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Obamacare: Destined to Flop? Part I

Monday, September 16, 2013

In this four-part series, AEI’s Joseph Antos provides a comprehensive account of what is likely to happen with Obamacare now and in years to come. In this first installment, he tackles the exchanges.

Late on July 2, the Obama administration dropped a bombshell. Despite frequent claims that the Affordable Care Act (ACA) is on track, the administration had to admit that it was delaying implementation of a major provision of the health law — the employer mandate.

The idea behind the mandate is to keep large employers from dropping their health insurance plans and sending their workers to the exchanges for heavily-subsidized coverage. Any business with 50 or more full-time employees that fails to comply is subject to thousands of dollars in fines; money that otherwise could have been used to raise wages or hire more people.

The administration knew any delay would cause political trouble. Republicans would claim Obamacare is a failure, Democrats’ confidence in the law would be undermined, and unfavorable opinions about the reform would worsen.

Trying to avoid the controversy that a formal press release would generate, the Department of the Treasury published a blog posting after business hours during a holiday week. The blog said certain reporting requirements imposed on businesses would be delayed a year, without mentioning that this also means the employer mandate could not be enforced. That fact was revealed by Bloomberg reporters whose story forced the administration to tell the (half-)truth.

Applying for insurance through the exchanges will require applicants to provide far more personal information than they expect. Consumers may be shocked to find that they must tell the exchanges the details of their family’s income, employment, citizenship status, and even whether a family member is incarcerated.

The Republican response was immediate. House Speaker John Boehner said, “Even the Obama administration knows the 'train wreck' will only get worse . . . this is a clear acknowledgment that the law is unworkable . . . .” Senator Orrin Hatch (R-Utah), ranking member of the Senate Finance Committee, said the decision "shows how deeply flawed the president's signature domestic policy achievement is."

Will Obamacare be a train wreck? Is the president’s signature achievement doomed to failure? Or is this just another minor bump in the road, which will smooth out in the coming years? How the administration does on three critical questions will determine whether the Affordable Care Act is viewed by the American public as a success or a failure.

Assessing the Exchanges: If I Don’t Have Coverage, Can I Get It?

One-stop shopping: an easy online process without the barriers and complexity that characterize the insurance market today. That’s the image of health reform laid out by the president, but that is not what the health insurance exchanges will be able to deliver. Not on October 1, when the exchanges begin to sell insurance, and not any time in the foreseeable future.

Purchasing health insurance can be a frustrating experience for people trying to buy coverage on their own. Benefits, cost-sharing requirements (including deductibles and copayments), access to specific doctors and other health care providers, and premiums all vary, making comparisons difficult. The ACA establishes exchanges that are supposed to help people purchase insurance.

What is essentially a buyer’s service, like Expedia for travel, is not a new idea. eHealthInsurance has more than a decade’s worth of experience helping people find health insurance that meets their needs and fits their pocketbooks.

But the Obamacare exchanges are supposed to do more than simply sell a product to consumers. Despite the administration’s preferred description of the exchanges as “marketplaces,” these organizations also have unprecedented regulatory authority. They enforce the new federal insurance regulations, have the power to restrict what may be sold to consumers, decide whether an individual is allowed to purchase exchange coverage, and determine whether that person is eligible for Medicaid or the new federal exchange subsidy.

As a result, applying for insurance through the exchanges will require applicants to provide far more personal information than they expect. Consumers may be shocked to find that they must tell the exchanges the details of their family’s income, employment, citizenship status, and even whether a family member is incarcerated.

The navigators, considered by the Department of Health and Human Services to have a ‘vital role in helping consumers,’ will only have 20 hours of training.

The original 21-page application for health insurance released in March was roundly criticized for being more tedious than IRS tax forms. A five-page form is now available, but only for single adults who are not eligible for employer coverage. All others will answer the same 21 pages of questions as before, but the typeface is smaller, and any family with more than two people will have to make photocopies of the application.

