HEALTH BENEFIT COST GROWTH ACCELERATES, SURVEY SAYS

Business Wire –

Nov. 22: New York – 2010 is Year Zero for health reform the year against which the effects of the new Patient Protection and Affordable Care Act (PPACA) will be measured.

Growth in the average total health benefit cost per employee, which had slowed last year to 5.5%, picked up steam, rising 6.9% to $9,562, the biggest increase since 2004, according to the latest National Survey of Employer-Sponsored Health Plans, conducted annually by Mercer.

Employers expect high cost increases again in 2011. They predicted that cost would rise by about 10% if they made no health program changes, with roughly two percentage points of this increase coming solely from changes mandated by PPACA for 2011. However, employers expect to hold their actual cost increase to 6.4% by making changes to plan design or changing plan vendors.

Mercer’s survey includes public and private organizations with 10 or more employees; 2,836 employers responded in 2010. “Employers did a little bit of everything to hold down cost increases in 2010,” said Beth Umland, Mercer’s director of health and benefits research. “The average individual PPO deductible rose by about $100.

Employers dropped HMOs, which were more costly than PPOs this year. Large employers added low-cost consumer-directed health plans and found ways to encourage more employees to enroll in them. And more employers provided employees with financial incentives to take better care of their health.”

Large employers experienced a sharper cost increase than smaller employers in 2010. Cost rose by 8.5% among employers with 500 or more employees, but by just 4.4% among those with 10–499 employees.

“Large employers may have been taken by surprise by the uptick in the cost increase this year,” said Susan Connolly, a Partner in Mercer’s Boston office. “Higher prices for health care services seem to be part of the equation, but if the recession caused a slowdown in utilization last year, we may also be seeing the effect of employees getting care they’ve been putting off.”

Enrollment in CDHPs offered by the nation’s largest employers jumps sharply in 2010

Overall enrollment in high-deductible, account-based consumer-directed health plans (CDHPs) grew from 9% of all covered employees in 2009 to 11% in 2010.

CDHP enrollment has risen by two percentage points each year since 2006.

With the cost of HSA-based CDHP coverage averaging just $6,759 per employee among all employers in 2010 – almost 25% lower than the cost of PPO coverage the appeal of these plans is clear.

“As both employers and employees become more comfortable with high-deductible plans, we’re seeing more organizations willing to commit to the consumerism concept,” said Ms. Connolly. “Over the past few years employers have worked on finding a balance between giving employees more responsibility for their health care spending and providing the support to help them succeed.”

Already committed to employee health management, employers add financial incentives to build participation

Employers will soon be more limited in how they can shift cost to employees.

Starting in 2014, PPACA sets minimum standards for “plan value” (the percentage of health care expenses paid by the plan) and “affordability” (the employee’s share of the premium relative to household income). These changes are bringing greater focus on improving workforce health as a way to control health benefit cost.

Over the past decade employers have added a wide range of programs under the employee health management or “wellness” umbrella, from health risk assessments (offered by 69% of large employers in 2010) to disease management programs (73%) to behavior modification programs (50%).

In 2010 more employers added incentives or penalties to encourage more employees to participate: 27% of large employers with health management programs provided incentives, up from 21% last year. In addition, the incentives are becoming more substantial. Three years ago, a token gift like a hat or water bottle was the most common incentive for completing a health risk assessment; now it is cash (typically, $75) or a lower premium contribution (typically, a reduction of $180).

Results are encouraging: For a second year in a row, medical plan cost increases in 2010 were about two percentage points lower, on average, among employers with extensive health management programs than among those employers offering limited or no health management programs.

Very large employers are also increasingly willing to reward employees who demonstrate responsibility for their own health. More than a fourth of those with 20,000 or more employees require lower premium contributions from nonsmokers – 28%, up from 23% last year. An additional 6% provide other incentives to nonsmokers.

Employers drop retiree medical plans in favor of subsidizing individual coverage

The prevalence of retiree medical plans slid to its lowest point ever in 2010, with just 25% of large employers offering an ongoing plan to retirees under age 65 (down from 28% in 2009) and just 19% offering a plan to Medicare-eligible employees (down from 21%). An additional 10% of employers have closed their retiree plans to new hires but continue to offer coverage to employees retiring or hired after a specific date.

A diminished tax break for employers who provide retiree drug plans and the anticipated availability of better Medicare coverage as the government shrinks the so-called “doughnut hole” gap in prescription drug coverage are among the factors that have employers reexamining their retiree health programs.

As some employers take the step of terminating group coverage for retirees, they are softening the blow with a subsidy to help pay for individual coverage. Nearly one in ten of the largest employers (those with 20,000 or more employees) now provide such a subsidy in lieu of a group plan.

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What You Need To Know About The One‐Year Tax Deduction On Health Costs For The Self‐Employed

On September 27, 2010, the Small Business Jobs and Credit Act of 2010 (H.R.5297) was signed into law. The legislation provides an important tax break for the over 23 million self‐employed Americans that represent 78 percent of all small businesses in the U.S.

