Predicting the Future of Healthcare Insurance

by Dave Schuler on June 11, 2014

As Niels Bohr wisecracked (frequently misattributed to Yogi Berra), prediction is hard especially about the future. In this WSJ op-ed medical industry researcher Stephen T. Parente tries to predict the future of healthcare insurance:

Using the 2014 health-insurance exchange enrollment data and a micro-simulation model funded in part by the Department of Health and Human Services, we estimate the national and state impact of the Affordable Care Act on insurance prices and enrollment from 2015-24. The average premium for an individual exchange health plan (Silver) will increase by $1,375 by 2019 while the average family premium for the same plan will increase by $4,198—outpacing the average increases from 2008 to 2013. Consumers who saw spikes in their health premiums last year will experience the same trauma this year. But the steepest price increases will not occur until 2017 and after, when three things happen.

The three things that will happen are

  1. The PPACA’s mandatory required benefits will be kick in.
  2. The reinsurance program that protects insurance companies from cost overruns will end.
  3. More employers will drop their insurance plans.

All of these will work synergistically not only to increase the cost of healthcare insurance but the cost of healthcare as people perceive it based on what they actually pay out-of-pocket. Families, already paying more for healthcare due to the increased deductibles and copays on top of rising prices of the new plans in which they’re enrolled, will complain to their Congressional representatives.

Another factor not mentioned in the op-ed: the federal government’s share of the costs due to the expansion of Medicaid will expire. That on top of the predicted increased in Medicaid enrollment will put additional pressures on states for which Medicaid is already their largest spending line item. Pressure will build to do something.

Here’s Mr. Parente’s last prediction:

Either way, there will be a significant number of uninsured Americans unwilling or unable to pay for the inflated insurance available on the exchanges and forced to pay penalties, which for 2016 and thereafter will be the greater of $695 or 2.5% of income. More will choose this option every year. By 2024, Ms. Frogner and I estimate that there will be more than 40 million uninsured, roughly 10% more than today.

I don’t think, as Mr. Parente does, that will result in the death of the PPACA. I don’t know what will happen. To me it just highlights something that has been obvious all along, that if reducing healthcare spending is politically impossible so is universal coverage. The two go hand in hand but with a causality in reverse of what the architects of the PPACA believed. If healthcare costs go down you can afford to insure more people. Insuring more people does not necessarily mean that healthcare costs will go down.

{ 16 comments… read them below or add one }

steve June 11, 2014 at 7:05 am

Step one was getting more people covered. As a bonus, that same step also addresses quality issues, part of the iron triangle. Step two will be to take on costs. Step one takes small steps in that direction, but step two will test our political will much more. The question is whether we will do this by reversing a lot of the ACA and just excluding many more people from health care, or if we tackle actual costs. At present, looking at our political process, I am betting on the former.

Steve

Dave Schuler June 11, 2014 at 7:26 am

I think we will do neither until a lot more people don’t have healthcare insurance or are paying so much for care it becomes a major political issue.

While I recognize that you’re explicating the theory, I have been and am skeptical of its practical application. I think we’re far more likely just to avoid step 2. We wouldn’t have the problems we already have if we’d been willing to engage in cost control 40, 30, 20, or even 10 years ago. Nearly every year there’s a “doc fix” to remind us of how difficult politically cost control is.

I also think that Mr. Parente is wrong. We won’t, as you put it, reverse a lot of the ACA. It will become obsolete either because it’s replaced by a much more expansive program or because so few people are covered under it that it doesn’t make any difference any more. Something will depend on how willing the Powers-That-Be are to tighten the screws. I’m guessing not much.

steve June 11, 2014 at 8:26 am

We cant really ignore step 2 that much longer. Medicare, and to a lesser extent, Medicaid means that it has to be addressed. It will be put off as long as possible and the priority will be to try to blame the other party as much as possible. They will go after Medicaid first. Expect its costs to be cut by decreasing eligibility. No one wants to touch Medicare but they will have to anyway. I think it will become an income qualified welfare program, but even that will not be enough unless they set limits pretty low.

Steve

jan June 11, 2014 at 11:18 am

“Step two will be to take on costs.”

Cutting health care costs and increasing medical access to uninsured people were the pressure points creating the PPACA. While the need for such reform was valid, the ingredients and how they were mixed, were heavily tainted with political crassness, rather than a sensible, bipartisan course of action. Even now, this bulky piece of legislation has had to switchback it’s way into implementation — punishing, rewarding, denying, extending, and lying it’s way through the maze of complexity it somehow justifies as being good, fair health care law for all.

From what I’ve heard, though, ER rooms are being used even more for common ailments, premium costs have gone up for significant numbers of people, exchanges and services have been narrowed, actual enrollment numbers are being exploited (as many as 2 million of that much touted 8 million are in question), and on and on go the flies in the ointment of this social progressively pushed law.

