Daily Clips
PID Daily Clips ~ Health Reform ~ June 15, 2010
Headlines:
1. Pennsylvania Activists Defend Obamacare (Health Care News)
2. PIAA: Newly Announced HHS Medical Liability Grants Don't Address Tort
3. Rules lay out exemptions to health care reform law (Business Insurance
4. New health-care rules could add costs, and benefits, to some insurance plans
5. U.S. warns firms on health care costs (philly.com)
6. Casey: The Medicare 'doughnut hole' check's in the mail (Scranton Times
7. Seeing Threat to Individual Policies, State Officials Urge a Gradual Route to
8. 5 painful health-care lessons from Massachusetts (cnnmoney.com)
Publication date: 06/15/2010
Pennsylvania Activists Defend Obamacare (Health Care News)
Publisher: The Heartland Institute
As Pennsylvanians prepared to adapt to President Obama’s massive new health care regime, supporters of the new law at a Pennsylvania Health Access Network conference held in Harrisburg emphasized the benefits they believe the program will provide, accused opponents of distorting the plan’s likely effects, and urged consumers to apply for new taxpayer-funded subsidies.
The comments were made in response to audience questions about how small businesses will have to respond to the new federal regulatory structure.
Accusations of Misinformation
Valerie Arkoosh, president of the National Physicians Alliance, a supporter of the legislation, detailed the new plan, its tax structure, and how it will affect physicians and patients. She accused opponents of the measure of distorting its ramifications, described the regulatory system as more “standardized,” and claimed the law would result in federal deficit savings.
“There’s just a lot of misinformation out there,” Arkoosh said at the April conference. “For people who don’t have a lot of knowledge about how health policy works, it can certainly feel a little overwhelming. I think many people have questions and concerns.”
A recent Rasmussen Reports poll showed 57 percent of Americans oppose the controversial plan, and 63 percent believe it will increase, not decrease, the deficit. A
Quinnipiac University poll of Pennsylvania residents found 52 percent opposed the
Obama health care plan, with only 37 percent in support.
Urged to Apply for Subsidies
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Katherine Howitt, a representative of activist group Community Catalyst, emphasized the importance of applying for taxpayer funded subsidies in order to maximize the state’s share of federal tax money.
“When you aggregate all those Pennsylvanians getting all those subsidies, Pennsylvania will see $14.6 billion coming in, in the first five years of the Exchange, in premium and costsharing subsidies,” Howitt said. “And that’s all going to be paid for by the federal government.”
Small Business Fines, Credits
According to Howitt, small businesses which cannot afford to purchase health insurance for their employees will be able to apply for tax credits.
“It’s a complicated formula,” said Howitt. “You’re not required to provide coverage to your employees, but if you don’t provide coverage to your employees and one of your employees goes on to access these subsidies, then you owe a fine.”
At most, the tax credit would offset 35 percent of health insurance costs. Howitt said there is also a penalty if the employer offers coverage but it costs more than 9.5 percent of the employees’ income.
Cost Still an Issue
The conference included workshops on health care quality controls and organizing for further reform, but presenters spent little time dealing with the costs of the new entitlements and subsidies to Pennsylvania consumers. According to Shelley Bain, a spokesperson for the Pennsylvania Department of Insurance, the Commonwealth is facing a limited amount of resources for all these new programs, and an increasing number of applicants.
“This plan is not going to cover every uninsured individual in Pennsylvania,” said Bain.
“We all know that.”
PIAA: Newly Announced HHS Medical Liability Grants Don't Address Tort Reform
(Best Wire)
WASHINGTON June 14 (BestWire) — The U.S. Department of Health and Human
Services said it's giving $23 million for patient safety and medical liability reform pilot programs. But according to the Physicians Insurers Association of America, none of the list of program awards makes significant moves toward actual tort reform.
