Risk Adjustments in ObamaCare

Most of the commentators on the exchange roll out caution against the “death spiral,” in which failing to attract the young and healthy raises overall premiums. This further deters low-cost people from enrolling, resulting in even higher premiums.

This is absolutely true in a normal market. But a new report from the actuarial consulting firm Milliman shows how the Affordable Care Act has turned normal market principles on their head.

Here is the problem. Because health insurers are no longer allowed to ask any questions about an applicant’s health, they have absolutely no way of knowing who they are enrolling in terms of past or present illnesses or health conditions. They might attract a group of pretty healthy people or a group of pretty sick people, but they won’t know until people start filing claims. So it is impossible to accurately set premiums, at least for the first few years.

Another problem is that some insurers may attract a whole lot of very sick people while others attract mostly healthy people. In a particular state BlueCross may be known as the best place to go if you have cancer or heart disease, while Aetna may be famous for its discounts on gym memberships. The healthy people will be drawn to Aetna while the really sick people prefer the Blues. If companies could set premiums to accurately reflect their enrolled population, BlueCross premiums would be outrageously expensive while the Aetna premiums would be cheap.

ObamaCare tries to fix these problems in several ways.It incorporates a “reinsurance” program to reimburse companies for some of the costs of very high claims. John Graham has written about this here. This is a temporary program that phases out once participating insurance companies have a better handle on whom they are enrolling.

It also includes what it calls a “risk corridor” program, so that if some companies get hit with a surge of bad risks, they are assured of being compensated for their extraordinary expenses. This, too, is a temporary program. It is supposed to be paid for by an assessment on all insurance companies, but it is currently looking like the entire ObamaCare market is made up of bad risks, so the administration is now expecting that all of the participating companies will need to be compensated, rather than just a few. And there is not enough money from the assessments to pay for that, so they are looking for additional taxpayer money to ensure company profitability. This idea is extremely controversial as an “insurance company bailout.”

It also underscores the essential problem of government control over prices — once the government has control over what companies can charge, it also must ensure that companies are profitable. We saw this with state hospital rate-setting systems. So suddenly, even poorly run, inefficient companies are assured of profitability, and the decision to close one becomes a political, not an economic, decision.

The final fix is a “risk adjustment mechanism.” Since ObamaCare uses “community rating” each enrollee pays the same premium regardless of his or her claims cost or health status. But some enrollees will cost a whole lot more than others and the companies that cover them need to get more money for doing so. This program is the focus of the Milliman study, and we will look at that below.

Now, notice that these programs are all aimed at protecting individual insurance companies from the consequences of ObamaCare enrollment and rating restrictions. None of them ensure the solvency of the market as a whole. Indeed, they do just the opposite — they encourage the sickest people to enroll by subsidizing them while discouraging the healthiest people to enroll by overcharging them. So, while individual companies may be exempt from the “death spiral,” the program as a whole is not.

Milliman calls these three risk adjustment provisions the “3Rs.” The first two of these are scheduled to phase out, but the last is permanent and has the biggest effect on company profitability. Milliman says –

The results of our analysis are, in most cases, the precise opposite of what one would expect without these programs. In several important ways, the nuances and interactions inherent in the 3Rs can generate impacts that actually turn traditional risk management practices upside down.

For example, carriers would expect to have an 8.8% loss on males age 60 and above, but the risk adjustments turn that into a gain of 7.3%. For males age 25-29, an expected gain of 34.3% becomes a loss of 3.2% after the risk adjustments. So a company that wants to make money has every incentive to avoid the young males and attract the oldest ones. The report provides a comparison of males and females for each age cohort.

Health and Human Services has developed a risk adjustment model that assigns one or more of 127 “Hierarchical Condition Categories” (HCCs) to each enrollee and gives each enrollee a “risk score,” which results in higher or lower adjustment payments to the health plan. Milliman says that people with “seven conditions would actually produce profit margins in excess of 1,000% of premiums.” But Milliman cautions –

Bear in mind that in practice there may be very few members with some conditions, and these members may be difficult or impossible to identify in advance.

They add –

At the other end of the spectrum, insurers that cover only members without a condition recognized by the HHS HCC model will make payments into the risk adjustment pool large enough to produce an average pretax loss of approximately 5.0% of premium.

They note that the level of adjustment is greater than the “average relative costs of those conditions,” and that the various risk adjustments “do not interact, so issuers can be reimbursed twice for many high-cost claimants.” As a result, “those paying into the pool tend to pay too much and those receiving funds tend to receive too much.”

So what does all this mean?

