Health Care Reform Rhetoric

The Health care reform bills currently being considered in Congress have generated an avalanche of political posturing and outrageous claims on the part of the Democrat opposition. Even though they tacitly and sometimes openly admit that the ever increasing premiums and deductibles of Obamacare are unsustainable, they argue that the Republican reforms are even worse.

Let’s examine some of their objections.

Both the bill passed by the House of Representatives and the one now under consideration in the Senate came under severe criticism because of reports from the Congressional Budget Office (CBO) that between 15 and 20 million people would lose their health insurance. Political commentators and Democrat politicians were quick to jump on this estimate and paint the Trump administration and the Republicans as big, bad, meanies out to pull the rug out beneath the Nation’s needy.  

Yet, even the CBO admits that the majority of those who will lose their coverage will voluntarily drop their coverage once they will no longer be forced to buy it or pay a cash penalty. President Obama promised people they could keep their policies if they liked them, but Obamacare forced them to surrender those policies. Obamacare then forced millions of people who did not want medical insurance or felt they did not need it to buy it. It is hard to blame them since the high deductibles and premiums seemed a bad deal. In fact, millions of people chose to pay the tax penalty rather than buy those Obamacare policies.  

Opponents of the Republican bills also claim that millions of American currently on Medicaid will lose their medical benefits. However, it would appear that they are not talking about the poor and needy. Apparently, those threatened are former members of the upper and middle classes who now reside in nursing homes and whose care is paid for by Medicaid.

For decades eldercare lawyers and financial planners have been advising well-to-do clients to give away their assets to family members or family trusts before they get infirm enough to go into a nursing home. Since the government will pay their costs, their families can retain the often considerable assets of their elderly parents. Why, these advisors reason, should such assets be used for nursing home care, when, if done properly, the government will pick up the cost.

States have been long aware of these tactics and though they have tried to restrict their use and prevent last minute asset giveaways. Some States have even given tax incentives to residents who purchase nursing home care insurance policies in the hope that these insureds will stay off the Medicaid rolls. Nursing home costs are the largest part of any State’s Medicaid bill. So, who is the real victim here? It’s too bad that when people think the government will pick up the tab, it never occurs to them that their neighbors are footing the bill, or that the money could have been used for the real poor.

Actually, it does not appear that the Republican bills will directly deal with this practice. Rather, they want to give block grants to the States so that the States themselves can decide how best to deal with their poor and elderly.

Finally, how can anyone with a straight face claim that the Republican health care reform efforts lack transparency? The proposals are out there for anyone to see and criticize even though Democrats like my own Senators and representative in Connecticut have made it clear that they oppose any reform measures. What ever happened to the Nancy Pelosi strategy of passing the bill before reading it?

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Medical Insurance Reform 2017

Most Americans under the age of 65 are still covered by employer sponsored health insurance plans. Nevertheless, even though they are an integral part of Obamacare, s0-called progressives demand a “single-payer” plan that would abolish these employer sponsored plans. One of the objections to these plans is that they provide a greater tax break to high salaried corporate employees than to low income workers. Since the cost of each employee’s insurance benefit is not taxed as income, employees in higher tax brackets do get a better tax break.

For example, if the cost per individual is $10000, an employee whose top tax bracket is 35% would save about $3500 per year in taxes. But an employee whose top tax bracket is 15% would only save about $1500 per year in taxes. A first glance this may seem like an inequity but let’s look a little deeper and contrast the CEO making $1 Million per year with the secretary who makes $40000 per year.

In the first place, the CEO’s annual federal tax bill is probably about $300000, and so a $3500 tax saving shaves about 1% off his or her tax bill. On the other hand, the secretary’s annual federal tax bill is probably less than $4000, and so the $1500 tax saving shaves about 40% off his or her tax bill.

Moreover, the employer sponsored medical insurance fringe benefit is a great equalizer. Every employee, from the CEO down to the mail-room clerk, gets the same plan. There can be no Cadillac plan for high salaried employees alone. Also, when a corporation provides medical insurance for the CEO, the cost represents only a tiny fraction of the $1000000 compensation plan. Adding a $10000 tax free fringe benefit to the secretary’s $40000 salary represents a 40% increase in total compensation.

Finally, individual employees do not have to choose a particular plan themselves. Company experts or consultants wade through the variety of insurance offerings and options and pick the plan. Anyone who has tried to pick from the various Medicare supplement options, or choose between the gold, silver and bronze plans offered through Obamacare will understand how difficult it is to assess these complicated plans.