Though the Obama administration is touting the program as a measure primarily aimed at improvements to health care quality, it is also meant as a response to those who have clamored for reforms to medical professional liability laws. The grants "support the creation of a judge-directed negotiation program, the development of 'safe harbors' for state-endorsed evidence-based care guidelines, and early disclosure and offers of prompt compensation," according to the announcement from HHS.
"We are disappointed that the demonstration projects aren't more oriented at looking at efficiencies in the tort system," said Lawrence Smarr, president of the PIAA, pointing out
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none of the 20 grants is fully focused on finding new ways to handle medical liability lawsuits. Smarr explained that patient safety improvements would certainly be welcome.
"We can be happy about that part of what's happening," he said. "We wish they'd also address reforming the legal system at the same time."
Two of the highest dollar recipients in the newly announced grants, taking in almost $3 million each for demonstration projects, are a Massachusetts State Department of Public
Health project "to ensure more timely resolution of medical errors that occur in outpatient practices and improve communication in all aspects of care" and a New York State
Unified Court System experiment to expand its judge-directed negotiation program along with "a new hospital early disclosure and settlement model."
That New York effort, according to Smarr, is the only grant recipient that may pursue legal-system changes, but it's unclear just what their extent might be. The new health reform laws established a future round of grants at twice the level of this one — $50 million — but Smarr said this first round "does not set a good precedent." Also, he said the health reform's grant program would establish demonstrations that the participants can opt out of at any time. The fact that such a program wouldn't be mandatory "makes that tort reform demonstration project worthless," Smarr said.
Several planning grants have also been awarded for smaller amounts, including one to the Office for Oregon Health Policy and Research to "develop and implement a method for setting priorities for developing evidence-based practice guidelines" and to "craft a broadly supported safe-harbor legislative proposal that will define the legal standard of care."
Posted On: Jun. 14, 2010 1:15 PM CENTRAL
Rules lay out exemptions to health care reform law (Business Insurance
Magazine)
Jerry Geisel
WASHINGTON —Final interim rules issued Monday detail situations in which group health care plans will be exempt, or grandfathered, from complying with certain requirements of the new health care reform law.
While the law bans certain plan features, such as exclusions for pre-existing medical conditions and lifetime dollar limits for all health care plans, other requirements such as full coverage of preventive services do not apply to grandfathered plans.
In addition, the requirement that employers extend coverage to employees’ adult children up to age 26 does not apply to grandfathered plans until Jan. 1, 2014, in situations where the adult child is eligible for coverage from his or her own employer.
The rules released Monday by the Internal Revenue Service, Department of Labor and the Department of Health and Human Services lay out changes that current plans can make and still keep their grandfathered status.
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For example, a grandfathered plan would lose its status if it eliminated coverage of a specific condition, even if the condition affects few individuals. The interim final rules cite cystic fibrosis as an example.
In addition, plans cannot boost coinsurance requirements and retain their grandfathered status.
However, grandfathered plans can boost deductibles and out-of-pocket limits, but only up to a certain percentage. The maximum percentage is defined as the increase in medical care component of the Consumer Price Index since March 23, plus 15 percentage points.
Take the case of a medical plan with a $1,000 family deductible. If medical care inflation rose by 5% from March 23 through the end of the year, the employer could raise the deductible by $200 for 2011 and the plan could retain its grandfathered status for 2011.
In the case of copayments, a plan could retain its grandfathered status if it increased copayments up to $5 or a percentage equal to medical inflation plus 15 percentage points, whichever is greater.
In addition, employers cannot decrease the percentage of the premium they paid as of
March 23 by more than five percentage points and retain their exempt status.
Except for plans set by collective bargaining agreements, switching from one insurer to another would result in a plan losing its grandfathered status, though changing plan administrators would not.
The rules also state that retiree-only health care plans are automatically exempt from health care reform requirements.
In addition, the three federal agencies are asking for public comment on whether a plan should lose grandfathered status if the sponsor moves from purchasing coverage to selfinsuring health risks.