The self‐employed have not received the same tax benefit related to health insurance expenses that all other businesses entities have enjoyed. Various business entities are able to fully deduct the cost of health coverage as a business expense, saving them a significant amount in payroll taxes.

With the passage of the Small Business Jobs and Credit Act, the self‐employed will be allowed to take a one‐year tax deduction for health costs in determining payroll tax (self‐employment tax.) Here is some guidance to determine whether you can benefit from this new deduction:

1)  Who can qualify for this one‐year self‐employment tax deduction on health costs?

Self‐employed business owners that meet all of the following requirements can take advantage of this new tax deduction:

•    Files an IRS Form 1040 Schedule C tax form or Schedule E with earned income ‐ this includes sole proprietors, single member LLCs, and sole owner S‐Corporations.
•    Pays self‐employment taxes via IRS Form 1040 Schedule SE.
•    Pays for individual or family health coverage in 2010.

2)  When can I take this deduction?

This deduction is available for health costs paid by self‐employed business owners in 2010. Self‐ employed business owners should look to take advantage of this deduction when preparing their taxes next year in time for the April 15, 2011 tax filing deadline.

3)  How much will I save with this one‐year tax deduction on health costs?

The self‐employed must pay the employer and employee contribution to payroll taxes, totaling up to 15.3 percent on business income. For the self‐employed, payroll taxes are called self‐ employment taxes.

To calculate your savings from this new tax deduction, simply add up your total 2010 health insurance costs and multiply that by 15.3 percent. The resulting amount will represent how much you will save on your self‐employment taxes when filing your 2010 taxes next year.

According to a report on individual health insurance released by America’s Health Insurance Plans (AHIP), annual premiums averaged $2,985 for single coverage and $6,328 for family plans nationwide in mid‐2009. A majority of the self‐employed with health coverage currently purchase it via the individual insurance market.

Based on these average premium costs, the new one‐year tax deduction on health costs for payroll tax purposes would save self‐employed business owners approximately $456.71 to $968.14 in taxes.

•    NOTE: If you qualify for this deduction and your annual income is above the maximum wage limit subject to payroll (FICA) taxes, currently $106,800, then you will receive a lower tax benefit. Please contact your tax professional to assist you with calculating your exact tax savings.

4)  What if I purchased health coverage mid‐year or am planning to purchase health coverage this year, will I still get the benefit from the tax deduction?

If you meet the above qualification requirements in Question 1, you can still benefit from this one‐year tax deduction.

Since the benefit of the deduction is larger for those with higher health costs, those who purchased coverage mid‐year or will be purchasing health insurance in 2010 will simply have a smaller tax benefit when they file their taxes in 2011.

5)  What are the next steps a self‐employed business owner should take to ensure they qualify and benefit from this one‐year self‐employment tax deduction on health costs?

Self‐employed business owners should inform their tax professional about this new one‐year tax deduction. Prior to filing your taxes next year, your tax professional can determine whether you qualify and can take this tax benefit.

6)  Why is this tax deduction benefiting the self‐employed only available for one‐year?

Lawmakers only extended this tax benefit to the self‐employed for one‐year to provide some temporary bottom‐line cost savings to America’s smallest businesses in this difficult economic time and also, to minimize the cost to the federal government.

It is important to reiterate that the self‐employed are the only business entities which do not receive a business deduction for their health care costs. All other businesses are able to fully deduct their health costs lowering their payroll tax liability. We feel that self‐employed should have the same tax treatment of health costs as all other businesses.

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HEALTH INSURANCE EXCHANGES MUST BE ACCESSIBLE AND CONSUMER FOCUSED FOR PURCHASERS

Business Wire –

Nov. 8: Orange, CA. – As states around the country begin to assemble their own health insurance exchanges as mandated by healthcare reform, the nation’s leading expert on such programs believes some fundamental essentials must be followed in order for these exchanges to be stable and sustainable.

“State exchanges need to be as welcoming to those currently insured as they are to the uninsured,” said Ron Goldstein, president of CHOICE Administrators, the nation’s leader in developing and administering employee-choice health benefit programs. “Exchanges will need to appeal every bit as much to individuals and small groups who do not qualify for subsidies or tax credits as they do to those who qualify for these incentives. Only by being inclusive to all individuals can a state exchange attract the type of balanced enrollment that will allow it to be a stable and sustainable force in the market.”

As the architect and president of CHOICE Administrators, Goldstein oversees the nation’s oldest and most successful private health insurance exchange for small and mid-size groups – CaliforniaChoice. Launched in 1996 CaliforniaChoice currently works with more than 10,000 employers and covers 150,000 members. In August it became the first health insurance exchange in the nation to reach the 20 million member-month historical plateau.

Leveraging this experience, Goldstein believes that in order for state exchanges to be balanced and sustainable, they must focus on a three-pronged formula for success. “First, state exchanges must harness existing sales and enrollment channels such as brokers and general agents who already have established relationships in the market and who know how to get the job done,” he says. “It is vitally important that we don’t unnecessarily disrupt the market or force purchasers away from something that is already working.

