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The 9th Grade Class Does Obamacare Math (Can Journalists Do the Same?)

Welcome, students, to our special combined 9th grade math and civics class. Today, we’re going to look at the “Cadillac tax” in the Affordable Care Act.

Yes, Mitt, you have a question already? No, no, “Cadillac tax” is just an expression. No one is going to tax your family’s cars, Mitt, I promise.

Paul, you also have a question? I’m sorry, Paul, but if you had done the reading, you would know that the “Affordable Care Act” and “Obamacare” are the same thing. And yes, it is still the law, as I must have told you and your friends 40 times. Now can we get on with the class?

As those of you who did do the reading know, most American workers get their health insurance through their employer. The company, in turn, is allowed to deduct the cost of that insurance from its taxes. If the insurance for workers is very generous, it can encourage people to use too much medical care. This not only drives up costs, but we all pay for it a second time through the tax code. The Affordable Care Act addresses that problem by placing an excise tax on rich benefit plans starting in 2018, which is informally known as the “Cadillac tax.”

Economists of all viewpoints generally agree that an open-ended tax deduction for health insurance encourages overconsumption. What do we call that kind of agreement? Michelle?

No, Michelle, I’m afraid, “liberal conspiracy” is not the answer I was looking for. “Bipartisan consensus” was the correct response.

Rand, you seem quite agitated. Yes? “Government intervention in markets is never the right answer.” OK. Well, Rand, let’s talk about that another time and move on from civics to the mathematics part of today’s lesson. We’ll start with a word problem from the New York Times.

The Times quoted a study from a health policy journal as saying that 75 percent of health plans could be affected by the Cadillac tax over the next decade. That’s a big number, isn’t it?  And the tax itself is 40 percent – another big number. No wonder the story was on the first page of the Business section.

But here are a few other numbers from the same study: just 16 percent of plans are likely be affected by the tax when it starts in 2018 ­– a much smaller number. And the “next decade” the study is talking about starts in 2018. What the study actually says is that by 2029 the tax could reduce benefits for affected plans by 3.1 percent. That’s an even smaller number and even further away.

Class, why would the New York Times emphasize the biggest numbers they could find?

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The Exchanges Won’t Be Ready in Time. And it Probably Won’t Matter.

As states race to implement health reform, California doesn’t want to settle for second.

“We don’t want to be a pace car state” when it comes to implementing health reform, state HHS Secretary Diana Dooley told Politico back in January 2011. “We want to be the lead car.”

It’s a metaphor that California leaders have returned to time and again. And to their credit, they’ve often succeeded.

While other states waffled, Golden State officials quickly embraced key Obamacare provisions like expanding Medicaid and creating insurance pools for individuals with pre-existing conditions.

At the same time, lawmakers crafted legislation intended to conform California’s health insurance plans to new standards under the Affordable Care Act.

And Covered California, the state’s health insurance exchange, also has drawn national attention for its speedy implementation. Among the 17 states that opted to run their own exchanges, California has “certainly [been] in the lead on getting their health plan information out … and getting the contracts signed,” Rachel Dolan, who monitors exchange activity for State Refor(u)m, a project of the National Academy of State Health Policy, said.

But the driving metaphor only extends so far.

“I don’t think it’s a race,” Dolan added, cautioning that each state might take unique approaches to exchange implementation — and objectively judging those individual strategies is impossible.

And a more essential issue might be getting lost, amid the growing number of questions over which state exchanges will be open for business on Oct. 1.

“Lots of people are asking about readiness,” said Caroline Pearson, who leads Avalere Health’s efforts to track health reform implementation. “But no one is asking about whether it matters.”

Where the States Stand on Readiness
The sprint to get the exchanges off the ground — which for some states didn’t really begin in earnest until after the Supreme Court’s June 2012 decision to uphold the ACA — has led to repeated delays and ongoing concerns.

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The Most Effective Obamacare Delay is Defunding

There is nothing controversial about stopping Obamacare. A majority of Americans dislike the law and want it repealed. Obamacare is disastrous for individuals, businesses, and doctors alike. It is unaffordable and unworkable, and the Obama Administration has also made it unfair by giving its pet interest groups waivers and opt-outs.

Conservatives are also united behind full repeal of Obamacare, despite what you may hear from the media and liberal operatives. The debate right now is on how this goal is best achieved.

Debate is healthy for society, and also for a movement. Conservatives should not want to become the empty echo chamber that has become the liberal political/media/academic establishment.

With that in mind, let’s turn to the debate over how to save the country from Obamacare. Our view is that the most effective way to delay Obamacare is to cut off funding. Congress can halt Obamacare’s disastrous impact by defunding it entirely before the law’s health insurance exchanges take effect on October 1.

