In yesterday’s post I said that I feel that the health care reform proposed as currently proposed will become the Democrat’s Medicare Part D, a boondoggle of enormous proportions, and one that will short circuit true reform. GeorgeSorwell called me out to back up this claim, so here I go.
First of all, here is a great tool by Kaiser that shows the key points of different proposals side by side. I am going to focus exclusively on the actual bills that will be voted on (i.e. the ones out of the committees) for this post, but you can also compare them to various Republican plans.
To me the primary considerations for health care are as follows: cost for individuals, cost for businesses, cost for the government, allowing economic mobility (going to school/starting a business/switching jobs/etc.), number of individuals covered, flexibility of treatment locations and providing enough economic incentive for people to work in the field.
At present, all of them except the latter fail miserably (except flexibility is provided by expensive plans) and nearly everyone agrees on that. However, the current proposals are going to make most of the facets worse. Normally I try to evaluate things from multiple angles, but in this case I’m going to stick from attacking it strictly from the left, using arguments from Physicians for a National Health Program (which in turn utilizes the CBO report for much of its argument). The reasons why I’m doing this are fairly simple: first of all they point out the features that I feel are similar to Medicare Part D and secondly, the program is a large expansion of the Federal role, so I’d rather tackle it from the question of whether the pro-government perspective believes it will work. This highlights a bias of mine, which is that I feel a lot of the gross inefficiency of the government and problems in the US are caused because we have many programs that are a hodgepodge of spending without having the internal ideological consistency to make them work.
The key to understanding the new plan is to understand the various sources of insurance. Good luck with that. Here is my best attempt:
Both bills mandate everyone have health insurance. If you don’t, under the Senate you will have a fine of up to $750 and the House is 2.5% AGI.
For the Senate bill, there will be the creation of new state-based “Gateways” that will be regulated by the government. Multiple Gateways can join up to form a regional Gateway, but it’s unclear what dictates that. In order to be part of a Gateway, the plans are through private insurers, and must have certain baseline coverage, as well as things like not discriminating against preconditions, no lifetime caps, reasonable premiums, etc. In order to receive tax credits or subsidies, the plan must be part of the Gateway. I believe that what they call the “community health insurance option” is the public plan that will be offered as part of a Gateway, and will compete with the private insurance plans. The bill doesn’t touch existing private insurance plans if they don’t want to be part of the gateway, other than to force them to have a few prohibitions on excluding pre-existing conditions and the like.
The House bill is quite different. First of all, it quite clearly says that individual insurance won’t count as part of the mandate unless you already have it. While the Senate version is trying to dissuade people from not using the Gateway by offering subsidies for it (and tweaking some rules), the House falls just short of outright banning them (kind of, in practice I’ll talk about why this isn’t necessarily so). This appears to be a national collection, not by state. Also, there will be a public plan that pays the same rates as Medicare, which is a provision not specified in the Senate plan. All plans (public and private) have to have four different tiers of coverage, and the Government will dictate the minimum things that must be covered for each tier.
For the rest of this post, I’m going to quote the Senate bill and then put the House differences in brackets because there are some important differences between the two, but the Senate is more likely to get its way.
When it comes to businesses, the bill mandates that all businesses that have 25 employees [greater than $250k of annual payroll] offer health insurance to all employees and pay at least 60% [65%] of premiums. Businesses will have small tax credit subsidies $1k for individuals, $2k for families [50% and decreasing on a sliding scale] as long as they have payrolls with average wage of under $50k [$40k]. I don’t know offhand how many companies those credits will affect, or how helpful they are, but the average wage seems awfully small to me considering the median income for men is $45k and the median for women is $35k, and is much less than individuals are given (more on that later).
I can’t figure out whether businesses will be required to have plans that are part of the new Gateways. I think that they will if the businesses want the tax credit, since individuals need to, but the ones without the credit I can’t tell. Obviously for the House version they have to buy into the national exchange.
The penalty for not getting insurance for the employees varies considerably. Under the Senate version, it’s a $750 fine, under the House it is 8% of payroll (well a sliding scale based on payroll when it’s less than $500k) unless it will cause job losses, then you can get an exemption.
When it comes to cost for individuals, the plan offers premium subsidies based on income level. The breakdown for the House is as follows (FPL = Federal Poverty Limit):
133-150% FPL: 1.5 – 3% of income
150-200% FPL: 3 – 5% of income
200-250% FPL: 5 – 7% of income
250-300% FPL: 7 – 9% of income
300-350% FPL: 9 – 10% of income
350-400% FPL: 10 – 11% of income
I’m not sure about the Senate but it looks very similar.
OK so that’s the root of the plan. It attempts to address individual cost by mandating how much employers must pay and providing subsidies for those people that don’t get insurance through work. It doesn’t really address the business costs for health care directly other than the idea that rates will be driven down in general. The government’s public option is supposed to be revenue neutral, with most of the cost coming in the subsidies and other facets of the bill. It would allow economic mobility by providing an option for all people regardless of circumstance, and theoretically this should help cover a lot more people. Flexibility in services is hard to address, as that looks like it’d be highly plan specific. While the public plan in the House would limit the amount paid to Medicare, it’s unclear how the Senate version would work, so I can’t really tell how it’d affect the medical service providers.
Now for the problems.
Medical costs are rising far faster than incomes. This plan is projected to do little to curb cost inflation over the long run according to the CBO and since all the limits for individuals are based on income, this means that the subsidies will increase very quickly. However, raising on individual taxes to fund these extra subsidies is basically out of the question, and the taxing of business provided benefits will merely cause them to drop coverage and pay the $750 fine (I’m assuming the Senate version is passed, even if the House is, the 8% of payroll would be cheaper to hand over than insurance plus taxes). Since the bill purports to have a cap on spending, this means that subsidies will have to decrease very quickly, and threaten the affordability for individuals.
Moreover, the Healthcare Gateways are flawed in their conception. Sure they encourage people to join them to get the subsidies, but the mandated coverage in several tiers and caps on deductibles will make those plans rise far faster than the private plans outside the Gateway (which is why the House bill says you have to be part of it to not get penalized…although at some point it’d be cheaper to take the penalty and have individual, high deductible insurance) and an attempt to limit those costs will lead to randomly changing coverage. This is exactly what is happening with the Medicare Drug Bill, where medications are added and removed all the time with no warning, and it’s nearly impossible to make sure you have the coverage you need. All of this will cause healthy people (and many businesses) to drop out and go back to the unregulated market, which causes adverse selection and breaks down the Gateway. How do we know this is a possibility? Because it’s already happened.
Ironically the public plan that is so decried as socialism is nearly toothless as it has none of the qualities needed to distinguish itself from the private insurers. So according to the CBO, we are going to spend $600 billion to $1 trillion over the next ten years for a plan that will only cover a few million more people than are covered now, and will fragment the market even more. It’s unreal that most of the rhetoric is either for/against government health care, but in the Senate version, the government’s role is almost exclusively to just write the checks (the other major flaw of the Medicare Bill).
It is obvious that the root of the problem is cost, and that’s what we should be tackling first and foremost. If the government is going to get involved without having a single payer system, it’d be a much wiser use of money for the government to start giving out awards/increasing research budgets to create new technologies that are then licensed by the government or non-profit cooperatives. They could also provide catastrophic insurance coverage for major illness, while encouraging high deductible filler plans to cover things in between and regulating those in some ways, while reducing regulation (like the geographic regulation) in other ways. That way, non-profit insurance collectives would have an easier time forming, as it would be much less likely for them to get wiped out due to a small percentage of the pool getting a chronic illness.
Anyway I think this is enough to start a discussion.