FixHealthCarePolicy

“If You Think You Will Tax my Benefits and Give the Money to Ben Nelson in Nebraska, You’re Crazy”

As the White House prepares for a bipartisan summit on health care later this month, the rhetoric and reality of the President’s plans for health care reform continue to conflict. President Obama claims that he wants to bring congressional Republicans to the table to achieve health care reform. However, he has also expressed the desire to present a final piece of legislation prior to the summit, focusing on marrying the differing ideas of House and Senate Democrats rather than those of Democrats and Republicans. In any case, this is not off to a bipartisan start.

Though the White House perseveres in pushing the main elements of the massive Democratic health care bills, the unpopularity of these legislative proposals soars; it is a stark fact of life that is unacknowledged by the President. A classic example of a provision that is highly unpopular is the excise tax on “high value” health plans included in the Senate bill to raise revenue to cover the uninsured. The tax increase is a tax increase; it is not a much needed reform of the inequitable tax treatment of health insurance. Though support from Democrats in Congress and even labor leaders who helped cut the deal continues to dwindle, the White House continues to urge Congress to include the Senate excise tax in a final health bill. (more…)

Tags: excise tax, ObamaCare, Rep. Edward Markey, Sen. Ben Nelson

Reconciling Health Reform Taxes and Fees on Individuals and Businesses

One of the key issues the White House, House, and Senate will be negotiating behind closed doors, is how to pay for President Obama’s $2.5 trillion plan. Reconciling the differences between these two bills will remain a difficult task for legislators particularly as they rely on a different mix of revenue-generators. The following two lists include key revenue-generating mechanisms in both the House and Senate bills as reported by Tax Notes.

House-passed Affordable Health Care for America Act (H.R. 3962):
– $460.5 billion over 10 years from a 5.4 percent Surtax on individuals making more than $500,000 and families earning more than $1 million (begins 2011)
– $135 billion as part of an 8 percent tax of a firm’s payroll ($750,000 or more) and a lower rate if firm payroll is between $500,000 $749,999 (begins 2013)
– $33 billion as part of a 2.5 tax on modified adjusted gross income (AGI) for those individuals that do fail to secure “acceptable” health coverage (begins 2014)
– $20 billion from a 2.5 percent excise tax on medical devices (begins 2013) (more…)

Tags: closed doors, excise tax, Flexible Spending Accounts, House surtax, Individual Mandate, Medicare Part D, Medicare Payroll tax increase

Could the Senate Bill Eliminate Private Insurance?

The Senate health care bill no longer contains an explicit “public option,” but it does include heavy regulation of private health plans, including minimum amount they must spend on medical claims, and taxes that will not count toward those limits, limits on deductibles and co-payments, and authority for federal regulators to define what services plans must cover. It’s entirely possible – in fact, even likely – that a combination of three particular regulations could combine to make it impossible for private health plans to legally operate, by making it impossible to meet all the requirements at the same time. By forcing private health insurers out of business, it would appear to “prove” that the public option is “necessary.”

There is an implicit maximum legal premium in the Senate bill. It results from the combination of the 40% excise tax on “excessive” premiums (over $8,500 for a single plan) and the 85% medical loss ratio (the percent of premiums that must be spent paying claims). A little algebra shows that if the premium exceeds 1.6 times the threshold, then it’s impossible to both required medical loss ratio and pay the excise tax. (more…)

Tags: administrative costs, co-payments, excise tax, medical claims, Medicare, senate health care bill

Morning Bell: The Six Key Issues the House Must Cave On Before Obamacare Becomes Law

This morning at around 8 AM, the Senate passed, again on a straight party-line vote, Majority Leader Harry Reid’s (D-NV) manager’s amendment to the Senate’s version of Obamacare. This keeps the Senate on pace to pass the bill at 9 PM on Christmas Eve despite the fact that Americans overwhelmingly opposed the legislation. But even after the Senate gives President Barack Obama his $2.5 trillion Christmas present, the bill, assuming it is to be considered in regular order, still must go through a House and Senate conference.

President Barack Obama attempted to downplay differences between the House and Senate bills telling American Urban Radio Networks yesterday: “The Senate and the House bills are 95 percent identical. There’s five percent differences, and one of those differences is the public option. This is an area that has just become symbolic of a lot of ideological fights. As a practical matter, this is not the most important aspect to this bill.” We’ll let President Obama fight with his base abut how important a strong public option is to health reform, but a government run plan is just one of six key differences between the House and Senate bills:

Soak the Rich or Tax Everybody: The Senate bill relies heavily on a new excise tax on high cost health plans: a 40 percent tax on plan exceeding $8,500 for an individual and $23,000 for a family. The AFL-CIO and SEIU both call this a tax on working families. The Senate bill also includes a new premium tax on all insurers and the CBO confirms that the cost of this tax will be passed on to all Americans with private insurance. The House bill depends on a heavy new income tax targeted at top-earning taxpayers and small businesses. The 5.4 percent tax on individuals with incomes above $500,000, and on families with incomes above $1 million, is structured in a way that over time more and more Americans will be hit by this tax and small business owners would be particularly affected. (more…)

