Brookings: Topics - The Patient Protection and Affordable Care Act

The Affordable Care Act: From Hiccups to Repeal

Elaine Kamarck — Wed, 15 May 2013 17:34:00 -0400

Note: On Monday, May 20, Elaine Kamarck, director of the Management and Leadership Initiative at Brookings, will moderate a public forum on "Implementing the Affordable Care Act: Organizational and Political Challenges."

It's been a long time since the federal government had to implement a large, new, federal program. Ten years ago we saw the implementation of Medicare Part D and the creation of a new cabinet department, the Department of Homeland Security. In each instance there were predictions of disaster and substantial growing pains. In the case of Medicare Part D implementation exceeded expectations and costs have not been nearly as high as feared. In the case of DHS, implementation was bumpier, nonetheless, ten years later both operate more or less smoothly and, in retrospect, the crisis now seems overblown.

This year, the Obama administration needs to finalize implementation of the Affordable Care Act—a historic piece of legislation and the most significant domestic policy achievement of the Obama administration to date. And the question of how it goes is front and center. Even the president has admitted that there will be “hiccups” along the way. Compared to earlier pieces of health care legislation, the ACA is incredibly complex, involving activity by fifty states, the jurisdiction of fifty state insurance regulators and changes in the entire health care industry. Added to the inherent complexity of the bill is the fact that it had no Republican support and is still adamantly opposed by the Republican party and by half of all those polled.

So the question is: how bad will it be? Imagine a continuum that goes from “hiccup” on one end to repeal on the other end. With plenty of points in the middle. What would that look like?

The hiccup scenario is the most optimistic. Hiccups are more or less normal. If the implementation is successful, the exchanges will be up and running. There will be glitches. Some people who qualify won’t get their subsidies; some who don’t will. The number of companies on the exchanges won’t be as big as hoped for but will grow. Premiums for health care will rise only modestly and the enhanced services in the new health care plans will make most people okay with the price increase.

The delay scenario is not really good nor is it fatal. A less successful outcome is one where the feds and states find they have to pull back from key provisions in the bill at least for a while. There may be delays in opening exchanges which would necessitate delays in enforcing the mandate that everyone buy insurance. The federal hub may not be able to interface with statewide data and eligibility could become a lengthy bureaucratic process. HHS might adopt a generous waiver policy while states work out their systems. Premiums may rise, leading to complaints from the public but no substantial drops in insurance buying.

The repeal scenario is fatal. Obviously Republicans, especially in the House, are rooting for this one. In fact they seem to like taking the repeal vote so much that they’ve done it 37 times in the past three years. So the question is: what would it take to move support for repeal beyond the Republican base? In 1989 Congress repealed the Medicare Catastrophic Coverage Act a short sixteen months after it was passed. Why? It increased costs to seniors and offered them things that they didn’t want. In the context of ACA the repeal scenario is feasible if premium prices rise so high that people who don’t qualify for subsidies (there are more of them than those who do) decide that they really don’t want the enhanced packages envisioned in the law and then get really mad and let their representatives know it.

Where will we end up? Stay tuned.

Authors

Elaine Kamarck

Image Source: © Jonathan Ernst / Reuters

The Affordable Care Act and Designing the District of Columbia's Health Benefits Exchange

Alice M. Rivlin — Mon, 13 May 2013 13:59:00 -0400

Before the Health Committee of the District of Columbia Council, Alice Rivlin encourages the Committee to implement the health benefits exchanges of the Affordable Care Act in order to provide universal affordable health care coverage. Explaining that the District has passed tests regarding Medicare and Medicaid, Rivlin describes the District's current health delivery system, explaining the landscape of health care carriers for groups and individuals and recommending that the health exchange become the sole venue for the purchase of individual and small business health insurance.

I am happy to testify on the bill before this Committee, “Better Prices, Better Quality, Better Choices for Health Coverage Amendment Act of 2013,” transmitted by Mayor Vincent C. Gray on behalf of the DC Health Benefit Exchange Authority. I strongly support the bill.

The federal Affordable Care Act (ACA), passed in 2010, is a major step toward an American health care system that covers almost everyone at sustainable cost. Implementation of the ACA is a long-sought opportunity to solve a disgraceful national problem—the fact that a large and growing share of the population cannot afford health insurance—as well as a chance to improve the quality and value of care delivered. As you know, the legislation was controversial at the national level, but the District welcomed it as an opportunity to realize our community’s goal of affordable health care coverage for all.

The District chose to comply with the ACA by creating its own health benefits exchange rather than letting the federal government do it. The District assembled a highly qualified Health Benefit Exchange Board, which recruited a strong professional staff and has implemented the ACA with energy and dispatch. Recently, the District’s exchange passed Phase Two testing with the Centers for Medicare and Medicaid Services. This indicates that the District is expected to be ready to enroll customers on October 1, 2013, and begin coverage on January 1, 2014. We should all be proud of the District for becoming a leader and role model in implementing the ACA, while some States have delayed and are behind schedule.

The exchange will require carriers to compete with one another by displaying qualified plans in transparent form in an electronic market place and allowing consumers to select the best plan for them. Some will receive federal income-tested subsidies to make plans more affordable. This is a win-win: DC residents will receive better health insurance at a lower cost and carriers will sell more insurance policies.

Designing the best exchange for the District has been challenging because DC’s health insurance market is small and highly concentrated. There are only four carriers one of which one controls more than three quarters of the individual and small group markets. The individual market is especially small—in part because of DC’s past success in reducing the number of uninsured residents through generous Medicaid eligibility and the creation of the Alliance. The individual market is estimated to fall below the 100,000 participants that the Urban Institute and others estimate to be the minimum size of the risk pool needed for an exchange to operate efficiently. In view of the small size and high concentration of the market, the DC Health Benefit Authority recommended, and the Council supported, merging the individual and small group markets after a transition period. Merging the markets recognizes that separate exchanges for the individual and small group markets would have too few carriers and too few enrollees to achieve the stability and efficiency that can be achieved in a merged market.

Now the Council is considering whether to make the exchange the sole venue for the purchase of individual and small business health insurance in the District. We believe that this measure will maximize competition, transparency, and the insurance choices available to consumers. Conversely, retaining a separate market outside the exchange will reduce the risk pool below critical size and invite carriers to attempt to attract younger, healthier individuals and employer groups outside the exchange, leaving higher risks in the exchange. In a small market with a dominant insurer, it is essential that the exchange risk pool be as inclusive as possible, both to stabilize the exchange—which is the only source of federal subsidies for District residents with modest incomes—and to maximize transparency and competition.

These design decisions are difficult, but, on balance, it seems wise to require that all DC individual and small business plans be purchased on the exchange with a single risk pool, to allow carriers to offer as many different plans as they want on the exchange, and to work hard to make the exchange as transparent and user friendly as possible. Moreover, the Board’s transition plan carefully balances the goal of full and speedy implementation with the needs of individuals and small business. The transition plan will allow small businesses to enter the health exchange over a two-year transition period, permitting small businesses to wait until the market settles should they feel the need.

Over the past couple of decades DC has gone from a city with a shamefully inadequate health system to a leader in provision of affordable health coverage and improving access to good quality care. We can all take pride in the steps DC has made to take advantage of the opportunity offered by the ACA to move to universal affordable coverage by acting quickly to implement it competently and expeditiously.

Thank you for the opportunity to speak today.

Authors

Alice M. Rivlin

Publication: The Health Committee of the DC Council

Image Source: © Joshua Roberts / Reuters

The Future of the Affordable Care Act: a Debate on Its Effects

Henry J. Aaron — Fri, 12 Apr 2013 00:00:00 -0400

Editors' note: Henry Aaron delivered the following remarks at the Conference on Equity and Choice in Health Care Access, hosted by the University of Chicago on April 12, 2013. The conference focused on issues related to health care access post-Affordable Care Act.

