Author Archive | John Barrett

Pre-Reform Health Plans Might Lose Reform Law Exemption

Draft regulations by the Obama administration indicate that more than half of employer-sponsored health care plans might lose their “grandfathered status” in 2013 and be forced to change in order to comply with regulations in the new health reform law, the Wall Street Journal reports.

The regulations — currently being written by HHS, as well as the Labor and Treasury Departments — appear to contradict Obama’s promise throughout the reform debate that people who like their insurance plans will be able to keep them (Johnson, Wall Street Journal, 6/12).

Qualifying for Grandfathered Status

Plans that were implemented before the new reform law was signed in March can qualify for grandfathered status, which exempts them from many, but not all, of the law’s consumer protections (AP/Washington Post, 6/12).

For example, grandfathered plans are exempt from limits on cost-sharing (Wall Street Journal, 6/12). The plans also are not required to comply with mandates that plans offer preventive care without co-payments or requirements that they institute an appeals process for disputed claims following guidelines stipulated in the overhaul (AP/Washington Post, 6/12).

Losing Grandfathered Status

The draft regulations suggest that the plans could lose their statuses if they make significant changes in deductibles, co-payments or benefits (Pear, New York Times, 6/13). A plan could lose its grandfathered status if it were to increase an employee’s share of medical costs from 20% to 30% or if it increased a deductible beyond the set limit of medical inflation plus 15% (Wall Street Journal, 6/12).

Health plans often change due because of increasing costs, making it likely that many grandfathered plans will change enough to lose their status (Alonso-Zaldivar, AP/San Diego Union-Tribune, 6/11).

The most extreme scenario under the draft is that 80% of small-business plans will lose their grandfathered status by 2013, according to the Journal (Wall Street Journal, 6/12).

Employer Groups, GOP Respond to Regulations

Some employer groups said the stricter guidelines associated with losing grandfathered status could be a positive development for workers.

Alex Vachon, an independent health policy consultant, said, “On the face of it, having consumer protections apply to all insurance plans could be a good thing for employees,” adding, “Technically, it’s actually improved coverage.”

However, Republicans criticized the draft regulations, saying that Obama broke his promise that workers can choose to keep their current coverage (AP/San Diego Union-Tribune, 6/11). Senate Minority Leader Mitch McConnell (R-Ky.) called Obama’s pledge a “myth.” He said, “Since its passage, Republican arguments against the bill have been repeatedly vindicated, even as the administration’s many promises about the bill have been called into question again and again” (AP/Washington Post, 6/12).

Representatives from the U.S. Chamber of Commerce added that the regulations serve as evidence that the reform law will raise costs (AP/San Diego Union-Tribune, 6/11). James Gelfand, health policy director at the Chamber of Commerce, said, “These rules are extremely strict,” adding, “Almost no plan is going to be able to maintain grandfathered status.”

An Obama administration spokesperson said the final rules are still being written, adding that the administration’s goal is to ensure that the regulations do not affect most grandfathered plans (Wall Street Journal, 6/12).


Consumers Worry Over Health Reform’s Costs: Deloitte


A survey found that many consumers are worried about changes to their current health insurance plans and the cost of insurance under the new Patient Protection and Affordable Care Act.

Consumers with employer-sponsored coverage seem to be the most skeptical of health care reform, according to a survey by Deloitte Consulting L.L.P, New York. Deloitte found 61% of these consumers believe their employer will reduce benefits for dependents and retirees. And 32% think employers will stop providing any health coverage for employees.

The survey also found 82% of consumers with employer-sponsored health plans believe that the cost of the health reform act will be higher than expected, and 58% believe the health reform act will not reduce health care costs in the long term.

American consumers will continue to worry about current and future health insurance coverage as the new federal Affordable Care Act goes into effect, says Paul Keckley, executive director of the Deloitte Center for Health Solutions.

Many consumers who say they are familiar with provisions in the Affordable Care Act are worried about future access to quality health care. The survey found 72% of them believe that some hospitals and medical practices will close, and 51% believe that their employers may drop their coverage.

In addition, most consumers are worried about the cost of care under the new legislation, according to the poll. Survey respondents anticipate increases in taxes and in health insurance costs, including premiums and out-of pocket expenses, hospitals and physicians services, and the cost of medications.

Of adults aged 18-34 51% believe that the health reform bill will reduce health care costs in the long erm, compared to 23% of 45-54 year-olds, 36% of 55-64 year-olds, and 30% of 65 year-olds and above, according to the survey.

