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?
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.
Monday, December 21, 2009
Senate Health Bill Can Pull 60 Votes...The Easy Part's Over...
A key procedural vote in the wee hours this morning has given Democratic Senate leaders confidence that they've found the 60 votes necessary to pass a health insurance reform bill with no support from Republicans.
The vote followed two weeks of intramural bloodshed among Democrats, and featured the sort of politics which gives politics a bad name.
Senator Joseph Lieberman of Connecticut proved it's possible to do the right thing, even for the wrong reasons, when he went to bat for the hometown insurance industry in refusing to vote for any bill which contained a public option. He won no friends among the Democrats (with whom he caucuses) by refusing to support a trial balloon Medicare "buy-in" for Americans between 55 and 64.
Senator Ben Nelson of Nebraska held the Senate hostage on principle, refusing to vote for any measure which did not prohibit the use of any public funds for abortions. In the end, he got some "fig leaf" legislative language punting responsibilities to the states...and some extra Medicaid money for Nebraska.
Apparently a half-dozen key Senators held their votes till they received the same sort of deal, which will provide additional Medicaid subsidies for their states to cover the extra cost of the bill's expansion of Medicaid.
The Senate expects a vote on this "historic" measure by Christmas Eve, so everybody can go home for the holiday.
Then the REAL bloodletting will begin, as negotiators try to reconcile a Senate bill with three others passed by the House. At issue are "irreconcilable" differences on issues like the public option, Medicare cuts, taxes on the rich, taxes on "Cadillac" health plans, and a whole range of funding issues.
Maybe we'll learn a little more about the Senate bill's particulars before they pass it.
The vote followed two weeks of intramural bloodshed among Democrats, and featured the sort of politics which gives politics a bad name.
Senator Joseph Lieberman of Connecticut proved it's possible to do the right thing, even for the wrong reasons, when he went to bat for the hometown insurance industry in refusing to vote for any bill which contained a public option. He won no friends among the Democrats (with whom he caucuses) by refusing to support a trial balloon Medicare "buy-in" for Americans between 55 and 64.
Senator Ben Nelson of Nebraska held the Senate hostage on principle, refusing to vote for any measure which did not prohibit the use of any public funds for abortions. In the end, he got some "fig leaf" legislative language punting responsibilities to the states...and some extra Medicaid money for Nebraska.
Apparently a half-dozen key Senators held their votes till they received the same sort of deal, which will provide additional Medicaid subsidies for their states to cover the extra cost of the bill's expansion of Medicaid.
The Senate expects a vote on this "historic" measure by Christmas Eve, so everybody can go home for the holiday.
Then the REAL bloodletting will begin, as negotiators try to reconcile a Senate bill with three others passed by the House. At issue are "irreconcilable" differences on issues like the public option, Medicare cuts, taxes on the rich, taxes on "Cadillac" health plans, and a whole range of funding issues.
Maybe we'll learn a little more about the Senate bill's particulars before they pass it.
Tuesday, December 8, 2009
Capping Insurer Administrative Costs: Good Intentions, Unintended Consequences
As the debate over health insurance reform plods along in the Senate, there are reports that Senators are considering a measure which would cap insurer administrative costs at about 10 percent of premium. The stated purpose of the proposal is to limit insurer profits, and to assure that 90 percent of premium dollars go to covering the cost of medical care and improved health.
Insurers are undoubtedly making defiant noises about such a proposal, but would accept it in a minute. Because doing so would require few changes in their actual behavior, nor would it impact how much money they make, in all but the most egregious circumstances.
Why? Because insurers play games with "averages." Most insurers will tell you that their administrative costs average 10 percent of premium or less. And strictly as a factual matter, that's accurate.
But it's not truthful.
Insurers typically provide services to individuals and to companies of various sizes. The larger the group, the lower the administrative cost ratio. Most state regulators currently exempt insurers selling individual (non-group) coverage from any regulations governing pricing, which is how insurers manage to sell individual coverage with administrative cost ratios of 30-40 percent of premium. It's why insurers have made such a big "bet" on non-group coverage.
In the group business, insurers can average the 5 percent of claims costs the charge to administer large, self-insured group plans with what they earn to run Medicare supplemental business, and with the 25-27 percent they charge small groups, and produce a "weighted average" of 10-12 percent of premiums.
If you're going to hammer down administrative costs, don't count on averages. Approach the problem by business segment, and include large group, small group, and individual coverage segments.
And when you're shopping for coverage, ask your insurer or agent specifically about the administrative costs they assign to your market segment (individual, small group, mid-size group, etc.). You'll usually get an assurance that your insurance company's administrative costs typically "average" 9-10 percent of premiums. Ask what percentage they charge for your segment, and you won't get an answer. Because by and large, agents don't know. And insurers don't tell.
Insurers are undoubtedly making defiant noises about such a proposal, but would accept it in a minute. Because doing so would require few changes in their actual behavior, nor would it impact how much money they make, in all but the most egregious circumstances.