This approach would prevent further implementation of the law; it is the only tactic that fully achieves the objective that advocates of delay seek to accomplish.

Some conservatives believe they can achieve delay without defunding by postponing the individual mandate and employer mandate for one year while leaving firmly in place the massive federal spending on Obamacare’s new health care entitlements—$48 billion next year, and nearly $1.8 trillion over 10 years. Others, acknowledging that a delay of the mandate is insufficient, are now calling for Congress to delay the mandates and the new entitlements.

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What the Death of American Medical News Says About the Future of American Medicine

If you wanted to know what doctors thought about money and medical practice, including plumber envy, you’d read American Medical News(AMN). That’s the biweekly newspaper the American Medical Association just announced it’s shutting down.

Unlike JAMA, in which doctors appear as white-coated scientists, AMN focused on practical and political issues, not least of which was the bottom line. For outsiders, that’s provided a fascinating window into the House of Medicine.

Take, for instance, the sensitive topic of plumber envy. A 1955 AMA report I discovered during research on a book I wrote some years ago lamented physicians’ “consistent preoccupation with their economic insecurity,” including envious comparisons to “what plumbers make for house calls.”

Flash forward to 1967. Thanks to most patients now enjoying private or public health insurance, doctors’ incomes have improved substantially. The pages of AMN include advertisements for Cadillacs and convention hotels (Miami Beach is “Vacationland USA”). However, one man’s income is another man’s expenses, and complaints about rising medical costs have surged. When AFL-CIO president George Meany joins the chorus of carping, an AMN headline asks, “How about plumbing?”

If today’s doctors have finally piped down about plumbers ­– an electronic search of AMN archives back to 2004 produced no plumbing references – it may be because the average plumber earned about $51,830 in 2011, according to the Bureau of Labor Statistics, while the average general internist earned $183,170. Meanwhile, the AMN ads for cars ­were long ago replaced by ads for drugs, where influencing a doctor’s choice can drive millions or billions in revenue.

Unsurprisingly, the issue of rising medical costs and its causes has been a persistent theme in AMN since its launch in 1958. (For my book research, I pored through its indexes and old issues.) While AMN ran articles with titles like, “Medicine Called ‘Best Bargain Ever,’” the AMA leadership knew health cost unhappiness was not a psychosomatic disorder.

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Talmudic-Like Studies of Republican Health Reform Ideas

After doing Talmudic-like studies of the doctrines on health reform promulgated by Republican health-policy makers and the conservative economists who inspired them during the past two decades, I am devastated to discover that all of those studies have been for naught. We are now told, sometimes by the same prophets of yore, that these doctrines were not only wrong, but outright heretical, which in this context means un-American.

New doctrines are rumored to be in the making, but the first word on them has yet to be committed to new, sacred tablets, mainly because there have not yet emerged any new ideas worth committing to tablets.

Do not take my word for it. Newt Gingrich, one of the Grand Old Party’s aging prophets, said so himself in his recent speech to the Republican National Committee.

Comes now conservative commentator John R. Graham of the Pacific Research Institute, telling us that Republicans seem lost in the desert even in their hit-and-run insurgency against their sworn enemy, the Affordable Care Act of 2010 (ACA).

What is a befuddled immigrant to the United States like me, eagerly trying to become a right thinking American, to make of it all?

My early introduction to the texts coming from conservative thinking on health reform was the Heritage Plan of 1989, Viewed through the prism of the ACA of 2010, its language seems eerily familiar. One provision, for example, proposed a:

“[m]andate all households to obtain adequate insurance. Many states now require passengers in automobiles to wear seatbelts for their own protection. Many others require anybody driving a car to have liability insurance. But neither the federal government nor any state requires all households to protect themselves from the potentially catastrophic costs of a serious accident or illness. Under the Heritage plan, there would be such a requirement” (p.5).

The Heritage Plan also called for income-related, refundable tax credits toward the purchase of private health insurance. Although it did not call for community rated premiums, it proposed means-tested public subsidies and toward high out-of-pocket expenses of individuals and families. It did not spell out the daunting administrative apparatus that would entail. But one can imagine the required new bureaucratic apparatus, replete with auditors to prevent fraud and abuse. Presumably, income-related subsidies would have involved the Internal Revenue Service (IRS) in some ways as well.