Tuesday, June 15, 2010; A05
New health-care rules could add costs, and benefits, to some insurance plans
(Washington Post)
By David S. Hilzenrath and N.C. Aizenman
Washington Post Staff Writer
If you like your health plan, you can keep it. That's what President Obama promised during the long months of debate over health-care reform.
On Monday, the administration issued new rules to fulfill that promise. But your plan might not be quite the same -- it could offer more benefits, and it could cost more.
The administration estimates that many plans will end up changing, prompting
Republicans to accuse the president of breaking his word.
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The tempest involves an issue known as "grandfathering." Consistent with Obama's promise, the legislation said health plans in existence when the law was enacted are exempt from some of its requirements. But the law left it to the administration to decide how much a health plan can change without forfeiting that exemption.
The rules issued Monday begin to answer the question.
For instance, health plans would lose their protected status if they significantly raise deductibles or other out-of-pocket charges patients pay when they seek medical care.
Some plans require members to pay a percentage -- 20 percent, for example -- of the hospital or doctor bill. If plans want to remain grandfathered, they can't raise the percentages.
For increases in deductibles, the trigger is medical inflation plus 15 percentage points.
Employers would lose grandfathered status if they switch insurance companies -- unless the plan is covered by a union contract or the employer pays claims out of its own funds and uses the insurer only to administer the plan.
It isn't clear how much the restrictions on co-payments and deductibles will save consumers, because health plans can still raise premiums. The rules issued Monday say plans would relinquish grandfathered status if they reduce the percentage of the premium they pay by more than five percentage points. The broader health-care law includes checks on unreasonable increases, which have not been defined.
The administration estimated that by 2013, health plans covering as few as 39 percent and as many as 69 percent of employees could lose protected status. For small employers, the total could be as high as 80 percent; for large ones, it could reach 64 percent.
Those plans would then have to offer benefits required of new plans, such as fully covering certain preventive services and guaranteeing access to OB-GYNs. Beginning in
2014, non-grandfathered plans covering individuals and small groups would also have to offer at least a minimum benefits package as defined by the government.
To the extent that plans losing grandfathered status do not already offer those benefits, their costs could increase.
"This is not only bad news for the vast majority of Americans who like the plans they have. It also flatly contradicts the president's repeated promises," Senate Minority
Leader Mitch McConnell (R-Ky.) said on the Senate floor.
Health and Human Services Secretary Kathleen Sebelius said in an interview that
Obama "wanted to make sure as much as possible that if people had plans that they liked they got to keep them and balance that with, you know, some overall protection for consumers."
Obama's frequently repeated promise about keeping your coverage if you like it was problematic. Health plans routinely make changes. If the overhaul works as intended, many small businesses would send workers to new marketplaces called exchanges,
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where they could find more and better options. Over time, the exchanges could be opened to large employers, too.
The promise helped reassure a public nervous about change, but it also gave Obama's critics political ammunition.
Losing grandfathered status could be a bigger deal for small businesses than for large businesses because small employers' health plans could have more ground to make up to come into compliance.
Industry representatives said it was too soon to tell how much.
"The reality is, we're going to have to take a closer look at these rules," said Kathryn
Wilber, senior counsel for health policy at the American Benefits Council, whose member companies sponsor or administer health plans. "They're a little more complicated than we would have liked, and it's really a plan-by-plan specific decision."
Judging the stakes is also complicated by the fact that rules implementing other aspects of the health-care overhaul have yet to be hammered out by regulators.
"For example, the law gives very little insight on what types of internal and external claims procedures a [non-grandfathered] plan would have to have in place," said Kelly
Traw, a lawyer with Mercer, a human resources consulting firm. "It also does not spell out which preventive services a plan might offer."
