Archive for the ‘Health Care Reform’ Category

NAHU had been asking for this for many months and here is the inaugural issue of CMS newsletter for Agents and Brokers who participate in the Federally Facilitated Exchanges of the ACA.

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The administration announced another delay in the ACA today.  This is from The Hill.  This will allow avoid the cancellation of health insurance policies until after the mid-term elections.

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Here is a quick case study on the impact of phase out of tax subsidies on relatively low income families as they look to earn more household income.  In this example, take a family of 3 with one spouse working a job making $30,000/year (around 150% of poverty level).  Assume they live in PA, in the 17112 zip code, neither smokes and they need coverage for their child.  Using the Kaiser subsidy calculator, they would qualify for $4,219 in subsidies on their plan premiums.

Now, assume that their child begins school and the non-working spouse can get a job earning $25,000 (total income of $55,000).  This additional income would cut their subsidy down to $537.  So, the marginal loss of subsidy on the additional $25k of income is $3,682 or 14.7% of the income.  Add to the loss of subsidy the marginal federal tax rate at 13.4% (federal taxes go from $0 to $3358 using tax estimator tool), wage taxes of 7.65%, state taxes of 3.07% and local taxes of 2%.  This brings the total marginal tax rate (including loss of subsidy) for a family of 3 to increase their income from $30k to $55k to 40.82%.

Granting that pre-ACA, this family would not have had the benefit of the $4,219 subsidy, it’s interesting that now having this subsidy creates something similar to a very regressive “tax” on the relatively low income family looking to “get ahead” by earning more household income.

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Here is a link to the CBO’s updated 2014 Budget and Economic Outlook projections.  The updated estimates for insurance coverage are found beginning on page 105 and the Labor Market Effects of the ACA are found beginning on page 117.

Some of the interesting highlights include:

  • On page 106, you will find the effects of on the deficit.  You can see that spending on Exchange Subsidies are projected to ramp up rather quickly.  Starting at $20 billion this year, in just 3 years, subsidies are expected to exceed $100 billion/year starting in 2017 and continue to rise to $159 billion by 2024.
  • On page 107, the CBO expects about 6 million people to receive coverage on the exchanges (down from their earlier estimate of 7 million), however, in 3 years, the number is expected to quadruple to 24 to 25 million by 2017.
  • Roughly 80% of those enrolled via exchanges are expected to receive subsidies.
  • On page 108, the ACA expects to reduce the number of uninsured Americans by a little less than half.  Roughly decreasing the uninsured by 25 million by 2017 from 56 million to 30 million.
  • The CBO expects the pool of Employment based coverage to fall by 2 million in 2015 and by another 4 million in 2016 (6 million total decrease by 2016.
  • Average subsidies are expected to be $4,700 per enrollee in 2014, rising to about $5,600 by 2017.
  • On page 117, the CBO expects about 2 million people by 2017 to exit the workforce due to the availability of subsidized insurance coverage and expects this to increase to 2.5 million by 2024.

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Section 1341, 1342 and 1343 of the Affordable Care Act provides for what are referred to as the “Three R’s” of the ACA.  Here is a description of the Three R’s:  Reinsurance, Risk Corridors and Risk Adjustment.  Risk Corridors, in particular, were NOT scored by the GAO when the ACA was first passed, since the assumption was that they would be revenue neutral.  That is, some plans would enroll healthier than expected members and some would enroll sicker than expected members.

However, given the initial adverse risk selection of the ACA, these three sections could end up costing taxpayers.  Assuming that the entire enrollment in the exchange business is generally sicker than what insurance companies projected.  There is no limit on the amount of money the government can pay under the risk corridors in the current law.  In fact, when questioned on the potential cost of the risk corridors, HHS gave no estimate.

Further, an interesting study by Milliman just released indicated that insurance companies may be incentivized to enroll a disproportionate mix of business leaning to membership that is older, sicker and more female.  This is based on the risk adjustment rules in the ACA.  Prior to the ACA, the more profitable membership was younger, healthier and male.  Effectively, Risk Adjustment “turns risk selection on it’s head”.  There is one caveat, that is if the entire market moves in the same direction.  Since Risk Adjustment is a zero sum game, there would be no other insurers from which to transfer payments on their healthy book of business.  If that occurs, you should re-read paragraph 2 as the race to enroll the old and the sick will magnify the taxpayers burden under Risk Corridors.


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This is a follow up to a blog post I added a couple days ago from a financial analyst that sees the growth in Medicare advantage slowing.

Forbes contributor, Scott Gottlieb, wrote in a little more detail about the cuts coming in 2015 to the Medicare advantage program.  My primary concern is with the funding cuts having to do with the expiration of the Star Rating Demonstration Project, however, given the slowing growth in original Medicare Fee for Service, there may be larger cuts coming in 2015 beyond just this.  Beyond this, there will be higher costs with the ACA premium tax and further phase in’s of other funding cuts from the ACA.

