A mounting list of problems and failures plagues key aspects of the Affordable Care Act
By Ronald E. Bachman
On July 2, 2013, just a few short months before significant portions of the federal Affordable Care Act (ACA) were to take effect, a Treasury Department official announced the Obama Administration will “provide an additional year before the ACA mandatory employer and insurer reporting requirements begin.”
“Provide” is a generous description. A mounting list of problems and failures plagues key aspects of the law, the most recent being the announced delays until 2015. Postponed by fiat of the Health and Human Services Department, the coverage mandate requires businesses of 50 or more employees to provide health insurance or pay a penalty. Along with the individual mandate, it was supposed to be key to solving the uninsured problem. Delaying the insurer reporting requirement means participants self-reporting income, a dubious “honor system.”
These delays follow the feds’ May 31 announcement of a 12-month delay in the employee choice component of the Small Business Health Options Program (SHOP) exchanges.
Other parts of ObamaCare have been repealed or changed by congressional legislation, Court rulings, or delayed unilaterally by HHS pronouncements. During the period since passage in 2010, poor or failed implementation has occurred with major parts of ObamaCare.
Implementation struggles have included:
The CLASS Act. An attempt to create long-term care insurance, the section was eliminated when the Congressional Budget Office ruled it did not meet financial standards for long-term solvency.
The 1099 provision. This mandate required businesses to issue a 1099 form to any vendor from which they purchased $600 or more of goods and services in a year. Congress repealed the mandate after businesses complained of the expense and burden it would impose.
Co-ops. Congress tried to create competition by funding new non-profit insurers identified in ObamaCare as co-ops. Billions of dollars were spent on a few state initiatives before Congress eliminated funding in 2013 tax legislation.
Medicaid expansions. The U.S. Supreme Court ruled the law’s mandate to expand government-funded insurance for the low-income population was unconstitutional but allowed states to voluntarily participate. About half of the states will do it and half will not. The Government Accountability Office has reported excessive and unchecked fraud in Medicaid since its inception.
Federal high-risk pools. Few enrolled in a bridge program for uninsured high-risk individuals due to the complexity, cost and lack of compensation for insurance agents. The Pre-Existing Condition Insurance Plan stopped accepting applications early, in February 2013, to “help ensure that funds are available through 2013” for the 100,000-plus enrollees until ObamaCare’s guaranteed issue coverage kicked in in 2014.
Retiree health subsidies. This replaced funding for retirees, which many large companies were already providing. Companies were happy to accept the windfall funding. In the end, the money ran out in about a third of the time expected.
Small employer tax credits. This was a heavily promoted program designed to encourage small employers with low-wage employees to add health insurance. The reality was that few employers qualified for any subsidy. The complexity and confusion of these credits deterred all but a handful of companies from even applying.
Pricing mandates: The Affordable Care Act includes several pricing mandates that distort natural risk relationships. These have caused most carriers to increase premiums dramatically in anticipation of anti-selection. Some carriers have exited geographic markets while others have eliminated all sales for individual policies.
- Medical loss ratio. This complex, arcane requirement sets the percentage of insurance premiums that can be spent on medical care versus plan administration. It minimized the value of agent support, health literacy programs, compliance oversight and effective plan administration. Many smaller employers have opted instead for more flexible – but less secure – self-insured arrangements.
- Single risk pool. Single risk pools mandate community rating for small insured groups. Essentially, providers must offer policies to everyone within a given area at the same price, regardless of health status. Employers who can are avoiding this mandate by going to a self-insured contract. Many groups too small for self-insurance have taken early renewals and set anniversary dates at December 1, 2014 to avoid this and other ObamaCare pricing mandates as long as possible.
- Price compression: The law sets the relative relationship of premiums between older and younger plan participants at 3:1, ignoring actual claims experience of 5:1. The result is a cost increase of 50-100 percent or more for younger people, who historically have been a significant percentage of the uninsured.
- Guaranteed issue: The law requires that a health plan must allow enrollment without considering health status, age, gender, etc., that predict a participant’s use of health services. Combined with other pricing mandates that distort natural risk relationships, guaranteed issue is expected to lead to dramatic anti-selection, limited choice of products and fewer insurers offering products. All of these outcomes will increase premiums.
Limits on Flexible Spending Accounts (FSAs): Tax-advantaged FSAs cover many medical conditions not otherwise paid under insurance contracts (i.e. seeing-eye dogs). The new $2,500 limit on FSA funding hurts families with known upcoming high-cost medical needs, many of them involving special-needs children.
Reduced tax deduction for medical expenses. Beginning in 2013, a taxpayer can deduct only those medical expenses exceeding 10 percent of income. The previous threshold was 7.5 percent. This plus the lower limits for FSAs will most hurt the families with the sickest members.
One-year waivers. Waivers from ObamaCare were provided seemingly to HHS-favored companies and unions. Many complained that there did not seem to be any qualifying standards for issuing these waivers.
The evidence above should serve as a warning for those who want the law to succeed: The results to date are not promising of better tomorrows. There’s warning for those hoping for the failure and repeal of ObamaCare, too. Be careful of what you ask for – government failures usually result in more government solutions to fix the problems created.
Next week: “ObamaCare Implementation Part II: More Hurdles Ahead.”
Ronald E. Bachman FSA, MAAA, is a Senior Fellow at the Georgia Public Policy Foundation, an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or the Center for Health Transformation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (July 26,2013). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.
By Ronald E. Bachman
On July 2, 2013, just a few short months before significant portions of the federal Affordable Care Act (ACA) were to take effect, a Treasury Department official announced the Obama Administration will “provide an additional year before the ACA mandatory employer and insurer reporting requirements begin.”
