Observations on Health Care Reform

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Today, Obama signed the bill to repair bad parts of the health bill, and all are now the law of the land. Things might have gone better if this were called “Insurance reform” as that section caused the most heated debate.  Underlying the disagreements are two opposing philosophies. Those who think access to health care is a privilege will disagree with this reform.  Those who think that access is a basic right tend to agree.  Below are some observations about the whole messy process.

Everyone is entitled to their own opinion.   No one is entitled to their own facts. These last 14 months have seen far too many allegations passing as facts, and when repeated often enough, has many believing they are facts. Having spent so many months researching real facts from nonpartisan sources, most of the critics’ allegations are simply untrue.

One often repeated charge is that Democrats rammed this through and excluded all Republican attempts to participate.  One reason this process took so long is that Senators Baucus (Democrat) and Grassley (Republican) took months longer to reach agreement on their committee bill that was a bipartisan effort and more than 200 Republican ideas are included in the final bill.  Republican input is substantial and to say they had no voice is just politics, not fact.

Another reason is the Republican Party opted for a strategy to “just say no” to any partisan Obama bill and to appointments requiring Senate approval.  They even called the health bill, Obama’s Waterloo months before they knew what was in it. Withholding of appointments and repeated 100% NO votes attests to their non cooperation.  After months of joint effort, even Senator Grassley voted against his own committee bill.

Minority Leader Boehner complained that this bill would be Armageddon and Senator McCain said he would no longer participate.  Such hyperbole would be humorous save that far more inflammatory comments have stirred up unruly conduct in the public while leaders on the right remain mostly silent.

The majority of Americans disapprove this bill. One truth is political bickering has turned off the majority people. But it also depends on how the questions are worded.   Non partisan Kaiser Foundation asked about 12 specific benefits.  Over half favored 11 benefits, with 60%+approval on 6 benefits.

The individual mandate is unconstitutional. What people do not realize is federal law requires everyone be treated in emergency rooms, regardless of their ability to pay.   If you have mandatory expenses, you need mandatory income. Republicans initiated the idea of mandate during Hillary care and Democrats objected much like Republicans do now.  But like a card table, take out a key leg and the whole table falls down.  Healthcare is far more complex than four legs and all need to work together or reform collapses.

Republican governor Romney who passed universal health care for his state wrote in 2006 (and which it and the new law are quite similar) “Some of my libertarian friends balk at what looks like an individual mandate. But remember, someone has to pay for the health care that must, by law, be provided: Either the individual pays or the taxpayers pay. A free ride on government is not libertarian.”

This is a government takeover of healthcare. Somebody might want to remind those folks that 100 million people and ½ of all medical costs are already on government health care. While reform calls for an expansion of Medicaid, the bulk of reform retains the current mix of private and government insurance.  What IS reformed are the health insurers who over time have engaged in more and more nefarious acts that favor profits at the expense of the health of their insured.

Insurance reform is the number one issue for the public and this statute goes a long way, albeit gradually, in making those egregious acts illegal.  Controls on insurers are what all other industrialized nations do and their costs are about half ours.

Government will dictate coverage and ration care. There is some truth to that.  However, today, health insurers dictate coverage and too many care more about Wall Street than people’s health.  In fact, some 45,000 people die each year because of lack of access to health care.  If one wants to complain about death panels and health care rationing, look no further than your for-profit health insurer of today.

Buried in those thousands of pages are new data reporting standards and requirements that will allow comparison of medical practices.  Since half of all costs are already taxpayer funded, why shouldn’t the government make an effort to eliminate waste by encouraging effective practices and discouraging non-effective ones.  Contrary to “popular” opinion, the bureaucrats analyzing those practices are not political flunkies, but doctors and medical personnel.

This will cut Medicare benefits. Hard as it may seem today, the government had grave initial concerns that few people would sign up for Medicare.  To encourage participation, Medicare offered private insurers a “bonus” of 15% above Medicare’s own costs to entice seniors to sign up.  Today, 25% of seniors are in Medicare Advantage programs.  Private insurers are free to modify that coverage and add benefits, but also free to charge more for any enhancements.

What reform does is gradually reduce that 15% “bonus” as it certainly is not needed to encourage seniors to sign up. But it does so in an intelligent way, allowing efficient insurers to keep more of the bonus while discouraging inefficient ones.

