11 August 2009

The Democratic Health Care Plan Explained

It's summer. You haven't been on vacation, but you haven't been paying attention. A major health care bill is pending and you have no clue what it says. Here's the skinny on the rough outline of the health care reform bill that is emerging. This is subject to change before the deal is final.

The Insured

If you have Medicare, Medicaid or private health insurance through your employer, right now, essentially nothing changes.

The plan will not change Medicare benefits for Medicare enrollees.

If you have employer provided health care for yourself and your dependents, with a group health insurance plan and a meaningful employer contribution for the employee nothing significant will change for you or your employer.

There may be a little more paperwork for employees who want to waive coverage for themselves or their dependents.

At big businesses and for government employees, this will typically mean no change at all.

Employers Who Don't Offer Health Insurance Or Offer Only Marginal Plans

All employers, with the possible exception of the smallest, will be required to pay or play, i.e., to offer health insurance with some amount of employer contribution, or set aside money in a tax preferred way to help employees pay for health care costs.

The employer contribution will probably be most or all of the premium cost to cover each employee in the most basic health care plan available. Employers will probably be required to offer dependent coverage at employee expense. Employees will have to show that the dependents have alternate coverage in order to elect not to cover their dependents.

There may be some changes favorable to employees in small businesses that offer only marginal health care benefits. The amount of the premium paid by the employer may go up if it currently doesn't cover the employee's premium for a basic plan. If your employer has a very bare bones plan from a third party insurer that you purchase through a Section 125 plan (e.g. out of an account set up at Wal-Mart with choices that have limited benefits compared to group health care plans), premiums will probably go up and your employer's share will probably increase.

To meet employer coverage requirements plans will have to include a minimum package of benefits.

Buying Health Insurance

People interested in buying health insurance will be able to compare prices and benefits in a standardized way at a "health insurance exchange" which will include all private health insurance plans that meet individual and employer mandate requirements.

One of the choices at the health insurance exchange will be a one or more plans from a non-profit health insurance company run either as a consumer cooperative bit like a credit union or a mutual insurance company), or as a government agency (called the "public option").

Higher premiums and exclusions from coverage based upon pre-existing conditions will be prohibited. This means that from a pricing perspective, everyone will pay the same kinds of rates and get the same kinds of products that one would in an employer based large group health insurance plan.

The moral hazard/adverse selection concern that only sick people will buy health insurance will be dealt with by requiring everyone to buy health insurance, which puts healthy people back into the pool.


Everyone will be required to get health insurance coverage.

For the poor, this means that they will be required to sign up or Medicaid (a large percentage of eligible people don't). For those age sixty-five plus, this means that they will be required to sign up for Medicare (almost everyone does already).

For employees at companies with health insurance with dependents with no other care that will mean electing dependent care from an employer. Employees could also opt out of employer provided health insurance for themselves or their dependents if they show that they have coverage from a spouse or have bought non-employer based health insurance for the people who opt out.

For employees at companies which "pay" employees in an account rather than having their own health insurance plans, the self-employed, students and retirees there will be a requirement that you and your dependents have private health insurance.

The very wealthy may be allowed to "self-insure," (i.e. certify that they can afford any reasonably necessary health care out of their own pocket rather than buying health insurance).

People Who Can't Afford Health Insurance and Taxes

Every part of the health plan so far involves trivial amounts of government spending. The big reforms will come in subsidies for buying health insurance at the health insurance exchange and increased Medicaid eligibility.

Employees who don't have health insurance now, and whose employer doesn't get health insurance, particularly in small businesses, will now receive money from their employer to help them pay for health care.

The government will also pay part of the cost of health insurance premiums for families that don't qualify for Medicaid, but have incomes under 400% of the poverty line ($88,600 for a family of four) in an amount based on income and possibly also assets. In order words, something like 60%-70% of people under age sixty-five will qualify for either health insurance premium assistance or Medicaid.

