Note: this is about 1800 words long. You might want to print it out.
The health care reform legislation that will be enacted by Congress later this month contains a number a different elements. It’s not easy to grasp it in its entirety. But there are a few key parts that you should understand for two reasons: first, because there is still time to make the legislation better and second because you should understand how much this legislation will accomplish, even if it doesn’t contain everything we want.
Let me say one word on the last point before jumping into the details. We are not going to get everything we want in this legislation. But don’t let your disappointment about that blind you to how much we will accomplish, especially if we get most of the best provisions of the House and Senate bills in the final legislation.
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We will make insurance affordable for 30 million people who don’t have it now and that will save 10,000 to 20,000 lives a year and reduce the suffering of hundreds of thousands of people.
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We will enable individuals and small businesses to purchase insurance in a large pool, saving them a great deal of money.
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We will protect people from a wide range of insurance company abuses, including annual and lifetime limits on care and denials of coverage on the basis of pre-existing medical condition, sex, and, to some extent, age.
Even if we don’t get a public option, this is the most important and most progressive legislation enacted in forty years. And as I explain at the end of this piece, this legislation points the way to further reform.
Insurance Regulations
What we will get
New insurance regulations are central to the Obama /HCAN principles for health care reform. And most of what we wanted will be in the final legislation.
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Insurance companies will be prohibited from denying anyone coverage on the basis of pre-existing medical conditions.
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Insurance companies will be required to provide insurance that meets federal standards for covering “essential benefits.”
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Insurance companies will not be able to charge people higher premiums if they are women or have medical conditions and they will be limited in how much more they can charge people on the basis of their age.
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Insurance companies will not be able to impose annual or lifetime limits on health care coverage.
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Limits will be placed on out-of-pocket expenses (deductibles and co-pays) for health care.
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There will be a requirement that 85% of all premium go to medical care rather than administrative and marketing expenses or insurance company profit. (This is known as the medical loss ratio.)
What we have to fight for
The provisions in the Senate bill are weaker in a number of respects. We are working to have the House provisions included in the final bill.
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The House bill allows insurance companies to charge older people up to as twice what they charge younger people. The Senate bill allows for a 3 to 1 ratio. (Currently older people often pay premiums ten times higher than what younger people pay.)
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The House bill imposes benefit, premium and out-of-pocket regulations on health insurance offered in all markets. The restrictions in the Senate bill are limited to small group and individual markets.
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The House bill provides for federal as well as state enforcement of these regulations.
The medical loss ratio in the Senate bill is stronger than in the House bill and should be in the final legislation.
The Exchange
What we will get
A Health Insurance Exchange will be created in 2013 in the House bill and 2014 in the Senate bill. It will allow individuals and small businesses to come together to purchase insurance in a large pool. This should gradually reduce premiums paid by small businesses and individuals to the levels paid by big businesses. While the Exchange will be open initially to individuals and small business, they can be opened to all businesses after a few years without further federal legislation.
What we have to fight for
The House bill creates one national Exchange. The Senate bill creates fifty state Exchanges. A national Exchange better for a number of reasons:
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A national exchange will hold down premiums by spreading the costs over a larger pool.
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A national exchange would make it impossible for individual states to ban insurance that covers abortion.
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A national exchange would give the Secretary of Health and Human Services, rather than individual states, the authority to open the Exchange to all businesses after a few years.
Affordability Credits
What we will get
Central to the legislation is an affordability tax credit program for individuals buying health insurance in the Exchange. This is a new federal entitlement program that will provide subsides on a sliding scale for the purchase of health insurance in the exchange for people making between 133% ($24,532 for a family of 3) and 400% ($73,240 for a family of 3)of the federal poverty line (FPL).
The subsidies are quite substantial. (For more details about the affordability credits and how good they are click here.) In the best versions of the legislation, premiums are limited to 1.5% of income for those at the lowest end of the scale and 9.8% at the high end. The subsidy will be worth over $9000 a year for a family of three at the lowest income level.
What we have to fight for
The House bill does a better job of keeping premiums low at the bottom end of the scale, at 133% of the federal poverty line. The Senate bill is better for individuals and families closer to 400% of the federal poverty line. The final bill should make health care as affordable as possible for everyone.
The House bill allows individuals who are offered insurance by their employer to go into the Exchange and get subsidies if they would pay more than 12% of their income for insurance or if that insurance would not cover at least 70% of health care costs. The Senate provision is much weaker.
Expanding Medicare
What we will get
Health insurance for individuals and families with the lowest income will be provided by an expansion and improvement of Medicaid.
