Readers of this blog know that I have lots of concerns for the Senate Finance health bill primarily because it does not so much represent health care reform as just an expensive entitlement expansion.
Readers also know the insurance lobby--AHIP--is not one of my favorite organizations.
But I will tell you the report by Pricewaterhouse Coopers (PwC) commissioned by the AHIP and released this morning is accurate. The Senate Finance bill would do nothing short of blowing up the insurance market.
You don't need to be Einstein or a PwC actuary to come to that conclusion. Common sense is all the credential you need.
Beginning in 2013, the Senate Finance bill would make uninsured individuals eligible for premium credits to buy a health policy. But those credits would leave these people far short of being able to really afford a health insurance policy. A family of four at 250% of poverty and making $55,000 a year ($52,000 is the median household income in the U.S.) would have to pay about $4,000 toward their premiums and that for a policy with a $1,000 deductible and a maximum of about $7,000 in out-of-pocket costs each year.
At 300% of poverty, $66,150, a family would be required to pay $8,000 in premium for a policy with a $3,000 deductible!
How many families making $55,000 a year or $66,000 a year do you know that could add this kind of expense to their annual budgets?
It is really no better for a family making 400% of poverty, or $88,200 a year. They would have to pay $10,600 a year in insurance premiums for that policy with a $3,000 deductible!
Senate Finance, knowing they could not enforce this kind of individual mandate to buy health insurance then set about to exempt many from paying a fine (if it costs more than 8% of income) or just gutting the fine if they did not buy the coverage.
In 2013, for example, there would be no fine for not having insurance. By 2014 the penalty would be $200 per adult and it would rise to $400 in 2015, $600 in 2016, and $750 by 2017.
But starting in 2013 the Senate Finance bill says that the insurance companies have to get rid of medical underwriting and pre-existing conditions provisions.
So in 2013, any consumer could simply go to the health insurance company and demand to be covered under any one of the mandated benefit plans. No medical underwriting before getting in and no pre-existing condition limitations. Just sign the application and go to the doctor.
In one sense you can understand the political logic here--the Democrats can't very well mandate middle class families to pony-up $4,000, or $8,000, or $10,000 out of their already challenged budgets. So they just found a way to exempt them or make the fine a tiny one.
But they left the insurance reforms in place.
Let me ask you a question. Why would any family buy health insurance under such a scheme?
I will suggest the answer is that they will buy it when they need it. No sooner. Even in 2017, a family with two adults would pay no more than a $1,500 annual fine against a premium that would be $4,000 to $10,000 a year in these middle class income brackets.
I'll give you another one. Why would any small employer provide health insurance?
I will suggest the answer to that one is the smart small employer will just cash-out any benefits they do provide today and tell the employee t0 pay the fine until they need it and then go to the exchange and get it (there is also no small employer mandate in the bill to provide coverage). The worker would likely be thousands of dollars ahead each year!
The problem the Democrats have here is that they are trying to get a health bill to cost under $1 trillion. That has made them back off on premium subsidies and policy benefits. They have had to back so far off that the Democratic proposals are not offering health insurance policies anything close to being affordable for middle class families.
The political response in Senate Finance has been to waive the individual mandates but keep the underwriting reforms.
The sum of it all is a health insurance market disaster in the making. In the business we refer to it as a "death spiral." Simply, the higher the premiums go the fewer that will buy, the sicker the pool, the higher the premiums go once again, even fewer people are left in the pool, and so on until all of the sick are in the pool and all of the healthy have left it.
The PwC report says that average family premiums of $12,300 today will rise to $25,900 under the Senate Finance proposals in 2019. They say premiums would be driven by these underwriting reforms, cost shifting from Medicare cuts, and new insurance taxes simply being passed through to consumers.
I don't know if the PwC report is exactly correct, but as to its conclusions regarding the gutting of the mandate to buy insurance and that insurance company taxes will be passed through to customers, common sense certainly takes one to about the same conclusion. Frankly, I thought it would be worse.
The Senate Finance Democrats could not have created a bigger insurance pool train wreck in the making than the one they have devised here.
What is really amazing is how all of these Senators sitting around that Senate Finance table have just sleep walked their way through all of this as if they don't have the common sense to figure this out on their own.