Closing Medicare Drug “doughnut hole”. There is bipartisan support for this provision as there was in the initial Bush statute.  What few remember is that there was zero funding included in that Republican bill and its 10 year costs about equal the current reform bill. Republican complaints of adding to the deficit or raising taxes are rather hypocritical given their history of deficit spending.

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Affordable Care Act – Table of Contents

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The Affordable Healthcare Act for All Americans is without a doubt, a large and complex piece of legislation at just over 2,400 pages.  But how big is 2,400 pages when wide margins, lines numbered, text double spaced, large font,  multiple levels of indent, and more than a few references to other documents?  The sample page below (standard 8.5 inch wide paper) is indicative of the 2,400 page document. The actual content is but a small fraction of a page. AHA legal text sample

Aside from the claims of too lengthly and complex, Republicans argued that this was a Democratic bill rammed through congress.  Interestingly, AHA includes more than 160 Republican amendments accepted during the month-long mark-up through just one committee (HELP), one of the longest in Congressional history.

Critics have claimed it’s a government takeover of our health system.  It may be news to those critics but half of the health system is already government-run.  And the great bulk of the reform bill deals with steps to improve existing government systems that has hardly drawn any attention.  The following provides a quick breakdown of the law sections.  The PDF report that can be viewed/downloaded shows the entire table of contents.

There are 10 “Titles” or major topics in the bill.  Only the first, at 374 pages, less than one sixth of the entire bill deals with changes to how the private sector handles health care. Yet, this is the section that has garnered nearly all the criticism. The bulk of Title I deals with prohibiting abuses by the insurance industry, which, if you ask on an issue by issue basis, most people will agree with the new provisions. Nothing in the bill involves a “takeover” of private insurers.

The next three Titles [II,III,IV] deal with improving Medicare and Medicaid programs and comprise 852 pages, one-third of the bill.  These Titles address reduction of waste, fraud and abuse, and pilot new payment methods towards a “results” oriented method common in most other industrialized countries.  There are few objections to this section.

Title V, at 256 pages, addresses anticipated shortages of primary physicians and other healthcare workers due to services that will be required by aging baby boomers.  This is totally opposite the “death panels” that ration healthcare that unfortunately got too much press for a falsehood.

Title VI uses 323 pages to improve transparency and integrity, yet more efforts to reduce waste, fraud and abuse in both the public and private health sectors. Who objects to efforts like this?

Title VII  improves Access To Innovative Medical Therapies, with focus on lowering the cost of drugs

Title VIII addresses ‘‘Community Living Assistance Services and Supports Act’’ or CLASS Act. This title The purpose of this title is to establish a national voluntary insurance program for purchasing community living assistance services and supports.  Moving people from higher cost hospitals and nursing homes to assisted living lowers costs, a laudable goal.

Title IX includes the revenue provisions that include provisions to raise revenue to pay for the expanded coverage.

The final Title X addresses 1) Medicaid and CHIP, 2) Support for pregnant and parenting women, and the major section 3) Indian health care improvements.  None are controversial issues.

Title I——-Quality, Affordable Health Care For All Americans [374 pages – 14%]

Title II——Role Of Public Programs [221 pages – 8%]

Title III–—Improving The Quality And Efficiency Of Health Care [501 pages – 19%]

Title IV–—Prevention Of Chronic Disease And Improving Public Health [130 pages – 5%]

Title V——Health Care Workforce [256 pages – 9%]

Title VI–—Transparency And Program Integrity [323 pages – 12%]

Title VII-—Improving Access To Innovative Medical Therapies [65 pages – 2%]

Title VIII—Class Act [53 pages – 2%]

Title IX—–Revenue Provisions [93 pages – 3%]

Title X——Strengthening Quality, Affordable Health Care For All Americans [373 pages – 14%]

.

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Key Healthcare Provisions – Fortune Magazine

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Fortune Magazine Source

By David Ewing Duncan, contributor

March 22, 2010: 12:58 PM ET

(Fortune) — Those of us alive last night will one day retell the story of how mere mortals in Congress and the White House defeated a combined army of Harpies, Gorgons and Minotaurs that for decades have thwarted all efforts to reform the American health-care system.

So maybe most of America last night was riveted not by Parliamentary antics in Congress, but by college basketball. Nonetheless the House of Representatives did the deed when they passed the Senate’s health reform bill at 10:44 pm. A package of changes to the bill still needs to be approved by the Senate, but the basic health-care bill will become law when President Obama signs it.