It’s late in the day. Everyone is probably a bit tired. And most everything has been said, although, as former Representative Morris Udall once said late in a conference, “not everyone has said it.” You are probably more interested in getting to the airport or going home than in anything I might say. So, I have decided that instead of giving a talk, I’d host a debate.

The two debaters are here with me. I’ve known them so long, I feel they are part of me. The topic is “Prospects for The Affordable Care Act.” The first debater is a happy soul, a real “glass is half-full” person, optimistic and upbeat. The first part of her name is Polly; you can guess the last part.

The second speaker sees problems and threats around every corner. He thinks that anything that can go wrong will. He goes by just one name: Murphy. We will hear from them in turn and you can then ask them questions. Polly?

Thank you, Henry.

Let’s agree on one thing...the nation is politically polarized. Half of us supports the Affordable Care Act. Half of us don’t.

That said, the health reform law has survived its two greatest existential threats. The Supreme Court sustained the core element of the legislation. And, of course, the 2012 presidential election reelected Barack Obama, its champion. So, we know that implementation will proceed.

We know some other things too. Analysts have agreed for decades that coverage should be expanded. They have also agreed that costs have been growing too fast. But they disagreed about just what to do to solve those problems. So, for many years the status quo was the winner.

Meanwhile, it was pretty clear that the public was not much interested in radical change. One minority on the political left wanted some form of single payer system—Medicare-for-all. Another minority on the political right wanted individual consumers to buy insurance aided by some sort of voucher.

But most people were insured. They liked what they had. They feared change would harm them. That meant that replacing the current system was a nonstarter. The only politically feasible way to reform was to build on current insurance arrangements.

And that is just what has happened. A lot of us have come to recognize a paradox. Implementation would have been easier had Congress adopted one of these more radical policy options. President Obama and those then in control of Congress were Democrats. They tried very hard to be conservative—in the sense that they sought to disturb current insurance arrangements as little as possible.

The Affordable Care Act contains elements on which there is broad agreement. The current fee-for-service system needs to be replaced. So do certain current practices of insurance companies that are both understandable and deplorable—charging the sick or the old premiums that are unaffordable except for the well-to-do, denying coverage to those in greatest need, canceling coverage for heavy users of services. Fragmented delivery of care makes high quality hard to establish, maintain, and verify. The tax breaks for employer financed health care need to be curbed or eliminated.

On all of these goals liberals and conservatives mostly agree. On all of them, the Affordable Care Act contains, in at least embryonic form, provisions to move the nation in the right direction.

I want to quote from a recent talk by Alice Rivlin on these matters. I—that is, Polly—sit next door to Alice. She is pretty hard-headed and experienced. But, as far as optimism about the ACA is concerned, she is my—that is, Polly’s—soul mate. Alice writes:

“One of the persistent criticisms of the ACA rings absolutely true: it is a complicated law, not easily explained in sound bites. Its effectiveness will depend heavily on how well it is implemented by numerous players, especially the states. But the complexity is not attributable to its radical nature. On the contrary, the ACA is complex because its authors aspired to tweak our complicated, fragmented system of delivering and paying for health care without changing the system in any drastic way. It takes a lot of words to write that tweaking into legislation.”

Further quoting Alice Rivlin:

“In sum, I believe we are close to a workable bipartisan solution to the health care dilemma that could ... provide universal coverage ... and reduce the growth of health spending to sustainable rates. The elements of such a compromise involve retaining and improving the ACA.... These reforms will not involve blowing up the current system and replacing it with either a European-style single payer model or a fully market-based model. At this point in our history, publicly acceptable changes in health delivery must retain and improve the mixed public-private financing structure, including employer-based insurance coverage, Medicare, Medicaid, and federal subsidies to help low- and moderate-income households purchase health insurance coverage. They must focus on gradually altering incentives to providers and beneficiaries to participate in cost- and quality-oriented health delivery systems.

“These reforms will not give us a perfect health care system—just one that we can keep tinkering with and improving on in order to ensure that the system offers good quality care to almost everyone at sustainable costs. We won’t discover the perfect health care system, but we do have a shot at accepting the main features of a pretty satisfactory status quo and continuing to adjust it around the edges--constantly trying to make it more effective, fairer and less costly to the combination of public and private entities that are paying the bills.”

Thank you, Polly—and Alice. Things may look good to you, but while you were talking Murphy has been grimacing and squirming hin his seat. Now it is his turn. Murphy.

I don’t really disagree with Polly’s political analysis of how we have gotten where we are today. I do want to say that I thought that president Obama’s decision to go after full-blown health reform can fairly be described as either gutsy or rash.

Gutsy, if one looks at the history of health reform failure, the analytic complexity of the task, and the political minefields that had to be safely negotiated.
Rash, if one recalls the other problems he faced.
Rash if one recognizes that he was betting his administration on an issue where the chances of failure were—and I will argue, still are—high.

But as one close advisor remarked “those are the kinds of decisions we elect presidents to make.”

Polly says that the 2012 election determined that the Affordable Care Act will be implemented. I don’t think that is quite right. The 2012 election determined that we will try to implement the Affordable Care Act. It didn’t guarantee that the effort will succeed, nor did it assure that the Affordable Care Act will survive. The 2012 presidential kept the Affordable Care Act alive. The 2016 election will determine whether it survives.

Seventeen states and the District of Columbia are now trying to set up state health exchanges. Seven states are partnering with the federal government to perform the same functions. Twenty-six states are leaving the job largely to the Federal government.

Five and one half months from now, the exchanges must start enrolling individuals and small groups in insurance plans that, as of January 1 next year, people must carry. Many of the states started very late. And the federal government’s implementation efforts are short of money.

The tasks that all of the exchanges have to perform are myriad and complex. I agree with Polly that the job would have been easier had Congress tossed out the whole current, messy system. Things would have been easier if the Affordable Care Act were simpler, as it would have been had it gone to a full conference committee.

But we have to go to implementation with the health system and the health law that we have—[why doesn’t that paraphrase comfort me?].

So here is a sample of items on the “to-do” list that we have five and one-half months to complete.

Software must be written and computers purchased to enable people, most of whom know little of insurance and some of whom are close to innumerate, to choose sensibly among perhaps dozens of insurance plans and enroll in one of them— on-line, over the phone, or in person. Data on age, family status, income, and employment status will be used to compute premium subsidies to be paid to the enrollees’ chosen insurance companies and cost sharing subsidies that will be paid to the enrollees.
Data systems have to be developed to permit enrollment officers to check all of that information in real time.
State insurance regulations need to be conformed to the new national law.
Insurance companies must design the plans they will offer through the exchanges and, in most states, the separate products that they will offer outside the exchanges.
The health exchanges must decide what conditions health insurance plans must satisfy in order to be classified as qualified health plans.
The federal law defines four levels of coverage based on the proportion of health care costs for the specified benefits the insurance must cover. Insurers have to provide the middle two, but the state health exchanges may require them to offer plans at the lowest and highest levels.
Small businesses will have to decide what plans to offer their employees. Individuals and employees of those businesses need to be informed of the options they face and decide what products to buy.

Millions of people will start applying for coverage on October 1, 2013. We don’t know exactly how many. That will depend in part on the rules various exchanges apply. It will also depend on whether the public education campaigns yet to be launched, succeed, and on how the press, bloggers, spin-meisters, state officials, and members of Congress handle the mistakes that will inevitably be made by inexperienced officials, overwhelmed call centers, and confused applicants.

Nothing approaching the complexity of this “roll out” has ever taken place in U.S. peacetime history. People will be eligible for coverage in the following ways:

through Medicaid, if their income is below 138 percent of the federal poverty level in those states that choose to extend Medicaid coverage as permitted under the ACA, but only for those with incomes up to 100 percent of federal poverty level in those states that do not extend coverage;
through a “basic health plan” if their income is between the Medicaid level and 200 percent of the FPL in those states that adopt such a plan (but the federal regulations for such plans have not yet been released);
through ordinary insurance purchased through the exchange, with subsidies, if their income is less than 400 percent of the federal poverty level and without subsidies if their income is higher.

