The Medicaid Controversy––The Republican Governors Should Put Up Or Shut Up

Indiana, New Mexico, and Wisconsin are asking the federal government to exempt people making between 100% and 133% of the poverty level from the upcoming Medicaid expansion.

These Republican governors need to put up or shut up.

Ever since the passage of the Affordable Care Act (ACA), Republican governors have been clamoring for block granting Medicaid.

The Supreme Court ruled that a state doesn't have to accept the new Medicaid expansion money under the ACA.

Many Republican governors––all of them actually––were saying before the Court ruling that the Medicaid expansion was yet another unfunded federal mandate they could not afford. Now the Court has told them they don't have to do it.

Be careful what you wish for.

The Congressional Budget Office (CBO) has already done some modeling estimating the impact on the federal budget if some states don't take the federal money and expand their Medicaid program.

Because of the Court ruling giving the states the option to refuse it, the CBO estimates that Medicaid and the related Children's Health Insurance Plan (CHIP) will cover 6 million fewer low-income people. However, the CBO believes about half that number, 3 million, will become eligible for subsidies in the insurance exchange and take advantage of them. Further, the CBO calculates that for every person who is not enrolled in Medicaid because their state opted out, the feds save $6,000 in spending. But for every one of those otherwise Medicaid eligible that ends up in the exchange, the feds will spend $9,000.

So, on a net basis, the CBO estimates that the federal government will save money if the state opts not to expand Medicaid because 3 million people will have no coverage of any kind.

But just how many states ultimately opt out of Medicaid expansion is anyone's guess. Maybe a bigger point here is that Medicaid is a lot less expensive than having to subsidize someone in the insurance exchange.

My own sense is that the Supreme Court ruling could be a fabulous opportunity. Republicans have been calling for Medicaid to be moved to a block grant aktivitas under the complete control of the states––the feds simply promise a flat amount of money and the states get to spend it on the kind of Medicaid aktivitas they determine to be best.

Presuming Obama is reelected, the administration will want to see Medicaid expanded. What a terrific opportunity this could be for Republican governors to come to Washington, DC to do a deal. The federal government has a history of granting Medicaid waivers––the Bush administration did so for Massachusetts enabling that state to set up its universal health plan.

A number of Republican governors have so far said they have no intention of taking the Medicaid money.

But I will suggest that this is a debate that is still to come in each of these states. In Texas, for example, the feds would pick up 95% of the cost over ten years to expand that state's meager Medicaid program––the ACA expansion would pick up another 1.8 million Texans. The provider lobby is desperate for Texas to take that money––the uninsured continue to be unreimbursed care in their hospitals and clinics if Texas doesn't take the money.

Florida stands to gain 94% of the cost to cover another 950,000 Floridians. Indiana would cover 298,000 and Wisconsin would cover 206,000.

As a unilateral mandate from Washington to cover these people in a federally driven aktivitas it is easy to sympathize with these Republican governors and their position. But if these governors were to go to DC and:

• Get themselves that federal Medicaid money in the form of a block grant through the waiver process, 
• Which also gave them wide latitude in setting benefits and using the private sector to deliver care and funding, 
• And, covered the same number of people the ACA intended to cover, 
• And did it with only the federal portion of the money (the 95%), 

It is hard to see how Obama would reject it.

Already, stalwart Republican governors like Virginia's McDonnell, Nebraska's Heineman, Utah's Herbert, Tennessee's Haslam, and Wyoming's Mead all have said they could be interested if the Obama administration was willing to be "flexible."

My guess is that Texas's Perry and Florida's Scott will become just as flexible as soon as the Texas and Florida medical associations are done with them.

But the request by Indiana, New Mexico, and Wisconsin to carve out those making between 100% of poverty and 133% of poverty and send them to the exchange makes no sense at all.

First, every person that went to an exchange would receive $3,000 more in taxpayer subsidies––Medicaid is simply the most efficient way to subsidize people. Second, the exchange subsidies are tied to the "Silver Plan"––which will pay only about 70% of a person's health care costs. To start with it will likely have at least a $1,500 deductible. And, people will have to pay a premium equal to 2% of their income.

A family of four at 100% of the poverty level makes $23,000 a year––at 133% it is $31,000 a year. What good will it do for a family making this kind of income to get a policy designed to pay 70% of costs? And, what good would that do taxpayers at a cost of $3,000 more than if these people were in Medicaid?

What would make sense is for these Republican governors to put up or shut up. They say if the feds give them block grants they can run their Medicaid programs far more efficiently.

So why can't they put a plan together that would cover everyone up to 133% of poverty and do it for the 95% of the original cost the feds were going to pay––leaving the state with no expansion cost?

These Republican governors don't believe their better way can't save just 5% of their Medicaid costs?

The Supreme Court ruling on Medicare could be catalyst for enormous experimentation and competition between the states with Democratic governors taking the traditional Medicaid approach within the ACA, while any number of Republican governors got the block grant and the flexibility they have been calling for to launch a variety of state experiments in health care delivery for the poor.

Why have these Republican governors so quickly lost their confidence that they can do a better job if only the feds would just give them the money and let them do it their way?

Will Many Of The Smallest Employers Circumvent The Affordable Care Act By Using Self-Insurance?

Not surprisingly, only about 10% of firms with fewer than 200 workers take advantage of self-insurance––and almost no very small groups (fewer than 50 workers) use the product. It just isn't worth it for these small employer groups to take the risk that they will either have too many claims or very big claims from their workers––that is what insurance companies are for.

Already, 96% of workers in firms with more than 5,000 employees are in self-insured health plans. For firms between 1,000 and 5,000 workers, 79% are in self-insured plans. For employers with 200 to 1,000 workers, the self-insured rate is 50%.

But with the bulk of the implementation of the Affordable Care Act (ACA) to begin in 2014, that may be about to change.
Under the ACA, self-insured plans are exempt from the new excise tax on health insurance premiums, community rating on premiums (including the 3:1 age bands), and mandates under the upcoming essential health benefit rules.

Self-insured plans are also exempt from the greater regulation insurers face regarding minimum loss ratios and annual rate increase review.

The ability of small employers to in effect opt-out of the ACA's stiffest insurance reform requirements by moving to self-insurance is on the cusp of becoming a market trend. Some insurers are offering to take over the liability for individual health insurance claims (the "attachment point") as low as $10,000 in the very small employer health insurance market––the employer is on the hook for claim costs below that point.

Regulators are worried about self-selection in the market––the healthiest small groups going self-insured and refusing to be part of the ACA's insurance exchange pool leaving only the sickest small groups to fall under the ACA.

Currently, the National Association of Insurance Commissioners (NAIC) model law on self-insurance, followed by many states, prohibits employers from using an attachment point below $20,000. States worried that there will be a mass exodus from the small insured market are looking at raising these attachment points––the California insurance department is pursuing a law to raise the attachment point to no less than $95,000.

While many Democrat-led states could well move to blunt this market move by increasing the attachment point as California is trying to do, it is likely that as many Republican state legislators will be all too eager to let employers opt-out of "Obamacare."

The regulation of insurance––and self-insurance "stop-loss" policies and their attachment points––is still the domain of the states. The ACA didn't change that for the regulation of insurance companies providing stop-loss insurance to self-insured plans.

Insurance brokers, Third Party Administrators (TPAs), and some insurers, pushing self-insurance into the traditionally small group insurance market could be about to do a land-office business, presuming the ACA is implemented in 2014.

Many insurance regulators are also worried that this could muck up the health insurance risk pool in states that allow it. They worry this could lead to those small groups moving to the self-insured market getting a cost break at the expense of those remaining fully insured in the regulated market.

More Predictions Of Rate Shock Because Of The New Health Law

Last week, I reported on my informal survey of health insurance companies and their estimate for how much rates will rise on account of the Affordable Care Act ("Obamacare").

Today, there are press reports quoting the CEO of Aetna with their estimate. The Aetna estimate is worse than mine.

From Bloomberg:

Health insurance premiums may as much as double for some small businesses and individual buyers in the U.S. when the Affordable Care Act’s major provisions start in 2014, Aetna Inc. (AET)’s chief executive officer said.

While subsidies in the law will shield some people, other consumers who make too much for assistance are in for “premium rate shock,” Mark Bertolini, who runs the third-biggest U.S. health-insurance company, told analysts yesterday at a conference in New York. The prospect has spurred discussion of having Congress delay or phase in parts of the law, he said.

“We’ve shared it all with the people in Washington and I think it’s a big concern,” the CEO said. “We’re going to see some markets go up as much as as 100 percent.”

