John Sheils

Many of the candidates say they will repeal the “bad parts” of the health reform law. The mandate is high on the list to repeal, while things like guaranteed issue, eliminating pre-existing condition exclusions and the prohibition on health status rating appear to be “good” things many would keep.

But repealing the mandate while retaining the prohibition on pre-existing condition exclusions would mean that people could wait till they become ill to purchase coverage and then drop that coverage after recovery, with no penalty. Premiums would jump by 25 percent or more.

An alternative would be to permit insurers to impose pre-existing condition limits for those who have not maintained coverage for at least a year (eg. HIPPA rules). But this is a retreat from eliminating the prohibition on pre existing conditions limitations in the health reform law, which appears to be quite popular. Another approach would be to limit guaranteed issue for uninsured people to an annual an annual open enrollment period of one month per year, but that is a retre

The CMS Actuaries explain that productivity gains for services such as health care tend to be much smaller than is assumed in the productivity adjustments adopted by Congress. But the authors conclude that these cuts are “unsustainable” without accounting for the huge increase in revenues providers will see from reduced uncompensated care and increased utilization of services for newly insured people.

In fact, the CMS Actuaries reported that national health spending actually goes up under the PPACA, despite these payment reductions. So how are these payment cuts unsustainable if the Act actually increases total system payments to providers?

We have estimated that over the 2010 through 2019 period, hospital net income will fall by only about 1.7 percent ($11.3 billion), despite the Medicare cuts. Over the same period, physician net income will actually increase by $76 billion, which will partly offset payment reductions of $228 billion

Covering 30 million or more people with no more than a one percent increase in national health spending is actually quite impressive when you consider that this is an 11 percent increase in the number of people with insurance. But the Act will not significantly slow the rate of growth in health spending.

For example, David Cutler predicts $600 billion in savings to consumers and governments under the act over the next 10 years (Wall Street Journal, March 9, 2010). He argues that the act promotes savings in several ways including: an excise tax on high-cost health plans; increased competition from “exchanges;” a new Medicare advisory board to fast track refinements in payment systems; and other features. However, the Cutler estimates do not include an offset for the increase in utilization of health services for newly insured people, which could be up to $40 billion per year.

Even if the net savings do turn out to be $600 billion, this represents only a 1.5 percent reduction in health spending over 10 y

Currently, it is possible for someone to contract a long illness, lose their job, exhaust COBRA and be unable to find insurance. This is the uniquely American nightmare that reform is designed to eliminate. Temporary high-risk pools are included in the legislation as a stop-gap measure for people who can’t get coverage until reform is fully implemented in 2014. These plans must be in operation within 90 days of enactment.

Implementation of this program is greatly simplified by the fact that about 32 states now have high-risk pools, although many applicants are turned away due to a lack of funding. Where available, the state high-risk pool typically covers people in the individual market with pre-existing conditions who have been declined for coverage by an insurer. Typically, insurers in these states will refer applicants to the high-risk pool if they have one or more of 30 to 50 specified health conditions. About 200,000 people nationwide are covered in these pools.

Participants pay a premium equal to between 150 percent and 200

Are the cuts in Medicare provider payments sustainable? They may be because they are implemented together with a major expansion in coverage that will generate new revenues for providers.

For example, we have estimated that hospital revenues under the health reform bill would increase by $35 billion over the 2010 through 2019 period, despite the cuts in Medicare and Medicaid payments ($169.4 billion). These cuts would be more than offset by an increase in utilization of health services for newly insured people ($108 billion), and reduced uncompensated care ($96 billion). (Care now provided free to the uninsured will become reimbursed as these people become covered).

Thus, hospital revenues increase by $35 billion over 10 years. Once we figure in the cost of providing additional services for the newly insured, hospital net income would decline by $52 billion over that period (reflects lower payment to cost ratio for people who become covered under Medicaid). This is a reduction in hospital margin of about 7.8 percent over 10 years.

Physicians do qu

To many Americans, health reform is more about preserving the status quo than it is about change. Surveys show that most of the 85 percent of Americans who have insurance like their coverage and want to keep it. Advocates have promised the bill will protect the coverage Americans now have by slowing cost growth. But cost control appears to have taken a back seat to expanding coverage for the 15 percent of Americans who do not have insurance.

