Affordability and America’s Healthy Future Act

In yesterday’s post answering questions about Senator Max Baucus’ health care reform proposal, I inadvertently overlooked a question posed by JimK. He points out the proposed health care reform legislation provides a tax credit to those earning up to 300% of the Federal Poverty Level (FPL), but questions whether the Chairman’s Mark mandates people pay 13 percent of their income in premium as alleged on Countdown with Keith Olbermann.  Here’s how (I think) Mr. Olbermann’s math works.

Under the America’s Healthy Future Act every citizen would be required to purchase health insurance coverage. As JimK notes, subsidies would be available to help those earning less than 300 percent of the Federal Poverty Level  purchased coverage through the exchange. (Subsidies are apparently not available to those purchasing coverage in the traditional market). These premium subsidies are available on a sliding scale. Those households at the poverty level would be required to contribute three percent of the income toward their health insurance premiums; households at 300 percent of the poverty level would contribute 13 percent. (Chairman’s Mark page 21, page 24 of the PDF)

The FPL is adjusted annually. In 2009 the federal poverty level is $10,830 for an individual and $22,050 for a family of four. If the Baucus health care reform plan was in-force today, individuals earning 100 percent of the FPL would pay $325 toward their medical premium; a family of four with household income of 100 percent of the FPL would pay $662. Individuals at 300% of the Federal Poverty Level ($32,490) could pay $4,224 for medical coverage while our hypothetical family of four (earning $66,150 annually),could pay as much as $8,600.

There are two things to keep in mind concerning this aspect of the Senate Finance reform plan. First, these are preimum subsidies. Consumers could pay thousands of additional dollars — and a greater percentage of their income —  for out-of-pocket expenses.

Second, once household income exceeds 300 percent of the FPL no premium subsidy is provided. In 2009, according to a Kaiser Family Foundation study, “average annual (health insurance) premiums for employer-sponsored health insurance are $4,824 for single coverage and $13,375 for family coverage.” Granted, coverage obtained through the work place is usually much more expensive than insurance purchased on one’s own. Finding an average price for policies purchased on one’s own is a bit harder. eHealthinsurance, based on the carriers they represent and consumers purchasing through their site, found the median premium for individual health insurance was $1,584; for families it was $3,948 (the numerical averages were higher: $1,932 and $4,596 respectively). eHealthinsurance reports the average deductible for the individual plans it sold was $2,326 while it was $3,129 for family coverage)

For an individual earning $35,000 (323 percent of the Federal Poverty Level) and ineligible for a subsidy, the median premium ($1,584) represent 4.5 percent of household income; the average premium ($1,932) comes to 5.5 percent. For a family of four earning $70,000 (317 percent of FPL) their $3,948 median premium amounts to slightly more than 5.5 percent of household income; the average premium ($4,596) represents 6.6 percent of their income.  Again, this is before any out-of-pocket medical expenses are paid.

Which raises the question: assuming the eHealthinsurance rates are roughly equivalent to the cost of coverage available after health care reform, will coverage be affordable? If Americans must purchase health insurance it’s only fair that the cost for this coverage is within their means.

It’s likely Senator Baucus set the subsidy levels based on what the cost of this premium support would be on the federal budget. He determined this is the level of support the country can afford to provide consumers. But can consumers afford these costs? For a family of four with income of $70,000, paying nearly $4,000 in premium plus potentially several thousand more in out-of-pocket medical expenses is a significant burden. The problem is, going without coverage could be much more damaging to their finances — and to their health.

Balancing personal responsibility with the cost of coverage to families and impact of premium support on the federal budget is both a financial and a moral challenge. It requires lawmakers — and voters — to make tough choices. It also shows that the effort to restrain medical costs must be pursued just as rigorously, if not more so, than increasing access. Otherwise health care reform could result in insurance coverage and financial hardship for all.

Health Care Reform Odds & Ends

When it comes to health care reform, to maul Dickens: It is the busiest of times. It is the calmest of times. Or as general agent Michael Traynor put it, “These are interesting times when talk of exchanges and pre-existing exclusions have bumped Paris Hilton and Lindsay Lohan from the news.”

