The President’s proposal represents the last hope, perhaps for years to come, to enact comprehensive reforms that extend coverage to over 30 million uninsured Americans, provide important consumer protections to tens of millions of insured Americans whose coverage may have critical gaps, and begin to slow the growth of health care costs.

If enacted, this legislation would represent a historic accomplishment. Not only would it produce the greatest gains in health coverage in over 40 years, but it would also represent one of the few times in modern U.S. history that Congress enacted large-scale legislation that improved the lives of tens of millions of low- and middle-income Americans while reducing the deficit.

This opportunity may not come again in the lifetimes of many of the people who read this statement.

The President’s plan makes a number of notable improvements in the Senate health care bill:

It makes insurance more affordable than under the Senate bill for families and individuals with incomes between 133 percent and 400 percent of the poverty line — that is, those between $29,000 and $88,000 for a family of four. Most people with incomes below 133 percent of the poverty line would qualify for Medicaid, which does not charge premiums and requires only modest co-payments.

It extends important consumer protections to existing employer-based and individual market plans — for instance, giving enrollees the option of keeping their adult children covered under their policy until the children reach age 26, prohibiting annual and lifetime benefit limits, and, by 2018, requiring coverage of preventive services without co-payment charges.

It completely closes the gap in Medicare prescription drug coverage (the “doughnut hole”) over the next decade.

It fixes shortcomings in the Senate bill’s excise tax on costly insurance plans by adjusting the excise-tax threshold upward by the full amount that a health plan has higher costs because its enrollees are older than average or are disproportionately women. Due to this and other adjustments, the excise tax would target only very generous or inefficient plans; the vast majority of plans would not face any tax. Moreover, the excise tax’s beneficial effects in helping to slow health cost growth over the long term would remain.

It offsets the loss in revenue (relative to the Senate bill) from these excise tax changes by broadening the base of the Medicare tax — that is, by applying the tax to capital gains, dividend, and other investment income received by people with incomes of over $250,000 a year. This raises substantial revenue while affecting only about the top 2 percent of Americans.

This change would make Medicare fairer by ending an aspect of current law that enables many of the wealthiest Americans to escape paying the Medicare tax on much of their income even as lower- and middle-income people pay the tax on virtually all of their income. It also should modestly reduce unproductive tax sheltering schemes by slightly narrowing the differential between the tax rates on ordinary income and on capital gains income.

It increases federal financial support for state Medicaid programs and makes that support more equitable across the states.

<![endif]>It strengthens oversight of insurance companies, makes the “playing field” more level between firms that offer insurance and those that don’t, contains stronger mechanisms to reduce Medicare overpayments to insurance companies, adds new policies to fight fraud, waste, and abuse in both Medicare and Medicaid, and closes several egregious corporate tax loopholes.

"All in all, the proposal represents a marked improvement over the Senate bill. (If the White House and Congress can further strengthen the measure’s affordability provisions — without causing the package to unravel — that would make the measure even better.)

"Most important, while the proposal is certainly not perfect, it represents a dramatic improvement over the current health care system. There is an enormous chasm between this plan and the status quo, under which the ranks of the uninsured will continue to grow and health care costs will continue to rise inexorably.

"More than 50 years ago, Senator John F. Kennedy wrote Profiles in Courage, which described the courageous actions of eight senators across American history. Unless Thursday’s summit produces an unexpected bipartisan breakthrough, senators and House members will face their own tests of courage in the weeks ahead — whether they will muster the courage to enact this proposal into law. For most members of Congress, this will likely be one of the most important votes of their careers. They may never have another opportunity to help current and future generations of Americans, and to benefit the nation as a whole, to the same degree as they will do if they pass this historic measure."

The bills now before Congress would sew the seeds of change vital to any system that would be effective in controlling health care costs. Most of the prominent proposals for comprehensive reform from Republicans and Democrats alike include: 1) near universal coverage; and 2) the creation of “Exchanges” to expand choice and competition. For example, both the Republican Coburn bill and the bipartisan Wyden-Bennett bill would establish exchanges and achieve near universal coverage.

Many of the health reform proposals we have seen over the past 20 years would include additional steps to increase incentives for consumers to seek-out lower-cost plans, and change provider incentives to reward efficiency. While the bills now before Congress would start the process of changing provider incentives in Medicare, their impact on private health insurance coverage is expected to be minimal, at least in the early years.