Bertolini’s prediction is at odds with Congressional Budget Office estimates that the law will have little effect on small and large-employer plans and the Obama administration’s projections that middle-class families will actually save money. The 2010 law is expected to extend health care to about 30 million people who otherwise couldn’t get insurance, paid for by new taxes and fees on companies and wealthier individuals.

Those taxes will make coverage more expensive for insurers, as will other provisions such as a ban on discriminating against people with pre-existing medical conditions, Bertolini said. Premiums are likely to increase 25 percent to 50 percent on average in the small-group and individual markets, he said, citing projections by his Hartford, Connecticut-based company.

You might recall that I found baseline individual rates are likely to rise 30% to 40% with younger people's rates doubling because of the change in age-rating to 3:1 that will drive substantial rate compression. I found small group rates increasing by about half this.

My sense is that rates in a few states that have already had significant market reforms and already have the most mandates––Massachusetts and New Jersey, for example––will see little change. But for the vast majority of states there will be rate shock.

I can also tell you that, so far, I have detected no serious effort on the part of Democrats to delay anything. Frankly, I think hard core supporters of the new health law and the administration are in denial about what is coming.

I expect more health insurers to be echoing the Aetna comments in coming weeks. There is a real concern in the industry they need to get out ahead of this telling people why rates are shooting up to counter the "shoot the messenger" attacks that will be sure to come.

And, while the administration is beginning to understand the disruptive effect of converting to 3:1 age bands, they have not been able to find a way to phase it in or cancel it––the statue is very clear that we have to go to 3:1 age rating on January 1, 2014.

Christie Removes Another Republican Excuse For Passing On The Medicaid Expansion

The New Jersey Governor became the eighth Republican to take the Medicaid expansion deal.

What I found notable is that he essentially mimicked Florida Republican Governor Rick Scott in reserving the right to back out in future years if the feds don't keep their funding promises. While the feds are paying 100% of the cost of expansion in the first three years, that support ultimately drops to 90% in later years.

Said Christie, “If that [the fed's funding promise] ever changes because of adverse actions by the Obama administration or broken promises, I will end it as quickly as it started."
One of the primary reasons some Republican governors are balking at taking the expansion is because they think Medicaid is unsustainable and the feds will ultimately have to renege on the deal.

In fact they may be right––presuming we never do anything to reform the program.

But, as Scott and now Christie have shown, they can condition their expansion on those promises being kept.

The remaining Republican governors are just plain running out of excuses for why they think it is a good idea to leave millions of people without at least basic Medicaid health insurance.

Related posts:
By Refusing to Implement the Medicaid Expansion Republican Governors May Be Making the Republican Block Grant Proposals Impractical

Florida's Republican Governor Scott Does a Deal With Sebelius on Medicaid
 

The Cost To Launch The California Health Insurance Exchange Is $910 Million––Does That Sound Like A Lot To You?

So far California has received $910 million in federal grants to launch its new health insurance exchange under the Affordable Care Act ("Obamacare").

The California exchange, "Covered California," has so far awarded a $183 million contract to Accenture to build the website, enrollment, and eligibility system and another $174 million to operate the exchange for four years.

The state will also spend $250 million on a two-year marketing campaign. By comparison California Senator Barbara Boxer spent $28 million on her 2010 statewide reelection campaign while her challenger spent another $22 million.
The most recent installment of the $910 million in federal money was a $674 million grant. The exchange's executive director The Feds Will Administer the Insurance Exchanges for Twice What it Costs to Administer Medicare

Health Insurance Exchange Subsidies Will Be Granted On The Gaji System!––Is There Something Wrong With Obamacare's Federal Data Hub?

Come October millions of people will be applying for tens of billions of dollars in federal health insurance premium subsidies on the gaji system.

On the Friday after the Fourth of July––when the administration apparently hoped no one would be paying attention––the Obama administration dropped 606 pages of regulations. Buried inside was the news that that insurance exchanges can ignore any personal income information they get from the Federal Data Hub during 2014 if it conflicts with "attestations" made by individuals.

That came three days after the administration announced it was putting the employer mandate on hold––and therefore not requiring detailed information from employers regarding the health plans they offer to their workers. The administration said the delay was because of the burden the reporting put on employers. But, was the administration ready to handle the data?

Because there will be no employer reporting in 2014, the administration also said in the Friday regs that the new health insurance exchanges "may accept the applicants attestation regarding enrollment in eligible employer-sponsored plan...without verification." Given the incredibly complex "ObamaCare" 60%/9.5% employer benefit eligibility rule, that will be a challenge for most citizens.

But here's the biggest deal in the new "ObamaCare" regulation: The exchanges are to rely upon the applicant's statement regarding their income the vast majority of the time. Instead of requiring proof of their income, as had been expected when the Federal Data Hub couldn't verify someone's representation, the exchanges will only do a formal check on a "statistically valid sample" of applications."

For those not part of this "statistically valid sample," "the Exchange may accept the attestation of projected annual household income without any further verification."

Apparently, millions of people will receive tens of billions of federal premium subsidy dollars "without any further verification."

It would appear that the administration is going to rely upon subsequent 2014 tax filings, made in early 2015, to reconcile what it paid people compared to what they were actually eligible for.

That presents some big issues.

First, tens of thousands of new "Navigators" will be helping people sign up for health insurance. I am sure the vast majority will be well meaning––but about all will be very inexperienced and likely most concerned about getting the maximum benefit they can get for their "clients."

I can imagine lots of ways the new system can be gamed to get at taxpayer money.

I can also imagine lots of innocent consumers getting their subsidy all bollixed up on the front-end (Do you know your likely “modified adjusted gross income” for 2014?) only to get hit with a whopper tax bill when they finally reconcile all of this on their 2014 tax return. For example, a family of four getting subsidies based upon 200% of the poverty level but ending up making 250% of the poverty level for the year, would see a retroactive liability of about $1,700 on their tax return because of subsidy overpayments.

That begs another question: What happens if subsidy recipients don't file a tax return––as millions of Americans now don't––for 2014?

Two of the essential things the Federal Data Hub was supposed to be able to do was to determine and report to the exchange if a person was eligible for a qualifying employer plan and to be able to feed an individual's income history to the exchanges to help determine the amount of subsidy they would be eligible for.

As of the week of the Fourth of July, it would appear the Federal Data Hub will be doing neither of these things––or at least not doing them to the extent they can be relied upon.

That begs yet another question: Is the Federal Data Hub not working as intended?

Now let's be clear. Any administration that tried to launch a refundable tax credit system was going to run into many of these kinds of challenges. George H.W. Bush proposed such a system, as did George W. Bush, and so did Presidential candidate John McCain––albeit nowhere near as complicated as "ObamaCare."

For me the big persoalan with this administration is how opaque they have been in trying to launch all of this instead of being forthcoming on what they––and the stakeholders who have to work with them––need to be ready to face. It also doesn't help that they waited until the day after the November election to really kick this process into high gear. Nor, does it help their cause to continually tell us there are no problems when everyone knows something is going on.

The top secret Obama administration's efforts to implement the Affordable Care Act took another strange and unhelpful twist this week with these announcements timed when they apparently hoped no one would notice––one immediately before the holiday and the other on the Friday after.

If I believed in conspiracies, I would really have to wonder about what was going on?

What's next?

*****

Kudos to Washington Post reporters Sarah Kliff and Sandhya Somashekhar for, as of Sunday evening, being the only reporters who had gone through the 606 page federal regulation the Obama administration dropped the Friday after the Fourth of July. It was their hard work that led them to report insurance subsidies and employer status will be based on the gaji system.

Apparently, the Obama administration was hoping no one would be willing to dive into over 600 pages of regulations on a holiday weekend.

The Obama administration came within two Washington Post reporters of being right. 

*****

Earlier post:
Administration Delays the Employer Mandate––But What About Small Employers?

People Who Haven't Filed A Tax Return To Get Unverified Health Insurance Exchange Subsidies

The head of the Centers for Medicare and Medicaid, Marilyn Tavenner, is out with a "Myths vs. Fact" clarification memo regarding the waiver of the employer mandate and whether the new health insurance exchanges will verify people's incomes when calculating subsidies.

I noted a couple of things in her memo.

Her memo indicates that the exchanges will request additional income information from a "random sampling" of people when, among other things, "an individual does not have a tax return on file and attests to an income significantly below current wage data."

Federal law required every individual, for example, with income above $9,750 to file a tax return for 2012. The health insurance exchanges are available to everyone making more than 100% of the poverty level ($11,500 for an individual) in states that have not taken the Medicaid expansion and 138% of the poverty level for those states that have.

