A Few Bureaucratic Tweaks Won't Fix Obamacare's Deeper Problems

Centers for Medicare and Medicaid Services proposed changes to the law's risk adjustment formula in effort to calm frustrated insurers.


Credit—Paul Hennessy/Polaris/Newscom

On Monday, the Centers for Medicare and Medicaid Services (CMS)—the bureaucratic entity responsible for drawing up many of Obamacare's thousands of pages of regulations—released its latest proposed rules for the law. The new rules are being flagged as a kind of rescue effort intended to bolster the law's exchanges, which are struggling to remain attractive to health insurance companies, but they represent more of the kind of bureaucratic fiddling that is unlikely to have a major impact on the law.

The 294 page rule, oh-so-excitingly billed as the Notice of Benefit and Payment Parameters for 2018, covers a lot of ground, but the headline news were the proposed changes to the law's risk adjustment system. For those who don't speak health wonk, Obamacare's risk adjustment provision is one of the three main mechanisms that the law uses to distribute risk amongst participating insurers, ensuring that no insurer fails under the weight of an unusually sick and expensive customer base. Basically, it requires insurers who end up with an especially healthy group of patients to pay into a system that makes payments out to insurers that end up with unusually sick patients. As a Kaiser Family Foundation report from last month explained, the goal "is to encourage insurers to compete based on the value and efficiency of their plans rather than by attracting healthier enrollees."

The proposed new rules would factor in data about prescription drug usage, and would also attempt to account for beneficiaries who only enroll for part of the year. Essentially, the goal of the changes is to mitigate the high cost of very sick individuals who rely on expensive drugs and people who are gaming the system by paying for insurance only when they need it.

There are reasons to be concerned about the specifics of the rules, in particular the prescription drug changes, which some experts worry might result in doctors writing additional unnecessary prescriptions in order to get the coding right—remember, in order for the formula's payments to be made, all of this information has to be tracked—which could further increase overall spending on health care.

Narrow unintended consequences aside, the bigger picture here is that this is an acknowledgement by the federal government of the problems with the exchanges. Insurers have been dropping out of Obamacare's exchanges, dramatically raising premiums, and implying that they might pull out of even more of the health law marketplaces if their premium hikes are blocked. The reason why insurers have been hiking premiums and leaving the exchanges is that the beneficiaries have turned out to be sicker than expected, and, despite the health law's individual mandate, many seem to be gaming the system by buying insurance only when they need it.

The newly proposed rules are CMS's way of saying to insurers that they have heard their complaints and are trying to respond. The somewhat timing for the release of the rules is part of the message: Typically, the risk adjustment rules have been released much later in the year. But with Aetna and other carriers making significant moves to scale back their exchange business, CMS took the somewhat unusual step of releasing the proposal now, presumably in hopes of calming insurers. You can think of this as a kind of customer appreciation program for upset clients.

The new rules may quell some of the grumbling from insurers, some of whom have complained about the risk adjustment provisions for a while. (The alterations were previewed at a conference on risk adjustment earlier in this year.) But I wouldn't count on them having too much of an impact. The risk adjustment program moves money around, but is required, in the end, to maintain budget neutrality. What that means is that it can't fix the essential problem that insurers operating in Obamacare's exchanges are having, which is that there is not enough revenue coming in from premiums to pay for the claims being made by customers. The problem isn't the particular rules by which Obamacare's exchanges operates; it's the health mix and number of customers inside the exchanges.

The new rules, then, are best viewed as small tweaks designed to let insurers know that the federal government still cares about their business. But Obamacare's problems are big enough that they're unlikely to be solved by tweaks.

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  1. The reason why insurers have been hiking premiums and leaving the exchanges is that the beneficiaries have turned out to be sicker than expected, and, despite the health law’s individual mandate, many seem to be gaming the system by buying insurance only when they need it.

    You know, for an industry lousy with actuaries, it’s not believable that they didn’t see this coming.

    1. Amen to the actuary point.

      1. I saw one small article that called out the majority of the $xxx million dollar loss for one of the Big Insurers came from like only 100 or 200 patients. Would like to see more analysis on this.

    2. They didn’t see the enforcement of budget neutrality coming. They expected a blank check like all other gov’t freebies. If only the gop had had a plan all of this could have been avoided, right?

    3. I suspect they thought they would be able to endlessly do cronyist fiddling to ‘insure’ they wouldn’t be taking endless losses and would get the buttloads of coerced customers.

      Sucks to be them.

    4. I think it’s likely they did see it coming, at least some of them. As i recall it, it was pretty clear that Mr. Wonderful was going to get SOME kind of health care package passed. The insurance xompanies could get on board and MAYBE catch a few breaks, or they could oppose it and get royally boned from the outset.

      It’s sort of like the way the banking industry “cooperated” with the shift in lending rules that started the real estate bubble; they were being told that they absolutely WOULD lend money to people who were unlikely to pay it back. Everything that followed was them attempting to keep the house of cards from collapsing.

      I have friends who sometimes wonder why Congress hasn’t held hearings to determine who was responsible for the crash. I keep telling them, Congress isn’t holding hearings because if they did somebody might actually tell them, in public.

  2. in order for the formula’s payments to be made, all of this information has to be tracked?which could further increase overall spending on health care.

    OTOH, think of the JOBS!

  3. Another good article about the PPACA Peter. I am glad they got rid of the imposter who was abusing your name to submit silly articles about penis logos.

  4. people who are gaming the system by paying for insurance only when they need it.

    Yes, how dare people consume only what they need.

    1. I think you’re reading outrage into it that isn’t there. These people are gaming the system (where system = Obamacare), since it was intended to prevent that sort of thing. I say good for them. They’re only hastening its demise.