The research suggest that health insurance plans and employers may need to work together more than ever to help ease the worry of plan participants and employees as new health reform measures are implemented, Deloitte suggests.

Deloitte found 84% of all the consumers it surveyed had health insurance.


ObamaCare strikes out with workers


ObamaCare, formally known as the Patient Protection and Affordable Care Act, is bad news for U.S. workers.

Strike One: ObamaCare is fiscally dangerous, raising the risk of higher taxes all around — including taxes on labor at a time when the job market is struggling.

Strike Two: ObamaCare creates strong incentives for employers — even while holding workers financial harmless — to drop employer-sponsored health insurance for as many as 35 million Americans. This is sure to lead to widespread turmoil in labor compensation, employee insurance coverage and labor relations.

Strike Three: ObamaCare slaps big increases in effective marginal tax rates on low-income workers. Every worker forced onto the subsidized exchanges is sure to face higher barriers to upward mobility and the pursuit of the American Dream.

ObamaCare should be sent back to the dugout.

But, sadly, the political arithmetic argues against a simple repeal. So the focus should be on cutting the massive subsidies that lie at the heart of the problem. Let’s take the reasons in turn.

The Congressional Budget Office projects that ObamaCare will reduce federal deficits by $143 billion over its first 10 years. But Michael Ramlet and I expose the bill to closer scrutiny in our coming Health Affairs article.

Not surprisingly for an act that creates two new, rapidly-growing entitlement programs —insurance subsidies and long-term care insurance — we conclude that ObamaCare instead increases the deficit by more than $500 billion in the first 10 years.

Not the best step at a time when even the sober-minded are beginning to worry that events in Greece and Europe are the ghost of America’s fiscal future.

Deficits represent a commitment to either raise taxes or reduce future outlays. New taxes on labor is sure to impede smooth functioning of labor markets by interfering with decisions involving education, career choice, hiring, job switching, second-jobs and myriad aspects of the most crucial U.S. economic activity today.

For better or — more likely — worse, health insurance is heavily entangled with the labor market. Today, roughly 163 million workers and their families receive health insurance coverage from their employers; and about one-half of the ObamaCare spending is for insurance subsidies.

These subsidies are remarkably generous — even for those with relatively high incomes.

For example, a family earning about $59,000 a year in 2014 would receive a premium subsidy of about $7,200. A family making $71,000 would receive about $5,200. Even a family earning about $95,000 would receive a subsidy of almost $3,000.

These subsidies threaten to undermine existing labor market relationships.

Health insurance is generally only one piece of an overall compensation package that employees receive as a result of competitive pressures. Evidence suggests that if the health insurance portion of that package is reduced or eliminated, the wage aspect will ultimately be increased as a competitive necessity to retain and attract valuable labor.

So the key question is whether the employer can keep the employee “happy” — appropriately compensated and insured — and save money.

The answer is frequently “yes” — thanks to the generosity of federal subsidies. In a study available at the American Action Forum website, we find that for a worker with an income of $59,250 — 250 percent of the federal poverty level — the employer could drop $12,000 in insurance, pay the $2,000 penalty ObamaCare imposes on doing so, give the worker a raise of $8,391 and pocket a tidy $1,550.

More important, the worker could use her raise and the $7,530 subsidy to purchase insurance as good as what she gave up.

What’s not to like — as long as the other 138 million taxpayers are financing the deal?

The potential affect is large. There are now 123 million Americans at or below this income cutoff. Roughly 60 percent of Americans work; about 60 percent of those receive employer-sponsored insurance. This suggests that there are about 43 million workers for whom it may make financial sense to drop insurance.

In the interest of being conservative, let’s say it is 35-40 million.

CBO estimated that only 19 million would receive subsidies, at a cost of about $450 billion over the first 10 years. This analysis suggests that the number could easily be triple that — or 19 million plus an additional 38 million in 2014. Meaning the price tag would be $1.4 trillion.

On top of that, there would be a disruptive and vast reworking of compensation packages, insurance coverage and labor market relations.

Strike Three is that our study shows that every worker shifted to public subsidies will face striking increases in effective marginal tax rates (EMTRs). These rates — the fraction of each additional dollar workers get to save or spend — are at the heart of economic incentives and should be kept as low as possible.

Unfortunately, ObamaCare imposes stunning increases on EMTRs for low-income workers. For every worker who faces a loss in employer coverage, we have a worker who faces a greater difficulty in getting ahead when taking an extra shift; finding a way for a second parent to work, or investing in night school courses to qualify for a raise.