  1. There is no such thing as a “price” in the Affordable Care Act. First, people will pay in premiums whatever the government thinks they should pay. Favored groups will pay very little while disfavored groups will pay a whole lot more — for the exact same coverage. But even those payments have nothing to do with what the insurance companies will receive. The actual payment for coverage depends entirely on how much the Department of Health and Human Services “adjusts” the payment, based on a complex and ever-changing formula of risk adjustments.
  2. The business model for health insurance companies has been completely turned on its head. Not only has all incentive been removed to enroll the young and the healthy, but so has any incentive to reduce costs or increase efficiency.
  3. These incentives are precisely the opposite of what needs to happen to make the program work. For ObamaCare to be sustainable it must bring in the young and the healthy, and it must encourage efficiency and cost containment.

Unfortunately, the health insurance industry is now locked into this system. Their very survival now depends on having the government provide “risk adjustment payments” (i.e. annual bailouts). They now have only one customer — the Secretary of Health and Human Services. No one else matters.

Comments (66)

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  1. Barry Carol says:

    This doesn’t sound right to me. In the Medicare Advantage program, I’m told that an important determinant of individual risk scores is medical claims. So, when a person ages into Medicare, it can take 12-24 months for the beneficiary’s claims history make that person’s risk score more accurate than it may have been at the outset. If an MA insurer receives $1,000 per month for a person with an average risk score of 1.0, it will receive $900 per month for one with a score of 0.9 and $1,100 for a 1.1. At the same time, the average risk score of most insurers’ entire MA population is below 1.0 and may be as low as 0.8 which suggests an incentive and a desire to attract the healthiest seniors. It’s also important to note that in any given year, the healthiest 50% of seniors account for only 4% of total Medicare spending.

    The risk scoring state of the art, while not bad, is probably not where it needs to be yet. Whether the overall risk scoring and risk adjustment payment mechanisms accurately reflect true actuarial risk is still an open question, at least in the MA space. The bottom line is that risk scoring in MA still appears to overpay for the healthy and underpay for the sick. Finally, most MA insurers attempt to structure their benefits package and its associated beneficiary premium to produce a 5% pretax margin if their claims estimate is accurate.

    • Dan says:

      Great analysis. However, everything is hypothesis based. We will have no real data for several years.

      My biggest fear is wise perple explain all of the issues…but few alternatives….which will result in the gov. Climing that the way to solve all of these imbalances is single payer

      Need discussions to state a problem….why single payer will NOT work to solve the problem and how free markets will address the problem

  2. John Fembup says:

    Greg in your example, “The healthy people will be drawn to Aetna while the really sick people prefer the Blues”


    When insurance plans are offered side by side, the plan with the richest benefits will normally draw the poorest risks and vice-versa. Also, the observable demographics such as age and gender have been shown to explain only 30% to 40% of observed differences in a typical group’s utilization experience. The rest is the unknown factor you mention – that individuals know their own health status when they choose a plan, but the insurer does not.

    It’s more complex in the Exchanges because differential cost is also a factor driving more people into the lesser plans, regardless of health status.

    It may as you point out, take insurers more than a year to figure out correct premiums for the population they draw. However, it won’t take them more than a year to figure out if they are losing money and, after consideration of the risk corridor adjustments, how much. If a large loss, the insurer may simply decide to quit the Exchange.

  3. David Lenihan says:

    Good post Greg. As others have noted….this makes no sense. Unless….you really don’t care about the financial implications and the ultimate purpose is to be a re-distribution program.

  4. perry says:

    “you really don’t care about the financial implications and the ultimate purpose is to be a re-distribution program.”


  5. Ken says:

    Very good explanation of a very complicated subject.

  6. Ross Schriftman says:

    Dear Greg,

    As always, great job. So, do you support S1726 (Rubio) and HR3541 (Griffin) which would remove Section 1342 (Risk Corridors) from the law?

    • Greg Scandlen says:

      I do support that bill, but as a fall-back position I would bar any use of general revenues. Confine the bail out funds to the existing assessments.

  7. Andrew says:

    “It is currently looking like the entire ObamaCare market is made up of bad risks, so the administration is now expecting that all of the participating companies will need to be compensated.”

    I just hope that the funding is sufficient enough to balance all of the “risks” that ObamaCare is causing.

  8. Martin T. says:

    Risk corridor programs are established to protect the insurance company from the effects of Obamacare. If the companies are unprofitable for attracting bad risks, the government will step in and help them with taxpayers’ money. This means that individuals are going to pay double for their coverage, paying the insurance premiums and through additional taxes to help the insurance companies. From what I understand, a program to make healthcare affordable for everyone, will not be affordable.

    • James M. says:

      Regardless of what happens, consumers will be paying much more than in previous years for their health care coverage.

  9. Andrea P. says:

    There are a lot of things that the general population doesn’t know about the ACA and what it means for them. Thus, I thank you for trying to explain a very complicated concept. It has been very useful. Keep informing the people about things that concern them. That strengthens our democracy.

  10. Thomas says:

    “Not only has all incentive been removed to enroll the young and the healthy, but so has any incentive to reduce costs or increase efficiency.”

