THE BOSTICK REPORT-With President Obama’s recent announcement that 35% of the 8 million people now enrolled in healthcare exchanges are under the age of 35, the question of whether the law will fold in its first year is officially over. Repeal, as the president stated, is no longer a viable conversation.
No doubt, naysayers will continue doing what they do best – saying nay of course, and we do need to wait to see how many of those 8 million will actually pay for their policies before we fully celebrate.
Experts vary in their predictions, but consensus seems to be that somewhere between 10-20% will not pay. Regardless, it’s clear that this law will not implode in its first year.
Surviving the first year does not mean the work is done, however. In order to ensure that the ACA remains affordable, we need to bulk up the number of enrollments for next year.
Healthcare works somewhat inversely to the widespread rule of supply and demand. In normal marketplaces, the cost of a product is lower when there is more competition to provide that product and higher when there is less competition.
Essentially, the more people competing to sell the same product – lollipops, for example – the lower the price has to be to attract customers. If there are 3 different shops selling lollipops on the same block, one will inevitably lower prices to steal customers from the other two. Once one purveyor lowers prices, the others will likely follow suit to prevent losing sales to the cheaper merchant.
In marketplaces where there is a deficit of product, the merchant is less likely to slash prices. Imagine you are in the desert and there is one person selling water. You need that water. If you are competing with other potential customers to buy the water, then a bidding war will break out, pushing up the price of that water.
Ignore the fact that water is a necessary commodity and lollipops are not (for most of us). Just focus on the fact that in most marketplaces, when customers have more choices, the merchants frequently compete to sell product at a lower cost than the other merchants. And when customers have few options, the merchants are in the position of control and can sell the product at higher prices – especially if the product is necessary to the customers’ survival.
The healthcare insurance industry works in the opposite manner. When there is more competition for customers, insurance companies actually end up charging the customers more. Bear with me here.
The reason for this illogical anomaly is fairly simple. In our current healthcare marketplace, there are three inter-related points of bargaining. There is the patient, who bargains with the insurance company. Then there is the insurance company that bargains with the healthcare providers – hospitals and doctors.
The more insurance companies there are, the more diffused the customers are. This is a major problem for the insurance company because the more diffused the patients are among different insurance companies, the less power those insurance companies have when bargaining to set prices for service with hospitals and doctors.
Think about it. If an insurance company has 1,000 customers and threatens to walk out of a negotiation with a hospital, the hospital risks losing a very small percentage of the market, but the insurance company loses access to that entire network of hospitals. If, however, the insurance company holds policies for 1,000,000 customers, then the hospital is at a disadvantage in negotiations because they risk losing a large market share if the insurance company chooses to exclude the hospital from its provider list.
Basically, the fewer healthcare insurance companies there are, the less competition there is for gaining policy holders and the more leverage the insurance company has when negotiating with the healthcare provider.
All that said, the California Exchange is the most robust of all the ACA systems, but it needs more people to remain low in cost once federal subsidies begin to disappear.
At the same time, there is tremendous opportunity here in California as we see cities, counties, school districts, and the state begin renegotiating expiring contracts with their employees.
Los Angeles is going to do this with a portion of its employees this summer. Historically, the cost of providing healthcare for employees of the city of Los Angeles has been both unpredictable and high, like everywhere else these days. Costs to the city here have ranged from 18-25% above and beyond the employee salary. Worse than the high amount is the lack of predictability.
Planning efficient budgets that meet the myriad of constituent needs is easier when costs are predictable. As Mayor Eric Garcetti enters into contract renegotiations this summer, there will be tremendous pressure to stabilize costs for healthcare.
If he bargained for a fixed payout to employees to cover the city’s healthcare obligations – say 20% - and then shifted those municipal employees to the California Exchange, we would be adding nearly 50,000 members to the system. This would boost the enrollee number by 5% with members you can rely on paying their bill. If LAUSD followed suit, that would actually increase the number of people in the exchange by 11%.
If all of the public employees at the state, county, and city level followed suit, then our healthcare exchange would increase by more than 2 million people, a jump of more than 200%.
What does this mean for exchange? Stronger bargaining positions with healthcare providers for lower costs. What does this mean for cities, counties, school districts, and the state at large? Healthcare costs are stabilized and predictable for taxpayers. As enrollment booms and contracts are then renegotiated years later, we might be able to lower the percentage payout by the government for the exchange policies to, say, 18%.
We have a huge opportunity to get those exchanges working right out of the gate and to relieve taxpayers of their burden by shifting public employees over to the system. California progressives pushed the hardest for a single payer system because we believe that healthcare is a natural right, but the Affordable Care Act is the compromise we are working with.
Let's put our money where our mouths are and turn our public employees over to the beginning of that process: the state exchange system. Solidifying its strength with public employee enrollments will ensure that costs to families are low, taxpayer costs are stable, and the exchange grows in its ability to provide quality healthcare at a fair price.
And, with diligence and faith, we can turn Obamacare into single-payer and save ourselves from higher taxes. Win-win.
(Odysseus Bostick is a Los Angeles teacher and former candidate for the Los Angeles City Council. He writes The Bostick Report for CityWatch.)
-cw
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CityWatch
Vol 12 Issue 33
Pub: Apr 22, 2014