Health Care Legislation, Part 14:
Obama's January 22 proposal
22 Feb 2010 in Regulatory Economics, Regulatory Policy, Litigation
President Obama announced a televised meeting for Thursday to discuss all options for health care legislation. Overnight, the White House released "The Obama Plan: Stability & Security For All Americans," which the President intends to be the focal point for the event. Although this Plan is short, the White House also released a one-page summary.
The January 22 Obama Plan is not accompanied by legislative text. Thus, it can only be analyzed in qualitative terms. We do that below the jump.
The January 22 Obama Plan is very similar to candidate Obama's 2007 proposal, which has attracted little attention except from Neutral Source. The campaign proposal has been revised and reorganized to make it easier to follow.
The Plan appears to include few significant concessions to opponents. "Health effectiveness research" has been dropped, but its seeds were planted in the "stimulus bill" (the "American Recovery and Reinvestment Act") and additional legislation may not be needed to fund such research and utilize it in federal regulations governing what therapies are eligible for reimbursement.
The Plan does not incorporate the distinctive elements of the dominant Republican alternatives (House GOP leader, House Budget Committee), which include permitting interstate sale of health insurance and equalizing federal tax treatment of employer-sponsored and individual insurance.
"If You Have Health Insurance" describes the regulations that would be imposed on private insurers.
- Guaranteed issue.
Under this rule, private insurers must provide a policy to anyone who applies, regardless of health status. By itself, this rule does not prevent insurers from charging premiums based on health risk.
This regulatory change must increase the cost of insurance.
- Limited risk rating.
Private insurers would be permitted a "limited" ability to charge higher premiums for women (who on average utilize more health care services than men) and for pre-Medicare eligibles (who on average utilize more health care services than the young). The Plan does not specify the amount of risk-rating that would be permitted. Men would pay higher premiums to subsidize women, and the young would pay higher premiums to subsidize pre-Medicare eligibles.
The Plan does not say whether these regulations would apply to group insurance (usually sponsored by employers), individual market insurance (purchased by those without employer-based group insurance), or both.
This regulatory change must increase the cost of insurance.
- Prohibition on policy cancellation except for fraud.
The health care debate has included numerous anecdotes concerning the practice of rescission, in which insurers re-evaluate the conditions under which they provided insurance to determine whether the applicant may have committed fraud. How representative these anecdotes are has not been made clear. The available evidence indicates that rescissions are rare and often (but not always) resulting from fraud. In any reform, the crucial question consists of how "fraud" is defined, and what burden of proof the insurer must satisfy. The January 22 Plan does not provide these details.
This regulatory change must increase the cost of insurance.
- Caps on out-of-pocket expenses.
"The President’s plan will cap out-of-pocket expenses and will prohibit insurance companies from imposing annual or lifetime caps on benefit payments." This regulatory change must increase the cost of insurance. The effect it would have on high-deductible health insurance plans accompanied by Health Savings Accounts is not clear, but it could result in such plans being banned.
This regulatory change must increase the cost of insurance.
- No charge for preventive care.
"The President’s plan ensures that all Americans have access to free preventive services under their health insurance plans." Preventive medicine often (but not always) is cost-effective. For example, the recent report by the US Preventive Services Task Force on mammography made a credible case that the technology is overused, leading to a large number of false cancer diagnoses resulting in unnecessary surgery.
This regulatory change must increase the cost of insurance.
- Unspecified changes to Medicare described vaguely ("Protects Medicare for seniors"):
"The President’s plan will extend new protections for Medicare beneficiaries that improve quality, coordinate care and reduce beneficiary and program costs. These protections will extend the life of the Medicare Trust Fund to pay for care for future generations."
Details of these provisions are not disclosed, so their effects cannot be evaluated. The lack of specificity suggests that they would be either ineffective or controversial.
- Elimination of the "donut-hole" gap in Medicare prescription drug coverage:
"The President’s plan begins immediately to close the Medicare "donut hole" ... by providing a 50 percent discount on brand-name prescription drugs for seniors who fall into it."
This regulatory change must increase the cost of Medicare.
"If You Don't Have Insurance" describes what would be done to increase the proportion of people who have insurance.
- Federally-run insurance "exchanges."
"Beginning in 2013, the Exchange will give Americans without access to affordable insurance on the job, and small businesses one-stop shopping for insurance where they can easily compare options based on price, benefits, and quality." The Plan does not explain how the Exchanges would achieve these objectives. The Plan appears to consist of little more than an electronic clearinghouse.
