Market Competition
Because regulation has failed to contain
health care costs, managed care which
emphasized competition between
providers has grown, particularly in
employer based plans (about 20% of
Medicare and Medicaid)
 Cost savings still illusive because of
public backlash, increasing regulation
and remaining market distortions

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
Demand Side Market Failures
– Tax-exempt employer paid insurance which
creates MB<MC care and disproportionately
benefits high income taxpayers
– Employers don’t offer choice of plans (80% only
1), decreasing the incentive of the insurer to
respond to employer preferences and to decrease
premiums
– Employers that do offer plan choice pay fixed %
(usually 75-80%) of costs, not fixed $, which
induces employees to opt for the expensive plan
– Employers pay same premium for all employees
so little incentive for insurer to actively manage
high user care
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– Health care providers don’t want to
provide information on quality to
consumers, providing little incentive
for investments in improving quality
– Medicaid and private plans have very
low copays leading to little incentive to
economize on use
– Medicare copays are defeated by the
wide purchase of Medigap policies
3

Supply Side Market Failures
– Medical providers are consolidating, i.e., hospitals and
specialists

Federal judges have ruled nonprofit mergers are OK even if
they result in monopolies
– State regulations are increasing, because local politicians
are more susceptible to industry demands


Mandatory benefits, providers, licensing, training
Community rating, any willing provider laws
– Patient and/or MD ignorance

Specialists in the same area provide widely differing
care to patients with the same diagnoses. Inadequate
diagnosis or treatment knowledge ?
– Fee for service payments
4
Obama Health Plan Key
Features




Provides health coverage for another 32
million “legal” Americans, increasing %
with insurance from 83% to 95%
Provides subsidies to small businesses
and Medicaid for expanded coverage
Requires insurance coverage thru
employer or self
Will pay for expansion with new taxes
and cuts to Medicare
5
Obama Health Plan : 3/23/10

Kaiser Foundation Timeline
– Source
http://www.kff.org/healthreform/8060.cfm

Kaiser Foundation Summary
– Source
http://www.kff.org/healthreform/upload/8
061.pdf
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Obama Health Plan: 3/23/10
Source: http://www.csmonitor.com/Money/Christian-Personal-Finance/2010/0325/What-Obama-s-newhealth-care-bill-means-for-us

Changes Happening in 2010
– Children age 26 and younger will be able to
remain covered under their parents health
insurance plans (this is increased from past
age limits which were anywhere from age 2225).
– Medicare recipients will receive a $250 rebate
to help in closing the “doughnut hole” (with
the goal being to close the doughnut hole
completely by 2020).
– Health insurance companies will be banned
from excluding coverage for pre-existing
conditions for children.
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– Adults with pre-existing conditions will be
eligible for coverage into high risk health
insurance pools until future health care
exchanges are up and running.
– Health insurance companies will be
prohibited from levying annual limits <
$750,000 and lifetime limits on coverage.
2014 and after, no annual limits.
– All new health insurance plans must
provide coverage for preventative services
with no out of pocket cost (all health plans
will be forced to comply by 2018).
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– Those companies that offer health benefits
for early retirees ages 55 to 64 will receive
assistance from a temporary reinsurance
program.
– All new health insurance plans will have to
comply with new regulations that lay out an
appeals process for when health insurance
claims are denied.
– Small businesses that employ less than 50
people are eligible for a tax credit equal to
35% of their health insurance premiums (this
increases to 50% by 2014).
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
Changes happening in 2011
– Medicare will offer wellness visits for free one
a year and personalized prevention plans. All
new Medicare plans will offer preventative
services with no out of pocket cost.
– Seniors enrolled in Medicare Advantage or the
Prescription Drug Plan will receive a 50%
discount on brand name drugs immediately
with additional prescription drug discounts to
follow.
– The current penalty tax of 10% on all
distributions from a Health Savings Account
before the age of 65 on nonqualified medical
expenses will increase to 20%.
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A small business alternative to a
cafeteria plan will be presented so that
small businesses can offer tax free
benefits without having to deal with the
administrative costs of a cafeteria plan.
 Everyone earning more than $200,000 as
an individual or $250,000 for those who
file married filing jointly will have their
Medicare payroll tax increased from the
current 1.45% to 2.35%.

