Tag Archives: Insurance reform

You’ve Got to Hand it to Them: Obama, Pelosi and Reid

By Marc Seltzer; originally published on March 22, 2010, at care2.com

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Watching the proceedings in the House of Representatives tonight, I came away with an appreciation of just how strong the Democratic leadership is.  We all knew that Barack Obama had discipline in the way his presidential campaign never faltered.  He kept his eye on the prize and didn’t sweat the small stuff.  But the first year in office raised questions about how much political capital he had lost because of the economic downturn and the unpopularity of the government’s response.  Republicans refused to break ranks.  Democrats were split.  Then came Scott Brown.  How much would the President be able to accomplish?

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“My Take” — Marc Seltzer on understanding politics

“My Take” podcast, March 12, 2010 (Click to hear)

Today’s topic is health care reform.  I discuss a few good articles (below) and a few bad misconceptions about current reform efforts.

Krugman “Health Reform Myths” in the New York Times

LA Times Cost Control the Key

Is Obama Winning? by Robert Shrum in The Week.

Disgraceful for Dems to Sabotage Health Bill.  This is the Real Clear Politics title, but its better than the original, “A Disgrace for the Democrats.” By Michael Tomasky.

Earmark Reform.   New York Times

Combining the House and Senate Health Care Bills

By Marc Seltzer; originally published on December 29, 2009, at care2.com

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While the House and Senate health care reform bills are nearly identical, they differ in a couple of important ways — and this can potentially make the final bill much better than what has so far been contemplated.  Comparisons:  Bloomberg & New York Times.

The just-passed Senate bill partially funds health care insurance for those who cannot afford it by taxing luxurious insurance plans.  (I see it as ending a subsidy, not a tax at all — as I explain here)  This is not only a source of revenue, but crucially the tax will create an incentive for insurance companies to create cost-savings plans, “bending the cost curve,” of the entire system by reducing excess health care services.  Decreasing the unneccessary care lowers demand, cutting prices for insurers and eventually for businesses and individuals.  See Atul Gawande, New Yorker, Dec. 14 — a must-read on costs (and also June 1, New Yorker).

However, the House bill takes a different tack.  It raises taxes on high-income Americans, under the theory that they can afford to pay more without cutting into food, shelter or health care.  At some point, increasing taxes on wealthy Americans does lower their overall investment in new businesses — a drag on the economy — but such taxes are at a relative low point and the proposed tax is not so dramatic as to significantly damage investment potential.

The conventional wisdom is that the Conference Committee, which will meet in the new year to create one final health care bill, will choose between House and Senate options.  On many provisions, the Senate bill will prevail, because it is more cost-conscious, as already noted, and there is less support for the House provisions in the Senate, where the Democrats have no margin of error on the final vote.  Senate legislation has already been CBO (Congressional Budget Office) scored to reduce the deficit at ten- and twenty-year projections.  This does require doctors to take less payment from Medicare patients than they have in the past and requires individuals to buy insurance or pay a fine, which will be unpopular for some people who neither have insurance nor want to pay for it.  On the other hand, projected cost savings of the Senate legislation do not entirely factor in other cost-containment approaches, which are being tested, from malpractice reform to replacing the fee for service model, and which will likely bear fruit over the next decade.

Deficit Reduction and Health Care Cost Containment

The conference committee should take both the Senate tax on high value insurance plans and the House tax on wealth in the final form of the bill.  This would lower the deficit even further.  It might upset a moderate Democrat or two and it might not induce any Republicans to vote for health care reform, so Harry Reid needs to shepherd his flock and ask Olympia Snowe and Susan Collins where they stand on the idea, but it has the distinct advantage of creating universal health care legislation that is strongly positive on deficit reduction and still stepping in the right direction by changing health care incentives.

Currently incentives in the profit-driven system reward over-testing and overuse of resources by those who have, and tolerate underuse by those who have not. The Senate legislation, as it stands, gives the have-nots a chance to participate in the health-care marketplace.  While taxing wealth must be done cautiously so as not to damage investment and new business potential, here the benefit of lowering the deficit in the process of providing the opportunity for basic health care for all Americans is a worthy purpose for a moderate wealth tax.  Control of the deficit will return rewards to many who pay the tax by improving confidence in the economy and raising prospects for investments.  This could be a win-win in the long run, provided that the economy was emerging from the current recession before tax increases were imposed.

The Senate’s health care legislation is a monumental accomplishment in the direction of universal coverage. It also begins to tackle cost issues by taxing luxurious insurance plans and pointing towards other models of care that will lower demand and drive down costs.  We could add substantial deficit reduction to the legislation — an unplanned bonus — by including the House’s moderate tax on wealth in addition to the Senate bill’s revenue measures.

What are your priorities?  If this sounds appealing, please spread the word.

Listen to care2.com blogger Jessica Pieklo and I discuss health care and more on our weekly podcasts.

January 4, 2009 UPDATEHendrik Hertzberg at the New Yorker on support and opposition to the health care bill.  An outspoken liberal, Mr. Hertzberg is in favor of the current legislation.

On the White House blog, a comparison of President Obama’s Transition period positions on health care reform compared with the near final product.

January 11, 2009, UPDATE:  PBS Newshour hosted a good discussion on whether it was better to adopt Senate or House approaches, but there was no mention of taking both.  Why not?

