What the ACA Decision Really Means for the Future of Private Health Insurance

Did the Supreme Court save private health insurance, or just drive another nail in its coffin?

Ironically, it might well turn out to be the latter.

Keep in mind that from a consumer perspective, much of the Affordable Care Act was about trying to keep private insurance affordable in America.  But “affordable” is a relative term.  When your employer pays most of the cost, insurance is a lot more affordable than if you’re paying the bill yourself. 

At over $20,000 per year for a typical plan providing family coverage, health insurance now costs around 40% of the median household income of $49,445!

Being mandated to take on that expense – even with the generous subsidies ACA provides – understandably rankles people.  It’s no wonder that millions of healthy people may still choose to roll the dice and go without.

But even though we have spent so much time arguing about the cost of insurance and the private insurance market, the fact is that it pays only a small part of the nation’s health care bill.

An August 2011 article in the New England Journal of Medicine reported that private insurance paid only a little over a third of all health care costs, and even less – one quarter – of mental health care costs.

Even those small numbers are high.  When you take into account (1) the share of private insurance that is subsidized by the government through tax benefits and (2) the share of private insurance that is paid by all levels of government on behalf of public employees, the percentage of care paid for by privately-funded private insurance is only in the teens.

Even if members of the public can’t recite the data, they have a sense that health insurance is simply no bargain.

One of the best illustrations of this is in the Pre-Existing Condition Insurance Program (PCIP), the short term solution devised by the federal government and put into place through ACA to provide guaranteed health insurance to adults with pre-existing conditions.  The program will run from 2010 until 2014, targeted to people with pre-existing conditions who were uninsured and uninsurable.

If you meet the eligibility criteria, then enrolling in PCIP is like winning the lottery.  It almost guarantees that you receive more in benefits than you pay for insurance.  In fact, this was true – in its first year or so, it paid out $1.30 for every dollar it took in.

The government estimated that 4 million people were eligible for the program, and that 375,000 of them would enroll.  As of this April 30, only 67,482 had.

What does it say about the future of private insurance when people won’t even buy it when they know it will pay out more than it costs?

It shouldn’t come as a surprise to anyone that so many people – up to 67% - wanted the individual mandate to be overturned by the Court, according to a NY Times/CBS poll taken in March.

Even people who support universal coverage find fault with a system so stacked against the consumer – in which the cost of insurance bureaucracy alone is twice what we pay for our entire system of public health, and more than we pay for all nursing home care, home care, dental care, or veterans services in America. 

It’s not like insurers are highly regarded.

For all the good they’ve done in this country – and they have often done the hard negotiating work of keeping prices of health care under control (for evidence of this I need only look at the statement for my most recent blood tests.  The lab accepted $8.57 as payment in full from the insurer for tests it for which it would have charged me $57.85 if I were paying the bill on my own), insurers have lost touch with the desires of their customers, and are now seen more as obstacles to health than facilitators of care.

And the $1.1 billion in bureaucratic overcharges ACA is forcing them to pay back this year doesn’t help their reputations at all.

The only strategy ACA proponents could come up with to shore up insurance was to mandate people to have it.

Organizations like the Heritage Foundation introduced the individual mandate to our healthcare debate twenty years ago as an alternative to “Medicare for all” proposals.  They understood that Congress was going to have to drag people kicking and screaming into the insurance marketplace.

In the aftermath of the Supreme Court decision, that’s even more obvious.

This is the third in a series of five OHPM columns on the impact of the Supreme Court decision on the Affordable Care Act. Monday: the impact of the ACA decision on Medicare and Medicaid.

The ACA Decision Is In

The Supreme Court decision on the constitutionality of the Affordable Care Act is finally in.

Before it was announced, most people seemed to think that the individual mandate would be overturned. 

It did not play out that way.  The individual mandate was upheld – not under the Commerce Clause of the Constitution, but as a tax.  Justice Roberts proved to be the swing vote.

Also left intact are the expansions of Medicaid eligibility and, as a result, the entire law, with all of its consumer protections.

However, there is a major caveat here.


States can opt out of the expansion of the Medicaid program without jeopardizing the rest of its Medicaid funding.  In other words, the Court is allowing a state to refuse to expand Medicaid eligibility to 133% of poverty and to refuse to cover all of the ACA-mandated basic benefits in its program.  If it does, it will only have to give up the new federal money that pays for these benefits.

The consequences may be devastating for lower income people if a state decides to make them scapegoats for a decision it finds otherwise unpopular, and I will be writing more about this in a couple of days. 

