Obamacare Problems Solved

25 ObamaCare Problems

The Sessions/Cassidy Health Plan Solves Them by Streamlining and Minimizing the Role of Government

1. People are being forced to buy the wrong kind of insurance.

Young, healthy, low-income families are being forced to buy insurance they consider almost worthless – with a $6,850 deductible ($13,700 for a family), covering procedures they are unlikely to ever need. About 7.5 million people paid an average fine of $200 last year (IRS) because they found the insurance being offered not worth the premiums being charged — even with government subsidies.

Our solution: The individual mandate goes away. People may choose insurance based upon individual and family needs, not the government’s needs. With a credit, say, of $8000 a family of four is free to buy whatever the market can offer for that amount – with no additional cost. There is no reason for anyone to be uninsured.

2. People are being forced out of plans they want to keep.

About 4.7 million people (AP) received notices cancelling insurance many of them would have preferred to keep and that process is continuing. When they shop for new insurance, many find the premiums are 50 percent or even 100 percent higher for similar coverage.

Our solution: We cannot undo all the damage that has been done. But going forward, insurers will not be allowed to end some plans so that their enrollees can be pushed into more expensive plans. (All insurance should be guaranteed renewable.) Moreover, insurers will not gain by unloading high cost patients onto other plans. (See the discussion of health status risk adjustment below.) Also, states will be allowed to set up risk pools and reinsurance arrangements designed to keep the premiums low for healthy enrollees.

3. Premiums and deductibles are rising faster than wages.

The Affordable Care Act is designed to force people to buy a product whose costs will almost certainly grown faster than the average family’s income – meaning that families will have less and less available to need other needs. Nationwide, premiums have been growing at about 4 percent per year, while wages have been stagnating. Since ObamaCare became law, deductibles have grown seven times as fast as wages. (EBRI) In the future, things will get worse because the government’s commitment is capped while the burden of the health insurance mandates is free to grow without limits. (Goodman)

Our solution: Obamacare takes a defined benefit approach. It tells people what benefit they must have and leaves them on their own to worry about how to pay for it. Ours is a defined contribution approach. It fixes the government’s commitment and leaves buyers and sellers free to see what the market can provide for that contribution.

4. Low income employees are being forced to obtain insurance neither they nor their employers can afford.

Insurance with no annual or life time limits is good for hospitals – especially if a low-income employee has a $1 million pre-mature baby. But if the plan has out-of-pocket exposure of $13,700, the family will be effectively uninsured for almost all the medical needs they are likely to have.

Our solution: Limited Benefit Insurance would allow low-income families to protect their income and assets with plans that cover, say, 90% or 95% of all expected medical costs. Hospitals will still need to find ways to pay for rare and expensive cases. But the solution is not to solve the hospital’s problem by forcing families to buy insurance that is inappropriate for their medical and financial needs.

5. Employers are being penalized for offering full time employment.

Employers can avoid the costs of ObamaCare by using part-time labor, temporary labor, and independent contractors and by outsourcing in other ways. There is anecdotal evidence of this in every state. (Cato)

]Our solution: All the anti-job provisions of ObamaCare are gone, including the employer mandates.

6. People at the same income level receive radically different subsidies.

[su_row][su_column size=”1/2″]A $15-dollar an hour worker and his family can get a $10,000 subsidy in the exchange. A similar individual working at a hotel or fast food restaurant gets a tax subsidy of about $1,800.[/su_column][su_column size=”1/2″]Our solution: Everyone will receive the same, universal tax credit, regardless of where they obtain their insurance – at work, in the marketplace, or in an exchange.[/su_column][/su_row]

7. Millions of low-income families, trapped in an ObamaCare coverage gap, are ineligible for subsidized care and vulnerable to fines.