So, given that the exchange threshold is above the threshold for filing a tax return, virtually every person eligible for a subsidy in the exchanges would have had to file a tax return prior to applying for benefits.

Tavenner makes it clear "the IRS will reconcile advance payments of the premium tax credit when consumers file their annual tax returns at the end of the year, and it will recoup overpayments and provide refunds when they occur."

That begs a question.

What happens if this person also doesn't file a tax return for 2014? Just how will the government recover any incorrect subsidy? Will the exchange keep a person who does not file a return on the exchange rolls in 2015? Will the exchange purge their rolls of anyone getting a subsidy that has not filed a tax return as of April 15, 2015?

Why should we expect people who haven't been filing a return to start now? It has been estimated that as many as 15 million people do not file a tax return.

Tavenner also asserted that:

"No matter which type of Marketplace is operating in a state, the Marketplace will always check the income information submitted by individuals against electronic income data sources such as tax filings, Social Security data, and current wage information. In most circumstances, we will request additional documentation from all affected individuals, such as when an individual does not have a tax return on file and attests to an income significantly below current wage data.

"We will request additional documentation from a random sampling of individuals only in the specific circumstance when:

• "Current income information is not available;
• "There is a significant discrepancy between the income reported on an available tax return and the income provided by the individual; and
• "The individual cannot provide an acceptable explanation for this discrepancy." 

So, if your submitted information matches the information on record, or you have a plausible explanation for why it doesn't, the government is happy but if your income representations don't match anything they have on record or you "cannot provide an acceptable explanation"––including those who don't have a tax return on file––they are only going to check that small statistically valid sample?

What am I missing here? Of course they don't have to check if the information matches.

What everybody is trying to figure out is why the administration has suddenly said they aren't going to check the vast majority of applicants where the information doesn't match and the applicant can't explain it?

Tavenner said in her "Myth vs. Fact" memo that "there have been some mischaracterizations of these regulations," and "she suggested we needed to do a reality check on some of the myths that have been circulating."

I will suggest the most important thing the administration could do toward making people understand what's going on here is to tell us exactly why they aren't going to make an attempt to verify every applicant's representation that doesn't make sense.

And, since they are putting so much faith in the IRS correcting any subsidy problems later when people file their tax returns, they can also tell us what they are going to do about giving people benefits that don't have a history of filing tax returns.

Up until I read her "clarification" memo, I was actually more worried about people getting incorrect subsidies due to the poor verification policies and having a big tax surprise when they filed their returns. For example, a family of four getting a subsidy based upon earning 200% of poverty but actually earning income at 250% of poverty would have a $1,700 subsidy overpayment due the feds.

If they file a tax return.

Obamacare Small Ball––The Republicans Are Winning The Battle Over The Big Idea

Last week the President waded directly into the national debate over "ObamaCare" by calling a big media event in the East Room of the White House to talk about the $100 rebates a small percentage of potentially eligible people are getting under the new health law.

Senate Republican Leader Mitch McConnell countered, "If you’re a family in Covington facing a $2,100 premium increase under ObamaCare, then, really, what would you rather have: a check for $100 or so, or a way to avoid the $2,100 premium increase in the first place?”

NPR's Julie Rovner had a story on Friday––" The Medicaid Controversy––The Republican Governors Should Put Up or Shut Up

So, while the Republicans consistently win on the Big Idea––albeit in almost entirely negative terms because they don't have a comprehensive alternative to "ObamaCare," Democrats play small ball.

Perhaps Democrats can't get past small ball because The Affordable Care Act ("ObamaCare") itself is small ball.

It is not health care reform––it is an attempt at health insurance reform at a time when all of our health care system––Medicare, Medicaid, and private health insurance––is not sustainable.

"ObamaCare" is also lots of pages of health insurance market micro management––small ball if there ever was any. Now, the administration is tying itself up like a pretzel trying to figure out how to make it all work with time running out. All the while individuals, small employers and large employers are fretting over how the new law will impact them.

It shouldn't be a surprise that this administration, now buried in the minutia of injecting an extraordinary amount of micro management into a sixth of our economy, would think a $100 rebate for someone already paying thousands of dollars in health insurance premiums would be a major accomplishment.

I opposed "ObamaCare" in the first place because I thought it was a clumsy attempt at insurance reform and certainly not health care reform. Most importantly, I thought it was wrong to make promises––"The Affordable Care Act"––the law was never designed to keep.

Now the administration is in the simpulan phase of trying to convince people this was all a good idea.

But, just exactly what was the idea?

Oregon Delays Key Element Of Insurance Exchange––Good For Them!

Five years from now no one will remember if their "Obamacare" health insurance exchange launched on October 1.

The state-run Oregon health insurance exchange, Cover Oregon, recently announced it will be delaying web access to the its new "Obamacare" health insurance offerings two to four weeks later than the scheduled October 1 launch date.

People will be able to begin signing up for health insurance on October 1 but only through participating insurance agents and community partners. Covered Oregon said they wanted more time to "debug" the website before opening it up to the general population.

For months, we've all been speculating about whether the insurance exchanges, state and federal, will be ready on time. Given the complexity of the new exchanges and given that the Obama administration didn't finalize key regulations until just after the November 2012 election, being ready on time has turned out to be a huge challenge.

It strikes me that Oregon's decision to delay the online exchange for consumers until they are certain things are in good shape is the prudent thing to do.

While worrying about whether this will all launch on time has been the source of lots of speculation, the thing I most worry about is whether the exchanges are going to get a good cross-section of people––that enough healthy will sign-up in order to offset the costs of the sick.

If the launch is an administrative mess, it is likely that sick people desperate for health insurance will be sure to get signed-up no matter what the hassle factor while healthy people who don't now need coverage will delay rather than deal with the administrative problems they will be hearing about. Why wait on hold for long periods of time or deal with an impossible web portal if you don't really need the insurance right now? It is already hard to get healthy people to buy health insurance without putting unnecessary road blocks in their way.

The biggest long-term threat the Affordable Care Act's insurance exchanges face is that far more sick people than healthy people sign up leading to even higher and higher prices in subsequent years and ultimately the risk of an underwriting "death spiral."

Getting off to a bad start is not an option. Just how many people sign up in the first year, and how healthy or sick they tend to be, will be critical. A poor outcome in 2014 will require insurance companies to raise the rates even higher the next year. That in turn will likely hurt the ability of the pool to improve the following year as costs are even higher, and so on until the "Obamacare" insurance pool looks like the current bad underwriting outcome in states like New York or New Jersey that suffered a similar long-term "death spiral" deterioration in their state-run health insurance pools.

Hitting the October 1 launch date for "Obamacare" should be a minor consideration compared to making sure nothing happens to discourage as many people as possible from signing up––particularly healthy people who don't have an urgent need for health insurance.

It is good to see that the leadership in Oregon understands that where they are in five years is a lot more important than where they are on October 1, and had the courage to announce the best decision.

So If The Maryland Health Insurance Rates Are So Cheap Why Did I Get This Postcard From Maryland Blue Cross?

That's what I wondered when I got this postcard; presumably sent to lots of people who live in Maryland:

In it, (click on card to enlarge) Maryland Blue Cross is telling me that; "I am invited to obtain a [health] plan right now with rates that may be significantly lower than reform-compliant plans [their emphasis]."

Are they suggesting there is rate shock coming?

I was surprised to get this card because the Maryland Health Insurance Exchange recently issued a report that said they would have among the lowest health insurance rates in the country once "Obamacare" goes live on October 1:

For the scenarios evaluated, Maryland’s approved rates are among the lowest of the 12 states that have proposed or approved rates available for comparison. For example, for a 50-year-old resident, New York has approved a Silver plan at a rate of $319 per month. For a 50-year-old resident, Maryland has approved a Silver plan that costs as much as 18% less (from $260 to $269 a month, depending on the region).

Among Bronze plans compared for young adults, Maryland rates were lower than those proposed or approved in all other eight states for which a comparison was possible. For example, the lowest price for a Bronze plan for a 25-year-old in Maryland was $114, compared to $134 in Virginia, $146 in Colorado, $163 in Ohio, $167 in Washington State, and $174 in California.

Among Silver plans for middle-aged adults, Maryland rates were lower than those proposed or approved in all other states except New Mexico. For example, the lowest price for a Silver plan for a 50-year-old in Maryland is $260, compared to $319 in New York, $329 in Virginia, $343 in Colorado, $374 in Ohio, $376 in California, $392 in Washington State, and $400 in Rhode Island.