I’m looking forward to seeing CMS initial guidance on 2015 reimbursement rates in the 2015 Call Letter.  This should be available in mid-February.  This will provide our first good look at what’s in store.



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This past year was a very strong year for Medicare advantage with enrollment growing by 9% to 15.1 million, however, Carl McDonald who covers Health Care Companies for Citi sees slowing growth in 2014.  The primary reason for the slower growth is due to the reductions in reimbursement which are mandated by the Affordable Care Act.  This is resulting in less attractive benefits and some Health Insurers trimming their doctor and hospital networks.

In spite of the headwinds for Medicare advantage, McDonald is expecting 5% growth, which would translate into 750,000 new Medicare advantage enrollees.  While this is significantly down from the 1,250,000 added in 2013, it does represent a reasonable rate of growth.

Looking even further ahead to 2015, the end of the CMS demonstration project which provided additional funding for Medicare advantage plans with less than 4 stars.  This will continue the pressure in 2015 and 2016 until the reimbursements normalize in 2017.

Here is a link to the BusinessWeek article which reported on McDonald’s 2014 projection.

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The claim that Medicaid expansion would reduce Healthcare costs by reducing the number of Emergency Room visits by the uninsured was the topic of a recent study.  The study looked at thousands of low income people in Oregon from 2008, some of get Medicaid coverage and some which remained uninsured.  It found that those WITH insurance made 40% MORE visits to the emergency room than their uninsured counterparts.

Essentially, the economics of reducing the out of pocket cost for an ER visit means that people tend to consumer more.  If you lower the cost, you increase the demand for that service.  This would also be true for Primary care visits, as well, so while there may be a huge increase in demand for all medical services with reduced out of pocket costs, the key question is whether this will lower costs over the long term.  There is a financial and a moral aspect to increasing access to health care services, of course, however, one of the beneficial claims of expanding access to medical care was that this will reduce costs.

The study was reported in the New York Times.

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Senator Jeanne Shaheen, New Hampshire Democrat, sent a letter to Health and Human Services Secretary Kathleen Sebelius asking HHS to address issues facing agents and brokers that are preventing agents from signing people up via the Health Insurance Exchanges.  This article is from the Washington Times.

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Although I typically blog on Medicare matters for agents, I wanted to weigh in on week one of the Affordable Care Act’s first ever Open Enrollment.  The Open Enrollment will last for 6 months from October 1st, 2013 through June 30th, 2014, although those looking for coverage effective 1/1/2014 will need to apply by 12/15/13.  There were a couple main tenants of the ACA which stuck out in my mind:

  1. Shopping for Health Insurance will be as easy as comparing airline prices on Kayak.  Not so much.  I think this generalization was always a bit of a stretch, however, the current “glitches” in the healthcare.gov website look  problematic.  Will they be resolved?  Eventually, but it’s hard to say if this will occur in days, weeks or months.
  2. If you like your Insurance, you can keep it.  Maybe.  However, many individual policies are being terminated and many employers are eliminating coverage for part time employees or employee spouses and driving them to the exchanges.  We may see the same impacts on the small group market over time, as well.
  3. You can keep your doctor.  Possibly.  Most plans are keeping their costs low by using “narrow networks”.  The lower than expected premiums on the exchanges are likely a result of these narrow network plans.  As a result, access to care or keeping your doctor may not be an option if you opt for one of these plans.  For example, in Washington state, Seattle Children’s Hospital is suing the DOI for approving plans that exclude them from the network.  Five of the seven plans in Washington state do not include SCH and SCH is the only local hospital that performs many complex surgeries for children.  In Dallas, only one of three plans include Baylor Hospital.  Expect these narrow networks to become a bigger story as the ACA rolls on.  Look forward to more lawsuits as hopitals find themselves locked out of certain markets.
  4. The ACA will bend the cost curve.  Almost a definite no, in current form.  The ACA was constructed with an 80% mandatory minimum loss ratio and many of the low income shoppers are price insensitive (meaning, their premium, regardless of what the insurance company charges, is capped by their income).  Therefore, a plan with a higher premium and broad network (although perhaps not appealing to a non-subsidized shopper), could look quite good to a shopper who’s premium is capped based on income.  This provides an incentive for the insurance company to charge higher premiums, pay out strong reimbursements to providers to ensure broad participation, to maximize the premium per enrollee and therefore maximize the 20% that they are allowed to keep.  The additional premium is invisible to the shopper with a cap on premium and therefore simply gets passed onto the taxpayers.  Frankly, I’m a little surprised there aren’t more high premium, broad network plans to attract the price insensitive shopper, but maybe I’m missing something here??

All in all, it will be interesting to see what the coming weeks unfold.  There are certainly benefits to the ACA for many Americans, but there are also issues in the law that will cause “unintended consequences”.  Unfortunately, while it would be preferable to see some of these provisions improved, it seems that there is little appetite to improve the law and the options are to keep it as is or to repeal it.

Now, back to Medicare!

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