By Lambert Strether of Corrente.
This post is a round-up of the current issues in the never-ending saga of ObamaCare, Rube Goldberg device (an example for those who came in late). There are three current issues:
1) The new and improved ObamaCare website. Does it make “smart shopping” possible? Spoiler alert: No.
2) The collapse of ObamaCare co-ops. Was it pre-ordained when ObamaCare was passed? Spoiler alert: Yes, but there’s unexpected hope.
3) The current court challenge to ObamaCare, Sissel. What does it tell us about Democrats?
(There’s plenty more to cover — premium increases, for one, as well as the actual policies made available — but these three issues are the hot stories right now.)
The ObamaCare Website
citizens consumers of ObamaCare mostly do their shopping online, the design of the exchanges (the “marketplace” website) is thought to be critical to their finding the best “deal.” In reality, purchasing health insurance on the exchanges is a lemon market, full of information asymmetries, and purchasing health care itself is a lemon market, for the same reason, so ObamaCare’s fundamental premises — that consumers can drive health care costs down, and quality up, through “smart shopping” — is a double-bind of enormous proportions; citizens consumers cannot do the very thing that ObamaCare (and the political class (and economists)) demand that they do. The entire premise of ObamaCare is false, and a better website can’t fix this. ObamaCare’s premise that health care citizens consumers are smart shoppers is false. The New York Times cites a new study:
Eric Johnson, a Columbia business professor, led a study that found that without substantial additional assistance, a consumer’s likelihood of selecting the lowest-cost plan is no better than chance. The researchers conducted a series of experiments on people similar to those who would shop for marketplace coverage. Each study participant was asked to presume he’d use a certain amount of health care and, based on that, to choose the lowest-cost plan from among eight choices, which varied by premium, doctor co-pay and deductible. Only 21 percent could accomplish this task, a figure not statistically different from chance. The annual cost of errors was about $250.
$250 may not seem like much to you and me [snort], but over 10 million
citizens consumers, it adds up to a nice chunk of change. (Of course, that $250 is just the hidden fee for entering the system, not the co-pay or deductible or balance billing for out-of-network care; that comes later.)
With this background, we can look at this year’s improvements to the Federal ObamaCare website, used by most states (and which I’ll have to use as a proxy for websites hosted by individual states). Recall that ObamaCare (to give credit) greatly limits the amount of underwriting that health insurance companies can do (for example, they must accept applicants with pre-existing conditions) and therefore takes away a major source of their profits. The insurance companies, naturally enough, then attempt to make up for the loss by raising profits elsewhere. Chief among their techniques (so far) is the narrow network, which limits the doctors available under any given plan. Narrow networks raise profits in at least three ways: First, the insurance companies can make deals with medical service providers to get a better price. Second, by not including certain kinds of specialists on their lists, the insurance companies can do underwriting through the back door; for example, if they don’t want to insure against a certain sort of cancer, they simply don’t include specialists who treat that cancer. Third, a narrow network often means that travel times to the nearest service provider may be high, a deterrrent to seeking care. (There’s also the profitable outcome that rates, and profits, for out-of-network heatlh care, are not capped, so players run scams to kick sick people out-of-network while they’re being treated, and stick them with a huge surprise bill.)
Now, consumers understand, even if neoliberal economists do not, that health care is a lemon market in which “smart shopping” is extremely difficult; as we’ve seen above, only 21% of the population can do anything remotely approaching it. (Especially on a gurney in the back of an ambulance, right?) Therefore, they fall back on heuristics, like trust (“you can keep your doctor”), or a history of success (“first, do no harm”), or a doctor’s reputation in their social circle. To be fair to the economists, a minority of the 21% minority, mostly those with serious diseases, can, smartly or desperately, manage to make lemonade by cobbling together their own personal health care strategy involving the right specialist, the right drugs, the right clinic, and the right treatment. Both for heuristic and strategic
citizens consumers, it’s critical to know whether their doctor is in-network for any health insurance policy available on the ObamaCare website.