Posted on Tue, Jun. 15, 2010
U.S. warns firms on health care costs (philly.com)
By Ricardo Alonso-Zaldivar
Associated Press
WASHINGTON - The Obama administration had a message Monday for employers who want to keep federal bureaucrats from rewriting the rules for their company medical plans: Don't jack up costs for workers, and you won't have to worry about interference from the new health care law.
"What we don't want is a massive shift of costs to employees," said Health and Human
Services Secretary Kathleen Sebelius.
She announced a new regulation that spells out how health plans that predate the health overhaul law can avoid its full effect. Meant to deliver on President Obama's promise that people who like their current health coverage can keep it, the rule sets limits likely to become increasingly important as medical costs keep rising.
Plan changes that would cause a health plan to lose its "grandfathered" status and trigger new federal requirements include:
Dropping coverage for a particular health problem, for example, diabetes.
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Increasing the proportion of insurance paid by workers, for example from 20 percent of the hospital bill to 25 percent.
Cutting back the share of premiums that the company pays by more than 5 percent.
Significantly increasing annual deductibles or co-payments paid by workers - for example, an employer raising a $1,000 deductible by $500 over the next two years.
Consumer advocates said the regulation gives employers the flexibility to make needed changes, while protecting workers.
"If a plan changes in some significant way, or if it increases cost-sharing amounts, then that results in a very different plan - and it should not be grandfathered in," said Ron
Pollack, executive director of Families USA, an advocacy group that supports the overhaul law.
Employers were wary.
"It's a big unknown," said Steve Wojcik, vice president of the National Business Group on Health, which represents human resources managers at major companies. "It definitely sets boundaries where plans have been used to considering all kinds of changes to both improve quality and control costs."
Published: June 15, 2010
Casey: The Medicare 'doughnut hole' check's in the mail (Scranton Times Tribune)
BY BORYS KRAWCZENIUK (STAFF WRITER)
With Democrats eager to improve public perception of health care reform ahead of
November's election, U.S. Sen. Bob Casey touted Monday the reform law's $250 check for prescription drugs that could reach more than 188,000 Pennsylvania senior citizens.
In a telephone conference call with reporters, Mr. Casey said the $250 would help close the so-called "doughnut hole" in Medicare prescription drug coverage this year before discounts and additional subsidies begin narrowing the gap in future years.
Mr. Casey denied the timing of the checks, whose time frame is required by the reform law, had a political purpose. Democrats have said for months fears of the reform law will ebb as the public learns of its provisions. President Barack Obama kicked off the publicity campaign for the $250 checks on Thursday via a satellite feed to senior citizens centers nationwide, including one in Honesdale.
Mr. Casey said criticism of a few provisions had dominated media coverage to date.
"I believe it's very important that we do a much better job telling people about what's in this bill," Mr. Casey said. "And as every health care provision goes into effect, we should spend a lot of time talking about it."
Nationwide, most senior citizens who received prescription drug coverage through a health insurance plan that participates in Medicare's Part D coverage pay an average
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monthly premium of $31.92 and a deductible of about $310, according to the medical website WebMD.
In most plans, Medicare pays most of the drug costs until the cost adds up to $2,830 in any year. After that, a senior citizen pays all of the next $3,610 in costs, which is the doughnut hole.
"That gap has been a tremendous burden for families," Mr. Casey said.
After the $3,610, Medicare and insurers pay 95 percent of costs with senior citizens paying the other 5 percent, according to the Kaiser Family Foundation.
Under the health care reform law, the doughnut hole will narrow. By 2020, Medicare recipients would pay only 25 percent of the doughnut hole costs rather than 100 percent, according to the foundation.
In 2011, Medicare recipients who reach the gap will get a 50 percent discount on namebrand prescription drugs.
Caya Lewis, chief of staff for the Centers for Medicare and Medicaid Services, said the first checks, about 80,000, went out Thursday and Medicare expects to mail about 4 million nationwide by the end of the year. That totals $1 billion.
Last year, 188,749 Pennsylvanians hit the doughnut hole, said Estella Hyde, president of the state AARP.
