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MedHOK Strategic Insights Blog

What Scottish History and Obamacare Have In Common

Marc Ryan | July 11, 2018

original_31602724Some of you may be thinking, ‘This man’s gone crazy. What can Scottish history have in common with Obamacare?’  It’s easy. While here in Scotland for my daughter’s college graduation, I have learned a great deal about the country’s history. The intrigue, the battles, and, indeed, the torture. One man, Scottish hero William Wallace (of Braveheart fame), was captured by the English and suffered an unseemly death in 1305 (I am much too polite to recount it here). This week, the Centers for Medicare and Medicaid Services (CMS) announced that it is suspending the Exchange’s risk adjustment payments. With this announcement, my mind quickly began drawing terrible parallels to Wallace. Like Wallace, the Affordable Care Act (ACA), commonly referred to as Obamacare, seemingly, too, has been hanged, drawn, beheaded, emasculated, quartered…well, you get the point, and I guess I just recounted Wallace’s death with little or no decorum.

To understand exactly what is happening, we must go back to the three Rs. No, not reading, (w)riting and (a)rithmetic, but the three Rs of the ACA: risk adjustment, risk corridors, and reinsurance. The last two of the three were meant to be temporary measures to help stabilize the Exchanges in the first three years. Reinsurance (per claim risk sharing between the plan and the federal government for high-cost cases) was underfunded by the government, but not so much so that it didn’t help plans deal with the catastrophic losses they may not have foreseen with a new insured population. However, the risk corridors (primarily the government sharing in overall losses at the end of the year) were terribly underfunded beginning in the first year of the ACA (about 13 cents on the dollar) and this led to the mass exodus of co-ops, small plans, and even some bigger players from the Exchanges. A virtual hanging of the ACA. We will get to risk adjustment soon.

With Obamacare now on life support, next came the drawing of Obamacare – the withholding of cost-sharing reduction (CSRs) subsidies that helped minimize copays and co-insurance for those of limited income. This began in the second half of 2017. Courts ruled that the CSRs (unlike premium subsidies) were not appropriated and therefore were illegal. The Trump administration cut off the funding for CSRs, and plans turned around and raised already exorbitant premiums to make up for yet another shortfall. The move ended up costing more money through premium subsidies than it saved on CSRs. At the same time, it had the perverse effect of making insurance affordability more out of reach for those who received little or no premium subsidy.

Early this year, the beheading of Obamacare occurred with the repeal of the individual mandate in the tax package. This means that healthier individuals can go insurance bare because they will no longer pay a tax penalty. This will result in there being a greater adverse selection in the Exchanges and higher premiums. Preliminary filings suggest a 15% increase nationwide that is primarily driven by the tax penalty repeal. Through regulatory action as well this year (not all the changes were detrimental), the Trump administration emasculated Obamacare by broadening hardship qualifications and opt outs. It also gave states the ability to sell alternative short-term insurance.

This week, something akin to quartering is now taking place. A court in New Mexico ruled that the risk adjustment system (which seeks to transfer premium payments from those with relatively healthy profiles to those with sicker ones) was not implemented right. While CMS could have taken any number of moves to deal with the ruling, instead, it hastily stated it would suspend the 2017 risk adjustment settlement transfers due in the Fall of 2018. Plans will now mirror what they did with the CSR cutoff by building costs into premiums. This will create even more unaffordability for those who receive little or no subsidy, it might well cost the government more money in the form of premium subsidies and may likely lead to another exodus of plans (and therefore limit access to both plans and providers in many states). We especially feel sorry for the smaller plans who again are relying on risk adjustment payments to stay afloat. Suspending the transfer of these funds could very well endanger their very existence because risk adjustment transfers amounted to about 11% of total revenue (on filed margins that often are as little as 2%). Preliminary rate filings for 2019 seemed to indicate the massive scaleback of the past few years would not continue and that plans might even enter new markets. The risk adjustment suspension could make plans rethink the approach, especially since we are smack in the middle of plan approvals and rate approvals.

This blog has often stated that it thinks that Obamacare needs to be overhauled. It has many flaws. At the same time, consistent with the enlightenment philosophy that came four and one-half centuries after Wallace’s death, we believe that the government made a social contract with plans and has broken those commitments at every pass – on reinsurance, risk corridors, cost-sharing subsidies, the tax penalty repeal, nefarious regulations, and now risk adjustment. We also think that universal access and a reasonable subsidy scheme is the only way to ultimately lower costs and improve quality in the nation’s healthcare system.

The political calculation here by the administration is that its move to jettison risk adjustment payments will further bolster support among Republicans who wanted a repeal – essentially Obamacare’s head (like Wallace’s) on a pike!  The administration gambles that the announcement of Obamacare premium increases in October will be too late to impact the November elections. We would like to see less politics and more forging ahead on a bipartisan compromise that would permanently stabilize the Exchanges throughout the nation, which is the type of strategic thinking like Wallace did at the Battle of Stirling Bridge in his day.

 

 

Affordable Care Act, Medicare, Obamacare, cost-sharing reduction

About The Author

Marc Ryan

Marc S. Ryan serves as MedHOK’s Chief Strategy and Compliance Officer. During his career, Marc has served a number of health plans in executive-level regulatory, compliance, business development, and operations roles. He has launched and operated plans with Medicare, Medicaid, commercial and Exchange lines of business. Marc was the Secretary of Policy and Management and State Budget Director of Connecticut, where he oversaw all aspects of state budgeting and management. In this role, Marc created the state’s Medicaid and SCHIP managed care programs, and oversaw its state employee and retiree health plans. He also created the state’s long-term care continuum program. Marc was nominated by then HHS Secretary Tommy Thompson to serve on a panel of state program experts to advise CMS on aspects of Medicare Part D implementation. He also was nominated by Florida’s Medicaid Secretary to serve on the state’s Medicaid Reform advisory panel. Marc graduated cum laude from the Edmund A. Walsh School of Foreign Service at Georgetown University with a Bachelor of Science in Foreign Service. He received a Master of Public Administration, specializing in local government management and managed healthcare, from the University of New Haven. He was inducted into Sigma Beta Delta, a national honor society for business, management and administration.

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