The Lightweight Romney Health Plan

The Lightweight Romney Health Plan

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Mitt Romney has outlined his new health plan. He outlined five key steps in an op-ed in USAToday. Here is a summary:

Step 1: Give states the responsibility, flexibility and resources to care for citizens who are poor, uninsured or chronically ill.

Step 2: Reform the tax code to promote the individual ownership of health insurance.

Step 3: Focus federal regulation of health care on making markets work…For example, individuals who are continuously covered for a specified period of time may not be denied access to insurance because of pre-existing conditions. And individuals should be allowed to purchase insurance across state lines, free from costly state benefit requirements. Finally, individuals and small businesses should be allowed to form purchasing pools to lower insurance costs and improve choice.

Step 4: Reform medical liability. We should cap non-economic damages in medical malpractice litigation.

Step 5: Make health care more like a consumer market and less like a government program. This can be done by strengthening health savings accounts that help consumers save for health expenses and choose cost-effective insurance.

It looks to me like his health care outline is more intended to make conservative Republicans happy then to really propose ways to reform America’s health care system.

There isn’t one new idea here and it all comes straight from the 2010 Republican campaign playbook.

I have a number of questions:

  1. We all seem to agree that the biggest problem is the cost, and therefore the affordability, of health care. Where’s the cost containment in his plan?
  2. He talks about giving states the “resources” to take care of the uninsured and the poor. Just what resources, how much money, and where will that money come from?
  3. He wants to reform the tax code to permit individual ownership of insurance. But the real premium support most working Americans get is from their employer. When an employer provides health insurance it does so by paying an average of 70% of the cost–worth about $9,000 for family health insurance today. The health insurance tax benefit is worth perhaps 20% of that cost for most workers. How does Romney intend to make an individual system as effective in supporting the purchase of health care? How much support is he willing to provide and where will the money come from?
  4. He proposes guaranteeing insurability for those who are continuously covered. But to be continuously covered, an individual has to be able to afford the insurance. How will he assure consumers not just have access to insurance but also affordability?
  5. He proposes allowing people to purchase insurance across state lines so that they have access to lower cost insurance. Just which state has low cost and affordable health insurance?
  6. He proposes that individuals and small business be able to form purchasing pools to lower costs and improve choice. Presumably, the only difference from these pools and those now offered by insurance companies are that his pools would be exempt from state benefit mandates. How would he protect the existing small group and individual markets from “cherry picking” as the healthy would be enticed to leave the existing state-regulated pools while the sick remained where they could get more comprehensive coverage?
  7. He proposes medical malpractice reform. Experts generally believe the kind of reform he is proposing would lower the country’s health care bill by about $60 billion a year. However, that is only about 3% of our annual costs. What other cost containment proposals does he have?
  8. He says that his market reforms, such as expanding Health Savings Accounts (HSAs), will drive down costs. HSAs, in various forms, have been around for 20 years–since 2004 in their present form. Yet the free market has only embraced HSAs as a very small part of the system—about 10% of the market. Why does he believe the tinkering with their plan design he is proposing will quickly make them a significant part of the market or make them more affordable?
  9. What about Medicare? The Romney op-ed in USAToday doesn’t even contain the word, Medicare. His speech in Michigan today only made a passing reference to the Ryan Medicare plan, while promising a plan of his own in the future.
  10. What about Medicaid? He briefly mentions block grants for the states. But how much money would he give the states compared to what they have now?

It looks to me like Romney’s newest health care plan is more about embracing the conservative Republican “free market” campaign talking points list of aging health care ideas in order to prove his bona fides in the primary states, more than it is a serious health care reform proposal.

I doubt even the “Tea Party” Republicans, it is meant to please, will buy it.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analysis of healthcare industry trends at The Health Policy and Marketplace Blog, where this post first appeared.

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34 Comments on "The Lightweight Romney Health Plan"


Guest
Peter
May 19, 2011

“What in the world does tax free employer compensation have to do with comparing the “traditional insurance based model” versus HSA/HDP?”