The Court's decision is considered to be a major political victory for President Obama.  That may or may not prove to be true in the short term.

And the biggest blow may be felt by those who still believe that a private health insurance marketplace – unsubsidized by the government – has a bright future in America. 

Here’s why.

While the individual mandate will affect as little as 2% of the population directly (because most people who can afford insurance already have it), it was also government’s the last gasp “carrot and stick” approach to convincing people to buy a product – health insurance – that few people actually want or like.

“If you buy insurance,” the federal government has said through ACA, “we’ll subsidize it to the tune of a $9,000 tax credit for a family of 4 making $60,000.  If you refuse, we’ll impose a tax penalty of $2,085 on you.”

“No deal,” said 61% percent of Americans in a poll released this week.  If insurance were popular, would people have to be forced to buy it?

That’s why John Boehner has already announced that he will try to repeal the mandate through legislation, and this will likely become a major political campaign issue this year.

The truth is that ACA is going to have little effect on overall health spending in America, and even with the individual mandate in place the share of health costs paid by private insurance is going to go down. 

To understand why, take a look at the 2012 health spending projections made by CMS personnel and reported in the article entitled National Health Expenditure Projections, published online by Health Affairs in June 2012 and in the July 2012 print issue. 

CMS projects that overall health spending – now at $2.6 trillion a year – will increase by over 62%, or 5.7% annually, through 2021, to $4.5 trillion per year.  The ACA effect?  Under 5% of that, or a cumulative 3.1%, well within the rounding error!   

With two exceptions, ACA won’t change too dramatically who pays the bill.  As is clear from the chart above, only two categories of payers will see their share shift by even 2%.  The first is the Federal share of the Medicaid program, largely because the federal government was paying 100% of the cost of the Medicaid expansion.  The second is the out-of-pocket, or self-pay, share, largely because fewer people would be uninsured.

The biggest surprise?  The share of health expenditures to be paid by private insurance goes down by 1% over the next ten years, in spite of the individual mandate that everyone who can afford it must carry health insurance!

What this means is that even with ACA upheld, we will continue our excruciatingly slow and tortuous march toward a governmental payer, Medicare or Medicaid for all, basic health care financing system.  But for "Medicare for all" advocates – it probably won’t happen in your lifetime.

For all the arguments I and others will make in the coming days that the impact of ACA and the Supreme Court’s ruling on healthcare financing may now be overstated, another truth is that it remains the most significant piece of health care financing legislation to pass Congress since Medicare and Medicaid.

And that the Supreme Court has affirmed this.

This is the first in a series of five OHPM columns on the impact of the Supreme Court decision on the Affordable Care Act.  Tomorrow: What the Decision Means for You  

Mitt's Plan

Imagine what a nightmare healthcare scenario might look like.

You are diagnosed with a debilitating chronic disease while young.  At first, you can’t even work because of it, and you are dependent on a family member’s insurance to help pay your medical expenses. 

Eventually, your disease goes into remission, and you find a job with health insurance.  You go off your family member’s plan.  But your employer goes bankrupt, and you’re left with no job and no insurance. 

Then you get another chronic disease.

You try the individual health insurance market, but the only insurance available to you comes from a high risk pool in which everyone else also has at least one chronic disease.  The price is outrageous, but you pay the bill as long as you can.

Eventually, you can’t afford it, and you become uninsured for a few months. 

You apply to your state’s Medicaid program for help.  You are denied because your state has already spent all the Medicaid dollars the federal government has given it for the year. 

You keep searching for work.  When you finally land a new job, you are informed by your employer that it only offers a high-deductible, catastrophic-only insurance plan.  You have to cover your basic health care needs, including annual physicals, prescription drugs, and counseling, out-of-pocket. 

At least, you think, the plan will help with recurrences of your chronic conditions.

But then you learn that as a result of your earlier lapse in coverage, the company’s insurer refuses to cover you because of your pre-existing condition.

You’re out of luck.

You might call this nightmare far-fetched.

Or you could call it Mitt’s Plan.

Mitt Romney now has a plan to repeal the Affordable Care Act if he is elected President. 

