How Would Healthcare Insurance Reform Work?
Dr. Michael Burke, Professor Emeritus, Villanova University
Followers of the healthcare reform debate are familiar with goals reform is designed to achieve, and with the horrors its opponents allege would come to pass if reform succeeds. Largely missing from the popular debate, however, is just how a reformed healthcare system would actually work. What would it look like? How would it change the real-life experience of those seeking care or insurance? Would it increase or restrict choice? Who would provide my healthcare? How would it be paid for?
“Healthcare reform” is actually a misnomer, for the proposed reforms are about health insurance—how individuals and society pay for healthcare, not about the delivery of healthcare. The reforms are less radical than many progressives hoped for—and less radical than opponents fear. The private sector will continue to deliver healthcare. Patients will choose their own doctors and other providers; healthcare providers will choose their patients (within certain limits) and what insurance they accept. The government will not provide healthcare to anyone it does not already serve (e.g., armed forces, veterans, native Americans). Private for-profit insurance companies will continue to provide most Americans with their healthcare insurance.
To be sure, government is already involved in healthcare. For some government itself provides direct care—the military, veterans, native Americans. For others government is the “single payer”—seniors, the poor, children from low income families. Government also funds research through the National Institutes of Health and the National Science Foundation and subsidizes hospitals, medical schools, and nursing schools. Existing federal law already requires private health insurance to cover certain procedures and conditions. In other words, the proposed reform is incremental change, not radical innovation.
What the proposed reform will achieve is to make affordable health insurance available to virtually all Americans, including those who do not receive health insurance at work. The “two healthcare Americas,” one insured against accident and illness and the other not, will be a thing of the past. In order to achieve close to universal coverage the proposed reform will require virtually everyone to carry health insurance, and will require every insurer to accept every applicant. Neither side can “game” the system: individuals cannot wait until they are diagnosed with a serious illness before purchasing insurance, and insurance companies cannot reject applicants with medical problems. Within this system, however, many individuals will find they have more options than they do now.
Below are the major components of reform as described in HR 3200. Proposals from other House and Senate committees propose similar models; they differ in whether to include a Public Option, in funding mechanisms, and in the specific dollar mounts for credits, penalties, etc. Every aspect of reform envisions an extensive transition period so that what is described here is how a reformed system would work some five years or more down the line.
ACCEPTABLE HEALTHCARE COVERAGE
The concept of “Acceptable Healthcare Coverage” is at the heart of the proposed reform. These are the criteria all approved health insurance policies must meet, whether offered through employers or purchased directly by individuals:
o All applicants must be accepted regardless of pre-existing conditions.
o No policyholder can be dropped except for non-payment of premium or fraud.
o Premium rates may vary with age or geography, nothing else. (No higher premiums for higher-risk applicants.)
o Cost sharing (deductibles, co-pays) are prohibited for preventive care, including pregnancy and well-baby care.
o A maximum out-of-pocket spending per year ($5000/$10,000)
o No lifetime maximum.
The government will also dictate what procedures, tests, etc., must be covered. Individual insurers, however, will continue to set their own premiums as well as co-pays, deductibles, pre-authorization procedures, and the like.
EMPLOYER BASED HEALTHCARE COVERAGE
Individuals who currently receive health insurance through their employer may keep their current coverage or, eventually, choose to purchase an individual policy from the Health Insurance Exchange. After an transitional period all employer-offered insurance plan must meet the criteria of “Acceptable Healthcare Coverage.” In addition, employers must pay at least 72% of an individual policy, and 65% of a family policy.
Employers who choose not to offer acceptable healthcare coverage to their employees must pay a new payroll tax of 8%; those that do offer insurance must pay an 8% penalty on the wages of employees who purchase insurance from the Exchange. (In the case of all but the highest-paid employees the 8% penalty will likely be less than the cost of insurance.)
Employers with an annual payroll less than $250,000 are exempt from the payroll tax; the tax phases in as total payroll climbs to $400,000. Small businesses (under 25 employees) will receive a tax credit to help cover the cost of employee health coverage.