[su_row][su_column size=”1/2″]Between 2.9 million (Kaiser) and 6.4 million (Urban Institute) low-income people fall into the “ObamaCare coverage gap.” They are neither eligible for Medicaid nor a subsidy in the exchange.[/su_column][su_column size=”1/2″]Our solution: Everyone will be offered the same universal tax credit – regardless of income and regardless of eligibility for Medicaid.[/su_column][/su_row]

8. Employers are ending their previous plans and offering employees insurance they cannot afford.

[su_row][su_column size=”1/2″]One way employers can escape the cost of ObamaCare is by offering employees a Bronze plan with a $6,600 deductible and charging the employee a premium equal to more than 10 percent of take-home pay. The employee is asked to pay the full premium for dependent coverage. Almost all low-income workers are turning these offers down. If they do, they cannot get a subsidy in the exchange and they are subject to a fine if they do not pay full price for insurance on their own.[/su_column][su_column size=”1/2″]Our solution: With no employer mandate, this perverse incentive goes away. Since the tax credits are refundable (you get it even if you owe no taxes), advanceable (you don’t have to wait until next April 15th to get it) and transferable (to an employer or insurance company), employers will have every incentive to help employees get the insurance they want and need.[/su_column][/su_row]

9. Since most people with below-average wages get a better deal from government in Medicaid or in an exchange and most people with above-average wages get a better deal obtaining insurance at work, entire industries are re-organizing their structure.

[su_row][su_column size=”1/2″]Increasingly, the janitors, bus drivers, food service workers, security guards and other lower-paid workers who staff corporate campuses are no longer employed by the corporations they service. (Washington Post) Instead they are employees of contracting firms. This allows two different approaches to health insurance – one for higher-paid employees and a different one for the lower-paid. Some of these changes might have occurred anyway. But health insurance costs have become such a large percent of compensation, much of what is happening must be encouraged by the lack of uniformity in Obamacare subsides.[/su_column][su_column size=”1/2″]Our solution: With a uniform subsidy, employers will be free to make production decisions based on economic factors, not based on health insurance subsidies. As a result, our companies will be better positioned to compete in a global marketplace and employees will have a better chance of obtaining the insurance they want and need.[/su_column][/su_row]

10. Individuals are penalized for failing to do the impossible: guess their next year’s income.

[su_row][su_column size=”1/2″]About 3.4 million people faced higher taxes this year because they underestimated their income when they enrolled in an Obamacare plan last year. (H & R Block) On the average, about 60% of those receiving a health insurance tax credit paid some of it back. The average repayment was $580. (H & R Block)[/su_column][su_column size=”1/2″]Our solution: Since the universal tax credit is independent of income, people get the same tax relief regardless of what they earn.[/su_column][/su_row]

11. There is a race to the bottom in the exchanges, producing narrow networks that exclude the best doctors and hospitals.

[su_row][su_column size=”1/2″]The health plans have concluded that healthy people buy on price and only sick people pay attention to networks. And the health plans in the exchanges are clearly trying to attract the healthy and avoid the sick. By offering low provider fees (that drive away the best doctors and the best facilities) they can keep their premiums as low as possible. The chronically ill who join these plans may have extreme difficulty getting needed care. But the health plans didn’t want those enrollees in the first place.[/su_column][su_column size=”1/2″]Our solution: With health status risk adjustment, individuals are protected against higher premiums after they get sick. When they switch plans, the new plan receives an actuarially fair premium from the previous plan—making the sick just as attractive as the healthy, in a manner similar to the Medicare Advantage program.[/su_column][/su_row]

12. Some health plans in the exchanges are engaged in bait and switch – promising networks and coverage that they subsequently renege on.

[su_row][su_column size=”1/2″]Doctors who were promised as part of the provider network turn out not to be in the network at all. Coverage for expensive, life-saving drugs turns out to require extraordinarily high, special deductibles.[/su_column][su_column size=”1/2″]Our solution: Health plans will be required to be completely transparent – making their networks visible online at all times. Charges for specially drugs must be transparent and not hidden at the point of enrollment. Providers who accept package, cash payments for procedures must post those prices.[/su_column][/su_row]

