quinnscommentary

Most Medicare beneficiaries will not see an increase in their Part B premium for 2011. It’s not that Medicare costs are being controlled. In fact, new benefits effective in 2011 are adding to the cost of Medicare beyond the normal growth in costs.

The fact is that the law does not allow an increase in premiums for most existing beneficiaries in years when there is no increase in the Social Security monthly benefit because of low inflation and the COLA provision in Social Security is not being triggered.

While this may seem like good news, in the long run it is not. What it means is that at some point there will be a lot of catching up to do.  If costs continue to go up and the portion of those costs paid by beneficiaries does not, who pays them?  Either they are absorbed by the Federal government or eventually they are built into future premium increases for Medicare beneficiaries. In fact, when there is a COLA, perhaps in 2012 the real premiums (reflecting three years of increases) will be spread across all Medicare beneficiaries. In the meantime, the higher costs are absorbed by the 25% on Medicare who do not receive this exemption.

There are two groups of Medicare beneficiaries who are not exempt from the COLA protection.  The first group is very low-income people on Medicaid.  In that case, the real premium increase in Part B is picked up by the state providing the Medicaid…otherwise known as cost shifting to taxpayers in the states. The second group is the folks we have all come to despise along with insurance companies, the folks who make the big bucks.  In this case it is Medicare beneficiaries with incomes over $85,000 and couples with an income over $170,000.  These folks get to pay an additional premium for Medicare Part B and are not exempt from the COLA limitation.  These beneficiaries who are required to make supplemental payments to the standard Part B premium are likely to see a significant increase for 2011, perhaps 20% or more.

Individuals who first start to receive Social Security in 2011 are also not exempt from the premium increase and will pay the actual premium reflecting Medicare costs for Part B.

What does eliminating all health insurance underwriting really mean?  In New Jersey insurers must offer a series of standard plans and cannot apply any underwriting, everyone must be accepted regardless of health status. This is not different from requirements under PPACA.

To get an idea of costs I went to healthcare.gov   and entered info for a family living in New Jersey. The father and mother were born in 1970 and there are two children one born in 2002 and the other 2005, all non-smokers. The first plan that came up was NJ Individual Choice Plan D provided through Aetna. This plan has a $1,000 individual deductible and $3,000 annual out-of-pocket limit and includes prescription drug coverage.  You can go to any doctor you choose. In other words, it contains many of the attributes that people want to see from health care reform, relatively low out-of-pocket costs, and nobody coming between you and your doctor.

The premium for this coverage is $9,132 per month (yes, $109,584 per year). 

Just to be sure there was no screw-up on healthcare.gov, I called Aetna directly and confirmed the price.  That is ludicrous I said, who would buy that?  The representative on the phone agreed it was absurd but noted that they are not allowed to do any underwriting for these policies. 

I then looked at another plan offered by the NJ Blue Cross/Blue Shield plan.  This plan was Point of Service, which means you must use network doctors to get full benefits.  There is no deductible if you stay in network; the out-of-pocket limit is $5,000 per year per person. Office visits and some hospital services required a co-payment of $30 to $50 and $300 per day for the first ten days in a hospital.

The premium for this coverage is $2,128 per month.  With restrictions and greater cost sharing comes lower premiums albeit $25,536 a year.

The question is, will the PPACA rules requiring elimination of underwriting and mandating new benefits affect the price of health insurance across the country.  Remember, when politicians talk about “affordable” health care they are talking about the premiums people pay (after being subsidized), not the true cost of the coverage.

These prices are due largely to the elimination of underwriting in New Jersey  several years ago which brings with it adverse selection (and NJ is a high cost state to begin with) .  The potential for adverse selection is one reason insurers pushed for mandated coverage under health reform.  The only way to assure a more diverse pool of insured people is to make sure that everyone is in the pool.  It remains highly questionable if the penalties in PPACA for not carrying health insurance are sufficient to avoid the problems experience by Massachusetts where people obtain coverage when it is needed and thus further drive up costs for all those who are insured. 

Despite the political rhetoric, there is no free lunch. Health care premiums reflect the cost of health care provided.

The penalties for not carrying health insurance are the greater of the flat fee or the percentage of income.

 Year        Flat  Fee       Percentage of Income

 

2014      $95                          1.0%

2015      $325                         2.0%

2016      $695*                     2.5%

*The penalty will be increased annually by the cost-of-living adjustment

 The IRS has issued a reprieve from the required reporting of the value of employer provided health benefits on the workers 2011 W-2.  This is a good thing.  It’s nice to know that regulators understand the realities of compliance even if Member of Congress don’t understand what they vote on.  Here is an excerpt from the Notice and a link to the full text.

Notice 2010-69 

This notice provides interim relief to employers with respect to reporting the cost of coverage under an employer-sponsored group health plan on Form W-2, Wage and Tax Statement, pursuant to § 6051(a)(14) of the Code. Specifically, this notice provides that reporting the cost of such coverage will not be mandatory for Forms W-2 issued for 2011. The Treasury Department and the IRS have determined that this relief is appropriate to provide employers with additional time to make any necessary changes to their payroll systems or procedures in preparation for compliance with the reporting requirement.

The White House has started several discussion groups on , one of which is What is in the Health Care Bill? Needless to say, the majority of people posting are in favor of the legislation and display limited tolerance for opposing views because they focus on the “goodies” contained in the legislation. I took some time to post a different perspective (what, you are surprised?).

