Who wins, who loses in national health reform plan?

Congress is debating how to reform health care, a sector of our economy that consumes nearly 17 percent of GDP.  Much as we'd like for everyone to come out a winner, that's not possible.  Who wins and who loses under HR 3200, the plan under consideration in the U.S. House?

Winners:  People who have insurance now.

The largest group of winners includes the 74 percent of working-age Pennsylvanians who currently have private health insurance, whether through a job or via direct purchase from an insurer. How will we benefit?  HR 3200 would make health insurance easier to understand, more dependable, and less expensive.  Improvements in understanding and dependability would be achieved by bringing insurers under federal regulation, prohibiting certain anti-consumer practices insurers have long practiced, and creating annual out-of-pockets limits on how much we would have to pay for medical care.  The lowering of premium costs would be achieved by bringing millions of new premium-paying customers into the national insurance pool (thus spreading the cost more broadly) and by bringing system-wide medical costs under control.

Winners:  Employers who buy insurance for their workers now.

Most employers want to offer health coverage for their employees.  Good coverage attracts quality applicants, keeps employees healthy and productive, and lowers employee turn-over.

But medical costs are rising three times faster than inflation, driven by wasteful medical practices and the "hidden tax" of covering the cost of treating uninsured people.  A growing number of employers can not afford to keep quality coverage in place.   

By bringing medical costs under control, and by spreading the costs of the medical system more broadly, this legislation would moderate the cost of group health coverage.  Most employers will like that as it will enable them to keep affordable coverage in place for their employees.  

Winners:  The self-employed, employed and unemployed who are uninsured.

Currently 13 percent of working-age Pennsylvanians have no health coverage.  Some of them are self-employed, some are employed by others, and some are unemployed. 

Older self-employed people have a terrible time buying affordable coverage.  That's because as we grow older, most of us develop chroinic illness that require regular medical attention.  If we are part of a group of people who help share the additional risk that comes with advancing age, we can manage.  But the self-employed do not have such a group.  They live in fear they will be unable to afford coverage as the years go by.

This would change under HR 3200.  The self-employed could buy coverage at an "insurance exchange" without fear that their medical condition will be used against them.

Currently, many of the unemployed (and many employed people who earn relatively low wages) can not afford to buy health insurance because they lack the money to pay the premiums. 

This would begin to change under HR 3200.  Subsidies would be available to individuals and families with incomes below 400 percent of the federal poverty level.  These subsidies would bring the cost of health insurance within reach.  For example, a family of two earning $35,000 annually would be able to buy coverage for 7 percent of their income ($210 a month). 

Winners:  People who have very low incomes.

Currently, low-income people can not qualify for Medicaid unless they fit one of a limited number of carefully defined categories (disabled, elderly, pregnant, parent). Certain groups of people, such as able-bodied childless adults, rarely qualify for any coverage under Medicaid, even if they are indigent.

This would change under HR 3200.   Everyone with an annual income below 133 percent of the federal poverty level would qualify for health coverage at no cost.  This coverage would either be Medicaid or a private insurance plan offered on the "insurance exchange".    About 11 million Americans would gain coverage in this way.  

Losers:  Health insurance companies.

HR 3200 would prompt many new customers to buy coverage.  That would be new business for the insurance industry. Nevertheless, health insurers are not happy with the bill and are working to defeat it.

Why?  First, HR 3200 would bring new competition to the insurance market in the form of a "public plan" managed by the U.S. government.  This public plan would have much lower administrative costs than private insurance, no multi-million dollar salaries for executives, and no margin for shareholder profit.  That would make it less expensive.  While only small businesses and the uninsured could purchase this public plan during the first few years of operation (and only 3-4 percent of Americans are expected to purchase this option), the availability of an insurance plan focused on reducing costs would create new market dynamics that would force insurers to tighten their belts. 

That's not something they want to do.  But it's what America needs if we are to moderate medical cost increases. Indeed, according to the Congressional Budget Office, adopting the public plan option as part of health reform would save $150 billion over ten years.

Second, the new regulatory standards established by HR 3200 would take away the power of insurers to maximize profit at the expense of their customers.  Only 15 percent of premium dollars could be retained by insurers to cover their costs and profits; the rest would be paid out on claims or returned to consumers.    Discrimination aginst people with pre-existing illnesses would be prohibited, as would the rescission of coverage when a customer asserts a claim.

Losers:  Employers who don't offer health coverage.

HR 3200 contains a "pay or play" requirement that would be hard on employers that do not offer health coverage to their employees.  They would be required to either buy acceptable coverage or pay to the federal government an 8 percent tax on payroll.

Without doubt, this would be burdensome for affected employers.  Their personnel-related costs would increase by at least 8 percent (more if they chose to buy coverage for their employees).  This would cut into profitablity, reduce future wage increases for employees, and even cause some employers to lay-off employees.

HR 3200 would soften the impact of these changes on small employers who employ fewer than 25 employees.  A tax credit would be available to those that purchase health coverage for their employees; this credit would begin at 50 percent for employers of 10 or fewer workers and then gradually decrease for employers of 11-25 employees.  Also, the 8 percent tax penalty would be reduced or eliminated for employers that have annual payrolls of less than $400,000.

Employers would have four years to get ready for these changes, which would not be implemented until 2013.

The underlying principle is for job-related health coverage to be the norm in all places of employment, just as workers' compensation is now.  There is a cost for such norms, of course.  But there is an even higher cost - hidden but ultimately more damaging -- when we fail to set such standards.

Losers:  Individuals who don't buy health insurance.

To maximize participation in the insurance system, all employers would be required to participate.  So would all individuals.  So if health insurance were not available at work, individuals would be expected to buy if for themselves at an insurance exchange. 

The cost of that coverage would be subsidized for individuals and families with incomes below 400 percent of the federal poverty level.  But everyone with incomes above 200 percent of the federal poverty level would be expected to pay a portion of the premium from their own funds.

Those who refused would be subject to a new income tax at the rate of 2.5 percent of their modified adjusted gross income. 

Losers:  Individuals with incomes over $280,000 and couples with incomes over $350,000

These taxpayers, which account for 1.5 percent of Americans, would pay a surtax on their incomes under HR 3200. This surtax would be 1 percent of the income above the minimum and then rise to up to 5.4 percent on the income over $1 million annually. 

This new surtax would raise $500 billion over 10 years, which is about one-half of the cost of the reform proposed by HR 3200. 

The other half of the cost of HR 3200 would come from savings that result from reforms in the bill.  These savings include lower uncompensated care costs, fewer emergency room and hospital admissions, less waste, reimbursement rates to doctors and hospitals that are focused on keeping insurance costs reasonable, and outcome-based payments to hospitals and doctors in place of the expensive fee-for-service system we have now.