“Second, state exchanges will need to make sure they are operationally and administratively excellent with a strong consumer focus,” Goldstein continues. “And third, they need to acknowledge that there will remain a market outside the exchange providing businesses and consumers choices in their healthcare decision making.”

Health insurance exchanges are a key feature in the Patient Protection and Affordable Care Act, which mandates that every state establish a health insurance exchange by January 1, 2014, or default to a federal “fallback” exchange.

Exchanges are designed to promote choice and make health insurance purchasing more value based by allowing an individual or small business to compare the costs and benefits of various health plans and benefit options. With such information in hand, purchasers will be able to do a better job selecting a health plan that best fits their needs and budget.

“Exchanges may end up the yardstick by which health reform is judged for generations to come,” said Goldstein. “Making health insurance more accessible and affordable for all Americans is an awesome task and noble goal. If we all pull together, we can make it work.”

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New Governors to Target Health Law

By JANET ADAMY  Associated Press

Scott Walker, Wisconsin’s Republican governor-elect, says he plans to join a lawsuit over the health law.

Newly elected Republican governors are planning to blunt key parts of the federal health overhaul and join lawsuits against it, suggesting states could trump Congress as the hottest front in the fight over the law. There’s also a major lawsuit against xarelto, click here to see the side effects of Xarelto. And see if you or a loved one could have a case against xarelto.

Republicans recaptured at least 11 governors’ seats from Democrats in Tuesday’s election, winning in Pennsylvania, Ohio, Michigan, Wisconsin, Kansas, Oklahoma, Wyoming, Tennessee, New Mexico, Iowa and Maine. Democrats reclaimed at least two seats from Republicans, in California and Hawaii.

House Republicans have pledged to repeal the law, which is designed to expand insurance to 32 million additional Americans, or at least choke off funding to implement it. Democrats in the Senate can block any repeal, and the defunding strategy faces roadblocks.

While governors can’t avoid much of the law, they can throw sand in its gears and keep states out of involvement in a central part of it—new exchanges for selling insurance policies.

Wisconsin’s Republican governor-elect, Scott Walker, met with lawmakers Wednesday to discuss how to minimize the state’s participation in the law’s expansion of Medicaid, the federal-state insurance program for the poor. He also wants to lean on private entities to run the insurance exchanges, where lower earners who qualify for tax credits and small businesses will shop for insurance starting in 2014.

Under Gov. Jim Doyle, a Democrat, Wisconsin ambitiously courted early health-law money, including funding for free birth control.

Mr. Walker is worried that the Medicaid expansion, initially paid for by the federal government, will be too costly once states must begin paying for a portion of it in 2017.

“Free money is not free,” he said in an interview. “If we can’t afford it, it doesn’t matter how much of it is free.”

Mr. Walker, along with new GOP governors in Wyoming and Oklahoma, said they planned to join in the legal fights against the law’s requirement that most Americans carry insurance or pay a fine.

Plaintiffs in the largest suit, a 20-state effort led by Florida’s Republican attorney general, plan to reach out to as many as six states with newly elected Republicans to join the effort, according to a person familiar with the case, though it may be too late to join.

Health-care companies say GOP gains at the state level offer new opportunities to influence how the law is implemented.

“We have more Republican governors who may have interest in different models,” Aetna Inc.’s Chief Executive Ronald Williams told analysts in a conference call Wednesday. So the discussion “may very well tip it more toward market-based solutions as opposed to others.”

In a recent NBC News/Wall Street Journal survey, 51% of respondents said it would be acceptable to repeal the law. President Barack Obama said Wednesday he wanted to know which parts of the law Republicans don’t like.

“When it comes to pre-existing conditions, is this something you’re for or you’re against?” he said at a news conference, referring to the mandate on insurers to cover those who already have ailments.

“Helping seniors get their prescription drugs—does that make sense or not?” he said.

Mary Fallin, a Republican elected Oklahoma governor, said she was emboldened by a largely symbolic 65%-35% vote in her state for a measure opposing the individual insurance requirement.

“I think the people of Oklahoma have spoken that they’re concerned and they do not support the program of taking over the health-care system,” Ms. Fallin said.

She said she was looking at whether Oklahoma can lean on an existing public-private program that provides insurance to the poor as an alternative to the law’s Medicaid expansion.

“We certainly will try to minimize the impact the new federal law will have on the state of Oklahoma and certainly on our budget with unfunded mandates,” Ms. Fallin said.

Should states opt out of the law’s Medicaid expansion, they would have to remove themselves entirely from the Medicaid program—an unlikely outcome.

But Ray Scheppach, executive director of the National Governors Association, said states were likely to press the federal government to delay the expansion beyond 2014 given states’ bleak budget picture.