These are some of the mandates with which he would replace it:

• High risk pools for the chronically ill.  These high-cost, unsubsidized private insurance plans for the sickest among us have been around for years, but have never enrolled many people because of their prohibitive costs.
• A law to prevent insurance discrimination against people with pre-existing conditions only if they maintain continuous coverage.  If they ever have a lapse in insurance for any reason, insurers could use that lapse to deny insurance to them forever.  Eventually, this could affect nearly everyone, because over one-quarter of the population has a lapse in coverage every year. 
• A return of states to “their proper place of regulating local insurance markets” – but this would be accompanied by a new federal mandate that would gut state regulatory authority.  The federal government would mandate that out-of-state insurers could sell policies in a state that don’t meet the minimum standards set by that state.
• A Medicaid block grant to the states.  This will cap federal Medicaid spending each year.  States will be forced either to pay a larger share of long-term and indigent care costs or to cap both Medicaid payments and enrollment.
• More managed care and fewer “fee-for-service” plans.  Private insurers will be given even more power over patients and doctors to decide who is worthy of care and who isn’t – and no level of government will have the authority to put an end to this rationing of care in the interest of the consumer.

The resulting nightmare isn’t far-fetched.  Candace Brown is already living most of it every day. 

Candace Brown is a nurse.  She was diagnosed with Crohn’s Disease when she was 30.  She wasn’t able to work for three years, but was covered on her father’s insurance.  Her disease finally went into remission, and she found a job with health insurance.  However, she lost both the job and her insurance when the company went out of business.

Then she was diagnosed with depression, and struggled to find insurance afterwards because of her two pre-existing conditions.  She finally found a plan that would accept her, but it now costs $1,200 a month. 

She describes herself as “financially drained.”

I imagine she sometimes feels physically drained as well.

At least she hasn’t yet had to deal with being uninsured, but even that hasn’t come without stress.  She’s afraid to let her coverage lapse to qualify for the Pre-existing Condition Insurance Program (PCIP) - which Romney also would repeal.

The only nightmares Candace has avoided so far – because they won’t be legal unless Mitt’s Plan becomes law – is a non-entitlement Medicaid long term care program someday and being dumped by her current insurer.

But Candace is a realist, and that’s why she is counting the days until ACA takes full effect.  

Note: Candace Brown's story was published and made available by Florida CHAIN at the link provided in the column.  More information about the work of Florida CHAIN can be found using the link.  If you have questions about this column or wish to receive an email notifying you when new Our Health Policy Matters columns are published, please email gionfriddopaul@gmail.com.

How We Really Hope the Supreme Court Will Rule on the Affordable Care Act

The Affordable Care Act has finally had its days in court this week.

And commentators who were certain on Monday that the Supreme Court would uphold the individual mandate were just as certain on Tuesday that it would not.  Perhaps they have some special insight into the thinking of the Justices. I don’t.  I’ll just wait for the decision. 

In the meantime, I’m wondering not how each of us thinks the Court will rule, but how we hope it will rule.

The answer isn’t so simple, because we divide into – and often move among – three competing minority camps about health reform in general:

• The Affordable Care Act represents the best compromise for insuring more people while preserving most of our current public/private payer system.
• Expanding reform to a single payer system like those favored by other developed nations would be better. 
• Replacing ACA with a private market-based system is at least worth a try.

If we’re as uncertain as polls cited by the Kaiser Family Foundation suggest, I suppose we all could just close our eyes, vote for Mitt Romney, and assume from his record and rhetoric that we’ll get all three.

But the Court will decide first, so let’s consider the rooting interests of several interested and sometimes overlapping groups.    

If you favor a single payer, “Medicare-for-all” program:

You want the Court to find the individual mandate unconstitutional, but severable from the rest of the bill. 

Why?  The individual mandate was originally the alternative to “single payer,” so you would like to get the individual mandate out of the way.  Then single payer becomes an option again, but only if the rest of the law, including the Medicaid expansion and the consumer protections, remain in effect.  This is because our private insurance market will become too expensive if people use those consumer protections to wait to buy insurance until they are sick.

If you want to reduce the size and scope of the state Medicaid programs:

You want the Court to rule the Medicaid expansion unconstitutional, but the individual mandate constitutional. 

Why?  This combination will most constrain Medicaid growth because lower income people will have to purchase health insurance in the private market.  They’ll qualify for a subsidy, but not for Medicaid.

If you want more universal coverage, but don’t care whether it’s private or public:

You want the Court to uphold the entire law.

Why?  Although philosophically impure, the combination of Medicaid expansions, Medicare cost containment strategies, Medicare tax increases for the wealthy, and subsidized private insurance for the middle class will lead to more coverage, and fewer uninsured.

If you or a child of yours has a chronic condition, such as diabetes, mental illness, or cancer:

You may not care whether the individual mandate is constitutional or not, but if it isn’t, you want it to be severable from the pre-existing condition coverage and community rating portions of the law.