Taxing Health Insurance Plans

By Marc Seltzer; originally published on October 13, 2009, at care2.com

When is a tax a good idea?

NEVER!  (Say it cause it feels good.  Then get real and move on.)

One important proposal for lowering costs in health care is taxing higher-value health insurance plans.  The principle here is that currently the U.S. government is subsidizing high-level insurance plans purchased by employers.  Health insurance premiums are not taxable, while employers do have to pay tax, such as payroll/social security tax, on income paid to employees.  The employers thus provide additional compensation to their employees without paying full price.  This deduction encourages over-spending by employer and employee.  By comparison, individuals who purchase insurance cannot deduct their premiums or costs of health care from their income.

The thinking goes something like this:  An employer deciding to purchase insurance looks at an $8,000 plan and a $10,000 plan.  It realizes that the $10,000 is a deal because of the subsidy, and it knows its employees will value the plan and consider it as part of the reason to work there.  The employee then has incentive to use medical benefits more than on the lesser plan because the higher-cost plan has lower deductibles, coverage of alternative care and lower co-pays.

There is nothing wrong with an individual choosing to pay more for health insurance and then making use of more in benefits.  But if the U.S. government is subsidizing the plans, then the incentives are distorted.  When conservatives talk about what is wrong with taxation and government, their best argument is that government does not efficiently allocate resources because it distorts the market to redistribute wealth in wasteful ways.  This is a prime example.

If progressives want the government to distort the market in health care, it would make sense to provide help to those who can’t afford care, or to provide subsidies to promote certain types of care such as free annual physicals that could be valuable in improving health or lowering costs, through prevention for the public as a whole.  But there is no reason that the government should redistribute wealth to encourage high-end employer-provided insurance and use of such plans to the fullest.

The result of the system in place today is that working individuals with expensive plans are encouraged to get any and all recommended medical care.  Some procedures are covered 100%.  Some 90%, 80%, 75%. What’s the right formula, where people correctly balance the need for health care against the cost?

Take away the subsidy and find out.

In my own experience, I broke my leg badly, while covered by a great insurance plan.  Surgery was recommended and the $30,000 bill turned into only $1,500 in out-of-pocket expenses.  This is exactly what insurance is designed to protect against and it worked well for me.  This involved emergency hospitalization, which, though expensive, is often well covered by all types of plans.  However, in rehabilitation, I sought chiropractic, acupuncture and physical therapy and remember that my out-of-pocket expenses were remarkably low or non-existent.  My firm offered this plan to compete for employees in the marketplace, but the tax code also underwrote my plan.  Remember, under current law, the more an employer spends on health care plans, the more money it avoids paying tax on.

Current proposals are structured to tax plans on the part of the premiums that go above $8,000 per year and family plans on the premiums above $21,000 (For example, $10,000 in premiums for an individual would be taxed on the $2,000 above the exemption at a rate of 40% for a tax of $800.)  The tax would affect employers and individuals who purchase insurance equally and would likely have several impacts:

1.   It would lower the number of high-end plans, as employers and individuals sought to avoid the tax.  In that case, affected employees, who previously would have received higher-value insurance packages underwritten by the government subsidy, would have lower-value insurance with somewhat higher co-payments.  Shifting some additional burden to the insured in this way would lower national spending on health care, yet continue individual choices on where to spend and where to save.

2.   It would raise an estimated $200 billion dollars from tax revenue on plans that were higher end.  Thus, employers and individuals who continued to purchase high-value plans would pay a new tax on those plans.  This revenue would go to underwrite the efforts to subsidize insurance to those who cannot afford it.  $200 billion represents about 1/4 of the cost estimated to subsidize insurance over the period of ten years.

3.   For people at or below the limits, there would be little change in premium or co-payment prices.  Theoretically, the lower use of medical resources would lower the price of health care in the overall marketplace.  This would likely be countered by the increased use of medical services by individuals who will gain coverage through the new legislation.  However, if the new legislation did not contain this tax provision, prices would continue to rise from increased demand as more people with insurance sought health care services.

There are a number of different ways that health care costs can be lowered and different options for how to bring more people into the insurance marketplace.  The current proposal is but one piece of reform.  Taxing of high-cost health plans is bound to be controversial because Americans are allergic to all tax hikes.  However, this proposal removes a tax loophole that encourages overuse, or at least subsidized use, of the health care system.  Even without the use of the revenue to provide subsidies for those who cannot afford health care, this tax makes sense.

N.Y. Times has an excellent story with political background including issues for unions whose members have received high-level benefits in lieu of compensation.  A detailed Huffington Post piece discusses how the tax may impact middle class Americans and a Commentary blog suggests it will change the health care we have now, against Obama’s promises.  Be that as it may, a loop-hole is a loop-hole, and it creates distortion and waste among executives and union employees alike.

Senator Olympia Snowe, (R)-Maine, who announced today that she is supporting the Democrats’ Senate Finance Committee bill (the Baucus bill) being sent to the full Senate today, supports taxing insurance plans, although she aims to ensure that middle and lower income members of the public and those above age 55 do not bear the burden of the tax.

We all want an efficient government that does not encourage waste of resources.  Calling or writing your congressional representative to demand a tax on excess health care premium plans is the same as demanding the end of an egregious tax loophole.  Remember, the point of health care reform is to insure more Americans and strengthen the financial foundation of the nation.