Ms. Lewis warned of scam artists who try to get seniors to pay them to obtain the checks.
Seniors should ignore such come-ons, and report them to Medicare or law enforcement, she said.
Ms. Lewis said Medicare automatically learns when people reach the doughnut hole, and that automatically generates the $250 payments.
"They need to do nothing to receive this check," she said.
Published: June 14, 2010
Seeing Threat to Individual Policies, State Officials Urge a Gradual Route to
Change (New York Times)
By ROBERT PEAR
WASHINGTON — State insurance officials say they fear that health insurance companies will cancel policies and leave the individual insurance market in some states because of a provision of the new health care law that requires insurers to spend more of each premium dollar for the benefit of consumers.
The National Association of Insurance Commissioners, representing state officials, says the federal government should take steps to prevent disruption of the market.
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Specifically, the group is drafting a recommendation that urges the federal government to allow a gradual three-year transition in states where the new requirement, which takes effect Jan. 1, could destabilize the market.
Without a transition, insurers “may cancel individual policies, if the terms of the policies permit cancellation, and cease offering these plans,” says a document prepared by the association. “This potential withdrawal could have a severe impact on the currently insured, who would lose their policies, and could also limit the choices available to prospec tive purchasers.”
The law will require many insurers to spend a larger share of their premium revenue — at least 80 percent — on medical care (and quality-improvement activities), rather than administration, expenses and profits. Insurers must refund money to consumers if they do not meet the standards, known as medical-loss ratios.
Democrats in Congress championed the minimum-loss ratio as a powerful protection for consumers — a way to guarantee that policyholders “receive value for their premium payme nts,” in the words of the law.
In its draft policy statement, the association says federal officials should lower the threshold “on a state-by-state basis” if immediate enforcement of the 80 percent requirement would destabilize the individual insurance market.
The association does not name states that might need a dispensation. Presumably, they include less-populous states with relatively few insurers. But California officials said they, too, were extremely worried.
Under the law, the association has a special role advising the secretary of health and human services, Kathleen Sebelius, on how to define and calculate medical-loss ratios.
Ms. Sebelius served as president of the association in 2001, when she was insurance commissioner of Kansas and an outspoken advocate for consumers.
State officials said they expected to submit their recommendations to Ms. Sebelius next month. If an insurer decides to exit the individual market in a state, it must give 180 days’ notice to policyholders.
In effect, state officials are urging the Obama administration to exercise discretion it was granted by Congress. The new law says the health secretary can adjust the medical-loss ratio in a state if she finds that enforcement of the full 80 percent requirement would
“destabilize the individual market” there.
Without a transition period, the association said, some insurers “may cancel their blocks of individual health insurance policies, resulting in possibly several million enrollees who have to shop and apply for co verage elsewhere.”
Moreover, it said, in states where underwriters are still allowed to consider a person’s health status, “many enrollees may not be accepted due to medical conditions, or would have to pay higher premiums.”
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Under the law, insurers will have to accept all applicants and cannot charge higher premiums because of a person’s medical condition, but in general these provisions do not take effect until 2014.
Consumer advocates said that any exceptions from the new requirement should be limited.
“The National Association of Insurance Commissioners finds itself in a difficult position, facing essentially a threat from the industry,” said Prof. Timothy S. Jost, an expert on health law at Washington and Lee University.
“A mass exit of insurers from the individual market would, of course, not be in the interest of consumers,” said Mr. Jost, one of several consumer representatives advising the association. “On the other hand, the 80 percent loss ratio should be attainable by a wellrun insurer.”
Millions of people get insurance from companies that do not meet the target. Using annual statements filed by insurers, the association has compiled a database of more than eight million people who have individual coverage from more than 400 insurers.
Nearly half of these policyholders had coverage from about 70 insurers whose loss ratios were less than 75 percent in 2009.
