Preparing for Health Care Reform

The Patient Protection and Affordable Care Act is the law of the land. And it will stay that way for a long time. The new health care reform law will evolve, but it won’t be repealed. President Barack Obama would veto any outright appeal, which means a two-thirds vote in both Chambers would be required to overcome that veto. There’s not mathematical possibility, outside of a Karl Rove’s hallucination, in which that two-thirds threshold comes close to being met any time soon.

So the law is here to stay. However, that doesn’t mean the law won’t be changed. Legislation is like a blueprint, in this case defining the outline of health care reform. But as I’ve mentioned before, it is “the regulators, judges, businesses and civilians interpreting, implementing and simply trying to figure out how things are supposed to work” that make the law real. That process has only just begun. For example, one of the few elements of the law that takes effect in 2010 concerns the tax credits available to some small businesses to offset the cost of health insurance premiums they provide their workers. The IRS has begun providing guidelines on how this tax credit will work.

Another example: The Department of Health and Human Services has clarified an ambiguity in the law as to whether carriers must accept children for coverage regardless of any pre-existing conditions. HHS has decided children under 19 years of age are eligible for guarantee issue and carriers have agreed to go along with this interpretation. Good to know. And we’re being told in before the guarantee issue provision takes effect (in July for those keeping track).

There are a lot of guidelines, clarifications and new regulations still to come. But here’s the good news: like those mentioned above, they will be coming well in advance of the effective date of the health care reform package’s various provisions.

For health insurance brokers, uncertain of their role in the new world, this is good news. They will have plenty of time to prepare for changes in the health insurance industry before they take effect. And there are plenty of folks out there – associations, carriers, general agents, service providers, and even a blogger or two – who will be providing the information brokers need to deal with the coming changes. (Note: On April 13th at 10:30 Pacific Time I’ll be participating in an online conversation discussing health care reform and how brokers can prepare for it., This is a free webinar sponsored by Norvax. Also worth noting: the National Association of Health Underwriters has been offering a series of informative, insightful and helpful webinars for its members).

Of course, brokers have alternatives to preparing themselves for reform. They can stress out. They can panic. They can descend into anger. I hear denial can be comforting for awhile. But indulging in these reactions won’t accomplish much, especially in the long term.

Instead, brokers need to be thinking about the kind of agency that will survive and flourish in the years ahead. In my mind, this means spending the next few months refining one’s agency so it is both nimble and flexible. This will allow brokers to to adapt to a changing environment as new provisions of the law take effect, avoid the inevitable pitfalls created by new government bureaucracies or existing health insurance carriers, and to seize opportunities created by those same bureaucracies and carriers.

Notice I didn’t say “quickly avoid” or “immediately seize.” I’m not convinced victory will go to the swift this time around. Instead, I believe during this time of transition the advantage will go to the prepared, the informed and the thoughtful. Speed is required when change comes quickly. But when it comes to health care reform regulations will likely be in place six months or more before the legislative elements they refer to go into effect. This relieves brokers from the need to predict the future. Instead, prepared agencies will have at least some time to think about the developments as they emerge and figure out the right response. Given a choice between “quick” and “right” I’m going with the latter every time.

All of this means now is not the time to panic. Instead, now is the time to take stock of your business practices and determine which ones foster readiness – and which don’t. Now is the time to ignore the blathering of so-called news organizations that are more interested in whipping up partisan passion than informing insurance professionals or the public (yes, I’m looking at you Fox and MSNBC). Instead, plug into the vast support network out there, starting with NAHU, who are ready, willing and able to help you understand not just the letter of the new health care reform law, but how it is being brought to life.

Senator Baucus Reaches Out to Liberals and Moderates on Health Care Reform

The Senate Finance Committee has embarked on its long journey to amend and refine the Chairman’s Mark of America’s Healthy Future Act of 2009. While there’s a lot of attention being given to the fact that committee members have submitted over 500 amendments that number is less impressive than it may seem. Many of these proposed changes are technical in nature while others are duplicative. Besides, it’s not the number of amendments that matter, it’s the substance of them that determines the scope of the task facing the committee.

The task is great. Three ideologies are at play on the committee: conservative, moderate and liberal. While conservatives will have their say and no doubt get a few of their proposals added to the bill, it is moderates and conservatives – most all of them Democrats – who will truly shape the final outcome. Most Republicans have made it clear they will vote against any bill that resembles the Chairman’s Mark. This effectively removes them from the mix, leaving the shaping of the legislation to a tug-of-war between moderates and liberals.

Senator Max Baucus modified his Chairman’s Mark to address criticism from liberals and to reach out to some moderates.

