The Amazing Maze of US Health Care

I want to help the President and I need your thoughts.

Is President Obama about to follow the ignominious example of GB I, George Bush, The Elder?

Remember, “Read my lips.  No new taxes!”?

Remember, “John McCain will tax your benefits!”

Well BHO seems about to cave on his campaign pledge.

At least GB I could argue that the campaign promise was bad policy and the flip-flop was forced by economic realities.

Oh that BHO could make the same argument!

I have often railed against the taxation of benefits in this space.  I think it is bad politics, bad economics, and bad health policy. I am certainly not the only one.  Frankly, I think President Obama’s capitulation on this issue demonstrates profound political weakness and an astounding ignorance of health insurance.

A new idea.

But in the spirit of compromise, I want to offer a new idea.  It may not be the best suggestion for financing health care reform, but it builds on at least one stated goal of the tax my benefits people – containing costs.

But instead of penalizing people whose only control over costs is to use fewer services, my idea targets the folks who actually have some impact on the health care market – the insurance companies.

Tax the insurance companies

Wait, you say, we are already taxing insurance companies, and those just get passed along to consumers.  But alas, I say, let’s build on the “Cadillac” idea of an excise tax.  Tax the increase in the total cost of a Plan’s  book of business.  By imposing an excise tax on increases over a base level of costs, it could provide an incentive for insurance companies to manage their provider contracts and book of business costs.

This table illustrates how that would work.

The tax would be imposed on gross premiums and not on profits.  It would be payable just as any other cost of doing business, but would not be deductible as a business expense.  Space doesn’t permit me to dwell on the negatives of taxing benefits at the individual level.  I encourage you to click on the category “tax policy” to the right to see my earlier thoughts on this subject.

Taxing insurance companies achieves several objectives that taxing individuals does not.

As an employee benefits professional who has spent a career trying to “manage health care costs,”  I often find criticisms of insurance companies unjustified.  After all, they are only trying to do what we hire them to do.

An excise tax on total premiums could do what individual employers have failed to get their carriers to do – negotiate better prices with providers and manage utilization.  They are the only ones in the private market space who can do that.  Employers, despite many innovative efforts, have not succeeded.  And individuals are absolutely powerless.

Equally important, imposing the tax on a carrier’s (or a TPA’s) book of business, avoids the inequities inherent in smaller group pricing.  The myth of taxing “Cadillac” plans is that these are “rich” plans.  An employer’s cost is impacted first and foremost by the age and illness burden of its population, then by cost sharing and benefit provisions.

An excise tax on insurers and third party administrators (a phenomenon that BHO and Congress seem oblivious to)  is simpler, more equitable and is focused on entities that can actually impact the total cost of health care.

It would be payable even when the company otherwise made no profits.

Because it is focused on fewer entities, it would be less of an administrative burden on the system and easier to enforce.

The alternative – taxing individual plans – is an unforgivable political and policy blunder.

Your thoughts?

By: Blue Texan Tuesday December 29, 2009

Since we still seem to be having a national freakout over some loser who got on a plane with a bomb in his underwear, which was apparently worthy of a presidential address, it might be a good idea to put the actual danger posed by terrorist attacks in some numerical perspective.

If you count the Ft. Hoot shooting as a terrorist attack, which even the likes of Pantload doesn’t, 16 people have died in the United States as result of terrorism in 2009. The other three deaths include the Little Rock military recruiting office shooting (1), the Holocaust Museum shooting (1), and Dr. George Tiller’s assassination (1), the last two coming at the hands of right-wing extremists.

On the other hand, 45,000 Americans died because they didn’t have health insurance and 600 died from salmonella poisoning.

Firedoglake » Terrorism Still Less Deadly in US Than Lack of Health Insurance, Salmonella

Retired Steelworkers and single payer advocates rest after a long day rallying and lobbying for health care on June 25, 2009.

The Senate and House are preparing to reconcile two modestly different approaches to health care reform.  Charges and counter charges continue to swirl around like New Year’s Eve confetti.  Are we on the verge of an historic breakthrough on health care reform?

What lessons have we learned about ourselves and our government?  Let me suggest six.