What we must fight for
The House provisions are better than the Senate bill in a number of ways:
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The House bill expands Medicaid for individuals and families up to 150% of the federal poverty line. The Senate bill expands it only up to 133% of the federal poverty line.
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The House bill requires that all newly eligible Medicaid recipients receive a comprehensive benefit package. The Senate bill allows states to offer less comprehensive plans.
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The House bill provides additional funding to bring reimbursement rates for doctors and hospitals under Medicaid up to Medicare levels with the federal government paying 90% of the costs.
Employer Mandate
Central to the Obama / HCAN plan is shared responsibility, the notion that government, individuals all have some responsibility to provide insurance for their employees.
What we have to fight for
The House bill requires all employers with a payroll over $500,000 to contribute 72.5% / 65% (single / family) of employee’s premium costs for health insurance purchased inside or outside the Exchange and a proportional amount for part-time employees. The coverage must meet, over time, the essential benefit standard. Employers that do not provide insurance coverage will pay a payroll tax of 8%, which is phased in for businesses with a payroll between $500,000 and $750,000.
The Senate bill is much inferior. The Senate bill requires employers to pay $750 for each employee that purchases insurance through Exchange and receives an affordability tax credit.
In addition, because the Senate bill has no requirement for part-time employees, it creates an incentive for businesses to hire part-time instead of full-time employees.
The CBO projects that an additional 10 million people will receive health insurance under the House plan
Paying for Reform
Additional tax revenues of roughly $100 billion a year are needed to pay for the affordability tax revenues.
What we have to fight for
The House bill raises the federal income tax by 5.4% on individuals with an income over $500,000 and families with an income over $1,000,000.
The Senate bill creates an excise tax on insurance plans that are valued over $8,500 for an individual or $23,000 for a family. This tax will fall on many middle class people immediately. And since the limits are indexed according to the general inflation rate, not the inflation rate for medical care, which is much higher, more and more middle class families will feel the effect of the tax.
So we need to make sure that the tax burden falls on those who can pay, either including the House provisions in the final bill or by raising the Medicare tax on the wealth and applying it to unearned as well as earned income.
The Public Option
What we will get
We have long argued that a public health insurance optoin is important for two reasons. First, it will provide competition for private insurance and thus hold costs down. A public option make no profits and not pay its executives salaries far beyond what is necssary to attract good leaders. And, as it grows, it will spread the risks of poor health over a large pool. That is how insurance originally worked and should work again. The public health insurance plan will also work to keep reimbursement rates for Doctors and Hospitals at a level that guarantees everyone medical care but does not overly reward medical practiioners.. And it will be able to institute new payment systems that create incentives for better, more coordinated, and less expensive care. Finally, by providing strong competition, a public option will also force insurance companies to keep their costs, profits, and salaries down and expand their pools.
We need a public option for a second reason, to guarantee everyoen insurance. The new insurance regulations will stop most abusive insurance practices and prohibit insurance companies form “cherry picking” people to insure who are not likely to need expensive health care. But insurance companies may find a way to discourage such people taking insurance with them. The public health insurance plan will be a backstop for everyone, a guarantee that insurance will always be available, no matter what. By being the insurer that takes everyone, the public health insurance plan may well take on people who are more expensive to insure. But the added costs of doing should be balanced by the various ways in which the public plan can hold down costs/
What we have to fight for
The House bill includes a public health insurance option that will compete with private insurance in the Exchange. We want to final bill to have a public option. At the moment, it is unlikely to do so, because one or two Democratic Senator are likely to filibuster any legislation that contains it.
Conclusion: The Path to Further Reform
As I’ve said a few times, this legislation is not all we want, especially because it does not have a public option. But the public option was never the whole of the plan. As you can see, this legislation will do a great deal of good even without the public option
And, if the rest of the plan goes into effect, there will be new pressures to expand it and create a public option.
First, the Exchange is likely to be very popular because it will hold down costs, make it easier for people to purchase insurance, and reduce administrative expenses. So we expect that large businesses are likely to want to join the Exchange. And, the Exchange can be opened to all businesses without further federal legislation.
Second, if we have been right to think that the public option is necessary to create the competition that holds down health insurance costs, then as those costs rise there will to new pressure to create a public option. The affordability credits are an entitlement. As private insurance premiums rise the federal government will have to pay more to subsidies those premiums. And people who don’t’ get subsidies will want action taken to hold down the costs of insurance premiums.
Social Security and Medicare, the most popular programs ever created by progressives, are far more substantial today than they were when first enacted. The have been improved over the years by small and large changes.
So this won’t be the last time we reform health care in America. But enacting this legislation will not only do a lot of good now but it will make it easier to take the next step and the step after that as we work towards providing the best possible health care for all.