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09.09

The House of Representatives is ready to debate their $1 trillion bill after the August recess, but the Senate Finance Committee has not revealed the details of their $900 billion version yet. Both estimates cover the first ten years for new plans. The Senate may split its bill into two parts, as bipartisan support wanes.

The White House posted eight consumer protections it wants in the final bill:

• No discrimination for pre-existing conditions — medical history cannot be used to refuse coverage

• Annual cap on out-of-pocket expenses — includes insurance deductibles and co-pays

• Preventive care fully covered, no co-pays — no cost-sharing for regular checkups and tests, mammograms, and eye and foot exams for diabetics

• Coverage cannot be reduced or canceled for the seriously ill

• No gender discrimination

• No annual or lifetime caps on coverage

• Extended coverage for young adults — eligible for family coverage through age 26

• Guaranteed insurance renewal — as long as the policyholder pays the premiums in full

Although the United States spends more per capita than any other country on health care, it ranked number 37 for outcomes among 191 countries surveyed by the World Health Organization in 2000.

Who are the Uninsured?

The Census Bureau conducted a Current Population Survey in 2008 that showed 45.7 million (15.3 percent of the population) were uninsured in 2007. By one estimate:

• 9.7 million of the uninsured are not citizens; about half of these are illegal aliens.

• 14 million of the uninsured are eligible for Medicaid or SCHIP (State Children's Health Insurance Program).

• 17.6 million of the uninsured had incomes over $50,000 and 9.1 million earned more than $75,000.

• 18.3 million of the uninsured are under the age of 34; some of these will risk no insurance since they are young and healthy.

• Some are between jobs and the health insurance that goes with them.

• 8.2 million lack long-term coverage because they are too poor to buy insurance but earn too much to qualify for government assistance.

Medicare, a Fee-for-Service Plan

Since 1965 all citizens reaching the age of 65 (and some younger disabled citizens) are enrolled in Medicare, a guaranteed-issue, government-run medical plan that reimburses about 75 percent of the cost of health care. Supplementary private insurance plans, such as the ten standardized Medigap policies, are used to help cover the balance of the cost. Medicare Part A covers costs for hospitalization and in-patient services. It is included for all recipients, at no cost for those who have worked 40 quarters (when they paid Medicare payroll tax). Part B covers physician and outpatient procedures costs; it is optional if a separate premium is paid. To control costs, Medicare pays on average 85 cents on each dollar billed for physician and hospital services, according to Karen Ignagni, CEO of America’s Health Insurance Plans. The administration costs for Medicare are very low (about 5.2 percent, compared to 8.9 percent to 16.7 percent for private sector plans), but critics charge that there are fraudulent claims that are paid by Medicare. Adding gatekeepers to reduce fraud would increase the administration costs. [+]

How About a Single Payer Plan?

Modeled on the Canadian health care system, a single-payer system— where payment for doctors, hospitals and other health care providers comes from a single source that is managed by the government — has been called for by some as the U.S. answer. But even Medicare is not a single-payer plan, paying about 75 percent of allowable charges. A supplementary private health insurance plan is used to cover most of the difference. The optional Part B premium, to cover physician and out-patient services, currently costs $96.40 per month per individual, but there is a means test instituted recently that raises the premium as high as $308.30 per month for high income individuals (above $213,000 for an individual, $426,000 for a couple). [+]

Some managed care plans endeavor to provide complete health coverage at no cost to the recipient beyond assignment of the Part B premium (plus deductibles and co-pays).

Keeping present insurance plans and coverage for the majority who are satisfied with them is a goal for new legislation. A recent poll showed that 68 percent of those with insurance are satisfied with the coverage they have now. But access to employer plans can change with a different job, so some change can be expected. Full portability for health care coverage is desirable, but that means providing an alternative to employer-based plans.

The Public Option Versus Cooperatives

The public option — another insurance plan run by the government in competition with private plans — receives weak public support. Even though it is in the House bill, it will likely be missing from the Senate version. Proponents say that a government run plan could help hold down costs in private health insurance plans that compete with it. There is fear that some employers would end their health care benefit programs, paying instead the tax penalty (2 percent to 8 percent of payroll) for not offering health benefits. That could force some folks to find different health care coverage even though they were happy with what they had. Non-profit cooperatives have been proposed as an alternative to a public option. A more sweeping proposal is the use of a government-run nationwide health-care cooperative, favored by Senator Charles Schumer (D-N.Y.).

