This is a blog about self-employment and entrepreneurship, and access to affordable comprehensive health insurance has always been one of the biggest obstacles to entrepreneurship. That makes the newly-released draft of the Senate’s healthcare reform bill squarely in this blog’s wheelhouse, just as the House’s version was back in March.
First, we need to briefly review the Affordable Care Act and how it made comprehensive health insurance affordable.
The majority of Americans under the age of 65 receive health insurance through their employers. The Affordable Care Act made that insurance somewhat more comprehensive by specifying the “essential health benefits” such plans had to provide, and somewhat more affordable by eliminating annual and lifetime spending limits. If, like most Americans, you work for an employer who provides your family with health insurance, those are the only changes that affected you (the original ACA also included a so-called “Cadillac tax” on especially generous employer-provided health benefits, but it has never been implemented due to repeated delays by Congress). Employer-provided health insurance was already prohibited from discriminating against employees based on their pre-existing conditions and from underwriting their premiums, and the ACA didn’t change that.
Then the Affordable Care Act did something unprecedented in American history: it attempted to make comprehensive health insurance affordable to people who didn’t receive health insurance through their employer. It did this in 4 ways:
- Income up to 133% of the federal poverty level: expanded Medicaid eligibility. Medicaid is an extremely generous single-payer health insurance scheme with low negotiated reimbursement rates for doctors and hospitals, no premiums, and low co-pays on prescription drugs. (For reasons that are unclear to me, the District of Columbia has unusually generous Medicaid eligibility, stretching up to 210% of the poverty level);
- Income up to 250% of the federal poverty level: private marketplace health insurance plans with subsidies and cost-sharing reductions. Since only “Silver” plans are eligible for cost-sharing reductions, in this income range you’re expected to choose such a plan: advance tax credits will cover most or all of your insurance premium, since they’re anchored to the second-lowest-cost Silver plan on the exchange (more on that in a moment), and cost-sharing reductions dramatically lower your out-of-pocket maximum. As a personal example, while living in Wisconsin (a non-Medicaid-expansion state) I chose a Silver plan with a $200.84 monthly premium and received an advance tax credit of $200 per month. Due to the cost-sharing reduction my deductible and out-of-pocket maximum were each lowered to $500 from the plan’s original $5,150 deductible and out-of-pocket maximum.
- Income up to 400% of the federal poverty level: private marketplace health insurance plans with subsidies but without cost-sharing reductions. Here you will receive federal tax credits that cap your premium at a certain percentage of your income, anchored to the second-lowest-cost Silver plan on the exchange, but you’re responsible for the plan’s deductible and co-payments. You can choose a Bronze plan instead and the second-lowest-cost Silver plan subsidy will go further towards paying the plan’s premium, or a Gold plan and the SLCSP subsidy will cover a smaller portion of the premium.
- Income above 400% of the federal poverty level: you’re responsible for paying the entire premium for the marketplace plan of your choice.
Once you understand this simple four-part structure, you can see that there are several dials you can turn up or down to affect the overall shape of the system:
- You can turn the Medicaid dial down and the subsidy dial up, reducing the number of people eligible for the Medicaid expansion and increasing the number eligible for marketplace subsidies and cost-sharing reductions. This would reduce the amount of federal expenditures on Medicaid and increase the amount spent on advance premium tax credits. Since private insurance is more expensive to provide than Medicaid (Medicaid only pays out on actual treatment, while private insurance collects payments whether or not you receive treatment), this would be somewhat more expensive to the federal government but would improve the health profile of private insurance pools, which would help steady premiums in the medium and long term, including for non-subsidized high-income enrollees. The Affordable Care Act struck one balance between those two forces, but perhaps a different balance would be better overall.
- You can turn the cost-sharing reduction dial up or down, increasing or decreasing the number of people with access to lower out-of-pocket costs. An important complaint of people who are eligible for subsidies but not eligible for Medicaid is that people with lower incomes have better health insurance, due to their lower out-of-pocket expenses. This is true: Medicaid is great health insurance, and people with Medicaid are very happy with it. You may not have heard this because doctors (who receive lower reimbursement from Medicaid) have louder voices than the poor, who actually benefit from Medicaid. One solution would be to raise the income limit on cost-sharing reductions, so more people benefit from the lower out-of-pocket costs that lower-income people pay.
- You can turn the subsidy dial up or down, increasing or decreasing the number of people with access to advance premium tax credits to pay for marketplace health insurance plans. Personally, my view is that once you’ve gone to the trouble of calculating the second-lowest-cost Silver plan and basing a subsidy on it, you should simply provide that subsidy to everyone, and pay for it with a progressive income tax, since means-testing is an expensive, flawed bureaucratic nightmare.