Health law could ban low-cost plans


Part of the health care overhaul due to kick in this September could strip more than 1 million people of their insurance coverage, violating a key goal of President Barack Obama’s reforms.

Under the provision, insurance companies will no longer be able to apply broad annual caps on the amount of money they pay out on health policies. Employer groups say the ban could essentially wipe out a niche insurance market that many part-time workers and retail and restaurant employees have come to rely on.

This market’s limited-benefit plans, also called mini-med plans, are priced low because they can, among other things, restrict the number of covered doctor visits or impose a maximum on insurance payouts in a year. The plans are commonly offered by retail or restaurant companies to low-wage workers who cannot afford more expensive, comprehensive coverage.

Depending on how strictly the administration implements the provision, the ban could in effect outlaw the plans or make them so restrictive that insurance companies would raise rates to the point they become unaffordable.

A cadre of employers and trade associations, including 7-Eleven, Lowe’s, the National Restaurant Association, the National Retail Federation and the U.S. Chamber of Commerce, have asked the administration to allow the plans — at least through 2014, when the insurance exchanges are set up and tax credits become available for low-wage workers.

The struggle over the provision highlights the importance of the new law’s implementation timetable and the way its parts interlock with one another. The legislation was front-loaded with consumer-friendly reforms, such as the ban on most annual limits, in hopes the law would become more popular. Polls show the legislation is supported by about half the public.

But many of the more comprehensive features of the overhaul, such as the insurance exchanges and tax credits that would help cover those who use limited-benefit plans, don’t come into play until 2014.

That means, for nearly three years, the effect of the ban on annual limits could be costly for the low-wage, seasonal or temporary workers who most often use limited-benefit plans. The full effect won’t be known until the administration releases regulations that detail how the provision will be implemented.

The ban on annual caps is designed to improve the quality of all health coverage. It will prevent patients from “maxing out” of their health coverage if they are diagnosed with catastrophic illnesses or sustain costly injuries.

If the ban is strictly implemented, “this population would likely be left with no coverage until 2014,” employer groups wrote last week in a letter to Health and Human Services Secretary Kathleen Sebelius and Labor Secretary Hilda Solis. “While it surely was not the intent of Congress or the administration to increase the number of uninsured, this provision will likely produce exactly this result for some of the most vulnerable of our population, e.g., lower-wage, part-time, seasonal and temporary workers who can only obtain and afford limited-benefit medical insurance coverage.”

The letter was signed by nearly three dozen organizations, including many trade groups that did not support the Democrats’ legislation. Industry groups estimate that about 1.4 million people use these plans.

HHS spokeswoman Jessica Santillo said that the department was considering input from “all stakeholders” as it develops the rules surrounding the ban on annual caps and that everyone will see improvements in quality from provisions of the overhaul implemented this year.

“Under the Affordable Care Act, millions of small businesses and their employees will see a significant decrease in the cost of health insurance and will have access to higher-quality-coverage options. In the short term, employers will benefit from administrative simplification and greater insurer accountability on their overhead and rate increases,” Santillo said. “And starting this year, an estimated 4 million small businesses who offer health coverage for employees will see immediate relief through a small-business tax credit.”

Once the exchanges open and the tax credits become available in 2014, many of the low- and middle-income people who use limited-benefit plans are likely to qualify for the credits. But that’s after three years of limbo.

Employers admit the plans aren’t comprehensive but say they offer them because their employees can afford them.

“It’s not top-notch coverage by any stretch, but it is better than no coverage,” said Neil Trautwein, a health care lobbyist at the National Retail Federation. “There’s slight irony, given the president’s repeated assertion that if you enjoy your coverage you can keep it, that this would take the coverage away from part-time employees until 2014.”

Rules to implement the provision could be written to allow the limited-benefit plans until just 2014 or, with some flexibility, longer.

“If the limits are too restrictive, these products are not going to be able to be in the marketplace because that’s what makes them affordable,” said Jessica Waltman, senior vice president of government affairs at the National Association of Health Underwriters, which represents insurance agents and brokers.


First victim of health care overhaul?


A Virginia-based insurance company says “considerable uncertainties” created by the Democrats’ health care overhaul will force it to close its doors by the end of the year.

The firm, nHealth, appears to be the first to claim that the new law has driven it out of business. “We don’t know what the rules are going to be, and, as a start-up, our investors need certainty,” nHealth CEO and President Paul Kitchen told POLITICO. “The law created so much uncertainty that is beyond our control.”

Last week, in a letter to the company’s 50 or so employees, Executive Vice President James Slabaugh said nHealth has stopped accepting new group customers and will terminate all business by Dec. 31.

