Why This Senate Health Bill Should Not Pass

Promoted. Originally posted 2009-12-20 13:00:45 -0500 by CTMan on behalf of Slinkerwink. -- GH

Crossposted with permission and written by slinkerwink

There's currently a diary on the recommended list making arguments in favor of the Senate health bill which was recently amended to include the Nelson amendment which places severe restrictions on women's reproductive rights, and that diary does not include that Nelson amendment as a part of its argument in why the Senate bill should pass.

It also makes false assumptions about the bill which I'll rebut in several points below the jump. The first huge glaring assumption is that the bill is 'good' enough to pass. It's not at this point with regards to the weak regulations, the subsidies, the mandate and the lack of a public option to compete against private insurers which
currently are not subject to anti-trust laws.

Here's the first assumption:

A mandate is a bailout of the insurance companies! You're funneling public money to private corporations!

So is Medicare a bailout of the private hospital industry? Are food stamps a bailout of the private food industry? Is heating assistance a bailout of energy companies? Should we require that all publicly-funded financial assistance be spent only on publicly-owned enterprises?

This is a false argument. Medicare is in no way a bailout of the private hospital industry--it is its own social program which provides a public safety net to elderly Americans who do not have the income for private insurance programs due to their age and health problems. Food stamps are not a bailout of the private food industry. They are a public safety net for children and low-income families who don't make enough due to stagnant wages in this country to put food on the table. And publicly-funded financial assistance such as heating bills, electricity payments, and section 8 housing are a social contract between the government and its people. By funneling subsidies straight to private insurance companies without a public option or the Medicare buy-in means it further enriches and entrenches the political power of private insurers in their influence of elected officials at the state and federal level. The difference is that our tax money currently supports social programs such as Social Security and Medicare which ensures their longevity and stability as a public safety net for elderly Americans.

A mandate which funnels subsidies (i.e. your taxpayer money) in addition to premiums (your share of the cost) to private insurance companies is not a "good" policy idea. The reason why it's not a good policy idea is because there is no comparable public program (such as Medicare, food stamps, and the like) in the Senate bill to establish a social contract between the government and its people. For instance, when you pay taxes, you know that it goes to social programs and to the defense budget as well. When you're being mandated to buy private insurance, you know your money goes three times to both private insurance companies in the form of a premium, the subsidy, AND the
excise tax as well if you happen to have a good insurance plan that would fall within its range.

The problem isn't the assistance, per se; it's that the government shouldn't fine me for refusing to pay for private insurance, especially because I can't afford it!

It you earn less than 133% of the federal poverty level (Senate bill) or 150% of the federal poverty level (House bill), then you'll get covered by Medicaid. If you fall just above that, and earn up to 300% of poverty level (Senate bill) or 400% of poverty level (House bill), you'll receive subsidies. If you earn more than that and aren't eligible for subsidies, you may fall within a hardship exemption in which case you'll have to pay neither for insurance nor a penalty tax. Nate has a good graphical depiction of how a low-income family's
premiums would fare under the Senate bill.

But if you do earn enough to pay for health insurance and you still choose not to, fine. You don't have to. But then you'll be relying on publicly-funded emergency rooms and free clinics if you need serious care and it's more than appropriate that you pay a small tax - less than the cost of an insurance premium - that ultimately helps support those institutions.

Um, isn't this a conservative argument about emergency rooms being available to you if you need care? I seem to recall that from somewhere. As for the subsidies, they are not comprehensive enough, and they would've been more generous under the Senate HELP bill's original proposal, which unfortunately was pared back due to the conservative
Senate Democrats. Even with subsidies, many Americans would not find it easy to pay for private insurance with premiums as they may not be able to utilize the "care" due to deductibles and co-pays which disincentives them from actually utilizing it. Also, private insurers would still be able to deny your claims, so what doesn't fall under
covered services in the Senate bill, would be denied and you'd have to spend time fighting private insurers, and appealing that to an independent board [as established in the manager's amendment] . That would take time and resources that many Americans simply don't have. Some of them have life-threatening conditions, such as an American like Natalie Sarkisyian, whose parents spent time fighting their private insurers in court, and their private insurer just ran out the clock until Natalie died. Even state regulators have trouble appealing decisions by private insurers and going after them as David Dayden reports here:

I just want to offer into this debate an example of how the lack of a police force for these regulations should distress anyone who thinks they are somehow bulletproof.