Now we really can get busy and work on health-care reform.

I’m not talking about the sort of epic reform that was just passed by Congress. That was as much about showing the country that Washington can govern and take on powerful interests, as it was about healing our ailing health-care system.

I’m talking about an agenda of urgent matters that still need to be addressed to truly fix American health care. But not in the hyperventilated, do-or-die atmosphere that has characterized the health-reform debate every time it has been seriously proposed since at least Harry Truman. These remaining issues can be thought of as smaller epics, like chapters in the health-reform Odyssey rather than the entire narrative.

Here’s what’s left to do.

Reduce costs: According to President Obama and Congressional Democrats, the bill just passed will pay for itself over the next ten years. But what about the rest of the $2.7 trillion the nation will spend this year on health care? That works out to almost $9,000 per American — which is nearly twice what the next most expensive country in the world — Switzerland shells out.

Spending this much on health care takes away resources from education, defense, and other priorities. Medicare and Medicaid alone are estimated to cost $763 billion in 2010, which have edged out defense and social security for the first time as the number one expenditure for the federal government, costing 21% of the president’s $3.5 trillion budget.

Improve care: Contrary to the widespread belief that the U.S. has the best health-care outcomes in the world, on many measurements we lag behind nations that spend far less. For life expectancy, the U.S. ranks 23rd out of 27 for Organization for Economic Co-operation and Development countries, which also include most of Europe, Japan, Korea, Turkey, Australia, New Zealand and Canada.

While mortality rates in the U.S. for stroke and some cancers rank among the best — meaning fewer deaths, according to the OECD — the U.S. ranks toward the bottom in mortality rates for other maladies such as diabetes. We rank 26th, second to the last, for our infant mortality rate.

Comparative Effectiveness: The bill just passed by Congress allocates funding for investigating and assessing which pharmaceuticals, devices and procedures work best. This effort needs even more funding and a larger mandate to rid health care of expensive treatments that don’t work — or that work no better than less expensive alternatives. We wouldn’t buy a car without consulting Consumer Reports, so why shouldn’t we have the same information available for health-care treatments?

Personalized Health: A revolution in predictive and preventive health care is underway thanks to new discoveries in genetics and molecular biology. The current bill provides some funding and support for translating these scientific discoveries into clinical applications — which is added to previous funding provided by the National Institutes of Health — but much more is needed.

The goal is to shift health care from focusing on sickness and symptoms to emphasizing prediction, early diagnosis, and prevention. (Not all prevention is high tech — holding anti-smoking classes for middle-school students, for instance, is a low-tech option for preventing teens from becoming smokers).

Expanding the publicly funded safety netRight now 100 million Americans — one in three — have govern ment-funded and administered insurance, mainly through Medicare, Medicaid, and the military. The bill that just passed will go a long way to making sure most of the rest of America is insured, though efforts to provide a publicly financed option to private health insurance failed to make it into the final measure.

Making sure that Americans have an affordable insurance option required by law is unfinished business. We now need to insure that every American — like every citizen in Britain, Germany, Japan, and Korea — is covered by a basic insurance safety net.

Of course, none of these mini-epics will be addressed anytime soon, not with so many other monsters running amok like financial reform, jobs, education, and Afghanistan. But what a relief that the mortals in Washington rose above their bickering to slay at least one or two of the beasts plaguing our land.

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Key Healthcare Provisions – Kaiser Foundation

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Kaiser Foundation Source

Some of the items that go into effect in the first year include:

NEW HELP FOR SOME UNINSURED: People with a medical condition that has left them uninsurable may be able to enroll in a new federally subsidized insurance program that is to be established within 90 days. The legislation appropriates $5 billion for this, although that may not be enough to cover all who apply; it’s not clear how much consumers would pay as their share of the cost. About 200,000 people are covered in similar state programs currently, at an estimated cost of $1 billion a year, says Karen Pollitz, a research professor at Georgetown University.

DISCOUNTS AND FREE CARE IN MEDICARE: The approximately 4 million Medicare beneficiaries who hit the so-called “doughnut hole” in the program’s drug plan will get a $250 rebate this year. Next year, their cost of drugs in the coverage gap will go down by 50 percent. Preventive care, such as some types of cancer screening, will be free of co-payments or deductibles starting this year.