Julia T. Philips, a health actuary who works for the Minnesota insurance commissioner, gave this example of how the recommendation might work in a state with four insurers, where state law now sets a minimum loss ratio of 55 percent and actual ratios are 55 percent to 70 percent.
The minimum, Ms. Philips said, could be increased gradually, so insurers would have to spend 65 percent of premiums on medical services next year, 70 percent in 2012 and 75 percent in 2013, then 80 percent in 2014.
June 15, 2010: 4:11 AM ET
5 painful health-care lessons from Massachusetts (cnnmoney.com) by Shawn Tully, senior editor at large
FORTUNE -- The best guide to how President Obama's historic health-care legislation will reshape the nation's medical marketplace and fiscal future is the pioneering model in
Massachusetts. The Bay State's reform program started in late 2006, and it shares virtually all the major features of the new federal plan.
Both programs greatly expand Medicaid coverage for low-earners, and provide heavily subsidized policies for a broad swath of the middle class. They tightly restrict the range of premiums for customers of different ages and medical conditions; they bar insurers from charging older patients, or even coach potatoes who abuse their health, anywhere near their actual cost. Both plans impose a long list of expensive benefits insurers must provide whether patients want to pay for them or not, ranging in Massachusetts from invitro fertilization to chiropractic services.
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At the same time the plans offer lavish subsidies that swell the demand for health care, they do nothing to increase the supply of medical services in a market suffering from shortages of everything from family doctors to nurses to hospital beds. Two years after enacting health-care reform to rein in costs, Massachusetts strengthened "certificate of need laws" that prevent hospitals and other providers from competing with high-cost, entrenched suppliers. The state now requires that ambulatory surgical centers and outpatient treatment facilities get permission from regulators before they can enter the market. Their rivals invariably lobby the regulators to block competition, and usually win.
Thirty-six states, from Florida to Georgia to Washington, have similar price-inflating laws on the books. The Obama bill does nothing to eliminate regulations that effectively cartelize the market.
The combination of heavily subsidized demand and tight, over-regulated supply is a textbook formula for perpetuating the big, chronic price increases that bedevil today's health-care system.
Instead of attacking the real causes of the explosion in costs -- the combination of overly generous state aid and a dearth of competition among hospitals and physician groups --
Massachusetts is vilifying prestigious, non-profit insurers, and punishing them, believe it nor not, with price controls. In April, Governor Deval Patrick refused the request of carriers such as Harvard Pilgrim, the top-rated plan in the country, for premium increases of 8% to 32%. Instead, his administration is refusing all rate hikes over 7.7%; any rate requests the administration rejects are automatically held at 2009 levels.
In explosive emails released last week, Robert Dynan, chief of the financial analysis unit at the Division of Insurance, told Commissioner Joseph Murphy that the price caps would cause a "potential train wreck" and threatened "catastrophic consequences for the non-profit industry." Dynan warned that the non-profits, unlike national giants such as
WellPoint (WLP, Fortune 500), operate on such slim margins that the controls could drive them into bankruptcy. Even now, four of the biggest insurers are threatening to stop taking new patients at rates so low they lose money on each new enrollee.
The battle in Massachusetts may foreshadow the results of the new federal law. It threatens to mirror precisely the cycle we're witnessing in the Bay State: Spiraling costs that make coverage unaffordable for both patients and businesses, followed by price controls that drive private providers from the market. "This could repeat itself on the national level, and become the beginning of government-run healthcare," says Lora
Pellegrini, chief of the Massachusetts Association of Health Plans.
That disaster scenario may sound far-fetched. But an examination of the Massachusetts plan yields five important lessons that show the dangers ahead for the Obama healthcare blueprint.
Lesson 1: The Massachusetts plan does not control costs.
