Sebelius' Fantasies, and Health Care Reform Realities
As expected, Secretary Sebelius’ testimony yesterday before the House Energy and Commerce Committee generated a lot of partisan wrangling, with each side hewing closely to its favored talking points. But there are a few nuggets of genuine importance for the public and media that is not immersed Obamacare minutiae.
The Administration’s goal posts on health care reform are moving. Since 2010, one of President Obama’s favorite talking points about the law was that “if you like your plan, you can keep it.” Any argument to the contrary was propaganda.
It turns out that the propaganda was on the other foot. One of the issues brought up at the hearing was that hundreds of thousands of individuals are having their plans canceled in advance of Obamacare “going live” in January (indeed, by some accounts, more people have seen their plans canceled than have enrolled in an exchange plan). This has always been the reality, noted in a 2012 Manhattan Institute report from David Hyman and Richard Epstein, but it is only hitting home now.
Ms. Sebelius tried to defend Mr. Obama’s claim on the grounds that the health care law does not require insurers to cancel policies. Instead, the law allows plans to be “grandfathered” if they existed prior to the passage of the ACA, and have not made “significant” changes since then.
According to this line of reasoning, if a plan has to be canceled because of non-conformity with the ACA’s minimum requirements, it is the insurer’s fault. This does not stand up to scrutiny, however. While plans can be grandfathered in, they lose grandfathered status if they make even minimal changes to premiums, deductibles or benefit structures, beyond tight limits spelled out in HHS regulations. In other words, this was a regulatory choice by the Obama Administration to set very low trigger points for losing grandfathered coverage.
This is not accidental. Loss of coverage sends people to the exchanges, where they are required to buy more generous coverage. Without this, the risk pools inside the exchanges would attract people who wanted much more comprehensive coverage, i.e., sicker and older applicants. In other words, this is not a bug in the law from Democrats perspective—it is a feature. And once plans lose grandfathered status they must either change benefit structures or be canceled outright—in neither scenario are people left with preferred plans.
Eventually, all plans—both employer and individual—will lose grandfathered status and will either have to upgrade benefits (which means higher costs) or risk cancellation. According to the Kaiser Family Foundation’s survey of employer-sponsored health insurance, fewer than 36 percent of employees with health insurance are in grandfathered plans—and that number is falling steadily. And as Duke University professor Chris Conover notes, around 85 percent of those currently in the individual market are likely in plans that do not qualify for grandfathered status and will thus either be canceled or changed.
Democrats pressed the claim that “we do not have a government controlled system, we have a private market,” as Congressman Frank Malone of New Jersey asserted in defending Ms. Sebelius. He argued that the ACA was actually creating a market for health care for the first time. If policies are being canceled, it was simply due to market discipline: “If everyone is selling better policies at a lower price, I can’t continue to sell lousy policies at high prices.”
Nevertheless, the ACA mandates very expensive, comprehensive coverage for everyone, regardless of age or risk status. This drives up prices, and requires enormous government subsidies to make these policies even remotely attractive. Regulations limit how much insurers can charge the elderly versus the young, limit how much insurers can spend on overhead, and various other restrictions that require even Bronze plans to cover a lot on paper, but keeping premiums down necessitates very high deductibles and very narrow physician and hospital networks. This is a Rube Goldberg scheme that the administration has been very careful not to reveal to the public—touting, instead, cheap premiums for very narrow segments of eligible uninsured.
Policies that will be sold under the ACA are more expensive and comprehensive than what would be sold in a free market. This means that the government and families will spend more on insurance and health care, spending less on other goods and services. The administration’s claim that the ACA was affordable has shifted—it is more expensive insurance, it is harder to find a doctor, but it is better for you. Americans can make up their own minds about that.
Other important issues, unfortunately, were largely glossed over in the hearing.
For instance, the most popular plans on the exchanges are apt to be more affordable, high-deductible, Health Savings Account (HSA) plans. But the administration has done a poor job of educating the public on how HSAs work. HSAs are a Republican idea, and they should be co-opting the high-deductible structure of plans on the exchanges by explaining how these plans work, how much money they can save, and how they can introduce market discipline into the health care system.
Moreover, Republicans should have demanded to know why contractors like CGI and QSSI were brought on board instead of the Googles and Amazons of the world. Indeed, as Ms. Sebelius noted, over $100 million was spent on the website, and over $50 million has been spent on IT support. Fiscal conservatives and moderates in Congress should have demanded to know why HHS needed to reinvent the wheel. Why not simply set federal standards and let the private sector build their own exchanges, like eHealthInsurance.com?
In later hearings, congressional reformers should focus on these and other questions that can segue into ideas for real health care reform.