Health Plans' Mastery of Obamacare Poses Challenge To RepealCommentary by John R. Graham
April 22, 2015
Can Obamacare still be repealed? Well, that depends. If the politicians will legislate according to the people’s preferences, Obamacare is a jump-ball.
According to the Kaiser Family Foundation’s latest tracking poll, 43 percent have a generally favorable opinion of Obamacare, while 42 percent have a generally unfavorable opinion. Further, 22 percent claim Obamacare has hurt them or their family directly, while only 19 percent claim it has helped. That leaves more than half who do not think Obamacare has directly affected them.
Perhaps the 25 million who have become insured or dependent on Medicaid after Obamacare rolled out will confirm its success. Actually, there has been no improvement in access to care due to Obamacare. The Commonwealth Fund reports that 35 percent of adults delayed medical care because of cost last year – versus 37 percent in 2005. Further, the proportion of adults ages 19 through 64 who had a medical problem but did not visit a doctor or clinic was 22 percent in 2003 and 23 percent last year. Thirteen percent did not receive needed specialist care last year – the same percentage as in 2003.
Basically, when it comes to access to care, Obamacare has returned us to the status quo from before the Great Recession – at great cost to taxpayers. And that is only the picture in broad strokes. Very few people account for most medical spending, and those very sick people are doing poorly in Obamacare plans. A politician who offers a compelling plan to restore prosperity, as well as repealing and replacing Obamacare, should not face overwhelming odds convincing Obamacare beneficiaries.
The real obstacle to advancing an alternative to Obamacare will be interests in the health sector, which has mastered Obamacare remarkably. The latest evidence is the first quarter earnings reported by UnitedHealth Group (NYSE:UNH) and Hospital Corporation of America, or HCA Holdings (NYSE:HCA), both of which Forbes colleague Bruce Japsen describes as having had the “best Obamacare quarter yet.”
UnitedHealth Group posted revenues of $36 billion, 13 percent more than Q1 2014. The stock jumped 3.6 percent on the news. Every part of the firm’s domestic business did better than expected: Medicaid, Medicare, employer-based benefits and Obamacare exchanges.
Growth in health plans’ Obamacare exchange and Medicaid business is to be expected. However, the continuing success of private Medicare plans (called Medicare Advantage) continues to surprise, because Obamacare was supposed to cut their payments. Snatching this victory from the jaws of defeat was the real test of health plans’ mastery of Obamacare, and they have done it.
Further, they are keeping medical claims under control. Obamacare supporters continually remind us that Obamacare forces insurers to give rebates to customers if they make too much money, and that this is causing them to lower overhead and profits. Financial analysts roll their eyes at such claims. UnitedHealth Group’s ratio of medical spending to premiums dropped from 82.5 percent to 81.1 percent, but that did not come out of overhead or profits.
As a result, UnitedHealth Group and other health plans are a far greater obstacle to repeal than Obamacare beneficiaries are. A successful alternative reform would have to convince them that the potential reward is higher than the risks. Here’s what that would look like:
First, people recognize that Obamacare induces insurers to enroll healthy people and shun sick people, making health plans less popular than ever. An alternative reform that improved the incentives for health plans to seek out sick people would be achieved through superior risk adjustment, whereby plans which over enroll healthy people reimburse plans that over enroll sick people.
Second, both Obamacare beneficiaries and the general public recognize that the health insurance exchanges are frustrating experiences that cost a lot of money. Scrap them and let people buy health insurance from brokers and agents, either on line or in person. This will make the purchasing experience less painful and should benefit insurers.
Third, convince insurers that Obamacare is bad for the economy. Obamacare’s taxes have harmful incentives, including reducing working hours. An improved system of tax credits for buying health insurance, which would not phase out so steeply as incomes rise, would motivate people to work more hours. Health care a superior good: The more income people earn the more health care they want. So, health plans should welcome such a reform.
Convincing health plans that there is a better future than Obamacare is not an easy lift. Neither is it impossible.