By Francis M. Miller
It might be premature for a post-mortem on Obamacare. Economists know that there is always a short run and a long run in all our public affairs. What is less discussed though is that there is also a very short run and a very long run.
Now, I have previously gone on record as stating that in the very long run, the feds hold the aces. They control the penalties and the subsidies. And they have an oligarchy of seven big insurance companies serving as their joint chiefs of staff. In the end, we all will buy health insurance some way, some how.
In the microcosm of the current market we have recently seen World War I-style trench warfare using call centers and websites.There has been a focus on the individuals and families, which are merely 5 percent of the total market.
The not-so-loyal opposition cites the lack of enrollments from the millions of queries. But, stop and think. The fundamental dilemma for most insurance companies is how to generate leads.That is why they have historically incentivized their salesman with high up-front commissions and long-term residuals.
Just a year ago, insurance companies were relying on business card mailers and TV advertising. Now, the name of the game is search engine optimization and following up on millions of leads with a mind to converting them to policyholders.
What a different a year makes. We will never return to the old days of the insurance broker preying on friends and neighbors.
We have crossed the Rubicon. Health insurance distribution channels in the individual and family markets are being reorganized and new highways are soon to be built.
Five years from now, health insurance will be sold as a commodity through retail outlets, the same way Apple and Microsoft have stores at Park Meadows Mall. It is a profound change. Ditto for kiosks and mobile computing.
Now, in looking at the statistics, I’m less willing to give credit for new Medicaid enrollees or for retention enrollments for people who had their old policies canceled and moved over to new bronze plans.That is playing defense. And, while the exchanges inserted themselves into the market’s distribution channels, they have yet to transform the essence of the health insurance product or bend the cost trend curves.
But, the exchanges are a mode of distribution, not a creator of product or deliver of service. That job will be left to others.
The Affordable Care Act has set in motion a cascade of unintended consequences. It’s as if some “Breaking Bad“ snowboarder tells his buddies to watch as he makes a run across a corn-snow field in the back bowls, and when an avalanche occurs, killing his buddies, he screeches to a halt at the bottom and screams, “Wow, man, did you see what I just did?”
I am talking about the soon-to-be-witnessed destruction of the employer-based group market as we have known it. It is expected that 50 million to 70 million people eventually will buy their health care on the exchanges.This is what will guarantee that exchanges as a marketing model thrive.
What I wonder is whether one central government exchange will predominate or whether we will see the emergence of a plurality of competing private exchanges, big and small.
All along I have been nagged by a hypothesis: I simply do not believe large groups are offering an affordable benefits solution for their employees.
How so? Look to COBRA premium levels to see. Federal law requires large employers to offer COBRA benefits and they are not allowed to charge more than a 2 percent administrative fee over actual costs. Much of the individual market as we know it today for exists because of high COBRA premiums and the need for conversion.
A significant amount of the individual and family market has also been created by wage-earner dependents bailing out of employer group plans because of the high premiums. I have seen little evidence that suggests large employers really have the ability to deliver health benefits at a lower per unit cost than anyone else.
The emperor has no clothes.
The whole discussion might be reduced to meaningless academic drivel.Big companies have become increasingly irrelevant since the 1970s. New job growth in the 21st century will come from start-ups and small businesses.
There are 400,000 small businesses in Colorado.They care about the bottom line and survival. They are not interested in buying a platinum plan. If a more cost-effective means of providing benefits presents itself, small business CEOs will pursue it with vigor.
Increasingly we will see defined-contribution plans, health savings accounts and bronze high-deductible plans. Employees who want more coverage can always buy gap insurance on a voluntary basis.
There also has been a fatal conceit in all of this.The architects of Obamacare extrapolated the success of Amazon, E-Bay and Google and concluded that they could contract with consultants to build the next big thing. In their minds that would create surely create a new normal.
What they forgot is that Apple, Microsoft, Google and E-Bay built a better product and they took several years to survive a Darwinian thinning of the herd. Much of their success has come from word-of-mouth and wisdom of the crowds.
The exchanges are not there yet.
The exchanges have pursued two strategies that have wasted precious political capital.
The first blunder was forcing people through the degrading experience of being denied by Medicaid before they could apply for tax credits.The social stigma surrounding Medicaid escapes the staff in the exchanges. It is a stinging rebuke to any working-class person who is struggling to get reemployed because of an economy trashed by others. It was really poor judgment not to have finessed this problem.
The second trip-up was to use America’s youth as the fulcrum in this leverage play. Young folks are healthy and should be in a risk pool that allows them to buy insurance at a truly affordable price. We have not made health insurance affordable by virtue of giving subsidies. And demand for our services is bloated when the threat of penalties is used as a stick. It creates the illusion of success.
Subsidies, whether they are offered for higher education or health care, fuel the fire of inflation. A rising tide of inflation lifts all boats. Health care will become affordable if and only if there are disciplining forces from a functioning market.
What has really been done is that we placed the burden of carrying the costs for people with pre-existing conditions onto the backs of our young. We are ignoring the fact our young face high college costs, unemployment and beginning of adult life start-up costs.
The young are also taxed for Medicare, Medicaid, government employee benefits, veterans and all manner of special population groups. And, every product the young consumer buys has health care costs embedded into the price.
When taken in its totality, the first phase of Obamacare was handled as well as could be expected of something this big and new. I am actually surprised it came off as well as it did.
There have been mistakes to be sure, but none of them are irrecoverable. A website can be fixed, the PEAK application process can be altered. I think the Colorado exchange staff and board should hire Merici Vinton to consult with them. If they do not know who this uber technologist is, that explains a large part of the problem.
The reform of American health care is the biggest thing in our lives, socially, politically and economically. It’s one of those things where you either get on the northbound train or expect to be run over by it.
Francis M. Miller is the past president of the Colorado Business Coalition for Health and the vice chairman of the Colorado Health Data Commission. He founded the first consumer cooperative for health care called the Alliance and is the current president of Health Smart Co-op.