The Senate bill smashes all the dials and tips over the mixing board
With this framework we can see what the Senate healthcare bill does on each of these fronts:
- turns the Medicaid dial all the way back to zero, then breaks it off and turns it even further. Starting in 2020, states would receive no additional federal money to cover the Medicaid expansion population. Since expansion states would be responsible for covering that shortfall, most or all would end the Medicaid expansion and dump those low-income adults onto the exchanges. Then the amount provided for the existing pre-expansion Medicaid population will be linked to inflation instead of to the actual health expenses Medicaid enrollees incur.
- turns the cost-sharing reduction dial down to zero. Moving people from Medicaid to the exchanges would be a defensible policy choice if new enrollees received premium subsidies and cost-sharing reductions that kept their premiums and out-of-pocket expenses minimal. However, as explained above, that would increase the cost of covering such people, since Medicaid costs so much less than private insurance. Instead, the Senate bill ends cost-sharing reductions entirely after 2019. That means the new exchange enrollees would be responsible for the entire deductible and co-payments associated with their new private insurance plans.
- turns the subsidy dial way down. In addition to increasing the out-of-pocket costs of the lowest-income population, premium subsidies are also reduced in two key ways. First, eligibility for premium subsidies is reduced to 350% of the federal poverty level, so folks earning between 350% and 400% of the poverty level are cut off completely from premium subsidies. Second, those who continue to be eligible for subsidies will receive subsidies anchored not to the second-lowest-cost Silver plan, as they do today, but rather to the median Bronze plan. What’s the difference? Across the enrolled population, a Silver plan is required to have an actuarial value of 70% (it will cover 70% of the expenses of the enrolled population), while a Bronze plan’s actuarial value is just 58%.
Each of these dials produces cost savings: ending the Medicaid expansion and capping pre-expansion Medicaid reduces the cost of that program by kicking people off Medicaid; ending cost-sharing subsidies reduces the cost of enrolling low-income people on the exchanges; drastically cutting subsidies reduces the amount of aid going to low-income people by forcing them into stingier health insurance plans.
Why do this? Why turn all the dials down, instead of adjusting them so they cover more Americans with more comprehensive, more affordable health insurance? Why make entrepreneurs decide between health care and investing in their business? Why stand by and watch the number of uninsured, the number of medical bankruptcies, and the amount of unreimbursed health care return to its pre-ACA levels?
In order to reduce the marginal tax rate on passive investment income for the very wealthy by 3.8 percentage points.
Do you mean that *gasp* people might have to actually pay for things they want themselves instead of relying on the government (taxpayers)?
What a novel concept.
Choo Choo,
Since you haven’t provided any information about your own situation, I assume that like most Americans you’re covered by an employer-sponsored healthcare plan which is heavily subsidized by the federal government. If you intend to pay for your own lifetime healthcare expenses I would love to host a guest post from you explaining how.
—Indy
Most people i know are now shoved into high dectuctuble plans. With 5-10k out of pocket before insurance kicks in. I love you lefties. Exactly what services would you be ok with paying for. Healthcare, College, Primary Education and Federal Taxes are all out. Any chance you might want to contribute to the pile or is the thought to soak the wealthy and sponge?
You assumed wrong, unsurprisingly. My employer does not sponsor my healthcare plan. My income is above 400% of the poverty level. Therefore I do pay for my own lifetime healthcare expenses.
I would love to come on the podcast to discuss, do you somehow not understand this?
Choo Choo,
I agree it’s unsurprising that I assumed wrong, since your original comment didn’t give me any information to work with!
It’s still not exactly clear what your situation is, but since you use the 400% poverty level cutoff I will (again) assume that you shop for insurance on the ACA marketplace exchanges. Your comment raises an important distinction between lifetime healthcare expenses and lifetime health insurance expenses. Under the ACA, someone who earns more than 400% of the poverty level their entire life and thus is responsible for their own health insurance expenses still has their healthcare expenses subsidized by participants in the insurance marketplace that have lower healthcare expenses, just as they subsidize the healthcare expenses of those with higher healthcare costs. That’s how insurance works. By subsidizing the health insurance premiums of lower-income Americans, the federal government introduces additional people and additional money into that ecosystem, giving the sick and healthy alike access to a risk pool large enough to make health insurance affordable. If, above the 400% poverty level, folks still find health insurance unaffordable, that’s a dial we can turn up, as I suggest in the post.
Note that I say the ACA makes health insurance affordable. Healthcare is so expensive that individuals simply have no hope of paying for the expenses they occur during treatment for even moderately complex conditions, like pregnancy and childbirth.
