As we get closer to the November elections, health care costs will be in the news even more.
Will health care reform lower health care costs or raise them? Will reform affect the basic cost trend for health care?
As you read and listen to this debate, listen very carefully because the spinning is amazing. For example, the President has said his reforms will lower costs, but listen closely. You will hear he is talking about the costs for the federal government, not for you as an individual. Also, consider how those costs are lowered. Payments to Medicare providers are reduced, there are scores of new (unproven) initiatives and demonstration projects in the works and Medicare Advantage payments are cut. There is also the new Medicare Advisory Board charged with making recommendations for controlling Medicare costs.
Academics, community organizers, politicians and anyone who has never worked in the real world including most of the Congressional staffers, have a unique way of thinking that to say so or to pass a law makes it so.
Recently, the President acknowledged that of course total cost for health care would go up if you add 30 million to the insured roles and that is true, but that is not the issue. The issue is what will happen to not only the premiums, but also the out-of-pocket costs for all Americans with health insurance. The answer to that is clear; they are going up as fast as or faster than before reform.
Keep in mind the health care costs we talk about:
- Medicare and Medicaid for federal and state governments
- Insured individuals and small groups
- The insured that will be subsidized in the exchanges
- The 70 million Americans (including millions of government workers and early retirees) covered by employer self-funded plans.
Look as this logically. First, define health care costs. The cost of health care is not premiums.
The cost is the price for each service provided multiplied by the number of services rendered. Once you have that basic cost, it is allocated between the individual and the employer or the insurer (or the taxpayer). The individual pays deductibles, co-payments and coinsurance. The cost to a plan is determined by the services covered and the extent to which they are covered.
PPACA clearly adds to the services covered, the individuals covered, and in many cases the portion of the charge covered by the plan. Hence, it increases costs. In several cases, it shifts costs to individuals. For example, the change in the taxation of the Medicare Part D payments to employers for their retirees is causing a reduction in those benefits and hence cost shifting to retirees. The same is true for the reduction in payments to Medicare Advantage Plans. The government is lowering its costs, but those costs shift to individuals, in this case to senior citizens. Employers and insurers responded to the growth in health care costs by shifting more costs to the employee even before the additional costs added by PPACA.
Beginning in 2014 individuals and families with incomes up to four times the poverty level (currently $88,000 a year) will receive tax credits toward the cost of their insurance and the premium they pay is capped as a percentage of their income. If you ask a politician, he or she will tell you that their health care is more “affordable”. For whom? Nothing is happening that will actually control the health care costs that make up the premium. In fact, while the individual’s premium is capped, the growth of the government subsidy is assured because it is designed to match the growth in health care costs (reflected in premiums). Therefore, instead of tackling the cost of health care the government’s focus is on controlling premiums. If controlling premiums is the answer, why is Medicare in such trouble when there are no premiums for the government to pay and no insurance company involved?
There are many individuals who directly benefit from PPACA (adult children, those with pre-existing conditions, the uninsured, those who will be subsidized, even small business), but that does not change the fact that we have not controlled health care costs. All that means is that we have added coverage and in the process added more costs. We have not solved a problem, we have made it more complicated, we have kicked the can down the road and we have set in place a growing entitlement with the same consequences as Medicare and Medicaid. There are many people who will say so what, we reduced the number of uninsured, and more people will have coverage, who cares about costs? That is hard to argue with,
who does care about costs?
The Patient Protection Affordable Care Act is analogous to fixing a leaking tire by adding air every ten minutes rather than plugging the hole. However, even the air is not free!
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