13. On the buyer side, people are gaming the system by waiting to insure until they get sick.

[su_row][su_column size=”1/2″]In Massachusetts they are called jumpers and dumpers. People wait until they get sick. Then they jump in and obtain insurance, get heath care and get their bills paid. They dump the plan when they are healthy again. If everyone does this, only sick people will be insured and the cost of the insurance will be so high, almost no one will be able to afford it. Obamacare tries to discourage this by fines for being uninsured and limiting the enrollment period to a few month of out of the year. However, the fines are small, weakly enforced and contain numerous loopholes. And there are numerous exceptions that allow people to buy insurance year round. A new report, for example, finds that diabetes is nearly twice as common among newly enrolled as among those previously enrolled. Hepatitis C was more than twice as common, and H.I.V. was more than three times as common. The result: more trips to the doctor, more hospitalizations, higher overall costs and therefore higher premiums. (Blue Cross)[/su_column][su_column size=”1/2″]Our solution: As is the practice in Medicare Parts B and D and in the Medigap market, no one will be allowed to game the system as a buyer. Those who do not enroll when they are first eligible will face financial penalties in the form of higher premiums.[/su_column][/su_row]

14. The ObamaCare subsidies penalize people who work more and earn more.

[su_row][su_column size=”1/2″]The implicit marginal tax created by the Obamacare subsidies is about 10 percentage points. At several cliff points, families can lose $10,000 or more in subsidies by earning an additional dollar of income. These perverse incentives are expected to reduce the labor force by the equivalent of 2.3 million fewer workers. (CBO) Over all, ObamaCare’s anti work provisions will create a long term loss to the economy on the order of 5% of GDP – or more than $800 billion a year at current prices (Mankiw).[/su_column][su_column size=”1/2″]Our solution: Because the universal tax credit is independent of income, no one is penalized for working more and earning more and because there are no mandates, no employer is penalized for hiring additional employees and employing existing employees for more hours.[/su_column][/su_row]

15. The Obama administration has virtually outlawed portable health insurance.

[su_row][su_column size=”1/2″]Many employers have been reimbursing their employees for the cost of insurance they buy on their own. This employee-owned insurance is portable, traveling with the individual from job to job and in and out of the labor market. Now that insurers can no longer discriminate based on pre-existing conditions, there is no reason not to encourage this practice. Yet the Obama administration is threatening to fine employers who do this $100 per employee, per day. Over the course of a year that adds up to $36,500 per employee, up to $500,000 in total.[/su_column][su_column size=”1/2″]Our solution: All provisions of the federal law that prevent employers from paying for insurance that is personal and portable are gone.[/su_column][/su_row]

16. ObamaCare has no mechanism for insuring that we can continue to meet the needs of the uninsured.

[su_row][su_column size=”1/2″]The reformers assumed that once more people had insurance, safety net hospitals would have a new source of revenue. However, once people have insurance they don’t go to safety net hospitals, where the waits may be interminably long. Moreover, Medicaid patients, whose plan pays rock bottom fees, tend to go to the emergency room for their care. So the safety net institutions are facing a bigger work load and less money to meet that load.[/su_column][su_column size=”1/2″]Our solution: A portion of unclaimed tax credits will be returned to communities where the uninsured live. Money follows people. If the number of uninsured rises, safety net hospitals get more funds. If the number falls, the subsidies shift to support private health insurance.[/su_column][/su_row]

17. New restrictions limit the use of Health Savings Accounts and create perverse incentives to engage in wasteful health care spending.

[su_row][su_column size=”1/2″]The ACA lowers the allowed deductible, keeps the rigid across-the-broad deductible requirement and raises the penalty for non-health spending. The first two features make it virtually impossible to combine HSAs with chronic care, the way, say, the Cash and Counseling program works for the Medicaid disabled. As for the third feature, consider a person in the 30% tax bracket. If this person withdraws HSA funds for non-health purposes, there is a 20% penalty tacked on in addition to regular taxes. That means the account holder must choose between spending a dollar on health care and 50 cents on other goods and services. Health care will be preferable even if the services are worth only 51 cents.[/su_column][su_column size=”1/2″]Our solution: With a Roth HSA, withdrawals will be tax free and penalty free one year after the funds have been deposited. That means health and non-health goods and services will trade on a level playing field. People won’t spend a dollar on health care unless it is worth a dollar. Also, these accounts will be completely flexible – wrapping around any third party health insurance plan.[/su_column][/su_row]