“For 2010, the annual contribution to a HSA is $3,050 for an individual and $6,150 for a family. These figures will vary from year to year but tend to be around the $3,000 and $6,000 marks. Your employer can also make contributions to your HSA, but you still need to stay within the annual contribution limits. If you’re aged 55 to 64, you can make ‘catch-up’ payments to the tune of $1,000 for 2010.

The Advantages of Having a HSA

There are several reasons why having a HSA can work in your favor. Here are a few of them:

1. Tax Breaks. HSA Insurance plans can offer some big tax benefits. The main one comes from being able to pay money into your HSA before taxes are taken out of your paycheck so you pay less taxes on your income. To be eligible for this, your employer needs to have a ‘cafeteria’ plan (also known as a ‘salary reduction plan’) which allows them to reduce your taxable income. If your employer doesn’t offer this or you work for yourself, you won’t be able to take advantage of this particular tax break, but you can still add money to a HSA. There is also the option to deduct your HSA savings from your tax return. This is an ‘above-the-line’ deduction, which means that it is used to work out your Adjusted Gross Income (AGI). It doesn’t matter whether you usually itemize your deductions or take a standard deduction

2. Withdrawals are tax-free. You can make withdrawals without being penalized for taking the money out as long as you’re using it strictly for health-related expenses.

3. Benefits aren’t lost. HSAs are much the same as a savings accounts in that you pay money in and can leave it there for as long as you like without having to spend it. As long as the money is spent only on health-related expenses, tax benefits won’t be lost if you don’t spend the money until much further down the line. If you don’t use the money by the time you’re 65, you can withdraw it for any purpose without taking the normal 10% penalty tax.

4. Money can be invested. If you want to invest the money in your HSA, you can do this in a range of products including stocks and mutual funds.”

Ain’t Uncle Sam great. So, without tax subsidies would these plans make any sense?

Guest
May 19, 2011

What in the world does tax free employer compensation have to do with comparing the “traditional insurance based model” versus HSA/HDP? Both are tax free employer compensation. Both would take a huge hit and pass on more costs to employees if it went away. That argument is terrible and appears a bit desperate. Look, my employer gave nothing extra when they offered the HSA/HDP. They took the savings from moving to the HDP and paid for the whole plan and gave us the balance as a match in our HSA. It is budget neutral. For any company, this decision could be made with similar results. I will give Margalit some credit here, some companies pay more for their employees health insurance than others, and every individual should compare their options (play the cards you are given). My company does not force us to do the HSA/HDP, they let us choose traditional if we want to. The math in my case says HSA/HDPs win every time. My original point is that multiple companies have been able to create this opportunity, which so far has had positive results on waste/cost. It also allows people to start saving for the inevitable future cost of healthcare as we age, at no extra cost compared to what we are doing now. Even a self pay small company owner can evaluate the options in the market and make the same switch at budget neutral. And yes, it could be done tax free.

I just ask that you take a step back and objectively look at the facts of my scenario and ask yourself if other companies did the same thing, would an HSA/HDP model be a good thing. Most of the arguments have been about cost, and I am telling you that the money issue has successfully been overcome by multiple companies. The true question should be about patients self rationing because they see the cost or they want to build up their HSA so they hold back on needed healthcare (above and beyond preventative which is fully covered as required by Obamacare). It has been fun, maybe I will see you all on another post.

Guest
Peter
May 19, 2011

“I will stick with the reality of today. ”

Tell me how HSAs/HDHPs have changed so much in 5-6 years? Maybe you could also tell me if these plans would be as attractive if you did not receive the benefit as tax free(subsidized) employer compensation? Maybe, there is a free lunch after all.

Guest

@Margalit – I don’t work for an insurance company, I’m an agent and work for people like you. I have nothing to do with price negotiations, networks, or anything else. You also misunderstood what I said – if you want lower prices, talk to the providers. Ask your hospital why they charge $2500 for an MRI when the imaging center will do it for $400.