PwC Report
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10 comments:
The AHIP report makes a number of weak or misleading points. For example, it assumes that 100% of all additional taxes to insurers and medical equipment will be passed directly to the consumer, without taking into consideration any possible offset due to increased revenue from newly insured customer (in large thanks to government subsidies). It also assumes that every dollar that Medicare will save due to lower hospital charges will add one dollar to the hospital costs of non-Medicare customers. This is clearly not the case as the hospitals themselves have said that the lower Medicare payments would be offset by smaller losses for providing care to uninsured patients. This simplistic analysis along with the bad timing of the report makes many people think that this is just an industry-sponsored effort to start an open fight against the parts of the bill that AHIP does not like.
HOWEVER, the first and main point of the report (which would have been a lot more credible without the other parts) is a very valid criticism of the Baucus bill. The "death spiral" issue that Bob so clearly explained is by far the biggest risk to health insurance reform, and unfortunately there is no political will to solve this problem.
The right thinks that personal freedom on health care matters is sacrosanct and that any government mandate is wrong. The left thinks that everybody should have the right to health care and that any impediment to obtaining insurance is wrong.
These two positions are clearly at odds with each other and a bill that tries to reconcile the two (guaranteed issue with no mandate) is destined to failure and is worse than the two extremes.
If there were political courage and realism in Washington, we would push forward with one of two solutions:
1) A real mandate with serious penalties. Better yet, withhold the money from people's paychecks as is the case with Social Security, Medicare, as well as almost all health insurance programs in other countries.
2) Let people opt out in writing(this once proposed by Mitt Romney) with a clear understanding that they will have to go through medical underwriting if they want to purchase insurance in the future. Even Germany has a similar practice, where people can opt out of public insurance (and go private), but they can't go back to public insurance unless they lose all assets and fall below the poverty level. This threat is strong enough to keep most people contributing to the public system even when they are healthy.
We need to stop pretending that we can have the best of everything at no cost. Following either of the two options above is probably political suicide, but sooner or later somebody is going to have to bite the bullet and do it.
Bob, you don't like AHIP with good reason. They are playing you with the PwC report.
Look at the footnote #21 on page 14: "Impacts assume payment of tax on high-value plans, cost-shifting of cuts to public programs, and full pass-through of industry taxes."
Translated into layman's terms, that means the assumption behind the whole report is that the changes in the law that the Senate Finance Committee bill would enact won't change the behavior of ANYONE.
You know as well as any reader here that that's a completely flawed assumption around which to build an entire analysis.
That's like raising the tax on gasoline to $10 a gallon, and then assuming it won't motivate anyone to drive less, take public transportation, buy a bike, walk or set up a way to smuggle gasoline in from Canada. That instead, we will all keep paying $12.50 a gallon until we are all bankrupt.
And yet you say the PwC report "is accurate"?!?!?
This report was bought-and-paid-for by AHIP, and as the old saying goes, he who pays the piper names the tune.
In other words: you've been had.
You may now go back to hating AHIP.
Gasman:
Now read my post and tell me how families and small businesses would behave any differently than I have suggested and how the impact on the insurance pool would be differently than I suggested.
Bob, I would argue that the bill needs some serious cost-containment, something PwC never even discusses, but you make a great case for.
I have made the point over and over to anyone who will listen that the lynch-pin to the whole healthcare reform package is Sen. Rockefeller's S. 1110, the MedPAC Reform Act of 2009. It takes the detail work of reimbursement-, rate- and benefit-setting away from Congress, puts it in the executive branch, insulated from lobbying pressures.
Everything else is just shell games, smoke-and-mirrors and political CYA maneuvering.
I've compared S. 1110 to charisma: if you've got it, you don't need anything else. If you haven't got it, nothing else can make up for it.
Although it would be nice to have capitated or bundled reimbursement structures, guaranteed-issue and community rating, too. But now we're really getting in the weeds.
Gas:
Look for my post tomorrow morning where I point out the CBO report re the Baucus bill presumes $10 billion in Cadillac tax revenue in 2013 and $46 billion in just 2019.
