Tuesday, August 20, 2013

Obamacare's means testing is a phenomenal waste


Image: This is what Obamacare's means testing looks like, in flow chart form (source)

Much ink has been spilled about what an incredible corporate sell-out Obamacare is (my favorite piece).  But the law's centerpiece--the insurance exchanges--is based on the principle of means testing.  Means testing is always a waste of scarce resources.  As Obamacare's exchanges come online, it's worth pointing out (again) just how phenomenally wasteful Obamacare's means testing is.


First, let's review how the law means tests: Some people without employer-sponsored insurance are eligible for Medicaid, others are eligible for subsidies for private insurance, and others are not eligible for any of this.  But if you get employer-sponsored health insurance, you're not eligible for any of this--unless your employee contribution is greater than 9.5% of your income, in which case you are probably eligible for subsidies or Medicaid, but perhaps not.  But wait--does your employer-sponsored insurance cover 60% of your actuarial value?  Because if it doesn't, then you might be eligible for subsidies or Medicaid.  Oh, and this is all affected by your immigration status, and, in some states, if you're pregnant or maybe if you have children.  Oh, and you're children could be eligible for CHIP, but maybe not--it really depends on your income and the state you live in.  Make sure you apply with the size of your family, too, and it might be financially advantageous to report an undocumented immigrant in your household.  Wait a minute--are you married?  Because this also affects what you're eligible for (it will probably screw you over).

This is unimaginably complicated, because every step of this process needs to be verified: one's income, one's spouse's income, if employer-sponsored health insurance is offered, if one's spouse is offered employer-sponsored health insurance, what the actuarial value is and what employee contribution the applicant needs to make (ditto for the spouse), immigration documentation status, etc.  Your income needs to be verified by the IRS, documentation status with INS, and the nature of your employer-sponsored needs to be verified somehow with your employer and the insurance company.  Every single step of this process needs to be verified.  The National Association of Insurance Commissioners made a flow chart (h/t) showing just how complicated this is (click for larger version):


Indeed, this mess can't be sorted out on the cheap.  Just to set up the exchanges, the federal government will have spent $5 billion by the end of 2013.  California alone used $900 in federal grants for setting up their exchanges.  Amusingly, the original law set aside just $1 billion for all start-up costs of the entire law, including the exchanges; the California exchanges cost nearly that alone.  Apparently, the Democrats who wrote this bill forgot what an enormous, inefficient waste means testing is.

Remember, these costs are just for setting up the exchanges.  Running the exchanges will be an ongoing expense each year.  I was unable to find an estimate of the annual cost of running an exchange 2014 and beyond, but does anyone doubt it will be nine figures or more, per year?

What if the government didn't set up the exchanges to means test, and instead used that money to buy people private insurance, without worrying about who is eligible?  The average cost of employer-sponsored health insurance is $5,279 for an individual and $15,199 for a family per year (for a family that's $10,704 average employer contribution; $4,495 average employer contribution).  $1 billion could buy individual health insurance for 189,430 people or family coverage for 65,794 families for one year.  For $5 billion, 947,150 individual and 328,969 family policies could be purchased.  If there was a public option, those numbers would be doubled, since Medicare costs about half that of private insurance.

Essentially, means testing and the exchanges exist to ensure that people don't get more government assistance than they are supposed to.  But why?  Is it really worth it?  With limited resources, is it really a good idea to spend billions when the law still leaves millions without health insurance?  Without the law, we have 53 million uninsured; with it, that number will not even be reduced by half.*  That's right--Obama's signature uninsurance bill does not even reduce uninsurance by half.  That is by design, and has very little to do with the Supreme Court decision making the Medicaid expansion optional.  The law as originally written would have left 27 million people uninsured; with that Supreme Court decision, that number was increased only to 30 million uninsured.  Leaving millions uninsured is the plan, not an unforeseen consequence.  A single payer system--which would cover everyone ("Now, the truth is unless you have what's called a single-payer system in which everyone's automatically covered, you're probably not going to reach every single individual." -Barack Obama, July 22, 2009)--would actually save money compared to our current situation.  Make no mistake--we are literally paying money to keep people uninsured.  It literally costs less to cover everyone than to cover less than everyone.  Means testing is so expensive and inefficient; that's why it's a fundamental tenant of social democracy not to means test.

