It's hard to recall a vote in the House of Representatives which has been as closely watched or widely discussed and debated as Sunday's vote on health insurance reform legislation.
But it's not hard to be a little concerned that the legislation once again will highlight the confusion Members of Congress and the Administration regularly experience on big issues: the notion that passing a law is the same as solving a problem.
Because from where I sit here in the grass roots of America, the problems with implementation of this new law (assuming it passes in the Senate and is actually permitted to take effect) are just beginning...and they're huge.
I take very little issue with the intentions of the bill: especially in the face of our current economic downturn, with high unemployment and great uncertainty about the future, literally millions of families are seeing their health security...if they ever had it..evaporate. And the market for individual health coverage (created by the enactment of HIPAA in the mid-1990's, by a Republican Congress) had plenty of built-in dysfunction which fairly cried out for regulation. Generally, premiums for both small businesses and individuals have more than doubled in the past decade, and the escalating costs have created anxiety among many Americans.
But it takes the naivete of young idealists or the statutory cluelessness of the Congressional Budget Office to see how this bill will have any prayer of "bending the curve" of increasing health costs for the next decade.
I'm not even considering the "process improvements" and pilot projects incorporated into the bill.
I'm thinking about how we will actually pay for the cost of subsidizing access to health insurance for every American family earning below four times the poverty rate...beginning in 2014.
The vast majority of the financing for those subsidies are assumed cuts in the growth of Medicare reimbursements, which have never been enacted in the prior history of Medicare. Those cuts are typically threatened in any given year and restored before the year is over. Do we really think Congress will find the courage to do something which it has yet to find the courage to do in the 45 years since Medicare was introduced?
The other big source of financing is the so-called "Cadillac plan tax" on high-cost health plans. Originally scheduled to take effect in 2014, the House kicked that can down the road till 2018, by which time the cost of even a low-benefit health plan will probably qualify for an excise tax.
Proponents of the reform legislation like to point out the potential benefits to consumers which might materialize in the out-years after the bill takes effect. And there are some real benefits.
But even considering those benefits, it's hard to see many provisions of this legislation which will control health insurance costs for small businesses and the self-employed, and plenty of provisions which could lead us to real fiscal calamity. Once again the Congress has attempted to craft legislation creating a gigantic new entitlement without having the courage to pay for it (or, more specifically, to require US to pay for it).
And that's the embodiment of their confusion over the difference between passing a law and solving a problem.
Showing posts with label "Cadillac plan" taxes. Show all posts
Showing posts with label "Cadillac plan" taxes. Show all posts
Monday, March 22, 2010
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?
Tuesday, October 13, 2009
AHIP Tosses A Well-Timed Grenade...And Raises Some Issues
The White House was all aghast yesterday when a study by PriceWaterhouseCoopers commissioned by America's Health Insurance Plans (AHIP), the insurance industry trade association, suggested that the Senate Finance Committee's health reform bill would raise the price of health insurance 40% more than would be the case under current law.
If you'd like to review the study, here's a link: http://www.americanhealthsolution.org/assets/Reform-Resources/AHIP-Reform-Resources/PWC-Report-on-Costs-Final.pdf
As is usually the case with the debate over health insurance reform, the report is a mixture of worst-case-scenario doomsday predictions...and some inconvenient truth.
The report focuses on four elements of the Finance Committee's bill:
1)...The introduction of insurance market reforms and consumer protections that would raise insurance premiums for individuals and families if the reforms are not accompanied by a universal coverage mandate;
2)...An excise tax on employer-provided high-value health plans ("Cadillac plans")that in a few years could raise premiums on moderate-value plans;
3)...Cuts in payment rates for public health plans which would accelerate cost shifts to the private sector, and;
4)...New taxes on health care entities which would be passed on to consumers.
AHIP's first concern is that a requirement that health plans be guaranteed issue, and that the variation between rates for the youngest and healthiest vs. the oldest and sickest individuals be not more that 4:1, will raise rates for younger people and make it difficult for them to afford coverage, even with generous subsidies.
The organization's stated concern is that if young people aren't able to buy coverage affordably, and aren't required to buy it, they'll wait to purchase coverage until they're sick, and make a mess for everybody. And if you buy the report's analysis, their conclusion is valid.
But I don't buy it for a second.
The industry's interest in a requirement to purchase coverage is the expectation that an individual mandate would create a brand new pool of young, healthy people who'll pay a lot in premiums cumulatively, but won't use their coverage. This is VERY profitable for insurers. That's why insurers are so interested in keeping prices as low as possible for younger people, even if doing so socks it to older folks (okay, like me).
And right now, while most states limit the variations on group insurance premiums (in Ohio, the variation is plus-or-minus 80%), there's currently no limit on the difference between what insurers can charge people in the individual market. And the differences in premium rates can be staggering.