However, these systemic reforms could be added in the future. It may be wise to view health reform as a process that will unfold over a number of years. Congress could pass a bill that provides the two essential ingredients to most comprehensive reform proposals, including the exchanges and near universal coverage. Congress could create changes in consumer incentives through tax policy and expanded competition in the future.

President Obama is to be commended for his continued commitment to passing health care reform legislation. By releasing his health care reform proposal and convening the February 25 bipartisan summit at the White House, the President has taken critical steps in moving toward the goals of increasing coverage and improving the delivery of health care services.

The AAMC looks forward to learning more about the president’s plan as well as any proposals that may evolve during discussions at this week’s summit. We also look forward to identifying opportunities where the nation’s medical schools, teaching hospitals and health systems can assist the President and Congress in their efforts to pass meaningful health care reform legislation.

The President released his proposal for health care reform today in advance of what he has been calling a bi-partisan summit to be held on February 25. Before releasing his $950 billion over 10 year plan to bring about affordable, accessible, quality care for all Americans, he should have taken a leaf out of that great American "forecaster " Yogi Berra's playbook. Yogi in a famous remark quipped "if you don't know where you are going, you are bound to end up some place else."

After more than a year of debate and discussion, it is clear to me that Obama did not have a vision of how he was going to achieve the goals stated above. As a result, his proposal which was developed out of the Senate and House bills with most ideas coming out of the Senate bill, relies on increasing the role of government in our health care system through increased taxes, mandates, subsidies, and controls on the insurance industry.

A new component is the establishment of a new federal "Health Insurance Risk Authority " under the Department of HHS would have the power to review insurance company rate hikes at the state level. This agency would put more regulations on insurers like Wellpoint, Aetna, and United Health and greatly interfere with their ability to run their businesses and to make a profit which is necessary to remain in business. I even wonder if such a move would be constitutional?

The expanded exemption for the tax on the "Cadillac" plans up to $10,200 for individual plans and $27,500 for family plans beginning in 2018 is another attempt to placete union members. It is not clear either whether those covered under collective bargaining agreements would be exempt forever.

All of the President's ideas from the individual mandate to increasing federal funds to the states for expanding Medicaid, from the increased subsidies for lower income Americans, to controls on insurance companies (no discriminating based on pre-existing conditions, no lifetime or annual caps, and enabling children to stay on their parents' plans till age 26) will mean that the cost of his health care plan will most likely be in excess of $2 trillion over 10 years. And the CBO has said that they will not be able to score the plan prior to the Summit this week. Americans will face increased taxes, higher deficits, and rationed care. If passed through budget reconciliation, the U.S. will be on its way to a Canadian-style, single payer health care system where government makes our health care decisions.

The much-awaited health-care reform plan the White House released this morning is little more than an amalgamation of the taxing, spending, mandating, and regulating policies of the bills that passed the House and Senate last year.

Instead of offering a genuinely fresh approach, Mr. Obama split the difference between two bad bills that are hugely unpopular with the American people. He would continue to mandate that both individuals and employers pay for health insurance or face fines and penalties. He would expand Medicaid, the most dysfunctional health program in the country. And he would increase fees on insurers and other health companies — fees that will be passed along to consumers in the form of higher premiums.

The big new idea in the president’s plan is to federalize regulation of health insurance, creating a Health Insurance Rate Authority to conduct “reviews of unreasonable rate increases and other unfair practices of insurance plans.” This reflects the overall strategy to give more and more control over the health sector to Washington.

Mr. Obama clearly is not trying to bridge the divide between Republicans and Democrats as a starting point for a dialogue at the summit on Thursday. A separate document listing Republican ideas he would include focuses almost exclusively on policies to crack down on waste, fraud, and abuse — good ideas, but not enough.

In fact, the Obama plan snubs the GOP by calling for increased taxes on companies inside and outside the health sector, and for slapping a payroll tax on the non-wage interest and dividend income of wealthier Americans. These higher taxes will drive up the cost of health insurance, depress innovation, and delay the economic recovery.

The way the president has dealt with the Cornhusker Kickback, the Louisiana Purchase, and the labor-union exemption is to basically extend the sweetheart deals to others. All states get more favored treatment for expanding Medicaid, and the threshold for taxing high-cost health plans is raised, while the tax will not take effect until 2018.

