Benemax

During the last 10 days or so, we have been told that public opinion is swinging back from opposition to Health Care Reform to something closer to an even split. As a result, reform supporters in Congress have been emboldened to push for the more radical versions reform and to predict their passage.

Clearly, the only thing standing between us and a national health care system is politicians’ fear of the American public. It is also clear that assessments of public opinion depend on how questions are framed and what information is provided before asking each question. This raises a question: if some people are supporting Health Care Reform because they believe it will solve the problem of the uninsured and lower of cost of coverage without iincreasing taxes, how will they react later when they find out that these things are not in fact true?

That said, let’s look at what Americans are really telling pollsters. Start with Gallup who does not limit polls to likely voters: Gallup finds that 49% of the public thinks that the cost of their own health care will go up under any of the reform proposals; only 22% think it will go down. These same people believe 2 to 1 that the quality of their care will go down and that their coverage in general will get worse.

It is certainly true that the median American will pay more money and receive lower quality care under Health Care Reform. The third proposition is more uncertain. The bills before Congress mandate relatively high levels of benefits which could increase the level of coverage for the median insured. On the other hand, however, many and perhaps most employers will dumb down coverage to the minimum level to avoid huge price increases; that in turn could reduce the amount of coverage Americans enjoy.

Finally, let’s turn to Rasmussen who limits polliing to “likely voters”: Rasmussen reports that 49% think doing absolutely nothing is better than passing ANY of the current bills; only 39% think that ANY of the current bills are better than the status quo.

Now two research studies into the premium cost impact of the Senate Finance Committee’s Health Care Reform bill have been released. The first, conducted by Price Waterhouse Coopers (PWC) has been joined by a second conducted by Oliver Wyman Inc.

PWC  focused on four budget-busting components of the bill: insurance market reforms without assurance of universal coverage, a new tax on high cost employer sponsored plans (so-called “Cadillac Plans”), Medicare provider payment cuts which will simply shift cost over to private plans, and new taxes on pharmaceutical companies, medical device manufacturers, and health insurers. PWC concluded that these 4 provisions alone would increase premiums by 49% in the individual market, 28% in the small group market, 11% in the large group market, and 9% for self-insured plans.

Oliver Wyman Inc. found that the legislation now before Congress would increase premiums by 50% in the individual market and 19% in the small group market.

Astoundingly, criticisms of these studies (see previous blog post) have not rejected their conclusions per se; instead they have focused on the use of tax payer dollars to lessen the impact of these cost increases for low income buyers. In other words, cost shifting, not cost reduction.

Question: can the American economy survive such a sharp increase in the cost of health benefits, whether paid for by insurance premiums or by taxes?

The Senate Finance Committee approved a Health Care Reform bill today, paving the way for the Democratic leadership to cobble together a compromise bill and bring it to the floor for a vote.  It now appears likely, despite overwhelming opposition from the American people, that  a fairly version of reform legislation will be enacted some time this year.

So, are you wondering what your world will look like beginning in 2013? Well, come to Massachusetts; see the future today!

Massachusetts passsed Health Care Reform back in 2006 and since that time costs have escalated at 12% to 16% annually; today, health benefits cost more in Massachusetts than in any other state.

But that’s only the tip of iceberg. The state has created a commission to change the way doctors and hospitals get paid. According to a front page story in the Boston Globe, the state will soon begin to restrict residents’ access to Boston’s world reknowned teaching hospitals.

Reverting to the dark days of Managed Care, all plan members will once again be required to choose a Primary Care physician. Those physicians in turn will confine their patients’ care within an “Accountable Care Organization”. Access to teaching hospitals will be restricted.

Some insurance carriers are not even waiting for the state commission to complete its work. BCBS of MA just unveiled a new product that it hopes will dominate sales in the coming  year. Under the terms of this new plan, members would enjoy $0 deductible at some hospitals, a $500 deductible at others and a $3,000 deductible at others.