The health insurance exchanges have the authority to require insurance sold to individuals and small businesses to be sold through the exchange. So far, only Vermont and the District of Columbia are considering such a requirement. In most places, everyone will also be able to buy insurance directly from insurance companies.

Different people within the same family may be eligible for coverage under two or more categories of coverage. Each person may be covered by one or two insurance carriers, as dental benefits may be offered separately. The category of coverage may change during the year because incomes fluctuate and family composition changes.

The subsidy payable to an individual depends both on his or her own income and on the coverage categories of other family members. Premium subsidies are based on current income or income expected over some future period. These subsidies are paid directly to the particular insurer that the enrollee selects.

But at the end of the year, a final reckoning based on the enrollees’ actual incomes, which may have risen after application, may require enrollees to repay some or all of the subsidy themselves, although they never laid hands on the overpayment.

The federal government has to set up data systems to enable the exchanges to verify earnings. Tax returns and Social Security earnings records won’t do, as they are available now only with delays of many months or even years.

People who fail to carry required insurance are subject to a fine if they fail to do so. The fine is excused if premiums net of subsidy exceed a fractions of income that themselves vary with income. People may pay the fine voluntarily. But if they don’t, the law authorizes no way to enforce the fine other than by subtracting it from tax refunds due people who over-withheld. And many potential enrollees do not file tax returns.

Mistakes and confusion are inevitable. That is the lesson from the rollout of the Medicare drug benefit and the Massachusetts universal coverage plan that closely resembles the Affordable Care Act. One might draw comfort from the fact that after rough starts, they succeeded. But this challenge is vastly harder for at least three reasons.

First, the Medicare drug benefit and the Massachusetts health plan were both passed with substantial bi-partisan support. The same cannot be said of the Affordable Care Act. Opponents have tried, with some success to deny the administration funds for implementation. This year’s budget asks for $1.5 billion—which Congress will probably not give. Opponents will pounce on the normal start-up glitches as proof that the law was a mistake and should be repealed.

Second, even if the ACA were flawlessly enforced, many people and businesses are going to find themselves facing big price increases. Why?

The new law limits premium variations based on age to no more than three to one. Current variations are much larger.
The law permits exchanges to impose community rating, which can mean that age-based variations in premiums are barred altogether. That means that the young will tend to face price increases.
The law permits states to charge smokers a 50 percent surcharge. Some states have announced that they will do so. And none of that surcharge will be covered by subsidies.
The ACA benefit standards will force many individuals and employees to buy more insurance than they are accustomed to having, and that will boost cost.
Small businesses will all be pooled in the exchanges. That means premium decreases for businesses employing older workers, but price increases for those with young workers.

What this all means is that even if overhead expenses are reduced, as I believe they will be, and even if administration were perfect, which I am sure it will not be, a lot of people are going to have high-voltage sticker shock. And what that means in turn is that the exchanges may face nasty adverse selection problems, boosting premiums still more.

Third, real errors will be made. This law is complicated. People don’t understand it. Phone banks will be staffed by inexperienced people. The software will be insufficiently tested. There are only three things absolutely certain in this life: death, taxes, and the law named for me, Murphy.

Wow, Murphy, I don’t know whether to thank you for those comments or crawl into a cave. One thing is for sure...you took a lot more time than Polly did. So, I am going to give her a few moments to respond before we take comments from the audience.

Murphy is right to point to the ferociously challenging implementation problems that we will face. I don’t minimize them. But despite all of these threats, I remain hopeful. Seventeen states and the District of Columbia are running their own exchanges. One of those states is Minnesota—and everything works in Minnesota. And the DC exchange has some pretty good people working for it.

More seriously, I believe that some of the states, or the federal exchanges, are going to get things right or almost right. That is all it will take for those who support the Affordable Care Act to make a persuasive case that, given time and patience, all states and the federal government can do the job right.

They can and will point to the stunning advances that have been and will be achieved under the law—improved coverage of adult students, elimination of the donut hole in drug benefits, the end to practices by insurance companies that everyone deplores—charging staggering premiums or denying coverage altogether for those with preexisting conditions or who are just old, and cancellation of policies for those who need coverage most. They will be able to point to the millions of newly insured and to the hard cash that helps them afford it.

And, there is an increasingly good chance that in one area we might just get lucky. The health cost juggernaut stopped abruptly in 2009. The onset of this respite wasn’t attributable to health reform. The calamitous recession gets some of the credit. And also independently of the health law, hospitals and physicians have been reforming the way health care is delivered and paid for.

But the Affordable Care Act promises to extend this respite. It contains pilots, demonstrations, and experiments of virtually every cost control mechanism that any analyst has thought of. If these trends continue, the new law will get credit if the cost climate stays benign. Some of that credit will be undeserved. But who cares? If even a few of the ACA’s innovations in payments and delivery of care pan out, it will deserve much of that credit.

So, when the presidential election of 2016 rolls around—the one that I agree will really settle the fate of the health reform legislation—I think that there is a good chance that most people—not just Democrats and Independents, but Republicans as well—will realize that the administrative clouds are lifting and that the United States is moving ahead to become a fairer and healthier nation because of the Affordable Care Act.

Now, on behalf of all of you who have listened so patiently, I want to ask you to give Polly and Murphy a big hand. I trust that they will take any questions that you may have.

Authors

Henry J. Aaron

Publication: Conference on Equity and Choice in Health Care Access, The University of Chicago

Image Source: © Rebecca Cook / Reuters

Discuss Mental Health in the State of the Union

Kavita Patel — Fri, 08 Feb 2013 11:02:00 -0500

The State of the Union Address is often used to highlight the condition of our nation but also allows the president to outline legislative agendas for which he might need the cooperation of Congress. The Affordable Care Act deserves an acknowledgment in the speech namely because the nation is still in a state of frenetic planning and implementation for the addition of approximately 31 million new people who will have health insurance beginning this fall and building over the subsequent years.

Gun violence also should be mentioned in light of not just the tragedy in Newtown but also due to rising homicide rates in some major cities like Chicago and other gun-related fatalities that are too numerous to count. Let us hope these incidents compel both the president and Congress to action.

Mental health should be an important part of any national discussion. The State of the Union will likely address some of the president’s actions as well as recent efforts from a bipartisan group of legislators to expand access to mental health facilities and raise standards for mental health services. But such an approach should be applied with caution: laws which require mental health professionals to report names of patients who are likely to harm themselves or others to a state or local authority could unintentionally exacerbate stigma and the great chasm in seeking mental health treatment. Furthermore, expansion of the very same mental health care services will not be as effective as efforts to truly integrate behavioral and mental health services into other aspects of care delivery such as primary care, which is often an entry point for many patients. Such efforts are underway now. The president will have to balance the need for action with the need for credible and informed mental health models which can truly transform care. This does not meant that we should delay action—quite the opposite—patients and families have been waiting for too long. But we should apply a critical eye as well as offer perspectives from public health and other social determinants of health and primary care.

Authors

Kavita Patel

Image Source: © Shannon Stapleton / Reuters

Nancy-Ann DeParle, White House Deputy Chief of Staff, to Join Brookings

Fri, 11 Jan 2013 20:52:00 -0500

WASHINGTON, D.C. — Nancy-Ann DeParle, Assistant to the President and Deputy Chief of Staff and an expert on healthcare policy, will join the Brookings Institution as a guest scholar in Economic Studies on January 28, 2013, Strobe Talbott announced today.

DeParle was instrumental in the crafting of the Affordable Care Act in 2010, as then Counselor to the President and Director of the White House Office of Health Reform. She also served in the Clinton administration as Administrator of the Health Care Financing Administration (now the Centers for Medicare and Medicaid Services (CMS)). Before joining HHS, she was Associate Director for Health and Personnel at the White House Office of Management and Budget (OMB). And earlier in her career, DeParle served in the cabinet of Tennessee Governor Ned McWherter as Commissioner of Human Services.