This coming week it will be even harder on E! News and the like. Sure, Hollywood has the Emmys, but Washington has the debate in the Senate Finance Committee over America’s Healthy Future Act of 2009. Not a contest. Add to the mix President Barack Obama’s five appearances on Sunday morning television shows (plus his stint Monday night as David Letterman’s guest) and these are strange days, indeed. 

There’s several items in the mix I wanted to comment upon, but none of them really warranted their own post. So here they are, mashed together into a single article. Think of it as clearing the deck in anticipation of all the fun news coming out of Washington in the next few days. 

1. Excluding Pre-Existing Conditions

Yes, it’s true, health insurance companies exclude individuals with pre-existing conditions. When they can carriers refuse to offer coverage to those likely to use that coverage. According to some politicians and pundits of all political stripes, instead of being a legitimate business practice, this process (called “underwriting”) is evidence of the evil nature of health insurance carriers and their executives. 

Under today’s rules, however, underwriting is necessary to keep the cost of coverage from going even higher than it is today. Imagine permitting people to buy auto insurance from the tow truck driver at the scene of an accident. Or picture homeowners buying fire insurance after the flood waters recede. The cost of these policies would be astronomical. Why would anyone buy auto or homeowners coverage before they need it if they can buy the same policy after an accident or disaster? The cost of insurance in this environment would be the cost of the claim (plus administrative expenses). Have $1,000 in damage after that wreck? The cost of the policy sold by the tow truck driver would need to be more than $1,000 because no one else’s premium would be available to cover any of the cost.

The same applies to health insurance.  Allow individuals to purchase coverage on their way to the hospital and costs will skyrocket. (Don’t laugh, one of the GOP proposals would allow consumers to buy coverage in the emergency room). In New York and New Jersey, where there’s a mandate to sell individual health insurance but no mandate to buy it, premiums are three-times higher than in California.

Which illustrates the only way to resolve this situation: require everyone to obtain medical coverage. Without this balance (both a mandate for carriers to sell and for consumers to buy coverage) premiums quickly become unaffordable. Lawmakers who propose guarantee issue without a mandate to buy – and they exist on both sides of the aisle – are either grandstanding, mathematically challenged or ill-informed.

2. Losing Coverage When You Need It

The other popular market reform concerns carriers cancelling coverage after claims are incurred by policy holders, a practice called “rescission.” Much of the furor over rescissions in Washington and elsewhere are legitimate, the result of carrier’s tone deaf, heavy-handed, and inept approach to a reasonable concern: preventing fraud. So long as health insurance is voluntary, carriers need to protect their members from being gamed by those who would intentionally abuse the system. To hear some talk about the problem, however, you’d think every claim submission is answered by a termination notice. Estimating the total number of rescissions is difficult due to disparate reporting requirements around the country. Yet in testimony before Congress three of the largest carriers claimed to have canceled about 20,000 health insurance policies over five years. Four thousand annual rescissions sounds like a lot, but it’s a small fraction of the millions of policies sold and maintained by those carriers each year.

Because the number of terminations is small does not excuse the health plans from abusing their rescission power. Change in this area is needed to restrict rescissions to only intentional misrepresentation of medical conditions. In the meantime, overstating the severity of the problem may be good politics, but it is misleading. (Of course, if underwriting is eliminated, this problem goes away: if carriers cannot charge premiums based on pre-existing conditions there’s no reason to even ask about prior medical conditions.)

3. Non-Profit Doesn’t Mean Cheaper

Liberals demanding that reform legislation include a government-run health plan usually claim it will reduce the cost of coverage by introducing a non-profit health plan into the market. Here’s how Senator Jay Rockefeller put it on MSNBC, “There’s got to be some discipline to other insurance companies, that make them take seriously, not just competing with each other, but competing with somebody who because they are non-profit … and don’t have to please their shareholders because they don’t have any, that they can offer premiums at lower prices” (this sound bite begins at about the 2:35 mark). Yet there are already non-profits operating in most states. In California, for example, Kaiser Permanente and Blue Shield of California are two. In some parts of the state, these plans do offer the most affordable plans; in other regions the lowest cost plans are available from their for-profit competitors. Experience indicates little correlation between a carrier having shareholders and their premiums. Claiming it does may sound good, but anyone taking the time to see what’s happening in the real world will realize this is a false argument.