Matt Mead, Wyoming’s Republican governor-elect, can appoint his own attorney general and insurance commissioner-two positions with ample influence over the law’s enactment.Mr. Mead said in an interview that the current governor, a Democrat, has already begun preparing the state to operate the insurance exchanges, but he hasn’t decided whether he will go forward with running them. The federal health law provides for state-based exchanges but allows states to leave operation to the federal government.

“It’s just a question of what is right for Wyoming,” he said

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States, not Congress, can thwart healthcare law

Los Angeles Times – Reporting from Washington and Chicago —

House Republicans swept to power Tuesday with promises to roll back the new healthcare law and subject its creators to a merciless round of congressional investigations.

But the fate of President Obama‘s sweeping overhaul will probably be determined not in Washington but in state capitals across the country, where the GOP also scored dramatic victories.

Republican governors and legislatures, who are charged with carrying out crucial parts of the law, will be in a position to put pressure on the White House to scale back some plans, including the extension of government-subsidized health benefits to millions of uninsured Americans.

State Republicans could also temper insurance regulations and compel a relaxation of new mandates set to take effect over the next few years.

And by joining a multistate legal challenge, Republican governors may further embolden conservative judges to invalidate a new requirement that Americans get health insurance beginning in 2014, a key pillar of the healthcare law.

The governors-elect of Kansas, Oklahoma, Wisconsin and Wyoming have already indicated they want to join the 21 states suing over the law.

“While there are some important decisions still to be made in Washington, the real action is out in the states,” said Alan Weil, executive director of the National Academy for State Heath Policy.

With Democrats in control of the Senate and President Obama sure to veto any healthcare repeal, House Republicans have little power to force many changes from Washington.

But Republicans gained at least 11 governor’s offices last week, while losing three, flipping states such as Wisconsin and Pennsylvania where Democratic governors had been moving aggressively to implement the new law.

The GOP will also control state legislatures in at least 25 states next year, up from 14. Among actions expected of the states under the law are creating state-based insurance exchanges in which people who don’t get benefits at work would be able to shop for health plans starting in 2014.

Many of the newly elected officials, such as Florida Gov.-elect Rick Scott, ran blistering campaigns against the healthcare law. Scott, a former hospital executive who personally bankrolled one of the first ad campaigns against the healthcare bill in 2009, has called the law the “single largest government power grab in history.”

However, Weil and other healthcare experts who are working with states say it is unlikely that even the most critical Republican politicians will simply refuse to implement the law.

GOP officials in many states that are fighting the law in court — including Virginia, Florida, Louisiana, Minnesota and Nevada — have already convened healthcare task forces to work on the overhaul.

“If I had been a member of Congress, I would have voted against the law,” said Louisiana Insurance Commissioner James Donelon, a Republican. “But it’s the law, and we will comply with it until and unless the courts or Congress change it.”

Republican governors have another incentive. The new healthcare law authorizes federal officials to operate an insurance exchange in any state that chooses not to do so.

“Having the federal government march in” is not appealing to many state leaders, said Timothy Jost, a law professor and consumer representative to the National Assn. of Insurance Commissioners.

But resistance to the new law has already emerged in several statehouses. Legislatures in Minnesota and Rhode Island in the last year have rejected bills to create insurance exchanges.

In California, legislation creating an exchange passed without a single Republican vote in the Senate.

Now, several governors are also looking at ways to slow down a major expansion of the Medicaid program, the federal-state insurance program originally designed for poor children.

Beginning in 2014, the law directs states to open Medicaid to all low-income residents, a move that is estimated to cover an additional 16 million people by 2019.

While the federal government is to provide most of the new funding, some state analysts predict it will be difficult for financially strapped states to shoulder even a small increase.

“This recession was so big and broad and wide that it will have repercussions for a decade or more,” said Ray Scheppach, executive director of the National Governors Assn.

State lawmakers may also resist efforts by the Obama administration to expand state oversight of insurance premiums, a key goal of the new healthcare law. Bills to strengthen state regulation were recently quashed in California and Pennsylvania.

Some state insurance commissioners are also looking to petition the Obama administration to delay other new regulations that require insurance companies to spend more on their customers’ medical care.

Maine was the first state to make such a request, citing concerns that the requirement set to take effect in January would force insurers to flee the state, leaving consumers with fewer choices.

Other states are expected to seek waivers from the so-called medical loss ratio provision in coming months.

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Employers Looking at Health Insurance Options

The new health care law wasn’t supposed to undercut employer plans that have provided most peopleT in the U.S. with coverage for generations.

But last week a leading manufacturer told workers their costs will jump partly because of the law. Also, a Democratic governor laid out a scheme for employers to get out of health care by shifting workers into taxpayer-subsidized insurance markets that open in 2014.

While it’s too early to proclaim the demise of job-based coverage, corporate number crunchers are looking at options that could lead to major changes. Gov. Phil Bredesen, D-Tenn., said the economics of dropping coverage are “about to become very attractive to many employers, both public and private.”

That’s just not going to happen, White House officials say.