I keep seeing one study or comparison after another from state to state comparing the lowest, or second lowest cost Silver plans (the federal subsidies are tied to the second lowest cost Silver plan), to existing health insurance rates and bragging about how low they are.

But what is often happening here is that these lowest cost and second lowest cost plans are likely the most limited access plans available.

For example, Wellpoint is the only insurer offering a plan on the New Hampshire exchange. That plan offers only 14 of the 26 state hospitals and only 65% of the docs in their wider networks.

A McKinsey analysis of 13 state exchange plans found 47% were HMO plans––last year only 5% of the individual market sales on eHealthinsurance.com were HMO products.

In California, Blue Shield is offering only one exchange plan, a narrow network plan that includes only 36% of their contracted docs and is notable for not including the most highly regarded hospitals in the state.

The lowest cost California plan comes from insurer Health Net. The LA Times is reporting that Health Net is offering, "less than half [the number of providers] some other companies are offering in Southern California." The Times reports that Health Net is limiting its network to one-third its usual employer network. In San Diego, the company will only have 204 primary care physicians in its provider network.

"We are nervous about these narrow networks," Donald Crane, CEO of the California Association of Physician Groups was quoted by the Times. "It was all about price. But at what cost in terms of quality and access? Is this contrary to the purpose of the Affordable Care Act?"

Dr. Crane, this is certainly contrary to the claims health insurance exchanges like California are making declaring victory over rate shock.

What many health plans have done is to put their lowest cost plans on the exchanges and have often built new very narrow network plans just for the exchange. Some of these lower cost plans are being offered by Medicaid contractors moving into the commercial market for the first time. The thought is that many of the people coming onto the exchange will be low income people coming from the ranks of the uninsured where even the narrowest network plan will be a huge improvement.

Offering narrow network plans is a legitimate strategy.

What is also happening is that health plans are expecting that higher income people will not be eligible for a subsidy and will come directly to the health plan for the better coverage when it isn't available on the state exchange.

My sense is that is what this post card is alluding to. Yes, there are very cheap rates on the Maryland exchange. But if you want the better plans, you had better come to us directly and buy now and avoid the "significant" rate increases the wider network plans will be subject to as they begin to comply with the new law.

The exchanges bragging that they have reduced the cost of insurance, and citing these low cost plans as examples, is tantamount to opening a new car dealership and just cherry picking the cheapest compact cars available and then claiming you've found a magic way of cutting the cost of car ownership!

I will suggest that a Buyer Beware warning is in order here.

In the past, health insurance companies could develop lower rates by underwriting and wide variations in plan design. But with the new health law they can no longer underwrite and they are very limited on what they can do for plan design––all plans must fit into the actuarially tight Bronze, Silver, Gold, and Platinum benefit boxes.

What rate reduction tools are left to them? Restricting which health care providers consumers can use and the terms under which they can access them––setting up a tight referral system before being able to see a specialist, for example.

These are fair and appropriate ways to differentiate health insurance products and control costs. And, creating safety-net style health plans for lower-income consumers to put on the exchange is a good idea.

But buyers need to be very careful in looking past the lower rates by being sure they understand just what they are buying.

And, they should also understand that the federal subsidies are tied to the second lowest cost Silver plan. By creating these new narrow network plans, insurers have capped the federal subsidy people will be eligible for in each market. If you want a wide access plan, if it is available on the exchange, the consumer is going to have to pay that difference out of their pocket.

Some will argue that even with the narrower networks we all need to concede that the new state health insurance exchanges are providing attractive and affordable health insurance products for lower income people.

I will address that argument in my next post.

Benefit Shock? Consumers Will Be Surrpised By What They Find On The New Obamacare Health Insurance Exchanges

Will we have rate shock?

It looks to me like consumers will have a choice when they get to look at the health plans available on the new "Obamacare" health insurance exchanges––rate shock or benefit shock.

While there has been lots of focus on the issue of rate shock, I will suggest that just as big an issue may well be benefit shock—that consumers will look at what they will be getting for their premium payments and that they will be surprised at what their out-of-pocket costs will be and before they get anything.

The following chart was prepared by Covered California, the state-run California exchange. This chart does not include specific California plan premiums. What it does show is the net of subsidy cost a single person would pay at the various income points for the second lowest cost Silver plan, as well as the deductibles and co-pays they can expect to see from the standard Silver plan.

Lower income people are eligible for reduced deductibles and co-pays and that is reflected here. While this was prepared for California residents, the reductions in deductibles and co-pays for lower-income people, as well as the net of subsidy premium costs for the second lowest cost Silver plan, are the same in all of the states.

While the benefit plan structures may vary a bit from state to state, this gives us a pretty good idea of what consumers can expect in all of the states (click on chart to enlarge). 

A single person making $22,980 per year would face a premium, net of subsidies, of $121 per month. That’s pretty good.

However, the point most people have been missing is that same person would also face a $500 deductible and up to $2,250 in out-of-pocket costs for things like co-pays. If the individual were sick, that looks like a pretty good deal. If they were healthy, would they spend what is perhaps 10% of their monthly take home income for a plan with an upfront $500 deductible?

The question becomes more concerning for an individual making $28,725 a year. Their premium cost, net of the subsidy, is $193 per month and for that they would face a $1,500 deductible and higher co-pays. If they make anything over $28,725 a year, just $2,394 a month, they will face a $2,000 deductible and even higher co-pays/premiums.

Now, as insurance—paying for unexpected and unaffordable medical costs—this is a pretty good deal. But American consumers have come to see health insurance as something more than pure insurance, having been spoiled by first dollar coverage over the years.

I have to think that many healthy low income people are going to have some issues when they come to understand how little short-term gain they are going to get for an expenditure of about 10% of their take home pay. I will suggest that this is an issue that many ardent supporters of “Obamacare” have missed.

For so many individuals and families, 10% of their take home income is a huge issue. This is the marginal income left at the end of the month, after taxes, rent, and car payments that is so critically important to them. As purely an insurance value, it’s a good deal. But the notion that hard earned and important dollars would be spent for something they aren’t going to get any measureable short-term value for is another matter entirely.

Unless, of course, you are sick and you can “make money” in the short-term by buying the insurance.

From the beginning I have been concerned that the “Obamacare” subsidies aren’t enough to assure us that we will attract a good cross section of healthy people to offset the costs of the sick.

At the beginning of this debate, the late Senator Ted Kennedy (D-MA) presented a plan that did have much more attractive subsidies for lower-income people. That plan would have cost about $2 trillion over ten years—something that was not considered affordable at a time we were in the midst of the Great Recession. The political decision was ultimately made to come up with a plan that cost under $1 trillion dollars and that the Congressional Budget Office could score as fully paid for. That meant cutting the subsidies in order to make the goal—a solution at the time that may now have become the problem.

This chart represents the cost and benefits a single person would get. The challenge for families—particularly middle class families—will be even more difficult.

A family of four making 250% of the poverty level, or $59,000, would be expected to pay 8.05% of their income, or $4,739 annually—again about 10% of their current take home income. For that, they could get the second lowest-priced Silver Plan with a $2,000 deducible and a $12,700 out-of-pocket family maximum.

A family at 300% of the federal poverty level will make $71,000 and have to pay out 9.5% of their income for premium, or $6,700 a year for that second-lowest cost Silver plan. How many families making even this much have an extra $558 a month in their budget to buy a plan with a $2,000 per person deductible?

Add to that another sleeper issue in “Obamacare”—the subsidies are tied to the second-lowest cost Silver plan. If you buy a plan that costs more, the incremental cost is not subsidized.

The big surprise here will be that in many states that second-lowest cost plan will be a narrow-network plan with significant limits on which providers the consumer can go to. In fact, in many cases, the narrow-network plan will look very much like a Medicaid network.

In California, for example, the Blue Shield exchange offering is limited to 24,000 doctors compared to the standard Blue Shield network that covers 64,000 docs.

The lowest cost California plan comes from insurer Health Net. The LA Times is reporting that Health Net is offering, "less than half what some other companies are offering in Southern California." The Times reports that Health Net is limiting its network to one-third its usual employer network. In San Diego, the company will only have 204 primary care physicians in its network.

In New Hampshire, the sole health plan offered on the exchange is a Wellpoint plan, which will cover only 14 of 26 state hospitals and 65% of the normal physician network.

Just what that second-lowest cost Silver plan costs will determine the subsidy people get for any other plan they really want and, therefore, how they perceive the value of the program. If they want they kind of traditional provider access plan most middle class people have become accustomed to, they will have to pay more for that plan out of their pockets.