For example, Senator Baucus’ health care reform plan requires all individuals to obtain medical insurance and provides a premium subsidy to help make the coverage affordable for lower-income households. Originally, those subsidies were designed to cap premium costs at three percent of a household income for those making 100 percent of the Federal Poverty Level rising to thirteen percent of household income for those households earning 300 percent of the FPL. Senator Baucus modified his original proposal to “lower the maximum amount of income that families would contribute to their health insurance premiums to two percent of income for those at 100 percent of the Federal Poverty Level …” He also increased the number of Americans eligible for those subsidies to households earning 400 percent of the FPL ($43,320 for an individual; $88,200 for a family of four) and capped their premium costs at 12 percent of income — $10,584 for a family at 400 percent of FPL. (Page 6 of the Modifications to the Chairman’s Mark). To illustrate how the subsidies under various health care reform bills work, including the modified version of Senator Baucus’ proposal, take a look at the nifty subsidy calculator on Kaiser Family Foundation site.

Senator Baucus also reduced out-of-pocket maximums for households between 200 and 300 of the poverty level to two-thirds of the HSA out-of-pocket limit ($3,987 for an individual; $7,073 for a family in 2010). (Page 6 of the Modifications).

A change requested by Senator Olympia Snowe, the Republican most likely to support the bill in committee, was accepted by Senator Baucus. It would require small employers to provide a plan with a deductible of no more than $2,000 for individuals and $4,000 for families unless higher amounts are offset by HSAs, HRAs or the like. (This requirement would not impact the “young invincible” catastrophic coverage medical plan (that also cover preventive care) available to those 25 years old and younger. (Page 6 of the Modifications).

Speaking of the young invincible bill, Senator Baucus accepted another proposal by Senator Snow, opening up eligibility for these plans to those who would otherwise have been eligible for a hardship exemption from the requirement to obtain coverage. The exemption was available to those for whom premiums exceed 10 percent of their income. (Page 6 of the Modifications).

As originally proposed, workers receiving coverage from their employers that met certain conditions would be ineligible to receive tax credits to enable them to purchase coverage on their own through a health insurance exchange. Senator Baucus accepted yet another amendment from Senator Snowe that lowers this threshold, permitting employees whose share of premiums through their employer-sponsored coverage exceeds 10 percent of their income to qualify for the tax credit. (Page 7 of the Modifications).

There are other significant changes, too. For example, the threshold for plans on which insurance companies would be subject to a tax (so-called “Cadillac plans) had not been indexed to inflation in the original proposal. Over time this meant these plans (costing $8,000 for individual coverage and $21,000 for family coverage in 2013) would likely look more like Chevrolets. Senator Baucus now indexes the threshold for these plans. He also increased the excise tax from 35 percent to 40 percent.

The amendments accepted by Senator Baucus without a debate highlights his desire to placate Senator Snowe and other moderates on one hand while addressing some of the concerns of liberals on the other. The political calculus is simple: the more these Senators can claim that they improved the bill, the greater their political cover to vote for it.

Put another way, it is unlikely any of the changes accepted by Senator Baucus reduces the chances of the bills passage and many increase its chances. With hours of debate and dozens of sustentative changes to consider, this journey is far from over.

Affordability and America’s Healthy Future Act

In yesterday’s post answering questions about Senator Max Baucus’ health care reform proposal, I inadvertently overlooked a question posed by JimK. He points out the proposed health care reform legislation provides a tax credit to those earning up to 300% of the Federal Poverty Level (FPL), but questions whether the Chairman’s Mark mandates people pay 13 percent of their income in premium as alleged on Countdown with Keith Olbermann.  Here’s how (I think) Mr. Olbermann’s math works.

Under the America’s Healthy Future Act every citizen would be required to purchase health insurance coverage. As JimK notes, subsidies would be available to help those earning less than 300 percent of the Federal Poverty Level  purchased coverage through the exchange. (Subsidies are apparently not available to those purchasing coverage in the traditional market). These premium subsidies are available on a sliding scale. Those households at the poverty level would be required to contribute three percent of the income toward their health insurance premiums; households at 300 percent of the poverty level would contribute 13 percent. (Chairman’s Mark page 21, page 24 of the PDF)

The FPL is adjusted annually. In 2009 the federal poverty level is $10,830 for an individual and $22,050 for a family of four. If the Baucus health care reform plan was in-force today, individuals earning 100 percent of the FPL would pay $325 toward their medical premium; a family of four with household income of 100 percent of the FPL would pay $662. Individuals at 300% of the Federal Poverty Level ($32,490) could pay $4,224 for medical coverage while our hypothetical family of four (earning $66,150 annually),could pay as much as $8,600.

There are two things to keep in mind concerning this aspect of the Senate Finance reform plan. First, these are preimum subsidies. Consumers could pay thousands of additional dollars — and a greater percentage of their income —  for out-of-pocket expenses.

