Health Insurance Reform: God (Or The Devil) Is In The Details

The Senate Finance Committee's health insurance reform plan does propose some significant changes to the small group and individual health insurance markets. I say "changes" and not improvements because there still aren't a lot of details, and those details there are don't suggest a lot of hope that small business owners and self-employed people will experience much short- or long-term cost savings...in fact, the betting would be on higher costs and even more limited control over them.

The major elements of the insurance proposal fall into four categories: rate and underwriting regulations; the creation of insurance exchanges; the development of statewide, non-profit health insurance co-operatives; and the individual mandate.

Insurance Rating Reforms: beginning on January 1, 2013, insurance companies would no longer be able to deny coverage to any individual applicant for health reasons. And insurers would have limits on the variations they might impose on rates: in general, the highest price for any given health plan could not exceed 7.5 times the cost of the lowest-cost plan. And rates can be set using only the applicant's age and family size, plus variations for smoking and geography.

The same conditions would apply to small groups (with 1-50 employees) by 2019.

Who might win here?...Obviously, people who haven't been able to purchase coverage because they wouldn't pass through a health screen, and probably self-employed people, who would qualify for group coverage under the plan. The rating rules would theoretically benefit younger insureds, and more or less smack it to older folks.

The thing is, though, that we won't know till at least 2019 how any of these regulations might help or hurt the market, since there seems to be no oversight.

Insurance Exchanges:States will be required to set up insurance "exchanges," which will use standardized application forms, technology-assisted marketing and communications and customer support, to marketplaces for purchasing health plans. The timing would supposedly follow the insurance reform timetable, with exchange-based plans available to individuals by January 1, 2013, for small groups by 2018, and for larger groups five years after that.

It's a lot easier to pass a law that says, "Thou shalt set up insurance exchanges" than it is actually to build one. No one really has any idea how such a marketplace will be set up and operate. It's also not clear how plans available through an exchange might be different form those offered by insurers themselves, whether all insurers operating in a state will be required to participate, if that participation will be proportionate to their market share...or anything else.

And again, small businesspeople who are feeling the health insurance squeeze now shouldn't be rushing to the bank with all the money they're going to save on health insurance premiums. It'll be three to five years before the structures will even exist, and another three to five to determine whether this approach is working.

Tomorrow: Co-ops and Mandates

Taxes And Taxes Which Aren't Taxes: Plenty Not To Like In Baucus Health Bill

It's actually a pretty good sign that the health reform plan released last week by Senate Finance Committee Chair Max Baucus immediately drew fire from both left and right, from both Republicans and Democrats. It's the sign of a compromise that all parties feel unsatisfied with the result.

What the release of the plan really triggers is the beginning of serious horse-trading, as the Finance Committee's bill is debated against a bill reported out earlier in the summer by the Senate Health, Education, Labor, and Pensions Committee, which is considerably more liberal than the Finance Committee's version. And once the Senate has agreed upon a bill, then the action will move to the House, which must reconcile four different health reform bills. Then House and senate members will form a Conference Committee to reconcile House and senate bills into the final piece of legislation.

The point here is that we're a long, long, way from knowing what the final version of health reform legislation will look like. So if you're part of the insurance industry, it's way premature to be celebrating that the Finance version doesn't contain a "public option." And if you're a manufacturer of pharmaceuticals or medical equipment, it's too soon to panic over the imposition of billions of dollars in fees meant to cover the cost of insuring the uninsured via a means which would not add to the federal deficit.

But for small businesspeople and other taxpayers, it ISN'T too soon to be concerned that whatever comes out of the legislative sausage-maker will make health insurance more expensive for you, unless cooler heads prevail along the way...which isn't likely.

Republicans have virtually invited themselves out of the debate, which means that they've abandoned their role as negotiators on behalf of limited government and lower taxes in favor of mere obstreperousness. And Baucus has already made clear his willingness to increase tax subsidies to assist middle-income Americans to buy coverage, and to raise the ceiling on his spurious proposal to tax "gold-plated" health plans.

There's plenty in Baucus' bill to give taxpayers pause. Here are a few:

...A 35% excise tax on insurers which offer generous benefit plans. Setting aside for a moment the notion of on what basis such a tax might be calculated (actual premium cost vs. some sort of "actuarial value" calculation), insurers are likely (indeed, they'll lobby furiously for the right) to pass the cost of the excise tax on to the consumers who purchase these generous benefits plans. And while they've been characterized as punishing the white-collar tycoons who run big banks and insurance companies, these benefits plans are really enjoyed mostly by union workers. The idea won't fly unless it's seriously watered down, but since it's one of the biggest keys to generating revenue to pay for other stuff, watering it down will require either cutting benefits for some or raising revenue some other way;

Taxes which aren't taxes: In similar fashion, the Baucus plan proposes imposition of $13 billion in fees on insurance companies, drugmakers, and equipment manufacturers to cover part of the cost of insuring the uninsured. These fees have also been cooked up to generate revenue in a way that doesn't look like a tax. But the costs would be passed straight back to consumers as well.

I don't know about you, but when my costs go up, it doesn't matter much whether the extra costs goes to the government or my insurance company, it feels like a tax to me.

Tomorrow, I'll try to take uo the upside and downside of the Baucus bill's insurance reforms.