Brokerage Ops the July/August 2012 issue

Chapter 1

Sooner or later the political parties are going to have to work together to constrain the unsustainable cost of healthcare.
By Joel Wood Posted on August 11, 2012

We’ve all known, as my buddy Bruce Schlesinger of JMB Insurance in Chicago says, that the Supreme Court decision would be Chapter 1. Chapter 2 will be the November election. If there is to be any undoing of Obamacare, Republicans will have to sweep: Romney will have to defy an ugly electoral map, the House must stay red and the GOP must pick up enough Senate seats to flip the current 53-47 Democratic majority.

By no means is this impossible, but it will be very difficult. Senate Minority Leader Mitch McConnell, R-Ky., argues persuasively that the court’s reasoning for upholding the law opens the door for Republicans to attempt to repeal the measure through a legislative procedure known as reconciliation.

“The Chief Justice said it’s a tax,” McConnell said. “Taxes are clearly what we call reconcilable. That’s the kind of measure that can be pursued with 51 votes in the Senate.”

The number 51 is critical because it is inconceivable that Republicans could pick up enough seats for the kind of full control—60 seats—that Democrats enjoyed at the beginning of the Obama administration. For those of us who believe the Affordable Care Act recklessly endangers the employer-provided group health insurance marketplace, there are going to be multiple chapters to come, even in the absence of a GOP blowout this fall. Here are some of them:

  • There’ll be a new Medicaid doughnut hole in states that don’t increase their state aid entitlements threshold to up to 133% of the federal poverty line. Even if that hole could be plugged with federal dollars, the votes to do so don’t exist as long as Republicans control the House of Representatives. (See page 18 for more on this from CIAB General Counsel Scott Sinder.)
  • Even the Obama administration conceded earlier this year that the subsidies for participants in state exchanges will cost $111 billion more than anticipated when the law was enacted. The administration is figuring that only 4 million to 6 million Americans will migrate from employer-sponsored coverage to subsidized exchanges. But the consulting firm McKinsey & Company says the real number could be tens of millions more. Even if you split the difference, the required subsidies could threaten a death spiral for employer-sponsored coverage.
  • Many red states took a wait-and-see approach on the court challenge, and now they’re taking a wait-and-see on the election. Republican governors are assuming the crouched position. Few indicated how (or whether) they’d move ahead on an exchange, and the most defiant aren’t backing down. It’s therefore impossible to envision the required January 1, 2013, certification of all state exchanges. Some sort of postponement seems likely.
  • Can the $550 billion in Medicare “savings” anticipated under the law possibly be achieved in the absence of the healthcare cost curve being bent? The centerpiece of this fantasy is the creation of Accountable Care Organizations (ACOs), which are a type of payment and delivery reform model that seeks to tie provider reimbursements to reductions in the total cost of care for an assigned population of patients. Two years after the legislation was enacted, only a tiny fraction of expected ACOs have applied for recognition. Moreover, the Congressional Budget Office (CBO) “scored” the legislation anticipating that there will be a 21% reduction in physician reimbursements under Medicare in 2013. Does anybody believe Congress won’t change that?

Joseph Antos, writing in the prestigious Health Affairs Blog in July, agrees that the problems built into the ACA have not been resolved by the decision and have worsened.

“Even accepting the law’s assumptions about how the health system should be reformed, actually putting all the pieces in place is exceptionally expensive and difficult,” he writes. “If President Obama wins a second term, fiscal pressures and practical challenges will force him to scale back the unaffordable spending and slow down the unrealistic implementation timeline.

“The ACA will be in the budget crosshairs. The CBO will update its estimate of the cost of the insurance expansion, and the new number will be higher. One reason is purely optical, but that matters on Capitol Hill. In its March 2012 update, CBO estimated that the net cost of the ACA’s coverage provisions is $1.25 trillion over the 11 years between 2012 and 2022. Next year, CBO will add another year to the table at a cost exceeding $175 billion. Even though that cost was there all along, the fact that the estimating window now includes it will make for some excellent political fodder.”

For all of the disappointment I felt in the Supreme Court ruling, I remain hopeful. Clients need their brokers like never before. And sooner or later, Republicans and Democrats are going to have to figure out how to work together to achieve reforms that actually will constrain the unsustainable cost of healthcare.

Joel Wood Senior Vice President, Government Affairs, The Council Read More

More in Brokerage Ops