Market CompetitionMarket Competition Because regulation has failed to

contain health care costs, managed care which emphasized competition between providers has grown, particularly in employer based plans (about 20% of Medicare and Medicaid)

Cost savings still illusive because of public backlash, increasing regulation and remaining market distortions

Demand Side Market Failures– Tax-exempt employer paid insurance which

creates MB<MC care and disproportionately benefits high income taxpayers

– Employers don’t offer choice of plans (80% only 1), decreasing the incentive of the insurer to respond to employer preferences and to decrease premiums

– Employers that do offer plan choice pay fixed % (usually 75-80%) of costs, not fixed $, which induces employees to opt for the expensive plan

– Employers pay same premium for all employees so little incentive for insurer to actively manage high user care

– Health care providers don’t want to provide information on quality to consumers, providing little incentive for investments in improving quality

– Medicaid and private plans have very low copays leading to little incentive to economize on use

– Medicare copays are defeated by the wide purchase of Medigap policies

Supply Side Market Failures– Medical providers are consolidating, i.e.,

hospitals and specialists Federal judges have ruled nonprofit mergers are OK

even if they result in monopolies– State regulations are increasing, because local

politicians are more susceptible to industry demands

Mandatory benefits, providers, licensing, training Community rating, any willing provider laws

– Patient and/or MD ignorance Specialists in the same area provide widely

differing care to patients with the same diagnoses. Inadequate diagnosis or treatment knowledge ?

– Fee for service payments

5

Obama Health Plan Key Features

Obama Health Plan Key Features

Provides health coverage for another 32 million “legal” Americans, increasing % with insurance from 83% to 95%

Provides subsidies to small businesses and Medicaid for expanded coverage

Requires insurance coverage thru employer or self

Will pay for expansion with new taxes and cuts to Medicare

6

Obama Health Plan : 3/23/10Obama Health Plan : 3/23/10

Kaiser Foundation Timeline– Source

http://www.kff.org/healthreform/8060.cfm

Kaiser Foundation Summary– Source

http://www.kff.org/healthreform/upload/8061.pdf

7

Obama Health Plan: 3/23/10Source: http://www.csmonitor.com/Money/Christian-Personal-Finance/2010/0325/What-Obama-s-new-

health-care-bill-means-for-us

Obama Health Plan: 3/23/10Source: http://www.csmonitor.com/Money/Christian-Personal-Finance/2010/0325/What-Obama-s-new-

health-care-bill-means-for-us

Changes Happening in 2010– Children age 26 and younger will be able to

remain covered under their parents health insurance plans (this is increased from past age limits which were anywhere from age 22-25).

– Medicare recipients will receive a $250 rebate to help in closing the “doughnut hole” (with the goal being to close the doughnut hole completely by 2020).

– Health insurance companies will be banned from excluding coverage for pre-existing conditions for children.

– Adults with pre-existing conditions will be eligible for coverage into high risk health insurance pools until future health care exchanges are up and running.

– Health insurance companies will be prohibited from levying annual limits < $750,000 and lifetime limits on coverage. 2014 and after, no annual limits.

– All new health insurance plans must provide coverage for preventative services with no out of pocket cost (all health plans will be forced to comply by 2018).

– Those companies that offer health benefits for early retirees ages 55 to 64 will receive assistance from a temporary reinsurance program.

– All new health insurance plans will have to comply with new regulations that lay out an appeals process for when health insurance claims are denied.

– Small businesses that employ less than 50 people are eligible for a tax credit equal to 35% of their health insurance premiums (this increases to 50% by 2014).

Changes happening in 2011– Medicare will offer wellness visits for free one

a year and personalized prevention plans. All new Medicare plans will offer preventative services with no out of pocket cost.

– Seniors enrolled in Medicare Advantage or the Prescription Drug Plan will receive a 50% discount on brand name drugs immediately with additional prescription drug discounts to follow.

– The current penalty tax of 10% on all distributions from a Health Savings Account before the age of 65 on nonqualified medical expenses will increase to 20%.

A small business alternative to a cafeteria plan will be presented so that small businesses can offer tax free benefits without having to deal with the administrative costs of a cafeteria plan.

Everyone earning more than $200,000 as an individual or $250,000 for those who file married filing jointly will have their Medicare payroll tax increased from the current 1.45% to 2.35%.

Changes happening in 2013– A $2,500 annual cap will be placed on all

contributions to flexible spending accounts (amount indexed for inflation each subsequent year).

– The current tax deduction that employers receive for subsidizing the prescription drug costs of their employees who are eligible for Medicare Part D will be done away with.

– A 2.9% excise tax on the sale of medical devices will be put into place. Certain common items like glasses, hearing aids, etc. are exempted from this tax.

