Most of us have seen the E-Trade commercial where the e-baby’s friend is trying to secure his retirement with scratch-off lottery tickets. As it becomes clear that his friend is engaged in a predictably losing strategy, the e-baby, totally unsurprised at his friend’s growing pile of losing tickets, mockingly says, “Let me show you my ‘shocked face.’”
Now that we are a couple of years into the implementation of PPACA, the news isn’t good and most of the insurance professionals I know are showing their “shocked face.” It isn’t pretty. The first news leaking out of our nation’s capital surrounds the fundamental cost estimates of the program. The second concerns some new thought around the potential cost-saving provisions of the act.
As PPACA was being “debated,” people with even a rudimentary grasp of basic mathematics understood that if you calculated 10 years of costs for the plan, but the plan was not in force and operational in the first two of those years, you were actually calculating 8 years of the plan’s cost. Although the folks in government are quite facile with the linguistics surrounding their cost estimates, their math was of the voodoo variety.
You may recall that the “magic number” needed to gain enough votes to pass PPACA was $900 billion. So, how far off that number were the original projections? According to the Congressional Budget Office, a new estimate of costs out to 2022 is nearly double the $900 billion mark. The new price tag is now estimated at a breathtaking $1.76 trillion.
Senator Jeff Sessions (R-Ala.) worries that even this new estimate is incomplete. “The bill spends more than the president promised, it covers fewer people — probably 2 million fewer people — and it taxes more than was expected.” Session is the ranking member of the Senate Budget Committee so he is intimately acquainted with the act’s costing.
According to the senator, the $1.76 trillion doesn’t include implementation or other costs that will drive the plan’s cost further off the original estimate. “The full accounting of the bill is $2.6 trillion. That’s a fair and accurate analysis of what the bill would cost according to CBO.” For an additional bit of perspective, he adds, “We spent a whole summer fighting over a way to reduce spending by $2.1 trillion, and here this bill is going to add $2.6 trillion more in spending.”
Work-around doesn’t work
Sadly, this kind of cost overrun is completely consistent with other entitlement programs. We have previously reported on the breathtaking underestimates in the original medical projections. Amazing as the disparity between $900 billion and $2.6 trillion may be, it is symptomatic of a kind of Washington mathematical calculation that completely defies reality. The recent dustup between regulators and the Catholic Church is a perfect example.
Put aside the discussion of whether it is appropriate for the government to mandate benefits that violate the tenets of religious-based organizations. The administration’s answer to the initial outcry was a work-around so that the religious organizations wouldn’t offer or pay for these disputed benefits. Instead, their insurance companies would.
Perhaps I spent too many years in the TPA segment of our industry, but the first thought that came to my mind when I heard the administration spokesman offer that “accommodation” was that these groups are often self-insured. There is no “insurance company” (other than perhaps a reinsurer) involved. The employer is the “insurer.” My second thought was to wonder how the implementing agency, run by a former insurance commissioner, did not advise the White House of this fact.
Yet even that is not the most startling aspect of the argument. The administration’s minions began their obligatory news outlet appearances in support of their solution. One after another, they told viewers that since the insurance companies would be paying for the benefit, the church-based organizations would have “no cost to bear” and thus would not be paying for the benefit. Easy breezy, kids! Problem solved. Clean hands and pure hearts.
This is completely and totally indicative of the absolute disconnect between some members of the political class and the real world — or at least, real economics. Yet, this kind of thinking abounds not only in the health care plan but in their other financial decisions as well. How often have we heard Congress describe spending more than they did last year but less than they budgeted for this year as a reduction in spending? Try that at home or in your business and see how it works.
Uncontrolled control measures
Perhaps more disconcerting than the the revised cost of PPACA is that it now seems as though the precious few things the bill did in attempt to bring effectiveness or efficiency will bring neither. Daniel Kessler is a professor of business at Stanford University and a senior fellow at the Hoover Institution. Writing in an op-ed in The Wall Street Journal (March 14, 2012), professor Kessler believes that “three of the law’s most-touted cost-control measures have already been shown to be unlikely to succeed.”
Kessler is in good company. There weren’t many outside of the political voodoo economics practitioners who thought PPACA would bring cost savings. Interestingly, while most of the naysayers base their argument on the “expansion will cost more” fundament, Kessler’s concern is more specific. First, he suggests that Accountable Care Organizations may “raise costs for privately-insured individuals by increasing hospitals’ and physicians’ power to raise prices.” Of course, that power exists today. Doubt it? Just ask anyone at a health plan who has tried to negotiate network contracts.
The professor’s second concern is with the Independent Payment Advisory Board (IPAB), which is supposed to suggest ways to reduce Medicare spending in the event that Congress can’t accomplish that goal by itself. He notes that (former OMB head) Peter Orszag and Ezekiel Emanual, (brother of Rahm and a former special adviser on health policy) both believed the IPAB was the law’s “most important institutional change.”
Some in Congress, spurred by a recently revised CBO estimate, are now attempting to dismantle IPAB. It now appears that the CBO believes IPAB will have no budgetary impact. Congress could reduce Medicare spending, but the professor points out that every time our representatives have made deep Medicare cuts. they have immediately “undone” them in subsequent legislation. This gavotte has become colloquially known as the “doc fix.”
Finally, Kessler points to the requirement that states that exceed the scope of the “essential health benefits” (EHBs) promulgated at the federal level must reimburse individuals for the cost of those extra-essential benefits. PPACA’s framers believed that this would throttle the ever-expanding state-imposed health plan mandates. Yet in December 2011, HHS put control of the components comprising EHBs in the hands of the very states it sought to rein in.
Nullum prandium gratuitum
As long as we can remember, no matter how destructive any legislation may be, it is usually the regulations written afterward that do the real damage. Legislators and regulators don’t operate within real-world constructs that constrain the rest of us. In light of the cost overruns on a program that has not yet been fully enacted and sharing professor Kessler’s concerns for the cost-containment initiatives that seem to be off the rails already, we can but offer three words of advice.
Since so much medical language is still written in Latin, we will follow suit: nullum prandium gratuitum. No matter how much we wish it were so, there simply is “no free lunch.” Real change will require real reform of those elements driving the real costs.