I've been following the politics of health care reform for nearly 30 years, and I have never seen anything so bizarre as what has unfolded in DC since Tuesday's special election in Massachusetts.
There has been so much dithering about what Senator #41 means to the future of health care reform in this Congress and forward, that I can't find anything new to say about it.
Except this:
By my own crude sense of measurement, I've participated in six attempts to reform the health insurance system at the local, state, and national levels (modesty and post-traumatic stress disorder prevent me from listing the specifics, but buy me a couple of beers and I'll spill everything). Most of them not only failed miserably, but did so in a way which rendered the environment "toxic" for years to come.
Most of the failures had a few things in common. One was hubris on the part of the principals, the type which says, "we know so much more about the issues than you do; trust us, and when we solve your problems you'll be so grateful."
The second was a kind of tone-deafness which comes from sharing the same foxhole with a few other embattled souls in a nasty fight. I recall listening to a pitch from a very senior corporate executive extolling the virtues of a certain merger. I asked him after his presentation if his company was prepared for the severe public backlash that would result from his proposal becoming public. His answer: "The only people we need to persuade are in the state capitol; we don't care whether the media like us or not."
The third was an attempt to use the complexity of the issue to fog up the real questions, and try to divert the public from the simple, basic question which any reform proposal must answer: What does this mean for my health plan?
I think this is an essential element of the latest meltdown: the proponents of "reform" have, for the past six months or so, walked a very thin and fragile line of credibility, and completely forgot that most people in America already have health coverage, and like what they have, though they are concerned about what might happen in the future. So when regular people with health insurance see big expansion of government programs, subsidies for a bunch of people who already have coverage, a bunch of new bureaucratic and regulatory structures, and truly craven deals with both industry groups and individual lawmakers, they asked themselves, "What does all this matter to my health plan?" And by and large, the answer was either straightforwardly "your costs will go up," or a much more common, and much less honest, "we're pretty sure your costs might not go up quite as fast as in the past, but of course we can't be sure."
People aren't dumb.
Conversely, the reform strategies which succeeded best were those which were best equipped to answer the "What's in it for me?" question. If you can keep people's focus on the benefit to them, and talk straight to them, it's possible to sell common-sense reforms.
I hope Our Friends In Congress and the White House take this to heart as they consider how to re-package and sell a more highly-targeted health insurance reform strategy. The strategy should be based on using existing structures and programs to solve some of the real problems in the private insurance market and in our public health plans.
There's plenty both parties agree upon. Curbing the most egregious practices of the health insurance industry is a natural place to start; it was the first chapter in both the House and Senate bills. And it's hard to envision even the most flint-hearted conservative objecting to the idea of prohibiting insurers from denying or cutting off health coverage for people who are sick. Most of the House and Senate insurance reforms make sense; only insurers will object to them. Without a mandate that everyone purchase their product, there's nothing in it for them. Too bad...
It's also become common knowledge that the small group and individual health insurance markets are highly dysfunctional: highly-concentrated, inefficient and expensive. Small businesses pay 18-20 percent more for health coverage than larger companies do for the same benefits. Most of that excess cost is attributable to the costs of marketing, selling, and underwriting small group business. 25 to 27 percent of small group health premiums consist of administrative costs; for self-employed individuals, up to 40 percent of premium costs are administrative.
The small group market would benefit from a push for administrative efficiency in the health insurance market, especially through strategies which enable small businesses and self-employed individuals to take advantage of the laws of large numbers in shopping for and purchasing health coverage. Both the House and Senate agree on the potential value of insurance exchanges to encourage competition and administrative efficiency in the small group and individual health markets. There is disagreement only over whether an exchange strategy should be national or state-by-state in its scope.
In the spirit of practicality, I'd suggest we start with a series of federal grants to states which wish to establish either public or private non-profit insurance exchanges. They can be set up quickly, within three years, and have a reasonably good chance of impacting markets at the regional and local levels. Let them collaborate, share services, and merge if they want to. The most important thing is to use consolidated marketing, selling, purchasing and administration to put just a little more power into the small group customers' hands.
It's also generally agreed upon that the best way to reach the truly most vulnerable Americans is through an expansion of Medicaid. The House and Senate versions disagree merely as to the matter of degree of the expansion.
Finally, a wild card: giving Medicare the right to negotiate with pharmaceutical companies would probably enable Medicare to fill in a lot of the "doughnut hole" without a massive new subsidy.
