An Explanation of the Health Care Bill

Senators Chris Dodd (D-CT, left) and Mike Enzi (R-WY, right)

The system of U.S. Health Care is now so thoroughly inefficient and inadequate that virtually no serious participant in the debate argues that reform is unnecessary. Partisans disagree about the desirable extent of government involvement in the outcome, but all agree (though not always explicitly) that government involvement is necessary. After all, according to the Congressional Budget Office, government currently regulates the medical insurance, health care and pharmaceutical industries and funds some 60% of health care costs through the Medicare and Medicaid programs, other programs that insure veterans, government employees and retirees, tax subsidies for health care insurance, and subsidies for various health care initiatives.

Many in the U.S. receive exceptional health care and few are denied emergency care, even if they are not able to pay for it. However, with U.S. collective expenditures on health care now amounting to more than 16% of Gross Domestic Product we should expect better performance, including:

• More universally available access to services that promote health and prevent disease
• More efficient allocation and selection of medical services
• Greatly reduced cost of administering and financing medical services

Comprehensive health care reform must address three key areas:

• How is care allocated and provided?
• How and to what extent is health care subsidized?
• How is insurance provided and regulated?

Title I of the bill now in committee in the U.S. Senate, the Affordable Health Choices Act (Bill), provides one solution. Its major provisions would:

• Forbid private insurers from denying coverage based on a patient’s medical history
• Eliminate annual and lifetime limits on insurance coverage
• Require employers with 25 or more employees to provide subsidized insurance to those employers (or face a tax penalty)
  
• Subsidize insurance to low-income individuals
• Require individuals to obtain medical insurance (or pay a government penalty)
• Establish state-level "Health Benefit Gateways" to assist individuals and employers in selecting appropriate insurance policies
  
• Establish a government-run health insurance organization to compete with private insurance companies
• Establish a national voluntary insurance program for purchasing community living assistance services and support (by incorporation of the CLASS Act)
  

As the Bill moves through the Health, Education, Labor and Pensions (HELP) Committee and onto the floor of the Senate, it is likely to be amended. Some will challenge the limits and taxes it imposes on employers and insurance companies and others will be disappointed by the way in which its various subsidies are distributed and funded. However, in its current form the Bill is estimated to extend coverage to an additional 20 million uninsured Americans without fundamentally restructuring the insurance, pharmaceutical and health care provider industries.

Nonetheless, the Bill would alter the functional nature and competitive environment of the medical insurance industry. State-run Gateways would be able to appoint either public or private "navigators" who would essentially act as insurance brokers. Also, by simultaneously eliminating discrimination against individuals with preexisting conditions, eliminating plan limits on annual and lifetime payouts, and limiting the degree to which insurance premiums can be based on age, the Bill is intended to redirect underwriters away from the task of evaluating the risk posed by applicants and toward the task of evaluating the costs and benefits of procedures. In combination these provisions would directly address a major, under-reported, and increasingly troublesome segment of the under-insured, that is middle-aged individuals who are privately employed or out of work and whose previous medical history includes any number of risk factors (however well managed). Among the list of risk factors are treatment for chronic disease, skeletal injury or disease, depression or other mental illness or disorder. Ironically and perversely, the current system penalizes those who have sought medical attention and are taking preventative measures, while favoring those who have avoided medical care. With unemployment growing and hitting middle-aged workers especially hard, the number of people unable to find affordable health insurance of any kind is expected to grow alarmingly unless today's underwriting policies and their underlying causes are corrected.

Title I of the Bill is focused on extending access to health care to more Americans. As such it does little to address issues with the dominant fee-for-service nature of the U.S. health care system. The primary charge leveled against the fee-for-service approach is that it rewards providers for gaming the billing system, but not necessarily for getting efficient outcomes or encouraging wellness. By favoring certain treatments, specialties and procedures, this incentive system keeps various forms of government in the position of determining what kinds of care are administered. The incentives baked into the system encourage doctors to specialize and encourage specialists and health care facilities to recommend courses of treatment that play to their strengths, even when more efficient modes of care might be available elsewhere. An excellent treatment of the fee-for-service issue can be found in the CBO's letter to the Senate Budget Committee of 16-Jun-09.

Paul Krugman puts the public cost of Title I in the range of $1.0-$1.3 trillion over a 10-year period, including the cost of subsidizing insurance for the poor (a topic not addressed in the current form of the Bill). The President has floated at least two vehicles for funding the bill: (a) eliminating the subsidy paid to private Medicare insurers through the Medicare Advantage program; and (b) eliminating the deductibility of insurance premiums under the corporate income tax. At the same time, the Administration is bargaining with health care providers and pharmaceutical companies to hold down the cost of care.

Those interested in learning more about this topic can find the Bill and the Congressional testimony that shaped it on the Senate website at http://help.senate.gov/. See especially the testimony before the Senate Committee on Health, Education, Labor and Pensions of Karen Pollitz, Research Professor, Georgetown University Health Policy Institute, and that of Janet Stokes Trautwein, Executive Vice President and CEO, National Association of Health Underwriters. A partial estimate of the cost of Title I to taxpayers (which excludes the cost of the subsidy to the poor) can be found on the Blog of the Congressional Budget Office at http://cboblog.cbo.gov/?p=315.

See also Health Care Reform Takes Shape.

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