The California Department of Managed Care has been going after rescissions in California for several years. They have put together lawsuits, distributed fines, et al. In one case, they fined Blue Cross of California $1 million dollars for rescinding patients. Blue Cross
just didn’t pay it. And the Department of Managed Care decided not to sue them over it, BECAUSE THEY KNEW THEY WOULD BE OUTGUNNED IN COURT.

California regulators admitted Thursday that for more than a year they didn’t even try to enforce a million-dollar fine against health insurer Anthem Blue Cross because it feared they would be outgunned in court.

In early 2007, the Department of Managed Health Care pledged to fine the state’s largest insurer for “routinely rescinding health insurance policies in violation of state law.” But they never did.

The department’s director, Cindy Ehnes, told The Associated Press on Thursday that, when it comes to rescissions, the agency has had success in forcing smaller insurers to reinstate illegally canceled policies and pay fines, but Blue Cross is too powerful to take on.

“In each and every one of those rescissions, (Blue Cross has) the right to contest each, and that could tie us up in court forever,” Ehnes said of the approximately 1,770 Blue Cross rescissions between Jan. 1, 2004, and now.

“They have the largest number of rescissions, so as a practical matter for the department it does present some practical challenges that are different from a Health Net (of California) or a PacifiCare,” referring to providers who, along with Kaiser Permanente, have made settlements with the state to reinstate health care coverage.

The bigger the company, with the more rescissions, the less likely it is for regulations to be effective.

Incidentally, when the Department of Managed Care finally did take one of these rescission cases to court, in May of this year, they lost it. And they lost it because the plaintiffs made an agreed settlement with the insurance company, rather than prolong a trial they may have lost. In that settlement they basically stipulated that Blue Shield, the insurer in this case, was correct to rescind their policy.

In all, the couple made 11 stipulations that represent an abrupt reversal in the position that they had maintained since Blue Shield rescinded their coverage after a 2001 car accident that led to many
medical bills.

Now, keep in mind with all of this that California’s Dept. of Managed Care is the biggest entity enforcing insurance regulation in the entire country, both before and after this bill. They oversee 21 million enrollees in the state. They haven’t lost every attempt to regulate the industry – but they haven’t won all of them, either. And
meanwhile illegal rescissions still occur routinely in the state of California.

And as for the negotiated rates public option that the diarist mentions:

Insurance companies are vile for a host of reasons. That's why I want to pass this bill - to ban abusive practices and regulate them. But it's not true to say that health insurance is especially profitable. Yes, in the aggregate, insurance companies earn large profits, but per policyholder, their profit margins are actually quite thin

This is why the negotiated-rates public option would not have offered premiums that were much lower than the private plans in the exchange. If the only thing keeping insurance premiums high were insurance profits, then a non-profit plan should have realized enormous savings. It didn't. And that shows that many people have a fundamental
misunderstanding of what drives health care costs and why single-payer is so cost-effective.

Here's why the negotiated-rates public option would not have offered lower premiums---it's
because the CBO concluded that private insurers would still game the system by shunting off people off onto the public option.
The public option would have been required to take all comers as a honest player in the system, and that's why its premiums would have been high.
However, even in its negotiated rates state, the presence of the public option STILL had the effect of lowering private insurance premiums.