From their beginning after World War II, the employer sponsored plans were incredibly attractive to all concerned and sparked a veritable revolution in health care in this country. Employers could deduct the cost of their plans as an ordinary business expense while employees could rely on their pre-tax medical insurance plan to cover major medical expenses. Since these were group insurance plans all employees had to be covered even if they had pre-existing medical conditions. Actually, increasing the employment rate is a great way to provide for people with pre-existing medical conditions.

There were obvious problems, however, that needed to be fixed. People would lose their coverage when they lost or changed their jobs. People with pre-existing medical problems would find it almost impossible to get coverage on their own once they left the group. Self-employed people did not ordinarily have access to these plans, although they could become members of groups that offered plans. Unemployed workers would eventually lose their coverage.

Attempts had been made to deal with these problems but back in 2008 critics of the system still insisted that over 30 million people were without medical insurance. Even if this figure was correct, it still meant over 270 Million Americans had medical insurance.

Instead of trying to fix the problems in the old system, proponents of the Affordable Care Act (Obamacare) sought to overhaul the entire health care system in this country.

Now instead of using a tax break to encourage employers to provide medical insurance, for their employees, employers would be forced to provide such insurance or pay a penalty. Some employers have actually opted to drop their plans and pay the penalty rather than be faced with uncontrollable costs.

Advocates of the single-payer system think that Obamacare did not go far enough and want to throw out the whole system that has worked so well for the great majority of Americans. So far it looks like the Republican plan that recently passed the House of Representatives will eliminate the employer mandate but still retain the privileged tax status of these plans. We’ll have to wait to see what happens.

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Affordable Care Act

One of the first things I learned when I went into the insurance business almost 40 years ago was that insurance was simply the prepayment of claims. It is paying in advance to cover some future bill or expense. It does not matter if it is life insurance, automobile insurance, or medical insurance. The same basic principle must apply. A policyholder pays monthly or annual premiums and these premiums are pooled with others to pay eventual claims. 

Medical insurance is no different. It only had its origins in the 1930s during the Great Depression. At that time hospitals and physicians were finding it increasingly difficult to collect from their patients, many of whom were out of work. As a result we had the birth of the “Blues.” Both Blue Cross and Blue Shield were products of the Depression. In short, people would enroll in these plans and pay a monthly or quarterly premium that over time would build up enough of a reserve to cover their future claims. This idea seemed to benefit everyone. Doctors and other health care providers would no longer have to go after their patients like collection agencies; and the patients would not have to come up with a large amount of cash to handle large, unexpected medical bills.

However, to avoid excessive or frivolous claims that raise the cost for everyone, most medical insurance policies included deductibles or co-insurance to reduce or eliminate small claims. This was right out of Insurance 101 since actuaries were well aware that the most cost effective strategy was to make the patient bear part of the cost out of pocket.

However, the use of medical insurance to cover future health care costs only took off after World War II. The war had finally taken the country out of the Depression and the economy was booming. In a major change the Federal Government allowed corporations to purchase group medical insurance plans for their employees. Employers were not required to provide health insurance but the government altered the tax code to provide a great incentive.

Unlike other forms of compensation the cost of the medical insurance would not be considered taxable income to the employee. This was important especially to high salaried employees at a time when the highest tax rate was 70%. In other words, employees covered under such a group insurance plan could now have most of their medical expenses paid with tax-free income. It was a no-brainer. Instead of giving all employees a $1000 taxable salary increase, the employer could give them a $1000 tax-free benefit that would cover future health related costs.

The employer sponsored plans were incredibly attractive to all concerned and sparked a veritable revolution in health care in this country. Employers could deduct the cost of their plans as an ordinary business expense while employees could rely on their pre-tax medical insurance plan to cover major medical expenses. Since these were group insurance plans all employees had to be covered even if they had pre-existing medical conditions. Increasingly these group insurance plans came to dominate the market.

Nevertheless, the basic principle of insurance still governed these group plans. They all involved a pre-payment of claims most often through automatic payroll deductions.

This system of corporate sponsored insurance worked remarkably well for the great majority of Americans for many years. There were obvious problems, however, that needed to be fixed. People would lose their coverage when they lost or changed their jobs. Self-employed people did not ordinarily have access to these plans. Unemployed workers would eventually lose their coverage. People with pre-existing medical problems would find it almost impossible to get coverage on their own.

Attempts had been made to deal with these problems but critics of the system still insisted that over 30 million people were without medical insurance. Even if that number was accurate it would be wrong to say that all those people lacked access to medical care. One of the problems with the system was that so many people refused to purchase medical insurance and just went to local hospital ER for even ordinary care.

