WOW!...Time flies...After a few weeks of triumph (our baby daughter's high school graduation) and my Mom's death, time to check back in for a view from the grass roots of America...
I spent some time in Ohio's state capital (Columbus, for the geographically challenged) talking with officials of the state's Department of Insurance about the implementation of federal health care reforms at the state level, where most of the really heavy lifting and ongoing work of actually covering people will be done.
They're a little busy. The first order of business is to implement the federally-mandated and (partially and temporarily) funded high-risk pool for hard-to-insure Ohioans. Ohio has had some experience with such a risk pool, and most of it has been unpleasant: largely because of very high premium rates, Ohio's current risk pool covers fewer than 1500 Ohioans. A temporary federal subsidy may make rates a little more affordable for some folks for awhile. The high-risk pool is supposed to be in place by July 1st.
By September 1st, all employer plans will be required to extend family coverage to dependents under the age of 26. While large, self-insured employers have till September to take that action, most Ohio insurers have already implemented that change for fully-insured customers (read: small groups and individuals) effective July 1st. The cost? We'll see...but it ain't free...
The REAL action, though, is going to revolve around the establishment of a statewide health insurance exchange by January 1st, 2014. Through the exchanges, individuals and companies with fewer than 50 employees are supposed to be able to shop for, compare, purchase and manage their health plans on-line. Larger employers will supposedly have the option a couple years later. And ultimately, the high-risk pool will be absorbed into the exchanges.
The exchanges are going to have a lot of work to do. In addition to packaging, marketing and managing health plans for participating insurers, they'll be tasked with means-testing applicants to determine whether they will qualify for an expanded Medicaid program (again, temporarily subsidized by Federal funds) or for a private insurance subsidy (ditto) for participation in a private health plan.
How's all this going to work? No one knows. The Federal government has yet to produce regulations which will guide the states' implementation of the exchanges.
This is, of course, a practical problem. I have a little experience with developing large-scale health plans and the infrastructure needed to support them. And three and a half years is NOT a lot of time.
Beyond logistics, though, there are policy issues to be agreed to between the Fed and the industry. Those negotiations are very likely to involve a lot of chicanery. In general, insurers are not happy at all at the prospect of having to do business in a new environment of transparency and efficiency. Here are just a few of the issues to be determined:
What incentives will be created to encourage administrative efficiency? This is a really big deal for small businesses and individuals, where between 25 and 40 percent of premiums go to cover administrative costs. The new Federal law requires insurers to hold their administrative costs to 20 percent or less of premiums for small groups, and 25 percent or less for individuals. Currently, insurers' efforts are focused on attempts to re-classify what have long been considered as administrative costs as clinical costs, including many marketing and community outreach costs.
Recently, for example, the CEO of the Ohio Association of Health Plans suggested that insurers be "incentivized" to encourage hospitals and physicians to adopt universal electronic medical records by classifying the associated costs as related to patient care, rather than administrative costs. Expect to hear much more highfalutin' rhetoric from insurers about their focus on patient care as a result of games like these.
What will happen to underwriting costs?No one knows for sure what percentage of insurers' administrative costs are attributed to the health screening imposed on every individual and small group application, but it wouldn't be unreasonable to estimate the costs at 6-7 percent of premiums. By 2014, those underwriting practices...and theoretically, their attendant costs, will be going away. Presumably, a portion of those underwriting costs will have to be re-allocated to enable exchanges to do the means testing work they'll be required to do. How will we know whether that happens?
What will happen to marketing, advertising and sales costs?Marketing, advertising and sales costs make up easily 10-12 percent of small group and individual administration costs. Insurers say that these costs are high because the process of selling small group and individual coverage is very inefficient. Theoretically, the exchanges should bring a high degree of simplicity, standardization, and administrative efficiency to the process. In Massachusetts, for example, it appears that groups using the Massachusetts Connector for their coverage pay lower premium rates when they access the Connector directly than when they do so using an agent or broker. But in most states, including Ohio, there are literally laws against rewarding marketing and administrative efficiency with lower rates. A well-run exchange has the potential to reduce marketing and sales costs by as much as half. Who'll make sure that happens?
While much ink is being spilled over the Obama health plan's relatively weak efforts to rein in medical costs, insufficient public discussion is occurring around these matters which...well, matter...so critically to the prices which small businesses and individuals pay for their health coverage. Given the ability to do so, exchanges could reduce the administrative costs portion of their health plans by as much as half.
But right now, those conversations are taking place largely in the dark, between newly-hired federal bureaucrats and seasoned and cynical insurance industry lobbyists. Which ought to make us all just a tad uncomfortable...and skeptical...that these important new vehicles really will have the flexibility to change the small group and individual insurance markets. Usually, if you take a bunch of broken stuff and jam it all together, you just get one big, REALLY broken thing.
