Changes Wrought By Health Reform? Well, Maybe Not

Oct 13, 2010

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This column is a collaboration between KHN and The New Republic .

So far, the big McDonald's controversy is turning out to be a big nothingburger.

Two weeks ago, the Wall Street Journal reported that, because of the Patient Protection and Affordable Care Act, McDonald's might stop offering limited health benefits to 30,000 employees around the country. If you read the story carefully or understood the actual provisions of the Affordable Care Act, then you knew that it was an unlikely eventuality. The law gives the federal government leeway to grant temporary exemptions on new insurance regulations when, for example, they'd be disruptive to current arrangements.

Sure enough, just a few days after the Journal story appeared, the administration issued McDonald's (among others) a waiver on one such regulation and signaled its clear willingness to do the same for another.

But that hasn't stopped the McDonald's story from becoming propaganda in the campaign to discredit and, eventually, repeal health care reform. From Rush Limbaugh to the National Review, conservatives have seized on the story, arguing it proved the Affordable Care Act was already starting to wreak havoc with American health care. And this isn't the only such incident.

During the past few weeks, employers, insurers, and providers of medical care have frequently made news by talking about how reform might change the way they do business. Each time, critics of the Affordable Care Act have insisted it was bad news. Each time, the true story has been a lot more complicated.

Maybe the obfuscation is unintentional. Health care policy is pretty complicated, after all. So, for the sake of my friends at Fox News and anybody who might be listening to them, here are three basic questions to ask every time you hear a story about changes the Affordable Care Act is unleashing:

1) Is something actually changing?

The Affordable Care Act will mean profound changes for American health care, altering everything from the way millions of individuals purchase insurance to the way hundreds of thousands of physicians practice medicine. But the law doesn't always specify how those changes will take place. Probably the most common phrase in the legislation is "the Secretary shall decide." (I'm told it appears more than 1,000 times.) That means the secretary of Health and Human Services will be issuing regulations, providing the details that the law does not.

But the HHS secretary doesn't make regulations by decree. The process takes time, with plenty of give and take. Once she and her department issues a preliminary regulation, the public has an opportunity to comment on it. Only after reading those comments, and reacting to them, can she finalize a regulation. Interested parties--particularly those with a financial stake in how regulations are written--typically use this process to posture and, in effect, to bargain for what they consider the best possible policy.

That's exactly what was happening in the McDonald's controversy. The Affordable Care Act prohibits plans from placing small annual limits on coverage. It also says that all insurance plans must devote at least 80 (or, in some cases, 85) percent of premium dollars to patient care. But the law gives HHS broad discretion to bend those rules. McDonald's warned HHS that its plans, which barely qualify as "insurance" since they cover only a few thousand dollars in medical bills per person, couldn't meet either standard. In response, HHS basically said fine—the plans can stay, at least for now.

2) Is the change related to the Affordable Care Act?

In late September, Harvard Pilgrim insurance announced that it was ending one of its Medicare Advantage Plans. Medicare Advantage is the private insurance alternative to traditional Medicare. Under the Affordable Care Act, the government will reduce what it pays private insurers (like Harvard Pilgrim) to provide this option. Critics thought the announcement proved those reductions were driving insurers from the Medicare Advantage market, just as the critics had predicted. "Obamacare forces 22,000 seniors to lose Medicare Advantage," said a headline in the Weekly Standard.

But to what extent was the Affordable Care Act really responsible for this change? That's far from clear. A big reason (and, according to some close observers, the primary reason) that Harvard Pilgrim dropped these plans was a new requirement that all Medicare Advantage plans form networks of doctors. That requirement doesn't come from the Affordable Care Act. It comes from the Medicare Improvements for Patients and Providers Act, a bill that passed with bipartisan support in--get ready for it--2008. If anything, it's a victim of "Bushcare" and not "Obamacare."

Of course, the Medicare Advantage program actually needs reform. Numerous studies by independent experts, including non-partisan government accountants, have suggested the government pays private insurers too much for the services they provide. So by paying them less, as the Affordable Care Act stipulates, the government is making sure taxpayer money is better spent, freeing up dollars for real health care--in other words, it's a net improvement. And that brings us to question #3.

3) Is the change really for the worse?

Not long ago, Assurant health insurance announced it was laying off workers, because new regulations from the Affordable Care Act would likely force it stop offering some policies. Conservative columnist Michelle Malkin said it showed Obamacare was a "job killer" while conservative health care advocate Grace Marie-Turner bemoaned the effect on a "terrific" insurer known for its "innovative products."

As I wrote at the time, the innovation that made Assurant famous was its ability to avoid paying medical bills for people who were sick--sometimes by refusing them policies, other times by yanking their policies after they'd incurred expenses. Losing that kind of insurance is no loss, as long as there's a viable and more stable alternative--something the Affordable Care Act will create.

A more recent example is 3M's announcement that it will stop enrollment in its retiree insurance plan, on which retirees under 65 have become particularly dependent. National Review pounced on this story as an example of the Affordable Care Act's "unintended consequences."

But there was nothing unintended about this. Employers have been dropping retiree insurance for years, because insuring the near-elderly and elderly is so expensive. According to MIT economist Jonathan Gruber, the share of retirees between 55 and 64 who had employer-sponsored insurance fell from 62.5 percent to 56.6 percent, while the percentage of people that age without insurance altogether rose from 21.5 percent to 25.5 percent.

A major goal of the Affordable Care Act is to make sure that all of these workers losing retiree coverage—and 3M employees could well have been among them—can still get a comprehensive policy. Under the law's terms, that will happen in 2014, right when the 3M plans will no longer be there for the company's newer retirees. 

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To be sure, sometimes individuals really will end up worse off, financially, because of the Affordable Care Act. Most obviously, some people who now get cheap insurance because they're young and healthy, or because their coverage is really skimpy, may see premiums go up--although, in both cases, savings from other reforms, along with subsidies from the government, may more than offset the increases.

But if you are hunting for bad news about health care reform, you're more likely to find it by thinking about what's not happening. Just look again at that McDonald's story. Limbaugh and gang think it's scandalous the government might effectively abolish the company's minimalist health plans. The real scandal is the government probably won't do it until 2014, when the Affordable Care Act makes more comprehensive coverage available to everybody—i.e., when people who currently have those "mini-med" plans have access to a better alternative.

The way to fix that is to put more money behind the law, to expedite its implementation, and, who knows, maybe even to add a public option. But that's an argument for strengthening health care reform--not repealing it.

Jonathan Cohn is a senior editor at The New Republic .