A change to community rating and guaranteed issue would, indeed, raise premium rates for younger individuals; they might pay a little more than insurance industry actuaries would like to charge them. But they also tend to age eventually, and then will benefit from that subsidy.
A 60% increase in my 24-year-old's insurance premiums would raise them from $125 to $200 per month. But as he gets older, the rating reform suggests that his rate wouldn't be more than $800 per month as he got to his 60's.
I think the industry's real fear is that young folks would jump ship from private insurance to an expanded Medicaid program (assuming they earned less than some appropriate multiple of the poverty line), and they'd lose all that revenue.
I want to talk about the two tax-related issues together, so let's focus for a minute on the cost-shifting boogeyman. The industry's concern is that reductions in the growth of spending on Medicare and Medicaid would accelerate a cost shift to the private sector. The report makes no allowance, however, for the possibility that the spending reductions might actually reduce costs and increase efficiencies on the provider side.
It's an unfortunate political truth that spending cuts in health care are almost always specious...often, they're accounting tricks to move expenditures off the books in one year only to restore them in the next year. But AHIP's analysis suggests NO reductions in the rate of spending will occur over the next ten years, and ALL the excess costs will be passed along to a helpless and hapless private sector. Cost shifting is easy to suspect, and hard to prove...not worth the doomsday picture the industry's analysis suggests.
Now the taxes...that's another story...
The Finance Committee has proposed a 40% excise tax on "Cadillac plans"...basically, plans that cost more than $8000/year for one person or $21,000 for a family, regardless of whether the plan is a group plan or a non-group plan. I've said here before that this provision just shows how little our elected officials know about what health insurance costs.
Last year, when I was forced to shop for non-group insurance for my family, the best price I could get, on a plan with a $3000 family deductible, was $1880 per month: more than my mortgage payment, and a whopping $22,560 per year. Sure didn't feel like a Cadillac plan.
A 40% excise tax on that plan would add up to $9024, making the effective cost $31,584. It's an easy-seeming way to raise revenue, but:
...Do we really expect that insurance companies will just eat that nine grand?...Puh-leez!...Insurance companies are like the house in Vegas: they never lose, because they're paying with your money. Somehow, that cost is going to get passed along, and;
2)...Do we really buy the contention that the tax will force employers to buy less generous plans?...Like what...a plan with a $5000 family deductible?...$10,000?...
And while this is being positioned as a go-after-the-rich-guys tax, I suspect a close analysis would conclude that many folks on generous health plans are union workers and government employees, who will fight like tigers to keep from having those plans modified.
Now maybe there are large employers who would like to think the imposition of such an excise tax could be used as a gun to the head to wring concessions out of their workers. But certainly nobody's saying that.
The taxes proposed for drugmakers and equipment manufacturers fall into a similar category. Do our elected officials really expect these industry groups to swallow hard and just absorb these tax hikes? And when customers/patients encounter rising co-pays or deductibles for medication or medical equipment, they encounter then through their health plans, and blame the insurance companies for the higher prices. They walk, fly, and quack like stealth taxes on consumers...let's call them what they are.
Finally, though, even as I suggest that the insurers aren't all wet in their analysis, I point out a little thing nobody's talking about: The change from a complex, medically-underwritten system of insurance to a community-rated, guaranteed-issue system should vastly simplify the business processes for health insurers, which should result in a significant reduction in administrative costs. Add in the efficiencies that could be produced by the development of highly-automated insurance exchanges, and there's a strong possibility that the administrative costs for small group and individual insurance coverage could be cut from 25-40% of premiums to half of that. And a significant reduction in those administrative costs could really "bend the curve" for small businesses and individuals. The effects of reducing and controlling administrative costs actually magnify over time, if purchasers can de-link the cost of administrative costs from medical costs, and build marketing, distribution, and management systems which take advantage of economies of scale.
Of course, AHIP's analysis doesn't anticipate that, either.
If you'd like to review the study, here's a link: http://www.americanhealthsolution.org/assets/Reform-Resources/AHIP-Reform-Resources/PWC-Report-on-Costs-Final.pdf
As is usually the case with the debate over health insurance reform, the report is a mixture of worst-case-scenario doomsday predictions...and some inconvenient truth.
The report focuses on four elements of the Finance Committee's bill:
1)...The introduction of insurance market reforms and consumer protections that would raise insurance premiums for individuals and families if the reforms are not accompanied by a universal coverage mandate;
2)...An excise tax on employer-provided high-value health plans ("Cadillac plans")that in a few years could raise premiums on moderate-value plans;
3)...Cuts in payment rates for public health plans which would accelerate cost shifts to the private sector, and;
4)...New taxes on health care entities which would be passed on to consumers.