“The absolute certainty about the Affordable Care Act is that for many, many employers who cover millions of people, it increases the incentives for them to offer coverage,” said Jason Furman, an economic adviser to President Barack Obama.

Yet at least one major employer has shifted a greater share of plan costs to workers, and others are weighing the pros and cons of eventually forcing employees to strike out on their own.

“I don’t think you are going to hear anybody publicly say ‘We’ve made a decision to drop insurance,’ ” said Paul Keckley, executive director of the Deloitte Center for Health Solutions. “What we are hearing in our meetings is, ‘We don’t want to be the first one to drop benefits, but we would be the fast second.’ We are hearing that a lot.” Deloitte is a major accounting and consulting firm.

“My conclusion on all of this is that it is a huge roll of the dice,” said James Klein, president of the American Benefits Council, which represents big company benefits administrators. “It could work out well and build on the employer-based system, or it could begin to dismantle the employer-based system.”

Employer health benefits have been a middle-class mainstay since World War II, when companies were encouraged to offer health insurance instead of pay raises. About 150 million workers and family members are now covered.

When lawmakers debated the legislation, the nonpartisan Congressional Budget Office projected it would only have minimal impact on employer plans. About 3 million fewer people would be covered through the job, but they’d be able to get insurance elsewhere.

Two provisions in the new law are leading companies to look at their plans in a different light.

One is a hefty tax on high-cost health insurance aimed at the most generous coverage. Although the “Cadillac tax” doesn’t hit until 2018, companies may have to disclose their exposure to investors well before that. Karen Forte, a Boeing spokeswoman, said concerns about the tax were partly behind a 50 percent increase in insurance deductibles the company just announced.

The tax is 40 percent of the value of a plan above $10,200 for individual coverage and $27,500 for a family plan. Family coverage now averages about $13,800.

White House adviser Furman said blaming a cost increase next year on a tax that won’t take effect for eight years “stretches credibility very far past the breaking point.”

Bigger questions loom over the new insurance markets that will be set up under the law.

They’re called exchanges, and every state will have one in a few years. Consumers will be able to shop for coverage among a range of plans in the exchange, with a guarantee they can’t be turned down because of an existing medical problem. To help make premiums affordable, the law provides tax credits for households making up to four times the federal poverty level, about $88,000 for a family of four.

Bredesen said last week that employers could save big money by dropping their health plans and sending workers to buy coverage in the exchange. They’d face a fine of $2,000 per worker, but that’s still way less than the cost of providing health insurance. Employers could even afford to give workers a raise and still come out ahead, Bredesen wrote in a Wall Street Journal opinion piece.

Employers are actively looking at that. “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism,” said Deloitte’s Keckley, the consultant.

Erin Shields, a spokeswoman for the senators who wrote that part of the law, says she’s confident that when companies do the math, they’ll decide to keep offering coverage.

That’s because employers get to deduct the cost of workers’ health care from the company’s taxes. Take away the health plan and two things happen: Employers lose the deduction and they’ll probably have to pay workers more to get them to accept the benefit cut. Not only will the company’s income taxes go up, but the employer will also face a bigger bill for Social Security and Medicare payroll taxes. So it’s not as simple as paying $2,000 and walking away.

“It is clearly cheaper for employers to continue providing coverage,” Shields said.

Another wrinkle: the health insurance tax credits available through the law are keyed to relatively Spartan insurance plans, not as generous as most big employers provide. Send your workers into the insurance exchange, and valuable employees might jump to a competitor that still offers health care.

MIT economist Jon Gruber says it’s impossible to create new government benefits without some unintended consequences, but he doesn’t see a big drop in employer coverage. “This is a brave new world with uncertainties,” said Gruber. But “the best available evidence suggests a small erosion. It’s not going go down wildly.”

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Health Reform’s $550B Hidden Costs to Taxpayers

 

Pop Quiz: if McDonald’s offered a 30 percent discount on hamburgers, would consumption increase, decrease or remain unchanged?

If you said “increase,” you understand a basic principle of economics that most Americans with common sense realize even without completing Econ 101. The idea that “if you tax something, you get less of it” is the same principle in reverse. Yet Congress completely ignored this truism in passing the health bill last March.

Notwithstanding President Obama’s firm pledge to the contrary, “Obamacare” included a plethora of new taxes that will impact Americans at all income levels. Indeed, less than half the revenue raised by Obamacare comes from taxes explicitly limited to high income households ($200,000 for individuals/$250,000 for families).

The remaining new taxes affect all consumers and include levies on prescription drugs, medical devices, health insurance providers and even tanning parlors. These and related revenue increases amount over 10 years to more about $225 billion (over $700 per U.S. resident), an enormous burden on the economy.

It is bad enough that the President would violate so flagrantly his own repeatedly-stated tax pledge. Even worse, Congress completely ignored hundreds of billions of dollars in hidden costs related to these taxes. Recall that virtually any increase in taxes results in lost production. So if we tax prescription drugs and medical devices, fewer people will buy them. The net dollar value of this lost production is called “deadweight losses” by economists, but it’s simpler to call it a social welfare loss.