[*Update: No, the majority of uninsured will will not be undocumented immigrants. A central issue is the fact that if your employer offers insurance, you are not eligible for subsidies, unless the employee contribution for employer-sponsored health insurance exceeds 9.5% of your family's income. Obviously, a working poor family cannot afford to drop 9.5% of their entire income on health insurance. Working poor families in this situation will be left without health insurance--they have no options. You did not misread that--the Democrats' strategy for expanding access to health insurance involves forcing working poor families to spend up to 9.5% of their household income on health insurance.]

Step back and realize just how cruel this is.  As an example, this single means test will prevent 6.6% of all American children from getting health insurance.  Remember, 45,000 people die every year simply due to lack of health insurance.

It's a fair criticism of this line of reasoning that not all of the money in the exchanges is used for means testing.  Some of the money is for means testing and some is for the infrastructure for people and businesses to compare available insurance policies.  But, again, is this really worth it?  A single payer system or a public option would render the entire exchange system irrelevant.  It would also provide higher quality insurance at a lower price.  Why pay money to help people decide between these fish sticks or those fish sticks, when everyone could instead have a gourmet salmon filet for less money?

Means testing is not just expensive; it's also extremely complicated

Let's review the delays in implementing Obamacare to show another fault of means testing: how extraordinarily complicated it is.  I'm not accusing the Obama administration or Health and Human Services bureaucrats of incompetence.  It's just that they're trying to create an extremely complicated infrastructure from scratch--and, again, the only point of this infrastructure is to prevent people from getting insurance.  Most recently:
There’s a rule in Obamacare that limits out-of-pocket costs — including deductibles and co-payments — to $6,350 for individuals and $12,700 for families. Sounds simple enough.

But when the Obama administration went to implement the rule, it found it wasn’t going to be that easy. Some insurers and employers lack the capacity to keep track of an individual’s out-of-pocket health costs. They often use different companies to administer medical benefits and pharmaceutical benefits — and those companies’ computer systems don’t speak to each other. Implementing the rule would require upgrading those systems — and that takes time.
So the implementation of this provision was delayed a year.  Next [emphasis added]:
The Obama Administration...will delay enforcement of a major Affordable Care Act requirement that all employers with more than 50 employees provide coverage to their workers until 2015...“We have heard concerns about the complexity of the requirements and the need for more time to implement them effectively,” Mark Mazur, Assistant Secretary for Tax Policy, wrote in a late Tuesday blog post. “We recognize that the vast majority of businesses that will need to do this reporting already provide health insurance to their workers, and we want to make sure it is easy for others to do so.”
This last one has to do with the insurance exchanges discussed above:
The Obama administration announced Friday that it would significantly scale back the health law’s requirements that new insurance marketplaces verify consumers’ income and health insurance status. 
Instead, the federal government will rely more heavily on consumers’ self-reported information until 2015, when it plans to have stronger verification systems in place.
Again, the infrastructure did not exist--it had to be created from scratch--and no one should be surprised that there are delays, or that creating the infrastructure is extraordinarily expensive.

Again, this is an extraordinary amount of money being spent for no reason other than to keep certain people from getting health insurance.  And, again, a social democratic system would not have to worry about this at all.  The intended consequence of these provisions (preventing people from getting billed for a crushing amount of cost-sharing, in the first example), are automatic in a single payer of public option.  Nobody has to plan it out; no computer systems have to be upgraded; no one needs to sort out confusing individual cases.  It just happens.

Who does your government actually represent?

I keep repeating that we are literally paying money to keep from covering everyone. It's worth also repeating that the reason we are doing this is because the government doesn't actually represent Americans--it represents American corporations.  That's true of Congress, and that's certainly true of President Obama.  A single payer system is obviously bad for the health insurance industry--it would put them out of business overnight.  And a public option is bad for the health insurance industry, since there's no way private insurance could ever compete with cheaper, higher quality, public insurance.  So, our representative government threw us under the bus to help its constituents--the health insurance industry.  There is no public option because President Obama didn't want a public option, a fact that is nicely summarized by Glenn Greenwald.  And let's not forget the industry capture of the person who wrote the law in the first place.

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