Tag Archives: unintended consequences

How Price Controls Contribute to High Medicare Bills

From Peter Suderman at Reason:

The basic issue here is that when you cap prices on services, you end up creating a system in which providers have a huge incentives to bill for more services. As Brookings health policy scholar Dr. Darshak Sanghavi tells the Times, “The notion is you can make end runs around price controls by increasing the number of things you do and bill for.”

Indeed, pricing systems end up creating opportunities for consultants and middlemen to help doctors figure out how to maximize their billing

More: How Price Controls Contribute to High Medicare Bills.

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Filed under Medicaid/Medicare/SCHIP

As Expected, #ObamaCare Motivates Insurers to Shun the Sickest People

John R. Graham writes:

A patient with HIV/AIDS can expect to pay over $1,000 out of pocket for medicines, if he buys a policy on the ObamaCare health insurance exchange in Florida.

“woman-in-hospitalAffordable”? Surely not. This perceived injustice has caused legal activists to file a lawsuit against four insurers, which offer plans in the Florida exchange, alleging discrimination.

Readers of this blog know that we have long warned against this consequence of ObamaCare. Insurers are not allowed to charge premiums appropriate to applicants’ expected medical claims. …

An ObamaCare Silver policy must pay 70 percent of expected medical costs, while covering 100 percent of “preventive care” (as defined by the federal government). However, the plan is designed for the average patient. So, it is easy for a health plan to design a plan that imposes very high medical maintenance costs on very sick, chronically ill people. High co-payments or co-insurance for prescriptions is one obvious method.

Our prediction: There will be many more such lawsuits.

Read more: As Expected, ObamaCare Motivates Insurers to Shun the Sickest People | John Goodman’s Health Policy Blog | NCPA.org.

In February, Graham blogged about this article from The Hill, which reports: “Consumers who use specialty medications may face higher costs on ObamaCare’s marketplace plans, many of which include co-insurance rather than copayments for the drugs, a new analysis warned.”

Last week, Graham illustrated one more example of insurers avoiding sick patients, this time in relation to how insurers use ObamaCare subsidies:

[P]lans apply more of the subsidy to the deductible, somewhat less likely to apply it to specialist charges, and much less likely to apply it to the most expensive tier 4 drugs on the formulary. What this means is that generally healthy patients who go to see their primary-care physician occasionally, but need no specialist care or specialty prescriptions, are most likely to benefit from the cost-sharing reductions. Those who need specialist care and, especially,  tier 4 drugs will be less likely to benefit.

Back in 2010, Peter Suderman wrote about how insurers tailor their plans to attract the healthy & avoid the sick:

Indeed, because insurers will be limited in terms of how they can charge based on health risk factors, the new rules may encourage plan providers to avoid investing in resources that help the sick.

For example, a 1997 New England Journal of Medicine study looked at billing records for elderly Americans participating in Medicare HMOs in Florida. The study found that, despite exchange-like regulations guaranteeing access to any HMO plan and prohibiting insurer cherry picking (or “medlining,” as it’s sometimes called), insurance companies managed to lure in the healthiest—and cheapest—patients, while leaving the sickest, most expensive patients on publicly funded Medicare.

As does John Goodman, writing about community rating:

When premiums are regulated so that they cannot reflect expected costs, four things will happen:

  1. On the buyer side, people who are under-charged will over-insure and people who are over-charged will under-insure. This is basic economics. If the price you are asked to pay is artificially low, you will buy more than you otherwise would; if the price is artificially high, you will buy less. If you are sick and require a lot of medical care but can pay the premium ordinarily charged to a healthy enrollee, for example, you will likely choose the richest plan you can find.
  2. In order to avoid attracting high cost enrollees, health plans will respond by scaling back their benefits and their provider networks until the richest plans look pretty much like every other plan. In the individual market today, in most states you can buy a BlueCross plan that covers almost all doctors in your area and practically every hospital, including all the best hospitals. I predict those plans will never see the light of day inside the (ObamaCare) health insurance exchanges. See Monday’s Health Alert on the race to the bottom with respect to access to care.
  3. At the same time, health plans will seek to attract the healthy. Of course, to a certain extent they are doing that today. But with an electronic exchange in which healthy people tend to buy on price and sick people tend to buy on benefits and software that makes it easy to do those things, the insurers will be even more pressured to reconfigure their offerings to make them more attractive to the healthy and less attractive to people who need medical care.
  4. Finally, the perverse incentives do not end at the point of enrollment. They continue. Health plans will have perverse incentives to over-provide to the healthy (to keep the ones they have and attract more of them) and to under-provide to the sick (to avoid attracting more of them and encourage those they have to go elsewhere).

See also this Reuters article: “Chronically ill facing high drugs costs under U.S. health law“:

Insurers say they had to move toward greater cost-sharing due to higher prices for new drugs, some of which can cost more than $100,000 annually per patient.

Researchers also say the higher rates help insurers bankroll low monthly premiums to attract healthy young enrollees.

