Thursday, October 29, 2009

The Health Care Bills, the Fine Print, and a Troubling List of Budget Gimmicks

Julie Appleby has an important article today at Kaiser Health News.

She has identified an important and before unreported issue in the Senate Finance health care bill.

In order to keep the cost of the plan down, the Senate Finance bill literally locks in the erosion of insurance subsidies for middle class families.

From her report:
"The first year the legislation would take effect, people getting subsidized coverage would be required to pay from 2 to 12 percent of their incomes for insurance. The government would pick up the rest of the tab. People with lower incomes would pay less and those with higher incomes more.

"But in the second year, it changes. From then on, it is based on a percentage of the premium that was paid the first year, no matter how far premiums rise.

"For years, health insurance premiums have risen faster than wages, and the trend is expected to continue."

"Let's assume in subsequent years that the family’s income kept pace with inflation and they remained at 220 percent of the federal poverty level. They would continue to pay 29 percent of the cost of the premium. But because premiums are likely to rise faster than inflation, Solomon’s analysis found, the family’s cost would soon rise above 8 percent of their income.

"Since 1999, insurance premiums have jumped 131 percent, while wages increased 38 percent, according to the Kaiser Family Foundation. (KHN is a program of the Foundation.) This year, the average premium for all family policies rose about 5 percent, to $13,375 annually, the foundation reported, while workers’ wages rose 3.1 percent."

“They did this to make subsidies a little cheaper,' says Karen Pollitz, director of the Health Policy Institute at Georgetown University. 'But it means that if you’re [a low-income policyholder] struggling in the first year, it will get harder and harder … unless we have some massive breakthrough in cost containment' and the growth of premiums slows."
This isn't the only example of the Senate Finance authors using the same gimmick to lower costs. The 40% "Cadillac" benefits tax has the baseline for calculating the tax tied to the CPI plus 1% while the cost of health insurance has historically risen three to four times inflation. The result will be that more and more people will get caught in this AMT-like tax trap as the years go on.

This from an op-ed in yesterday's Washington Post by Harold Meyerson regarding this gimmick in the "Cadillac" benefits tax:
"The Senate's tax would initially apply to all individual policies costing more than $8,000 a year, or $21,000 for a family. Those thresholds are to be indexed to the overall consumer price index (CPI) plus 1 percent. Problem is, medical costs and health insurance premiums increase a good deal more than the overall CPI. Since 2000, they have risen three to four times faster -- which means, more policies will be subject to the tax with each passing year. The congressional Joint Committee on Taxation has calculated that in 2013, when the reforms kick in, the tax will apply to 19 percent of individual plans and 14 percent of family plans, but that by 2019 it will sock 34 percent of individual plans and 31 percent of family plans."
While the word is that Senate Majority Leader Harry Reid is going to increase the baseline--to $23,000 for a family for example, the same principle would apply--the baseline for calculating the tax will almost certainly rise much slower than the cost of the insurance trapping more people into the tax every year.

These gimmicks that would take advantage of higher health insurance cost inflation when compared to general inflation or similar wage rates have the effect of making the health care bills cheaper by tens of billions of dollars keeping the cost under the $900 billion objective the President has set.

This gimmicky approach to health care reform isn't terribly different from failed Democratic attempts to peel out the $250 billion Medicare physician fee fix last week, arguing the Medicare physician fee problem is not really part of what comes under health care reform.

By trying to add that $250 billion to the deficit last week and their apparent ongoing attempts to keep this physician fee issue out of the health care bills, setting an AMT-like tax trap in the "Cadillac" benefits tax scheme, and now setting up middle class families for significant erosion in their subsidies as another budget gimmick, all to keep the ten-year price of the bill under $900 billion, Democrats are making a mockery of the President's claim when he said "we can't just keep kicking this [health care fiscal] can down the road."
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