“The uncertainties in the regulatory climate coupled with new demands imposed by national health care reforms have made it challenging to sustain the level of sales required to remain viable over the long run,” Slabaugh wrote.

The company’s finger-pointing — first reported by the newspaper Richmond BizSense — must be read with caution: For years, employers and health insurance brokers have struggled to keep pace with steeply rising health care costs.

Asked about nHealth’s decision to shut down, a White House aide said, “It’s difficult to comment on this case without fully evaluating the company in question.”

The blame game — whether health reform can be held responsible for the continuing woes of an already struggling system — will very likely become a familiar plotline as the health overhaul takes effect and political parties vie for control of the narrative.

President Barack Obama dives back into the fray Tuesday, traveling to a senior center in Wheaton, Md., for a national tele-town hall on health care.

NHealth opened for business about 2½ years ago and was named in October 2008 one of the “Greater Richmond Companies to Watch” by a local business group. Kitchen estimates the company has about 100 small-business contracts providing policies to “thousands” of subscribers.

NHealth specializes in high-deductible insurance plans, meant to cover larger medical emergencies, that are paired with health savings accounts, the tax-deductible accounts used to pay for medical expenses.

HSAs have grown dramatically since they were authorized in the 2003 Medicare Prescription Drug Improvement and Modernization Act. There were about 1 million enrollees in 2005. Now there are about 10 million, according to a May 2010 report from the industry group America’s Health Insurance Plans.

HSAs are a favorite of conservative health economists, who see the plans as a way to control costs by leaving spending decisions to individual consumers. Others have criticized the plans as discouraging cost-saving behavior such as preventive care.

In an interview with POLITICO, Kitchen said the impact of health reform on his business is twofold.

First, it created an uncertain future. With regulations yet to be written and rules constantly forthcoming, he said, “everything felt beyond our control.”

Second, Kitchen is apprehensive about a more regulated insurance market. The health reform law requires insurance companies to spend a certain amount of premium dollars on medical costs and, in many cases, bans lifetime limits on medical coverage. Kitchen said he was uncertain whether nHealth would be able to comply.

“The rules changed in the middle of the game,” Kitchen said. “We’re not willing to wander into that environment.”

The White House aide agreed that the rules will change, but in ways that benefit consumers. Stricter regulations will ultimately guarantee better coverage for subscribers. The medical loss ratio regulation, for example, will ensure that insurers spend a certain percentage of subscriber dollars on medical costs rather than administrative expenses.

“The Affordable Care Act sets new standards for insurance coverage that protect consumers and ensure they get the most for their premium dollar,” the aide said. “Insurers should have no problem meeting those standards, which do not require action until 2012. And starting in 2014, the insurance industry will have millions of new customers.”

Even without the health reform law, small health insurance firms were operating in a financially challenging landscape. Employers have become increasingly likely to consider dropping coverage as premiums have risen, according to annual surveys by the National Small Business Association. As far back as 2008, a Citigroup survey showed “more insurers were raising premiums at a faster rate than those who reported slowing increases,” according to a Wall Street Journal article at the time


Hewitt: One-third of workers could drop employer health coverage

More than one-third (35 percent) would consider dropping their employer plan if they can purchase similar coverage for a lower cost somewhere else.

Nearly half of the 3,000 American workers surveyed by HR consulting firm Hewitt Associates said they’ll keep their employer-sponsored health insurance in the next three to five years. But more than one-third (35 percent) would consider dropping their employer plan if they can purchase similar coverage for a lower cost somewhere else.

Experts say new health care reform legislation is pushing employers to realign their health benefits. Currently, the majority of Americans (61 percent) currently use employer-sponsored health care coverage as medical needs arise and participate in healthy living/wellness programs, according to Hewitt.

“Workers clearly appreciate the value of the health care coverage their employers offer to them and their families,” said Helen Darling, president of the National Business Group on Health, a nonprofit association that represents more than 280 large U.S. companies, in a press release. “Health care reform legislation will lead some employers to rethink their health benefits strategy, but employees overwhelmingly prefer and expect to see their employers continue to provide coverage in the future.”

Hewitt and National Business Group on Health’s survey reveals five key insights into how employees and their dependents view health care:

Employees know how to get healthy, but many aren’t taking action. Employees and their dependents are more involved in managing their health and health care options than ever before and know what actions will lead to better health. Most (84 percent) believe making smart choices in daily life leads to good overall health, and almost three-quarters (72 percent) think good health is a result of getting regular preventive care. However, this understanding does not seem to be translating into individuals taking actions that will directly improve their health. Only half of employees think they do a great or good job of eating healthy, while less than half (46 percent) reported doing a great or good job of exercising on a regular basis.