Unfunded Mandates

There is a fear in the states of adding to unfunded federal mandates — increasing the costs for Medicaid which states must share. The Congressional Budget Office estimates that legislation would add 15 to 20 million new people to the Medicaid rolls. States typically pay a significant share of the costs for Medicaid. Senator Mike Johanns (R-Neb.), a former governor, says $130.5 billion in Medicaid costs would be shifted to states, which are already facing budget problems.

Another unfunded mandate will be requiring health coverage for unmarried children to age 26, whether or not they attended college. That will increase costs for parents’ health insurance — whether parents or their employers pay for it. It is difficult to estimate that added cost since some of the offspring will be working at jobs that provide health care coverage and will not use this provision. [+]

Cutting Reimbursement Rates Further

Reimbursement rates for medical services under Medicare could be cut by another $500 billion over ten years. Physicians already limit the number of their patients under Medicare and Medicaid because of the low reimbursement rates for those programs compared to other patients covered by private insurance. Advertising campaigns have been launched by affected groups. See, for example, www.60plus.org as well as www.aarp.org and www.healthactionnow.org.

While AARP has not yet endorsed any of the health care reform bills, it does support elimination of the “donut hole” that interrupts coverage for prescription drugs under Medicare Part D, according to David Sloane, AARP’s Government Relations Senior Vice President. The donut hole was a compromise in the original prescription drug coverage legislation to limit cost of the program. After covering the first $2700 per year in drug cost (minus a deductible), Part D skips the next $3500 before it picks up coverage again. [+]

Medicare Advantage

Medicare Advantage (called Medicare Part C) is a popular variation on Medicare that includes some wellness provisions, managed care features, and prescription drug coverage. A supplementary Medigap or other secondary policy is not needed. Nearly a quarter of Medicare recipients have signed up for it [+], but it costs the government about 14 percent more than standard fee-for-service Medicare, on average. [+] There have been allegations that the higher cost means more money is going to insurer profits rather than expanded benefits. The House bill cuts the Medicare Advantage program by $156 billion. An amendment to cut this reduction by half was defeated, 31 to 27, in the Energy and Commerce Committee.

The Government Accountability Office found that Medicare Advantage providers were being over-compensated. [+] Asked how his insurance company, a leader in Medicare Advantage, would fare with reimbursement cutbacks, Humana CEO Michael McCallister said they would look for ways to correct errors that result in readmissions --putting patients back in the hospital after treatment — and for eliminating misunderstandings by patients in the use of drug prescriptions. Humana is trying to reduce costs to 15 percent lower than traditional Medicare costs.

About 20 percent of Medicare patients discharged from a hospital are readmitted within 30 days. [+]

Health Insurance Exchanges

Section 202 of the House bill (H.R. 3200) creates a Health Insurance Exchange (exchange) and states that "all individuals are eligible to obtain coverage" through the exchange. By pooling individuals and small groups of health insurance purchasers, exchanges will be a way for individuals and small businesses to compare prices of health care plans as purchasing groups, thereby driving down costs. There are 17 to 18 million people in the individual health insurance market. Experience in California, however, where employers with relatively healthy employees bought coverage more cheaply directly from insurers outside the exchange, showed that participation would have to be mandatory to keep the worker pool large enough to make it feasible. Otherwise, the exchange would include only the residue of less healthy workers — driving up the premium costs. [+]

Coverage for Non-Citizens

Amendments in both the House Ways and Means Committee and the Energy and Commerce Committee, to clarify that undocumented immigrants (illegal aliens) were not covered, were voted down. [+] [+]

As currently written, the bill would allow illegal aliens to freely enroll in the public plan. There are 71 programs (welfare or employment eligibility) that require a verification check to qualify an applicant, but that requirement is not included in the House bill. [Ref. 17]

If illegal aliens (and their children) are not enrolled in the expanded health care system they will continue to use the services of emergency rooms without payment, adding to costs. At least two senators (Cardin and Specter) said in town hall meetings that they would not vote for any plan that included coverage for illegal aliens.