A recent McKinsey analysis of 955 exchange plans found that 47% were HMOs that offer limited networks. By comparison, the current individual market is accustomed to wider provider choice—just 5% of sales in eHealthinsurance.com were for HMO coverage in 2012.

In state after state, the large national carriers like Aetna, Humana, and UnitedHealthcare have either pulled out of exchanges or never offered coverage in the first place. The administration has touted the number of plans available in most markets but failed to mention that some of the most effective competitors are often not in the exchange having been replaced by a merk new co-op plan or a Medicaid insurer now expanding into the commercial market.

Time after time in the exchanges, that second-lowest cost Silver plan is not going to look like “your father’s” health insurance.

Consumers will be faced with a dilemma––accept these lower benefits and limited provider networks for the lower prices (benefit shock) or buy a more expensive plan and pay the difference out of pocket (rate shock).

But, consumers will have to face the individual mandate penalty for not purchasing health insurance if they pass on it.

Or, will they? How long will it take for word to get around that So If the Maryland Health Insurance Rates Are So Cheap Why Did I Get This Postcard From Maryland Blue Cross?

The Affordable Health Care Act's Launch On October 1St––So How Did It Go?

Unavoidably, that will be the big question come Tuesday.

But there will be much more to it than that.

A 180-Day Open Enrollment––Not a One-Day Open Enrollment
What happens on the first day, for good or bad, will constitute only a tiny percentage of the open enrollment period. Consumers will likely visit the new websites many times before they make any decisions, and that is exactly as it should be.

Many of the health plans touted as being low-cost plans are going to be very limited access plans. It won't be easy for consumers to compare one plan's provider network to the other. In the best of circumstances, consumers will be confused by what is being offered for some time and will have to make a major effort to make sense of it for themselves.

Let's not forget, they will be buying something that will cost thousands of dollars––their money or the government's––and that kind of purchase will never be as simple as going to Amazon and buying a book.

I will suggest that if the local press wants to be helpful they will waste less time asking how things went the first day and more time doing stories on the quality of the various health plans in their local communities––particularly over provider access, which will be the only major product differentiator between health insurance companies.

Will There Be Administrative Problems With the Exchanges?
There already are. And, there will be lots more.

During the last 24-hours I have been told that the information technology testing between insurance companies and the federal government, particularly around the government telling insurance companies who they will be covering, continues to be a real mess.

But whatever obvious problems there are at launch, there will likely be more problems and more serious problems behind the scenes in the lead-up to January 1, the initial problems will be worked out in a few days or a few weeks.

Operational expectations are now so low for Obamacare's health insurance exchanges a small disaster will be considered a political victory.

But It Does Matter How Efficiently the New Exchanges Launch
Some people are spinning that the administrative problems are not all that significant. After all, the real sasaran date is January 1; the first date people can be covered.

But it does matter.

The country is so cynical about Obamacare that any more screw-ups will only add to that cynicism. The administration has been saying that the prices for the insurance plans are a lot lower than expected and that there will be plenty of good access to a wide variety of providers for these prices.

The administration hasn't managed expectations––it is has spun them.

When people begin to see the prices they will pay and the benefits they get for those prices, many will become even more cynical (See: Benefit Shock).

If there are serious launch problems that goes to the heart of the administration's credibility. After all, they have been telling us this would all work on time––albeit with a few "bumps."

If people have lots of trouble and frustration trying to gain access to sites or call centers or provider lists, word will get around. If they are sick, people will run the gauntlet to get covered. If they are healthy, they won't bother.

If only sick people show up, Obamacare is on a long walk off a short pier.

Seven Million People Signing Up Aren't Close to the Number of People We Will Eventually Need to Make Obamacare Sustainable
We often hear that the administration's first-year objective is to sign-up 7 million people––of which 2.4 million need to be aged 18-34, in order to get a sustainable mix.

It is estimated that about half those who could buy on the exchange, about 26 million, will be eligible for subsidies. Then there are the rest of the people who do not qualify for a subsidy but could still buy on the exchange.

Getting 7 million people out of those millions is only getting a small fraction of the people who are today uninsured or already in the individual market. That is hardly a good cross section of the available pool likely to get us enough healthy people.

There Isn't Rate Shock?
Tell that to the 16 million people in the current individual health insurance market whose plans are not "grandfathered," (85% of the 19 million in the market who will not be able to qualify under the stringent grandfathering rules) and therefore must comply on January 1 with the new Obamacare benefit and rating rules.

Everyone of them will be getting a letter before their renewal date (most renew in January) telling them their old plan no longer complies with the new rules and they will have to move to an Obamacare compliant plan for a different premium.

For the vast majority of these people there will be shock. A reporter recently called me with a letter in hand from the health plan currently insuring a 60-year-old couple. Their rates are doubling.

Many insurers are now approaching their current customers––individual and small group––advising them to change their policy anniversary date in order to avoid, for one last year, the rate shock that isn't supposed to be happening.

No, there hasn't yet been rate shock when states and the Obama administration have focused on promoting the second-lowest cost Silver plan. But in almost all cases, those plans are not the plans people are buying today. These are plans specially crafted for a low-income market––made up of providers willing to take the lowest reimbursements.

But a plan like you have today? The federal subsidy is tied to that second lowest plan. If you want the kind of provider network you're accustomed to you can to expect prepare to pay a lot more, whether you are subsidized or not.

In fact, many insurance companies are only offering these cheaper network plans on the exchange and saving their traditional broad access network plans for sale outside the exchanges.

This is a legitimate strategy on the part of insurers focused on what they think will largely be a low-income population more used to a Medicaid network and worried about saving every dime they can.

But, buyer beware. Consumers need to be very thorough here. A Silver plan is not a Silver plan is not a Silver plan.

Watch-Out for January, February, and March
The real indication of just how well Obamacare was administratively launched won't be known until after January 1. That is when patients will be showing up in doctors' offices expecting their provider to have them in the computer system. That is when the first premium deductions will come out of peoples' bank accounts.

Maybe more importantly, that is when the insurance companies will have to deal with an arcane thing called "adds and deletes." That is when thousands of people's administrative status will have to be changed every month for any number of reasons out of perhaps tens or hundreds of thousands of Obamacare names the insurance company has in their records. If there is a potential for a nasty breakdown in the connections between the exchanges and the insurance companies, it is here.

Then there are all of the people who signed up and paid a month's premium and didn't pay for the next month. Many very low-income people don't have bank accounts making their ability to continue to pay their premiums a challenge. Heck, most low-income people don't have money making it a major challenge for them to keep the insurance.

We Won't Know if Obamacare Managed To Attract a Good Balance of Enrollees For Two Years
So, don't call me on Tuesday and ask me if enough healthy people are signing up.

The 2015 exchange rates and health plans will have to be developed by the participating insurance companies in mid-2014 so they can go through the approval process and be put on the exchange in time for the next year's October 1 open enrollment.

That means health insurance companies will be looking at only a few months of claims experience when 2015 rates are developed. They will know more than they know today but not enough to have a high confidence in their 2015 actuarial projections.

It won't be until we see the 2016 exchange plans and rates that we will have a solid idea of just how Obamacare is doing toward being a vibrant and sustainable program––whether the rates will remain stable or skyrocket because we didn't get enough healthy people signing-up.

Just How Well Obamacare Does Will Likely Vary a Great Deal From State to State
Massachusetts implemented something very close to Obamacare relatively smoothly.

But, they had more ramp-up time to get the job done and had fewer uninsured to start with.

But maybe more importantly, there was wide support for their new law not just from Democrats but also from the provider community, business, and a Republican governor.

In particular, among the "red" Republican states, there has been a steady drumbeat of criticism from political leaders. In many "red" states an overwhelming majority of the electorate just plain hates this new law. That attitude, plus a much lower level sign-up effort, because these "red" states got far less implementation and marketing money from the feds than states building their own exchange, will only hurt the effort.

That takes us back to the challenge of getting the healthy to buy in order to provide the money to pay for the sick. My outlook for these "red" states is far more pessimistic than in the "blue" states that have enthusiastically embraced Obamacare.

Will Obamacare Survive?
I don't think it can survive without a number of major fixes.

I think these fixes are technically doable and should be politically possible. Democrats are right when they say Obamacare was built on Republican principles––at least at the chassis level. Insurance exchanges and advanceable tax credits to buy insurance, after all, have long been Republican ideas.

But to get this thing fixed, Republicans are going to have to be willing to work with Democrats to make "Obamacare" sustainable. For now, Republicans really do have a hate reaction when they hear or say that word.

Let's hope these attitudes become more constructive. After all, this is about solving an important national dilema by getting people covered.