The proposal that the president has outlined will cost even more than the Senate bill. It will lead to exploding costs that will surely top the Senate bill’s $2.5 trillion over 10 years. Health spending will continue to rise, premium costs will increase, at least 24 million people will remain uninsured, and the system of subsidies to individuals and businesses will continue to allow politicians to pick winners and losers. Moreover, because the president’s plan is built upon the Senate bill, it would include cuts to Medicare that will jeopardize care for seniors.

The Obama plan is not an improvement, and it offers Republicans little upon which to build a conversation that could lead to genuine compromise at Thursday’s summit.

This Thursday, Congress has an opportunity to break the gridlock that has denied American families the health insurance reform they are so desperately calling for and need.

Our elected representatives need look no further than their own communities to see people hurting. All around this country, we are watching the health insurance industry jack up its premiums. We hear every day about another colleague, another friend, another family member losing their health care coverage. And because our system is broken, we are even losing loved ones.

We are losing people like Melanie Shouse, a health care activist who passed away from breast cancer and at the time was still fighting with her insurance company that refused to cover her chemotherapy.

Health insurance reform was the cause of Melanie's life, and now hundreds of citizens inspired by her bravery and courage are marching her message forward. For the past week, women and men from all walks of life have braved the cold to march from Philadelphia to Washington DC to make sure Congress finishes the job.

The President recognized with his proposal today that people like Melanie should not have to lose their life because of an insurance company refuses treatment. That insurance companies cannot be allowed to gouge Americans with rate increases that force them to pay up to 39% more for the exact same coverage. And that working families deserve health insurance that covers more and costs less.

With the President’s leadership and thoughtful consideration that the only way forward is with comprehensive reform, there is a guarantee that reform can and will be meaningful. And, it is because of that commitment and that of Majority Leader Reid and Speaker Pelosi, that every American will soon have a renewed sense of security and a healthcare system that works for them.

This Wednesday, I will be in Washington DC standing with Melanie’s marchers and hundreds of others to remind Congress there is but one choice: pass comprehensive health insurance reform. After more than a year of debate and more than a century of talk but little action, there is no doubt, the time is now.

Our health care system and the consumers who depend on it are facing an unprecedented crisis of rising costs, resulting in reduced access to both quality health care and affordable health insurance. We cannot ignore the causes of the rising cost of care by blaming health insurance profit margins.

For every dollar consumers pay in health insurance premiums, only an average of three cents goes towards industry profits. Much larger portions go towards hospital administration, government compliances, medical liability costs and defensive medicine. In fact, every state requires health plans to justify their rate increases. Premiums need to be determined by market segment in order to ensure an actuarially sound rate. And, as younger and healthier individuals leave the market, the rates for those who remain insured increase.

America needs sensible solutions that rein in health care costs, provide better access to care, improve quality, create better efficiency, and put our health care system on an affordable and sustainable path. Competitive market forces will have the greatest positive impact on the cost of health care. Our private health insurance market is innovative, flexible and efficient, and, most important, up to the task of responding to well-structured reforms.

Hoping to revive his increasingly unpopular health care overhaul, President Obama announced that a key feature of his "new" reform blueprint will be premium caps, a form of government price control that helped kill the Clinton health plan when even New Democrats rejected it.

The New York Times reports: "The president’s bill would grant the federal health and human services secretary new authority to review, and to block, premium increases by private insurers, potentially superseding state insurance regulators."

It bears repeating what Obama’s top economic advisor Larry Summers thinks about price controls: "Price and exchange controls inevitably create harmful economic distortions. Both the distortions and the economic damage get worse with time."

For example, as I have written elsewhere, artificially limiting premium growth allows the government to curtail spending while leaving the dirty work of withholding medical care to private insurers: “Premium caps, which Massachusetts governor Deval Patrick is currently threatening to impose, force private insurers to manage care more tightly — i.e., to deny coverage for more services.” No doubt the Obama administration would lay the blame for coverage denials on private insurers and claim that such denials demonstrate the need for a so-called “public option.”

As the Progressive Policy Institute’s David Kendall explained in a 1994 paper, the Clinton health plan contained similar price controls. Kendall explains why they would be a disaster: "Ultimately, government price regulation will always fail because it does not change the underlying economic forces driving up prices. If we are serious about slowing the growth of health care costs, we have to change the ways we consume and provide medical care. Price controls evade the hard but essential work of structural reform in health care markets: They are a quintessentially political response to an economic problem." It’s worth reading the whole thing.

This is not hope. This is not change. (Much less a game-changer.) It is, to pinch a phrase, a return to “the failed theories that helped lead us into this crisis.”

Cross-posted at Cato@Liberty.