“Nancy-Ann played a leading role in one of the most significant pieces of social legislation in a generation,” said Karen Dynan, Vice President and Co-Director, Economic Studies, and the Robert S. Kerr Senior Fellow. “We welcome her to Brookings.” Ted Gayer, Co-Director, Economic Studies, and the Joseph A. Pechman Senior Fellow, added “Her depth of experience in domestic policy, culminating in her important contribution to the ACA, makes her well-positioned to share her insights on our healthcare system.”

DeParle received a B.A. from the University of Tennessee, where she was Student Body President, and a J.D. from Harvard Law School. She also received a B.A. and M.A. from Balliol College of Oxford University, where she was a Rhodes Scholar. In addition to her government service, she served as a fellow at the Institute of Politics at Harvard’s John F. Kennedy School of Government, as an Adjunct Professor of Health Care Systems at the Wharton School of the University of Pennsylvania, and as a Managing Director at CCMP Capital, a private equity firm. In addition to her work at Brookings on domestic economic policy issues, she plans to lecture at Harvard Law School.

Health Reform: The Political Storms are Far From Over

Henry J. Aaron — Thu, 27 Dec 2012 11:00:00 -0500

The history of president Obama’s health reform bears an uncanny and disturbing similarity to the life cycle of a hurricane. With Sandy fresh in our memory, the similarity is not comforting.

Hurricanes have three phases. The front wall of the storm brings high winds, lightening, and rain. Next, at the hurricane’s center, or eye, the wind drops and the air warms. If one is at sea, the water may turn calm and warm, bringing the illusion that the storm has ended. As the storm moves on, wind and rain return, often with increased force. Those fooled by the calm who leave safe havens may be destroyed by what follows.

The life cycle of a hurricane will bear an eerie similarity to that of health reform. Nearly four years elapsed between president Obama’s initial call for national health reform until the bill became law and the Supreme Court ruled on its constitutionality. The political and legal turmoil was intense and continuous. The process was rancourous and the outcome in doubt from start to finish. It took a bitterly fought presidential election to put an end to this phase of the struggle.

Now, we are in a period of relative calm. The 2012 election settled the immediate fate of the Affordable Care Act (ACA). The candidate who swore to repeal it lost. The ACA was the major domestic legislative achievement of the victorious incumbent president who won reelection. Now, eighteen states are in process of designing rules for health insurance exchanges—the administrative entities that will manage implementation of the new law, the most important provisions of which will take effect one year hence. The other states will either leave implementation entirely to the federal government or share administrative responsibilities with federal agencies.

A huge amount of work remains to be done by October 1, 2013 when people can begin enrolling for insurance coverage in the new exchanges.

• Data systems have to be developed.

• Software must be written and computers purchased to permit on-line enrollment or assist officials in signing people up in hundreds, if not thousands, of offices.

• State insurance regulations need to be conformed to the new national law. Insurance companies must design the plans they will offer through the exchanges and, in most states, the separate products that they will offer outside the exchanges.

• Small businesses will have to decide what plans to offer their employees. Individuals and employees of those businesses need to be informed of the options they face and decide what products to buy.

• The state insurance exchanges or their federal equivalent will have to enroll people, compute the subsidy to which each person is entitled, and pay that subsidy to the insurer that each person has selected.

• Myriad other activities are going on in many federal government offices and to a greater or lesser extent–or not at all–in state government agencies.

By its very nature, these activities are decentralized and dull. No exchange, other than two that existed before enactment of the Affordable Care Act, has yet opened its doors or will before late 2013. No one is yet applying to them for insurance coverage or for subsidies. A hive of activity is ongoing in state and federal agencies, but no one is fully aware of everything that is going on. More importantly, perhaps, no one is aware of what activities that should be but are not going on. Like those in the eye of a hurricane, a deceptive and short-lived calm is upon us.

The storm will gather force once again starting on October 1, 2013. That is when millions of people will start applying for coverage through the newly created health insurance exchanges. Exactly how many will apply will depend on the rules that the 18 states setting up their own exchanges and the federal government adopt. The full fury of the storm will return on January 1, 2014. Nothing approaching the complexity of this ‘roll out’ has ever taken place in U.S. peacetime history.

To appreciate what is involved, consider the complexity of the law.

• People will be eligible for coverage in one of the following ways: 1) through Medicaid, if their income is below 138 percent of the federal poverty level (FPL) in those states that choose to extend Medicaid coverage as permitted under the ACA, but only those with incomes up to 100 percent of FPL will be covered in those states that do not extend coverage; 2) through a ‘basic health plan’ if their income is between the Medicaid level and 200 percent of the FPL in those states that adopt such a plan (but the federal regulations for such plans have not yet been released); 3) through ordinary insurance if they are not covered by Medicaid or a basic health plan, with subsidies provided through the exchange if their income is less than 400 percent of the FPL and without subsidies if their incomes are above 400 percent of the FPL.

• People within the same family may be eligible for coverage under two or more categories of coverage.

• Each exchange will offer insurance at a minimum of four levels of generosity. People under age 30 will have a fifth option, a special bare-bones class of insurance to keep costs down.

• The subsidy payable to an individual depends both on his or her own income and on the coverage categories of other family members.

• Coverage and subsidy amounts can change if income changes—for example, if the person or some other family member changes employment status—or if family structure changes.

• Premium subsidy amounts, based on current income or income expected over some future period are paid directly to the particular insurer that the enrollee selects. If those payments turn out to be excessive—for example, because income rose after application, the individual must repay the overage, up to legislatively specified maximums based on income.

• Families residing in metropolitan areas that span state borders, such as New York, Washington DC, Kansas City, or St. Louis, may have family members working in different states and, hence, come under different exchange rules.

• The federal government must provide earnings data for people, many of whom do not and will not file tax returns that are sufficiently accurate and current to enable the health exchanges to compute the correct subsidies for applicants. Tax returns and Social Security earnings records won’t do, as they are available now only with delays of months or even years.

• Individuals will be required to carry insurance of one sort or another that meets standards under the law and may have other features required by the state exchanges. They are subject to a fine if they fail to do so, but there is no effective enforcement mechanism other than failure to return tax refunds due people who had more tax withheld than they end up owing. The requirement is waived altogether if premiums exceed more than certain proportions of income.

This is just a partial list of the more visible administrative challenges that have to be met. Confronting this list, one could either feel optimistic or lapse into despair. Optimists regarding prospects for implementation will recall the comparatively trouble-free introductions of two other even larger federal programs—Social Security and Medicare. These programs differed in essential and administratively-relevant ways from the Affordable Care Act. Both entailed relatively simple eligibility criteria—age or disability and requisite work experience over many years. Under both programs, workers and their employers were required simply to pay a tax proportional to covered earnings. Social Security beneficiaries initially had nothing to do other than cash the checks they receive each month. Administration of Medicare is somewhat more complex and subject to error and fraud. Even so, the challenges under the ACA associated with enrolling people, determining subsidies, paying them to the right companies, and adjusting subsidies as circumstances change are vastly more complicated.

Pessimists might conclude that implementation will inevitably break down or go through an error-prone period of administrative over-load so long and politically fraught that program collapse is likely. In contrast to the redundancy built into such complex enterprises as the space program—where, if one system fails, one, two, or even three back-up systems are built in to keep things working—health reform is replete with elements each of which is vital to success, such that if any one fails, the whole system could ‘seize up’ and fail. Determining eligibility, keeping track of which type of insurance applies to which family members, computing subsidies, and making sure that premiums go to the right insurers will be a never-ending headache.

