will be “glitches and bumps.” These may go on for a year or two or three. But they will end, and no one will remember them.
The same thing happened when the Medicare program launched its Part D drug benefit for seniors. People were hollering about the complexities and glitches in the early months of that implementation. But by and by, things smoothed out and people just settled down to enjoy their new benefits.
The same thing will happen with Obamacare.
Beyond technical functionality, however, Obamacare also needs three other kinds of success: economic, fiscal and political. I think the pieces are there for wins in all of them.
Obamacare’s basic economic calculus is this: Everybody pays so everybody benefits. So long as the little-pain-for-larger-gain equation holds true for the majority of Americans, the policy will work.
The biggest weak point for Obamacare is that the costs of buying health insurance are far higher than the costs of not buying it. This is why some have predicted that employers will stop offering coverage and that young people will fail to buy it—opting instead to pay Obamacare’s relatively modest fines.
But here is why neither problem will materialize: There are hidden costs for both groups that run far higher than Obamacare’s fines.
Employers will remain in a competitive market for workers, and health benefits will be as important as ever to workers—if not more, since Obamacare will fine them if they don't buy it. So dropping coverage will cost an employer far, far more than a $2,000-per-worker fine, as I discussed in detail here.
Young people simply face a penalty next year for not buying insurance of just $95 per adult, or 1 percent of household income. The fine will rise to $695 per adult, or 2.5 percent of household income, in 2016.
But what’s more significant is that, even though insurers must cover even the sickest people, insurers only have to do so during a once-a-year enrollment. That means that if I’m young and uninsured and I get in a massive motorcycle accident, none of the hospital bills I incur before I am allowed to enroll in a health plan will be covered. That’s a risk—once they realize it—that not many young people will take.
Not to mention that buyers under age 30 have a fairly cheap option: They can obtain catastrophic coverage costing significantly less than the $4,900 average policy Anthem Blue Cross and Blue Shield will sell in Indiana's exchanges.
Another economic challenge for Obamacare is paying for its improvements in the individual insurance market. Obamacare guarantees coverage even for very sick customers with cancer and incurable chronic diseases. It also guarantees richer benefits for customers in the individual insurance market—so, for example, young women aren’t surprised to find out that their health insurance actually does not cover childbirth.
Obamacare tries to shift the cost of these new rules onto taxpayers—via subsidies paid to single insurance buyers making up to $46,000 and families of four making up to $94,000. The idea is to reduce the estimated $1,000-per-person premium private health insurance customers now pay to cover the unpaid bills of the uninsured. The idea behind Obamacare is to stop this cost-shifting by insuring more people by having everyone pay a bit more in taxes.
I think the broader-tax-plus-broader-insurance strategy will work and will produce a more stable insurance system over time.
Obamacare is also furthering a gradual slowdown in health care spending and insurance premiums that began a decade ago. And those smaller increases in health care spending will help moderate the increases in the cost of insurance Obamacare will inevitably inflict on low-risk individuals (young men and older women) and healthy employer groups.
How is Obamacare contributing to cost savings? The law threatened significant cuts to Medicare benefits for seniors. At the same time, Obamacare created new kinds of finance programs for hospitals and doctors—such as accountable care organizations—which have gotten far more traction in the marketplace than I expected when the law was passed in March 2010.
Nearly every hospital in Indiana is now trying to cut its expenses between 15 percent and 25 percent, which will finally force the health care industry to adopt the IT and organizational efficiencies the rest of the country did 25 years ago.
Doctors will certainly get pinched in this process, even as they are also asked to see more patients. But since most of them have sold their practices to hospitals—and now rely on the mother ship for their staffs, record systems and other key equipment—few will be able to jump ship, even if they don’t like the way Obamacare changes their lives.
Private insurers are encouraging cost-cutting trends, too. They are starting accountable care contracts (basically a 21st century version of an HMO) with hospitals and doctors, paying them less upfront but offering rewards for keeping spending low and patient health high. Such arrangements are the basis for all four of the health plans offered on the Obamacare exchange in Indiana.
And Obamacare is forcing the insurers to pass these cost savings to consumers by capping insurer profits and requiring them to give rebates when they don’t spend at least 80 percent of consumers’ premiums on medical care. Hoosiers are set to receive $22.6 million in rebates this year, after receiving $14.2 million last year.
While it’s hard to see that these mechanisms held down premiums in Indiana—where exchange costs are shooting up 124 percent, on average—in other states, insurers have actually lowered their prices after seeing their competitors' offerings on the exchanges.
Sally McCarty, the former commissioner of insurance in Indiana, said she had never seen anything like that in her entire career in the industry.
This moderation in overall health care costs will help Obamacare overcome one of its other challenges. The fact that the law will take in less in new taxes than it spends on exchange subsidies and payments to states to expand Medicaid.
But with Medicare now spending less than projected on health care for seniors, the budget math gets easier for Obamacare. That will help tamp down fiscal issues Republicans could have exploited to build a political pushback against the law. Also, since more than 95 percent of employers have decided to keep health coverage, at least for 2014, there won’t be any flood of customers into the exchanges—which also could have drawn down more subsidies and caused the fiscal cost of Obamacare to balloon.
For Obamacare to be a complete success in Indiana, it will also need to win a political victory by wooing one of its most hostile opponents: Republican Gov. Mike Pence. But if the Obama administration can cut an acceptable deal to allow Pence to expand Medicaid coverage using something like the Healthy Indiana Plan, the Hoosier GOP will become politically invested in the success of Obamacare. That, I think, will be the game winner here. Republicans will stop trying to kill the law and instead start working to improve it.
Obamacare is a bit of a mish-mash of therapies for a sick system. And as I said before, it’s a mix of remedies that won’t go down without some grimacing and coughing. But if we, the patient, take the medicine and do our part to help it work, we will look back in a few years and say this was the time when things started to get better.