Expanded Medicaid eligibility and health insurance premium assistance will make up the lion's share of the health plan's cost. This will be on the order of $100 billion a year, probably more like $140 billion a year once the program is in full swing. These new costs will be financed with new federal taxes. One tax proposal that is being considered is a new tax bracket with a 40% or so income tax rate (instead of the current top rate of 35%) for those making $250,000 or more a year.

The part of the health insurance premium used to pay for abortion coverage, if any, in the plan an employee chooses will come from employer or employee provided premiums, not government subsidies.

The exact details of the premium assistance amounts and probably increased Medicaid eligibility lines have not be worked out in detail yet.


The plan will not involve government run health care providers. The organizational structure of hospitals, surgical centers, urgent care centers, clinics, doctor's offices and drug companies will remain unchanged. Even people who receive government assistance to pay for health care will have the option of going to health are providers who are not government employees and are not government run.

Behind the scenes Medicare will be trimming payments to hospitals and other providers (mostly through slower growth in payments), and rooting out fraud, waste and abuse more energetically.

All providers will be encouraged to computerize medical records, pay more attention to preventative care and adopt best practices for chronic disease management.

The payback that providers receive will be dramatically lower bad debt and greatly reduced quantities of charity care. Providers will no longer have to work for free on some cases and over charge paying customers to make up for the resources that they spend on free care.

Also, the total amount of health care provided will increase, as people who couldn't afford it (mostly the uninsured) went without.

Emergency rooms will probably see far less crowding as people who are currently uninsured go to doctors or urgent care centers for care that they couldn't afford before.


The plan will not involve a government subsidy for a health insurance plan run by a cooperative or the government that isn't available to private health insurance companies as well.

The plan will not end private health insurance. Private health insurance companies will be the made way that most non-elderly people pay for their health care. Private health insurance could become less common, but only if a new health insurance company set up as a non-profit cooperative or as a government agency manages to offer the same coverage and service quality as private health insurance companies with lower premiums, despite the fact that it won't receive government subsidies. The market will decide that question, not the government.

Nothing prevents people from setting up non-profit health insurance companies. They have a decent market share already. Kaiser Permanente's health insurance operations and hospitals are organized as a non-profit. So are Colorado's Rocky Mountain Health Plans health insurance company.

The plan will not put government in charge of medical decision making. These will be handled by patients, their health care providers and health insurers as it is now. Some health insurers will have to say to insureds or procedures that they would have said no to before, and they will be allowed to charge for that. Health insurance companies and providers will receive government information about treatments that have been proven not to work that they can choose to follow if they wish.


Anonymous said...

yesterday NPR was having a discussion on the provision in the plan that end of life discussions with a physician will be covered once every 5 years...that is OK, but the part that was objectionable was that the outcome (if the patient signs a directive) will be reported to the gov't, which is objectionable to many...some take it to the point of calling it euthanasia...(an overstatement for sure) it is these types of provisions that are going to bugger up ever getting anything passed.

Anonymous said...

My wife and I run a small business with 4 employees. We provide health insurance and it is killing us. Our premiums are 27% of our payroll and more than we pay in taxes. I have spent hours trying to find out what "health reform" will do to help us. The closest thing I have been able to help in the publication for small businesses put out by the Coucil of Economic Advisors. I am not impressed.

One of the central features is the exchange - where there may or may not be a "public option." However, the exchange will only be available to "certain small businesses." (P-10) Does my business qualify? Is the fact that I already am responsible and provide health insurance to my employees mean I don't get to take advantage of the exhange's lower prices? I can't tell.

The second major component for small business is nothing but a typical Democratic (read "Liberal") bandaide - a tax credit. First, I don't want a tax credit - I want lower premiums and better coverage. Although I am a single payer advocate, everything I read suggests that I will save as much with a robust public option as I get in a tax credit. And, these savings will be permanent. Moreover, a tax credit is nothing more than a subsidy for the insurance company.

We need a single payer system. I would be more than happy to pay as taxes what I pay in insurance premiums to reach this goal. Particularly, since every single payer plan I have read offers better benefits that the private plan I can afford.