2013: A Year of Debate and Delay

Historian Barbara Tuchman created Tuchman’s law: “The fact of being reported multiplies the apparent extent of any deplorable development by five- to tenfold (or any figure the reader would care to supply)”. That law applies directly to the events of 2013.

We started the year with tiptoeing away from a fiscal cliff. That political crisis would reappear later in the year, but the fear in January was that we would continue to kick this can of long-term budget deficits down the road. The problem is the major driver of Federal budget deficits is health care expenditures. Social Security, defense, and all other spending are projected to remain largely constant as a percentage of GDP. That means you could slightly lower future deficits by cutting other spending, but if health care costs aren’t addressed all long-term structural deficits will remain. Congress faces very few options in the current budget debate that would credited as reducing future Federal health expenditures that aren’t already part of the Affordable Care Act (ACA).
You can’t reduce health care cost inflation painlessly and change always creates winners and losers. In health care financing the winners and losers are often difficult to identify. Health care financing is a complex web of direct costs and indirect public and private subsidization. Changing that financing system makes some costs visible that were hidden before making them appear to be new. That is case of the Affordable Care Act.

The ACA changes how premiums are determined. Under the ACA insurers are unable to use personal characteristics other than age to determine premium. That means that premiums are determined by the composition of the entire group who purchase individual coverage rather than a separate premium for each individual. People who currently purchase individual insurance coverage in Georgia are slightly older and much more female than the rest of the population. If the only change in the individual market was the pooling of those currently purchasing coverage in that market then by definition the average premium would not change, but younger healthier individuals would face higher premiums while the older and/or less healthy would face lower premiums.
The mandates on both individuals and insurers, the subsidy for the purchase of individual coverage, and the risk corridors that protect insurers from the effects of adverse selection for the first three years are intended to ensure that the groups lowering premiums are larger than the groups who increase premiums. It is import to note is that the changes in premiums year to year will be changes in average premium. A healthy individual who gains coverage now may find coverage in future years unaffordable if they suffer an illness. Under an ACA that healthy individual may pay more in the first year but their premium in the second year will not be affected by any change in health status they suffer in that first year.
One of the key features of the Affordable Care Act is an expansion of the Medicaid program. In Georgia that would have been about 600,000 more Georgian’s with health insurance coverage in 2014, but the state elected not to expand because “we can’t afford it”. There simply is no “we” that makes that a true statement. Costs to every group in the state are higher without Medicaid expansion. In Georgia the cost of care for the uninsured is well over $2 billion dollars annually. That care is often given in the most expensive places (emergency rooms) and often given at the most expensive time (late in an episode of illness). Expanding access to insurance coverage reduces emergency room visits and hospitalizations.

The Federal money that Medicaid expansion would draw into a state would generate new economic activity, increase employment, create income and increase state and local tax revenue. Estimates of job creation due to Medicaid expansion in states include 12,000 in Alabama, 44,000 in South Carolina, 50,000 in North Carolina and 70,000 in Georgia. If these states opt out of Medicaid expansion they give up that income and the tax revenue generated by it.

Expanding Medicaid would also increase access to care for all Georgians. Many parts of Georgia have been identified as Medical workforce shortage areas. Those mostly rural areas lack the resources necessary to attract and retain physicians and other health care providers. Medicaid expansion increases the resources available for those areas.

For states that have opted out of Medicaid expansion there is a break in affordable coverage. An a family with income just below poverty may be able to access coverage for their children through the Medicaid program or the Children’s Health Insurance Program (Peachcare in Georgia), but the adults in the family will not have access to either Medicaid or subsidies in the exchange. A family with income just above the poverty level will have access to those subsidies.

When the Affordable Care Act was passed in 2010 the year 2014 was designed as the first year in which all Americans would have access to affordable health care. During 2013 the technical requirements of implementing a complex law, partisan politics, and the limits of time have combined to make 2014 a transitional year.

It was envisioned that in 2014 small employers would be able to offer their employees health benefits as good or better than those offered to employees of larger firms. The creation of the Small Business Health Options Program (SHOP) exchanges would not only reduce the costs of health insurance to small groups, but also enable employees of small employers to choose from a variety of plans and insurers. The difficulty of developing the appropriate information technologies to allow that choice have forced SHOP exchanges run by the Federal government to delay employee choice for at least a year. While reforms of the small group insurance market will reduce premium variability and less costly to most employers who currently offer coverage, employee choice will have to wait until 2015.

Many employers were relieved this year when it was announced that information technology difficulties meant that the employer mandate within the law would not be enforced until 2015. Under the law employers with over 50 employees who did not offer coverage were subject to pay a fine for each employee (after the first 30). Employers who offered coverage that was deemed unaffordable paid a fine for any employee who received a subsidy in the exchange. The employers most affected by the mandate are those whose workforce is largely low-income workers.

One of the most disturbing aspects of the 2013 political battle over implementation of the Affordable Care Act is the degree of misinformation being generated from a variety sources. A vivid example of the lack of knowledge by consumers and others on the cost and benefits of the ACA was given in Kentucky where a man at booth in at the state fair after being informed about Kynect, the state’s health benefit exchange established under the Affordable Care Act says “This beats Obamacare”.
Open enrollment for the exchanges tried to start October 1st, but poor IT coordination, bad system design, and uncoordinated decision making contributed to a faltering and failing website that made enrollment difficult if not impossible for those states with a Federally operated health insurance exchange. There were similar but considerably less troublesome glitches in states what were running their own websites.
Tuchman’s law clearly applies to the discussion of the impacts of the Affordable Care Act in 2013. Nationwide about 5 percent of American’s purchase coverage in the individual market. Some of them are facing canceled policies. Most of those whose policies have been canceled will find other similar plans at similar prices to what they paid in 2013. Perhaps as many as a third of those whose plans have been canceled will find that the only coverage available to them is more expensive than they currently purchase.

2014 will be a transitional year toward a system that attempts to preserve the private insurance market. The variety of approaches across states will create natural experiments on the operation of insurance markets. Hopefully, the result of those experiments will be objectively examined and the best practices will be adopted nationwide.

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