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Obamacare Cometh: Health Care Exchanges in Flux

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by

James A. Bacon
in

Terry Kilgore. Photo credit: Times-Dispatch

by James A. Bacon

Under the provisions of Patient Protection and Affordable Care Act, the 50 states must set up health insurance “exchanges,” marketplaces where individuals and small businesses will find it easier to acquire coverage, by 2013. If they don’t, the federal government will step in and set up the exchanges for them.

Gov. Bob McDonnell is no fan of Obamacare, but the law is the law… and he’d rather Virginia run its health care exchange than let the U.S. Department of Health and Human Services do it. And Virginia legislators agree.

“Virginia can and should set up its own health-care exchange,” said Del. Terry G. Kilgore, R-Scott, chairman of the House Commerce and Labor Committee, as quoted by the Times-Dispatch.

The purpose of the health care exchanges is to fill gaps in the health insurance marketplace that make it prohibitive for individuals and small businesses to obtain health care coverage. One critical component of the exchanges — a requirement that everyone either obtain coverage or pay a penalty — is under legal attack, however, and probably won’t be considered by the U.S. Supreme Court until next year. Because the exchanges will rely upon the participation of healthy people to keep rates down, they likely would go into a death spiral if the Supremes invalidate the mandatory coverage.

That creates tremendous uncertainty for state officials. The Times-Dispatch reports that the legislature is awaiting an overdue report from the governor’s Health Care Reform Initiative Advisory Council before making key decisions about how to craft the law. Another big question is whom to put in charge of the exchanges. There is some sentiment to make it a responsibility of the Bureau of Insurance under the State Corporation Commission.

Just remember: Health exchanges are a government-engineered solution to flaws that government that created in the first place. The problem arises from the fact that health care insurance obtained through employers is tax deductible, whereas insurance that individuals purchase on the open marketplace is not. Thus, the entire medical insurance industry is organized around selling insurance to employers, not the ultimate customer — in contrast, say, to the auto insurance industry. Inserting employers between insurers and patients sets into motion a whole train of dysfunctional and expensive behaviors too lengthy to detail here.

Needless to say, however the exchanges are crafted, they will be imperfect, and there will be cries for further fixes. State government undoubtedly will be more responsive than the federal government, so the pragmatism of McDonnell, Kilgore and others is probably justified.

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12 responses to “Obamacare Cometh: Health Care Exchanges in Flux”

  1. larryg Avatar
    larryg

    there are clear inequities in the current law that favor employer-provided health insurance – at the SAME TIME people who have it – don’t really care about the cost and efficacy of what they get.

    I would assert that there is fertile ground for a principled Republican alternative to the current system – and ObamaCare path.

    It’s ironic that the folks who say they want to enhance and empower small business not only don’t agree with the ObamaCare approach to help small businesses – but they have no alternative approach either.

    it would be one thing if the Republicans had a competitive alternative to ObamaCare but they have none and so their primary strategy is to oppose/kill ObamaCare.

    I always counted on the Republicans to be the fiscal adult in the room when it came to problem solving but done in a fiscally responsible manner.

    But now.. they clearly have lost their fiscal conservatism when it comes to DOD and neo-con foreign policy – no price in blood or treasure is too high.

    and health care? let them eat cake.

  2. TMT Avatar
    TMT

    If one views health insurance as primarily a state by state issue, there is no reason to expect the GOP to have pushed national plans. Insurance of all kinds has been consistently regulated at the state level. Moreover, trying to kill national health care plans is also consistent with this world view.
    However, there were Republican alternatives to Obama Care. They generally included a change from the traditional state regulation of insurance to permit people to buy policies from insurance companies operating in other states. This might help drive down costs as residents could avoid higher-cost plans in their own states. Tort reform was another element. Establishing state insurance pools could help small business and some individuals purchase lower-cost policies.
    Moreover, Obama Care has generally been exposed as yet one more Democratic income redistribution plan that has not only failed to lower health care costs, but also caused costs to go up for many companies and individuals.
    A valid criticism of the American Health Care System has been individuals have no incentive to watch costs as they do for most every other service or product. That same criticism can extend to the entire federal government. Way too many people don’t pay Federal Income Tax and, as a result, have come to think of Uncle Sam as a sugar daddy. Most of Obama’s programs are designed to further that view. Health care reform is part of that same effort.

  3. larryg Avatar
    larryg

    the problem with that reasoning is that it’s not dealing with the realities.

    MedicAid is a one trillion dollar program (split between the Feds and the States). Many people in the states (kids and the elderly) would simply not receive health care without MedicAid.

    The same is true of Medicare.

    The same is true of TRICARE and the VA.

    the same is true of all hospitals subject to the Federal EMTALA law (virtually all of them).

    If the Republicans are truly opposed to the Federal govt being involved in health care – they should stand on their principles and advocate repeal not only of ObamaCare but Medicare and MedicAid and let the voters decide if that’s what they want.