1.            America matters more to some than Americans.

The target of health care reform is Americans who are in the margins of our workforce.  They earn too much money to qualify for health care programs for the poor – state Medicaid and Children’s Health Insurance Programs (CHIP).  They work for small businesses who cannot or do not provide health insurance coverage.

As a society we have already agreed to provide health care to the poor, the old and those who work full time for profitable companies.  Why is it so difficult to fill the remaining cracks in the system?

Yet opponents of reform frame their arguments as a classic American struggle against big government.  The stories of very real Americans facing death by neglect or medical bankruptcy don’t seem to resonate as much as the conjured images of America challenged by fictional tyrannical death panels and giant government databases.

2.            I got mine – go get your own.

Very few people with health insurance pay anywhere close to the full cost of health insurance.  Less than 10% of adults under 65 obtain their health insurance in the individual market where they have to pay the full price.  73% of those who tried to buy individual insurance gave up either because it was not available to them or it was too expensive, according to a study by the Commonwealth Fund.  For the rest of us, our employer pays the majority share, or the government for those on Medicare and those on Medicaid.

Yet extending the same helping hand to those who may need health insurance to continue to participate in the workforce is tantamount to terrorism or tyranny, according to certain news commentators.  That may be an extreme view, but the noise it generates is dead weight that drags the center of political discourse away from constructive and meaningful reform.

3.            Money talks

Despite the clamor from the right, polls consistently show strong support for health care reform and even for the “controversial” public option.  Recently, I described how opinion pools show strong support for a single payer system.

So why are Democratic politicians having such a hard time getting “on board” with health care reform.  Countless stories have documented the amount of money the health care industry has spent on lobbying members of Congress.  One is reminded of my home town’s favorite son, Simon Cameron, Lincoln’s first Secretary of War, who once said, “An honest politician is one who when bought, stays bought.”  Only when some politicians began to realize that actual voters are behind those poll numbers did the public option begin to show renewed life.

Sadly, the Senate result reinforces the impression that money talks.

4.            Symbols matter

There is not a whole lot of evidence that the public option by itself will make a meaningful dent in the number of uninsured or in medical cost inflation.  But it is a powerful symbol reflecting one’s viewpoint about who should be the intermediary between the patient and the health care system – a government or quasi-governmental organization, or a private health insurance company.  There is clearly little appetite or political will to take on the insurance companies directly with the kind of strong and consistent regulation found in other countries.  The best that Democrats can offer is the threat of weak-kneed competition.

5.            Why do simple when complex is so – complex?

There is much ado about the nearly 2,000 pages of the health care bill.  When Congress tries to fix 1/6 of the American economy, it can’t be easy.  An analogy can be made to taking your tired old clunker to the repair shop.  It is too expensive.  It can’t haul nearly as many people as it was supposed to.  But you love it to death.  Your favorite repairman could hand you a ten-page estimate and tell you it will still be expensive and still won’t carry the all the passengers you would like.  Or he could hand you a one-page invoice for a new car.  HR 676, the “Medicare for All” legislation and beloved of single payer advocates, is 27 pages long.

6.            Who does Congress love most?  Not you and me.

Do you doubt the devotion of Congress to the insurance industry?  If so, the provision in both the House and Senate proposals to require an 85% medical loss ratio should say it all.  The law requires that at least 85% of premium income be used to pay for medical claims of covered participants.  Even the most conservative estimates put Medicare’s loss ration in excess of 90%, some argue in excess of 95%.  If the government can spend premium income more efficiently why let the private insurers in?

What next?

It’s no longer a safe bet that health insurance legislation will succeed (It does not deserve to be called health care legislation).  It is criticized from the right and from the left.

As feeble as it is, it will be a significant achievement given the long record of historical (and hysterical) opposition. Calling it reform will be the challenge of the spin-doctors.  Already there are estimates that it will leave a significant number of people still uninsured.  It doesn’t do enough to manage costs.  And there will undoubtedly be a backlash for a variety of reasons, some of them legitimate.  The question will be, how soon before Congress will have to revisit this issue?

Photo by JL McGee