No, I do not find it disturbing that insurance companies are reporting record profits because statistics can be skewed very easily to how the person wants to present them. For example, if a company makes a “record profit” that says absolutely nothing about what that profit equates to (it could be $1) and what net profit percentage and return on investments they are making. Health insurance has one of the lowest profit margins of any industry. If profit is an evil word, why do non-profit health insurance companies like Kaiser and some BCBS organizations still have some of the highest rates and increase them just like for-profit companies?

You clearly do not understand the pricing difference between HSA plans and co-pay plans and their relevance to your potential out of pocket expenses in any given year. I don’t know how many times I can tell you that there’s no such thing as a free lunch. For the same amount of money, you either take on a higher potential out of pocket expense with a co-pay plan, a higher deductible, or an unlimited liability on anything that’s a co-pay (say, prescriptions for example). Let’s take an example in Virginia:

40 year old family of 4 with United Healthcare, one of the largest insurers:

HSA plan with $5k family deductible and 100% co-insurance: $459/month
Co-pay plan with $2,500 individual deductible (2 per family) with 100% co-insurance: $674/month

So, in a given year, the HSA plan has a absolute maximum potential expense of $5k + ($459 * 12) = $10,508. All benefits covered 100% after that.

In a given year, the co-pay plan has a maximum expense for non-copay services of $5k + ($674 * 12) = $13,088

If we take the $2,500 premium difference and place it into an HSA for someone in a 25% tax bracket, we just saved them another $625 on their taxes and they still have $2,500 to spend on services.

Now, let’s say this theoretical family finds out mom has cancer and needs a $10k/month prescription that falls into tier 4. She has to pay a 25% co-payment every single month whether she’s paid the deductible or not because co-pays are so wonderful. Now their maximum expense for the year is $5,000 + ($674 * 12) + ($2,500 * 12) = $43,088.

If mom had the HSA plan, she’d save $33k in co-pays and out of pocket expenses and have 100% of those drugs and all services for the rest of the year for the rest of the family at no charge.

If mom wanted to max out HSA contributions to pay the $5k deductible and is in a 25% tax bracket, they’d have another ~$1500 in tax savings.

Now tell me how the co-pay plan is a better idea.

Guest
May 17, 2011

Rob,
Your HSA is working fine for you because your employer is very generous. Folks at Walmart (and many other places) don’t get such a nice arrangement. Folks that buy on the private market don’t either.

As to offsetting the cost of charity care for hospitals, I think that not having to pay taxes (non-profit?) is a pretty adequate offset.

@Virginia, as far as I can tell, consumers hire insurance companies to pay for their health care needs in a group purchasing manner. Is there a particular reason why you think that it is not your job to negotiate good prices for your customers? You really think that I can negotiate with my local hospital better and with more leverage than say, Anthem, which in my state negotiates for an awful lot of people, all at once?
I guess as long as you can just nonchalantly pass providers demands down to your customers, why bother. Even better for the top and bottom lines.
Don’t you find it even a little bit disturbing that insurers report greatly increased profits in a recession, when at least some of that decrease in utilization, is surely hurting sick, or soon to be really sick, people who are flat broke?

Guest
Peter
May 17, 2011
Guest
May 18, 2011

Thanks for sharing your articles from half a decade ago. I will stick with the reality of today. You can keep thinking nothing has changed in 5-6 years.

Guest
May 17, 2011

Peter,

Where are you getting your information from. You seem to make some bold statements that do not correlate with reality. I have presented facts and your best argument is that I am in a silo and do not represent the world. My silo is a company with 23K employees and the same type of plan is offered throughout my state by other companies. You say HSAs do not save people money and guess at my circumstances, I have young kids and use a lot of healthcare, and HSAs have saved me a lot of money.

