Employers Escape the Obamacare Mess (For Now)

October 8th, 2010 at 5:55 am | 22 Comments |

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The Obama administration is in the process of exempting an unknown and likely unlimited number of employers from the rules of Obamacare.  This week, the Department of Health and Human Services announced that thirty companies and organizations (including McDonald’s) were granted a one-year waiver to exempt them from implementing the Democrats’ new healthcare reforms.  Why?  In short: because the administration realizes that Obamacare makes absolutely no economic sense.

Just as King Canute failed to hold back the tides, Health and Human Services Secretary Kathleen Sibelius is failing to hold back the reality of American healthcare economics. The decision debunks many of the Democratic party’s myths about American healthcare and what needs to be reformed.

First myth: That the health insurance companies are evil and highly profitable and that Washington can control healthcare costs by simply making them spend more of their overhead on actual patient care.

In reality, while the insurance companies are certainly annoying to many doctors (and to some patients) that is because they are actually trying to make a profit or retain earnings (as non-profits do) because that is the only way costs can be controlled and companies can survive. If you pay out more than you take in, you will go out of business. If one wants health insurance companies to go out of business, one need only create mandates and targets that are economically unreachable and you achieve your agenda. The administration realizes that when many insurers implement the new healthcare reforms some of them would need to raise premiums or drop some plans altogether.  The president’s promise that “if you like your insurance plan, you can keep it” won’t stand true if bureaucracy and the new reforms drive not-for-profit, low margin insurance companies out of business.

The Obamacare waivers granted to insurers also help them escape from the problematic mandate that insurers spend a certain percentage on benefits.  Obamacare now dictates that someone in the Health and Human Services building in Washington can demand that insurance companies that, for a myriad of reasons, spend, say, 22% of their revenue on performing needed activities like running rapidly turning-over enrollments instead spend only 20% on such activities. That is a fine way to control costs if the insurance company could comply. But it has always been in insurers best interests to lower their overhead in order to increase their profitability.  In many cases, the reason they haven’t lowered their overhead might simply be because they could not.

Can someone in Washington really dictate whether the insurance company that runs the McDonald’s minimal insurance plans reduce their overhead by 10% or so? Clearly they cannot and hence the need for the waivers. They can add and subtract at HHS even if Congress cannot.

Second myth: Healthcare costs can be contained if we only had the government in charge and had a single payer plan. In fact, the Organization for Economic Cooperation and Development, the keeper of vital economic statistics for the EU and the U.S. reported a 9% increase in healthcare spending last year.  Yes, we in the U.S. spend more than any other country but the rate of increase is unsustainable in countries with single payer government plans. We do not need such a plan. What we do need is a plan that creates a market dynamic as the only path to efficiency. Forcing insurance companies and employers to spend more on healthcare will also not address this issue. We have not heard much about “bending the cost of care curve” lately, have we?

In the future, look for more Obamacare “waivers” – and perhaps even a giant waver for the whole mess that has been created.

Recent Posts by Stanley Goldfarb



22 Comments so far ↓

  • CD-Host

    Stanley –

    You are now getting into an area I know a great deal about, administrative overhead of insurance companies is something I’ve spent years on. Yes you can cut overhead in these corporate plans primarily by simplification. Make sure that benefits adjudication is simple for doctors and insurance companies. That often means reforming state laws, it also means generally removing complex specials. Companies not infrequently drive complexity. Something like, CEO ABC lost his first wife to ovarian cancer so he wants a cheap plan except on cancer related issues, oh but he wants to avoid non ovarian cancer big ticket items…. Get rid of that nonsense and have a few standard plans (i.e. less coverage codes) and think them through in ways that benefits adjudication becomes simple.

    But that’s moving to government actually controlling plans and dictating state regs. We as a society have to start deciding. As for your comments about European costs, I only wish we had the healthcare problems Europe had. I would trade our problems for their problems in an instant.