And, if Obamacare fails the Democrats' willingness to ever do another market-based health insurance reform bill will go down with it.

Watching them for 20 years, I have little confidence that Republicans in Congress will ever come up with a mendasar health insurance reform bill the country could take seriously as an alternative.

That means that after it became clear Obamacare had failed, it would be the Democrats who would most likely come back with another health insurance reform effort.

I doubt they would even bother to have a public option in that one.

What Health Insurance Company Information Technology Executives Were Saying About The Obamacare Exchanges Last February

Were there signs the Obama administration was headed for trouble getting the insurance exchanges ready for October 1, 2014?

Last March, I did a post reviewing a survey of health insurance industry information technology executives' opinions on how well the Obama administration was doing toward launching the exchanges.

The federal health insurance exchange problems that have so far been obvious have been all front-end issues--being able to get the Obamacare's consumer portal to work.

What is concerning about this March survey is that it also identified big concerns the insurance industry had, and still has, over the critically important backroom transactions yet to come.

My conversations with industry executives in the last few days indicate those concerns continue. Instead of the federal exchanges being able to transmit clean data to the insurers on who is signing up for coverage, this element of the process is still in testing! When there are problems with the very few enrollees they have received information for, I am told the insurance companies are having trouble getting through to the special federal exchange help desk for the health plans--the phone is often not even being answered!

When they do get through to the federal exchange help desk a "ticket" is created for each batch of problems to be resolved later. That may be a good process if the carriers are only enrolling 20 people a day, as many are now, but this is going to be problematic when the real enrollment volume ultimately begins.

With all of the concerns expressed within the industry over many months, the Obama administration decided to launch on October 1. Time after time when given the chance HHS Secretary Sebelius, as well as her senior staff, refused to step away from the promise to be "ready on time."

Those who enroll for coverage rightfully expect that when they go to their doctor next January they won't have trouble getting the coverage they now want to sign up for. But this phase in the Obamacare rollout, still to come, could well be the most problematic.

In the original March post, I reported health insurance industry IT execs said:

• The vast majority of those who answered the survey were planning to participate in the new health insurance exchanges. 
• They were worried that, with the feds and states getting such a late start in detailing requirements and with so little time left, that their own organizations could be ready. 
• They were also worried because the information they are getting from the health insurance exchanges in order to do their share of the work was poor, to very poor. 
• They were not optimistic that the government-run exchanges will be ready on time. 
• Almost all of those surveyed were concerned that the exchanges had not involved them as users in gaining input from the industry––traditionally a very bad sign in system development. 
• And, the executives were very concerned about being able to reconcile billing and eligibility information from the exchanges.

Here is the original post including the results to specific survey questions:

Tuesday, March 26, 2013

Six Months to Go –– Will the Health Insurance Exchanges Be Ready on Time? Survey: Health Plan Execs Don't Think So

How Many People Have Signed Up For Health Insurance On The Federal Health Insurance Exchanges?

Based upon my survey of a large number of health plans accounting for substantial market share in the 36 states the federal insurance exchange is operating in, not more than about 5,000 individuals and families (about 10,000 people in total) signed-up for health insurance in the 36 states run by the Obama administration through Monday.

It is not uncommon for a major health insurer with a large market share to report less than 100 enrollments in the first week.

Reports today say the enrollments continue to trickle in at about the same rate.

Worse, the backroom connection between the insurance companies and the federal government is a disaster. Things are worse behind the curtain than in front of it.

Here is one example from a carrier--and I have received numerous reports from many other carriers with exactly the same problem. One carrier exec told me that yesterday they got 7 transactions for 1 person - 4 enrollments and 3 cancelations.

For some reason the system is enrolling, unenrolling, enrolling again, and so forth the same person. This has been going on for a few days for many of the enrollments being sent to the health plans. It has got on to the point that the health plans worry some of these very few enrollments really don't exist.

The reconciliation system, that reconciles enrollment between the feds and the health plans, is not working and hasn't even been tested yet.

When health plans call the special health plan "help desk" they are lucky to get through. When they finally get through, the feds are creating a "help desk ticket" to be researched.

Now, if we are enrolling 20 to 50 people per day per health plan per state through the federal exchange, that might be sort of manageable. But if this thing ever ramps up to thousands of enrollments a day...

In summary, big market share health plans are getting maybe 50 enrollments per day per state from the feds and that little bit of new business is a mess.

Click here to see what I said about all of this on NBC News yesterday.

Washington Post columnist Ezra Klein and I spoke about the Obamacare rollout yesterday afternoon.

Here is his column from today's Washington Post:

‘Obamacare is a bit like the astronaut on top of the rocket’

By Ezra Klein, Published: October 15 at 12:38 pm

Ezra Klein: You wrote about how the problems on the back-end of the insurance portals, in the way they communicate with the systems of actual insurers, might be as bad or worse than the front-end traffic problems. What are you worried about, exactly?

Bob Laszewski: What I’m worried about is that when people go to their doctor in January they may walk in, and the doctor and hospital won’t find them in the insurer’s computer system or their bank account won’t be appropriately debited or they’ll be signed up for the wrong plan. I’m worried about all these things. Now, we have a few weeks to get this straightened out. But only a few weeks.

EK: Tell me what you’re hearing from the insurance industry that has you concerned.
Read the Rest at the Washington Post

Week Two Of The Obamacare Federal Health Insurance Exchange Rollout––No Improvement

There was no progress for the new federal health insurance exchange's information technology and enrollment challenges in its second week.

At the end of week two of the Obamacare launch, health plans were generally seeing no more enrollments per day then they saw in the first week.

As troubling, the backroom issues plaguing the connection between health insurers and the federal government had not been resolved and there is no indication from the feds when they will have these things cleared up.

My sense is that the feds, based upon the number of enrollments they have sent to the insurance companies, enrolled about 10,000 people in the first week (about 5,000 single and family contracts) and another 10,000 people in the second week in the 36 states using the federal exchange.
The Washington Post earlier this week cited estimates that the number was about 36,000 the first week using a web analysis firm's review of traffic. My estimates are based upon hard numbers from high market share plans then projected over the entire 36-state federal market.

There also may be some paper applications waiting for the systems to work so that they may be entered and enrolled with the insurers.

But then, the feds could easily clear this up by just telling us how many people have enrolled.

Most states running their own exchanges aren't doing a whole lot better.

New York says they have "enrolled" 100,000 people. But when pressed on that in a CNBC interview Tuesday, that state's director clarified that to mean 100,000 people have set up accounts and applied to know what their subsidies are. She refused to say how many people have gone the rest of the way to actually buy a plan. Reports from consumers trying to use the exchange in New York continue to indicate difficulty being able to navigate the site. 

Yesterday, the New York Times reported that only the Kentucky, Colorado, Nevada, and Washington state exchanges enable consumers to search for the providers covered in the various plans. This is a critical piece of information for consumers because so many of the particularly lower cost plans were able to develop lower rates by excluding wide swaths of doctors and hospitals. A consumer would be foolish to buy a health plan without knowing which doctors and hospitals it covers!

Washington state appears to be off to a very clean start. They are saying they have finalized enrollment for about 25,000 lives––most in Medicaid. They also say another 37,000 have completed insurance exchange applications that are awaiting premium payments due in December. Washington has about 1 million uninsured and another 200,000 in the individual market. So, they appear to be on their way to enrolling about 5% of their potential market in both Medicaid and the exchange. That likely says something about where exchanges would be if they had not had the problems.

I will suggest that comparing Washington state's health exchange experience to that of the federal exchange in the coming months, and the many states running their own exchange who also had problems, will be helpful in understanding just how damaging this start was.

The U.S. individual health insurance market currently totals about 19 million people. Because the Obama administration's regulations on grandfathering existing plans were so stringent as many as 16 million are not grandfathered and must comply with Obamacare at their next renewal. The rules are very complex. For example, if you had an individual plan in March of 2010 when the law was passed and you only increased the deductible from $1,000 to $1,500 in the years since, your plan has lost its grandfather status and it will no longer be available to you when it would have renewed in 2014.

Millions of people are now receiving letters from their carriers saying they are losing their current coverage and must re-enroll in order to avoid a break in coverage and comply with the new health law's benefit mandates––the vast majority by January 1. Most of these will be seeing some pretty big rate increases.

But unless they live in Washington state, Nevada, Colorado, and Kentucky, they can't now get on an exchange site to see their plan options, new prices, and provider directories so they can make an informed decision before they lose their coverage.

This is a fine mess.