So we would naturally expect that the ObamaCare website makes it possible and easy to find this out. Dream on. Of course, if you read this lead from US News (October 23) you might be deceived:
Like a car company bringing out a new model, the Centers for Medicare and Medicaid Services will debut a shiny and improved website Sunday that will allow people to see whether the plan they pick would cover particular doctors, prescriptions and hospitals.
(Notice the sleight of hand here: The claim that purchasing health insurance is like buying a new car. It isn’t. It’s like buying a used car; see Akerlof’s classic paper on lemon markets, where purchasing a used car is the paradigmatic example of information asymmetry.) But do undecieve yourself, read on, and read carefully:
Consumers [sic] can also search for a specific doctor, or available prescription or hospital that is covered by their plan. Previously, customers had to go to each insurer’s website to find out.
Changes in coverage [that is, churn; see NC here]. can mean that patients lose access to family doctors they have been seeing for years, or may not be able to undergo medical tests or procedures in the hospital that is closest to where they live. Some consumers may decide a lower premium is worth such changes, and others many not, said Lori Lodes, communications director for the CMS. , she said.
“Half the data.” So, three years into ObamaCare, and six years since the law was passed, the administration has made half of the data “smart shoppers” would need to make informed decisions available. First, BWA-HA-HA-HA-HA-HA-HA!!!! Second, why isn’t this fraud? But wait. There’s more! From AP (November 1):
Doctor and prescription look-up tools that were supposed to be showcase improvements this year are still in final testing and could turn out to be less than reliable.
“Could turn out to be less than reliable.” First, BWA-HA-HA-HA-HA-HA-HA!!!! I mean, it’s not like the ObamaCare website has ever been “less than reliable” before! (And if the administration runs true to form, nobody will be held accountable for any debacle, and the program managers will turn Flexian and go on to lucrative private sector jobs.) Second, now we’ve got three layers of lemony goodness: Health care is a lemon market, health insurance is a lemon market, and the ObamaCare marketplace expects people to remedy the information asymmetries of these lemon markets with lemon software that not only lacks critical information, but is buggy. Third, ObamaCare is a product that people are mandated to buy. Surely there is some legal theory that explains how a mandate that forces people to buy a defective product cannot stand, constitutionally? For example, suppose there were a statute that mandated that every American purchase a gun, but that the gun manufacturing process inherently caused a certain number of guns to misfire, or discharge when dropped. Surely there is a theory under which such a mandate could be challenged?
Obamacare is not single-payer, Medicare-for-all, insurance. It’s a marketplace driven by consumer choice, which doesn’t work very well without information about provider networks.
No, it doesn’t. And remember the incentives that health insurance companies have: If they can no longer do underwriting, they’ll try to do backdoor underwriting. So we’ll have an arms race; if, at some future date, HHS manages to get the other half of their data, and debug their software, the insurance companies will have figured out some other way to game the system in the name of profit.
The Collapsing Co-ops
Here’s the HHS definition of a co-op:
A non-profit organization in which the same people who own the company are insured by the company. Cooperatives can be formed at a national, state, or local level and can include doctors, hospitals, and businesses as member-owners. Co-ops will offer insurance through the Marketplace.
Which sounds like a good idea, since a co-op has every incentive to remove the parasites that plague the for-profit health insurance business. However, co-ops have a tortured political history, and were (as one might expect) hobbled from the very beginning, as Politico describes:
The nonprofit co-op program was devised as a way to placate liberals who were irate that the health care law didn’t include a government insurance option. Supporters say it was undermined from the outset, most notably when the original $6 billion funding was slashed by more than half. In addition, the plans were saddled with rules that prohibited them from using federal funds for marketing and restricted which customers they could go after.
Bob Laszewski — while snarking at Politico, and the Democrats — describes these rules in greater detail:
About anyone I have talked to in the business of health insurance saw this as doomed from day one:
- Co-ops could only sell individual and small group policies–the most problematic part of the health insurance business–and went up against established health plans with well-diversified market portfolios.
