Creating The Final Health Care Bill: Cash, Cadillac Plans, And Abstinence-Only Education

Illustration for article titled Creating The Final Health Care Bill: Cash, Cadillac Plans, And Abstinence-Only Education

The Senate bill passed quietly on Christmas Eve, paving the way for the reconciliation. When Congress reconvenes next month, they will begin the task of sorting through the two versions of the reform bill and crafting a final document.

The Associated Press provides a little infographic explaining where we are in the reform process and what's up ahead.

Illustration for article titled Creating The Final Health Care Bill: Cash, Cadillac Plans, And Abstinence-Only Education

While the infographic is cute, they really could have just taken it back to School House Rock:

The Nation provides a good breakdown of the key issues to be resolved between the bills, breaking it into three major categories: affordability, financing, and enforceability.

The biggest rift is in terms of who will benefit from the subsidies and what this coverage will provide:

The House generally does a much better job helping low-and moderate-income Americans afford coverage. For the very poor, it opens the Medicaid program individuals to who earn less than $16,245 per year, whereas the Senate only makes the program available to those earning less than $14,404. The Senate offers more subsidies to help the middle class buy coverage than the House, but the Senate's subsidized insurance offers weaker coverage than that mandated by the House and leaves these Americans far more exposed to out-of-pocket costs.


Other issues to reconcile would be the Senate's state-based insurance exchange versus the House's national exchange, how much the insurance industry can charge older customers, and, of course, how to pay for the bill. The Nation also points out how easily some of these regulations can be gamed by the industry:

There's also a minor provision in the Senate bill that could prove to undermine one of health reform's most important regulations. On paper, the Senate bans "underwriting," the practice of charging higher premiums to those with pre-existing conditions. But the Senate allows for the creation of "wellness incentives," which are theoretically designed to encourage Americans to do things like quit smoking or exercise by reducing premiums for those who engage in healthy behaviors. But the Senate includes virtually no limits on what "wellness" indicators an insurance company can measure and allows for huge variations in premiums. This could mean people who have been pregnant, have high blood pressure or are HIV-positive could be hit with thousands of dollars in extra premiums. (Harry Reid did add one restriction at the last minute, however: gun owners can rest assured they will not pay more because their property explodes.)


In addition to these conflicts, the question of the "Cadillac plan" returns time and time again. Jonathan Gruber argues in the Washington Post that most people have their understanding of the payments wrong — the Cadillac plans will not be taxed. He says it is the elimination of the subsidies on these plans that would help fund the reform:

The assessment proposed in the Senate is not a new tax; it is the elimination of an existing tax break that is provided to exactly these firms. Under current law, if workers are paid in wages, they are taxed on those wages. But if they receive the same amount of compensation in the form of health insurance, they are not taxed. As a result, the tax code has for years provided a large subsidy to the most expensive health plans — at a cost to the U.S. taxpayer of more than $250 billion a year. To put this in proportion, the cost of this tax subsidy to employer-sponsored insurance is more than twice what it will cost to provide universal health coverage to our citizens.

The excise tax on generous insurance plans would simply offset this bias for the most expensive health insurance plans — and only on a partial basis. To understand how, consider two firms. One has an average insurance cost per family of $13,000, the national average. The other spends twice that much, $26,000 — perhaps because its workers are older or perhaps because it provides much more generous coverage. Under today's system, a typical middle-income worker at the first firm gets a tax break of $4,550 while a worker at the second gets a $9,100 break. Taxpayers are literally sending twice as much money to the second firm simply because its insurance is more expensive — regardless of the reason.

All that the excise tax would do is mitigate this tax preference.

However, Employee Benefit News, a specialty publication geared toward HR professionals begs to differ. The editorial staff composed a piece on "Health Reform's Unintended Consequences" explaining what is being lost in the debate of the premium plans:

Linda Havlin, a Chicago-based worldwide partner and national practice leader for Mercer's health and benefits consulting and intellectual capital areas, cites a provision in the Senate's Patient Protection and Affordable Care Act for the purpose of determining a 40% nondeductible excise tax on group health insurance coverage deemed overly generous that defines an employee benefit as anything that is employer-sponsored, even if the employee voluntarily elects it and pays the full cost.

The challenge of complying with such a new mandate would be keeping employers within the framework of the law without having to pay a penalty. That could mean that they're forced to shed some benefit programs, with Havlin suggesting the most tempting targets could be dental and vision programs.

Another concern is if health plans have to provide an actuarial value equivalent to 60% or 70% of cost, that new minimum could become the new industry benchmark in terms of a health benefit and employer contribution. Many employers may consider reducing their plan to the new minimum, "then it's a buy-up at best or a voluntary benefit for anything beyond that," according to Havlin.


Employee Benefit News also points out:

The larger implication [of the reform bill] is that employers would have to seriously ponder the unintended consequence of what happens when employees try to buy coverage in the individual insurance market. She says estimates are that it can be anywhere from 10% to 50% higher than comparable employer-sponsored coverage. Some organizations may seek to include an increment in employee compensation for purchasing coverage, but the increase may raise many employee-relations issues about whether it's enough to purchase coverage, keep pace with health care inflation, or be the same for workers who now have individual or family coverage.


While the Democrats have been fretting over the divisions exposed in the base during the reform process, the stakes are also high for Republicans, whose adamant anti-reform stance will only work if the bill is considered a failure. The GOP is already eyeing the 2012 elections, hoping to base much of their political campaigning on repealing the bill.

Interestingly enough, the Republican's strategy may end up eroding their shrinking base even further:

The political impact of the bill could be amplified by its geographic reach. Many of the bill's long-term benefits in terms of insurance subsidies for the poor will go to states in the South where Republicans have held sway for decades.


Republicans aren't the only ones hanging hopes on the health care reform mess. Proponents of abstinence-only education hope that additional funds provided in the Senate bill for programs to reduce pregnancy will fall into their coffers. The programs are described as "facing extinction" since the Obama White House pulled the plug on their major funding sources, but most political insiders see the programs as ineffective, and will be reluctant to shovel more funds toward programs with dubious benefits.

Expect more hand wringing and saber-rattling until Congress reconvenes.

House and Senate look to final health care talks [MSNBC]
The Nation: Reid's Reform Passes; The Fight Goes On [The Nation/NPR]
Parties risk it all on health care reform [Politico]
'Cadillac' tax isn't a tax — it's a plan to finance real health reform [Washington Post]
Health reform's unintended consequences feared [Employee Benefit News]
Abstinence proponents look for aid from new health bill [Washington Post]

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I have been tracking this pretty closely. I notice the senate version does not strip the antitrust exemption, and the house version does. That still enables the insurance industry to price fix. I would hope during reconciliation that they keep that in. If Senate is as free market as they say, they should allow for competition in all 50 states.

You can compare the two bills here: []