For Those Of You Who Yesterday Didn't Believe My Federal Exchange Enrollment Estimates And Reports Of Backroom Problems...

You need to see today's Wall Street Journal front-page story, "Health Website Woes Widen as Insurers Get Wrong Data."

Here's an excerpt:

After realizing that some applications listed up to three spouses in a single family, Blue Cross & Blue Shield of Nebraska, which has about 50 health-law enrollees, had to "stop those enrollments from going through the automated process," said Matt Leonard, the insurer's sales manager. "It takes an automated process and turns it into a manual process," he said.

The biggest health plan in Nebraska has 50 enrollees so far? A state with about 300,000 uninsured.

Then this:

Scott & White Health Plan in Temple, Texas, has received 25 enrollees from the federally run exchange so far.

Enrollment numbers this low are what I am hearing from health plans all across the 36 states where the Obama administration is running the exchanges.

I am not hearing about thousands of enrollments per health plan. Maybe a few hundred at best––from plan after plan.

And on top of a lack of enrollments, there are the backroom problems. One health plan after another is saying the same thing the Nebraska Blues plan and Medical Mutual of Ohio were willing to say on the record:

Emerging errors include duplicate enrollments, spouses reported as children, missing data fields and suspect eligibility determinations, say executives at more than a dozen health plans. Blue Cross & Blue Shield of Nebraska said it had to hire temporary workers to contact new customers directly to resolve inaccuracies in submissions. Medical Mutual of Ohio said one customer had successfully signed up for three of its plans.

Should The Administration Shut The Obamacare Computer System Down? That Depends Upon What's Going On Behind The Curtain

My sense is that the biggest reason Obamacare is now in trouble is because of the top-secret way in which the administration has handled the rollout. If they had developed the computer system in a transparent way, the marketplace would have told them long ago this would not work.

No one outside the inner circle at the Department of Health and Human Services has any idea what's really going on behind the Wizard's curtain. Hasn't for months. Doesn't now.
So any technical advice any of us could give would be, to say the least, uninformed.

If I were on the inside, and it were up to me, the first thing I would do is bring in a group of heavyweight information technology experts to tell me just what was really going on. The administration cannot trust the people who have been working on this because they told them to launch this mess on October 1 and almost three weeks in there has been no improvement on the website or in the backroom––they no longer have credibility.

I would ask those experts to very quickly answer three questions:

1. Can this thing be fixed on the fly––as the administration appears to be trying to do?
2. If it can't be fixed on the fly––and three weeks into this that sure looks doubtful––then can it be taken down for one or two months with a high degree of confidence it can be brought back up in time to enroll people sooner rather than later?
3. If the first two options are not possible, just how long will the computer system have to be shutdown before Obamacare can be launched in a way that there can be confidence it will work smoothly?

Then I would take their advice.

Right now the Obama administration appears to only be looking at this through a political lens: How do they minimize the political fallout?

There are two things wrong with that perspective.

First, the politics of this can't get any worse. This is now a political joke. Republicans can make lots of snarky comments about Obamacare and they won't be able to do more damage to Obamacare than the administration is doing to itself. Any Republican reaction to taking the system down won't last more than a couple of news cycles. More, the President would never lose politically by making a decision about every American already knows he has to make.

Second, the Obama administration, by keeping this computer system up and so far not being able to fix it, is not only wasting people's time they are on their way to destroying Obamacare.

As I have repeatedly said on this blog, the real longer-term threat Obamacare faces is that not nearly enough healthy people will sign-up for coverage in order for the aktivitas to be able to pay the medical costs for the sick people who enroll.

Left as is, I have to believe that the only people willing to put up with the repeated attempts and frustration with the Obamacare website and call centers are people so sick and in need of health insurance they have no alternative.

The greatest threat to Obamacare right now is a computer system the Obama administration continues to defend. And maybe their inability to understand how much damage they are themselves doing to the President's signature domestic accomplishment.

When these computer problems are finally fixed, then we can move onto the main event: Can Obamacare work?

The Obamacare Federal Health Insurance Exchanges––Week Three Status Report

I will be happy to have the Obama Administration do these status reports anytime they would like to takeover from me.

If I were in the White House spinning, I could report to you that enrollment in states run by the federal exchanges jumped 50% in the last few days.

Health plans that might have told me last week that they had enrolled 400 people since October 1 are now telling me they had a "surge" in enrollment in recent days and are up to 600 people. I guess that takes us up to a trickle and a half.

Still, small health plans are generally reporting they have received dozens of enrollments and large health plans are no higher than in the hundreds.
The news from the backroom is mixed. Some plans are reporting some improvement in the error rates but still way too high for the automated processing of the thousands of enrollments per health plan that are ultimately expected. Others have said it is still a mess.

So, on a net basis, no material change after the federal exchange's weekend shutdown.

This all led me to have a scary thought. What if the administration fixes the front end of this thing (people signing up) before they fix the back end of the system? That could mean an overwhelming number of enrollments coming through to health plans before they could possibly be handled (Memo to CMS: Take note).

An Associated Press (AP) story over the weekend cited Obama administration claims that 476,000 "applications" have been filed in both the state and federal exchanges. The administration said just over half of these––presumably 250,000––came from the federally run exchanges in 36 states.

However, as the AP article reported, the administration's definition of "applications," as well as that in some states like California and New York, is for people who have only started the shopping process by signing up at the federal website and inquiring about what their subsidy is. That number is not the number of people who have actually gone on to buy insurance.

So, for the Obama administration, and these states, an application apparently means an application to go shopping.

Give me a break.

The feds, and most of the states including California and New York, continue to refuse to say how many people have actually bought a health insurance policy since enrollment began on October 1.

But the administration did also say this weekend that more than 19 million unique visitors have come to the federal website since it launched.

So, here is what they have told us: Of the 19 million people who have tried to get onto the federal health insurance website, 250,000 have been able to set up an account. Certainly not all of those who visited intended to buy insurance but that is just over 1% of visitors. Now that is the bottleneck of all information technology bottlenecks!

When I want to get a quick summary of just how the states are doing, I look at Dan Diamond's posts on the Advisory Board Blog. With his permission, here is his latest data:

Washington state and Kentucky may well be giving us an idea of just how many people would be enrolling if the many dysfunctional state and federal exchanges had largely been working as expected.

Congratulations to the Washington state and Kentucky health insurance exchange teams for demonstrating that building a functional health insurance exchange was doable. And, thanks to them for being so transparent about what's going on in their exchanges. Apparently, they don't have anything to hide.

Yes, they did have glitches. But the difference is that their glitches were glitches.

Healthcare.Gov Is In De Facto Shutdown

Read my conversation with Ezra Klein today on the Washington Post WONKBLOG

Just What Is An 834 Transaction? Why Is It Holding Up Obamacare? How Long Will This Take To Fix?

You have probably already heard that Obamacare has as many backroom problems as problems with the front end consumer web enrollment portal.

Insurance companies participating in the new health insurance exchanges are receiving detailed enrollment information for each of the very few people who have successfully enrolled through the 36 federally run health insurance exchanges.

But the masalah is that this enrollment is coming from the government with a very high rate of errors––way beyond anything they can handle manually once the real enrollment volume comes in.

So long as each insurance company is receiving only 10 or 20 enrollments a day––that is what they are receiving now––the high error rate enrollments can be fixed with lots of hands-on effort. If the Obama administration fixes the consumer portal before fixing the 834 problem, the insurance companies could begin receiving thousands of enrollments with high error rates every day. That would bring the insurance company information technology departments to their knees. It would mean lots of new policyholders could have problems getting their bank accounts properly debited, their claims held up, or health care providers refusing to treat them because they aren't on the list of covered people.

So this is a very big deal.

An 834 transaction is technical term for exactly how enrollment information is exchanged, in this case, between the federal government and the health insurance companies.

The 834 transaction represents a computer "benefit enrollment and maintenance document." It is commonly used by employers, unions, government plan sponsors (Medicare Part D, for example), and insurance marketing organizations to enroll members in a health benefit plan. This current version developed out of the 1996 Health Insurance Portability and Accountability Act (HIPAA). So, it has been around for many years.

This process is where the federal government's backroom has come off the rails and is in need of an urgent fix.

To better understand all of this, I called a good friend and longtime colleague in the industry, Daryl Chapman, who has a lot of experience working with large employer and union plans receiving and transmitting health care eligibility information both before and after implementation of the 834 standards.

I asked him a few questions in an attempt to figure out just how big a masalah it will be to fix.

RL:
Are you surprised at what a mess this is?