    This is exactly what will cause the failure of ObamaCare. No incentives for the young and healthy cause the “death spiral.”

    • Patrick H. says:

      If there are no incentives for companies to minimize costs and operate efficiently the industry will go south. In a free market benefits are to those who do things better and cheaper, once the insurance companies stop worrying about competition, service, quality and coverage will dramatically decline and the consumers are the ones who will pay the price.

  11. Frank R, says:

    I think this is the worst time to invest in the healthcare industry, especially insurance companies. It has been a mess trying to understand Obamacare and the problem is that it has changed how insurance companies operate. Uncertainty and regulation drive away investors.

  12. Gail Wilensky says:

    Very nicely done column — clear and concise explanation of the insurance issues being generated by the ACA.

  13. John R. Graham says:

    I appreciate the analysis, but wish Milliman had separated the financial effects of each “R” instead of just reporting the aggregate outcome.

    They conclude that the plans which over-enroll sick people will get more transfer payments than warranted, which makes sense because the young and healthy are not enrolling.

    However, if we dis-aggregate each “R”, I expect that we will see the risk corridors and reinsurance to have this effect, while the risk adjustment will counter it somewhat.

    That is because the risk adjustment is based on Medicare Advantage HCC (with state input, if it wants to fiddle with it). We can be confident that Medicare Advantages risk adjustment still results in favoring the healthy over the sick, because the carriers compete by offering free gym memberships, etc.)

    (It is still not clear to me how these claims are processed in 2014-16.) I think common sense says that the reinsurance takes the claims first, then the risk corridors, then the risk adjustment. But the rule does not state that one stands in front of he others, as far as I can see.)

    • Greg Scandlen says:

      John, I think it is the opposite — risk adjustment comes first since it applies to premiums paid, reinsurance next since it applies to claims, and then risk corridors since it applies to total costs at the end of the year.

      The risk adjustments in Medicare Advantage work somewhat because they have claims experience to draw from. In this case there is no experience available to them and other measures (age, weight, BP, gender) are very poor proxies. That is the rationale for having risk corridors in the first place.

      BTW, MA also has the advantage of dealing with a very narrow range of ages and conditions. Applying risk adjustments to everyone from age 1 to age 64 is magnitudes more difficult.

  14. Al Baun says:

    The other side here.

    Don’t you think it a little premature to decry the ACA’s reimbursement programs ‘too costly’ before any of the insurance companies has even applied for help?

    You are correct; insurers do not have an exact handle on participation, claims, and rates under the current law. This would explain the ‘padded’ premiums put forth this year; however, if we see good participation and continued moderated provider costs, we will see reductions in next year’s premiums, possible refunds to enrollees, and little needed compensation from our government. Don’t forget to consider possible positive outcomes of the ACA … on our way to single-payer.

    • Greg Scandlen says:

      Time will tell, Al, but things are not looking very hopeful right now. Surely you don’t think it is unwise to consider and guard against the possible problems. If the web site designers had done that we would be having many fewer problems today.

  15. H D Carroll says:

    I believe the risk corridor program is not intended to be covered by an assessment across all insurance companies – in an ideal world (which of course we are not in, and won’t be!) companies with more than a floor of profit, will pay INTO the pool, from which those with losses above a given floor will be compensated. However, there is no particular reason for there to be symmetry around a “0” profit margin, and with the projected enrollment, yes, it is likely that the “negatives” will far outweigh the positives, and that net amount has to come from somewhere, so it comes from taxes – either general revenue, or the various ACA insurance fees and taxes, etc. – taxpayer of one form or another.

    Also, the Milliman study must, by its nature, make some “averaging” of the various risk cells to be modeled, and it is entirely possible that a given carrier’s “males aged 60-64” experience will be much much worse than the “average.” They are averaging across averages, and the actual dispersion may be much wider than using such averages implies to the layperson, government regulator, or journalist.

    • Greg Scandlen says:

      Actually, I think that was exactly the intent, HD — all companies would contribute and only the (few) losers receive compensation, avoiding general revenue funding.

      • John R. Graham says:

        That was the intent, but not explicit in the legislation. The “reinsurance” is explicitly funded by $25 billion premium tax over three years.

        The “risk corridors” are funded by general revenues and (as Greg Scandlen noted above) are based on premiums, not claims. So, if the mean of the claims is higher than the mean of the premiums, the taxpayer liability could be pretty big.