Second, once household income exceeds 300 percent of the FPL no premium subsidy is provided. In 2009, according to a Kaiser Family Foundation study, “average annual (health insurance) premiums for employer-sponsored health insurance are $4,824 for single coverage and $13,375 for family coverage.” Granted, coverage obtained through the work place is usually much more expensive than insurance purchased on one’s own. Finding an average price for policies purchased on one’s own is a bit harder. eHealthinsurance, based on the carriers they represent and consumers purchasing through their site, found the median premium for individual health insurance was $1,584; for families it was $3,948 (the numerical averages were higher: $1,932 and $4,596 respectively). eHealthinsurance reports the average deductible for the individual plans it sold was $2,326 while it was $3,129 for family coverage)

For an individual earning $35,000 (323 percent of the Federal Poverty Level) and ineligible for a subsidy, the median premium ($1,584) represent 4.5 percent of household income; the average premium ($1,932) comes to 5.5 percent. For a family of four earning $70,000 (317 percent of FPL) their $3,948 median premium amounts to slightly more than 5.5 percent of household income; the average premium ($4,596) represents 6.6 percent of their income.  Again, this is before any out-of-pocket medical expenses are paid.

Which raises the question: assuming the eHealthinsurance rates are roughly equivalent to the cost of coverage available after health care reform, will coverage be affordable? If Americans must purchase health insurance it’s only fair that the cost for this coverage is within their means.

It’s likely Senator Baucus set the subsidy levels based on what the cost of this premium support would be on the federal budget. He determined this is the level of support the country can afford to provide consumers. But can consumers afford these costs? For a family of four with income of $70,000, paying nearly $4,000 in premium plus potentially several thousand more in out-of-pocket medical expenses is a significant burden. The problem is, going without coverage could be much more damaging to their finances — and to their health.

Balancing personal responsibility with the cost of coverage to families and impact of premium support on the federal budget is both a financial and a moral challenge. It requires lawmakers — and voters — to make tough choices. It also shows that the effort to restrain medical costs must be pursued just as rigorously, if not more so, than increasing access. Otherwise health care reform could result in insurance coverage and financial hardship for all.

The New Health Care Reform Dance: Noisy Action. Quiet Talks.

A lot of folks are saying the chances of health care reform in 2007 are gone. The unions and several consumer groups have declared war on Governor Arnold Schwarzenegger’s plan. They’re holding demonstrations and prayer vigils claiming the Administration’s proposal is too hard on the middle class and too easy on corporate California. The rhetoric is getting nasty. The demands more strident. It’s over.

Or is it? It seems to me that this could also be taken as a tactic to clarify — and strengthen — their bargaining position. At the same time it sends a message to their constituents (most of whom support a single-payer system) that they’re holding out for “real” reforms.

Anchoring an extreme position so others can appear more reasonable while extracting more from the other side is the negotiating equivalent of the “good copy, bad cop” interrogation routine. So one interpretation of what the unions and their consumer group allies is doing is giving their negotiators, Assembly Speaker Fabian Nunez and Senate President Pro Temp Don Perata, some help in the smoke filled tent. (Incidentally, this isn’t much different than what the Governor did back in August when he promised to veto the Democrat’s health care reform plan, Assembly Bill 8. Of course, in that case Governor Schwarzenegger was playing both the good cop and the bad cop).

The other reason the chances of health care reform remain alive is that on the two key issues which have emerged, the two sides aren’t all that far apart.

Eligibility for Premium Subsidies: The Governor would provide premium assistance to California residents in households earning up to 350 percent of the Federal Poverty Level ($35,735 for an individual; $72,275 for a family of four). There have been several statements from the other side, but it appears they want to set eligibility for these subsidies at something closer to 500 percent of the FPL ($51,050 for an individual; $103,250 for a household of four). Would a compromise at 400 percent make everyone happy? No, but it would probably allow each to declare a partial victory, which is what compromises are supposed to do.

Payroll Tax: The Governor wants businesses to pay four percent of their Social Security payroll to support the health care reform package; the union-led coalition wants a 7.5 percent tax. Would either side kill health care reform over a 5.5 percent tax? I doubt it. The Governor would still be delivering a ‘discount” to the business community and the Democrats can always seek an increase later.

There’s other issues to be worked out, but these two items are currently the center of attention. When it comes to reaching a compromise, my take is that the Governor has the stronger hand so he’ll have to give less. The Democrats have a greater need for a win on health care reform this year. Speaker Nunez and Senator Perata are pushing an initiative on the February ballot to modify term limits in a way that would enable them to remain in their leadership positions longer. With the budget debacle fresh in their minds they need something to convince voters keeping the current crop of lawmakers around longer is a good idea. Health care reform might be just the message they need.

None of this is to disparage the sincerity of the Democrats, the unions and their allies. I have no doubt they firmly believe the changes they’re calling for are good and necessary. Yet sincerity and good politics are not mutually exclusive. And noisy activity does not mean quiet talks can’t, and aren’t, continuing.

I should note, by the way, that others have a similar take on what may be happening. For example, Bill Ainsworth of the San Diego Union-Tribune made many of these same points in his blog yesterday. Today, Anthnoy York of the Capitol Weekly blog notes that “A day after blasting Gov. Arnold Schwarzenegger as the greatest obstacle to health-care reform, the head of the California Labor Federation appeared to back away from what many interpreted as the informal end of health care negotiations.”