Let us step back and think about this beyond the sole context of PPACA.

What is the real problem we are trying to address? It is health care costs, because the cost of health care is the main driver that creates the uninsured and causes various underwriting standards for insurance companies that everyone hates (the same underwriting that is applied to your auto insurance, your homeowners insurance and even your life insurance, not to mention Medicare where you pay a penalty for late enrollment as well). There are many drivers of cost that in turn is the driver of premiums (insurance companies as an industry operate on a 5% profit margin far lower than even your local regulated utility). Making health care affordable requires dealing with the underlying cost of health care and the reasons for it. PPACA does not do that, quite the opposite in fact. Subsidizing premiums for families earning up to $88,000 or giving tax credits to small employers is not making health care affordable, it is shifting costs and masking the real problem.

What is the real problem? In large part, it is the fact that we cannot accept the concept of insurance when it comes to health care; rather we are convinced that every service prescribed be covered and largely paid for by someone else. Why for example is health “INSURANCE” required to cover oral contraceptives, or the voluntary reversal of a vasectomy or a flu shot or even a routine physical? Does your auto insurance cover an oil change or your homeowners a new roof when you decide it is necessary? Would you pay those premiums if they did? These examples are not insurable risks nor are they catastrophic in nature cost wise. 

And, yes it is exactly the same thing when you compare an oil change to a birth control prescription, they both cost about $30.00 or less, it’s money, your money (perhaps more accurately it is someone elses money).

Politicians have also touted the fact that “nobody should come between you and your doctor.” Well, to receive the optimum level of care that is exactly what IS necessary in many cases. Our system is disjointed and uncoordinated and you have no way of knowing if you are receiving the best or most appropriate care from your doctor who in reality is a small businessman. Did you ever hear of anyone who was going to a doctor who was not “the best?”

In 1961 when I started administering health benefit plans, there was no coverage for anything other than hospitalization and physician services in the hospital, plus a small fixed dollar amount for tests and x-rays. There was no coverage for office visits or other outpatient care or Rx. Back then, an office visit cost $5.00. In 1963, we started to “improve” the coverage and added a major medical plan with a $100 deductible and 20% coinsurance for outpatient services and Rx. We also abandoned fixed fee schedules for physician services and instead paid the “Reasonable and Customary” fee that increased each year as doctors raised their fees. Guess what? From that point forward, nobody cared what their health care cost and costs began their upward spiral that continues today.

Yes, there are other factors like new technology our general health status, etc. but the fundamental problem is that we have little personal responsibility for our health care expenses as we do with every other expense in life. We have convinced ourselves that somehow $100 spent on health care is different from $100 spent on taking the family out to dinner. PPACA makes this situation worse by mandating more and unlimited coverage, and by further subsidizing the premiums, many Americans pay. In addition, by demonizing insurers, politicians have redirected our attention away from the real issues to a convenient scapegoat. Keep in mind that about 70 million Americans are covered by employer self-insurance plans all of which are facing the same cost issues without the involvement of any insurance company.

Heath insurance premiums and the underwriting by insurers are not the problem, they are the symptom. PPACA may help this person or that group today, but it does nothing to address the real problems we face and exacerbates the problem in the years ahead while creating a new entitlement mentality that the next generation will be forced to deal with.

Like it or not, that is the way it is.

Millions of Americans receive their employer-based health care benefits through self-insured employer plans.  These plans are now subject to new rules under PPACA, one of the most troubling is the requirement to have an external claims appeal procedure using designated independent review organizations.  The American Benefits Council represents many of these companies and has written to the Department of Labor expressing the employer concerns about this aspect of PPACA.  The concern employers have are related to the administrative complexity, new administrative expenses and the short time frames involved in this process.  The broad brush used by PPACA (typical of federal legislation) imposes burdensome requirements where they are least needed.  No group is more diligent in assuring the fair payment of health care claims than large employers who are self-funding their employee’s benefits.

New external claim review procedures

 

Keep the coverage you like, no problem.

Make sure employers don’t drop health insurance coverage because of the burden created by PPACA thereby making the President look bad, no problem.

All you have to do is exempt their plans from an offending section of the law, no problem.         Turning up the heat

Thirty employers covering about a million people have received exemption from the provision of PPACA raising benefit limits. There is, of course, logic in this decision.

The real concern is that we have a massive patchwork law with many unintended consequences that require exemptions, waivers, delays in implementation and regulatory changes. That should tell you something about where this law is leading us.

In some cases PPACA is directly leading to employers cutting benefits or seeking was to eliminate them, but in a broader sense the law is changing the environment for employer-based coverage both for active employees and for retirees who are fortunate to have employer coverage.  That is because employers are abler to use the law and its uncertainties as an excuse to make changes they wanted to make all along. 

In other words, on some real level PPACA is providing cover to those employers who made promises that have become inconvenient so they simply abandon them.  Recently, Honeywell sent its retirees a letter announcing new health plan options available in 2011.  Retirees were invited to meetings, but when the meeting started, no Honeywell representatives were present, rather a third-party was there to explain all the new options and the assistance this group would provide helping retirees make a selection from the new options.  Honeywell is dropping it s retiree coverage and eliminating any financial support it was providing.  In other words, the retirees are on their own to select and pay for their health benefit coverage.