HELP! This is Unbelievable

Key members of the Senate Health, Education, Labor, and Pensions Committee announced on Thursday what they claimed were dramatically improved cost and coverage estimates for the latest version of their health care reform bill.

Headed by Democratic Senator Christopher Dodd, HELP members (in a Muzak-marred conference call with reporters) stated that the revised bill would cost only $611 billion over ten years, a figure apparently computed by the CBO, and that with a further expansion of Medicaid would provide coverage for 97 percent of Americans.

Key features of the bill provided during the conference call included a public plan option, subsidies for lower-income individuals buying insurance through an exchange mechanism, and a play-or-pay employer mandate.

Sounds good? We’ll have to wait for details, but two big problems are already apparent.

The first BIG problem is that the ten-year cost estimate of $611 billion excludes the cost of Medicaid expansion. With Senator Dodd’s admission that the HELP Committee expects this to provide coverage for 7 percent of Americans (the difference between the 97 percent coverage with Medicaid expansion and 90 percent without it), the total cost balloons to far more than a trillion dollars. A rough calculation of Medicaid costs for 20 million Americans at present funding levels gives a total of $80 billion a year – or $800 billion just for Medicaid expansion, presumably to be shared with state governments already on the verge of bankruptcy.

Even assuming that Senator Dodd misspoke, and the at he intended his percentages to apply only to under-65 Americans, the ten-year estimate for Medicaid expansion is still over $700 billion—with no provision for medical inflation. And, given the financial condition of most states, most of this cost would have to be borne by the federal government.

The second BIG problem is the absurdly modest levy—$750 for businesses with more than 25 workers and $375 for businesses with fewer than 25—to be imposed on employers not providing employee coverage. It’s hard to believe, in the middle of a deepening recession, that many employers will not choose to pay the $375 or $750 levy rather than buy insurance at $3,000 or more (just for the employee, with no family coverage), with additional government subsidies needed to bridge the funding gap.

The CBO has apparently assumed in its estimates that there will not be a big change in the extent of employer-sponsored coverage over the ten-year period, but this seems unrealistic. While we have not seen a “rush to the exits” in Massachusetts so far, the longer-term experience of Hawaii may be more meaningful. Immediately after Hawaii passed its mandated coverage law, the uninsured rate was below 5 percent, but as a series of recessions hit Hawaii’s economy, the rate increased to 8 percent in 1998, and close to 10 percent today. Only the truly naïve can believe that numerous US employers won’t either choose the far cheaper levy option or—as in Hawaii—find other ways of ducking the employer mandate.

Roger Collier was formerly CEO of a national health care consulting firm. His experience includes the design and implementation of innovative health care programs for HMOs, health insurers, and state and federal agencies.  He is editor of Health Care REFORM UPDATE [reformupdate.blogspot.com].

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Ed B.Margalit Gur-ArieTom LeithPeterPeter Recent comment authors
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Ed B.
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Ed B.

Obama and the Liberal Democrats want to control every aspect of your life, including your health care. That is their whole game. Obama tells you that you will be able to keep your current health insurance plan. He should have said you can stay in your current plan if you (or your employer, or the combination) want to pay 50% more than what the government will charge in what they are making available through their new health insurance exchange. The balance of funding for the health care exchange plan options is nothing but government deficit financing (oh yes, once again).… Read more »

Nate
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Nate

“What exactly do you expect them to do?”
ask for generics at the doctors office
take better care of themselves
use care more efficiently
push their providers to be more efficient
mainly just respect the cost, consumers today act like spoiled kids spending mommy and daddy’s money.
What Barry said is the main issue, if they don’t know the true cost nothing will happen, transparency can only help. If they know and choose to ignore it so be, but to not know you can’t expect any beneficial action.

Barry Carol
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Barry Carol

“What exactly do you expect them to do? Turn down the employer plan and go without, or look for something cheaper on the individual market?” Margalit – If employees had a clear understanding of the cost of their health insurance including their own contribution toward the premium as well as what the employer pays on their behalf, there might be more interest in less expensive alternatives. Many employers only offer on health plan choice. Millions of employees in both the public and private sector are represented by unions. Many non-union employers routinely solicit their employees regarding how they value their… Read more »

Margalit Gur-Arie
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“Maybe if employees realized high insurance premiums
are really a HUGE tax on their earnings they would be
more engaged.”
How so, Nate? What exactly do you expect them to do? Turn down the employer plan and go without, or look for something cheaper on the individual market?