In my view, neither the optimistic nor the pessimistic view is fully justified, although the pessimists have the better case, at least at the outset. The mixed-public-private insurance system perpetuated in the ACA is inherently complex. But, with time, bugs in the software will be ironed out and initially overloaded and imperfect data systems will be steadily improved. Among the 18 states setting up exchanges, a few are bound to get the job mostly done and show the way for other states. In brief, with time, most administrative problems can be overcome. The major challenge will be to make sure that the system works in enough places and fast enough to permit supporters to point to the successes and explain that the inevitable glitches are reparable. It is also worth noting that were Congress not neck deep in a swamp of partisanship legislators could find ways to minimize the problems that remain.

The actual course of events after January 1, 2014 is likely to be stormy and filled with developments investigative reporters will enthusiastically describe and ACA opponents will point to with relish. There is every prospect that during the years 2014 and 2015 the political storms will be as furious as they were when a committed president and Democratic Congressional leadership gave life to the long-delayed dream of national health reform. Those who said that the presidential election would settle the fate of heath reform will be proven mostly right. But it will become clear that they had the date wrong: the key election will turn out to have been not 2012, but 2016.

Authors

Henry J. Aaron

Image Source: © Jason Reed / Reuters

After the 2012 Election, Is a Return to Sanity Possible?

Henry J. Aaron — Tue, 02 Oct 2012 00:00:00 -0400

Well, political junkies, only five weeks of the 2012 presidential campaign remain. But, don't despair. You have four years and five weeks until the end of the 2016 presidential campaign, which will almost surely start the day after the 2012 campaign ends. If, as now seems likely, President Obama wins four more years and Republicans retain control of the House, you will be exposed to four more years of Republican efforts to make a Democratic president fail, just like the last two. And, misguided fans of divided government, you will have your way—the election will not have changed a thing.

But, wait! Maybe, just maybe, enough representatives and senators will conclude that elections do, as the pundits say, have consequences. Republican leaders just might recognize that the Affordable Care Act is, and will remain, the law of the land, that closing the deficit while retaining government services Americans demand must include tax increases, and that trying to privatize Social Security and Medicare is a losing strategy. Democrats might recognize that deficits in Social Security and Medicare sap public confidence in those programs and keep them fair game for political attacks, and that if even one of those attacks succeeds, the proudest achievements of the Democratic party would be damaged or lost. Democrats might accept program cuts they don't really like but that will lower the political heat surrounding both programs. It is just conceivable that the ‘compromise virus' might infect leaders of both parties and permit needed legislation to reach the president's desk for signature.

Impossible, you may say. But let's dream. And let's dream about legislation that in a saner political world than ours seems to be should appeal to both parties. Here are some changes to Medicare, Social Security, and the Affordable Care Act that members of both parties could vote for if they were willing to focus on principles they claim to care about.

First, beef up Medicare administration. Supporters brag how little Medicare spends on administration. But spending so little is, in this case, false economy. Hiring fewer government employees can actually cost money. For each additional dollar we spend on Medicare auditors and investigators, studies show that we will save several dollars from reduced fraud. Spending a bit more on administration will also save money. When Medicare approves a new procedure for particular types of cases, a larger number of administrators could make sure that Medicare does not pay for use of those procedures in cases for which use was not approved because safety and efficacy were unproven. Medicare enrollees could still have those services—if they are willing to pay for the services themselves.

Second, add to Medicare a key protection of the Affordable Care Act—insurance against catastrophic illnesses. Pay for this added benefit with somewhat higher premiums on upper income beneficiaries. If protection against catastrophic drug costs is a good idea, then why not for the rest of Medicare? President George W. Bush supported protections against catastrophic expenses as part of his Medicare drug benefit. Members of both parties should endorse this change because it would spare many people the added cost and complexity of buying supplemental coverage.

Third, beef up the Affordable Care Act's penalty on Cadillac health insurance plans. Ronald Reagan was the first president to call for limits on tax breaks for very expensive employer-sponsored health insurance. Although this reform has Republican paternity, no Republican supported those Democrats who won inclusion of these penalties in the Affordable Care Act. Both parties should agree to strengthen them.

Fourth, the projected long-term deficit dogging Social Security lends credence to the bogus claim that the program is unsustainable. Small tax increases or benefit cuts would assure solvency indefinitely. That said, the case for benefit cuts is weak. Social Security benefits are actually lower in relation to earnings than they have been for decades. They are downright parsimonious compared with those of most other developed countries—40 percent lower for average earners than the mean of the sixteen other richest members of the Organization for Economic Cooperation and Development. Furthermore, benefits are tied to earnings and U.S. earnings have either fallen or barely increased for decades, other than for very high earners. High earners have also been the principal beneficiaries of increased longevity. Life-expectancy among those with little education and, accordingly, with low earnings has actually fallen for the last two decades.

These trends suggest that the bulk of the work in closing Social Security's projected deficit should be carried by taxing more earnings and at a slightly higher rate, rather than by cutting benefits. But any benefit cuts should spare those with low or moderate earnings and focus on those with comparatively high earnings. Given their longer life-expectancies and the general downward age-adjusted trend in the incidence of impairments, benefits should be restructured to encourage those with comparatively high earnings to retire later than they now do.

Finally, if President Obama wins reelection, the Affordable Care Act will not be repealed. It will be implemented. It is inevitable that problems will emerge in the implementation of a law as complicated and far reaching as this one. In a politically sane world members of Congress would work out compromises on these and other issues. Members of both parties would give a little, to get a little, thereby advancing principles each party espouses.

Is it fantasy to hope that in the post-election United States of 2013 enough members of both parties will put solving problems for the American people ahead of positioning themselves for the elections of 2016?

Authors

Henry J. Aaron

Publication: Real Clear Markets

Image Source: © Brian Snyder / Reuters

The New Census Numbers: Some Good News, But Major Challenges Remain

Henry J. Aaron — Wed, 12 Sep 2012 00:00:00 -0400

Over the past year, the American economy has been gradually recovering from the Great Recession. The pace has been well below everyone’s hopes. Meanwhile, some elements of the Affordable Care Act have been put into effect. Against that background, what should one expect from the annual report of the Census Bureau on income, poverty, and health insurance coverage?

The answer is that one should not expect much: little change in income, possibly a minor reduction in poverty, and some slight increase in health insurance coverage. In some respects, that is what the Census Bureau reported. But not exactly, and some of the differences are disturbing.

The Good News: Health Insurance Trends

The one genuinely bright spot in the Census Bureau report today is the reversal of two worrisome trends: the steady increase in the number of uninsured and the steady drop in the number of people insured through work. Both trends reversed in 2011. With the admittedly modest bounce in employment from recession lows, employment-based coverage increased, even as the proportion insured through work continued its decade-long slide. For adults in the prime working ages, 25 through 54, the drop in employer-sponsored coverage has been large: from 73.8 percent in 2000 to 61.8 percent in 2011.

The number of people insured by one government program or another rose 5 percent to just under 100 million, an increase that accounted for most of the total gain in health insurance between 2010 and 2011. Since 2000, the proportion of the total population insured by a government program has risen by one-third.

In the last year, coverage of 18 to 24 year-olds increased. Much of that jump came because young adults remained on their parents’ insurance plans, abetted by one of the key provisions of the Affordable Care Act that has already taken effect.

Income Trends And The Role Of Health Spending

Each month for the past two years, the Bureau of Labor Statistics has reported modest increases in employment. Thus, it should surprise no one that the Census Bureau reports that the number of people with income from earnings also increased. Although employment rose, median earnings of people who worked full-time, all year dropped a jarring 2.5 percent between 2010 and 2011. In contrast, average income rose a bit. Hammered by two recessions, both income measures remained well below levels reached in 2000. In fact, median income is virtually the same as it was in 1989.

With average and median income moving in opposite directions, it follows that inequality increased. The share of income received by the middle 60 percent of the population dropped and the share received by the top 5 percent rose by 5 percent. These data underscore the plight of the middle class, a theme of the recent political conventions.

