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Philip Klein: Obamacare's looming train wreck

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Why Obamacare could go off the tracks

After four years of contentious debate, court challenges and failed repeal efforts, President Obama's health care law is set to go into effect in the coming months. The law, which will make sweeping changes to a sector that accounts for one-sixth of the nation's economy, promises to be a dominant issue in the 2014 Congressional elections. Even before then, the incredibly complex law faces tremendous hurdles. One of the law's key authors, Senate Finance Committee Chairman Max Baucus, recently warned that its implementation could be a "train wreck." What follows is an overview of five reasons why the law could fail.

Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result.

1. Young people don't sign up for insurance: One of the central aims of Obamacare is to make sure that older and sicker Americans (particularly those with pre-existing conditions who are currently denied coverage) can obtain health insurance at an affordable price. Achieving this goal will require attracting younger and healthier individuals into the insurance market, giving insurers a cushion so they can offset the higher cost of covering sicker individuals.

The problem is that because the law limits how much premiums can vary by age or health status, younger Americans will end up paying much higher rates than they would today. And that's for young Americans who are currently insured. Maintaining the existing pool of young Americans will not be sufficient for Obamacare to function -- insurers will need to pull in millions of young Americans who have decided to go uninsured under the current system. And young Americans who go uninsured effectively pay $0 a month in premiums. So, if they aren't purchasing insurance under the current system, why would they choose to purchase insurance once Obamacare kicks in, when it promises to drive rates even higher? California, which has been touted by Obamacare supporters as a model adopter of the law, recently announced that the cheapest plan for a 26-year-old will be nearly $2,000 per year. Supporters of the law tout the subsidies that will help individuals purchase insurance, but a 26-year-old would not receive subsidies to purchase insurance if he or she earns $32,000 or more.

The administration hopes that the law's requirement that individuals purchase health insurance or pay a penalty will compel young and healthy Americans to purchase insurance. But in the first year, the penalty will be just $95 (or a percentage of taxable income). If an insufficient number of young and healthy Americans sign up, it would mean that insurers would have to raise rates, which would then prompt even more young and healthy people to drop coverage, triggering another round of premium hikes. This scenario, known in the health care industry as the "death spiral," could eviscerate the nation's health insurance market.

2. Cost controls don't work: To help pay for Obamacare, lawmakers wrung out savings from Medicare by adjusting payment rates to medical providers such as hospitals and nursing facilities, predicting it would encourage them to operate more efficiently. However, it's unclear whether the cost-cutting measures will prove sustainable, particularly for smaller, regional hospitals.

Paul Spitalnic, the acting chief actuary of the Centers for Medicare and Medicaid Services, warned last month that if fully implemented, the Medicare cuts would slash payments to some providers so severely that they'd be losing money by agreeing to accept Medicare patients. Spitalnic predicted that, "Congress would have to intervene to prevent the withdrawal of providers from the Medicare market and the severe problems with beneficiary access to care that would result."

The problem is that if the Medicare cuts aren't put into effect, Obamacare could actually add $6.2 trillion to the nation's long-term deficit instead of reducing it slightly, according to a recent analysis by the Government Accountability Office.

3. Taxes and regulations prove too burdensome: To help finance Obamacare's $1.8 trillion in new spending over the next decade and realize the law's vision of American health care in the future, lawmakers enacted $1 trillion in new taxes and a raft of new regulations on individuals and businesses. These include taxes on health insurance, pharmaceuticals, medical devices, tanning and investment income as well as regulations such as menu labeling at chain restaurants.

Taken together, these measures could hinder economic growth and employment as well as stifle medical innovation. But the most burdensome regulation is the requirement that businesses with 50 or more workers provide insurance that the federal government deems acceptable, or pay a hefty penalty of $2,000 per worker.

All told, some businesses could be on the hook for hundreds of thousands of dollars, forcing them to curb business expansion plans and reduce the size of their work forces. Already, some companies have announced plans to cut the hours of many workers so they no longer count against the penalty. Other businesses, conversely, may decide that it would be cheaper for them to drop coverage altogether and just pay the fine, which would undermine Obama's promise that, under his plan, people who liked their health care plan could keep it.

4. Confusion and glitches discourage Americans from joining exchanges: The chief way that Obamacare would expand health care coverage is by setting up exchanges in all 50 states plus the District of Columbia, so that low-income Americans can use government subsidies to purchase insurance.

To function properly, health care policy experts estimate that each exchange would need to have between 100,000 to 125,000 enrollees. If not, the risk pool won't have the right mix of healthy and sicker individuals to make the health plans viable.

But the exchanges are facing massive technical challenges. After pledges that using their websites would be a consumer-friendly experience similar to purchasing airline tickets on Orbitz or Expedia, the official overseeing the technology said in March that the administration had lowered the bar and is now "just mak[ing] sure it's not a third-world experience."