  • drdredel

    Stanley, not knowing what you’re talking about is not a good jumping off point for writing essays.

    The “giant mess that has been created” is only a fraction of the mess that we have in place, and while the new plan has a lot of very bad ideas, the point of the exercise is to get some motion on changing our current system, which is easily the most fucked up in the civilized world (international unsustainable growth notwithstanding).

    We HAVE a market dynamic. It’s just not the market dynamic that gives insurance companies any leverage whatsoever. nor the patients. The market dynamic is that giant hospital and pharma conglomerates overcharge us like mad because they know that we will pay absolutely whatever they charge. There is no responsibility anywhere in the system and the gougers are the very people who, in theory, have an oath to uphold to treat us for our ills.

    There is a very good role for government in all this. That of a price setter for what medical care should cost, region by region, procedure by procedure. They can be REALLY generous and still produce savings many factors below what things cost now.

    Heath care is not something that should be subject to market dynamics. We’re talking, very directly, about human life. Have you written any essays lately about how people who can’t afford to pay out of pocket shouldn’t get anyone to come put out their burning house? Why isn’t that subject to market dynamics? I’ll tell you… because Firemen haven’t started demanding that we buy them $4500 axes and 20 million dollar engines.

    There is no simple solution here. Anyone whose explanation of how to fix the mess we’re in can be reduced to one sentence (you, in this case) needs to be reminded of the old saying:
    Nothing seems hard to the people who don’t know what they’re talking about.

    And ditto what co-host said about Europeans. No matter how unhappy they are with their system, whenever they catch wind of what we have going over here their heads explode… They can’t BELIEVE that we aren’t all standing with torches and pitchforks on the government’s doorstep demanding reform; and the lunatics who actually DEFEND the farce we have in place? I’m not sure how to even begin figuring out what’s going through their heads. Presumably, very little.

    cheers.

  • Oldskool

    What we do need is a plan that creates a market dynamic as the only path to efficiency.Tennessee has a fire department that uses an awesome market dynamic. But I think they borrowed the idea from our health care system. : (

  • TerryF98

    If these provisions cause you trouble Stanley then change them to something better for your citizens, you have the power in red states to do just that, why are you not doing it instead of bitching moaning and filing frivolous lawsuits.

    “Sen Wyden

    So, in both the Healthy Americans Act and in the current health reform law, I included a provision that would allow states to gain an exemption from certain federal requirements—such as the individual mandate, the employer penalty and the exact standards for designing the exchanges, subsidies and basic health insurance policies—if they could find a way to do a better job of covering their state’s citizens.

    To date, I haven’t seen a single one of those states currently filing lawsuits against the individual mandate propose better ways of covering their citizens. In fact, one of the reasons I have been drawing attention to the state waiver is to highlight the insincerity of those filing lawsuits. If states aren’t happy with the federal law they should be spending their energy innovating ways to do better rather than wasting taxpayer dollars on lawsuits that—if successful—would leave their state’s citizens with nothing.”

  • Watusie

    LOL – did you read that OECD report you cite?

    The biggest spender on health was the United States, which spent 16 percent of its national output or $7,538 per person in 2008 — the latest year for which full figures are available. This was well over double the $3,000 per person average of all OECD countries.

  • Xunzi Washington

    I think it should be a condition on Stanley writing these endless columns that he have to reply to the comments under them.

  • easton

    Dr. Elite hack is at it again. Hey hack, you try to live on McDonald’s health insurance. Now if Dr. Elite Hack bothered to read anything outside of his bubble he would know something. This is from TNR:
    During the forced famine in the Ukraine under Stalin, you had mass starvation, and one of the things people to survive did was sell some kind of gelatinous stew that actually consisted of human flesh. (The purpose of selling the stuff was so that everybody could tell each other they were eating something non-human based.) Now, suppose the government changed policies and ended the famine. Would you complain that they’re putting the flesh-sellers out of business and taking away a major source of nutrition?

