(Bloomberg View) — My grandmother spent the last years of her life in a nursing home, and I like to think that my grandfather would have been proud to know that she paid her own way until she died. In a long life of seven-day-a-week work, he held one principle above all the others: “Make sure Lettie is taken care of.” And he did. When she died at 101, she was one of the rare nursing home patients who manages a multi-year stay entirely on private pay.
That nursing home stay ate most of what he’d spent a lifetime piling up, of course. And most people do not accumulate those sort of assets; my grandparents combined some good luck with ferocious hard work, talent and extremely modest tastes, enabling a small-town small business to generate enough money to pay the bills for extended end-of-life care. With an average annual cost in the high tens of thousands, a single year in a nursing home will exhaust the financial assets of most families. That’s when those patients go on Medicaid.
So when I learned that Republicans had finally passed their very own Rube Goldberg health care contraption, which includes changing the Medicaid payment formula to a fixed per-beneficiary sum rather than the open-ended entitlement it is now, I wondered: “What happens to nursing home reimbursements?”
No per-capita grant is going to cover fantastically expensive nursing home care. And nursing home care is not some rare expense that can be easily absorbed in the general pool; it accounts for about a third of annual Medicaid spending. Since I really doubt that states are going to kick seniors out of nursing homes, they will probably end up having to top up the federal grants with their own money, and/or shift more and more resources away from younger patients.
This is not the only question about this bill. The most crucial policy question is simply “Who will buy insurance once these changes are phased in?”
As I’ve written before, the Republican plan essentially helps the old and the poor less than Obamacare, while helping the young and the middle class more. That policy choice is not necessarily as indefensible as the left has made it out. The major problem on the exchanges right now is that the young and healthy are not buying insurance.
This has driven premiums up, despite strenuous efforts by insurers to control costs with things like “narrow networks” (read: we don’t cover any of the doctors or hospitals you want). In areas where narrow networks can’t be deployed — notably rural areas where there aren’t enough providers to give insurers negotiating power — the system increasingly seems to be melting down.
Alaska set up a $55 million reinsurance fund, which kept an anticipated premium spike of 42% to a dainty 7%. (Though we should note that a mid-level plan in the state still cost $904 for 2017, so this did not exactly make insurance cheap.) Minnesota recently followed suit, passing a bill that allocates nearly half a billion dollars to reinsurance, on top of the $326 million the state had already allocated to premium relief for consumers.
Now Iowa is facing disaster: The last insurer providing individual market policies in most of the state has said it’s likely to pull out, leaving Iowans in all but five counties without any option to buy private insurance. This is being blamed on a single very expensive patient who is skewing Iowa’s risk pool, but that probably accounts for only some of Iowa’s difficulty. It seems likely that the larger problem is the same thing that’s afflicting other rural areas: expensive providers, old and sick people rushing to buy insurance while young and healthy people go without, and modest-income consumers who can’t afford to pay the nosebleed prices that result.
A program that makes insurance much more attractive to young and healthy people who aren’t poor enough to qualify for generous subsidies could theoretically tilt the market back to more reasonable premiums. Some people would lose insurance, but at least we wouldn’t have significant areas where no one can buy insurance because insurers aren’t willing to sell it there.
But that’s a gigantic “if,” and I certainly don’t see that as the most likely outcome. The structure of the Republican tax credits, which are pegged to age rather than income and the price of insurance, seems if anything more likely to increase the “adverse selection” problem, where sick people rush to buy insurance, healthy people dawdle, insurers are forced to raise premiums to the average cost of their fairly sick insurance pool, and more healthy people drop out of the market because the insurance is so darn expensive. Rinse and repeat a few times, and you’ve got the dreaded phenomenon known as a death spiral.
Right now, most people buying insurance on the exchanges are shielded from premium increases, which at least theoretically mitigates adverse selection. Under the Republican plan, they will be more exposed, and so it’s quite possible that the existing problems will become even worse. The Republican plan tries to minimize these effects with a variety of solutions, but it relies on states to implement a lot of those ideas, and it’s far from clear that this will be enough, or that they won’t make it prohibitively costly for people who have pre-existing conditions to buy insurance.
I wouldn’t bet heavily on the most recent Congressional Budget Office projections of coverage loss — but the fairly wide confidence interval around those numbers includes the possibility of much bigger losses, and worse market meltdowns, than they predict, as well as sunnier possibilities.
But there may be an even bigger question than “What would this bill actually do?”: “What will this bill actually look like when the Senate is done with it?” Lamar Alexander, the chairman of the Senate health committee, suggested to the New York Times that the Senate “might borrow ideas” from the House bill. Translation: Expect the Senate bill to bear the same resemblance to the House bill that you do to your eighth cousin four times removed. Heaven alone knows if the two houses of Congress can actually compromise their way to a bill that both are willing to vote for.
The only thing we know at this point is that the House has passed a bill, allowing them to go back to their base and say “We did our part.” What comes next is anyone’s guess.
— Read Selling Insurance Across State Lines Won’t Help on ThinkAdvisor