4. Ugly Language is Dangerous.

House Speaker Nancy Pelosi raised the possibility that the angry rhetoric prominent in the health care reform debate could turn violent, comparing it to the situation in San Francisco over gay rights in the 1970s. The link between the anti-gay rhetoric and the murder of Mayor George Moscone and Supervisor Harvey Milk is legitimate. So is the Speaker’s concern. Words can motivate. Passions can lead to horrendous acts – from terrorist bombings to the murder of doctors who perform abortions.

What’s hypocritical about Speaker Pelosi’s comment, however, is that she has contributed to tenor of the debate. When Speaker Pelosi, the individual third-in-line to the presidency calls opponents “immoral” and describes them as”the villains” in America’s health care reform system she loses the ability to complain when others claim her policies are socialist. The fact that Speaker Pelosi is guilty of what she rails against should not mean her warning is ignored. America’s health care system will be reformed by thoughtful deliberation. Depicting President Obama as Hitler, painting swastikas on the offices of lawmakers, pastors praying for the death of President Obama, or calling opponents “traitors” inspires ugly emotions and provides cover for crazies who take the law (both governmental and ecclesiastic) into their own hands.

Speaker Pelosi hopes for a more responsible tone in the health care reform debate. Her greatest contribution to achieving this goal would be to moderate her own rhetoric.

Obama’s Health Care Speech a Beginning, Not an End

Whether you support President Barack Obama or not, his address tonight on health care reform to a joint session of Congress is a major event. American want reform, but are increasingly wary of the what they are hearing is likely to emerge from Washington. Of course, much of what they hear about what’s being considered is wrong or concern proposals that no one expects to reach the President’s desk, but the public’s unease is troubling for reformers nonetheless.

A well established political law holds that it is easier to attack than to propose and promote change. Reformers, consequently, are always at a disadvantage. The White House has seen the tenor and substance of the debate hijacked by charges both serious and silly. Worse, from their perspective, President Obama is being tied to reform bills he has neither endorsed nor blessed. The media and voters describe Congressional proposals as those of the Administration even though the President has stated only principles for reform, not details.

That changes tonight. Or at least, it starts to change tonight. President Obama is going to step into the health care debate over the next several weeks in a far more forceful fashion than before. While it’s unclear how specific he will get tonight, there is little doubt that he will be very clear about what he wants in a health care reform bill – and what he does not – over the next several days. My guess is he will use the introduction of mark-up of legislation by the Senate Finance Committee, expected to begin as early as next week, as his foundation. But whatever vehicle he commandeers (to mix metaphors), we are very close to moving past accusations concerning what Obamacare is to seeing what actually what the President’s plan actually looks like.

And this process begins with tonight’s speech. The folks over at Politico have a good “what to look for” post. Among the most significant items:

1. Will President Obama keep it simple – and, consequently, comprehensible?
2. Who will serve as the President’s foil? (My guess – insurance companies).
3. Where does President Obama stand on a government-run insurance plan? We know he wants one, but will he threaten to veto a bill without a public plan?