    That’s basically what’s happening in health care. McDonald’s, for instance, has a bare-bones health insurance plan it sells to its employees. That insurance is going to go out of business due to the Affordable Care Act. Is that a problem? No, explains David Leonhardt. The problem is that people had to buy that insurance in the first place:

    Consider what it would be like to have a health insurance plan that capped annual benefits at $2,000. For any medical care costing more than that, you would have to pay out of pocket.
    Examples of care that costs more than $2,000 — and often a lot more — include virtually any cancer treatment, any heart surgery, a year’s worth of diabetes treatment and care for many broken bones. Even a single M.R.I. exam can cost more than $2,000. A typical hospital stay runs thousands of dollars more.
    So does this insurance plan sound like part of the solution for the country’s health care system — or part of the problem?
    A $2,000 plan happens to be one of the main plans that McDonald’s offers its employees.
    Now, in a system where everybody who’s not elderly is on their own, McDonald’s health care plan can be marginally useful. But having a plan that only covers the first $2,000 in expenses is a terrible situation to be in. I’m pretty happy those people now have a chance to buy a real, affordable health care plan.

    And here is Jonathan Cohn (a writer Dr. Elite Hack can’t hold a candle to):
    Here’s a headline sure to give the White House and its allies grief today: “McDonald’s May Drop Health Plan.” It’s for an article by Janet Adamy in the Wall Street Journal. It’s only a matter of time until it becomes fodder for conservative blogs, Fox News, and Republican campaign commercials.

    But it’s not really bad news about health care reform–at least, not for the reason you might think.

    First, the basics: One of the new regulations about to take effect under the Affordable Care Act requires that insurers spend no less than 85 percent (in some cases, 80 percent) of premium dollars on actual patient care, as opposed to overhead, marketing, or profit. McDonald’s isn’t happy about that. In a memo it submitted to the Obama Administration last week, the company says that the insurance it provides some 30,000 employees won’t meet that standard and that, without some kind of special waiver, they would likely drop the policies.

    By this morning, both McDonalds and the administration were saying the story is overblown. McDonalds says it has no plans to drop the coverage and that it’s been in discussions with the administration over how to make sure it can keep offering the policies. The administration is saying much the same thing–that it’s aware of the issue, has been talking to industry representatives, and has already made clear these plans will be exempt from some of the early regulations on insurance.

    More important, the administration has yet to finalize the rule about how insurance companies spend their money (or what is known as the “Medical Loss Ratio”.) It’s entirely possible the administration will phase in the requirement slowly. Most likely, then, McDonald’s employees who like these plans will get to keep buying them, at least for the immediate future.

    But is that a good thing?

    As the Journal story makes clear, the policies in question are so-called mini-med plans with very limited benefits. In the case of McDonald’s, according to the Journal, there are two options: Employees who go with the minimum plan pay $14 a week for a policy that won’t cover more than $2,000 in medical bills a year. Employees who opt for the “generous” option pay about $32 a week for a policy that maxes out at $10,000.

    To call that “insurance” is to distort the definition, since these policies would do very little to help people with even moderately serious medical conditions. (You can blow through $10,000 in medical care with one emergency room visit.) And those are the people whom insurance is supposed to help, since they are the ones who face serious financial hardship or have serious trouble getting access to care. As Aaron Caroll, who now blogs at the Incidental Economist, wrote several months ago when the issue first came up, “There are a host of health insurance plans out there that are cheap. It’s just that the majority of those also are crappy. Sure, they’re great if you’re healthy. They only stink when you get sick; but that’s when you need them.” (Actually, they’re not even so great if you’re healthy–but that’s a story for another time.)

    In the long run, McDonald’s employees need policies that protect them in case of serious medical problems. And they need policies they can afford. They’ll get those policies thanks to the Affordable Care Act–but not until 2014, because the administration and Congress couldn’t come up with enough money to implement the full scheme sooner.

