Wednesday, September 25, 2013

Health Reform is finally here.....hope you draft well.

Every major professional sport uses a draft process to maintain a competitive balance and add young, quality less-expensive players to its roster of older high-priced veteran players.  Starting October 1, a major portion of the president's health care reform law (the Affordable Care Act) will go into effect changing the way millions of Americans get their coverage with open enrollment to buy insurance on the new state health exchanges scheduled to begin.  Much like the draft process where an infusion of youth is critical to the overall stability of the team, the ultimate success of these exchanges will be largely dependent on insuring young, healthy people to help balance out the risk of covering older, sicker, more expensive adults.

While drafting formats vary slightly depending on the sport, the significance of building a roster through the draft with young talent cannot be understated particularly in the salary cap era.  The thing about draft picks is that their salary is rigidly controlled, initially through their first contract; later by virtue of being a restricted free agent and until the time they become an unrestricted free agent. 

These players don't make as much money as they will in the future, yet they are key contributors and provide significant value for the teams that are paying them.  Therefore, what makes them so valuable in addition to their performance is that in most cases they are underpaid relative to older veterans and unrestricted free agents.   

Draft picks are calculated risks that have minimal or limited financial significance to the team’s total salary expenditures.  The goal is to acquire as many important young contributors as possible before they hit their big pay day in order to help alleviate the salary cap pressures of paying for the core group of more experienced players.  Ultimately, the ability to succeed depends on finding the right balance of youth to augment and complement the more expensive veteran presence already in place.

On Tuesday, October 1st, people will be able to start enrolling in the new health insurance exchanges for coverage next year.  The administration is counting on at least 3 million of the 19 million young, uninsured Americans (a demographic of the population referred to as the “young invincibles”) to purchase insurance in order to offset the higher costs of insuring older and sicker Americans.  However, a Commonwealth Fund report found that only one in four young people (27 percent) is even aware of the exchanges and among those who were uninsured for a period of time in the prior year, less than one in five (19 percent) know about the exchanges

More recently, a study funded by the Robert Wood Johnson Foundation (RWJF) found that, contrary to popular belief, most uninsured young adults actually think they need health insurance.  This perceived need would seem promising however nearly 80 percent of those surveyed indicated that although they wanted health insurance, most do not believe that it will be affordable enough for them to buy.  This has the potential for significant impact because without young adults, who pay for insurance yet rarely use it, the cost of insurance premiums will increase for everyone.

According to a report released by the Agency for Healthcare Research and Quality (AHRQ), one percent of patients accounted for roughly a fifth of all health care spending and five percent of patients accounted for half of overall health care costs. By contrast, the same report found that 50 percent of patients accounted for only 3 percent of health care spending.  With statistics like these, it’s easy to see the importance of having a pool of participants to offset these 'super-utilizers' who place such a huge burden on health-care system.

The ability for teams to draft good young players has never been more important than it is now in the salary cap era.  By failing to draft well and find inexpensive talent, a team is severely limited in its options.  In order to remain competitive, it will need to spend more money on free agents, and as a result of that, have less money to spend on its core group of more experienced players.  The same is true for the health exchanges where having a balanced insurance pool that includes enough young, healthy people to help offset the costs of those that are older and sicker is critical to the success.  If they are unable to do so the fear is that premiums could spiral out of control which might not bring the whole system down, but it could certainly cripple it.

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