Rather than engage in a debate on whether this increase is justified, I want to point out two major “takeaways” from this controversy. First, it is clear that a key element in the Administration’s strategy to rescue comprehensive reform is to attack insurers so fiercely that the public comes to believe that their health insurance is not safe without the federal regulation that comes with comprehensive reform. I wonder if the end game has been thought through, since with a meaningful public option not likely, these private insurers will be depended on to implement the reform effectively.

The second takeaway is the instability of individual health insurance markets. If Wellpoint’s actuarial analysis is correct--that the severe recession has damaged the risk pool for individual coverage through adverse selection--it shows how critical it would be under reform to have strong enforcement of individual mandates (along with large enough subsidies to individuals to make such enforcement politically feasible). With weak mandates, we risk selection spirals that would undermine the individual markets that many more will be depending on and which large amounts of public funds will be going into.

It is important to put into context how insurance premium regulation works today. First, every state requires plans to submit justification for their rates. Plans must provide backup data to show their rates are actuarially sound and these rates are certified by an independent actuary. Second, states have solvency requirements to ensure health plans are financially sound and able to provide benefits to policyholders. If plans are not able to remain solvent, the coverage that individuals, families and employers rely on would be put at risk.

Much of the past week has not been focused on the real reasons for rate increases in the individual market: a weaker economy causing younger, healthier individuals to forego purchasing insurance and underlying medical cost increases.

As more and more healthy people forego health insurance, the rates for those Americans who need coverage increases. This results in more and more healthy people exiting the insurance market which causes rates to increase even more. This "adverse selection death spiral" has been exacerbated by a weak economy.

According to the Department of Health and Human Services’ National Health Expenditure Account data, the growth in health care costs in 2009 was driven by increased spending on medical services. In fact, the growth in hospital spending went from 4.5 percent in 2008 to 5.9 percent in 2009; spending on physician and clinical services grew at 5.0 percent in 2008 but increased to 6.3 percent in 2009; and the growth in prescription drug spending went from 3.2 percent in 2008 to 5.2 percent in 2009.

These facts are an important part of the health care reform discussion and should be considered by policymakers as they enter into the next stage of this debate.

Health plans have advocated for comprehensive reform of insurance market rules and new consumer protections. But as health policy experts and economists have pointed out, these reforms cannot meet the goals of improving access and making coverage more affordable unless there is a strong personal coverage requirement and a real long-term strategy to control the growth in underlying medical costs.

A debate that continues the politics of vilification will fall far short of solving the health care challenges confronting the country. The American people are ready for policymakers to tackle health care reform in a bipartisan way to expand access, improve health care quality, and bring down costs. That is the debate Americans need and deserve.

Health insurance premium price increases have been featured in the news recently. In general, premiums are set at a level that will cover the expected payouts for a group or class of insured people plus profit. To provide a context for understanding these increases, this document identifies the factors that insurance companies consider when setting rates for the next year.

Factors Considered in All Years

• “Normal” trend: This refers to increases in the allowed charges of goods (e.g., prescription drugs) and services (e.g., hospital stays, physician visits) covered by the policy, increases in utilization, and changes in the intensity of service use and is generally the largest component (8-9%).

• Deductible leveraging: This is an additional factor in the base cost trend that reflects increases related to paid charges after accounting for deductibles and copayments. This factor can be 3-5% on top of normal trend.

• Profit margin: Over the last decade, profit margins have averaged about 5%; in 2008 profit margins were just above 2%.

Factors Occuring Last Year

• Underpricing or base adjustment: If premiums in the prior year have failed to cover costs, some companies may make an adjustment to the subsequent year pricing. This adjustment may either attempt to recover losses from the prior year or serve as an adjustment to the base amount.

• Changes in the composition of the insured population: With the economic downturn, there were likely two changes in the composition of insured populations. First, the insured population was likely older which would occur if younger people were more likely to drop coverage. An increase of 3 years in the average age of an insured group (e.g., from 37 years old to 40 years old) would increase the average cost of coverage by about 1.5%. Second, the insured population was likely in worse health because those retaining insurance in a downturn are likely to have a higher need for coverage.

Distribution of Increases

• Insurance companies offer a variety of types of products (HMO, PPO) in different markets (large group, small group, individual) and the distribution of price increases across these products and markets may vary. Larger increases are more likely in the high actuarial value, low deductible plans whereas smaller increases are more likely in the low actuarial value, high deductible plans.