Why? Because insurers play games with "averages." Most insurers will tell you that their administrative costs average 10 percent of premium or less. And strictly as a factual matter, that's accurate.
But it's not truthful.
Insurers typically provide services to individuals and to companies of various sizes. The larger the group, the lower the administrative cost ratio. Most state regulators currently exempt insurers selling individual (non-group) coverage from any regulations governing pricing, which is how insurers manage to sell individual coverage with administrative cost ratios of 30-40 percent of premium. It's why insurers have made such a big "bet" on non-group coverage.
In the group business, insurers can average the 5 percent of claims costs the charge to administer large, self-insured group plans with what they earn to run Medicare supplemental business, and with the 25-27 percent they charge small groups, and produce a "weighted average" of 10-12 percent of premiums.
If you're going to hammer down administrative costs, don't count on averages. Approach the problem by business segment, and include large group, small group, and individual coverage segments.
And when you're shopping for coverage, ask your insurer or agent specifically about the administrative costs they assign to your market segment (individual, small group, mid-size group, etc.). You'll usually get an assurance that your insurance company's administrative costs typically "average" 9-10 percent of premiums. Ask what percentage they charge for your segment, and you won't get an answer. Because by and large, agents don't know. And insurers don't tell.
Saturday, December 5, 2009
Premium Increases, Administrative Costs, Pooling Risks...A Little Third-Party Validation
Toiling in the small group health insurance reform vineyards can be lonely work. In feverish debate over the "macro issues," very little attention is usually paid to the realities of the small business marketplace...even though it's widely agreed that small companies pay more money for less coverage, and for fewer of their employees, than do larger employers.
So it's interesting (though not always comforting) to see one's assumptions validated by outside experts. Here are three examples from over the past week or so...from a couple of authoritative sources.
I wrote last week that there was very little in current heath insurance reform legislation which provided much hope that small businesses might expect to see the prices they pay for small group health coverage go down, or even see the rate of increase in their premium costs go down over time.
Last week Robert Pear, the veteran health policy writer for the New York Times, reported on the findings of the Congressional Budget Office (CBO) regarding the Senate's health care reform bill. You can read the article by clicking here:http://www.nytimes.com/2009/12/01/health/policy/01health.html?th&emc=th.
The analysis suggests that, while individuals purchasing coverage could see their premium expenses go down due to the bill's new federal subsidies (at a 10-year cost to taxpayers of over $450 billion), "for most people who get health insurance through employers — five-sixths of the total market — the budget office concluded that there would be little change in their premiums relative to the amounts projected under current law."
While the article touts this as a victory for supporters of the legislation, it just confirms the belief by many small business owners that, for all the furor about reducing health costs, the legislation before the Congress will have the net effect of, at best,costing them no more than if the Congress did nothing.
And the existence of new federal subsidies to enable some individuals to buy coverage 1) won't reduce the actual cost of their health coverage, just push some of the cost on to taxpayers, and 2) will have to be paid for somehow.
But, however nasty the reality of the situation might be, the analysis does validate my sense, from way over here in The Grass Roots Of America, that small business owners looking for benefits from this legislation will be waiting for a long time.
High among the many "opportunities for improvement" for real health insurance reform is a focus on reducing insurer administrative costs which, for small businesses and individuals, can run between 25 and 40 percent of premiums. The complexities entailed in dealing with the patchwork of private insurance plans and procedures is one of the issues discussed by leaders of the Cleveland Clinic in an article in the December 7th edition of Newsweek. Dr. Delos (Toby) Cosgrove, the Clinic's CEO, discusses the difficulties entailed in billing for procedures and wrestling with insurers to get paid. Though Dr. Cosgrove doesn't say so, Newsweek suggests that much of the complexity arises from the fact that "insurers count on rejecting a proportion of claims the first time they're submitted, delaying as long as possible the disbursement of actual cash."
The article says,"...if you're looking for "waste" in the health care system...defined as expenses which do not contribute directly to medical outcomes...a good place to look is the nation's cobbled-together system of competing private insurers." And Clinic Doctor Steve Nissen says simply, "the overhead for private insurers is 29 percent. For Medicare, it's 3 percent. If what's left over is what you can spend on patients, I think 97% is a much better deal."
Even if you don't buy the notion that Medicare administration is only 3 percent of claims costs (and for a number of government-accounting-related reasons, the number is low), the point should be well-taken. Small business owners and individuals are getting screwed on both ends: high administrative costs put a strain on the ability to pay for coverage, and the administrative cost burden gets passed along to hospitals and physicians, which raises the cost of health care for everyone.
As I've repeatedly written in this space, perhaps the only way to get control over administrative costs, and use those cost controls to combat the trend in premium increases, is to take steps to encourage the formation of large purchasing pools, which could negotiate with insurers on behalf of their participating members. With that in mind, it was encouraging to read this op-ed by Paul Starr, A Princeton professor of economics and public policy, who argues that the only real hope for substantive health insurance reform is to move up the reform timetable and take aggressive steps to create larger risk pools, within states if necessary, but preferably on a national scale, through the accelerated development of health insurance exchanges which are contained in both House and Senate bills. Read the article here: http://www.nytimes.com/2009/11/29/opinion/29starr.html?_r=1&emc=tnt&tntemail1=y. Starr says, among other things, "accelerating the timetable of reform ought to be a priority. Although the legislation calls for some important interim measures, the Senate bill defers opening the exchanges and extending coverage until 2014. By comparison, when Medicare was enacted in 1965, it went into effect the next year."