Now don’t get me wrong. Some of what is happening in Massachusetts is good. For example, BCBS is gradually persuading hospitals to accept a new contract that rewards quality of care rather than volume of care. The problem is that we are moving past the vision of a free market where educated consumers would make their own health care decisions and share in the quality and cost implications of those decisions. Instead, we are moving toward a highly regulated market where key decisions are made by bureaucrats, whether insurance executives or government functionaries, not consumers.

AHIP (America’s Health Insurance Plans), a moderate group that has maintained a largely favorable attitude toward the Health Care Reform proposals before Congress, released a study late last week that set off alarm bells. The study, conducted by PWC (PriceWaterhouseCoopers), concludes that Health Care Reform will drive up health insurance premiums by $1,700/year for family coverage. And that is on top of the usual annual increases due to medical inflation, the aging population, etc…

This should come as no surprise. In Massachusetts, which adopted its own version of health care reform three years ago, current health insurance rates include a 9% to 12% “load” due to the direct and indirect costs of that legislation.

But none of this is what makes the AHIP PWC study frightening. The frightening part lies not in the study itself but in the rebuttles to the study study that have come from Senator Baucus, the White House and other reform advocates. Senator Baucus, for example, claimed that the report was flawed because it didn’t account for government subsidies that would reduce the cost for certain low income insureds.

Excuse me, Senator, but subsidies ARE a cost; they are paid for, dollar for dollar, by the American taxpayer. You cannot say that you’ve reduced the cost of health care if you’ve put a lid on premiums but raised taxes to pay for that lid. Plus, only a small fraction of Americans will actually benefit from those subsidies. So I take Senator Baucus’ rebuttle to mean that he concedes that most American families will experience a $1,700/year increase in premiums…and that that $1,700 doesn’t even include the cost of the tax increases that will be used to pay for other people’s subsidies.

So let’s do the math:

(1) The median American family’s cost for health benefits will continue to increase by the usual annual trend (because admittedly the proposed legislation does nothing to reduce that trend).

(2) The median American family’s cost for health benefits will increase by an additional $1,700/year to pay for Health Care Reform; and  

(3) The median American family will also absorb (directly or indirectly) the cost of the tax increases that will be used to subsidize health benefits for families with incomes below the median.  

Now none of this is to say that Health Care Reform is necessarily wrong or that some people should not get subsidies. What it does say is that politicians and government officials should be honest with the American people about the real cost of these initiatives…and they haven’t been.

Will Massachusetts, whose Health Care Reform legislation is serving as a model for the Health Care Reform plans being debated in Washington, lead the way again?

A bill under consideration in the MA Legislature would create a new “Affordable Health Care Plan” for small businesses. The plan would have a $2,000 deductible but would be priced 22% below currently available commericial plans with samilar benefits. So is this Obama’s “public option” Massachusetts style? Yes…and no!

First, this plan would be offered through brokers and private insurance carriers. In fact, all insurance carriers doing health insurance business in MA would be required to offer this plan.

Then where do the savings come from? First, insurance carriers would be required to limit “profit” (or contributions to surplus) to 2% and they would be required to pay out 85 cents in claims for every dollar of premium recieved. While this reads well in the press, it is actually meaningless. MA carriers rarely make 2% and usually pay out 85 cents or more already.

So all the of the real savings will come from the provider (hopsital & doctor) community. They will be required to accept fees for their services at 110% of the Medicare reimbursement rate.

What does that amount to? Well, if Medicare reimburses providers at 70% of commerical rates, then 110% of the Medicare rate equals 77% of the commerical rate and voila…there’s your 22% (actually 23%) savings. Magic!

While this legislation has obvious drawbacks, it is vastly superior to the models being discussed in Washington. It could significantly reduce the cost of benefits for individuals and small businesses (which the Washington bills will not) and it will do so without a cent of public money.

If the DC politicians were serious about Health Care cost reduction, they might try something like this before they considered nationalizing the entire health care industry.