      • H D Carroll says:

        Greg – I think we are saying the same thing – just a nomenclature issue – you suggested there was a “general” assessment, but I am saying the intent was that only the ones paying in (for which it may be called an assessment, just not a general one) would cover the ones on the losing side. However, the corridor design, as opposed to the Reinsurance program where the payout is forced to be equal to whatever the reinsurance program income is, can allow for a non-symmetry between the amount of positives and the amount of negatives, and the resulting net loss must be covered by the government from someplace else – and it is not by the design of the law to be based on an assessment against carriers. After all, when this happens, they won’t have any money to assess. (Please note again for emphasis – the reinsurance program, which was really intended to cover the movement of sick people from high risk pools to the individual market, plus the addition of new, previously uncovered sick people, is a game where the government will cut back on the reinsurance payment if there isn’t enough to cover the claims coming in, so they won’t be out anything. However, the 3 R’s (reinsurance, risk corridor, and risk adjustment – actually 4 R’s if you count mlR as another R) interact and so not paying reinsurance claims at intended value can simply shift to one of the other re-distributions.)

  16. charlie bond says:

    Good morning Greg and John,

    Once again a conclusion that there is no cost-based pricing. Hmm. Where have I heard that before?

    The data continuously shows that about 5% of the population drives 90% of the costs. (Reaffirmed in comments to your last post.) Either carriers will have to be subsidized to insure this portion of the population or the government will have to carry the burden directly.

    That does not mean we have to settle for the inefficiencies and high cost of caring for this portion of the population. To the contrary, every incentive should be offered to patients to maintain their wellness (gym memberships, etc) so they don’t become part of the 5%; and once in the category of high utilizers, modern interactive, cross-disciplinary case management needs to aggressively and proactively be used along with incentives to patients, their doctors, hospitals, ancillaries, nursing homes, home health agencies, social workers and volunteers to create a continuum of care designed to apply the most cost-effective measures to assure quality care.

    These Continuum-of-Care Organizations (COCO’s) are forming around the country and are being incentivized through innovative gain-sharing contracts and by Medi-Medi subsidies. They have proven that they work to save millions simply by managing small but high-utilizing populations. Anyone having questions about this model should feel absolutely free to contact me directly. These are true examples of health care reform from the grass roots up, not the top down.

    We don’t need to reform 100% of our health care system to address the 5% of the population that is breaking the bank.

    Charlie Bond

  17. Bruce W. Landes, MD says:

    I can now mention this here as it has been made public elsewhere; Aetna, which made a late decision to offer products on the Exchange in September 2013 is now contemplating dropping participation due to low enrollment and adverse selection. Apparently they are not so sanguine about the three R’s making up for the poor design and operation of the ACA.

  18. Frank Timmins says:

    Oh boy. Thanks for dissecting this corpse Greg, and the results indicate what we all already knew – Government price fixing cannot work efficiently. And when you sweep through all the detail and analysis that is what it boils down to. Why does this have to be proven as an economic given over and over again?

    Answer: This is not about economics to begin with.

  19. Bob Hertz says:

    All the nations which use multiple insurance companies to provide universal insurance coverage — Germany, Denmark, Switzerland, I am sure there are others — rely on complex risk adjustment programs.

    Once you ban underwriting, there has to be some method to keep insurance companies from going broke by drawing a “bad hand” of expensive risks.

    I do have some actuarial training so I have no trouble accepting this form of “bailout.” A world of purely entrepreneurial insurance companies, duking it out until the weaker ones fail would be a bad world for the country.

    This is a terribly loose analogy, but i am also a sports fan so I will use it.
    The major leagues in the big sports are all far more profitable and stable since introducing revenue-sharing and salary caps and similar collective protections.

    The Rubio types who are going to speak against ‘bailouts’ are actuarial idiots.
    Fortunately the industry itself may foil them.

    • Frank Timmins says:

      There is certainly a price to pay (by someone) when medical underwriting is not used. The best way to hedge against it is making sure that everyone has skin in the game, and that is what we need to build on in reforming healthcare.

      With due respect, I don’t think your “price fixing” analogy to the NFL salary cap as a successful model is appropriate. The sports salary cap is designed to protect the team owners as a group, not to protect the fan paying for the tickets. In fact, it allows crummy owners to stay in business despite running a lousy operation and a sorry product for the fans.

      It “works” somewhat in the NFL because there are no reasonable options for fans to choose if they desire professional football. It’s not the end of the world because they can go fishing or something. It’s not a good idea to limit people seeking healthcare to a system that promotes mediocrity.

    • John R. Graham says:

      Yes, but in PPACA that is actually called “risk adjustment” and is perpetual, not for just three years. We don’t have to look to Europe to see it working tolerably okay. Medicare Advantage works that way.

      The Obamacare “risk adjustment” is actually based on the Medicare Advantage Hierarchical Condition Categories (HCC), but can be tweaked by states which run exchanges.

      Importantly, the payments only from more profitable insurers to less profitable insurers. There is no hand stretched out to taxpayers (beyond the other Obamacare tax credits).

      The other two items, “reinsurance” and “risk corridors” last only three years and do go to the taxpayer. The “reinsurance” is funded by $25 billion of premium taxes, which are only paid by the people who buy insurance (although, even those who buy off-exchange).