When Massachusetts launched its reform program in 2006, it already had the highest medical costs in the nation. Today, the burden is still rising far faster than wages or inflation, from those already lofty levels. A report from that state attorney general in
March--remember, this is a Democratic administration--asked rhetorically "Can we expect the existing health care market in Massachusetts to successfully contain healthcare costs?" The report concluded, "To date, the answer is an unequivocal 'no.'"
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Costs are rising relentlessly for both families and for the state government. The median monthly premium for family plans jumped 10% from 2007 to 2009 to $14,300--again, that's a substantial rise on top of an already enormous number. For small businesses, the increase was 12%. In 2006, the state spent around $1 billion on Medicaid, subsidies for medium-to-lower earners, and other health-care programs. Today, the figure is $1.75 billion. The federal government absorbed half of the increase.
Hence, reform's proponents boast that expenses have risen only $354 million or around
6% a year. But the real increase is double that, including the federal share. And it's highly possible that the given the current budget pressures, the U.S. will reduce the contribution that has encouraged the state to spend so lavishly.
Lesson 2: Community rating, guaranteed issue and mandated benefits swell costs.
How did costs in Massachusetts get so big to begin with? A major reason is the adoption of guaranteed issue and community rating in the mid-1990s. The new federal bill would expand those rules to the entire nation. Under guaranteed issue, insurers must accept all enrollees regardless of their medical condition; under community rating, they must charge all customers similar premiums, even if their costs are far different. The result is that prices rise steeply for young, healthy customers, who must pay far more than their actual costs. It also give them a strong incentive to drop insurance; then, they can "game the system" by signing up anytime they need surgery or get diabetes.
Hence, the pool of insured people gets older and sicker as the healthy drop out. That's what happened in Massachusetts, and it contributed to soaring premiums. The 2006 reform plan was supposed to solve the problem by requiring that everyone buy coverage or pay a fine of around $1,000. It worked, but only in part: Of the 600,000 uninsured in
2005, around 450,000 are now covered. But a large share of 150,000 who still lack coverage are young residents who choose to pay the fine instead of high premiums.
Insurers are also getting socked by people who sign up for insurance to get expensive care mandated under state law, including hospitalization for childbirth or hip replacements, and then depart once the procedure is completed.
In the federal bill, the fines for going uninsured are even lower than in Massachusetts -- and anyone who can't find an inexpensive plan is exempted from all penalties. Hence, the "adverse selection" problem could prove far worse.
Lesson 3: Huge subsidies for low-to-medium earners could prove extremely expensive.
One of the most fascinating features of the Massachusetts plan is that it introduced a system of subsidized policies, sold through an insurance "exchange," that's extremely similar to the one in the new federal plan. Under Commonwealth Care, the state subsidizes plans¬¬--offered by private carriers--for residents who earn up to $66,150 who are not covered by employers. The aid is extremely generous. At $44,000, families pay around $1,000 a year in premiums. At the $66,150 maximum, they contribute around $3,000.
The problem is that the actual annual cost of these plans is around $10,000, so the subsides are enormous -- that's 90% for families earning $44,000. And while the costs keep going up, the share paid by the enrollee barely budges. Says Michael Tanner, an economist at the conservative Cato Institute: "It's a situation where the entire escalation in costs is paid by the government, not the people receiving the care."
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The federal plan also subsidizes care provided through state-run exchanges. The patients' contributions are bigger than in the Mass plan: A family earning $66,000 would pay $6,300 a year. But the federal plan offers subsidies far higher along the income scale, aiding families of four making up to $88,200. And surprisingly, the federal plans would probably prove a lot more costly than the ones in Massachusetts, where the state prides itself on restraining what they pay by squeezing providers, who then shift the added costs to private customers.
The big problem arises if far more people sign up for these exchange-offered plans than anticipated. That's been the case in Massachusetts. And as we'll see in a moment, it could still get a lot worse there. A potential disaster threatens the federal plan if employers staring dropping coverage, since a flood of newcomers would rush into the state-funded pools.
Lesson 4: The exchanges reward people for working less and earning less.
