« Revenge of The Man Bun | Main | Quote of the Day »

November 19, 2012

Mandates and Cost Shifting: First, Do No Harm

During the debate over ObamaCare, the administration repeatedly asserted that the imposition of a health care mandate was necessary to offset cost shifting from uninsured taxpayers (who cannot be denied care) to insured taxpayers. Here, the facts don't support the Obama administration's position:

A major justification by President Obama for the individual mandate in the Affordable Care Act, which requires everyone to buy health insurance, is that every time an uninsured patient receives care in an emergency room, doctors and hospitals shift the cost to those of us who have insurance.

... when [uninsured] people don’t pay their medical bills, somebody has to bear that cost. But who?

A study from the National Bureau of Economic Research found that in many cases, it’s other uninsured patients. Many uninsured patients who do pay their bills wind up paying the “list prices” for the services they received. The list price is well above what any provider expects to receive from an insurance company. Physicians collect more from those uninsured patients than they would from insured patients. That extra money often covers the cost of uninsured patients who don’t pay. A study from the University of Southern California in 2008 found a similar phenomenon in California hospitals.

Some of the cost of uncompensated care no doubt gets shifted to patients with private insurance. But the effect is small. Analysts at the Urban Institute concluded that uncompensated care accounts for 2.8% of all health care spending, and that cost shifting due to the uninsured raised private insurance premiums 1.7% “at most.” The non-partisan Congressional Budget Office agrees: “Overall, the impact of cost shifting on payment rates and premiums for private insurance seems likely to be relatively small.”

Other studies show that the costs of government-mandated benefits are often shifted to other members of the group they were intended to help. So mandated maternity benefits come out of the wages of women of childbearing age:

consider the labor-market effects of mandates which raise the costs of employing a demographically identifiable group. The efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group-specific wages. I study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans, raising the relative cost of insuring women of childbearing age. I find substantial shifting of the costs of these mandates to the wages of the targeted group.

The National Bureau of Economic studied mandatory worker's comp benefits and found (please conceal your shock) that the cost of these programs is shifted to workers in the form of lower wages. And as if that weren't bad enough, these programs also cause employers to hire fewer workers:

...The results suggests that a substantial portion of the cost to employers of providing workers' compensation benefits is shifted to employees in the form of lower wages. Given the similarity between workers' compensation insurance and many proposed employer-mandated health insurance plans, our findings suggest that a large share of the employers' cost of meeting health insurance mandates may be borne by employees. ... Although the nominal burden of mandated employment-based health insurance will be borne by firms, if the experience of health insurance is similar to that of workers' compensation insurance, our estimates suggest that employees will ultimately bear a large fraction of the burden of financing mandated health insurance through lower wages.

In spite of our main conclusion that a sizable portion of the cost of
mandated benefits is likely to be shifted to employees, we should also
stress that the shifting of workers' compensation costs is incomplete.
Employers bear at least some additional cost because of mandated workinjury insurance. As a consequence, we find that increases in workers' compensation costs are associated with reduced employment growth.

Although extremely imprecise, our estimates suggest that every one percentage point increase in workers' compensation rates is associated with an employment decline of .11%. The adverse employment effects of mandated health insurance may well be larger than those in workers' compensation insurance because the minimum wage is likely to be more of a constraint for uninsured workers, especially in view of recent increases in the real minimum.

To really pile on, the administration's waivers (intended to exempt employers of low-wage, seasonal and part-time workers) don't appear to be working, either:

Among the first and most prominent recipients of the Obamacare waivers for favors were large restaurant chains that provide low-wage, seasonal and part-time workers with low-cost health insurance plans called “mini-med” plans. An estimated 1.7 million workers benefit from such plans. Obamacare forced companies carrying such coverage to raise their minimum limits on coverage to no less than $750,000 annually. Another Obamacare provision forces all employers to spend at least 80 percent to 85 percent of their premium revenue on medical care.

The social justice Democrats’ goal was to dictate insurance provider spending not just on coverage amounts, but also on executive salaries, marketing and other costs. The regulation punished companies with mini-med plans whose high administrative costs were due to frequent worker turnover and relatively low spending on claims — not “greed.” Complying with the provision would have meant tens of thousands of low-income workers would lose their benefits altogether.

Darden Restaurants, the Florida-based parent company of Olive Garden, LongHorn Steakhouse, Red Lobster and other chains, was a member of the Obamacare waiver early bird special. Their get-out-of-Obamacare card helped spare the company’s health insurance benefits for nearly 34,000 employees. Breathing a sigh of relief that it would allow chains to continue offering all employees access to affordable health insurance, Darden said in a statement in the fall of 2010 that “the waiver allows us to continue to do that as the various phases of the health care law are implemented.”