      The “risk corridors” are what people are describing as a bailout because the payments are netted against federal general revenue. And is based on premiums, not claims. So, if the distribution of premiums is way worse than the distribution of claims, upon which the corridors are calculated, the claim on the taxpayer is significant.

      I have not yet seen an estimate of the “bailout” in dollar figures, but it is likely not zero, as CBO assumed. One benefit of introducing a bill in the House is that it will cause CBO to give a score based on current enrollment.

  20. Ron says:

    First, Risk adjustment formulas have been developing for years but are at best about 30% accurate. This means that any government calculated redistribution is subject to political games where the large and well connected insurers can get an unfair redistribution. Big government & Big Business = corruption.

    Second, the Milliman study stated clearly that the “positive” margins on selling to the old and sick depended upon the entire market selling to the needed level of young people (so that the distortion of the government controlled redistribution formulas would have enough funds to reallocated among companies). That is clearly not happening.

    Third, with the lack of young and healthy signing up, companies like Aetna have already signaled that they will significantly raise rates for 2015 (these rate increases will be set in late spring 2014). Their CEO stated that if the government does not let them price appropriately, they will likely pull out of ObamaCare exchanges. Profits from ObamaCare exchange business only represents about 3% of Aetna’s profits. – they make most of their money not as insurers, but as administrators for self insured plans.

    Conclusion, when insurers pull out, they only entity to “save” the day will be the federal government. I think we are closer to a single payer system than some thought (but has been the plan all along).

  21. Bob Hertz says:

    Good points, Ron, but I disagree with your last paragraph.

    If private insurers pull out of the Exchanges, and I agree that they might, then a few million persons will need some sort of coverage.

    That is not a small problem.

    But why does that lead to single payer? if 5 million people lose coverage on the Exchanges, some 150 million or more people have coverage somewhere else.

    • Frank Timmins says:

      Bob, one doesn’t have to be an astute political student to understand that strategic goal of this administration is the ultimate implementation of “Medicare styled” single payer healthcare. Hell, Obama has even said as much.

      Given that, could there be any doubt that this entire ACA mess is purposely designed to slowly implode(but only after much of the population has become either enamored with its liberal underwriting tenets or simply hammered into submission)?

      I firmly believe this and hence not particularly interested in debating why the ACA does not work, and what we could do to make it work better. It’s not any better use of our time and expertise than passengers bailing water on the Titanic. We should be developing something to replace this mess that is politically feasible.

      • Al Baun says:

        “what we could do to make it [ACA] work better”

        Replace, Repeal, Defund, Dismantle are not actionable ways to accomplish that goal in a bipartisan government. I believe it would be ‘cooperation and reasonable modifications’. That means if you want to help the bus driver, great, but the bus is still going down the road.

        • Frank Timmins says:

          “bipartisan government”?

          This is not about bipartisan government. It was not passed by “bipartisan government” so why should it be modified as such? No, the bus is going “off” the road, not down the road. There are certain stated “goals” of the ACA that can and should be salvaged, but this law cannot be allowed to continue as long as its core tenet is the federal government controlling the pricing and benefit mechanisms.

          • Al Baun says:

            The ACA [compilation of bipartisan ideas] was put into law under Constitutional process, and by the Congressional makeup at the time.

            Our current Congressional makeup requires bipartisan cooperation for any modifications to the ACA.

            Simply because the bus driver isn’t taking the road you desire does not mean it’s off the road or even slowing down. If you want to help guide the bus then that takes cooperation and reasonable modification, not complaining about how it was passed or backtracking to the 90’s or 00’s.

            • Frank Timmins says:

              Al, soon the congressional makeup will change (possibly drastically). Nothing needs to be done until then.

              By the way I don’t know of anyone here who advocates backtracking to the 90’s. Our healthcare system has been dysfunctional for 50+ years. We need a new direction, not modification of the same failed approach we have used for 50 years.

              • Al Baun says:

                Frank, help this old layman out. Until the late 00’s, and since the 50’s, I have always leaned Right. However, Republican inaction with respect to health care, Medicare, and Social Security from 2001-2007 (fully loaded Repub.), tax breaks that we could not afford, and playing war without paying for it sent me onto, as you put it, a “different direction”.

                Not that the ACA is perfect, nor does it obliterate Capitalism. It is a start, however, in a direction that addresses some of our deficiencies. I didn’t like runaway premiums of the 00’s. I don’t like paying $5000 for someone to take pictures of my polyps when my neighbor pays 1/3 that amount. I don’t think people’s health should be a profit driven business. I didn’t like insurers playing God with people’s health and lives.

                The left had some pretty good accomplishments during the 111th Congress to that end, so I don’t take the ‘Obama is a Communist’ or ‘the Right will rise again’ rhetoric as serious comments.