Data is lacking on how damaging these perverse incentives are in practice. But it's clear in Massachusetts that low-to-medium earning families often suffer financially if they get a raise, work overtime, move to a higher paying job -- or if a spouse rejoins the workforce.
For example, a family earning $33,000 pays no premium at all under Commonwealth
Care. But if their pay goes to $46,000, they're obligated to contribute about $2,400.
That's an effective tax rate of 18.5% on that $13,000 raise. A pay increase of $44,000 to
$46,000 is mostly erased by higher premiums alone.
The federal bill is plagued by the same weakness. For example, a $55,000 earner contributes $4,400 a year towards insurance. At $65,000, the bill is $6300; so the family is paying a "tax" of $1,900 or 19% on that $10,000 raise. After payroll taxes, those
Americans would face a marginal rate of around 35%, a number that's heretofore been the territory strictly for high-earners.
Lesson 5: The generous plans and added mandates give employers an incentive to drop health insurance.
In charting the future of healthcare costs, the biggest danger by far is that companies will drop their coverage. It's also the one that's the most difficult to handicap, both for
Massachusetts and the entire nation. The problem is simple: If employers stop paying for health care, employees will flood into the government-subsidized programs, enormously raising the cost to already fragile budgets.
Surprisingly, health reform in Massachusetts has actually increased the number of workers covered by employers. Over 100,000 more employees are covered by corporate plans today than when the program debuted in 2006. The main reason is that the plan imposed a $1,000 fine on employees who refused their employers' plans. Then, families were paying around $3,600 a year towards their company policies. Many decided that, when faced with a fine, the better choice was paying the extra $2,600 for full coverage.
The plan was shrewdly calibrated by the administration of then-governor Mitt Romney to tilt the market towards company-provided care.
The Massachusetts plan also bans any employee from getting coverage from
Commonwealth Care if his or her company offers coverage. Hence, it would appear that corporate coverage is solidly entrenched. But that's by no means certain, either in
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Massachusetts or under the Obama plan. The reason is the fast escalation in costs, for both companies and employees. From 2007 to 2009, the employee contribution for family policies rose a steep 17%, or $624 a year, to $4,200.
Employees can only move into Commonwealth Care if their employers drop their plans.
The danger is that the incentives are tilting in that direction as the costs of coverage for employer, and the price of premiums to employees, keep climbing. The point is rapidly approaching where both will pocket big savings if employers drop their plans and workers buy their policies through the heavily subsidized exchanges.
In Massachusetts, the state government is pushing towards that tilt point by adding heavy mandates to a list of more than 40 already on the books. In 2009, it required insurers to cover prescription drugs. An expensive autism mandate is now being debated in the state legislature. The list of mandates under the federal plan is bound to mirror the ones in Massachusetts, and once again, the added expense severely weakens companies' incentive for providing coverage.
Cracks are already starting to appear. Part-time workers can get coverage under
Commonwealth Care for a fraction of what they'd pay as full-timers. So they "game the system" by working ten or fifteen hours a week for two or three companies. Or they find that it pays to switch from full to part-time work. PHI, an organization that represents home healthcare workers, states that one-fourth of the home care agencies in
Massachusetts are reducing workers' hours so they're eligible for state-subsidized care.
The federal plan will encounter the same problem -- perhaps a more acute one since its penalties are lower and its subsidies go much higher on the income scale.
Starting in 2017, the states will have the option of allowing companies that drop their plans to shift workers into the subsidized, state-run exchanges. That choice doesn't exist now in Massachusetts. It's not that employers are likely to dump their plans en masse.
What's far more probable is a progressive erosion that relentlessly and systematically raises government spending.
The incentives are there, both in the federal plan, and its prototype in the Bay State. And when the incentives are that big -- and when subsidies inevitably get bigger, not smaller
-- no amount of regulatory tinkering can stop America's employers and employees from taking the government's money, and saving their own.
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