    For now, some fast-food workers can take advantage of the law’s early benefits, like the temporary insurance plans for people with pre-existing conditions that the administration and the states have been starting. But for the most part these people will have to wait.

    They may get to keep their McDonald’s brand insurance. But they still won’t have insurance.

    And here is Igor Volsky on this (written on Sept. 30) how slow is Dr. Elite Hack?
    McDonald’s is denying reports that it plans to cancel health insurance for almost 30,000 workers unless federal regulators loosen requirements for plans to spend 80 to 85 percent of premium dollars on health care costs. “Media reports stating that we plan to drop health care coverage for our employees are completely false,” a McDonald’s spokesperson told Politico’s Pulse. “These reports are purely speculative and misleading.”

    But according to the Wall Street Journal, a senior McDonald’s official informed “the Department of Health and Human Services that the restaurant chain’s insurer” won’t meet the new requirements, called medical-loss ratios (MLR), since they are “unrealistic” for the kind of mini-med plans the company provides to many of its hourly restaurant workers. The plans, which often restrict the number of covered doctor visits or impose a relatively low maximum on insurance payouts in a year, have “high administrative costs owing to frequent worker turnover, combined with relatively low spending on claims“:

    McDonald’s, in a memo to federal officials, said “it would be economically prohibitive for our carrier to continue offering” the mini-med plan unless it got an exemption from the requirement to spend 80% to 85% of premiums on benefits. Officials said McDonald’s would probably have to hit the 85% figure, which applies to larger group plans. Its insurer, BCS Insurance Group of Oak Brook Terrace, Ill., declined to comment. [...]

    “Having to drop our current mini-med offering would represent a huge disruption to our 29,500 participants,” said McDonald’s memo, which was reviewed by The Wall Street Journal. “It would deny our people this current benefit that positively impacts their lives and protects their health—and would leave many without an affordable, comparably designed alternative until 2014.”

    The law allows companies to apply for exemptions from the MLR requirements — which are still being drafted — and HHS “says it has already given the carrier for McDonald’s and others the chance to seek exemption from new annual limits on benefit payouts.” “This story is wrong,” HHS spokeswoman Jessica Santillo told Pulse. “The new law provides significant flexibility to maintain coverage for workers. Additionally, this story is premature as guidance on the new medical loss ratio rules has not even been issued. The Administration is working closely with businesses like McDonald’s that are committed to providing health benefits to protect health coverage for their employees.”

    Indeed, insurance commissioners met with President Obama last week to request that certain plans in the individual market be allowed several years to comply with the MLR standard and at least two states Maine and Iowa, have also “asked for a waiver from the rules until 2014 to give health insurers more time to adapt.” Exempting mini-med plans in order to protect the (limited) benefits of some 30,000 employees may make sense, particularly since these policies will probably end by 2014. Then, workers could enroll in more comprehensive health coverage through the Exchanges since mini-med plans would not meet the actuarial value of creditable coverage.

    And as Aaron Carroll points out, that’s probably a good thing. After all, mini-med plans only work for healthy individuals and usually don’t provide enough coverage for anyone with a serious medical condition. “One of the things the ACA does is try and eliminate under-insurance. It tries to regulate the insurance companies so that you can’t get sold a plan that provides too little coverage when you need that. That costs money,” Carroll concludes.

  • easton

    Xunzi: You can’t possibly imagine Dr. Elite Hack reads anything we lowly posters write since he doesn’t bother to read what experts on Health care policy write. If he had he would have had some rebuttals to what these experts said about this. He really is an out of touch elitist (you should have seen some of the assumptions he has based on some of this other posts) who has not the slightest clue how the average man lives. He is, without a doubt, the worst health care writer in the business.

  • Anne C

    If Obama Care is the best way to go for everyone, wh is the government granting waivers to their supporters such as the teacher’s union?

    The ones that will be hardly hit are the employees and the senior citizens . The increase will most likely just be transferred to the employee’s responsibility. And Medicare benefits are expected to be more limited.