All these measures would enable proponents to say quite clearly how health care reform will benefit them. All are based on expansions or refinements of ideas on which there is broad agreement.
The results wouldn't be perfect, but they should help our admittedly imperfect health care system to operate a little better, and make health care coverage a little more accessible and affordable.
Give these reforms five years to work. Once we can be assured that just about everyone who wants to obtain health coverage is able to do so, we may need new policy, such as a national mandate or a nationwide exchange, to fill in remaining market gaps.
I think this sort of package also has the benefit of being able to attract either enough bi-partisan support to pass easily, or enough ire toward Republicans who would be seen as obstructing the enactment of even a modest package of common-sense reforms, that it would give the White House the victory it needs.
But I'm not a Washington insider; I'm just a guy from the grass roots of America.
Sunday, January 24, 2010
Monday, January 18, 2010
With The Deal Struck On "Cadillac Tax," Small Business, Like The Cheese, Stands Alone
You may have read it here first. As predicted, Congress and the Obama Administration have sought to blunt organized labor's opposition to the proposed 40% excise tax on "Cadillac" health plans by exempting health plans under negotiated labor agreements from the tax until 2018...five years after it's to take effect for everybody else.
And yet, the tax won't fall on everybody else.
The Senate version of the health insurance reform bill already exempts large employer health plans (which are usually self-insured) from any of the bill's reform requirements.
It's a blanket exemption, from plan design requirements, taxes...pretty much everything.
So, labor union plans get a pass. Large employer plans get a pass. So who's left?
Small businesses, that's who...
I wrote a couple weeks ago about how easily a health plan with even a large deductible ($1,500 for one person, $3,000 per family) can cost like a Cadillac plan, even if it doesn't look or feel like one. Because small businesses are generally denied the benefit of the laws of large numbers, they pay 18-20 percent more for their health insurance coverage than big companies do. So based on price alone, and with Congress jacked up to generate revenue, small business is once again the pigeon at the poker table.
Small business groups have won the amazing victory of exempting vision and dental plans from the Cadillac Tax computation. But the tax is still looming quite large.
Media accounts suggest that the tax will be on insurance companies, not on individuals or businesses, which is factually true but practically fatuous; the same outlets suggest that taxpayers seeking to avoid the tax would undoubtedly face either higher premiums or reduced benefits.
But the "reduced benefits" part is an illusion, too, since both House and Senate bills would cap deductibles at $2,000 for one person and $4,000 per family per year.
Of course, all this may be just so much speculation if the Republican candidate wins the special election to replace Massachusetts Senator Ted Kennedy.
But for now, estimates are that exempting labor union health plans will reduce the impact of the Cadillac Tax from $150 billion to $97 billion over ten years. Which means that, in addition to paying higher insurance premiums to insurance companies, small businesses have been set up to pay an additional $97 billion in taxes.
Remember when health care reform was about reducing the pace of runaway health care inflation, and making coverage more affordable for small businesses?
Seems like a lonnng time ago...
And yet, the tax won't fall on everybody else.
The Senate version of the health insurance reform bill already exempts large employer health plans (which are usually self-insured) from any of the bill's reform requirements.
It's a blanket exemption, from plan design requirements, taxes...pretty much everything.
So, labor union plans get a pass. Large employer plans get a pass. So who's left?
Small businesses, that's who...
I wrote a couple weeks ago about how easily a health plan with even a large deductible ($1,500 for one person, $3,000 per family) can cost like a Cadillac plan, even if it doesn't look or feel like one. Because small businesses are generally denied the benefit of the laws of large numbers, they pay 18-20 percent more for their health insurance coverage than big companies do. So based on price alone, and with Congress jacked up to generate revenue, small business is once again the pigeon at the poker table.
Small business groups have won the amazing victory of exempting vision and dental plans from the Cadillac Tax computation. But the tax is still looming quite large.
Media accounts suggest that the tax will be on insurance companies, not on individuals or businesses, which is factually true but practically fatuous; the same outlets suggest that taxpayers seeking to avoid the tax would undoubtedly face either higher premiums or reduced benefits.
But the "reduced benefits" part is an illusion, too, since both House and Senate bills would cap deductibles at $2,000 for one person and $4,000 per family per year.
Of course, all this may be just so much speculation if the Republican candidate wins the special election to replace Massachusetts Senator Ted Kennedy.
