Bureaucratic Nightmare

Indiana Gov. Mitch Daniels talked about the impact of ObamaCare on his state before a standing-room-only conference at AEI on Tuesday, and the outlook is not good.

He described "what this cannon looks like from the receiving end" and said his state is reeling from the expected costs — as much as $3.6 billion in additional costs to comply with ObamaCare's mandates. "This is not a blessing or a boon to the states but a huge mandated tax at the state level," the governor said.

Indiana was one of about 20 states that opted to not serve as contractors to the federal government in setting up temporary high-risk pools. They saw the federal money running out long before the obligations did. And he said that Indiana is "going to think about it for a long time before we decide" whether or not to set up a new, federally designed health insurance purchasing exchange, set to begin in 2014.

"There is a very significant chance this is going to be a nightmare," he said. Daniels is a former director of the Office of Management and Budget and if anyone knows the inner workings of the federal government, he's the one. "It's easy to see one in four of our citizens in Indiana in the exchange system," he said, adding huge costs for taxpayer-subsidized health insurance and causing the cost of ObamaCare to soar.

Congress should have, instead, followed Indiana's lead in providing innovative approaches to covering the uninsured, such as its hugely popular Healthy Indiana Program, which he described in a Wall Street Journal commentary.

He said that ObamaCare should not be called "reform" because it does virtually nothing to change the significant problems in our current system. He called, instead, for changes in tax law that would allow more individual choice, control, and competition.

Gov. Daniels gets it!

Economic naiveté: The Obama administration is once again showing its aggressiveness in stifling critics of its health overhaul plan and its naiveté about how business works with its attack on nHealth, the Richmond-based company we wrote about earlier that is folding as a result of ObamaCare.

The closure of this innovative health insurance company made big news. So of course it became a target, attacked because it was losing money anyway with the argument this couldn't have been as a result of ObamaCare.

And today, Politico writes that the "Now infamous Virginia-based firm nHealth, the firm that claimed to go under because of health reform (and was also losing millions), was submitting comment on the health law just weeks before it announced its close. Pulse unearthed an MLR regs comment, dated May 14, in which nHealth gave no indication it would go out of business two weeks later."

What?!

First, virtually all start-ups lose money! When I started working full-time at the Galen Institute 13 years ago, it was almost two years before I could take a regular paycheck. And I was our only full-time employee. That's the nature of the business. There are start-up costs, and revenues are invested back to grow the business in hopes of turning a profit in a few years.

nHealth lost $5.6 million in 2008, and $4 million in 2009, according to the company's financial statements. Its loss for the first quarter of 2010 was $966,472. That is progress.

CEO Paul Kitchen says that there were huge start-up costs, and all new revenues were invested back in the business: The company had to hire 50 employees before it made its first sale so it could show potential clients that it could provide the services they were contracting for.

The break-even point for nHealth would have been 5,000 lives covered. They were at 2,000 and growing when the investors pulled the plug last month.

"People in Washington don't realize how profound seemingly small changes are to businesses, especially start-ups like ours, in altering the climate for our products," Kitchen said.
Second, nHealth didn't know it was going out of business when it submitted comments to HHS about the Medical Loss Ratio (MLR) regs on May 14. Its investors made the decision at a later board meeting.

So here was this start-up company that could have been investing its time in getting more clients that instead had to stop and write up comments to a federal government rule that could well determine whether or not it could survive.

Both examples show a maddening lack of understanding of how the business world works and provide further evidence of why we should not have government bureaucrats in charge of our health sector.

Regulatory thicket: One of the biggest complaints businesses have in coping with RomneyCare in Massachusetts is the burden of paperwork and regulatory compliance it created. Now, we see the same thing happening with ObamaCare.

Allowing parents to keep their 26-year-old dependents on their health insurance at work is a bigger problem administratively than financially, according to AIS Health Reform Week. It writes that insurers "say they must adjust internal systems substantially to accommodate regulatory changes and handle the 'nuts and bolts' of reform."

And with new regs coming out several times a week, it's going to turn into a nightmare.

Take the regulatory thicket caused by the new "grandfathering" rules issued on Monday. It took the reg writers 121 pages to describe what companies can or cannot do to temporarily protect their plans from the feds. Here is an example from the regulations to the simple question of whether or not a company can increase co-payments for office visits:

Example 3. (i) Facts. On March 23, 2010, a grandfathered health plan has a copayment requirement of $30 per office visit for specialists. The plan is subsequently amended to increase the copayment requirement to $40. Within the 12-month period before the $40 copayment takes effect, the greatest value of the overall medical care component of the CPI-U (unadjusted) is 475.

(ii) Conclusion. In this Example 3, the increase in the copayment from $30 to $40, expressed as a percentage, is 33.33% (40 – 30 = 10; 10 ÷ 30 = 0.3333; 0.3333 = 33.33%). Medical inflation (as defined in paragraph (g)(3)(i) of this section) from March 2010 is 0.2269 (475 – 387.142 = 87.858; 87.858 ÷ 387.142 = 0.2269). The maximum percentage increase permitted is 37.69% (0.2269 = 22.69%; 22.69% + 15% = 37.69%). Because 33.33% does not exceed 37.69%, the change in the copayment requirement at that time does not cause the plan to cease to be a grandfathered health plan.