The 2011 Census Bureau report provides no solace to those concerned about the problems of people who live in poverty. The absolute number of people in poverty is almost unchanged. The fraction who are poor fell 0.1 percentage points. Scanning the long-term trend in the proportion of the U.S. population living in poverty is deeply depressing. Nearly four decades ago, in 1974, the proportion of American living in poverty reached a low of 11.1 percent. There has been little good news since. Poverty increased after 1974 then fell during the booming 1990s, dropping to 11.3 percent in 2000. Two recessions later the rate is back up to 15 percent.

These numbers tell a story that is simple and, for most Americans, sad: poverty has increased, the middle class has stagnated, and the wealthy have become richer.

As those who have studied income data know well, measuring poverty is extremely difficult and fraught with ambiguity. In fact, the Census Bureau provides several measures of poverty. The traditional poverty measure makes no adjustment for out-of-pocket medical expenses, even though most are involuntary and reduce funds available for ordinary living expenses. An experimental measure subtracts out-of-pocket medical expenses and makes some other adjustments as well.

How health care spending is treated has a dramatic effect on the proportion of various age groups counted as poor. The cost of health care has increased hugely over time. So has health care’s contribution to well-being. Because health care spending rises sharply with age, these trends have simultaneously boosted the well-being of the elderly relative to other age groups and placed an increased financial burden on them. The proportion of those over age 65 counted as poor is dramatically higher under the experimental measure, which subtracts out-of-pocket medical expenses from income used in measuring poverty, than it is under the traditional measure. The proportion of those 18 or younger counted as poor under the experimental measure is lower than under the traditional measure.

How should one interpret these differences? Over time, the elderly, as disproportionate users of health care, benefit disproportionately from the increase in the value of those services. But if one subtracts out-of-pocket medical expenses from available resources, that adjustment pushes up trends in the poverty rate of the elderly relative to that of younger people. On the other hand, if one focuses on a single point in time, it remains true that out-of-pocket medical spending is mostly involuntary and is unavailable for the purchase of all other goods and services.

Accordingly, measures of poverty suffer from an inescapable conceptual ambiguity. The traditional measure of poverty, which does not subtract out-of-pocket spending on health care, provides a better indication of the trend of well-being for various age groups than does the experimental measure. But if one is interested in the relative well being of various age groups at a point in time, the experimental measure, which does subtract out-of-pocket medical spending, is the better measure. As one analyst quipped many years ago, ‘you can’t eat your wheelchair.’

The Work Ahead

Implicit in all of these statistics is the urgent need for the nation to undertake steps to speed economic recovery. Added demand for labor will push up earnings and employment. More employment will mean more people will receive health insurance as a fringe benefit. Although long-term trends in poverty are not encouraging, reductions in unemployment lower poverty. The grave risk is that as the duration of unemployment increases more and more workers will see their skills atrophy, to their personal cost and the nation’s loss. It did not take the recent Census Bureau report to reveal these risks and opportunities. But that report surely underscores them.

Authors

Henry J. Aaron

Publication: Health Affairs Blog

Image Source: © Jim Young / Reuters

Conversations on Health Care

Darrell M. West — Wed, 05 Sep 2012 11:11:00 -0400

Darrell West spoke with PRX about the many ways mobile technology is being deployed to improve health care delivery and outcomes, as part of their continuing "Conversations On Health Care" series.

Listen below (begins at 1:27):

Authors

Darrell M. West

Publication: PRX Radio

Image Source: Jim Young / Reuters

The Future of the Affordable Care Act

Mark B. McClellan — Fri, 10 Aug 2012 00:00:00 -0400

Mark McClellan, senior fellow and director of the Engelberg Center for Health Care Reform, discusses the Supreme Court’s decision on the Affordable Care Act and the law’s prospects for continued implementation. McClellan speaks to the surprising results of the Court’s decision to uphold the law and says that because of that ruling, the law will be implemented as enacted, at least for now. But the results of the upcoming presidential and congressional elections could have significant consequences for the law, as Republicans have vowed to overturn as much of it as possible. Still, notes McClellan, this will be complicated, as some parts of the law are very popular. Regardless of who wins in November, he says, we are going to be dealing with the same problems.

Video

The Future of the Affordable Care Act

Authors

Mark B. McClellan

Web Chat: Health Care and the States

Wed, 11 Jul 2012 12:30:00 -0400

Event Information

July 11, 2012
12:30 PM - 1:00 PM EDT

Online Only
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

After the Supreme Court's recent decision to uphold Obamacare and the individual mandate, it's time for the states to implement the law. But by striking down provisions that require states to expand Medicaid eligibility, for example, the Court’s ruling raises important questions about the future of health care in America.

How will the Court's decision affect states' implementation of the law? What changes can we expect in massive programs like Medicare and Medicaid? On July 11, Brookings expert Tracy Gordon took your questions and comments in a live web chat moderated by Emily Howell of POLITICO.

12:29 Emily Howell: Welcome everyone, let's get started.

12:30 Tracy Gordon: Hi everyone. Great to be here today. Let's talk Medicaid and state budgets!

12:31 Comment From Gail: How unexpected was the idea that Medicaid provision was deemed "coercion?" In the leadup to the decision, it seemed as though experts expected the Court to rule that the provision, as it was written, merely encouraged states to follow a federal law.

12:34 Tracy Gordon: It was really unexpected! Some court watchers - including my esteemed colleague Henry Aaron - called Medicaid the "sleeper issue" of the case, but a lot of people in my world of state budgets and federalism were very surprised.
The federal government has a long history of conditioning aid on its rules and even the enabling legislation of Medicaid says that Congress reserves the right to "amend, repeal, or alter" any provision.
The court basically said this time was different because Medicaid had growth so large and was such a big part of state budgets.

12:34 Comment From Bryan, DC: It seems completely illogical to me that states would reject the Medicaid expansion, which comes with significant federal help. By doing so, are they just playing politics?

12:35 Tracy Gordon: Some people definitely think so, and bear in mind that declarations now don't mean a whole lot. The law is scheduled to go into effect in 2014 so governors have some time to mull it. As Gov. Christie said here at Brookings on Monday, it will be part of his FY2014 deliberations.

12:36 Comment From John, CA: By choosing to opt out of the medicaid expansion, will states lose money in the long run? As in - is there any validity to the idea that participating in the expansion is "too expensive?"

12:38 Tracy Gordon: The federal government picks up the whole tab in 2014. Then their share gradually declines to 90 percent and the legislation says it remains there after 2020. Some people might remember the Senator Nelson "cornhusker deal" where he tried to get a good deal for Nebraska. In the end, *all states* got the deal basically. It's a very generous subsidy.

12:39 Tracy Gordon: However, the issue from the state perspective is that they have to find that extra 10 percent somewhere. And they are feeling pinched in other areas and they are expected to balance their budgets each year.

12:40 Tracy Gordon: Plus, there is a concern that while the feds are on the hook for people who would be newly eligible for Medicaid (because they are under 138 percent of the federal poverty line) there might be other people who were previously eligible but not enrolled who would "come out of the woodwork" when they saw all the PR etc. States would have to pay for these people and it's not clear if they are high or low cost.

12:41 Comment From Sarah: What benefits will states experience for choosing to participate in the ACA Medicaid expansion?

12:43 Tracy Gordon: A benefit is that their residents who were previously uninsured will have coverage. This will be especially attractive when scheduled cuts to federal payments for uncompensated care go into effect. So some people think that hospitals and other health providers will pressure governors to say yes if uninsured people start showing up for care and that pot of money has dried up, while at the same time there's a new pot of money governors aren't accessing.

12:44 Comment From Jessie in Rockville: Will the initial subsidies offered by the ACA expansion be offered in perpetuity? Are they set to expire at any time?

12:46 Tracy Gordon: This is the big uncertainty for states. As I said above, they are supposed to last in perpetuity after 2020, but there's no guarantee. Then again, the federal government can change the regular matching rate for Medicaid and any other grant program for that matter whenever it wants too. I don't see how it could ever be an iron clad promise.

