Post-Obamacare Reform: Will Health Insurers Be Redeemed?

A version of this Health Alert appeared at Forbes.

Robert Pear of the New York Times recently described the “symbiotic” relationship between the Obama administration and health insurers. It was not always so:

But since the Affordable Care Act was enacted in 2010, the relationship between the Obama administration and insurers has evolved into a powerful, mutually beneficial partnership that has been a boon to the nation’s largest private health plans and led to a profitable surge in their Medicaid enrollment.

“Insurers and the government have developed a symbiotic relationship, nurtured by tens of billions of dollars that flow from the federal Treasury to insurers each year,” said Michael F. Cannon, director of health policy studies at the libertarian Cato Institute.

The entire article is a depressing read. And it is not just the fact that insurers are profiting from Obamacare. It’s that Obamacare is motivating health insurers to consider other harmful public policies. Most glaringly, health insurers appear to be inches away from endorsing price or profit controls on research-based pharmaceutical firms. (The pharmaceutical industry’s response to this threat is also somewhat short-sighted, but that is another story for another Health Alert.)

This poses quite a challenge for health reform after Obamacare is repealed by the next president in January 2017. Just as Ronald Reagan’s 1981 tax reforms did not drop out of the sky when he took office but had been developed in Congress for years by Jack Kemp and William V. Roth, the newly elected Congress has the opportunity and responsibility to pursue a consensus on post-Obamacare health reform that puts patients’ needs in front of politicians’ delusions, so the next president has something with which to replace Obamacare. 

Will health insurers resist, focused on consolidating their Obamacare gains, or will they accept the need for real reform? Although not immediately apparent, there is hope that health insurers will be ready to move beyond Obamacare.

All proposed reforms that decrease the power of the federal government seek, to varying degrees, to allow people portable, individually chosen and owned health insurance that is independent of their employers or government. The NCPA’s is the most striking: Exchanging the exclusion of employer-based health benefits from taxable income for a refundable, universal tax credit (with which one could buy at minimum Medicaid coverage), which dovetails into fixed contributions (disparagingly labeled “vouchers”) for Medicare beneficiaries. This reform combines the artificially segmented markets that the government has created, simplifying and empowering people’s choices.

Health insurers are now able to succeed in all market segments because those segments have evolved — in very perverse and twisted ways — toward such models. Consider:

  • Medicare Advantage, offered by private insurers, is thriving despite Obamacare’s threats;
  • Private insurers have won the battle for Medicaid, now dominating markets in most states (although with managed, not consumer-driven, care);
  • Private exchanges are growing in the employer-based market;
  • Insurers have become comfortable with selling to individuals who have tax credits to buy health insurance in the (extremely flawed) Obamacare exchanges.

The latter is important, because people’s attachment to employer-based benefits has proven very difficult to overcome. Now, this dam has been breached. The now infamous Professor Jonathan Gruber has thrown his body into it:

In pitching the ACA, Democrats had been adamant that the law would support and sustain the employer-based system, not erode it. But Gruber knew better and he told me so, likening workers being kicked off job-based health plans to people “falling off a building,” an outcome that architects of the ACA knew was likely and had planned for.

So far, those who have been dumped onto Obamacare exchanges are likely to be mostly part-timers. While the middle class salary-earners will see premiums increase at the highest rate in four years, it does not appear that broad-based employer coverage is collapsing.

So, one big difference between Obamacare and the NCPA’s proposal appears to be that Democrats lied about the consequences of Obamacare, whereas the NCPA has always been forthcoming that moving beyond employers’ monopoly control of employees’ health benefits would result in change. In fact, when Senator John McCain made this his proposed reform in the 2008 presidential campaign, then-Senator Obama attacked it for including employer-based benefits in taxable income.

The NCPA’s health reform blurs the lines between markets in which insurers already succeed, but does not threaten their ability to compete. Indeed, by empowering individuals to choose health plans that they prefer, such reform would increase insurers’ opportunities to offer new services that will satisfy beneficiaries, instead of frustrating them like Obamacare does.

Comments (7)

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  1. Don Levit says:

    It sounds like you are proposing the repeal of the ACA when a republican president takes over in 1917.
    If true, would not the NCPA plan still involve subsidies to further encourage the partnership between insurers and the federal government, a partnership which you seem to believe is a foolish one?
    Don Levit

    • John R. Graham says:

      If a Republican president takes over in 1917, his first priority will be whether to enter the war against Germany to preserve trade with Britain and France over the Atlantic.

  2. Ron says:

    The easiest way to encourage individual exchange (private or public) is to allow employers to use HRAs as defined contributions for purchasing any policy a consumer chooses. If the policy is below some standard of comprehensiveness, the individual would lose their tax credit which would be used to pay for uninsured (in a high risk pool or through hospital subsidies). A federally subsidized HSA eligible policy should be available for those uninsurables. Yes…this could bring back some underwriting, but pre-existing conditions should follow ERISA standards currently in use by large groups that require guaranteed issue. Too easy a solution???

  3. Kenneth A. Fisher, M.D. says:

    Could be accomplished with a plan like this,

  4. Wanda J. Jones says:

    Friends sand Colleagues:

    It’s depressing that our main health insurers are displaying such a short-sighted view of their relationship with the Federal government. Becoming big and visible and made to report one’s revenue and expenditures, and ….profits….will subject them to the kinds of actions that are used by governments that have nationalized their main industries. Then, watch the ratchetting down.

    Greed and avarice eventually have their price.

    I shudder to consider the impact of regulation of drug prices.

    Wanda Jones
    New Century Healthcare Insitute
    San Francisco

  5. Don Levit says:

    Would HRAs be in trust or general assets?
    Would this be actual money or simply notional accounts?
    Due to liquidity needs what rate of return could these accounts earn?
    HSAs are great except for those employers who provide annual funding way lower than the deductible
    Why not consider a plan which is being actively sold to self funded employers?
    To learn more go to
    Don Levit,CLU,ChFC

  6. Underwriterguy says:

    There was a time when my former employer touted limited exposure to government programs as a positive earnings driver. Now they have jumped into the markets, although in a limited way.
    Things may not be so rosy (or more so if the roses are red) in a couple of years. With something like $1 billion dependent on the 3Rs, any reneging by the Feds short term or their expiration in 3 years means health plans have to get their rates right. Sooner or later there will not be enough fools in the market (new entrants) to keep rates low year over year.