Here’s some other questions to keep in mind while watching the President’s speech:

1. Is the President specific about ways of reducing medical costs?
   Health insurance premiums reflect the underlying cost of health care. So does the burden of public programs like Medicare and Medicaid. Will President Obama make this clear? And will he have ideas for dealing with them?
2. How will the President frame the rationing issue?
   The spurious fear mongering around death panels not withstanding, the public has legitimate concerns about what reform will mean to their own access to health care. There is rationing of care under the status quo (based primarily on the quality of one’s health insurance), but it’s mostly hidden and subtle. Every health system rations care in some way. How explicit will the President be about the inevitable rationing resulting from his plan?
3. What type of Health Care Exchange does the President support?
   Does he see these exchanges as bringing together information or are they actively negotiating with carriers concerning rates and benefits? Will they replace brokers or supplement them?
4. How does President Obama describe the efforts in the Senate Finance Committee to shape bi-partisan reform?
   Does he describe their efforts as central to health care reform legislation or as just one of many sources? Does he give its chair, Senator Max Baucus, political support and cover or leave him to fend for himself? As regular readers know, I’m one of those who believe the bill the Senate Finance Committee produces will be close to what eventually emerges from Congress. Part of my reasoning has been that President Obama wants reform legislation . Which brings us to …
5. Does President Obama show more interest in practical results or partisan purity?
   Will he seek to please the liberals or the moderates? Will he show a willingness to accept less than a full loaf or will he insist a host of specific elements be included in the reform bill?
6. Will President Obama succeed in making the status quo unacceptable?
   The devil known is always more welcome than the unknown variety. Right now those attacking reform have the easier task. The President needs to reverse the argument, putting the burden on his critics to demonstrate that the current system is worth preserving – or that it can be preserved. If he fails, the Administration will remain on the defensive. Not a fatal setback, but a serious problem.

Watching the spin doctors go to work on the speech will be a fascinating lesson in politics. Watching them will also be annoying. One can predict what Fox News and MSNBC will be saying, but they don’t really matter. They preach primarily to established constituencies. The public that still has an open mind on the issue will be tuned to the networks, CNN and waiting for their morning paper.

As you listen to the reaction, keep in mind that tonight’s speech is only the beginning of the Administration’s final push for health care reform.  The game isn’t over tonight. It’s just beginning.

Dr. Gawande’s Radio Interview

There’s a chicken and egg aspect to health care reform which often frustrates lawmakers and policy makers. To achieve universal coverage the cost of health insurance must be affordable. To make coverage affordable you need universal coverage. So which comes first?

My take is that affordability has to come first. You cannot require people to buy something they cannot afford. When a pen is out of ink, all the regulations in the world won’t fill it again. This means the government has to make coverage affordable, most likely through subsidies of some kind. Subsidies are expensive And the budget, already groaning under the weight of the recession, two wars, an economic stimulus package, existing entitlements, and much, much more. Congress will be hard pressed to find the funds needed to provide the premium support required to get close to universal coverage.

Consequently, affordability needs to come first. This explains, in part, Director of the Office of Management and Budget Peter Orszag’s consistent focus on the as much as $700 billion in medical spending each year that goes towards services which do not improve health outcomes.  He began pushing lawmakers on this issue when he was Director of the Congressional Budget Office and he continues in his new role at the OMB.

The opportunity for health care reform to reign in medical costs received a substantial boost recently with the publication of an article in The New Yorker by Dr. Atul Gawande, a Boston surgeon who is also a staff writer for the magazine. Titled “The Cost Conundrum,” the article described Dr. Gawande’s exploration of medical practices in McAllen, Texas. That community spends more per person on health care than anywhere in the country with the exception of Miami, Florida which has higher labor and other costs. McAllen’s spending is twice that of nearby El Paso, Texas, even though the two areas have similar demographics and similar outcomes. The explanation, Dr. Gawande discovers, is the entrepreneurial culture of the community’s physicians. They maximize their incomes, but fail improving the health of their patients.

The article has been cited by President Barack Obama (who, it is said, has made the piece required reading for his staff), members of Congress, pundits and policy wonks. Few magazine articles have had comparable impact on the health care reform debate.

Those wanting to learn more about what he discovered in McAllen will enjoy an interview with Dr. Gawande  on Public Radio’s Fresh Air. During the nearly 30 minute segment, the doctor expands on his article providing insights from his own practice.

Dr. Gawande has made a valuable contribution to the health care reform debate by shedding light on the correlation between community medical practices, health care costs, and health outcomes. For anyone interested in health care reform, his Fresh Air interview is well worth the investment of time.