But for now, estimates are that exempting labor union health plans will reduce the impact of the Cadillac Tax from $150 billion to $97 billion over ten years. Which means that, in addition to paying higher insurance premiums to insurance companies, small businesses have been set up to pay an additional $97 billion in taxes.
Remember when health care reform was about reducing the pace of runaway health care inflation, and making coverage more affordable for small businesses?
Seems like a lonnng time ago...
Wednesday, January 6, 2010
Is Your Health Plan A "Cadillac?" Proposed Tax Is A Clunker For Small Business
I wrote last week that the proposed 40% excise tax on"Cadillac" health plans could be a "stealth tax" imposed on small businesses whose health plans certainly don't FEEL luxurious. And a couple readers added to my concerns by contributing their own viewpoints, supported by their own reviews of the legislation.
You'll recall that the Senate's health insurance reform measure would extend a tax on the "excess value" of health plans costing more than $8500 per year for individuals and $23,500 per year for families. And I used my own experience in shopping for small group health coverage to show how even a plan with a $3,000 family deductible could generate a tax liability of over $5,000 come 2013. Largely, that's because small groups and individuals pay between 18 and 20% more for health coverage than do their big company counterparts.
Turns out the proposal is even more onerous than meets the eye. Because there are components of the "Cadillac tax" that I didn't even include in the calculation. All I counted was the monthly premiums for health coverage. A reader included some additional surprises.
Does your employer's health plan cover dental insurance? Gotta add that in, too.
Vision care? Ditto.
Does your employer contribute to a Health Savings Account to help offset the impact of that High-Deductible Health Plan? Do you contribute pre-tax dollars to a HSA? Turns out those contributions count toward the "Cadillac tax" calculation.
Does your plan include a Flexible Spending Account, which lets you use pre-tax contributions to offset co-pays and pay for other services? Toss that in, too.
Health care and dental and vision coverage. HSA contributions. Flexible Spending Accounts. These are all elements of a responsible employer-sponsored health plan, and several components are put in place by some employers to help their workers offset the cost of health care. Taxing dental and vision benefits and HSA and FSA contributions could add thousands of dollars to the potential tax liability for employers trying to do the right thing for their workers.
How are employers likely to respond? I'd suggested that employers' first step would include settling for health plans with much higher deductibles.
But another reader suggested that won't be an option. Apparently both the House and Senate bills contain provisions which will limit health plan deductibles to $2000 per year for individuals and $4000 per family.
In general, I'm a fan of limiting deductibles. With insurers marketing plans with $5000/10,000 deductibles currently, and with most employers NOT contributing to HSA's, even families with $60,000-65,000 in annual income could find themselves exposed to considerable up-front expenses before their health benefits kick in.
But if the option of increasing deductibles is off the table, employers would have no choice but to start slashing benefits. Dropping dental and vision coverage. Eliminating HSA contributions. Closing down FSA's. Or else paying a LOT of tax.
I'm neither a political leader nor an academic health care economist, but this does not strike me as "creating incentives to purchase more cost-effective health plans." It seems a LOT like penalizing employers who are struggling to do the right thing.
Here are a few related observations:
White House and Congressional leaders have sold the "Cadillac tax" as a tax on insurance companies. Really? As I understand it, the job of calculating potential tax liability would rest with employers.
This is being sold as a tad on the rich, and their generous health benefits. But the real impact would most likely be on small businesses, who pay more for insurance coverage to begin with, and on union health plans.
The larger the employer group, the lower and more uniform the per capita health care costs tend to be. For companies with 50 or fewer employees, rates are set based on the ages of the employees in the group. Even in a "community rating" environment, rates may vary significantly, with younger employees' rates which are half those of older employees. This would mean that within a company, some employees' plans could be subject to taxation and others not.
It's quite surprising that small business advocacy groups aren't SCREAMING about this expensive and counter-productive measure, which runs absolutely to the contrary of what the Administration says its health care reform goals are. Of course, these groups tend to talk mostly with Republicans, who have shut themselves out of the process, and those who ARE "at the table" tend not to want to ruffle feathers by actually being advocates; that might get them uninvited.
With the House, Senate and White House apparently agreeing to the unprecedented step of sidestepping the conference committee process in favor of private negotiations, opportunities to have any real input to the reconciliation of House and Senate bills will be pretty limited. Insider indications are that the House may accept the "Cadillac tax" provision, if its impact on some constituencies can be limited. Look for an exemption for union health benefits.