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Filed under insurance, tax code, HSAs, regulation

AP: “Some unions now angry about health care overhaul”

The AP reports:

Some labor unions that enthusiastically backed President Barack Obama’s health care overhaul are now frustrated and angry, fearful that it will jeopardize benefits for millions of their members. …

While unions knew there were lingering issues after the law passed, they believed those could be fixed through rulemaking.

But last month, the union representing roofers issued a statement calling for “repeal or complete reform” of the health care law. Kinsey Robinson, president of the United Union of Roofers, Waterproofers and Allied Workers, complained that labor’s concerns over the health care law “have not been addressed, or in some instances, totally ignored.”

“In the rush to achieve its passage, many of the act’s provisions were not fully conceived, resulting in unintended consequences that are inconsistent with the promise that those who were satisfied with their employer-sponsored coverage could keep it,” Robinson said.

Some unions now angry about health care overhaul – Yahoo! News.

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Filed under Policy - National

Is ObamaCare’s medical-loss ratio mandate increase health insurance premiums

From Peter Suderman at Reason.com:

Over the weekend, The New York Times published a report noting that health insurers across the nation are both “seeking and winning double-digit increases in premiums” — this despite the fact that “one of the biggest objectives of the Obama administration’s health care law was to stem the rapid rise in insurance costs for consumers.” …

What’s going on? Why are these rates going up?

Suderman explains how mandated benefits explain some of the increase.  He then explains a less obvious culprit: mandatory medical loss ratios. Suderman writes:

The MLR is an accounting requirement which says that insurers have to spend at least 80 percent of their total premium revenue on medical expenses, leaving just 20 percent for administrative costs, marketing, and other non-medical expenditures. Any insurer that fails to meet this target must issue rebates to customers. This year, insurers rebated about $1 billion.

The MLR provision creates two incentives for insurers to jack up health insurance premiums. One is the plain fact that with profit and administrative costs capped as a percentage of premium revenue, the easiest way to generate larger profits is to charge higher premiums.

The other is that the rebate requirement means insurers may need to charge higher up-front premiums in order to protect themselves from the risk of a bad year.

Read more: Is ObamaCare Causing Health Insurance Premiums to Rise? – Hit & Run : Reason.com.

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Colorado HB 12-1242 would compromise patients’ medical privacy

By requiring people to choose between health care and personal privacy, Colorado’s All-Payer Health Claims Database and the proposed HB 12-1242 are both unacceptable infringements of individual rights, write Linda Gorman & Amy Oliver (both w/ the Independence Institute) in the Colorado Springs Gazette.

On HB 12-1242, they write:

Reps. Summers and Massey, along with Sen. Betty Boyd are sponsoring HB12-1242. Under that bill, you won’t be able to get prescription medications or controlled over-the-counter medications without providing a biometric identifier like a fingerprint or a retinal scan. Failure to comply would be a Class 1 misdemeanor, a crime as serious as the possession of child pornography or third degree assault.If requiring voters to show ID is an unacceptable infringement of rights, so is requiring people to choose between health care and personal privacy. Officials who fail to repeal the APDB enable the ongoing assault on individual liberty.

Read the whole article here: Bill would compromise patients’ medical privacy.

Regarding controlled over-the-counter medications, the first one I think of is the decongestant pseudoephedrine, which federal drug warriors took off the shelves because it’s used to make meth. But as Radley Balko reports, this restriction on our liberties has questionable benefits at best.

(Balko article via FIRM)

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Filed under Colorado health care

Employer mandate for “affordable coverage” creates confusing incentives for employers, employees

Diana Furchtgott-Roth writes:

Cornell University economics professor Richard Burkhauser showed that in 2014, millions of low-income Americans may be unable to get subsidized health insurance through the new health care exchanges. …

If the firm does offer health insurance, the worker with dependents will prefer that the coverage is unaffordable. That’s not a typo — if the coverage is unaffordable, then the employee will be able to buy health insurance for his family on the exchange.

A firm that offers unaffordable coverage will have to pay a penalty of $3,000 per worker. But workers would prefer to receive a lower salary, have the employer pay the $3,000 penalty, and be able to buy subsidized health insurance on the exchange.

This causes substantial disincentives to marriage. …

Read more at the Washington Examiner: Another unpleasant surprise from Obamacare.

(via FIRM)

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Filed under regulation

Create jobs by repealing ObamaCare

At Reason.com, Economist Robert Higgs writes:

Repeal of ObamaCare would probably do wonders to spur hiring, especially for permanent positions. Compensation for such jobs usually includes a benefits package with health care insurance, as well as a money wage or salary. Health care insurance often constitutes a major part of the employer’s cost of keeping a permanent worker on the payroll, and anything that makes this cost difficult to forecast makes employers leery to take on new workers.

Read the rest of his comments: What Would You Do to Improve Job Growth? – Reason Magazine.

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Filed under insurance, tax code, HSAs, Policy - National