Tom Leith
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Tom Leith

Nate says: > Ideally I would like to see the full cost of > insurance put into employees pay then deducted out. > Maybe if employees realized high insurance premiums > are really a HUGE tax on their earnings they would be > more engaged. Lots of companies do this or something like it. Even almost 30 years ago a company I worked for did that once a year in an “annual compensation report”. ADP (the big payroll processor) will do it for any company that wants it. I really think most people look at taxes as unavoidable and many… Read more »

Peter
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Peter

Barry, what I meant was that law enforcement IS paid from taxes. Fraud in any system will escalate costs. I can agree on the pain and suffering limits as that is usually what pays the lawyer fees and gives the plaintiff extra spending money, although someone needs to pay the lawyer, if it’s not the looser. But how much of litigation costs from minor injuries accounted for high insurance rates, unless it was an accepted way to game the system in NJ? We certainly have lots of lawyers here advertising to sue for accidents and I don’t know of any… Read more »

Barry Carol
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Barry Carol

Peter,
The fraud wasn’t covered by taxpayers. It was sharply reduced by more aggressive and effective law enforcement using some of the strategies pioneered by NYC in the early 1990’s. Property damage and medical costs were always covered by insurance. The savings came from eliminating non-economic damages (pain and suffering) for relatively minor injuries as well as the associated litigation costs.

Peter
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Peter

Barry,
Sounds like the taxpayer covered ending the fraud, while government made sure people’s medical/property damages were paid for. Single-pay would already cover medical damages by definition, but no one has shown me yet where there has been substantial reduction in premiums in states where tort reform has been passed (McAllen Tx, in healthcare it only seems to relieve the docs of some overhead.

Barry Carol
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Barry Carol

“Here in NC, as is probably true in other states, car insurance is mandatory (I agree by the way) AND REGULATED by the insurance commissioner. Our commissioner has done a great job in overseeing rates and keeps them in line.” Peter, Since you brought up auto insurance, I would like to provide some history regarding my state of NJ’s experience. Back in the mid to late 1990’s, NJ was one of the two most expensive states (MA was the other) in the country for car insurance. The auto insurance industry was extremely tightly regulated to the point where profits were… Read more »

Peter
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Peter

“By the way, in response to your next comment, don’t forget that there will be some relief on private premiums by cutting down on uncompensated care that has to be recouped by private payers.” jd, who’s going to be looking over the insurance industry’s shoulder to see whether this happens. Here in NC, as is probably true in other states, car insurance is mandatory (I agree by the way) AND REGULATED by the insurance commissioner. Our commissioner has done a great job in overseeing rates and keeps them in line. I’d feel more comfortable if some mechanism was in place… Read more »

Nate
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Nate

“I thought there was general agreement ( I guess not by you), especially for small business, that it is poor policy to rely on employers for health insurance.” The left side of pro reform is in strong agreement on this point, it’s agreement out of ignorance then sound theory though. Consider both unemployment and Medicare premium are collected through employers. As is workers comp, I haven’t heard anyone claim employers should not be providing these coverages. The issue is not who collects the premium but what politicians have done to what once was insurance. If employers could buy true insurance… Read more »

Jd
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Jd

Peter, I’ve pretty much stopped talking about first-best solutions and now mostly look at what will be more or less effective within options in play or that seem plausibly in play for this round of reform. My ideal would either be something like the Dutch system for multi-payer or the French system for (quasi) single-payer. But as the Germans show, keeping employers involved doesn’t have to be a big problem. There is no chance this round of reforms will fix our system. What it can do is bring nearly everyone into the system in a more, er, systematic way and… Read more »

Peter
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Peter

“subsidies for lower-income individuals buying insurance through an exchange mechanism…”
Roger, is there anything in there for premium/co-pay/deductible relief for the poor sods (businesses included) who presently pay for private insurance. Are they going to continue to be stuck with paying the insurance/hospital piper while others get the discounts?

Peter
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Peter

“A small employer penalty will be particularly powerful (and fair!) if it is coupled with a small individual penalty for not getting insurance. $750 for the employer and $250 for the individual would be a nice combination, not too onerous for either but in conjunction able to move a huge number of people into coverage.” jd, I thought there was general agreement ( I guess not by you), especially for small business, that it is poor policy to rely on employers for health innsurance. I for one (individual) will not blink at paying the $250 penalty if forced into the… Read more »

jd
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jd

Roger, thanks for responding. $3K per recipient of expanded medicare per year sounds reasonable, though I really don’t think the proportion of disabled in the expanded population could be as high as it is in the Medicaid population on which that estimate is based. Also note that the current population of Medicaid recipients is disproportionately women of child-bearing age and children. The new enrollees would have a significantly higher proportion of men, particularly men in their 20s and 30s (young invincibles). Actuaries can figure out how that should impact the estimate. Your major point is of course dead-on that the… Read more »