I don’t have a podcast (yet?) but would happily host a guest post allowing you to lay out your ideas in more detail. You can e-mail me anytime at Independentlyfinanced@gmail.com
—Indy
Yes, I’m quite aware of how insurance works.
Let’s see if I can explain it for you, as well:
With a purely free market structure, the insurer would charge varying rates depending upon age, pre-existing conditions, etc. Other insurers compete with that insurer on price, quality, etc.
But when you have a government that throws a wrench into the free market system by requiring the coverage of specific conditions, the rates must go up for those with those costly conditions, as they should. The problem occurs when that government also decides that not only should these pre-existing conditions be covered, but that the insurer should do so at a below-market price. In such a case, the premiums on those individuals not being paid for by the government must be increased to cover those who are not paying the appropriate rate. That leaves you with higher premiums and higher taxes for those not insured by the government.
Yes healthcare is expensive.
Health insurance is expensive because its inputs are expensive. It pays for expensively formulated medicines and procedures performed by expensively trained doctors. That’s very simple.
If you can’t afford “pregnancy and childbirth”, then don’t get pregnant and birth a child.
Neither of you understand that health “insurance ” is not insurance, but a way of distributing costs over a lifetime, with the assurance that if you have an unusual expensive disease there is a cap on your liability. Insurance is what you get for a house or car, hoping to never collect. At this point the whole system is so distorted, and people in general have clue about how health care works. I don’t pretend to have an answer on what would be better, or how to get there. ACA and the new one are not the answers. Seems to me either the government takes it on for everybody, or individuals are responsible for reasonable routine care, babies, medications etc and government covers high cost occasions. Then you have new problem of reigning in all the unnecessary things being done, controlling drug costs etc. get rid of the excessive administrative overhead.
I am old enough to remember when the system worked sort of that way. Doctors gave away a lot of care. The wisdom of grandmothers did a lot!
@Choo Choo,
Please illustrate by examples how ACA sets the prices for care. Drug prices are the result of negotiations between pharma and insurance companies. Hospital care costs are the result of similar negotiations. Many diagnostic tests are priced based on uniform coding. Companies used to get around this by stacking codes. This is fortunately illegal now. Insurance companies are not forced to cover treatment of some diseases including Duchenne muscular dystrophy. Although there is a FDA approved drug for this disease. For good reasons, there is no insurance company willing to pay ~300k per year for this deadly disease.
https://www.nytimes.com/2017/06/22/health/duchenne-muscular-dystrophy-drug-exondys-51.html?mcubz=1
– “If you can’t afford “pregnancy and childbirth”, then don’t get pregnant and birth a child.” Easy to play the personal responsibility card. . With >30% of the population being obese, you could say the same thing to a your friend/family and it won’t have much of an impact (certainly hasn’t in the last 2 decades).. In 1-2 decades 50% of the US population will be obese. Obesity is extremely costly and deadly.
You are making more than 400% of FPL, good for you. but you must not have a family to pay for health insurance. Those costs sky rocket when you do. It becomes unaffordable. And overall you must be healthy. But you can’t predict the future, and if you do end up having a family that has a lot of health needs (including. god forbid, a birth, even a baby ending in NICU) , then those costs also sky rocket. In your ‘free market’ insurance, people pay for what they use? that’s ridiculous. That’s exactly what we had pre ACA, and the system DID NOT work. Sick and old people were kicked out to the curb and left to bankrupt themselves or die. Why would you have such cruel system when you can have, just like life, home and car insurance, a system where everyone chips in when there is a catastrophe? Would you also like to pay for all other insurance as you use them?
We are the ONLY country that does not provide health coverage to its citizens, almost out of spite, just from people like you. The system you are proposing is not OFFERED anywhere around the world but the poorest of the poor. If you enjoy that so much, why don’t you move to Bangladesh?
Lol. You’re letting your emotions get in the way of a purely financial issue.
You think spending tax dollars to extend the lives of elderly, poor, non-contributing members of society is a benefit to this nation? I would advocate the opposite. Those tax dollars would be better allocated by leaving them in the pockets of those who earned them, allowing them to grow their businesses, hire more employees, etc. If you didn’t save enough money to last you through sickness and old age, it is not the duty of others to provide for your misfortune or dereliction of duty.
Concerning other countries: We have ~58% of the world’s publicly traded companies by market cap. That might just be due to our capitalistic society, just maybe. On the other hand, North Korea, Russia, Venezuela, Somalia, etc. etc. don’t seem to be fairing too well with your utopian government funded healthcare. I’m not too fond of curry so I’ll stay put, but I’ll gladly buy your one-way ticket to Pyongyang.