The Plan claims, as did candidate Obama's proposal, that "[the President’s plan allows Americans who have health insurance and like it to keep it." Given the extraordinary emphasis in the January 22 Plan on linking health insurance to employment, it is not at all clear how this promise could be kept. Employer-sponsored health insurance removes any contractual linkage between the individual and the insurer.
This promise is suspect for other reasons as well. As the first section noted, the January 22 Plan would impose radical changes on private health insurance markets that would make health insurance more expensive. Many existing health insurance policies would be prohibited.
The practical value of health insurance exchanges is unclear.
- Tax credits for individuals.
"The President’s plan will provide new tax credits on a sliding scale to individuals and families that will limit how much of their income can be spent on premiums." This is consistent with both candidate Obama's 2007 proposal and the subsidy provisions contained in the House and Senate bills.
The Plan does not say how these subsidies would be financed.
- Tax credits for small businesses.
"The President’s plan will also provide small businesses with tax credits to offset costs of providing coverage for their workers." Requiring employers to provide health insurance raises the cost of labor. This discourages employers from hiring new workers and encourages them to lay off existing workers. Tax credits partially offset this implicit tax on labor.
The Plan does not say how these subsidies would be financed.
- A public insurance option.
The controversial "public option" is widely regarded as a provision inserted by the congressional leadership, but it was a primary element of candidate Obama's 2007 proposal. The January 22 Plan makes clear that congressional bill-writers were attempting to implement his proposal, not acting alone.
"The President believes the public option must operate like any private insurance company – it must be self-sufficient and rely on the premiums it collects." This text implies (but does not clearly state) that the public insurer would not have the benefit of direct or indirect government subsidies, such as both the House and Senate bills contain. Unlike a private insurance company, a public insurer obtains its premiums from taxpayers so it is unclear how it would be self-sufficient in the same way that a private insurer must be.
The practical effect of the public option cannot be determined from the limited information provided. Because the House and Senate bills would give the public insurer substantial subsidies and regulatory advantages, and these subsidies are the source of the controversy, silence in the January 22 Plan implies that the public option would, in fact, enjoy significant preferential treatment.
If the public option enjoys any significant direct or indirect subsidies, or if it has the power to dictate terms to health care providers, private insurers could not survive in the marketplace.
- Temporary high-risk pool until the "Exchanges are up and running."
High-risk pools have been proposed as ways to deal with those whose health risks make them otherwise uninsurable at a price they are willing to pay. The January 22 Plan would establish high-risk pools that would disappear once the Exchanges have been set up. However, nothing in the Plan's description of the Exchanges explains how they would accommodate high-risk pools.
In the long run, the employer mandate would move many high-risk individuals into group policies where they would be cross-subsidized by others within each group. Some high-risk individuals would not be eligible for employer-sponsored insurance because they are not employed or cannot work. The January 22 Plan is unclear about what happens to these people.
The Plan does not say how these temporary subsidies would be financed.
"For All Americans" describes how the January 22 Plan would "rein in the cost of health care."
- No increase in federal deficit spending.
The Plan states that this would be achieved by "begin[ning] the process of reforming the health care system" and "invest[ing] in quality improvements, consumer protections, prevention, and premium assistance." The text also says that "[t]he plan fully pays for this investment through health system savings and new revenue including a fee on insurance companies that sell very expensive plans."
The Plan does not disclose the sources or magnitudes of "health system savings." The likely consequence of taxing insurers who provide so-called "Cadillac" plans is that these plans would be terminated. For this group of people, there is no way that they would be able to keep their existing insurance.
It is inconceivable that the listed process reforms would save as much money as new insurance regulations and federal subsidies would cost.
- Additional, unspecified cuts in health care services achieved through an unstated mechanism.
The January 22 Plan implicitly acknowledges that the previous commitment not to increase deficit spending lacks credibility. "If the savings promised at the time of enactment don’t materialize, the President will be required to put forth additional savings to ensure that the plan does not add to the deficit."
These cuts would not be self-implementing: after having "put forth" these proposals for additional cost control, Congress would have to act before they would take effect. Program cuts could be made automatic subject to a supermajority vote to override, but the Plan does not suggest that President Obama favors such language.
It is virtually certain that the promise not to increase deficit spending cannot and would not be honored.
- Health care "delivery system reforms"
These reforms consist of changes to federal reimbursement regulations "that begin to rein in health care costs and align incentives for hospitals, physicians, and others to improve quality." The Plan does not identify these changes.
None of these provisions is disclosed, so their effects cannot be evaluated. The lack of specificity suggests that they would be either ineffective or controversial.
