Everyone has his point of view on health care reform, and that includes the liberal focused Center for American Progress. This organization has released a new report demonstrating the overall savings in health care costs because of the PPACA.
I do not claim to be a actuary, economist or even good at math, but nearly fifty years dealing with health benefits, health insurance and the health care delivery system has provided a modicum of experience and accompanying common sense. Idealism is a nice thing, but it frequently ignores the unintended consequences or the fact that for every action there is a reaction. In the case of health care reform it also ignores that the chance of the PPACA staying as is for the next ten years or even being implemented as written is near zero (consider the Doc fix for example).
Here is an excerpt from the report.
The new reform law establishes insurance exchanges that will group individuals and small firms into larger entities and thus drive down those administrative costs. The exchanges also will minimize marketing costs through more transparent posting of premiums, facilitated enrollment (assistance with the application process and screening for eligibility), and stronger oversight of industry practices.
If all individuals and small firms were to receive the same premiums as large firms or self-insured firms do, the costs of insurance administration would decline to less than 10 percent. In analyzing the experience of other countries, The Commonwealth Fund estimated that administrative costs could fall to 8 percent or lower under a robust exchange system.
What about the cost of setting up and running the exchanges, or the fact that the exchanges will offer an array of different plans? How does posting of premiums minimize marketing? There is far more to marketing than premiums. “If small firms were to receive the same premiums as large firms or self-insured firms, the cost of administration would decline?” Large firm premiums reflect the experience of the group, which tends to be better than the individual market; self-insured plans do not have premiums. Premiums primarily reflect the use of health care, how does setting lower premiums cause administration to decline? The bulk of administration goes to the processing, evaluation and payment of claims, that is not going away. In addition, PPACA calls for new internal and external appeal procedures that will add considerably to administrative costs.
Consolidating the marketing for individuals and small groups may lower some marketing costs, but that does not mean it will lower premiums because other elements of reform raise premiums and set the stage for ongoing high health care inflation. In addition, we are opening the flood gates for increased demand of health care services while shifting more costs from the public to the private sector.
Here is another example of convoluted logic:
Private premiums might be affected by other provisions as well. For example, an excise tax on high-premium health insurance plans, set to take effect in 2018, will introduce a strong financial incentive for insurers to trim benefits and reduce costs below a tax-free threshold of $10,200 for individual coverage and $27,500 for family coverage. Indexing this cap to the overall rate of inflation in the economy plus one percentage point will encourage insurers to seek out value and efficiency continually, thus placing downward pressure on premiums over time.
The fact is that the vast majority of plans affected by this provision are large self-insured plans, plans for government workers and union plans. Insurers do not design these benefits and there are no premiums set by insurers. Unions and employers, including the various states, design benefits. “Encourage insurers,” what insurers? Did Blue Cross of Michigan get General Motors into trouble with its generous health benefits for active and retired employees? No, it was GM management and the UAW who negotiated those “high-premium health insurance plans” Give me a break.
Here is another thought, trimming benefits means higher out of pocket costs for plan participants, so we exchange “premiums” for out of pocket costs. The fact is that employers are already looking for ways to trim benefits and avoid this tax (and save themselves money), and another fact is that many employers are doing calculations to evaluate the benefit of paying the penalty for not providing any coverage versus the cost of coverage.
It is pure pie in the sky to assume that this massive legislation will make things better or cheaper for the millions of Americans who already have health benefit coverage, especially employer based coverage.