Per the CBO:

That estimate of enrollment reflects CBO’s assessment that a public plan paying negotiated rates would attract a broad network of providers but would typically have premiums that are somewhat higher than the average premiums for the private plans in the exchanges. The rates the public plan pays to providers would, on average, probably be comparable to the rates paid by private insurers participating in the exchanges. The public plan would have lower administrative costs than those private plans but would probably engage in less management of utilization by its enrollees and attract a less healthy pool of enrollees. (The effects of that “adverse selection” on the public plan’s premiums would be only partially offset by the “risk adjustment” procedures that would apply to all plans operating in the exchanges.)

What the CBO is saying that the public option would likely cover a pool of sicker patients is because the patient pool will likely be comprised of people who have gone too long without insurance, thus having hidden medical problems, and people who are just plain tired of
being jerked about by private insurance companies. Basically, the CBO is also saying that private insurers will continue to cherry-pick by selecting healthier people and having lower premiums as a result. The public option would be required to accept all comers, which means sick
people would be one reason why the public option would have higher premiums based on negotiated rates since the public option isn't concerned with the profit margin and the need to deny claims as private
insurers are.

And for this point raised by the diarist:

The exchanges already address the issue of concentrated markets. Multiple plans, from multiple insurers, will be offered within them. Unlike today, there will be a functioning market, so if any one insurance decides to jack up their rates, other plans can compete by
offering lower ones.

Additionally, the exchanges enforce a high medical-loss ratio of 80-85% and the administrators of the exchange can remove a plan that violates that.

The current medical loss ratio is about 86% and private insurers still make quite a handsome profit from that, and they still jack up their rates. It depends on whether the administrators of an state-based exchange would remove a plan that jacks up their rates. It depends on who they are, who they'd be appointed by, and we'd have to keep an eye on that to make sure the administrators of the state-based exchanges aren't the kind of people who would be sympathetic to private insurers, like many state insurance commissioners are, such as Senator Ben Nelson (who was a former insurance commissioner and insurance company

As for the health economist Jonathan Gruber who said below:

Everything is in here....I can't think of anything I'd do that they are not doing in the bill. You couldn't have done better than they are doing."

Um, there were significant cost-saving measures that aren't in the bill. Like the Dorgan amendment, which would've had drug prescription reimportation and Medicare negotiation for drug prices. That would've brought in far more savings to the bill than the excise tax. And far
more stringent regulation of private insurers, like in Europe, would also have produced cost-saving measures. Not everything possibly thought of is in this bill, so Jonathan Gruber is making a false assumption about everything being in there.

And as for the excise tax, it's punitive, and it would NOT raise wages as economists and the White House think it would:

… for the small sub-set of plans that are affected, the primary impact of this provision will be to increase workers’ wages. Getting a pay raise is not what most people would call a tax increase. Economists agree by taxing the highest cost plans this provision will lead insurance companies to be more efficient and provide quality care to consumers at lower prices (see this endorsement in a letter from a group of prominent economists – including three Nobel laureates and previous members of both Democratic and Republican administrations and this analysis by CBO 2009). Even a report commissioned by the insurance industry’s trade association acknowledged that: “[w]e expect employers to respond to the tax by restructuring their benefits to avoid it.” [PWC, 2009]. As a result, employers will be in a position to increase workers’ take home pay.

This line of thinking is false as emptywheel shows it to be in her takedownof this myth:

Finally, the post [from the White House] quotes from a PriceWaterhouseCoopers paper done for AHIP (and widely discredited as industry hack job). The Administration’s post doesn’t actually claim that this report supports their own claim that the Cadillac tax will raise workers’ wages. Rather, it suggests that employers will restructure benefits in response to the tax. Here’s the full context for the quote the Administration cites.

Although we expect employers to respond to the tax by restructuring their benefits to avoid it, we demonstrate the impact assuming it is applied. As the threshold is indexed to CPI-U which has generally been
lower than medical trend, it is expected that many plans that currently have premium rates that are beneath the threshold will ultimately reach it.

That is, PWC is making the argument that the Cadillac tax will hit tons of plans, not that employers will succeed in avoiding the excise tax. In fact, the report goes further to note that by 2016, even the lowest acceptable plans, Bronze plans, will trigger the tax in
metropolitan areas.