This may seem trivial. However, economists have figured out that for every additional dollar imposed in new federal taxes, social welfare losses amount to 42 cents per dollar of new tax revenue collected.

Thus, every dollar of tax-financed spending really costs society $1.42 — one dollar in visible transfers from taxpayers to the government and another 42 cents in hidden losses related to unseen goods and services that would have been produced but for these added taxes.
You would think that Congress would take into account such massive hidden losses when debating proposals as expensive as health reform. Yet it does not. By ignoring these costs, the true costs of health reform — even if accepting the unrealistic way in which the bill was scored –were probably $157 billion higher than advertised.

But the bill also included Medicare and Medicaid savings that even the Medicare actuary has said “may be unrealistic,” along with an assumed 21 percent reduction in physician payments that no one expects to happen. Including the added taxes needed to cover $550 billion in savings never realized or to pay the roughly $300 billion needed over 10 years for a “doc fix” to avert deep cuts in physician pay, the overall hidden social welfare costs of taxes needed for health reform would rise to $550 billion.

Imagine you were a member of Congress who reluctantly cast a vote for health reform because Presidential arm-twisting persuaded you that the benefits exceeded costs. Had you been aware that the true cost of the bill was at least half a trillion dollars more expensive, might that have changed your vote?

It is distressing to think that such a massive cost would have made no difference in how some members of Congress evaluated this plan. Health reform barely passed the House. Yet a mere four more “no” House votes would have defeated it.

It is plausible to believe the outcome would have been different had Congress been made aware of the enormous, hidden costs embedded in this bill. Like the consumer who jumped at McDonald’s 30 percent off sale, Congress passed a plan that appeared to be about 30 percent cheaper than it actually will be after purchase. And now, we all are beginning to pay the price for this hasty and ill-informed decision.

Conover is a research scholar at the Center for Health Policy and Inequalities Research at Duke University.

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SURPRISED BY THE HIGH RATES OF HEALTH INSURANCE PREMIUMS

Santa Cruz Sentinel -Oct. 26: Santa Cruz – A program launched by California on Monday aims to insure 23,000 people with pre-existing conditions, but it won’t help Soquel resident Michael Rosenberg.A self-employed marketing consultant and tech writer, Rosenberg has a chronic nonlife-threatening condition that he says is under control with inexpensive drugs. In 2001, he was paying $570 a month for health insurance for himself, his wife and his two daughters.

He knew he would pay more when he turned 55 in September, but he didn’t expect the PacifiCare premium to go up to $2,391 a month for himself and his wife.

“That translates to a 400 percent increase in costs in 10 years, with just two on the plan now instead of four,” he said. “Even worse, we still pay 30 percent of all medical costs.”

He tried to switch to a PacifiCare plan with a higher deductible and a lower cost, but was denied. That’s when he called an insurance broker to see if he had options.

The state’s pre-existing condition insurance plan, known as PCIP, is open to people who have been without health coverage for at least six months.

So Rosenberg doesn’t qualify. “My choices are now to either let coverage lapse or pay a ridiculous $30,000 a year,” he said. “I just paid off my daughters’ college. I thought I was going to be free and clear.”

Just as people who turn 55 start thinking about retiring, they enter the age bracket where health insurers consider them a higher risk. “I’m a baby boomer,” Rosenberg said. “There must be a million like me.” He’s loath to drop his coverage, saying, “That’s Russian roulette if you have something major happen.”

Tyler Mason, a spokesman for UnitedHealthcare, PacifiCare’s parent company, said he could not comment on Rosenberg’s situation because of the federal privacy rule, but UnitedHealthcare public relations director Will Shanley issued a statement explaining that insurance premiums reflect the cost of care, which is rising due to hospitals charging higher prices, drug prices going up and increasing demand for services such as MRI and CT scans and knee replacements.

Gov. Arnold Schwarzenegger announced the PCIP plan as “a major milestone in health care reform,” funded by $761 million from the federal government. The idea is to bridge the gap between now and 2014, when federal health care reform will not allow insurers to decline to cover people with pre-existing conditions or charge them higher premiums.

“Unfortunately, these people have to make a choice,” said Jeanie Asajian of the state’s Major Risk Medical Insurance Program, noting the six-month gap was written into the federal law. “That was a surprise to the state as well. We didn’t have any input on that.”

She suggested Rosenberg and others in a similar situation look at the state’s high-risk pool, MRMIP, which stands for Major Risk Medical Insurance Program. “He doesn’t have to drop insurance for that,” she said. “It’s not nearly as expensive as what he’s paying.”

The MRMIP handbook posted online lists two options in Santa Cruz County: Kaiser, a health maintenance organization with facilities in San Jose, at $631 per month per person, and Anthem Blue Cross, a preferred provider organization, at $982 per month per person.