Participation in health programs is low, but satisfaction is high. Employees and dependents say they know what actions they need to take to get and stay healthy, but participation in many employer-provided health improvement programs is not as high as employers would like.

The most popular programs include biometric screenings (61 percent), followed by online health information tools (53 percent) and health risk questionnaires (41 percent). Stress management programs and employee assistance programs (EAPs) were the least popular, with just 9 percent participation in each.

Despite low participation rates, the Hewitt/National Business Group on Health survey shows that workers who take advantage of available programs, tools and services are generally satisfied with them. The programs with the highest employee satisfaction rates include blood screenings (91 percent), on-site health centers (83 percent) and physical fitness programs (78 percent).

Assistance with stress reduction/management and help with claims resolutions were among the programs with the lowest levels of satisfaction (60 percent respectively and 59 percent respectively).

Internal motivators can be just as effective as financial ones. Many employers presume that offering cash incentives in exchange for participation will generate the best results and incent employees to participate in health care programs.

However, the Hewitt/National Business Group on Health survey shows that employees are equally motivated by both intrinsic factors and the use of incentives or penalties. Nearly half (48 percent) would complete a health risk questionnaire (HRQ) without any incentive because it is “the right thing to do.” Twenty-nine percent would participate in a HRQ for an incentive and almost the same number (28 percent) would complete it if there was a penalty. Further, 44 percent of employees would participate in a wellness or health improvement program offered by their employer because it’s the right thing to do compared to almost a third (32 percent) who would participate if they were incented and 30 percent who would participate under threat of a penalty.

“The reality is that we all need a nudge at times to make the right health choices, and we learned through this research that the nudge doesn’t always have to involve money,” said Joann Hall Swenson, a principal and health engagement leader at Hewitt Associates, a global human resources consulting and outsourcing services company. “Financial incentives can work well, but organizations should also harness the power of intrinsic motivators like people wanting to stay alive and well for their families. The trick for employers is finding the right blend of motivators that works for their population.”

Skepticism and confusion get in the way of healthy actions. Further complicating the disconnect between workers’ intentions to get healthy and their actions, a majority of workers and dependents are confused when it comes to which information to trust and what to do about their health.

The top employee obstacles to making informed health care choices? Not knowing which information to trust (58 percent), followed by confusion over what is covered by the plan (54 percent), not knowing how much things cost (47 percent) and ability to quickly see a doctor when needed (42 percent).

“Companies need to remove as many barriers as they can that get in the way of employees taking the right actions—whether those are administrative, financial, geographic, or environmental,” explained Cathy Tripp, a leader and principal in Hewitt’s Health Management practice.

Workers want targeted and personalized communication. To help cut through the clutter of health care messages, employees and their dependents are asking for more personalized communication that is relevant to them. Almost half (44 percent) want customized, targeted reminders that are appropriate for them based on factors such as their age and gender, 41 percent would like personalized health program recommendations, and 40 percent requested online personal health records.

“Workers know what they need to do to manage their health, but unfortunately that’s not enough,” said Darling. “To turn this knowledge into positive actions, individuals need very specific tools, tactics and motivation. As employers consider making changes to their health care benefits in response to health care reform, they have a great opportunity to revitalize their existing strategy and create programs that will promote workforce health and productivity and hold down overall health care costs.”


Kaiser Study Shows Less Confusion, Fading Enthusiasm over PPACA

In the past month, fewer and fewer Americans have said that they are confused about the new health reform law. Though more than four in 10 continue to struggle, and just over one-third say they don’t understand how the law will affect them personally, the basic shape of opinion overall on the reform law remains unchanged, with the nation still firmly divided along partisan lines.

According to the May Kaiser health tracking survey, there is less enthusiasm about health reform. Those who look upon the law favorably tend to focus on the ways it will increase access to coverage and care, while those who view the law unfavorably have a more splintered array of reasoning – beginning with concerns about cost and government control.

Less confusion

While more than half of the public (55 percent) said that the word “confused” aptly described their feelings about the new health reform law in April, that proportion dropped by 11 percentage points in May. The drop was particularly evident among women, who are more likely to be making health care decisions for the household; 60 percent felt confused in April compared with 45 percent in May, bringing them more in line with the results among men.