Proponents of the bill often point out that many Americans will see their premiums go down under the bill. This is true, but mainly because the bill provides new subsidies for the purchase of coverage. Little of these premium reductions can be attributed to actual reductions in the cost of services or increased efficiency. And as we all know, premiums will go up for younger and healthier people who now must pay a community rated premium.

To be fair, much of the 2,700 page bill is devoted to changes that increase the emphasis on prevention and quality. David Cutler, a Harvard professor and advisor to president Obama, predicts $

The key health reform issue for Americans relates to medical underwriting and guaranteed issue. In this country, it is possible for someone who has dutifully maintained their insurance coverage for 30 years to contract a lengthy illness, lose their job, exhaust COBRA and find themselves unable to obtain affordable coverage. People want to be insured against this “nightmare” scenario, which could happen to any one of us.

Several states have simply required insurers to guarantee issue of coverage. As we’ve seen, this resulted in increased premiums by including higher-cost people, causing others to discontinue their coverage. Expanding existing high-risk pools could help, but the premiums can be greater than COBRA coverage, which we know is already too high for most of the uninsured.

Universal coverage is the only option on the table right now that can protect against the nightmare scenario. Requiring everyone to have coverage adds 20 million people to the individual market (14 million currently), which spreads risk across a broad risk p

Most participants appeared to agree on the need for insurance reform. Many Americans fear that they could contract a long expensive illness and ultimately be unable to find coverage once their employer coverage terminates. The public also wants to know that plans will not rescind coverage once they become ill and that the plan will pay for necessary treatments. Addressing these fears may be more important to voters than covering the uninsured.

While many participants agreed on these points, they differ widely on how to achieve them. The Democrats require all Americans to have health insurance, which broadens the risk pool enough that the government can require guaranteed issue of insurance without driving up premiums for those who are already purchasing coverage. But, it requires a mandate and $850 billion to help those who can not afford it.

The Republican high-risk pool proposal would assure coverage is available to people who are denied coverage due to health status. The premium in the pool would be about 50 percent greater than what an average individual woul

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 ye

We should consider a less ambitious health reform plan that we can fall back on if Congress fails to enact major expansions in health coverage. This fall back bill would not include coverage expansions through Medicaid and the premium subsidy programs, and there would be no mandate for individuals and employers to purchase insurance. With no expansions in subsidized coverage, there is no need for excise taxes, a surtax on high income people or potentially unsustainable cuts in Medicare and Medicaid funding.

Instead, the bill could focus on: 1) direct services programs to address the health care needs of the uninsured; 2) insurance reform in the individual market; and 3) several delivery system reforms for Medicare that are already in the existing health reform bills.

Some of the most creative proposals to address the needs of the uninsured appeared in the Senate Finance Committee “white paper” on reform options from December of 2008. The program would provide access to primary care services by increasing funding for free clinics. It would also establi

The employer mandate is a requirement that workers take a greater share of their compensation in the form of health benefits and less in wages. This is supported by economic theory and research, and is assumed by CBO in their estimates for the recent health reform bills. It is also well understood by unions, who have long attributed slowed wage growth to the rapid increase in health care costs. For example, say we have a firm with one employer that is paid $15,000 per year, and that the employer can sell what this individual makes for $15,000, plus a little profit. This relationship is sustainable because the employer can cover his/her labor costs with revenues form the goods or services sold. Now, lets assume that a mandate is adopted that adds $2,500 in insurance costs for the worker, bringing total compensation to $17,500. If the employer can increase what they charge to $17,500, a sustainable equilibrium can be restored without reducing wages. However, this assumes no reduction in the volume of goods and services sold in response to the price increase. Most of the u

One of the issues with the Cadillac tax is that it would apply to more than just Cadillac plans. The tax applies to any plan with premiums over $8,500 for single coverage and $23,000 for families regardless of the actual level of coverage (with adjustments for older beneficiaries and people in high-risk occupations). Therefore the tax applies equally to people with very comprehensive plans and people with less comprehensive coverage facing higher premiums due to age, utilization patterns and other factors.

The reach of the tax will grow over time. In a recent study, we estimated that if implemented in 2014, it would affect about 30.9 million people. This would grow to 49.8 million people in 2019 and 90.6 million people by 2029. This is because the thresholds are indexed to the CPI plus one percent while health care costs would continue to grow at a bout twice that rate. Thus more and more people are in plans that would pay more and more of the tax over time.

Thus, what begins as a “Cadillac” tax in 2014 becomes a “Buick” tax by 2019 an