- Reduction in waste, fraud, and abuse.
This would be accomplished by "an independent commission of doctors and medical experts" charged with making recommendations to Congress. " The Commission will not be authorized to propose or implement Medicare changes that ration care or affect benefits, eligibility or beneficiary access to care" (emphasis in the original).
Details of these provisions are not disclosed, so their effect cannot be evaluated. The lack of specificity suggests that they would be either ineffective or controversial.
- Malpractice reform projects.
"The President’s plan instructs the Secretary of Health and Human Services to move forward on awarding medical malpractice demonstration grants to states funded by the Agency for Healthcare Research and Quality as soon as possible."
It is not clear what would happen to existing State malpractice regimes, some of which apparently have been successful at reducing the number of lawsuits and/or payments. The effects on defensive medicine are less clear, as these practices are ingrained and inherently slow to change.
The January 22 Plan appears to subordinate State malpractice laws to federal regulation by the Department of Health and Human Services. Depending on what HHS was authorized to do and how it implemented its authority, the Plan: could achieve significant reductions in aggregate cost (if it applied the most aggressive State regime nationwide), no reduction at all (if it did not make any changes), or increase aggregate cost (if it pre-empted aggressive State regimes with a weak national standard).
Employers that do not provide qualifying health insurance would pay a tax "to help cover the cost of making coverage affordable in the exchange."
Employer mandates (along with individual mandates; see below) are essential for preserving the private insurance market in the face of the Plan's proposed regulatory changes. Other aspects of the January 22 Plan reduce portability. By imposing a low threshold of 50 employees, and establishing more uniform standards for qualifying health insurance, the effects of lost portability are reduced.
Employer mandates impose a implicit tax on labor relative to capital and other inputs in production. They must raise the cost of labor, increase unemployment, and make high unemployment a structural feature of the US economy much like it is in Western Europe.
The Plan does not specify the income threshold above which it is presumed that health insurance is "affordable," nor does it specify what percentage of income is "affordable."
Individual mandates (along with employer mandates; see above) are essential for preserving the private insurance market in the face of the Plan's proposed regulatory changes. Individual insurance is fully portable.
This form of individual mandate may discourage self-employment, or lead sole proprietors to incorporate to be eligible for the Plan's small business subsidies.
The Obama Plan: Stability & Security For All Americans
"It will provide more security and stability to those who have health insurance. It will provide insurance to those who don’t. And it will lower the cost of health care for our families, our businesses, and our government"
-PRESIDENT BARACK OBAMA
If You Have Health Insurance
More Stability and Security
- Ends discrimination against people with pre-existing conditions. Over the last three years, 12 million people were denied coverage directly or indirectly through high premiums due to a pre-existing condition. Under the President’s plan, it will be against the law for insurance companies to deny coverage for health reasons or risks.
- Limits premium discrimination based on gender and age. The President’s plan will end insurers’ practice of charging different premiums or denying coverage based on gender, and will limit premium variation based on age.
- Prevents insurance companies from dropping coverage when people are sick and need it most. The President’s plan prohibits insurance companies from rescinding coverage that has already been purchased except in cases of fraud. In most states, insurance companies can cancel a policy if any medical condition was not listed on the application – even one not related to a current illness or one the patient didn’t even know about. A recent Congressional investigation found that over five years, three large insurance companies cancelled coverage for 20,000 people, saving them from paying $300 million in medical claims - $300 million that became either an obligation for the patient’s family or bad debt for doctors and hospitals.
- Caps out-of pocket expenses so people don’t go broke when they get sick. The President’s plan will cap out-of-pocket expenses and will prohibit insurance companies from imposing annual or lifetime caps on benefit payments. A middle-class family purchasing health insurance directly from the individual insurance market today could spend up to 50 percent of household income on health care costs because there is no limit on out-of-pocket expenses.
- Eliminates extra charges for preventive care like mammograms, flu shots and diabetes tests to improve health and save money. The President’s plan ensures that all Americans have access to free preventive services under their health insurance plans. Too many Americans forgo needed preventive care, in part because of the cost of check-ups and screenings that can identify health problems early when they can be most effectively treated. For example, 24 percent of women age 40 and over have not received a mammogram in the past two years, and 38 percent of adults age 50 and over have never had a colon cancer screening.
- Protects Medicare for seniors. The President’s plan will extend new protections for Medicare beneficiaries that improve quality, coordinate care and reduce beneficiary and program costs. These protections will extend the life of the Medicare Trust Fund to pay for care for future generations.