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
Changes happening in 2013
– A $2,500 annual cap will be placed on all
contributions to flexible spending accounts
(amount indexed for inflation each subsequent
year).
– The current tax deduction that employers
receive for subsidizing the prescription drug
costs of their employees who are eligible for
Medicare Part D will be done away with.
– A 2.9% excise tax on the sale of medical devices
will be put into place. Certain common items
like glasses, hearing aids, etc. are exempted
from this tax.
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– The hospital insurance tax will increase an
extra .9% (2.35%) for those who earn more than
$200,000 ($250,000 for those married filing
jointly) and 3.8% tax on unearned income over
those amounts.
– Additional requirements on health insurance
companies to implement uniform standards for
exchanging health care information, electronic
communication, and other measures to reduce
insurance company administrative costs.
– The minimum threshold for being able to
claim an itemized deduction for health care
expenses increased from 7.5% to 10% of AGI
although those over the age of 65 can stay at
the 7.5% threshold through 2016.
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
Changes happening in 2014
– All US residents will be forced to have health
insurance coverage considered acceptable by the US
Government or else pay a fine of $95 in 2014, $325 in
2015, $695 in 2016 (capped at 2.5% of AGI). All of the
fines are per person per year except for families have a
cap on the total fine of $2,250 and the fine amount for
children is half of the adult fine.
– Eligibility standards are implemented for newly
formed health care exchanges. Exchanges will offer 4
types of plans: Bronze, Silver, Gold, Platinum &
Catastrophic. Only those <=30 buy individual
coverage can buy latter.
– Credits to buy insurance from exchanges will be based
on income levels. People earning up to 400% of
poverty level will have premiums of 2 – 10% of AGI
for Silver.
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– Businesses with 50 or more employees will face
a fine of either $2,000 or $3,000 per employee
for not offering health insurance coverage.
– Group health insurance plans have a maximum
waiting period of 90 days.
– Health insurance companies are prohibited
from using an individual’s health status to
issue a policy or renew a policy. All preexisting conditions must be covered and higher
health insurance rates cannot be levied because
of health, gender, etc. All insurers must offer
minimum benefit set (Bronze).
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– All health insurer plans must conform to 1
of 5 standards.
– The eligibility standards for Medicaid will
be changed to 133% of poverty for those
who are not considered elderly. Feds will
pay 90 – 100% of extra costs to States
– New annual fees will be levied on all large
health insurance providers and
pharmaceutical companies: $11Bil. in 2012-3,
$14B in 2014-16, and $18B afterwards.
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
Changes happening in 2018
– The “Cadillac” health insurance plan tax will
kick in. An excise tax (40%) will be levied on all
employer provided health insurance plans
costing more than $27,500 for families and
$10,200 for individuals (with increased limits
for those considered to be in “high risk”
professions).

Click on NY Times link for impact on
differing people:
– http://www.nytimes.com/interactive/2010/03/24/
us/politics/20100319-health-careeffect.html?ref=policy#tab=2
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Pros & Cons
With or w/o reform, Health Care will
be 21% of GDP in 2019 (up from 16%)
 Liberal Pros:

– CBO says 32 million more people will be
covered by 2019
– Federal Cost is modest ($172 Billion) or
$5375 per person newly insured. More
Medicaid & subsidies to buy mandated
insurance.
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– Cost controls will actually stabilize
overall health care costs. So covering
many more people for same $4.7 Trillion
– No impact on Deficit due to tax
increases

Corrects for market failures by
providing consumers more info,
options, limits deductions for
medical expenses, & only way to
cover more people with existing
system
19
Liberal Objections
Doesn’t insure everyone
 Still doesn’t control costs as much as
possible. Single payer option (either
private or public) would decrease
administrative costs
 Health insurers should all be nonprofits or government (like Europe &
Canada). No role for for-profits.

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
Canadians and Europeans are far
more satisfied with their health care
systems than Americans, even though
more state involvement. Health
outcomes better also.
21
Conservative Objections
Won’t decrease health care costs
 Questionable assumption that
payments to MDs & others can be
limited. Some foresee 20% hospitals
refusing Medicare
 If employers opt to pay fine, govt.
subsidies to cover employees will soar
 Increased taxes on high incomes leads
to fewer jobs, production, savings

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Huge expansion of government into
private sector yielding less choice &
freedom
 Individual mandate is loss of freedom
and MB < MC
 Mandatory community rating will
increase uninsured by choice
 Cuts to Medicare MCOs will decrease
choice for seniors & decrease efficiency

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Conservative Reforms
Individual tax relief for everyone,
regardless of where they work, to
purchase their own insurance.
 Replace tax deduction for employer
contribution with tax credit for
individual purchase
 No barriers to interstate insurance
sales

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Allow employers to convert from defined
benefit to defined contribution plans
 Move Medicare to defined contribution
plan & allow Medicare clans to opt out
 Promote new group purchasing based on
organization memberships & associations
 More consumer-directed options like
health savings accounts & flex plans

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•
Extend rational pre-existing
condition provisions in individual
plans rewarding responsible
behavior
• Equal payment for traditional
Medicare & MCO Medicare
• Encourage states to set up highrisk pools and consumer based
reforms
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• Provide Medicaid insurees with opt
out to private insurance
• Increase fraud & abuse efforts in
Medicaid
• Encourage private savings and
private long term care insurance to
solve long term care needs
• Stop new tax increases and promote
tax cuts to expand private insurance
coverage
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