I wonder how many Americans will die because of that tax cut.
Excellent summary. Also good evidence for your post on why a simplified tax plan. If you take the tax system out of this equation it would be possible to create some kind of sliding fee insurance program. Then government could subsidize the health care providers, rather than pretending these various “insurances” are covering the costs. I work in a clinic for the poor, many of whom have “insurance,” it is amazing how complex the system is for them and how they can not afford care because of co-pay/deductibles. And unawareness that is care is really needed most of that is often waved. And if all the money that is spent on administration, tax accountants, insurance company overhead etc a lot more health care could be provided for same $, whether it is government or private sector dollars.
While I think ChooChoo is a bit harsh, the basic point is good – if the costs of health care were clear, and the role of insurance transparent, we could talk about how much people should be responsible for their health.
“In order to reduce the marginal tax rate on passive investment income for the very wealthy by 3.8 percentage points”
Does this mean that the very wealthy are currently paying for all these benefits that will be cut?
Mark,
No. The reason the two are linked is that Republican senators are trying to push the repeal of the 3.8% “net investment income tax” through using “budget reconciliation,” which requires any tax cuts to be paid for with cuts in spending or increased revenue elsewhere. Since the enormous tax cut for the wealthy would reduce federal revenue outside the 10-year budget window, they had to find changes in law that would reduce federal spending by the same amount, or more, as the tax cut outside of the 10-year window in order to pass the bill with 50 votes. Hence the draconian cuts to Medicaid, which will become more and more severe starting in 2025 (towards the end of the 10-year window).
—Indy
Bullcrap tax increases should always be repealed.
Healthcare – No way am I paying taxes to save American lives!
Military – I can’t wait to pay taxes that will actually kill Americans!
Subsidized Healthcare isnt “saving American lives”
Paying taxes and having it misappropriated toward our military isnt an answer either. Not sure why those were your only two options. Wait, I do know why.
We should decouple health insurance from work. This way people actually know how much health insurance cost and make a better decision.
Eventually we will get to Medicare for all.
and wont that suck for everyone. Anyone who has ever used medicare knows how bad thats gonna be
Which would be why Medicare is so popular that even Republicans won’t touch it. Americans love Medicare.
Basic Medicare covers most hospital care, some nursing home. I pay another roughly $300/month for parts B (outpatient) D medication assistance, F to cover deductibles. Medicare pays poorly, tho not as poorly as Medicaid. Hard to establish card if Medicare only insurance. Not ideal insurance, although with my coverage it is very good, except part about finding a doctor.
Individuals should be able to join a group policy, but shouldn’t need to — if only the amount of price discrimination in the market was legally restricted.
Whenever you see the “group discount” on your bills, you’re probably seeing an absurd nominal cost that’s been ‘reduced’ to some level of sanity. Unfortunately, this screams that there is some market distortion, fake pricing, and cost shifting involved.
While there may be some efficiency in spreading risk around a group pool, and in offering them a volume discount, most of it is really a game of cost shifting to the uninsured. If we simply cap the amount of variation in price (i.e., price discrimination) that is occurring, then insurance companies won’t be offered such deep discounts and the market will right itself fairly. We got into this place though, because insurance companies are dictating the price, which is not how price is usually settled in a marketplace (and it is ultimately unworkable). Instead of trying to make the doctors cut salaries (via diagnostic codes that emphasize procedures), we should be trying to make the systems (administrators, hospitals, insurance agents) more efficient. This is not happening because we continually obscure price from cost.
I’m not in favor of undue regulation, but we already restrict monopolistic practices and the government should also curb or restrict monopsonistic practices. It’s an easier solution, but congress is too narrowed in on the existing way of doing things (which predictably lends itself to socialized medicine, as in many respects already was). The system is failing because it’s the wrong model and is not capitalistic. Right this distortion, eliminate those 12 Obamacare mandates, encourage supply-side competition across statelines, and people with pre-existing conditions will be able to afford care again (and if not, they can seek a volume discount through a group, or seek Medicaid).
Thanks for the excellent summary of how the different programs are banded. As an individual that’s over the 400% mark, I’ve never been exposed to them (though we did buy an ACA plan for my wife and son when she started a business).
Also, somewhat unrelated, as a business owner with 12 employees participating and probably 20 including family members, I desperately want out of providing insurance. It simply makes no sense that we spend our time on that.
One clarification:
“Employer-provided health insurance was already prohibited from discriminating against employees based on their pre-existing conditions and from underwriting their premiums, and the ACA didn’t change that.”