- Eliminates the "donut-hole" gap in coverage for prescription drugs. The President’s plan begins immediately to close the Medicare "donut hole" - a current gap in its drug benefit - by providing a 50 percent discount on brand-name prescription drugs for seniors who fall into it. In 2007, over 8 million seniors hit this coverage gap in the standard Medicare drug benefit. By 2019, the President’s plan will completely close the "donut hole". The average out-of-pocket spending for such beneficiaries who lack another source of insurance is $4,080.
If You Don't Have Insurance
Quality, Affordable Choices for All Americans
- Creates a new insurance marketplace – the Exchange – that allows people without insurance and small businesses to compare plans and buy insurance at competitive prices. The President’s plan allows Americans who have health insurance and like it to keep it. But for those who lose their jobs, change jobs or move, new high quality, affordable options will be available in the exchange. Beginning in 2013, the Exchange will give Americans without access to affordable insurance on the job, and small businesses one-stop shopping for insurance where they can easily compare options based on price, benefits, and quality.
- Provides new tax credits to help people buy insurance. The President’s plan will provide new tax credits on a sliding scale to individuals and families that will limit how much of their income can be spent on premiums. There will also be greater protection for cost-sharing for out-of-pocket expenses.
- Provides small businesses tax credits and affordable options for covering employees. The President’s plan will also provide small businesses with tax credits to offset costs of providing coverage for their workers. Small businesses who for too long have faced higher prices than larger businesses, will now be eligible to enter the exchange so that they have lower costs and more choices for covering their workers.
- Offers a public health insurance option to provide the uninsured and those who can’t find affordable coverage with a real choice. The President believes this option will promote competition, hold insurance companies accountable and assure affordable choices. It is completely voluntary. The President believes the public option must operate like any private insurance company – it must be self-sufficient and rely on the premiums it collects.
- Immediately offers new, low-cost coverage through a national "high risk" pool to protect people with preexisting conditions from financial ruin until the new Exchange is created. For those Americans who cannot get insurance coverage today because of a pre-existing condition, the President’s plan will immediately make available coverage without a mark-up due to their health condition. This policy will offer protection against financial ruin until a wider array of choices become available in the new exchange in 2013.
For All Americans
Reins In the Cost of Health Care for Our Families, Our Businesses, and Our Government
- Won’t add a dime to the deficit and is paid for upfront. The President’s plan will not add one dime to the deficit today or in the future and is paid for in a fiscally responsible way. It begins the process of reforming the health care system so that we can further curb health care cost growth over the long term, and invests in quality improvements, consumer protections, prevention, and premium assistance. The plan fully pays for this investment through health system savings and new revenue including a fee on insurance companies that sell very expensive plans.
- Requires additional cuts if savings are not realized. Under the plan, if the savings promised at the time of enactment don’t materialize, the President will be required to put forth additional savings to ensure that the plan does not add to the deficit.
- Implements a number of delivery system reforms that begin to rein in health care costs and align incentives for hospitals, physicians, and others to improve quality. The President’s plan includes proposals that will improve the way care is delivered to emphasize quality over quantity, including: incentives for hospitals to prevent avoidable readmissions, pilots for new "bundled" payments in Medicare, and support for new models of delivering care through medical homes and accountable care organizations that focus on a coordinated approach to care and outcomes.
- Creates an independent commission of doctors and medical experts to identify waste, fraud and abuse in the health care system. The President’s plan will create an independent Commission, made up of doctors and medical experts, to make recommendations to Congress each year on how to promote greater efficiency and higher quality in Medicare. The Commission will not be authorized to propose or implement Medicare changes that ration care or affect benefits, eligibility or beneficiary access to care. It will ensure that your tax dollars go directly to caring for seniors.
- Orders immediate medical malpractice reform projects that could help doctors focus on putting their patients first, not on practicing defensive medicine. The President’s plan instructs the Secretary of Health and Human Services to move forward on awarding medical malpractice demonstration grants to states funded by the Agency for Healthcare Research and Quality as soon as possible.
- Requires large employers to cover their employees and individuals who can afford it to buy insurance so everyone shares in the responsibility of reform. Under the President’s plan, large businesses – those with more than 50 workers – will be required to offer their workers coverage or pay a fee to help cover the cost of making coverage affordable in the exchange. This will ensure that workers in firms not offering coverage will have affordable coverage options for themselves and their families. Individuals who can afford it will have a responsibility to purchase coverage – but there will be a "hardship exemption" for those who cannot.