- Co-ops were new start-ups lacking lots of covered people forcing them to have to go to providers and ask for deep discounts like the big established carriers but with no comparable market share.
- Co-ops were new start-ups with little or no proprietary information about the risk pools and businesses they were entering while the big carriers had lots of data and experienced actuaries and managers.
- Co-ops were limited to only the capital the government gave them and could not raise more money in the public markets or merge with a bigger more established player when they got into trouble.
As one might have expected, then, a large number of co-ops (not all) are collapsing. Bloomberg:
Ten co-ops have folded this year after state regulators stopped them from offering plans, because of weak balance sheets. Seven have closed just since the end of September, the most recent on Oct. 27. That’s left more than 500,000 people to find new coverage, some in rural areas that now have only a single ACA provider. Co-ops in New York, Oregon, Colorado, and elsewhere are also at risk of defaulting on their federal loans.
And although the Republican Congress pulled the rug out from under them, the administration doesn’t seem to be fighting very hard:
[T]he government is paying out only a fraction of the money it owes the co-ops under an Obamacare provision guaranteeing support for insurance plans facing high medical payouts. As recently as July 21, the administration said it would pay 100 percent of what insurers expected to get. But on Oct. 1 it announced the government would pay just 13¢ on the dollar because of restrictions Congress added after the ACA was passed—a hit many small co-ops couldn’t absorb.
After the Republicans insisted late last year on limiting the ability of the administration to pay for one of the programs to protect the insurers from losses in the early years, administration officials say they had few, if any, options. “Those were the deck of cards that we had to work with,” Mr. Counihan said [or rather sighed], adding that the insurers should have not have been surprised.
Kent Conrad, who pushed for the co-ops, reacts:
Former Senator Kent Conrad, the North Dakota Democrat who proposed the co-ops, said they were “sabotaged.”
“Those who wanted to kill them — largely Republicans and competing insurance companies — just step by step took actions to subvert them and to assure they would have an extraordinarily difficult time surviving,” he said.
It seems to me that paying 13 cents on the full dollar the co-ops had every right to expect would have been the final nail in the coffin for any struggling co-op. But it’s also clear they were hobbled from the beginning; a program that optimizes for health care for profit would have been unlikely to support them in any case. On the bright side, 10 co-ops in 14 states have survived, and Maine’s is a roaring success!
The Constitutional Challenge
Finally, we turn to the latest Constitutional challenge from conservatives. Here’s a roundup of all the cases; I’m going to focus on just one, Sissel v. U.S. Department of Health & Human Services, brought by the right wing Pacific Legal Foundation, because it enables me to take a Martian’s perspective to ObamaCare’s history. In short form:
PLF’s case of Sissel v. U.S. Department of Health & Human Services targets the individual mandate tax specifically, but calls for Obamacare to be struck down in its entirety, because it is a massive tax-raising bill that began in the Senate instead of the House, as the Constitution requires.
The Constitutional requirement is called the “origination clause” (Article I, Section 7, Clause 1: “All bills for raising revenue shall originate in the House of Representatives; but the Senate may propose or concur with amendments as on other Bills.” Notice the weasel word following the semicolon.) In longer form from Newsweek:
As it happens, Obamacare “originated” in the House in only a very formalistic sense. H.R. 3590, the bill that became Obamacare, was originally titled “Service Members Home Ownership Tax Act of 2009” and had nothing to do with health care.
In the first major Obamacare decision, NFIB v. Sibelius, the Court upheld the law as a tax—something that surprised many people. But if it’s a tax, shouldn’t the bill have originated in the House?
But to secure passage of Obamacare, the Senate decided to take this bill, which had passed the House, and gut it entirely, replacing the entire text of that bill with the Obamacare title and text and keeping only the bill number. After it passed the Senate, the House then approved the new Senate-drafted bill through a reconciliation bill.
The House made no changes to the text, which, because of the Senate’s obscure procedural rules, meant that when the bill went back to the Senate, it was not subject to a filibuster.