Absent some decisive leadership, public scrutiny, and/or aggressive advocacy, this tax is poised to do incalculable damage to small businesses, one of the very groups whose problems with finding affordable health coverage gave the Administration its pretext for reform.
The question remains: is this a potential "unintended consequence" of which legislative and Administration leaders are not aware, or are they intentionally misrepresenting the tax to the small business community...aided and abetted by small business advocacy groups for whom "being a player" is more important that winning the game?
You'll recall that the Senate's health insurance reform measure would extend a tax on the "excess value" of health plans costing more than $8500 per year for individuals and $23,500 per year for families. And I used my own experience in shopping for small group health coverage to show how even a plan with a $3,000 family deductible could generate a tax liability of over $5,000 come 2013. Largely, that's because small groups and individuals pay between 18 and 20% more for health coverage than do their big company counterparts.
Turns out the proposal is even more onerous than meets the eye. Because there are components of the "Cadillac tax" that I didn't even include in the calculation. All I counted was the monthly premiums for health coverage. A reader included some additional surprises.
Does your employer's health plan cover dental insurance? Gotta add that in, too.
Vision care? Ditto.
Does your employer contribute to a Health Savings Account to help offset the impact of that High-Deductible Health Plan? Do you contribute pre-tax dollars to a HSA? Turns out those contributions count toward the "Cadillac tax" calculation.
Does your plan include a Flexible Spending Account, which lets you use pre-tax contributions to offset co-pays and pay for other services? Toss that in, too.
Health care and dental and vision coverage. HSA contributions. Flexible Spending Accounts. These are all elements of a responsible employer-sponsored health plan, and several components are put in place by some employers to help their workers offset the cost of health care. Taxing dental and vision benefits and HSA and FSA contributions could add thousands of dollars to the potential tax liability for employers trying to do the right thing for their workers.
How are employers likely to respond? I'd suggested that employers' first step would include settling for health plans with much higher deductibles.
But another reader suggested that won't be an option. Apparently both the House and Senate bills contain provisions which will limit health plan deductibles to $2000 per year for individuals and $4000 per family.
In general, I'm a fan of limiting deductibles. With insurers marketing plans with $5000/10,000 deductibles currently, and with most employers NOT contributing to HSA's, even families with $60,000-65,000 in annual income could find themselves exposed to considerable up-front expenses before their health benefits kick in.
But if the option of increasing deductibles is off the table, employers would have no choice but to start slashing benefits. Dropping dental and vision coverage. Eliminating HSA contributions. Closing down FSA's. Or else paying a LOT of tax.
I'm neither a political leader nor an academic health care economist, but this does not strike me as "creating incentives to purchase more cost-effective health plans." It seems a LOT like penalizing employers who are struggling to do the right thing.
Here are a few related observations:
White House and Congressional leaders have sold the "Cadillac tax" as a tax on insurance companies. Really? As I understand it, the job of calculating potential tax liability would rest with employers.
This is being sold as a tad on the rich, and their generous health benefits. But the real impact would most likely be on small businesses, who pay more for insurance coverage to begin with, and on union health plans.
The larger the employer group, the lower and more uniform the per capita health care costs tend to be. For companies with 50 or fewer employees, rates are set based on the ages of the employees in the group. Even in a "community rating" environment, rates may vary significantly, with younger employees' rates which are half those of older employees. This would mean that within a company, some employees' plans could be subject to taxation and others not.
It's quite surprising that small business advocacy groups aren't SCREAMING about this expensive and counter-productive measure, which runs absolutely to the contrary of what the Administration says its health care reform goals are. Of course, these groups tend to talk mostly with Republicans, who have shut themselves out of the process, and those who ARE "at the table" tend not to want to ruffle feathers by actually being advocates; that might get them uninvited.
With the House, Senate and White House apparently agreeing to the unprecedented step of sidestepping the conference committee process in favor of private negotiations, opportunities to have any real input to the reconciliation of House and Senate bills will be pretty limited. Insider indications are that the House may accept the "Cadillac tax" provision, if its impact on some constituencies can be limited. Look for an exemption for union health benefits.
Absent some decisive leadership, public scrutiny, and/or aggressive advocacy, this tax is poised to do incalculable damage to small businesses, one of the very groups whose problems with finding affordable health coverage gave the Administration its pretext for reform.
The question remains: is this a potential "unintended consequence" of which legislative and Administration leaders are not aware, or are they intentionally misrepresenting the tax to the small business community...aided and abetted by small business advocacy groups for whom "being a player" is more important that winning the game?
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