18. About 80 percent of those with an Obamacare plan are ineligible to have a Health Savings Account

[su_row][su_column size=”1/2″]Despite deductibles and out-of-pocket costs that can exceed $6,000, most plans sold in the exchanges are incompatible with the requirements for an HSA. (ValuePenguin) The reason: the extreme rigidly of the current law, which prevents insurers, say, from paying for the costs of specialty drugs or specialist services below the deductible for patients with chronic illnesses.[/su_column][su_column size=”1/2″]Our solution: People will be able to combine any third party insurance plan with a Roth HSA, which conveniently wraps around it without any deductible requirements.[/su_column][/su_row]

19. Obamacare is undermining the role of the broker.

[su_row][su_column size=”1/2″]Traditionally, the way most individuals and small businesses have accessed health insurance is through an insurance broker, who assumes the role that HR departments play in large companies. They answer questions, resolve disputes and help untrained individuals navigate the complicated world of health insurance. Yet a number of insurers have announced they will no longer pay commissions outside of open season and some are even refusing to pay them during open season. (Healthcare Exchange) One problem: the Obama individual mandate has so many exceptions that buyers can get into the exchange almost any time of year and insurers have discovered that off season enrollees are disproportionately sick. A second problem: it is illegal for brokers to seek out and solicit clients, say, with diabetes – on which the current risk adjustment formula is actually quite generous. Rather than tailored service, brokers basically must treat everyone the same who walks in their door.[/su_column][su_column size=”1/2″]Our solution: (1) As noted above, no one will be allowed to game the system. (2) With health status risk adjustment, there is no need for an open season; enrollees may continuously switch health plans at any time during the year. (3) Insurers – along with their brokers—will be encouraged to specialize in the treatment of chronic diseases and seek out enrollees who could benefit from their services.[/su_column][/su_row]

20. ObamaCare’s Cadillac Plan tax is inefficient and unfair.

[su_row][su_column size=”1/2″]For employees in the 40% tax bracket, taxing employer-provided health insurance above a certain level is a way of putting extra health insurance and extra wages on a level playing field. That may make some sense for high income earners. But for someone in the 15% tax bracket, the 40% Cadillac plan tax means that health insurance is being taxed at almost three times the tax rate on their wages. That’s unfair and it makes no sense. Moreover, the Cadillac tax is inefficient: it only affects decision above a very high threshold. For all the spending below the threshold, the perverse incentive to over-spend on health insurance is as perverse as ever.[/su_column][su_column size=”1/2″]Our solution: The fixed sum tax credit subsidizes the first dollars, not the last dollars of health insurance. It pays for the insurance we want everyone to have, leaving them free to purchase additional coverage with after-tax dollars. For the same amount of tax relief, our tax credit will have ten times more impact on workplace incentives than the Obamacare approach.[/su_column][/su_row]

21. The exchanges still aren’t working, including the federal exchange, and the administrative cost of ObamaCare is absurdly high.

[su_row][su_column size=”1/2″]They probably never will work as long as the computer programs of different agencies are required to talk to each other. The Department of Defense and the VA administration spent ten years and over a billion dollars trying to get their computer systems to connect. They never did make it work. The actuaries project that Obamacare will result in an additional $274 billion in administrative costs alone over the period of 2014 through 2022. (CMS) That’s equal to almost $14,000 per newly insured person. And remember, ACA was the creation of people who claimed that private sector administrative costs are too high![/su_column][su_column size=”1/2″]Our solution: The main problem is income verification. With a uniform tax credit, there is no need to verify income. Everyone gets the same credit, regardless. We could turn the administration of the exchanges over to a private firm like EHealth, which could easily enroll people with off the shelf technology.[/su_column][/su_row]