AHIP's first concern is that a requirement that health plans be guaranteed issue, and that the variation between rates for the youngest and healthiest vs. the oldest and sickest individuals be not more that 4:1, will raise rates for younger people and make it difficult for them to afford coverage, even with generous subsidies.
The organization's stated concern is that if young people aren't able to buy coverage affordably, and aren't required to buy it, they'll wait to purchase coverage until they're sick, and make a mess for everybody. And if you buy the report's analysis, their conclusion is valid.
But I don't buy it for a second.
The industry's interest in a requirement to purchase coverage is the expectation that an individual mandate would create a brand new pool of young, healthy people who'll pay a lot in premiums cumulatively, but won't use their coverage. This is VERY profitable for insurers. That's why insurers are so interested in keeping prices as low as possible for younger people, even if doing so socks it to older folks (okay, like me).
And right now, while most states limit the variations on group insurance premiums (in Ohio, the variation is plus-or-minus 80%), there's currently no limit on the difference between what insurers can charge people in the individual market. And the differences in premium rates can be staggering.
A change to community rating and guaranteed issue would, indeed, raise premium rates for younger individuals; they might pay a little more than insurance industry actuaries would like to charge them. But they also tend to age eventually, and then will benefit from that subsidy.
A 60% increase in my 24-year-old's insurance premiums would raise them from $125 to $200 per month. But as he gets older, the rating reform suggests that his rate wouldn't be more than $800 per month as he got to his 60's.
I think the industry's real fear is that young folks would jump ship from private insurance to an expanded Medicaid program (assuming they earned less than some appropriate multiple of the poverty line), and they'd lose all that revenue.
I want to talk about the two tax-related issues together, so let's focus for a minute on the cost-shifting boogeyman. The industry's concern is that reductions in the growth of spending on Medicare and Medicaid would accelerate a cost shift to the private sector. The report makes no allowance, however, for the possibility that the spending reductions might actually reduce costs and increase efficiencies on the provider side.
It's an unfortunate political truth that spending cuts in health care are almost always specious...often, they're accounting tricks to move expenditures off the books in one year only to restore them in the next year. But AHIP's analysis suggests NO reductions in the rate of spending will occur over the next ten years, and ALL the excess costs will be passed along to a helpless and hapless private sector. Cost shifting is easy to suspect, and hard to prove...not worth the doomsday picture the industry's analysis suggests.
Now the taxes...that's another story...
The Finance Committee has proposed a 40% excise tax on "Cadillac plans"...basically, plans that cost more than $8000/year for one person or $21,000 for a family, regardless of whether the plan is a group plan or a non-group plan. I've said here before that this provision just shows how little our elected officials know about what health insurance costs.
Last year, when I was forced to shop for non-group insurance for my family, the best price I could get, on a plan with a $3000 family deductible, was $1880 per month: more than my mortgage payment, and a whopping $22,560 per year. Sure didn't feel like a Cadillac plan.
A 40% excise tax on that plan would add up to $9024, making the effective cost $31,584. It's an easy-seeming way to raise revenue, but:
...Do we really expect that insurance companies will just eat that nine grand?...Puh-leez!...Insurance companies are like the house in Vegas: they never lose, because they're paying with your money. Somehow, that cost is going to get passed along, and;
2)...Do we really buy the contention that the tax will force employers to buy less generous plans?...Like what...a plan with a $5000 family deductible?...$10,000?...
And while this is being positioned as a go-after-the-rich-guys tax, I suspect a close analysis would conclude that many folks on generous health plans are union workers and government employees, who will fight like tigers to keep from having those plans modified.
Now maybe there are large employers who would like to think the imposition of such an excise tax could be used as a gun to the head to wring concessions out of their workers. But certainly nobody's saying that.
The taxes proposed for drugmakers and equipment manufacturers fall into a similar category. Do our elected officials really expect these industry groups to swallow hard and just absorb these tax hikes? And when customers/patients encounter rising co-pays or deductibles for medication or medical equipment, they encounter then through their health plans, and blame the insurance companies for the higher prices. They walk, fly, and quack like stealth taxes on consumers...let's call them what they are.
Finally, though, even as I suggest that the insurers aren't all wet in their analysis, I point out a little thing nobody's talking about: The change from a complex, medically-underwritten system of insurance to a community-rated, guaranteed-issue system should vastly simplify the business processes for health insurers, which should result in a significant reduction in administrative costs. Add in the efficiencies that could be produced by the development of highly-automated insurance exchanges, and there's a strong possibility that the administrative costs for small group and individual insurance coverage could be cut from 25-40% of premiums to half of that. And a significant reduction in those administrative costs could really "bend the curve" for small businesses and individuals. The effects of reducing and controlling administrative costs actually magnify over time, if purchasers can de-link the cost of administrative costs from medical costs, and build marketing, distribution, and management systems which take advantage of economies of scale.
Of course, AHIP's analysis doesn't anticipate that, either.
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