COVERAGE OF KIDS: Parents will be allowed to keep their children on their health insurance plan until age 26, unless the child is eligible for coverage through a job. Insurance plans cannot exclude pre-existing medical conditions from coverage for children under age 19, although insurers could still reject those children outright for coverage in the individual market until 2014.

TAX CREDITS FOR BUSINESSES: Businesses with fewer than 25 employees and average wages of less than $50,000 could qualify for a tax credit of up to 35 percent of the cost of their premiums.

CHANGES TO INSURANCE: All existing insurance plans will be barred from imposing lifetime caps on coverage. Restrictions will also be placed on annual limits on coverage. Insurers can no longer cancel insurance retroactively for things other than outright fraud.

GOVERNMENT OVERSIGHT: Insurers must report how much they spend on medical care versus administrative costs, a step that later will be followed by tighter government review of premium increases.

Some of the major changes the reconciliation proposal would make to the Senate-passed bill:

HEFTIER SUBSIDIES: Compared to the Senate legislation, the reconciliation bill would provide more generous subsidies to low- and moderate-income Americans to help them buy health coverage.

THE “MASERATI” TAX: The levy on high-cost insurance plans is scaled back and delayed, rendering it more a “Maserati” than a “Cadillac” tax. It would apply only to the portion of plans costing more than $10,200 a year for individuals, up from $8,500, and $27,500 for families, up from $23,000. The tax wouldn’t kick in until 2018, reducing the projected revenue to the government by 80 percent. Over time, however, the tax would hit more and more plans, because the tax’s threshold is set to increase at the rate of inflation while premiums are expected to continue to grow much more quickly than that.

CLOSING THE DOUGHNUT HOLE: Unlike the Senate bill, the reconciliation measure would eventually close the coverage gap, called the “doughnut hole,” for Medicare beneficiaries enrolled in Part D drug plans. (Currently, seniors who hit the gap must bear the full cost of their medications until they spend a certain amount, when coverage kicks back in.)

Under the new bill, seniors who hit the gap this year would get $250 to help cover the costs of their medications. Starting next year, they’d get a 50 percent discount on brand-name drugs, with the cost borne by the drug industry. In subsequent years, the discounts would expand and begin covering generic drugs, with the expense picked up by the government. By 2020, the discounts would reach 75 percent.

SHIFT IN MEDICARE ADVANTAGE PAYOUTS: Government payments to Medicare Advantage, the private-health plan alternative to traditional Medicare, would be cut back more steeply than under the Senate bill: $132 billion over 10 years, compared to $118 billion.

The government currently pays the private plans an average of 14 percent more than traditional Medicare. The new bill, besides reducing payments overall, would shift the funding; some high-cost areas would be paid 5 percent below traditional Medicare, while some lower-cost areas would be paid 15 percent more than traditional Medicare. The Senate’s plan that would have shielded some areas of the country such as South Florida from major cuts was largely eliminated.

A RAISE FOR DOCTORS: Primary care doctors would get a Medicaid payment boost in the reconciliation bill. Beginning in 2013 and 2014, the doctors’ payment rates would be on par with Medicare rates, which typically are about 20 percent higher than Medicaid. The goal is to ensure that there will be a sufficient number of doctors willing to care for the millions of additional people who would become eligible for Medicaid under the health care overhaul.

PUSHING UP THE MEDICARE TAX: The Senate bill adds a 0.9 percentage point to the Medicare payroll tax on earned income above $200,000 for individuals, or $250,000 for couples. Under the reconciliation bill, starting in 2013, people in those income brackets also would face a 3.8 percent tax on investment income, such as interest, capital gains and dividends.

PENALTY FOR NOT HAVING INSURANCE: Under the new bill, most Americans without insurance would face an annual penalty, starting in 2014 at $95 – the same as in the Senate bill. But in following years, the penalties in the reconciliation bill are slightly different. Those without insurance in 2016, for example, would pay the greater of two alternatives: a flat fee of $695, down from the Senate’s $750, or 2.5 percent of their income, up from 2 percent in the Senate bill.