22. Millions of families have no continuity of insurance and no continuity of care.

[su_row][su_column size=”1/2″]Between 100% and 200% of the federal poverty level, families typically become eligible and ineligible for Medicaid many times over the course of several years. About 29 million people will shift eligibility between Medicaid and subsidized exchange insurance in a single year (Urban Institute). Only one in five adults on Medicaid remain continuously eligible over a period of four years (Health Affairs). This churning is not just administratively inconvenient. It is expensive. Lack of continuity of care also affects health. (New York Times)[/su_column][su_column size=”1/2″]Our solution: Families would be able to leave Medicaid, claim the tax credit and enroll in private insurance instead. They could remain there, regardless of how their income changes. Also, two-thirds of Medicaid enrollees nationwide are currently in private sector plans that contract with state Medicaid programs. These plans would be able to offer the same plan in the individual market (say, for low-income families) so that people could remain in the same plan as their income (and therefore their eligibility for Medicaid) rises and falls.[/su_column][/su_row]

23. Patients on Medicaid often face non-price barriers to care that are far more costly than the fees doctors charge other patients.

[su_row][su_column size=”1/2″]In one case, a one-way, 7-mile trip took 5 1/2 hours, in order for a woman to obtain a blood pressure cuff. Then she had to get back home. (Kaiser) Also, because we do not allow Medicaid patients to pay for health care the way they purchase food with Food Stamps, they are effectively denied, low-cost, high-quality, easily accessible care at almost all of the 2,000 walk-in clinics around the country. To add to the misery, one-third of doctors nationwide are not accepting new Medicaid patients and the fraction is even higher in urban areas. These may be some of the reasons why there are 8.2 million uninsured people who qualify for Medicaid or S-CHIP coverage but have not signed up. (Conover)[/su_column][su_column size=”1/2″]Our solution: We will create something the left has been clamoring for over the past six years – a public sector option. Medicaid will have to complete with private insurance in every state. Enrollees will be able to take the state’s share of Medicaid insurance, claim the federal private insurance tax credit and obtain insurance that looks very much like some of our best Medicaid, managed care programs in return for premiums that will average only a few dollars a month. (Goodman)[/su_column][/su_row]

24. Current law discriminates against concierge medicine.

[su_row][su_column size=”1/2″]One of the most innovative alternatives to fee-for-service medicine is the concierge (or “direct payment”) doctor, who typically provides a bundle of services (including phone, email and other telemedical services) in return for a fixed monthly fee. These doctors are being harassed by state regulators who threaten to treat them as “insurance companies” and at the federal level by the inability to use HSA funds to pay the doctor’s fee.[/su_column][su_column size=”1/2″]Our solution: The bill explicitly states that concierge doctors are not “insurers” under both federal and state law. Further, people will be able to use their HSA funds (both traditional and Roth accounts) to pay concierge doctor fees.[/su_column][/su_row]

25. ObamaCare imposes new restrictions on providers and keeps in place a great many existing unwise regulations.

[su_row][su_column size=”1/2″]Studies show that doctor-owned hospitals provide care that is of lower cost and higher quality than traditional hospital care. Yet the ACA has imposed a moratorium on such services. Health City in Grand Cayman, for example, maintains very high quality bench marks and offers patients package prices that average about one-third of what they would pay at a typical mainland hospital. Yet, it is illegal for Health City to come to the US because it is doctor owned. (Goodman) The ACA also makes no attempt to free providers from other onerous government restrictions.[/su_column][su_column size=”1/2″]Our solution: The Secretary will be able to free providers from unreasonable restrictions wherever it is clear that the change will lower costs, improve quality and increase access to care.[/su_column][/su_row]

Principles for Reform »

John Goodman
Goodman Institute, 202-679-9622

John C. Goodman is President of the Goodman Institute and Senior Fellow at The Independent Institute. His books include the soon-to-be-published updated edition of Priceless: Curing the Healthcare Crisis, the widely acclaimed A Better Choice: Healthcare Solutions for America, and New Way to Care: Social Protections that Put Families First. The Wall Street Journal and National Journal, among other media, have called him the “Father of Health Savings Accounts.”