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Bad Ideas Made Worse By Unintended Consequences

Posted Dec 05 2012 9:51am
Stanley Feld M.D., FACP,MACE

I love when someone has great innovative ideas that have a chance to be effective. I dislike ideas that anyone using common sense can see it is going to fail.

President Obama is trying to set up health insurance exchanges in all 50 states.

Common sense tells us the exchanges will not work. They are counter to stakeholders’ vested interests. They are trying to force stakeholders into doing something they do not want to do. Health insurance exchanges will be unmanageable. The costs will be uncontrollable. They will lead to waste and fraud and abuse.

Government’s role should be to level the playing field for all stakeholders and then get out of the way.

America’s healthcare system needs innovations that inspire the healthcare industry to be competitive and efficient.

What are the specific problems with health insurance exchanges?

Health insurance exchanges were supposed to be operational by October 2013.  Only preliminary rules have been published to date.

The states are not anxious to be subject to federal controls that challenges state rights and drives states deeper into debt.

The federal government is requiring full transparency from the states while it is conducting all of the setup work in secret.

Federal officials have disclosed little about their plans to the states or the press. They have been vague about the financing for the health insurance exchanges.

The Obama administration has stated that if states decline to participate in health insurances exchanges by December 15, 2012 (postposed from August 15 to November 15 and now December 15) the federal government will form its own exchanges for those states.

President Obama sold Obamacare to congress and the American people on the basis that it was going to save $115 billion dollars in healthcare spending in ten years. This number was calculated by the CBO on the basis of data provided by the Obama administration.

The most recent CBO estimate using recent data is that healthcare spending will increase by $2.5 trillion dollars over the next ten years.

Obamacare does not permit federally operated exchanges to provide subsidies to enrollees that the enrollees would be eligible for in state operated exchanges .

This provision was included in the law to encourage the states’ creation of exchanges. States would then receive additional money from the federal government.

The administration did not anticipate so many states would refuse to participate.

Sarah Kliff wrote for the  Washington Post : wrote that there are many other problems facing the health insurance exchanges.

“After people become aware of benefits, the health exchange faces its biggest challenge: Figuring out who is eligible for what. In many states those who earn less than 133 percent of the Federal Poverty Line are eligible for Medicaid — except if the state has already extended benefits to an even higher level, as  35 states have for children.

“There may be different family members eligible for different programs,” says Sam Gibbs, vice president of sales at eHealthInsurance. “There needs to be a technology system that can support that activity, and look at multiple programs for multiple people.”

A state can’t figure out how much an individual earns on its own. For that, it needs to ping a federal data hub that does not yet exist.

The problems with President Obama’s health insurance exchanges are worse. The exchange subsidies will vary by income and family size. A federal agency does not exist that can tell a family’s current income. It takes the IRS at least a year and a quarter to determine last year’s income.

Family income can vary substantially from year to year.  Families have to pay healthcare insurance premiums based on what they earned over a year ago. The breadwinners might be unemployed and required to pay an unaffordable premium.

The federal government does not seem to have developed its plans for a federally run health insurance exchange. It looks as if the federal government’s plan was to stick the costs and administration on to the states even though it promised to pay for the fist two years.

Its goal was to force states to do what the federal government wants them to do. Running a health insurance exchange will be at great cost to the states and state budget deficits.

The health insurance exchange development is a mess. The real threat lies in its execution and implementation.

It will be surprising if they are operational by January 2014. The cost overruns will be astronomical. They are already substantial. The unintended consequence will escalate.

In order to pay for the exchanges President Obama’s administration just announced a 3.5% tax on every premium sold by a healthcare insurance company. The result will make insurance less affordable.

The original announcement was revised. The 3.5% premium tax would only apply in states that did not have state health insurance exchanges.

 The announcement sounds like a little power play by the Obama administration.

The healthcare insurance companies will simply pass the tax on to consumers with increased premiums.

The increase will have no effect on the profitability of the healthcare insurance industry.

The government should enforce the new Medical Loss ratio of 80/20. Eighty percent  of healthcare premiums should go to direct patient care.

The government should not permit help desk expenses and physician network development expenses to be charged to direct medical care.

The government should change the accounting rules. The formula for counting unpaid liabilities as direct medical care expenses is outrageous. Much of these reserves are medical reimbursement are the remains of discount fees have been  paid to providers already for direct patient care.    

There are many other categories of expenses that should not be included in the 80% of direct medical care.

The federal government needs the healthcare industry to adjudicate claims and perform all of the administrative services for all the government funded healthcare services. Government accounting for its own overhead does not include the fees charged by the healthcare insurance industry to provide these services.

There is so much the public does not know about how Medicare and Medicaid money is spent. If the government were transparent it would let the people know what the defects are and then force government to fix them.

Apparently President Obama prefers to go deeper in debt.

All the stakeholders are villains and take advantage of the healthcare system. The healthcare insurance industry is the worst villain. Health insurance exchanges will not cure this.

They will make it worse. 


The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone

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