12:48 Tracy Gordon: By the way, another source of uncertainty is what the feds will do about subsidies to individuals and families so that they can purchase insurance on the exchanges. I don't think anyone really envisioned that the Medicaid expansion would be stripped from the original program so there is some reporting that HHS is now trying to figure out what to do. One line of thought is that they will expand subsidies to get people below the poverty line covered.

12:48 Comment From Guest: Once we start to see states implementing the expansion, can we expect voters in states that rejected the expansion to feel cheated? Do you think there will be political backlash toward the governors that said "no thanks"?

12:50 Tracy Gordon: I think it will be very hard to say no to a free program for the worst off among the uninsured even if it means that the state will be on the hook for 10 percent of the costs later. Then again, a lot of states held out for a long time before expanding their children's health programs in the 1990s and before taking up Medicaid in the first place (Arizona famously waited until 1982 when the Medicaid law passed in 1965).

12:51 Comment From Margaret: Six governors have declared that they won't accept the Medicaid expansion, but as you mentioned earlier these declarations don't mean much now. Which states are most likely not to accept the expansion?

12:51 Comment From Michael MA: Looking at individual states - do you know of any that would particularly benefit from participating in the expansion? Or, more broadly, what characteristics of a state's budget make it an excellent candidate for participating in a way that is beneficial to their budget?

12:54 Tracy Gordon: It's so hard to game it now and figure out what will happen in the future. As a lot of you have said, some of this is politics and some is dollars and cents. The name of the game in state budgets is always variation. I tried to examine in my blog today which states stood to benefit from refusing the expansion based on the proportion of (relatively) high income uninsured in their states. But if the rules change, this calculus could change again.

12:54 Comment From Mark: Wait - you said that it's not clear if people who "come out of the woodwork" would be high or low cost Medicaid recipients? Is this really in question? If someone was eligible for Medicaid under the criteria in place before the expansion but didn't enroll until after the expansion... I thought their benefits would clearly NOT be covered at the higher (90%) federal rate.

12:55 Tracy Gordon: Yes, they clearly would not get the 90% match, but we don't know if they are older and sicker and younger and healthier.

12:55 Comment From User in Vermont: Do you expect, over time, for the expansion to become universally popular? Obviously it's politically divisive among the states now. But do you think that, twenty years down the road, participating in it will be a no brainer?

12:58 Tracy Gordon: Looking twenty years down the road, I see a wave of rising health care costs and aging populations that will clobber both federal and state budgets if we don't get out in front of it. I think that's why it may be in state interests to expand Medicaid rather than having sick people show up in emergency rooms, etc. But in twenty years, we could also be talking about a radically different Medicaid program including block grants to states or the feds taking the most expensive recipients (elderly and disabled) off state hands. Stay tuned for Medicaid to be part of the talk on any "grand bargain" on federal deficit reduction.

12:59 Tracy Gordon: I think that's about all the time we have for now. Thanks so much for the great questions.

12:59 Emily Howell: Thanks for the questions!

Participants

Panelists

Tracy Gordon

Fellow, Economic Studies

States and Medicaid: Health Policy Jenga

Tracy Gordon — Wed, 11 Jul 2012 00:00:00 -0400

Since the Supreme Court’s Affordable Care Act (ACA) ruling, a new pastime is sweeping the nation in which health policy wonks try to guess which states will be in and which will be out of the now optional Medicaid expansion. But given the complexity of health care reform, this is less a game of chance and more like Jenga – where moving just one piece can send the whole structure crashing down.

So far six governors have said they will not participate in the Medicaid expansion scheduled for 2014, while another five are reportedly leaning against it. Their resistance comes despite federal government assurances that it will pick up 100 percent of the tab for the first few years, gradually declining to 90 percent in 2020 and thereafter.

States have a point there– the federal government has offered a helping hand before only to snatch it back later. A notorious example comes from the federal tax code and the long and twisted saga of the individual tax credit against state estate and inheritance taxes paid.

In any event, where would state opting out leave the uninsured? Because of an odd artifact in the law, those earning between 100 and 138 percent of the federal poverty line could still qualify for federal tax credits to purchase insurance on a state or federal exchange. (Note that the income cutoff for federal subsidies is 133 percent, but the law disregards 5 percent of recipient income toward that amount.)

Those below the federal poverty line (about $11,200 for individuals and $23,050 for families of four) would get their state’s old Medicaid program, and possibly worse because rules preventing changes to eligibility and benefits before ACA’s roll out will have expired. States may also have incentives to shift more Medicaid recipients into health insurance exchanges so that these individuals and families are covered on the federal dime.

But there are limits to this strategy depending on how many uninsured state residents happen to fall above the federal poverty threshold, which applies the same everywhere regardless of local income. Thus, as the map below shows, states like Louisiana where 43 percent of the uninsured are below the poverty line may be better off with the Medicaid expansion. However, states like New Jersey, with 28 percent of the uninsured below this threshold may have more opportunities for federal cost shifting as things currently stand.

Oddly, Texas also appears in this latter group. Although it has more low-income uninsured residents overall, it has fewer who are eligible for the Medicaid expansion because the ACA specifically excludes undocumented immigrants and requires a 5 year waiting period for legal residents.

Of course, there are many moving parts here. The federal government will also be cutting payments for uncompensated care, and individuals and employers will be making their own decisions about where to buy insurance coverage. Meanwhile, lurking in the background are rising health care costs that are already squeezing federal and state budgets. Given the high stakes involved for everyone, some may wish it were only a board game.

Data Source: Genevieve M. Kenney, Lisa Dubay, Stephen Zuckerman, and Michael Huntress, “Making the Medicaid Expansion an ACA Option: How Many Low-Income Americans Could Remain Uninsured,” Urban Institute, June 29, 2012. Available at: http://www.urban.org/UploadedPDF/412606-Making-the-Medicaid-Expansion-an-ACA-Option.pdf

Note: Estimates do not include households with non-group or employer provided coverage who would potentially take up Medicaid coverage under the ACA.

Authors

Tracy Gordon

Give Me Liberty or at Least Your Votes: A Study of Governors' Altruism on Health Care

John Hudak — Thu, 05 Jul 2012 14:22:00 -0400

"Give me Liberty or give me Death,” proclaimed Patrick Henry in defense of revolution. In many ways, more than a few Republican governors over the past several months have embraced this mantra in criticizing the president’s health care law. They view the law as an affront to basic liberty, and while it would deliver assistance to their constituents that could prevent illness or death, liberty is of greatest import.

Elected officials have the choice of representing the needs or views of those who put them in office or stand on principle to do what they believe is right. Officials often frame their views of the health care law in terms of the latter. Democrats and progressives view the law as a means of opening access to affordable health insurance for more Americans. Republicans and conservatives describe the law as a government overreach that threatens the basic liberties that all Americans enjoy and must retain.

Regardless of the needs of constituents, elected officials’ values appear to be a driving force. In a basic way, states with lower rates of uninsured often have Democratic governors or are traditionally blue states, and states with higher uninsured rates more commonly have Republican governors or are traditionally red states.

For example, 19 states have rates of uninsured at or higher than the national average (16%).[1] Of these states, 14 have Republican governors—including the states with the seven highest rates of uninsured. These states—Texas, New Mexico, Nevada, Florida, Georgia, South Carolina, and Mississippi—have 14.5 million individuals without health insurance. More strikingly, these seven states have 29% of the nation’s uninsured.

To be clear, Republican (and Democratic) views on the Affordable Care Act range in intensity. However, many of the nation’s staunchest gubernatorial critics hail from states with higher rates of uninsured. For example, of the nine governors who have publicly refused to expand Medicaid rolls (an option granted to them through the recent Supreme Court ruling), four of those states have uninsured rates higher than the national average. Six other governors from higher-than-average states are openly considering whether to opt out of Medicaid expansion.