Those with more education and higher incomes also dispelled their confusion at a higher rate this spring than those with less education and lower incomes. Even with the decrease, however, a substantial minority – 44 percent – say they remain confused about the health reform law.

Overall, a solid majority of Americans (61 percent) say they feel like they “understand what the impact of the health reform law will be” on themselves and their families, while 35 percent say they do not understand how they will be affected.

Americans living in households that bring in less than $40,000 a year and those who are uninsured are somewhat more likely than their counterparts to say they do not understand how the law will affect their own families, even though many components are specifically targeted at lower-income households.

Waning enthusiasm

Overall, the public continues to be divided in their views of the health reform law, with the poll finding 41 percent holding favorable views, 44 percent unfavorable views, and 14 percent undecided or unsure. These views continue to differ markedly by party, with most Democrats holding favorable views, most Republicans unfavorable views, and political independents tilting toward a negative viewpoint. As was true in April, voters who say they are likely to vote in the midterm elections are somewhat more likely to tilt negative in their views of health reform.

In terms of the trend in opinion, between April and May, there was a falloff in strong supporters, with 23 percent in April saying they held “very favorable” views of the new law, compared with 14 percent now. Most of this falloff came from Democrats themselves, whose “rally round the flag” sentiments may be waning as passage fades into the rearview mirror. In April, 43 percent of self‐identified Democrats said they had “very favorable” views of the reform law, compared with 30 percent now. Only time can tell whether this is a blip or the start of a trend.

Meanwhile, the percentage with “very unfavorable” views of the legislation hasn’t changed appreciably since April, hovering at around three in 10 overall, and rising to seven in 10 among Republicans. Feelings continue to be stronger, then, among opponents than among proponents of the law.

When asked to explain the main reason for their favorable views in their own words, supporters offered reasoning that related to increasing Americans’ access to health insurance and to health care itself (47 percent). Others offered answers focusing on their hope that costs will come down under reform (12 percent), and some focused on such insurance reforms as the end of exclusions based on pre‐existing conditions (4 percent).

Those with unfavorable views of the law had a much more disparate group of reasons for their negative perceptions. Topping the list were concerns about the cost of the reforms (27 percent) and opposition to the government’s perceived role in the changes (17 percent).

There has been little change since April in the proportion that expects to benefit from the new law. About three in 10 say they do believe they’ll benefit from the provisions, while just as many expect to suffer in some way and another one-third don’t expect to be affected.

Calming emotions

As health reform is replaced by other pressing policy issues on the front pages of newspapers and websites, it may also be ceding its place in the forefront of people’s minds. The Kaiser survey suggests that fewer Americans report holding strong emotions – either positive or negative – about the new law. In addition to the drop in the proportion who said they were confused, there was also a drop in the proportion who said they felt relieved or pleased (down 8 percentage points to 32 percent and down 6 percentage points to 39 percent, respectively), as well as a drop in those who reported feeling anxious (down 6 percentage points to 36 percent). The proportion who felt disappointed, however, did not change, remaining at 45 percent and now roughly tied with confusion as the most predominant emotion. Neither did the proportion who felt angry change, which hovered at 30 percent. 

Source: Kaiser Family Foundation


Goodbye, Employer-Sponsored Insurance

Companies are discovering that it’s cheaper to pay fines to the government than to cover workers.

Wall Street Journal – May 21, 2010


Millions of American workers could discover that they no longer have employer-provided health insurance as ObamaCare is phased in. That’s because employers are quickly discovering that it may be cheaper to pay fines to the government than to insure workers.

AT&T, Caterpillar, John Deere and Verizon have all made internal calculations, according the House Energy and Commerce Committee, to determine how much could be saved by a) dropping their employer-provided insurance, b) paying a fine of $2,000 per employee, and c) leaving their employees with the option of buying highly-subsidized insurance in the newly created health-insurance exchange.

AT&T, for example, paid $2.4 billion last year to cover medical costs for its 283,000 active employees. If the company dropped its health plan and paid an annual penalty for each uninsured worker, the fines would total almost $600 million. But that would leave AT&T with a tidy profit of $1.8 billion.

Economists say employee benefits ultimately substitute for cash wages, which means that AT&T employees would get higher take-home pay. But considering that they will be required by federal law to buy their own insurance in an exchange, will they be net winners or losers? That depends on their incomes.

A Congressional Budget Office (CBO) analysis of the House version of ObamaCare, which is close to what actually passed in March, assumed a $15,000 premium for family coverage in 2016. Yet the only subsidy available for employer-provided coverage is the same one as under current law: the ability to pay with pretax dollars. For a $30,000-a-year worker paying no federal income tax, the only tax subsidy is the payroll tax avoided on the employer’s premiums. That subsidy is only worth about $2,811 a year.

