September 2, 2014
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Affordable Care Act may not be so affordable
Janet Trautwein

The Congressional Budget Office just announced that President Obama's healthcare law would reduce the deficit by $84 billion more than previously thought, thanks to the Supreme Court's decision to allow states to opt out of the law's Medicaid expansion.

Those savings may sound nice. But the law doesn't do much to address our country's chief healthcare challenge -- spiraling costs. Health insurance is expensive because health care is expensive.

The cost of insurance continues to rise faster than inflation. Average individual premiums rose by 8 percent in 2011, according to the Kaiser Family Foundation. Family premiums rose by 9 percent.

The Affordable Care Act will make insurance more expensive. The law levies new taxes on insurers, medical-device firms, and drug-makers that will inevitably be passed along to consumers as higher prices.

New federal mandates are also driving up the cost of coverage. Policies must cover all sorts of medical procedures -- whether patients want them or not. The law also limits out-of-pocket spending and annual deductibles.

The law contains several attempts to rein in costs. But most are unlikely to work as intended.

A prime example is the individual mandate, which requires every American to obtain insurance. The mandate has no teeth. The penalty for going without coverage is a lot smaller than the cost of an average insurance policy.

According to the government's Medical Expenditure Panel Survey, annual individual premiums averaged $4,940 in 2010. Assuming premiums increase at the historical rate of 6 percent per year, the maximum $695 mandate fee will account for just 10 percent of an average premium.

So instead of spreading costs across a wider pool, people may pay the fine and wait to buy coverage when they need it. Consequently, those with insurance will gradually become sicker and more costly to insure. As prices for coverage go up, the fine will look more and more attractive. Through this repeating process of adverse selection, health insurance premiums will rise significantly.

Medicare's reimbursement rates for healthcare providers are also driving health costs up.

Spending in the program is projected to reach $1 trillion by 2022. It will be insolvent by 2024. As more Americans enroll and Medicare's expenses grow, the primary tool for controlling costs will be reductions in payments to medical providers. The Affordable Care Act will likely slash them by about $575 billion.

Providers are concerned about these reductions. Today, physicians treating Medicare beneficiaries receive just 81 percent of the rate that private insurers pay. According to one survey, physicians' top concern is whether they'd be adequately reimbursed by Medicare in the future.

These worries have caused some doctors to stop seeing Medicare patients. This year, the Texas Medical Association found that 12 percent fewer physicians were accepting new Medicare patients.

Seniors won't be the only ones who suffer. Doctors who swallow lower Medicare reimbursements may have to take on additional patients, slash visit times, or raise prices for those with private insurance. And with America's population aging quickly, doctors' patterns of practice in Medicare are likely to spill over to their larger patient pool.

It doesn't have to be this way. There are several easy ways to alleviate the cost problems plaguing our healthcare system.

Insurance brokers have a critical money-saving role to play as the healthcare law is implemented. Many individuals and small businesses struggle to find affordable coverage on their own. The market is only growing more complicated.

A broker's expert counsel can therefore be invaluable. No less an authority than the Congressional Budget Office reports that brokers generate substantial savings for small businesses by finding plans and negotiating premiums. And brokers provide ongoing assistance to make sure consumers benefit from the plans they buy. In fact, agents often get claims amounting to thousands of dollars paid on their clients' behalf.

Demonstration projects that change the way Medicare reimburses providers should also be quickly advanced into actual use.

Take bundled payments, which link payments for the multiple services patients receive during a single episode of care. This coordinated payment structure provides incentives to deliver healthcare services more efficiently.
Value-based purchasing represents another way to reduce costs. This approach rewards efficiency and punishes inefficiency and waste by holding providers accountable for the quality and the cost of care that they deliver.

The healthcare law's efforts to improve access to insurance are admirable. But they'll be wasted if coverage remains unaffordable. Addressing the system's cost drivers is crucial to preventing that unfortunate outcome.

Janet Trautwein is CEO of the National Association of Health Underwriters.


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