EXPANDING MEDICAID: The reconciliation package differs from the Senate-passed bill in several ways. It would delete a provision dubbed the “Cornhusker kickback” that would have exempted Nebraska from paying any cost of a Medicaid expansion included in the bill. But it would provide full federal funding to all states for newly eligible Medicaid recipients for three years. And it would give additional funding to states like Vermont and Maine that have already moved to cover adults without children, which isn’t required under the Medicaid program.

MEDICARE SPENDING BOARD: The Senate bill would create an independent, 15-member board to recommend ways to control Medicare spending. The board remains in the reconciliation package, but would be expected to produce just about half of its original projected savings of $23 billion in the Senate bill. That’s because the new proposal would make greater cuts in Medicare Advantage plans.

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Senate Gridlock – the Filibuster Factor

This Analysis has been replaced with a new version: Senate Filibusters Reveal Deliberate Obstruction

 

Healthcare Bill – Initial Reforms

Download PDF Report >>> Healthcare bill-Senate initial reforms

SUMMARY

This article was written before final passage of the bill.  The provisions noted here are all in the final bill.  Like all legislation compromises find their way into the Senate bill.  Nevertheless, there are still many good reforms that deserve passage of the bill. Below are nine good reasons that occur just in 2010 to justify passage.

DISCUSSION

Howard Dean suggested senators reject the current form of the senate bill as not offering an alternative to private insurance and thus, unable to control costs.

One senator disagreed saying that while we wanted to build a nice house, all we can afford is a cottage.  But that cottage has a very solid foundation.  In time, we can make additions, but if we do not have a foundation, no additions or changes will even be possible.

This article addresses just a few foundation items that take effect early in the program.  Though one should not stop pressing for greater reform, not passing any bill would have even greater adverse consequences.

The following page lists excerpts from the senate bill as published earlier.  The comments below hopefully “translate” some of that legalese into layman’s language for the rest of us.  Hopefully, they provide encouragement to continue to press for better and better reform, but not to throw the baby out with the bath water if it seems reform does not go far enough. Below are nine good reasons that occur just in 2010 to justify passage

Actions Effective when Reform Bill is Enacted

  1. Section 1003 establishes in each state a process for review of unreasonable premium increases, approval of increases, and disclosure by insurers of justifications for their increases.  While this does not lower rates, it should constrain unreasonable increases and create transparency. Insurers are open to embarrassment if they press for extreme increases.  This section further provides a $250 million fund to the states to enforce this provision and give it some teeth.

Actions Effective within 90 Days of Enactment

  1. Section 1101 provides creation of a high risk pool for immediate access by uninsured with preexisting conditions. It requires enrollees to pay only “normal” premiums with cost deficits covered by a $5 billion appropriation.  It also includes an anti dumping clause to prevent plans from discouraging anyone from remaining enrolled. In effect, neither insurers nor companies could offload their high cost persons onto this subsidized high risk pool.
  2. Section 1102 effectively extends COBRA coverage for “retired” employees ages 55 and older. To protect employers extending COBRA, it provides them a reinsurance plan whereby if a retiree’s claims exceed $15,000, the government will reimburse the employer 80% of costs in excess of the $15,000.

Actions Effective within 6 Months of Enactment

Section 1001 contains 6 key subsections that are not practical to enforce immediately but are too important to delay for a whole year.

  1. Sec. 2711 prohibits insurers from setting lifetime or unreasonable annual dollar value limits on what they will pay under a plan
  2. Sec. 2712 prohibits insurers from rescinding coverage once an enrollee is covered under a plan
  3. Sec. 2713 prohibits insurers from imposing cost sharing (deductibles or copayments) for preventative services, immunizations, and preventative services for young children
  4. Sec. 2714 extends coverage of dependent unmarried children until age 26
  5. Sec. 2715 requires Uniform Explanation of Coverage Documents and Standard Definitions.

(a)    Establish strict disclosure rules including limiting documents to 4 pages of 12 point font (no fine print), understandable language, and clear benefits description and cost.

(b)    Preempt states with lower standards

  1. Sec. 2718 is designed to bring down costs

(a)    Establish accounting rules that standardize and segregate medical claims and  non-medical costs

(b)    Set minimum MLRs (according to rules in (a).  MLRs are already in the legislation, though their levels are similar to today’s actual MLRs (85% for groups, 80% for individuals).  Excess margins would be rebated to customers. MLRs could be made more stringent in the Senate-House reconciliation.