Similarly, Democratic governors—many of whom embraced the Affordable Care Act vocally and in initiating early implementation efforts—often hail from states with relatively low rates of uninsured. For example, among the states with the 10 lowest rates of uninsured, seven have Democratic governors—including the four lowest states: Massachusetts, Hawaii, Minnesota, and Vermont. Moreover, 20 of the 24 states with the lowest rates of uninsured cast their electoral votes for Barack Obama in 2008.

Those in most need reject assistance and those with the least need embrace it. What motivates such behaviors? It could be selfless principle. As noted above, Democrats support expanded, near-universal health care, regardless of the marginal impact on their constituencies. Republicans criticize the threats to liberty from the health care law, regardless of constituent benefits. Texas governor Rick Perry (R), who runs a state where a quarter of the population is uninsured, declared in response to the Supreme Court health care ruling,

"Freedom was frontally attacked by passage of this monstrosity—and the Court utterly failed in its duty to uphold the Constitutional limits placed on Washington. Now that the Supreme Court has abandoned us, we citizens must take action at every level of government and demand real reform, done with respect for our Constitution and our liberty." [2]

Does principle really motivate Democrats and Republicans in the health care debate? No. A more base, self-interested, and political motive drives behaviors over health care. The statistics that appear to suggest that governors are acting contrary to the health care needs of their constituents fail to account for the demographics of the uninsured. While support for or opposition to the president surely affects governors’ views on the health care law, responsiveness to their electoral constituencies plays a central role. University of Rochester professor Richard Fenno describes an elected official’s electoral constituency as a subset of their broader constituency.[3] The electoral constituency is a voting bloc large enough to secure continued electoral success, and politicians primarily cater to this subgroup.[4]

In fact, because the president’s and Democratic governors’ electoral constituencies share demographic characteristics, their pursuit of similar voters motivates support for the law. By contrast, Republicans are successful because of the support of different demographics than Democrats. These electoral forces (not principles such as liberty or empathy) drive elected officials’ positions on health care.

Republicans often depend on white and wealthier voters for electoral success. Democrats’ electoral constituencies have a larger percentage of non-white and/or lower income voters. White and wealthier individuals are insured at dramatically higher rates. The national average for non-elderly uninsured is 18%. The rate for white Americans is only 14%. However, black Americans and Latino Americans are uninsured at rates of 22% and 32%, respectively. As one would expect, there is an inverse relationship between income[5] and the rate of uninsured.

In a basic way, Republican and Democratic governors are not putting principle before politics. Instead, they are capitalizing on the politics of health care and appealing to the voters most important to their electoral needs. While Republican governors have higher percentages of uninsured in their states, their key voters don’t face the same burden. Conversely, voters critical to Democrats’ electoral fates face dramatically higher uninsured rates. Such a basis for policy support—constituency needs—is certainly not a damning trait. Elected officials are seeking to represent a sufficient percentage of their electorate. However, both sides’ political rhetoric of principle and altruism is disingenuous. Concerns about general health and welfare or of government takeovers are window dressing for political pandering.

¹ Statistics regarding insurance coverage are all provided by the Kaiser Family Foundation. (Source: http://www.statehealthfacts.org.)

² “Statement by Gov. Perry on Supreme Court Ruling Regarding Obamacare.” 28 June 2012. Office of the Governor. Austin, TX.

³ Fenno, Richard. 1978. Home Style: House Members in their Districts. Little, Brown: New York.

⁴ Ibid.

⁵ Income is defined as categories of percentages of the Federal Poverty Line.

Authors

John Hudak

Image Source: JONATHAN ERNST

States and the Affordable Care Act: An Offer They (Still) Can’t Refuse

Tracy Gordon — Mon, 02 Jul 2012 12:00:00 -0400

For months, astute observers called Medicaid the “sleeper issue” of the Supreme Court’s Affordable Care Act deliberations. Last Thursday, they were proven correct. A majority of the Supreme Court struck down a provision of the law giving the Health and Human Services Secretary authority to pull all federal Medicaid funds from states refusing to extend eligibility to low-income, non-elderly adults.

The ruling was surprising for several reasons. First, starting with land grants for public colleges and universities and continuing through to the interstate highway system and social safety net, the federal government has a long history of conditioning state and local grants on acceptance of its rules. A prime example is federal funding for K-12 education under the No Child Left Behind program.

This is also how Medicaid has operated since its inception in 1965. At the time, Congress explicitly reserved to itself the “right to alter, amend, or repeal any provision.” Indeed, it has exercised this right several times, expanding eligibility to low income pregnant women and various groups of children in the 1980s and 1990s. Some expansions came with carrots (promises of extra money) and some with sticks (threats to existing funds).

But the majority held that this expansion was different, not just tinkering around the edges but fundamentally changing the program’s identity. What’s more, because Medicaid has grown so big (it was states’ single largest budget item in FY 2010, including federal funds) and so much a part of state law, giving the HHS Secretary discretion to yank federal funds amounted to an order, even an existential threat (a “gun to the head” or “your money or your life” proposition).

But the same could be said of the federal tax code, which provides states with various expensive goodies (deductibility of state and local taxes, exemption of muni bond interest from federal income taxes) and whose very existence is a huge subsidy (because states can piggy back off of federal definitions and administration). Numerous budget commissions and task forces have put these subsidies on the chopping block, and at a recent hearing Senator Max Baucus suggested he might do the same. Are these changes now also off the table?

Moreover, in both cases, this symbiosis between states and the federal government developed over time because states said “yes” to federal support. With Medicaid, this relationship was severely tested in the Great Recession, when states had to plug massive budget holes but could not cut Medicaid eligibility because of federal program requirements. Several state Medicaid finance directors openly discussed rejecting federal funds to get out from under these requirements.

However, quitting Medicaid was never a real possibility. States needed the money to take care of individuals who would otherwise go untreated and care that would go uncompensated.

Now, as then, states will take the federal money, especially in light of longer term fiscal strains like rising health care and retirement costs. This won’t be easy. As with any federal grant program, subsidies set out in the Affordable Care Act (100 percent, declining to 90 percent in 2020 and thereafter) are not guaranteed over time.

Another source of uncertainty is what the newly eligible population, and others who come out of the wood work, will look like. Evidence from Arizona suggests some low cost young adults and some higher cost near elderly with chronic health needs.

Some governors and lawmakers have already said their states will decline to participate in the Medicaid expansion. But eight states have already gotten started on extending eligibility through waivers programs and another three are in the queue. Notwithstanding the highest court in the land, the whole Medicaid package is still an offer states can’t refuse.

Authors

Tracy Gordon

Image Source: Jim Young / Reuters

Health Care Ruling Is Less Liberal Than It Looks

Darrell M. West — Fri, 29 Jun 2012 11:19:00 -0400

Democrats celebrated the Supreme Court decision upholding President Obama’s health care law. Commentators focused on the surprising support by Chief Justice John Roberts for the individual mandate and the victory for Democrats.

But beneath the surface, the ruling is less liberal than it looks. Two provisions limit the scope of the law’s impact. First, the Medicaid ruling limits the power of the federal government to encourage states to extend medical care. This gives states the authority to resist national efforts to expand health insurance coverage for the uninsured. With the dire fiscal straits of many states, many places will be unlikely to extend coverage and the result will be fewer uninsured will receive coverage than was expected when the legislation passed.

Second, although Chief Justice Roberts supported the constitutionality of the individual mandate, his opinion limited the ability of the federal government to regulate interstate commerce through tactics other than taxes. This part of the decision will restrict the ability of future Congresses to regulate commerce.

As with many policy decisions, the ultimate assessment of the court’s decision is in the details. Liberals should applaud the overall decision, but fear how the ruling with affect health care implementation. The ultimate result of this decision will be that fewer uninsured will be covered than thought by health care reformers.

Authors

Darrell M. West

Image Source: Jason Reed / Reuters