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Retiring President Calls for Obamacare 2.0

Retiring President Calls For Obamacare 2.0

With the remaining days of his presidency ticking away, President Barack Obama is focusing on his national healthcare achievement and pushing for improvements to be made. In public remarks, as well as in a special web-article for the Journal of the American Medical Association, the President wants the so-called public option to be made a part of the Affordable Care Act (ACA) moving forward.

Presidential candidate Hillary Clinton also announced support for an ACA public option, a move to win the endorsement of “former” candidate Bernie Sanders, although she did not endorse a “Medicare-for-all” single-payer system, as Bernie wanted.

Obama seeks to enact the public option because Americans have too few options for healthcare. In some states and counties across the nation, Americans have as little as one option. This situation was borne of many things, including the rural nature of some areas, and the exit and bankruptcy of non-profit healthcare co-ops and some for-profit plans due to the massive short-funding of the important Risk Corridor transition program. The public option was almost a reality back in 2010 but was struck from the final legislation when not enough votes existed to pass the Democrat-only legislation.

Why the Public Option Would Undermine Reform

The public option proposal is clearly wrong-headed. If a pubic option means a national Medicare-like network and delivery system competing against the private plans, this would be tantamount to endorsing the archaic fee-for-service (FFS) systems that have been a failure in both Medicare and Medicaid. They are prime examples of what got the American health system in trouble in the first place. These traditional delivery models encourage a transaction-based system, where costs escalate due to the perverse incentive to perform services whether truly needed or not. Quality in these systems is non-existent. Add the following: healthcare inflation is out of control; provider buy-in and access is a problem; and there is little or no focus on prevention or care coordination and management.

Therefore, introducing this kind of private option would be exceedingly expensive. Yes, you can price fix. Yes, you can argue there are lower administrative costs. But the secret to true cost control and quality is to promote prevention and care management. These traditional systems do none of that and actually promote over-utilization, waste, fraud, and abuse.

Some say that there are service delivery and quality pilots in the FFS environments that are bearing fruit. But the verdict is very much out on whether these reforms can be successful throughout this entire archaic system of care. More than likely, only the most sophisticated and dedicated providers could succeed at practicing managed care principles in the FFS system.

In its softer form, a public option is the concept of a free-standing, national or regional public agency that competes with private plans throughout the nation or at least in underserved areas. Established public networks (Medicaid and Medicare) or private insurance subcontractors and their networks could be utilized to deliver these services. But, if a private insurer cannot be profitable in these areas, what would lead one to believe that a public entity could do any better with the same budgetary and economic assumptions?

Proponents again argue there are savings: lower administrative costs, no need for profit, and the ability to price fix. But, the long-term costs of the gross inefficiencies of government, adding a new layer of bureaucracy, and the inability to transform the system would far exceed the presumed short-term savings. In any calculation, it would be more expensive and demand greater and greater resources from federal coffers. At its most sinister, the proposal can be viewed as an effort to undermine the private insurance system and the first step to single payer healthcare. The price fixing could inflate costs for private plans. Plans would likely be impacted by changing risk selection and risk adjustment revenue and have their economic assumptions turned upside down. Instead, why not focus on the reasons the private plans cannot succeed with this system, as opposed to throwing more and more money at a problem (more on this later).

Other Proposed Reforms

Additionally, Obama is seeking two other changes for the ACA in his final days in office:

  • Increasing subsidies for middle-income persons. Subsidies may need to change. Currently, those with the lowest incomes are given too generous of a subsidy. The premium is 98% subsidized and cost-sharing is 94%, giving these individuals little incentive to take full stock in their health or the services they seek. But, at the higher end of the subsidy scale, families between 300% and 400% of the federal poverty limit (FPL) must first spend almost one-tenth of their income before any healthcare subsidy kicks in. Statistics show that uninsured rates remain high for these income groups when they have little or no access to employer-sponsored coverage.
  • Expanding Medicaid in every state. Nineteen states have not expanded Medicaid in their state. But perhaps the President and CMS deserve as much blame for this as the recalcitrant states. CMS and the President need to finally play a leadership role on the issue and signal that the all-or-nothing approach they have taken to expansion of Medicaid is not working. A solution to the vast inequities that exist in Medicaid access levels is to allow holdout states to expand to just 100% of FPL instead of the required 133%. This would allow every citizen in the nation to participate in either Medicaid or the Exchange in absence of employer-based coverage. If Obama and CMS are serious, they need to stop dodging the issue and admit that half a glass is better than an empty one. Why is this different than a public option? Because the vast majority of states now use managed care programs in Medicaid to deliver cost-effective services and ensure quality. This would just expand the same programs to the rest of the nation in a model that works.

