Bloomberg News

Obama Trims Details on Health Law as Exchange Cost Rises

April 11, 2013

The $1.3 trillion U.S. health-care system overhaul is getting more expensive and will initially accomplish less than intended.

Costs for a network of health-insurance exchanges, a core part of the Affordable Care Act, have swelled to $4.4 billion for fiscal 2012 and 2013 combined, and will reach $5.7 billion in 2014, according to the budget President Barack Obama yesterday sent to Congress. That spending would be more than double initial projections, even though less than half the 50 U.S. states are participating.

The unanticipated spending is a consequence of an ambitious timetable dictated by Congress and a complex new way of offering people medical coverage, say analysts, lobbyists and administration officials. Combine that with a majority of Republican governors declining to cooperate with a Democratic president and U.S. regulators are left grasping to get the 2010 health law up and running by a Jan. 1, 2014, deadline.

“Once you’re behind schedule, the way you solve problems is you write checks,” said Douglas J. Holtz-Eakin, a former Congressional Budget Office director who is now president of the American Action Forum, which has opposed the health law.

The law already has made positive changes to the health system, said Robert Blendon, a professor of health policy at the Harvard School of Public Health in Boston. He cited the law’s guarantee of insurance coverage for people younger than age 26 who stay on their parents’ plans, and caps on the premium revenue insurers can keep for profit and administrative costs.

Touching Lives

“There’s no dispute that those things that directly touched people’s lives actually occurred,” Blendon said today in a telephone interview. “The negative issues are all about the potential threats of rising health-care costs, rising deficits that people have completely different views about.”

The Obama administration is opting to delay some aspects of the law. It temporarily backed away from restrictions on coverage for executives and a promise to offer small businesses greater choices of health plans.

The basic requirements of the health law must function by Jan. 1, even if all the bells and whistles aren’t complete, said Ron Pollack, executive director of Families USA, a consumer advocacy group that backs the overhaul.

Long-Term Strategy

“The Affordable Care Act is not a short term, temporary fix of America’s health-care system,” he said in an interview. “It’ll have long-term benefits, and so the administration clearly is making sure the most essential elements of the new law are effectively in place on a timely basis.”

Obama administration officials say the bulk of the health law will be up and running on time.

“There’s an awful lot to implement and we want to do it efficiently,” Ellen Murray, the assistant secretary for financial resources at the Health and Human Services Department, said in an interview. “It’s a big job, and we want to do it right.”

The government has warned that the exchanges, which are supposed to open in every state on Oct. 1, may not be easy for low-income people to navigate. In many states, people found to be eligible for Medicaid, the state-run program for the poor, will have to sign up through their state government instead of through the exchange.

Beyond Imagination

“It’s a lot more complicated than anybody imagined,” Joseph Antos, a health economist at the nonprofit American Enterprise Institute who advises the CBO, said by phone.

That’s because the federal government has been forced to build part or all of the exchanges in 34 states where governors or legislatures declined to do it themselves. The government expects to spend $1.5 billion this year on the federal exchange, Murray said.

In those states, connections between computer systems that run the federal exchange and state Medicaid programs are incomplete, said Caroline Pearson, a vice president at Avalere Health, a consulting firm based in Washington that is tracking exchange development.

The extra step required to sign up might discourage enrollment by low-income people, she said in an interview.

“You sort of always want to minimize the number of interactions you have to have in order to get people into the system,” Pearson said. These are “additional hurdles that could present a problem,” she said.

People Covered

The result is that the number of Americans projected to gain insurance from the law has already eroded, by at least 5 million people, to 27 million by 2017, the CBO said in February. In addition, as many as 8 million people will lose health-care plans now offered through their employers, almost three times more than the CBO initially projected.

The bulk of the Affordable Care Act relies on governors to build exchanges and expand Medicaid, the joint federal-state program for the poor. The law also required a myriad of regulations to be crafted and vetted by hospitals, insurers and other industry groups, all to be done within four years.

By comparison, President George W. Bush’s administration in 2003 was given three years by Congress to implement a new drug benefit in Medicare, a program whose scale is dwarfed by the health overhaul.

No Favors

“Congress did the administration absolutely no favors in setting the timetable,” said Neil Trautwein, vice president and employee benefits policy counsel at the National Retail Federation, a Washington-based lobbying group for retailers. “Because of a host of complications, the administration is behind in trying to catch up.”

For Obama that means delays. He’s pushing back a prohibition against companies giving their top executives better health plans than lower-ranking employees, and a requirement that they automatically enroll workers into the plans. Small businesses that had hoped to give their workers a choice of health plans in government-run marketplaces will instead have to choose one plan for their entire workforce.

A new program for states, called the Basic Health Program, won’t start until 2015, angering Obama’s allies. The Basic Health Plan was intended to be an option for states that want to cover more low-income people with a government health program, instead of private coverage sold through the exchanges. The provision was added to the law by Senator Maria Cantwell, a Washington Democrat, whose state operates a similar program and sought federal money to expand it.

Doing Triage

After the delay was announced in February, Cantwell threatened to oppose confirmation of an administrator for the U.S. Centers for Medicare and Medicaid Services, which is setting up exchanges. The senator questioned administration officials about the delay at three hearings, and won a letter on March 28 from Health and Human Services Secretary Kathleen Sebelius, promising to begin the program by 2015 and laying out a detailed timeline to set it up.

“It looks like what they’re doing is triage,” Holtz-Eakin said of the government. “If this isn’t going to work, forget it. If that’s not on time, forget it. Let’s get to the things that we can make work, and declare victory.”

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net

To contact the editor responsible for this story: Reg Gale at rgale5@bloomberg.net


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