If this same worker goes to the health-insurance exchange, however, the federal government will pay almost all the premiums, plus reimburse the employee for most out-of-pocket costs. All told, the CBO estimates the total subsidy would be about $19,400—almost $17,000 more than the subsidy for employer-provided insurance.

In general, anyone with a family income of $80,000 or less will get a bigger subsidy in the exchange than the tax subsidy available at work.

But will the insurance in the exchange be as good? In Massachusetts, people who get subsidized insurance from an exchange are in health plans that pay providers Medicaid rates plus 10%. That’s less than what Medicare pays, and a lot less than the rates paid by private plans. Since the state did nothing to expand the number of doctors as it cut its uninsured rate in half, people in plans with low reimbursement rates are being pushed to the rear of the waiting lines.

The Massachusetts experience will only be amplified in other parts of the country. The CBO estimates there will be 32 million newly insured under ObamaCare. Studies by think tanks like Rand and the Urban Institute show that insured people consume twice as much health care as the uninsured. So all other things being equal, 32 million people will suddenly be doubling their use of health-care resources. In a state such as Texas, where one out of every four working age adults is currently uninsured, the rationing problem will be monumental.

Even if health plans in the exchange are identical to health plans at work, the subsidies available can only be described as bizarre. In general, the more you make, the greater the subsidy at work and the lower the subsidy in the exchange. People earning more than $100,000 get no subsidy in the exchange. But employer premiums avoid federal and state income taxes as well as payroll taxes, which means government is paying almost half the cost of the insurance. That implies that the best way to maximize employee subsidies is to completely reorganize the economic structure of firms.

Take a hotel with maids, waitresses, busboys and custodians all earning $10 or $15 an hour. These employees can qualify for completely free Medicaid coverage or highly subsidized insurance in the exchange.

So the ideal arrangement is for the hotel to fire the lower-paid employees—simply cutting their plans is not an option since federal law requires nondiscrimination in offering health benefits—and contract for their labor from firms that employ them but pay fines instead of providing health insurance. The hotel could then provide health insurance for all the remaining, higher-paid employees.

Ultimately, we could see a complete restructuring of American industry, with firms dissolving and emerging based on government subsidies.

A much better approach was proposed by Sen. John McCain in the last presidential election. The principle behind that plan is enshrined in the legislation sponsored by Sens. Tom Coburn (R., Okla.) and Richard Burr (R., N.C.), and Reps. Paul Ryan (R., Wis.) and Devin Nunes (R., Calif). This approach would replace the current subsidies with a system that gives every family, regardless of income, the same number of dollars of tax relief for health insurance.

Under this approach, all insurance would be subsidized the same way, regardless of where it is purchased. All taxpayers would be subsidized the same way, regardless of how they obtain their insurance. Unlike the president’s scheme, it makes sense both in terms of equity and economics.

Mr. Goodman is the president and CEO of the National Center for Policy Analysis.


Poll: Schedule fails to sway public

The White House has, for weeks now, rolled out popular health reform benefits well ahead of schedule, items like coverage for young adult children and tax credits for small business, hoping these early deliverables would shore up public support.

But a new poll, released this morning by the Kaiser Family Foundation, suggests the accelerated implementation schedule has failed to sway a skeptical public — or even keep health reform’s most ardent supporters on board.

Two months after the health care overhaul became law, Americans remain as deeply divided as ever about it, according to a new Kaiser Family Foundation poll released Friday.

While overall attitudes were roughly unchanged from last month, the percentage of people who reported that they have “very favorable” opinions of the legislation fell from 23 percent to 14 percent during the month. At the opposite end of the spectrum, 32 percent of people reported “very unfavorable” opinions, up slightly from the 30 percent reported last month.

The Health Tracking Poll found that 41 percent of respondents hold favorable views of the law and 44 percent hold unfavorable views, with 14 percent unsure. It’s a slight difference from last month’s poll, which found 46 percent had favorable opinions and 40 percent unfavorable.

Proponents of the law have struggled to win over a skeptical public. During the contentious debate on Capitol Hill, Democrats argued that support for the overhaul would improve once the bill became law and the public got to take advantage of its benefits.

Two months after enactment, many of the benefits have yet to go into effect. But the Obama administration has tried to speed up implementation of some of the most popular provisions. Secretary of Health and Human Services Kathleen Sebelius  asked insurance companies to move up implementation of allowing young adults to stay on their parents’ plans until age 26 and ending the practice of rescissions — canceling plans once a patient gets sick — except in cases of fraud.