DC:
During the last two weeks the various media outlets have asked a number of questions, "How could this have been so hard?" "Why couldn't they have used the same people that managed the election's technology?" "How hard can sending files be, we have had the standard file format [the 834] since the passage of HIPAA?"

This just reflects the naivete' surrounding how complex this really is. In terms of the website and shopping experience I am as flabbergasted as anyone that Amazon, an approved CIA cloud storage contractor, wasn't part of the mix when it comes to a shopping experience. Who better in the world?

RL:
But isn't the 834 transaction pretty straightforward?

DC:
It makes sense the government would choose this as the standard for the Affordable Care Act (ACA). The masalah here is that just about everyone uses their own variation of the standard. The law allows carriers to create their own guidance for how they use the standard. Large self-insured plans for example, are not governed by HIPAA standards that created and mandated the 834. There is a cottage industry of firms that translate data for plan sponsors and health plans using different variations of the standard.

It was widely reported that the preliminary standards for the 834s set out by the federal health insurance exchange were first released this spring and that the akibat version wasn't released until summer without adequate time to test. If the feds were truly using the standard 834 transaction, testing and compliance would have been easy. But they created something far more complex, released it late, and didn't adequately test it.

RL:
Aren't having a lot of variations in a standard a little bit of an oxymoron?

DC:
One would think so, but it has been the norm for some time.

RL:
So, really the feds are using a variation of the 834 and they essentially dumped this standard on the health insurance industry late and inadequately tested? That would certainly create lots of data communication issues.

DC:
Right.

RL:
And, I suppose it gets even more complicated?

DC:
Receiving this data isn't as simple as getting an address card from someone via email. You don't get it, click it, and save it. There are lots of data elements and a lot of field variables. Because of this complexity, no one takes a file straight into a production system––too risky. There are variations on the process but every company has some type of validation process. Generally, the 834 goes through an acceptance process, which scans the file and checks for errors. If it passes the data check it uploads to some kind of "model office" where it is tested again and then, if it passes, it goes to production. Although most of that is automatic there are several chances for the file to "error out." Once in production, the file drives the payment system, claim system, and is the source for the list of doctors and hospitals they need to confirm the person is eligible for benefits.

Files still have lots of opportunity to trigger false reports in each of these systems if they aren't accurate.

For example, member data is not the same as payment or cash data (member payments in this case come from two sources; the subscriber and the government). Poor quality data can lead to lots of problems trying to reconcile who the health plan was paid for and who they have on their eligibility system. Very few systems ever connect cash to belly-buttons and even fewer have debit and credit carry forward accounting capability making reconciliation on the fly very difficult.

If the member data is a mess then the cash becomes a mess. When the subsidy cash goes to the carrier from the federal government, the carrier doesn't just get you; they get thousands of member cash files. If there isn't a match, the claim paying process has to be suspended until people with green eyeshades figure it out.

And out in the world where doctors and hospitals live if the data isn't clean doctors and hospitals may not treat you if the carrier file doesn't say you are covered. They may demand payment upfront from the patient until things are straightened out or balance bill if claims aren't reimbursed. That is a particular masalah here because so many of these people will presumably be low-income.

RL:
I suppose the unique nature of the government subsidy system creates a whole other set of headaches since about every person will have different hard dollar subsidy?

DC:
In the case of the ACA, the health plan will use the member data transmitted from the government to bill the member and presumably will invoice the government for the subsidy component. This "split bill" scenario has been a common requirement in programs retiree medical programs and is the hardest thing we do in the industry. The dynamic nature of the subsidy means this invoice amount can change throughout the year. If the member or government remittance isn't what the health plan has on its rolls, the carrier system will suspend eligibility and not pay claims.

The member to cash reconciliation is hard when the data is pristine. With all of the problems occurring in just getting accurate data to the carriers, if cash starts flowing before this is pretty tightly locked down that toothpaste won't go back in the tube easily.

RL:
Did Obama administration officials not understand how hard this really is?

DC:
We talk about the health care system like it really is a system. The decision to build the ACA on top of the Rube Goldberg contraption we call a system was either very naive or a case of using the system you have not the system you want.

RL:
If lots of enrollment starts coming through before we have improved the system to an acceptable data error rate (very close to zero) it is going to be catastrophic for consumers and the health plan's customer service reputation.

So, how long will it take to fix the 834 masalah such that we have an acceptable error rate?

DC:
At least a year.


Earlier today a reporter emailed me the following: "In testimony today, CGI [the primary government contractor for the health law's system] claimed that the problems of insurers receiving bad data was 'isolated' and not a widespread issue. On a conference call with the press, a CMS spokeswoman said the same thing."

Given what we just learned from Daryl, it begs a question: Did no one in HHS or the 55 contractors on this job ever really think this system, that had literally been assembled over a few months and had not been thoroughly tested before launch, was ever going to work?

Given the CGI and CMS comments just today, do they still not understand?

Where were the people like Daryl Chapman when this thing was being built?

The Commitment To Fix Obamacare's Computer Systems By December 1––Because It Can Be Done By Then Or Because It Has To Be Done By Then?

The good news is that it appears the adults are finally in charge of healthcare.gov.

This week, the administration put a seasoned and trusted manager in charge of getting the Obamacare computer system working––Jeff Zients.

He quickly announced a methodical approach to the persoalan and that he had appointed one contractor to coordinate the daily work. Zients also appeared to be pretty open and honest about what's really going on.

All things that should have happened in the first place.
As the administration's point person, or perhaps better put the Obamacare czar, Zients, also said the current Obamacare computer system is fixable.

More importantly, he said it could be fixed by the end of November.

In order for people to sign-up for health insurance by January 1, the first day they can be covered, they have to complete the enrollment process by December 15 in order that they can be accurately added to the rolls and make their premium payments.

So, is the Obamacare computer system fixable by December 1 or is it that there really is no alternative but to fix it by December 1?

Without getting this fixed, the likely millions of people who have been patiently waiting for health insurance won't have it on January 1. And, the ability to get the many more healthy people we need to avoid an insurance anti-selection death spiral will be severely undermined.

Also, millions of people covered in the individual health insurance market today are getting cancellation notices because their policies will not comply with the new health law effective on January 1. Some health insurance companies are granting "early renewals" so that these people can keep their coverage until December 2014 and avoid a lapse in coverage. These people can also contact their companies directly to get their 2014 coverage set up.

But if any of these current policyholders want to take advantage of the new subsidies beginning in January, or to use the health insurance exchanges to understand what their options are, they can't effectively do that with the 36-state federal health insurance exchanges in such a mess.

Some Senators, Democrats as well as Republicans, are talking about passing legislation to defer the individual mandate for as much as a year because of the computer problems. That makes some sense given the problems consumers are having. But will that legislation also appropriate money for the insurance companies that would be required to cover the sick while the healthy sit it out for a year?

Postponing major parts of this law could create a whole new host of problems.

Here is the irony of all ironies: The health insurance industry is ready for Obamacare even if Obamacare isn't!

For many months, health insurance companies have been creating, pricing, and filing with state insurance departments, the new Obamacare products. The health insurance companies' computer systems have not only been programmed to handle the new Obamacare products, they have been programmed to get rid of the plans that won't be any longer legal at both the state and federal level––lots of cancellation letters and directions for how to continue without a break in coverage have already gone out to policyholders.

Hey, the administration and their contractors have been confidently telling everyone they would be ready for the last year. The health plans had no choice but to be ready themselves.

The health insurance companies started the compliance work months ago. Any big changes required at the last minute would likely take months to get into their information systems and filed with state regulators.

For insurance companies, the Obamacare compliance train left the station months ago and is running on time! The Congress, as well as an administration that has already unilaterally deferred the employer mandate, needs to know you can't just hit the rewind button here.

I would also suggest Jeff Zients put two really big things at the top of his likely already overwhelming priority list:

1. Get the backroom enrollment mess (the 834 transactions) cleaned up first. If we end up having a two-week opening starting about December 1 for people to sign-up, we are likely going to have many hundreds of thousands or even millions of people flooding through the door during a very short period of time. Given the government's error rates the backroom is suffering with now it would be the greatest customer service train wreck in history if things weren't operating smoothly (See my recent post on 834s).  
2. Focus on the private exchanges and health insurance companies with their own websites that still cannot connect to healthcare.gov for things like subsidy calculations. The companies have been begging for this capability from the beginning. If it had been done, they could now be serving as an effective work-around giving consumers an efficient means to get signed-up. This should have been Plan B in the first place in case the Obamacare site did not work.

Jeff Zients has been handed an incredible mess that took three years to make and he's got five weeks to fix.

But he sure looks like the guy for the job.