(c)    Require hospitals to “establish and make a list” of standard charges. The provision removes some of the secrecy and multiplicity in hospital pricing. By making them public, people can make more informed decisions about costs.

Subtitle A — Immediate Improvements in Health Care Coverage for All Americans

Sec. 1001. Amendments to the Public Health Service Act. (effective 6 months after enactment)

  • Sec. 2711. No Lifetime or Annual Limits.

Insurers may not establish—(1) lifetime limits on the dollar value of benefits for any participant or beneficiary; or (2) unreasonable annual limits

  • Sec. 2712. Prohibition on Rescissions.

Insurers shall not rescind such plan or coverage with respect to an enrollee once the enrollee is covered under such plan or coverage involved

  • Sec. 2713. Coverage of Preventive Health Services.

Insurance coverage shall provide coverage for and shall not impose any cost sharing requirements for—Preventative services, Immunizations, and preventative care for infant, children and adolescents

  • Sec. 2714. Extension of Dependent Coverage.

Policies covering dependent coverage of children shall continue to make such coverage available for an adult child (unmarried) until the child turns 26 years of age

  • Sec. 2715. Development and Utilization of Uniform Explanation of Coverage Documents of Standardized Definitions.

SUBSECTION (a) In GeneralNot later than 12 months after the date of enactment … develop standards … in compiling and providing to enrollees a summary of benefits and coverage explanation that accurately describes the benefits and coverage under the applicable plan or coverage.  The standards include:

  1. Appearance – not more than 4 pages
  2. Language –utilizes terminology understandable to an average enrollee
  3. Contents – must include:
    1. Uniform definitions so customers may compare
    2. Description of coverage including cost sharing for –Each category of benefit

1)      Exceptions, reductions, limitations

2)      deductible & co-payments

3)      Continuation provisions

4)      Examples to illustrate common benefits

SUBSECTION (e) PREEMPTION.—The standards developed under subsection (a) shall preempt any related State standards that require a summary of benefits and coverage that provides less information to consumers

  • Sec. 2718. Bringing Down the Cost of Health Care Coverage

a)      Clear accounting for Costs – annual report concerning the percentage of total premium revenue that such coverage expends—

1)      on reimbursement for clinical services provided to enrollees under such coverage;

2)      for activities that improve health care quality; and

3)      on all other non-claims costs, including an explanation of the nature of such costs, and excluding State taxes and licensing or regulatory fees.

b)      Ensuring That Consumers Receive Value for Their Premium Payments.— Requirement To Provide Value For Premium Payments.—rebate to each enrolled amount exceeding

  1. Group market – 20%
  2. Individual market – 25%

c)      STANDARD HOSPITAL CHARGES.—Each hospital operating within the United States shall for each year establish and make a list of the hospital’s standard charges

Sec. 1003 – (and Sec. 2794) Ensuring that Consumers Get Value for their Dollars. (effective when enacted)

(a)    Initial Premium Review Process.—

1)      IN GENERAL.—The Secretary, in conjunction with States, shall establish a process for the annual review, beginning with the 2010 plan year … of unreasonable increases in premiums for health insurance coverage.

2)      The Secretary shall ensure the public disclosure of information on such increases and justifications for all health insurance issuers.

(b)    Grants in support of process

  1. Premium Review Grants During 2010 Through 2014.—The Secretary shall carry out a program to award grants to States during the 5-year period beginning with fiscal year 2010 to assist … in carrying out the ….. reviewing and approving premium increases
  2. Funding – ‘(A) IN GENERAL.— appropriated to the Secretary $250,000,000 to be available for expenditure for grants

Subtitle B—Immediate Actions to Preserve and Expand Coverage (effective within 90 days)

Sec. 1101. Immediate Access to Insurance for Uninsured Individuals with a Preexisting Condition.

a)      IN GENERAL.— the Secretary shall establish a temporary high risk health insurance pool program ending 01/01/14

e)      Protection Against Dumping Risk By Insurers.— (1) IN GENERAL.—The Secretary shall establish criteria for determining whether health insurance issuers and employment-based health plans have discouraged an individual from remaining enrolled in prior coverage based on that individual’s health status.

g)      FUNDING; appropriated $5,000,000,000 to pay claims against the high risk pool

Sec. 1102. Reinsurance for Early Retirees.

