Health+Benefits the April 2012 issue


Tom Sawyer persuaded his friends to whitewash his fence. Barack Obama has done the same with his claims that healthcare reform will save money.
By Joel Wood Posted on April 11, 2012

From the White House website: “The health policy experts and economists who have looked at this legislation have said we are pursuing every possible mechanism to reduce health care costs. The Congressional Budget Office found that health insurance reform will reduce the deficit by $210 billion in this decade and by more than $1 trillion over the following 10 years. And a family of four would save as much as $2,300 on their premiums in 2014 compared to what they would have paid without reform.

Oh, my. Where to start?

One of the central premises for enacting the law is that it reduces deficits (never mind all the fees and taxes it raises). The actual CBO estimate was $143 billion in deficit savings; who knows where the $210 billion number comes from. In either case, the numbers don’t stand up to scrutiny.

When Health and Human Services Secretary Kathleen Sebelius appeared before Congress in March, she could not give an explanation for an extra $111 billion proposed in the president’s budget for subsidies to health exchanges. Last year’s budget estimated the cost to be $367 billion from 2014 to 2021. This year’s budget puts it at $478 billion over the same period. The secretary may have been stumped, but she said the big increase is no cause for alarm and that the administration is not forecasting an erosion of employer coverage or higher insurance costs. That’s not reassuring.

The White House continues to insist that only a tiny fraction of the 162 million Americans in employer-sponsored plans will migrate to exchanges that have subsidies for families making up to $88,000 a year. But last fall McKinsey released a study (criticized by the White House) indicating that at least one in three employers will drop coverage in favor of paying relatively small fines and shifting workers to exchanges. Council broker members tell me that McKinsey is a lot closer to the mark than the CBO or the administration. But even if you split the difference between the two estimates, the exchanges will cost hundreds of billions of dollars more.

In March, Sen. Ron Johnson, R-Wis., confronted Sebelius on the issue. “The decision employers are going to have is pretty linear; they can pay $15,000 for a family plan or pay the $2,000 penalty,” the senator said. “They’re not exposing their employees to financial risk; they’re making them eligible for $10,000 subsidies if they make $64,000 household income.”

Willis’s 2011-2012 Health Care Reform Survey put it succinctly: “January 2014 may see a confluence of events. Most employers will no longer be grandfathered, many may face health cost inflation in excess of [the] regular trend as a part of Health Care Reform compliance, and those who decide to continue offering coverage may see a migration of workers, spouses and eligible dependents from those employers who stop offering coverage.”

There are other inconvenient fiscal truths. HHS wisely discontinued implementation of the CLASS Act long-term care provision of the Affordable Care Act. Because the CLASS program was cynically “scored” during the political debate (premiums would be paid for the first five years before benefits would be paid), part of the administration’s deficit “savings” would be $86 billion from the claimed $143 billion. That’s now gone.

Further, the new law calls for $500 billion in Medicare “savings” that are hoped for but not specified. To be sure, the idea behind the new “Accountable Care Organizations” is a good one—to help providers better coordinate care. Jeff Goldsmith, the president of Health Futures, a healthcare consulting firm, noted recently in The Wall Street Journal that ACOs in practice are “like asking the hungry horse to guard the granary.” In reality, he said, they look like a “terrible business deal” for providers. “To get any shared savings, they will have to spend millions on consulting, systems, care managers and IT staff, give up a dollar in immediately reduced income, and maybe, if they check all the boxes right, get 50 or 60 cents back in 18 months,” Goldsmith told the Journal. “Looks more like Tom Sawyer’s fence-painting project to me.”

Finally, the deficit reduction scenarios are most exposed by what is not included in the act—the recognition that Congress won’t allow laws that would reduce reimbursements for doctors who treat Medicare patients to go into effect. Everyone in Washington agrees that the fee cut will not occur, but the problem is that the 27% pay cut has already been figured into federal spending and deficit projections.

Cha-ching! Over the next decade, that amounts to another $316 billion in unpaid federal health spending.

The great Sen. Everett Dirksen, R-Ill., famously noted that “a million here, a billion there, pretty soon, you’re talking real money.” The claim that the Affordable Care Act will actually reduce the stratospheric federal debt is beyond fantasy.

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

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