                • Frank Timmins says:

                  Al, I have no excuses for GOP inaction on healthcare for the past decades. The difference is that the “action” I hoped for is legislation freeing up the market to meet the needs of the public. Instead, they have allowed and even encouraged more and more politically motivated government meddling at both the federal and state levels for years.

                  Taking a bad idea and trying to “fix” it with the same type legislation has been the formula for a long time. The ACA simply doubles down on that bad idea by replacing third party management by insurance companies with third party management by government. What could possibly go wrong?

                  This is not so much about “capitalism” because that term is more suited to macroeconomics. This is about street level free market principles as in the private service/payment dynamic between an individual and the doctor. When this relationship was deemed to be irrelevant in a practical sense the rest was predictable.

                  I would agree that I don’t want insurers “playing God” with people’s health and lives. The prospect of the government “playing God” with same is far worse.

                • Greg Scandlen says:

                  Al, are you kidding? The Rs enacted prescription drug coverage to Medicare and HSAs in 2003, expanded Medicare Advantage and experimented with a bidding program for medical devices. They also expanded SCHIP and encouraged Medicaid waivers. Hardly inaction.

    • Ron says:

      Bob, if millions of people have only one, none or few insurers to choose from (as is the case in some states and rural parts of many states already), without the young participants premiums will need to go up (but government restrictions will prevent rate increases), product choices will be fewer, and access to providers will be limited (especially out-of-network providers). If companies can not operate in that environment and make a profit, the government move to a single payer system where providers are paid directly by the government. They will force doctors and hospitals to become government employees and assign them to markets at low pay. This is what happens in European healthcare systems. There is little to no provider choice on where to practice medicine and their services are restricted with government budgets. In Germany, a primary care physician has roughly 138 budget restrictions on how many services they can perform each quarter.

      Welcome to more government employees voting for more taxes to increase their pay. 1/6 th of the economy provides a lot of political power to lock in more socialism.

  22. Jerome says:

    The Obamacare scheme as enacted appears to have been designed to fail, so as to institute a single payer system. The solution to providing adequate insurance to fund efficacious health care is to install a true market system. (I suggest that those individuals who designed Obamacare be interrogated and publicly tried, as was done in the Soviet Union during the 1930’s to root out the corrupt
    politicians and bureaucrats, prune the civil service to a reasonable level, encourage the survivors to act more responsibly, and provide entertainment for the populace during the summer reruns.)

  23. Barry Carol says:

    I think it’s worth noting that getting lots of young, healthy people to sign up for health insurance is not necessarily a good thing for risk selection if a disproportionate number of them are young women who contemplate becoming pregnant soon or are already pregnant.

  24. Bob Hertz says:

    Note to Frank and Jerome:

    I think you give Obama way too much credit when you accuse him of running a Cloward-Piven strategy of running down private insurance so America will turn to single payer.

    If Americans resist a $95/1% mandate and a $63 per person reinsurance tax, how are they possibly going to accept a 16% payroll tax or a 20% VAT for single payer?

    Obama was told by Gruber and others that only a few deadheads would oppose the ACA in practice, and that the millions of new insureds would overwhelm the opposition over time.

    This is what actually happened with Social Security and Medicare. You can go to old magazines and read bitter opposition to each program, but after 10 years the opposition did largely disappear. Look what happened to Barry Goldwater when he doubted Social Security in 1964.

    Now Social Security was run intially on about a 1% payroll tax and had millions of beneficiaries day one. The ACA is much more troubled.

    I am not saying Obama is right or virtuous. I am only trying to get inside his mind.

    • Frank Timmins says:

      But Bob, that is the whole point. People “resist” the vague penalities and taxes that have questionable collection capabilities, but they will be unable to “resist” increased payroll taxes or VATs. It’s like the parent saying to the child, “I have given you the latitude to do the right thing on your own, but now I am going to have to make you mind.

      I don’t think that Obama has himself dreamed up a detailed strategy regarding how the ACA would play out. In fact, I doubt he knows any more about it than most Americans. However, the Cloward-Piven strategy is the staple SOP for the left wing, and that group is running the country (and has been for the psst five years). That is what guides Obama.

      • Al Baun says:

        “Cloward-Piven strategy is the staple SOP for the left wing”

        You really need to stop listening to Beck and get out more.

        • Frank Timmins says:

          Hmmm..Cloward-Piven – Sociology dept, Columbia U. Obama, student at Columbia U. Where would I get such an idea?

          Beck who?

  25. Bob Hertz says:

    Good points, Frank, but would a divided Congress actually raise the payroll tax?

    Even when the Dems controlled both houses, they refused to raise the Medicare payroll tax percentage for a very popular program.
    (they did expand the tax to cover all incomes.)

    I think the Republicans will control both houses by 2014. Then single payer will not happen no matter what.

