Health Care Reform 10/30/10
Outline • I. Motivation • II. What’s in bill • III. Paying for it • IV. Projections
I. Motivation • Rising costs • National health expenditures (NHE) grew from 5.7% of GDP in 1965 to 15.3% of GDP in 2003. • NHE are projected to grow 1% faster each year than real GDP. • This would mean real NHE would be 18.7% of real GDP by 2014 and 33% by 2078. • Expenditures on Medicare and Medicaid would grow from 25% of the budget to 50% of the budget by 2050.
I. Motivation • Uninsured • As a consequence of rising costs, the percent of the population without health insurance has risen from 12% in 1987 to 15.5% in 2004. • U.S. is unique among developed countries in not providing some sort of universal coverage • Is it bad that some people are uninsured • No: people have different risk preferences • Yes • Many of the uninsured can’t get affordable coverage because of pre-existing conditions • Others tend to not get care until serious illness, then they get expensive emergency room care that is either financially devastating or given as charity
I. Motivation • Dealing with both the costs and uninsured problems at once is difficult • Expanding coverage would increase costs • Some obvious ways to reduce costs (i.e. taxing health benefits) would reduce coverage • The current bill deals with the uninsured problem in a way that attempts to be deficit-neutral. • It still leaves the politically-tricky cost problem as something that will have to be dealt with later.
II. What’s in bill • Insurers can’t deny or drop coverage due to pre-existing conditions (by 2014) and cannot impose lifetime caps • This alone would increase premiums and make insurance companies mad. So … • Mandates all individuals to have health coverage • Fine of $695/uninsured family member (up to $2085) or 2.5% of household income, whichever is greater • This would make people mad, so … • Provides subsidies for low- and middle-income people to purchase coverage • Sliding scale that reaches 0 at 4 times the poverty level ($44,000 for individual; $88,000 for family of four)
II. What’s in bill • Health insurance exchange • Employer-based group coverage is less expensive than individual coverage because groups can negotiate better rates • Bill requires states to set up health insurance exchanges where individuals would get to choose from a variety of approved private plans • Exchange has bargaining power like a large employer • Not open to individuals whose employer offers health insurance benefits • Separate exchanges set up for small businesses
II. What’s in bill • Close Medicare donut hole by 2020 • Free Medicare preventive care • Expands Medicaid to include 133% of poverty level; federal government will pay full increase at first but states will have to pitch in eventually • Insurers have to provide coverage to non-dependent children up to age 26 • $500 million for cost effectiveness institute • Subsidies for those studying to be primary care physicians • $11 billion for community and nurse-managed clinics • Mandates display of nutritional information on menus at restaurants with more than 20 locations
III. Paying for it • Bad news for families making over $250,000 per year ($200,000 for individuals) • Increase in Medicare payroll tax from 2.9% to 3.8%. • This 3.8% tax will also be applied to unearned income. • 40% excise tax on “Cadillac” insurance plans (value $27,500 for families and $10,200 for individuals) starting in 2018 • $500 billion in cuts to Medicare over next decade • Cuts in Medicare Advantage subsidies, but no explicit cuts in coverage • Cut “waste and fraud” – ?
III. Paying for it • Medicare Independent Payment Advisory Board to implement ways to reduce Medicare spending if target growth rate exceeded (Congress can overrule) • $2000/worker fine for employers with more than 50 employees who do not provide health insurance • Cut maximum pre-tax flex account from $5,000 to $2,000 • Limits tax deductibility of medical expenses to expenses over 10% of AGI (from 7.5%) • 10% excise tax on indoor tanning services • Pilot programs to test other potential cost-control strategies
IV. Projections • 32 million uninsured will get coverage by 2014 • 95% insured rate by 2019 • Estimated cost of $940 billion over next 10 years • Estimated deficit reduction of $143 billion over next 10 years • Debate about accuracy of this projection