Why?  If the PCIP experience is any indication, you may not want to be forced to buy insurance.  But when you do try to buy it, you don’t want to be denied affordable coverage because of your pre-existing condition.

If you are an early retiree on your former employer’s health insurance:

You want any provisions found to be (1) unconstitutional and (2) not severable from the pre-existing condition and community rating portions of the law to be severable from the rest of the law.

Why?  This could gut much of the law, but not the provisions that subsidize your coverage.  You won’t have to worry that you could either lose your health insurance or be forced to pay a lot more for it.

If you are a Medicare recipient:

You want any provisions found to be unconstitutional to be severable from Medicare expansions.

Why? If they aren’t, you’ll need an immediate bipartisan agreement in Congress to keep your donut hole prescription drug coverage and your free annual check-up in place.

If you want insurance that will cover long term care needs:

You’re already out of luck. 

Why? That provision was axed from the law before it was ever implemented – and you don’t hear anyone talking about restoring it.

And, if you’re okay with denying or capping coverage for pre-existing conditions, allowing insurers to make as much profit on insurance as they can, having gaps in prescription drug coverage for elders, and paying for the sick and uninsured through increased premiums on people who have insurance:

You want the Court to find the whole law unconstitutional.

Why?  That’s where we were when all this began.

Note: Click here for simple explanations about some of the Supreme Court issues that are discussed in this week's column.

If you have questions about this column or wish to receive an email notifying you when new Our Health Policy Matters columns are published, please email gionfriddopaul@gmail.com.

The Top Health Policy Stories of 2011, Part One

Public policy attacks on public health and mental health, intrusions in doctor/patient privacy, the continuing fight over the Affordable Care Act, and our collective loss of faith in private health insurance were among the top health policy story lines of 2011.

This year, eight stories make my short list.  Not all of these stories made big headlines during the year.  But they have had, or will have, an outsized impact on our lives.

I’ll begin the countdown this week with four that capture and continue some of the major trends of the recent past.   Next week, I’ll offer four more that hint at where health policy may go in the future.

8.  The Shooting of a Congresswoman.  In January, the first big health policy story of the year was about violence and mental illness – the horrible wounding of a member of Congress, and the murder of several people around her.  As the media struggled to make sense of this, it raised once again the relationship between mental illness and violence.  What it failed to do was to report that, while this particular shooter seemed mentally imbalanced, most perpetrators of violence are not, and many victims of violence either already have mental illness, or will develop it as a result.

The continuing trend – Our jails are our nation’s largest mental health institutions, and will remain so until we invest more in prevention and treatment of mental illness.   

7.  The End of the Iraq War.  The War in Iraq may have ended this month, but its health effects will be with us and our veterans for many years to come.   A GAO report released in Octobergot little mainstream media attention, but was blunt in its description of the effects of this war and others on veterans’ mental health.  The 2.1 million unique veterans who received mental health treatment in the five year period between 2006 and 2010 represented over 30% of the veterans who received any type of health care.  The fastest-growing groups of veterans receiving mental health treatment during this period were the 213,000 Iraq and Afghanistan veterans with mental health needs.  And 38% of all Iraq/Afghanistan veterans who received health care during that time required mental health care. 

The continuing trend – So long as we remain at war, veterans’ health and mental health services will need to be expanded significantly throughout the foreseeable future, and, as taxpayers, we will need to pay for them.

6.  The Death of the CLASS Act.  What does it say when the first major provision of health reform to be killed off in a bipartisan way was the one provision that had enjoyed bipartisan support for a generation?  There are at least two things about long term care most of us don’t want to face.  The first is that most of us will need it someday.  The second is that practically none of us can afford it on our own.    Rather than coming up with a meaningful public/private partnership to pay for it after almost thirty years of trying, the Administration and Congress quietly killed CLASS in October, choosing once again to keep the current, broken system in place.  This is the one where we first impoverish people when they get old and sick, and then let government pay the whole bill.

The continuing trend – Medicaid will remain the default payer for long term care.  Costs will continue to skyrocket, we’ll all continue to complain, and long term care insurance won’t gain a greater foothold in the market any time soon.   

5.  Low PCIP Enrollment Numbers.  The most compelling evidence in 2011 that we may have finally lost our faith in private insurance was found in the late summer reports of the low enrollment in the Pre-Existing Condition Insurance Program (PCIP).  This is a program that eligible uninsured people were supposed to embrace, because it pretty much guaranteed that it would pay out far more for their health care than it collected in premiums, saving each of them lots of money.  But when only 30,000 of the 4 million eligible people enrolled as of July, most of the rest seemed to be saying that they would rather take their chances on permanent financial ruin than insurance.  Or that they were already so impoverished by illness that they no longer had anything to lose.

