In this post I predict that Obamacare will be a non-event in Indiana. Two previous posts argued for why Obamacare will succeed and why it will fail. 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.
After 10 months of acrimonious debate, 2,000 pages of legislation, 20,000 pages of regulations, and nine years before full implementation, Obamacare is going to bring us back to where we started.
Oh, it will fix a few issues along the way—and it will create some new ones.
But by and large, Obamacare will leave in place the same major problems in the health care system that existed before the law was passed—in both Indiana and across the nation.
– Costs, of both health care and health insurance, will remain high and will proceed on their faster-than-inflation march.
– Those costs will still be borne by employers and their workers, as hospital systems shift the burden of under-payment by publicly financed health insurance onto employers.
– The third-party insurance system will be permanently entrenched as the beneficiary of both a $300 billion per year tax break for employers but also now a $150 billion per year flow of subsidy payments for individuals buying in the exchanges.
– And yet, there will still be a large number of uninsured Hoosiers (and Americans).
– Significant inequities will continue to exist in the American health care system. They will not all be the same inequities as before, but they will be there.
– The gradual rise of consumerism—by exposing families to more of the costs of their care—will go on, in spite of the dislike President Obama and many health care providers have toward health savings accounts. But now, HSAs will be a reality for more Hoosiers than ever.
This is why I say Obamacare will be a “non-event.”
Obamacare requires health insurance policies purchased by employers with more than 50 workers to adhere to various new rules and pay new taxes. But there is a way to get around some of those rules and taxes, and more employers are taking advantage of it.
Rather than buying insurance from a health insurer like Indianapolis-based WellPoint Inc., an employer can act as its own insurer. So it simply hires WellPoint or a third-party administrator to process its workers’ medical claims, but not to take on the financial risk of those claims.
Then an employer buys a different kind of insurance called stop-loss, when medical claims exceed $50,000 or $100,000 for one worker or a predetermined amount for the employer's entire workforce. This is called “spec and agg” coverage. It’s like a high-deductible health plan for an entire company.
Self-insurance rates were already higher in Indiana than in other states. Getting precise data is difficult, but local insurance professionals say a good rule-of-thumb estimate is two-thirds of Hoosiers with employer-sponsored health benefits get them from a self-insured employer. The rate is 58 percent nationally, according to a Rand Corp. study, and has been rising.
Dr. Ben Park, the CEO of American Health Network, expects those the rate of self-insurance among employers to shoot up to 90 percent in Indiana. That’s because the companies that offer stop-loss insurance have revamped their products to appeal to smaller and smaller employers. Some stop-loss insurers are signing up employers with as few as 10 employees, according to local benefits brokers.
If nine out of every 10 workers at Indiana employers is covered by a self-funded insurance plan, that means those employers are not bound by Obamacare’s mandates on essential health benefits. It also means they can avoid the community rating risk pool that small employers buying a health insurance will be part of. That’s an advantage for any employer with a generally younger or healthier workforce.
Also, self-funded employer 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.
Still costs for employers are expected to rise even a bit faster than they had been for the past decade. Health care spending has moderated during the economic downturn but has hardly budged from the double-the-rate-of-inflation pace at which health care and health insurance have risen for the past 40 years.
Employers were hoping that hospital systems wouldn’t shift as many costs onto employers as they have in the past, because Obamacare’s expansion of insurance coverage would give the hospitals more paying customers.
But with Indiana not expanding its Medicaid program (so far) and with the newly insured that will flow into Obamacare’s exchanges landing in plans that pay as much as 30 percent less than employer health plans, the new patients won’t improve finances at hospitals much—if at all.
But hospitals have improved their bargaining power by scooping thousands of formerly independent physicians and by consolidating into larger chains. (This consolidation has been justified as helping produce coordinated care that saves money, but don’t hold your breath on that. Most of the organizations that have tried it so far have either not saved money and some have just given up after trying it for a eyar or two.)
So hospitals will have the clout to make cost-shifting, which averages about $1,000 per commercially insured person, continue.
With costs still rising, the number of Hoosiers paying thousands of dollars out of their own pocket each year will go up. That's because employers, trying to duck Obamacare’s 2018 “Cadillac” tax, are turning in higher numbers to high-deductible plans. Also, the majority of customers on Obamacare’s exchanges are expected to opt for low-cost bronze and silver plans—which will also come with high deductibles.
This higher exposure on health plans was not President Obama's goal when this process started back in 2009, but it’s the one of the only ways now to keep health care affordable.
Proponents of Obamacare also hoped it would end the “job lock” that now keeps workers stuck at employers with good health benefits, because the current individual markets are so unattractive. But I expect employer-provided benefits to remain the preferred option for just about everyone, and therefore, “job lock” will continue.
I see this happening because, after the employers with relatively healthy workers move to self-insure, they will steal away healthy patients that would otherwise have been factored into the risk pool for the individual markets, pushing up rates there.
That’s not to say that life won’t improve in the individual markets. It will, in quite substantial ways, as I discussed in my post predicting that Obamacare will work.
But expect Obamacare’s exchanges and individual markets to have a second-class status that Hoosiers will avoid, if they can. The exchanges will be the province of low-wage workers, who are the ones that will benefit most from Obamacare’s subsidies.
But for anyone who gets no subsidy or only a small one, health coverage in the exchanges will be expensive and will come with limited choices on doctors and hospitals.
Add to that the fact that Indiana Gov. Mike Pence is unlikely to expand eligibility for the Indiana Medicaid program up above the poverty limit—as called for by Obamacare—and you get a whole lot of Hoosiers still uninsured. Based on estimates from the actuarial firm Milliman Inc., there will still be about 400,000 Hoosiers uninsured, without a Medicaid expansion. Most of those folks will actually have lower incomes than those getting subsidies for health insurance in the exchanges. But there will be no help for them.
So, as I said, there will still be huge inequities in Hoosier health care—just like there were before the drive to pass Obamacare.
“I am not the first president to take up this cause,” Obama declared in a speech about health care reform to Congress on Sept. 9, 2009, “but I am determined to be the last.”
The president's determination, unfortunately, will not be enough.