We estimate that in many metropolitan areas, which tend to have higher than average medical costs, the lowest option plan (Bronze Plan) would be considered a “Cadillac plan” as early as 2016. By 2016 at
least one of the mandated plans will be considered a “Cadillac plan” and be subject to the 40 percent excise tax in 17 of 50 states.

PWC included that handy map, too, showing how many plans in the Northeast will trigger the tax by 2016 (the darkest red means even plans with a 65% actuarial value will trigger the tax; the report has maps for Florida and California, as well; note, though, I think the Senate has tweaked rates for higher markets since this report, so even assuming the AHIP report is correct, it’ll take longer for crappy insurance to be taxed).

In other words, the PWC study shows not what the Administration uses its quote to suggest–that employers will successfully avoid the Cadillac tax–but rather, that even the crappiest allowable plans in more expensive parts of the country will trigger the tax as early as 2016.

And here are the studies she cites showing that employers would NOT increase the wages of workers as a result of choosing cheaper plans with fewer benefits, higher deductibles, and higher cost-sharing for employees:

Which is awfully strange, because a lot of evidence suggests that’s what would happen. A Mercer survey of 465 employer health plan sponsors conducted in November found just 16% would pass on any savings to employees.

One argument that some have made in favor of the excise tax is that employers cutting benefits would return the savings to employees in the form of higher wages. However, less than a fifth of respondents (16 percent) say they would convert their cost savings into higher pay.

And Towers-Perrin did a survey in September, this of 433 human resource executives, that shows even fewer employers would share savings with employees.

Although costs are a sensitive business issue today, interestingly, when we asked survey participants how they would respond to various cost scenarios under health care reform, a significant number (ranging from just over a quarter to just over 30%) said they didn’t know what they would do.

But among the majority of respondents who did have an expected course of action, the response was very clear. Regardless of the specifics of reform legislation, these employers do not plan to absorb higher health benefit costs and would take a variet of actions to avoid doing so … Nearly all would reduce benefits. Some would cut jobs or salaries. And over a third (38%) would increase prices for customers.

Along similar lines, survey respondents who have a clear sense of action in mind (i.e., once again excluding those who gave “don’t know” responses) would not shield employees from any cost increases that reform might bring for them …. And if any savings were to result from reform, most employers would retain those savings in the business (Exhibit 12).

So to review:

  1. 30% in the Towers-Perrin survey said if health reform increases employer costs, they would reduce employment
  1. 86% in the Towers-Perrin survey said if health
    reform increases employee costs for health care, they would pass those costs on to employees
  1. 9% in the Towers-Perrin survey and 16% in the Mercer survey say they would pass on any savings to employees in the form of wage increases

So employers are saying that the fundamental assumption that went into CBO’s and JCT’s calculations on the Cadillac tax are wrong. If the employers are right, it means that employees will get crappier health care–with more out of pocket expenses–but for the most part get no corresponding raise to help pay for those costs.

Oh, and there's a HUGE reason as to why this bill shouldn't pass--the Nelson amendment which severely restricts women's reproductive rights on a state-by-state basis. It's wrong, and NOW and Planned Parenthood have now come out against this Senate bill based on the regressive Nelson amendment. This bill is not a progressive step forward, but a regressive step backwards for millions of Americans. Here's the statement by NOW:

“The so-called health care reform bill now before the Senate, with the addition of Majority Leader Harry Reid’s Manager’s Amendment, amounts to a health insurance bill for half the population and a sweeping anti-abortion law for the rest of us,” NOW President Terry O’Neill said in a statement.

“We call on all senators who consider themselves friends of women’s rights to reject the Manager’s Amendment, and if it remains, to defeat this cruelly over-compromised legislation,” O’Neill added.

[Ed. note - CM1] Crossposted with the permission of slinkerwink, who works full-time with the FDL team on health reform thanks to your donations.