– The hospital insurance tax will increase an extra .9% (2.35%) for those who earn more than $200,000 ($250,000 for those married filing jointly) and 3.8% tax on unearned income over those amounts.

– Additional requirements on health insurance companies to implement uniform standards for exchanging health care information, electronic communication, and other measures to reduce insurance company administrative costs.

– The minimum threshold for being able to claim an itemized deduction for health care expenses increased from 7.5% to 10% of AGI although those over the age of 65 can stay at the 7.5% threshold through 2016.

Changes happening in 2014– All US residents will be forced to have health

insurance coverage considered acceptable by the US Government or else pay a fine of $95 in 2014, $325 in 2015, $695 in 2016 (capped at 2.5% of AGI). All of the fines are per person per year except for families have a cap on the total fine of $2,250 and the fine amount for children is half of the adult fine.

– Eligibility standards are implemented for newly formed health care exchanges. Exchanges will offer 4 types of plans: Bronze, Silver, Gold, Platinum & Catastrophic. Only those <=30 buy individual coverage can buy latter.

– Credits to buy insurance from exchanges will be based on income levels. People earning up to 400% of poverty level will have premiums of 2 – 10% of AGI for Silver.

– Businesses with 50 or more employees will face a fine of either $2,000 or $3,000 per employee for not offering health insurance coverage.

– Group health insurance plans have a maximum waiting period of 90 days.

– Health insurance companies are prohibited from using an individual’s health status to issue a policy or renew a policy. All pre-existing conditions must be covered and higher health insurance rates cannot be levied because of health, gender, etc. All insurers must offer minimum benefit set (Bronze).

– All health insurer plans must conform to 1 of 5 standards.

– The eligibility standards for Medicaid will be changed to 133% of poverty for those who are not considered elderly. Feds will pay 90 – 100% of extra costs to States

– New annual fees will be levied on all large health insurance providers and pharmaceutical companies: $11Bil. in 2012-3, $14B in 2014-16, and $18B afterwards.

Changes happening in 2018– The “Cadillac” health insurance plan

tax will kick in. An excise tax (40%) will be levied on all employer provided health insurance plans costing more than $27,500 for families and $10,200 for individuals (with increased limits for those considered to be in “high risk” professions).

Click on NY Times link for impact on differing people:– http://www.nytimes.com/interactive/2

010/03/24/us/politics/20100319-health-care-effect.html?ref=policy#tab=2

Pros & ConsPros & Cons With or w/o reform, Health

Care will be 21% of GDP in 2019 (up from 16%)

Liberal Pros:– CBO says 32 million more people

will be covered by 2019– Federal Cost is modest ($172

Billion) or $5375 per person newly insured. More Medicaid & subsidies to buy mandated insurance.

– Cost controls will actually stabilize overall health care costs. So covering many more people for same $4.7 Trillion

– No impact on Deficit due to tax increases

Corrects for market failures by providing consumers more info, options, limits deductions for medical expenses, & only way to cover more people with existing system

20

Liberal ObjectionsLiberal Objections

Doesn’t insure everyone Still doesn’t control costs as

much as possible. Single payer option (either private or public) would decrease administrative costs

Health insurers should all be non-profits or government (like Europe & Canada). No role for for-profits.

Canadians and Europeans are far more satisfied with their health care systems than Americans, even though more state involvement. Health outcomes better also.

Conservative Objections Won’t decrease health care

costs Questionable assumption that

payments to MDs & others can be limited. Some foresee 20% hospitals refusing Medicare

If employers opt to pay fine, govt. subsidies to cover employees will soar

Increased taxes on high incomes leads to fewer jobs, production, savings

Huge expansion of government into private sector yielding less choice & freedom

Individual mandate is loss of freedom and MB < MC

Mandatory community rating will increase uninsured by choice

Cuts to Medicare MCOs will decrease choice for seniors & decrease efficiency

Conservative ReformsConservative Reforms

Individual tax relief for everyone, regardless of where they work, to purchase their own insurance.

Replace tax deduction for employer contribution with tax credit for individual purchase

No barriers to interstate insurance sales

Allow employers to convert from defined benefit to defined contribution plans

Move Medicare to defined contribution plan & allow Medicare clans to opt out

Promote new group purchasing based on organization memberships & associations

More consumer-directed options like health savings accounts & flex plans

• Extend rational pre-existing condition provisions in individual plans rewarding responsible behavior• Equal payment for traditional Medicare & MCO Medicare• Encourage states to set up high-risk pools and consumer based reforms

• Provide Medicaid insurees with opt out to private insurance• Increase fraud & abuse efforts in Medicaid• Encourage private savings and private long term care insurance to solve long term care needs• Stop new tax increases and promote tax cuts to expand private insurance coverage