“Provide” is a generous description. A mounting list of problems and failures plagues key aspects of the law, the most recent being the announced delays until 2015. Postponed by fiat of the Health and Human Services Department, the coverage mandate requires businesses of 50 or more employees to provide health insurance or pay a penalty. Along with the individual mandate, it was supposed to be key to solving the uninsured problem. Delaying the insurer reporting requirement means participants self-reporting income, a dubious “honor system.”
These delays follow the feds’ May 31 announcement of a 12-month delay in the employee choice component of the Small Business Health Options Program (SHOP) exchanges.
Other parts of ObamaCare have been repealed or changed by congressional legislation, Court rulings, or delayed unilaterally by HHS pronouncements. During the period since passage in 2010, poor or failed implementation has occurred with major parts of ObamaCare.
Implementation struggles have included:
The CLASS Act. An attempt to create long-term care insurance, the section was eliminated when the Congressional Budget Office ruled it did not meet financial standards for long-term solvency.
The 1099 provision. This mandate required businesses to issue a 1099 form to any vendor from which they purchased $600 or more of goods and services in a year. Congress repealed the mandate after businesses complained of the expense and burden it would impose.
Co-ops. Congress tried to create competition by funding new non-profit insurers identified in ObamaCare as co-ops. Billions of dollars were spent on a few state initiatives before Congress eliminated funding in 2013 tax legislation.
Medicaid expansions. The U.S. Supreme Court ruled the law’s mandate to expand government-funded insurance for the low-income population was unconstitutional but allowed states to voluntarily participate. About half of the states will do it and half will not. The Government Accountability Office has reported excessive and unchecked fraud in Medicaid since its inception.
Federal high-risk pools. Few enrolled in a bridge program for uninsured high-risk individuals due to the complexity, cost and lack of compensation for insurance agents. The Pre-Existing Condition Insurance Plan stopped accepting applications early, in February 2013, to “help ensure that funds are available through 2013” for the 100,000-plus enrollees until ObamaCare’s guaranteed issue coverage kicked in in 2014.
Retiree health subsidies. This replaced funding for retirees, which many large companies were already providing. Companies were happy to accept the windfall funding. In the end, the money ran out in about a third of the time expected.
Small employer tax credits. This was a heavily promoted program designed to encourage small employers with low-wage employees to add health insurance. The reality was that few employers qualified for any subsidy. The complexity and confusion of these credits deterred all but a handful of companies from even applying.
Pricing mandates: The Affordable Care Act includes several pricing mandates that distort natural risk relationships. These have caused most carriers to increase premiums dramatically in anticipation of anti-selection. Some carriers have exited geographic markets while others have eliminated all sales for individual policies.
- Medical loss ratio. This complex, arcane requirement sets the percentage of insurance premiums that can be spent on medical care versus plan administration. It minimized the value of agent support, health literacy programs, compliance oversight and effective plan administration. Many smaller employers have opted instead for more flexible – but less secure – self-insured arrangements.
- Single risk pool. Single risk pools mandate community rating for small insured groups. Essentially, providers must offer policies to everyone within a given area at the same price, regardless of health status. Employers who can are avoiding this mandate by going to a self-insured contract. Many groups too small for self-insurance have taken early renewals and set anniversary dates at December 1, 2014 to avoid this and other ObamaCare pricing mandates as long as possible.
- Price compression: The law sets the relative relationship of premiums between older and younger plan participants at 3:1, ignoring actual claims experience of 5:1. The result is a cost increase of 50-100 percent or more for younger people, who historically have been a significant percentage of the uninsured.
- Guaranteed issue: The law requires that a health plan must allow enrollment without considering health status, age, gender, etc., that predict a participant’s use of health services. Combined with other pricing mandates that distort natural risk relationships, guaranteed issue is expected to lead to dramatic anti-selection, limited choice of products and fewer insurers offering products. All of these outcomes will increase premiums.
Limits on Flexible Spending Accounts (FSAs): Tax-advantaged FSAs cover many medical conditions not otherwise paid under insurance contracts (i.e. seeing-eye dogs). The new $2,500 limit on FSA funding hurts families with known upcoming high-cost medical needs, many of them involving special-needs children.
Reduced tax deduction for medical expenses. Beginning in 2013, a taxpayer can deduct only those medical expenses exceeding 10 percent of income. The previous threshold was 7.5 percent. This plus the lower limits for FSAs will most hurt the families with the sickest members.
One-year waivers. Waivers from ObamaCare were provided seemingly to HHS-favored companies and unions. Many complained that there did not seem to be any qualifying standards for issuing these waivers.
The evidence above should serve as a warning for those who want the law to succeed: The results to date are not promising of better tomorrows. There’s warning for those hoping for the failure and repeal of ObamaCare, too. Be careful of what you ask for – government failures usually result in more government solutions to fix the problems created.
Next week: “ObamaCare Implementation Part II: More Hurdles Ahead.”
Ronald E. Bachman FSA, MAAA, is a Senior Fellow at the Georgia Public Policy Foundation, an independent think tank that proposes market-oriented approaches to public policy to improve the lives of Georgians. Nothing written here is to be construed as necessarily reflecting the views of the Foundation or the Center for Health Transformation or as an attempt to aid or hinder the passage of any bill before the U.S. Congress or the Georgia Legislature.
© Georgia Public Policy Foundation (July 26,2013). Permission to reprint in whole or in part is hereby granted, provided the author and his affiliations are cited.