    Anne C
    NY Health Insurer

  • Xunzi Washington

    Easton –

    Oh I know he doesn’t read them. I read them, and he gets taken apart in the comments for each column. That’s why I’d love it if he were obligated to reply, to see if this nitwit had any sort of reasonable response.

  • jstephen

    I’m to the point where I won’t listen to anyone about the health care law when they refer to it as Obamacare. You’re only telling me that you are not competent enough to have an adult conversation about it or you are obviously showing me what your stance is about it so why try to talk about it?

  • PracticalGirl

    Easton made my point for me: It’s a wonderful rallying point for the Obama-haters to throw their arms around McDonald’s plan and beat their breasts. But what are they fighting for? The plan covers very little-even the cost of treatment for a grease burn (common in fast food restaurants) wouldn’t be covered, let alone an e-Coli breakout, also relatively common.

    Meanwhile, back in Reality Land, most of the major insurers in the US have quietly decided to stop writing individual plans on children under 19. ALL children. In my state, the largest policy writer (Regence) was even refusing to write children into family policies, until the state insurance regulator and the Attorney General got into it. Still-the for-profits have decided to exclude an entire group-generally considered one of the healthiest in America-from individual coverage to protect them from the possibility of having to cover a child with a preexisting condition like asthma.

    We’re at the mercy of corporations whose stated goals-bigger annual profits to satisfy shareholders-are at complete odds with that other goal-lower insurance and medical costs. Bemoaning the McDonald’s plan while ignoring this is like crying about the paint flaking off the walls when your roof has a massive leak.

  • dgkerns

    It needs to be said in response to every Goldfarb piece: the central problem is the existence of private brokerage at all – at a cost (administration, marketing & profit) of about $300B a year added on to the national health care bill, with no value added to any party other than the brokers themselves, their shareholders, and their purchased political lackeys. Even with inflation, EU health care costs about 50% per capita of the costs in the US, with dramatically better outcomes, e.g. life expectancy, infant mortality, etc. Worshiping at the alter of free market insurance brokerage is so contrary to objective evidence that it can only be an expression of blind ideology and/or fealty to special interests.

  • PracticalGirl

    jstephen:

    A smart poster on FF (i forgot who) once declared that he, too, would begin referring to HC reform as Obamacare. His point? This thing will end up being fantastic for the country, and he wants to make sure nobody else can take the credit once it all reveals itself.

    It’s a good thought, huh?

  • CD-Host

    I don’t consider Obamacare a pejorative either. I would have voted for it and I use the term.

  • drdredel

    I’ve been saying for a while that “Obamacare” is going to be a total nightmare for republicans when it starts to show signs of actually improving this incredible problem. Then they’ll desperately want to claim it as their own, but that’s kind’a hard to do with something known by everyone as “Obamacare”.

    I use it as well.

    Also, I’d like to again say that everyone here (understandably) focuses on the insurance companies as the primary culprit in this mess. But they really aren’t. They are genuinely trying to bring their customers the best service they can afford to give them, and while they are, of course, businesses (and there’s a lot to be said for market capitalism not having a place in something as essential as health care), if you allow that medical care is a business, where everyone in the chain is, ultimately, looking to make a profit, then it’s perfectly reasonable for the insurance link in the chain to function in the same way. If you are a McDonalds employee who gets a grease burn and has to go to the emergency room you will get charged > $2,000 in a heartbeat. But here’s the rub, if you have a “better” insurance plan, they will just pay that money and you will never see the bill.

    Presumably we (as citizens) can’t afford to pay thousands of dollars a month on health insurance, but if no one intervenes to tell the hospital that they CAN’T charge that much for treating a grease burn, then the math simply doesn’t work out, and that doesn’t matter if it’s a public option or Aetna footing the bill.