The cost of providing health care for currently uninsured illegals over the next decade is on the order of $200 billion, according to Robert Rector of the Heritage Foundation. [Ref. 17] He said such a program would act like a magnet to attract more illegals. One side effect could be medical tourism, in which low-income people came to the United States for surgical procedures.

“We’re beginning to look like Argentina in terms of the level of public debt,” he said.

Buying Policies across State Lines

Buying health insurance across state lines is touted as a means to save premium costs for those insured. This could permit people living in high-cost states (such as New York) to get their coverage from agencies in lower-cost states (such as Pennsylvania). But since state insurance commissioners control the premiums, they may not want to relinquish control over insurance sales in their states.

Healthy Habits Can Reduce Health Costs

A premium discount for the healthy has worked for some employer plans, such as Safeway Store’s Healthy Choices and Kroger’s similar incentives. [+] Safeway gives non-smokers a $132 reduction on their premiums.

The insurance industry points out that 70 percent of health-care costs are directly related to individual behaviors. Cost associated with obesity is $147 billion, a doubling in less than ten years. But the guideline to avoid discrimination among those insured will likely keep any new health-care system from including these incentives.

What drives health care costs? In the most recent Long-Term Budget Outlook, the Congressional Budget Office concluded that aging is a larger contributor to entitlement growth than excess health care costs at least to 2035, after which growth in health care spending will predominate. [+]

Employer-Sponsored Insurance

Employer-provided health insurance lacks portability and provides an employer tax break for its purchase. Job lock is a term applied to situations where employees feel that they cannot change jobs because they would lose their existing health care benefit and could not qualify for a similar benefit elsewhere. Some 70 percent of full-time workers (and 13 percent of part-time workers) have their health insurance through their employers. The “take-up rate” (percent who take advantage of the offering they have access to) in private industry is 75 percent for full-time and 56 percent for part-time workers. About 3 percent of workers are self-employed and able to deduct the full cost of their health care premiums on their income taxes. [+] In total, this tax break amounts to $300 billion per year. Collecting some of that revenue could help finance a new health plan. Making the health care benefit taxable to the employee would also increase the payroll tax that supports Social Security and Medicare. The Urban Institute has analyzed the case where a cap or dollar limit is applied to the amount of employer-sponsored health insurance premiums excluded from taxable income, and an index showing how this cap may grow over time. Capping the exclusion at the 75^th percentile of premiums and indexing by medical expenses would maintain most of the tax subsidy and increase taxes for only 14 percent of taxpayers in 2019. [+]

How to Pay For It?

Reform advocates point to savings expected from cuts through savings in the system as a way to partially fund its expansion. The Congressional Budget Office projects that the House health bill increases the federal deficit by $239 billion over the next decade. In the tenth year the deficit is $65 billion. But, with spending rising at 8 percent per year and revenues rising at only 5 percent, in the following decade the shortfall will rise to $188 billion per year by 2029. [+]

Currently, all workers pay a 1.45 percent payroll tax for Medicare, matched by their employers. This tax is not capped at a pay level, as is the Social Security (FICA) payroll tax. But that 2.9 percent tax covers only about a quarter of the program’s full cost. [Ref. 22]

The case for retaining the tax exclusion for employee-sponsored health insurance has been made before. Senators Wyden (D-Ore.) and Bennett (R-Utah) have a proposal that would eliminate the tax exclusion [see Ref. 5, Figure 1] , replacing it with a tax deduction and subsidies people could use to purchase individual insurance plans. In theory, this plan would encourage greater awareness of costs of medical care and perhaps more efficient expenditures. [+]

Individuals who elect to self-insure will pay a tax penalty of 2 percent of modified adjusted gross income, up to $750, in the House bill. Employers who elect not to cover their employees, if the payroll is over $500,000 per year, will pay a tax starting at 2 percent, rising to 8 percent for a payroll of $750,000. The expectation is that this tax will reduce wages proportionately. [+]

The premiums from the 18 million young adults who elect not to be covered now will be needed to help pay for health care coverage expansion. If premiums reflect risk, they will be low for young people, but if they must be the same for all participants, there would have to be a mandate for the young to buy the coverage; otherwise they would be included in the pool who pay an extra 2 percent income tax to be self-insured.