Fast-forward to 2012. Darden announced last month that it would begin shifting full-time workers to part-time status to save money, cut health costs and circumvent Obamacare’s coverage mandate scheduled for full implementation in 2014. The move would reduce full-time employees’ hours to less than 30 hours a week; part-time workers are exempt from the insurance mandate. McDonald’s, another big Obamacare waiver recipient, is considering the same move.

In fact, a survey of members of the Chain Restaurant Compensation Association (CRCA) conducted last year by Hay Group reported that a whopping 77 percent of “quick serve” restaurant operators said they were considering reducing employee hours to change their status from full-time to part-time. At least one Denny’s restaurant franchise owner in Florida is cutting hours and has openly contemplated an Obamacare surcharge. Jimmy John’s and Papa John’s are also slashing work hours. Applebee’s is mulling a freeze on both hiring and expansion.

The constant in all of these stories is that the cost of well intended progressive policies is inevitably shouldered by the very groups they are designed to help.

Posted by Cassandra at November 19, 2012 06:16 AM

Trackback Pings

TrackBack URL for this entry:
http://www.villainouscompany.com/mt/mt-tb.cgi/4426

Comments

But that's OK. You see, it's not about solving problems, but giving the appearance of solving problems. It let's you know that one party is the party "That cares™".

Whether you buy votes with other people's money, or their own doesn't matter, so long as it's not the politician's own money it's perfectly legal.

Posted by: Yu-Ain Gonnano at November 19, 2012 11:33 AM

"I don't understand. If we don't have enough money, why don't we just print more?"
-actual question posed to spd by an elementary school teacher on November 9, 2012

Posted by: spd rdr at November 19, 2012 12:45 PM

The direction we are actually being pushed is towards Heatlh Savings Accounts (per a company insurance meeting).

This is a high deductible, lower premium health insurance. Why? Because it stresses the insurance companies LESS based on somewhat lower premiums (and better control of the mandated profitability).

HSA's were actually the darling of many on the right (i.e. Cato and Heritage Foundations, to name two), not to mention Steve Forbes.

We have fashioned this long sharp pike from years of doing next to nothing. It was remarked by El Rushbo a few days ago that the Federal Administrative costs for ACA would actually pay for insurance for a lot of the un-insured.

Billions!


So we on "The Right" failed to do the math and come up with a practical solution when available, and now we are stuck with this ridiculous and untenable national plan foisted on us by this lying charlatan of a President and his innumerate cronies in Congress.

We are so screwed.

Posted by: Don Brouhaha at November 19, 2012 01:00 PM

I think HSAs and high deductibles are the only rational approach, and one of the things I most despise about Obamacare is that it will drive them out of the market in favor of first-dollar coverage.

There's a certain amount of healthcare that an ordinary family can expect in just about every year, and certainly over a longish period like a decade. It makes absolutely no sense to "insure" against the occurrence of something that's almost certain to happen. Insurance should be for the huge, unexpected bills. There's a reason we don't buy insurance to cover food and housing.

Posted by: Texan99 at November 19, 2012 01:16 PM

Don, I'm a big fan of high deductible plans. I wasn't terribly popular whilst The Unit was in the military when this topic came up b/c I argued that if we didn't start charging military families a deductible or co-pay, we were going to lose our benefits.

But I think they encourage people to save for future problems and that's good. On the otter heiny, I hate to lose my "Cadillac" health plan, but I don't use it all that much anyway.

Higher deductibles/copys would make medical care easier to get b/c it was pretty much impossible to get military appointments when care was free (and I suspect the same is about to happen with Medicare). I never had a single physical after my youngest was born in 1982. Not even a 6 week checkup.

Posted by: Cassandra at November 19, 2012 01:38 PM

"I don't understand. If we don't have enough money, why don't we just print more?"

I consider that question to be conclusive proof that money really *does* grow on trees.

Posted by: Cassandra at November 19, 2012 01:38 PM

I think HSAs and high deductibles are the only rational approach....

But why must they be paired? This just puts the HSAs out of reach of those who need the break the most: only the well-off can afford the out of pocket costs created by the high deductible.

Both really need to be independent of each other, with anyone eligible for an HSA, and that HSA having no upper limit. Capping what we can put by for an emergency or for our own retirement (vis., IRA, etc) is just dumb, as well as a lot of other negative things.

