Health insurance cancellations are no surprise

To get behind the headlines, we reached out to a leading expert on the law: Kip Piper, who advises large health care organizations on Medicare, Medicaid, and health reform policy, finance and business strategy.

Among other roles, Piper has worked as senior adviser to the administrator of the Centers for Medicare and Medicaid Services (CMS), Wisconsin state health administrator, director of the Wisconsin Medicaid program, a senior Medicare budget officer at the White House Office of Management and Budget.

"The fact that ACA would effectively nuke most of the existing commercial individual health insurance market was never in question," Piper told us.

In the interview below, which was edited for length and clarity, Piper discusses cancellations, the apparent surge in Medicaid enrollments under Obamacare and whether more transparency would have helped the rollout.

Q. What’s your take on the coverage cancellations arriving in mailboxes around the country?

A. It was always known that the ACA would outlaw millions of existing individual or non-group health insurance policies.  From a policy wonk perspective, that was a no-brainer.  It was self-evident in the law in March 2010 and confirmed in subsequent rules and analyses.  Also obvious all along was that consumers would face a very different marketplace under the ACA, with some seeing lower premiums (including me), some seeing larger premiums, and most everyone seeing higher deductibles, higher co-pays, and a narrower choice of providers.

Quantifying the impact of ACA on the individual — estimating the number of people affected — was always tough.  Whether it would cause 60 percent or 80 percent of individual plans to be cancelled was hard to estimate because data on individual coverage is hard to come by, rules and products varied by state, the ACA grandfathering rules came out slowly and in pieces, and even things like the essential health benefit package varies a bit by state.  Also, not all these policies expire on December 31.

What’s frustrating is how it took three and a half years, the failed launch of the federal exchange, and the news media starting the question the administration’s core talking points for anyone to focus on this. Whether you like or dislike the ACA policies, the 19.4 million Americans in the various parts of individual market deserved a heads up.

Q. Could this have been prevented?

A. From a regulatory perspective, health insurers in the individual market have no choice but to discontinue non-compliant policies and, if they wish to keep business, offer new, compliant policies.  Health insurance is a binding contract.  Insurers can’t merely transfer people.  They have to cancel policies that no longer meet federal and state law, give notice, and then try to sell people into the new one policies. Having said this, the new policies will generally be more expensive.  The ACA requires people to buy a richer benefit package – it only permits sale of the richer benefit packages.  You can argue that this is better for society but there is no free lunch and it does eliminate choices many consumers were fine with.

The higher cost sharing – deductibles and co-payments – that many are seeing (including me) is an inevitable byproduct of the ACA insurance market rules, the brave new actuarial risks of the post-ACA marketplace, and competition based on premiums and brand.

Q. Is Medicaid a success story here?

A. Medicaid enrollment data from the states with their own exchanges certainly suggests a surge in Medicaid.  It’s still early but it appears that the surge is a combination of ACA Medicaid expansion and the woodwork effect – bringing in individuals already eligible but not enrolled.  Medicaid rolls will also increase somewhat as individual commercial polices are cancelled, high-risk pools end, and some small and mid-size employers drop coverage.

Today, Medicaid covers about 74 million Americans.  Given all the unknowns, including economic conditions, projected Medicaid enrollment by 2020 ranges from 85 million to 102 million. Regardless, the role of Medicaid in the marketplace and impact of Medicaid on federal and state budgets will only grow.

Q. Should the contractors behind healthcare.gov be penalized?

A. Determining accountability for the healthcare.gov mess is very tricky.  Both the CMS and the multitude of contractors were responsible for the project, with a maze of interdependencies.  Parsing out responsibility for the many failed parts of the federal systems for Obamacare will be difficult, will take months, and an independent party such as GAO or the Inspector General.  Overall, it appears that there will be considerable finger pointing in all directions, with plenty of blame to go around.

CMS made several significant strategic blunders, most notably the decision to manage the project in-house rather than hiring a systems integrator.  Hiring a systems integrator to honcho the project, serve as a super general contractor, make the disparate pieces work together, and oversee testing and problem solving was essential.  CMS simply does not have the experience or capabilities to do this in-house.  Retaining an integrator would have been expensive, probably at least $75 million on a project this size.  Perhaps they didn’t have the budget, but otherwise the decision to handle system integration in-house is inexplicable and proved disastrous.

The Obama administration decided to avoid making decisions during the 2012 election year.  Given the nature of elections and the array of winners and losers under the ACA – most of whom still are unaware they are winners or losers – this is perhaps understandable.  However, CMS had no choice but to follow orders and avoid making decisions or revealing information about the controversial law during the election.  That meant countless critical decisions that should have been made in 2011 and 2012 were not made until well into 2013, leaving little time for problem solving, system integration, and testing. To this day, nearly 44 months since the law was signed, not all ACA-related decisions have been made, with many less critical rules deferred.

In the end, whether in the form of reasons or excuses, the contractors have plenty to point in minimizing their share of responsibility.  It appears they have covered themselves with a paper trail of warnings to CMS.

Q. You’ve been particularly critical of the administration’s transparency and follow-through on its own rules.

A. Presidential executive orders have long required cost estimates and impact analyses for every major proposed or final rule.  In Executive Order 13563, President Obama reiterated the longstanding requirement and further directed each federal agency “… to use the best available techniques to quantify anticipated present and future benefits and costs as accurately as possible.” A Regulatory Impact Analysis (RIA) must be prepared for rules with economically significant effects — anything with an impact of $100 million or more in any one year.  Obviously, every ACA rule had an impact of over $100 million.

However, early on CMS stopped providing cost estimates for rules implementing the Affordable Care Act.  Most were omitted entirely, others watered down to be meaningless statements the analytical equivalent of saying, “The hell if we know what will happen.”  They even started explicitly saying in ACA rules — including the massive Medicaid expansion rule — that the rule didn’t have an impact of over $100 million because, in effect, everybody expected it.

My understanding is that CMS was directed by the White House Office of Management and Budget (OMB) to stop publishing the cost estimates and impact analyses with the ACA rules.  They were concerned the information, coming from the CMS Office of the Actuary, would be used as ammunition by the House and other critics of Obamacare. That is certainly true but no excuse for ignoring 30 years of executive orders and the President’s own stated commitment to open government.

Read more of Kip Piper’s exchange with ProPublica’s Charles Ornstein here.