If PwC is wrong about not factoring in the necessary "changes in behavior" over the years somebody needs to give Baucus a call and tell him he will have to raise someone else's taxes!
Time for a reality check on all those who have posted. Please examine the Massachusetts experience. People pay a weak excise tax if they don't buy coverage. One of the major insurers did a study (due to a rumor that they heard). About half of all new policies are canceled within 5 months. The loss ratio on those policies is 6x normal. Some people have figured out that you only buy insurance when you need it. There are no pre-ex and you can't be turned down. Will everyone do this? No. Will a lot of people do this? You bet. Will it drive up the costs of insurance? (There is only one door on this choice). Bob is essentially right on this one.
Meta tauta,
Is the report you mention public? Do you have a link to it?
I live in Massachusetts, and I'm interested in any quantitative data that has been collected on this topic.
Yes. Go to the Harvard Pilgrim site and its blog 'Let's Talk Health Care'. 6/22/09 is the date of the posting. In the longer term, my projection is that this problem gets worse and not better without a change in the rules. People are smart --- they will figure this out.
Robert, have you actually looked at what Gasman regards as the health-care policy equivalent of charisma? It would be a re-jiggering of a Medicare payments-setting commission. Why anyone thinks that putting it into the executive branch would insulate it from lobbying pressures is a mystery. And even if that were the case, what about the non-Medicare population?
The whole commission idea is torpedoed as a sensible construct, anyway, by a bit of wisdom served up best by Thomas Sowell:
"Many economic issues are complex, but sometimes a single fact will tell you all you need to know. When you know that central planners in the Soviet Union had to set 24 million prices -- and keep adjusting them, relative to one another, as conditions changed -- you realize that central planning did not just happen to fail. It had no chance of succeeding from the outset. It is a wholly different ball game when hundreds of millions of people individually keep track of the relatively few prices they need to know for their own decision making in a market economy."
Sowell was talking about the Soviets' command economy, but it's clear that the health-care portion of our economy is about the same size as the Soviet economy at its apex, so what Sowell wrote is relevant here, too.
One to often ignored provision of the health plan out of the Senate Finance Committee is the actuarial value mandate of "Qualified Health Plans". This alone, I feel, would do more to drive up coverage cost than any other. It did in Massachusetts!
I worry most that all the discussion centers on insurance rather than care. I also think the debate focuses too much on prepaid health care instead of health insurance. The American people deserve real reform not more federal mandates.
Congress should create a bill to repeal the McCarran-Ferguson Act of 1945 and replace it with federal regulation that culls the best from California and New York rules to enable health care offerings across state lines. There would certainly be a ready pool of regulators available from redundant state agencies. This regulation should require guarantors (insurance companies) to identify their subscribers and their subscribers' annual cost to the IRS so that tax credits could be automatic.
In a separate bill federal legislation should create a health care exchange, Massachusetts or Vermont style. Such an exchange should allow guarantors to offer plans having no federal mandates beyond guaranteed coverage the insurance industry already agreed. There should be no mandates on premiums, deductible amounts, co-pay amounts, coverage limits, types of coverage, covered services, ... Instead, Health and Human Services would evaluate each plan offered listing in summary all benefits and all costs with an easy 800 number for those who struggle to comprehend. Insurance regulators would also compare plans offering their HHS "Regulator's Choice" awards to the best offerings. I believe the insurance industry would eagerly compete as they do for Medicare part ‘C’ and part ‘D’.
In another bill Congress should eliminate the income tax deduction for business sponsored health plans. The bill should introduce a new FICA payroll tax program levying 4% of income up to $2000 total tax that could be payable to any recognized health care plan chosen by the individual. Additionally, Congress should offer a refundable tax credit (over and above the new FICA levy) for expenses paid to any recognized health care plan. And, most of all, Congress should expand health savings accounts to everyone administered by any qualified retirement account administrator.
I think those bills would bring competition back into the health care marketplace lowering costs across the nation. It seems evidently true for Medicare part 'C' and part 'D'. Congress could take a year or more to examine the structure of subsidies enabling those in the second and third quintile of income purchase a health plan within their budget. The first quintile of income is covered by Medicaid. The fourth and fifth quintile of income represents professionals of which I am one.
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