Savings through adoption of electronic medical records are significant, growing to an estimated $77.4 billion in the 15th year (with 90 percent adoption) — a mean savings of $41.8 billion per year. [+]

Limiting the tax-free status of very generous, so-called Cadillac health plans would be a way to control the cost of health care reforms. While the goal was to raise the cost for executives whose family plans may cost $40,000 each, the cutoff could be as low as $25,000 — about twice the cost of the average family health plan. But any threshold would have to be adjusted for health cost inflation over time, to avoid the same problem that occurred with the Alternative Minimum Tax, which lacked indexing and as a result over time applied to millions of taxpayers — not just the hundreds (who had otherwise escaped paying tax thanks to tax shelters) that it was intended to ensnare. If a plan cost $28,000 per year, perhaps $3,000 would be taxable. Self-insuring employers likely would be taxed directly; they could reduce benefits to make up for the added tax. About 18 percent of Fortune 1000 employers would cross the $25,000 line by 2011, compared to 6 percent that would be affected today. [+]

Some have suggested a Value-Added Tax (VAT) as the answer. Common in Europe, a VAT is added to costs of goods at every stage of production or service. It has the advantage of not being noticed by the consumer, as would an increase in the income tax or payroll tax.

Tort Reform

Tort reform has not been mentioned. Fear of medical malpractice suits causes physicians to practice defensive medicine — ordering tests that would not be essential if there were a cap on malpractice awards. Annual premiums for medical malpractice insurance can run into six figures. Tort reform would include a cap on awards for pain and suffering. More than half of all states in the United States have placed some kind of damage award cap or attorneys' fees limit on medical malpractice lawsuits, and most have a two-year statute of limitations on filing claims. [+] Over ten years, malpractice reform could yield a savings of $129 billion for health care, according to the Urban Institute. [+] The American Medical Association puts the added cost of defensive medicine as high as $151 billion per year. [+]

Insurance versus Social Programs

 By putting together people or property who may suffer unlikely losses, insurance companies can pool risk so that the premiums for coverage to insure against named risks are affordable. By weeding out high risks, the underwriters can lower the premiums still further. Health insurance for women carries a higher premium than for men because women are more likely to file claims for health services (disregarding incidents related to pregnancy). Lifestyle choices can also affect risks, as mentioned above for smoking and obesity. On the other hand, life insurance rates for women are often lower than for men because of the longer lifespan women enjoy. Their premiums can be invested longer before there is a claim.

It makes sense to factor out the worst risks to control costs. In social programs, such as Medicare, where risk is not a factor accounted for, the costs will be higher. If those costs are not borne by the beneficiaries, they will be passed to the taxpayers. In Medicare’s first year of operation, 1966, it cost $3 billion. That was expected to grow to $12 billion by 1990, but it actually grew to $107 billion. Its long-term imbalance of costs versus revenues was projected in 2003 at $36 trillion. [+] As with Social Security, in the future it will have fewer workers paying into the program and more beneficiaries to be served.

Guaranteed-issue means that high risks cannot be excluded, so the actuarial premium cost would rise. When the Health Insurance Portability and Accountability Act of 1996 (HIPAA) was enacted, guaranteeing that workers changing jobs could still get health insurance even if an adverse condition in their health had developed in the meantime, premiums rose by 10 percent but the operating profit margin stayed about the same. The operating profit margin for the managed care health companies in the S&P 500 was 4.3 percent for four recent quarters. For the entire S&P 500 the operating profit margin was 7.3 percent. Insurance company profits have averaged 2.9 percentage points below the S&P 500 for the past twelve years. [Ref. 22]