That is incorrect – many employer sponsored plans had pre-existing condition clauses pre-ACA. Any employee who went without insurance for a period of time before joining the group plan could have their pre-existing conditions excluded from coverage. So – the diabetic could become employed, pay their portion of the premium and not have any coverage for anything related to their diabetes (they would have covereage for other conditions or new problems). There are still grandfathered plans out there like this today.
Choo Choo has some serious issues that (I think) are not shared by the majority of Americans. Affordable health insurance that covers nothing is just about the worst thing we could aim for – spend money for something that provides basically no protection if you happen to actually become ill. So you pay money for peace of mind. Then, when you need it, you find out that peace of mind was a fantasy.
Your health should not be tied to your work, period. Coverage for all and massive payment reform that rewards good outcomes, not how many widgets you can perform and be reimbursed for is where we need to move. The ACA improved upon but ultimately has failed on the first point but is still making progress on the second.
DanR,
Thanks for the correction. My understanding was that limits on coverage for pre-existing conditions were very constrained in employer-based plans prior to ACA.
Our current system of employer-based health insurance where the true cost of insurance is both hidden from employees and exempt from their taxable income is the worst of all worlds, costing as it does hundreds of millions of dollars in tax expenditures and locking employees into the plan of their employer’s choosing. Ending that tax exemption would be the single biggest step we could take to improve the viability of the individual health insurance marketplace.
—Indy
I’m kinda dumb but all I know is since the inception of Obamacare aka:ACA
1. My employer “provided” healthcare plan has more than doubled in out of pocket cost to me.
2. My employer “provided” healthcare plan has less benefits and higher deductibles than it used to.
3. Many folks get Obamacare for very little because the high taxes I pay go toward their personal healthcare choices (including birth control).
4. Many folks that used to get Obamacare for very little are finding that the cost is skyrocketing in an unsustainable model.
5. Many health insurance carriers are no longer doing business in this marketplace.
I’ll be a little cliche’ here. Correlation doesn’t equal causation. Healthcare costs have been rising faster than inflation for decades in the USA. The ACA hasn’t bent the cost curve yet – but it has had very little effect on employer sponsored health insurance costs when taken in aggregate. Employers all over the country have had a scapegoat for lowering their own insurance cost burden (higher premiums/higher deductibles/higher coinsurance) – hey it’s the ACA, it isn’t our/your fault!
You didn’t get a crappier plan with higher cost share because of the ACA. You got that because the cost of healthcare is high and continue to grow an unsustainable rates. Look right here for information pre/post ACA for employer sponsored coverage costs. You’ll see the rate of growth was higher before the ACA than it’s been since.
.
http://www.kff.org/health-costs/press-release/average-annual-workplace-family-health-premiums-rise-modest-3-to-18142-in-2016-more-workers-enroll-in-high-deductible-plans-with-savings-option-over-past-two-years/
Individual markets are a mess an many places because the individual insurance markets are too small and too sick. There aren’t enough healthy people to pay premiums for the sick. More health people drop out – the risk pool gets worse – premiums go up more – rinse – repeat. There are fixes for this that don’t require repeal/replace.
You’re out of your gourd. I can supply the last 10 years of benefits and prices – it most certainly changed with ACA.
There are individual experiences (yours – which you’ve not provided evidence for but I accept at face value because there’s no reason to believe some people didn’t experience cost changes directly related to the ACA) and there is the effect on the entire market (what is described in the linked KFF article). The numbers are right there in black and white – the ACA did not cause the employer insurance market to become vastly more expensive when compared to the recent past.
I went from a copay to a high decductible plan based on the fact that to keep my copay plan became 5x as expensive as it did the yr before. So for the last 4 yrs Ive been in a high deductible plan where I pay upto $5,000 before the insurance coverage starts. Tack on my $700/mo Insurance pmt Im now paying for the HSA. My personal insurance costs have skyrocketed and now take up a much bigger % of my take home paycheck
What point are you trying to make? Health insurance is expensive? Check. Health insurance premiums continue to rise unsustainably? Check. The ACA caused a spike in employer provided insurance premiums – nope – read the link that provides evidence, not anecdote.
Your appeal to statistical-authority is as unconvincing as 538 on the election.
I see – so a group who’s been studying health care costs for decades doesn’t really understand the insurance market and can’t describe the historical costs. Appeal to statistical-authority – give me a break.
Your ideology and individual experience is yours. Fortunately, decisions aren’t made based upon ed’s world.
Says the thief as he robs
Ed,
Is that some kind of “taxation is theft” reference? I’m afraid most of my readers outgrew Ayn Rand at age 18 or so; you may not get too far with that garbage around here.
—Indy