    An unprincipled position is to believe that but weasel the issue and essentially be opposed without ever really standing for what you really believe.

    Be forthright and don’t be a hypocrite and let the American people see the real choices and decide.

    re: taxes.

    Obama is not responsible for 47% not paying Federal Taxes – for things like the existing exemptions and deductions and credits especially for kids.

    He IS responsible for the $400 make-work-pay credit that went for 2 years and has gone away. He’s also responsible for the 2% payroll tax deduction which will also go away if not extended (but that does not affect income taxes).

    but 90% of the credits/deductions/exemptions, Obama had nothing to do with yet for some reason he is blamed for them, why?

    but if you think ObamaCare is an income redistribution system and MedicAid and EMTALA are not, you’re not connected to the real world here.

    No only is MedicAid a redistribution system – it’s the worst kind because it pays after a disease has gotten out of hand instead of catching it in the early stages.

    ObamaCare was an attempt to get people regular care that would detect and treat disease in the earlier stages when it is cheaper.

    this is the reason why all the other industrialized countries pay 1/2 per capita what we do – and live longer.

    If your belief and the Republicans belief is that govt health care is wrong then run on that … be honest… and let the American people decide if that’s what they want.

    The stealth “anti” strategy of the Republicans on health care is corrupt and scurrilous.

    if they had character they’d be honest and let the voters decide.

  4. larryg Avatar
    larryg

    the interesting thing is that the forefathers supported payroll taxes for health care AND Republicans like New Gingrich and many others supported an individual mandate in 1993.

    so what happened?

    Virginia has always had the same option that Massachusetts had and has not done anything to make health care more affordable and available.

    Va could have done with health insurance the same thing they did with auto insurance and did not.

    why not?

    I have a cynical answer. The Republicans in Va are no more interested in health care than the national Republicans.

    And Virginia could opt out of MedicAid all together … and get rid of those Federal mandates….

    so the Republicans in general as well as the Va Republicans have accepted the worst of both worlds.

    They’re opposed to it at the Federal level but they wont’ get out of MedicAid at the state level even though it’s a major budget issue.

    Seems to me they should either get out of MedicAid or they need to start addressing why MedicAid costs so much and what Massachusetts found out was that health care costs much more if people don’t have regular care BEFORE they get disease that progresses undetected until it is very expensive and has much higher mortality.

    you have two basic choices: 1. get out of health care altogether

    2. do health care but do it as cost effectively as you can.

    we pick the 3rd option. we do health care but won’t pay unless the person has advanced disease.

  5. larryg Avatar
    larryg

    TMT – we likely both agree that the current system is no good.

    We also know that if we leave it the way it is – that costs are going to continue to escalate.

    but then that’s where we part company.

    my perspective is that the current system is untenable and we must fix it – to be more like the 100 other systems in the world that are cheaper and but have better outcomes (life expectancy, infant deaths).

    Your perspective (correct me if I am wrong) is that it’s bad but reforming it won’t work (that the other countries universal health care is not as good as ours (for those that have it) but yet we cannot unwind it (Medicare, MedicAid) either so we must live with it as is but leave it alone.

    am I correct in laying out the two positions – to this point?

  6. TMT Avatar
    TMT

    Larry, I think that you have largely distinguished our two positions on health care. By and large, both Medicare and Medicaid are too complicated, both politically and economically, to unwind. I suspect that reforms can be made at the edges and more major changes could be implemented in both programs if those using and about to use (at least for Medicare) were grandfathered.
    What I don’t understand is why, after realizing the huge problems associated with Medicare and Medicaid (toss in Social Security too), people want to create a health care program for the remaining residents of the U.S. that will soon become just like the others.
    One of the key problems with our health care system is that consumers have little or no incentive to control costs. Moreover, controlling costs at the personal level sure makes more sense than having government agencies control them. I had surgery on my left eye this summer. I have insurance through my wife (a career federal employee). I asked my optometrist (a preferred provider) for a surgeon who was also a preferred provider. The doctor has performed more than 20,000 surgeries and everything worked out. I behaved in a manner that obtained quality results with cost savings to the system and to me.
    Obama’s plan doesn’t provide these personal cost saving incentives. He’s a redistributionist and wants to create more dependency. FDR had it right – give people benefits and they will vote for you. When most people didn’t make it to 70, FDR’s plan worked. But it doesn’t any more. By and large, people need to be responsible for themselves. Risk sharing through insurance makes sense. but if we want economic growth, we cannot tax our way into paying for redistributionist plans.
    We need a plan that provides incentives for the insured to select cost effective and high-quality health care.

  7. larryg Avatar
    larryg

    TMT – social security is funded from FICA and does not threaten the income tax budget.

    Medicare Part A hospitalization only, is funded from FICA and does not threaten the budget unless changes are made to fund it not from FICA.

    Medicare Part B and MedicAid are funded from income taxes (and some fees and premiums).