Hope our self-styled small business advocates are paying attention to the right things...
Showing posts with label " administrative costs. Show all posts
Showing posts with label " administrative costs. Show all posts
Monday, June 21, 2010
Tuesday, December 29, 2009
Another Health Care "Stealth Tax" On Small Businesses And The Middle Class
Okay, so with much hoopla and hyperbole, the Senate passed its version of a health care reform bill in the wee hours of Christmas Eve, just in time for Senators to declare victory and get out of town. (And for those keeping partisan score, the total process in both Houses garnered 278 "yes" votes from Democrats, 2 from Independents, and zero votes from Republicans).
Now the process will revert to a conference committee, which will try to reconcile House and Senate bills into a single piece of legislation.
I've been saying for a couple of months that it's been extremely difficult for me to decipher any element of bills passed in either House which suggest there's any hope for reducing the rise in health insurance costs for small businesses and individuals. It's much easier to see where the bills could lead to further and faster increases in the cost of health insurance. Several of the key funding elements of the legislation could easily fall directly on the small business owners and the self-employed.
That thought is echoed by New York Times columnist Bob Herbert, who writes today about the "middle class time bomb ticking in the Senate's of President Obama's effort to reform health care.' Read his column at http://www.nytimes.com/2009/12/29/opinion/29herbert.html?emc=tnt&tntemail1=y
The culprit is the so-called Cadillac tax on high-cost health plans. While the idea was born of grass-roots anger at the bankers and financial speculators who have continued to enjoy big salaries and bonuses even as they trashed the economy, the unintended consequence of such a tax is set up to have a big impact on working people, small business owners and their employees, and on the self-employed.
You may recall that the Senate bill imposes a 40% tax on the "excess value" of health plans which cost more than $8500 per year ($708 per month) for individuals and $23,000 per year ($1916 per month)for family coverage. The tax is projected to raise $150 billion over ten years, so it's a big element of the estimated $870 billion needed to fund the Senate's healrh care reform plan.
The tax has been hailed by numerous economists and talking heads as a cost-containment measure, presumably because companies and individuals would seek to avoid the tax by purchasing lower-cost health plans...which just goes to sow that those economists and talking heads haven't shopped for health insurance lately.
That's because the only way to purchase a lower-priced health plan is to reduce the level of benefits the plans cover. That merely passes a higher level of deductibles, co-pays and other out-of-pocket expenses on to the beneficiaries. And given that much of the health insurance reform fever began to spread due to outrage over higher deductibles and co-pays, this "stealth tax" would seem to run counter to what our political leaders say they want to accomplish with reform legislation.
The Congressional Budget Office estimates that the "Cadillac tax" would effect nearly 20 percent of workers, or some 31 million people. The primary opposition to the tax thus far is organized labor, and a big chunk of those affected by the tax would be union members with generous health plans they've negotiated with their employers. I suspect that those large employers savor the opportunity to place their unions over a barrel, using the tax as a possible means to negotiate benefits concessions from their workers. To them I say, "Let the games begin."
But the folks who will really take it in the teeth will be small businesses and the people they employ. It's taken as conventional wisdom that small companies pay 18-20 percent more for their health coverage than large companies do for comparable coverage. And those higher costs are due to the 25-27 percent of premium costs which have nothing to do with health care: insurer administrative costs.
I wrote a few weeks ago about my own attempt to shop for both group and non-group health insurance coverage. At my age (a factor in setting premium rates)and with my family, the best deal I could find was for a plan with a $3000 family deductible and a 10% co-pay...hardly a "Cadillac plan"...and that was for $1880 per month. That works out to $22,560 per year...in 2008.
Assuming a modest 10% increase per year (and most folks would consider a 10% increase a good deal), that same plan would cost $3027 per month, or $36,330 per year.
So the tax on the "excess value" of the plan, or $13,330, would be over $5,000.
If I raised my deductible to $6,000 per year, my premiums might be reduced by 20% or so...but that's STILL $29,064 per year. So I could reduce the tax liability to a mere $24,300.
And even though the politicians are touting an exemption from employer mandates or payroll tax penalties for nearly 90 percent of small businesses, there's simply no way to exempt small businesses form a "Cadillac tax" and still hope to generate enough revenue to meet their targets.
The geniuses who support this tax have suggested publicly that, in the face of such a disincentive, small businesses would buy less expensive coverage. If that's the case, of course, nobody pays the tax, and there's no revenue. But small business employees would see PLENTY of new expenses in the form or higher deductibles and co-pays.