How to Move Forward

A fair assessment of the ACA shows that millions have gained healthcare coverage (perhaps up to 20M between Medicaid and Exchange), which could help permanently bend the cost curve moving forward, as these populations receive much more cost-effective, prevention-based services. But the financial underpinnings of the Exchange system are precarious, with premium trends increasing and plan exits and access issues growing due to the inability to earn even small profit margins. With two of the three Rs – reinsurance and risk corridors (risk adjustment will remain) – going away soon, the financial paradigm may only worsen. A study released this week by CMS tries to claim that, because the vast majority of enrollees get subsidies, no one should worry too much about the sometimes huge annual premium increases in some states. But the reality is that the federal government picks up these higher costs through subsidies. Over time, it will undermine the supposed ACA savings statistics (you know, the ones that were at least on paper!) and thwart the taming of healthcare inflation we theoretically have been seeing. It will lead to yet another major, unfunded and growing liability for the nation to go along with Medicare, Medicaid, and Social Security.

The goal of affordable universal access is a good one. Moving from a crisis-oriented health system to one that emphasizes quality and prevention is key to both our healthcare and economic future. And, the reality is that government is already a huge funder of the system as a whole—about two-thirds of it. It will pay a big share whether it is doling out subsidies for consistent access to insurance coverage or for high-cost crisis hospital services for Medicaid and the uninsured. There, too, is a massive cost transfer from the “have nots” (Medicaid and the uninsured) to the “haves” (the commercial insurance world). This crushing burden has put American business at a competitive disadvantage in the world economy.

So why not put aside the politics and rationalize the approach? Adopting a public option only complicates efforts and walks back from the modest progress we have seen. Better to concentrate on streamlining and refining the system now in place as many healthcare CEOs (such as Aetna’s Mark Bertolini) and other reasonable policymakers have urged.

For our part, we recommend:

  • CMS and recalcitrant states should cut deals and expand Medicaid to 100% of the FPL.
  • Change the subsidy system to reapportion some of the subsidies up the income chain. This will mean more personal responsibility at the low end and affordability at the higher end.
  • Revisit whether risk corridors and reinsurance need to remain for the near term.
  • Fully fund the risk corridor program under the law as it is an important transitional program.
  • The mandated ACA benefits are too rich for us as a nation to afford, create adversity in the system, and discourage full participation. Only those with significant healthcare issues see joining the Exchange or broader insurance system as a value. Benefits need to be less generous, even as we protect individuals from catastrophic events or conditions.
  • Lower the actuarial value and create more benefit, rate, and product flexibility to help broaden the appeal and reduce overall risk to plans. We believe this can be done without discriminating against the sickest of the sick and disenfranchising them.
  • While CMS should practice vigorous oversight of the system, freeing private plans up to enact true cost-savings is a must. The one-size-fits-all approach that was built for the ACA needs to change if we are to correctly apportion costs in the system.
  • Find ways to address the insidious practice of monopoly providers (e.g. hospitals) that often hold plans hostage by demanding huge rates and liberal authorization rules to join networks. These providers are some of the greatest beneficiaries of public funding in Medicare, Medicaid and the uninsured world. Many states are passing rules that require these providers to negotiate in good-faith with Medicaid-managed care plans or be deemed in the plan network at prescribed rates. If public monies are part of the Exchange experiment, there is no reason not to use a similar strategy here. Price fixing overall is wrong, but this approach seems to be sound public policy in certain situations.

None of this will be easy, but we hope the next President, whoever he or she may be, will seek to make healthcare a policy as opposed to a political issue.

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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