a)      Administration — (1) IN GENERAL.— the Secretary shall establish a temporary reinsurance program to provide reimbursement to participating employment based plans for a portion of the cost of providing health insurance coverage to early retirees (and to the eligible spouses, surviving spouses, and dependents of such retirees) during the period beginning on the date on which such program is established and ending 01/01/14

Download PDF Report >>> Healthcare bill-Senate initial reforms

Non-Partisan CBO Estimates of Healthcare Reform

Download PDF Report >>> CBO Estimate of Healthcare Reform

SUMMARY

Few doubt how unsustainable current medical trends are.  With medical inflation consistently outpacing the CPI, health costs will continue to take a greater share of the economy. Private insurers claim they can solve the problem with reform but without a Public Option.  History suggests this is a dubious claim at best.  Looked at from multiple angles, private insurers are not likely to succeed.  Profits gains have far exceeded key indices, medical loss ratios have gone way down while costs have gone way up, competition is diminished by concentration of major insurers, and tort reform complaints carry little water.

DISCUSSION

The graph below shows CBO projections of under 65 population by insurance group. The top, red bars are the uninsured that continue to grow each year.  While insurance through employment is fairly consistent, greater employee cost sharing is an increasing burden.

Neither the Senate nor House reform proposals provide financial support to unauthorized immigrants.  When analyzing various effects of reform, this group has no effect. For data consistency for both before and after reform, unauthorized immigrants are not included in the populations.  Removal lowers uninsured population between 5 and 8 million over the 10 year period.

 Source: CBO, Oct 7, 2009 letter to Senator Baucus

While the country may be coming to some agreement that reform is needed, differences exist on how to achieve reform. Health Insurers want to have participation mandatory which is a valid point. Except they have offered no other steps on how to reduce costs and are against Public Option that would offer real competition. However, they would be beneficiaries of millions of new customers.

Those customers would come from those currently uninsured, or insured through individual and employer groups. In the graph next column, CBO assumes reform includes an Exchange that would shift nearly 40 million from uninsured, individual and employer groups (left side of graph) to Medicaid and the Exchange (right side).  Note that not all the movement is to the Exchange.  A large number of uninsured poor would switch to Medicaid.  Still, the Exchange is expected to grow quickly to nearly 25 million. This group is the target for private insurers and Public Option.

So why is it necessary to have a Public Option on the Exchange?

 On its face, private insurers could certainly cover 25 million new enrollees without government involvement. But the catch is that the government IS involved because of another feature of reform.

 Source: CBO, Oct 7, 2009 letter to Senator Baucus

That reform feature is “affordability credits”.  Even those with insurance find their total health care costs consume so much of their income that they do not get needed care. Affordability credits help those with lower incomes pay premiums and shared health costs. The effect is shown in the chart below. Medicaid pays for the very poor while credits help less well off people in the Exchange.

 Source: CBO, Oct 7, 2009 letter to Senator Baucus

In short, the Government will be paying some $100 billion each year in credits to Exchange enrollees, much of it going towards insurance premiums.  Will private insurers provide good value for this outlay? Their track record is not encouraging. 

Health care costs fall into two categories: medical cost outlays and administration / overhead costs. In 1993, 95% of premiums went for medical costs at Investor-owned insurers as shown below.  Over the next 14 years, this decreased to just above 80%, a shift of about 14% or one percent per year.  Meanwhile Medicare administration and overhead costs have remained fairly constant through the period.  While some may argue this is not a direct comparison, the fact that Medicare medical loss ratio stayed constant while investor-owned insurers drop significantly cannot be denied.

 Sources: PricewaterhouseCoopers’ Health Research Institute, and U.S. Center for Medicare & Medicaid Services

14% becomes urgent when you consider premium dollars as shown in the chart below. Private insurance runs over $600 billion. 14% of this is nearly $90 billion per year.  Fortunately, one-third of private insurers are non-profit.  But that leaves some $60 billion added overhead including contribution to profits since 1993.

Source: Center for Disease Control – Health, United States 2008 Figure 19

Profits did not grow to $60 billion, but they sure did grow as shown below, exceeding by a huge margin the S&P 500 and CPI for urban wage earners.  All the growth occurred since 2002.

Sources: U.S. Dept. of Labor, Bureau of Labor Statistics, Standard and Poors, and Health Insurers’ 10K’s

Not only did investors do well, but so did executives and all at the expense of people paying for health insurance. 7 insurance CEO’s drew nearly $70 million total compensation in 2008.

