Wednesday, June 27, 2012

Some Basic Health Care Facts

Tomorrow we should hear from the Supreme Court regarding health care.  Health care is by far the largest part of the US economy, totaling about 15%.  It's the only segment of the economy to continually add jobs over the last few years, largely because of the aging US population.  And the system to paying for that is beyond broken.

The individual mandate that is causing all the hoopla was first proposed by the Heritage Foundation in 1989.  It was also part of the Republicans response to the Clinton health initiative in 1994.  Finally, the original bill for health reform had strong bi-partisan support.  Put another way, it was included as part of the bill because it was thought (rationally) that because they proposed it, they'd support it.  Either they were incredibly stupid regarding its constitutionality, or they, too thought it was constitutional for most of that time.  And in case you're wondering, most constitutional professors think its constitutional.

Over the last few days, Wonkblog at the Washington Post (and Ezra Klein in particular) has done a great job of highlighting some of the issues involved and explaining how we got here.  First, here are some basic facts about the bill as it currently stands:

By 2022, the Congressional Budget Office estimates (pdf) the Affordable Care Act will have extended coverage to 33 million Americans who would otherwise be uninsured.

2. Families making less than 133 percent of the poverty line — that’s about $29,000 for a family of four — will be covered through Medicaid. Between 133 percent and 400 percent of the poverty line —  $88,000 for a family of four – families will get tax credits on a sliding scale to help pay for private insurance.

3. For families making less than 400 percent of the poverty line, premiums are capped. So, between 150% and 200% of the poverty line, for instance, families won’t have to pay more than 6.3 percent of their income in premiums. Between 300 percent and 400 percent, they won’t have to pay more than 9.5 percent. This calculator from the Kaiser Family Foundation will let you see the subsidies and the caps for different families at different income levels.

4. When the individual mandate is fully phased-in, those who can afford coverage — which is defined as insurance costing less than 8 percent of their annual income — but choose to forgo it will have to pay either $695 or 2.5 percent of the annual income, whichever is greater.

5. Small businesses that have fewer than 10 employees, average wages beneath $25,000, and that provide insurance for their workers will get a 50 percent tax credit on their contribution. The tax credit reaches up to small businesses with up to 50 employees and average wages of $50,000, though it gets smaller as the business get bigger and richer. The credit lasts for two years, though many think Congress will be pressured to extend it, which would raise the long-term cost of the legislation.

6. Insurance companies are not allowed to discriminated based on preexisting conditions. They are allowed to discriminate based “on age (limited to 3 to 1 ratio), premium rating area, family composition, and tobacco use (limited to 1.5. to 1 ratio).”

7. Starting in 2018, the law imposes a 35 percent tax on employer-provided health plans that exceed $10,200 for individual coverage and $27,500 for family coverage. The idea is a kind of roundabout second-best to capping the tax code’s (currently unlimited) deduction for employer-provided heath insurance. The policy idea is to give employers that much more reason to avoid expensive insurance policies and thus give insurers that much more reason to hold costs down.

8. The law requires insurers to spend between 80 and 85 percent of every premium dollar on medical care (as opposed to administration, advertising, etc). If insurers exceed this threshold, they have to rebate the excess to their customers. This policy is already in effect, and insurers are expected to rebate $1.1 billion this year.

9. The law is expected to spend a bit over $1 trillion in the next 10 years. The law’s spending cuts — many of which fall on Medicare — and tax increases are expected to either save or raise a bit more than that, which is why the Congressional Budget Office estimates that it will slightly reduce the deficit. (There’s been some confusion on this point lately, but no, the CBO has not changed its mind about this.) As time goes on, the savings are projected to grow more quickly than the spending, and CBO expects that the law will cut the deficit by around a trillion dollars in its second decade.

10. In recent years, health-care costs have slowed dramatically. Much of this is likely due to the recession. Some of it may just be chance. But there’s also evidence that the law has accelerated changes in the way the medical system delivers care, as providers prepare for the law’s efforts to move from fee-for-service to quality-based payments.

11. The law’s long-term success at controlling costs will likely hinge on its efforts to change the way health care is delivered, most of which have gotten very little attention. They include everything from encouraging Accountable Care Organizations to spreading medical homes to penalizing hospitals with high rates of preventable infections to creating an independent board able to quickly implement new reforms through the Medicare system.

It's complicated law because it's a complicated area of the economy that is really quirky.   There is no simple way to solve this.  That's why it was 2700 pages when passes.