Tuesday, July 6, 2010

Healthcare Reform Recap

I reflected on the many twists and turns of the healthcare reform legislation in my previous post (The Political March Sideways), and with the benefit of hindsight, we can see that the Democrats were successful in passing their reconciliation bill to bring an end to the healthcare debate. I believe I’ve said this before, but this bill achieves only the first of the 2 original Democratic goals: coverage expansion and cost containment. We’ll take a look at how the bill goes about doing it.

Quick look at the Healthcare Reform bills by the numbers (CBO estimates):

• 2 bills passed (H.R. 3590 – the Patient Protection and Affordable Care Act [PPACA] and H.R. 4872, the Health Care and Education Reconciliation Act of 2010)
• $940bn of spending projected over 10 years
• $143bn of overall deficit reduction over 10 years ($1,083bn of taxes and cuts)
• 32mm uninsured lives will be covered
o +24mm in the new healthcare exchanges
o +16mm in expanded Medicaid eligibility
o -5mm will lose individual health insurance
o -4mm will lose employer-based coverage

If we take a step back and look at the general approach of the bill, it sets up a regulated insurance exchange that creates a more efficient marketplace for individuals to get simplified insurance products. To prevent only the sick from buying insurance, it mandates/forces all individuals to buy health insurance (For a look at the disaster that unfolds without this mandate, read my post on “State Experiments in the Individual Market”). One thing the Democrats didn’t want to do was force people to buy insurance who can’t pay for it, so their solution was to expand Medicaid coverage eligibility (ie. the government will pay for you) and offer subsidies for the near-poor.

Great, now they have a plan going, but how does the government pay for it? Here are a few of the provisions…you’ll notice that the bulk of it comes from a few select buckets.
1) Explicit taxes
2) Phantom taxes in the form of industry fees and industry rate cuts that will ultimately make its way into health insurance pricing
3) Cuts to Medicare Advantage – I wouldn’t cry for these seniors. Some of them were basically getting the equivalent of a $12,000/year health plan for free. (Gym memberships, vision and dental coverage, transportation, recreation centers…on second thought “free” is probably the wrong term since they paid into Medicare their entire life) Anyway, that benefit is just getting scaled back a bit.
4) Notably absent is tort reform, which could save the government $54bn and even more on the private sector side through reduced premiums, alleviation of ‘defensive medicine,’ reduced cost shifting, and other benefits. Of course, the brunt of the medical malpractice award caps would be borne at the expense of lawyers and the few victims who actually deserve a very large award. (Personally, the lack of this provision makes me sick).
Here are the specific numbers (don’t expect it to add to the $1 trillion…there are some interactive effects and other items I’ve left out)
• $69bn from individual and employer mandates
• $83bn in various taxes and fees on the healthcare industry including my favorite the 10% tax on indoor tanning bed services. Almost all of these fees by the way will only increase the underlying costs of healthcare.
• $32bn from the “Cadillac Plan” tax (taxes high benefit health plans as taxable wages…the savings are theoretically generated not from tax dollars but from the shift from health benefits to cash wages. This is literally the only provision in the bill that reduces medical cost inflation, and the unions managed to water it down very significantly.
• $210bn from increasing the Medicare payroll tax from 2.9% to 3.8% (but only for those making $200k or more)
• $136bn from cuts to the Medicare Advantage program
• ~$129bn from hospital Medicare rate cuts
• ~$60bn from rate cuts to other Medicare providers

For the average Congressman, they more or less viewed it as expand coverage and pay for it by any means necessary that doesn’t affect my supporters. (So you would see Connecticut Senators defending insurance companies, Massachusetts senators defending medical device/biotech companies, or Missouri senators defending pharmacy benefit managers, etc...pretty typical pork barrel negotiating) As for the details, there certainly were a slew of Congressional staffers that actually did understand the nuts and bolts of the various healthcare subindustries. I’ve met some of them – they’re smart people, but with the peculiar meshing of the Senate bill and reconciliation bill, they didn’t get the chance to fix some of their mistakes.
Many of the unintended consequences of a bill are usually removed when the House and Senate reconcile (puts together) their bills. Many of the staffers told me that they created the Senate bill with the intention of ironing out the edges later. In other words, it was not meant to become the final version of a bill, which is partially why “the Secretary shall” appears at least 490 times (by far the most used phrase). While most giant bills like this have a few refinement bills that follow, I get the feeling this one will have more than usual. The government and industry will be working through implementation of these regulations for years to come, and while it may seem like we’ve finished, it’s really only the end of the beginning.

Sources: Congressional Budget Office Reports and Letters