Next came a text put forth by conservative economist Mark V. Pauly and like-minded colleagues in Health Affairs. It is worth a reading again. Here’s the core of these prophets’ proposal:

“In our scheme, every person would be required to obtain basic coverage, through either an individual or a family insurance plan. …All basic plans would be required to cover specified health services; plans could, however, offer more generous benefits or supplemental policies. The maximum out-of-pocket expense (stop-loss) permitted would be geared to income, with more complete coverage required for lower-income people, to ensure that no one faced the risk of out-of-pocket expenses that were catastrophic, given their income.” Again, lots of government intrusion into health care, along with links to the IRS.

There then followed a real life health bill based on these ideas, the late Republican John Chafee’s antidote to the emerging Clinton plan. It was called the “Health Equity and Access Reform Today Act of 1993” and had an impressively long list of Republican co-sponsors, among them Senator’s Orrin Hatch (R-Utah) and Charles Grassley (R-Iowa), now fierce opponents of the ACA. As the folks at the Kaiser Family Foundation have shown, many of its provisions of Chafee’s bill have a striking similarity to provisions in the ACA of 2010 and comparing.

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Preparing for 2014: Questions for Obamacare’s Opponents

As a confident critic of ObamaCare from its genesis, I’m impressed that the law remains unpopular and that the American people appear ready to scrap it and start again. Last March, a senior bureaucrat in charge of rolling out ObamaCare fretted about a “third-world experience“.

ObamaCare’s opponents have managed to keep Republican politicians unified against the law. The only tactical question is whether the GOP can credibly threaten to “shut down the government” during the forthcoming debate over the Continuing Resolution (the legislation that funds the government in the absence of a budget).

It’s been a good three and a half years for ObamaCare’s opponents. Nevertheless, outside the political realm, businesses and investors are behaving as if ObamaCare is hardened concrete. Although ObamaCare’s opponents have overwhelmingly succeeded in convincing society of the law’s drawbacks, it is not at all clear that society is ready to accept a more free-market alternative reform.

Indeed, some of the approaches used against ObamaCare might have unintended consequences that will appear in 2014, the law’s first fully operational year, which would make repealing and replacing ObamaCare extremely difficult.

Here are a few friendly questions for ObamaCare’s opponents:

First: We’ve spend a lot of effort convincing people that state-based health-insurance exchanges will be a disaster, and succeeded in blocking their establishment in many states. To be sure, they are an unnecessary bureaucracy, but do we really believe that enrolling in the New York Health Benefits Exchange or Cover California will be the worst thing since unsliced bread? It won’t be like shopping on Amazon.com, but I’ll bet it will be easier than doing business with the DMV. The New York Times recently reported on exchange outreach efforts in Colorado (a pro-ObamaCare state) and Missouri (an anti-ObamaCare state). The take-away: In Colorado, it’s almost impossible for people to avoid learning how to enroll in the exchange, while in Missouri it’s been extremely difficult to get information. Most people will not be interested in how much it cost taxpayers to set up and operate the exchanges. Do we really believe that when ordinary Missourians learn from their Coloradan friends that their state government has helped them get federal tax credits for health insurance, that they will reward Show-Me state politicians for trying to block them?

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The Obamacare Numbers: Difficult to Measure and Subject to Spin

When California announced that individual premiums in its health insurance exchange could be 29% lower than expectedPresident Obama cheered. When Indiana announced premiums might be 72% higher than beforestate officials predicted doom. So who is right? Are health insurance premiums going up or down?

We don’t know, at least in part, because both sides are playing with the numbers. To be sure, natural variation exists in how state insurance markets will be affected, but consumers should also be aware of how premium comparisons are twisted to reach predetermined results. Here are five ways they have been slanted:

  • First, when the math suits your agenda, there is a tendency to conflate premiums for insurance purchased on ObamaCare’s new exchanges with those in the private market. Next year, only about2.5% of us will pay the exchange rates for purchasing our insurance. Since the vast majority of Americans will continue to receive health coverage through their employer, Medicare or Medicaid, the issue is smaller than we’re led to believe.
  • Second, the impact of the Affordable Care Act varies widely for different subsets of the population. Opponents of ObamaCare tend to focus on the demographic least likely to benefit: young, healthy males, many of whom don’t buy insurance now and might pay higher premiums when entering the market next year than they’d pay today. Supporters, on the other hand, concentrate on older individuals and people with chronic conditions who are currently unable to buy insurance or forced to pay exorbitantly high premiums.

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The Great American Health Care Divide

In 1883, the authoritarian imperial government of Prince Otto von Bismarck – who famously declared, “It is not by speeches and majority votes that the great issues of our time will be decided…but by blood and iron” – established national health insurance for Germany.