Predictably, the support and opposition to the legislation are divided largely along partisan lines.

Seventy-two percent of Democrats had a favorable view of the legislation, and 14 percent had an unfavorable view. Only 8 percent of Republicans had a favorable view of the legislation, and 85 percent had an unfavorable view. Among independents, 37 percent had a favorable view, and 49 percent had an unfavorable view.

While Americans remain split on whether they like the legislation, fewer said they’re confused about what it means. Forty-four percent of people said they don’t fully understand the legislation, down from 55 percent last month.

The poll of 1,210 people was conducted May 11 to May 16.


No, You Can’t Keep Your Health Plan

Insurers and doctors are already consolidating their businesses in the wake of ObamaCare’s passage.

Wall Street Journal – May 18, 2010


President Obama guaranteed Americans that after health reform became law they could keep their insurance plans and their doctors. It’s clear that this promise cannot be kept. Insurers and physicians are already reshaping their businesses as a result of Mr. Obama’s plan.

The health-reform law caps how much insurers can spend on expenses and take for profits. Starting next year, health plans will have a regulated “floor” on their medical-loss ratios, which is the amount of revenue they spend on medical claims. Insurers can only spend 20% of their premiums on running their plans if they offer policies directly to consumers or to small employers. The spending cap is 15% for policies sold to large employers.

This regulation is going to have its biggest impact on insurance sold directly to consumers—what’s referred to as the “individual market.” These policies cost more to market. They also have higher medical costs, owing partly to selection by less healthy consumers.

Finally, individual policies have high start-up costs. If insurers cannot spend more of their revenue getting plans on track, fewer new policies will be offered.

This will hit Wellpoint, one of the biggest players in the individual market, particularly hard. The insurance company already has a strained relationship with the White House: Earlier this month Mr. Obama accused Wellpoint of systemically denying coverage to breast cancer patients, though the facts don’t bear that out.

Restrictions on how insurers can spend money are compounded by simultaneous constraints on how they can manage their costs. Beginning in 2014, a new federal agency will standardize insurance benefits, placing minimum actuarial values on medical policies. There are also mandates forcing insurers to cover a lot of expensive primary-care services in full. At the same time, insurers are being blocked from raising premiums—for now by political jawboning, but the threat of legislative restrictions looms.

One of the few remaining ways to manage expenses is to reduce the actual cost of the products. In health care, this means pushing providers to accept lower fees and reduce their use of costly services like radiology or other diagnostic testing.

To implement this strategy, companies need to be able to exert more control over doctors. So insurers are trying to buy up medical clinics and doctor practices. Where they can’t own providers outright, they’ll maintain smaller “networks” of physicians that they will contract with so they can manage doctors more closely. That means even fewer choices for beneficiaries. Insurers hope that owning providers will enable health policies to offset the cost of the new regulations.

Doctors, meanwhile, are selling their practices to local hospitals. In 2005, doctors owned more than two-thirds of all medical practices. By next year, more than 60% of physicians will be salaried employees. About a third of those will be working for hospitals, according to the American Medical Association. A review of the open job searches held by one of the country’s largest physician-recruiting firms shows that nearly 50% are for jobs in hospitals, up from about 25% five years ago.

Last month, a hospital I’m affiliated with outside of Manhattan sent a note to its physicians announcing a new subsidiary it’s forming to buy up local medical practices. Nearby physicians are lining up to sell—and not just primary-care doctors, but highly paid specialists like orthopedic surgeons and neurologists. Similar developments are unfolding nationwide.

Consolidated practices and salaried doctors will leave fewer options for patients and longer waiting times for routine appointments. Like the insurers, physicians are responding to the economic burdens of the president’s plan in one of the few ways they’re permitted to.

For physicians, the strains include higher operating costs. The Obama health plan puts expensive new mandates on doctors, such as a requirement to purchase IT systems and keep more records. Overhead costs already consume more than 60% of the revenue generated by an average medical practice, according to a 2007 survey by the Medical Group Management Association. At the same time, reimbursement under Medicare is falling. Some specialists, such as radiologists and cardiologists, will see their Medicare payments fall by more than 10% next year. Then there’s the fact that medical malpractice premiums have risen by 10%-20% annually for specialists like surgeons, particularly in states that haven’t passed liability reform.

The bottom line: Defensive business arrangements designed to blunt ObamaCare’s economic impacts will mean less patient choice.