    • Frank Timmins says:

      Bob, I am not saying that the left will be successful (certainly not the short run) of achieving single payer. However, if the GOP does not put forth ideas to reform the system the right way this whole mess will eventually erode the healthcare services and financing process to the point where single payer will become the only option.

  26. Bob Hertz says:

    Ron, we are moving to a situation where at least half the working people in America will be on self-funded plans. (We are probably at one third today, because of very large corporations being self funded.)

    This large group will not care a whit if insurance companies abandon the market, other than for stop loss coverage.

    And this large and powerful group will never, in my opinion, agree to pay taxes rather than self funded premiums.

    This division if you will was recently raised in an article about the proposed Vermont single payer plan.
    The perceptive author concluded that a single payer plan could only coerce about 30% of the actual population.

  27. Ron says:

    Bob, I don’t know that it will matter if employers are self insured or not if all doctors and hospitals are paid directly by the government and not by insurers or third party administrators.

    What holds self-insured plans as a process today, without many of the Obamacare issues, is the 1974 federal ERISA law.

    That law could be eliminated as part of a federal “solidarity” law for everyone to be in the same system. We may be closer than you think to this, but I hope you are right about 2014 elections and an awakening of the public to the abuses and incompetence of the federal government.

  28. Bob Hertz says:

    Ron, there is no government agency strong enough to set rates for 5,000 different hospitals and 500,000 doctors.

    In countries that do have a national fee schedule, like France or Germany, the providers have a national association like the AMA or the AHA. This association bargains with the federal authorities, and whatever is accepted at the national level is accepted by all providers.

    The structure does not exist in America. If nothing else, the providers are also major contributors to political campaigns. In Europe, the civil services are really quite arrogant toward providers. In the USA, the civil services are timid. Just look at the FDA.

    • Ron says:

      Bob. You stated, “there is no government agency strong enough to set rates for 5,000 different hospitals and 500,000 doctors.”

      What do you think DRGS and CPT codes do? The Medicare has been price fixing for decades through these mechanisms and the commercial market has tied their provider reimbursements to the same overall reimbursement levels. The government has “reclassified” hospitals from one city to another for the political purpose of them getting a higher reimbursement. (i.e. some upstate NY hospitals get a NYC reimbursement).

      Do not minimize the arrogance of the federal government to control the purse strings of any industry to dominate it.

  29. Bob Hertz says:

    Medicare certainly does set the DRG’s and CPTs — but they do not control what multiple of the DRG a hospital can be paid, nor do they have any control of volumes.

    In a single payer system, every hospital gets the DRG amount, not 150% or 250% of the DRG. This is the power that other single payers systems have, and I do not think our government has. (for good or ill)

    Thanks for the note though.

    • Bruce W. Landes, MD says:

      Agree on the volumes; not so much on CMS control of what is paid to hospitals.

      From CMS (link at bottom)

      “Section 1886(d) of the Social Security Act (the Act) sets forth a system of payment for the operating costs of acute care hospital inpatient stays under Medicare Part A (Hospital Insurance) based on prospectively set rates. This payment system is referred to as the inpatient prospective payment system (IPPS). Under the IPPS, each case is categorized into a diagnosis-related group (DRG). Each DRG has a payment weight assigned to it, based on the average resources used to treat Medicare patients in that DRG.”

      “The base payment rate is divided into a labor-related and nonlabor share. The labor-related share is adjusted by the wage index applicable to the area where the hospital is located, and if the hospital is located in Alaska or Hawaii, the nonlabor share is adjusted by a cost of living adjustment factor. This base payment rate is multiplied by the DRG relative weight.”

      To read the entire description:


      Given that control of government disbursements is always a favorite political tool, I would like a reference documenting any country with a single payer system where hospital payments are uniform across all regions.

    • Barry Carol says:

      Bob –

      The problem I have with the uniform price list is it pays the low quality and high quality providers the same price. It pays the veteran doctors and those just out of residency the same fee. It doesn’t make sense to me.

      In Japan, they use a uniform price schedule for the whole country. I’ve read that it’s common for patients who want to go to the most popular primary care doctors to wait three hours in the waiting room for face time with the doctor that lasts all of three to five minutes. I don’t think Americans would tolerate that approach.

      Yet the Japanese have the highest life expectancy in the world despite spending only 8% of GDP on healthcare. I would suggest that their high life expectancy may be in spite of their healthcare system and not because of it. It’s important to note that their obesity rate is about 3% or less than one-tenth of the U.S. rate. There is a lower incidence of poverty and fewer people die prematurely due to murder, accidents and the like. Conversely, their suicide rate per 100,000 people is double ours. Asians in America also have high life expectancies but somewhat lower as they adopt a more Americanized diet and assimilate into our culture. The obesity rate goes up among other things.

