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ObamaCare Storm Set for Next President

ObamaCare Storm Set For Next President

News about Obamacare continues to dominate the healthcare headlines this summer. The administration continues to defend its program, even as there are storm clouds ahead for the national healthcare experiment.

This week, the Obama administration released a study showing that healthcare costs remained largely unchanged for Exchange participants from 2014 to 2015, even as costs increased by 3 percent to 6 percent in the broader health insurance arena. It also stated that healthier people joined in 2015, helping keep costs down. A Health and Human Services (HHS) representative told reporters that the announcement was a sign that the Exchanges are on “sound footing.”

The administration’s announcement is hardly news – we already knew all this – and is by no means a ringing endorsement of the financial stability of the program. Plans were still flying blindly when they submitted their 2015 bids in mid-2014, with little understanding of the claims experience in the first year. In addition, many of the plans thought that the risk corridor program (meant to help stabilize finances in years one through three) would be fully funded and insulate plans from major volatility. As we know now, the program was foolishly funded at about 13 cents on the dollar, forcing numerous non-profit co-ops and smaller plans to go under or exit the market.

The true test will be which plans choose to participate and what rates they propose for 2017. All indications right now suggest things are not so good. United and Humana have both signaled massive reductions in participation in states and counties across the nation. And even Aetna and Anthem, who previously were reasonable defenders of the experiment, announced that plans for expansions were cancelled. In a surprise move today, Aetna announced it will reduce its participation by 70 percent. Lastly, two of the three stabilization programs – risk corridors and reinsurance – will cease to exist as of the end of this year. While risk adjustment will remain, it won’t be enough to redistribute funds and address instability.

On the premium front, bad news keeps coming in. In California, residents are in store for a whopping average 13.2 percent rate increase in the Covered CA Exchange plans next year. The consulting firm Avalere Health also found that the average rate increase being requested from regulators for Silver plans in 2017 is 11 percent across 14 states. These Silver plans are the ones that Americans must enroll in to get their subsidies. As well, a report by the Commonwealth Fund finds that only about one third of plans in the Exchange nationally made money in 2014 with their individual products.

The latest report from the Kaiser Family Foundation notes that rate hike requests for Silver plans in 17 large cities/regions average 9 percent. While a few areas will see rate decreases, others will see mammoth hikes of 40 to 60 percent. From 2014 to 2017, the average annual increase is 7 percent. In addition, Kaiser notes that plan participation is down in 2017 compared to 2016 and that plan levels will be similar to 2014 numbers.

The administration and other advocates maintain that the 2017 rate increases could be a one-time adjustment now that firm costs are better known. They also continue to hang their hat on the fact that most people receive subsidies and therefore are insulated from these annual hikes. Further, they say that actual Obamacare expenditures are well less than originally forecast.

But the likelihood that this is a one-time adjustment is anything but certain, given so many adverse variables – the loss of plan participation in general, the loss of benchmark plans in many important areas, the phaseout of risk corridors and reinsurance, the continuing difficulty in attracting younger populations, and ongoing adversity in the system. So whether we are below spending forecasts or not for the national experiment, this still could prove to be an exceedingly costly program. The reason that costs thus far in Obamacare are lower is that premiums initially ran lower and fewer people enrolled. As more enroll and premiums increase (the vast majority of which are paid by subsidies), the costs are sure to catchup.

For example, the latest Medicaid actuarial report shows how much more expensive the Medicaid expansion has become than forecast. In 2014, the average cost of expansion enrollees was $5,488 annually. Actuaries expected this number to drop in 2015 as healthier people enrolled. Instead, costs went up to $6,366, a 16 percent increase (not the 22 percent drop forecast). This is actually a 49 percent difference. And predictions are that it may only get worse. Indeed, there is a 40 percent difference in forecasts for outyears (2020 to 2022) now between the 2013 and 2014 actuarial reports and 2015’s report – or $250 billion over a decade. States that refused to expand feared costs being forced upon them over time. The initial full funding will begin to phase-out next year and then states will bear some costs of this enormous misestimate. So were these holdouts prescient?

The presidential contenders seem to be burying their heads in the sand to the reality of a coming fiscal storm in Obamacare. Republican nominee Donald Trump speaks of repealing an act that now covers about 20 million Americans via the Exchanges and Medicaid. He offers little in detail, except to say he will allow multi-state insurance offerings, encourage Health Savings Accounts, allow citizens to deduct premiums on their tax returns, and block grant Medicaid. On the other hand, Democrat nominee Hillary Clinton speaks of increasing subsidies by maxing premium contributions at no more than 8.5 percent (instead of 9.5 percent) of family income, offering even more subsidies via a $5,000 family tax credit to help with premiums and cost-sharing, and adding even more dollars to Medicaid to encourage all states to expand. Some of what she advocates is in the right direction (better subsidies at the high-end of the income subsidy scale and looking for ways to get Medicaid to those who don’t have it), but in general it amounts largely to throwing more money at a problem that’s already bleeding.

Strategic Insights published our suggestions to temper the coming storm by listing ways to improve and rationalize the system. See our blog post from July 17, 2016 here.

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, Commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel.

Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management, and administration.

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