A Centrist Perspective: Makers and Takers, Obamacare, and the Path Forward

Below, a guest post from Stephen Reid, Managing Partner at Pharmspective, a market research firm that provides advisory services to healthcare and pharmaceutical companies on strategic issues including the Affordable Care Act. (ACA)

I don’t  agree with Reid on every point. (For example, if Republicans take both the White House and the Senate, I believe that they could and would eliminate both the premium subsidies that will make insurance affordable for middle-class Americans and the mandate.) Nevertheless, when he sent his Op-ed to me I was impressed by how well he understands the legislation. A great many moderates have been confused by the arguments coming at them both from the left and from the right.  A combination of misinformation, half-truths and fear-mongering has created so much “noise” that it has become extremely difficult to separate fact from fiction.

By contrast, Reid does a very good  job of explaining the reasoning behind the Affordable Care Act, and how its “checks and balances” work. I agree with him that the legislation is far from perfect, but it represents a good beginning.

 There is just one major aspect of reform that I think Reid doesn’t understand: the rationale for expanding Medicaid. See my note at the end of his post.

                   A Centrist Perspective: Makers, Takers and Obamacare

by Stephen Reid

With a few days left before we elect a president, the prevailing belief is that an Obama win would propel the Affordable Care Act (ACA) forward with little delay and a Romney win would kill it. Both parties have gone to great lengths to characterize healthcare reform; the Democrats tout the legislation as essential to addressing a broken healthcare system that results in the U.S. spending twice as much as most developed countries on healthcare while leaving 50 million people without coverage; the Republicans cite the ACA as an example of hopeless dependency on government and contrary to free-market principles and individual rights.

Beyond the rhetoric, both parties have failed to accept their responsibility tomake the healthcare system work to keep us healthy. So the result was an imperfect piece of legislation that gets us part of the way there. However, the beauty of the legislation is that it will go forward, regardless of who is elected president, ensuring that we won’t have to start over.

Here’s why.

Whether any of us want to acknowledge it, all of us, at some point in our lives, are Makers of healthcare, and at other times, Takers of healthcare. Insurance is built on the premise of a “risk pool” that everyone pays into. Healthy individuals who pay into the system subsidize those who get sick and the system focuses on helping the sick get better so that they can be well enough to minimize their burden on the rest of us. All it takes for one of us to become a “taker” (someone who takes more out of the system that they put in) is a non-elective surgery, an accident, or some other health event that forces us into any site-of-care other than a primary care physician’s office.

And it’s not just us who play alternate roles as Makers and Takers. Insurers, physicians, employers, you name it, are all on one side or the other of the Maker-Taker equation at some point. In a system with incentives to test more, deny preventive care, and no laws of supply and demand, no one is immune from becoming a taker, especially as we get older.

The ACA, for all its faults, tries to create a system of checks and balances that balances out the Maker-Taker equation.

To prevent insurers from being Takers, the ACA —

Reduced payments to Medicare Advantage insurers, not physicians, by $716 million to level the playing field. Federal payments to insurers who run Managed Medicare or Medicare Advantage plans will now be the same as payments for traditional government Medicare. Administrative costs for Medicare Advantage plans run by private insurance are 3-4 times higher than traditional Medicare-the “cut” equalizes administrative costs between the two programs. Consider this-if this was truly a “cut” that would dramatically impact care for seniors, then why are big insurers running after acquisitions of Medicare Advantage HMO plans? The reason that Aetna, Wellpoint, Humana, and United Healthcare are paying increasing amounts to acquire Medicare Advantage plans is because Medicare Advantage is a highly profitable business for them and the payment reduction little more than a blip in their cash flow.

Result: No impact on payments to physicians-this so called “cut” came out of insurers’ administrative costs.

The ACA established minimum medical cost spending levels for insurers that prevent them from denying care or shifting costs to patients in unreasonable ways. These Medical Loss ratios, 80% for Small Group Insurance and 85% for Large Group Insurance, require these percentages of total premiums collected to be spent on medical care, not administrative expenses. Not achieving these spending levels triggers rebates to consumers. Combined with greater oversight by states over insurer premium increases, the law attempts to force some balance between the business of insurance and the public covenant that insurance should represent.

Result: Public accountability for premium increases, patient accountability for how premiums are spent.

To prevent those of us who can afford insurance from being Takers the ACA —

• Mandates that we buy insurance. No more “free lunch” for people who opt out of the system, then show up at the emergency room and expect all of us to pay for it (no one ever talks about the “uninsured tax” that anyone who currently has insurance pays). Even some employed young people have opted to drop insurance when their companies increase employee contributions for healthcare. It’s their choice of course and our problem when they do get sick.

Creates a system, State Health Insurance Exchanges, to provide subsidized insurance if we can’t afford insurance in the private market.

To prevent those of us who can’t afford insurance from being Takers, Justice Roberts gave states the option to decide whether or not to expand Medicaid. While this rationale probably has nothing to do with the legal justification for his choice, Justice Roberts’s timely decision will likely create a path forward for the ACA that should mitigate the impact of a Romney vow to repeal the ACA, if elected. Justice Roberts’ decision can produce $84 billion (CBO Estimates) in savings, on average, over 10 years and even more if broader rejection of the Medicaid Expansion occurs (not what the framers of the ACA wanted but this is “reality”). Adding these additional savings to the projected savings from the ACA provides greater assurance that deficit reduction from the legislation will at least remain budget-neutral and could improve upon previous deficit reduction estimates. These savings are the polar opposite of the increase in the deficit that would result with the repeal of the ACA (~$109 billion), making any decision to attempt a repeal a lot of work for a sub-par result.

That’s an argument that even Romney, the CEO, can understand. Given all of the serious problems that we’re facing in this country, would anyone want a president to invest time and focus in trying to repeal the ACA, especially without a Senate majority.

That’s why, for all of the rhetoric that we’ve heard, Healthcare Reform has a place in our new world order of Makers and Takers-regardless of who is elected president.


At the end of his post, Reid is voicing what many mainstream moderates believe: that we just can’t afford to expand Medicaid. I would argue that we can’t afford not to. If millions of poor Americans remain uninsured, their chronic illnesses will not be managed properly. As a result, they will only become sicker, and cost us more when the land in the hospital—or turn 65, and become eligible for Medicare. As for the states, they will be paying only a very small share of the cost of Medicaid expansion, and as I have explained, in many cases states will save more than they spend.

Finally, there is the matter of simple justice.  Today, in the majority of states, a childless adult does not qualify for Medicaid—no matter how poor he is. When Congress originally passed Medicaid, legislators debated who counted as “the worthy poor” (this is the phrase they used) and concluded that adults who do not have children were not worthy. Thus they excluded adults who chose to remain single, and couples who could not have children, as well as those who decided not to have children.

Under Medicaid expansion, they would be included in the Medicaid pool, along with many Americans who today, are too poor to buy insurance, but not quite poor enough to qualify for Medicaid. The financial threshold varies from state to state: Texas, for example, only covers working adults earning below 26 percent of the poverty line. Seventeen states limit enrollment to parents earning less than half of the official poverty threshold, which last year was $18,500 for a family of three. The Affordable Care Act extends the Medicaid safety net to everyone with incomes below 138 percent of the federal poverty level ($15,415 a year for an individual and $31,800 for a family of four.)  –MM



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