I see two possibilities: either the policy "experts" are mistaken in their suggestion that the tax would create an incentive to buy cheaper policies, or they know their observation is wrong and are saying it anyway...in other words, they're lying. They know that health costs will be so high that it'll be impossible to avoid a tax on your health benefits, whether they're Cadillac plans, or just Chevys.
Mistaken or lying. Who'll get to the bottom of that Hobson's Choice? You may want to ask your Congressman or Senators.
Now the process will revert to a conference committee, which will try to reconcile House and Senate bills into a single piece of legislation.
I've been saying for a couple of months that it's been extremely difficult for me to decipher any element of bills passed in either House which suggest there's any hope for reducing the rise in health insurance costs for small businesses and individuals. It's much easier to see where the bills could lead to further and faster increases in the cost of health insurance. Several of the key funding elements of the legislation could easily fall directly on the small business owners and the self-employed.
That thought is echoed by New York Times columnist Bob Herbert, who writes today about the "middle class time bomb ticking in the Senate's of President Obama's effort to reform health care.' Read his column at http://www.nytimes.com/2009/12/29/opinion/29herbert.html?emc=tnt&tntemail1=y
The culprit is the so-called Cadillac tax on high-cost health plans. While the idea was born of grass-roots anger at the bankers and financial speculators who have continued to enjoy big salaries and bonuses even as they trashed the economy, the unintended consequence of such a tax is set up to have a big impact on working people, small business owners and their employees, and on the self-employed.
You may recall that the Senate bill imposes a 40% tax on the "excess value" of health plans which cost more than $8500 per year ($708 per month) for individuals and $23,000 per year ($1916 per month)for family coverage. The tax is projected to raise $150 billion over ten years, so it's a big element of the estimated $870 billion needed to fund the Senate's healrh care reform plan.
The tax has been hailed by numerous economists and talking heads as a cost-containment measure, presumably because companies and individuals would seek to avoid the tax by purchasing lower-cost health plans...which just goes to sow that those economists and talking heads haven't shopped for health insurance lately.
That's because the only way to purchase a lower-priced health plan is to reduce the level of benefits the plans cover. That merely passes a higher level of deductibles, co-pays and other out-of-pocket expenses on to the beneficiaries. And given that much of the health insurance reform fever began to spread due to outrage over higher deductibles and co-pays, this "stealth tax" would seem to run counter to what our political leaders say they want to accomplish with reform legislation.
The Congressional Budget Office estimates that the "Cadillac tax" would effect nearly 20 percent of workers, or some 31 million people. The primary opposition to the tax thus far is organized labor, and a big chunk of those affected by the tax would be union members with generous health plans they've negotiated with their employers. I suspect that those large employers savor the opportunity to place their unions over a barrel, using the tax as a possible means to negotiate benefits concessions from their workers. To them I say, "Let the games begin."
But the folks who will really take it in the teeth will be small businesses and the people they employ. It's taken as conventional wisdom that small companies pay 18-20 percent more for their health coverage than large companies do for comparable coverage. And those higher costs are due to the 25-27 percent of premium costs which have nothing to do with health care: insurer administrative costs.
I wrote a few weeks ago about my own attempt to shop for both group and non-group health insurance coverage. At my age (a factor in setting premium rates)and with my family, the best deal I could find was for a plan with a $3000 family deductible and a 10% co-pay...hardly a "Cadillac plan"...and that was for $1880 per month. That works out to $22,560 per year...in 2008.
Assuming a modest 10% increase per year (and most folks would consider a 10% increase a good deal), that same plan would cost $3027 per month, or $36,330 per year.
So the tax on the "excess value" of the plan, or $13,330, would be over $5,000.
If I raised my deductible to $6,000 per year, my premiums might be reduced by 20% or so...but that's STILL $29,064 per year. So I could reduce the tax liability to a mere $24,300.
And even though the politicians are touting an exemption from employer mandates or payroll tax penalties for nearly 90 percent of small businesses, there's simply no way to exempt small businesses form a "Cadillac tax" and still hope to generate enough revenue to meet their targets.
The geniuses who support this tax have suggested publicly that, in the face of such a disincentive, small businesses would buy less expensive coverage. If that's the case, of course, nobody pays the tax, and there's no revenue. But small business employees would see PLENTY of new expenses in the form or higher deductibles and co-pays.
I see two possibilities: either the policy "experts" are mistaken in their suggestion that the tax would create an incentive to buy cheaper policies, or they know their observation is wrong and are saying it anyway...in other words, they're lying. They know that health costs will be so high that it'll be impossible to avoid a tax on your health benefits, whether they're Cadillac plans, or just Chevys.
Mistaken or lying. Who'll get to the bottom of that Hobson's Choice? You may want to ask your Congressman or Senators.
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