Got that? See our Clip of the Week video for more on this issue.

CLIP OF THE WEEK

Grace-Marie Turner on ObamaCare's Restrictive Regulations

In this week's clip, Grace-Marie Turner discusses regulations released this week about "grandfathered" health plans — regulations that burden employers, give sweetheart deals to labor unions, and disprove President Obama's claim that "if you like your coverage, you can keep it."
Watch now >>

More video and audio clips are available on the Health Reform Hub >>

GALEN IN THE NEWS

Market-Based Reform Initiatives Are Key to Health Law Success

Grace-Marie Turner, Galen Institute
Kaiser Health News, 06/17/10

Consumer-directed health plans, such as health savings accounts (HSAs), have been useful in controlling the rise of health costs over the last several years, but the survival of these plans is threatened by the new health overhaul law, Turner writes. The new health law requires that all insurance policies will be required to provide a minimum actuarial value of at least 60% for the benefits covered. If HHS allows contributions by individuals and employers to HSAs to "count" as part of the actuarial value, then HSAs and other account-based plans would likely meet the test. But if contributions are not included, the plans likely would not qualify, removing an important tool to hold costs down. Policymakers would be well-advised to make sure that these consumer-friendly plans remain as an option for both individuals and employers so they can continue to have these tools to engage employees as partners in managing health costs.
Read More »

A Bad Omen on ObamaCare: Fears About Health Reform's Costs Are Coming True

Grace-Marie Turner, Galen Institute
New York Daily News, 06/17/10

It's becoming clear that the health overhaul law may well have disastrous consequences for the economy, Turner writes. The new law imposes billions of dollars in new fees and excise taxes and prohibits many of the tools that insurance companies have used to keep costs down, like caps on coverage and co-payments on preventive care. ObamaCare could send average health insurance cost increases for major employers into double-digit territory. Indeed, it's no longer inconceivable that some large companies may decide to drop health insurance altogether as many may conclude it's cheaper and less risky to pay fines to the government than offer insurance to their workers. If employers stop offering health insurance, taxpayers will wind up picking up the cost of coverage for millions more Americans. The cost of ObamaCare will skyrocket, as will our deficit and our taxes.
Read More »

HEALTH REFORM

The Bad News About ObamaCare Keeps Piling Up

Karl Rove
The Wall Street Journal, 06/17/10

New draft regulations from the Department of Health and Human Services could cause as many as half of all workers to lose their existing coverage, Rove writes. Health care plans that existed before the new law are "grandfathered" with regard to some of its provisions. The rules released this week spell out how little these plans can change without losing their protected status. Health plans would no longer be grandfathered if a business changes insurance companies (a common practice when employers shop for lower prices), or raises deductibles more than 5%. The Obama administration itself estimates that these draft rules could cost up to 80% of small employers and 64% of large employers their grandfathered status. This translates to between 87 million and 115 million Americans losing their coverage. Companies and insurers promise a hardy fight on the proposed regulations, but repeal of the provisions that authorized them are the only guarantee of their defeat.
Read More »

Mitch Daniels Says 'A Scrap Coming' Between States and Feds on ObamaCare

Jon Ward
The Daily Caller, 06/15/10

During a speech at the American Enterprise Institute this week, Indiana Governor Mitch Daniels did not pull any punches, labeling the health overhaul law "a huge blown opportunity" to change a health care system that he said was badly in need of reform, The Daily Caller reports. "Don't call this reform. It didn't reform anything. It took the form we had and blew it up to poster size," Daniels said. He noted that the health law would add costs of between $2.9 billion and $3.6 billion over ten years to Indiana's budget, which is currently $13 billion annually. "We're only just beginning to grapple — reeling might be the term — with what this will mean at the state level," he said. Daniels also lamented the fact that a program started in Indiana to give low-income people private accounts into which they contribute toward their health care but also receive public subsidies — a form of health savings accounts — would likely be eliminated by the new law.
Read More »

Dangerous to Our Health

Jeff Jacoby
The Boston Globe, 06/16/10

Dr. Donald Berwick, President Obama's nominee to run the Centers for Medicare and Medicaid Services, has an ideological commitment to centralized state power over health care and a disdain for the ability of markets and competition to improve the quality and lower the cost of medical services, Jacoby writes. Berwick has publicly saluted Britain's socialized National Health Service for rejecting the "immoral" American system and "the darkness of private enterprise." He declares that "the holy Grail of universal coverage" cannot be achieved with consumer-centered health care, but only through "collective action overriding some individual self-interest." And he embraces government health care rationing. And Obama wants him to run Medicare and Medicaid? Let us hope 51 senators say no.
Read More »

The Early Retiree Reinsurance Program: $5 Billion Will Last About Two Years

Employee Benefit Research Institute, 07/10

The funds for the early retiree reinsurance program created under the health overhaul law will likely be exhausted within two years, according to EBRI. The law created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80% subsidy for the retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010, and the subsidy will be available through the earlier of Jan. 1, 2014, or the date when the funds are exhausted. EBRI finds that if the subsidy were drawn down for all early retirees and their dependents, $2.5 billion of the $5 billion available would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013.
Read More »