As the WSJ article implies, the real kickers of this law are strung out into the near future — purposefully done so to insure it being firmly embedded before more people are negatively impacted by it’s full implementation. The medicaid expansion costs, alone, onto states will have major fiscal implications, as will the rising costs of insurance when all the subsidies, alluring strings, gifts of delay, government props eventually fade away, and the full thrust of the law remains to be enforced.

steve June 11, 2014 at 2:24 pm

I hear that Er usage for common problems is down, that premiums have decreased, exchanges have broadened access and actual enrollment has been higher than expected. I can hear whatever I want if I pick the correct sources.

As I ahve said before, a bipartisan approach on this kind of major legislation is impossible. Even if you are considered a reliably conservative legislator you risk losing your primary if you associate with a Democrat or work with one on compromise legislation.

Steve

michael reynolds June 11, 2014 at 3:21 pm

Adjusted for timing shifts, Medicare growth is even lower through eight months at just 0.3 percent. And even after removing the effects of temporary policies, year-to-date Medicare growth remains extremely low at 2.5 percent, even lower than through April. This is more than a full percentage point below economic and beneficiary growth, meaning that even excluding one-time effects, Medicare spending is on pace to both fall as a percent of GDP and on a per-capita basis.

http://crfb.org/blogs/determining-medicares-underlying-growth

Andy June 11, 2014 at 4:19 pm

Well, this is a grand experiment and it will be interesting to see how it turns out. I don’t think much can be predicted based on 8 months of data.

Dave Schuler June 11, 2014 at 4:28 pm

I don’t know whether this is valid, overstated, too short a time period, causal, coincidence or what: based on a poll of emergency room physicians ER visits are up since the implementation of the PPACA.

michael reynolds June 11, 2014 at 4:51 pm

Andy:

Yep. We won’t know until we know. Time’s arrow continues to fly in only one direction and we continue not to know what’s going to happen. Totally won’t stop people from trying to guess. It’s the not knowing that makes life interesting.

steve June 11, 2014 at 5:19 pm

1) Hospital ER visits go up every year in a well run ER. The population is growing and aging.

2) There is a relative shortage of PCPs. Hospitals have encouraged the growth of ERs as a way to capture business and, hopefully, now patients.

3) I am more concerned about total system costs. We may actually save money in the long run if people can go the ER knowing their care will be paid for rather than waiting until it is an emergency, like I see frequently.

4)Mostly it is too soon to tell.

Steve

Guarneri June 11, 2014 at 6:58 pm

I’ve been involved in a project the past three months where I have interacted fairly closely with about 3 dozen doctors. Of that population only 1 is an ObamaCare supporter. He’s a raving liberal (and has become a friend) but gets back on his heels pretty quickly in discussions. Most of the balance are somewhere between despondent and disgusted. Talk inevitably leads to how soon they can leave the profession. For the older ones its within reach. The younger ones tend to be the despondent ones.

I know this will be dismissed as anecdotal, but how can so many real live practitioners be against? That’s not how the real world works.

(BTW – this isn’t some sort of political group. This isn’t selection bias.)

steve June 11, 2014 at 7:53 pm

Doctors were all convinced Medicare would leave them poor. That said, in some ways I dont blame them. At 60 I wont practice all that much longer. It would have been nice if I could just coast until I retired. Not happening. We are remaking our department to meet the new challenges. I am traveling to other departments. I am hiring new people outside of my profession. Work hours are changing and what we do is changing. So much uncertainty, and if one is rational, you have to accept that it is not just not possible for physicians to take some kind of income hit at some point.

In many ways it would be nice if things went back to the way they were. However, costs cannot keep increasing like they had been increasing. Something was going to happen, and it was going to require them to change also.

Steve

steve June 11, 2014 at 7:54 pm

Err, I meant that it is inevitable we will take an income hit.

Steve

Dave Schuler June 12, 2014 at 5:42 am

It’s like alcoholism, Steve. You’ve got to hit rock bottom, leaving no alternatives but to change or to die. While I agree with the “when things can’t go on indefinitely they won’t” idea that doesn’t really convey the actual dynamics which frequently includes upheaval and catastrophe.

TastyBits June 12, 2014 at 10:18 am

As with any large complex system, few people appreciate the actual size. Most of these predictions fail to account for feedback loops or limits within the system. Unless these feedback loops or limits are intentionally blocked the system will adjust before doomsday.

The insurance companies will react before they go bankrupt. Premiums have some limit that people can pay. Obamacare is not going to be the end of western civilization. Obamacare will transform the system, but it will not necessarily be the way envisioned by its creators.

With a few personal exceptions, I know very little about the healthcare system, and therefore, I comment very little. I am unqualified to render a competent opinion about Obamacare, and furthermore, I am unqualified to judge the competency of those rendering an opinion about Obamacare.

I suspect that I am not alone. I am probably in the vast majority, but again, I have no clue about who knows what.

... June 12, 2014 at 5:42 pm

I’m just wondering what the point of the PPACA was, if 30,000,000 or so people come out of it this year without insurance, and 40,000,000 people won’t have insurance ten years after ‘full’ implementation.

There’s a helluva lotta money being spent to not accomplish the stated goals, or even come close to accomplishing them.

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