But the exchanges may not even meet that low standard. This month, the GAO found that organizational efforts were behind schedule and that it wasn't clear whether there could be a "timely and smooth implementation of the exchanges" by Oct. 1, the date they're supposed to open for enrollment. (Benefits are scheduled to begin on Jan. 1, 2014.)

Worse yet, the public remains ignorant about the exchanges. A June survey from the Kaiser Family Foundation found that a combined 79 percent of the public had heard either "only a little" or "nothing at all" about the exchanges. If a planned media blitz fails, the exchanges may not attract enough enrollees. Under such a scenario, those most likely to educate themselves about the exchanges and go through a confusing process of applying for insurance would be the sickest and thus most expensive to insure, which would make the exchanges unsustainable.

As Reason's Peter Suderman has noted, there's already some precedent for this. Obamacare also included a plan to cover those with pre-existing conditions that would serve as a bridge between the time of the law's passage in 2010 through next year, when the law's major provisions go into effect. Though the program was expected to cover as many as 400,000 Americans, only 135,000 signed up. Despite the fact that fewer people enrolled, as reported by the New York Times, the cost "far exceeded White House estimates, exhausting most of the $5 billion provided by Congress." The reason is that fewer people cost more is that those who did sign up were the sickest and most in need of expensive care.

5. Overcrowding at doctors' offices: Obamacare is projected to expand insurance coverage by about 30 million people over the next decade, but even now many hospitals and doctors' offices are operating at or near capacity, with long waits to see primary care physicians. If there aren't enough new doctors' entering the market to meet exploding demand, it could make it a lot harder for individuals to find doctors or mean even longer waits for appointments.

Exacerbating the problem is that many doctors are contemplating leaving the profession because of the downward pressure Obamacare will put on physician compensation and the heavy regulatory burden that comes with the law. In March, a Deloitte survey found that six in 10 physicians said "it is likely that many physicians will retire earlier than planned in the next one to three years." A 2012 survey by Jackson Healthcare projected "significant" attrition among American physicians in the coming years, with more than a third of doctors planning to leave medicine within a decade.

A similar doctor crunch occurred in Massachusetts, where the state instituted reforms similar to those in Obamacare in 2007. In 2006, the average wait time to see a general practitioner was 33 days, according to a report by the Massachusetts Medical Society, but it shot up to 53 days by 2010 (it has since declined, but still stood at 44 days in 2012). Also, 64 percent of general practitioners were accepting new patients in 2006, but by 2009, that had declined to 44 percent. In 2012, five years after the law was implemented, the number is still only 51 percent, meaning that nearly half of general practitioners in Massachusetts won't accept new patients.

Obama administration officials insist that the implementation of the health care law is on track and that they have a plan to promote the exchanges and enroll a sufficient number of people. In a response to this month's GAO report raising concerns that administrators were falling behind, the Department of Health and Human Services responded that its officials were "extremely confident that on Oct. 1 the Marketplace will be open on schedule and millions of Americans will have access to affordable quality health insurance."

With the help of the outside group Enroll America, the administration is in the early stages of its outreach effort. "We will be engaging a broad spectrum of stakeholders: everything from college campuses to pharmacists to sports teams to the business community," Obama advisor Valerie Jarrett told the Huffington Post. Politico reported that the administration has already solicited help from the NBA about a marketing partnership. Additionally, HHS has said it would spend as much as $54 million in grants to "navigators" in each state, dispatching tens of thousands of health care workers, union officials and local activists to help Americans understand their options in the exchanges.

If this outreach effort fails and the exchanges are not up to speed on Oct. 1, it would be a tremendous embarrassment to an administration that has had three and a half years to prepare, and make it less likely that Obamacare will be able to attract the critical mass of individuals needed to make the exchanges viable. That said, the problems that follow after Jan. 1 could be even more damaging. Problems with the exchanges will most effect people who would have been uninsured anyway prior to the law, so in some sense it could be argued that they are no worse off.

But a central promise of Obamacare was that the federal government would be able to extend benefits to tens of millions of people while leaving the health care experience for the rest of America essentially unchanged. The reason for this promise was that prior to the passage of Obamacare, a Gallup poll found that 87 percent of Americans who already had coverage were satisfied with their own personal health care experience. This means that any disruptions to that experience -- an insurance market in "death spiral," difficulty getting doctors' appointments, reduced access for Medicare patients or dropped employer coverage -- could have a much more severe impact on the sustainability of the health care law in the long-term.

Obamacare has survived a Supreme Court challenge, multiple repeal attempts and a presidential election. Now it is has to survive its own structural flaws.

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