    Medicare Part B is totally voluntary for seniors. You have to sign up for it. And Medicare Part B only pays 80% and limits that again by capping what the provider can charge (that will be reimbursed).

    The govt charges premiums for Medicare Part B and can and does increase them and can, in fact, raise them substantially on means-tested subscribers.

    MedicAid and EMTALA are for the indigent and often do not provide routine and regular visits and screening but instead focus on illness after it has progressed to where it threatens life and/or causes the individual to quit work.

    We are already paying for these people and making no changes means we will continue to pay for them – as health care costs accelerate.

    MedicAid is projected to double in costs in a decade – and you and I will pay for it.

    is your position that we cannot do anything about that?

    that’s the essential problem in my view.

    I think if we are not going to kill MedicAid – and you don’t either apparently then shouldn’t we make it more cost effective or make it as cost-effective as we can by providing the kind of care that detects disease in the early stages when it’s less expensive to treat?

  8. TMT Avatar
    TMT

    Killing Medicaid is not going to happen. I also agree with your recommendation to make it more cost-effective. But the key still seems to me to make as many Medicaid recipients (or their guardians) responsible for making health care decisions as is possible. Uncle Sam can continue to send money to the states. The states should provide financial assistance to the indigent to purchase health care insurance similar to what can be purchased by anyone else in the state. Until individuals get responsibility for making health care decisions, we aren’t going to get any efficiencies.

  9. larryg Avatar
    larryg

    MedicAid also pays the Medicare Part B premium for those who cannot afford it.

    when you say the state should provide – it means taxpayers – and what I support is the people who use health care pay for it – during their work careers with payroll taxes – i.e. Universal health care.

    the only way the system “works” without the individual mandate – for taxpayers – is to not pay for the health care for others – i.e. the “income transfer”.

    I’m not in favor of UHC because I believe it is inherently “better” (though the stats seems to say so).

    I’m in favor of it because it requires everyone to pay for something that they will inevitably need much the same way we require at the state level for someone to demonstrate financial responsibility if they drive a car.

    so our choice (it seems to me) is the individual mandate verses you and I paying a substantial level of taxes – for a system that is not only not cost effective but grossly wasteful.

    If we did what Singapore did – we’d require all health care providers to post their fees but the folks who are opposed to govt being involved in health care are opposed to that form of govt involvement also.

    see my post on the latest Wonk Salon.

  10. TMT Avatar
    TMT

    The federal government does not have the constitutional power to force people to make purchases in interstate commerce. If it can make you buy health insurance, it can make you buy only corn flakes from west of the Mississippi, or take airplanes flown by Democrats, or keep your money at banks owned by Republicans. The feds could revoke the law that requires hospitals to give free care. That would be a strong incentive for people to have insurance. The feds could also impose a tax that would fund all health care. But why would we march down that road to failure? Medicare and Social Security are in intensive care! And most countries that have single payer ration care. That would not be acceptable to the people who have insurance. It is hard to take things away from Americans.
    A state may have the power to require a resident either to buy health insurance or pay a fee like Virginia and other states do with auto insurance. But states have different powers than the federal government and for a reason. We aren’t Singapore, or Canada or Germany. And that is for a reason too.

  11. larryg Avatar
    larryg

    If Europeans/Asia ration health care and are a “failure” how come they pay 1/2 what we do and live longer?

    There are over 100 countries in the world with UHC – and some have had it for more than a hundred years…

    has any UHC failed in the world? Nope.

    Social security is not in intensive care at all. the worst that can happen to SS is it will pay out at 75% if nothing is changed because it is funded from FICA not income taxes – unlike Medicare Part B and MedicAid – which you pay for already. It’s just plain incorrect to classify SS as on “life support”.

    we’re talking about the costs to provide care to people who don’t have appropriate access to health care – and you pay for them already.

    I do not think they are going to get rid of EMTALA and more than they’ll get rid of MedicAid – and you will continue to pay – more and more as long as we have the current system.

    You’re right that Singapore and Canada are not us but why in the world would we staunchly insist on a system that is so dysfunctional that we pay twice as much and die quicker than ALL other industrialized country in the world ?

    but here’s what I don’t see from the ObamaCare opponents – their plan.

  12. TMT Avatar
    TMT

    Larry, I think change is difficult because many people are satisfied with their own health care. Change for them means they are likely to be worse off than they are today. In a macro sense, I can imagine that a vastly different system might bring about benefits to these and other people. For example, consider a system that is less expensive and has lower annual increases in costs. Clearly, that would likely benefit most everyone. But what price is someone who is largely content with his/her current coverage willing to pay for that macro change? I suggest “not much.” Look at labor unions, which are big supporters of HCR. They adamantly oppose any change that costs their members a dime more. I don’t think most federal employees or employees of companies providing insurance would act any differently.
    Obama’s basic approach was to expand coverage without achieving any major cost savings, while creating conditions that threatened those who were satisfied with their existing situation.

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