The state agency pays insurance brokers a fee for enrolling people in the program, Asajian said. “I had already looked at the MRMIP program,” Rosenberg said. “It sounds like I’d be eligible, except that I have been able to secure adequate coverage.’ It’s just gone through the roof in terms of cost.”

He got more bad news Monday: A rejection notice from Anthem. “There is no other carrier I can go to,” he said.

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Employers looking at health insurance options

By Ricardo Alonso-Zaldivar Associated Press

WASHINGTON—The new health care law wasn’t supposed to undercut employer plans that have provided most people in the U.S. with coverage for generations.  But last week a leading manufacturer told workers their costs will jump partly because of the law. Also, a Democratic governor laid out a scheme for employers to get out of health care by shifting workers into taxpayer-subsidized insurance markets that open in 2014.

While it’s too early to proclaim the demise of job-based coverage, corporate number crunchers are looking at options that could lead to major changes. Gov. Phil Bredesen, D-Tenn., said the economics of dropping coverage are “about to become very attractive to many employers, both public and private.”

That’s just not going to happen, White House officials say.

“The absolute certainty about the Affordable Care Act is that for many, many employers who cover millions of people, it increases the incentives for them to offer coverage,” said Jason Furman, an economic adviser to President Barack Obama.

Yet at least one major employer has shifted a greater share of plan costs to workers, and others are weighing the pros and cons of eventually forcing employees to strike out on their own.

“I don’t think you are going to hear anybody publicly say ‘We’ve made a decision to drop insurance,’ ” said Paul Keckley, executive director of the Deloitte Center for Health Solutions. “What we are hearing in our meetings is, ‘We don’t want to be the first one to drop benefits, but we would be the fast second.’ We are hearing that a lot.” Deloitte is a major accounting and consulting firm.

“My conclusion on all of this is that it is a huge roll of the dice,” said James Klein, president of the American Benefits Council, which represents big company benefits administrators. “It could work out well and build on the employer-based system, or it could begin to dismantle the employer-based system.”

Employer health benefits have been a middle-class mainstay since World War II, when companies were encouraged to offer health insurance instead of pay raises. About 150 million workers and family members are now covered.

When lawmakers debated the legislation, the nonpartisan Congressional Budget Office projected it would only have minimal impact on employer plans. About 3 million fewer people would be covered through the job, but they’d be able to get insurance elsewhere.

Two provisions in the new law are leading companies to look at their plans in a different light.

One is a hefty tax on high-cost health insurance aimed at the most generous coverage. Although the “Cadillac tax” doesn’t hit until 2018, companies may have to disclose their exposure to investors well before that. Karen Forte, a Boeing spokeswoman, said concerns about the tax were partly behind a 50 percent increase in insurance deductibles the company just announced.

The tax is 40 percent of the value of a plan above $10,200 for individual coverage and $27,500 for a family plan. Family coverage now averages about $13,800.

White House adviser Furman said blaming a cost increase next year on a tax that won’t take effect for eight years “stretches credibility very far past the breaking point.”

Bigger questions loom over the new insurance markets that will be set up under the law.

They’re called exchanges, and every state will have one in a few years. Consumers will be able to shop for coverage among a range of plans in the exchange, with a guarantee they can’t be turned down because of an existing medical problem. To help make premiums affordable, the law provides tax credits for households making up to four times the federal poverty level, about $88,000 for a family of four.

Bredesen said last week that employers could save big money by dropping their health plans and sending workers to buy coverage in the exchange. They’d face a fine of $2,000 per worker, but that’s still way less than the cost of providing health insurance. Employers could even afford to give workers a raise and still come out ahead, Bredesen wrote in a Wall Street Journal opinion piece.

Employers are actively looking at that. “I don’t know if the intent was to find an exit strategy for providing benefits, but the bill as written provides the mechanism,” said Deloitte’s Keckley, the consultant.

Erin Shields, a spokeswoman for the senators who wrote that part of the law, says she’s confident that when companies do the math, they’ll decide to keep offering coverage.

That’s because employers get to deduct the cost of workers’ health care from the company’s taxes. Take away the health plan and two things happen: Employers lose the deduction and they’ll probably have to pay workers more to get them to accept the benefit cut. Not only will the company’s income taxes go up, but the employer will also face a bigger bill for Social Security and Medicare payroll taxes. So it’s not as simple as paying $2,000 and walking away.

“It is clearly cheaper for employers to continue providing coverage,” Shields said.

Another wrinkle: the health insurance tax credits available through the law are keyed to relatively Spartan insurance plans, not as generous as most big employers provide. Send your workers into the insurance exchange, and valuable employees might jump to a competitor that still offers health care.

MIT economist Jon Gruber says it’s impossible to create new government benefits without some unintended consequences, but he doesn’t see a big drop in employer coverage. “This is a brave new world with uncertainties,” said Gruber. But “the best available evidence suggests a small erosion. It’s not going go down wildly.”