      1. Oh, well, clearly that is the only and best interpretation of my comment. Now that my thoughts have been so astutely explained to me, my life is richer and my hair more manageable. Thank you for your service to all mankind.

        1. Oh, well, clearly when somebody misinterprets what you say, the best way to respond is to act like a snotty cunt.

          1. Everybody’s on the rag this morning. It’s Election Season PMS, or ESPMS.

            1. *snarls* Fuck you, buddy!

            2. Shove it, TW!

          2. So, you decided you know what I’m thinking, and when you found out this may be slightly arrogant and also incorrect, you decided the problem was still me.

            Glad we cleared all that up and your own good opinion of yourself was never for a moment in doubt.

            1. I’ll hold her down and the rest of you get Jordan out of here!


      2. Hll, people ALWAYS game the system. Any system. And Progressives can always be counted on to be outraged by anybode ELSE gaming the system, because Progressives consider themselves to be abov th knd of regulation that ordinary peasents need, for their own good.

  5. Surely an infinite amount of harvard pajama boys dinking around with spreadsheets will fix the system!

    1. Say, there are an infinite amount of monkeys that just finished typing up Hamlet, they would like to join the effort.

      1. If you put an infinite number of monkeys at an infinite number of typewriters, in 15 minutes they wouldmhave used up all the ribbon, and in 16 you wouldnhave an infinite number of typewriters ready for the scrap heap.

    2. You are giving CMS bureaucrats FAR too much credit.

  6. I’ve come to view Obamacare like the car Homer Simpson designed. It’s overly complex and hobbled together with with no overarching theme. All the individual items might have seemed good at the time, but put together you get one big, ugly, impractical piece of shit. There is no saving that law, and no amount of debating or analysis will change that. It needs to be nuked from orbit.

    1. They can force nuns to provide birth control, so they’ve got that going for them.

  7. Just jack the individual mandate tax up to about $30k/year. That’lol probably fix it. Because people need to pay their fair share for the free shit circus.

    TAXES!!!!!! Yummy yummy yummy yummy yummy!!

  8. These rules are just a stepping stone towards complete nationalization of the industry. No more, and no less.

    1. ^this.

      The end game for democrats is single payer.

      For us libertarians, there’s no meaningful hope for a return to market-based medicine. Our best hope would be revisions to the law that make it more like the Singapore system. Free or low cost high deductible health insurance combined with HSAs (Singapore forces contributions, not saying we should do the same). Pay for your own care with money from your HSA at market-based rates up to the deductible amount, then insurance/government kicks in to contribute during years in which you experience high healthcare costs.

      At least under this system, health insurance is actually insurance against the risk of major medical bills, rather than prepaying for typical medical expenses. The HSA aspect removes the insurance cartel from everyday pricing, which would hopefully reduce costs and allow for some measure of competition. If we combined that with some loosening of licensing regulations and elimination of Cert of Need laws, that would help on the supply side.

      Anyway, it’s a better plan than single-payer.

      1. The joke is ultimately on the central planners (more so on us, really), considering the vast costs in both time and capital to become any kind of M.D.

        What you will see more of is lower and lower tiers of health care workers providing your actual care, with the people who have actual an actual M.D. becoming mid-to-high level management. This is already happening all over the United States.

        The real tragedy is that eventually there won’t be any more M.D.’s at all as the incentives dry up to spend a quarter of your life training to be one. Then we’ll be left with nothing except Nurse Practitioners or Physicians Assistants to do the work that was once performed by an M.D.

        That’s the thing about nationalizing an industry that involves some of the most demanding educations. You’re going to make that industry literally disappear since no one is actually altruistic to the point of being saintly. You can only get so far on the backs of Indian physicians that still come to America to make more than they would have in India despite the reduction in overall recompense.

        It really does boil down to the left being 100% ignorant of incentives, or they know about them and have a completely different set of objectives. You decide which it is.

  9. Needs moar regulations and spending and TOP MEN!

    Also, Jonathan Gruber needs to be locked in a secluded cabin with STEVE SMITH and a three-gallon tub of Crisco.

    1. Only if the Crisco is liberally mixed with sand.

  10. So maybe “mend it don’t end it” (as so often pushed by various writers here) wasn’t viable after all?

  11. It is a constant amazement to lefties that people will act in their own best interest, even when the lefties try to make that as confusing as they possible can.
    It is a constant amazement to the rest of us that lefties continue to lie in the hopes of fooling everyone.

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  13. RE: A Few Bureaucratic Tweaks Won’t Fix Obamacare’s Deeper Problems

    Obamacare has been a God send to the collective. Indeed, where else can you have a bunch of clueless and uncaring bureaucrats determine what doctor you can have, where you can have your treatment done, what kind of treatment can be done and raise your premiums every ten seconds? The little people should get down on their knees to God and Dear Leader for this Soviet style health care system. Yes, there are some minor problems, but they can be remedied with just a few more trillion dollars from the unenlightened masses. Then an army of bureaucrats will further control all your medical needs and cares, if they feel like it, and all will be well with you. Comrade Lenin, may his name be blessed, said healthcare is an excellent way to control the masses, and he was right. Fortunately for all of us, the powers that enslave and oppress us saw the wisdom of his message and took appropriate action. We are all well on our way to the Glorious Peoples Revolution and not too soon.

  14. “The risk adjustment program moves money around, but is required, in the end, to maintain budget neutrality. What that means is that it can’t fix the essential problem that insurers operating in Obamacare’s exchanges are having, which is that there is not enough revenue coming in from premiums to pay for the claims being made by customers. ”

    They are re-arranging the deck chairs on the Titanic.

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