    The solution, along with all the other components, HAS to include some manner of regulation on what the providers charge (across the board, from equipment manufactures, to pill makers, to the local doctor… though the doctors themselves are by far the least culpable in all this). Hospitals have to have set prices for all procedures that are uniform for everyone (meaning, they can’t cut special deals with one insurer and not offer those deals to Joe Schmoe who walks in off the street).
    Until this happens we’re playing a shell game where we just try to pass the cost of service off to someone, but at the end of the day, it is NOT affordable, and whoever ends up having to pick up the tab will be ass out.

  • CD-Host

    drdredel –

    Actually insurance companies to regulate what providers charge. As does medicare. The problem is that we can’t take advantage of economies of scale not that margins are that thick. There is waste all over the place

    profit margins for insurance companies
    high administrative overhead for doctors and insurance to fight about billing
    no ability to scale
    lawsuits driving defensive medicine

    and on and on and on and on. Are system is a terrible terrible mess. Obama deserves a lot of credit for starting to take it on. People like Nelson and Liebermann deserve to be out of office for kneecapping him. Republicans should have made this a bipartisan effort and Democrats should have come to the table more willing to work with Republicans.

    ——-

    Really what we need is a whole new system where consumers have incentives to keep costs down. That’s the way we regulate most costs in the US no reason not to do that with medicine. Medicare and low deductible insurance are the main villans here.

  • PracticalGirl

    drdredel:

    You are spot-on: Until and unless we control medical costs, nothing changes,

    I am guilty as charged-I do my fair share of “villifying” the insurance companies. I am frustrated, though, at the seeming disconnect of not just average Americans but so-called informed Conservatives. Insurance companies don’t have the public interest in mind, they only think of profits. Insurers are as complicit in the drastic rise of medical costs as the providers themselves, in that they have dug their heels in and refuse to offer reasonably priced coverage, now even going so far as to single out an entire class of Americans. As you say, it’s a shell game: The fewer people who are covered, the more people who blow out on medical bills when they arise, the more the providers get stuck with the costs, the higher the costs become for both insured and non-insured.

    I know this is a bit simplistic, but we live in a country where (somehow) we’ve figured out how to insure beach houses (with government intervention and support) that regularly get knocked down by hurricanes so that they can get rebuilt and knocked down again, yet can’t seem to bring that sort of reasoned thinking to bear when protecting people. When the hell did we become the country that puts a premium on protection of assets except for the human kind?

  • CD-Host

    – that they have dug their heels in and refuse to offer reasonably priced coverage

    No, they haven’t. The problem is that Americans want to believe in magic. If there is a 1 in 1000 chance of having to provide $1m treatment to someone that costs everyone $1k / year. So either we allow the insurance company not to offer expensive treatments or we don’t have cheap insurance. Look at the HMO plans from the late 80′s – mid 90s that offered good insurance for the lower middle class. Those plans were allowed to focus on wellness and ignore the expensive stuff.

  • xyzzy

    Medicare is a mess — financially. It has 6 times the unfunded liability of Social Security (another mess). Now the Obamacare fans somehow seem to think that it won’t be a mess financially — it will be impossible to pay for except by adding even more to our national debt. Can’t you try to see something other than a big goverment solution?

  • CD-Host

    xyzzy –

    Medicare is big government. Healthcare in the US is mainly medicare and medicaid. It already is big government.

  • xyzzy

    I agree. SS, Medicare, etc are all socialist programs and the problem with them: at some point you run out of spending other peoples money — as well as the fact that the government taxes for one thing and spends on another (or just out right loots it like the Dems did to SS by opening it up to general accounting and “borrowing” from it). The goals of the programs seem pretty good but the implementation sucks. SS should become some form of regulated individual savings (untouchable by the greedy fingers of politicians). As it is structured it is prone to failure from such things as an aging population or a work force devasted by war or epidemic, or the continual improvement of health care such that people live alot longer. We can do better than a ponzi scheme. If a private company offered the same scheme for SS the corporate officers would be in jail.