This was significant because, in the interim, Sen. Ted Kennedy, D-Mass., had died and been replaced by Scott Brown, R-Mass., thereby depriving the Democrats of the 60 votes they would need to defeat an otherwise inevitable Republican filibuster.
And thus was Obamacare born.
The problem is that this doesn’t look like the bill “originated” in the House in any meaningful way. It was as though the Senate bulldozed a house and erected an entirely new structure, but said it was the same house because it had the same address. And so Pacific Legal Foundation has sued.
Recently, they lost their challenge before a three-judge panel of the U.S. Court of Appeals for the District of Columbia. When this happens, plaintiffs have a chance to get the entire circuit to reassess the question. But just last week, the D.C. Circuit, unsurprisingly, declined to re-hear the case en banc.
Why unsurprisingly? Because it takes a majority on the court to revisit a case and you might recall that then-Senate Majority Leader Harry Reid, D-Nev., invoked the “nuclear option” to get more Obama appointees on the D.C. Circuit.
(The issue seems to turn on the impact of the weasel wording; that is, is the origination clause a mere formalism, or is it substantive? If the former, then Harry Reid’s shenanigains in the Senate pass muster; if the latter, they do not. Judges differ on this point.)
At this point, since whether the Supreme Court will accept Sissel for review seems wholly dependent on tea-leaf reading by court watchers, we’ll take the Martian perspective. Reread the Newsweek article for the legislative history, and you and the Martian will see the big picture:
(1) The Democrats were willing to invoke the “nuclear option” — that is, to abolish the filibuster — to appoint a few judges. But they were not willing to help millions of people by invoking the nuclear option to pass a better health care law than ObamaCare (for example, single payer).
(2) The Democrats were willing to pass ObamaCare through “reconciliation,” without a single Republican vote. But they were not willing to help millions of people by using reconciliation to pass a better health care law than ObamaCare (for example, single payer).
Remember this Martian perspective whenever a Democratic loyalist speaks of their desire for reform. The Democrats were not willing to use the legislative tools available to them to do anything other than pass a Republican plan (see Appendix).
Best article on ObamaCare I’ve seen in the mainstream press, by the excellent Trudy Lieberman in July’s Harpers (and I missed it because of the Harper’s paywall). Let me quote a great slab of it:
Essentially, the law is a means-tested program, like food stamps or Medicaid. It offers people the chance to buy private insurance online through a state- or federally run exchange, and to receive a government subsidy to help them pay their premiums. It is primarily aimed at the poor and the nearly poor: this year, 87 percent of A.C.A. enrollees qualified to receive monthly subsidies averaging $263 per person (at least in the thirty-seven states with federally run exchanges). To its credit, the law also allowed sick people to buy insurance and more of the neediest Americans to qualify for Medicaid. But in the twenty-one states that chose not to expand their Medicaid programs, the poorest of the poor are ineligible for A.C.A. subsidies and, in many cases, receive no help from the regular Medicaid program.
And what of those middle-class Americans who were supposed to benefit from the law, and were promised that they could keep the policies and health providers they already had? They’ve already been hit with higher premiums and higher out-of-pocket costs — and people with top-of-the-line coverage from their employers will soon find those policies shrinking, thanks to a provision of the law that encourages companies to offer less-generous benefits.
It’s bad enough that the A.C.A. is fattening up the health-care industry and hollowing out coverage for the middle class. Even worse, the law is accelerating what I call the Great Cost Shift, which transfers the growing price of medical care to patients themselves through high deductibles, coinsurance (the patient’s share of the cost for a specific service, calculated as a percentage), copayments (a set fee paid for a specific service), and limited provider networks (which sometimes offer so little choice that patients end up seeking out-of-network care and paying on their own). What was once good, comprehensive insurance for a sizable number of Americans is being reduced to coverage for only the most serious, and most expensive, of illnesses. Even fifteen years ago, families paid minimal deductibles of $150 or $200 and copays of $5 or $10, or none at all. Now, a family lucky enough to afford a policy in the first place may face out-of-pocket expenses for coinsurance, deductibles, and copays as high as $13,200 before its insurer kicks in. Of course, these out-of-pocket caps can be adjusted by the insurer every year, within limits set by the government, and there are no caps at all for out-of-network services, which means that some providers charge whatever the market will bear. In the post-A.C.A. era, you can be insured but have little or no coverage for what you actually need.