The continuing trend – If the health insurance industry cannot restore our trust, even the people who need it most will opt out, relying only on safety net government funding.

Next week:  The final Our Health Policy Matters column of the year looks at four more big stories of the year, and their implications for the future. 

Does The PCIP Enrollment Problem Signal the End of Private Insurance?

There are 4 million or more Americans who can’t get regular insurance because of a pre-existing condition.  You might be one of them.  Now there’s a policy that costs less than $300 per month and covers all of your medical needs, including your pre-existing condition. 

Will you buy it?  Apparently not.

And that may signal the beginning of the end of private insurance in America.

I first wrote about the diminished role of private insurance in a column last month entitled America’s Health Insurance Myth.  Privately-financed private health insurance today pays only 17% of America’s health care bill.

Two recent developments suggest that this share will become even smaller in the future.

The first was last week’s death of the CLASS Act.  As a result, long term care will continue to be an out-of-pocket and government expense only for nearly everyone.

The second was the report of first-year enrollment numbers for the new Pre-existing Condition Insurance Plan (PCIP).  PCIP was created as part of the Affordable Care Act.  It offers low-cost health insurance for adults who have – or have had – conditions like mental illness, cancer, diabetes, and heart disease.  (Children are now covered on their parents’ policies.)

PCIP is comprehensive.  It covers hospitals, doctors, and drugs. 

There is no means test to qualify.  Provided that you have been uninsured for at least six months, all you need to apply is a note from a physician attesting to your chronic condition.

PCIP is inexpensive.  In Florida, the monthly PCIP premium for a forty-year old is only $211 for the standard option.  There are deductibles and co-pays, but annual out-of-pocket costs are capped at $5,950.  This may seem like a lot, but it is less than 20% of the 2009 average charge of $30,655 for a single hospital stay.

The federal government operates Florida’s plan and those of 22 other states.  Connecticut, on the other hand, is one of 27 states that choose to run their own programs.  In Connecticut, PCIP insurance costs $381 per month, but out-of-pocket costs are capped at $4,250 per year.  So its overall costs are similar to Florida’s.

Of an estimated 4 million people eligible for PCIP and 375,000 expected to sign up in the first year, only 30,395 bought policies.  Just 1,454 people enrolled in Florida, and only 62 enrolled in Connecticut.

Why so few?

The answer is obvious in states like Massachusetts, which has only one PCIP enrollee, and Vermont, which has none.  They have near universal coverage, so they don’t need PCIP.

What about states without universal coverage?  Pennsylvania had the highest first-year enrollment.  It had 3,762 people insured through PCIP.  If every state were like Pennsylvania, then PCIP would have around 100,000 enrollees today, still far below the expected number.

There are three explanations for why people aren’t enrolling in PCIP that speak to how little faith we have in insurance.

The first is that they believe that when there’s a crisis, hospitals and doctors will treat them whether or not they are insured.  Health care providers rarely turn their backs on people in need.

But someone still has to pay the bill.  And it usually gets paid through hidden charges in everyone else’s insurance premiums. 

The second is that people don’t think they can afford even $211 per month for health insurance, or up to $5,950 in medical bills in a year. 

But when the costs of common chronic diseases routinely run into six figures, the alternative can be bankrupting.

The third is that we don’t trust insurance.  Insurance companies take our money, fight with us about covering our bills, and make huge profits. 

But PCIP isn’t like that.  Unlike other insurance, it is designed to pay out far more money than it takes in.  PCIPs paid out four times in benefits what they charged in premiums during the first few months of the program, and Congress set aside $5 billion – of which only a fraction was spent – for this.

Here’s the bottom line.  If $211 a month is too much to pay for insurance we are sure we will use, then health insurance is dying in America.  Many of us say we will rely on our own resources, but also expect a government safety net to be there when our resources fall short.

If we roll the dice and don’t buy PCIP when we can, then we may lose more than we think.  There are political leaders who are already celebrating the demise of the CLASS Act.  Many also would happily repeal both PCIP and the Affordable Care Act, and replace them with… well, nothing.

For more information about federal and state PCIP, visit https://www.pcip.gov/.  If you have questions about this column or wish to receive an email notifying you when new Our Health Policy Matters columns are published, contact gionfriddopaul@gmail.com.