Still, Investor-owned insurers argue that their profits are a mere 3% of revenue.  Another and better measure is Return on Equity (ROE) which is profitability based on investment.  By this measure, health insurers are earning 17%.  From the chart below some industries do have greater returns, but 17% should be nothing to complain about.  The 10 insurers are even higher than credit card issuers.

Sources: 10K reports for top 10 Investor-owned Insurers and  CCH Almanac of Business and Industrial Financial Ratios, 2009 Edition

Now high returns to executives and investors might have some justification if private insurers were successful in containing and bringing down the major component of health care – medical costs.  Yet, year after year, medical costs outpace the CPI.  One could almost argue that insurers “administer” health care costs rather than provide a value added “management” of those costs.

Competition often has something to do with companies holding down costs.  In competitive markets, insurers need to maximize cost control efforts to maintain market share.  But is there really competition?  The graph below shows the market share of the top two insurers in each state weighted for population covered.

 Sources: AMA, Consumer Union, Sector & Sovereign analysis

Over half the U.S. population lives in states where two insurers control over 60% of the market.  That is not a good omen for competition.  For instance, insurers claim that their market share allows them to negotiate lower rates with providers.  It would not be fair to paint all insurers with the same brush. But a number of insurers have been found not to be driving down rates, but of negotiating with providers to NOT contract lower rates with their competition.  Instead of reducing costs, these illegal acts increase medical costs compared to a truly competitive environment.

Insurers and others also argue that tort reform would bring down medical costs owing to current waste of defensive medicine. There is no argument about the waste. But is it due to defensive practice or simply practice? Data suggests that the latter is more prevalent.

The graph below, derived from Dartmouth College data, groups two sets of hospitals, the 100 highest cost, and 100 lowest cost hospitals for Medicare spending per decedent during the last two years of life.  The bars represent average costs by states that have enacted tort reform setting caps on non medical damages.  For the lowest cost hospitals, tort reform shows virtually no effect on hospital costs. For the highest cost hospitals, it is mixed. But there is no clear evidence that tort reform will substantially lower costs.

Source: Dartmouth_hosp_DAP_Hosp_HRR_ST_01_05.xls

So far, private insurers’ track record suggests that left to the free market, they will not be very successful in lowering costs, either administrative or medical costs, with or without tort reform.  It may be unrealistic to even expect investor-owned insurers to succeed given that their number one priority is to their investors.

Instead of using their actuaries to data mine patterns to help providers reduce costs, their efforts are focused on denying claims and raising premiums to high claims groups.  Instead of returning surpluses to people paying premiums, they are buying back billions of dollars of their own stock to increase value to their shareholders.

Thus far the focus has been the cost of illness. Another aspect is the benefit of staying healthy. Corporations have had success in wellness programs. They not only reduce health care costs, but lower absenteeism. (http://www.uscorporatewellness.com/USCW White Paper 2009.pdf)  Some insurers offer wellness programs, but they often include a health risk assessment on employees and that runs a risk that insurers may use that data in setting rates for the company: if towards lower rates, good. If higher rates, not so good.

Fortunately, large corporations are the biggest block of insured people, and their wellness efforts can have a broad effect.  The graph below shows the U.S. population by source of health care coverage. Big business covers 45% of the population, 28% who self insure and another 17% who shift risk to insurers.

Source: CBO, EBRI, CMS, Goldman Sachs Research estimates

Groups at a disadvantage to big business include individual and small group business and the uninsured that together make up over a quarter (27%) of the population. If private insurers are unable or unwilling to lower administrative and medical costs for them, then the next best alternative is to offer a Public Option.

Without progress in both lowering administrative and medical costs, the affordability credit paid for by the government is going to cost taxpayers more than can be justified.  The question is not whether a non-profit Public Option will succeed. The question is whether private insurers can succeed after years of failing to take the needed steps to contain costs.

The stakes are huge. CBO projects that with a Public Option, the insurance picture changes dramatically as the graph below shows. Medicaid grows a bit for the poorest, but the uninsured and non employer based population can look forward to more affordable insurance.  Meanwhile the majority of the population is unaffected.

 Source: CBO, Oct 7, 2009 letter to Senator Baucus

Download PDF Report >>> CBO Estimate of Healthcare Reform