Now that the Supreme Court has ruled that Obamacare, the so-called “Affordable Care Act,” can stand, we must focus on the many challenges that the law presents for Maine.
Although Obamacare is the single largest government intrusion into the private health insurance market, it is important to recognize that Maine is in a somewhat unique position. First, Maine is one of a handful of states with a regulatory framework that is in many ways already more restrictive than Obamacare.
For example, many states will experience significant rate increases when they transition to guarantee issue and community rating under Obamacare; Maine adopted these two reforms in 1993.
Maine also passed Public Law 90 in 2011, which has already helped to lower insurance premiums for many small businesses and individuals. Several reforms in PL90 have yet to fully materialize and will continue bringing much-needed relief to Maine’s insurance market. This law was specifically designed to comply with the health care overhaul.
However, we must not understate the negative impacts Obamacare will have. Many provisions in this complicated law will increase insurance premiums, and many others will hurt businesses.
New taxes under Obamacare are expected to increase insurance premiums, such as a medical device tax, starting in 2013; a tax to fund comparative effectiveness research, also starting in 2013; and an annual fee on health insurers, starting at $8 billion in 2014 and increasing to $14.3 billion by 2018.
Employers now face a number of new reporting requirements. They must record the value of health benefits on employees’ W-2 forms, and they must file reports with the secretary of the Dept. of Health and Human Services regarding whether plans meet certain criteria. The staff time necessary to assure compliance with these new regulations will inevitably increase the cost of providing employer-sponsored health insurance.
One of the most notable impacts of Obamacare pertains to the coverage itself, including premium contribution and eligibility criteria for their employees. Health plans must contain all required “essential benefits”, as defined by DHHS, and they must meet certain actuarial values. Mandating these benefits will result in more expensive plans than are now offered.
Under the law, waiting periods for new employees to get health plans may not exceed 90 days. This provision will be particularly acute for Maine’s construction industry, which commonly imposes six-month waiting periods. Since construction workers often come and go during their first six months, contractors will now be required to manage paperwork and expense for employees who may be gone in a few weeks.
Obamacare mandates that employer premium contributions must result in “affordable” coverage for employees. “Affordable” is defined as employee contributions that do not exceed 9.5% of their family income. This is challenging for employers because they have no way to verify what an employee’s family income is.
The law also requires that employers offer health coverage or face severe penalties. This specifically impacts employers with 50 or more employees. To determine the number of employees they have, employers must count part-time employees using a calculation to determine full-time equivalents.
Seasonal employees may be excluded unless they work greater than 120 days per year. This will hit Maine’s tourism industry especially hard, since most seasonal employees in Maine work more than 120 days. Seasonal businesses that do not offer coverage now will be severely impacted by the cost of providing health coverage for these employees.
There is legitimate concern that some companies may choose to pay fines, rather than continue to offer health insurance coverage, to avoid the costly burden of maintaining compliance with Obamacare’s requirements. Other companies that do not offer coverage could now face penalties that will threaten their very existence.
As we consider the next steps for Maine, it is important to step back and think about the forces that have led to the healthcare crisis. Healthcare delivery is notoriously inefficient, expensive and inconsistent throughout Maine and the nation. This is due largely because our third-party-payer system has removed market forces from the health care system and has divorced individuals from the true cost of care.
In Maine, hospitals and other healthcare service providers have evolved not because of community needs and economic forces, but as a result of Maine’s bureaucratic Certificate of Need (CON) laws.
The national Certificate of Need Law was enacted in 1974, when healthcare providers could charge and recover the entire cost of Medicaid and Medicare, no matter how high. Recognizing the failure of CON to reduce healthcare costs, the federal government repealed the law in 1982.
But a CON is still required from the Maine Dept. of Health and Human Services whenever a healthcare facility is being bought or sold; purchasing medical equipment or making capital expenditures over a certain dollar amount; developing a new facility; increasing or decreasing bed capacity; or hoping to provide a new health service.
This is like trying to lower the cost of gasoline by banning new gas pumps or trying to keep food prices down by limiting the number of grocery stores. Just as these efforts would increase the cost of gas and food, CON has increased the cost of healthcare in Maine.
Another systemic problem is that patients don’t generally search for the best value when seeking care. Without the transparency necessary to make informed decisions about their health care, patients are divorced from the cost and quality of care by the cost-sharing structure of their insurance plans.
Obamacare does not address many of the underlying cost drivers in the healthcare delivery system. In some ways, it will actually exacerbate these problems. Individuals will be further divorced from the realities of health care costs.
Subsidies for individual plans are defined not by the level of benefits provided, but on a fixed percentage of family income. In fact, subsidies are only offered for silver-level plans and above, which will encourage plans with more extensive benefits. Insurers will also benefit from these subsidies and will be insulated from economic pressure to contain costs to reach price points that consumers can afford.
This approach throws money at a dysfunctional delivery system and removes market forces that would otherwise apply pressure on the system to address the underlying cost drivers.
We also need to consider the cost to taxpayers to support this law and the extensive subsidies it intends to provide. The Congressional Budget Office missed the mark on anticipating the cost of Medicare by over 800 percent, and the CBO has already doubled the anticipated cost of Obamacare before the law even takes effect. This burden will directly impact Maine’s economy, along with the economy of the nation at large.
Obamacare subsidizes a very inefficient healthcare delivery system, further insulates that system from market forces and mandates many provisions that will put upward pressure on insurance premiums.
At the same time, Maine’s efforts to reduce insurance regulations and encourage new competition has produced lower insurance rates for many and will introduce new competition in the market. So how do we improve Maine’s health care delivery system and lower costs in this environment?
At The Maine Heritage Policy Center, several important strategies will guide our healthcare policy work over the next couple of years, regardless of whether Obamacare is implemented or repealed. We will promote transparency in healthcare cost and quality; we will identify barriers to market forces in healthcare; and we will promote patient-centered policy reforms, including payment reform that would align incentives among patients, providers and payers.
We cannot count on the federal government to solve the healthcare problem. It is up to us to promote a competitive, responsive and efficient healthcare delivery system.
Joel Allumbaugh is director of MHPC’s Center for Health Reform Initiatives. He is also CEO of National Worksite Benefit Group, Inc., a full-service employee benefits insurance agency specializing in consumer-driven health plan strategies.