HEALTH COSTS

Behind the Numbers: Medical Cost Trends for 2011

PricewaterhouseCoopers' Health Research Institute, 06/10

Growth in medical costs for 2011 is expected to be 9%, according to PricewaterhouseCoopers. The biggest inflators of the medical trend will be in provider costs, which make up 81% of the medical benefit. For example, cost-shifting from Medicare is expected to increase as hospitals see their rates cut for the first time after seven years of increases that nearly matched or exceeded inflation increases. Some ho
spitals may be able to manage this type of cut by tapping their reserves, yet others are likely to shift more costs to commercial payers. The report also notes that while both public and private payers will be impacted by the health overhaul law, the patient population that is expected to increase the most — Medicaid — pays the least. Prices may also be increased in anticipation of higher demand in 2014 and beyond when more people have insurance coverage due to coverage mandates on employers and individuals.
Read More »

INNOVATION

Innovations in Reducing Preventable Hospital Admissions, Readmissions, and Emergency Room Use

America's Health Insurance Plans, 06/10

AHIP's report provides an overview of health insurance plans' creative programs to revitalize primary care, improve care transitions, and help patients across the country achieve better health outcomes and thus avoid preventable hospitalizations and emergency room visits. For example, Aetna's Medicare Advantage members participating in the Transitional Care Model program receive home visits from advanced-practice nurses within seven days of hospital discharge. Nurses ensure that patients have all of the items and services needed to follow their physicians' care plans and that their home environments are safe. Among patients receiving services through the pilot program from 2006-2007, significant improvements were achieved in functional status, depression symptom status, self-reported health, and quality of life. The pilot program achieved a cost savings of $175,000, or $439 per member per month. Aetna is now implementing the program for larger populations of Medicare Advantage members across the country.
Read More »

PRESCRIPTION DRUGS

Cost of Caution: The Impact on Patients of Delayed Drug Approvals

Tomas J. Philipson, University of Chicago and Eric Sun, Stanford University
Manhattan Institute, 06/10

Drug development delays resulting from FDA regulations cost patients far more than they cost producers, according to researchers Philipson and Sun. The authors assigned a price to the unrealized benefits of quicker access to lifesaving medications — specifically, putting a price tag on the value of longer lives that would have resulted from getting new drugs to patients faster. While traditional cost estimates of drug development have focused on losses to producers, the authors argue that those calculations do not fully capture the costs to patients of shortened life spans. The authors looked at three drugs (designed to treat HIV/AIDS, breast cancer, and non-Hodgkin's lymphoma) and found that for all three combined, the monetary value that patients assigned to the benefits of access one year earlier would have equaled $27.3 billion, while increased producer profits would have totaled only $4.9 billion.
Read More »

STATE ISSUES

5 Painful Health-Care Lessons from Massachusetts

Shawn Tully
CNNMoney.com, 06/16/10

The best guide to how President Obama's historic health care legislation will reshape the nation's medical marketplace and fiscal future is the pioneering model in Massachusetts, Tully writes. An examination of the Massachusetts health plan yields five important lessons that show the dangers ahead for the Obama health care blueprint: 1) The Massachusetts plan does not control costs; 2) Community rating, guaranteed issue and mandated benefits swell costs; 3) Huge subsidies for low-to-medium earners could prove extremely expensive; 4) The exchanges reward people for working less and earning less; 5) The generous plans and added mandates give employers an incentive to drop health insurance.
Read More »

Events

The Role of Health Information Technology in Quality Improvement
National Quality Forum Webinar
Thursday, June 17, 2010
1:00pm – 2:00pm Eastern

Conservative Solutions for Growing Our Economy
3rd Annual GOPAC State and Local Summit
June 17-19, 2010
Pittsburgh, PA
Grace-Marie Turner will give an issue briefing on Medicaid at 10:45am on Friday, June 18.

Survey of People Who Buy Their Own Health Coverage
Kaiser Family Foundation Media Conference Call
Monday, June 21, 2010
12:00pm – 1:00pm Eastern

Marin Town Hall "Health Care"
Pacific Research Institute Event
Tuesday, June 22, 2010
7:00am – 9:00am
San Rafael, CA

Health Care Reform: The Next Critical Steps
CQ-Roll Call Policy Breakfast
Tuesday, June 22, 2010
8:00am – 10:30am
Washington, DC

Comparative Effectiveness Research: One Size Does Not Fit All
American Enterprise Institute Event
Wednesday, June 23, 2010
9:30am – 11:15am
Washington, DC

How Will ObamaCare Affect Young Adults?
Galen Institute and Cato Institute Student Forum
Thursday, June 24, 2010
4:00pm
Washington, DC
Grace-Marie Turner will join other panelists to discuss the impact of the new health overhaul law on young adults at this special forum for students and interns.

2010 Health Meeting
Society of Actuaries Conference
June 28-30, 2010
Orlando, FL
Grace-Marie Turner will participate in a point/counterpoint debate on health reform at the opening session on Monday, June 28.