What health care reform does and does not do

I guess it makes us feel good to say we have expanded coverage to all Americans, we have taken the insurance companies to task, we are making health insurance (but not health care) more “affordable, (that is, we are subsidizing coverage for some Americans)” and the wealthy and corporations pay for most of these changes. However, none of that changes the facts.

Let me first say what did not happen on the night of March 21.

The most important thing that did not happen was that we did not address the problem of rising health care costs (or much else in the delivery and payment systems). These costs are likely to continue to escalate at 8% or more a year and perhaps higher once the expanded coverage goes into effect. We also did not lower the deficit.

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You wanted change, you got it!

One key assumption in the CBO calculations is that provider payments under Medicare are reduced by $250 billion dollars over the next ten years as contained in the Senate bill. That includes a 21% reduction in physician payments. The White House has already indicated it will not let this happen and in the past Congress has routinely stopped similar cuts. If the cuts do occur, there is a good chance that many physicians will no longer accept Medicare patients. This becomes more feasible because of the expanded number of insured Americans promised beginning in 2014. If the cut in payments does not occur, then this legislation easily increases the deficit.

Money is cut from Medicare Advantage Plans to keep insurance companies in line and curb excess profits. However, nobody told the eleven million Medicare beneficiaries enrolled in these plans what those cuts will mean to them. The Congressional Budget Office estimates that the changes in Medicare Advantage Plans will cause a decrease in the number of enrolled Americans. The CBO is projecting  that Medicare Advantage enrollment under the new law will decrease to 8.9 million by 2019 versus the 2009 level of 10.6 million. The Medicare Advantage program was expected to grow to 13.9 million by 2019. So much for “if you like the plan you have you can keep it.” Think of it this way, the government puts tariffs on many products from China and Wal-Mart customers are baffled. Everything is connected.

There is an approximate $10 billion a year to implement all the changes including the establishment of over one hundred new government agencies of various sizes. This amount is not even part of the CBO calculation. In addition, there is an assumption of a $70 billion revenue amount from the new long-term care premiums for a new government run insurance that workers will be automatically enrolled in upon hire. While premiums begin when the coverage starts (costing each worker about $65 per month), benefits cannot be claimed for five years. Therefore, rather than use the premiums to pay the eventual claims under the program, they are counted as assumed revenue. This is like a company claiming pension trust earnings as revenue and ignoring the accumulated pension obligations. If an insurance company did this with premiums it would be accused of abuse and end up in court.

Many other things happened whose ultimate impact is years away. For example, more very low income people will be covered by Medicaid, lower middle income Americans (families earning up to $88,000 a year) will be entitled to government subsidies on the cost of their coverage (but they will be shocked when they see their cost for the coverage they are required to purchase). The impact of going from an income of $88,000 with subsidized coverage to an income of $89,000 without subsidized benefits means many Americans will go backward before they can go forward in net income growth.

Employers who provide prescription drug coverage to their retirees will now be taxed on the rebate they receive for continuing such coverage and not requiring these retirees to enroll in Part D.  This taxation also changes accounting and will cause major income issues for these companies.  The result is that millions of retirees may lose their company coverage and thus see their individual out of pocket costs rise.

This legislation will present an entirely new set of challenges. Americans are likely to be surprised when they learn all the details of what is in this massive legislation, the true cost, who will pay and perhaps most important, how “affordable” is defined.

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