Skeptical small business owners need to hold their elected officials accountable, and have every right to ask the question of how all this sturm und drang will benefit them, specifically. And we can't afford to wait until governments to get around to developing co-operative approaches to reducing the cost of health insurance through group purchasing and administration. We know it works. We know it will be hard. But doing hard things is what entrepreneurs do.
So it's interesting (though not always comforting) to see one's assumptions validated by outside experts. Here are three examples from over the past week or so...from a couple of authoritative sources.
I wrote last week that there was very little in current heath insurance reform legislation which provided much hope that small businesses might expect to see the prices they pay for small group health coverage go down, or even see the rate of increase in their premium costs go down over time.
Last week Robert Pear, the veteran health policy writer for the New York Times, reported on the findings of the Congressional Budget Office (CBO) regarding the Senate's health care reform bill. You can read the article by clicking here:http://www.nytimes.com/2009/12/01/health/policy/01health.html?th&emc=th.
The analysis suggests that, while individuals purchasing coverage could see their premium expenses go down due to the bill's new federal subsidies (at a 10-year cost to taxpayers of over $450 billion), "for most people who get health insurance through employers — five-sixths of the total market — the budget office concluded that there would be little change in their premiums relative to the amounts projected under current law."
While the article touts this as a victory for supporters of the legislation, it just confirms the belief by many small business owners that, for all the furor about reducing health costs, the legislation before the Congress will have the net effect of, at best,costing them no more than if the Congress did nothing.
And the existence of new federal subsidies to enable some individuals to buy coverage 1) won't reduce the actual cost of their health coverage, just push some of the cost on to taxpayers, and 2) will have to be paid for somehow.
But, however nasty the reality of the situation might be, the analysis does validate my sense, from way over here in The Grass Roots Of America, that small business owners looking for benefits from this legislation will be waiting for a long time.
High among the many "opportunities for improvement" for real health insurance reform is a focus on reducing insurer administrative costs which, for small businesses and individuals, can run between 25 and 40 percent of premiums. The complexities entailed in dealing with the patchwork of private insurance plans and procedures is one of the issues discussed by leaders of the Cleveland Clinic in an article in the December 7th edition of Newsweek. Dr. Delos (Toby) Cosgrove, the Clinic's CEO, discusses the difficulties entailed in billing for procedures and wrestling with insurers to get paid. Though Dr. Cosgrove doesn't say so, Newsweek suggests that much of the complexity arises from the fact that "insurers count on rejecting a proportion of claims the first time they're submitted, delaying as long as possible the disbursement of actual cash."
The article says,"...if you're looking for "waste" in the health care system...defined as expenses which do not contribute directly to medical outcomes...a good place to look is the nation's cobbled-together system of competing private insurers." And Clinic Doctor Steve Nissen says simply, "the overhead for private insurers is 29 percent. For Medicare, it's 3 percent. If what's left over is what you can spend on patients, I think 97% is a much better deal."
Even if you don't buy the notion that Medicare administration is only 3 percent of claims costs (and for a number of government-accounting-related reasons, the number is low), the point should be well-taken. Small business owners and individuals are getting screwed on both ends: high administrative costs put a strain on the ability to pay for coverage, and the administrative cost burden gets passed along to hospitals and physicians, which raises the cost of health care for everyone.
As I've repeatedly written in this space, perhaps the only way to get control over administrative costs, and use those cost controls to combat the trend in premium increases, is to take steps to encourage the formation of large purchasing pools, which could negotiate with insurers on behalf of their participating members. With that in mind, it was encouraging to read this op-ed by Paul Starr, A Princeton professor of economics and public policy, who argues that the only real hope for substantive health insurance reform is to move up the reform timetable and take aggressive steps to create larger risk pools, within states if necessary, but preferably on a national scale, through the accelerated development of health insurance exchanges which are contained in both House and Senate bills. Read the article here: http://www.nytimes.com/2009/11/29/opinion/29starr.html?_r=1&emc=tnt&tntemail1=y. Starr says, among other things, "accelerating the timetable of reform ought to be a priority. Although the legislation calls for some important interim measures, the Senate bill defers opening the exchanges and extending coverage until 2014. By comparison, when Medicare was enacted in 1965, it went into effect the next year."
Skeptical small business owners need to hold their elected officials accountable, and have every right to ask the question of how all this sturm und drang will benefit them, specifically. And we can't afford to wait until governments to get around to developing co-operative approaches to reducing the cost of health insurance through group purchasing and administration. We know it works. We know it will be hard. But doing hard things is what entrepreneurs do.
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