State and regional Health Insurance Exchanges are proposed marketplaces to assist consumers in comparing and purchasing individual and family policies available in their area outside the workplace. The Exchanges will not insure, not sell policies directly to consumers, not set premium levels, and not provide healthcare. The plans they market will be those of private for-profit insurance companies (except for the Public Option should it become part of reform). The role of the Exchange is simply to certify all the plans they offer meet the standards of Acceptable Healthcare Coverage, and to provide consumers with tools to assist them in comparing their options (similar to what Medicare now provides with supplemental and drug coverage).
All families and individuals would be eligible to purchase health insurance through the Exchange unless they are already covered by a government program (e.g., Medicare, Medicaid, etc.) The Exchange would have an annual open enrollment period during which individuals could change plans and special enrollment periods for special circumstances similar to the rules that currently govern employer-based health insurance. Once in the Exchange you remain eligible for Exchange coverage forever.
Individuals without acceptable healthcare coverage must pay an additional 2.5% tax on adjusted gross income (with hardship and religious exceptions allowed).
The Public Option would be an optional government Medicare-like insurance plan offered through the Exchanges in competition with those of private insurance companies. It would be a public medical insurance option, not government-run healthcare. No one would be required to purchase health insurance from the public plan, and individuals could move in and out of the public plan during the annual open enrollment periods. Physicians could similarly decide whether or not to participate.
The Public Option is in effect an optional Medicare program that must pay for itself. Premiums must fully cover all costs of the plan, and the plan itself must be self-sustaining. It's plans must meet the same criteria of “Acceptable Healthcare Coverage” as private plans.
The Public Option is the most controversial part of the legislation. Advocates argue that the competition of a public option is essential to keeping private insurance premiums under control, and that a public option will provide the best opportunity to keep healthcare costs under control overall. Opponents argue that any further government participation in healthcare is bad, and that the government Public Option will prove too popular at the expense of the for-profit alternatives.
Individuals and families with incomes up to 400% of the poverty level will be eligible for credits to help purchase basic health insurance through the Exchanges. A sliding scale calculates the credit based on percent of annual income. For example, those below 133% of poverty will pay no more than 1.5% of their income for health insurance; those at 400% of poverty will pay no more than 11%. The credits represent the principal long-term expense of healthcare reform. Only citizens and legal residents will be eligible for affordability credits.
Existing government medical insurance programs such as Medicare and Medicaid are the focus of over half the proposed legislation. Some changes are routine—all health insurance updates its rules and regulations every few years in order to keep pace with changes in medicine and in economic conditions. Other changes are designed to begin to control the explosive costs of healthcare, and others still are designed to offset some of the costs of reform. HR 3200 contains approximately $500 billion in savings, $250 million in new costs, for a net saving of $250 million. None of the changes affect covered services from a patient's point of view; they only alter the way providers are compensated. Some of the highlights:
o The greatest anticipated savings come from adjustments in Medicare Advantage (Part C). Per capita subsidies to private insurers will gradually be reduced to equal the average cost of traditional Medicare patients.
o Planned reductions in compensation to physicians will be eliminated.
o The “donut hole” in the Medicare drug plan will be eliminated.
o Hospital readmissions will be reimbursed at a lower rate when the hospital is responsible for the need to readmit.
o Bonus payments to primary care physicians who provide “accessible, continuous, coordinated, and comprehensive care.”
o A new Center for Comparative Effectiveness Research will support, and synthesize research on outcomes and effectiveness based on evidence-based medicine in conformity with best practices as determined by physician specialty colleges. Results are not to be based on cost; the government is prohibited from using the research to deny or ration care.
Estimates vary widely on how much the proposed reforms in healthcare will cost and how much can be saved through greater efficiencies in the system. The highly respected Congressional Budget Office tends to be conservative in its predictions of savings that are not immediately quantifiable. In any event, supporters of reform look to three categories of revenue/savings to pay for health insurance reform (with examples):
1. New sources of revenue:
§ A healthcare surcharge (tax) on the top 1.2% of earners (AGI over $350,000) at a rate starting at 1%, going up to 5.4% on incomes over $1 million.
§ Penalties on employers and individuals (“play or pay”)
2. Quantifiable savings:
§ Reduction of per capita subsidies to private insurers in Medicare Advantage.
§ Reduction in subsidies to hospitals for treating uninsured patients.
3. More effective and efficient healthcare (examples)
§ “Best practices” medicine, ie, protocols proven most effective
§ Less emergency room, earlier detection of serious disease.
§ Better care of chronic disease.
Michael Burke, Sept 2009