Instead of trying to fix the problems in the old system, proponents of the Affordable Care Act (Obamacare) sought to overhaul the entire health care system in this country. Now instead of getting a tax break for providing employees with medical insurance, employers would be forced to provide such insurance or pay a penalty. Even though the Obama administration has arbitrarily extended the corporate mandate for a year, some employers have already chosen to drop their plans.

More importantly, it is clear that almost half the country will qualify for a partial or full subsidy from the government in order to purchase their medical insurance. Not only is this incredibly complex and difficult to administer, but it is also open to fraud. Nevertheless, under the ACA a very large percentage of Americans will not have to pay premiums for their medical insurance. No matter what you call it, this is no longer insurance but welfare.

How is the government that is already over 17 Trillion dollars in debt going to pay insurance premiums for almost half the people in this country? Will it just print more money, or will it have to raise the taxes on the other half. Despite these subsidies it would appear that most of the un-insured will not be able to navigate the red tape necessary to enroll, or even be willing to enroll. 

In the next year it would not surprise me if more people lose medical insurance than sign up for Obamacare.

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Obamacare

No matter what the Supreme Court decides this week on the constitutionality of the Affordable Health Care Act, the plan is still doomed to fail.

One of the first things I learned when I went into the insurance business almost 40 years ago was that insurance was simply the prepayment of claims. It is paying in advance to cover some future bill or expense. For example, if a young person purchases a $10000 life insurance policy, the insurance company calculates that by the time of death the insured will have paid in enough to cover the death benefit.

Medical insurance works the same way. In fact, medical insurance only had its origins in the 1930s during the Great Depression. At that time hospitals and physicians were finding it increasingly difficult to collect from their patients, many of whom were out of work. As a result we had the birth of the “Blues.” Both Blue Cross and Blue Shield were products of the depression. In short, people would enroll in these plans and pay a monthly or quarterly premium that over time would build up enough of a reserve to cover their future claims. This idea seemed to benefit everyone. Doctors and other health care providers would no longer have to go after their patients like collection agencies; and the patients would not have to come up with a large amount of cash to handle large, unexpected medical bills.

However, to avoid excessive or frivolous claims that raise the cost for everyone, most medical insurance policies included deductibles or co-insurance to reduce or eliminate small claims. This was right out of Insurance 101 since actuaries were well aware that the most cost effective strategy was to make the patient bear part of the cost out of pocket.

However, the use of medical insurance to cover future health care costs only took off after World War II. The war had finally taken the country out of the depression and the economy was booming. In a major change the Federal Government allowed corporations to purchase group medical insurance plans for their employees. Employers were not required to provide health insurance but the government altered the tax code to provide a great incentive.

Unlike other forms of compensation the cost of the medical insurance would not be considered taxable income to the employee. This was important especially to high salaried employees at a time when the highest tax rate was 70%. In other words, employees covered under such a group insurance plan could now have most of their medical expenses paid with tax-free income. It was a no-brainer. Instead of giving all employees a $1000 taxable salary increase, the employer could give them a $1000 tax-free benefit that would cover future health related costs.

The employer sponsored plans were incredibly attractive to all concerned and sparked a veritable revolution in health care in this country. Employers could deduct the cost of their plans as an ordinary business expense while employees could rely on their pre-tax medical insurance plan to cover major medical expenses. Since these were group insurance plans all employees had to be covered even if they had pre-existing medical conditions. Increasingly these group insurance plans came to dominate the market.

Nevertheless, the basic principle of insurance still governed these group plans. They all involved a pre-payment of claims most often through automatic payroll deductions.

No matter what the Supreme Court decides on the constitutionality of the Affordable Health Care, it is doomed to fail because almost half the people in the country will not have to pay premiums. Those who fall below various income thresholds will receive vouchers or tax credits that can be applied to the purchase of medical insurance policies. It is a welfare rather than an insurance plan.

Why did the Obama administration even bother with insurance and the potentially unconstitutional individual mandate? Why didn’t it just decide to pay all medical bills, and call it a social welfare rather than an insurance plan? Isn’t this what exists in Canada and Europe?

Actually, when I visited my cousins in Italy a few years ago, I found that rather than a single-payer plan, they had two plans. In the first place, they participated in the National health insurance system that would potentially pay all their medical expenses. However, I was surprised to discover that they all had bought private medical insurance as well.Why?

It seems that if you had a problem, you could go to the doctor who worked for the government. If you needed surgery or some major diagnostic test, he might tell you to come back in six months for the procedure. He would also tell you that he had a private practice and could do the procedure for you next week if you paid privately. When people talk about National of socialized medicine, they fail to mention this two-payer system. ###