The A.C.A.’s greatest legacy may finally be the fulfillment of a conservative vision laid out three decades ago, which sought to transform American health care into a market-driven system. The idea was to turn patients into shoppers, who would naturally look for the best deal on care — while shifting much of the cost onto those very consumers.
(Because markets, ya know.) I quoted so much of Lieberman’s article for a couple of reasons. First, NC isn’t alone in its views of ObamaCare — though you’d never know that from Republicans, Democrats, or the career “progressive” nomenklatura in the Beltway. Second, Lieberman shows — as we have been arguing — that ObamaCare, while a Rube Goldberg device from the standpoint of actually provisioning health care, is already a very successful and ginormous screwjob, a double-crossing of the American people by the political class on behalf of bloated and parasitical “stakeholders”: insurers, drug makers, and medical providers, along with employers anxious to crapify jobs by shedding benefits. Third, there is an alternative to ObamaCare’s “conservative vision”; in 2016, at least, one single payer advocate is running for President.
 Come to think of it, “nudge theory” is a lot like a Rube Goldberg device. “Economist (A) adjusts tax incentives (B) causing consumer’s penny (C) to drop (D)….
 Backdoor underwriting can also be achieved with narrow formularies and hospital selection. If you don’t want to treat TB, then make sure the TB drugs in your formulary are unavailable or very expensive. If you don’t want to treat children’s cancer, make sure the hospital with a department specializing in that form of care is not in your network.
 Back in 2009, co-ops were offered to the left as a sop for not including the so-called public option in ObamaCare. (The “public option” was itself a bait-and-switch operation run for the Democrats by career “progressives” to head off single payer; see here and here.) It’s amusing to read Obama’s protestations on the “public option” vs. co-op kayfabe, knowing what we now know.
 More on Maine. Speculating freely, I wonder if strong Maine co-ops like Fedco and MOFGA made take-up by Maine Community Health Options easier; people were used to the concept.
Lieberman’s article includes this gem from Obama:
In late 2010, after the fierce backlash against the A.C.A. had begun and the G.O.P. swept the midterm elections, the president appeared on 60 Minutes to reflect on his party’s drubbing. Obama acknowledged that health-care reform had “proved as costly politically as we expected” — hardly earth-shattering news. More surprising was his frank admission that the law had been taken straight from the Republican playbook. “We thought if we shaped a bill that wasn’t that different from bills that had previously been introduced by Republicans, including a Republican governor in Massachusetts who’s now running for president, that we would be able to find some common ground there,” Obama said. “And we just couldn’t.”
It’s the eternal question, isn’t it? Stupid, or evil? Remember, the Republicans are the party that impeached the previous sitting Democratic Party over a *******, tried to steal Florida 2000 and Ohio 2004, had been thoroughly discredited by Bush’s Iraq debacle, and that the Democrats had just won a mandate for “hope and change,” held the House and the Senate, and were (at that time, at least) led by a charismatic figure known for his oratorical abilities. So, to “seek common ground” with the Republicans was either a ginormous strategic miscalculation by Obama (stupid) or a grotesquely cynical betrayal (evil). Here, it’s worth noting Glen Ford’s thesis that Obama is “the more effective evil.” And operationally, in terms of the policy actually adopted, “common ground” is exactly what Obama and the Democrats sought and achieved, if we put aside the partisan frothing and stamping, and the 11-dimensional chess so beloved of career “progressives.” ObamaCare is thoroughly bipartisan. So perhaps it’s stupid and evil.