Readers of this blog know that I have lots of concerns for the Senate
Finance health bill primarily because it does not so much represent
health care reform as just an expensive entitlement expansion.Readers also know the insurance lobby–AHP–is not one of my favorite organizations.But
I will tell you the report by Pricewaterhouse Coopers (PwC)
commissioned by the AHP and released this morning is accurate. The
Senate Finance bill would do nothing short of blowing up the insurance
market.You don't need to be Einstein or a PwC actuary to come to that conclusion. Common sense is all the credential you need.
Beginning
in 2013, the Senate Finance bill would make uninsured individuals
eligible for premium credits to buy a health policy. But those credits
would leave these people far short of being able to really afford a
health insurance policy. A family of four at 250% of poverty and making
$55,000 a year ($52,000 is the medium household income in the U.S.)
would have to pay about $4,000 toward their premiums and that for a
policy with a $1,000 deductible and a maximum of about $7,000 in
out-of-pocket costs each year.At 300% of poverty, $66,150, a family would be required to pay $8,000 in premium for a policy with a $3,000 deductible!How
many families making $55,000 a year or $66,000 a year do you know that
could add this kind of expense to their annual budgets?It is
really no better for a family making 400% of poverty, or $88,200 a
year. They would have to pay $10,600 a year in insurance premiums for
that policy with a $3,000 deductible!Senate Finance, knowing
they could not enforce this kind of individual mandate to buy health
insurance then set about to exempt many from paying a fine or just
gutting the fine if they did not buy the coverage.In 2013, for
example, there would be no fine for not having insurance. By 2014 the
penalty would be $200 per adult and it would rise to $400 in 2015, $600
in 2016, and $750 by 2017.But starting in 2013 the Senate
Finance bill says that the insurance companies have to get rid of
medical underwriting and pre-existing conditions provisions.So
in 2013, any consumer could simply go to the health insurance company
and demand to be covered under any one of the mandated benefit plans.
No medical underwriting before getting in and no pre-existing condition
limitations. Just sign the application and go to the doctor.In
one sense you can understand the political logic here–the Democrats
can't very well mandate middle class families to pony-up $4,000, or
$8,000, or $10,000 out of their already challenged budgets. So they
just found a way to exempt them or make the fine a tiny one.But they left the insurance reforms in place.Let me ask you a question. Why would any family buy health insurance under such a scheme?I
will suggest the answer is that they will buy it when they need it. No
sooner. Even in 2017, a family with two adults would pay no more than a
$1,500 annual fine against a premium that would be $4,000 to $10,000 a
year in these middle class income brackets.I'll give you another one. Why would any small employer provide health insurance?I
will suggest the answer to that one is the smart small employer will
just cash-out any benefits they do provide today and tell the employee
t0 pay the fine until they need it and then go to the exchange and get
it (there is also no small employer mandate in the bill to provide
coverage). The worker would likely be thousands of dollars ahead each
year!The problem the Democrats have here is that they are
trying to get a health bill to cost under $1 trillion. That has made
them back off on premium subsidies and policy benefits. They have had
to back so far off that proposals are not offering health insurance
policies anything close to being affordable for middle class families.The political response in Senate Finance has been to waive the individual mandates but keep the underwriting reforms.The
sum of it all is a health insurance market disaster in the making. In
the business we refer to it as a "death spiral." Simply, the higher the
premiums go the fewer that will buy, the sicker the pool, the higher
the premiums go once again, even fewer people are left in the pool, and
so on until all of the sick are in the pool and all of the healthy have
left it.The PWC report says that average family premiums of
$12,300 today will rise to $25,900 under the Senate Finance proposals
in 2019. They say premiums would be driven by these underwriting
reforms, cost shifting from Medicare cuts, and new insurance taxes
simply being passed through to consumers.I don't know if the PwC report is exactly correct.But common sense certainly takes one to the same conclusion.The
Senate Finance Democrats could not have created a bigger insurance pool
train wreck in the making than the one they have devised here.
What
is really amazing is how all of these Senators sitting around that
Senate Finance table have just sleep walked their way through all of
this as if they don't have the common sense to figure this out on their
own.
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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