Of course, with a low, flat tax with no deductions, credits, or whathaveyou, and that everyone pays, there would be no need for the epicyclic orrery of instruments like HSAs, IRAs, 401(k)s, 403(b)s, union-demanded benefits, etc.

Oh, wait....

"I don't understand. If we don't have enough money, why don't we just print more?"

I consider that question to be conclusive proof that money really *does* grow on trees.

In which case nobody gets any money: the tree-huggers will object.

Eric Hines

Posted by: E Hines at November 19, 2012 04:13 PM

"only the well-off can afford the out of pocket costs created by the high deductible."

I don't think that's right. There's an inverse correlation between the cost of the monthly premiums and the size of the deductible. Employers give employees low deductibles because they're popular, but they could give them high deductibles and pay them more with the savings, which the employees could then use to set aside for emergencies. The problem being, of course, that most would buy more TVs instead. It's not that they can't afford to save for medical care any more than they can't afford to pay for food and housing. It's that they won't make medical care savings a higher priority than beer, cigarettes, and tattoos (or iPhones and vacations).

And this is one of the big problems with so many people getting their insurance through their employers: they don't know what it costs, and they don't know what it would cost if it had a higher deductible, and they don't care. Add to that the fact that they don't know or care what routine medical care costs because a third party is paying it invisibly, and you have a recipe for exploding costs.

Nevertheless, "high deductibles" can mean many things depending on one's income and circumstances. I keep my deductible higher than most young families would be comfortable with, for the same reason that I elect high deductibles on my home and car insurance: to minimize premiums. In general, deductibles should be at about the level that most families can expect to spend on medical care in an ordinary year. If they're lower than that, someone's wasting money on premiums even if the waste is temporarily hidden.

Posted by: Texan99 at November 20, 2012 09:22 AM

It's not that they can't afford to save for medical care any more than they can't afford to pay for food and housing. It's that they won't make medical care savings a higher priority than beer, cigarettes, and tattoos (or iPhones and vacations).

...this is one of the big problems with so many people getting their insurance through their employers: they don't know what it costs, and they don't know what it would cost if it had a higher deductible, and they don't care.

Or going out to dinner, or movies, or other entertainment items. The average family spends almost exactly the same amount on health insur/medical care that they do on entertainment.

I like the idea of catastrophic medical coupled with a HSA. I agree that freedom is a problem, as people will always use it unwisely.

In a rather amusing sidenote, I use injectible Imitrex to manage my migraines. It works well b/c my schedule now is so hectic that it's tougher to be proactive and sometimes I get caught at work and have a migraine. So the shots are very much a safety net of sorts - I know they will work and I'll be able to drive home if I have a sudden migraine with no warning.

There's a $100 deductible each month, and the full cost of 1 month's prescription is just under $500. If I had to pay the whole thing, I would find another drug even though this one works better. But I don't have to b/c my insurance picks up the balance.

My local drug store just told me last night that my shots are on back order and they can't say when or even if they'll come in. Not sure if this is related to the injectible steroids issue, but it's hard not to speculate :p

Posted by: Cassandra at November 20, 2012 09:53 AM

There's an inverse correlation between the cost of the monthly premiums and the size of the deductible.

It's not the premium that is the problem; those generally come out of the paycheck before take-home appears, contributing to the hidden aspect of the cost. But the high deductible leaves more out of pocket medical expenses to be borne by the insuree. The folks I talk to decline the high deductible, even though they lose access to HSAs, because they don't want to, or think they can't afford (because they'd rather by the TV or because they can't afford) the higher out of pocket expenses.

Employers give employees low deductibles...but they could give them high deductibles and pay them more with the savings....

Maybe not so much anymore. My wife's employer used to do that, or give a full "rebate" if we didn't get any of our health insurance through them. Starting in 2013, explicitly in response to Obamacare, they're discontinuing the "rebate" altogether.

Eric Hines

Posted by: E Hines at November 20, 2012 10:35 AM

The issue is that a $2,000 deductible is unworkable for a family that does not have $2,000 in savings, up front to pay the deductible.

While the lower premium may make it easier to save up that $2,000, that doesn't help if you get hospitalized in January and only have $500 saved so far.

Posted by: Yu-Ain Gonnano at November 20, 2012 10:47 AM

Post a comment

To reduce comment spam, comments on older posts are put into moderation 5 days after the last activity. Comments with more than one link also go into moderation. If you don't see your comment after posting it, try refreshing the screen. If you still don't see it, your comment is probably in the moderation queue.




Remember Me?

(you may use HTML tags for style)