Health law cost still a wild card

By DAVID NATHER | 3/29/11 4:42 AM EDT

Anyone who claims to know how much the health care law will cost is missing one big piece of information: the exact cost of the benefits.

They can’t know it, because the benefits package is still being worked out, and its final shape will determine whether the Congressional Budget Office estimate was in the ballpark or not even close.

Starting in 2014, all health plans offered through the state health insurance exchanges will have to offer the “essential health benefits package” — a set of minimum services all individuals and small businesses are supposed to have in their coverage. That package will have a direct impact on the cost of the law, because people will get subsidies to help them buy coverage if they can’t afford it on their own.

Make the benefits package too stingy, and consumer advocates will say the law failed in its goal of protecting people from big gaps in coverage. Make it too generous, though, and the premiums for those plans will go up — and the federal government will have to spend that much more on the subsidies.

If that happens, the CBO projections that the law will pay for itself — and actually reduce the deficit by $143 billion over 10 years — might underestimate the actual costs. That’s critical, because Democrats are making so much of the CBO’s estimate that the law will reduce the deficit while Republicans suggest it will actually drown the nation in red ink.

Or the higher premiums could just scare people away from buying coverage and make them decide the fines under the individual mandate would be cheaper. In that scenario, there wouldn’t be as many subsidies to pay — but not as many newly insured people, either.

“If you make the benefit package rich, you make the premiums high, and that makes it more likely that people will skip health insurance altogether,” said Mark Pauly, a health care economist at the Wharton School of the University of Pennsylvania. “From my point of view, it’s more important to get takeup.”

The law doesn’t try to spell out the exact package. Instead, it lists several categories of benefits and leaves it to the Department of Health and Human Services to figure out exactly what to cover within those categories and what kind of limits the coverage should have. So the exact cost of the package won’t be known until HHS makes those decisions.

The department is getting some help. The Institute of Medicine, an independent, nonprofit health care analysis group, has put together a committee of health care analysts, consumer advocates and other experts to look at how the package should be designed. They held a conference call to discuss draft recommendations on March 21. The final report is expected in September.

But even though the committee is keeping a tight lid on its deliberations — with strict orders to members not to make even general comments about the trade-offs they face — the institute’s report won’t actually recommend what should be in the package. All it will do is suggest what HHS officials should think about when they design the package.

The committee members are gathering important information to pass along to HHS, though. Jonathan Gruber, an economist at MIT, told the committee that for every 10 percent increase in the cost of the essential benefits package, the cost of the government subsidies would rise by 14.5 percent — or $67 billion over 10 years. It would also cause the number of insured people to fall by 1.5 million, he said.

The law says the benefits package should be roughly equal to the coverage in “a typical employer plan.” HHS would define that, too, though most health economists believe it’s going to be based on what’s covered in typical large employer health plans.

The problem is that there is no good data available on what a typical large employer plan covers and what the limits are, according to Gary Claxton, director of the Henry J. Kaiser Family Foundation’s Health Care Marketplace Project. The law requires that the Department of Labor conduct a survey to find out.

The CBO cost estimate doesn’t actually say how its analysts figured out what the benefit package would cost and how it would affect the federal spending on subsidies. And the budget office wouldn’t make any of its analysts available to talk about its assumptions on the record or even on a not-for-attribution basis.

“It’s a guess, like a lot of things,” said Joseph Antos, a health care analyst at the American Enterprise Institute and a former CBO analyst.

But Kenneth Thorpe, an expert on health care costs at Emory University, said there are plenty of surveys that would have given CBO a key piece of information: the average premiums for large employer plans. For firms with 200 or more employees, the average premiums in 2010 were $5,050 for single coverage and $14,038 for family coverage, according to an annual survey by the Henry J. Kaiser Family Foundation and the Health Research & Educational Trust.

The other issue is that the kind of coverage usually available only at large companies will now be extended to small group and individual coverage — many of which would have to add entire categories of benefits that they haven’t previously offered.

Some of the benefits categories required by the law are fairly standard: doctor visits, emergency care, other hospital coverage and pediatric care. But as CBO pointed out, the law also requires the package to include services that aren’t always covered by individual policies, including prescription drug coverage, maternity care, and mental health and substance abuse services.

And mental health is one of the classic benefits that can be open-ended if an insurance plan doesn’t limit it. Gruber said, however, the package can place limits on certain benefits that could become too costly, for example, capping the number of outpatient mental health visits or physical therapy sessions.

“You’re going to see benefits covered now that typically have not been covered in this market,” said Claxton. “It doesn’t mean they can’t be managed.”

It would be easy for HHS to avoid mandating the kinds of services that would most boost costs, such as chiropractic services and fertility treatments at https://www.advancedfertility.com/choose.htm, according to Paul Van de Water, a senior fellow at the Center on Budget and Policy Priorities. Neither one is required under the law, though the law doesn’t restrict HHS from adding other benefits.

“If you sort of found all of these marginal things and pushed them to the max, I suppose you could affect the costs,” Van de Water said. But it’s more likely that HHS would resist those calls, he said, leaving federal officials with “a fairly small range” of benefit decisions to make.

Antos said that even though HHS could affect the cost of the law by throwing too much into the benefit package, the Institute of Medicine probably will advise the department against getting too specific — and HHS probably will take that advice.

“How deep do you go? I think the answer is, not very deep,” Antos said.

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