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ObamaCare’s Incentive to Drop Insurance

My state of Tennessee could reduce costs by over $146 million using the legislated mechanics of health reform to transfer coverage to the federal government.

By PHILIP BREDESEN

One of the principles of game theory is that you should view the game through your opponent’s eyes, not just your own.

This past spring, the Patient Protection and Affordable Care Act (President Obama’s health reform) created a system of extensive federal subsidies for the purchase of health insurance through new organizations called “exchanges.” The details of these subsidies were painstakingly worked out by members of my own political party to reflect their values: They decided who was to benefit from the subsidies and what was to be purchased with them. They paid a lot of attention to their own strategies, but what I believe they failed to consider properly were the possible strategies of others.

Our federal deficit is already at unsustainable levels, and most Americans understand that we can ill afford another entitlement program that adds substantially to it. But our recent health reform has created a situation where there are strong economic incentives for employers to drop health coverage altogether. The consequence will be to drive many more people than projected—and with them, much greater cost—into the reform’s federally subsidized system. This will happen because the subsidies that become available to people purchasing insurance through exchanges are extraordinarily attractive.

In 2014, when these exchanges come into operation, a typical family of four with an annual income of $90,000 and a 45-year-old policy holder qualifies for a federal subsidy of 40% of their health-insurance cost. For that same family with an income of $50,000 (close to the median family income in America), the subsidy is 76% of the cost.

One implication of the magnitude of these subsidies seems clear: For a person starting a business in 2014, it will be logical and responsible simply to plan from the outset never to offer health benefits. Employees, thanks to the exchanges, can easily purchase excellent, fairly priced insurance, without pre-existing condition limitations, through the exchanges. As it grows, the business can avoid a great deal of cost because the federal government will now pay much of what the business would have incurred for its share of health insurance. The small business tax credits included in health reform are limited and short-term, and the eventual penalty for not providing coverage, of $2,000 per employee, is still far less than the cost of insurance it replaces.

For an entrepreneur wanting a lean, employee-oriented company, it’s a natural position to take: “We don’t provide company housing, we don’t provide company cars, we don’t provide company insurance. Our approach is to put your compensation in your paycheck and let you decide how to spend it.”

But while health reform may alter the landscape for small business in unexpected ways, it also opens the door to what is a potentially far larger effect on the Treasury.

The authors of health reform primarily targeted the uninsured and those now buying expensive individual policies. But there’s a very large third group that can also enter and that may have been grossly underestimated: the 170 million Americans who currently have employer-sponsored group insurance. Because of the magnitude of the new subsidies created by Congress, the economics become compelling for many employers to simply drop coverage and help their employees obtain replacement coverage through an exchange.

Let’s do a thought experiment. We’ll use my own state of Tennessee and our state employees for our data. The year is 2014 and the Affordable Care Act is now in full operation. We’re a large employer, with about 40,000 direct employees who participate in our health plan. In our thought experiment, let’s exit the health-benefits business this year and help our employees use an exchange to purchase their own.

First of all, we need to keep our employees financially whole. With our current plan, they contribute 20% of the total cost of their health insurance, and that contribution in 2014 will total about $86 million. If all these employees now buy their insurance through an exchange, that personal share will increase by another $38 million. We’ll adjust our employees’ compensation in some rough fashion so that no employee is paying more for insurance as a result of our action. Taking into account the new taxes that would be incurred, the change in employee eligibility for subsidies, and allowing for inefficiency in how we distribute this new compensation, we’ll triple our budget for this to $114 million.

Now that we’ve protected our employees, we’ll also have to pay a federal penalty of $2,000 for each employee because we no longer offer health insurance; that’s another $86 million. The total state cost is now about $200 million.

But if we keep our existing insurance plan, our cost will be $346 million. We can reduce our annual costs by over $146 million using the legislated mechanics of health reform to transfer them to the federal government.

That’s just for our core employees. We also have 30,000 retirees under the age of 65, 128,000 employees in our local school systems, and 110,000 employees in local government, all of which presents strategies even more economically attractive than the thought experiment we just performed. Local governments will find eliminating all coverage particularly attractive, as many of them are small and will thus incur minor or no penalties; many have health plans that will not meet the minimum benefit threshold, and so they’ll see a substantial and unavoidable increase in cost if they continue providing benefits under the new federal rules.

Our thought experiment shows how the economics of dropping existing coverage is about to become very attractive to many employers, both public and private. By 2014, there will be a mini-industry of consultants knocking on employers’ doors to explain the new opportunity. And in the years after 2014, the economics just keep getting better.

The consequence of these generous subsidies will be that America’s health reform may well drive many more people than projected out of employer-sponsored insurance and into the heavily subsidized federal system. Perhaps this is a miscalculation by the Congress, perhaps not. One principle of game theory is to think like your opponent; another is that there’s always a larger game.

Mr. Bredesen, a Democrat, is the governor of Tennessee and the author of “Fresh Medicine: How to Fix Reform and Build a Sustainable Health Care System,” just out by Atlantic Monthly Press.

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