I am wondering if you have gone down this anti-HSA path and are now so hell bent on winning an argument that you are unwilling to hear or listen to another possible conclusion in light of facts. An open mind is a wonderful thing. It is this type of discussions that have led out republican and democratic legislative representatives to where we are today.

In the end, I’ll stick with my HSA and continue to be happily in control of my medical care, continue to work with my primary care doc (completely covered preventive care visits) on additional care I may need, shop specialists for best prices (since I get to pay out of my HSA) and service, save for my kids future orthodnotics (already have $7K banked in the HSA), and even have my elective surgeries planned for in the future with no additional out-of pocket expense. Even my lower paid staff are doing well on this plan. One of my techs told me the other day . . Love it!

Guest
Peter
May 17, 2011

“You seem to have a hard time understanding the difference between providers and the insurance company.”

There are just providers of health care and providers of healthcare insurance then there are patients.

“Sounds to me like you want a free all-you-can-eat healthcare buffet and patients shouldn’t have to actually plan anything for themselves or shop around based on price like they do with every other single industry.”

On the contrary, I am for driving down costs more than anyone, and there is no free lunch, but healthcare, as has been discussed here many times before you started posting is not like other industries where shoppers are given price transparency and the ability to easily pick product/service based on research and information on the box. Most people don’t know how to pick their own mechanic or contractor, let alone their doctor(s) and hospital, and a mistake on a product purchase can easily be returned for a refund, not so a healthcare service.

HSA/HDHPs won’t drive down system costs, they will however help insurance companies keep their profits/bonuses and medical providers earning a hansom sum in billings while costs keep rising 6%-10% compounded annually as risk is transferred to patients. Better insurance instruments are not the answer.

Guest

@Peter – You seem to have a hard time understanding the difference between providers and the insurance company. If you want a lower price, talk to your doctor, not the insurance company! They make agreements with the insurance companies for network patients.

Let me say this again – there is no such thing as a free lunch. You want a co-pay? Fine, it’ll cost you a lot more money and drive up everyone’s healthcare costs.

Sounds to me like you want a free all-you-can-eat healthcare buffet and patients shouldn’t have to actually plan anything for themselves or shop around based on price like they do with every other single industry. Would you take your car to a shop charging $10k for a new transmission when the other local shop will charge $2k for the same quality of work? No, because you…wait for it…actually have to pay for it! Maybe you can show me how that’s different than getting an MRI done at a hospital for $2500 instead of going to an imaging center and getting the same exact thing for $400.

Guest
Peter
May 17, 2011

“That’s because employers are shifting more of the price of insurance to workers, resulting in higher copayments and deductibles.”

Well DUH! HSA/HDHP have not lowered system costs for patients one cent, they have lowered claims by, “residents cut back on imaging tests, chose generic drugs, or postponed elective procedures such as knee replacements.”

How much knee pain should a patient endure in order to afford the deductibles/co-pays? Why is the patient now the doctor is determining if that image is necessary? FSA/HDHP were developed because insurance companies needed a product to push that gave the facade that the insurance costs less, where in fact they got less. Kinda like the food inflation shell game we’re seeing now with smaller packages at the same price.

Insurance guy, if you believe in shared sacrifice in order to lower medical costs just where are providers doing their share of “sacrificing” with HDHPs?

Guest

@Peter & Margalit – I think you do not understand how health insurance pricing works. There is a cost for everything – when you have a policy with low deductible and co-payments for services instead of a simple deductible + 100% coverage afterward, you are paying the insurance company an awful lot of money to do some paperwork for you, especially in the individual market where the difference in pricing between HSA and co-pay plans with equal out of pocket expense maximums.

Speaking of cost-sharing reducing the utilization rate (which lowers health insurance premiums), look what’s finally happening in Massachusetts – http://www.boston.com/business/healthcare/articles/2011/05/17/rebound_continues_for_health_insurers/

“A key driver of the companies’ improved fortunes was a decline in the number of insurance claims as more Massachusetts residents cut back on imaging tests, chose generic drugs, or postponed elective procedures such as knee replacements. That’s because employers are shifting more of the price of insurance to workers, resulting in higher copayments and deductibles.”