      I’ve said numerous times that easy to measure metrics like life expectancy and infant mortality rates cannot be used to measure the quality and effectiveness of a healthcare system because other factors such as personal behavior, genetic makeup and socioeconomic status and environmental factors are all more important determinants of health than the quality of the healthcare system one has access to.

  30. Bob Hertz says:

    Not only is mortality a poor way to measure health care, it is a poor way to measure the quality of life.
    Having worked in nursing homes, I can tell many many stories of individuals who are defeating mortality, but not living a life that they or their loved ones really want.

    As you are sharp enough to know, total health costs in a fee for service environment equals:

    unit price times volume

    I try not to pay much attention to any health reform proposal unless it tries to control both sides of the equation.

    Medicare has been lowering some fees for 20 years, and total costs per person keep going up.

    What few writers on the left want to face is that a single payer system has to control volumes also. This means the “R:” word for rationing. Americans go a little nuts when they hear it, because for the last 50 years our economy has been growing fast enough to absorb health care increases and still leave us money for cars, phones, houses. etc.

    This kind of soft deficit may be over.

    • Frank Timmins says:

      “This kind of soft deficit may be over”

      Bob, you hit the nail on the head. We are going to have to start to make choices. With advances in healthcare come costs. No increased costs, no advancement. People (not the government) are going to have to decide what expenses they are willing to bear, if various consumables are more or less important than the latest in healthcare, and how they manage their overall costs.

      There are no options as far as I am concerned. The “R” word (as you put it) is not acceptable at all. We cannot design our healthcare syatem for the lowest common demoninator, or we will stagnate. Trying to make everything affordable for everyone is a fool’s errand.

  31. Bob Hertz says:

    Last summer I did my own research on Medicare claims incidence. I am not a professional researcher but here is what I found from the internet:

    – if Medicare stopped paying for organ transplants, late stage cancer, and artificial hearts, the cost of the Medicare program would drop by at least 25% overnight.
    (I can send my article to anyone who is interested.)

    We would then be like Britain essentially.

    Either that or continue to raise Medicare taxes.

    This is not the most horrible choice to face any nation, but I do wish we had politicians who were smart enough and honest enough to at least raise the question.

    • Greg Scandlen says:

      And if Medicare stopped paying for anything, we could costs costs by 100% overnight. What’s the point?

  32. Ron says:

    Tort reform, transparency, private market competition, and healthcare consumerism are better answers than “death panels”, rationing, and waiting periods. Add to that list an AMEX level of fraud detection to Medicaid and Medicare and we might be able to afford absorb or desire for more health and healthcare.

    Even AG Eric Holder has stated that these government programs each have $70-90B in annual fraud and errors, yet no one does much about it. From GAO Report – “In fiscal year 2004, CMS allocated $26,000 and 8 staff positions nationally for overseeing the state’s Medicaid program integrity activities, including the cost of compliance reviews. This level of effort suggests that CMS’s oversight of the state’s Medicaid program integrity efforts may be disproportionately small relative to the risk of serious financial loss.” (what a bureaucratic understatement!)

    In the end, we must recognize that death is not a disease we can cure. However, government delay, denial, defeat, and dumbness (the quadruple AIM) of needed healthcare is a scary future for us all.

  33. Al Baun says:

    Ron, not all is lost. Congress can still improve on your ideas … of which most are in process.

    Tort Reform: Not included in ACA. Great opportunity for Congress to improve on law.

    Transparency: I believe the ACA has made progress in this area. http://kff.org/health-reform/perspective/health-insurance-transparency-under-the-affordable-care-act/

    Private Market Competition: Though the ACA requires a basic standard of service now, 30-40 million new enrollees have private insurers scrambling for their shares. http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8242.pdf

    Consumerism: There has definitely been a shift from private negotiation for rates to payer negotiation for rates under the ACA. Who are the winners and losers in this situation? http://www.theihcc.com/en/communities/health_care_data_analytics/consumerism-and-data-analytics-in-an-aca-world_hfttzylu.html

    Fraud: It looks like the ACA is addressing this. Congress can improve on this aspect of the ACA if they get busy.


  34. Ron says:

    Al, your such an optimist. One who is reading and regurgitating the Dem talking points and drinking the Obama Kool-Aid.

    Tort Reform – Dem trial lawyers will never let it happen

    Transparency – nothing in ACA will produce consumer info on charges, quality or access data.

    Private Market Competition – we are moving to a system with only a few national carriers who can deal with the bureaucracy and regulations. We are moving to a large single BC/BS & UHC.

    Consumerism – some is allowed using health status with incentives for healthy biometrics. However, the bias is for premiums over personal savings or health savings accounts to pay for health care services – the opposite of healthcare consumerism.

    Fraud – the GAO has had government insurance listed as “high-risk” programs since the early 1990’s. There is NO interest in real waste, fraud, and abuse. The existing pay and chase system is a farce. Can you believe that 8 people at the federal level cover fraud in 50 state programs?