The rationale for national health insurance is as clear now as it was to Bismarck 130 years ago. A country’s success – whether measured by the glory of its Kaiser, the expansion of its territory, the security of its borders, or the well-being of its population – rests on the health of its people.

Serious illness can strike anyone, and seriously ill people, as a rule, do not earn much money. The longer the seriously ill are untreated, the more costly their eventual treatment and maintenance become.

Private savings, as a rule, can pay the costs of treatment only for the thrifty and the well-off. So, unless we adopt the view that those without ample savings who fall seriously ill should quickly die (and so decrease the surplus population), a country with national health insurance will be a wealthier and more successful country. These arguments were entirely convincing to Bismarck. They are equally convincing today.

On January 1, 2014, the United States will partly implement a law – the Affordable Care Act (ACA) – that will not establish national health insurance, but that will, according to projections by the Congressional Budget Office, reduce by almost one-half the number of people in the US without health insurance. Back in 2009, President Barack Obama could have proposed a program as comprehensive as the one initiated by Bismarck. Such a program could have allowed, encouraged, and made it affordable for uninsured Americans to obtain health insurance similar to what members of Congress have; or it simply could have expanded the existing Medicare system for those over 65 to cover all Americans.

Instead, Obama put his weight behind the complicated ACA. The reason, as it was explained to me back in 2009, was that the core of the ACA was identical to the plan that former Massachusetts Governor Mitt Romney had proposed and signed into law in that state in 2006: “ObamaCare” would be “RomneyCare” with a new coat of paint. With Romney the Republican Party’s presumptive nominee for the 2012 presidential election, few Republicans would be able to vote against what was their candidate’s signature legislative initiative as governor.

Thus, the US Congress, it was supposed, would enact the ACA with healthy and bipartisan majorities, and Obama would demonstrate that he could transcend Washington’s partisan gridlock.

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My Family’s Obamacare

How will the Affordable Care Act affect my family and me? The answer, like the law itself, is complicated. There will be as many stories about health reform as there are families. But I’m confident that most of these stories will be good.

I say this both as a health-policy wonk, with my own health policy consulting firm, and as a husband and father. My wife and I live in Sacramento, California, and we have a five-year-old son. My wife also happens to have a pre-existing health condition. It’s nothing life-threatening but it’s just serious enough that she has been turned down for regular health insurance coverage. Up to a third of Americans face a similar issue, according to the Government Accountability Office.

Finding affordable, high-quality health coverage for my family has been, even for me, an “expert” in the area of health insurance, very complicated and frustrating. So I work with a health insurance broker to understand my options.

Currently, we have “COBRA” coverage for my wife, a type of health insurance you can get for 18 months after you’ve left employer-sponsored health coverage and that is available regardless of health history. It is expensive, though, costing us $655 per month. Then, since I don’t have an employer to provide coverage, I buy a separate policy in the so-called “individual market” to cover my son and myself. That costs $482 per month.

So before we get to any out-of-pocket medical expenses, we’re shelling out $13,644 per year in health insurance premiums. That’s actually quite a bit less than the average premium cost of $18,430 for people with employer-sponsored insurance (as calculated in the Milliman Medical Index of 2013), but the difference is that people with employer-sponsored insurance don’t have to take out their checkbook and pay the entire bill, since their company covers part of it and takes the rest out of their pay.

Our coverage is good for what we pay, but not extraordinarily so. It’s a pair of similar PPO (Preferred Provider Organization) products through Blue Shield of California that have a fairly broad network of doctors and hospitals.

Will my life get less complicated and frustrating on January 1, 2014, the day that health reform coverage starts? I believe it will.

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What Happens In New York Stays In New York

While sitting in the crowded waiting room of a medical specialist’s office I was forced to listen to the television set directly over my head. Cranked up so that everyone could listen above the din of conversation, Wolf Blitzer introduced a video clip of the President hailing the latest news from New York about health insurance exchanges.

Speaking as if he was still on the campaign trail, the President’s words came through loud and clear over the television: thanks to his health reform, premiums in the New York exchange would be half that of premiums in the individual market. This was a model the entire nation should embrace.

No one heard me mutter under my breath that this was a model for New York and a small handful of other states that previously regulated their individual insurance markets effectively out of existence.

What the President undoubtedly knows, but dared not say, is that New York’s individual insurance market is unlike any other state. In New York, insurers cannot charge higher premiums to high risk enrollees.

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As a result of this aggressive community rating, high risk individuals are disproportionately represented in New York’s individual policy risk pools. This drives up premiums, which drives away low risks, driving premiums even higher. Insurers in New York are counting on the purchase mandate, combined with purchase subsidies, to lure low risks into the pool.

This is why they have lowered premiums.

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