Tags: employer mandates, excise tax, individual mandates, Majority Leader Harry Reid, Medicaid Expansion, ObamaCare, public plan, senate health care bill, taxpayer funded abortion

Bending the Cost Curve in the Wrong Direction

This week the Commonwealth Fund released a report purporting to explain, as the title says, “Why Health Reform Will Bend the Cost Curve.” It is an exercise in pure, unsubstantiated speculation. They resurrect the long-discredited claim that the bill passed by the House and a somewhat similar but different bill currently before the Senate would not only slow the rate of growth in health care spending, but would reduce average family premiums. Ironically, most of the sources of alleged “cost savings” cited in the report are due to factors that will actually increase health care spending and/or health insurance premiums – and which are counted as such by other studies of the effects of proposed reform.

Even more ironically, they attribute the difference between their conclusions and those of other studies that show an increase in costs and premiums (by groups such as the CBO and the CMS Office of the Actuary) as due to the fact that the other studies “rely largely on peer-reviewed studies utilizing carefully controlled comparison groups,” whereas their own study is based on a “less formal, but no less important literature that sees the world very differently.” They also note that front-line physicians see vast amounts of waste due to misaligned incentives in the current system. However, doing a study less “carefully” and looking at “the world very differently” will not change the fact that the current proposals under consideration in Congress would, in the real world, establish a system with even more drastically misaligned incentives, increasing waste and costs for almost all categories of patients and providers.

The report concedes that “Extending health insurance coverage to essentially all Americans would increase medical spending, at least in the short run,” as the previously-uninsured enjoy greater access to health care. However, they assume that this is almost offset by reductions in Medicare and Medicaid benefits. According to the CBO report (Table 3), almost half of the reduction in the number of uninsured is accounted for by an increase in number covered by Medicaid. So in effect, they are saying we can obtain coverage for the uninsured by expanding Medicaid, and then pay for it by cutting Medicaid (and also by cutting Medicare). Somehow, providing health care to some poor people by taking it away from other poor people and the elderly is supposed to save money.

Next is a claim that “insurance exchanges … would group individuals and small firms into larger entities and thus drive down those administrative costs.” This is approximately the opposite of what these exchanges are designed to do, which is to break up groups so not everyone with the same small employer has to be in the same health plan. In other words, it breaks up groups. Also, any savings in administrative costs such as underwriting would be offset by increases in advertising to influence the choice of customers – and by the compliance costs associated with the regulations in the new exchanges. Both the House and Senate bills require insurers to seek regulatory approval individually for both the benefit package and the premium each health plan they offer – in addition to complying with existing state laws.

They also claim that: “In many areas of the country, there is little meaningful insurance competition. … A public option would contribute to this effort.” This claim is implausible on two counts. First, while there is some evidence of higher premiums due to limited competition in the large-employer market, the neither the exchanges nor the public option would be available to large employers. Second, while the exchanges and the public option would be available to individual purchasers, there is no evidence of a lack of competition in the individual market. There are over 1,300 companies, including not-for-profit organizations, currently competing in the individual market; it is hard to imagine one more playing on a level playing field making much difference.

They also claim that “a requirement that plans devote 85 percent of premiums to medical care, and authority for states [and in the House bill, the federal government] to review and reject premium increases. These can be expected to place downward pressure on administrative costs.” This is precisely backwards. Meeting the 85 percent requirement can be accomplished by either decreasing administrative costs or increasing medical costs. With most of their administration managing compliance with federal and state regulations, there will be little ability to reduce administrative costs. On the other hand, a plan that finds itself out of compliance with the 85 percent rule can always increase payments to physicians and hospitals, and increase premiums until the more-or-less fixed administrative costs fall below 15 percent. As a result the 85 percent rule would bend the cost curve upward, not downward.

The remainder of the author’s argument consists of a list of new categories of increased expenditures, together with the claim that all this increased spending will eventually decrease spending. For most of these, the reverse is true. For example:

– “Pay-for-performance incentives for Medicare providers,” despite their name, are really extra payments for providing (and documenting the provision of) specific lists of “recommended” interventions.

– “Higher reimbursements for preventive care services” and “increased emphasis on prevention and wellness” may benefit patients and physicians, but the overwhelming evidence is that it only rarely saves money and usually increases spending.

– “Increased funding for comparative effectiveness research” will cost money in the short run, with benefits in the long run that are purely speculative at best. Furthermore, as the recent controversy over the recommended mammogram schedule shows, government-run programs such as Medicare, Medicaid, and the proposed “public option” are subject to political pressure, making them less able to derive cost-saving benefits of such research.

– “An excise tax on high-cost insurance plans (in the Senate bill).” The Senate bill would impose a 40 percent excise tax on health premiums in excess of specified thresholds health plans would be forced to pass these taxes on to those paying the premiums, making high premiums even higher.. Cutting benefits to lower premiums could be difficult given a government-mandated benefit package.

Tags: Commonwealth Fund, excise tax, insurance premiums, Senate Health Bill