Amazing what happens when you actually care about the cost of things. If I pay a $50 co-pay for an MRI, I could care less whether it costs $1900 at the hospital or $400 at the imaging center. If I’m paying that out of my pocket, you better believe I’m shopping around for it.

Guest
Peter
May 17, 2011

“Your math does not match what I am seeing. I work for a large not-for-profit health system.”

Then that’s why what you’re narrowly seeing is a Cadillac HSA/HDHP. Now look at the rest of the world.

“The only small downside is that you need to have the money in your account prior to using it (unlike an FSA). So, for your first year’s first few months you are at some risk”

What kind of risk? That would mean you’ve bet your illness won’t be too severe, lengthy or costly.

“if you live pay check to pay check”

The higher the income the better HSA/HDHPs work, much like the rest of life.

“What if they were incentivised to do so.”

By who, how?

Guest
May 16, 2011

Margalit,

Your math does not match what I am seeing. I work for a large not-for-profit health system. I previously paid $80 per pay period (every 2 weeks) x26 pay periods/year for an annually premium cost of $2080. My company now pays the entire amount of my high deductible plan (my cost is $0). They also match my HSA up to $1500. This means that I start off with a net $3580 compared to my colleagues who opt for a $250 deductible plan. I have done the math on this in multiple scenarios, in no scenario is the HSA a bad choice financially. The only small downside is that you need to have the money in your account prior to using it (unlike an FSA). So, for your first year’s first few months you are at some risk if you live pay check to pay check, but most health companies will work with you on a payment plan (which negates most of this risk). I realize not all companies offer the same levels of help, but what if they did. What if they were incentivised to do so. Even the very sick would do better in the HSA plan my company offers than the other lower or non-deductible plans combined with FSA.

On the comment to Virginia about people with more paying more, we already do. If you make more, you pay more taxes, which funds CMS. In my position at the hospital I work in, I see some of the financial information. We as a whole already pay for those who can’t. Hospitals have to charge more to insured and cash payers to offset the cost for CMS reimbursement, charity care, and bad debt. I like the ideal of an enlightened society taking care of the poor and needy, but how do we do this without encouraging abuse of the system, how do we do this and not take away some people’s motivation, how do we do this and still empower people’s decision making ability?

Guest
May 16, 2011

@Virginia
Just to be clear, people as a group do pay the entire price for their health care, either through premiums or through taxes. Nobody else pays for health care other than people. Certainly not corporations. Whatever employers pay is in lieu of wages and on top of that it is passed down to consumers through higher prices for whatever widgets they make.
I assume that what bothers you is that individual people don’t pay exactly what their individual expenditures are at a certain time. I thought that’s what insurance is supposed to be for. Either we have insurance, or we don’t. Perhaps you are not interested in the social insurance model, where those who have more, pay more. I happen to think that this model is the only acceptable one in an enlightened society, and certainly the only sustainable one.
I would not change my mind no matter how much it cost. I also don’t think this is the right question to ask. The better question is how do we pull all our resources together so everybody has equitable access to medical care. I can certainly pay a little more, and perhaps insurers can take out a little less, and providers can lower their expectations by a small fraction, and those who abuse the system should be put in jail, and so forth. I think shared sacrifice is a good way to describe it and if everybody does their part it need not kill anyone.

Rob N,
If you replace my, say, $10,000 premium with a $8,000 premium and $2000 high deductible per year. I wouldn’t object too much, although for a poor person that happens to be very sick, it probably won’t look so tempting. But that’s not really what we’re doing is it? My new premium would be more like $9,000 per year with the net result of raising my expenses by $1000, if I happen to be sick to the tune of $2000 per year.
As Peter noted, it’s OK for healthy folks.

Guest
Peter
May 16, 2011

HSAs are good for people who don’t need medical care.