Recognizing the need for better health care access, the Pharmaceutical Research and Manufacturers of America (PhRMA), representing the country’s leading pharmaceutical research and biotechnology companies, has signed on to the campaign for health care reform. They have revived “Harry and Louise” to assist. Their offer to cut drug prices by $80 billion has been accepted by the White House, although liberals on Capitol Hill would like to increase the size of the offering. [+] The health insurance industry is determined to have a seat at the table for any reform.  [+]

Resources

1. State Variation and Health Reform, Kaiser Family Foundation, charts and tables http://facts.kff.org/

2. Current and updated comparisons of alternative proposals
   www.kff.org/healthreform/upload/healthreform_sbs_full.pdf

3. “Why Health Insurers Are Winning,” BusinessWeek, 17 August 2009 www.businessweek.com

4. “A Primer on the Details of Health Care Reform,” New York Times, 10 August 2009 www.nytimes.com/2009/08/10/health/policy/10facts.html?pagewanted=2&_r=1&sq=health%20care%20reform&st=cse&scp=2

5. Lewin Group, “Harmonizing the Obama, Baucus and Wyden-Bennett Health Reform Proposals,” 23 April 2009. Figure 1 compares the Baucus and Healthy Americans Act (Wyden-Bennett ) proposals. www.lewin.com

6. A Principled Approach to Health Care,” Heritage Foundation. www.heritage.org/research/healthcare/wm2448.cfm

7. Small business alternatives: “The Economic Impact of Healthcare Reform on Small Business - http://smallbusinessmajority.org/pdfs/SBM-economic_impact_061009.pdf

8. Text of the House bill, H.R. 3200 www.opencongress.org/bill/111-h3200/text

9. Official Medicare Web Site www.medicare.gov/choices/Overview.asp

10. C-SPAN site, Health Care Hub (videos on town hall meetings)
    www.c-span.org

11. White House Web site on health care reform www.whitehouse.gov/realitycheck/

12. CBO Summary: “The Long-Term Budget Outlook” www.cbo.gov/ftpdocs/102xx/doc10297/SummaryforWeb_LTBO.pdf

13. “Hidden Health Tax: Americans Pay a Premium” www.familiesusa.org/assets/pdfs/hidden-health-tax.pdf

14. Cost shifting from uninsured to insured adds about $1,000 per year to family health insurance www.newamerica.net/blog/new-health-dialogue/2009/
    news-uninsured-shift-costs-insured-families-usa-finds-12108

15. Health care provided for undocumented immigrants in House bill www.fairus.org

16. Paying for health care reform, Manhattan Institute www.rwjf.org/healthreform/product.jsp?id=46492

17. Panel on health care and immigration, 19 August 2009, video at
    www.c-spanarchives.org/library/

18. Baucus proposal for health care reform (November 2008) http://finance.senate.gov/healthreform2009/finalwhitepaper.pdf

19. “Facts on Immigration and Health Insurance,” www.cis.org/articles/2009/healthcare.pdf

20. “Public Plan Cost and Coverage Alternatives,” Lewin Group, www.lewin.com

21. State-run health plans:

    a.  MinnesotaCare www.house.leg.state.mn.us

    b.  TennCare http://en.wikipedia.org/wiki/TennCare and www.cms.hhs.gov

    c.  Mass-Care http://masscare.org/ma-single-payer-bill/

    d.  Keiki Care(Hawaii) www.coveringkids.com/news/Section_253.asp

    e.  MaineCare www.maine.gov/dhhs/OACPDS/DS/MaineCare/ and http://blog.heritage.org/2009/08/21/obamacare-the-maine-experiment/

    f.  Evaluations: www.examiner.com/x-13430-Sarpy-County-Conservative-Examiner~y2009m8d3-TennCare-MassCare-and-Keiki-Care-Failed-public-health-care-options-and-the-new-American-Dream

22. “In Search of Real Villains,” Barron’s, 24 August 2009 http://online.barrons.com/article/SB125089366701950399.html

23. “Insurers’ Employees Counter Criticism,” points out that non-profit health plans have an operating surplus in the 2 percent range. http://online.wsj.com/article/SB125107323271252625.html

 

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George F. McClure is technology policy editor and a resource member of the Career and Workforce Policy Committee for IEEE-USA.

Comments may be submitted to todaysengineer@ieee.org.

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