ObamaCare Faces the Implementation Iceberg

ObamaCare Faces the Implementation Iceberg

By Paul Howard and Stephen Parente - November 26, 2012

Defenders of the Patient Protection and Affordable Care Act, aka Obamacare, can be forgiven for some post-election triumphalism. But their joy is likely to be short lived. Because the law put off implementation of most key provisions until after the 2012 election, voters cast their ballots on November 6 without knowing what Obamacare’s true effect will be on their tax bills, insurance costs, or access to care.

Delaying implementation until 2014 helped the president win re-election, but now the bill is coming due. The administration can’t forestall Obamacare’s massive regulatory impact any longer, and the result will keep Congress and the media occupied for months and years to come.

The administration has just begun to issue guidance (proposed rules) to the insurance industry on Obamacare’s most important (and expensive) insurance market “reforms.” Insurance plans must have clarity on these issues if they are to develop and price plans for the individual and small group markets both inside and outside of the exchanges.

Right now, insurance companies don’t have answers to some of the most critical questions. Dozens of other smaller, but still important rules are also outstanding from HHS that will affect what kinds of plans are available on the exchanges, and how much they will cost insurers and taxpayers.

Some of the recently issued rules, particularly on community rating (charging the same price to everyone regardless of health status) and limiting the premium difference between older and younger applicants are likely to increase prices for young people – and over half (55%) of the uninsured are under age 35.

If prices rise sharply for this group, they’re much less likely to buy coverage, since Obamacare lets them buy insurance for the same price even after they become sick. And if young people pass up coverage, the rates will rise for everyone else in the exchange – and for taxpayers who are footing the final bill.

The administration’s “damn the torpedoes” attitude toward implementation of Obamacare also ignores the significant amount of time it will take for stakeholders to comment on provisional regulations and for HHS to issue its final rules. Keep in mind that the law requires exchanges to begin enrolling people by next October.

To call this deadline ambitious given the enormous uncertainty facing the industry and state regulators is a massive understatement.

Many states are still evaluating their options. According to a recent report from Avalere Health, only 20 states are actively building insurance exchanges, with as many as 13 states of those states opting for some sort of partnership model with the federal government. The rest are simply going to allow the federal government to run their exchanges. That’s hardly a winning record for the exchanges, supposedly the crown jewel of Obamacare.

As for the federal exchanges that are supposed to be up and running in states that don’t want to or aren’t ready to operate their own exchanges, the outlook is equally uncertain. As health care consultant Robert Laszewski recently put it, “[T]he Obama Administration has said emphatically that they will be ready [to run federal exchanges], but so far they’ve produced no information about how they are going to do it.”

The virtual veil of secrecy surrounding creation of the federal exchange has led to skepticism that it will be in any position to operate as advertised.

Beyond insurance rules and insurance exchanges, Obamacare faces other enormous uncertainties, like how many states will embrace its Medicaid expansion after the Supreme Court decision last summer allowed them to opt-out. Currently, six states (Florida, Georgia, Louisiana, South Carolina, Mississippi, and Texas) are saying they’ll sit out the expansion. Large states such as New Jersey and Pennsylvania are on the fence.

Since Medicaid accounts for about half of Obamacare’s Medicaid expansion, and the exchanges are supposed to facilitate Medicaid enrollment, governors have leverage to push for changes to the program that will help them manage expenses.

So what’s the bottom line? The Obama Administration is just beginning to issue critical guidance to states and insurance companies about how insurance markets and insurance exchanges are supposed to operate. The majority of states aren’t in any position to operate their own exchanges, and the federal government isn’t prepared to step in and operate the exchanges for them—at least not according to the schedule laid out in the ACA. The Medicaid expansion is a giant question mark.

And, we haven’t even mentioned how looming tax and budget negotiations over the “fiscal cliff” and sequestration might affect implementation of Obamacare.

Here’s our prediction. HHS has already pushed the deadline on the state exchanges from December 14, and in some cases to mid-February. We expect that deadline to slide again in the coming months.

But we shouldn’t wait that long to address the underlying problem. Delaying exchange implementation has important federal budget implications, and may make it easier for Republicans and Democrats to agree on serious budget and entitlement reforms. If Republican governors can coalesce around demands for exchange flexibility and Medicaid reform, they can also give their colleagues in Congress more leverage to press for entitlement reforms.

Ironically, the president and his Democratic allies may have to grant more flexibility in operationalizing Obamacare than they ever did while ramming it through Congress in 2010. On the other hand, if Republicans want to maximize their own policy leverage and develop a credible health policy platform for 2016, they will have to figure out an “endgame” for health care reform that increases coverage and lowers costs.

The good news is that we’ll finally get to find out “what’s in” the Obamacare law. Won’t that be fun? 

Paul Howard is director and senior fellow of the Manhattan Institute’s Center for Medical Progress. Stephen T. Parente is the Minnesota Insurance Industry Professor of Health Finance in the Carlson School of Management, and Director of the Medical Industry Leadership Institute at the University of Minnesota.

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