That is only the start of purchasing insurance on the exchanges. A separate application will be necessary to actually apply for a specific health plan since there is no room on the current form for that information. If you are eligible for Medicaid, you will have to answer more questions about income, assets, other benefits that you receive, housing costs, child care expenses, and medical expenses. The full application process will test the patience of all who apply.

The administration is mobilizing an army of people to help consumers through the paperwork gauntlet. Navigators, certified application counselors, insurance agents and brokers, community organizations, hospitals and other health care providers, local businesses, and other consumer outreach programs are gearing up for a massive enrollment campaign beginning this fall.

This could backfire on the very people who are supposed to be helped. With so many official and unofficial helpers, it will be difficult to know whose advice to trust. The navigators, considered by the Department of Health and Human Services (HHS) to have a “vital role in helping consumers,” will only have 20 hours of training on the mechanics of applying for insurance with little or no emphasis on the different policies that are available. Many applicants are likely to enroll this fall in insurance plans they don’t understand, only to find out in January, when the coverage begins, that they made an expensive mistake.

In addition, sensitive personal information is at risk of being compromised, and there is no assurance that HHS can prevent it. Critical information, including social security numbers and details of employment, must be reported on the exchange application. Many applicants, unaware of the potential for fraud, will give that information to the person helping them complete the form.

The federal government, which will run exchanges in 34 states, faces similar problems. HHS has admitted that it is behind in testing its data systems, and the Government Accountability Office (GAO) warned that exchanges may not be ready in all states by October.

No one should be surprised when widespread problems are reported during the first few weeks of exchange operation. Oregon announced that its online insurance exchange will not be made available to the public until at least the middle of October, giving the state more time to iron out problems. California has warned that its online enrollment process could be delayed. Other states are likely to follow suit when it becomes clear that computer systems are not ready for prime time.

The federal government, which will run exchanges in 34 states, faces similar problems. HHS has admitted that it is behind in testing its data systems, and the Government Accountability Office (GAO) warned that exchanges may not be ready in all states by October.

The administration has also relaxed other requirements of the ACA as technical problems mount. In a July 5 regulation, HHS gave the 16 states setting up their own exchanges an additional year to implement procedures to verify an applicant’s income and employer health insurance status. The data “hub” that is supposed to give states the necessary personal information from eight federal agencies (including the Internal Revenue Service and Homeland Security) will not be ready in time. HHS’s recent one-week delay in signing contracts with health plans to be sold on the federal exchanges shows that the implementation process will extend well beyond October 1.

Regardless of who runs the exchanges, they will all have problems getting up and running. Establishing an insurance exchange is “highly complex . . . unprecedented and it’s not going to be smooth,” according to Kevin Counihan, chief executive of Connecticut’s health exchange who helped implement Massachusetts’s health reform. “This is a two- to three-year implementation we’re doing in 10 months. I wish I had a year.”

The bottom line: individuals will be able to purchase insurance through the exchanges if they are persistent. Those who can wait a while are likely to have an easier time of it. Given the complicated rules and conditions that must be met to buy insurance on the exchanges, this will never be a simple process.

Supporters of the ACA are beginning to accept that at least the first few months of operation will be difficult for most of the insurance exchanges. They will function after a fashion, but considerable effort will need to be invested in resolving problems that can only be identified by trying to make the exchanges work. This is no guarantee that the ACA will be a success. Far from it.

Joseph Antos is Wilson H. Taylor Scholar in Health Care and Retirement Policy at the American Enterprise Institute.

FURTHER READING: Antos also writes "Medicare Reform Faces Reality" and "The Slowdown in Health Spending Is Not Due to Obamacare." Christopher J. Conover contributes "'Not One Dime': Health Care Law Projected to Add $6.2 Trillion to U.S. Deficit," while "The Cost of Care" shows that a majority of Americans are happy with healthcare costs.  Henrik Temp explains "Why the ACA's Medicaid Expansion Isn't a Good Deal for the Poor" and cites Antos's recent report in "How to save Medicare."

Image by Dianna Ingram / Bergman Group

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